The food vs. fuel controversy of the past few years has generated passionate debate.
Critics of biofuel support programs in the developed world say these policies artificially increase the cost of food for poor people in developing countries.
This year’s prospect of a bumper world corn crop and much lower grain prices might push that debate onto the back burner.
But there is another situation that arguably profits rich people and raises the cost of food for poor people that I am surprised does not generate more debate.
I’m talking about potash marketing groups, which are often described as cartels.
The power of these marketing arrangements was illuminated last week when one of them broke down. Uralkali in Russia and Belaruskali in Belarus had marketed their potash together through a company called Belarusian Potash Co. (BPC), just as Canpotex markets the production of Potash Corp. of Saskatchewan, Agrium and Mosaic.
Canpotex and BPC account for almost 70 percent of global potash sales and I’m sure they argue there is stiff competition between them.
However, I’m also sure buyers believe the concentrated power of the sellers gave them an advantage.
The companies involved in the two marketing groups believed profitability was better if sales focused on price rather than volume.
If buyers would not agree to the price and demand fell, the members of the sellers’ group hung together and reduced production to prevent the buildup of surpluses.
The falling out at BPC is over the two members accusing each other of selling outside the marketing partnership and underselling its product.
The three owners of Canpotex, two owners of BPC and two other potash producers in the former Soviet Union had faced an antitrust court case in the United States dating back to 2008 that alleged they acted like a cartel to drive up prices.
The Canpotex owners all denied any wrongdoing but decided to settle out of court this year, paying $100 million to the plaintiffs. The Russian and Belarusian producers settled claims in September 2012.
Potash Corp. head Bill Doyle said the lawsuits were without merit. He said the company settled to avoid the distraction and enormous cost of a lengthy court battle.
It is important to note that governments have not pinned antitrust allegations on the potash producers.
However, it is also illuminating that Uralkali thinks the breakup of BPC will force down the international price of potash by 25 percent.
North American potash producers’ presentations to investors often highlight that demand for the nutrient should rise sharply as food de-mand grows.
Yields of crops in India and China fall short of their potential because farmers do not apply the three key nutrients, nitrogen, phosphorus and potash, in the proper balance. Potash is under-applied relative to amount of nitrogen that they use.
Eventually, these countries must buy more potash to get the yields they need to feed their citizens, holding out the prospect of strong potash prices and the need to build more mines in Saskatchewan and elsewhere.
However, India and China already must subsidize fertilizer to their poor farmers to the tune of billions of dollars a year, money that they could easily spend on other needs such as improved grain storage and transportation infrastructure.
This situation is detailed by Frederic Jenny, a professor of economics at École Supérieure des Sciences Économiques et Commerciales in Paris, in a chapter of the book Trade, Competition and the Pricing of Commodities published by the Center for Economic Policy.
He said most of the government subsidies simply cover the difference between what the cartels charge and what would be a lower price if there were more competition.
Presumably, if the price of potash was lower, Indian and Chinese farmers could optimize their fertilizer balances and generate higher yields, benefiting themselves and consumers.
I’m not arguing that the owners are Canpotex are evil. There are probably many nuances and details to the situation that make the ethics of potash marketing groups not a black or white matter.
But as we worry about what these recent developments in the potash industry mean for construction projects at home and Saskatchewan government revenue, we might also consider what it means for farmers and consumers in poor countries.