Angadia, in Gujurati, means “one who carries valuables” and ever since the time of Emperor Akbar, angadias – couriers before the term was invented – have moved diamonds from Surat to Mumbai for export onto the world diamond market. These days, a troupe of Angadias – plainly dressed, unarmed and carrying unmarked canvas bags – carry $4 million in diamonds on this journey every day; that is, an estimated 90% of the world’s diamonds. They earn less than $50 per month.
Like the dabawallahs in Mumbai who carry lunchboxes, angadias are testimony to simple yet effective supply chains that respond to local context. And yet, the global diamond trade and the jewellery market as a whole is far from simple and there are many challenges that make this industry a fascinating case study from which many lessons can be drawn. From ancient skills to high tech machinery; from traceability and security to environmental concerns and sustainability, jewellery is worth a closer look.
Wal-Mart is the top US jewellery retailer, with sales of more than $2.8bn last year. Since July 2008, Wal-Mart customers have been able to see exactly where the gold and silver contained in their jewellery comes from. By entering a product code online, customers buying from Wal-Mart’s Love, Earth green jewellery line can find out the specific site where the gold or silver in their product was mined. They can even see which suppliers refined, polished, set and made their earrings or bracelets. The idea is to reassure customers that products come from sources that meet Wal-Mart’s environmental standards.
It is the first time a retailer has managed to track gold and silver through its supply chain. The company says it is the first step to having all gold, silver and diamond jewellery come from mines and manufacturers that meet its sustainability criteria.
Working with jewellery supplier Aurafin, and miners Rio Tinto and Newmont for over three years, Wal-Mart wants to build from pilot tests to have 10% of its jewellery to be traceable by 2010, and eventually to include diamonds and recycled gold and silver in the Love, Earth collection.
Walmarts initiative is part of a wider concern with the darker side of the jewellery market.
The diamonds contained in our jewellery are millions of years old and may have been mined in parts of Africa, Canada, Russia or Australia. A few years ago the jewellery industry discovered that in some parts of Africa, small scale diamond mining was being exploited by illegal militias to support civil war and conflict. These diamonds have been referred to as “Conflict Diamonds”.
In 1998, Non Governmental Organisation (NGO) Global Witness brought to the world’s attention that UNITA, a rebel group in Angola, was funding its war against the legitimate government by the control and sale of rough diamonds. These have since become known as conflict diamonds. We also now know that rebel groups in Sierra Leone and the Democratic Republic of Congo were also funding conflicts in this way. Although peace has since been restored in Angola and Sierra Leone, and a cease fire in the DRC, the diamond industry is determined to work with governments through the United Nations to ensure that future conflicts cannot be funded in this way. At its peak, the trade in conflict diamonds was estimated to be less than 4% of annual rough diamond production but the industry has declared that one diamond traded in this way is one too many. Since the introduction of the Kimberley Process Certification Scheme (KPCS) in 2003 well over 99% of the worlds diamond supply is certified to be from sources that are free from conflict.
Diamond experts estimate that conflict diamonds now represent a fraction of one percent of the international trade in diamonds, compared to estimates of up to 15% in the 1990s. However, it is estimated that even now 15% of the diamonds bought in the USA (over 65% of global market) are from conflict zones. Solving this issue will not be measured in terms of carats, but by the effects on people’s lives.
The KPCS has done more than just stem the flow of conflict diamonds, it has also helped stabilise fragile countries and supported their development. As the KPCS has made life harder for criminals, it has brought large volumes of diamonds onto the legal market that would not otherwise have made it there. This has increased the revenues of poor governments, and helped them to address their countries’ development challenges. For instance, some $125 million worth of diamonds were legally exported from Sierra Leone in 2006, compared to almost none at the end of the 1990s.
The approach to conflict diamonds has shown the way for other commodities that are being used as leverage to fund insurgency all over the world. Take Coltan – a precious metal mined in the Congo and used in mobiles, computers, digital cameras, airbags, GPS systems, hearing aids and even pacemakers. Insurgents have been using their hold on this metal to extract funds from the west and, indirectly, from western consumers.
The work of Oxford based economist Paul Collier in recent years demonstrates how the conflict trap – using money and natural resources to attract funds that are used to fuel conflicts – can mitigate against even the best intentioned democratic projects. In fact, he asserts that elections alone do not make good democracy and, democracy itself is no guarantee of positive outcomes.
In his book the Bottom Billion and more recently in Wars, Guns & Votes, he highlights ways in which primary commodity exports – oil, diamonds and metals – substantially increases the risk of civil war. And in “Greed and Grievance”, a paper written when he worked for the World Bank, he argued that armed rebellion had more to do with access to financial resources than with any deep commitment to ideology.
We would argue that the transformative impact of effective and efficient logistics can learn much from Colliers well researched pragmatism and emphasis on good governance and, vice versa. Indeed, his recent work on Haiti highlights just how important infrastructure is to any development project and, further, how ongoing maintenance is even more important than initial investments. He uses the example of a road that has been rebuilt three times in 25 years because there was no provision to maintain it!
The above focus on conflict is of considerable use to other supply chain studies as such a clear need to launch traceability initiatives generates real benefits. Consider the food industry and product recalls.
Labour conditions for workers along the supply chain are generating other areas to explore. Child labour in mines has long been tracked and now, human rights organisations are looking at health issues. For example, the high incidence of silicosis “dust lung” from cutting semi precious stones. Also, with cyanide and mercury compounds used to separate gold from its ore, working conditions are a major concern.
And then, diamonds and other minerals generate significant environmental concerns. Consider this. Mining enough gold to make a typical 18-carat wedding ring leaves behind 20 tonnes of waste. A recent Forbes article highlights that in the US, metal mining creates nearly 30% of all the toxic releases measured annually by the Environmental Protection Agency, more than any other single industry. It is not just diamonds. Gold is mined in more than 60 countries and is an $80bn global market.
We have highlighted the scope and scale of the supply chain from mine to showroom emphasising the challenges from conflict diamonds and, the real environmental concerns that need to be tackled. Then, there are the retail channels that need to be explored. In particular, counterfeits have become a serious threat t branded goods all over the world. For example, the trade in counterfeit watches alone is estimated at more than $1 billion and climbing. And each year, the sophistication of such copies improves to the point that such leakage within the supply chain could undermine the market for authentic luxury brands. Add in the impact of the recession and this could have serous consequences.
The jewellery trade is a massive global industry and the scope to use technology to improve traceability and authenticity is enormous. Let’s not forget the fragmentated base that this transformation starts from.
Despite the big names from Cartier to Brueguet, the industry has much wider appeal than the well healed. In fact, in places like India it is a traditional industry for traditional customers buying jewellery for traditional occasions. In fact, jewellery production and distribution is amazingly, well, traditional and scale is needed in order to make the changes that modern retail will demand. However, there is a clear expectation that the price paid is at least the value of the asset when sold on. This means that margins are thinner than many would think.
Lifestyle products are driven by strong fashion cycles and it is not possible to create significant demand without being plugged into international trends. And yet, there is always the fear of being out priced by the grey market, who are aided by increasing regulation, the cost of security and the flexibility of informal channels.
The jewellery industry has all the hallmarks of providing a template for the hybrid business models that the new age demands and the transformative role of logistics will be key.