FTC gives dairies conduct code

The Fair Trade Commission (FTC) said yesterday it will establish trading standards for dairy companies and their distributors to prevent large dairy companies from abusing distributors.

The FTC said although it recently imposed sanctions on Namyang Dairy, the nation’s leading dairy products supplier, for unfair trading practices, one-off sanctions on specific companies aren’t enough to wipe out malpractices in the dairy industry.

In July, the FTC imposed corrective orders and a 12.4 billion won ($11.7 million) fine on Namyang Dairy for abusing its power and forcing small distributors to accept unfair business deals.

According to the FTC, the domestic dairy products market was 5.014 trillion won as of 2011, and the four major dairy companies, Seoul Milk, Namyang Dairy, Maeil Dairy and Korea Yakult Corporation, account for 77 percent of the market.

So-called exemplary trading standards are an advisory that encourages voluntary compliance by operators.

The FTC said the standards will not be legally binding, but it expects a high compliance rate.

In the past, there have been such non-binding voluntary trading standards in the pharmaceutical industry, patent sector, entertainment management industry and in convenience stores and coffee shops, all of which were established in 2012.

The standards will likely forbid forcibly assigning products that have passed more than 50 percent of the expiration period to small distributors. Being forced to buy products with impending expiration dates is a common complaint among retailers.

The standards will also forbid dairy companies from delivering products that distributors did not order or forcing retailers to order unpopular products with sluggish sales.

However, as an exception, sterilized milk, cheese, butter, whipped cream and powdered milk, which have relatively long shelf lives, can be sold to distributors even if they have passed 50 percent of the expiration period.

The standards also prohibit dairy manufacturers from arbitrarily making changes to the types of products and quantity of orders made by distributors in the internal ordering system.

It will also forbid imposing promotional costs on distributors and forcing distributors to bear the cost of labor while dairy manufacturers make actual decisions of hiring and managing sales employees.

Other restrictions include not charging unreasonably high prices for equipment dairy companies lend distributors or forcing distributors to disclose proprietary information.

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