The De Beers Diamond Cartel

The Diamond Cartel

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History

De Beers is a private cartel of companies that dominates the entire diamond supply from mining to manufacturing to shops. De Beers was founded in 1888 by Cecil Rhodes, a British businessman. In its heyday, De Beers was active and dominant in every category of diamond mining and manufacture. They utilized open pit, underground, large scale alluvial, coastal, and deep sea mining in Botswana, Namibia, South Africa, and Canada. The company had essentially a global monopoly on the diamond industry for many decades. This lead to many allegations of price fixing and antitrust behavior that were undoubtedly true.

Cecil Rhodes got swept up in the diamond rush of 1871 in South Africa, and began buying up land claims of small mining operators. With additional British funding support, he was able to eventually become the sold owner of all diamond mining operations in South Africa.

In 1889, Rhodes negotiated with the London Diamond Syndicate, who agreed to purchase fixed amounts of diamonds at an agreed upon price. This strategic plan regulated diamond output and maintained diamond prices in London. By controlling all supply, De Beers maintained complete control of diamond prices, and could maintain them at an artificially high price level. Cecil Rhodes died in 1902, when De Beers controlled 90% of the world's diamond production.

Also in 1902, the Cullinan Mine was discovered in South Africa. This new large diamond source threatened to weaken the De Beers monopoly. The new Cullian Mine was able to produce as many diamonds as all of the De Beers mines combined, and also yielded the largest diamond ever discovered (the Cullinan Diamond, now part of the Crown Jewels of the United Kingdom).

Ernest Oppenheimer, a major force in the Cullinan Mine venture, took over chairmanship of De Beers in 1927, finally absorbing the Cullinan Mine into the De Beers fold. Oppenheimer understood the core principle of controlling the supply chain that precipitated De Beer's success, and continued running the diamond cartel with that principle in mind.

"Common sense tells us that the only way to increase the value of diamonds is to make them scarce, that is to reduce production." - Ernest Oppenheimer, 1910

Monopoly

De Beers has been using its dominant position to manipulate the international diamond market throughout the 20th century. The company has been able to successfully pressure independent producers to join its diamond monopoly. When producers refuse to join the cartel, De Beers would simply flood their local market with diamonds to drive down the price of competitor diamonds to an unsustainable level, forcing the competitor to join or go bankrupt.

De Beers additionally will purchase diamonds from other manufacturers and stockpile them in further efforts to control supply.

Changes in Business Model

After decades of control, the De Beers monopoly has begun to weaken. New diamond mines were discovered in Russia, Canada, and Australia, and these producers have decided together to distribute their diamonds outside of the De Beers cartel.

Additionally, increasing public awareness of "blood diamonds" has forced De Beers to change their business tactics to avoid bad publicity. The De Beers monopoly that was over 90% up until the 1980s has fallen to around 50% as of 2012.

The De Beers Family

The De Beers Family of Companies is involved in most parts of the diamond value chain. Companies are as follows:

  • De Beers Canada – mining

  • De Beers Consolidated Mines – mining

  • De Beers Diamond Jewellers – retail

  • Debswana – mining

  • Diamdel – trading

  • Diamond Trading Company – trading

  • Diamond Trading Company Botswana – trading

  • Diamond Trading Company South Africa – trading

  • Element Six – Advanced Materials / industrial diamonds

  • Forevermark – retail

  • Namdeb – mining

  • Namibia Diamond Trading Company – trading

De Beers is involved in every step of the supply chain from mining to trading to the retail sale of diamonds and diamond jewelry.

Advertising

De Beers has over the last century been highly successful in manipulating consumer demand for diamonds. Its most effective marketing strategy has been the marketing of diamonds as a symbol of love and commitment.

A copywriter coined the famous line "A diamond is forever" in 1947, which has been named the Best Advertising Slogan of the 20th Century. The ad campaign is regarded as one of the most successful in history and changed the general public’s perception of diamonds. No longer were diamonds seen as a gem reserved only for Royalty and the highest of society, they came to represent love, affection and faithfulness.

The Diamond solitaire is now pretty much synonymous with engagement rings 

The Diamond solitaire is now pretty much synonymous with engagement rings 

The "A diamond is forever" campaign greatly increased consumer demand for diamond engagement rings, especially large diamond solitaires. The prevailing fashion at the time was a single large diamond. However, De Beers had recently acquired mines in Russia that produced smaller diamonds less than 0.25 carats.

Faced with the problem that large diamonds were selling, but smaller diamonds were doing comparatively poorer, De Beers came up with other advertising campaigns designed to sell more diamonds, in particular the small "accent diamond." They began marketing the "eternity ring" in the 1960s. This is thin precious metal band with a continuous line of similar sized small diamonds along the circumference. The Eternity ring was marketed as symbolizing never ending love.

 
An Eternity Ring, with a continuous line of small diamonds

An Eternity Ring, with a continuous line of small diamonds

A Trilogy Ring, with a large diamond flanked by two medium sized diamonds 

A Trilogy Ring, with a large diamond flanked by two medium sized diamonds 

Another ring style popularized by De Beers, the "Trilogy Ring," consists of one large diamond flanked by two smaller diamonds, meant to represent the past, present, and future of a relationship. De Beers also introduced the idea of the "Right Hand Ring," bought and worn by women as a symbol of independence. All of these advertising campaigns had a single goal - sell more diamonds.

The De Beers advertising campaigns over the last century have been overwhelmingly successful at altering public opinions of diamonds. De Beers is the only reasons diamonds are associated so strongly with engagement rings, love, and marriage.

Traditionally, plain gold bands were used for the symbol of a wedding union. But this all changed after the DeBeers "A Diamond is Forever" campaign. Now it is expected that men propose with a Diamond engagement ring, and anything different is highly uncustomary. Diamond engagement rings are not only glamorous they have a very special meaning attached to them, they symbolise commitment and the next chapter in a couple’s life, which combined with their beauty is why they are so desirable.

‘Diamonds are a girl’s best friend,’ a phrase and song made famous by the 1949 movie Gentlemen Prefer Blondes in which Marilyn Monroe first performed the song, shows how deeply ingrained the idea behind diamonds has become in society. De Beers was not involved in the song, but I'm sure they were thrilled that the glamorous Marilyn Monroe was helping them promote diamonds.

Diamonds had attained a life of their own. They do not need De Beers marketing anymore because it was originally so successful, diamonds have become a societal norm. People unconsciously associate diamonds with love, women expect diamonds as engagement gifts, men are expected to buy diamonds. Diamonds have become so deeply ingrained, that the diamond is now self sustaining in our culture.

Although the De Beers monopoly has broken up, the company still retains 50% control of the diamond supply, and the De Beers legacy lives on.

Please feel free to leave comments or thoughts you have on the De Beers Diamond cartel. Does it make you want to look for diamond alternatives? My next post will be on sapphires and other gemstone alternatives for engagement rings!

Bonus Facts

  • Cecil Rhodes was the founder of the south African territory of Rhodesia, which was named after him in 1895. He was an ardent believer of British colonialism.
  • Rhodes University in South Africa is also named after Cecil Rhodes
  • The Rhodes Scholarship, a prestigious international postgraduate award for selected foreign students to study at the University of Oxford, was set up and funded by his estate