Has De Beers Cracked The Fair Trade Diamond Code?

Oct 4, 2021
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Fifteen years ago, I went on a trade mission to Sierra Leone organized by Martin Rapaport. It was right before the movie Blood Diamond, starring Leonardo DiCaprio, came out, and people in the country were worried the film would hurt its already fragile economy—in particular its diamond industry, which employs an estimated 300,000 to 400,000 people.

Rapaport, however, had a solution—Fair Trade diamonds. As I wrote at the time:

[T]o qualify as Fair Trade, a stone would have to be mined under certain conditions: The diggers must be paid decent wages; a “fair” price must be paid for their stones; and 5 percent of the profits have to be reinvested in the community to build schools, roads, and hospitals. These conditions would be strictly monitored by outside experts.

This could cost a bit of money, but Rapaport insists that consumers will pay it. “I know it sounds crazy,” he says, “but if we tell consumers there are diamonds that make the world a better place, there are rich women in California who will pay extra for that.” In fact, he calculates such diamonds could earn a 20% premium. As a result, Sierra Leone diamonds will actually be worth more than other diamonds. “If we do this, everyone will make bigger profits,” he says. “You don’t have to be an idealist. You can be interested in Fair Trade diamonds if you are a greedy pig.”

In the years since, many products—from Fairmined gold to Moyo Gems—have used that formula: They improve conditions for workers in the artisanal and small-scale mining (ASM) sector, mitigate a mine’s eco-footprint, invest in the local community, and sell the resulting project as a socially conscious product, sometimes for a premium.

But there hasn’t really been much success in bringing that model to diamonds, despite numerous attempts, spearheaded by Rapaport and even the U.S. government.

Now, De Beers believes it may have cracked the code. Its GemFair program, which was introduced in 2018 in Sierra Leone, mostly follows the fair trade playbook, making mines commit to a long list of labor, environmental, and human rights standards.

Its business model, however, is completely different.

The first parcels of GemFair rough were sold yesterday at a Singapore auction alongside De Beers’ regular production. While buyers can sell those gems with the GemFair story—provided they are tracked and traced—they aren’t required to do so. In fact, GemFair has no real ambition to become a brand. It’s possible the gems will be sold as regular polished, which means they may not fetch a premium. (Auction results were not available at press time.)

Moreover, Fairmined and Moyo are run by nonprofits, and backers concede the brands may never make money. De Beers is a business, and it wants this program to be profitable.

But while GemFair’s approach may be different, it has gotten further than most; currently, over 150 mine sites are registered in the program, and each has 10 to 25 miners working on them. (That means the program has 2,250 direct beneficiaries, and 13,500 indirect beneficiaries, when you count family.)  

Feriel Zerouki, De Beers’ senior vice president, corporate affairs, who heads GemFair, says the program has learned a lot about the Sierra Leone diamond market over the past three years.

“We thought that if we would work with artisanal miners, raise standards, and incentivize with a fair value for their product, offer training, education, and evaluation, that [miners] would come to us,” she says. “We soon realized that assumption was not correct.”

What the diggers wanted most—perhaps not surprisingly—was financial security, i.e., a steady paycheck.

Generally, that paycheck comes from a “supporter”—who pays the miner a regular (if low) wage, plus meals, and then takes whatever they discover (though the miners often get part of the proceeds). Other models involve better pay for miners but a smaller bonus when gems are found.

De Beers is now piloting a third model, what it calls a “forward purchase agreement,” where miners are paid in advance for what they’re expected to find. “Our goal is to create a win-win solution between the miner and GemFair, where the miner receives financing and GemFair can positively influence the improvement of working and business practices of participating miners,” Zerouki says.

While the reaction to that model was good, a larger test was put on hold because of COVID-19. Mostly, though, De Beers doesn’t pay workers; it just buys goods from mines that are audited to meet the GemFair standard. And, in another twist, the miners are free to sell their goods elsewhere.

Which raises another issue. In the past, more-established buyers in countries like Sierra Leone have driven out newcomers by temporarily offering better prices, then reverting to form when the competitor’s gone. (That was an issue for Impact’s Just Gold project in the Democratic Republic of Congo.)

