BULFFHI

Social & Environmental Report of the Bulgarian Leather Industry

2010

Foreword This report has been prepared by BULFFHI in the framework of the COTANCE-ETUF:TCL Social Sectoral Dialogue (SSD) project “Social & Environmental Reporting in the European Leather Industry” developed with the support of the European Commission – DG Social Affairs. It is the 1st Report of this kind in Bulgaria and aims to communicate the specific features of the Bulgarian leather industry with regard to its social and environmental performance. The information sources used were official statistics from the Bulgarian National Institute where available, data from the Think-Tan project supported by Italy, the country report within the SSD Study on the Social Partners in Europe’s Leather industry and last but not least the company report of Milvena Ltd. Estimates were made where data was not available or related to the overall sector or association membership. The Bulgarian Leather Industry is represented by BULFFHI, the sector’s trade association that gathers not only the country’s leather producers, but also the companies using leather in the manufacturing of consumer articles. BULFFHI joined COTANCE in 2006 and subscribes to the Framework Agreements adopted by COTANCE and ETUF:TCL. These include the Social Code of Conduct signed in 2000 and the Social & Environmental Reporting Standard underwritten in 2008. The latter foresees its progressive implementation at company level on a voluntary basis.

Introduction The Bulgarian Leather Industry looks back on a long tradition in tanning. The exact appearance of leather making in Bulgaria is difficult to ascertain. It is understood that the origin of the art of making leather dates back to prehistoric times where hunters noted that animal hides or skins were preserved from decay when immerged in a pond with high concentrations of bark. This knowledge was transmitted from generation to generation and completed with other techniques that led to the constitution of a craft. Modern tanning is however an industrial activity where the hides and skins of animals slaughtered for human consumption – the waste of the meat industry – is transformed into leather in a series of processing steps involving the use of chemicals, water and energy. During communist times, Bulgaria experienced a forced development of its tanning industry marked by high volume production maintained by a very low cost of petrol imported from the Soviet Union. COMECON offered Bulgaria the advantage of the huge Soviet export market. With the fall of the iron curtain started a process of privatization of industry, which forced most companies to close. The former plants with large production capacities, obsolete technologies and inadequate environmental installations were no longer adapted to the requirements of the market. Since 1989, the Bulgarian Leather Industry has experienced a significant transformation. Small and medium sized companies emerged from the crisis and worked hard for forging a new identity for the Bulgarian tanning industry. This structural adjustment is by far not completed yet and requires further efforts and support for bringing the sector to play its role in the European concert. Bulgaria’s Leather sector is today a rejuvenated industrial sector looking for a sustainable development and bearing huge opportunities.

The Bulgarian Leather Industry In 2009 Bulgaria’s Leather Industry represents a varied economic sector comprising several sectors creating wealth and employment on the basis of leather. Exact figures about the number of companies are difficult to obtain since these are generally SME’s and not all are organized in associative structures. Number of Companies Estimates indicate that the overall leather sector spans over some 500 enterprises employing approximately 20.000 workers. Think-Tan, an industrial cooperation project between Italy and Bulgaria, surveyed some 153 companies from the tanning, leathergoods and footwear sectors. This research identified the following structure: Sector % Approx. Number Footwear 71% 108 Bags 16% 24 Tanning 7% 10 Other Leathergoods 8% 12 Note: The total exceeds 100% as 5 companies declared to be active in two sectors

At present, the members of the BU of LFFLG are 49, 46 companies and 3 educational establishments. 6-7 tanneries are affiliated to the organization (i.e. +/- 3% of the total membership and some 70% of the Bulgarian tanning sector). Name City Type of production Evromig LTD Stara Zagora Tanning Fulmax 21 AD Gabrovo Tanning of Bovine hides and Goat & Pig

skins Milvena LTD Sofia Production and trade of Ovine leather and

leather articles (double face, leather clothing)

Pelmex LTD Pleven Tanning of calf & pig skins (wet-blue) Tomchev and Enchev LTD

Lovech Tanning of goat and calfskins (nappa for clothing, footwear and gloves)

Velur AD Lovech Tanning and manufacturing of leather articles (full grain leather)

