De Beers’ steps up ‘wheat-from-chaff’ strategy against Russia
Mbongeni Mguni | Monday August 22, 2022 12:21
One of the world’s leading publications, The New York Times, this week ran an article on Russia’s efforts to prevent the Kimberley Process or any other organisation from labelling its diamonds as “conflict or blood”.
Part of the article reads: “Because of loopholes and technicalities, so-called ethical diamonds don’t really exist, many jewellers acknowledge.”
The statement represents the diamond industry’s oft-stated fears that failing to speak up or censure Russia’s for its invasion of Ukraine, would eventually tarnish the reputation of the shiny stones, a sensitive luxury commodity whose value is largely derived from the storytelling around its purity, mystique and scarcity.
Natural diamonds compete in the luxury end of the market, jostling for consumer pockets against other forms of jewellery, holidays, various types of property and others. With fears of a global recession or strong slowdown, diamonds will be battling for survival against these other expenses as consumers jettison their luxuries.
The failure of the Kimberley Process’ June meeting held in Kasane, to even debate any action against Russia for the invasion of Ukraine and the reactions to The New York Times article, appear to be putting paid to the fears of broad reputational damage to the diamond industry.
The Kimberley Process, known informally as the KP, consists of 85 countries, diamond producers, observer groups, and civic organisations and is the diamond industry’s broadest and most authoritative grouping, enjoying the backing of the United Nations (UN).
While the West has sanctioned Russian diamonds since that country invaded Ukraine in February, Russia, the world largest rough diamond producer, still enjoys revenues from the stones as they flow uninterrupted through Russo-neutral cutting and polishing centres such as India and China, which control more than 90 percent of the midstream market.
Once they have left these cutting and polishing centres, the stones no longer are classified as Russian and thus mix with others and are further manufactured into jewellery and sold into the US, the world’s single largest market for diamond jewellery.
Although major retailers such as Tiffany and Signet have moved to block Russian diamonds from filtering into their jewellery lines, the stones from Moscow are generally the smaller, lower value ones in the market whose provenance is more difficult to ascertain.
Ahead of the Kasane meeting, industry analysts had warned that with Russia’s stones continuing to trade in the global market, ethical consumers, particularly millennials who are an increasingly important part of the diamond market, could either be turned off natural diamonds completely or turn to synthetic diamonds whose sources are easier to establish.
The New York Times article and the dismissal of “ethical diamonds” is being read with concern by producers who had hoped the KP would take a stronger line against Russia.
De Beers, the second biggest producer of rough diamonds after Russia, is stepping up efforts to put more daylight between its stones and those from Moscow, moving its traceability initiatives directly to the consumer.
In May, De Beers announced that its Tracr initiative which uses blockchain to provide diamond provenance to retailers, was being upgraded to handle a million stones a week, giving jewellers such as Tiffany’s the assurance that the diamonds they are selling are from the De Beers’ stable.
While Tracr is “Business to Business”, the new programme, known as Code of Origin, is “Business to Consumer”.
Speaking to Mmegi recently, De Beers’ executive vice president Diamond Trading, Paul Rowley was quick to stress that the consumer facing initiative is “not about Russia per se”.
“This is a programme around the telling of the story of the De Beers’ journey, the countries where we operate, the people and making sure that story goes through and answers the questions that consumers such as millennials may want to know,” he said.
“It’s not around Russia per se.
“Over the years, we have responded to various issues such as blood diamonds and we are looking to enhance and differentiate our own products.
“It’s about bringing that whole ecosystem of the journey into our diamonds and telling the story about the countries where the diamonds are being produced.”
Using a customised code provided with the piece of diamond jewellery, buyers will be able to load the number onto a website and track the source of the diamond and what the community impact of those diamonds is in that particular country. The impact includes buyers viewing how sustainably the diamonds are extracted in terms of the climate change objectives and the work being done to empower women, the youth and similar groups.
Botswana, which produces approximately two thirds of De Beers’ annual output, is the poster child of the diamonds for development campaign that has run for years as a counter to the blood and conflict diamonds.
De Beers is counting on the diamonds for development argument winning against a market which is increasingly sceptical about ethical diamonds, as seen in The New York Times’ article. Diamonds remain inextricably linked to Botswana’s post-Independence economic miracle and have moulded the country’s image as being among the precious few to escape the resource curse.
While the Code of Conduct initiative has been in the works for more than a year, De Beers is trialling it at scale now, piloting it with a few of its sightholders, the exclusive list of buyers who hold the rights to De Beers’ production.
The timing of the initiative is not without foresight. The upcoming period between Thanksgiving in the United States (November) and the Chinese New Year (January), is traditionally the peak selling period for De Beers, where the bulk of the group’s marketing budget is spent.
Testing both Tracr and the Code of Origin during this period will provide De Beers with keen insights on how to move forward differentiating itself from its rivals.
“We have put some quantities in at the moment and we are following them through the pipeline, to see the pipeline’s integrity,” Rowley said.
“If you are going to put claims of origin and sourcing, you have to prove that.
“We have been going through this with our different sightholders and through to the retailers.
“That has been very positive and we are seeing a lot of learnings and how it can operate.”
At some point, De Beers intends to imprint a “trustmark” right into the diamond that would enable buyers to tap into the Code of Origin story and ensure not only ethical sourcing but the impact the gemstone has made in the community from which it was dug up.
“Increasingly, consumers are looking to be inspired and express themselves with the brands they buy,” says Otsile Mabeo, vice president Corporate Affairs at De Beers Global Sightholder Sales.
“As a country and a region, we have a positive story to tell about the diamonds that come from here and that’s the story that we believe the consumer wants to buy into.
“All in all, the story of natural diamonds must be a very positive one.”
For Botswana, the Code of Origin presents an opportunity to take the lead in the global rough diamond story, at a time when the industry is in turmoil, not only as a producer, but as the pinnacle of prudent policymaking and ethical extraction.