One of the enduring questions we have with respect to the black-market in ivory, is where the raw ivory is going. The somewhat glib answer is that it is being churned into carvings to be sold to East Asian (i.e. mostly Chinese) buyers. This is regarded as glib as to date, evidence of this eruption in carvings for sale has not been observed. Likewise, it glosses over the problem of where and how, this carving is taking place.
For instance, we know based on the tusk throughput in Chinese factories, they go through 28-30 tusks a month. Total. That’s not each factory. That’s the total throughput of all 37 factories legal factories in China. If we take the estimate of 25,000 elephants being poached each year as a ballpark figure, that means somewhere in the region of 47,250 to 50,000 tusks are being supplied to the black market. If you wanted to turn all that into carvings, you need an illegal carving system that can handle about 4,000-4,200 tusks a month. As you can see, we are nowhere close to that with the legal factories. This is one of the reasons why some of us who research this black market think the speculative market in raw ivory dominates the other markets. Nobody has found evidence of this presumably, massive but underground carving system.
One allegation is that the Chines legal factories are a source of these carvings. The argument is that these factories acquire poached ivory and use it to make carvings. The illegal ivory gets laundered. This is not a very easy thing to test for. Nonetheless, we have devised a way we think works.
Laundering occurs when poached ivory is used to make carvings in legal factories. Deviations in throughput may indicate laundering. The reason is there should be a stable base-line of throughput. From 2009 the number of factories has remained fixed, the supply of raw ivory from legal sources has been stable, and the number of carvers has also been stable. If the legal carvers are being diverted to make pieces out of poached ivory, the rate they can use up legal tusks will be affected.
Figure 1: Legal Tusk Throughput
What makes the estimation complicated is that the throughput of ivory depends on several factors. Large tusks are used up more slowly than smaller tusks. Only very experienced carvers will use large tusks. So these factors have to be built into the model.
There is also an error in the reporting dates. Chinese factories are required to report when a tusk they have been allocated has been consumed as an input. Sadly they’re not required to say when they start using one (this means we have to use the rate at which tusks are used up as the main metric). Tusks are reported as ‘used-up’ in batches. This causes regular under-reporting and over-reporting of tusks.
What we found is that the reporting cycle is linked to retail spending in China. Factories build up stocks of carvings, then supply these to sellers. Retail spending on ‘gold, silver and jewellery’ in China is tied to reporting dates.
A Vector Error Correction Model is was selected to estimate the throughput rate of ivory. This contains short-term and long-term relationships.
Our model uses four equations. It captures the reporting-date error. It captures the different rates at which ivory is used.
The equations are ordered from small pieces (<1kg) as equation 1, through to large tusks (>10kg) as equation 4. The variable Y12 tests for a decline that might mean laundering has occurred. This year appeared to have the biggest downturn based on an eyeballing of the graphs.
One way to represent these equations is as an impulse function. We simulated the loss of carvers currently engaged using small (1-5kg) and standard (5-10kg) tusks as inputs. We removed enough so that 100kg of throughput of these two categories is lost. The motivation might be that these carvers have been assigned to (hypothetically) make carvings from illegal ivory. The industry-model shows how this would be accommodated. One of the big changes would be the reallocation of carvers making large tusks to accommodate the now slower throughput. The throughput slows by about 160 kg, with the 1-5 kg tusks falling by 40, the 5-10kg tusks falling by 40 and the 10+ kg tusks falling by 80. This is a nice way to illustrate that mucking around with carvers leaves quite a big and lasting footprint.
Figure 2: Impulse Function
Importantly we find here no significant downturn in this Y12 period.
We conclude that the claim Chinese legal ivory factories are using (significant amounts of) illegal ivory to produce carvings is false.
It remains possible very small quantities of illegal ivory are being used. Nonetheless, in aggregate the legal factories appear “clean”. The results we note, do not extend to the retail sector.
Nonetheless, it provides indirect evidence that the speculative market explanation is a better fit for the data. And it also implies that illegal ivory is much more likely to be channeled into an autonomous, illegal factory system.