Their aesthetic beauty and lustre have mesmerised women all over the world. Be it royalty like the Duchess of Cambridge Kate Middleton, celebrities like Katy Perry or even the First Lady of United States Michelle Obama, their lure has spared none. But for The Dollar Business, they – pearls – just represent an import item that offers mind-boggling margins.
Shivani Kapoor | January 2016 Issue | The Dollar Business
Drilling a hole in a pearl is a very skilled job, second only to diamond cutting.Ask any lady her favourite among all varieties of gems and jewellery and chances are that pearls may not make it to the top spot as a wardrobe must-have. But drop down a spot or two, and bingo! There lies divine purity in a spherical avatar. Be it the first day at a work place or a small get together, most women trust pearls – the round and lustrous gems of the sea – to give them an elegant and rich look without being loud. While to some they represent love and charm, some consider them a symbol of purity and power. Their mystical origin – growing up inside the body of a living creature – is just too strong to ignore. Another captivating feature of pearls is that they do not require cutting and shaping before being used as a jewel.
In fact, pearls enjoy unabated popularity, not just for their beauty and shine, but also for their therapeutic properties. Wearing pearls can calm emotions, reduce anxiety and induce better sleep, or so it is believed by many. Their fans believe they enhance and preserve a woman’s beauty and bring wealth, prosperity and good fortune. In fact, even the Rigveda, sacred to most Hindus, mentions that pearls prolong life!
Given Rigveda’s endorsement, it’s no surprise that the demand for pearls in India has always been very high. In fact, the demand of these oyster gifts in India is so high that several countries import pearls from other markets and add value to them, only to export to India! “India does not produce pearls, but large quantities of imports have ensured a steady supply in the domestic market. Irrespective of the price, people want pearls, either for wearing themselves as jewellery or gifting them to loved ones,” Jai Prakash, a young pearl trader in Hyderabad, tells The Dollar Business. Isn’t it shocking, though, that a pearls-loving country like India, with a massive coastline, hardly produces any of it? “Several government agencies have experimented with pearl farming in Gujarat, Vishakhapatnam, Kerala, Karnataka and Andaman and Nicobar islands, but each of these locations had their own limitations, like poor nacre formation in Gujarat, dilution by fresh water along the coast causing huge motility of oysters in Kerala, etc.,” answers Dr. Joe Austin, General Manager, Indian Marine Pearls.
The biggest beneficiary of rising imports of pearls to satiate the insatiable demand from them in India are Hong Kong and UAE. While the former accounted for close to two-thirds of India’s worked cultured pearls imports in FY2015 (HS Code 71012200; amounting to $429 million of a total of $666 million), the latter accounted for almost the same proportion in the first half of FY2016 ($343 million of a total of $532 million). However, Hong Kong and UAE don’t produce pearls; they’re merely trading hubs. A large majority of pearls, actually, are produced in China. “Fresh-water pearls from China are the most commonly available pearls across the globe. The Indian market is flooded with them, since they are widely produced, easily available and less expensive,” Chetan Agarwal of Hyderabad-based Motilal Jewellers & Pearls, tells The Dollar Business.
Pearls, generally, can be classified into either of three varieties – natural, cultured and man-made. While both natural and cultured pearls grow inside an oyster, man-made pearls (many consider calling them pearls a joke!) are made in factories. And the difference between natural and cultured pearls is in the creation of their nuclei. Describing the difference between the two varieties in detail, Boorugu Mahabaleshwar Rao, President of Hyderabad & Secunderabad Pearl Merchants Association, says, “When foreign objects like dust particles, dirt and/or parasites enter an oyster’s shell, in order to prevent irritation to its soft tissues, the oyster secretes nacre (a calcium layer), which, over a period of time, turns into a pearl. Actually, pearls are nothing but layers upon layers of an oyster’s secretion. On the other hand, when an irritant is artificially introduced into an oyster to induce secretion, the pearl thus formed is called cultured pearl.”
