Cultural Revolution

Rob Bates’s article on laboratory-grown diamonds, “The Cultured Club” (JCK, January 2008, p. 76), is an informative and balanced status report on the state of the industry. As one who has had a role with most of the major players going back to 2001, I would like to add a few comments in an effort to round out the picture for those thinking about participating in the business or those fearing the impact of it.

First, the future of the cultured-diamond business should not be in doubt. The question is not whether the product will be successful, but when, how big, and by whom. The trends are obvious and irreversible:

  • The projected demand for diamonds is outrunning supply as fine-quality larger-size diamonds grow scarce and as markets around the world develop. While extractive industries are eventually exhausted, cultured diamonds are a renewable resource. Diamonds might be forever, but diamond mines are not.

  • Fancy colors are increasingly popular and are an exaggeration of the supply/demand gap.

  • Mined-diamond profit margins—resulting from vertical integration, megastores, the Internet, and information availability—are unacceptably thin, making cultured diamonds an attractive alternative (or supplement) for the diamond trade.

  • As mined-diamond prices go up, cultured diamonds become an increasingly attractive price-point alternative.

  • The Gemological Institute of America’s decision to grade cultured diamonds is a reflection of (and a driver for) greater industry acceptance of the product.

  • Technology will continue to improve the quality and manufacturing scalability of lab-grown diamonds.

  • Consumers are becoming increasingly comfortable with technology in their lives.

  • Consumers are becoming more insistent on extensive and honest product information and are more aware of the social and environment costs of the products they buy.

Second, costs will probably not go down over time. Unlike with many technology products, where recouping research and development costs is factored into initial pricing and where manufacturing costs per unit can later be driven down with scale, the growing of diamonds will always be an expensive proposition. High capital costs are required to build the powerful cultivators and the sophisticated infrastructure, while the time cost of growth is a function of immutable natural processes. In fact, the cost of producing colorless stones (either a holy grail or a death knell, depending on one’s perspective) will actually be substantially higher, particularly with the currently more commercial high-pressure/high-temperature technology.

Third, the debate over nomenclature, specifically over use of the word cultured, is essentially a turf-protection crusade. It has been taken on by the natural-diamond industry to protect itself against what it perceives to be an overly favorable form of product identification while depriving the consumer of a descriptor that the pearl industry has made totally understandable to the public. Even if the final decision is made by the Federal Trade Commission, it will ultimately have little bearing on the success of the industry, but a decision prohibiting use of the word cultured would indeed deprive the consumer of a clear way to differentiate between natural and the term already acknowledged by the FTC as confusing and misleading, synthetic.

Fourth, nobody in the natural-diamond world should go to sleep tonight worried about the imminent threat of cultured diamonds. Acceptance will take time. The public is constantly conditioned by the trade that only natural diamonds have real diamond value. In fact, the public is often told that laboratory-grown diamonds are not even diamonds, as absurd as that propaganda is, simply by definition. The general public is not a fancy-color market, and the large-scale production of colorless diamonds is years away. The prevalence of fancy colors in laboratory production not only works against universal acceptance but also virtually shuts the door to the huge market for bridal products. Further impeding the growth of the business are the years projected for the commercial production of polished over two carats, and the production of any sizes in any volume, to make a dent in the total natural-cultured market.

Finally, the natural-diamond industry has the unique and powerful marketing advantage of offering a product that is, well, natural. It’s an advantage that is forever. If the natural-diamond seller cannot use that advantage to compete with the cultured newcomers, he or she should be doing something else.