Economics for your Classroom from Ed Dolan’s Econ Blog Does Peak Phosphate Spell Doom for Humanity or will Supply and Demand Save Us? July 20, 2013 Ed Dolan’s Econ Blog Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0. You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.Attribution—Share Alike 3.0 Introduction to Economics

Phosphorus is Essential  The element phosphorus forms part of the structural backbone of DNA, cell walls, and fulfills other essential functions  No plant or animal life is possible without phosphorus July 20, 2013 Ed Dolan’s Econ Blog

Phosphate fertilizer in traditional farming  Farmer have added phosphates to their fields since the dawn of agriculture  Humans and animals get more phosphorus than they need from their diets. The rest ends up in manure  Manure is the traditional form of phosphate fertilizer, and still accounts for about 15 percent of all phosphate fertilizer used in world agriculture July 20, 2013 Ed Dolan’s Econ Blog

Modern farming uses fertilizer from phosphate rock  Today, about 85 percent of phosphate fertilizer used in modern farming comes from phosphate rock  Phosphate rock is mined in many parts of the world, including the United States, China, and North Africa July 20, 2013 Ed Dolan’s Econ Blog

Rising Phosphate Prices  In recent years, the price of phosphate fertilizers has risen sharply  Prices dipped during the recent recession, but as the global economy recovers, they are headed up again July 20, 2013 Ed Dolan’s Econ Blog

Diet and Population Growth  Population growth is one factor behind rising phosphate prices  Rising incomes in emerging market countries are also a factor, as new middle classes increase their consumption of meat  One recent study suggests that growing meat consumption accounts for 72 percent of the global increase in phosphate fertilizer use One recent study July 20, 2013 Ed Dolan’s Econ Blog

Question: Effects of population and diet How would population growth and increasing meat consumption affect the market for phosphate fertilizers?  Does the demand curve shift? If so, show the new demand curve  Does the supply curve shift? If so, show the new supply curve  Show the new equilibrium price July 20, 2013 Ed Dolan’s Econ Blog

Answer: Effects population and diet How would population growth and increasing meat consumption affect the market for phosphate fertilizers?  Population growth and increasing meat consumption would shift the demand curve to the right from D 0 to D 1  Other things being equal, the supply curve would not shift  The market would move up along the supply curve from E 0 to E 1 and the price would rise July 20, 2013 Ed Dolan’s Econ Blog

The Peak Phosphorus Hypothesis  Some observers think that we are running out of high-grade phosphate rock  The “peak phosphate” hypothesis predicts the production will begin to decrease after about 2035  Pessimists think that falling supplies of phosphate fertilizers will bring famine, wars, and population collapse later in this century July 20, 2013 Ed Dolan’s Econ Blog

Question: Effects of depletion of phosphate rock reserves How would the depletion of supplies of high- quality phosphate rock affect the market for phosphate fertilizer?  Does the demand curve shift? If so, show the new demand curve  Does the supply curve shift? If so, show the new supply curve  Show the new equilibrium price July 20, 2013 Ed Dolan’s Econ Blog

Answer: Effects of depletion of phosphate rock reserves  Other things being equal, the depletion of high-quality phosphate rock reserves would cause the supply curve to shift upward from S 1 to S 2  The demand curve does not shift  As the supply curve shifts, the market moves up along the demand curve from E 1 to E 2 July 20, 2013 Ed Dolan’s Econ Blog

Alternative: A Phosphate Plateau  More optimistic observers think market forces will prevent a collapse of phosphate production  Prices will rise as supply conditions tighten. In response to higher prices:  farmers will use phosphates more carefully  Producers will find it profitable to use lower-grade phosphate rock deposits  It will also become profitable to recycle phosphates from wastes like urban sewage  As a result, output will reach a plateau instead of collapsing July 20, 2013 Ed Dolan’s Econ Blog

Question: Effects of new technologies How would the effects of new technologies like the ability to use lower-grade phosphates and recycling phosphates from waste affect the market? July 20, 2013 Ed Dolan’s Econ Blog

Answer: Effects of new technologies How would new technologies of production and recycling affect the market?  Other things being equal, new production technologies would tend to shift the supply curve downward  If new technologies approximately counterbalance the effects of further depletion of phosphate rock reserves, production could reach a plateau for the rest of the century or beyond July 20, 2013 Ed Dolan’s Econ Blog

The Bottom Line July 20, 2013 Ed Dolan’s Econ Blog  Depletion of supplies of phosphate rock are unlikely to bring on doomsday scenarios of mass starvation  Higher prices will create efforts to improve farm management for more effective use of phosphates  Higher prices will also stimulate new technologies, including recycling  It is quite possible that these effects will roughly balance out, leading to a plateau in production for the medium- term future

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