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History of Diamonds

The DeBeers Boys

Photo The De Beers group is an internationally based diamond mining and trading company that has controlled the flow of diamonds in the US market place for decades. Perhaps a more appropriate title would be cartel, as De Beers was formed as a group of producers whose goal it was to fix prices, control supply and limit competition, and this is exactly what De Beers has done historically with the trade of diamonds.

The name "De Beers" originated with two Afrikaner farmers, Diederik Arnoldus De Beers and Johannes Nicholas de Beers. The De Beers brothers discovered diamonds on their farm and unable to deal with the stress of protecting the farm from the influx of diamond seekers, they sold the land and the mines. The land was home to two large mines were involved in the transaction: Premier and Kimberly.

Huge battles raged through the next few years as two entities emerged on top of the competition to acquire the land. These entities were the Barnato Mining Company formed by Barney Barnato and prospective investors, Cecil Rhodes and Charles Rudd. While De Beers had already acquired Premier, they wanted Kimberly as well. The buying began, each company ferociously buying up stock in "Kimberly Central." Eventually Rhodes and Rudd won out and forced Barnato to agree to a merger with De Beers.

De Beers Consolidated Mines Limited was thus formed in 1888. As a group, they owned all of Premier, most of Kimberly, and several other mines. The company was granted an official listing on the Johannesburg Stock Exchange in August 1893 (DeBeers.com).



2. Single channel marketing

Photo Over a decade later, the De Beers cartel formed, made up of the newly named Barnato Brothers, Anglo American, and JCI. Anglo American and the Barnato Brothers owned most of the stock, about 90% combined. Through Anglo American, De beers began to acquire a large number of other mines, including the Consolidated Diamond Mines. Some of the largest during their time, acquiring the CDM was a huge coup for the De Beers Group.

In the 1930's, Sir Ernest Oppenheimer, the chairman of De Beers Group and leader of Anglo American, came up with the idea of "single channel marketing" which he defined as "a producers' co-operative including the major outside, or non-De Beers producers in accordance with the belief that only by limiting the quantity of diamonds put on the market, in accordance with the demand, and by selling through one channel, can the stability of the diamond trade be maintained."

This new single channel marketing structure eventually came to be known as the Central Selling Organisation (CSO). Basically, Oppenheimer formed a cartel on the premise that he was operating a legitimate enterprise. He stomped out all competition and kept a stranglehold on the supply of diamonds, upping their value and rarity through a limited supply that De Beers doled out carefully. It is safe to say that during this time De Beers Group owned and controlled about 90% of diamond production in the world; thus they could control the "rarity" and value and keep a hold on the lucrative industry. Many of their dealings were shady, and they were known for particular ruthlessness against their competitors.

3. A Diamond is Forever

Photo De Beers Group operated out of London and sold diamonds in the United States through supplying numerous smaller businesses in the States with the coveted gems. Because of anti-trust laws forbidding, among other prohibitions, the formation of cartels, De Beers could not set up shop in the US.

The diamond market came crashing down with the advent of the depression in the 1930's, and De Beers shut major mines like the Kimberly, Premier, and Consolidated Diamond Mines. They kept up the production of non-De Beers companies' mines to keep a hold on the market and waited for events to even out. But conditions for De Beers continued to worsen with the advent of World War Two, when they were forced to shut down almost completely.

They were revived again in the forties with the help of Oppenheimer's son Harry, who took over the helm of De Beers from his father. He visited the US in 1939 with the hope of finding a marketing firm that would agree to direct a pilot marketing campaign. He met N.W. Ayer and engaged the agency to begin a marketing campaign. They came up with a campaign targeting the emotional value of a diamond. Frances Gerety, a young copywriter for N.W. Ayer, coined the famous slogan "A Diamond is Forever."

4. Marketing and Expansion

Photo The goal behind the marketing campaign was to ensure that women kept their diamonds literally forever. The goal was to prevent a secondary market for diamonds by persuading women that diamonds should be untouched by another woman to really have any meaning. This allowed De Beers to maintain control of the diamond trade at wholesale level and retailers to sell diamonds at a high price without competition from secondary markets. They touted engagement and wedding rings, anniversary necklaces, and anything of value that a woman could want. It was this marketing campaign that made diamond wedding and engagement rings so popular, and pushed diamonds to become the number one coveted gem by women. In fact his campaign was so successful, it worked on an international level and brought countries like Japan into De Beers' sphere. By the late 90's, Japan produced 33% of the worlds diamond commodities (www.wikipedia.com).

De Beers flourished and grew over the years, establishing itself as an international diamond cartel that was highly successful, ruthless against its competitors, and king in the world of diamonds. With a wealth of diamonds at its fingertips, the possibilities were endless.

In the early 1980's De Beers hit another snag as sales dropped and they were once again losing money. But by the late eighties and early nineties they were back on their feet and expanding into other parts of the world such as South America and Asia, into the oceans with the formation of an underwater mining company, Debeers Marine Limited, and throughout Europe.

5. Today

Photo Finally in the 2001 De Beers was allowed to formally partner with Louis Vuitton and sell through them after a lengthy investigation by the European Throughout its decades in operation, De Beers has been accused of human rights violations, dealing in "conflict diamonds," and price fixing, among others. They have repeatedly denied all accusations, but came clean in June of 2004 after they were slapped with a 10 million dollar lawsuit surrounding charges concerning fixed prices in the industrial diamond market. De Beers admitted to price fixing, promised not to do it again, and paid the fine, a slap on the wrist to a company that makes billions upon billions of dollars.
In 2001, De Beers launched a joint venture with French luxury goods company Moët Hennessy Louis Vuitton S.A (LVMH) in order to establish De Beers as a retail brand in the US and internationally. Before the venture was allowed to begin, the European Union competition commission launched an investigation into whether the venture would give De Beers too great a control over the rough diamond market. The commission eventually allowed the joint venture to go ahead in July 2001. In 2005, De Beers gained full access to the US market and set up shop in New York.
Throughout its history, De Beers has been surrounded by contention from all sides. An obvious cartel, they monopolized the diamond industry for decades and remain a powerful player in the diamond industry. They encouraged the mythology surrounding diamonds, touting them as rare and highly valuable. In fact, at one point in 1998 De Beers had to introduce production quotas on its own mines as a result of an influx of diamonds from outside resources. With diamond values in the billions, the company still kept a stronghold on its diamonds and touted them as rarities.

Diamonds are not rare and the only reason they have been so is because of De Beers. Their strict regulation of diamonds has supported ridiculously high prices and an artificially inflated value that remains to this day.
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Currently they are expanding into further ventures in Canada and are no longer a publicly controlled company.

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