Machines and Brazil

1 December 2004

There was no Limeblast in the November issue of Leather International. The article that appears below is from the October edition. While we are getting ready to take up a new pilgrimage to Bologna, I wonder which of the categories in the leather trade is complaining least? None are withoutcomplaint, so let's look for a positive angle in this valley of misery and sort out those who are complaining the least. Machine manufacturers in Europe are going through very difficult times just like the rest of the industry. Their sales to European tanneries are drying up but, unlike other sectors who actually lose their business to other European tanneries because they have stuck to the vulnerable low cost segment, machine producers have experienced a shift of market rather than a loss of sales to their competition. Some big brands are going through very rough times, some have closed and others have enacted heavy restructuring schemes. Others have merged to make ends meet. Those who are better organised, better streamlined, less top heavy with office staff and are putting their money on the production floors, where it counts, are not doing too badly, even if life is not as bright as it was a couple of years ago. The top-class machine manufacturers face competition and blatant copying of their machines but, at the end of the day, it's still the quality and technology that counts. Good quality can only be produced with the right product development and technology, coupled with after-sales service. And good quality still sells! Another factor seems to be that tannery machines are not suitable for mass production nor do they have an advanced technological edge like aeronautics, hence they have yet to earn the serious attention of Asian producers. Tannery machines are made all over the world, but really good tannery machines are made only by the traditional manufacturers. The large majority of tannery machines are 'Made in Europe', although one serious contender seems to emerge. Competition in the machine sector is not coming as much from the east as from the west. I wrote e-mails to several Brazilian machine manufacturers and asked them for data. Funnily enough none has answered. Probably they were suspicious about my motives, which are quite noble this time and, in fact, they are missing the opportunity to be put into the LimeLight. So I gathered some data from other sources, amongst which official data available from Brazilian diplomatic representatives and other South American countries. Some European manufacturers did answer my request to compare their machines with machines made in Brazil. And here are some verbatim reactions: 'What I can say is that many Italian manufacturers in the leather field sold many plants and machines to Brazilian tanneries. Evidently this means that the technical quality of the local manufacturers can't be compared with that of the other manufacturers of other countries.' Another reaction states: 'Actually, the Brazilian competition is a big problem for us to export to their country. The main issue anyway is the import duty imposed by their government. It is important to remember that in Brazil, there is a good technological level.' European manufacturers tell me that if it is all added up, the import fees amount to up to 60% of the machine's value. Believing that this is a bit stiff, I asked in Brazil what duty they levy on machine imports. The answer is: 'There is some protection via import duties but only on machines made domestically and only provided the tanning industry certifies that those domestic machines are technically competitive!! Machines not made domestically can, by and large, be imported without duties', hence in total contradiction with the European view. With the help of Cotance, I have been able to consult the EU website on tariffs, updated to March 2004, and it appears that Brazil levies a duty of 14+3.5% on imported tannery machines HS code 8453. Cotance does not rule out that in addition to the import duties, there are also other trade barriers in Brazil that increase the price for landing a given machine on the Brazilian market. All together they may well make up 60% of the value; who knows better than anyone who has tried to export to Brazil? However, if true, the machine producers would have a good case for challenging the Brazilian measures. Meanwhile, as I write, the EU and Mercosur are negotiating a Free Trade Agreement, and the results of these negotiations may already be known when you read this. Brazil has been reported to have exported tannery machines to the value of $2 million in 2002, of which 84% went to South American countries. In 2003, exports increased to $2.25 million, of which 89% was sold in South America. Exports of shoe machinery were more important, namely $5.9 million in 2002 and $6.34 million in 2003, of which 74% and 89% respectively were sold to South American countries. There are two Brazilian drum makers, one of whom uses Italian technology both for the production of the drum and for accessories such as filtering and ecological systems. These particular Brazilian drums are a good quality product, use the same Brazilian Amazon rain forest wood as the Italians (who also use African Iroqo wood), but are about 40% cheaper. Similarly, you can buy a good quality, low temperature vacuum dryer developed in Brazil based on Italian technology and again you would be able to save 30%. Brazilian machines are cheaper because labour is cheaper, raw material supply is nearby and because, my source says: 'Manufacturers don't need to cope with sophisticated protection devices as those required by the European Union', a point I made in the March 2004 Limeblast. I am also told that local spare parts are much cheaper than imported spare parts (14+5% tax). My South American friend states: 'Tannery machines have been in existence for so long in the market that there are practically no secrets any more.' The statement is only partly true of course. The European tannery machine producers make great efforts and investments to improve the technology of their machines and, because of this, they remain abreast of the (Brazilian) competition. It appears that the market for South American machines is South America. There are, as yet, no efforts being made to compete in markets such as south-east Asia or China, although there seems to be an interest in South Africa for Brazilian machines, particularly drums. Probably demand from South America alone is sufficient to keep the order books full, covering the capacity of the factories. Brazil has been making tannery machines for the last 50 years and started by copying European machines. Their internal market is huge and this helps them to build whatever is needed. They have first-class mechanics and technologies and people in the industry are aware that they must stick together. On top of that, the Brazilian government protects the local industry by levying import duties on foreign products when, at the same time, the European Union makes life for the European industries as difficult as possible with its rules and regulations. With such a basis, European machine manufacturers will have to consider selling technology to South America rather than machines. Last but not least, I'd like to mention that, contrary to the non-unity of European machine manufacturers, their Brazilian counterparts show an amazing capacity to promote their sector. In fact, the Associação Brasileira das Indústrias de Máquinas e Equipamentos para os Setores do Couro, Calçados e Afins (Abrameq) issues a catalogue with a large variety of machines offered by their associates. Power is in unity! Sam Setter

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