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Seven observations about the diamond pipeline

27 june 2022

By Ya'akov Almor

yaakov_almor_xx.pngRecently, Pranay Narvekar and Chaim Even Zohar published their "2021 Pipeline" report on the IDEX platform. It makes for interesting reading, but in some instances, the authors seem to have formed opinions earlier that they find difficult to let off later.

1. It isn't De Beers' fault!

Quote: “De Beers, champion of the natural diamond industry, triggered the universal acceptance of the competing LGD product with the launch of its Lightbox range of diamonds.”

If anything, De Beers is responsible for being an innovative and diverse company. And if any doubts as to the legitimacy of LGD in the consumer market must be allocated to anyone, it is to the diamond trade itself and, more specifically, the retail trade. Indeed, the larger retail chains, which have more financial batting power than the myriad of independent jewelry retailers, have been relatively quick on the uptake.

Decades ago, colored gemstone experts witnessed the rise of synthetic gem-quality diamonds and suggested the diamond industry take a page from the history of colored gemstones. The colored gemstone trade has coped with synthetic counterparts - particularly the Big Three, i.e., ruby, sapphire, and emerald - for over a century! Yes, more than a hundred years! As early as the 1970s and 1980s, the American Gem Society (AGS) and the American Gem Trade Association (AGTA) accepted companies manufacturing and selling synthetic gemstones into their fold. And: any respectable colored gemstone dealer will have many books on his shelf about synthetics and keep him or her abreast of recent developments.

Instead of embracing the LGD producers and traders, the diamond industry, famously or infamously dominated by one or two giant producers, whined and complained, thus providing excellent coverage for LGDs. By declaring war on synthetics, the Diamond Producers Association became the de facto advertising agent for LGDs, spending funds the synthetic producers could only dream of!

Then, one of the DPA's founders and funders turned rogue on its fellow collaborators and released its very own line of LGD jewelry. Surprise, surprise? True enough, De Beers has never advertised that it has been one of the world's largest producers of synthetic industrial diamonds for many decades. So now we have De Beers, as a friend commented, "playing both roles as proponents of natural and LGDs, singing in perfect harmony but in separate church choirs." Good for them.

2. The price of diamonds.

Quote: “Those who have followed our annual analysis for many years will remember that we have said that eventually the price differentiation between natural and LGD will disappear, and the market will know only one product, called diamonds.”

It need not be so. Industry self-regulation will be critical when it becomes clear that the Kimberley Process Certification System is dead. There is no lack of tools – created by third parties not obligated to this miner or that company – that can trace diamonds throughout the supply pipeline, including the bread and butter goods, i.e., small and melee diamonds.

Remember the sterling work that the Indo-Argyle Council (1993-2008) did for so-called 'near-gem' diamonds? That, too, was all about disruption.

Now we need the "NDC-Under 15 Council." The Natural Diamond Council (NDC) needs to allocate significant efforts - and funds - to ensure that the miners and the manufacturers use traceability procedures that guarantee proof of provenance of the smallest diamonds. Most of these polished goods weigh less than 15-carat points. 

Example of a retail jeweler explaining the diamonds set in a ring:

“Yes, madame, we guarantee that these 28 invisibly-set diamonds in your new diamond ring are from Namibia, Russia, and Angola! No, madame, we can not say which stone is from where, but our blockchain-based traceability program is rock solid. Let me show you.”

Add a romancing and storytelling campaign of small diamonds with a slogan, alà James Herriot: “All creatures great and small,” and you have your model to ensure price differentiation between natural and LGD small goods.

Ultimately, it will all depend on the miners, manufacturers and their downstream clients cooperating on providing and proving the provenance of small and melee diamonds. The better a story they tell, the more chances they will have to enchant the consumer and get their price points. Without these efforts, jewelry manufacturers will turn increasingly to LGDs to satisfy their demand and make Narvekar and Even-Zohar's nightmarish predictions come true.

3. Too late for rebellion?

“It is just a matter of time before countries that produce natural diamonds fully realize the irreversible damage the legitimization of lab grown diamonds has caused to natural diamond pipeline. In any case, it is probably too late for Botswana and Namibia to rebel against De Beers.”

Reportedly, as the negotiations between De Beers and the Batswana government are at an impasse, the government has engaged a couple of former De Beers executives for advice on handling the talks with their former employer.

Both the Namibian and the Batswana governments have repeatedly stated they want to see the origin of their diamonds preserved throughout the pipeline, to little effect with De Beers. Meanwhile, De Beers only has been paying lip service to projects concerning origin and traceability. It created a few cameo projects with Tracr, but there is not much to it.

Therefore, once Botswana and Namibia take control of their production and how their diamonds travel through the pipeline, they will not need to be chained to any proprietary traceability program and can choose their own blockchain-based tools.

