[The Architects]① Even 'Big Company Manager Kim' Was Outmaneuvered... The Art of Collusion Targeting the Weakest Link

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In November 2019, at "Sajo Tuna" in Bangbae-dong, Seoul, Song, Head of Sales at Daehan Flour Mills, Nam, Head of the Flour Business Unit at Sajo DongA One, and Kim, Head of Real Demand Sales Unit at CJ CheilJedang, gathered over a tuna meal. These three companies, which together account for 75% of Korea's flour milling market share, are known as the "major players." On this day, the three sales executives agreed to coordinate their responses during flour price negotiations with clients in a way that would benefit the milling companies. At the time, international wheat flour prices had peaked at $276 per ton (annual average) in 2012 but had declined for five consecutive years before rebounding by more than 10% in 2018 to over $180 per ton, where they remained stable.

The actual price-fixing among these major players began in earnest in January 2020. On January 14, 2020, the three executives met again at a restaurant in Seodaemun-gu, Seoul, and agreed to raise the sales price of 1.5-grade (medium) flour by at least 10,000 won per 20kg bag.

Two days later, the flour sales executives at the three companies sprang into action. Kim, Head of Sales at Daehan Flour Mills; Yang, Head of Sales Division 1 at Sajo DongA One; and Lee, Sales Manager at CJ CheilJedang, took the lead. They agreed to raise the minimum sales price of 1.5-grade (medium) flour to at least 10,000 won per 20kg, and to increase the price of 2nd-grade all-purpose flour to at least 7,500 to 8,000 won per 20kg.

They not only reported this agreement to their respective supervisors but also shared it with the "minor players" in the milling industry, such as Samyangsa, Daesun Flour Mills, Samhwa Flour Mills, and Hantop. All seven companies belong to the Korea Flour Mills Industrial Association. By leveraging the high entry barrier of the flour market-which requires large-scale facility investments-and exploiting the supply chain crisis caused by the COVID-19 pandemic, these companies effectively operated as a cartel, controlling flour prices. According to the prosecution's indictment, these seven flour milling companies colluded to fix flour prices on 32 occasions over the past six years.

Notably, the flour milling companies targeted food manufacturers that consumed large quantities of flour but did not own or hold shares in milling subsidiaries. They exploited a critical vulnerability: without a supply of flour, these manufacturers could not produce their products. The payoff for the collusion was substantial. Most executives who initially led the price-fixing were promoted to CEO positions and continued their covert dealings. Song Inseok, CEO of Daehan Flour Mills, the leading company in the industry, led the Korea Flour Mills Industrial Association from 2024 until recently.

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The biggest target was Nongshim, Korea's largest ramen company. Daehan Flour Mills, Sajo DongA One, and CJ CheilJedang-collectively called the "major players"-colluded against Nongshim, the largest flour buyer in the country. Nongshim, which transacts with all three of these major flour millers, is recognized as the "benchmark price setter" in the flour market, wielding direct and indirect influence in price negotiations with other major buyers.

In the summer of 2021, the major milling companies gathered at a restaurant in Mapo-gu, Seoul, and agreed that "since the price of raw wheat has increased, the supply price of flour delivered to Nongshim must also go up." They set a joint goal of raising the 2021 supply price by at least 35 won per kilogram compared to the previous price. In 2022, they also agreed to increase the price to Nongshim by submitting quotes with "negative incentives (discounts)"-raising the price by at least 100 won per kilogram over the previous rate, ultimately raising it by 90 won per kilogram.

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Nongshim pushed back against these repeated price hikes. This was triggered by a sharp drop in raw wheat prices the following year after Russia invaded Ukraine, one of the world's breadbaskets, in 2022, which initially caused wheat prices to surge. Nongshim seized the opportunity to demand a price adjustment for flour. However, the major players argued, "There's no need to go overboard," and initially agreed to a modest reduction of only about 20 won per kilogram, later settling on a reduction of 30 to 50 won per kilogram.

With such a minimal price cut, Nongshim again demanded a price reduction in 2024. In response, the major milling companies gathered at a tuna restaurant in Seodaemun-gu, Seoul, and decided to ignore Nongshim's requests and maintain the existing supply price until March of that year. Even if they were to lower the price later, they agreed it would not be applied retroactively, and any reduction would be limited to 55 to 75 won per kilogram.

This so-called "deceiving Nongshim" strategy by the major players continued through last year. In December 2024, the CEOs of the major players met at a hotel coffee shop in Jung-gu, Seoul, and formed a consensus that, "Although wheat prices have stabilized, the exchange rate has risen, so the supply price of flour to Nongshim should be increased or at least maintained."

A variable emerged around this time. Samyangsa, a minor player that supplied small amounts of flour to Nongshim, broke ranks and lowered its price to accommodate Nongshim. The major players responded quickly. They contacted Samyangsa executives, pressuring them by saying, "We need to either raise or at least maintain the price-what are you doing lowering it by 20 won?" and "Nongshim's price should be aligned with ours, so this must not happen again." Through such coordinated pressure, they prevented Samyangsa from defecting from the cartel.

In the end, when Nongshim requested a flour price reduction around February of last year, the major players made a secret agreement and lowered the price by only 3 to 10 won per kilogram.

As the market leader, Daehan Flour Mills effectively spearheaded the organized price-fixing among milling companies that persisted for several years. Daehan Flour Mills also controlled the flour price supplied to "Bimbo QSR Korea," which exclusively produces hamburger buns for McDonald's-a brand whose main customers are teens and people in their twenties with limited budgets-and to "Dongdaemun Yeopgi Tteokbokki." During this process, Samyangsa operated in close coordination with Daehan Flour Mills, virtually as partners.

Daehan Flour Mills and Samyangsa manipulated supply prices to deceive Bimbo by alternating between first- and second-ranked suppliers. They submitted their quotes to Bimbo at prices 5 to 10 won per kilogram higher or lower than each other's, securing the top two positions as flour suppliers. This secret arrangement began in 2023 and continued until last year, during which McDonald's raised hamburger prices annually. In March of last year, Daehan Flour Mills and Samyangsa also raised the flour price supplied to "Hot Seasoner," the operator of the tteokbokki franchise Dongdaemun Yeopgi Tteokbokki, by 1,000 won per 20kg bag.

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Minor players Samyangsa, Daesun Flour Mills, and Hantop targeted "Paldo," the fourth largest player in the ramen market. From 2023 through last year, they divided Paldo's flour supply among themselves and responded collectively to its requests for price reductions. Unlike the major players, who held in-person meetings, the minor players negotiated mainly over the phone to coordinate the discounts offered to Paldo.

They also interfered with Paldo's open bidding process. Last year, Paldo notified its suppliers that it would reduce the number of flour suppliers from three to two. Sensing the urgency, Hantop's Chairman Ryu personally contacted executives at Samyangsa and Daesun Flour Mills to ask for a concession on supply volume. The three companies then devised a plan to create "joint second-place suppliers" so that all could continue business. Daesun Flour Mills and Hantop agreed to include an additional discount of 15 won per kilogram in their bids, while Samyangsa offered 17 won per kilogram, thereby ensuring that Paldo had no option but to select all three companies.

Prosecutors have indicted six member companies of the Flour Mills Association-excluding CJ CheilJedang, which received leniency for voluntary reporting-along with seven current and former CEOs and seven sales executives, on charges of violating the Fair Trade Act.

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