The End of Economies of Scale

After the Industrial Revolution, we achieved mass production in various industries and enjoyed low-priced products. in other words, we received the benefit of “Economies of Scale”

However, after the pandemic of COVID-19 and the conflict between Ukraine and Russia, the global supply chain of foods and manufacturing has been disrupted, and still, some developing countries have a food shortage.

Economy of Scale

The premises of “Economies of Scale” are as follows;

1. There are abundant natural resources.

2. Easy access to those resources

We realize that recently we have had a problem with the above second condition and tend to think that this is just a temporary issue.

However, now we should reconsider the validity of this assumption. When the conflict will be solved? How long do the natural resources last?

Reserves of key natural resources

The most important natural resource is oil. we produce energy and many kinds of materials for every aspect of our lives as plastic. Oil is one of the finite resources.

Do you know how long it lasts?
According to the statistics by British Petroleum and US Energy Agency, it lasts around 50 years.

How about natural gas?
It lasts also around 50 years.

Those precious resources are unevenly distributed in the world.

Reserves of key minerals for food production

How about our food?

For conventional agricultural practices, we use chemical fertilizers.
The three major substances of the nutrients are Nitrogen, Phosphoric acid, and Potassium (NPK).

Nitrogen fertilizer is made by using natural gas.

Phosphoric acid is made from phosphoric rock.
Its reserve is for about 330 years

Potassium from potash ore.
Its reserve is for around 280 years

Regarding phosphoric rock and potassium ore, we can not mine without oil, therefore we should think practical reserves are for 50 years.

Another important fact is that those two minerals are geographically unevenly distributed and produce limited countries.

Major producing countries of phosphoric rock:
China, Morroco, United States, Russia

Major producing countries of potash ore:
Canada, China, Russia, Belarus

How to shift from Economies of Scale?

As you can see, the limited materials are owned by limited countries.

In the short term, the prices of those materials are fructuated however in the long term, we can predict that the prices are getting increase.

In addition, those countries start to use them strategically to keep the food security of their own countries. Therefore, if we do not have a strategic partnership with the above countries, we will not be able to buy them, even paying a high price.

We should shift from Economies of Scale to a new type of economy to keep economic and social independent.

The statistics by British Petroleum and US Energy Agency
Mineral Commodity Summaries 2023