(Roughly) Daily

From the ever-illuminating Matt Stoller (@matthewstoller), eagle-eyed sentinel against exploitative monopolies…

I write a lot about big tech, but today’s issue is about something so basic and fundamental we literally don’t think about it. Salt. Salt mining is one of humanities’ oldest industries, with wars fought over this commodity. Cities like Venice monopolized the salt trade in the middle ages for geopolitical reasons, and the British tried to block colonists from access to salt during the American Revolution to prevent their ability to preserve food. 

Today salt is still used in everything from chemicals to food preservation. Its main use is deicing our roads, because salt from mines across North America, and shipped in from overseas, makes it possible to drive in all sorts of weather. Salt saves lives, stops car accidents, and makes our economy run. 

And in the U.S. and Canada, salt mining is being monopolized, as we speak…

In the winter, when it’s really cold and snowy, what Americans need is not a competitive semiconductor industry or better app stores. They need salt. And not the kind of salt that flavors our food, but the kind that melts snow and ice. If we don’t have salt, no one can drive, because salt is what keeps our roads manageable. Without salt, trucks can’t deliver supplies, people can’t get to stores or work, and the economy comes to a standstill. 

And people die. A lot of them.

Every year, over 1300 people die in car accidents due to snowy, slushy, or icy pavement, with another 117,000 injured. Snowy weather is also a huge waste of time and money, costing roughly $500M a day, and 544 million vehicle-hours a year of delay. Road salt doesn’t eliminate this problem entirely, but it comes close, reducing collisions by up to 88% and injuries by 85%. Studies show that deicing salt pays for itself within the first 25 minutes after it is spread. Roughly 40% of domestic salt, produced largely from mining, is used not for food or chemicals, but for deicing. It’s a major expense for cities and states, and commercial customers like shopping malls. And because weather leads to demand spikes, and America tends to operate in just-in-time style inventory models instead of managing risk by storing surpluses of critical commodities, there are often shortages of road salt precisely when everyone needs it most.

And that’s why I paid attention when ex-convict and junk bond king Michael Milken’s alleged private equity firm, Stone Canyon, bought two major salt producers over the last year. Early in 2020, Stone Canyon acquired Kissner, a producer of deicing salt, private label consumer salt, and salt-related chemicals. Then, nine months later, Stone Canyon bought Morton’s Salt, the largest producer in the world, for $3.2 billion, and it is now awaiting antitrust approval. Kissner is itself a roll-up of the salt industry, having bought Central Salt and Lion Salt and turned itself from a small Ontario-based regional distributor of ice melt into one of the giants of the industry. So Stone Canyon is overseeing a roll-up of roll-ups.

This series of mergers should terrify cities across the upper Midwest, who have to buy salt in unpredictable spot markets and often deal with shortages when the weather gets bad. Minnesota, for instance, bought roughly 1.5 million tons of salt for the 2020 season. Salt is a regional business, it’s just not economical to move extremely bulky road salt over land more than 150 miles, so while port cities can get salt from abroad in ocean vessels, and salt can be barged up the Mississippi river, much of the upper Midwest and Canada has to buy local. (It doesn’t help that America’s rail system is monopolized.)…

The salt industry is an oligopoly, and the number of suppliers to Governments in regions of the Great Lakes markets will shrink from 4 to 3 and in some geographies from 3 suppliers to 2. There are two consequences of this consolidation of salt production. The first is that prices will go up, and municipal budgets will be stretched. 

Salt is sold in blind bidding processes. Governments put out tender offers, and then suppliers bid. When bidding, suppliers will set prices by considering the supply levels among competitors. If there are only two competitors in a market and one of them has committed their salt production for the year, then the remaining one is a monopolist who can just set the price. This is particularly true for a bunch of Midwestern states, like Michigan, Ohio, Indiana, Illinois, Wisconsin, and Minnesota.

But the much more serious problem is that of shortages. The industry manages demand spikes from weather not by having spare production capacity or lots of storage, but by overpromising salt deliveries. The rule of thumb is that one out of every five years will see a mild winter with few sales, three out of five will be snowy but normal, and one out of five will involve extreme weather and much higher demand. Of course, rules of thumb have gone out of the window now that there’s more extreme weather, which means demand drops and spikes will be more common. 

One of the best ways of winning market share is to bid low, and then if demand is high, to simply not deliver to Commercial customers (Landscapers that service residential and commercial customers are almost always shafted first, meaning driveways and sidewalks go unsalted.) There are penalties in contracts for doing this to government customers, but when the snow hits, it doesn’t matter and the producers often pay the penalties if they are even enforced by the government entities. All customers need the salt when it snows, and a contract dispute doesn’t get in the way. 

It’s quite possible, and indeed likely, that shortages will worsen. Without competition, it will be much harder to go to a different supplier, because there won’t be any other suppliers. And private equity takeovers in general are operational nightmares, which means that it’s likely Kissner and Morton will have problems with production and distribution purely because mergers tend not to work out. 

There’s one final piece of the problem. Because private equity firms have too much money and not enough acquisition targets, prices for mid-market industrial companies are really high. So Stone Canyon almost certainly overpaid for both Kissner and Morton’s. To justify its investment, Stone Canyon is going to have to cut costs and reduce capital spending, which will harm production, because salt mining needs a lot of investment. Then it will likely have to raise prices. In other words, if the merger goes through, the financial pressure of paying such rich prices for salt firms will force significant price hikes, and potentially shortages in the market… 

A private-equity salt roll-up suggests that we’re in for shortages and price spikes: “How a Salt Monopoly Could Spike Car Accidents in the Midwest,” eminently worth reading in full.

For other reasons to be paying attention to salt: “How America got addicted to road salt — and why it’s become a problem.”

* Lawrence Lessig

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As we study saline substitutions, we might recall that it was on this date in 37 CE, following the death of Tiberius, that the Roman Senate annulled Tiberius’ will and confirmed Caligula, his grandnephew, the third Roman emperor.  (Tiberius had willed that the reign should be shared by his nephew [and adopted son] Germanicus and Germanicus’ son, Caligula.)

While he has been remembered as the poster boy for profligacy, Caligula (“Little Boots”) is generally agreed to have been a temperate ruler through the first six months of his reign.  His excesses after that– cruelty, extravagance, sexual perversity– are “known” to us via sources increasingly called into question.

Still, historians agree that Caligula did work hard to increase the unconstrained personal power of the emperor at the expense of the countervailing Principate; and he oversaw the construction of notoriously luxurious dwellings for himself.  In 41 CE, members of the Roman Senate and of Caligula’s household attempted a coup to restore the Republic.  They enlisted the Praetorian Guard, who killed Caligula– the first Roman Emperor to be assassinated (Julius Caesar was assassinated, but was Dictator, not Emperor).  In the event, the Praetorians thwarted the Republican dream by appointing (and supporting) Caligula’s uncle Claudius the next Emperor.

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