Production

Behind the Scenes of Diamond Production

Although the classic De Beers engagement ring may contain an unforgettable glimmer that inspires hope and love for the future, its origin may tell a different story. De Beers Jewellery, the company that essentially began the modern day Diamond market, has had quite a past in the production, manufacturing, and retailing process.

Dumping Gravel

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"A clear trend in the global flows of commodities is the advantageous position the Global North is placed at because of the work done by the global south, making the rich richer and poor poorer. "

Source: Wix Photos

The production, manufacturing, and retailing for an engagement ring often take take place in varying countries. A clear trend in the global flows of commodities is the advantageous position the Global North is placed at because of the work done by the global south, making the rich richer and poor poorer. The production aspect of the process involves the exploration and mining of rough diamonds and often takes place in countries such as South Africa, Russia, or Brazil (Fischler, et al., 2013). While the De Beers Company’s original mines are located in South Africa, as of 2013 De Beers had mines in Canada, Botswana, Namibia, and South Africa (De Beers UK Ltd., 2014). Since rough diamond production has the highest profit margin of 16-20%, companies that monopolize this sector, such as De Beers, tend to control much of the diamond market (Fischler, et al., 2013). Figure one illustrates the significant margin of rough diamond production relative to the other stages of production.

Figure 1 (right): Profit Margins of Different Stages of Production

Graphic illustration of the difference in profit margins of different stages of production, indicating rough diamond exchanges and production with the largest profit and the middle stages of production with the lowest.

Figure 2 (left): Cutting and Polishing Cost in Different Countries

Graphic illustration of the stark contrast in price of cutting and polishing between US, Belgium, Israel, and Russia and Africa, China, and India.

Once rough diamonds are excavated, they are sold and relocated to cutting and polishing centers, often located in China and India (Fischler, et al., 2013). Since manufacturing is cheapest in China and India, there is a trend of mass production located in these countries while the more expensive diamonds continue to be cut in the US, Belgium, Israel, and Russia, as illustrated in Figure 2 (Fischler, et al., 2013). De Beers Company however, is attempting to retain as much of the diamond process in joint countries and has actually relocated its cutting and polishing centers from London to Botswana ("Sightholder Sales,” 2014; Fischler, et al., 2013). Indeed, two of the five groups of rough diamond sales are DTC Botswana and Namibia DTC, other sales include global and South Africa Sightholder sales and auction sales (De Beers UK Ltd., 2014). This phase of diamond cutting and polishing requires skilled workers, often needing five years to truly create a quality cut (Levine, 2014). This aspect of diamond ring production generates the smallest profit margin of only 1-8% (Fischler, et al., 2013). Manufacturers often sell these cut and polished stones to retailers to create the jewelry or may create the jewelry and sell to the retailer (Cahill, 2014).

The final step to create the classic engagement ring is jewelry manufacturing by the retailer. The profit margin of this step of the process mostly relies on the prestige of the retailer, with large chains receiving about a 11-14% profit margin while smaller companies only receive about 4-6% profit margin (Fischler, et al., 2013).

The creation of an engagement ring involves the skills and knowledge of various workers from mining to retailing the final product. In order to ensure exploration leads De Beers to the highest quality diamonds, explorers with backgrounds in disciplines such as geology, physics, engineering, and chemistry analyze data to discover the hidden sources of diamonds ("Journey of a Diamond,” 2014). These explorers often use analytical equipment and work in a laboratory setting ("Journey of a Diamond,” 2014). Once diamond sources are located, miners are the key workers in unearthing these precious stones using trucks transporting kimberlite, carbon-rich soil, to be further processed ("Journey of a Diamond,” 2014). At this next step, highly skilled workers known as sorters, separate the finest stones based on the 4Cs criteria- cut, colour, clarity, and carat size ("Journey of a Diamond,” 2014). Once the finest stones have been separated, the diamonds are cut using a diamond cutter and polished on a “scaif”- a polishing wheel containing diamond dust and olive oil- by craftsmen referred to as diamantaires ("Journey of a Diamond,” 2014). The diamonds are then set in the metal fame.

Post WWII and the Role of Neoliberalism

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"The modern history of the diamond in the market highlights two important features, the role of neoliberalism and the difficulty of tying business and goverment."

