Hide Skin - Final Report _TC

8/12/2019 Hide Skin - Final Report _TC

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Study of Hide and Skin Collection andProcessing

Food and Agriculture Organization of the United NationsUN Complex, Pulchowk, Nepal

June 2010


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Table of Contents

I. INTRODUCTION 1

1.1 Objectives 2 1.2 Methodology 3

1.2.1 Secondary Information 3 1.2.2 Visits and Consultation with Respective Stakeholders and Entrepreneurs 3

II. FINDINGS, ANALYSIS AND INTERPRETATION 3

2.1 Hides and Skin Production Potential in Nepal 3 2.2 Production and Collection of Raw Hide and Skin 4 2.3 Constraints and Challenges of Tanning Industry and Identification of Policy Support

Needs 6

2.3.1 Constraints 6 2.3.2 Challenges 7

2.4 Identification of Policy Support Needs 7 2.5 Rapid Survey of Selected Tanning and Leather Processing Units to Collect Essential

Information and Understand the Specific Constraints 9

2.5.1 Introduction of Hides and Skin Processing Industries 9 2.5.2 Processing Quantities of Different Hide and Skin Processing Industries

10

2.5.3 Constraints/Problems Perceived by Hide and Skin Processing Industries 10 2.5.4 Comparison of The Quantity of Hide and Skin Processed by Different Industries in

2006/07 And 2008/09 13

2.6 Potential for Offering Quality Products at a Competitive Price 14 2.7 Possibilities of Involving Small Producers and Processors in the Hide And Skin

Business 16 2.8 Commercial Growth Possibilities of Hide and Skin Collection and Processing 17 2.9 Analysis of Demand and Supply Gaps in Processing Hides and Skin 17

2.9.1 Export of Hides and Skin and Trade Shift 18

2.9.2 Export of Readymade Leather Goods to Overseas Countries 22

2.10 Possibilities for Reducing Dependence on Import of Hides and Skin Related Productswith an Objective of Promoting the Industries at Domestic Level 23

2.10.1 Import Of Hides And Skin From Overseas Countries 23 2.10.2 Import of Raw Skin from India 23


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2.10.3 Import of Readymade Leather Goods from India and Overseas Countries 23

2.11 Hide and Skin Collection Problems Caused by Declining Prices 25

2.11.1 Price of Hide in 2007/08 26

2.11.2 Price Situation of Hides and Skin over the Years (Nrs/Sq. Ft.) 26

2.11.3 Information Collection about the Price of Raw Hide and Skin from Different Sources

26 2.11.4 Price of Wet Blue Leather and Finish Leather 27 2.11.5 Reasons for Leather Price Decline 28

2.12 Existing Policies Facilitating and Hindering Processing and Marketing of Hides andSkin 29

2.12.1 Policies Facilitating the Processing and Marketing of Hide and Skin 29 2.12.2 Some Hindering Factors as Perceived by the People Involved in the Tannery

Business 31

III. SWOT ANALYSIS 31

3.1 Strength 31 3.2 Weakness 32 3.3 Opportunity 32 3.4 Threats 33

IV. AREAS FOR FAO - GOVERNMENT COLLABORATION IN THE MEDIUM-TERMPERIOD 33

4.1 POSSIBLE INVESTMENT PROJECT OUTLINE 33

4.1.1 Business Development 33 4.1.2 De-Hiding And De-Skinning Training 34 4.1.3 Capacity Development 34 4.1.4 Impact And Outcomes 34 4.1.5 Working Procedure 34

V. RECOMMENDATIONS 35

References Annexes


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Study of Hide and Skin Collection and Processing 1

I. INTRODUCTION

The use of leather goes back to the pre-historic times. The principal raw material is thehide or skin of animals. Hides and skin constitute valuable material removed from theanimal carcass. Skin of cows and buffaloes is called hide and skin of goat and sheep iscalled skin. Hides are 1.5-4.5 square meter in size and weigh about 15-30 kilograms(kg). Similarly, skins are 0.4-0.5 square meter in size and around 2 kg in weight. InNepal, buffalo hide and sheep and goat skin are the byproducts of meat industry. Butthe cattle hide is collected from naturally died animals due to ban on cow slaughter inthis country.

It is estimated that bovine hides represent 12% of the value of animal. Generally the

hide is 17% of the carcass weight and 7% of live weight. Hence this part adds theconsiderable value in the animal products. The number of animals slaughtered dailyclearly indicates the significant income potentiality of hides and skin, but in many partsof mountain and high-mountain, the hide is not collected at all or used inefficiently. Hideis considered just as waste material in these places. The suppliers have no or littleaccess there due to transport difficulty. Similarly, most of the goat meat consumersprefer the skin intact meat. Public awareness along these lines is still not adequate, andthe cash value of skin is ignored in many of the places.

