Have you noticed that a significant part of analytical articles published lately contain this phrase, "... Since the time the diamond monopoly of De Beers ended..."? Time and again, experts recall this, regretfully mulling over the decline in consumer demand, the recurring downturns in the market, the volatility of prices, and the need for generic marketing.
Since the last week was not rich in events, we decided to have a little distraction and indulge in fantasies. Actually, if we all recognize that the diamond market was much more stable and predictable under monopolistic control, why not bring it back?
We would like to warn our readers in advance, that everything described below is only a figment of the author's imagination. Which, however, does not prevent anyone from using it to one’s benefit.
The monopoly had a number of undeniable advantages. First, it allowed De Beers to fully control the supply of diamonds. A certain part of rough was mined at the company's own diamond fields, while another part was bought by De Beers from diamond-producing countries and sold off its own bat. In general, it was absolutely unimportant who was mining diamonds and how much – in any case, they were all sold through one single channel.
The control over diamond sales made it possible to always keep diamonds in short supply. No wonder De Beers founder Cecil Rhodes is credited with allegedly saying that if there were only four people in the world wishing to buy diamonds, it should be done so there were enough diamonds for only two of them. Diamonds supplied to the market were measured out in doses, and their price was always high. Surplus stones went to the stock until better times, and this stock also could not reach the market without the monopolist's will.
Thirdly, the control over supply and marketing programs permitted to shape demand not only for diamonds, but also for specific goods. For example, when De Beers started selling Russian rough containing many small-size diamonds, it kicked off a fashion craze for the Eternity Design, which was not a classic ring with one large stone, but a ring graced with several small diamonds set in a row.
And, of course, the monopolist in any case remained in profit, which it received almost from everywhere - from selling its own stones and from reselling stones bought from other miners.
The monopoly of such a configuration is no longer possible in the modern world. To begin with, there is simply no one able to accumulate enough money to buy up all the diamond-producing capacities on this planet. And even if a financial miracle suddenly happens, such a "deal of the century" will be immediately precluded by numerous antimonopoly bodies: in the age of market economy it is forbidden to concentrate all resources in one’s hands dictating prices for commodities.
In addition, African countries, which used to gladly give their mineral wealth to Western companies, are now increasingly adhering to the policy of resource nationalism. Even the historical partners of De Beers, Namibia and Botswana, have won the right to independently sell part of the extracted rough. And it is even more difficult to expect complacency, for example, from Zimbabwe, which in recent years, on the contrary, nationalized all the diamond deposits in the country.
You might ask, how can one control the market inhabited by over a dozen of diamond mining companies, a dozen of trading floors, hundreds of dealers and thousands of manufacturers?
That's how:
Despite the fact that the market structure has changed dramatically over the past 20 years, it still has one "bottleneck", a narrow needle eye, through which the entire flow of diamond goods has to pass. It has just moved a little further down the diamond pipeline.
Today, India manufactures 14 out of 15 polished diamonds cut in the world (probably the 15th rough diamond has not yet made its way to Surat). The world diamond-cutting "monopoly" emerged by itself for purely economic reasons (cheap labor and good geographic location), and therefore there is no antimonopoly committee able to prohibit it. This "monopoly" does not even exist as a single legal entity or association and is represented by thousands of companies, millions of cutters working in the same region and competing with each other. But it is on this basis that one can organize a modern "syndicate" - if, of course, this issue is handled in a smart way and with a little creativity.
What do consumers and industry organizations care about today? The origin of diamonds! Nobody would like to buy a stone associated with financing civil wars or extracted by servile labor of artisanal miners. The industry has been racking its brains for years over how to guarantee the "ethical purity" of diamonds to consumers, however without much success so far. Some diamond mining companies have local marketing programs that promote diamonds by the country of origin (for example, Canadian diamonds), but it is unlikely that the proportion of stones sold in this way reaches even a few percent of the total market.
The main problem of origin guarantee is that no one can track not only the producer, but even the country where a diamond was mined. This can be done neither by a buyer, nor very often even by a diamond manufacturer purchasing rough for processing. The certificates issued by the Kimberley Process – nowadays the only generally recognized tool to guarantee diamond origin - apply only to rough diamonds and in fact guarantee only the first leg of export operations. In an environment, where rough diamonds pass through a chain of several intermediaries and are repeatedly re-sorted on their way to manufacturers, a significant part of them comes to the latter bearing already mixed-origin certificates - that is as a parcel of mixed of diamonds from different parts of the world.
Numerous industry organizations are now trying to come up with their own certification systems, which would be at least some kind of quality guarantee for people who come to jewelry stores. Perhaps, the most advanced in this sense is the Responsible Jewellery Council (RJC), which conducts independent audits throughout the supply chain. The World Diamond Council, being a participant in the Kimberley Process, is pro-actively trying to refine its own safeguards system, which would confirm a non-conflict origin for polished diamonds as well. But, firstly, this work is far from complete, and secondly, taking part in all existing programs to date is a completely voluntary affair, and it is highly unlikely this will attract a small non-network jewelry store located on your street (though such stores account for 60% of global sales).
