Tannery competitiveness increasingly being eroded

According to Narvaez, the Colombian sector's specialities include footwear leathers, leathergoods, garment and upholstery. In terms of size and technology, as well as in finishing, the main players are Bufalo, Itagui, Americana de Curtidos, Curtipieles, Matteuchi, Curtiembres Sierra Perez, Curtiembres del Reno and Districarnazas Luna. The tanning industry is dispersed throughout Colombia with centres on the Atlantic Coast in Baranquilla and Cartagena as well as on the 'Coffee-growing Axis' - Calarca and Pereira, Antioquia, Medellín, and in the centre of the country, Bogotá. In terms of wet-blue production the major players are CI Colcueros and American Leather in Bogotá. Exports The exchange rate poses a grave problem for the profitability of Colombian exports in 2007. The exchange rate of the Colombian peso has been revalued over the past three years by approximately 20% while inflation over the same period has been 15%. Furthermore, salary increases have been above inflation and, bit by bit, the capacity of Colombian tanneries to compete in external markets is being eroded. Exacerbating the problem is the fact that with the exchange rate so low, imports have become very cheap and are in direct competition with the domestic product. However, according to Narvaez, tanners have maintained the sales price of their leather, or have increased it by less than the revaluation, in an effort to maintain export clients which are hard won. In spite of this, in 2006 there was a 30% increase in exports of different types of leather (when measured by value in dollars). The Andean Trade Preference agreement has benefited tanners indirectly. Some manufacturers of bags and small leathergoods have been able to increase their exports to the USA and so their demand for leather from Colombian tanneries has increased accordingly. Although the difference is not particularly great, local sources state that it does help in a practical sense as, without it, Colombian exports would have disappeared from the US market. Narvaez says: 'the government always maintain policies to help and strengthen the sector. Furthermore, it has identified the leather sector as one of those most in need of attention. There are soft credits and help for training, attending fairs and transferring technology. These opportunities are not always taken advantage of by the companies.' However, tanners state that there are currently no significant government initiatives and, in fact, the laws which do exist are applied in a very lax fashion. For this reason it is becoming increasingly difficult for companies which do respect the law to survive in the market. The main points of contention appear to be: 1. The incapacity or negligence of the government to effectively collect sales tax. It is alleged that only three of the leading tanneries actually comply with taxation norms whilst the remainder evade this (in particular sales tax) and in doing so gain a significant cost advantage. 2. Environmental law: In Colombia wastewater management regulations are only applied in a small number of areas and the majority of tanneries are reportedly able to carry on working without complying with the law. This has allowed many companies to spring up which are dedicated to the production of wet-blue for export. Again, as they don't have to worry about cleaning their wastewater, they have a cost advantage. More than 70% of Colombia's exports are in wet-blue due to laxity of environmental regulations. Narvaez agrees that environmental matters have seen the most disloyal competition generated between companies, as in some regions the authorities have applied environmental regulations with rigour while not in others. The government is aware that this is occurring and has set up a body to look for a means between the authorities and companies that will fulfil the established environmental norms. This has involved a significant investment for the companies, government attention, a compromise from businessmen to comply with environmental norms and their responsibility to protect the environment with sustainable processes. 'For this reason I consider it will be a fundamental factor in the industry in 2007', says Narvaez. Smuggling Footwear imports have increased significantly in recent years. In 2004 they stood at US$86.2 million, which became US$124.6 million in 2005 and US$176.8 million. 39% of these imports are brought in via Panama. This has had a devastating effect on the Colombian industry as it is technically contraband which is underinvoiced. True contraband also affects footwear manufacturers in Colombia. There is currently a significant process of formalization underway in the areas of labour, environment and taxation. The government has negotiated free-trade agreements with the USA, Chile, Central America, and further agreements are anticipated with Canada and the European Union. This has created a suitable environment for a reorganisation of the sector. In 2006 there has already been significant investment undertaken by Colombian tanners. Americana de Curtidos a model tannery Americana de Curtidos are located in Pereira, western Colombia and produce an average of 500,000 feet of bovine leather per month. The company work with 100% Colombian hides while chemical products are 85% imported, bought in from Argentina, Mexico, Chile, the US, Brazil and Europe. The company currently employ 240 people and 40% of production is exported to a range of markets including Canada, USA, Venezuela, Peru, Indonesia, China, Australia. Carlos Salazar, director of finance and exports, told Leather International that Americana de Curtidos are characterised by their international quality leathers which translate into better quality articles for their clients. 'Alongside this, we offer a highly personalised service to clients. We get to know our clients and support them in their work.' Americana de Curtidos were the first Colombian tannery to have their own wastewater treatment plant and have been leaders in the country on environmental matters. The company have ISO 14000 certification and were awarded the Premio Planeta Azul in 2005. This prize is awarded to companies which protect the enviroment and strive for a better future for the nation of Colombia. Americana de Curtidos received recognition for their efforts in management and reduction of the contaminant load in the leather industry. The project reduced water consumption and significantly reduced the environmental impact of the tanning process. The award also recognised Americana de Curtidos' emphasis on training their workforce, which has generated an environmental culture across the nation's leather industry. The awarding body described the company as a 'model for the national industry.'