As demand slumps and prices drop, the diamond industry looks to be heading into a crisis phase — at least that’s what industry insiders are saying. Couple that with increasing competition between mine-origin and lab-created producers and you have a recipe for uncertainty, stress and finger-pointing. But as a jeweller or jewellery retailer, is picking a side a good idea?
If the idea of ‘war’ and ‘picking sides’ sounds a bit melodramatic, that may be so, but now more than ever those at the consumer-end of the diamond supply chain need to pay close attention to what’s going on.
In a recent article published by Diamond AnalyticsTM, Paul Zimnisky reported that the mine-origin diamond industry is considered by many to be in crisis. With the perfect storm of a global economic slowdown, a trade war between the US and China, tightening bank financing, and, as it turns out, over supply from the mine producers themselves, mine-origin diamond prices are dropping and the dealers and a bunch of other middlemen are getting very nervous as cash flow grinds to a halt.
Meanwhile, mine-origin diamond industry heavyweights are blaming lab-created diamond producers for many of their woes, calling foul on what they feel is unfair competition. At the same time, lab-created producers are taking advantage of the mine-origin Achilles heels — questionable ethics and higher pricing for, arguably, an identical product.
For those of us on the receiving end of all this turmoil — as diamond buyers close to, or at the customer interface — it’s time to take stock and decide who deserves our loyalty.
Of course, it should go without saying our customers should come first, but there’s still a choice to be made. The problem is the diamond industry (mine- and factory-origin) is spinning biased and selectively edited information that makes both sides look really good and really bad at the same time.
No one buys from an industry
Before I start picking things apart, I’ve said it before and I’ll say it again, no one buys from an industry. Jewellers and jewellery retailers buy from a selected group of diamond wholesalers or dealers.
And, importantly, what might be broadly true for the industry as a whole, might not be true for a specific producer, wholesaler or dealer. This cuts both ways — good and bad.
If your primary concern is looking after your customers (which is how I think it should be), then you need to look past the industry bluster, hype and generalisations and focus on whether your chosen suppliers are worthy of your loyalty.
Just because they’re aligned with either the mine-origin or lab-created camp does not automatically make them the good guys or the bad guys.
You need to work with suppliers who reflect your values and the values of your customers by the way they conduct their business.
That said, let’s take a look at the arguments lab-created and mine-origin pundits are presenting to defend their various positions.
Let’s start with the headline act …
Which is more ethical — mine-origin or lab-created?
Whilst there are many nuanced and detailed arguments under the heading of ‘ethical’, I’m going to broadly describe diamond industry ethics as covering two key considerations:
- Environmental issues; and
- Human rights issues (including conflict funding and other criminal activity).
Fortunately for the mine-origin sector, public discussion about the relative environmental responsibility of mine-origin versus lab-created has centered around their respective carbon footprints.
It might sound counter-intuitive to say the mine-based producers have benefited. After all, lab-created producers were able to grab a lot of media attention by claiming much smaller carbon emissions per carat produced. But that may yet turn around and bite them hard.
As time goes by it’s becoming apparent that the lab-grown sector has been riding on the coattails of few high-performers whilst the majority may, in fact, perform abysmally.
The problem is no one really knows. The lab-created industry is unyielding when it comes to publishing verifiable information about their actual carbon cost of production.
Let’s just say trust levels relating to lab-created diamond industry claims are rapidly being eroded. Meanwhile the mine-origin industry is happily pushing a recent Diamond Producers Association-funded report that claims mine-origin diamonds have a much smaller carbon footprint (by supposedly two-thirds) than lab-created.
On this, call me cynical but I have a lot of trouble trusting any industry-funded report. There are simply too many ways to slice and dice the data to support your argument.
Take for example a similar report published by the International Grown Diamond Association in 2014. It claimed lab-created diamonds had carbon footprint 1.5 billion times smaller than mine-origin.
It was hard to believe back then. These days that claim is laughable.
The other thing that has been to the benefit of the mine-origin industry is that all the attention being given to carbon emissions has drawn the focus away from other important environmental issues like habitat destruction, pollution and ecosystem disruption.
I’m sure as far as the mine-origin industry is concerned, the less said about these things the better.
Mine-origin supporters have been vigorously attacking dubious claims made by lab-created producers, calling those claims unethical. But let’s be clear, the mine-origin sector lost the right to claim the ethical high ground long ago.
Not just mining companies
Importantly, the mine-origin industry isn’t just made up of mining companies. Sitting in between them and the consumer are a bunch of middlemen with their fingers in the pie, including the bourses, financiers, the cutting and polishing industry, dealers, wholesalers and other assorted hangers-on.
