Tacit Collusion And The Lack Of Imported Potash Pricing Power

Potassium, as an essential agricultural fertilizer, is not only an important guarantee for improving crop production, but also a basis for ensuring our food security and sustained development. Because of the lack of potash resources and potassium soil area in recent years, the demand of Chinese potash fertilizer has a substantial increase. China has become the largest consumption and import dependence country. However, due to high external dependence of potash fertilizer and too concentrated foreign producers in the potash fertilizer market, the international price of potash fertilizer is rising quickly in recent years. This situation causes a great impact on domestic consumers and is clearly not conducive to the sustainable development of agriculture in China. This also shows that China does not have much right in deciding the international potash market price and loses ground in the price negotiations.This study bases on the supply and demand of potash fertilizer, pricing mechanisms and trade situations. This article uses theoretical and empirical analysis to investigate the reasons for Chinese lack of imported potash pricing power. This paper constructs a theoretical model of tacit collusion under the change of proportion of firms'production capacity, cross-shareholding ratio and demand. Conclusions show that the possibility of the formation of tacit collusion between enterprises will rise with enterprises'production symmetry, the increase of cross-shareholding ratio and the expected demand. Based on the theoretical model, this paper analyses the international potash market empirically according to the situation of potash production and trade under a lot of information and data. Through some data and charts, this paper introduces the production capacity trends of international potash fertilizer giant, the cross-shareholdings of several large-scale potash production enterprises and two major export organizations and increasing expected demand in China. According to these empirical findings, symmetrical production capacity among large potash fertilizer enterprises, the increasing proportion of cross-shareholdings and the continuous increase of Chinese potash demand all are conducive to the formation of tacit collusion among the international fertilizer businesses. In addition, the empirical analysis adds the other data and information. Soaring prices of Chinese potash fertilizer imports, the limited production price strategy of international potash producers, the high profits of potash companies and the profits and living conditions of Chinese downstream potash industry, all show the possibility of tacit collusion among the international potash companies.Both theoretical and empirical analysis proves that tacit collusion among the international potash companies and their high price lead to Chinese lack of imported potash pricing power. For these reasons, this paper concludes with relevant policy recommendations. For supply side measures are as follows:For the foreign fertilizer producers, we can use anti-trust laws to limit constant merger integration behavior of the international potash fertilizer giant, the complex cross-shareholdings, the limited production price strategy, the rise of potash price and so on. Chinese anti-monopoly agency can cooperate with antitrust enforcement agencies in other countries or European Union to exercise extraterritorial jurisdiction in Chinese anti-monopoly law actively. For the supply of domestic potash fertilizer, we can increase our potash production through the establishment of overseas potash fertilizer production bases to meet the maximum demand of domestic potash fertilizer. Russia, Laos and Thailand, neighboring countries of China, are rich in potassium mineral resources. The resources are high quality and easy-to-exploitation. There are also very rich potash resources in Canada and the possibility to develop potassium mineral resources. At the same time, we should improve the economies of scale and resource utilization of the domestic potash producer and accelerate the construction of domestic potash fertilizer production bases, thus ensuring the supply of domestic potash fertilizer. For the demand side, we can use bio-fertilizers to substitute chemical fertilizers. Crop straws are rich in organic potassium. If we recycle the resources, not only we can reduce environmental pollutions, but also increase the potassium sources. The text is divided into six parts:Introduction part introduces the research backgrounds and significances, the research ideas and methods and innovations and inadequate. The second part is literature review. This section summarizes the research status and development trends of the potash market and the collusion theory, and makes the appropriate comments and references. The third part draws on previous theoretical research. This part builds a theoretical model of tacit collusion under the symmetry of companies, cross-shareholdings and the change of demand, considering two game strategies:cool strategy and tit for tat strategy, then find the relationship between three factors and tacit collusion. The fourth part analyses the overall situation of the international potash producers, domestic potash production and demand and potash pricing, providing related materials and basic points for the later empirical study. The fifth part is empirical test. According to the theoretical model, this section tests whether the related facts promote tacit collusion between enterprises. Theory with practice, the limited production price strategy, acquisitions with each other and other acts to some extent causes Chinese lack of imported potash pricing power. On the basis of the foregoing analyses, part VI summarizes and makes relevant policy recommendations.