Imported Potash Lack In Pricing Power In China

Potassium is one of the elements which are essential to plant’s growth and development. It can improve yields and make crops more robust. However, soil in China is quite lack of potassium, and potash resource in China is scarce too. Potash production cannot satisfy the demand which lead to potash consumption depend heavily on import. However, due to the lack of pricing power in imported potash in China, import potash prices quickly increased which restrained domestic potash demand and made China’s farmland potassium deficiency situation more serious which serious affected crop yield. Consequently, whether the supply is adequate or not is a important problem which affects people’s livelihood. If we do not have adequate pricing power in imported potash will directly endanger food and clothing of hundreds of millions of Chinese farmers!This paper first reviewed the development history of the world potash fertilizer industry. We found that the potash fertilizer industry was first generated in Germany and founded a cartel organization to sell high price potash as soon as it founded. Then world potash fertilizer industry center turn to Canada and the former Soviet union, and keep the situation until today. In the world potash fertilizer industry development history, it has been accompanied by monopoly in potash fertilizer resources, production and sales till today.In order to make clear the reason for the lack of pricing power in China import potash, this paper investigated the China’s potash fertilizer industry and found that China’s domestic demand for potash fertilizer is very strong, but potash resources is scarce. Although the domestic potash fertilizer production capacity and production has been increased in recent years, most of the domestic potash fertilizer supply still rely on imports, result in import potash fertilizer leading China’s potash fertilizer market. Therefore, the direct reason of lack of pricing power in imported potash is that China’s potash fertilizer industry is too weak to rely on imported potash. The main reason of lack of pricing power in China is export cartel and tacit conspiracy in potash fertilizer market. Then, this paper put potash fertilizer market export cartel Canpotex and BPC into analysis. The research shows that Canpotex not only affects the export market but also push the domestic potash fertilizer prices to a high level. So, Canpotex is a government sponsored mixed export cartel. BPC is an export cartel established by Russia and Belarus two largest potash fertilizer company. But potash price in Russia is far lower than export price, so BPC belongs to pure export cartel. The existence of export cartel, on the one hand, improves the potash fertilizer market’s concentration, increased the seller’s market power. On the other hand, it also provides the potash enterprise opportunity to communicate, increased the possible for them to achieve production and price agreement.This article shows that tacit collusion can exist stably through the game theory analysis in infinite repeated game or game with uncertain period. This article also analyzes the factors that influence conspiracy. Then lists the convenience conditions of conspiracy in potash fertilizer market, and confirmed the tacit collusion with specific price, output, profit and some behavioral evidence. Potash fertilizer prices have been substantially risen since2005, and potash fertilizer oligarchs exists coordination of production and collaborative of price behavior, and common shares between potash fertilizer oligarchs contact them as an whole.Export cartel and tacit collusion in international potash fertilizer market is main the main reason for China’s lack of, but the defect in negotiation mechanism also influenced the pricing power in imported potash in China. Due to the unequal status of enterprise in import potash in the negotiation of import potash, led to the rent-seeking behavior in potash fertilizer import market. In addition, considering the sinochem fertilizer not only have stock relationship with PCS company in Canada, but also have relationship with qinghai salt lake potash. This paper holds that Canada PCS company’s penetration to Chinese potash fertilizer industry will make China more passive in potash fertilizer pricing problem.Finally, the author came up with three policy recommendations:First of all, we should use the extraterritorial jurisdiction of the Chinese anti-monopoly law to investigate international potash market export cartels and collusion positively, and always pay attention to the potash industry mergers and acquisitions. Secondly, we should alter the negotiation mechanism, for example, to change the original monopoly structure of imports, ally with foreign buyers for potash negotiation, etc. Finally, come up with some suggestions to increase domestic potash supply, such as the integration of the domestic potash industry, improve the efficiency of resource use, encourage exploit resources from abroad or M&A, as well as provide good infrastructure conditions for manufacturing enterprises.