New attack on potash ‘cartel’

Share

Two Canadian corporate giants, Potash Corp. of Saskatchewan Inc. and Calgary-based Agrium Inc., are among a list of worldwide potash producers facing a revived U.S. lawsuit that accuses them of acting like a "tight-knit global cartel, similar to OPEC in its heyday."

In a surprise ruling, the U.S. Court of Appeals for the Seventh Circuit in Chicago last month revived a potential multibillion-dollar antitrust case filed in 2008 by potash buyers, including Minn-Chem Inc. and Kraft Chemical Co.

The lawsuit targets the two Canadian companies, as well as Plymouth, Minn.-based Mosaic Co. and four Russian and Belarussian potash companies, Uralkali, Belaruskali, Silvinit and International Potash Co.

The plaintiffs say the seven companies controlled 71 per cent of the world's potash in 2008, and allege they co-ordinated cuts in production to keep prices rising. The commodity is used in fertilizers.

Legal observers say the decision, which the defendants are seeking to challenge before the U.S. Supreme Court, lengthens the long arm of American antitrust laws for alleged international cartels that act solely outside the U.S. yet push up prices inside the country's borders.

"Basically, to the extent that a cartel operates outside the United States but the effect is felt in the United States, especially in a commodity product like potash, companies are going to have to live by the U.S. antitrust laws," said San Francisco lawyer Bruce Simon of Pearson Simon Warshaw Penny LLP, who argued the case for the plaintiffs.

The case has not gone to trial, and the allegations against the companies are unproven. The defendants deny the allegations.

Potash Corp. denied breaking antitrust laws in an e-mailed statement: "It is our policy and our practice to follow all competition and antitrust laws in any country in which we do business. We believe these allegations are without foundation."

Agrium did not respond to a request for a comment.

In the June 27 ruling, the appeals court overturned a previous decision quashing the case and sided with both the plaintiffs and with submissions from the U.S. Department of Justice and U.S. Federal Trade Commission. U.S. regulators have not pursued any action of their own against potash producers, but argued that U.S. antitrust laws should be interpreted broadly.

As detailed in the ruling, the plaintiffs argue that the world market for potash is "allegedly under the thumb of a global cartel." The alleged cartel used a "rolling strategy" to broker higher prices in Brazil, India and China and then use those prices as "benchmarks" in the U.S., driving up prices from 2003 to 2008 by 600 per cent, the decision reads.

The decision also points out that members of the alleged cartel did well in those years, despite "waning demand" for their product, with Potash Corp. showing "first quarter income figures in 2008 that tripled its previous-year figure."

The allegations also mention Canpotex Ltd., the joint venture of Potash Corp., Agrium and Mosaic that sells potash outside of North America. (Canpotex and its ability to maintain high potash prices was fiercely defended by Saskatchewan's Premier Brad Wall when it was threatened in the possible takeover of Potash Corp. by BHP Billiton in 2010, later blocked by Ottawa.)

Through Canpotex, Potash Corp., Agrium and Mosaic "had access to one another's sensitive production and pricing information," the plaintiffs allege.

Deals Canpotex made with the Russian and Belarussian companies also provided "more immediate opportunities to collude" and "exchange sensitive information," including an October, 2005, meeting between the North American companies and three of the former Soviet producers. The next month, Potash Corp. and Mosaic announced "significant production cutbacks" and the other companies followed in 2006, the plaintiffs allege.

The case is a long way from trial. The defendants are seeking to have it put on hold pending the outcome of their attempt to appeal this latest decision to the U.S. Supreme Court. And the plaintiffs have yet to get their hands on the reams of documents or other evidence the defendants have that could show whether the companies were in fact colluding to drive up prices.

"We do know that there were meetings, we do know there were cuts in production which caused the price to go up, but we don't have their internal e-mails," Mr. Simon said. "We just have the tip of the iceberg at this time."