Joint enterprise: Dutch role in Bangladesh leather26 September 2017
Research by value chain consultant Ralph Arbeid addresses Bangladesh’s role in the global leather industry, the growth potential of the sector, and the factors that might influence development in the Asian nation, including assistance from the Netherlands. Leather International reports on a business opportunity scan on the leather sector commissioned by the Ministry of Foreign Affairs on behalf of the Dutch embassy in Dhaka.
Leather is Bangladesh’s second-largest export. The country is ranked fourth in Asia in bovine and goat products after India, China and Pakistan, and its leather goods and footwear factories are increasingly able to meet the demands of Western brands.
Growth in recent years has been slow but steady, and experts suggest there is substantial room for further expansion, aided by significant financial incentives for investors from the government. The sector also faces major social and environmental challenges, especially in tanning, where there are grave concerns about workers’ rights, including suspected child labour; health and safety; and widespread environmental pollution.
The social and environmental challenges for leather goods and footwear factories are somewhat less pressing than those faced by the tanneries, but there are concerns for occupational health and safety, fire safety, and the treatment of wastewater and solid waste.
Bangladesh may apply for General Scheme of Preferences (GSP) Plus status from the EU when – and if – it graduates to the developing country bracket in 2021. As a least-developed country, the Asian nation has been enjoying zero-duty benefits on exports to the EU since 1971, under its Everything But Arms scheme. Once it becomes a middle-income country it will no longer be eligible for this. Instead, the GSP Plus scheme may become applicable to Bangladesh, which will require the country to fulfil a number of conditions, including strengthening workplace safety, improving labour rights, and protecting the environment.
Bangladesh has no professional slaughterhouses, and hides and skins are traded in a pyramid system by which small collectors sell to bigger ones, ending with traders, who sell to tanneries. Exporting rawhides and skins is prohibited. The country has a few medium-sized shoe factories, as well as a number of small leather goods manufacturers, all of which export their products.
The Netherlands, on the other hand, is a highly industrialised country, with sophisticated cattle-rearing technology. Dutch slaughterhouses are of the highest quality in terms of animal welfare, hygiene and food safety, and its hide and skin traders operate internationally. It has only a few tanneries, but these produce high-quality leather for global clients and its shoe factories are extremely productive.
The Netherlands occasionally imports ready-made footwear from Bangladesh. Leather goods manufacturers are mainly SMEs that use local production as well as make articles produced abroad, including in Bangladesh. The Dutch leather chemicals industry is also world-class, and leads the way in sustainable processing technology.
Dutch companies can bring knowledge, engineering and technology to Bangladesh, and become a big customer for its leather products. The Bangladeshi leather value chain (LVC) may also benefit from collaboration with Dutch labour organisations and NGOs.
The potential for exports from Bangladesh to the Netherlands is far larger than the actual trade at this moment because only a limited number of Dutch importers and manufacturers are aware of the supply potential of leatherrelated enterprises and their products. Dutch leather exports to Bangladesh are insignificant.
The LVC in Bangladesh, meanwhile, is active and important, but clearly significant challenges exist. Unless positive changes are implemented, these challenges will threaten the development of the LVC over the coming years as global buyers will purchase from more sustainable sources.
Currently the Bangladeshi leather industry is still lagging somewhat behind in terms of the general awareness and implementation of sustainability.
After the events at Rana Plaza in 2013, where more than 1,000 textile workers died in a building collapse, the international community maintains its focus on Bangladesh in terms of worker safety and social conditions. In fact, the International Trade Union Confederation (ITUC) is currently highlighting the non-compliance of Bangladeshi employers in the textile sector with international labour and safety norms.
The ITUC has called on the EU to bring the GSP preferential trade deal under the Everything But Arms scheme into question. The leather industry should become compliant with international labour and environmental norms in order to avoid further speculations on the termination of the GSP trade facilitations, which currently exempt its leather imports into the EU from import duties.
The construction of a central effluent treatment plant (CETP) at the new Savar industrial tanning area no the outskirts of Dhaka was initiated in 2012, but there is still much to be done.
The plant only treats tannery effluent without chrome content. Tanneries must separate the effluent with chrome content from the effluent without it. The chrome discharges from the tanneries are to be processed by three substations called effluent pumping stations (EPS), where the chrome is recovered for recycling.
After chrome recovery, the three EPSs send the remaining effluent to the CETP. At the moment, the EPSs are not yet ready; one is at the final stage of running tests, whereas the other two are not nearly ready. The treatment of solid waste is being considered, which should generate 5MW of electricity a day when it is burned in the solid power generation system.
At least 18 tanneries have started processing raw hides into wet-blue and are discharging their effluent directly to the CETP. It also probably discharges partly treated or untreated effluent directly into the Dhaleshwari River; it is unclear at this moment what happens to the solid waste.
Once the construction phase has been concluded, the Chinese suppliers of the CETP will run the plant for two years during which time they will train local staff and technicians.
The Government will need to establish and/or publish legal benchmarks and standards for the input from the tanneries into the CETP and the output of the plant into the river. Laboratory space has been assigned at the CETP, but the laboratory has not yet been equipped. In order to monitor the proper functioning of the plant in an efficient manner, equipment will need to be purchased and installed, while staff will need to be employed.
In order to guarantee the proper functioning of the plant and the quality of its output, it will be important to institute an independent body that can monitor and certify the quality of the output, and its compliancy with legal requirements. This is an opportunity for Dutch laboratories and independent certifying agencies to assist the governing body of the CETP.
