TRANSCRIPT: THE FARMER’S SCOPE
Startup Series: Price Makers & Price Takers - Interview 2, Addendum Phone Call #1
Interviewer: Jack Kingsley, Journalism Student
Interviewee: Axel, Founder of Yeti Bio Cert
Founder: Hello?
Me: Hi, is this Axel? This is Jack, the journalism student, we had an interview a few days ago, I just had some quick questions as part of this continuing assignment for class. I was hoping you might have a few minutes?
Founder: Of course. Hello, Jack, nice to hear from you again. I hope your instructor wasn’t upset with the length of the last interview?
Me: Hehehe… No, that’s part of the project, as it turns out, just about everyone in class went over their time, which is what the teacher knew would happen. And so it leads to the next point in our development, understanding and learning how to rewrite and condense an article to hit the main points.
Founder: Ah, yes. Ok, then here are the main points: Farmer – Free, SmartY-TLC – Robust Hacker Proof adjacent, Yeti Bio Cert – Startup with massive potential.
Does that work?
Me: Hehehe… It works for me. But no, I was calling on something else. Our project also asks us to identify issues that we might have missed developing in the first interview, and doing a call back to confirm some of those points we skipped over.
Do you have a few minutes to talk about some of these points right now? You used these terms in the interview, Price Taker and Price Maker. Can you explain what you meant by these terms? I feel like you were hinting at something bigger.
Founder: Ah, yes, ok. Price Taker and Price Maker. Give me a moment to put it together.
Well, as I might have mentioned, I was surprised when I started this company, how American farmers seem to be locked into a system where they are the lowest rung on the ladder, and their slice of the Farm Dollar is only 11.8 cents, on average, the smallest slice of that pie. So I started looking into other producers around the world, and I started to notice a trend. And that’s when I discovered something that I’ve never really seen covered or talked about anywhere, so here it is.
Let’s talk about a producer, De Beers, located in South Africa, headquartered in London. They produce diamonds, that’s all. You’ve probably heard of them. They don’t produce all the diamonds in the world, only about 30%, and even so, they have managed to become the leading influence in the diamond market. Originally, they started out as what I call ‘Price Takers’.
Originally, before 1870, diamonds were very rare. For two thousand years, they had only been found in India, in alluvial deposits, which means they weren’t dug out of deep underground mines like they are today, but instead, had washed down from mountains over millions of years, by rainwater, and had settled into the gravel and mud of riverbeds. Some of the most famous diamonds, like the Hope Diamond, came from the famous Golconda region which was famous for producing these legendary diamonds. Golconda wasn’t even a mine, itself, but rather a market city where these rare river stones were being brought to be traded to Europe and Asia.
That changed around the 1720’s, since by that time, India’s riverbeds had been completely depleted of their famed diamonds in the early 1700’s, the world was facing a massive diamond shortage. But it wasn’t until 1725 when Brazilian gold miners, sifting through the gravel of local rivers, kept finding these strange, clear, shiny pebbles in their gold pans. They didn’t even know what they were, at first, and would use them as poker chips or counting markers. But once they were finally identified as diamonds, Brazil took over the global markets for nearly the next 150 years.
For both India and Brazil, finding diamonds was incredibly labor intensive. The prospectors had to physically pan through tons of river silt, hoping water had naturally deposited a stone there. Because they still didn’t understand the mechanism for how diamonds were created and how they were being deposited into the riverbeds, the amount of effort and labor needed, kept finding diamonds a rare and expensive event, which helped to keep their price high. But that changed.
In 1867, a 15-year-old boy found a shiny pebble on the banks of the Orange River in South Africa. The miners there realized the diamonds weren’t just in the water, but were actually able to trace the source to the kimberlite volcanic pipes of Kimberley, where diamonds were created deep inside the earth. And it was this discovery that shattered the riverbed economy. Once they understood that the diamonds had only been washed into rivers from these kimberlite volcanic pipes, they knew what to look for, and how to extract diamonds on masse. And we see the diamond economy move from a few diamonds being found with infrequency, here and there, to an understood method of mining thousands of carats of diamonds a day. By 1870, the diamond market had changed from a rare, unique market, to a sudden deluge of diamonds, flooding the market. In an attempt by individual miners to get their hands on this once rare and treasured gem, they were the ruin to their own intent. By working against each other, their human nature worked recklessly to the detriment of all, and they worked tirelessly to mine diamonds in a race to the price bottom.
