The real thing

Wafiur Rahman
Thursday, September 14th, 2017


Abundant raw hides, industry expansion indicate bright prospects for the entire leather sector. It recently entered the billion-dollar club in export earnings- only its second member from Bangladesh.


Lal Mia Mahajan looks happy so far as his business in this year’s Qurbani season is assessed in terms of volume. ‘Supply is very good but that doesn’t mean windfall profit is coming to you for this season,’ he said with a smile, replying to a query on the state of hides’ business after the mass slaughtering of sacrificial animals during this past week’s Eid-ul-Azha. Lal Mia’s family owns and operates an arat — a wholesale shop and warehouse —for rawhides at Postagola, which is the country’s oldest and largest wholesale market for raw hides.


The supply of hides increased by around 20% in this Qurbani season, thanks to much lower prices of sacrificial animals, according the Posta-based Bangladesh Hides and Skin Merchants Association. Its leaders point out that factors such as pre-polls mood and growing practice among a section of affluent people to ‘sacrifice’ several animals have contributed to increased number of slaughtering and higher supply of hides.


Size of business


The association leaders say the number of animals slaughtered in the country every year is more than 20 million and on average, over one-third of the entire animal slaughtering takes place in three days of Qurbani, performed as religious practice. The association has estimated that the number during Eid this year would be around eight million — four million cows and the rest goats and sheep mainly, Ali Hossain, president of the association, told Dhaka Courier. Shaheen Ahamed, chairman of Bangladesh Tanners Association, added that the number of cattle heads slaughtered increased significantly this year due to more availability and cheaper price.


Traders in the leather sector believe the aggregate value of raw hides created as a result of this year’s Qurbani would be at least Tk 2,000 crore. The amount was paid to the agents and middlemen, who collected hides from the premises of sacrifices and sold those to merchants and processors of raw hides in Dhaka and other major wholesale markets across the country.


Industry people say the prices of raw hides and skins are significantly higher this year that the ones witnessed in the past couple of years. On an average, prices of unsalted hides went up by Tk 15 to Tk 20 per square feet, said merchants at Posta. On the first day of Eid-ul-Azha, a piece of larger size raw skin was traded at prices between Tk 3,000 to TK. 4,000, medium one between Tk 2,500-3,000 and smaller one between Tk 1,800 and Tk 2,500.


Generally, association of tanners and hides merchants fix the prices of raw hides but last year, merchants went for market-driven prices rather than fixing any price ranges. This year, they again followed the previous year’s practice.


Leaders of the Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association (BFLLFEA), Bangladesh Tanners Association and Bangladesh Hide and Skin Merchants Association (BHSMA) announced the prices after a joint meeting of them, a couple of days before the Eid Trade bodies in the leather sector fixed the price of a square foot of cow hide at Tk 50-55 for Dhaka region and Tk 40-45 for outside of the capital city. Price varied as Dhaka people, having better financial strengths, pick relatively larger and healthier cows.


Trade bodies also fixed the prices of salted skin of goats at Tk 20-22 across the country. But the market defied the prices, in all categories, as fixed by the industry bodies. In Dhaka, cow hides prices hovered as much as Tk 150 on the first day of Eid as the seasonal traders, who bought hides from the premises, had paid higher than the fixed rates. Both the tanners and the wholesalers blamed mainly the seasonal traders for the price-hike.


In the traditional hides trading system, merchants of Posta procure hides from their agents across the country in raw or salted forms. They stock the salted hides in warehouses for weeks before selling to the tanners, who process hides for finished leather. But in recent years tanners have been enhancing their network and raw-hides warehousing capacity and procuring significant portions of hides directly. Similarly during Eid, tanners employ their own agents across the country for reducing their costs of procurement and improve the quality of procurements. Despite growing backward linkages of the tanners, in recent years, hides merchants, who have been in business for centuries, have strongholds in rawhides supply chain.


Hopes for settlement


Bangladesh Tanners Association chairman Shaheen Ahmed told  Dhaka Courier that the prices sought by the merchants were so high that tanners could not start procurement of hides from the merchants.


Industry insiders said as it happened on many previous occasions, tanners would agree at last to pay for the costs they incurred for salted hides. Merchants at Posta and Lalbagh said they would be able to procure all stocks of hides from across the country within the next couple of months and deliver those to tanners within the next three months.


Hazaribagh is history


According to EPB data, Bangladesh exported finished leather worth US$ 980 million in the 2012-13 financial year concluded in June 2013. Finished leather shared US$400 million out of the total turnover of the export-oriented leather and leather goods sector. Proceeds of finished leather in the previous fiscal year grew more than 21% over the year before, showed the EPB report. For decades Bangladesh exported finished leather mainly to the traders and makers of leather goods in Japan, Korea, China, and Vietnam in Asia while market in Europe, especially France, Italy, Germany and Spain. Industry insiders said proceeds of finished leather exports increased in the last part of the past financial year and price in international market started rising again. Earlier in the previous couple of years, exports faced tough time as makers of leather goods in Europe and Japan saw their market dull due to recession.


