THE BOOMING LEATHER INDUSTRY
Leather plays a vital role in the economy of Pakistan
By SYED M. ASLAM
June 04 - 10, 2001
Leather enrichs our lives in numerious pleasant ways. The belts and shoes that we wear and the wallets and purses that we carry are made of leather. In the developed countries, almost all of which are located in the frigid North, leather jackets, trousers and suits have long become a status symbol and so are the leather upholstered furniture and lavish interiors available only in top-of-the-line luxury cars.
Leather has long outgrown its practical purposes and today is regarded more as a luxury than a necessity, particularly in the affluent West. This transformation is made possible due primarily to the induction of state-of-the-art treatment and tanning technologies to give leather a never-before-possible thickness, unlimited colour variations, luxurious feel and silky touch. This has also turned leather into as comfortable a material to work with as any other fabric for any or all of the uses mentioned above.
Leather plays a vital role in the economy of Pakistan. During last decade it contributed an average of over 8 per cent to the exports second only to over 60 per cent by the cotton commodity group. Its production during the same period has registered a significant increase — 14 per cent for goat and sheep 'skins' and 30 per cent for cow and buffalo 'hides.' In terms of quantity the former increased from 32.7 million meter to 37.2 million meter while the later increased from 5.9 million meter to 7.6 million meter.
Exports of leather
Including tanned/finished leather, leather garments and footwear — registered a substantial overall increase of 28.43 per cent for nine months ended March over the comparative period the previous year. The collective exports of these three core leather categories increased from $ 392 million to $ 503 million during the period under discussion. Export of tanned leather registered an increase of 29.65 per cent, garments by 28.4 per cent and footwear by 21.81 per cent. The value of exports are shown in Table 1.
Besides the three core categories used to monitor the export performance of leather and products, Pakistan also exports a sizeable volume of leather gloves and 'leather manufactures which include such items as belts, wallets, purses, etc' the value of which totalled $ 30 million and $ 8.6 million in 1999-2000. However, the two non-core categories are not used to monitor the leather/products exports.
An analysis of the above statistics reveal a worrying pattern: it shows that despite catering to the domestic demand satisfactorily leather footwear industry exported just $ 25.5 million of the most used value-added item much lower than the $ 29.8 million worth of leather gloves. This depicts the complete indifference of value-added footwear sector to make greater penetration in the foreign markets.
The observers blame the low footwear exports on the non-availability of quality tanned leather and the lack of value-addition in leather for the footwear industry. The problem is further complicated by the fact that the footwear industry of Pakistan has not developed in the organised sector primarily due to the high capital investment which it requires. However, this still fails to justify a situation vis-a-vis the leather garment industry which despite being regarded a far more capital-intensive activity has registered a commendable private-sector lead growth. Both leather footwear and leather garment industries have a problem of their own — shoe manufacturing, particularly organised requires huge capital investment in terms of plant, machinery, labour and marketing while garment manufacturing requires investment in inventory. For instance it requires about 2.5 square feet of tanned leather to manufacture a pair of shoe, the manufacture of a leather jacket requires some 40 square feet of tanned leather.
However, the otherwise welcomed increase in overall value of three core leather categories masks a disturbing fact: it was made possible by 39.25 per cent increase in tanned leather exports in terms of quantity which increased from 8.7 million square meter to 12 million square meter. On the other hand, the percentage increase in term of quantity during the same period was 39.25 per cent meaning that the unit price per square meter decline by 6.9 per cent from $ 13.70 per sq. m to $ 12.75 per sq. m. The trend should indeed be a cause of concern.
Foot & Mouth Disease
Earlier this year reports of Foot & Mouth Disease (FMD) in cattle in Britain created a wave of concern across the meat-loving masses of the globe. By May 28 over 3.2 million animals were culled in the UK, the memories of whose culling, incineration and collective burial would remain etched in the memories of many of us for good. The culling included over 484,000 heads of cattle, 1.5 million sheep, 2,000 goats and 122,000 swine.