- 95% of all companies are SMEs - 50% are family owned and family runned - the majority (2/3) are limited companies (Ltd.)

is mainly used up in the local production of leather articles. Exports of leather as such is statistically irrelevant. A number of Bulgarian tanneries have developed a vertical integration into the manufacture of leather articles. This occurs mainly in leather clothing and leathergoods including bags and is not a feature in footwear, as this latter production requires very specific technical competences and relatively higher investments. Some operators have developed their own brands and distribution channels. Bulgaria’s extensive textile and clothing sector constitutes a comparative advantage with other countries as the leather sector enjoys access to a highly skilled workforce cutting, stitching and assembling of flexible materials. Institutional structures

The Branch Union of Leather, Fur, Footwear and Leather Goods Industry (BU of LFFLG) was established on 20 February 1991 in Sofia as a non-profit organization. The founders of the union were 25 enterprises of the branch. It is the sole national representative of the companies in leather and shoe industry.

At present, there are 49 members in the BU of LFFLG; 46 are companies and 3 educational establishments. The mission of the Union is to support actively its members in order to improve their competitiveness on the Bulgarian and international markets, protect Bulgarian producers from unfair competition on the local markets, etc. It strives to be further developed as a typical organization of employers in the industry.

Milvena Ltd

Pelmex Ltd.

Evromig Ltd.

Lovech : Tomchev & Enchev Ltd. + Velur AD

Gabrovo : Fulmax 21 AD

The main objectives of BULFFHI are:

1) Uniting, representing and protecting the economic, commercial and social interests of its members and the sector in general, at a local, regional, national and international level.

2) Developing practical measures to improve the competitiveness of the sectors’ companies

3) Building a modern infrastructure for the industry.

4) Providing assistance to its members for having access to the international markets.

5) Protection of the domestic market and of Bulgarian producers and consumers from smuggled imports and unfair competition by “phantom” companies.

6) Providing assistance in attracting investment of foreign sources for joint venture establishments, cooperative production and other forms in the common interest of the parties. BU of LFFLG is a collective member of the BCCI, BIA and the Confederation of Bulgarian Industry. With its activity, the Union is an active partner to the Ministry of Economy, Ministry of Finance, Ministry of Labor and Social Policy. Agreements have been signed for cooperation and joint activities with the Commission on Commerce and Consumer Protection and municipal authorities of Sofia and Plovdiv. BULFFHI works in partnership with CITUB and the Confederation of Labour PODKREPA - both Bulgarian trade unions. The Branch Union is a member of the European Association of Leather Industry - COTANCE – and a partner of EURATEX-European Organization for Textiles and Clothing

The Leather Production Process General The tanning process consists of the transformation of a hide or skin, a natural material susceptible to a rapid decay, into leather, which is a durable material. It is an industrial process requiring very specific skills. Every hide or skin is different as every species is different and even with the same species every animal is different, yet there are general features that allow to classify them into different categories and to handle them in relatively homogeneous lots. Further to the distinction by species, tanners use to distinguish hides and skins by grades. Grades are quality criteria attributed according to the number and entity of the defects that can be found on the surface. Defects occur during the life of the animal (scratches, wounds or ecto-parasites), during transport (maltreatment of animals, scratches and wounds), during slaughter (cuts and elongations) and during storage (bad preservation, decay). Defects reduce the value of the raw material and therefore also the quality of the leather leading to a loss of income for the entire value chain. Hides or skins consist of densely interwoven collagen fibres, water, fat, hair or wool follicles and miscellaneous elements. The tanner weights the various elements and calculates the chemicals that are required for achieving the desired result. Further to the chemical processes, there are also some physical steps for drying, softening and finishing the leathers for its final use in the manufacture of leather articles. Typically the leather production process can be sequenced as follows:

1. Beamhouse: from raw to limed or pickled 2. Tanning: from limed or pickled to tanned 3. Retanning: from tanned to crust 4. Finishing: from crust to finished leather

Every production step requires specific process chemicals and machines as well as properly trained personnel.

Details

1. Warehousing and sorting In the raw material area the skins are preserved generally in salt. They are stored in controlled cool rooms and before processing, presorted for quality and weight.

