The 2008 financial crisis was a worldwide mess, but it was preceded by a crisis that hurt the poorest countries most: A massive spike in food commodity prices, beginning in 2007. A UN index of global cereals (like corn, rice and wheat) registered prices 2.8 times higher in 2008 than in 2000.
The financial crisis abetted the spike, as investors fleeing the housing bubble poured money into agricultural futures, a bet on the basic math of population growth. But, though prices have come down as markets calmed, these cereals today are still about twice as expensive as they were at the beginning of the century. Besides the 44 million pushed into poverty in 2011, according to the World Bank, the resulting discontent led to riots and protests around the world, playing a role in the Arab Spring that toppled governments first in Tunisia then in the Tahrir Square uprising that toppled Egypt’s government in 2011.
Several main culprits were identified by international organizations like the United Nations and researchers investigating the topic: One was the cost of oil, which could be found at $30 a barrel in 2000 but rose to well over $100 a barrel in 2008. The second were advanced economies like the EU and the US increasing subsidies for biofuels (pdf), which boosted the price of cereals while diverting production away from food.
The first of these arguments isn’t convincing. By 2009, oil prices were less than $50 a barrel, and while they rose again to above $100 a barrel in 2011, by 2014 they again dropped without a commensurate change in food prices. While the biofuel subsidy argument is compelling, it’s not clear that the affect is large enough to explain all of the increase in food prices.
Some investigators noted that fertilizer prices also spiked, but attributed that to rising fuel costs. Now, new research has refined the fertilizer argument and identified global cartels as the culprit. Large food production is enabled by fertilizers derived from nitrogen and potassium that provide key nutrients to plants in otherwise exhausted soil. The largest firms involved include Canada’s Potashcorp, Mosaic in the US, Russian Uralkali and Belarussian Belaruskali.
“Because of the weakness of OPEC, cartels like it have received much less attention than they should,” Hinnerk Gnutzmann, an economist at the University of Hannover, told Quartz. “The fertilizer industry has much smaller cartels but more effective in their niche.”
The leading global fertilizer companies have generally operated not as direct competitors, but through cooperation, quietly agreeing on prices for their products, according to the research. That allows them to take the most advantage of market shocks by hiking prices en masse. Gnutzmann and Piotr Śpiewanowski of the Polish Academy of Sciences argue that this is the main reason for rising food prices during the food crisis of 2007-8.
“Our results imply that a doubling in fertilizer prices leads to a long-run food price increase of 44%,” they write. “In the 1974 and 2008 crises, fertilizer prices more than tripled; fertilizer is likely key to understanding food prices in both ‘normal’ and ‘crisis’ times.”
One real-world sign that their hypothesis is correct? A recent-bust up among some of the fertilizer cartel’s coziest members has coincided with a fall in food prices. China and India, with growing populations and growing wealth, are increasingly important customers for fertilizer. In 2013, China decided that the government would negotiate the import of potash, a mineral that is a key ingredient in fertilizer, rather than leave it to individual Chinese firms. The leverage from China’s decision broke up a key partnership between Russian and Belarusian potash companies which controlled about a third of the global fertilizer market. Since then, fertilizer prices, and food prices, have slowly begun to drop, as cooperation between the firms turned to competition.