Potash pricing
Cartel has collapsed but should have been abolished earlier
Makers of potash, a fertiliser widely used in developing countries, may be about to start competing on price. That this outcome now seems likely is no thanks to western regulators – on the contrary, the Canadian government has previously acted to prevent it. Instead, it follows a spat between a Russian miner and a subsidiary of the Belarusian state oil company. It is a sorry story, even if the outcome is welcome.
The potash market is dominated by two cartels – one in Canada, the other in Russia and Belarus – which keep prices high by limiting output. The Canadian cartel, Canpotex, came under threat in 2010 when PotashCorp, its largest member, became the target of a hostile takeover attempt by BHP Billiton. BHP planned to withdraw from the cartel in order to profit from huge volumes as it opened new mines. But Tony Clement, the then Canadian industry minister, blocked the deal, saying it “did not represent a net benefit to Canada”.
More
ON THIS STORY
Even if that contention was correct, his decision was shameful. Canpotex is exempt from Canadian antitrust regulations because it controls only the export business of its members. Canadians have therefore enjoyed a competitive market for potash, while also receiving a share of the profits the cartel extracted from foreign farmers, most of them in countries far poorer than Canada.
That bonanza may be ending after Uralkali, the Russian mining company that is the largest member of the eastern European cartel, said it was pulling out, complaining of cheating by its Belarusian partner. Potash prices are expected to fall by 20 per cent or more as idle capacity comes on stream.
It may be coincidental that, at the same time as withdrawing from the cartel, Uralkali announced a new supply contract with China. The potash market is being disturbed by new entrants, and Belarus, thirsty for hard currency, had every reason to cheat.
Nonetheless, China, which has 20 per cent of the world’s population but only 10 per cent of its arable land, has long been trying to bring prices down. In 2011, its antitrust regulator demanded lower prices in return for approving a merger of two Russian producers. Last year, China obtained discounts after staging a buyer’s strike that lasted several months.
Monopolists have much to lose from unfettered competition, but the rest of society stands to gain far more. Westerners should not be surprised if others expect them to heed that mantra, even when the fruits fall in less fortunate lands.