Earlier, natural pearls were mostly sourced from Basra in the Persian Gulf. But with their production plummeting because of the near extinction of oysters in the region due to increased sea pollution, researchers started working on developing a methodology to produce pearls in a controlled environment. And the result of such efforts was Japanese businessman Kokichi Mikimoto creating the world’s first cultured pearl from Akoya oyster in 1893.
According to pearl traders, a pearl’s price is determined on the basis of its lustre, colour, shape, size and nacre thickness, and can vary significantly for very subtle differences. When it comes to shape, the rounder the pearl, the more valuable it is. For, perfectly spherical-shaped pearls are very rare, since they are very difficult to culture.
In terms of size, the larger a pearl, the costlier it is – the only reason why the famous South Sea pearls produced by the white-lipped variety of the pinctada maxima oyster species, and only cultivated in Australia and Tahiti, are so highly priced. [97% of French Polynesia’s goods exports by value are pearls. Secret? Tahiti is its largest island!] In the world of oysters, size does matter. Also, because these pearls are that much bigger, cultivating them is far more difficult, thereby granting them a nature-blessed premium price tag!
No discussion about India’s pearl trade can be complete without the mention of Hyderabad. It’s not called the City of Pearls for nothing. Its love affair with pearls dates back to more than 400 years, when the Nizams, due to their affinity for the gem, began importing them from the Persian Gulf, especially Basra. “Royal patronage ensured flourishing of the art of drilling pearls in the princely state. So, what started just with the import of pearls from Basra, later turned the city into the best-known pearl market in the country,” adds Rao of Hyderabad & Secunderabad Pearl Merchants Association. Today, as the epicentre of India’s flourishing pearl trade, Hyderabad is home to more than 1,500 shops selling pearls. This, as compared to just a handful of establishments at the time of India’s independence. “In the last few decades, Hyderabad’s pearl industry has undergone much change – from designs to art of drilling. Yet, it has managed to retain its lustre and never allowed its reputation to erode. It has also been quick to adapt to influences of western designs,” Chetan Agarwal tells The Dollar Business.
While there’s no doubt that Hyderabad is India’s undisputed pearl capital, isn’t it odd that it has become that despite being nowhere close to the sea? Is there anything that the city has to offer to the pearl industry other than royal patronage by the Nizams in the past?
Avanish Agarwal, CEO, Jagadamba Pearls, has the answer to these questions. “The city acquired the moniker for its craftsmanship – the way its skilled artists drilled and threaded pearls into beautiful necklaces. Hyderabad specialises in processing and grading pearls,” he tells The Dollar Business. “Drilling a hole in a pearl is a very skilled job, second only to diamond cutting. Hyderabad’s commercial position in global markets is also due to availability of cheap labour,” he adds. But this special skill might die soon. “Drilling of pearls, which was once done by hand, is now being done by machines.
Today, only those pearls that can’t be pierced with machines, are being drilled by hand. With technology improving by the day, most large traders in Hyderabad and Mumbai have got machines to drill holes in pearls, which, although, has made the process quicker, has led to several craftsmen losing jobs,” adds Rao.
The reciprocal (inverse) relationship between volume and value of India’s cultured pearls imports has left one and many baffled in recent years. For instance, in FY2014, while the volume of India’s cultured pearls imports fell by 12.5% y-o-y, value of imports rose by 9,126% y-o-y! Again in FY2015, while import volumes shrunk 42%, value increased by 87%!
To check for anomalies in import statistics, The Dollar Business contacted the Directorate General of Commercial Intelligence and Statistics (DGCIS). To this, Uttam Maji, Deputy Director (Import) DGCIS said, “Import value figures of FY2014 and FY2015 for cultured pearls worked have been checked. It has been found that from the middle of FY2014, pearls in high values under the ITC (HS) Code 71012200 have regularly been imported from Hong Kong. This is the main reason for surge in the value of cultured pearls imports. It continued during FY2015 also.” In fact, the trend continues in FY2016 as well. In the first half of FY2016, India imported just 5,890 kg of cultured pearls for a staggering $531.90 million, i.e. about at $90,305.60 per kg (Ministry of Commerce, GoI data)!