Industries Minister Amir Hossain Amu had recently told reporters that 55 out of 154 tanneries had relocated from Hazaribagh to Savar’s Hemayetpur. On Mar 6, the High Court ordered the closure of all tanneries in Dhaka city immediately following a writ petition filed by the Bangladesh Environment Lawyers Association or BELA. Leather businesses challenged the order in the Appellate Division, but failed to secure a verdict in their favour. Following the appeals court’s order, they then moved the High Court, seeking permission to run operations until the Eid-Ul-Azha, to be observed in the first week of September.


The owners had been reluctant despite repeated orders to shift their tanneries to the leather industrial zone at Savar. Following the Supreme Court order, the Department of Environment in April cut off gas, power and water lines to leather factories in Hazaribagh, forcing the plants to shut operations.


Inauspicious beginnings


The central effluent treatment plant (CETP) at the Savar estate is unlikely to be fully ready to preserve and process hides and skins till the end of this year, tannery owners opined. Reports have it that work on infrastructure of the CETP is proceeding very slowly. The Chinese company, which is the contractor of the project, has asked for more time to complete the work. Although water and power are available, gas connection has not yet been provided. Among 154, only 62 units have started production. Seventy-seven units have set up tanning drums while 72 units have applied for power connection. Only 20 units have got gas connection. Water is being supplied to 55 units.


Shahid Ullah, the owner of Ajmeer Leather, has been exporting leathers to 20 countries over the past 15 years but said his production had “almost stopped” since moving from Hazaribagh to the purpose-built Savar Tannery Estate last April. “I bought 60,000 pieces of rawhide with a bank loan during the last Eid ul-Azha, but due to the tannery relocation I have not been able to run my factory for the last five months,” he told Dhaka Courier.


Add some value


For the first time in 2013, leather footwear export earnings surpassed that of finished leather. Moreover, the expansion of export-oriented leather footwear manufacturing industry indicates that this sub-sector would be the prime mover of the leather sector within the next few years.


In 2012, footwear export proceeds amounted to US$ 419 million with 33% growth year-on-year.  Industry people said the footwear sector witnessed the potential of sharp growth since 2008. Anti-dumping duty imposed by the European Union on shoes made in China and Vietnam forced European and US importers to relook and reassess the potential of Bangladesh.


The country witnessed new rush of footwear importers and many of them have started searching scopes for installing own manufacturing facilities in Bangladesh. Some Chinese and Taiwanese manufacturers have already set up manufacturing units here while more potential investors are interested in setting up or relocating their units but finding inadequacy of infrastructures they are giving a pause.


Bangladesh has now more than 50 footwear manufacturing units in operation and 10-15 will come into operation within the next couple of years. Although the target for current fiscal’s footwear export earnings target has been set at US$580 million, it might cross US$ 600 million, industry people say about the prospects.


“Made in Bangladesh” goes beyond RMG – in leather boots


According to Export Promotion Bureau (EPB) data, Bangladesh earned US $ 1.13 billion from the export of leather, leather goods & leather footwear in the fiscal year 2015-16 – the first time that an industry or sector outside the RMG/textile behemoth had managed to breach the billion-dollar-mark in export earnings in a single fiscal. Compared to the FY14 it was a growth of 0.5%.Bangladesh earned total $851.33 million from leather Export in July-March, 2015-16. Among them $354.02 million is from exporting footwear, $286.14 million is from exporting Leather products & $211.17 million is from exporting Raw Leather. In the FY15, earnings from leather footwear, leather products & leather were $483.81 million, $249.16million, and $397.4 million respectively.


As a consequence of plus one strategy recently China is withdrawing them from the global market. According to a report on China’s leather footwear industry, it has been shown that their production had been dropped by 5.29% in 2012 & 7.45% in 2013. Although according to a survey of Euro Monitor International, it has been seen that for the next few years China’s footwear market will continue to grow at a rate exceeding 9%. But the recent policy (Plus one strategy) may hamper this growth.


In both cases here is a potentiality to attract foreign investor in this sector in Bangladesh as because of low labor cost, availability of rawhide, leather processing infrastructure & some government incentives including duty-free machinery imports. According to LGFMEA (Leather Goods and Footwear Manufacturers and Exporters Association), more than 51 foreign companies have expressed their interest to establish joint-venture footwear units in Bangladesh. If the opportunity is gripped, it has been expected that annual $ 1.13 billion leather industry of Bangladesh may grow to a $15-billion sector within a few years.


As part of the government’s move to boost competitiveness of the country’s major exportable items such as leather, the Executive Committee of the National Economic Council (Ecnec) has recently approved a project to this end titled ‘Export Competitiveness for Jobs’ to be implemented by June 2023 at an estimated cost of Tk 941 crore. The main objectives of the project are to remove the problems in getting access to the export market and boost export competitiveness of three major sectors like leather and leather goods and footwear sector, light engineering (including electronics and machinery) sector, and plastics sector.

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