Fertiliser cartels under microscope
Wall St Journal--At a time when food prices are soaring world-wide, so is the price of fertilizer, producing huge profits for leading fertilizer makers and stirring anger among farmers in the U.S.
Fertilizer prices are rising faster than those of almost any other raw material used by farmers.
Farmers say too much market power is concentrated in the hands of a small group of companies in the U.S., Canada and Russia that dominate global production of potash and phosphate. Along with nitrogen, potassium, usually in the form of potash, and phosphorus, in the form of phosphate, are the main ingredients of fertilizer.
The price of fertilizer "defies rational explanation," says Robert Carlson, president of the North Dakota Farmers Union, one of the state's most influential farmers' groups. In a May 8 letter to North Dakota's three-member congressional delegation, he accused fertilizer companies of "price gouging," and asked for an investigation.
On Friday, Sen. Byron L. Dorgan, a North Dakota Democrat, said he is asking the Federal Trade Commission to scrutinize the industry's business practices. Sen. Dorgan heads the Senate Commerce subcommittee that oversees the FTC.
Major fertilizer producers deny any allegations of gouging. They say they are simply raising prices to reflect tight supplies and growing demand after years of relatively low prices.
But there's an unusual piece in the pricing puzzle: In several countries, obscure laws shield makers of potash and phosphate from certain antitrust rules. In the U.S., for example, phosphate makers are among a handful of industries empowered by the 1918 Webb-Pomerene Act to talk with competitors about pricing and other issues.
Some legal experts think that law has outlived its usefulness. "It's an obscure act that's moribund," says Jim Mongoven, an attorney in the FTC's Bureau of Competition.
China, after initial protests, recently agreed to pay $576 per ton of potash, up $400 from its previous deal in 2007, to Canpotex, a potash export cartel protected by an exemption in Canada's Competition Law.
In March, Russian antimonopoly regulators required the country's largest potash maker, Uralkali, to cut domestic prices of the plant nutrient after wrangling with the company over its pricing behavior in court. Brazil's government is considering nationalizing the country's fertilizer deposits to help reduce farmers' production costs.
Helped by soaring potash prices, Potash Corp. of Saskatchewan Inc., one of the companies that make up Canpotex along with Minnesota-based Mosaic Co. and a smaller Canadian producer called Agrium Inc., posted first-quarter net income of $566 million, or $1.74 a diluted share, nearly triple the year-earlier figure. The company's stock has risen nearly eightfold to around $200 from about $25 three years ago. Mosaic's latest quarterly earnings came in at $520.8 million, up more than 10-fold from a year earlier.
In the U.S., Potash Corp. and Mosaic are the sole surviving members of a phosphate export cartel called the Phosphate Chemicals Association. Under a 90-year-old law designed to promote American exports, the companies are allowed to legally market and sell their product overseas as a single entity at a price set in consultation with one another. Similarly, Canada has Canpotex, and Russia has Belarus Potash Co., another export cartel.
While the individual cartels can't legally collaborate among themselves on pricing, they regularly -- and legally -- follow each others' price increases. After the Russian cartel recently said potash prices would rise to $1,000 a ton, Potash Corp.'s Mr. Doyle said Canpotex would soon match that price.
Fertilizer prices are rising faster than those of almost any other raw material used by farmers.
Farmers say too much market power is concentrated in the hands of a small group of companies in the U.S., Canada and Russia that dominate global production of potash and phosphate. Along with nitrogen, potassium, usually in the form of potash, and phosphorus, in the form of phosphate, are the main ingredients of fertilizer.
The price of fertilizer "defies rational explanation," says Robert Carlson, president of the North Dakota Farmers Union, one of the state's most influential farmers' groups. In a May 8 letter to North Dakota's three-member congressional delegation, he accused fertilizer companies of "price gouging," and asked for an investigation.
On Friday, Sen. Byron L. Dorgan, a North Dakota Democrat, said he is asking the Federal Trade Commission to scrutinize the industry's business practices. Sen. Dorgan heads the Senate Commerce subcommittee that oversees the FTC.
Major fertilizer producers deny any allegations of gouging. They say they are simply raising prices to reflect tight supplies and growing demand after years of relatively low prices.
But there's an unusual piece in the pricing puzzle: In several countries, obscure laws shield makers of potash and phosphate from certain antitrust rules. In the U.S., for example, phosphate makers are among a handful of industries empowered by the 1918 Webb-Pomerene Act to talk with competitors about pricing and other issues.
Some legal experts think that law has outlived its usefulness. "It's an obscure act that's moribund," says Jim Mongoven, an attorney in the FTC's Bureau of Competition.
China, after initial protests, recently agreed to pay $576 per ton of potash, up $400 from its previous deal in 2007, to Canpotex, a potash export cartel protected by an exemption in Canada's Competition Law.
In March, Russian antimonopoly regulators required the country's largest potash maker, Uralkali, to cut domestic prices of the plant nutrient after wrangling with the company over its pricing behavior in court. Brazil's government is considering nationalizing the country's fertilizer deposits to help reduce farmers' production costs.
Helped by soaring potash prices, Potash Corp. of Saskatchewan Inc., one of the companies that make up Canpotex along with Minnesota-based Mosaic Co. and a smaller Canadian producer called Agrium Inc., posted first-quarter net income of $566 million, or $1.74 a diluted share, nearly triple the year-earlier figure. The company's stock has risen nearly eightfold to around $200 from about $25 three years ago. Mosaic's latest quarterly earnings came in at $520.8 million, up more than 10-fold from a year earlier.
In the U.S., Potash Corp. and Mosaic are the sole surviving members of a phosphate export cartel called the Phosphate Chemicals Association. Under a 90-year-old law designed to promote American exports, the companies are allowed to legally market and sell their product overseas as a single entity at a price set in consultation with one another. Similarly, Canada has Canpotex, and Russia has Belarus Potash Co., another export cartel.
While the individual cartels can't legally collaborate among themselves on pricing, they regularly -- and legally -- follow each others' price increases. After the Russian cartel recently said potash prices would rise to $1,000 a ton, Potash Corp.'s Mr. Doyle said Canpotex would soon match that price.