By any scale, this was the biggest cattle and livestock culling ever witnessed anywhere in the world. FMD is an acute, highly contagious infection of cloven-hooved animals and is present in many countries of the world. It was first reported in 1929 in the USA, 1952 in Canada, and in Mexico in 1954.
FMD is highly contagious and may spread over great distances with movement of infected or contaminated animals, products, objects, and people. That explains the disinfected mats at the airports in the US and the ban of all meat imports from the UK. Though humans cannot be infected by eating meat of an infected animal , they can be infected through skin wounds, oral mucosa by handling the infected stock, the virus in the laboratory or even by drinking infected milk. However, the human infection is temporary and mild and as such FMD is not considered a public health problem.
But this did not stop the people to be worried about a cattle disease which they don't have enough information about. As the recovered cattle may be FMD carriers for 18 to 24 months and sheep for a much smaller period of 1-2 months, it is advisable that the entire stock of animals on an infected premises are slaughtered within 24 hours of the first report of the disease.
The FMD has resulted in the massive culling of cattle in the UK resulting in great economic loss as neither the meat nor the hides and skins of the slaughtered animals were to be used. The reports of FMD in various other countries in Europe has caused similar concerns. So what does the massive culling in Britain means for Pakistan?
It means that it would take years for the UK to rebuild its cattle stock and the resultant shortage of availability of domestic leather meanwhile. This further is expected to result in three distinct scenarios — number one UK would have to import leather from outside, the main beneficiaries of which can be Pakistan and India whose tanning industries have the capacity and capability to meet UK's demand in terms of quality and quantity; number two, UK would resort to placing direct orders for leather products; or number three, increased joint-venture in the value-added leather products. All three potential scenarios can help Pakistan to make a deeper penetration in the UK and also a unique chance to make it sustainable.
According to the report of Leather Industrial Development Organisation, merged now with the Export Promotion Bureau Islamabad, there are some 784 tanneries operating nationwide. In addition, there are some 461 leather-garment manufacturing units, 348 glove manufacturing units and 525 footwear manufacturers.
The leather tanning units of the country as a whole are utilising only between 70-80 per cent of their production capacity despite the fact that many big export-oriented units are operating at their maximum capacity round the clock. The Pakistani tanning industry has the capacity and the capability to make real inroads in the UK by using the collective production capacity, a substantial portion of which remains unutilised presently.
UK does not make up the list of 11 countries, South Korea being the top, which collectively contributed $ 146 million or over 83 per cent to the total $175 million tanned leather exports in 1999-2000. It, however, was the third top market of Pakistani leather garments the same year after USA and Germany. European countries collectively are the single top market of Pakistani tanned leather and garments.
So what does this mean for Pakistan in term of strategy? The above statistics highlight the need of the local leather and products industry to find ways and measures to increase its thus far negligible presence in the UK in term of tanned leather and to better its share of leather garments. The fact that UK does not appear on the list of 11 countries contributing over 83 per cent to the total tanned leather exports (see Table 2) should provide all the impetus for the local industry to benefit from the emerging situation in the UK. The same is also true for the export of gloves as UK was the fourth top destination of this value-added leather product which do not form the list of core category.
UK trails far behind the US and Germany as the destination of leather garment exports. What gives this an altogether different perspective is that there has been a significant increase in the export of leather garments since 1988. The percentage share of garments in the three core leather categories has increased from 39 per cent then to 68 per cent at present. During the same period the share of tanned leather registered a similar pattern of decline — from 61 per cent to 32 per cent. Though the increase in garment exports came at the cost of leather, the transformation is a welcomed sign indeed of the move towards value-added products.
As is, the top tanned leather exporters including South Korea, Hong Kong, Italy, Germany and others use the Pakistani exports to produce quality value-added products which help them earn substantial earnings in exports. The enhanced leather garment manufacturing and exports would mean the same for Pakistan. By any standard this has been a welcomed transformation for the leather exports of Pakistan.
