The Ministry of Agriculture, Food and Rural Affairs (MAFRA) has revoked the nonprofit corporation license of the Korea Laying Hen Association, which was sanctioned by the Fair Trade Commission (FTC) for fixing farm-gate egg prices. The group, which has represented the egg production industry, now faces dissolution just over three years after its launch.
The ministry said on the 29th that it had revoked the license of the incorporated association. It judged that the group had violated a condition, agreed upon at the time of incorporation, to stop posting farm-gate prices, and had harmed the public interest by restricting competition in egg prices.
The Korea Laying Hen Association is a leading business group with about 580 egg-producing farms nationwide as members. The laying hens raised by member farms account for 56.4% of the total scale of hens raised in the country. It has served as a channel representing producers in the government's egg supply and quarantine measures and in discussions on improving the distribution structure.
The problem was that the group did not report already-traded egg prices after surveying them, but instead set in advance the prices that farms would receive in the future. Regional special committees set benchmark prices based on inventory and distribution conditions, and the group compiled these and delivered them to member farms weekly by text message and fax. The farms used these prices as a basis for transactions with distributors.
"Despite the license conditions, the association continuously determined and notified members of farm-gate egg prices until January 21 this year," a MAFRA official said. "This constitutes a violation of the license conditions promised to the government."
The FTC judged that actual farm-gate transaction prices also moved in line with the prices set by the group. Rather than each farm setting prices according to supply-demand conditions and transaction terms, competition among farms declined as they used the prices presented by the group as a common benchmark. Last month, the FTC imposed a corrective order and a fine of 594 million won on the group.
The ministry decided on the revocation after comprehensively reviewing the FTC's disposition, whether the license conditions were violated, and the opinions the group submitted during the hearing process. It concluded that the group's explanations alone made it difficult to overturn the judgment that it had violated the conditions that were the premise for incorporation and had restricted market competition.
With the license revoked, the group will undergo dissolution and liquidation procedures. There will be no direct impact on member farms' egg production and distribution, but the group will find it difficult to continue normal corporate activities. Its standing as an official negotiating channel representing more than half of the country's laying hen farms is also expected to be significantly shaken.
The measure is interpreted as putting a brake on the practice of producer groups presenting benchmark transaction prices under the name of "reference rates." Instead of the desired prices set by the group, the ministry plans to enhance the reliability and utilization of actual farm-gate transaction prices surveyed by the Korea Institute for Animal Products Quality Evaluation.
The group is pushing back, arguing that it merely provided reference rates for supply-demand purposes to farms with weak bargaining power and did not force transactions at specific prices. It also claims that the rise in egg prices was due to the culling of laying hens caused by highly pathogenic avian influenza, supply instability, and rising production costs such as feed prices.
The group plans to file an administrative lawsuit and a request for suspension of execution as soon as it receives the official document on the revocation. It had already filed an administrative lawsuit on the 16th of this month against the FTC's corrective order and fine.
