The wind of change?

China is now the second most important client for Mexican leather. Footwear made with Mexican leather is also being exported to Japan (thanks to a trade agreement with that country which came into force in recent years). The volume being exported may not have gone up but the value of each pair is rising dramatically. The same phenomenon is happening to leathers. Jose Maria Padilla Ramirez, president of Cicur, states that in order to remedy the lack of export initiative (only 11% of leather produced in Guanajuato is exported), these measures are being taken: commercial missions to potential market countries, participation in main leather fairs and the formation of export consortiums. Fashion initiative Paolo Marenghi of Ars Sutoria stated that Mexico already shows commitment to quality but needs to focus on fashion, in order to create a whole chain based on design and quality. It is widely agreed that the Mexican footwear sector cannot carry on copying 'fashionable' designs from elsewhere. It has to 'propose and create' for itself. In order to help the footwear industry develop a more fashionable product, the Anpic association has launched a design initiative in conjunction with the Ars Sutoria fashion school. Marenghi told a press conference at the recent edition of Anpic: 'In 2006, Mexican footwear producers will have the opportunity to attend a specially formulated design course in Milan. Participants will be selected via a competition. It is hoped that this will contribute to the 'birth' of new designers and promote the creativity of design which leads to added value.' Ricardo Almazán of Química Central de México, feels very strongly about the need to focus on design. 'As long as the garments, leathergoods and footwear sectors lack a fashion initiative, they will not be profitable.' Almazán cites Colombia as an example of how design can be promoted. 'The fashion show which took place as part of the recent Bogota leather fair, exclusively featured national designers and locally-made leathers.' There have been many attempts made but he hopes that current Anpic initiatives will encourage creativity. The concensus is that tanners need to be more original, to propose new designs to the market and innovate in order to boost interest in their product. Government Cicur are currently lobbying the government over high taxation and production costs. Padilla (Cicur) asks: 'How is it possible for energy prices such as electricity and petrol to be so high even though Mexico produces these commodities?' According to Miguel Carceller of Quinn, the various associations representing the Mexican leather sector have been lobbying the government particularly hard on the subject of protective tariffs but the government has not done anything effective as yet. He believes it is important that Mexican tanners stop trying to compete with Asia. 'China has a very export oriented government - this does not happen in Mexico.' However, it is clear that in cheaper articles such as sports footwear, Mexican manufacturers cannot compete with Asia. Armando Guevara, CanalCur, does not see the Chinese tanning industry as too great a threat because 'Mexico stands out from China and the rest of Latin America - who concentrate on high volume and low price. Mexico concentrates on high quality using raw materials from the US which are very expensive. It would not make sense to produce a low quality product from this type of raw material.' Fernando Padilla told Leather International that Mexleather had received support from federal and state governments in terms of logistics and how to set up offices in China. The federal government also offers assistance to help tanners exhibit at international fairs. Help is limited to very specific areas but is useful nonetheless. Opinion in the industry on the impact of Nafta is divided. Padilla says Nafta is a good treaty; free trade agreements are useful but this alone will not help as most other countries have them within their own areas too. Oscar Medina of Medina Torres tannery concedes that at its inception, Nafta caused North American companies to consider Mexico as a potential supplier. And Armando Guevara states that in its time, the Nafta treaty did help to a certain degree but it is becoming outdated. As Mexicans are beginning to focus on other markets than the US and immediate vicinity, the treaty is proving to be irrelevant. The advantage of Mexican leather Carceller, Quinn, believes that the selling point for Mexican leather is added value and quality. Asian leather is not fashionable and is of medium-low value, focusing on quantity and price. Proximity to the US is advantageous as a source of high quality raw material (80% of wet-blue imports come from the US) and in terms of being near to a major buying market. Short transportation times mean that Mexican companies can fulfil US client orders in one week. Fernando Padilla is convinced that raw materials are a key advantage of the Mexican sector over the rest of Latin America as those sourced in the US are better quality, cleaner and heavier. Heavy leathers are a Mexican speciality. He also stresses that the sector has switched focus to higher quality leather. Previously Mexico imported raw hides from Central America to make a low quality corrected grain product. Armando Guevara says that the footwear sector is beginning to refocus on the path towards exporting via a 'diferentiated product'. Specialities are cowboy boots and formal/dress shoes. This has a knock-on effect with more demand for leather, helping small-medium size companies who don't have the power to export. Medina believes that the latest technological know-how and quality offered by the Mexican industry means that the product is now competing with that of Italy, Spain etc. 