Leather International: What factors have enabled the automotive leather sector in particular to thrive, and how has it been a source of opportunity for JBS Couros?

Guilherme Motta: It’s important to understand the perceived value of leather to the automotive industry. Research shows that leather items in cars, such as leather seats and steering wheels, are among the ten most-wanted features for consumers planning to purchase a new car. Not only that, it is known that cars with leather interiors are better rated for resale, due to the conditions of their interiors after a few years of use. So in summary, it helps, or eventually boosts, car sales and the automotive industry recognises that value.

JBS Couros sees the importance of this sector to the leather industry, but also knows the challenges and complexity to be part of its value chain. To work with the automotive industry is not only about making leather but about being able to ensure standardised products; have a reliable and efficient logistic system; be able to invest in constant improvement of its machinery products and services; and, together with all that, provide stability in the supply chain. We understand those challenges and have been focused in the past six years on improving and becoming an important contributor in those areas.

Transparency Market Research (TMR), a global market intelligence company, issued a recent research report saying that the global leather chemicals market, with a valuation of $5.43 billion in 2013, will expand at a healthy 6.1% CAGR and reach $8.19 billion by 2020, and a big proportion of that growth is due to the automotive sector. Can you detail the investment and R&D culture at JBS, and what opportunities you’re seeing at the moment considering these projections?

The automotive industry is not only challenging due to its size and complexity, but it’s a sector that is always evolving. Leather must follow that evolution, and R&D must always ensure that our products are achieving higher performance features and following the trends in the car industry without losing its noble attributes.

A decade ago, a small share of Brazilian hides had the automotive sector as their final consumer. At the beginning, the technical aspects were the biggest barriers to make Brazilian articles suitable for the specifications of the automotive industry. However, after many years of trials, experiences and investments, the Brazilian leather sector was able to make its hides a reality in this industry, contributing with – what we estimate – more than ten million units a year.

We heard a lot about streamlining the value chain at APLF in Hong Kong this year. For a massive organisation like JBS Couros, how is this becoming more of an urgency considering how the overall leather market is struggling?

Consumers all over the world are looking for more transparent and responsible supply chains. They are not only interested to know if the products they buy meet their needs, but also if they have been produced using responsible sources, and respecting the environment, workers and communities impacted by their production. On the other hand, the leather supply chain has always been very fragmented and challenging in terms of transparency.

The automotive industry is not only challenging due to its size and complexity, but it’s also a sector that is always evolving. Leather must follow that evolution.

JBS Couros, aware of those challenges and consumer demands, has, since the beginning of its activities around six years ago, put big importance on increasing the traceability of its products and the transparency of its operations. I believe that all the investments made so far have yielded very interesting projects and we are now seeing the benefits of all that. Not only that, a lot of effort has also been made in order to increase the efficiency of our processes and the development of best practices in the entire supply chain.

How is JBS’s relationship with its suppliers strengthening and becoming more efficient considering your model for responsible sourcing?

Responsible sourcing is an important part of our strategy, and implied in the assessing of our suppliers to ensure that we are receiving products and services in line with our internal policies and CSR standards. Two projects are key in that sense. One is the overseeing of our cattle providers, by daily monitoring more than 65,000 suppliers, ensuring that they are not involved with deforestation, enslaved work and other rural conflicts. The second is the work done with our chemical and machinery suppliers. We are constantly engaging with them to evaluate the newest technologies available to ensure not only the efficiency of our processes and quality of our products, but also the safety to the environment, our team, communities and final consumers.

Meat consumption is growing proportionate to middle classes, which means increased cattle head and size, and lower slaughter age to meet that demand. This all sounds like good news for JBS from a bottom-line standpoint, but what logistical challenges does this demand present in terms of grazing land, technology investment or quality control?

Brazil has shown in the past ten years that it is possible to increase cattle production substantially, without the need to open new areas. A study from FIESP (Federation of Industries of the State of São Paulo) forecasts that Brazil has the potential to increase its cattle herd by six million head until 2025. At the same time, NIT (Territorial Intelligence Agency of the Brazilian Government) presented different research showing that the country can achieve even higher growth in its herd, freeing more than 65,000ht to other activities. This is due to the improvement in cattle production and the development of new technologies.

There are still areas to improve; the government must continue to promote further development and watch those producers that are not respecting the environment. The market, through consumers, also plays an important role; they must demand more sustainable products and ensure they are supporting more responsible production systems. Still, in general, the outlook is positive. In this sense, Brazil is probably the country with the most capabilities to support the growth in the global demand of meat, and the leather industry will benefit from that for sure.

Brazil has shown in the past ten years that it is possible to increase cattle production substantially, without the need to open new areas.

There are a lot of challenges gripping Brazil’s leather industry, as well as overriding political and economical issues. Why should your existing customers and potential new customers be optimistic about investing in JBS Couros and Brazilian leather?

I don’t think the situation is so gloomy. The ups and downs of the leather industry are not something new, and we have learned how to deal with that. At the same time, the Brazilian leather industry is very international with a relevant part of its business relying on other countries, so the current political situation affects us but not in a very big way.

Also, the Brazilian leather industry – and JBS Couros being part of that – has improved a lot in the past decade, becoming more efficient, professional and solid, and consequently more prepared to overcome temporary downturns. The market sees that and understands the Brazilian role as a strategic supplier to the leather industry, a trend that will continue in the future.