Opinion: the arrival of smartphones and electric cars has caused a surge in demand for cobalt, which raises many ethical and economic questions

The start of this millennium saw a shift in consumer purchasing habits. Ethical became marketable and the marketers soon stripped the moral value from the choices of naïve consumers. Examples include the Fair Trade coffee branding system which has faced considerable criticism based on the integrity of its supply chain and overall long term impact. A similar movement saw the creation of the Kimberley Process Certification Scheme which sought to stop the sale of "blood diamonds" (or "conflict diamonds). These diamonds were being used to finance a wide range of military actions resulting in multiple atrocities across the African continent and were often mined by children in terrible conditions.

These systems are broadly referred to as Ethical Consumerism, which many would consider a contradiction in, and of, itself. However, both of these efforts did result in some success. The successes that these systems achieved are attributable to different types of demand that both systems capitalised on.

Change in consumer values and surging demand

Whether it is coffee or diamonds, demand is growing globally. In 2017, global demand for uncut diamonds was estimated at $22 billion. Compare this to coffee retail sales where sales from coffee houses in the US alone exceeded $23 billion. This does not include instant coffee sales, which uses almost 50 perecent of the worlds green coffee supply.

But to consider only the financial significance of these commodities allows us to see only a fraction of their value. Largely as a result of an incredibly successful advertising campaign in the 1940s, diamonds became the ultimate expression of everlasting love. This campaign used subtle strategies that saw celebrities initially demonstrating their love using diamond rings, the size of the diamond was equated to the strength of their love. On the back of this campaign, the De Beers Group created an artificial value for the diamond by controlling almost the entire industry from mine to jeweller. This contrived value formed the basis of one of what is now a multibillion dollar industry.

Similarly, coffee as a product bought from a coffee house justifies a price that is in no way proportional to its cost. A large Americano costs roughly $0.16 in coffee beans and a disposable cup and stirrer $0.32. Typical resale varies around $3, while the farmer who harvested the beans receives less than $0.01. This is relevant because where value is added in a supply chain ultimately decides which society benefits from that added value.

Who gets what when you pay for your daily coffee?

Both coffee and diamonds are typically produced in their raw form in developing countries. Once extracted, the product is refined and value is added in a developed country where it is also consumed. This ensures that any value added to the product happens outside of the original country’s economic system further limiting that countries ability to reform a toxic industry.

Due to a lack of regulation widespread human rights abuses are evident in the mining or harvesting of the raw product. These poor working conditions allow large multinational companies to operate in a manner that would be illegal in the EU or USA and, in doing so, increase profit margins substantially. These illegal practices have included child and slave labour, environmentally damaging mining practices (in the case of mineral extraction) and the intentional destabilising of governments in order to ensure a continuation of these practices.

Previously widely recorded abuses of human rights observed in the diamond mining industry are now being linked to the production of cobalt

While the relevant industries lacked the desire to change, and local governments lacked to ability to instigate reform, public sentiment began to shift in the early 1990s. A broader activism movement brought Ethical Consumerism into the mainstream. Consumers began to demand products that were produced in a responsible fashion. Various initiatives began to rise to meet this demand including the Fairtrade and Kimberley Process mentioned above.

Critics of these systems have pointed out that while they may have addressed some of the more blatant human rights abuses in their respective supply streams; they have done little to address the fundamental exploitive nature of these manufacturing systems. The manner in which these products are extracted, refined and taxed ensures that while basic increases in the standard of living of workers may have been achieved, the societies in which they live will continue to suffer.

From diamonds and coffee to cobalt

The failures of these systems can act as a cautionary tale for what is likely to be the next great redistribution of wealth out of Africa to developed countries. It is likely that most people reading this article are doing so on a device powered by a battery that requires this rare metal; cobalt. Cobalt is required to produce lithium ion batteries which are used in the vast majority of our portable electronics as well as being the basis of the impending change to electric vehicles for personal transportation.

