Legal Canadian cartel erodes food security in Bangladesh

The Canadian High Commissioner in Dhaka, Heather Cruden, made a tweet in reaction to a supply agreement for potash, a key fertilser, recently signed by Bangladesh with Canpotex, a legal Canadian export cartel.

She enthused, "Great news! Canada Bangladesh trade relationship & Bangladesh farmers Canpotex signs $60 million deal with Bangladesh."  The truth is the opposite and she has nothing to be proud of in enabling this deal.

Canpotex is terrible news for farmers as it is a cartel formed by three giant mining companies-Potash Corp, The Mosaic Company, and Agrium-mining potash in Canada.  Cartels are usually criminal conspiracies among producers who collude to limit supply and raise the price of a commodity.

However, Canpotex is legal; it is exempted from antitrust enforcement under the Canadian Competition Act because Canpotex's aim is to raise prices outside of Canada, mainly gouging customers in the developing world in India, China - and now Bangladesh.

I doubt the good ambassador, a career humanitarian aid professional, wishes to lie to the Bangladeshi people; she may have never thought through the consequences for others due to her country's cartel.

The connection between Canada's cartel and worldwide food security is an obscure issue buried under cartel economics and competition law, subjects drawing interest only from specialist academics and parts of the corporate bar.

It's not a lively topic but too important to Bangladesh to not appreciate and scrutinise.  Only in a vacuum of knowledge, for Canadians and everyone else alike, could the High Commissioner praise her country's squalid practice of destabilising food security.

Potash has come into some limelight last year because of turbulent events.  Until July 2013, two cartels, Uralkali-Belaruskali, a Belarusian-Russian partnership, and Canpotex, held most of the world's reserves and controlled the world price.  The status quo was shaken in July by the temporary collapse of the Eastern European cartel, and the sharp drop in price by 25 per cent that followed illustrates the price fixing power of the cartels.

It was this price drop that contributed to Bangladesh's decision to sign a supply agreement, the first one in decades.

This system of price fixing can only effectively operate with the participation of both cartels.  In Eastern Europe they are down but not out.  The president of Belarus and major shareholders of the Russian cartel member are working hard to rekindle the union.

The Canadian cartel is waiting and holding tight and layoffs ordered in December 2013 by Potash Corp, the largest member of Canpotex, to shut down production and boost excess capacity signals a desire to lure the Eastern Europeans back into the fold.

With all these efforts to bring back the reign of two cartels, there is a high risk of the status quo returning and with it high prices for potash which will be out of the reach of Bangladeshi farmers.

To prevent this Bangladesh should join with developing world countries to confront Canada about its ignominious anticompetitive practice, making it impossible for Canadian policymakers to feign ignorance or in the case of High Commissioner Cruden, to be so brazenly oblivious that she claims to help Bangladesh grow more food.

I single out Canada for responsibility even though other countries are involved because Canada is a stalwart advocate of human rights worldwide and should be expected to live up to its own high standards.

Bangladesh must join forces with other hardworking agrarian countries to encourage self-reflection by Canada and to demand the end of Canpotex.  For the manipulation of a key input in growing food by a country as prosperous as Canada is worth moral evaluation for the hardship it inflicts on the global poor.

This cartel can be done away with in one legislative swoop by Canada with the amendment of a single regulatory law.

Changing the law is not an unfeasible proposal as Canadians also financially gain by dropping Canpotex.

Miners in Canada are harmed because lower prices would have led to a greater volume of demand and thereby increase hiring.

The cartel extracted rent goes to the worldwide scattered shareholders of Canpotex companies, and so the only significant benefit to Canada is greater revenue collection in Saskatchewan, the province hosting the mines.  And, even this seeming disruption to revenue collection can be ameliorated through a change in the royalty structure in that province for potash.

Canada spends billions every year to alleviate poverty around the world, but it supports a repugnant cartel in exchange for maximum royalties and taxes.  Bangladesh must remind Canada that as a nation that prides itself as contributors to an improving world, Canada should do away with the cartel and still it will operate a profitable, higher volume potash industry, employ more miners and be moral stewards of food security.

Kai Xue is a corporate lawyer

in Beijing. These views

are his own.

 kaiwillbe@gmail.com