Progress in the past two decades

The hides and skins and leather economies have undergone a number of significant changes during the past two decades. The hides and skins sector is driven mainly by fluctuations in the meat market rather than changes in price and demand for leather. There are also major differences in the types of hides and skins due to different breeds, sex, age, size of animals, climate and varying conditions of pasture and terrain. The quality of hides and skins can also be affected by the differing methods used in animal husbandry, slaughter and curing. There is no universal standard system for the preparation of hides and skins and subsequent conversion into leather, and many processes are available. Economic significance The global value of hides and skins production exceeded US$14.5 billion in 2000 and the value of world leather production was estimated at about US$28 billion. The value of leather footwear was approximately US$70 billion. Global export earnings from raw hides and skins, leather and leather footwear increased markedly between the eighties and mid-nineties. The aggregate value exceeded that of meat and amounted to almost US$45 billion in 2000 with developing countries more than doubling their share of the world total during the two decades. However, there are considerable regional variations. The Far East has become by far the largest exporting region among developing countries, mainly due to its cost competitiveness in processing and manufacturing. Total exports from Africa and the Near East declined, reflecting the difficulty these regions face in penetrating the international market in leather and leather products. Production of raw hides and skins The supply of hides and skins varies depending not only on the meat market, but also on demand for milk and wool, and shows little response to changes in demand for leather. Growth in world meat production slowed significantly following the economic recession of the mid-seventies. Since then, production has continued to increase, albeit at a slower rate, particularly in the developed countries, which currently account for about 47% of total meat supply. In the developing regions, consumption of red meat levelled off in the early eighties and production growth slowed, but regained momentum in the early nineties. Developing countries now account for about 53% of total meat supply. The production of bovine hides, sheep and goat skins followed these changes in meat production, although the changes were not identical as output varies, for example hides and skins are also recovered from fallen animals, some are wasted, and size and weight varies. Losses also result from lack of market information, inadequate facilities for slaughtering, and poor preservation, handling and grading techniques. A regional pilot project to reduce waste of hides and skins and to increase their recovery was implemented by Unido, FAO and ITC between 1989 and 1992. Currently, a project to improve the grading and pricing system in developing African countries is being implemented with the support of the Common Fund for Commodities (CFC). Between the early eighties and late nineties, world output of bovine hides and skins rose by 14.4%, or about 1% per annum (see Figure 2). Output continued to grow strongly in developing countries, reflecting improvements in cattle husbandry and expansion in beef production, and in the late nineties, production in the developing countries exceeded that of developed countries. Latin America is the largest producer among developing countries. World production of sheepskins grew by over 18% (1.2% per annum) during the past decade, and reached an all-time peak in the mid-nineties. As in the case of cattle hides, sheepskin output grew fastest in developing countries, reflecting improved curing methods and better animal husbandry. Developing countries now account for more than half of the world sheepskin production (see Figure 4). Global output of goat skins grew by 3.7% per year during the eighties and nineties. Production in developing countries, which dominate goat skin production, rose by almost 4% annually, while the much smaller output of developed countries rose at an average annual rate of 1.5% (see Figure 6). The Far East is the largest producer of goat skins, accounting for about 70% of the world total. Trade in raw hides and skins With lower labour costs and, in many cases, less strict environmental regulations, developing countries have been able to compete successfully with the tanning industry of developed countries. Considerable investment has taken place in tanning capacity, particularly in some Asian and, to a lesser extent, Latin American countries. Consequently, developing countries in aggregate have expanded their tanning and leather manufacturing sectors over the past 20 years, utilising an increasing proportion of their domestic raw materials and becoming net importers of raw bovine hides and skins from the early seventies. The net imports by the developing countries in aggregate increased from 145,000 tonnes in the early eighties to 800,000 in 1999 (imports are shown as negative exports in Figure 7). The development of tanning activities in developing countries has resulted in a change in trade flows in raw hides and skins, leather and leathergoods. The reversal of trade flows has led to competition for raw materials between newly emerging tanning industries in developing countries with limited raw materials and established tanners in developed countries. Recent data shows that some leather producing