The Democratic Republic of Congo provides over 60 percent of the world’s cobalt and also produces a significant amount of the world’s supply of uncut diamonds. Previously widely recorded abuses of human rights observed in the diamond mining industry are now being linked to the production of cobalt.

Child labour has been observed in multiple mines as well as extremely poor working conditions. It is estimated that over 100,000 cobalt miners in Congo descend narrow mine shafts with little ventilation while using hand tools to extract the ore. Deaths due to respiratory problems and injuries are common. Similar to coffee production, the local workforce is often exploited. Efforts to create a traceable supply chain are difficult due to widespread corruption within the DRG.

Cobalt mining in the Congo. Photo: Getty Images

Also similar to coffee and diamonds is the common practice of exporting the raw product in its unprocessed form ensuring minimal wealth is returned to the local economy. More pressing immediate comparisons are also evident. As public sentiment shifts, companies are now acting to address supply chain concerns that could potentially damage their brand. This has previously been seen in Apple’s attempt to distance themselves from supplier Foxconn in the wake of widespread worker rights violations.

More recently, Apple has moved to buy cobalt in a more direct manner so that it can leverage greater control over its supply chain for the sake of better branding but also better market control. In the light of exponential growth in global demand, Apple has seen how messy cobalt mining is about to become and has learned lessons from coffee and diamonds. 

How the price of cobalt is expected to soar as demand for lithium ion batteries increases. Source: Bloomberg

More demand, higher prices

Global demand for lithium ion batteries has been rising sharply in the last decade due to the proliferation of personal electronic devices. This is reflected in the companies that are the primary producers of these batteries. Corporations that have been historically linked to portable devices such as LG, Samsung and Panasonic have developed considerable expertise and capacity in lithium ion production. However, current estimates predict rapid growth due to the utilisation of the technology in electrified personal transport.

Tesla for example plans to use the equivalent of all lithium ion batteries produced in 2016 in its vehicles in 2018. This is reflected in Tesla’s Gigafactory which is set to be the largest manufacturing facility in the world once it is complete. However this will require a huge amount of cobalt and increased demand has already seen a 180 percent rise in cost in the last three years.

How electric car demand is driving cobalt prices. Source: Bloomberg

As demand increases, supply will also rise, but can it rise quick enough to satisfy our rapidly growing appetite? Global production exceeded 100,000 tonnes for the first time last year and it is expected to grow at around 11 percent per year for the next decade. If current trends continue demand will continue to grow faster than supply. When considered alongside the volatile socio-political landscape of the Democratic Republic of Congo into consideration a global shortage seems highly likely.

Analysts now believe that a major factor in deciding which electric vehicle manufacture will dominate the market in the coming decades will be who can secure a consistent supply of cobalt. This will see major manufacturers bypassing traditional supply companies and dealing more directly with mine suppliers and perhaps even establishing shared enterprises in the extraction of these materials.

Similar to historical patterns observed in coffee and diamond production, the likelihood of exploitation of local workers and economies increases as the commodity becomes more valuable and adequate structures have not been developed for its extraction. Our desire to reduce carbon emissions by moving to electric vehicles will inevitably lead to children toiling and dying in terrible conditions.

The uncomfortable questions

Do alternatives exist? The short answer is no. While other countries do produce limited amounts of cobalt, the Democratic Republic of Congo produces more than 60 percent. Given the current imbalance between supply and demand, and the projected increase in this imbalance, it is not feasible to sideline all cobalt produced in the Democratic Republic of Congo. Meanwhile, as the price of cobalt doubles, international mining companies are engaged in a campaign to prevent any reform of the regulation of mining within the country

However not all cobalt is created equal and certain companies provide better working condition, though "better" compared to child labour is an exceptionally low bar to set. As consumers, we can make choices that provide a financial incentive to producers. In addition, we can lobby governments to require supply chain accountability. As previously mentioned Apple has seen this emerging imbalance and has acted. 

Am I contributing to the problem? Sadly, the short answer here is yes, unless you do not own a portable electronic device.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