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□Dachan Great Wall Enterprise Co., Ltd.

, Charoen Pokphand Enterprise


(Taiwan) Co., Ltd., Chia Hsin Livestock Corp., President Enterprises, Formosa
Taffeta Co., Ltd., Sinojapan Industries and Shin Tai Industry Co., Ltd.
Allegedly engaged in concerted action to raise livestock feed prices, and
industry complained that an erroneous market analysis posted on the
Foodchina.Com website affected the trading order, in violation of the Fair
Trade Law

On June 21, 2001 the 502nd Commissioners’ Meeting of the Fair Trade
Commission considered allegations that the seven companies referred to in the
preceding paragraph affected market prices and violated the Fair Trade Law by
engaging in concerted action to raise the market price of livestock feed and in the
businesses reaction to an erroneous market analysis report posted on the
Foodchina.com website.

The ROC Egg Distribution Cooperative in a written complaint, and the


cooperative’s board chairman in a telephone complaint, alleged that between October
2000 and the end of December 2000 the seven previously mentioned companies acted
in concert in raising their per kilo prices for livestock feed for broiler chickens, free-
range chickens, egg chickens and hogs. The complaints alleged that the seven raised
per kilo prices for their livestock feed products a total of NT$0.7, or 17 percent,
during the period – NT$0.2 on October 23, NT$0.2 on November 23 and NT$0.3 on
December 23 – despite the absence of any abnormal movements in the price of feed
corn in international commodities markets. The complainants requested that the
commission investigate suspected monopolistic action to manipulate domestic
livestock feed prices in violation of the Fair Trade Law.

Although the complainant was unable to provide any hard evidence with regard
to concerted action to manipulate livestock feed prices on the part of the seven
companies, the commission, acted on the complaint by:(1)Requesting in writing that
major domestic livestock feed suppliers provide documentation from the period from
October 2000 through December 2000 of monthly imports and inventories of corn and
the timing and scale of livestock feed price increases;(2)Producing and distributing
among feed producers a questionnaire to compile data on the actual status of the price
hikes;(3)Conducting random inquiries at the offices of the Taiwan Feed Industry
Association, the R.O.C. Poultry Farmers Association, five agent companies for the
supply of grains, the Kaohsiung and Taichung offices of the Far Eastern Network
Technology Co., four importers of corn, the offices of Taiwan Sugar Corp., the offices
of DaChan Great Wall, Charoen Pokphand (Taiwan), President, Chia Hsin, Shin Tai
and the other companies implicated, as well as their feed production plants, to
examine the status of each company’s imports and inventory of corn and feed sales
data;(4)Requesting the seven companies involved to appear before the commission
to explain [their actions];(5)Compiling corn import, inventory, consumption and
product sales data for each feed company during the period from September 2000
through March 2001 to perform a comparative analysis with data from the same
period the previous year. The Commission’s inquiries were, however, able to find
neither conclusive evidence of concerted action with regard to the timing and scope of
the hikes in the retail price of livestock feed among the seven companies nor of any
action contrary to normal and reasonable market practice that may be construed as
monopolistic or manipulative practices and thus, no grounds for the allegation.
Neither Foodchina.com nor DaChan Great Wall had any cargo aboard the freighter
that was the subject of the erroneous market analysis report later posted on the
Foodchina.com website.

With regard to the allegations that the posting of an erroneous market analysis
report on the Foodchina.com website affected market prices in violation of the Fair
Trade Law, the Commission determined that, although Foodchina.com is an affiliate
of leading domestic livestock feed producer DaChan Great Wall, its business focuses
on acting as a middleman in trading and is neither a bulk supplier of grains to DaChan
Great Wall nor a supplier of corn. Yet during a period of instability in the domestic
corn market, Foodchina.com’s management failed to fulfill their professional
obligation to carefully verify the facts of a market information report posted on their
website February 21, 2001 and to which the general public had access. The content of
that report stated:

“The spoilage of cargo aboard the Archer Daniels Midland (ADM) cargo vessel
Bunga Saga Satu may be worse than estimated yesterday. Reports are now indicating
that as much as half of the cargo may be unusable, particularly the high-oil corn
portion of the cargo, which has developed even more serious mold. Because corn
undergoes only threshing prior to use, the risk of toxicity is greater. The result of the
ADM situation will be a tightening of supply and resultant higher prices, with prices
rising NT$5.3 today … because of the considerations prompted by the ADM situation,
even if market sentiment subsequently turns to the downside, any slide will be minor
and slow. Because of the concentration of recent shipments and the concentration of
berthing availability, price fluctuations are liable to be larger and we recommend
adopting hedging measures by buying more inventory as cargo comes in and hoarding
enough raw materials to avoid rising prices associated with coming shortfalls in
supply and the resultant over-budget losses.”
Neither Foodchina.com nor DaChan Great Wall had any corn aboard the
freighter in question. The report was posted for access or download by unspecified
users from the general public or related traders.