They've already proven that they can! Botswana's independent diamond selling firm, Okavango Diamond Company (ODC), has started a traceability project with GIA for its larger stones. It is also eager to follow in Lucara's footsteps and enter into partnership agreements with downstream players to realize profit sharing on the resulting polished goods.

Consequently, while manufacturers may still be buying from de Beers or other miners/rough sellers working in various countries, these manufacturers will then will be marketing 'country of origin' first and not a company label.

4. Natural and LGD carry the same love message:

Quote: “While the market share of LGD based jewelry is constantly increasing, a good portion of the wholesale demand for LGDs still continues to come from introduction in new stores, rather than end-product demand. But this will change because of the sophistication and effectiveness of LGD promotions, including the marketing spend by Lightbox. Also, most of the sellers of LGD jewelry come from a natural diamond background and some of the same practices like memo offerings etc. have started to be used in the LGD industry to push sales. Actually, the very same emotional love message used for natural diamonds are now also applied to the LGD product.”

This argument is based on the current 'animosity' between the natural diamond and the LGD markets. It need not be so. Retail marketing education and alternative messaging will be essential to eliminating this animosity. These necessities will require retailers to step up to the plate as well. Admittedly, this is a challenge for independent and smaller chain retailers.

Imagine this: The NDC will teach retailers not to shy away from LGDs, but to use them in their marketing and storytelling. 

A retail jeweler talking to a veteran customer: “Mr. Jones, you're a loyal customer, and we appreciate it. Do you really want to spend five grand on your 16-year-old granddaughter's diamond pendant? Imagine her losing it at the beach or on an outing? Look, this is an LGD in ice blue that will cost you 800 bucks. Remember how you taught her to ride a bike, first with trainer wheels, when she was a kid? Well, an LGD is like a 'training diamond.' You can buy her that unique Namibian diamond, mined by a youngster of her age, when she turns 18!”

5. Hypocrisy remains rife

Quote: “It is clear that for the diamond industry, sanctions are here to stay and the industry needs to be ready for the long haul, and choose which side to take. The sanctions will probably continue even after the conflict stops. One of the primary strengths of the industry is its resilience and the adaptability of its companies, as it has proven again and again over the decades.

Reports indicate that Russian rough has already started finding its way to the market. As our industry adapts to the multi-polar environment, companies clearly need to take sides, having to scale down their business in order for them to continue being compliant.

With the current regulations in place, the industry is likely to be split down the middle, with some companies abiding by the sanctions and other companies dealing in Russian diamonds but not supplying them to the developed world.

In other words, India is expected to find ways to circumvent the sanctions and purchase, produce and sell Russian-sourced diamonds without retribution.”

Of course, there will always be crooks, whether it concerns sanctions or other regulations. There aways will be Modi', Choksi's, or other crooks that will soil India's reputation. But when blockchain-based traceability becomes the new KPCS, i.e., national law in each country of origin, and the World Diamond Council updates its System or Warranties accordingly, crooks will have fewer opportunities to con the system. If only the US State Department would weigh in and advance legislation to that extent… A pipe dream?

6. It is possible to segregate small rough diamonds but it is way too costly.

Quote: “Segregation of larger stones (>0.20 carats), which are generally polished individually can be done managed by the industry. The challenge is in the smaller diamonds which are traded and sold in parcels with parcels being mixed multiple times.”

This problem has been solved. There are several affordable block-chain based programs out there that can be used. Take a look, for example, at a relatively new traceability program called iTraceiT (www.itraceit.io/). It is not rocket science, and it can be done.

7. The legitimacy of LGDs.

Quote: “Most big brands have stayed away from using lab grown diamonds in their jewelry or watches. The question remains whether they will cross the Rubicon and decide to use LGD in their luxury products, and whether their consumers will accept those products and the spin their marketing teams will give to that decision.”

LVMH and Benny Landa have just answered that question [https://www.businesswire.com/news/home/20220609006051/en/LUSIX-Completes-90-Million-Investment-Round-from-LVMH-Luxury-Ventures-and-Other-Key-Investors].

What will LVMH be doing with those LDGs? Getting more market share in the affordable luxury product market!

Recently, Swatch made a brilliant marketing move: it released what I call the "Swomega" watch.

Called the Omega x Swatch, it is part of the Omega x Swatch BIOCERAMIC MoonSwatch collection. Watch lovers can now put a hipster version of Omega's legendary Speedmaster Chronograph on their wrist for just $260, instead of the more than six grand a consumer will pay for an original Omega's legendary Speedmaster Chronograph at retail. If you can find me Swomega for the official retail price, let me know. They become a collector's item overnight and sell at much, much higher prices in the secondary market.

How long will it take for luxury watch companies to follow a similar pattern? And offer much cheaper, automatic watches, their dials set with LGDs?

Time for the NDC and the industry to get cracking.