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This week’s breakup of Belarus Potash Co. is expected to lower potash prices, which would increase demand and crop yields, particularly in high-demand countries such as China, India and Brazil.PARTH SANYAL/Reuters

China and India are poised to gain greater control over global potash pricing now that the oligopoly that controlled the majority of trade in the crop fertilizer, a key Canadian export, has been dismantled.

This week's breakup of Belarus Potash Co. (BPC), a joint venture between Russia's Uralkali and Belaruss's Belaruskali, puts the world's two most populous countries in a much stronger position after years of resistance to prices set by both BPC and Canada's Canpotex Ltd.

Until now, the two groups controlled more than two-thirds of global potash sales. Saskatoon-based Canpotex is owned by Potash Corp. of Saskatchewan, Agrium Inc. and Mosaic Co.

The new landscape is expected to lower potash prices, which would increase demand and crop yields, particularly in high-demand countries such as China, India and Brazil.

That in turn could help contribute to lower global food prices, which economists say are falling on expanded crop planting.

"China and India stand to benefit quite a bit [from BPC's breakup]," said Kona Haque, an analyst with Macquarie Capital (Europe) Ltd.

"They've been always stuck in extremely high contact prices with very little room for negotiation … With more supply potential available and more room for prices to collapse, I think Chinese and Indian demand will start emerging in a much bigger way."

Potash prices are currently about $400 (U.S.) per tonne, and could drop below $300 by as early as the end of the year as a result of the new landscape, according to analysts.

What is more, the spot market will also begin to drive prices, instead of potash contracts, which has traditionally been the case, Ms. Haque said. That will also drive countries such as China, India and Brazil to buy more, she said.

Canada accounts for about one-third of global potash production, or about 16 million tonnes to 18 million tonnes annually. The value of potash shipments was $8-billion, which ranked the product first among all minerals produced in Canada in 2011, according to Natural Resources Canada.

Buyers from China and India "will try to move away from these negotiated contracts and they'll obviously be more engaged in the spot markets," Ms. Haque said.

"Now that the amount of supply that can enter contract is diminished, because of the breakup of the cartel, it's going to be more spot-market driven. The Chinese and the Indians will take advantage of that," she said.

China is already showing interest in the new potash market paradigm.

When the BPC breakup was announced, Uralkali said it signed an agreement to ship potash to a major Chinese fertilizer importer and boasted that it would increase production volumes.

"In China we can see that potash is significantly under-applied compared to the volumes recommended by scientists," Uralkali said. "We believe that this agreement will provide certainty for the global potash market and the basis for overall growth of sales volumes in [the second half of] 2013." Still, a drop in potash prices will not likely trigger a symmetrical decline in food prices.

While lower potash prices are good for farmers around the world, experts caution that other factors such as fuel prices and weather also determine crop production costs. Depending on location and crop, potash accounts for about 20 per cent of a typical fertilizer mix.

Merritt Cluff, a senior economist at the Food and Agriculture Organization of the United Nations, estimates that a 20-per-cent drop in potash prices could mean about a 5-per-cent drop in prices of crops that use it.

Mr. Cluff noted that crop prices are already heading down, at least in the short term, because of strong prices last year that inspired farmers to increase their planted acreage and in turn crop supply.

"The impact of lower potash prices to the farmer will be only modestly positive," Macquarie analysts said in a note on Tuesday. "Lower potash prices may have a short-term positive demand impact in the southern hemisphere markets, with Brazilian farmers considering their 2013-2014 planting economics right now. But the bearish outlook for new crop prices is far more significant than any tailwind associated with lower potash prices."

World Bank senior economist Jose Cuesta said there too many factors are at play to determine what kind of impact lower potash prices would have on global food prices.

"You need a number of good news items aligned to see a large decrease of prices," he said. "It takes more good news to bring prices down than bad news to bring them up."