Vitamin Giants

For years in Madera County in the valley north of Fresno, John Peters turned vitamins and minerals into formulas that farmers blended into feed grain and fed to their chickens, hogs and cattle. Such nutritional additives mean quicker-growing animals and more profits for farmers. While it used to take chickens nine weeks to reach broiler size, now they gorge themselves on vitamin-enriched feed and in just six weeks are ready to leap onto global dinner plates.

But Peters said that his vitamin premix business is now in trouble. The chicken side is being gobbled up by vitamin makers Hoffmann-La Roche of Switzerland and BASF of Germany, and he expects that the rest of his premix business will soon follow. Last summer, Peters said, Roche refused to sell him a key feed ingredient because he would not buy all his vitamins from it, and then proceeded to underbid him with longtime customers. In Texas, Missouri and Minnesota, other small-animal nutritional businesses are facing a similar death squeeze at the hands of Roche and BASF, industry sources said.

Yes, these are the same two global giants that masterminded the most rapacious price-fixing cartel in modern business history during the 1990s and got nailed with the largest criminal fines ever levied. Roche paid $954 million and BASF more than $500 million after entering guilty pleas with the US Department of Justice, Canada, Australia and the European Union.

When the cartel was exposed in 1999, Roche, BASF and Rhône-Poulenc (now Aventis) -- which escaped charges because it was the first cartel member to cooperate with the DOJ -- controlled about 75 percent of the $6-billion-a-year global vitamin business. They had used their industry dominance to pressure at least twelve smaller vitamin makers in Europe and Asia into an arrangement that top executives had taken to calling "Vitamins Inc." But now, three years after the cartel was exposed, instead of having been reined in, Roche, BASF and Aventis/CVC (in November Aventis sold its vitamin business to CVC Capital Partners of London for an undisclosed sum) are close to grabbing a near-monopoly in the global production and distribution of vitamins, having increased their dominance to at least 85 percent of the global market.

There is no current evidence that the vitamin makers -- who also supply vitamin additives for food products made by companies such as Kraft, Coca-Cola, Kellogg and Nestlé, as well as alphabet vitamins purchased directly by consumers -- have resumed meeting in secret to fix prices. But a Nation investigation shows how their recent moves illustrate the decline of traditional competition in global sectors dominated by just a few companies, and how those companies can use their market power to exploit customers. Moreover, it reveals the increasingly limited power of governments to protect national economies, consumers and farmers.

Vitamin industry sources across North America and in China said that Roche and BASF appear to operate in unison, using identical strategies to squeeze smaller industry players out of the vitamin business. There doesn't appear to be any sign of real competition between them. In analyzing the recent moves, Gene Reed, an Arkansas animal-feed broker who was a key government witness against the vitamin cartel, said: "It may take them five years to get prices back up to where they were before the cartel was exposed, but they are going to win this one, and there's nothing that the DOJ can do to stop it." The latest schemes began as vitamin prices tanked by almost 50 percent following the guilty pleas in 1999. Roche and BASF decided they needed to substantially lower production costs to protect their market shares, so they embarked on an expensive program to build larger plants equipped with the latest production technology and to close older plants. Over time, they believed, this would allow them to defeat their Chinese competitors as well as other, smaller European and Asian competitors and to raise prices again; it would also make it unlikely that new investors would be tempted into the vitamin world.