By Sandeep Bardia - Exclusive to Diamond Investing News

The global diamond industry is undergoing a strong transition towards growing demand for "conflict-free" or "violence-free" or "ethical" diamonds- guaranteed to originate from ethical and environmentally responsible sources.

This transition is in response to the growing awareness among people and consumers worldwide about the so called "blood diamonds", produced in certain diamond producing regions of Africa like Sierra Leone, Angola, Congo and Liberia, where proceeds of the industry is being used by armed groups and militants to fund military activities, as well as commit human right abuses. Although such diamonds are believed to constitute a very small portion of the global diamond trade, the World Diamond Council, United Nations and several other countries are working to curb this illegal trade.

The diamond industry's attempt to address the problem of conflict diamonds resulted in the Kimberley Process. Canada has been a pioneer in terms of implementing the Kimberley Process ^[2], an international certification scheme for rough diamonds to help prevent conflict diamonds from entering legitimate markets.

A flourishing industry with excellent future growth prospects, the diamond industry in Canada produced 17.0 million carats in 2007, compared to 13.2 million carats in 2006 ^[3].

Canadian diamond manufacturers are aggressively marketing their diamonds as "conflict-free" diamonds to take advantage of the growing demand for such diamonds. The energetic campaign pursued by the Canadian diamond industry to position Canadian diamonds as "politically correct" or "ethical" takes strong advantage of that country's global reputation as a peaceful and socially progressive country. The strategy of Canadian producers to brand polished diamonds by origin is an obvious choice due to several reasons- "Canada" is a well established global brand, the country is perceived as a "positive jurisdiction", well respected and recognized as a producer of quality producer in different industries. Further, the ability to track the supply of diamond from the mines to the retailer has made it possible for the Government of Northwest Territories ^[4] to consider branding of polished diamonds by origin. Based on this advantage, diamond marketers are effectively portraying that mining in Canada is conducted under ethical and environmentally friendly conditions.

Based on this approach of Canadian producers, companies from other regions such as South Africa, Botswana and Namibia have also started branding diamonds by origin to differentiate in the marketplace. The Government of North Western Territories of Canada (GNWT) has played a pivotal role in the development and marketing of Canadian diamonds. The GNWT delivers a critical marketing program-GNWT Certification of Authenticity to aid the development of Canadian diamond brands. This unique program distinguishes each Canadian diamond mined, cut and polished to exacting quality standards in Canada's Arctic. Each and every diamond is monitored and inspected from mine to manufacturer, under this unique Government Diamond Certification Program.

The involvement of government in this certification program had made it one of the most recognized, most accepted and most credible Canadian certification programs. Canadian diamond producers are using this only one of its kind certification program of GNWT and government's involvement to sell its products in the domestic and global marketplace and differentiate it from rest of the players.

In a market which is increasingly worried about "conflict" or "blood" diamonds, Canadian producers have initiated the concept of branded diamonds, marked with symbols like Maple Leaf ^[5] and charging premium for them. The booming industry is replacing the stigma of "blood diamonds" mined in conflict zones with images of polar bears and maple leaves engraved on snow-pure gems.

The Canadian diamond industry is deploying various strategies to differentiate its offering in the marketplace, such as using laser inscriptions to inscribe marketing trademark like "Canadian Product" notation or a unique serial number including a code for the particular mine where the diamond was extracted from. Such "value added" practices boosts the authenticity of the "conflict-free" diamonds produced in Canada and provides a distinct brand image to Canadian diamonds.

The CEO of one diamond company was quoted as saying, "Country of origin has always played a part in defining the quality of a product. Swiss watches, Italian leather, French wines. So why not Canadian diamonds?"

Canada's Government of North Western Territories (GNWT) is also using diamonds as a tourist attraction ^[6] to promote diamond industry in the region. The marketing effort of Canadian Government and companies to position their "conflict-free" diamonds in the global marketplace is certainly reaping rewards for the Canadian producers. Canadian diamonds are sold at a premium, somewhere between 5-10 per cent, over diamonds from other regions. Experts, however, feel that such premium commanded by Canadian diamonds is purely due to their fine quality and origin and not due to the fact that they are "conflict free" diamonds. Ajit Dugar, Owner of Choice Diamond ^[7], a leading diamond cutting and polishing firm in India that imports raw diamonds from all over the world, says that "Canadian diamonds command a premium as they are of finer quality as compared to other diamonds and thus, perceived as being premium, high quality diamonds in the global marketplace." He says that all diamonds, by law, have to be conflict free and thus, the efforts of Canadian government and companies to distinguish their diamond purely on the basis of being "conflict free" does not help them in securing any premium.

Fred Cuellar, one of the world's top diamond experts and president of Diamond Cutters International ^[8], says that "Canadian diamonds do not charge a premium over other diamonds due to being conflict-free." Cuellar say, "[the] only difference on which diamonds command a higher price is based on the place from where they are mined and quality. However, to a geologist, if you show him diamonds from three different mines, it is practically impossible to tell from which mines they have come from. Unless otherwise costly paperwork is done to certify each diamond it becomes impossible to charge the higher prices." He also says that Canadian diamonds are no doubt superior in quality to blood diamonds but it is very difficult to prove their origin and requires costly certification.

Therefore, Cuellar does hint at the fact that Canadian diamonds, by virtue of being certified by Government of NWT about their origin, are able to command a premium, purely based on their origin and quality and not due to the fact that they are conflict free. Cuellar's view is confirmed by other diamond wholesalers, distributors and retailers as well who are confident of the view that the Canadian diamonds are commanding premium purely on the basis of their quality.

It can be safely concluded that the marketing efforts done by Government of Northwestern Territories and Canadian companies and certification provided by government is indeed working out in the favor of Canadian diamonds in terms of positioning them at a premium level in the global diamond marketplace. However, as per experts, the whole effort being made to highlight the diamond as "conflict-free" is not providing any significant benefit in terms of premium pricing. It is only the fine quality and certification of origin that helps Canadian diamonds to secure premium over other diamonds.

Certification of origin is also important for diamond manufacturers from retail consumer's standpoint. Origin is an important information-base that customers are often interested in acquiring in a retail setting.

Canada's arrival in the global diamond marketplace has been explosive, forcing new ideas and strategies to do business. The impact of such marketing efforts of Canadian diamonds has also affected the dominance of one time monopoly player DeBeers ^[9]and is forcing DeBeers to play by new rules.

The move made by Canadian diamond manufacturers to brand their diamonds has also motivated diamond manufacturers from other region to follow their footsteps. Birks and Mayors recently announced that they will be selling a "made in Botswana" diamond brand to "add value" to the country's embryonic cutting industry, as well as attract socially conscious consumers.

It is highly expected that Canadian diamonds will continue to command premium over its peers, given the substantial diamond resources available in the mines of the nation. Further, the marketing efforts made by the Canadian government and companies will continue to reap reward for the high quality Canadian diamonds. However, the efforts to highlight Canadian diamonds as being conflict free will only result in social benefit in terms of making consumers aware about the difference between blood diamonds and conflict-free diamonds and will not result in any pricing benefit for Canadian diamonds.