Kimberly, Marange and the diamond chain

The diamond chain starts off with mining diamond roughs in Africa/Russia/Australia, processing, cutting, polishing in India to finally being shipped to markets in USA and Europe.

Will the value chain partners support a block on Zimbabwe?

Zimbabwe poses a particular problem in this value chain as discussed in post "Marange and blood diamonds". Though Zimbabwe does not exactly fit the criteria for blood diamonds (it does not have a rebel army for instance) as defined by the Kimberly process to identify blood diamonds, western nations, especially the US have introduced sanctions against the sale of diamonds from Zimbabwe. Generally the response to the ban of sale of blood diamonds on humanitarian grounds has had good results with the sale of blood diamonds dropping from 5% of all sales in 2002 to less than 1% in 2012. However the sanctions on Zimbabwe will prove to be a strain on achieving further results. Let us see why:

Supply chain intermediaries such as cutters, polishers in India and China are not particularly happy and tend to push back on sanctions against Zimbabwe due to 3 main reasons:

1. Diamonds from Marange, Zimbabwe are 20% cheaper than those from Russia, Australia or by De Beers
2. Mines in Russia and Australia are nearing end of life whereas Zimbabwe is just taking off
3. Indian processors have already built a competitive edge in cutting and polishing Zimbabwe roughs which take approximately 3 months of effort compared to 1 month for other roughs. This acts as a high entry barrier to other processors and they would not want to loose this advantage to newer players in the market
4. Costs of processing is much cheaper in India and China. For e.g its costs $10 per carat in India and $15-$20 per carat in China (though of much lower quality) whereas it costs over $100 per carat in the US for processing a rough stone

Thus we see that the $23 billion Indian diamond processing industry with currently over 6% ($900million) of its sales originating from Zimbabwe roughs is not going favour these sanctions. But do they have a choice when the customers demand it? Already most processors publicly claim that only Russian, Australian or De Beers stones are offered to US customers. But are they compliant or are both suppliers and customers turning a blind eye to the issue? What is the cost/price that the customer is willing to pay/buy for humanitarian purposes on a different continent? there will a trade off between profits and compliance....how much? .....that is the million dollar question