Vitamin Cartel BUSTED! - the US Justice Department exposed an international cartel of vitamin suppliers, however the breaking of the cartel probably will not mean lower prices for the consumer - Brief Article

Vegetarian Times, Nov, 1999 by Ilaina Jonas

Last spring the U.S. Justice Department cracked an international cartel of the world's largest suppliers of raw vitamins and ended nearly a decade of price-fixing that cost vitamin manufacturers hundreds of millions of dollars. As part of its investigation, the Justice Department learned that suppliers met regularly, divvied up the market among themselves and kept competitors out. These actions affected a huge portion of commerce and products found in American households.

With the demise of the cartel--and the subsequent end to the price fixing--manufacturers will now save huge amounts of money. But unfortunately, those savings will not trickle down to the consumer, says Scott Van Winkle, natural products analyst for the investment banking firm Adams, Harkness & Hill. "When you buy your vitamins, you're not going to see that prices have gone down," he says. "Because this is a very competitive market, the higher prices were never really passed on to the consumer." Instead, throughout the price-fixing years, manufacturers absorbed the increased cost of the raw materials that were being controlled by the cartel. Van Winkle also explains that the cost of raw vitamins represents only a small fraction of the retail price of supplements--usually less than 10 percent. (It's even less for vitamin-fortified cereals and juices.) The bulk of what we pay for goes toward the testing, processing, packaging, shipping, marketing, advertising and profit required by supplement manufactures to turn raw ingredients into a finished product that gets your attention.

While you may not come out ahead at the cash register, the real losers in this case are the cartel members. Swiss pharmaceutical giant Roche Holding agreed to pay a $500 million fine to the U.S. federal government, the largest fine the Justice Department has ever obtained in a Criminal case. Additionally, the company's former head of worldwide vitamin marketing, Kuno Sommer, M.D., was personally fined $100,000 and sentenced to four months in jail for lying about his participation in the racket. Another cartel member, German firm BASF A.G., agreed to pay a $225 million fine, and the Justice Department says its investigation isn't over yet.

To make matters even worse for cartel members, an on-going class action suit brought by 1,000 corporate buyers of bulk vitamins was on the verge of a settlement as of press time. Cartel members had agreed to pay makers of vitamin products and nutritional supplements $1.1 billion in damages suffered as a result of the price fixing. Terms of the settlement were being presented to the U.S. district court in late September, at which time hearings to determine the fairness of the agreement were scheduled to take place.

In the long run, however, consumers may actually benefit, Van Winkle predicts. "We won't see vitamin prices increase if inflation does," he says. If inflation strikes and raw vitamin prices rise, reclaimed damages and the newly created freedom of the market will keep the cost down at the cash register.