Evolution of the hide business4 October 2010
Each month we post an opinion poll on our website which is free for anyone to enter. The results of the latest poll on the prediction of raw material prices can be seen on page 6. The majority of those that voted feel that the price of raw materials will continue to rise.
If that is the case then I assume that tanners are either reducing their profit margins or they are passing on the additional cost to the product maker. Either way it is not a satisfactory situation unless you are a raw materials trader.
I see a number issues both current and on the horizon which could shake-up and maybe change the hides and skins business forever. I will phrase what I feel are the changes in three simple words: consolidation, supply, environment.
Why consolidation? In the past year in particular, a number of giant meat packers mainly in the US and Brazil have decided to add value to their hide supply. These include JBS, Marfrig, Tyson and National Beef. These guys have a huge supply of raw hides between them and all are involved in the tanning business in a big way up to wet-blue and beyond in some cases. So what are the pros and cons of this trend to the tanner? Well a few suppliers of high volumes may leave tanners with higher prices. The supply of hundreds of thousands of hides could be in the hands of a few individuals. On the positive side these companies are large, professional and are working hard to improve quality and consistency. Tanners have always complained that they often don’t receive what they thought they bought from a trader and the big guys have spotted an opportunity to supply a consistent quality.
Supply: Demand from Asia is clearly a factor here but so is a shortage of supply. If global herd and flock sizes reduce then prices will rise and this was the reason given by many suppliers at the recent APLF for the current high prices. This may be a short-term problem though if higher populations in developing countries start to consume more meat. The national herd and offtake in Brazil is still growing.
Environment: I touched upon this topic before. If ‘hide miles’ become an important issue to the consumer/brand then we might start seeing more leather processed closer to source. Less salting and tanning fresh hides is an attractive option. In many countries such as India, salt in the effluent is a major problem and it might be easier for tanners/leather product makers to buy part processed leathers and avoid some of the ecological problems.
So what future could we see? A world where the larger meat packer/tanners have more control, particularly up to tanned stock. As a result we may see the disappearance of a number of smaller traders as they find it harder to compete.
If prices get too high then the designer/product maker may look elsewhere and source other materials.
Environmental factors could see the global trade of salted hides and skins reduce as more tanners opt to process closer to source. Additionally, increased pressure to eliminate or reduce salt may also lead to more tanners sourcing fresh hides and skins, although this could inevitably leave them exposed to market fluctuations.
I feel that in some form or another we are going to see a major evolution of the raw materials market in the next few years, which may or may not be financially beneficial to the tanner.
One thing is for sure though you have to be smart to make a living out of the hides and skins business. A hide and skin trader is by their very nature a survivor!
Martin Ricker Editor