This is important because the ethical credentials of a product don’t rest solely on what happens at the mine site or in the factory.
You can’t ignore the behaviour of all those who sit between the producer and the retailer. And, let’s be frank, throughout history the diamond industry supply chain has been remarkably adept at turning a blind eye when it comes to environmental concerns, human rights and criminal conduct.
Who demonstrates more humanity — mine-origin or lab-created?
Once again I must stress that it is not right to tar everyone in one sector or the other with the same brush. Just because a diamond came out of a mine does not mean it has been tainted by anything resembling human rights abuses.
Similarly, just because a diamond has been grown in a factory, that does not automatically mean someone or some thing hasn’t suffered for its creation somewhere along the line — potentially in cutting factories or somewhere else in the supply chain.
You need to examine your suppliers case by case and if they can’t or won’t disclose the origin and production history of the diamonds you’re looking at, it’s time to find another supplier. (Or if that’s not practical, take the burden of making good upon yourself.)
But let’s get back to human rights and humanity in the industry generally.
Again, there’s no escaping the fact that the diamond mining industry has a sordid history involving slavery, exploitation, child labour and general skulduggery from the present day going back decade upon decade.
Just as bad are the intermediaries who have, and often still ignore the fact that a percentage of diamonds on the market today are untraceable. Such diamonds could have come from conflict areas, have been smuggled, been used to launder money in some criminal enterprise or have otherwise been sourced via illegal mining. But that possibility is often conveniently ignored.
Let’s face it, where large amounts of money are involved, particularly when associated with a highly desirable, untraceable and very portable product it’s not surprising that human rights get violated, laws get broken and the truth gets stretched beyond redemption.
On the question of more or less humanity at a broad, industry level, based on current information you’d have to place lab-created ahead of mine-origin — because of the issues of conflict-funding, child labour, other human rights abuses and so on.
What about economic development?
Supporting economic development, particularly in developing nations, is a strong argument in favour of the mine-origin sector.
But whether or not this a valid argument depends a lot on who actually benefits.
No question the extractive industries generate a lot of wealth in countries fortunate enough to have mineral wealth to exploit, but who actually benefits the most?
You’d have to be Pollyanna to think that mining companies go into a country with the benevolent intent of solely boosting the local economy. Of course they don’t.
Much of the wealth gets created on foreign shores.
This is also true in the lab-created sector. Most of their factories are sited in India and China where real estate, electricity and life is cheap. The real money gets made elsewhere.
The good news is there are exceptions in both camps.
If you want to do the right thing by your customers, these are the companies you need to seek out. Remember, you’re buying from a business made up of people, not a faceless industry.
Don’t be misled into believing one industry sector is, by default, more ethical than the other. You need to do your homework and look for the shining stars.
Which is better value?
There are two things I want to pick up on here — changing consumer priorities and retained value.
Let’s start with retained value.
Mine-origin promoters commonly claim that their product is a much better store of value than their lab-created competitor’s product, but is this really true?
Part of the pro-mine-origin argument rests on the fact that (theoretically) lab-created diamonds could be produced in unlimited quantities whereas mine-origin stones are a finite resource and will become more rare as time goes by.
This claim is backed up by the following:
- There is no resale market for lab-created diamonds — not yet anyway;
- Some mine-origin diamonds (especially rare coloured gems) retain, and even increase in value over time; and
- There is a market for secondhand diamonds, so they are somewhat liquid.
But here’s the thing, not all diamonds are equal.
It’s absolutely correct that some mine-origin diamonds are a great investment, but that does not mean all diamonds are a good store of value. That simply isn’t true.
And here’s a sobering fact, in the past 10 years alone, some 350 to 400 million carats of jewellery grade diamonds have been extracted from the ground. Annual production currently sits at around 35 to 40 million carats per annum.
Does that sound like a rare product to you?
Unquestionably there are some incredibly unique and valuable diamonds scattered amongst those 30–40 million carats produced each year, but that does not make every diamond special. Investing in diamonds is a very different exercise than simply buying a piece of diamond jewellery, so don’t let your customers be misled by the glitz and glamour.
Are mine-origin diamonds a good store of value?
Ignoring the investment diamond space (because that’s a whole different ballgame), if you’re of the opinion that buying diamond jewellery is a safe place for your customers to park their money, then you should think again. The reality is they will most likely be very disappointed when they go to cash out.
You only need to take a look at the recycled and vintage diamond market to know that to be true.
