Cartel Nostalgia

Charles Wyndham wrote today that many in the industry are expressing “wistful” longing for the old DTC (or as it was then called, the CSO). At the same time, there are reports that the fledging African Diamond Producers Union, may or may not (depending on which report one reads) be trying to form a “diamond OPEC” (a goal apparently shared by an official in Russia.)

Are we seeing a trend of “cartel nostalgia”? Perhaps. Yet I am convinced that the days of what euphemistically used to be called “single channel marketing, or “the producers’ cooperative,” are over, never to return. (Someone at AGS last week called Gareth Penny the “diamond industry’s Gorbachev.”)

Remember, De Beers changed partly because it had to. Stockpiling became too expensive. Mega-firms like Rio Tinto and BHP got into the diamond mining, and questioned the logic of selling to a competitor. And it is highly unlikely that the European Union, or the United States government, would stand for a new CSO. As we have been reminded many times, diamonds are not a necessity like oil. The world puts up with OPEC because it has to. It doesn’t need to deal with the diamond version.

The diamond industry has become far more legally compliant and normalized in recent years. That is a good thing. In the end, if the diamond industry can’t function like any other business, without a Big Daddy monopoly watching over it, it doesn’t deserve to survive.

That said, this new post-single-channel world does present certain challenges the industry is only beginning to grapple with. First, there is the end of a “buffer stock” to keep prices stable. This change has put a real strain on the industry in the last few years, as some of this burden has been shifted to the trade. In addition, for over 100 years De Beers promoted diamonds generically. Will it continue to do so? And will it continue to bear most of the burden towards solving like industry-wide problems like detecting synthetics and “conflict diamonds,” now that its market share around 40 percent? Shouldn’t the other 60 percent bear a responsibility too?  Will the industry have to form a “World Gold Council”-type organization to promote and protect our product?

As Wyndham writes, it really is starting to dawn on people that this is a new world. We need to seriously look at what that is going to entail.

JCK News Director