2. Soaking The skin is soaked to remove dirt and salt.

3. De-Fleshing During this process tissue, a roller-mounted knife removes flesh and fat remnants

4. Liming By adding lime and sulphur compound the hair is removed from the skin.

5. Bating, pickling, tanning During bating and pickling the skins are treated with acid and salt in preparation for tanning. During tanning the skin fibres absorb the tanning agents. That's when the skin becomes leather.

6. Samming During this process water is removed.

7. Splitting In order to achieve an even specified thickness the leather is reduced in substance. The resulting split-leather can then be processed further as suede.

8. Skiving The grain layer is brought to an even thickness. Irregularities are removed from the reverse side and the leather is separated into colour-batches.

9. Sorting The leather is sorted into various quality grades

10. Neutralising, filling out, dyeing and greasing The acid resulting from the tanning process is neutralized. Dyeing than takes place, where appropriate with aniline-dye-stuffs. The greasing procedure will finally achieve the correct softness.

11. Drying Two methods are used to dry leather. The vacuum process during which moisture is removed by suction and the hanging process, when leather is hung and taken through ovens.

12. Staking Following drying the leather is mechanically staked in order to soften it. Further processes take place in preparation for finishing.

13. Finishing Here the leather is given its final surface treatment and look. Through processes of base coat, colouring, embossing, ironing the leather becomes, depending on the demands of fashion, matt or shiny, two-tone or uni-coloured, smooth or grained. The art of finishing lies in working in wafer-thin layers. Care must be taken to avoid disturbing the natural look of the leather and its characteristics such as suppleness and breathability.

14. Quality Control In between every process quality is controlled. Final control checks ensure that each individual production is made to specification and destination into various trades.

15. Dispatch The leather is measured electronically, wrapped and dispatched.

Environmental considerations General Leather making is a process that has many similarities with recycling. Indeed, in both activities residues from previous human activities (slaughter and meat production) are recovered and purified for giving new life to a product (leather). It differs from recycling in that the end product of the tanning industry serves as input to a different industry (leather articles manufacturing), while in the recycling of glass or metals, the end product goes back as an input to the same activity. Leather making is also a process where the raw material is reduced in substance to the requirements of the next link in the value chain. Typically from 1 ton of raw hides (1000 kilos) only 200 kilos become finished leather. 80% of the original weight either evaporate (water content), become by-products (fleshings and splits can be recovered to produce tallow, gelatine or glue, hair can be transformed into an organic fertilizer) or waste (cuttings of leather or miscellaneous materials difficultly find other applications). However, tanning is an environmentally intensive process that requires large amounts of water, which will need to be treated to remove remaining process chemicals and dirt before returning to surface waters. Also the wastewater treatment generates sludge, which will need to be disposed of appropriately. Leather is made through a process where hides or skins are soaked in different baths with chemical substances. These are exhaustion processes where the hide or skin takes up chemicals. Although maximum care is taken for avoiding wastage of expensive chemicals, a residual amount that is not taken up by the hide or skin remains in the waste water and needs to be cleaved and end up as a sediment in the sludge of the waste water treatment plant. Finishing operations require sometimes the use of solvent-based chemicals, notably in the dyeing phase. Solvents are volatile organic compounds (VOCs) that need to be captured, and treated through filters. Fortunately chemicals suppliers have reduced significantly the amounts of solvents where they cannot be avoided and replaced solvent-based dyes with water-based dyes. Critical process steps and chemicals

• Beamhouse

COD (Chemical Oxygen Demand), suspended solids, chlorides and sulfurs characterize the wastewaters of the beamhouse process. These pollutants are due to the use of salt for preserving the raw hides or skins from decay as well as the impurities such as dirt or dung that the raw material carries.

• Tanning COD, tensioactives, chlorides and sulfates as well as nitrogen and trivalent chromium are to be found in the waste-waters of this step. These pollutants are not hazardous, they need however to be removed.

• Retanning, fatliquoring and deying COD, Nitrogen, phenolic compounds and fats may pollute the wastewaters in this process step.

