Crisis in Nicaraguan tannery sector

3 September 2007

Operations at Bataan Tannery, the largest in Nicaragua, have been suspended for three months as well as at the Central American Tannery. According to Silvio Salinas, owner of the Central American Tannery, six major and 35 minor tanneries have been forced to suspend operations since there are hardly any raw materials to be found. The best raw hides are being salted and exported enabling the slaughterhouses to obtain US dollars instead of the local currency, the cordoba. Most of the salted hides are finding their way to nearby Mexico where the tannery sector is also under pressure due to the increasing price and a relative shortage of raw materials. Tecalsa Tannery is only working two days a week since it is only receiving 70 hides instead of its weekly supply of 350. As is the case of Bataan, the tannery operatives are still being paid for a full working week which is gradually squeezing the cash flow of these businesses. The scarce raw materials which can be found are being sold at around 36 cordobas per square foot for third grade hides in contrast to the asking price of 27 cordobas for first grade hides just a few months ago (US$1 = 18.8 cordobas). Taking into account reduced production, general overheads and wages, all major tanneries in Nicaragua are running at a loss. Bataan is currently losing US$25,000 per week with no end to the crisis in sight. The knock-on effect is already being felt in shoe outlets in the capital Managua, where locally manufactured footwear is becoming less and less visible on the shelves. The fall off in national shoe production is attracting imports from the US, Colombia, Brazil and China. Low priced Chinese footwear manufactured from imitation leather and plastic is increasingly coming to the attention of low income families and is thus gaining market share. Addressing the crisis Laws passed in 1996 regulating the amount of raw and salted hides which can be exported have not been enforced. Illegal exports are also responsible for aggravating the crisis in the leather pipeline but are extremely hard to quantify. The Ministry of Trade and Industry (MIFIC) has been criticised by the sector for authorising the export of far too much raw material and thus adding to the shortages. At a meeting in the ministry on May 22, the tanners demanded that the 1996 law be applied and an agreement was reached to prohibit the export of salted hides and cattle on the hoof as well as to oblige the local slaughterhouses to sell 30% of their hides to the local leather industry. The loophole in these agreements with MIFIC was that no formal document was signed. This also begs the question of how to enforce the slaughterhouses to guarantee 30% of their hides for the local tanning industry, when they would receive cordobas instead of 'hard' US dollars? It would be a massive task to monitor slaughterhouse operations nationally and for this reason the tanners could take matters into their own hands by declaring a national strike and taking their protest to the streets. Since the 2006 entry of Nicaragua into CAFTA, the raw material shortages have been more accentuated. What concerns the tanning sector is whether the agreement with MIFIC to limit the export of hides and cattle will carry more legal and commercial weight than the formal free trade agreement (CAFTA) signed with the United States.

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