Inter-provincial competition and the Canadian potash industry

"The objective of this paper is to describe the potential impact of inter-provincial competition f or new output capacity on the Canadian potash industry. It will be shown that the ramifications of such actions are potentially severe, especially since the potash industry is one of the few non-fuel minerals in which Canada purportedly possesses a significant degree of market power. More specifically, the paper addresses the impact of possible expansions in New Brunswick, Manitoba and, perhaps, Saskatchewan. The findings suggest that such initiatives could result in substantial excess capacity and the dissipation of monopoly rents. In summary, given the market structure of the industry, it is unlikely that the employment and economic effects associated with industry expansion will offset the loss in national welfare attributable to rent dissipation.IntroductionThe objective of this paper is to discuss the potential impact of inter-provincial competition for new output capacity on the Canadian potash industry. The ramifications of such competition are potentially severe: given that the potash industry is one of the few non-fuel minerals in which we purportedly possess a significant degree of market power(1), it is important that sound supply management practices are followed. However, possible initiatives by New Brunswick, Manitoba and, perhaps, Saskatchewan may initiate an inter-provincial competition which could result in substantial excess capacity and the dissipation of economic rents(2). Given the market structure of the industry, it is not intuitively obvious that the employment and economic effects associated with industry expansion will offset the loss in national welfare attributable to rent dissipation."