In SULiNews 4, we made a preliminary report on the purpose and methodology of our recent study of the ivory industry in China. Briefly, the main objectives were to 1) assess Chinas monitoring and control system for vulnerability, and 2) see how legal and illegal markets might be related, and what influence they might have on each other. This is our final assessment.
During our 8 days in mainland China we met with dozens of representatives from all sectors of the ivory industry, including conglomerates, wholesalers, retailers, factory owners, carvers, law enforcement, government monitoring authorities, and customers across China. We covered about 75% of the legal industry. In addition to official meetings we were invited to social occasions where more light was thrown on how the market functions. While our information gaps include incomplete geographic coverage, a lack of quantitative data on prices and other market parameters, and poor information on the illegal markets in ivory, we are reasonably satisfied that we have been able to present a representative picture of the legal market. The International Fund for Elephant Conservation sponsored the project.
To date, most of the studies on the ivory industry in China and other destination countries have focused on the retail end, e.g. by observing inventory, recording retail prices and mystery shopper enforcement checks. This presents only part of the picture. Retailers sell heterogeneous products with dynamic prices, making generalisations difficult. Moreover mystery shoppers may be less mysterious than they think they are. We have aimed to provide information on the organisation of the industry, coming from the industry itself. Our key findings on the legal ivory industry are:
1. Chinas legal ivory industry is relatively small. It appears much smaller than the illegal, unregistered industry. Firms that survived the CITES-ban period from 1989 to 2008 are greatly reduced in size. There has been a loss of skilled ivory carvers. Factories attempted to survive the loss of ivory by shifting to other related products.,the most common being mammoth tusks.
2. Most firms producing carvings or selling them at the retail level operate as small or medium-sized enterprises, although they may be part of larger conglomerates. As of January 2013, there were 37 registered factories and 145 registered retailers.
3. The 62 tons of African ivory bought at auction in 2008 under CITES authorisation is being rationed out over a ten-year national plan. By comparison, about 60 tons of mammoth ivory are imported every year into China (typically via Hong Kong).
4. Entry into the market is restricted both by availability of raw material and permit allocation. This means the both retailers and wholesalers have market power and can set higher prices than in an open competitive market. This market power deters producers from using smuggled ivory, because, in such oligopolies, increases in output would result in reductions in quality and prices, thus reducing a firms profits. Some firms stated they were not interested in more ivory because they were aware prices of their products would fall.
5. The carvers are the key to production capacity. A limited number of highly-qualified carvers oversee technicians and apprentices, most hired after the auction. The response to a much smaller set of skilled carvers and a limited supply of the raw material has been to add value by investing more time in the piece, as evidenced in the more intricate designs that are being produced. This means that the carvers decide what they will carve and production is artisanal. Legal factories have almost no ability to convert large increases in ivory supply (e.g. sudden influx of illegal ivory) into pieces because of an insufficient numbers of carvers.
6. The ID card monitoring system for legal ivory-trading is very robust against laundering on any large scale. It is difficult to see how large amounts of ivory could enter it. This is a function of the economic barriers (small market dominated by firms with market power) and the regulatory barriers (scrutiny applied by the registration system, database, certification of producer and retailer, and frequent monitoring). Each piece of raw ivory is photographed, weighed, graded, and entered into the database. As it moves from warehouse to factory to retail outlet, it is tracked through the system: inventory is controlled through the supply-chain from the raw tusk to the final product. When carved, a unique photographic identity card is assigned to each work in excess of 50 grams, and a universal card to those under 50g. Small pieces make up 10% by weight of the legal output. This makes the small-piece trade unsuitable to shift large volumes.
Discussion and conclusions
The economic model of investing time into the piece is inconsistent with mass-production. Since pieces are still being produced in ways that economise on materials, it is unlikely factories have access to a large stock of illegal tusks on a regular basis. The length to train apprentice carvers and to make pieces creates a delay between demand and supply. Supply responds very slowly to demand and appears to be about two years. These delays contribute to confusion over retail prices.
Chinas system caters well to perpetuating the ivory-carving heritage by its focus on larger collector pieces. Most of the carving factories had special displays on the tradition of ivory carving and examples of artisanal works. This is reinforced by certification of national and provincial level masters and the requirement that each master train a certain number of apprentices.
The legal ivory trade in China is characterised by a sophisticated monitoring and control system and appears to be proof against laundering large volumes of ivory. Nonetheless, this seems to have little effect on the illegal trade in ivory. The ivory market now seems to be separated, where the legal industry provides large, high-quality pieces for wealthy collectors and the illegal, a high volume of smaller, lower-quality pieces. Regrettably producers and consumers in the legal market showed little awareness that the legal market can have a positive impact on conservation of wild elephants.
The amount of ivory bought at auction in 2008 does provide some security of supply in the short-term, but not in the medium to long-term. Supply insecurity however creates incentives to source backup material from illegal ivory. CITES decision-making needs to take this into account.One thing we would like to see, across ivory consuming countries including Thailand, is the establishment of a proper price index (1). Such information would put into context claims from mystery shoppers that prices are surging, provide a sounder basis for assessing demand in the longer term and complement ETIS (Elephant Trade Information System established by CITES Res.Conf.10.10 (RevCoP16)), which does not gather and analyze price information. Trying to identify trade trends (cf. Resolution 10.10 (RevCoP15)) without prices is almost pointless.
Footnotes:(1) A price-index combines a sample of prices into a single measure. The sample is weighted by the importance of different categories.
Authors: Kirsten Conrad and Brendan Moyle
Kirsten Conrad is a consultant and policy analyst with AsiaCat, based in Singapore: email@example.com. Brendan Moyle is Senior Lecturer in Economics in the School of Economics and Finance at Massey University: firstname.lastname@example.org