THE DIAMOND DISRUPTORS

The Diamond Disruptors: How Lab-Grown Gems Are Reshaping Luxury

I believe all of us, at one point in our lives, have wondered why diamonds are costlier than water. And we’ve all gotten the same response- diamonds are rare, hence the astronomical prices. But isn’t water just as scarce, yet infinitely more essential for our survival? This centuries-old diamond-water paradox highlights how value is often dictated by scarcity, perception, and societal norms rather than intrinsic utility. However, the ongoing paradigm shift in the diamond industry might call for a revised version of this theory. The catalyst for this change? Lab-grown diamonds (LGDs). They are revolutionizing the jewelry industry and challenging traditional notions of luxury, value, and sustainability. As consumer demand for ethical and eco-conscious jewelry increases, particularly in the United States, the foundation upon which LGD markets are expanding raises critical questions about reliability, sustainability, and economic impacts.

While marketed as a sustainable alternative to mined diamonds, the reality of LGDs is more complex. The manufacturing process relies heavily on methane from fossil fuels and requires graphite and heavy machinery – materials and equipment that are ironically dependent on mining operations. This complexity raises concerns about potential greenwashing, where companies might state hyperbolic environmental benefits without substantial evidence. For truly eco-conscious consumers, this necessitates careful research and verification of sustainability certifications from reputable organizations.

The ethical superiority claims of LGDs also deserve closer scrutiny. Unlike natural diamonds, which operate under the stringent Kimberley Process mandate ensuring conflict-free sourcing, and support over 10 million people globally, the LGD sector lacks comprehensive oversight. Major producing countries like China and India operate with limited regulatory frameworks, making it challenging for consumers to verify manufacturers' ethical practices.

The lion’s share of the natural diamond oligopoly are publicly listed companies that are consequently accountable to all their stakeholders, ergo ensuring their sparkly gems are ethically sourced and benefit the local communities. For example, 80% of all diamond profit made in Botswana, stays in Botswana. The swing towards LGDs also raises important questions about the economic impact on communities dependent on traditional diamond mining who face uncertain futures as market preferences evolve and their jobs carry an expiry date. Economies like Botswana may face significant losses, massive enough to push the economy into a crisis.

On the flip side, India, recognizing the changing market dynamics, has positioned itself at the forefront of this transition. Already accounting for 25% of global LGD production, the country is making strategic investments, including a five-year research grant at IIT Madras for developing indigenous LGD machinery. Here, Lab-grown gems become the bearer of good news, providing livelihood to hundreds. This poses a conundrum- will the new employment opportunities in the LGD sector absorb the existing workforce?  Moreover, how will fundamental differences in required expertise between natural diamond and LGD markets be bridged?

LGDs aren’t the only threat to the livelihoods of natural diamond supply chain workers. Natural diamond mines face depletion, with supply expected to drop to 60 million carats by 2030 from the present output of 116 million carats, the industry anticipates a significant supply gap. Market forecasts predict a deficit of approximately 160 million carats, against growing demand at a 2% CAGR. This void presents a golden opportunity for LGDs to step in and reshape the market further than they already have. And perhaps the most significant impact of LGDs has been the democratization of luxury. By offering high-quality diamonds at more accessible price points, LGDs are breaking down traditional barriers to luxury jewelry ownership. This shift has allowed a broader demographic to invest in premium pieces, fundamentally changing how we perceive and consume luxury goods.

However, this accessibility may lead to another phenomenon – the integration of diamonds into the fast fashion ecosystem. The relatively low barriers to entry have attracted numerous players to the market, resulting in increased competition and potential commoditization. In a commoditized market, companies compete primarily on price rather than brand value or quality. This risks the industry following the path of fast fashion, where rapid turnover and declining prices become the norm. Regardless, a more likely scenario is the continuity of the oligopoly prevalent in the traditional diamond market given the capital-intensive nature of the LGD business, while still seamlessly fitting into the fast fashion narrative with its affordability and accessibility.

“A diamond is forever”- this iconic campaign by De Beers not only made diamonds a symbol of love but also of long-term investment. But the investment aspect of LGDs tells a cautionary tale. While natural diamonds have historically maintained their value, LGDs have experienced significant price depreciation. Between 2016 and 2023, the price of 1.5-carat LGDs has plummeted by over 74%. This stark decline has led some consumers to either allocate more funds toward precious metals like gold or seek vintage diamonds as appreciating assets.

As we look to the future, the diamond industry presents a dramatically different picture from its historical image. Middle-class consumers now have access to large, high-quality stones that were once the exclusive domain of the wealthy and, though LGDs might not be as environmentally friendly as often advertised, they represent a significant step toward making green-ish alternatives cheaper than their traditional counterparts. The industry's evolution requires a careful equilibrium between innovation and responsibility. Success in this evolving market will require companies to balance affordability with quality, sustainability with practicality, and innovation with responsibility. As consumers, we must realize- "Forever diamonds" shape not just our love stories, but also our planet's future - every choice in how we source them leaves a lasting mark on our economies and sustainability.