• Finishing VOCs must be captured and abated through appropriate filters.

The environmental report The Bulgarian tanning industry had to adopt the Community acquis with regard to environmental legislation since its accession to the EU. This entails the respect of several EU regulations concerning emissions to water, air and soil as well as chemicals.

- Water Framework Directive - European Waste Catalogue and Hazardous Waste list - Solvent Emissions Directive - Integrated Pollution Prevention and Control Directive - Registration and Authorisation of Chemicals Regulation - Etc;

Most Community rules are, however, not directly applicable requiring National implementation rules, others target large industrial installations and are therefore only partially applied. Moreover, Bulgaria’s implementation and enforcement standards are not comparable to other EU countries. Still, Bulgarian tanners are controlled by environmental authorities for complying with minimum requirements for avoiding pollution of surface waters and air. Although most Bulgarian tanners implement typical waste-water and solid waste treatments, one has to admit that there is still a technological gap between them and their counterparts in other EU Member States. The sample The tanners having provided information for this section of the report constitute some 10% of the BULFFHI membership and about 5-7% of the total estimated tanning sector. The data obtained allow to present the picture of a typical Bulgarian SME tannery operating the full production cycle (from raw hides an skins to leather), but not to draw comparisons between tanners or over the time. The environmental indicators The COTANCE-ETUF:TCL Framework Agreement invites companies to provide data on the following environmental indicators:

- Process steps performed in the plant(s). - Yearly volume of raw materials processed (e.g. X tons of wet-salted bovine

hides/year). - Main environmental feature for minimising pollution for each process stage (e.g.

hair saving system, COD abatement of X%, Cr recycling, Solvent capture to X%, etc.).

- Total costs for wastewater treatment both in-house and external (municipal waste water treatment services)

- Total costs for capturing and abating emissions to air (e.g. dust, solvents, other emissions to air)

- Total Company energy bill - Any other costs sustained by the Company for preventing or minimising pollution

or disposing of waste - Contribution of the Company to the development of more environmentally

friendly processes or process technologies or to studies promoting a better understanding of environmental issues

- Certificates (e.g. ISO 9001, ISO 14001, EMAS,…).

• Process Bulgarian tanneries perform in general the full process from raw hides and skins to finished leather. There are no tanners having reported to operate exclusively starting from the wet-blue stage (wet-blue is an intermediate material that is already tanned). This means that virtually all tanners keep an open beamhouse for the processing of raw salted hides or skins. It does not mean, however, that there may not be tanners that occasionally purchase wet-blue from other tanning plants (national or from abroad) for completing their production where raw hides of the required quality cannot be found. It does not mean either that there may not be tanners that occasionally sell wet-blue to other colleagues (in the domestic or export market) under contract tanning or under specific orders.

• Raw materials processed A typical Bulgarian tannery processed about 34.000 hides and skins/year

• Pollution abatement installations The main environmental feature implemented by Bulgarian tanners is a waste water treatment plant performing physical-chemical treatments before emitting the purified waters into the sewer or surface waters. These will normally be treated a second time by municipal works. No information is available regarding the proportion of tanners discharging to sewer or surface waters.

• Cost of wastewater treatments Bulgarian tanners spend approximately 3% of their turnover in wastewater treatments. It constitutes about 90% of their total pollution prevention costs.

• Costs related to emissions to air

No information is available regarding air emission abatement costs. These costs include typically the running costs of aspiration of dust or solvents and the eventual abatement of pollutants (disposal of compacted leather dust or filtering of VOCs). Dye spraying lines do normally have exhaust pipes channeling the eventual COVs to the purifying filters and dust aspirators collect eventual dust from the treatment of leather. It is assumed that the costs involved are included in the total energy bill of the tannery. The energy bill amounts typically to some 10% of the turnover of a typical Bulgarian tannery.

• Energy costs Bulgarian tanners spend on average about 2000 BGN/month on energy.