This didn’t go unnoticed. Cecil Rhodes, an immigrant who worked a claim for his brother, was a sharp operator. He saved his money, and bought an ice maker and a water pump, selling ice to the other miners, and selling his service to pump out the water from their claims. At a moment when the other miners thought they had run out of mineable diamonds by hitting a blue stone bottom shelf, they sold their claims for pennies, and Rhodes recognized an opportunity. He bought up as many claims as he could afford. He even went back to England to get financing from the Rothschilds to back his effort to capture the majority of the mining claims, and when they discovered the diamonds were even more plentiful in this blue stone level, De Beers Consolidated Mines was created, and the story of the ultimate diamond conglomerate starts here.
After Cecil Rhodes passed away in 1902, the company passed into the hands of the Oppenheimer family, and from the 1920’s, through the 1940’s, they used slick campaigns of “A Diamond is Forever”, and introduced their narrative of the 4 C’s – Color, Cut, Clarity, and Carat, to convince the consumer that diamonds that weren’t using their system to define their value, weren’t as valuable.
So what did we see in this evolution?
- We saw an individual recognize an opportunity to buy up the shares of the market, and even Lord Rothschild recognized the value of what Rhodes proposed, and that’s why he financed this venture.
- They recognized that simply owning all the land wasn’t enough, but that they also had to control the market where the diamonds were being sold.
- They introduced their own narrative defining value with the 4 C’s, to the consumer.
- They completely controlled the amount of diamonds being sold on the market at any one time, and would even punish countries that didn’t accept their volume restrictions, by dumping diamonds on the market, until the bankrupted countries acceded.
- They tied the value of a now common gem to a man’s success using the salary rule of how much money you should use when buying a diamond, of citing its hardness and indestructibility as a metaphor for the relationship itself, proving that it had greater value than these other stones like rubies or emeralds, suggesting that their timeless beauty meant that their value would last forever, and by selling the idea that a diamond should never be resold, since it represented the very spirit of love and romance and memories, keeping the market controlled by limiting used diamonds appearing on the market.
What De Beers did, was capture and strictly control the availability of diamonds, fiercely. They control the market that diamonds are sold on. They control the volume of diamonds being sold, even if that includes buying excess diamonds on the market to keep that perception of scarcity. They control the actions of other market entities so that they don’t compete with prices, no bidding wars, no race to the price bottom. And they control the narrative that is told to the consumer, allowing them to define the value of a diamond.
And this, Jack, is how Cecil Rhodes, partnering with the Rothschilds, started a company in 1888 called De Beers, at a time when diamond miners were racing to the bottom, underbidding each other in an attempt to get any money from a now very common semi-precious gem. Rhodes started from being a Price Taker, and over decades, was able to become a Price Maker, even till this day.
So that is what I mean about Price Takers and Price Makers. Does that make sense, Jack?
Me: Yeah… I wasn’t expecting the history lesson, but then, I never even took time to wonder why diamonds were considered so valuable, I just assumed it’s because they are so rare. It seems incredible.
Founder: Yes. And Jack, I want to be clear. There are parts to this history that show how man was able to overcome incredible hardship in extreme conditions, Rhodes didn’t come over as an affluent individual from a family of wealth, but instead, hustled and worked hard, and identified an opportunity, and built on it, until it became the company it is today.
But there is also a very dark side to that man, on how he created these labor camps of black workers, a brutal monopoly that gave rise to apartheid in South Africa. It’s an amazing contrast, because as unbelievable and fortuitous as the first part of the story is, one practically waiting to be put on the screen, the second half of the story, after he achieves that market dominance, puts down any romanticized notions of what a victory his story is.
Jack, I’m sorry, I have to end it here, I need to start a meeting, but I tell you what, call back around Noon, and I can tell you about another Price Taker story.
Me: Yeah, that would be great. Thanks! Talk to you then.