Zerouki says that GemFair is committed to buying diamonds at a “fair price,” in line with De Beers’ international price book, which might not always top what other buyers are offering.

“Miners don’t share the price they’re getting from other buyers, so it’s difficult to say,” Zerouki states. “Occasionally a miner will come into our buying office and not accept our offer, presumably because they negotiated a higher pre-sale price with their diggers. Some have not returned to our office, so that would imply they received a higher price elsewhere.

“We have heard rumors that other dealers may on occasion overvalue low-value stones to get the miner’s loyalty, so that when they sell a high-value stone they can then undervalue it,” she adds. “At GemFair, we are consistent with our pricing, and we find that miners rarely walk away from our offer.”

Any “fair trade” project requires investing in the local community, and Zerouki is particularly proud of how De Beers supported Sierra Leone during the COVID-19 lockdown: It distributed regular meals to the suddenly out-of-work miners, and helped turn mining areas into farmlands to produce much-needed food.

Yet, as mentioned, GemFair is not a charity. It aims to be self-supporting. While De Beers has had to spend money to learn the miners’ needs and develop a technology-based tracking solution, that is nothing compared to the costs of erecting a full-scale industrial diamond mine. Of course, even if it sets up shop in other countries, GemFair will likely never produce as much as most diamond mines.

“The total global ASM diamond sector represents around 5% by value of global production, so GemFair would need to purchase a very high share of total global production to make a significant difference to De Beers’ bottom line,” Zerouki says.

“In any case, this isn’t our focus. Our aim is to make GemFair successful in its own right and to support the formalization of the ASM sector for the benefit of those working within it, as well as the wider industry.”

With the number of these projects multiplying, GemFair’s model could be closely watched. It would be a striking irony if the answer to offering Fair Trade diamonds is not selling them as Fair Trade.

References


https://www.jckonline.com/editorial-article/de-beers-fair-trade-diamond/

Comments


Has De Beers Cracked The Fair Trade Diamond Code?

Oct 4, 2021
126 views
0 share

Fifteen years ago, I went on a trade mission to Sierra Leone organized by Martin Rapaport. It was right before the movie Blood Diamond, starring Leonardo DiCaprio, came out, and people in the country were worried the film would hurt its already fragile economy—in particular its diamond industry, which employs an estimated 300,000 to 400,000 people.

Rapaport, however, had a solution—Fair Trade diamonds. As I wrote at the time:

[T]o qualify as Fair Trade, a stone would have to be mined under certain conditions: The diggers must be paid decent wages; a “fair” price must be paid for their stones; and 5 percent of the profits have to be reinvested in the community to build schools, roads, and hospitals. These conditions would be strictly monitored by outside experts.

This could cost a bit of money, but Rapaport insists that consumers will pay it. “I know it sounds crazy,” he says, “but if we tell consumers there are diamonds that make the world a better place, there are rich women in California who will pay extra for that.” In fact, he calculates such diamonds could earn a 20% premium. As a result, Sierra Leone diamonds will actually be worth more than other diamonds. “If we do this, everyone will make bigger profits,” he says. “You don’t have to be an idealist. You can be interested in Fair Trade diamonds if you are a greedy pig.”

In the years since, many products—from Fairmined gold to Moyo Gems—have used that formula: They improve conditions for workers in the artisanal and small-scale mining (ASM) sector, mitigate a mine’s eco-footprint, invest in the local community, and sell the resulting project as a socially conscious product, sometimes for a premium.

But there hasn’t really been much success in bringing that model to diamonds, despite numerous attempts, spearheaded by Rapaport and even the U.S. government.

Now, De Beers believes it may have cracked the code. Its GemFair program, which was introduced in 2018 in Sierra Leone, mostly follows the fair trade playbook, making mines commit to a long list of labor, environmental, and human rights standards.

Its business model, however, is completely different.

