With the exception of some Asian countries and some of the economies in transition whose expansion exceeded the global average, economic growth was disappointing and, in some cases, negative growth was registered. Consequently, global demand for leather and leather products has been weak over the same period. Yet production of hides and skins continued to increase, with the expansion in developing countries more than offsetting the decline in developed countries. The fall in hide and skin prices continued in 2003 and can be attributed to a combination of factors.
One of these is the weak world economic situation that has negatively impacted on consumer confidence resulting in a decline in demand for leather and leather products. The strengthening of the euro vis-à-vis the US dollar has reportedly resulted in reduced profitability, especially for the Europeans who have to buy their raw materials in euros and sell their products in dollars.
Lower margins on leather and leather products are making stakeholders less willing to offer higher prices for the raw materials. Increased output of leather products, especially from Asia, in a period when demand is generally weak, has also had a dampening effect on prices.
Another factor that has had an indirect effect on prices is that of financing. Considering that the leather industry relies, to a great extent, on bank credits for much of its operations and because of the poor performance of the global sector since the late 1990s, financing institutions in a number of countries are now setting stringent conditions for the leather industry to access the required operating finances.
Consequently, some tanners have been forced to sell their products at prevailing low prices and this has provided additional downward pressure on prices. Lastly, the impact of SARS in south-east Asia disrupted production as a number of factories closed down for a period of time as a means of restricting the spread of the disease.
All these factors have generally resulted in a decline in demand and, thus, lower prices.
This situation has caused a number of leather companies in many countries to close down or to greatly scale down the operations.
During 2003, BSE cases in a few countries, especially in Canada, led to a temporary beef import ban by some major importing countries. Such an action deprived the world market of hide supplies that would otherwise have been available. This contributed to a temporary increase in hide prices. The global production of bovine hides in 2003 is estimated to have increased by about 1.5% from 2002 as the 3.5% increase in developing country slaughter would more than compensate for the 1.5% expected decline in slaughter in developed countries.
For 2004, the economic recovery in OECD countries is expected to be faster than during the previous year and this could contribute to increased demand and, therefore, higher prices for hides and skins and related products.
For sheepskins, production could benefit from the high lamb prices that could induce higher slaughter numbers. In addition, output gains in some developing countries are expected as they increase slaughter to take advantage of higher EU sheep-meat import quotas.
With developed countries, the declining output trend that started in the early 1990s is expected to continue and this is largely attributable to the downsizing of the sheep enterprises in those countries. However, it is reported that the major meat industry bodies in Australia are working towards rebuilding the sheep flock and this could help reverse the country’s declining sheepskin production through increased slaughter starting in 2004.
For 2002, world bovine production is estimated to have increased by about 2% (compared with a 1.7% fall in 2001) from the previous year’s level to establish an all time high of about 5.8 million tonnes. Much of the output expansion was accounted for by developing countries whose bovine hide production increased by close to 3%.
Among developing countries, the combined output from Brazil and Argentina jumped by over 7% during the period, benefiting from the devaluation of their currencies that made their beef more competitive. With developed countries, higher output was registered in the USA due to drought-induced slaughter.
Output in the EU(15) is estimated to have increased by about 4% due to increased slaughter. A number of EU countries that had reduced their herds due to foot and mouth disease instituted measures to rebuild depleted numbers and this stock-rebuilding subsequently made increased slaughter possible in 2002.
In the 1990s, bovine hide output grew strongly in developing countries, reflecting an improvement in animal husbandry practices and other related factors. During the second half of the 1990s, developing countries as a group surpassed developed countries as producers of bovine hides on a weight basis.
For sheep and goat skins, a slight increase in global production was, again, supported by higher output from developing countries, while the combination of drought in Oceania and the continuation of the long-term downsizing of sheep industries in developed and transitional countries limited production gains from those countries.
Global trade stabilises
The weak economic growth and the impact of SARS combined to negatively affect global trade in hides and skins during the 2002/03 period. The impact of SARS was more pronounced because south-east Asia, the region most affected by the disease, has become the most influential in imports of hides and skins.
For 2003, these two factors contributed to a decline in demand and a disruption of trade flows, especially to the major importing region of south-east Asia. The global trade numbers for the year are not expected to be much different from the previous year’s level and a slight decline cannot be ruled out.
However, it should be noted that China’s industry has recovered quite well from the SARS outbreak. According to the China Leather Industry Association, the country’s exports of leathergoods during the first nine months of the year increased slightly and this translated into additional imports of raw materials.
In 2002, the gains in demand from China for hides and skins contributed to an overall increase in the global total over the previous year.
During most of the 1990s, China developed and improved its tanning industry and, by 2001, had become the leading importer of hides and skins in the world, whilst developing countries became the number one destination for global exports.
Imports of bovine hides to China increased by an estimated 5% in 2002. Import purchases by some of the traditional European markets have been declining in recent years and this is attributed to a decrease in the global demand for high quality leather products and, to a certain extent, a shift of the tanning industries from the developed to developing countries.
On the other hand, exports from some developing countries, particularly in Latin America, benefited from weaker regional currencies that made their products more competitive. Overall, the 2002 global trade in hides and skins is estimated to have increased slightly from the previous year. Imports by developing countries are estimated to have increased by about 3% from 2001, while those by developed countries declined by about 2.6% over the same period.
Reduced export earnings
For 2003, the combination of lower hides and skins prices and a stagnation in trade volume are expected to lead to a fall in export earnings. The brunt of the decline would be felt by developed countries since they account for more than 80% of the exports of hides and skins.
Nevertheless, the reduced export earnings by developing countries, though less in proportion vis-à-vis developed countries, would deprive them of much-needed resources for improving several stages in the supply chain and, eventually, the quality of hides and skins. This is especially true for some African countries that strive to improve the quality of their hides and skins.
For 2002, export earnings from hides and skins are estimated to have increased slightly from the previous year but were still below the levels observed during the mid-1990s. The increased earnings were largely attributable to higher shipment volumes.