At this point, there opens a way for creating a new monopoly - monopoly for legitimate polished diamonds, the origin of which can be traced.
Let us assume that you are a large diamond mining company that wants to gain control over the market. (I intentionally do not give here a specific name - in fact, any major company able to implement this plan may win.) Now, let’s watch the player’s hands, as there will be made just three moves to put a mate and win the game.
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You create a technology that allows you to put a laser or any digital mark on all diamonds you have mined, from which one can read all the information about the stone – its characteristics, weight, time and place of extraction, actually anything that may be of interest to the end buyer.
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You launch a large-scale advertising campaign in the media, saying that you have finally invented the first and only way to precisely know all the information about diamonds and confirm their compliance with any possible standards.
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As the only rights holder for this technology, you bring it to India - in fact, the only place where polished diamonds can be cut from rough diamonds. You conclude an agreement on cooperation and joint work with some part of India’s diamond manufacturers, transferring this technology to them free of charge and teaching them how to preserve or reproduce this mark when creating a polished diamond. The rest of the diamond manufacturers are given an opportunity to purchase this technology. You may even not transfer it to individual manufacturers, so as not to be blamed for intentional dividing of the market – you may pass it to GJEPC, and then everything will happen by itself.
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Bingo! Congratulations, now you control the entire global market without a single merger or takeover.
First, the introduction of this scheme will automatically divide the diamond market into two categories – into the "right" diamonds and all the rest. The "right" diamonds are those that can be traced and have a good history including the absence of conflicts behind them, respect for human rights, protection of the environment and other social programs. It is quite possible that consumers will be willing to pay an additional price for the “right” diamonds.
Even if consumers will not be ready for an increase in diamond prices, it will still happen governed by market laws. The ability to track the country and history of a diamond’s origin will not only automatically close jewelry stores for conflict stones. It will also significantly reduce the demand for stones with a "dubious" reputation - in fact, for the stones coming from the majority of African countries. Who will want to buy diamonds from Zimbabwe, if one can find a guaranteed stone from the non-conflict Botswana nearby? The supply of polished diamonds will be reduced significantly in principle, thereby pushing prices upward.
Secondly, the entire global supply of polished diamonds under this scheme directly depends on the "throughput" of the technology and equipment that allows you to place and verify diamond marks. Imagine, for example, that the entire flow of Indian polished goods is sent for verification to GJEPC. The procedure may drag on for a long time due to the large number of stones coming in. Some stones may jump the queue due to existing demand in the market, and some may suddenly go to the end of the waiting list.
Thirdly, in this way you have indirect control over the world's diamond mining. There are other large diamond mining companies operating in the market besides you and they also want to work. They will also have to somehow switch over to “traceable” rough. They may try to develop their own system, thus inevitably lagging behind you for a couple of years, during which your verification system will be able to gain a foothold in the market. Or they will be forced to enter into some kind of cooperation with you - either to purchase your technology, or to pass your verification procedure on a first-come, first-served basis.
Finally, the digital technology that allows you to instantly retrieve information about a product is the best "bait" for millennials, whom the diamond market is trying so hard to attract. Especially if you make a most user-friendly interface for such technology – available, for instance, on your smartphone. When a person’s smartphone camera is directed onto the stone, the special software processes the data and gives out all the pertinent information. For example, not only the date and place of its extraction, but maybe also stories from the Yakut folk epic associated with it or information about social programs in Botswana, or just impressive videos about the mining process. In this case, synthetics manufacturers will have nothing to counter with. What will they be able to say? That they spent two thousand dollars to buy textbooks for a school or that it took them two weeks to monotonously grow a stone in a microwave oven?
With proper organization, no antitrust committee will be able to find fault with such a scheme. With proper organization, such a scheme will not contradict the modern requirements of the Kimberley Process - on the contrary, it will only assure the world community that the industry is fully capable of self-regulation. With proper organization, this scheme will even be difficult to criticize, because in fact it only increases the requirements for companies to comply with high social responsibility and makes their activity in this vein extremely transparent.
I understand that the scheme described above does not seem quite realistic. In what way, for example, will it be possible to mark each diamond? How is it possible to bring into being such a tracking system that would cover the whole world? Well, that's why I called it fantasy. But 20 years ago, smartphones, which now allow you not only to make telephone calls or close transactions, but also to keep huge online databases right in your pocket, seemed exactly the same kind of fantasy. The future belongs to those who develop technology. And maybe someone is creating it right now, typing the code on the laptop, line by line.
Elena Levina for Rough & Polished
