ACCC takes action on unfair contracts in the fert sector

Mick Keogh, deputy chair of the Australian Competition and Consumer Commission (ACCC) said his organisation had found examples of unfair contracts within the fertiliser industry and that businesses had agreed to change the offending clauses.

Mr Keogh said fertiliser companies would have to shape up quickly or risk facing penalties.

"Under the new unfair contract term laws that come into effect on 10 November 2023, the ACCC will be able to take court action to seek pecuniary penalties for breaches of the unfair contract term law," he said.

The warning came after the ACCC obtained copies of standard form fertiliser supply agreements and found terms that were potentially unfair to growers.

Some of the potentially unfair terms identified by the ACCC included terms giving the supplier the right to unilaterally vary the quantity to be delivered to the buyer or to terminate the agreement if the supplier believed it would not be able to supply the goods.

Some terms restricted buyers' rights to raise issues about defects with the goods.

Many clauses were implemented during the COVID-19 pandemic when supply chains were significantly impacted but have remained within the contracts even as world trade returns to more normal patterns.

The revelations around the unfair clauses are the latest issue for a fertiliser sector that has attracted criticism for its forward ordering strategy which has seen severe regional shortfalls in supplies in spite of a record year for fertiliser imports overall and calls for greater pricing transparency.

Mr Keogh said there was good cooperation from the fertiliser companies involved in the investigation, who all changed their contract terms to address ACCC concerns.

Meanwhile, the industry has also attracted heat for its transparency regarding stocks information, with one analyst saying there was a perennial pattern of talking up shortages.

Speaking during a Grain Producers South Australia webinar on urea supply Andrew Whitelaw, Episode 3 commodity analyst, said there had been an erosion in trust between growers and the fertiliser sector stemming from years where growers had repeatedly been told there would be a shortage of supply and that they needed to order early.

"It's a case of the boy who cried wolf to an extent, they've been told there will be a shortage nearly every year when it is time to get their orders in and there hasn't been and maybe some were a little complacent this year because they had been told the same thing so often."

"This year there is the situation where we've had record imports, the product is not in the right place at the right time, but there should be no shortage of fertiliser within the country."

This year, a late flurry of demand in southern Australia following better than expected winter rain has meant urea supply through Victoria and South Australia in particular is in short supply.

Stephen Annells, Fertilizer Australia executive manager, said the shortages had been caused by a "perfect storm" of factors.

"We had the all the signs to point towards a drop in usage, there was the forecast of an El Nino and the high prices on offer were expected to dampen demand."

He then said prices started to fall when orders were being placed, meaning buyers were not comfortable taking large positions.

"In a market that is falling no one wants to take a long position and so our members brought in just as much as needed to meet those contracts."

Overall, he said there were relatively comfortable global stocks of nitrogen fertiliser.

"There isn't a shortage of nitrogen globally."

A spokesperson for Incitec Pivot Fertilisers, Australia's largest fertiliser business, said their company worked hard to provide fair contracts with customers.

"We continually review our contract terms to ensure they do not contain any unfair contract terms for our customers," they said.

"We do not use standard industry contracts, we have our own IPF contracts which contain our own terms and conditions."