While not many have clear answers to such abnormality, Mahesh Boorugu of Boorugu Pearls shoppe, Secunderabad calls it to be nothing unusual. “Such a trend is acceptable. There is so much uncertainty and fluctuation in the prices that difference in price and volumes can be huge.” Avanish Agarwal explains it further, “The price of pearls can vary a lot. For instance, while one strand of the expensive South Sea pearls can cost about Rs.1-1.5 lakh, a strand of cheap freshwater pearls can be bought for just Rs.1,000. So, at times, although volumes may remain the same, there big differences in value may occur.”
Not entirely convinced by the answers, The Dollar Business dug deep and found several industry insiders claiming that until the last few years, India’s pearls trade had massive underpricing issues, which have now been taken care of following several crackdowns by Customs authorities. “A year-and-a-half back, Customs authorities uncovered a large pearls consignment that was underpriced in a big way. This has led to minute scrutiny of all consignments that come to India. To avoid trouble, importers have started claiming real value of consignments,” a pearl trader in Pathargatti in Hyderabad, on condition of anonymity tells The Dollar Business.
Although still booming, increased competition, along with a surge in the influx of cheaper and low-graded artificial varieties, is affecting the growth of India’s pearls trade. Prakash, whose family has been in the pearl trade for three generations, says, “Profits have come down to 20-25%. Earlier, there were only limited traders in Hyderabad and all of them were dealing with only high quality pearls. But today, every tenth shop in the city is selling pearls, most of them spurious. Price rises have also eroded our margins.” Margins might have eroded, it’s still a lucrative engagement with a still huge potential.
As Mahesh says, “It is a business built on trust. We can sell a fake pearl to a customer claiming it to be a South Sea pearl and earn a profit of anywhere between 50% to 500%. That way, the business will make huge profits, but credibility will go for a toss. We choose to do something simpler – sell a genuine pearl and even earn profit.” The business is so lustrous that 20-25% margins are considered low! Is that good enough for you?
TDB: What makes Hong Kong one of the world’s biggest exporters of pearls?
Maneesh Kocher (MK): Pearl farmers from all across the globe, including China, bring their produce to Hong Kong to sell them in auctions to get better prices. Hence, pearl dealers in Hong Kong have stocks from different pearl-producing countries making Hong Kong a preferred pearl sourcing hub.
TDB: Why are worked cultured pearls imported more than unworked pearls?
MK: Unworked cultured pearls are nothing but raw pearls. Processing of a pearl is a very long process with many phases involved in it, including cleaning, buffing, polishing, bleaching and a treatment called Maeshori that enhances its lustre. Thereafter, pearls are segregated based on colour, shape and size. Since the technology in India is not very advanced, importers prefer worked cultured pearls over raw pearls.
TDB: Are there any preferred sizes and colours amongst pearl buyers?
MK: Currently, in international markets, golden pearls are in great demand. In India cream and off-white pearls, which are slightly low-priced, are in good demand as they are used in kundan and meenakari jewelry. Having said that, almost all varieties of pearls find takers in India.
TDB: What is so special about Mikimoto pearls?
MK: Mikimoto is the largest pearl dealer in the world. They have been in the business for more than a century. They are the pioneers in cultured pearls and cultivated the first cultured pearl in the world. They have retail outlets all over the world and have the finest and rare collection of pearls.
TDB: There is a lot of variation in prices of imported pearls. What impact does it have on your profit margins?
Sunay Dochania (SD): A lot of factors are taken into consideration while determining the value of a pearl. For instance, more round a pearl, the costlier it is. Similarly, more lustre and shine would fetch more value. And then there are factors like size, colour, shape and nacre that play an important role in determining the value of a pearl. The value of a pearl also depends on its type. For instance, cultured South Sea pearls from Australia come in a price range of Rs.50-100 per carat, while pearls from Burma cost between Rs.300 and Rs.500 per carat. Fresh water pearls, like the ones from China, can cost up to Rs.200 per gram. So there would hardly be any correlation between value and volume. As far as profit margin is concerned, an importer can enjoy a minimum margin of 20-25% in this trade.
