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Published on November 14, 2007

The MoU, to be signed by hypermarket owners and suppliers, will initially start with the suppliers of bagged rice and extend to others like vegetable oil and milk-products suppliers.

Under the MoU, all modern retailers will have to enter into a standard contract with suppliers on fair business deals.

The MoU is being initiated to avoid any unfair practices by the retail giants such as levying high extra charges against individual suppliers for product entrance, brochures and marketing activities, as well as on the terms of payment.

The Commerce Ministry yesterday met with about 100 wholesalers and retailers, and most of them agreed to draft an MoU on a standard contract, by which modern trade operators promise not to sell products below cost.

The meeting also discussed the definition of below-cost price. Some included sales and administrative costs in the product cost.

Yangyong Phuangrach, director-general of the Internal Trade Department, said after yesterday's meeting that the standard contract between modern retailers and suppliers of packed rice would be completed within two months.

He said the contract would prevent outlet operators from selling products below cost and instead use the products in their sale promotions.

"We [the Internal Trade Department] will clarify definitions of unfair trade practices indulged in by hypermarkets such as below-cost selling or predatory pricing with the aim of eliminating rivals," said Yangyong.

"These definitions will become the standard in considering whether the trade activities engaged in by modern retailers are legal or illegal according to the Competition Act."

Yangyong said that in addition, the Retail Business Act would be urgently passed on to the National Legislative Assembly (NLA) for consideration today in a bid to pass the law within the current government's term. The act was designed to regulate modern retailers' structures such as location, zoning system and opening times.

Yangyong said that the agreement followed a number of complaints from suppliers who had to sell their products below cost.

Thai Rice Packers Association president Somroek Tangpiroonthum said that the association had received many complaints from its members, who had suffered from unfair business deals while selling products through hypermarkets.

"We [suppliers of bagged rice] have been charged at about Bt1 million per item as an 'entrance fee' to put our product on the hypermarket's shelf. They have also increased the extra charges such as for marketing and product brochures every year," said Somroek, adding that the terms of payment were also unfair.

"We have been forced to have a longer term of payment, at about 60 days to place the invoice, and it takes about 70 to 80 days before getting the money. Normally, the term of payment should be about 30 days."

 Pimsupa Kittikamron, product manager for Nong Pho Dairy Cooperative, said the cooperative was facing a problem in bringing its dairy goods to the shelves of hypermarkets.

"We are not the number one brand in the dairy market. So, the bargaining power for pushing products to the hypermarket channel is in the hands of those modern retail giants, who have set a high charge for product administration, as well as other extra fees such as product brochures and change of packages," said Pimsupa.

Darmp Sukontasap, senior vice president of Tesco Lotus, told The Nation yesterday: "We are not in a position to comment much about the meeting at the Commerce Ministry since we did not receive any invitation. However, where our suppliers are concerned, we would like to emphasise that we see them as our valued business partners, whether they are big or small. Without them, we would have no business.

"Our philosophy has always been that we grow our business together with our suppliers, for our mutual benefit and, more importantly, for the benefit of customers. All the contracts and agreements with our suppliers are done in the open, in a transparent manner, and to the satisfaction of both sides. If there are any concerns, there are clear procedures and guidelines to escalate the matter directly to top management. Our business negotiators are also required to adhere strictly to the company's code of ethics," he said.

Darmp said Tesco Lotus currently had about 7,300 suppliers. Over 75 per cent of them are SMEs. "Through the 13 years, the company was proud to see them grow with its business. Many of them started out as a small family business and they have now grown into successful and well-known companies."

Kwanchai Rungfapaisarn

 The Nation