Leather industry after floods

Published September 29, 2014
India-Pakistan exhibition: A stall owner arranges shoes at an 
exhibition called ‘Lifestyle Pakistan’ in New Delhi, India, April 12, 2012.—AP file photo
India-Pakistan exhibition: A stall owner arranges shoes at an exhibition called ‘Lifestyle Pakistan’ in New Delhi, India, April 12, 2012.—AP file photo

A heavy death toll of animals in the recent floods, stuck-up customs duty and sales tax refunds, interrupted power supply and anticipated gas shortages in winter are feared to adversely affect leather and leather goods production.

Foreign demand is also weakening, as indicated by a 10pc year-on-year decline in exports of leather and leather goods during July-August 2014. “Much depends now on whether we can get sufficient supply of animals’ hides and skins during Eid-ul-Azha at right prices,” says a Karachi-based exporter.

However, exports can still count on two big positives: the quality of tanned leather has improved over the last few years pushing up per-unit price, and some exporters of finished leather goods have found new buyers abroad.

Domestic demand has remained strong, contributing to a handsome 11.6pc growth in leather industry in FY14. And there are no signs of this demand slowing down. Sales of leather garments, bags, sofa-cushions, handbags, purses, footwear and wallets are apparently stable both at high-end shopping malls and in traditional city markets.

Exports of finished leather, or processed hides and skins of animals have been on the decline while local demand for leather garments, footwear and other leather made-ups manufacturing units have been on the increase.


The quality of tanned leather has improved over the last few years, pushing up per-unit price, and some exporters of finished leather goods have found new buyers abroad


Industry sources say the bulk of processed heavy hides with limited range of possible use and average finishing is produced in tanneries in Korangi, but upholstery grade leather intended to be used in furniture, automobiles and airplanes etc is produced in Sialkot. The recent floods had primarily hit Punjab, where thousands of cattle died. This may affect upholstery leather industry, not immediately, but with a time lag. Leather industries located in Kasur district of Punjab may also be hit due to anticipated fall in supply of animal hides and skins from other flood-affected districts, and production of leather footwear there may become costlier.

During the previous Eid-ul-Azha, about 6.2m sacrificial animals were slaughtered, up from 5.9m a year ago, according to tanneries’ estimates. This year, no big rise in this number is expected because of higher prices of animals.

So, the prices of animals’ hides and skins to be collected during Eid-ul-Azha would increase, putting additional pressure on the leather industry. But for the last few years more and more hides and skins collecting NGOs have started making direct deals with tanneries.

This practice has reduced the role of brokers enabling the buyers and sellers to get more realistic about prices keeping in view the prevailing market trend. “Big and mid-sized tanneries should, therefore, get high quality hides and skins at reasonable prices, hardly 10-20pc higher than in the last year,” says a Karachi-based tannery owner.

In FY14, export earnings of tanned leather at $550m were 10.1pc higher than in FY13 even though export volumes rather declined marginally to 27.2m square meters from 27.3m square meters.

The industry attributes this per-unit increase in forex earning to better quality of tanning and growing demand for Pakistani tanned leather in export markets including Turkey where our leather is used in manufacturing of pricy highly value-added products.

“I don’t think this trend would reverse because our tanning quality is intact and supply of hides and skins of goats and sheep, used in production of high-quality tanned leather, hasn’t been affected much by the floods,” says an official of Pakistan Tanners Association.

His optimism is based on the fact that mostly cows, bulls and buffalos have perished as their rescue from flood-affected areas was more difficult than that of small animals. “This, however, can slightly reduce the overall volume of tanned leather and may also affect manufacturing of some leather goods like leather jackets and overalls, leather sheets, leather cushions meant for furniture and leather covers for industrial machines etc.”

Exports of leather garments, gloves and other goods together fetched 10.7pc more foreign exchange in FY14 against FY13 ($621m vs $561m).

Industry sources say the post-flood situation can be mitigated if financial constraints of exporters are removed by releasing their overdue refunds of customs and sales tax and if gas and electricity shortages can be minimised.

The Federal Board of Revenue is yet to release Rs2bn in customs duty and sales tax refunds to leather garment exporters.( Normally, the FBR starts releasing refunds in July. ) This has forced many exporters, particularly those financially constrained, to reduce production and delay execution of export orders.

From October onwards, exports of leather garments for American and European markets pick up for winter season. If exporters don’t get the refunds by end-September, it will be difficult to execute export orders, industry sources fear.

Until last month, tanneries in Karachi were struggling with frequent electricity outages and they now fear the repeat of the last year’s strict gas supply rationing in coming winter. The tanneries that are part of integrated leather and leather made-ups manufacturing units can afford such things but those that survive on selling of tanned leather to others, lose business orders when they fail to honour supply commitments, industry sources say.

Published in Dawn, Economic & Business, September 29th, 2014

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