In the clear

15 May 2023

Cattle by-products – including hides – have always gone to the gelatine market. As leather demand declined, lately, some have asked whether this industry could become a greater outlet for hides, especially those of lower quality. Vera Dordick investigates.

On the surface, it might seem that this could be the case, considering that the collagen market is seeing excellent growth and has gone far beyond just traditional industrial products. The truth is, however, more complicated.

Tanners sell splits mainly for footwear and handbag applications, but also to the collagen industry. In fact, this latter industry is an important part of the circularity of the cattle industry. Hides, already a by-product, fuel yet another market that depends on the “other half” of the cow.

Most importantly, the collagen industry is growing thanks to rising demand. While the traditional market for collagen was mainly gelatine and industrial glues, the market has expanded significantly.

Today’s collagen industry serves the medical, beauty and nutrition market. Beauty and nutrition are rapidly growing, driving increasingly health-conscious consumers looking to improve health, mobility and appearance. The growing supplement category along with the push for higher protein content in foods like yoghurt and protein bars, will continue to drive more collagen demand. Currently, the total collagen peptide industry for all raw material sources is worth about $1.37bn annually, says a report from Insight Partners. It is expected to grow by just under 11% annually to hit $2.12bn by 2027.

To the bone

Cattle hides and bones make up the largest raw material supply for the gelatine industry, accounting for an estimated $507m in 2023, followed closely by poultry and fish at $456m. Other primary sources include pigskin, and sheep and goats.

Cattle hides alone account for 37% of the raw materials used for collagen peptide production, according to Gelatin Representatives of the World (GROW), which is a joint working group of the four regional gelatine associations: GMAP (Asia/Pacific), GME (Europe), GMIA (North America) and SAGMA (South America).

As the numbers show, cattle hides, as part of the bovine by-product mix that goes to the collagen industry, are a very popular source of raw material. “Beef hide is without doubt popular, but this preference depends on region,” says Line Jensen of the GROW Secretariat and Gelatine Manufacturers of Europe. “It will depend on the regional raw material availability and market demand. Beef hide collagen is definitely the preferred type in North and South America; in Europe, the split is already more balanced and in Asia we see a big interest in marine collagen,” she explains.

Limiting factors

Despite the popularity of hides as a raw material, there are limits to how many can go into the collagen market, even in the face of growing demand. Just as the leather industry doesn’t have control over its supply of raw hides as material, neither does the collagen market. “Over the past few years, we’ve seen the rate at which supply could follow demand was limited more by raw material availability than by capacity,” Jensen adds.

Indeed, higher demand from the collagen market has caused some difficulties in the global split market. In the first part of 2022, the hide industry experienced a global shortage of wet-blue splits. The collagen sector was absorbing large quantities to fill demand for both gelatine and collagen. At the same time, tanneries were producing fewer splits. Combined, these factors drove prices higher on the tight inventory that was available.

Tanneries were producing fewer splits because footwear orders lagged during the post-pandemic period. Those who buy splits for the traditional leather market say that this created a very tight supply. In Europe, when slaughter ebbed in 2022 and leather demand was lower than usual, the price of splits in that region rose and remained high.

The slaughter situation could also be an issue in the future too. In the coming year, slaughter is expected to decline in the US and hide availability could become a concern, as it could in some other regions.

Also, demand for splits in 2022 was high enough that the industry saw a shift from producing wetblue splits to instead selling them in lime into the collagen market. In some cases, there was even green splitting being done to satisfy demand, specifically in Brazil, as split traders explained.

Some even said that the shift of more splits to collagen seems to be a permanent structural change in the industry that would impact the global market indefinitely. The paradox is that there was pressure for full substance wet-blue prices to come down, but wet-blue split prices were rising rapidly.

“Beef hide collagen is definitely the preferred type in North and South America; in Europe, the split is already more balanced and in Asia we see a big interest in marine collagen.”
Line Jensen, GROW Secretariat and Gelatine Manufacturers of Europe

Supply and demand

Split demand remains very strong, but now, some say that this is largely driven by the lack of heavyweight hides being split for automotive and upholstery production, not so much demand from the collagen market. Prices of splits have not eased, but they seem to have stabilised at their current high levels.

The total collagen peptide industry for all raw material sources annually.
Insight Partners

As the automotive industry recovers and the demand for furniture upholstery returns, supply should improve. A better supply may take some time, however. Split experts say that there won’t likely be any major changes until the second half of 2023 or even early 2024 before the hide industry sees a meaningful recovery in the split market.

In the US, some split sellers say that their sales to the collagen market have been quite steady during this time. An important point is that US splits for collagen all come from steer hides. Actually, in the US, cows cannot go into the gelatine market because processors cannot prove that every hide’s animal passed an ante-mortem inspection.

“It is a company that was born big, positioning itself among the three major players in the market with 10% of the global market for peptides and bovine skin gelatine.”
Genu-in, CEO, Claudia Yamana

Processing costs can also be a limiting factor. Not all hides that are potential raw material for collagen actually go into that market. Lower-quality hides end up in landfills because the processing costs are higher than what they can bring from any industry. Most importantly, the collagen market can only purchase splits or cuttings because the industry does not have the capacity to dehair hides and prepare them for processing.

The annual capacity to produce collagen peptides at the Genu-in facility.

New opportunities

As the collagen market grows, so do opportunities for splits and other bovine material. In particular, the beauty and nutrition markets are offering the newest uses for collagen. There’s enough untapped potential that, in 2021, JBS Brazil began construction on a new plant for the gelatine and bioactive collagen peptides in Presidente Epitácio, São Paulo. Local media report that the meat company invested R$400m in its Genuin facility, which will have the capacity to produce 6,000t of collagen peptides and 6,000t of gelatine annually, according to a JBS news release. The expansion makes sense given that JBS has its own supply of raw material in-house.

“It is a company that was born big, positioning itself among the three major players in the market with 10% of the global market for peptides and bovine skin gelatine,” Genu-in CEO Claudia Yamana, told Valor. The venture falls within the JBS Novos Negócios group that encompasses all the company’s operations that transform meat by-products into high added-value products. The size of Genu-in makes it the largest Brazilian company in the collagen industry. “The installed capacity here is five times larger than the domestic market,” Yamana told the publication. She added that it would export but that the domestic market has a lot of growth potential “as the population ages”.

Of course, the JBS venture is not alone and some of the world’s largest collagen companies have operations in Brazil. In addition, new ventures are adding capacity to the gelatine and collagen market in Brazil. Newly launched Acquion in Poços de Caldas, in the south of Minas Gerais, expects to invest R$250m in its new facility.

While the gelatine/collagen sector is an important one, it is not expected to substantively change the global hide market. Split prices are low because the industry is essentially buying the by-product of a by-product as raw material. As one split seller put it: “We will hardly see the food industry buying good selections directly from the packing houses.”

The collagen sector is not expected to substantively change the global hide market.
US splits for collagen all come from steer hides.

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