In an apples-with-apples comparison, it’s highly unlikely you’ll find a recycled or vintage diamond selling at the same price as a newly mined one. At best it might go for 80% of the price of a ‘new’ stone.
But that’s the resellers price. They’re not going to pay an owner anything like 80% of retail. More likely they’ll pay something like 35–40% of retail for a secondhand diamond so there’s some margin in it when they go to resell it.
In other words, the average diamond drops in value by about 60–70% the moment it leaves the store and is unlikely to ever do much better than that — unless sold privately. Selling privately might see a customer recover 70–80% of their initial outlay — if they’re a good negotiator.
So, does this make mine-origin diamonds a good store of value? You be the judge.
It’s probably true that mine-origin diamonds will retain more value than lab-created equivalents, but in reality that remains to be seen.
Are consumers’ priorities changing?
Recently the CEO of DeBeers, Bruce Cleaver, expressed that he thought Millennials would continue to covet mine-origin diamonds in the same way their parents and grandparents do (or did).
I suspect this statement is designed to reassure a jittery diamond market during tough times, but I don’t believe it myself.
With much better access to information and better protections from misleading advertising, alongside concerns about climate change and exploitation of our fellow humans, Millennials and Gen Z don’t view the world with the same naivety and blissful ignorance their parents and grandparents did.
They ask questions their forebears didn’t even think to ask, so you cannot expect the same marketing approaches will work for them as did previous generations.
As a retail jeweller, which is better for your business?
There are a couple of ways to look at this question.
One consideration is whether lab-created or mine-origin diamonds are going to help you generate more profit. The other is which aligns best with the ethics of your business.
In terms of profitability, whether you choose to sell lab-created diamonds is not just about margins, it’s also about how your business is positioned in the market.
If you’re selling at the top end of town where perceived prestige is more important than almost anything else, then your customers might think it incongruent for you to sell anything other than what many regard as “real” diamonds. In which case, selling lab-created alongside mine-origin might harm your business.
If, however, your customer base is more value conscious and less tied in to the so-called ‘tradition and romance’ of mine-origin diamonds, then lab-created could be a boon for you.
Whilst lab-created diamonds sell for about 35–40% less than equivalent mine-origin stones, the margins are still good, so that’s appealing. And many customers will still spend up to their budget rather than keep the savings. (Choosing lab-created means they can afford larger and/or higher specification diamonds.)
Being able to offer a more affordable product may also help with your conversion rate.
Selling lab-created diamonds might result in the average value of a sale going down, but it’s likely that will be off-set by more sales and sustained margins.
All that said, which side do you pick: lab-created or mine-origin?
To a large extent, whether you go mine-origin, lab-created or both depends (as I said earlier) on the positioning of your business.
All else aside, if operating an ethical business is a primary driver, then there’s a strong argument to offer both — provided you carefully select your suppliers.
There’s no denying mining does a lot of harm, but it also does a lot of good — particularly in many developing nations — so writing off mine-origin indiscriminately doesn’t necessarily help make things better.
Likewise, there are still questions to be answered about the true carbon footprint credentials of lab-created diamonds. There’s no denying they have less direct impact on the environment and their human rights record is significantly cleaner, but we should not yet regard lab-created diamonds as environmental knights in shining armour.
For now at least, there is no reason why both products can’t be sold side by side to satisfy the needs and wants of your customers. All you need to do is be responsible and transparent about what you’re doing and why you’re doing it.
Ultimately though, whether you’re making things better or worse as a whole comes down to, as I’ve said several times already, your choice of supplier.
Forget about the industry. You don’t owe either the lab-grown or mine-origin sector anything. But do look out for the suppliers who do the right thing. They deserve your loyalty.
Ethical Jewellery Australia is an online engagement, wedding ring and bespoke jewellery specialist. Every piece we do is custom designed and made to order (with the exception of simple wedding and commitment rings that are offered in a range of simple, popular designs).
We take our customers through the whole process from design to sourcing and finally to manufacturing.
Likewise, we only every use ethically sourced diamonds and gemstones. You can choose from Argyle, recycled, vintage and lab-grown diamonds, Australian, US, Fair Trade, recycled and lab-grown coloured gemstones.
By the way, we offer an Australia-wide service.
About the Author: Benn Harvey-Walker
Benn is a Co-founder of Ethical Jewellery Australia and a keen student of ethical and sustainability issues in the jewellery world. He has a long history in sales and marketing and began working with EJA full time in early 2018.
His main responsibilities at EJA are business development and sales process management. Benn also creates technical drawings for our ring designs.