De Beers Seeks EC Diamond Origin Legislation
September 26, 07Sometimes the only way to discover that there are again some diamond issues brewing in the European Commission is through questions raised by EC officials or parliamentarians. So when one suddenly gets questions on "why the London based DTC has such an interest in having new consumer protection EU legislation on authenticity and origin of genuine extracted diamonds to protect against creeping market share of synthetic diamonds?”, clearly something must have triggered this.
When someone in Brussels who doesn’t know the first thing on diamonds queries “Why is the DTC so keen to promote this concept rather similar to the brand protection of European cheeses and wines?”, something is going on.
When the issue of “synthetics” came up and an EC parliamentarian referred to "the concern of the DTC that synthetics may be passed fraudulently as the real thing”, the direction of such possible suggested legislation becomes clearer – though so far I haven’t found any concrete documentation of a legislative proposal.
Actually, a London DTC source said that it all may still be at the stage of “just talking”. As one source specifically mentioned the possibility of a diamond exhibition at the European Parliament, it seems indeed that something is moving.
The reference to “cheese” and “wine” in this context gives a clue to the direction – origin labeling, quality branding, etc.
If we were to ask our readers their opinion on whether European legislation that clearly requires the separation between the natural and synthetic is a good thing, I suspect that there would almost unanimous support. Ostensibly, the DTC is acting – if it is acting, I should add – in line with industry analysis. What worries me – and worries me greatly – is “the small print”. What will a process that so far has gone on quite quietly actually deliver? Where is the stakeholder input? De Beers has made it abundantly clear that it is not any more a Godfather or Custodian, but will do what it finds in its own best corporate interest.
Legislation may, unwittingly, settle questions on the future of the diamond industry and will most likely impact also on who will be in control of that industry. The last thing the EC should want to do is promote future anti-competitive behavior, or even monopolies, under the disguise of consumer protection. Monopoly? What Monopoly?
I refer to synthetics. When looking at the future of gem-quality synthetics, it is De Beers itself that has invested hundreds of millions of dollars (if not more), to have the best technology.
Without getting into technical details, the greatest threat comes from so-called CVD (Chemical Vapor Deposition) technology that can grow wafers of perfect diamonds. That technology is in the hands of less than a handful of players and is not really available commercially yet. Current available synthetics are from the more inferior HPHT (high pressure-high temperature) technologies which produce mainly yellowish-type diamonds. But De Beers owns the world’s most sophisticated CVD technologies.
Personally, I have good reason to believe that within the next 5-10 years De Beers itself will be the leading producer of gem-quality synthetic diamonds. The company has the knowledge; it has great marketing skills; synthetics are really an inevitable technological development, it is a clean and legal product, so it would not make sense for De Beers to allow a potentially highly profitable market to be taken up by other companies.
Just like the theatrics that surrounded the launch of Supplier of Choice, I fully expect Nicky and Jonathan Oppenheimer (more likely Jonathan, who is in charge of synthetics) will call all clients to a theater in London where it will be revealed that in order to protect the integrity of the natural polished markets, De Beers will now become the dominant player in gem synthetics.
De Beers Interest in Product Differentiation Legislation
Still the world’s largest producer of natural diamonds, De Beers has a vested interest in product differentiation. One can have a legitimate discussion on this. Some analysts use synthetics as a quite normal substitution to meet shortfalls in natural diamonds, which would prevent the consumer prices of the natural product from going sky high. That can be discussed at another time.
De Beers is clearly interested in two separate markets. De Beers is already using a kind of wool mark (the Forevermark) to indicate that its diamonds are natural. In the near future all DTC clients will be allowed to apply the Forevermark to all their diamonds, also those acquired from other sources.
If that Forevermark would apply to well over 80 percent of the quality natural polished on the market, De Beers will earn huge revenues from the issuances of the brand marks (paid for by the manufacturers) and from the retailers who will pay handsomely for the privilege of becoming and remaining a Forevermark Authorized Retailer.
If De Beers could secure legislation or international legal recognition of that Forevermark beyond merely trade mark registration, its future role in the polished markets is guaranteed. But, and this is the beauty of the scenario, it opens the way for De Beers to enter into the synthetic business.
It can control the separation, it can legally guarantee product separation, it can avoid the overlap, and it can assure the integrity of both the natural and the synthetic product. Its future income will not depend on partners in African mining countries, but rather on its fully owned synthetic laboratories in Ireland, U.K., China or South Africa. My bet would be that the synthetics would be produced in Europe – if there is the appropriate European origin brand legislation.
De Beers and the industry at large make great efforts to present natural diamonds as rare and valuable and, by implication, something that was created in 24 hours should clearly have a lower value.
In the United States, De Beers is strongly supporting efforts to de-legitimize the term “cultured” diamonds and have the market adopt the term “synthetic” because it sounds less attractive in the ears of the consumer. In a way, it will ease the creation of significant price differentiations. Any legislation in Europe that would advance these objectives will probably be applauded by most industry participants.
So why write this column about it? It doesn’t seem right that a legislative process is being pushed or advanced by a party that has also a deep vested interest in gem quality synthetics.
Europe has a mammoth bureaucracy. These issues will probably fall under the directorate (ministry) of Health and Consumer Protection or Internal Market and Services. None of the staff who, in the past, had anything to do with diamonds would be involved. Any legislation raises the fundamental question on whether EC consumer protection is needed to fight fraud (selling synthetics as natural) or to protect market share (of natural diamonds) and facilitate or frustrate the emergence of distinct separate markets.
Wine, Cheese and Diamonds
The European Commission likes origin labeling. It is puzzling why at the time when all significant De Beers diamond activities seem to leave Europe, an appeal would be made to the same European sentiments that origin label wine and cheese. The EC have registered already some 4,800 geographical indications for products (4,200 for wines and spirits; 600 for other products).
Unrelated to diamonds, the EC has already established that there is a genuine interest for producers to unlock value by capitalizing on consumers desire for diversity and for distinct, quality products. French origin labeled cheeses are sold at an average of 2 Euro per kilo more than French non-labeled cheeses. French “Poulet de Bresse” has a market price 4 times higher than regular French chicken. Producers of milk used for “Comt?” cheese are paid 10 percent over regular milk price. Producers of Italian “Tuscano” olive oil have managed to increase prices by over 20 percent since initiating their origin label. And one can bring many more examples.
An EC document determines that original labeling is “key to ensure fair competition and consumer information. There is ample evidence that they are positive for consumer protection and widely perceived both as origin and quality indicators.”
Promoting consumers’ rights, prosperity and well being are core values of the European Union and this is reflected in its laws. If diamond origin labeling can capitalize on these sentiments and accomplish origin labeling by law, that may well turn out to be a stroke of genius. But if there is such a process going on – and this seems to be the case, though in its early stages – it should not be controlled by interested parties.
This is something that concerns the entire industry.