The recent crash of hide and skin prices is intriguing because inflation is at its highest level since 2012.
Sellers blame buyers for market manipulation. Besides individuals and livestock companies, charitable outfits are believed to have borne the brunt of the steep price dip. Angry livestock dealers were critical of leather tycoons who, they say, have captured the market through a network of petty dealers. They use their position of power to acquire raw material at dirt-cheap rates to stretch their margins, livestock dealers claim.
“The exit of certain elements and the phasing out of the MQM from Karachi opened up the field for leather brokers and barons who now dictate prices. I sold a cow hide for as low as Rs800 this year in Karachi as opposed to Rs8,000 some years back, a goat hide for Rs100 in place of Rs1,200 and a sheep hide for Rs80 against Rs400. Why is there such a major slump when the supply has actually fallen this year?” asked a livestock company owner who did not wish to be identified.
“Forget about utilities and fuel, even kitchen items have become expensive. The leather industry enjoyed zero-rating for a while. The rupee depreciation must have served exporters well. Even if the leather industry is under some stress, I don’t think the extent of the price fall is justified. If tanneries have greater supplies than capacities, it is because they overbought the cheap stock,” he said while referring to a press report about hides going to waste in Kasur.
PK Livestock Company owner Tariq Mehmood Butt expressed his frustration at “extra market manoeuvres” from certain quarters as well as a lack of the government’s oversight to check exploitation of the vulnerable. “Hides are perishable and sellers don’t have the holding power to wait for the fair price. We are forced to sell at the offer price even when we know it is unfair as hides go to waste quickly,” he told Dawn over the phone.
Bukhari Group Chairman Sardar Muhammad Rafiq Khan, who has been active in this sector for the past 30 years, was more disturbed about the fall in the prices of animals than those of their hides and skin. “This is a major setback to the rural economy,” he said.
Another young businessman dealing in meat-based food products explained the inverse relationship between the hide price and the meat price at the retail level. “In price determination, several factors count. If butchers get less for hides, it escalates their cost and that they recover from customers by scaling up the price.”
Leather dealers and tanners hold the government responsible for low prices and high wastage in hide and skin trade
Leather dealers, tanners and millers hold the government responsible for low prices and high wastage. As much as 25 per cent of the total annual yield of hides and skins is raked in around Eidul Azha, according to the Pakistan Tanners Association (PTA).
Contrary to the perception of a slump in the sacrificial market on the holy occasion this year, initial estimates of the livestock business forwarded by the PTA did not show much deviation from the trend. They projected that 8.1 million animals were sold for Rs242bn while the value of collected hides was Rs5.1bn on Eid. The average price of a cow hide, according to the data sheet of the PTA, was Rs1,400 while those of goat and sheep skins were Rs200 and Rs100, respectively.
Royal Leather Industries CEO and PTA Chairman Agha Saiddain said the allegation of gaming the hide and skin market was baseless. “A market as fragmented as Pakistan’s is not in control of anyone. The fact is that an adverse business environment has led to the closure of some big tanneries. There could be some exceptions, but generally the leather industry is under stress globally. Big footwear and leather garment brands have moved away from natural leather and towards artificial substitutes,” he told Dawn over the phone from Lahore.
“In several leather- and leather products-exporting countries, governments have assumed a more proactive role to fight out the trend and boost leather production and exports. In Pakistan, the withdrawal of zero-rating and a drastic increase in duties on processing chemicals for hides has spiked the cost and mounted extra pressure on leather manufacturers and exporters.”
He attributed the latest fiasco to the hot and humid weather and the rising cost of chemicals used for the treatment of hides and skins. Calling for the government’s support, he pulled out leather export data. Leather and leather products’ exports slumped 11pc in 2018-19 from a year ago.
Attempts to get the opinion of the Ministry of Industries on the issue did not succeed.
When reached over the phone, the relevant officer at the Competition Commission of Pakistan (CCP) said he was aware of the price dip in hides and skins this year amid a slow livestock trade. He said he read reports from Karachi, Kasur and Lahore in this regard, but he was not aware of the exact causes of the downward price trend. The CCP forwarded the following written response.
“The CCP has so far not received any concerns or complaints and/or observed any anti-competitive activities in the leather industry. However, being vigilant to any violations of the Competition Act, the CCP shall immediately initiate action under its mandate by taking a suo motu notice if it receives any complaint or observe any anti-competitive activity in the industry.”
Some charities were approached to gauge the trend in the value of funds raised by selling hides over the years. People handling their accounts said the information is confidential and that they needed authorisation to disclose the relevant data that takes time to come by.
Published in Dawn, The Business and Finance Weekly, September 2nd, 2019