The tannery operation involves converting the raw skin, a highly putrescible material,

into leather, a stable material, which can be used in the manufacturing of a wide rangeof products. The whole process involves a sequence of complex chemical reactions andmechanical processes. Various steps of pre- and post-treatment generate a final productwith specific properties: stability, appearance, water resistance, temperature resistance,elasticity and permeability for perspiration and air, etc.

The state owned Bansbari Leather Shoes Factory was privatized in 1993 under theprivatization policy of Government of Nepal. Raw Hide and Skin Collection Corporationwas privatized in the subsequent year. Since then tannery business is completelyoperating in private sector. There is little or no Government intervention for thepromotion of this component except in the policy and regulation matter.

Carpet, Pashmina and leather are the important exportable livestock commodities ofNepal. Carpet and Pasmina, though share almost 30% and 10% of the total export

1 This report is prepared by Mr. Krishna Prasad Sankhi, FAO Consultant for NMTPF Formulation Team.


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(TEPC 2006/07, 2007/08) wool, the major raw material is mostly imported. However theleather industry is based on the domestic produced raw materials. Although it is majorexportable commodity and shares 1.6% of the total country's export (TEPC 2006/07,2007/08) there is little information about this business except export import records.Department of Livestock Service (DLS) has, now considered it as priority component.And, in a meeting of DLS and FAORAP it was decided to study the hide and skincollection and processing to achieve the following objectives.

1.1 Objectives

To understand major issues and challenges facing the promotion of hides andskin collection and processing; recommend improvement priorities.

To identify areas for FAO - Government collaboration in the medium-term period.

The study covers the following:

Assessment of potential for hides and skin sector to move up the value chain Review of challenges and constraints of tanning industry and identification of

policy support needs Rapid survey of selected tanning and leather processing units to understand

specific constraints of the tanneries and processing units Potential for offering quality products Demand and supply gaps in processing hides and skin

Commercial growth possibilities of hides and skin processing Existing policies facilitating and hindering processing and marketing of hides andskin

Possibilities of involving small producers and processors in the hides and skinbusiness

Possibilities for reducing dependence on import of hides and skin relatedproducts with an objective of promoting the industries at the domestic level.

Current volume of collection, processing and trades of raw hides and skins,leather and leather goods in major leather industries operating in different places

Import export status of raw hides and skins, partially processed, finished productsand leather goods, preferably comparison of different years

SWOT analysis Problems encountered and recommendations to improve the situation in tanner

business in the country


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1.2 Methodology

1.2.1 Secondary Information

Annual progress reports of Ministry of Agriculture and Cooperative (MOAC), Departmentof Livestock Service (DLS), Directorate of Livestock Market Promotion and otherconcerned organizations were studied to collect the information about livestockproduction including the numbers of animal slaughtered to estimate the production ofhides and skin.

Similarly, annual reports (2005/06, 2007/08) of Department of Custom, AnimalQuarantine Offices, CBS's Statistical Pocket Book Nepal 2008, Nepal Overseas TradeStatistics 2007/08 and glimpse of Nepal's foreign trade published by Trade and ExportPromotion Center and other relevant publications and study reports were reviewed to

find the information about the collection and processing of hides and skin and importexport situation of leather and leather made goods.

1.2.2 Visits and Consul tation with Respective Stakeholders and Entrepreneurs

The respective stakeholders including the personnel of Nepal Leather Industry andTrade Association, DLSO Officers and staffs working in the respective districts,butchers, suppliers were consulted to understand the hides and skin collection and itsprocessing.

Similarly, slaughterhouses and major slaughter places located at different ecologicalzones and raw hides and skin traders' offices were visited to collect information aboutthe production and sale of hides and skin.

Likewise, the tanning and leather processing industries located at Sunsari and Morangdistricts were visited during January 20 - 24, 2010 and those of located at Bara andParsa districts were visited during January 28 - February 1, 2010. Discussions about thecollection and processing of hides and skin, the types and volume of products and theirmarketing situation were done with the key persons of the industries.

II. FINDINGS, ANALYSIS AND INTERPRETATION

2.1 Hides and Skin Product ion Potential in Nepal

The Ministry of Agriculture and Cooperative is regularly reporting the annual productionof meat from different animals (MOAC, 2005, 2006, 2007, 2008, 2009). But the reportsdo not include the number of animals slaughtered. However, these data have been


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estimated on the basis of average meat production from about 0.1 million buffaloes and0.25 million goat imported in Kathmandu valley through Thankot (DLMP 2006/07,2007/08, 2008/09). The average meat yield of each buffalo and goat is 158.79 kg and21.79 kg respectively. About 0.9 millions buffaloes and 2.0 million goats wereslaughtered in 2007/08 (DLMP 2007/08). Obviously, the production potentiality of hidesand skin becomes 0.9 millions and 2.0 million respectively. These numbers of pieces areequivalent to 30 millions and 7 millions square feet. However, the annual collection ofhides and skin is less than 20 million square feet. The FAO calculated figure of 0.924millions of buffaloes slaughtered in this year is almost equal to that of DLMP estimation.But, the number of goats slaughtered is found higher in FAO report (Table 1).

