Consumer group slams increase in milk price

As the Korea Dairy Industries Association made its case for a 220 won milk price hike to the Korea National Council of Consumer Organizations, the consumer agency condemned the hike as tacit price-fixing.

The move came as the nation’s largest dairy producer, Seoul Dairy Cooperative, manufacturer of Seoul Milk, decided to raise prices of its milk products by 220 won per liter ($0.20 per 0.26 gallons) from yesterday.

The consumer agency asked the dairy association to provide evidence for its price hike, which would raise the average cost of a liter of milk from 2,350 won to 2,570 won.

“Manufacturers and distributors deciding the consumer price in consultation to ensure a certain percentage of distribution margins is a tacit collusion behavior and we will eradicate such practices,” the consumer agency said in a statement.

The agency claims that the consumer price should only reflect the 106 won increase in the cost of raw milk, according to the introduction of raw milk price indexation since Aug. 1. Any other factors for increases should be supported by evidence that can convince the market and consumers, it said.

“There should be a pricing structure in which dairy manufacturers only decide the factory price after releasing their increased cost, and the retailers determine the distribution margin,” the council said.

According to the basis for the 220 won price hike presented by the dairy association, 106 won accounts for the price of raw milk, 39.2 won accounts for milk manufacturers controls and 74.8 won accounts for the distribution margin. While presenting the data to the council, the dairy association made its position clear that the price hike is inevitable as dairy companies’ profits are small.

The council’s backlash over the milk price hike puzzled the dairy industry.

“Although there is no reason or qualification that consumer groups should be involved in determining product prices, we cannot simply ignore their claims considering possible boycott activities,” an anonymous industry source said.

Meanwhile, large discount stores said that they have reduced the distributions by 30 won to reduce the originally proposed 250 won hike to 220 won.

“We already reduced the distribution margin by 30 won, so if there is a constant request that the price hike should be reduced, dairy manufacturers will have to decrease the dealer margins or the production costs,” said a spokesman for a large discount store.

BY KIM JUNG-YOON [kjy@joongang.co.kr]