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China has published a notice that the processing and sale of ivory and ivory products “will be stopped by December 31, 2017”. China’s credible commitment to this end follows a decision taken at the latest Convention on International Trade in Endangered Wild Fauna and Flora (CITES) conference to end all domestic trade in ivory.
China has made announcements of intent before, in May and September 2015. Concrete action was missing in terms of the duration of the ban and a timetable for implementation. Now both are effectively in place.
The announcement doesn’t specify how long the ban will be in place, but the wording implies that the trade will not resume.
This is good news for elephant conservation in Africa.
Wildlife experts estimate that 50 to 70% of poached ivory ends up in China. A recent report estimated that 200 metric tonnes (MT) a year of illegal ivory entered China-Hong Kong between 2010 and 2014. Only 6-8 MT of that annually was estimated to have been sold illegally. This suggests that a massive volume of ivory is being illegally stockpiled for speculative purposes. So it’s crucial to understand the impact that the ban will have on speculator behaviour.
Owning the value chain
African elephants are being slaughtered for their tusks at an alarming rate, according to the Great Elephant Census. Mortality rates of around 8% exceed birth rates, constituting a serious threat to elephant survival. To satisfy demand in East Asia, organised crime syndicates have moved to try and control the entire value chain by vertically integrating each facet of the trade.
On the supply side this has meant the use of sophisticated weaponry and the infiltration of anti-poaching agencies. It has also meant that there is corruption throughout the distribution route from state officials to the police, customs, port and tax authorities.
At the retail end of the supply chain, anecdotal evidence suggests that some syndicates have sought to open their own illicit outlets in addition to stockpiling ivory.
For as long as domestic trade remained legal in China, it was easy to launder illicit ivory into officially recognised legal outlets. This prompted the international community – at the last CITES conference – to vote overwhelmingly in favour of putting an end to commercial domestic trade in ivory.
But will it work?
In a paper published in September 2016 we examined how speculators might respond to a domestic trade ban in China. Given the evidence that a significant volume of ivory is being stockpiled, we sought to understand the incentive structures that might be driving speculator activity.
We distinguished between wholesale and private speculators.
Private speculators probably account for only a small proportion of total ivory consumption. They may be individuals purchasing ivory either as a collector’s item or as an “inflation-proof” investment vehicle. In this category, the market structure would likely be quite competitive.
Not so for wholesale speculators. These are likely to be large syndicates that are either oligopolistic or monopolistic in structure. They appear to have an incentive to drive elephants to the brink of extinction. Syndicates would not want potential competitors to access living elephant stock. If elephants were to become exceedingly scarce, the value of their ivory would skyrocket. Trade in the products of extinct species is difficult to regulate, and exceeds the CITES mandate.
Speculators would have had every incentive to stockpile ivory in anticipation of earning future monopoly rents prior to the announcement of a domestic trade ban in China. This explains the discrepancy between the volume of ivory entering China (as extrapolated from seizure date) and the volume being sold (even illegally).
The quicker the better
Our paper argued that the Chinese domestic ban should be imposed as soon as possible, and for an indefinite duration. Chinese authorities have now, with minor (reasonable) exceptions, committed to doing so. That is good news – the quicker the better. The longer the ban takes to be implemented, the longer speculators have to sell ivory off. In that scenario the ivory price is only likely to decline slowly, if at all. The sooner the ban is implemented, the more ivory speculators will have to offload in a short space of time, driving prices down. Lower prices will disincentivise poaching.
Opponents of the ban typically argue that prices will rise in anticipation of future scarcity. But this depends both on who is buying and how long speculators believe the ban will be in place.
Ivory prices declined by half in the 18-month period from June 2014 to December 2015. This suggests that anticipation of future scarcity was not driving prices up as expected. If speculators believed that the domestic trade would be banned, they may have gotten rid of their ivory more quickly. Demand may also have been declining as a result of lower income levels and the efficacy of demand reduction campaigns.
But if wholesale speculators believe that the ban will only be temporary they would have an incentive to maintain their stockpiles until legal sales resumed. In the meanwhile, they would continue to poach to maintain or build a monopoly on the available ivory stock.
So, it is good news that the official wording of the ban does not suggest the possibility of future trade. It may have been preferable to state this explicitly. But that may have been too politically prickly.
A domestic trade ban in China may spur what economists call a “fire sale” where stockholders offload large volumes of stock at the same time. This drives prices exponentially downwards. It remains to be seen whether this will happen. Recent reports suggest that ivory processing and sales are increasingly moving into Vietnam, simply moving the problem to a different geographic location with little effect on prices.
How prices respond to the news will provide some indication of whether the speculation in our paper was correct. Either way, the hope is that prices will be driven downwards, disincentivising poaching and protecting elephants.
What’s still missing
A domestic trade ban is only one spanner in a complex toolkit to achieve sustainable elephant populations. It is nonetheless a crucial one: a strong signal of change from a country that recently marketed the ivory trade as a heritage industry.
There are, however, other threats such as habitat fragmentation and encroachment. Add to this increasing human and elephant conflict, and a thriving bush-meat trade, and it’s clear that long-term elephant survival is at risk.
Another complexity is the availability of mammoth, or fossil ivory, which can be traded legally.
Some argue that its availability substitutes for elephant ivory and therefore slows the rate of elephant killing. Others worry that it simply provides another laundering mechanism because it’s plausible that elephant ivory will be passed off as mammoth ivory.
Ultimately, elephants need to be valued as being worth more alive than dead by two crucial constituents. Consumers need to make the cultural shift to seeing ivory as belonging to elephants alone. Community members on the front line of conservation and human-elephant conflict need to receive significant benefits from keeping elephants alive and their habitats intact. Only then will the battle be won.