TDB: Which varieties of pearls are in vogue these days?
SD: Saltwater pearls are looked upon as an investment because experts believe that a few years down the line they would be hard to get, as saltwater oysters that form pearls will become extinct. That’s the reason people prefer saltwater pearls as in the coming years their prices would appreciate. In fact, prices of saltwater pearls have already risen by 30% over the last few years. That being said, fresh water pearls have always been in trend. Plain strings of pearls is something that will never go out of fashion.
TDB: Today, China, Japan, Australia and UAE are the leading exporters of pearls in the world. To an Indian importer, if you were to suggest a particular market to procure pearls from, which would it be?
SD: A lot depends on the customer’s choice and his budget. For instance, customers, who have a budget between Rs.500 and Rs.10,000, prefer pearls from China and Indonesia. While those who want to purchase some expensive ones and can invest anything between Rs.20,000 and Rs.3,00,000 go for Japanese and Australian pearls as they are cultured in saltwater and are bigger in size. So figure out your TG before choosing your procurement market. Knowing your buyer profile is a must in this trade.
TDB: When it comes to branded pearls, buyers love to flaunt the Mikimoto name. Why is Mikimoto special?
SD: Mikimoto specialises in cultured pearls. They are known for their quality. They are the best of the lot. For instance, out of 100 pearls they select the best 10. Buying a Mikimoto pearl means you are assured of the quality and that you have bought one of the best cultured pearls.
TDB: What do Indian importers prefer – branded or non-branded pearls?
SD: Indian importers prefer non-branded pearls. The reasons are simple. Pearls don’t have a brand attached to them. When you are wearing a pearl, nobody would be able to recognise if it is a Mikimoto or saltwater or fresh water. We can’t do any marking on pearls. And branded pearls mean high prices, while customers here want to stick to low-priced pearl variety unless and until it is being bought as an investment.
TDB: What major factors should importers look at while buying pearls?
SD: The first thing one should look at is the dollar price. In pearl business, experience counts. Sans experience you can easily be cheated as to an untrained eye all pearls look similar. You need to devote time for the purchase. Besides, there is a lot of bargaining involved. Next you have to ensure that the pearls which you are buying are not dyed. Since the lustre, shine and colour fetch higher prices to sellers, farmers try to dye pearls. Also, pearls should be examined under natural light as lights at exhibition stalls make pearls look shinier and a buyer may end up paying more for artificial lustre.
Avanish AgarwalTDB: What is the difference between natural and cultured pearls?
Avanish Agarwal (AA): Basically, there are three kinds of pearls – natural, cultured and artificial or man-made. Natural pearls (naturally formed without human assistance) are very rare and no longer available in the market. Almost all the pearls available in the market these days are cultured pearls. Culturing is a process which requires man’s intervention to help oysters grow pearls. And this culturing is either done in freshwater or saltwater. China and Japan are the biggest producers of freshwater pearls. On the other hand, saltwater pearls include Akoya pearls – those grown in Japanese and Chinese waters; South Sea pearls – cultivated in the waters off Australia, Indonesia and Philippines; and Tahitian pearls – the largest of all pearls, grown in several islands of French Polynesia, including Tahiti.
TDB: Tell us about the processes that pearls go through before they are ready to be used in jewellery.
AA: When pearls are removed from molluscs, they have oyster skin, dust and other particles attached to them. So, first they are cleaned to remove all the residue and odour. Since they can’t be cut or shaped, separating them, depending on their size, is also an important process. Later, they are again sorted according to their shades. Then they are bleached, washed and dried. After all the treatment, pearls are drilled and threaded together.
TDB: Why is India the world’s biggest importer of cultured pearls?
AA: There’s a huge demand for pearls, especially South Sea pearls, in India. In fact, people are so fond of pearls of less than 5 mm size that demand continues to rise despite a surge in prices. And since domestic supply is very low, imports are the only alternative.
