The Belarusian Potash Company
(B.P.C.) is losing a country supplying potash in their cartel. B.P.C. is a cartel for the fertilizer,
potash. Potash’s supply has been limited
to the world since this cartel came to be.
The B.P.C. had two main supplier countries, Russia and Belarus, to
inhibit the potash supply from international trade. The second top supplier for potash is Canada
with their company Canpotex. For years,
B.P.C. and Canpotex have set the same international prices. These prices were about $400 for a ton of
potash.
The Russian company has decided to
pull out of the B.P.C. to supply more to the international supply. International supply will large increase
potash and will create a price drop for potash.
This hurts the B.P.C. because their shares and profits are falling without
the price-fixing. The—now—competitive
international prices will likely force the B.P.C.’s and Russia’s prices to
decrease and profits will also decrease.
Belarus and Russia are both going to suffer in regards to their gains
from trade. Terms of trade for both
countries are likely to decrease. The
price of their potash exports will be decreasing and therefore the terms of
trade will be negatively affected.
However, the United States and India
are gaining great benefits from the increase in supply of potash. They are able to buy the product at a lower
price, which helps the agriculture business in both countries increase their
supplies and profits too. Countries
wishing to buy more of potash are expanding their production
possibilities. With the lower
international prices, farmers will be able to buy more of the supply even if
they do not increase their expenditures or budget lines. Their budget lines are likely to remain the
same in the short run; but, after their crops’ supplies are increased due to
more potash, their budget line may allow for expansion. For now, the United States and India are
reaping the benefits from the decreasing competitive prices by expanding
production possibilities and improving terms of trade.
From what I read in the article it seems that there is a lot of underlying problems that have pushed Russia to pull out of the B.P.C. There has been a lot of political tension between the countries that has added to the separation of the Russian company from the B.P.C. With Russia backing out of the B.P.C. they are consciously making the decision that they will have a decrease in their prices and profits.
ReplyDeleteThe benefit for the farmers on this action is monumental. By reducing the prices farmers over the world will be able to benefit. So in some ways this could benefit certain players. The countries would potentially be able to benefit in areas of agriculture.
With the incline of trade sanctions being put on each other Russia and Belarus have cause many rifts, especially in the fertilizer industry. As usual there is some group that benefits from others being hurt, and in this case it is helping farmers domestically.
The farmers form the United State and India can reduce the cost of production, because the international price of potash is decreasing. It means that the price of imports for these two countries declines. So, the TOT increases which is beneficial for the countries. However, the farmers can produce more productions promoting exports. Because the U.S. and India are big countries, they can influence the world price. The price of exports goes down, which leads to the decline of the TOT. Whether these two countries can get higher the TOT depend on which price changes more.
ReplyDeleteI think that there is an advantage for Belarus and Russia. Owing to the competition between them, decreasing the price is not the only way to expand the market share. The competition can help them to improve technologies to make higher quality products, which can attract more consumers to purchase. Although the average unit price lower, if sales volume increase, they can still earn much more money.