Chinese Vitamin C Price Fixing Brings Beijing to Brooklyn
|By Michael Angelo, Senior Editor on Tuesday, September 27, 2011|
|Vitamin C is one of the most recognized, most researched and most
widely taken supplements, however, Chinese price fixing of vitamin C
has caused prices to climb in recent years.||
Like many other goods and services with a price tag, cost of medicine is basically guided by the law of supply and demand.
This basic economic principle states that when demand for a particular item is high and supply is low, prices tend to go up. When the opposite situation takes place – demand is low and supply is in excess – prices will go down.
However, it is a very simplistic law often subject to manipulation by business enterprises. When groups of people or companies agree to control the supply of commodities in a bid to lower or increase prices, the practice is called price fixing.
Although essentially an illegal act, price fixing does not always work against the consumer because it could also result in lower prices. A classic example is the current situation where western economies are contracting resulting in tighter consumer spending.
To ensure shoppers would not move to other supermarkets, the largest British retailer announced a major price cut across the board on all groceries items. Rivals, of course, did not take the looming price war sitting down and initiated their own marketing promos to survive in an economic environment characterized by the shrinking value of currencies.
Criminal Federal Offense
In the U.S., pricing fixing is a federal offense under section 1 of the Sherman Antitrust Act. Even agreement on price among competitors, known as horizontal price fixing, is a violation of the Act. However, in 2007, the U.S. Supreme Court declared that vertical price fixing or retail price maintenance by a manufacturer and its retailers does not violate the act.
In 2008, the global medical community was rocked by a price fixing lawsuit involving four Chinese companies. The situation arose because 80 percent of global supply of vitamin C or ascorbic acid is made in China.
Their only western competitor was in a company in the Netherlands, which produces ascorbic acid but concentrates production in Scotland after the firm shuttered its U.S. plant a few years ago.
The four Chinese state-owned pharmaceutical companies, on order of Beijing, reduced production over several months which resulted to a more than 200 percent rise in prices of vitamin C, which reached a four-year high in the end. As a result, prices of vitamin C jumped to $11 a kilo from $3.40.
The hike in prices led to the filing of a lawsuit against the four largest manufacturer of vitamin C in China before a New York court.
What's ironic about the situation is that China became a dominant global supplier of vitamin C as a direct consequence of the U.S. Department of Justice filing price fixing charges against six western drug companies in 1999. After the pharmaceutical firms, known as the vitamin cartel, paid $1.5 billion fines and restitutions, the situation paved the way for China to enter the global market, causing the initial prices of vitamin C to drop to as low as $2 a kilo.
Local Sales to Global Domination
China initially went into vitamin production for local consumption, with millions of Chinese as their target market, but they eventually took advantage of the break-up of the western cartel and became one.
The Chinese manufacturers pointed to Beijing as behind their price fixing. In a lawsuit before U.S. District Court for the Eastern District of New York, Judge Brian Cogan in Brooklyn, North China Pharmaceutical, Aland (Jiangsu) Nutraceutical, Northeast Phamaceutical Company and Weisheng Pharmaceutical sought the dismissal of the class action on the doctrine that foreign nationals should not be caught between their local law and American law.
In a ruling released on the first week of September, Cogan rejected their argument and said Chinese authorities did not force them to fix prices, although the Chinese Ministry of Commerce filed a brief on behalf of the four companies that it ordered them to fix prices. The four firms pointed to a directive from the Chamber of Commerce of Medicines and Health Products Importers and Exporters to coordinate production to battle potential anti-dumping investigation from other countries and ensure that production is market-driven.
In 2009, Washington imposed an anti-dumping duty on Chinese vitamin C imports from China at $3.99 a kilo because of the negative impact of the imports on local industry. The duties are for five years, according to the notification from the U.S. Central Board of Excise and Customs.
However, there are questions about the authenticity of Beijing interference because of lack of identification of a particular Chinese law that led to the cartel.
The class action lawsuit was filed by Animal Science. They filed the lawsuit because the alleged collusion happened in the U.S. in 2005 when sales representatives of the four companies allegedly agreed to fix prices during a trade show in Las Vegas.
Besides the financial aspect, the question over the flooding of vitamin C is also one of health because of previous problems with Chinese-made products ranging from toys to milk found to have been tainted.
What makes it difficult for American buyers to distinguish a made-in-China and made-in-the U.S. product is that the labels state that the vitamin C are marketed by or distributed by a company with a U.S. office address. Another danger is the proliferation of fake products from overseas.
Why Is There So Much Focus On Vitamin C?
Vitamin C is an essential nutrient for humans because ascorbic acid acts as an antioxidant by protecting the body against oxidative stress. It is made internally by almost all organisms with the exception of certain mammals, including human beings.
Lack of vitamin C causes scurvy, which leads to the formation of brown spots on the skin, spongy gums and bleeding from all mucous membranes. Vitamin C could be sourced naturally from fruits such as citrus or in pill form.
The U.S. National Academy of Sciences recommends 69-95 milligrams of vitamin C per day, which is higher than the World Health Organization recommendation of 45 mg.
In 2010, sales of vitamin C in the U.S. reached $970 million.
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