TDB: What caused the massive jump (y-o-y) in India’s cultured pearls (worked) import bill in FY2014 despite a fall in import volumes?
AA: Higher prices have been instrumental in the big jump in imports in FY2014. In fact, for last 3-4 years, prices have been rising at 30-40% every year. Imports of larger pearls have also caused this jump in the import bill. Limited availability of pearls that are less than 5-6 mm in size has pushed their prices up by almost 100%, inflating import figures.
TDB: What kind of margins are available to pearl importers in India?
AA: Over the years, margins have eroded – from 25-30% during the heydays to just 20% now. This, because although import prices have almost doubled in recent years, the prices at which they are being sold have hardly increased.
Dr. Joe AustinTDB: Tell us a bit about pearl farming in India. When did pearl farming first start in Tuticorin? Why did it stop?
Dr. Joe Austin (JA): India is richly endowed with seven species of pearl oysters – Pinctada fucata, P. chemnitzii, P. sugillata, P. margaritifera, P. anomioides, P. atrapurpurea and P. maxima. Among these, the most common strain is P. fucata. After lots of efforts to improve pearl technology, Central Marine Fisheries Research Institute (CMFRI) had achieved a breakthrough in 1973 and produced the first spherical cultured pearl. It had led to the setting up of the first pearl culture operation at Mandapam in 1983. Then in 1998, ITPA setup India’s largest pearl farm with a capacity of 10 million oysters, although we used to seed only 4 million of them every year. But thanks to several bottlenecks, we stopped pearl farming five years back. Firstly, there was no support from the government. Secondly, once Tuticorin port’s expansion started, we faced issues even in selecting a suitable coastal farm site. Moreover, since majority of the land near the coast belongs to the port trust, setting up a lab near the sea was not possible. Dredging activities around the port was also a concern for us. Damages caused by trawlers and accelerated fishing activities also led to poor settlement of oysters, thereby affecting our production. Local fishermen too complained of hindrances in boat movement due to our rafts. The biggest issue, however, was importing pearl nucleus, since the import duty on them is huge.
TDB: How do you look back at your pearl farming operations in Tuticorin?
JA: Technically, our pearl production in Tuticorin was very successful, but we had some issues marketing our pearls because of their small size – just 1 mm to 4 mm. The real demand is for bigger varieties, those that are imported from Australia and China. Nevertheless, I believe such an obstacle could have easily been overcome.
TDB: What role does CMFRI play in pearl farming in India?JA: CMFRI is the only institution in India to standardise pearl culture technique. Their hatchery technique of producing oyster spats is considered to be best in the world. But I feel, it needs to work on certain other areas like seeding of oysters, which is essential for the better retention of the nucleus.
TDB: Currently, where in India is pearl farming continuing?
JA: Several government agencies have experimented with pearl farming in Gujarat, Vishakhapatnam, Kerala, Karnataka and Andaman and Nicobar islands, but each of these locations had their own limitations, like poor nacre formation in Gujarat, dilution by fresh water along the coast causing huge motility of oysters in Kerala, etc.
TDB: Would you say the end of pearl farming in Tuticorin is the main reason behind surging imports in the last few years?
JA: Tuticorin’s potential is immense, but there are few takers for it. In India, the demand for pearls is huge and to meet such high demand, we need to develop huge farms. We need to focus on cultured pearl farming, which will make available high-quality pearls in good numbers. However, honestly speaking, halting of pearl farming in Tuticorin is not the only reason for surging imports. Demand too is growing at a rapid pace.
TDB: You have spoken about the lack of government support for pearl farming. Do you expect things to change?JA: As of now, government support for pearl farming is nil. There are several good farming sites around Tuticorin, but most of them are under the control of the state forest department. However, I think a lot can still be done. The government should come forward with a clear policy and allocate land to farmers in the open sea and help them execute pearl culturing. Procedures involved in importing shell nucleus should also be relaxed. If such basic requirements are met, marine pearl culture farming can turn out to be a great idea and help meet the surging demand for pearls in the country.
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