Bangladesh’s omnipresent livestock is a renewable source of raw materials, which is an important asset, given that consumption of red meat is decreasing in industrialised countries, but is seen as a marker of prosperity in developing regions.
Bangladesh aims for maximum value addition from its raw materials, and is strongly promoting the production of finished products, while discouraging the export of unfinished items. The local market is becoming consumer-oriented, which means that leather products will be increasingly sought after.
Rising global demand for leather creates an opportunity for local development in Bangladesh. Market opportunities are increasing in domestic and regional markets, while cheap, non-leather footwear and apparel will be replaced in local and international markets.
When considering the market, this may create for ‘made in Bangladesh’ products, it should first be noted that the most important ‘chemical’ for processing leather is water, which is abundant and non-detrimental to the population, provided that effluent is properly treated and monitored. Furthermore, leather and its associated products will have to be competitive in value and quality.
Joint collaboration will be essential for this type of development, in order to provide market access and suitable technology as necessary. Partnerships in joint ventures, strategic alliances and long-term agreements will form the pattern of future processing, manufacturing and trading.
In Bangladesh, total vertical integration of the leather value chain is already under way, and can be expanded through breeding and strengthening facilities. Collaboration with the Netherlands may add to the value of the local industry. Enterprise Resource Planning (ERP) systems, which can trace the movement and production of materials throughout the country, plan production and thereby create reliable delivery, will attract large distribution chains and global buyers.
Keep it clean
Environmental concerns arise in the processing countries and the customer markets for the final leather products. The former have to ensure that there are sufficient and renewable national water resources – once the priorities of human consumption and agriculture have been met – for tanneries to operate. The tanneries, individually or as a cluster, are subsequently required to treat the effluent that they produce so that the environment is protected, and no health risks arise as a result of pollution of wastewater discharge, water supplies, the atmosphere or the land.
This protection of the environment has to be accomplished within set legal, technical and economic parameters. Customers are increasingly demanding that products are produced without environmental damage, so the creation of a quality label denoting clean and safe products will be a giant step toward the international recognition of Bangladeshi leather.
Big retailers want their supply chains to be ‘clean’ in terms of animal welfare, pollution control, labour conditions and product safety. Individual importers’ requirements for traceability are highly likely to be followed by very similar requirements from national or regional governments.
Bangladeshi leather operators need to be aware of this trend in order to avoid being excluded internationally, not least because action groups can greatly influence the market. For example, PETA’s concern about the treatment of cows in India seriously damaged that country’s leather industry, while the deforestation report produced by Greenpeace in 2011 had a negative impact on Brazilian leather.
Raw materials are also in need of improvement to reduce natural and man-made defects, while the quality of the leather must be more consistent in order to appeal to the international market. Modern technology can help to achieve this through a combination of hardware and software. Intuitive touchscreen controls, for example, are important in countries such as Bangladesh, where many employees lack formal education, but are familiar with smartphones.
The Netherlands has a long-established and highly professional meat and dairy industry. The average wet-salted hide in the European nation weighs 22–23kg, compared to 14 kg for a similar hide from Bangladesh. Dutch companies that engage in herd improvement and management – as well support for farmers – are qualified to help Bangladesh create a system of professional cattle farming.
This assistance will improve the production of milk and meat, as well as the processing of hides. Dutch abattoirs can also help create professional slaughterhouses in the major cities of Bangladesh, which will have a beneficial influence on food safety as well as the quality of meat and hides.
Netherlands-based ompanies must also engage with Bangladeshi entrepreneurs to develop small, but industrial, cattle farms.
Dutch engineering companies can also approach and assist tanners that have as-yet undefined construction plans for layouts of new tanneries in the Savar industrial area and its future expansion. These plans may include modern Western-style tanneries with efficient production and cost-effective machines – new and reconditioned – with consideration for the environment and worker safety.
In addition, chemical companies may consider sealing up production units in Bangladesh for most of the chemicals used, as has been done in neighbouring India and nearby Pakistan. Laboratories for the testing of samples and the development of new processes for the market in Bangladesh would be another opportunity.
The larger tanneries in Bangladesh have their own shoe factories as well, some of which import finished leather from abroad. Dutch tanneries are reliable suppliers of consistently good leather and Netherlandsbased footwear factories have the opportunity to act as partners and/or marketing offices for Bangladeshi shoe-makers.
Some of these factories have already entered into foreign collaborations, but new opportunities will present themselves. There is a need for assistance in design and technology, which will help Bangladeshi footwear manufacturers to make their own designs and become less dependent on overseas partners. This creates a larger customer base for the Dutch market to access more regularly.
Unlike the footwear industry, the Bangladeshi leather goods manufacturers are SMEs. Some are already working successfully with Dutch importers, but entrepreneurs will find open doors for new collaborations and the supply of leather goods to the Netherlands.
While the environment is a crucial issue in the Savar tannery development, currently no roadmap exists for managing the CETP. Dutch experts must actively assist the Bangladeshi management of the CETP in defining the benchmarks for arrival and discharge effluent, in order to have a maximum yield with the most efficient operation and lowest operation costs. This collaboration will also require an audited effluent certification.
Under pressure from action groups, overseas buyers are finding sustainable and socially responsible supply chains increasingly important. While steps forward have been made in Bangladesh following the Rana Plaza incident, Dutch labour experts must assist the tannery owners and management, as well as their counterparts in the local labour unions, to ensure that conditions improve.
The market is always the prime driver of change. Dutch buyers, as well as those from other countries, therefore, are crucial to creating better environmental and labour conditions in Bangladesh.