The first parcels of GemFair rough were sold yesterday at a Singapore auction alongside De Beers’ regular production. While buyers can sell those gems with the GemFair story—provided they are tracked and traced—they aren’t required to do so. In fact, GemFair has no real ambition to become a brand. It’s possible the gems will be sold as regular polished, which means they may not fetch a premium. (Auction results were not available at press time.)

Moreover, Fairmined and Moyo are run by nonprofits, and backers concede the brands may never make money. De Beers is a business, and it wants this program to be profitable.

But while GemFair’s approach may be different, it has gotten further than most; currently, over 150 mine sites are registered in the program, and each has 10 to 25 miners working on them. (That means the program has 2,250 direct beneficiaries, and 13,500 indirect beneficiaries, when you count family.)  

Feriel Zerouki, De Beers’ senior vice president, corporate affairs, who heads GemFair, says the program has learned a lot about the Sierra Leone diamond market over the past three years.

“We thought that if we would work with artisanal miners, raise standards, and incentivize with a fair value for their product, offer training, education, and evaluation, that [miners] would come to us,” she says. “We soon realized that assumption was not correct.”

What the diggers wanted most—perhaps not surprisingly—was financial security, i.e., a steady paycheck.

Generally, that paycheck comes from a “supporter”—who pays the miner a regular (if low) wage, plus meals, and then takes whatever they discover (though the miners often get part of the proceeds). Other models involve better pay for miners but a smaller bonus when gems are found.

De Beers is now piloting a third model, what it calls a “forward purchase agreement,” where miners are paid in advance for what they’re expected to find. “Our goal is to create a win-win solution between the miner and GemFair, where the miner receives financing and GemFair can positively influence the improvement of working and business practices of participating miners,” Zerouki says.

While the reaction to that model was good, a larger test was put on hold because of COVID-19. Mostly, though, De Beers doesn’t pay workers; it just buys goods from mines that are audited to meet the GemFair standard. And, in another twist, the miners are free to sell their goods elsewhere.

Which raises another issue. In the past, more-established buyers in countries like Sierra Leone have driven out newcomers by temporarily offering better prices, then reverting to form when the competitor’s gone. (That was an issue for Impact’s Just Gold project in the Democratic Republic of Congo.)

Zerouki says that GemFair is committed to buying diamonds at a “fair price,” in line with De Beers’ international price book, which might not always top what other buyers are offering.

“Miners don’t share the price they’re getting from other buyers, so it’s difficult to say,” Zerouki states. “Occasionally a miner will come into our buying office and not accept our offer, presumably because they negotiated a higher pre-sale price with their diggers. Some have not returned to our office, so that would imply they received a higher price elsewhere.

“We have heard rumors that other dealers may on occasion overvalue low-value stones to get the miner’s loyalty, so that when they sell a high-value stone they can then undervalue it,” she adds. “At GemFair, we are consistent with our pricing, and we find that miners rarely walk away from our offer.”

Any “fair trade” project requires investing in the local community, and Zerouki is particularly proud of how De Beers supported Sierra Leone during the COVID-19 lockdown: It distributed regular meals to the suddenly out-of-work miners, and helped turn mining areas into farmlands to produce much-needed food.

Yet, as mentioned, GemFair is not a charity. It aims to be self-supporting. While De Beers has had to spend money to learn the miners’ needs and develop a technology-based tracking solution, that is nothing compared to the costs of erecting a full-scale industrial diamond mine. Of course, even if it sets up shop in other countries, GemFair will likely never produce as much as most diamond mines.

“The total global ASM diamond sector represents around 5% by value of global production, so GemFair would need to purchase a very high share of total global production to make a significant difference to De Beers’ bottom line,” Zerouki says.

“In any case, this isn’t our focus. Our aim is to make GemFair successful in its own right and to support the formalization of the ASM sector for the benefit of those working within it, as well as the wider industry.”

With the number of these projects multiplying, GemFair’s model could be closely watched. It would be a striking irony if the answer to offering Fair Trade diamonds is not selling them as Fair Trade.

References


https://www.jckonline.com/editorial-article/de-beers-fair-trade-diamond/

Comments


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