Feb 24, 2012

About captive mines for fertilizers

Here is an article from policy section of economic times. It talks about the global race to control the strategic mines that produce Potash and Phosphate reserves in the world. These two macro nutrients (of the famous NPK trio) form an important part of the plant nutrients supplement in India. Of all the talks about using organic manure, the ground reality is that these supplements are the ones that are actually being used in a big way. For this, see here for the general reasons. The subsidy component varies from 60 to 75% of total cost in India, which adds to the economic reason for high demand of fertilizers over organic manure. For fertilizer consumption in India, see here
The imports of DAP and MOP (from which phosphate and potash are obtained, respectively) by India is one of the highest in the world. Close to 70% of the phosphate based fertilizers and 100% of potash-rich fertilizers sold in India are imported. So that makes these two imports vital for our food security. 
The article talks about the race to own the mines that produce these minerals. It says:

"Almost the entire reserve of world's phosphate rock is located in 15 countries. Nearly 77% of this reserve is in Morocco and Western Sahara and over 98% in nine countries. 
Supply is even more concentrated in potassium. Potash helps plants to survive in dry conditions, strengthens their roots and fight disease. Global potassium reserve is located in just 13 countries, with over 80% in just Canada and Russia.
The upshot is that Africa has become the site of intense competition. EU and countries such as India, that have no phosphate rock deposits, are rushing to Morocco and Western Sahara to buy mines. Simultaneously, US, China, Australia and Canada are also heading there to shore up depleting reserves." 

The cartels are making profit in the process. There are two such cartels in this field. 

"Every year, India negotiates with foreign suppliers. With the world's wealthiest economies and China chasing the same sellers with fistfuls of dollars, India's only advantage lies in bulk purchases. But in times of shortage, like in 2008-09, even the promise of large volumes isn't enough to strike a deal."

There are already some Indian companies operating in South Africa, Tunisia and Morocco in this area, and some are further exploring chances in other African countries. They are looking for some type of government support, though funding, to own such mines. When the price fluctuates, it becomes difficult for importers in our country, as frequent negotiations are difficult to conclude. High import prices leads to increase in subsidy costs in the end.  We have had some very bad experiences in this area in recent years. The economic surveys point this out clearly. 
There are big players such as BHP-Billton, Vale, Rio Tinto etc who are already in the game and are lapping up the mines in Africa aggressively. Aggressive support from the government is required in this area to help our industries buy such mines. One can come up with better strategies of owning these mines, but time is an important factor. Strategy works only if it is implemented in time. In this area, it is already getting late. An assured supply line in the form of captive mines would not only ensure supply assurance in the long run, but would also leverage the bargaining power of Indian importers with the existing cartels.