countries with ample domestic supplies of raw materials, such as India, Pakistan and Thailand, are also importing considerable volumes of raw hides. At the same time, competition for market shares in end-product markets in developed countries has intensified, resulting in strong competition among developing regions. In fact, the role of developed countries has changed from net importer to net export of cattle hides, reflecting the decline in the tanning industries in North America and Europe, and the lower labour costs and less severe environmental regulations in other countries. Exports from North America and Oceania have risen since 1970, and the net import requirements in Europe have declined. The area of the former USSR became a net exporter in the mid-nineties. Because of these developments, an increased proportion of global production now enters world trade (see Figure 8). Globally, around 40% of the output of raw bovine hides now enters international trade, an increase of 33% from the early eighties. World shipments rose on average by 2.1% per year during the eighties and nineties. A structural change has also taken place in international trade of raw sheepskins and goat skins. With increased tanning capacity, developing countries became net importers of sheepskins in the mid-nineties. While they are still net exporters of goat skins, net export availability has fallen, reflecting a higher rate of domestic processing. Conversely, the developed countries as a whole are not net exporters of sheepskins and their imports of goat skins have been reduced. The share of the output of sheepskin which enters world trade fell from 46% in the early eighties to 38% in 2000 as a result of increased demand by tanners within producing countries (see Figure 9). Oceania remained the dominant exporting region, while shipments from the former USSR increased markedly. The proportion of goat skins entering trade channels fell from 23% in the early eighties to 7% at the end of the nineties, reflecting an increase of utilisation in growing countries. The level of shipments fell as production expanded. Developing countries, where tanning capacity rose fastest, reduced their exports of raw skins by an average of 1.3% per annum. Production of leather With lower labour costs and less-demanding environmental restrictions, developing countries now produce 60% of the world's leather compared with 40% in the mid-eighties. While world production of light bovine leather used in the uppers of shoes rose by 1.5% annually during the eighties and nineties, developing countries increased their output by 4% annually, lifting their share in tanning of this type of leather to over 55%. Growth was most apparent in the Far East, while developed countries reduced their tanning of light bovine leather during this period (see Figure 10). In contrast, heavy bovine leather used for shoe soles has recorded a stable 3% of total leather production in the past two decades. Global output of sheep and goat leather expanded more rapidly. Output in developing countries expanded rapidly (see Figure 11), and their share in the total world output has grown from 44% in the early eighties to 66% in the late nineties. The strongest gains occurred in the Far East, which dominated the production of sheep and goat leather, and in Africa, while production declined in developed countries during this period. Trade in leather The geographic shift in tanning and leather manufacturing has also led to changes in the pattern of world trade in the semi-finished and finished leather products. Between the early eighties and the end of the nineties, trade in bovine light leather expanded strongly at around 9.4% per year, sustained by a strong demand for leather and leather products (see Figure 12). Exports of sheep and goat leather grew by an average 3.1% per year (see Figure 13), while trade in heavy leather remained stable, reflecting rising domestic utilisation. The developing countries share in global exports of light bovine leather rose from 39% to 60%, but their share of trade in sheep and goat leather declined from 56% to 46% as trade from developed countries increased. The Far East surpassed Latin America as the principal exporting region of light bovine leather and remained the main sheep and goat leather supplier among the developing countries. Shipments of light leather from all types of hides and skins expanded in most developed regions during the eighties and nineties, particularly in North America. The footwear sector Recent estimates show that the global output of shoes with leather uppers now exceeds 4.5 billion pairs, having increased by around 2% per year in the eighties and nineties (see Figure 14). Production in developing countries rose by 6.6% annually, reflecting investment in manufacturing capacities, and the developing countries share in global output rose to 70% in the late nineties from 35% in 1980. The expansion in leather shoe production was most marked in the Far East region and to some degree in Latin America. Production declined in almost all developed regions, where labour costs are higher. World trade in shoes with leather uppers expanded strongly with annual growth rates averaging 7% between the eighties and the end of the nineties (see Figure 15). Shipments from developing countries increased the fastest at 16.2% per annum and their share in world exports rose from 20% in 1980 to 65% in the late nineties. Latin American and Asian countries accounted for most of this expansion, reflecting investment in production capacity in a number of