• Other costs No information is available on other pollution prevention costs sustained by Bulgarian tanners. No information on environmental certification is available. Conclusion It results from the above data that Bulgarian tanneries are generally in line with the regulatory environmental requirements. It cannot be said, however, that Bulgarian tanners are particularly pro-active in the implementation of environmental technologies or pollution prevention techniques. Generally Bulgarian tanners’ environmental costs are comparable with typical tanneries in other EU Member States. The efficiency of pollution abatement processes need, however, to be further analysed and monitored. It must be said also that the profitability of Bulgarian tanneries hardly allows operators to advance faster in their environmental performance. The current economic crisis does not help to change the situation. Access to credit is particularly difficult for companies operating in traditional industrial sectors, such as the leather industry. There is a clear sectoral bias in the supply of credit to the detriment of traditional industrial sectors. Access to credit for environmental investments and other EU financial instruments for environmental purposes (e.g. LIFE) are available in theory, but they are difficult to access in practice due to the complex administrative and bureaucratic request procedures and

management. Also EU structural funds for improving Bulgarian tanners’ environmental features should be available, but here again, many difficulties hinder them to take advantage of these support measures. Indeed, the country’s rating in terms of corruption has blocked access to EU funds for Bulgarian entrepreneurs and there is little that can be done by the sector for overcoming these difficulties.

The social report Tannery workers are a leather company’s most important resource. It is thanks to their skills that tanners achieve to produce quality leather. Contrary to clothing, footwear or leathergoods where labour plays an important part in production costs, tanning is a capital-intensive sector. In leather making labour represents typically only about 20% of production costs. The volume of employment in the leather and shoe sector fell considerably during the first years of transition (-40% between 1989 and 2001 where it stabilized around 20.000 people) due to the closure of a number of state-owned companies and the restructuring of the sector. The major state-owned companies disappeared or were split up in smaller plants. Whereas the three largest tanneries employed 4000 workers in 1989 only about 1500 remained in the entire Bulgarian tanning sector in 2006. It is estimated that this number has further fallen by 20-30% between 2006 and 2009. The sample The tanners having provided information for this section of the report constitute some 10% of the BULFFHI membership and about 5-7% of the total estimated tanning sector. The sample represents some 3% of the total sector’s estimated workforce. It is not possible to assess the proportion of the sample with regard to the turnover of the industry or the value of production. The data obtained allow, however, to present the picture of a typical Bulgarian SME tannery operating the full production cycle (from raw hides an skins to leather), but not to draw comparisons between tanners or over the time. The Social indicators The COTANCE-ETUF:TCL Framework Agreement invites companies to provide data on the following social indicators:

- Total number of workers on the company’s payroll - Trade Union presence - Average age - Average number of years of workers in the company - Average salary - Nationalities of workforce - Contractual categories and worker turnover - % of female employees on the total workforce

- Training activities - Total working hours lost due to sickness or accident absence in the company - Survey of worker satisfaction The Questions are as follows: 1) What is your

opinion regarding the services offered by the company to workers e.g. refectory, rest rooms, relax area, parking, etc; 2) How clear are to you the duties/responsibilities of your job?; 3) Are you satisfied with the system of incentives of the company?

- Number of working hours lost due to work conflicts

• Number of workers According to official data of the Bulgarian National Institute of Statistics, the Bulgarian tanning industry had a total workforce of about 1.500 people in 2006. It is estimated that this figure has further fallen by some 30% until 2009 and some experts indicate that it has fallen currently below the 1.000 workers mark. A typical Bulgarian tannery employs between 30 and 60 people, but figures may also include human resources actually working in activities further down the value chain as some tanneries are vertically integrated with leather clothing or leathergoods production. This would yield a total estimated workforce of about 600 people in tanning.

• Trade Union presence There are two trade union federations in the leather/shoe sector in Bulgaria, each affiliated to two main Bulgarian trade union confederations. They cover the “light industry” that includes the leather/shoe branch. The largest is the Federation of Trade Union Organisations for the Light Industry (FITULI). It is affiliated to the Confederation of Independent Trade Unions of Bulgaria (CITUB). According to trade union sources, the federation had 13.100 members for a total sectoral employment of 180.000 workers (including various sectors, textile, leather, footwear,…). This yields a unionization rate of approximately 7.3%. The unionization rate in the leather/shoe branch is, however, lower with a 5% rate. The unionization in tanning is estimated to be significantly lower than 5%. Trade union sources indicate that FITULI is practically absent in the leather sector, reaching out to 3-4 people in up to 4 tanneries. The second federation is Prodkrepa Federation of Light Industry, affiliated to the Prodkrepa Confederation of Labour founded in 1989. The representativeness of this trade union in the leather sector is believed to be minimal. The uninisation rate of tannery workers in the sample is 0%.

