Ruling says U.S. law doesn't allow for 'ripple effect'

By MATEUSZ PERKOWSKI

Capital Press

A federal appeals court has dismissed a lawsuit that alleges several major fertilizer producers engaged in a global conspiracy to manipulate potash prices.

The 7th U.S. Circuit Court of Appeals did not throw out the lawsuit because farmers and agricultural suppliers failed to prove that major fertilizer producers engaged in price fixing for potash. Rather, the appellate court found that plaintiffs' accusations centered on the foreign activities of Agrium, Mosaic, Potash Corporation of Saskatchewan and other firms, but did not demonstrate a direct effect on the U.S. market.

"Ultimately, the connection asserted in the complaint between the alleged cartelized prices of potash overseas and the domestic price of potash is too speculative and indirect" to warrant antitrust litigation, the 7th Circuit said.

The ruling overturns the decision of a federal judge in Illinois, who refused to dismiss the lawsuit because of the "tight nexus between the alleged illegal conduct and defendants' import activities" that affected the U.S. potash market.

Plaintiffs in the case included farm suppliers Minn-Chem, Gage's Fertilizer and Grain, Kraft Chemical Co., Westside Forestry Services and Thomasville Feed & Seed as well as several growers.

The companies named in the complaint control more than two-thirds of the global potash supply and collude through various joint ventures in mines in Canada, Russia and Belarus -- the world's major potash-producing countries, the plaintiffs alleged.

Since 2003, the companies have been able to greatly increase the prices for potash through coordinated production curtailments and mine shutdowns in these major potash countries, the plaintiffs claimed.

For example, Russian fertilizer producer Silvinit announced in 2007 that a sinkhole had developed at one of its mines, prompting it to suspend potash shipments.

According to plaintiffs, other major potash producers also suspended sales at that time even though it would have been in their independent economic interest to increase output and thus win market share.

In contrast, potash production climbed during the 1990s in the former Soviet Union, reducing global prices for the product, the plaintiffs said.

The plaintiffs claimed that a Russian potash company shareholder said that producers can avoid "needless competition" by cooperating with each other.

Court documents filed by the plaintiffs also cited an analyst who found that joint ventures of these companies "have a dominant role in setting annual prices with large potash customers, such as China, India and Brazil."

For example, a production slowdown and export restrictions were announced in 2005 and 2006 shortly after meetings between the executives of North American and former Soviet bloc potash companies, the plaintiffs said.

By setting benchmark prices in China, India and Brazil, the potash producers were able to directly influence prices in the U.S. -- because the U.S. is one of the top global consumers of potash, any supply restrictions drive up domestic prices for the fertilizer, according to the plaintiffs.

The 7th Circuit has sided with the potash producers, ruling that the plaintiffs' inferences were not plausible.

Potash prices rose across the entire world after 2003, so it's not enough to say that prices in China or Brazil pushed up prices in the U.S., the court said.

"This chain-of-events allegation is cryptic and relies on too many intervening variables" to allow plaintiffs to pursue the litigation, the court said.

U.S. antitrust law doesn't permit claims of injury based on a "ripple effect," according to the ruling.

Potash refers to naturally occurring, water-soluble compounds that are rich in potassium and are used to make fertilizer.