Workers at hundreds of small match factories are on strike in Gudiyattam, a small city in the south Indian state of Tamil Nadu, protesting sharp rises in the price of raw materials such as sulfur, wax, cardboard and phosphorus. Hundreds of other match factories in the region have already closed.
I discovered this tidbit after following up on the news that match supplies in India were running low, an assertion made in the latest scary story on the perilous state of the planet's phosphorus supplies. It is not overstating the case to say that the future ability of the human race to feed itself depends on a sufficient supply of phosphorus. But phosphorus cannot be produced synthetically, and the world's hunger for the crucial fertilizer ingredient is growing apace. (Thanks to Naked Capitalism for the link to the TimesOnline story.)
Press accounts in India blame China for Gutiyattam's match factory woes. On May 20, aiming to safeguard fertilizer supplies for domestic farmers, China raised export taxes on phosphorus to 135 percent. India had been importing 20,000-25,000 tons of phosphorus chemicals a year from China, but prices have risen drastically over the past year.
One Indian news outlet sees a cautionary tale in this story. Don't get in bed with the cheap Chinese export vixen. She'll lure you in and then betray you!
China has become a major player in the phosphorous market as its significant amounts of rock phosphate and low labor costs allowed Chinese companies to undercut their competitors.
Some of these competitors subsequently closed down operations, leading to an increased reliance on imports from China and limited alternatives now Chinese prices have risen.
But the real lesson here is not the danger of over-reliance on Chinese imports. It's the disparity between the international and Chinese domestic prices for fertilizer chemicals. As with energy, the Chinese government keeps the price of fertilizer low domestically to keep costs down for farmers. Which means that phosphorous mining and chemical companies can make much more money by exporting their products than by selling them locally. Thus the export duty, designed to close that window.
Last week, China's government acknowledged that it could no longer indefinitely subsidize the price of gas and oil in China, and announced a significant price hike. The hope there is that the rise in prices will reduce demand and inspire conservation and more attention to energy efficiency. Somewhere down the line, the same discipline will have to focus on fertilizer. In fact the mandate to do so may even be more dire than with oil. Ultimately, we may be able to tap the sun and the wind and the waves for our energy needs. But there is no substitute for phosphorus -- which means China's decision to keep prices low for its own domestic needs is a long-term losing policy, for everyone.