NEW ENTRY AND THE COMPETITIVE PROCESS IN THE U. K. FERTILISER INDUSTRY1

AuthorR. W. SHAW
DOIhttp://doi.org/10.1111/j.1467-9485.1980.tb00553.x
Publication Date01 Feb 1980
Scottish
Journal
of
Political Economy,
Vol. 27,
No.
1,
February
1980
0
1980
Scottish
Economic
Society
0036-9292/80/00010001
$02.00
NEW ENTRY AND THE COMPETITIVE
PROCESS IN THE
U.K.
FERTILISER
INDUSTRY'
R.
W.
SHAW
University
of
Stirling
This paper analyses the effects of the changing market structure in the
U.K.
fertiliser industry between 1953 and 1977. In essence the dominant producers
in two of the main sectors of the industry were faced with new entry. The
question asked is whether the established dominant firms adopted an aggres-
sive response to the challenge, or whether they attempted an early oligo-
polistic accommodation along joint industry profit maximisation or quiet
life
lines.
The paper is divided into two main sections: the first contains an outline
of the changing structure of the industry and of the changes in demand over
the period from 1953 to 1977; and the second considers the market conduct
and performance of firms over the same period. Section
I11
presents
conclusions.
I
THE CHANGING
MARKET
STRUCTURE
AND
DEMAND
IN
THE
U.K.
FERTILISER
INDUSTRY
1953-1977
(a)
Market concentration
The fertilisers used in agriculture2 contain three main plant foods
:
nitrogen, phosphorus and potash. Fertilisers containing only one of these
nutrients are called straights, and those containing two or more are called
compounds. This paper is concerned with the markets for straight nitrogen
fertilisers and compounds. Attention is focused primarily on fertilisers
produced in solid form since the alternative liquid fertilisers held
only
an
insignificant share of the market until the end of the 1960s.
In the early and mid 1950s ICI effectively had a monopoly in straight
nitrogen fertilisers. The two major sources of nitrogen fertiliser used at this
time were ammonium sulphate
(21
N)
and calcium ammonium nitrate
This paper is based partly
on
an interview study. Thanks are expressed to the company
executives, Fertiliser Manufacturers Association, and Agricultural Development Advisory
Service staff
who
generousIy gave their time and help.
The
analysis is confined to the agricultural market and hence excludes consideration
of
the household and recreational markets and some specialised parts of the horticultural
market.
Date
of
receipt of final manuscript:
28
August
1979.
1
1
2
R.
W.
SHAW
(1 5.5
N).
For the former ICI, as the dominant member with about
70
per cent
of total production, acted as sole selling agent for the British Sulphate of
Ammonia Federation. For the latter, ICI was the only
U.K.
producer-
its product “NITRO-CHALK, being
a
mixture of ammonium nitrate :ind
calcium carbonate.
In the compounds sector Fisons, with a range of products, was the leader
with a
40-45
per cent market share. ICI, which only produced one product,
held about 20 per cent of the market (Monopolies Commission, 1959).
However, Fisons relied largely on ICI for the supply of ammonium sulphate,
one of the key raw materials in the manufacture of compounds. In addition
to the two major firms a large number of small firms bought intermediates
from Fisons and ICI and mixed them to produce their own compound
fertiliser
s
.
The basic structure in the two sectors of the market was altered by several
major changes. First, Shell Chemicals entered the straight nitrogen sector in
1956 with imports of “NITRA SHELL” prior to beginning manufacture in
the U.K. in 1959. Second, Shell Chemicals entered the compounds sector in
1960 again with imports; and later, as Shellstar Ltd., began manufacturing in
the U.K. in 1969. In 1966 the Shell operation became Shellstar Ltd., a
jointly owned subsidiary of Shell Chemicals and the Armour Corporation of
the U.S.A. In 1969 Armour withdrew and Shellstar became a wholly owned
subsidiary of Shell Chemicals. Finally in 1973 Shellstar’s fertiliser interests
were sold to Unie van Kunstmestfabrieken (UKF), a major Dutch fertiliser
firm.
To
minimise confusion this firm will be referred to as UKF/Shellstar
throughout the paper. The third major disturbance arose when ICI, which
had not seemed very committed to the compound sector, began to compete
more vigorously in this area and consequently widened its range of products
from the early 1960s. Fourth, Fisons, which had previously abstained from
competition in the nitrogen sector, introduced its own straight nitrogen
fertiliser, “NITRO” 26 in 1963.
A later, and probably less important change, occurred in the mid 1960s
with the entry of Albright and Wilson, largely by acquisition, as a potential
large scale competitor in both sectors of the market. In addition there were
small scale entries of several firms as suppliers
of
liquid or gaseous fertilisers.
Some of these firms such as Calor, and more especially
ESSO,
obviously posed
a
threat should they have decided to expand their fertiliser interests in the
U.K. Indeed
Esso
from 1963 onwards was developing into
a
major fertiliser
producer in several parts of the world, including Spain. Finally, ICI’s hold on
the nitrogen sector was also reduced by an agreed order of the Restrictive
Practices Court in 1963 which terminated ICI’s role as sole selling agent for
the British Sulphate of Ammonia Federation.
The changes reported transformed the nitrogen sector
of
the market from
an effective monopoly into an oligopoly with three major competitors: ICI,
Fisons and UKF/Shellstar
;
with other less important firms providing a
small competitive fringe. The compounds sector was similarly transformed
from an apparently accepted (if somewhat uneasily) spheres
of
influence

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