The Economics of Phosphorus: Does its Price Reflect its Attributes? An economic and geopolitical analysis of the market for phosphate rock

Abstract Modern agriculture relies on phosphorus usage through inorganic fertilizers, which are made with phosphorus extracted form of phosphate rock (PR). Fertilizer demand is increasing because of dietary changes and increased population, and is expected to increase at higher rate in the upcoming years. Although the demand is increasing, prices do not seem to reflect the immanent scarcity as phosphate rock mines are being depleted fast. Furthermore, a complex geopolitical economy emerges from a situation of a potential future monopoly of Morocco in the market. This paper firstly, tests whether information regarding phosphate rock scarcity and geopolitical complexity is reflected in its prices by testing whether the Efficient Market Hypothesis (EMH) holds. The analysis demonstrates a market failure, and concludes that this can be attributed to (1) lack of inclusion of all available information in agents’ price expectation formation, (2) uncertainty about the size of reserves, per se and due to technological changes, and (3) the long horizon for full depletion. In addition, we argue that futures prices are inadequate to capture the geopolitical aspect of the market, related to the dominant position of Morocco.