Namyang Dairy Introduces Korea's First Cooperative Profit-Sharing System... Reborn as a Win-Win Company

[Asia Economy Reporter Lee Seon-ae] Namyang Dairy Products' application for consent decree has been finally confirmed through the plenary session of the Fair Trade Commission.

The Fair Trade Commission stated on the 6th, "This consent decree is expected to promptly remedy damages to dealerships and improve transaction order. Through the profit-sharing system for cooperation, the headquarters and dealerships will share the goal of increasing profits, thereby promoting a culture of win-win cooperation."

In the past, when Namyang Dairy Products faced difficulties at dealerships due to declining sales, it temporarily raised the commission rate for deliveries to NongHyup, then restored the commission rate as sales recovered. Amid this, the Fair Trade Commission investigated Namyang Dairy Products for not having prior consultation with dealerships. In response, Namyang Dairy Products voluntarily prepared corrective measures for dealerships.

The consent decree prepared by Namyang Dairy Products, which was confirmed this time, consists of four main points: ▲ the first pilot introduction of the profit-sharing system for cooperation in Korea ▲ maintaining the NongHyup commission rate above the industry average ▲ strengthening the bargaining rights of dealership associations ▲ and improving dealership welfare.

The most eye-catching part of the consent decree is the profit-sharing system for cooperation, introduced for the first time in Korea. The profit-sharing system for cooperation means sharing profits generated from transactions according to a prior agreement. In the business community, this system is also opposed as excessive market intervention. Through this consent decree, Namyang Dairy Products will autonomously introduce the profit-sharing system for cooperation for the first time to create a transaction structure for mutual growth. Namyang Dairy Products will distribute to dealerships 5% of the net operating profit generated from deliveries to NongHyup. If the amount corresponding to 5% of operating profit is less than 100 million KRW, a minimum guaranteed amount of 100 million KRW will be paid.

Namyang Dairy Products will maintain the NongHyup consignment commission rate above the industry average to provide substantial damage relief. Additionally, a 2 percentage point commission rate will be additionally paid for transactions in island regions and small-scale stores. To this end, every December, the average commission rate of the top three out of four dairy companies delivering to NongHyup will be surveyed, and if the commission paid by Namyang Dairy Products is lower than the surveyed average, it will be adjusted upward from January of the following year.

As a method to improve the transaction structure, Namyang Dairy Products will strengthen the bargaining rights of dealership associations. To strengthen bargaining rights, when important contract terms are changed, a win-win committee meeting will be held to obtain consultation and consent from dealership associations. Also, if the headquarters violates the Fair Trade Act or related laws, the dealership associations will be able to request correction with grounds, thereby holding monitoring and supervisory authority regarding compliance with the Fair Trade Act.

Furthermore, dealership welfare policies will be expanded. Namyang Dairy Products was the first in the dairy industry to introduce a scholarship system for dealership children in 2013, providing a cumulative 800 million KRW in scholarships to 607 dealership owners' children over eight years. The existing scholarship system criteria will be relaxed to increase the beneficiary range by 20%, and it is expected that scholarships worth about 144 million KRW annually will be paid. In addition, there are systems such as interest-free emergency living funds loans for dealership owners facing crises due to illness or injury, awards for long-term operated dealerships, and support for infant formula and childcare products upon the birth of children or grandchildren.

Meanwhile, a consent decree is a system where a business under investigation or review by the Fair Trade Commission voluntarily corrects issues to promptly guarantee compensation to consumers or other businesses, concluding the Fair Trade Commission's investigation without confirming violations.

Amid ongoing difficulties for dealerships due to the economic downturn caused by COVID-19 and delayed school openings leading to unpaid school milk fees, Namyang Dairy Products plans to implement early the interest-free emergency living fund loans included in the consent decree, the additional 2 percentage point commission for island regions and small stores, expanded scholarships for children as part of welfare enhancement, awards for long-term operated dealerships, and childbirth and childcare support systems.

A Namyang Dairy Products official said, "We believe this Fair Trade Commission decision reflects the results of our efforts for mutual growth with dealership owners," and added, "Namyang Dairy Products will faithfully carry out the consent decree and take the lead as a company that promotes win-win cooperation with dealership owners."

This content was produced with the assistance of AI translation services.