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The hungry of the world, who clearly would benefit from a 25% lower price of a key fertilizer, shouldn’t count their cheaper meals before they’re grown
Belarus’s President Alexander Lukashenko, Europe’s last remaining dictator, seems an unlikely devotee of Adam Smith. Yet his Decree Number 566 last December — decrees are a large part of his leadership style — is what so annoyed his Russian partners in the Eurasian half of the world potash cartel that they announced Tuesday they would be letting their exports rip, as they claim the Belarussians have already done in sales to China and India.
The other third of this Putin-Lukashenko troika is, ahem, us. We run the North American half of the cartel through Canpotex, the Saskatchewan potash export consortium formed in 1972, just about the time in fact that we were also putting together domestic cartels over milk, cheese, eggs and poultry. Trudeau times, recall, were managed-economy times.
The consensus view seems to be that this jolt of Smithian competition into the long-cartelized world market will bring potash prices down from above US$400/tonne to something more like US$300. In just a few hours the news took US$5-billion of market cap off the major operators, including our own Potash Corp, which it turns out maybe we shouldn’t have fought quite so hard to keep when it faced a hostile takeover in 2010.
President Lukashenko’s provocative December decree de-monopolized the export of Belarussian potash. It followed on a November decree raising the export tax. Whatever the mechanics, motivations and politics of the break-up between the Russians and Belarussians, who are hardly famous for their friendship, its effect is to restore competition to the world potash industry. Smith would be pleased. And so would those who believe that, given enough time, cartels inevitably implode, depending as they do on honour among — well, “thieves” would be undiplomatic so let’s just say “price enhancers.”
On the other hand, the hungry of the world, who clearly would benefit from a 25% lower price of a key fertilizer, shouldn’t count their cheaper meals before they’re grown. Russia and Belarus were negotiating continued cartel arrangements as recently as last week. Mr. Lukashenko signaled the importance of the talks by assigning his KGB chief — yes, Belarus alone among former Soviet republics still has a KGB — and his 37-year-old son and presumptive successor as observers to the talks. So this week’s breakdown may be part of a negotiating strategy, albeit a high-stakes one: “If you don’t sign, we pull the pin,” says Belarus. “No! We pull the pin!” respond the Russians.
All this would be merely entertaining if we weren’t also, as the world’s biggest exporters, key players in the cartel. When you get together to raise prices — no doubt cartel members would prefer to say “provide orderly marketing” — there’s no telling who you end up in bed with.
For the rest of this article, click here: http://opinion.financialpost.com/2013/07/31/william-watson-down-with-cartels-comrade/