• Average age

The average age of tannery workers in Bulgaria is around 48 years.

• Average number of years of workers in the company No information available.

• Average salary The average gross sectoral wage in the Bulgarian leather industry is around 100 Euro, which represents 60% of the overall average wage. The average salary of the workers in the sample is of 590 (Bulgarian currency).

• Nationalities of workforce There are hardly any foreign nationals working in the Bulgarian leather sector. All workers in the sample companies were Bulgarians.

• Contractual categories and worker turnover In a typical Bulgarian tannery at least 1/3 of the workforce has a full time, indefinite contract, while 2/3 work on part-time indefinite contracts. Due to the elevated average age of the workforce the rate of termination of contracts is relatively high (on average 20-30%) and new entrants are difficult to find (10-15%).

• % of female employees on the total workforce Tanning is hard work that is usually performed by men notably in the Bovine leather sector. Sheep and Goat skin leather production is more likely to host female workers due to the lighter weight of the skins. The sample companies come from the ovine leather sub-sector and there the rate of female workers can be as high as 71%.

• Training activities No information about training activities was reported.

• Hours lost due to sickness or accident No information about hours lost due to sickness or accident was reported.

• Survey of worker satisfaction

The Questions are as follows: 1) What is your opinion regarding the services offered by the company to workers e.g. refectory, rest rooms, relax area, parking, etc; 2) How clear are to you the duties/responsibilities of your job?; 3) Are you satisfied with the system of incentives of the company? Responses in the sample were all filed in the “good” range. These responses are difficult to evaluate. It evidences that there are no dramatic failures in terms of services offered by the company or with regard to responsibilities and guidance or with regard to incentives. However, it is difficult to judge whether the responses were all sincere or whether some type of preoccupation impeded them to be more critical; In general Bulgarian workers are not used to be asked for their opinion with regard to their satisfaction in the company and it will take some time until the “satisfaction survey” of workers becomes a valid management instrument for tanners and workers.

• Work conflicts

No work hours have been reported to be lost in the Bulgarian Tanning sector due to work conflicts (strikes) in 2009. Conclusion The picture that emerges from this first social report is mixed. Bulgarian tannery workers are on average of local origin, qualified and productive. There are, however clear signs of an ageing workforce and difficulties to attract new personnel. Evidently there have been no major conflicts or problems in the Bulgarian tanning industry in 2009. But the sample is not sufficiently representative for giving an overall assessment. Also, while the data reported were generally on non-controversial indicators, there is still some room for improvement regarding those more difficult indicators. Furthermore, surprisingly tanners in Bulgaria have not reported on training activities. It is, however, a typical feature at least since BULFFHI joined COTANCE since several projects undertaken in cooperation integrated this feature. Time and further guidance is certainly needed for bringing Bulgarian tanners to accept social reporting as a valid management tool.

Conclusion This 1st Social & Environmental Report of the Bulgarian leather industry reveals a small but qualitative sector of the European Leather industry. It is certainly not the most dynamic and technologically advanced part of the overall sector, but it demonstrates resilience in the adversity and a strong will for progress. The Bulgarian Leather industry has clearly taken the path of a sustainable development evidencing with the companies contributions to this report the commitment to social and environmental performance. The economic circumstances, however, have not been very helpful for providing a more rapid improvement to the triple bottom line (profits, people, planet). There is still room for improvement in the Bulgarian leather sector, notably in bringing the sector’s operators to accept and adopt Social & Environmental Reporting as a useful management tool for supporting the companies in their further development.

Acknowledgements Particular thanks are owed to the following companies: Milvena Ltd. Sofia Bulgaria

BULFFHI Sofia

Bulgaria July 2010