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Potash, Oil, Drug Cartels

The Rise and Fall of Cartels



Cartels have been around for millennia. Any group which “banded together” to control the price of certain goods or services is a kind of cartel.

History and Laws

According to Wikipedia, the term cartel originated in Germany during the 19th century. However, de facto cartels certainly existed long before that. Many countries have laws forbidding cartels; however, where felt opportune to the state, exceptions are always possible. There is at least one recorded case where a government tried to coerce the formation of a secret cartel, in contravention of its own laws. “Export cartels” are still common and legal in some jurisdictions. Of course, they are deemed to be “for the common good” there, as the claims go.

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Some cartels have been more successful and last longer than others but after a while they all fail. Human ingenuity and competitive spirit cannot be controlled forever. The most recent cartel to hit the dust is that of the “Potash Cartel.”

The Potash Cartel

Potash (potassium carbonate) of course is a key ingredient of all plant fertilizers used by farmers around the world. The Potash Cartel was essentially an international pricing mechanism by the three largest potash producers/vendors in the world, one each in Canada, Russia, and the U.S. Now, as the Russian group decided to step out, representing about 30% of the world production, the others feel the pinch: their stock market valuations dropped by 15+% upon the announcement. Pundits say the price for potash will continue to fall to approximately one third of what it was two years ago. That may be good news for farmers who need it but not so good for the producers. After some initial price distortions, supply and demand will find a new equilibrium, one that both producers and consumers can live with.

The Oil Cartel

The OPEC (acronym for “Organization of the Petroleum Exporting Countries”) Cartel has never been shy about its membership and goals. Its 14 member countries consist of the oil exporting countries on and neighboring the Arabian Peninsula, several countries in Africa, Indonesia, and Ecuador and Venezuela in South America. Due to their dominant role in supplying a large portion of the world’s consumption, OPEC has much clout in setting the world price for this commodity. However, competition from other energy sources, primarily coal, nuclear and more recently also natural gas, provides a damper to the pricing situation. Also, the economies of many OPEC countries are highly dependent on the steady revenue flow from their oil exports which has, at times, led to some members’ production above their agreed upon quotas. With the large volume of approximately 90 million barrels of oil produced and consumed each day around the world, OPEC probably effects a pricing stability in the international oil markets. Without OPEC, simple market forces of supply and demand would probably result in the same price of oil or its product gasoline at the pump.

The Drug Cartels

The Drug Cartels are nothing like the other cartels mentioned above. To begin with, there appear to be several “cartels” which are in fierce competition with each other. Thousands of murders in Mexico and elsewhere have been attributed to turf wars between the major cartel factions. Of course, they all wish to sell their products at the highest possible price but the real money is made along the line of middlemen between producers and consumers of the narcotics they distribute around the world. This is evident from data by the Colombian authorities which show the escalation of prices between these two endpoints. Stratfor has published a chart earlier this year which shows the price of cocaine per kg along the route between Colombia ($2,200) and New York ($27,000). That escalation, of course, is due to the “risk premium” associated with every transaction. If such drugs were legal, the drug cartels would disappear in a hurry. The same would be the case if there were no more consumers.

Effect of Globalisation

Globalisation of trade does not bode well for cartels. The example of the potash cartel proves that point. Cartels are essentially distortions of free market forces determining supply and demand. When such distortions become too large, cartels come under intense pressure to adjust, which is the opposite of what they desire. By definition, cartels want to control the price, often by limiting the supply. Even in the case of OPEC, cheating (overproduction) has been known to occur. There exist still many other cartels in the world. Which one is next to fail?


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Dr. Klaus L.E. Kaiser -- Bio and Archives

Dr. Klaus L.E. Kaiser is author of CONVENIENT MYTHS, the green revolution – perceptions, politics, and facts Convenient Myths


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