Export Cartels, Financial Speculation and Commodity Crises
Final Report Abstract
Impressive improvements in agricultural productivity have allowed global food production to keep pace with a rapidly growing world population in past decades. However, escalating food prices during the 2008–2009 food crisis showed the vulnerability of this system. In this project, we investigated the organization fertilizer industry – which produces crucial agricultural inputs – and how it interacts with food markets. Plants require three essential nutrients for growth: nitrogen, potassium and phosphate. Nitrogen fertilizer is produced using an industrial process heavily reliant on fossil fuels, while potassium and phosphate fertilizers are based on mined minerals. From Liebig’s Law in biology, we know that it is not possible to substitute one nutrient for another. Thus, to understand the security of fertilizer supply, we must address the issues of each nutrient. For the nitrogen industry, we help to clarify how changes in the cost of energy (primarily natural gas) affect fertilizer prices. Nitrogen is produced and traded in a global market; but natural gas markets are more regional. We show that nitrogen prices in many cases are only affected by the gas costs of the highest-cost producing region. We also find strong evidence that the nitrogen industry is competitive. For mined nutrients, reserves are concentrated in few countries and exploited by few firms. Thus, each mineral nutrient has its own imperfectly competitive market structure. For the potash industry, we find that the specific type of legal cartel dominating the industry can have advantages in assuring stability of supply after disasters. On the phosphorus side, we investigate the role a region with minor reservers may play to assure supply stability given the presence of a large global producer. Fertilizer costs loom large in agriculture, accounting for more than 40% of operating costs for some grains. Our project provides further evidence that increases in fertilizer prices have pass-through effects on food prices.
Publications
- “Food security and fertiliser supply: The role of Arctic deposits”. Food Security in the High North, edited by Kamrul Hossain, Lena Maria Nilsson and Thora Martina Herrmann. Routledge (2020), pp. 234 – 248
Gnutzmann, Hinnerk and Piotr Śpiewanowski
(See online at https://doi.org/10.4324/9781003057758-17) - “Market structure and resilience: Evidence from potash mine disasters”. American Journal of Agricultural Economics 102.3 (2020): 911-933
Gnutzmann, Hinnerk, Oskar Kowalewski, and Piotr Spiewanowski
(See online at https://doi.org/10.1093/ajae/aaz041) - ”Stock market response to potash mine disasters.” Journal of Commodity Markets 20 (2020)
Kowalewski, Oskar, and Piotr Śpiewanowski
(See online at https://doi.org/10.1016/j.jcomm.2020.100124)
