• Tue
  • Dec 23, 2014
  • Updated: 9:12am

Time ripe for action on fertiliser cartel

PUBLISHED : Wednesday, 15 September, 2010, 12:00am
UPDATED : Wednesday, 15 September, 2010, 12:00am
 

Potash is not most people's idea of a glamorous investment. Yet Australian miner BHP Billiton's hostile bid for Potash Corp of Canada has dominated the international financial press. The fertiliser is an important nutrient, particularly for cereals. But that alone does not explain why its producers have become darlings of Wall Street and takeover targets. One reason is that Potash Corp has generated spectacular profits by being a member of a fertiliser cartel that has been a thorn in the side of poor farmers in the developing world. BHP's bid may upset the whole apple cart for the cartel based in Canada.

The commodity boom and recent food crisis have highlighted potash's importance to world food production. Ottawa has long been a champion of fair trade for poor nations' farm produce; it has nothing comparable to the egregious subsidies America and France give to their farmers. Yet, when it comes to the consistently high prices of potash, it is not on the side of angels. Potash Corp is a dominant member of the Canpotex Canadian potash producers' group, a cartel that controls 30 per cent of the world's supply. The group has maintained potash's high prices for years by artificially adjusting output to demand and restricting competition among suppliers. Quirks in Canada's anti-competition laws allow the cartel to exist; and cold hard cash has made Saskatchewan, the province with the most potash mines, the cartel's enabler.

Developing countries have repeatedly raised objections to the cartel with the World Trade Organisation; the issue has been one of the lesser known stumbling blocks to the stalled Doha Round. Now, BHP has said it is ready to breach cartel rules and produce as much as markets demand. That has provoked the ire of other Canpotex members such as Agrium of Canada and US-based Mosaic. It is too early to say what effect a successful BHP bid will have on potash prices - whether it will lower them by undermining the cartel, or enable BHP to enjoy monopolistic pricing. But regardless, it is time for Canada and the WTO to reconsider the detrimental effects of a potash cartel or a quasi-monopoly on the world's poor farmers.

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