The diamond industry has long been associated with luxury, beauty, and timeless elegance. Behind the sparkle and allure of diamonds, however, lies a complex and multifaceted supply chain that spans the globe. From the moment a rough diamond is extracted from deep within the earth to its final destination as a polished gem in a jeweller’s display case, it undergoes a remarkable journey. This article delves into the intricate supply chain of the diamond industry, shedding light on the key stages, challenges, and ethical considerations involved.

The History of the Diamond Industry

In the 1800s, several diamond mines were discovered in the south of Africa. To capitalise on this a British man named Cecil Rhodes founded the company De Beers. At the time De Beers and consequently Cecil Rhodes held a monopoly over the diamond industry by acquiring mining companies and at its peak, Rhodes commanded 90% of the world’s diamonds. Furthermore, through his influence and cooperation with the British South Africa Company he founded the country Rhodesia. Which are now known as the countries Zimbabwe and Zambia.

Diamonds gained popularity in the post-World War II U.S. economy, with the tradition of using diamond engagement rings becoming widespread. In 1939, 10% of engagements began with a diamond ring however, by 1990 that figure rose to 80%. With clever marketing and De Beers controlling the supply of Diamonds, artificially spiking the price to create demand, De Beers were the market leader in the industry. Always entering a country whose economy was prospering and had a growing middle class.

De Beers lost its monopoly due to various factors, including civil wars and political instability in African countries where it operated. This led to rebel and military groups taking over mines and trading rough diamonds for weapons, giving rise to the term “blood diamonds”.

The Kimberley Process

In 2003 The Kimberley Process (KP) was established, covering over 99% of the world’s diamonds. Its aim is to remove conflict diamonds from the global supply chain. It is run by 54 participants, that are companies within the Diamond industry and NGOs, representing 82 countries that take turns to oversee the process annually. They have a commitment to transparency through the supply chain. Each year a different member Chairs the process to oversee the implementation of the scheme keeping the supply chain conflict free.

Each shipment of rough diamonds crossing a border must be transported in a tamper resistant container and accompanied by a validated KP certificate. These shipments can only be exported to another KP participant country.

In recent times Blockchain technology, for instance, is being used to create digital ledgers that track the journey of a diamond from its source to the consumer. These ledgers provide an immutable record of a diamond’s history, including its origin, mining, cutting, and certification. By scanning a diamond’s unique digital code, consumers can access information about its journey, enhancing trust and transparency.

While this initiative has made significant strides in reducing the trade in conflict diamonds, challenges remain, including issues of enforcement and the effectiveness of the certification process. As the KP doesn’t certify individual jewellers, reputable business should only buy from suppliers that can certify that the diamonds are conflict free.

The Role of Alrosa

Russia is the world’s biggest diamond exporter by volume. De Beers once had significant control over Russian diamonds, however lost their influence following the Soviet Union’s collapse. Alrosa has since become the primary player, responsible for 90% of Russia’s diamond production and is now the largest diamond companies in the world. The Russian government’s substantial stake in Alrosa adds an extra layer of complexity, especially amid the Ukraine conflict.

The Russian government own 1/3 in shares in Alrosa and in 2021 the government was entitled to $600 million of Alrosa’s profits since the company recorded sales of $4.2 billion. Due to the conflict in Ukraine which saw Russia and its most influential citizens with ties to the government, sanctioned by the EU as a response. Former CEO of Alrosa Sergei Sergeevich Ivanov was sanctioned, and assets seized. Ever since this happened, Alrosa has seised to publish reports about their sales or operations.

This is in direct conflict with the KP as the lack of transparency within Alrosa’s supply chain may cause doubt over the origins of their diamonds. Since it could be alleged that conflict diamonds could potentially be funnelled and its profits going towards Russia’s military efforts in Ukraine. Furthermore, Alrosa’s ownership of a 70% share in Zimbabwe’s state-owned ZCDC and the involvement of the Wagner group in the Central African Republic’s mining industry through Midas Resources have sparked doubts about the KP’s effectiveness in recognizing potential conflict diamonds. Russia chaired the KP in 2021, raising concerns about its reliability when the Ukraine conflict erupted in 2022. Decision-making within the KP is done on a consensus basis among participating nations, which may include countries favouring Russia’s interests to boost political ties.

An Alternative Solution

Rough diamonds that are mined are move to diamond cutting centers, with Surat, India, housing over 90% of the world’s diamond cutting companies. Once they’re cut and refined the diamonds are shipped to major trading hubs across the world to cities like Dubai, Antwerp, and Tel Aviv. This intricate process contributes to the industry’s substantial $340 billion market value. All these complexities make it challenging for consumers to ensure the ethical sourcing of their diamonds, making it uncertain whether naturally sourced diamonds are entirely free from conflict concerns.

The alternative is Lab-grown diamonds, created via a process of chemical vapour deposition (CVD). Rather than natural geological formation, have emerged as a new segment of the market. These diamonds offer an ethical and sustainable alternative to mined diamonds, and their increasing availability has led to competition and changes in the industry landscape. The cost of CVD has been rapidly declining since 2016, making the process of creating lab diamonds are becoming easier and cost effective. The issue here is that people still have the perception of diamonds being a rare earth gem and through decades of marketing. Most customers are unaware of lab grown diamonds, which have the same elemental structure and the same physical, chemical, and optical properties as their natural counterparts. These diamonds companies know this and market CVD diamonds as less glamorous, keeping the perception and therefore, the assumed rarity of natural diamonds in customers minds. As long as this persists, conflict diamonds will infiltrate the supply chain.

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• Source: https://www.allthingssupplychain.com/navigating-the-complex-supply-chain-of-the-diamond-industry/?utm_source=rss&utm_medium=rss&utm_campaign=navigating-the-complex-supply-chain-of-the-diamond-industry