'The automotive industry demands the highest standards and we are able to deliver.' Furniture At an Anpic press conference, Eduardo Hernandez Padilla (president of Anpic) stated: 'We are beginning to see furniture producers exhibit at the event, which proves that the diversification of the Mexican leather sector towards upholstery is bearing fruit.' Statistics from CanalCur, the national tanners' association, indicate that imports of wet-blue for use in upholstery nearly trebled from 2004 to 2005 in quantity (1.03 million to 2.97 million) with the value rocketing from $150.4 million to $514 million. Oscar Medina agrees that the sector has been gradually diversifying away from footwear towards upholstery and furniture leather. The concept of producing leather for furniture is a phenomenon of the past five years. This diversification of production has allowed many companies, including Medina Torres, to gain stability and means that their leathers are sold to clients all over the world. New production opens up new markets. According to Medina: 'National production can be divided 35% for footwear, 25% auto upholstery, 20% furniture, 15% leathergoods and 5% others.' Production 2005 Despite the lower number of tanneries in operation, a greater number of raw hides were processed in Mexico in 2005 than in 2004. Medina says that the industry has shrunk significantly in recent years - but classifies this as a 'natural polarisation of the industry'. According to Padilla, Cicur: '2005 was a good year for those companies who have been training their personnel to use the latest technology and attacking the market with highly fashionable leathers - companies who have done this have seen their exports increase in 2005. In 2005, smuggling continued to affect the production in Mexico of finished goods such as footwear. 'Contrabando documentado' or smuggling with papers, refers to Chinese footwear/leathergoods arriving in the country seemingly legally but with false papers declaring them as a Vietnamese product. Exports 2005 - a bleak panorama However, according to industry sources, business in 2005 was even worse than 2004 by around 10%. The sharp decline in footwear exports is cited as an example. Three or four years ago, Mexico exported 40 million pairs of footwear, last year the figure was around 9 million. Factors in the decline in exports include the strong peso as well as the entry of illegal Chinese and Vietnamese footwear. (According to Canalcur, Mexico imported 9.8 million pairs of leather footwear in 2005.) Some feel that there is no support within the Mexican industry - alleging that big Mexican footwear companies such as EMICO and FLEXI import shoes from abroad as this is more cost effective. A further example cited is that of a large furniture factory which uses 100% foreign leather. The obvious conclusion is that Mexico needs to start looking after its own industry, not buying from everyone else. The source says that the only sector which is more or less healthy is automotive leather. But this has been boosted largely by external factors including the relocation of GST to Ciudad Juarez and the presence of Eagle Ottowa. The lack of initiative in the finished goods sector is damaging the tanning business. 'If shoe manufacturers do not export, there is nothing to be done. They should focus on medium-high quality fashion footwear as this is where the sector can compete as it can turn around the latest fashion designs in one week for neighbouring markets whereas China would take eight weeks with shipping.' The source states that 2006 is looking marginally better than the 'catastrophic' 2005. His doomsaying continues unabated: 'The sector has shrunk drastically with closures such as Curtidos Rexy (aka Piel Islandia) and Curtidos Starr in Guadalajara. In León, half of the tanneries are said to have closed. There are no tanneries left in operation in state of Mexico DF. However, in contrast, Fernando Padilla of Mexleather believes that in 2006 the national market will get much better. 'The first months of the year have already been better than the same period last year. The price of Chinese leather and Mexican leather are getting closer which is helping as clients who had switched to China are coming back to Mexico because of quality and similar pricing.' He also believes there is good potential for sales of Mexican leather due to the Chinese import tax on raw hides and predicts a high demand for Mexican wet-blue in the future. 'Although the situation has improved slightly in the last year, cash flow is still nationally very short. 2006 is election year in Mexico but it is felt that this will not have a significant effect on the industry', says Padilla. Future Carceller of Quinn predicts that the leather and footwear sector in León will not contract further but will refocus production on better quality articles. 