The first day of the FAO Hides and Skins Sub-Group in Tanzania comprised an informal consultation on the current situation on hides and skins. The formal session of the Hide and Skin Sub-Group was opened on day two by Mr Charles Mlingwa, Deputy Minister of Livestock Development, United Republic of Tanzania, and was chaired by Ms Anunciata Njombe. This was followed on day three by visits to the local municipal abattoir and two tanneries: Himo, a bovine tannery and Moshi, a goat skin tannery.
Brian Moir, FAO, gave a review of the current situation saying that overall production of hides and skins increased slightly in 2005 and global demand for leather and leather products was generally weak during 2005. With the increase in production, prices continued to decline.
World markets for hides, skins and related products during much of 2004 and 2005 were largely influenced by slow global economic growth, currency exchange rates and animal diseases in different parts of the world. According to the World Bank, the slowdown in economic growth of the industrialised countries that started in the second half of 2004 carried over into 2005.
The decline in global hides and skins prices that started in 2002 continued through 2005, due to a combination of factors. The weak global economic situation of recent years has negatively impacted on consumer confidence, resulting in a decline in demand for leather and leather products.
From the supply side, the lower margins on leather and leather products are making tanners less willing or able to offer higher prices for the raw materials. This is due to the fact that tanners, shoe and leathergoods manufacturers are faced with increased costs of production emanating from higher prices for chemicals, energy and freight. The manufacturers, on the other hand, face price resistance from the major international retail outlets.
The weakness of the US dollar vis-à-vis the euro over the period continued to erode the profitability of the European leather producers who buy their raw materials in euros and sell their products in dollars. However, the exchange rate impact eased somewhat during the second half of 2005 as the US dollar strengthened against the euro but was still well below the level of four-to-five years ago.
The demand for hides and skins from China in 2005 has, reportedly, been significantly less compared with the previous years. This was especially the case for the medium quality raw materials whose availability on the market was quite high. This contributed to further weakening of prices. Prices could have declined even further but for some niche markets such as the high quality upholstery leathers.
Global production of bovine hides in 2005 is estimated to have increased by about 1.8% from 2004 when global production fell as a result of the trade restrictions following reports of BSE in the US which led to heightened beef safety and animal health concerns.
For 2005, the 3.1% increase in developing country production offset the decline in developed countries’ output. Output reduced in the US due to trade restrictions on beef, and in Europe because of CAP reform and increased imports from South America.
In developing countries, the increasing trend in the production of hides and skins is related to increasing per-capita income, which stimulates higher consumption of meat and meat-based products. Strong beef prices supported production gains in many Asian countries, ie China, Indonesia, the Philippines and Vietnam, while strong export demand pushed up slaughter and production in South America, although growth in output in Brazil was constrained in late 2005 with an outbreak of Foot and Mouth Disease.
For sheep and goat skins, global production in 2005 is estimated to have increased from the previous year. This is attributed to the strong global import demand for ovine meat which was met by drought-induced slaughter in Australia and ongoing productivity improvements and a slight rise in the breeding flock in New Zealand. In Asia, the largest ovine skin producing region, strong prices pushed output up in the major producing countries of China and Pakistan.
World trade in hides and skins is said to have increased marginally in 2005. China continued to be the largest single-country destination for hides and skins, a position it has held since 2001. This is a reflection of the country’s efforts, during most of the 1990s, to develop and improve its tanning industry.
Imports into some of the traditional European markets, such as Italy and Spain, continued their decline of recent years. The US remained the major exporter of raw material. Export earnings for 2005 increased modestly over 2004, primarily due to an improvement in export volumes from developing countries. But the 2005 level is still far below that of the early 2000s.
In the past few years, the combination of lower hides and skins prices and stagnation in trade volume has resulted in a decline in export earnings. Export earnings by developed countries, which account for over 80% of the exports of raw hides and skins, declined during most of the last five years owing to a fall in export volumes and prices.
The review also considered the potential impact of the impending changes to the arrangements for importing raw hides into the People’s Republic of China. The possible results could be a major change to the trade flow of raw hides and skins and, implicitly, wet-blue material, with China massively cutting down its imports of the raw material and stepping up imports of wet-blue.
Other factors to watch in 2006 include oil prices, interest rates and currency exchange rates. Currently, interest rates are still on the low side but increasing. Economic growth could be slowed down if rates continue increasing in the US and EC in 2006 beyond a certain point leading to lower demand for leather and leather products. The value of the US dollar versus other major currencies will continue to influence trade in the sector.
Animal slaughter and hide production in the US could see significant increases in 2006, in the absence of any animal disease outbreaks. This would depend on a rapid resumption of beef trade from the United States to Asia, especially Japan, following lifting of the ban on imports of US beef in December 2005.
Overall, the demand for leather and leather products generally fluctuates with the global economic performance. Growth slowed down during 2005, with negative implications for leather and related-product markets.
For 2006, and barring new disease outbreaks, global hides and skins markets will likely be influenced by policy developments in the major trading countries, global economic growth, oil prices, interest rates and currency exchange rates.
Hide and skin quality
Shakib Mbabaali of FAO gave a brief presentation on hide and skin quality and the causes of pre-slaughter defects. He identified the main sources as: husbandry; diseases; intrinsic; and others.
The underlying cause is lack of economic incentives, which in turn leads to lack of awareness, non-collection and quality deterioration. This can result all too easily in inferior products, loss of income due to downgraded raw material, loss of market share and unfair practices.
Improvement strategies should be based on: Purchase by grade; Farmers co-operative; Co-operation along the supply chain; Collaboration among agencies implementing development programmes; Government involvement, especially in developing countries where the market mechanism doesn’t work effectively; and The key role of the primary producer.
Experience from developed countries illustrates that best practice is to:
* Keep the marketing chain as short as possible
* Develop relationships and co-operation through longer-term contracts
* Develop systems to feed back quality information
* Reflect the quality in the price paid wherever possible
When the ninth session of the Sub-Group on Hides and Skins was held in Arusha, United Republic of Tanzania in February 2006, it was attended by delegates from ten African countries, with observers from the European Tanners’ Association, COTANCE, the International Trade Centre UNCTAD/WTO, the United Nations Industrial Development Organisation (UNIDO), the Common Fund for Commodities (CFC), the Common Market for Eastern and Southern Africa (COMESA), the African Leather Association (AFLAI), the Economic Community of West African States (ECOWAS), the Eastern and Southern Africa Leather Industries Association (ESALIA). Paul Pearson attended in a joint capacity representing the UK and the International Council of Tanners (ICT).
