China's grip on key food additive
Vitamin C prices have spiked this year. China controls 80 percent of the market.
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Pollution controls and corn prices may not be the only factors in the rise, however. Within the industry, says Mr. Townsend, "it is widely known that prices of the companies here tend to be very similar and price hikes tend to occur at the same time. Certainly there is something going on … that leads to pushing prices up."Skip to next paragraph
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The four major Chinese vitamin C producers are currently facing an antitrust suit filed in the Eastern District of New York by two US companies as a class action suit. The suit alleges the four Chinese companies have established a cartel that "has affected hundreds of millions of dollars in commerce in products found in nearly every American household."
Among court documents are records from the China Chamber of Commerce of Medicine & Health Products Importers and Exporters citing how manufacturers were able to reach a self-regulation agreement to control the quantity and pace of exports "to achieve the goal of stabilizing and raising export prices."
The chamber makes no secret of its intentions on its website, where its regulations are posted. Among the organization's purposes, it says, is to "coordinate the import and export price" of pharmaceuticals "according to government authorization or the common requirements … of member companies."
"If they are selling in China it is not an issue, but they are selling most of their production on the international market, so they fall under different jurisdictions," says Townsend.
The Chinese companies named in the current antitrust case and a Chinese ministry have asked the judge to dismiss the lawsuit. That motion is pending.
The plaintiffs' lawyer, William Isaacson of Boies, Schiller & Flexner in Washington, says the current tightening in supplies "is the same conspiracy that is addressed in our lawsuit and it's obvious it's continuing."
"I know nothing about the current situation," says Joel Mitnick, a lawyer representing the Chinese Ministry of Commerce and a partner at Sidley Austin, a law firm. He says the allegations in the lawsuit concern actions taken several years ago. Stephen Bomse of Heller Ehrman in San Francisco, a lawyer for the companies, had no comment.
Ironically, the Chinese became the dominant exporters of vitamin C only after the US Department of Justice charged six Western companies with price fixing in 1999.
The so-called "vitamin cartel," which supplied 75 percent of the world's vitamins, was convicted and ordered to pay $1.5 billion in fines and restitution. Some executives received jail sentences. One of the largest fines was against Hoffmann-LaRoche of Switzerland. It eventually sold its vitamin subsidiary to DSM.
Until two years ago, DSM produced ascorbic acid in New Jersey. But the market was flooded with Chinese-made vitamin C. The price dropped to as low as $2 per kilo. DSM shifted its production to Scotland.
While the firms of the "vitamin cartel" colluded, the Chinese vitamin C industry was growing. Chinese leaders decided decades earlier that increased production of vitamins was critical to their countrymen's health. Chinese manufacturers were then well placed to take advantage of the breakup of the vitamin cartel, says Peter Kovacs, formerly CEO of NutraSweet Kelco and now a consultant to the food industry. They moved into the world market, taking market share by cutting prices, he says.
The quick shift this year in the ascorbic-acid market is having a ripple effect on some distributors. For example, the Shanghai Solidarity Chemical Industry Co. stopped dealing in ascorbic acid in May because the price was so unstable.
"Producers won't give you a price," says Bruce Yin, the firm's export sales manager. "If they sign a contract today at one price and then the price rises, they need to re-set the price, so lots of distributors are not doing [vitamin C] business anymore."
DSM, the only Western producer, says its Scottish factory can't keep up with demand. "We're getting all kinds of calls from people we have never dealt with," says Alexander Filz, a spokesman in Basel, Switzerland. "Something dramatic is going on."