'It has to adapt itself to the new climate, producing distinctive leathers as Europe did. Those companies which are exporting successfully have taken these steps. Some of the region's footwear manufacturers are inundated with orders so it proves this approach can work.' Jaime Dueñas of Procesos Humedos observed the general atmosphere at Anpic was that people had taken the decision to actively confront the challenges facing them. Fernando Padilla sees the future panorama as very promising, as the industry has recently been adapting to the options available. He affirms that Mexican leather can be seen everywhere, from furniture, automotive, footwear and leathergoods. Quality and technology are the touchstones. 'Those who are willing to change and adapt will do well.' Cicur are also investigating new buyers for leather such as furniture makers based in Mexico. They are very interested in being up to date with the latest happenings. Oscar Medina states that the new generation of tanners (children and grandchildren of original tanners) are very well trained in English and have masters degrees (in business management) so the sector has become more professional and less 'artesanal'. He is convinced that the Mexican sector has a lot of potential. Statistics In 2004, there were 798 tanneries in the state of Guanajuato. According to Cicur, this number has now shrunk to an estimated 690 tanneries of which 130 are working on a purely seasonal basis. Cicur state that while many smaller tanneries have closed, the medium-large scale companies have experienced a significant upturn due to the opening up of new export markets. 80% of the tanneries are micro or small companies, 17% medium and 3% large. The most important market for Mexican tanneries is the US. However, in the past year, exports to China have grown considerably and China now occupies second place. In 2004, the US was the destination for 79% of Mexican leather exports, followed by China, Taiwan and Hong Kong at 7% each. In 2004, exports of chemical products grew by 45% and a further 20% in 2005 to total US$135 million. According to Cicur there is good demand for exotic skins which are largely imported from other countries to be finished in Mexico. Current production levels in the state of Guanajuato are in the order of 47,200 hides per day. The lack of supply of raw sheepskins means that it is necessary to import this type of skin. Mexican leather is used in the production of uppers, lining and sole leathers with new uses being sought such as for garments, leathergoods, furniture upholstery and automotive upholstery. Guanajuato Although tanneries in the state of Guanajuato process 73% of all hides processed in Mexico, the state of Guanajuato accounts for just 50.4% of total exports. For the state of Guanajuato in the same period, the US represented 70.2% and China, Taiwan and Hong Kong 13% followed by Italy with 4.2%. The state of Guanajuato exported leathers worth US$110 million between January-November 2005. This figure has grown by 10% each year over the past three years, not including automotive. (Source Cofoce - Guanajuato trade commission) Types of hides processed in Guanajuato: Bovine 80% Sheep 4% Pigskin 8% Goatskin 4% Horse 1% Reptile and exotics 1% Others 2% Medina Torres Medina Torres tannery produces 200,000 leather pieces per year including leather soles, saddlery, strap leather and hustlers. Their client sectors are varied including furniture as well as cushion covers and automotive, to pets toys made from fleshings. The company pride themselves on the high level of service they offer. The company are largely export driven, with 80% of production sold to countries such as the US, Canada, Puerto Rico, Costa Rica, Australia, UK, China, India, Japan, Germany, Dominican Republic and El Salvador. Within Mexico, Medina Torres were pioneers in diversifying to produce furniture leather. Against the trend in the sector, in 2005 the company grew 27% and managing director Oscar Medina predicts further growth in 2006. In testimony to this confidence, Medina has ordered nine new Olcina drums and six further machines to increase production. The company employ 350 people. Cicur's environment initiatives Nearly a decade ago, Cicur undertook to research into viable alternatives on which to build the foundations of a sustainable tanning industry. The sludge treatment plant, located in Leon, which opened in 1999, was one of the first successes of this undertaking. The park enabled waste to be channelled correctly rather than going into the drainage system as it had previously done. This had caused the drains to block frequently, resulting in an unpleasant smell in the area. Sludge treated in the park amounts to 120-150 tonnes per day and the end objective is to produce compost to assist reforestation projects in the region. This has also made the city more pleasant to live in. Research is also underway into the possible use of a remnant of the tequila making process to raise the pH of sludge to make it suitable for use as agricultural fertiliser. There are several other projects underway to reduce the impact of tanning industry waste and convert it into a product which can be used in agriculture. After a year of research, field tests have begun on a project which uses worms to digest tannery sludge and organic waste to produce a high quality 'humus' which can be used as fertiliser. Cicur are also studying ways of processing solid tannery waste to harness its calorific energy and generate electricity through gasification. Construction of a pilot plant will allow tests to be carried out on a semi-industrial scale. If successful, the project would solve the problem of tannery waste and could be adapted for use in other industries.