When De Beers Stopped Hoarding Diamonds

For most of the twentieth century, De Beers ran a simple trick. Whenever a rival mine in Australia, Russia, or anywhere else produced rough diamonds, the company's Central Selling Organisation in London tried to buy them, warehouse them, and meter them out at prices it set. The cartel's job was to make sure no diamond ever showed up at a price De Beers didn't want.

By 1999 the trick had stopped paying. Canadian and Russian producers were going around the channel, and the London warehouse was sitting on roughly $3.9 billion of unsold rough. The company hired Bain & Company to look at the books, and Bain's verdict was blunt: capital was being tied up keeping prices stable for competitors who were no longer cooperating.

What came out of that review, announced in July 2000, was a program called Supplier of Choice. De Beers would stop policing everyone else's supply, sell down its stockpile, and reposition as a marketer of its own stones, investing in advertising, in branded retail with LVMH, and in a smaller, vetted group of cutters and polishers (the 'sightholders') who agreed to spend on downstream marketing in return for access. The seller of last resort became the seller of choice.

The stockpile came down between 2000 and 2004. Prices held up better than skeptics expected, partly because Asian demand was rising into the supply. The structural change was permanent: by 2019, De Beers' share of rough diamond production had fallen to about 29.5 percent, from the 80-90 percent it had held through most of the previous century. The company that spent seventy years engineering scarcity decided scarcity was no longer its problem to engineer.