countries. Europe accounted for about 80% of the world export market in footwear in the late seventies, but it lost market share to the Far East over the subsequent two decades due to the strong competition from developing countries with considerably lower labour costs. The Far East now accounts for 56% of global trade compared with 33% for Europe. Consumption of leather shoes in developing countries rose from 32% of the global total in the early eighties to 55% in the late nineties, reflecting increased consumer incomes, mainly in the Far Eastern countries. Per capita purchases remained constant at the world level, though in developing countries it increased from 0.3 to 0.5 pairs annually. Far Eastern consumer purchases per head increased, while in Africa, annual purchases declined to one pair per ten people. Divergent trends emerged in developed countries. In North America, demand per capita for leather shoes increased strongly. In Europe, per capita purchases appear to have declined to 1.5 pairs annually, and in the area of the former USSR, demand decreased markedly in line with the country's economic crisis. Problems facing the hides and skins sector Production and trade in hides, skins and leather have developed considerably in recent decades. Hides and skins produced by the developing countries have increasingly been processed to higher levels prior to export and the developing countries' share in the global value of exports has risen from 20% to over 40% between the early eighties and the late nineties. Nevertheless, there are still problems to be solved. These include losses from non-collected, damaged and poor quality hides and skins, problems posed by environmental constraints on the industry, and the impact of restrictive trade policies. Considerable losses are still incurred from the non-collection of hides and skins, and damage as a result of poor livestock management, diseases, and inadequate treatment during and after slaughter. Waste of African hides and skins in 1998 was estimated to exceed US$800 million. A number of factors contribute to production in Africa remaining below its potential: * Cultural patterns and lifestyles of African traditional livestock producers are not geared to commercial livestock rearing. Pastoralists who keep large stocks of cattle typically keep the animals as a show of wealth * Poor infrastructure, including the lack of good roads, inadequate facilities for dipping and veterinary disease controls, lack of village level slaughter slabs and drying sheds with water and hygienic conditions * In many cases, prices paid for skins and hides do not reflect the grade of material. In some countries, prices are set unpredictably, with high prices paid for all grades when supplies are short. As a result, producers do not have any incentive to improve the quality of their output Higher levels of collection and improved quality could be attained with appropriate grading and pricing of raw materials. A project to introduce appropriate grading and pricing systems for raw hides and skins is currently under way in four African countries, financed by the Common Fund for Commodities (CFC). Environmental regulations have the potential to damage the economic health of the industry. Complying with environmental regulations imposes considerable costs on the industry, and although cleaner technologies have been developed, tanning activities have moved from developed to developing countries where environmental constraints are less strict. However, the costs of applying environmental constraints in developing countries are significant, and additional technology and finance are required. Restrictions imposed by exporting and importing countries prevent the trade of hides and skins reaching its full potential. Restrictions on imports limit the opportunities of exporters and reduce the supply of material available to processors and manufacturers in importing countries. Average tariffs for developed countries are estimated at 3.5% for leather and 7.3% for leather products. For some countries, however, tariffs on some products such as footwear are as high as 50% or more. Restrictions on exports limit supplies to tanners and, therefore, distort competitiveness. Continued pressure to reduce trade barriers would facilitate expansion of trade and lead to higher export earnings for producing countries. Developing countries often have difficulty in obtaining the necessary information to effectively export their commodity, and buyers in developed countries increasingly need to find new suppliers. Participation in trade missions and fairs and the publication of trade information are ways in which contacts can be established and information exchanged between buyers and sellers. The increasing availability of internet technology is further overcoming these barriers. Synthetic substitutes have made little impact on the leather sector. However, there is some potential for synthetic substitutes to more effectively penetrate the market, and the Sub-Group has on previous occasions expressed the view that developments in this field need to be monitored to prevent any future loss of market share. The development strategy adopted by the Sub-Group at its fifth session in 1996 identifies the major drawbacks to be addressed in order to promote the further development of this sector. These are: * wastage of hides and skins; non collection and damage * lack of statistical intelligence * restrictive trade policies * environmental constraints * lack of commercial trade information * market competition from synthetics