Sugar makers face antitrust investigation

The Fair Trade Commission has launched an investigation into the nation’s three major sugar manufacturers to see if they are implicated in irregular practices in pricing products, sources said Friday.

The antitrust probe is aimed at examining their profit margins, distribution costs and other related factors to determine whether companies mark up prices too much, according to industry sources.

Given hikes in raw sugar prices, there was room for illegal practices such as price fixing between producers abusing their market control, a source said. “Sugar costs have a ripple effect on other related industries such as confectionary, baking and beverages,” he said. “That seems the background of the investigation.”

The country’s leading food processor CJ Group raised sugar prices nearly 10 percent in late December after poor weather in major exporter countries including Brazil and Australia sent raw sugar costs to their highest level in 30 years.

The United Nations’ food agency said last week that sugar prices hit an all-time high in December since its records began in 1990.

Currently, CJ sells a 1-kilogram pack of sugar for 1,309 won ($1.17), up 9.5 percent from 1,195 won before December, and a 15-kilogram pack for 16,928 won, up 9.9 percent from 15,403 won.

Other makers such as TS Corp. and Samyang Corp. are widely expected to follow likewise, as they did in August when CJ increased its sugar prices by 8.3 percent.

The three players dominate the market, whose capital-intensive characteristics and high initial investment costs easily hinder new companies from stepping in.

In Aug. 2007, the FTC fined the three food producers a combined 51.1 billion won for rigging the prices of sugar products for about 15 years until 2005.

Top executives of the companies have had regular meetings to decide on the prices of sugar products as well as the amount of monthly and annual sugar shipments, the agency found.

Its new chairman Kim Dong-soo put price monitoring as the agency’s top priority early this month amid stoking inflationary pressures and jitters over public sentiment.

“We would have to work closely with other government agencies to take preemptive steps in price control,” Kim said in his inaugural address on Jan. 3. “The FTC can do its part by refurbishing the distribution structure.”

He created a large-scale task force with anti-monopoly, cartel investigation and consumer policy bureaus, and gave them a new mission to identify and rebuke companies that illegally raise prices of their products.

Record high food prices are top of the agenda for policymakers, posing a threat to a fizzling economic recovery and low-income households.

Nine ministries and agencies unveiled a package of action plans to put prices of foods and basic services under control, which consist of tariff cuts and increases of crop and housing supplies.

The measures came immediately after the Bank of Korea raised the benchmark interest rate by 25 basis points to 2.75 percent Thursday as part of a “war against inflation,” as declared by President Lee Myung-bak early this month.

The central bank forecasts 3.5 percent inflation this year, up from 2.9 percent in 2010.

By Shin Hyon-hee (heeshin@heraldcorp.com)