With regard to the allegation in the report that “The spoilage of cargo aboard the
Archer Daniels Midland (ADM) cargo vessel Bunga Saga Satu may be worse than
estimated yesterday. Reports are now indicating that as much as half of the cargo may
be unusable …” According to a loss distribution chart from Asia Marine Services
provided by ADM, the corn aboard the vessel was owned by Chia Pei and 13 other
companies and the high-oil corn content of the cargo was destined for just one
company, Charoen Pokphand (Taiwan). Of the vessel’s entire corn cargo, just 9.328
percent was lost to spoilage, with just 4.63 percent of the high-oil corn lost to
spoilage. The data lent no credence to statements in the report in question such
as:“Reports are now indicating that as much as half of the cargo may be unusable.”
And losses to the high-oil corn portion of the cargo, which Charoen Pokphand
(Taiwan) consumes itself as a raw material, were even lighter than that sustained by
the ordinary feed corn cargo did not measure up the statement “particularly the high-
oil corn portion of the cargo, which has developed even more serious mold” made in
the report in question. And content of the report’s statement that “Because corn
undergoes only threshing prior to use, the risk of toxicity is greater” alone is sufficient
to influence the average corn buyer’s purchasing decision and create a negative
impression of mistrust possibly resulting in rejection among potential Charoen
Pokphand (Taiwan) trading partners. Additionally, the following statement in the
market analysis report:“The result of the ADM situation will be a tightening of
supply and resultant higher prices, with prices rapidly rising to NT$5.3 today …
because of the considerations prompted by the ADM situation, even if market
sentiment subsequently turns to the downside, any slide will be minor and slow” is
sufficient to create expectations of rising prices among businesses.

The general judgment among commodities brokers was that the shipment on the
freighter in question would have but a minor impact on the market, that of moving
against the tide. Four additional freighters had also made deliveries at the same time,
bringing in nearly 20,000 tons of corn, and general market expectations were that
these shipments would be sufficient to supply market demand until the next shipments
arrived. The trend for open market prices was expected to be stable while spot prices
on the commodities market were expected to remain stable or drop. Material posted
on Chia Hsin’s own website can attest to this sentiment. DaChan Great Wall is
Foodchina.com’s only domestic shareholder and the average corn or livestock feed
company could very easily make a connection between the information posted on the
Foodchina.com website and the actions of DaChan Great Wall and construe that the
information posted on the website of a leading company was reliable.

Foodchina.com’s report that the corn on the freighter in question had spoiled and
had developed serious mold problems and that the market price for corn had already
risen to NT$5.3 was erroneous market information that misled the corn-buying public
and influenced corn market prices to a degree sufficient to harm the owners of the
corn aboard the freighter, infringe upon the essence of the value of competition and
amounted to a deceptive and obviously unfair condition.

Foodchina.com’s use of its website as a platform to conduct its middleman


business has had a positive impact on the domestic grain markets by shortening the
trading process, cutting trading costs and providing transparency in real time trading
information. The site is Taiwan’s only website that is a platform for the trade in cereal
grains. Many outsiders browsing the information content of the website, however, are
blinded by DaChan Great Wall’s position as the leading domestic livestock feed brand
and tend to place a great deal of faith in the company’s market analysis. In a market
requiring real-time information on the split-second fluctuations in market prices, the
website’s market analyses have a definite impact. The company admitted that a junior
writer with no background in grain commodities overhead the news and immediately
wrote up a market analysis and forecast based on it. That the subsequent public
release of the information, which influenced the domestic corn market, was without
proper screening by more experienced personnel, is obvious.

The impact was reported on Chia Hsin’s website thus:“Four freighters made
deliveries for the domestic corn market last week, carrying nearly 20,000 tons of corn.
Chinafood.com’s report regarding the quality of the cargo aboard the freighter Bunga
Saga Satu, however, has made most buyers unwilling to purchase corn from that
ship’s cargo, with most willing to pay a relatively higher price for the cargo from the
other ships. This resulted in an abnormal boost to market prices, with the base price
for corn rising from around NT$4.85 to between NT$4.90 and NT$4.95 (excluding
the corn aboard the Bunga Saga Satu) rather than the slide in prices that had initially
been anticipated in the wake of the four freighters making their deliveries.” Also
posted on the same website was the following:“The controversy regarding the
quality of the cargo aboard the freighter Bunga Sata Satu is approaching resolution.
Judging from the condition of the cargo actually unloaded, only a portion of the cargo
that was unloaded first, that from the upper part of the cargo hold, had spoiled. The
rest of the cargo, which was later unloaded, had no serious problems and was selling
for only NT$0.1 to NT$0.2 below market price. Buyers reported that results from use
of the cargo were normal. With corn stockpiles warehoused at the harbor less than
plentiful, willingness among buyers to purchase the corn in question should gradually
strengthen.” These two postings are evidence of the impact of the erroneous market
analysis report on the corn market and that Foodchina.com’s statements that the
content of the market information report in question were “objective and fair” and
“stated the reality of the market situation” were disingenuous.

Also, in its market price information section, the Commercial Times reported
that the market price for corn in Taiwan stood at between NT$5.08 and NT$5.10 per
kilogram on February 19, 2001, the day the Bunga Sata Satu arrived in Taiwan. By
February 20, 2001, the price had risen to between NT$5.10 and NT$5.20 per kilo. On
February 21, 2001, however, the price hovered between NT$4.95 and NT$5.10 per
kilo, indicating that the Foodchina.com statement that corn prices would “rise rapidly
to NT$5.3 today” were without substantiation. In contrast, the market price for corn
on February 18, 2001 stood between NT$4.80 and NT$5.00 per kilo. The arrival of
the Bunga Sata Satu with its cargo the following day, thus increasing the supply,
should have had the effect of stabilizing the price of corn. The misleading market
analysis report influenced buyers’ confidence and affected the actual market situation
by driving prices up.

In summary, Foodchina.com’s market report of February 21, 2001 suggesting “a rise


in prices due to considerations regarding the corn aboard the Bunga Sata Satu” was a
violation of the provisions of Article 24 of the Fair Trade Law. After considering
Foodchina.com’s operating revenue, duration of operations, motivation, the type of
acts, and the profits gained as a result of those acts, pursuant to Article 41 of the Fair
Trade Law, the Commission ordered the company to immediately cease all deceptive
and obviously unfair acts sufficient to influence the trading order, and imposed an
administrative fine of NT$100,000 on the company.