CARTELISATION IN GLOBAL MARKETS FOR
PRIMARY COMMODITIES, GOVERNANCE
CHALLENGES AND WAY FORWARD
Pradeep S. Mehta • Aradhna Aggarwal • Natasha Nayak
CUTS International
Symposium on Trade in Primary Products and
Competition Policy
22 September, 2011, Geneva
Motivation for the study?

Two fold:

First, high dependence of developing countries on primary
sector exports; yet dominance of some countries in world
wide trade of these products

Second, steep rise in commodity prices, impacting both
the developing and developed world adversely
The reasons?

Restrictions on the trade in commodities in the form of
licensing, quotas, export restrictions, tariffs, packaging
regulations and other non tariff barriers

Anti-competitive practices of international export
cartels

We focus on the latter which is often overlooked
Export cartels?

“hard core” cartels comprise of private producers from at
least two countries who collude to fix prices, establish
output restrictions or quotas, or share markets

private export cartels where producers from one country
engage in market allocation in export markets, but not in
their domestic market

state-run export cartels
Is the presence of export
cartels in commodities
significant?

Not exactly known

Connor (2006): eight out of 283 known private
international cartels in commodities during 1990-2005

This means only 3 percent of the total known
international cartels

Other studies endorse this finding
Do cartels have a role in the
primary sector trade?
Not really, because:
a majority of private cartels never come to light,
the number of cartels do not reflect their impact on
trade, producers and consumers,
cartels in the up/down stream industries can have
serious impacts on primary products trade, and
there is sporadic evidence of cartels which might have
long term effects
Can cartels succeed in the
primary products sector?

Determinants of success
◦ Industry characteristics: concentration and entry barriers
◦ Product characteristics: product elasticity
◦ Frequency of business shocks
◦ Large buyers
Success of cartels in the
primary sector…

Incentives:
◦ concentration of natural resources
◦ extraction skills and infrastructure
◦ low product elasticity etc.

De-stabilising factors:
◦ large number of participants,
◦ possibility of entry barriers,
◦ large buyers,
◦ bargaining issues
◦ demand shocks etc.
Key role of large multinationals (such as de Beers), trade
associations or even national governments
INTERNATIONAL AGREEMENTS AND
CARTELISATION

International Commodity Agreements (ICAs)

Interface between global trade rules and cartelisation:
export restrictions, anti-dumping, TRIPs

Adverse effects on world trade

Need to be explored further
NATIONAL COMPETITION POLICY and
EXPORT CARTELS

Implicit or explicit exclusion from action against them by
the home authorities

Critics: beggar thy neighbour policy
ECONOMIC CONSEQUENCES OF EXPORT
CARTELS?

Ambiguous, both theoretically and empirically,

But, anti competitive practices adopted by them can have
disastrous impacts (CUTS’ studies on Fertilisers, Coffee,
Potash)

Need for
◦ case studies,
◦ deeper studies with explicit counterfactual analysis, and
◦ improvement in data quality
Effects of CARTEL in DOWNSTREAM
INDUSTRIES: Coffee
Consumers
Retailers
Roasters
International traders
Domestic traders
Smallholder/estate
30 grocers = 33% of global
market
4 companies (Philip Morris,
Nestle, Proctor & Gamble
and Sara Lee) = 45% of
global coffee market
4 companies (Neumann,
Volcafe, ECOM,
Dreyfus) = 39% of
global market
25 million farmers and
workers
Effects of cartels in
upstream industry: CUTS’
study on fertilisers

Fertiliser price rise due to anti-competitive practices in the
potash market

Only 12 percent of the incremental fertiliser subsidy
translated into higher consumption of fertilisers, the rest
was due to price rise
Governance challenges:
Unilateral solutions

application of the “effects doctrine”:
◦ private actions for damages

but a prisoner’s dilemma

(a country prohibiting export cartels can always make
itself better off by allowing them and a country that
permits export cartels can make itself worse off by
prohibiting them)
Governance challenges:
Few Multilateral solutions
◦ Strict disciplines on export restrictions
◦ WTO Remedies against injury caused by export cartels
(Counter measures, reverse antidumping, safeguards)
◦ Formation of Countervailing Buyer Cartels
◦ Multilateral Agreement on Competition (with S&DT)
◦ Creation of an international competition authority
The way forward

Agreements on information sharing on cartels

Capacity building reforms

Technical assistance by the WTO

International Competition Fund (CUTS has been strongly
advocating for such a fund)

Diversification of exports
Thank you for your attention
CUTS International
www.cuts-international.org