The transformation is all the more welcomed when one realises that leather garment exports registered a substantial growth despite the absence of domestic market for these value-added products. This has been due primarily to the fact that tropical climate does not encourage the maninstream demand of leather garments and whatever little demand which is there comes from only the small circle of the fashion conscious upper classes. The absence of domestic market, however, has not discouraged the enterprising individuals to establish leather garment manufacturing units, the majority of which are owned by small and medium investors.
Pakistan has a large population of livestock — cattle (cows and bulls), buffalo, sheep and goat — which is constantly increasing — from 107.9 million in 1996-97 to 116.2 million in 1999-2000 depicting an eight per cent increase. The populations of cattle, buffalo, sheep and goat are all on the increase and there were 22 million cattle, 22.7 million buffalo, 24.1 million sheep and 47.4 million goat by end 1999-2000.
The large population of cattle, buffalo, sheep and goat gives Pakistan an edge in the international markets of leather and products which are backed by induction of latest tanning technologies to produce quality leather for the manufacture of many value-added products. Though India remains a major competitor of Pakistan its leather does not enjoy as good a reputation in the international markets as it is naturally inferior to that of its Pakistani counterpart.
While about three-fourth of the leather demand of Pakistan is met through domestic skins and hides the rest is met by imports from other countries such as Saudi Arabia, Kenya, Sudan, Australia, New Zealand, Brazil, etc. Duty free import of raw hides and skins is allowed for re-export purposes strictly.
Pakistani leather industry, despite many natural disadvantages, is an a far better position to benefit from the spread of FMD and the resultant culling of cattle in the UK. Though India houses the top cattle population — 20 per cent of goat and 6 per cent of sheep — and has an abundant supply of raw material — skins and hides — its share in the global leather and products trade is a low 3.5 per cent. India is also one of the top four exporters of leather graments and thus is a direct competitor of Pakistan, particularly in value-added products.
Despite these disadvantges, Pakistan enjoys an excellent position to compete with India as the quality of its skins and hides are much better in natural qualities. Despite a much bigger cattle population, Indian cattle are capable of producing a comparatively less thicker skins and hides than that of their counterparts in Pakistan. India also trails behind Pakistan in term of tanning not able to produce a thick leather with quality surface finishing necessary for the manufacture of quality and high-priced value-added products.
So is the leather industry of Pakistan understands the potential of the benefits of FMD to make a real penetration in the UK market. Is it aware of the spillover of the benefits of the FMD in the months to come to make a real presence in the UK market and to take measures to sustain it in the years to come. It should not underestimate the increased demand of tanned leather and manufactures in the UK but should also be vigilant about the prospects of increased joint ventures to capitalise on the foreign investment.
Certainly, it has the capacity as well as the capability to meet the increase demand emanating from the UK and the natural quality of its raw and hides is good enough to produce thick leather and to convert it into quality finished products best suited to manufacture quality value-added items of all sorts.
Exports of Three Core Categories of Leather for nine months ended March 31, 2001
$ 154 m
$ 119 m
$ 324 m
$ 252 m
$ 26 m
$ 21 m
$ 503 m
$ 392 m
Major Markets of Tanned Leather Exports (1999-2000)
Total Value: $ 175 m
Quantity: 12.898 m sq. meter
$ 29.57 m
$ 20.5 m
The above five countries alongwith China, Spain, Japan, USA, Portugal and Australia collectively contributed over 83 per cent or $ 145.6 million to the total tanned leather exports.
Tanned Leather exports during last five years:
$ 259 m
$ 239.6 m
$ 207.8 m
$ 177.2 m
$ 175.1 m
Major Destinations of Leather Garments (1999-00)
Total Value: $ 300 m
The twelve countries listed above collectively contributed 82.74 per cent or $ 248.3 m to the total leather garment exports.