Source: Wix Photos

It was not until the 21st century when other diamond-producing companies succeeded in reducing De Beer’s monopoly and thereby creating new sales channels (Goldschein, 2014). The main areas of concern in diamond mining are diamonds of conflict, or “blood diamonds”(Levine, 2014). Blood diamonds are used in the funding of violent acts such as civil wars or human rights abuses in countries such as Sierra Leone and Liberia (4). In an attempt to reduce these conflicts, the Kimberley Process was established to regulate the production of rough diamonds and their trade and was implemented and accepted by De Beers in 2003 (3). Although the Kimberley Process is a step forward, there has been criticism over its effectiveness and lack of effect on working conditions (Levine, 2014).

As a commodity so heavily globalized, it is easy to see how it would be affected by global events, such as World War II. During the war, strict trade controls in South Africa made it difficult for jewellers to import supplies, such as palladium and platinum, and threatened their business (Silva 2014) while the control of gold by the government made it difficult to incorporate gold into jewelry (Pinto Pereira Da Silva, 2007). Ironically, local manufacturing grew since trade controls limited foreign jewelry imports and allowed a unity to form among the industry known as clusters (Pinto Pereira Da Silva, 2007). Since diamonds are not a necessity, there was little effort to relieve these strains until after World War II (Silva, 2014).

The establishment of the World Bank, International Monetary Fund, and World Trade Organization/ General Agreement of Tariffs and Trade after WWII has significantly affected the development of the global south, including South Africa, by implementing neoliberal policies. The World Bank’s focus infrastructure in developing countries while the IMF focuses on providing emergency loans to maintain economic stability. The World Trade Organization addresses trade barriers and is often involved in lifting barriers and regulations in an attempt to allow the free market to determine the best competitor. Neoliberalism is commonly defined as pro free-market, privatization and has been associated with reduction of tariffs and public spending and the implementation of structural adjustment programs (SAPs). Structural Adjustment Plans have been implemented by neoliberal institutions, such as the World Bank, which force developing countries to adjust their budget to what the World Bank deems necessary. The main effects of SAPs have been the inability for governments of developing countries to spend money where needed and instead spend on neoliberal economic practices, such as export processing zones.

The effects of lifting the trade barriers after World War II, most likely tied to the implementation of SAPs by the IMF, did relieve some of the strain on the market, but due to declining gold reserves and trade imbalance, South Africa went into an economic crisis (Silva 2014). This spurred the government to place further restrictions on the industry that severely harmed new business and limited established businesses (Silva 2014). Only through persistent lobbying were the restrictions able to be lifted in 1955 (Silva 2014). Furthermore, the lift of trade barriers allowed foreign products to enter the South African jewelry market and drove various local manufactures and workers out of business (Pinto Pereira Da Silva, 2007).

The modern history of the diamond in the market highlights two important features, the role of neoliberalism and the difficulty of tying business and goverment. As mentioned in the video by David Harvey, the monopoly of De Beers controlling nearly 80% of the market is a basic flaw or inherent trait of the capitalist system (Levine, 2014). On an anti-neoliberal perspective, De Beers was able to create wealth and manipulate the market for such an extended period of time due to the lack of regulation (Harvey, 2010). This dishonest past and the entrance of other major diamond producers however, has recently spurred Des Beers to create a more ethical image.

SAPs often go against a country’s needs and as the article by Ellwood describes, SAPs essentially resemble modern day colonialism through the implementation of Western ideas (Ellwood, 2009). Implementation of SAPs in South Africa continued made it more difficult for the smaller clusters to thrive, giving an advantage to the larger, industrial clusters (Pinto Pereira Da Silva, 2007). These negative effects of SAPs are consistently seen throughout the global south, for example the parallels between the banana rulings of the 90s and the diamond industry’s loss of small, local manufacturers are shocking.

De Beers was also involved in the scandal of “conflict diamonds” in the 1990’s ("De Beers S.A.." 2014). According to the United Nations, conflict diamonds are defined as:

“Diamonds that originate from areas controlled by forces or factions opposed to legitimate and internationally recognized governments, and are used to fund military action in opposition to those governments, or in contravention of the decisions of the Security Council."

Major improvements have been made and De Beers now promotes its cooperation with the Kimberley Process and its aid to promote community sustainability. Although the diamond may have had a rough past, current policies indicate a the possibility of a bright future, with more honest regulation.