How Diamond Giant De Beers Owned All of The World’s Diamonds For Over 100 Years

Introduction

As of 2023, the diamond mining corporation De Beers distributes approximately 29.5% of the world’s diamond supply, but one does not have to go too far back in time to recognize the time when 80-85% of the world’s diamond supply was owned by the aforementioned De Beers Group, making the corporation as clear of an example of a monopoly as you are going to see. It is extremely rare to see a single entrepreneurial entity in the exclusive control of a production resource at any point during the history of global economies, especially in the last century. However, that is precisely the extraordinary situation that De Beers had found themselves in upon its founding. The question everyone is itching to find an answer to is, how did De Beers gain exclusive control over diamond mines worldwide?

Background

In the late 1800s, a British mining magnate, Cecil Rhodes, started the mining industry by renting water pumps to many miners during the Diamond Rush in South Africa. On one occasion, miners working in collaboration with Rhodes had discovered an 83.5-carat diamond named, “The Star of Africa” at a territory near the Orange River of South Africa, Hopetown. The profits obtained from this operation were invested into the acquisition of land claims of mining operators by Rhodes, with the operations expanding large enough to form a separate mining firm, which subsequently prompted the founding of the De Beers Consolidated Mines in 1888. By the time the merger, which had seen the foundation of De Beers, had been completed, the firm became the sole supplier of diamonds in South Africa, the area most abundant in diamond resources.

Business strategies

To keep production scarce and the value of the commodity high, Rhodes struck a deal with a London-based diamond syndicate, which stated that the syndicate would purchase a fixed amount of diamonds at a fixed price in 1889. The strategy turned out to be a very economically efficient move from Rhodes, as during the trade slump in the years 1891-92, the supply of diamonds was simply limited to navigate the slump and maintain profit margins, leaving the corporation relatively unfazed and dominant in the diamond industry, with the firm reportedly controlling 90% of the world’s diamond production by 1902. De Beers continued to gain a more significant foothold in the diamond market later into the 20th century, with the Oppenheimer family taking over the chairmanship of the corporation and broadening its operations globally. De Beers was able to swiftly enter the diamond industry in a wide range of countries from all over the world, including Canada, Australia, Malaysia, Portugal, Zambia, and Tanzania, which helped reaffirm the firm’s position as the dominant supplier in the global market for diamonds throughout the 20th century. In efforts to further cement itself as a monopoly in the diamond industry, De Beers had to exercise some of its monopsony power in the process, as amongst their business strategies was the purchasing and stockpiling of diamonds produced by other manufacturers along with the acquisition of surplus diamond resources as a means of limiting the supply in the market, remaining the sole supplier in the diamond industry, and keeping prices relatively high, resulting in more significant revenues for the corporation. De Beers was also able to outcompete its competitors by producing quality goods of similar but differentiated nature. This subsequently helped De Beers gain a more significant share of the diamond market, reaffirming De Beers’ status as a monopoly in the diamond industry. 

De Beers in the present diamond industry

In the 21st century, following the effects of factors such as the decision of diamond manufacturers to mine outside of the De Beers channel forced the corporation to switch to a different business model and start limiting sales to the firm’s self-produced 

diamonds. This subsequently created a significantly different market structure in the diamond industry relative to the late 19th, and 20th centuries. The reduction in the barriers to entry has created a more competitive market with greater cash liquidity, causing De Beers’ market share to reduce to around 29.5% as of 2019. Despite this, De Beers is still the largest rough diamond producer by value and continues to dominate the diamond industry along with Alrosa and Rio Tino, in a market structure increasingly resembling an Oligopoly. The story of De Beers’ dominance in the diamond industry in the 19th and 20th Centuries is a classic example of how near sole and exclusive ownership of a production resource (diamond mines, in this case) can put a firm in a position of power over a particular market for an extended period.

Written by Arsen Ashlyayev | Proofread by Yasmin Uzykanova