The day it got personal in the potash market
Farmers in the US are getting an unexpected windfall from a contentious fight between Russia and Belarus, a former Soviet splinter state.
The subject of the fight is potash, a fertiliser. The score so far: one imprisoned Russian business executive, the disintegration of a cartel that kept world potash prices high, and political tension between the two countries.
What is being called the "fertiliser war" is the latest of numerous trade and economic spats between Russia and Belarus, whose leaders, though presiding over similar autocratic political systems, do not get along personally, Russian political analysts say. Alexander Lukashenko, President of Belarus, and Vladimir Putin, President of Russia, by most accounts detest each other. Their feelings have spilled over into the fertiliser business.
The potash problem reached a peak on July 30, when Uralkali, the Russian potash company, said it was withdrawing from an international cartel called the Belarusian Potash Co, or BPC, which was created to keep prices high.
Two marketing groups, BPC in the former Soviet Union and Canpotex in Canada, sell nearly all the potash in the world. BPC marketed fertiliser for Uralkali and Belaruskali, the Belarusian company, and Canpotex for three Canadian producers, Potash Corp, Mosaic and Agrium. For years, potash companies kept a thumb on the global trade of this critical plant nutrient, choking back supply to raise prices, much as the Organisation of the Petroleum Exporting Countries does with oil or De Beers with diamonds. The two cartels set nearly identical prices for potash worldwide, preventing farmers from benefiting from competition.
Uralkali said it was leaving BPC because the Belarus president had been allowing fertiliser sales on the side. It predicted potash prices would drop about 25 per cent, to $US300 ($322) a tonne, from about $US400 a tonne, when it left. The lower prices would hurt Russia, but they would hurt Belarus more.
Though Uralkali denies any direct link, this action followed years of efforts by Mr Putin and the Kremlin to compel Belarus to sell strategic assets such as oil refineries and natural gas pipelines, in exchange for subsidised energy supplies.
Mr Lukashenko first agreed to sell a stake in Belaruskali, though the potash mine provides about 10 per cent of the state tax revenue, but then baulked. He said it was still for sale, but cited an exorbitantly high price, angering Russian oligarchs who had been vying for it, and setting the stage for the break-up of the fertiliser cartel that followed.
The Belarusian government retaliated with what appeared to be a trap: the Belarusian prime minister invited the chief executive of Uralkali, Vladislav Baumgertner, to his country for talks on August 26, and then arrested him at the airport. Uralkali's chairman, Alexander Voloshin, and a part owner, Suleyman Kerimov, had also been invited, but only Mr Baumgertner showed up.
It was unclear whether the others stayed clear of Belarus because they had sensed a trap, or whether their schedules simply did not have room for the country's prime minister, which was the formal explanation both officials offered.
Mr Baumgertner was charged with "abuse of power", which carries a potential 10-year sentence.
Belaruskali, which is state-owned, has no public relations office. Calls were referred to Anatoly Makhlai, whose title is deputy director for ideology and cadres, who declined to comment.
Later, the Belarusian authorities issued arrest warrants for four other executives and Mr Kerimov, the part owner. Analysts say Mr Baumgertner is only being held as a hostage to compel the Russians to rejoin the cartel.
Outraged, the Russians responded with a flurry of trade restrictions, banning all Belarusian pork imports, ostensibly over health concerns.
Farmers and fertiliser companies are watching closely. Shares in Potash Corp rose this week on signals that reconciliation was near.
Reports indicated Mr Kerimov would sell his stake to another Russian oligarch more palatable to Mr Lukashenko or to the nickel mining company Norilsk, leading to a patching up of ties and the re-creation of the price-fixing cartel. But Norilsk said it had no plans to buy a stake. Shares in Potash Corp fell again.
Even by the standards of business practices in the former Soviet Union, these tactics appeared blunt. "This move is absolutely aggressive and abnormal," said Boris Krasnojenov, a mining analyst at Renaissance Capital, a Moscow investment bank, referring to the arrest of Mr Baumgertner. "The Prime Minister invited the CEO of a major company to a meeting and then arrested him."
The dispute has been detrimental to the profits of both Uralkali and Belaruskali - but wonderful for farmers from Idaho to India who have already benefited from lower fertiliser prices. Potash is one of three main plant nutrients, along with phosphate and nitrogen, and is used widely to increase corn and soybean yields.
New York Times
Frequently Asked Questions about this Article…
The article describes a bitter dispute between Russia and Belarus over potash that disrupted an international price-fixing arrangement. Tensions between Presidents Vladimir Putin and Alexander Lukashenko and a business falling-out led Uralkali to quit the Belarusian Potash Co (BPC) cartel, a move that broke up a cosy cartel that had kept global potash prices high and created volatility in the potash market.
Two marketing groups dominated world potash sales: BPC (the Belarusian Potash Co), which marketed for Uralkali and state-owned Belaruskali, and Canpotex in Canada, which marketed potash for Potash Corp, Mosaic and Agrium. Those groups set near-identical prices and effectively limited competition in the potash market.
When Uralkali announced it was leaving BPC, it predicted potash prices would fall by about 25% — from roughly US$400 a tonne to about US$300 a tonne. The article says lower prices hurt the producers (especially Belarus) but were a windfall for farmers who buy fertiliser.
Uralkali’s chief executive, Vladislav Baumgertner, was invited to Belarus for talks on August 26 and arrested at the airport, later charged with “abuse of power,” a charge that can carry up to 10 years. Analysts in the article suggested the arrest was intended to pressure Russians to rejoin the cartel. The episode triggered trade retaliation from Russia and contributed to market uncertainty and share moves among potash companies.
Cartels such as BPC and Canpotex limited supply and set near-identical global prices, supporting higher margins for potash producers. A break-up or reconstitution of those cartels directly affects potash prices, producer profits, and the cost of fertiliser for farmers—so cartel actions can create material price volatility that matters to commodity investors and agricultural-related stocks.
The article reported rumours that Suleyman Kerimov might sell his stake to another Russian oligarch or to Norilsk to patch ties and re-create the cartel. Norilsk publicly said it had no plans to buy a stake, and the uncertainty caused share-price swings, showing the possibility of cartel restoration was a market factor but not confirmed.
According to the article, Potash Corp’s shares rose on signals that reconciliation between the parties might be near, then fell again after reports (and denials) about potential stake sales and the likelihood of the cartel being reassembled. The episode illustrates how geopolitical and corporate manoeuvres in the potash market can move stock prices.
The story shows that geopolitical tensions and state actions (arrests, trade restrictions such as Russia’s ban on Belarusian pork) can abruptly disrupt commodity cartels, change supply dynamics and trigger price volatility. For investors, it underscores the geopolitical risk inherent in commodity and fertiliser markets and the potential for sudden swings in both producer profits and input costs for agriculture.
Call 1300 880 160
Start a chat
Schedule a call