Table 1 Producing Animals/Slaughtered

(No. of Heads)Item 2000 2001 2002 2003 2004 2005 2006 2007 2008

BuffaloHide

847,000 850,000 854,000 858,000 860,000 864,000 890,000 924,000 924,000

CattleHides

594,000 584,000 579,000 580,000 581,000 583,000 584,000 586,000 586,000

Goatskins 3,268,000 3,342,400 3,414,499 3,470,000 3,750,000 3,840,000 4,024,000 4,240,000 4,240,000Sheepskins 318,000 317,500 314,000 310,500 309,000 305,000 304,000 305,000 305,000

FAOSTAT | FAO Statistics Division 2010

2.2 Production and Collection of Raw Hide and Skin

In the process of reviewing the previous studies and reports it is found that the quantityof production and collection of raw hide and skin has not been well recorded. The FAOhas calculated production quantities of hide and skin from different animals in differentyears (Table 2). But these production quantities of hide and skin are much less than thecollection quantities for processing units (Table 3). The annual production of 36,036tonnes of buffalo hides reported in 2008 could be less than 1.5 million square feet. Theexport alone was much higher than this quantity. Hence, the production quantities ofhide and skin mentioned in the report are found to be underestimated.


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Table 2 Production of Hide and Skin

(In Mt.)item 2000 2001 2002 2003 2004 2005 2006 2007 2008

BuffaloHide

33,033 33,150 33,306 33,462 33,540 33,696 34,710 36,036 36,036

CattleHides

4,752 4,672 4,632 4,640 4,648 4,664 4,672 4,688 4,688

Goatskins 6,536 6,684 6,829 6,940 7,500 7,680 8,048 8,480 8,480Sheepskins 636 635 628 621 618 610 608 610 610

Source: FAOSTAT | FAO Statistics Division 2010

Based on information collected from the hide and skin traders, tannery industries andthe export import records of 2001/02 - 2007/08 indicate that the annual collection of rawhide and skin varies from 16 millions - 20 millions square feet. It is almost half of the

maximum possible potential.

Table 3 Annual Collection of Raw Hide and Skin

Hide and SkinCollection

2001/02 2003/04 2005/06 2007/08

Quantity (In sq. ft.) 16 million 20 million 19 million 17 million

More than 600 buffaloes are slaughtered annually. De-hiding is not usually conducted incalves even in Kathmandu valley. These animals are locally called "polo". About 140 ofsuch "polos" are slaughtered daily in the valley. It is almost 25% of the total buffaloesslaughtered. Hence 450 pieces of hide is collected daily. It means the collection of 160thousands pieces of hides annually from Kathmandu valley alone. It is equivalent to 5millions square feet. The hide is not collected at all or used inefficiently in many parts ofmountain and high-mountain districts. Hide is considered as waste material in theseplaces. The traders have no access there due to lack of transport facility.

Similarly, most of the goat meat consumers prefer the skin intact meat. Hence, largequantity of required raw skin is fulfilled by the informal imports from northern parts of

Indian states of Bihar and West Bengal. Untrained persons involved in de-hiding and de-skinning produce usually inferior quality of hides and skin.


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2.3 Constraints and Challenges of Tanning Indust ry and Identification of PolicySupport Needs

2.3.1 Constraints

Poor quality of raw hide and skin High transport cost and poor road access to high hills and some of mid hill

districts Unavailability of machineries and chemicals in the country and needs to be

imported Frequent strike and road blocks by various political alliances and disturbing

groups in current unstable political situation in the country Long load shedding due to power shortage Consumers' preference for skin intact meat - inadequate supply of raw goat skin Heavy incentives for hide and skin trade in other countries and lacking of these

facilities in Nepal. For example:

o China, the biggest supplier of leather products to the US and Europe isbattling the situation by offering its exporters rebate of 17% to help themstay in the market and enable them to secure a bit more space bysqueezing other countries out. 2

o The committee of secretaries (CoS) of India has approved a Rs 290-crorecapital subsidy programme for technology upgradation in the leathersector. The government has approved another additional Rs 110 crore forindustrial parks, capacity building, productivity improvement and training inthis sector. 3

o The concessionary finance rate in India is 9 per cent against commercialrate of 15 per cent, 6-7 per cent in Bangladesh against 11-14 per cent andup to 18 per cent in Sri Lanka both concessionary and commercial. 4

o In the long-term financing the cost of export borrowing for Pakistaniexporters are also lowest as compared to Bangladesh, Sri Lanka, Indiaand China. However, Pakistan is the lone country amongst its competitorslike Bangladesh, India, China and Sri Lank that also provides cash support

on leather footwear export and freight subsidy on eligible items to specificdestination. 3

2 http://www.chineseleather.org/news/?id=94

3 http://www.financialexpress.com/news/mof-approves-rs-290crore-capital-subsidy-for-leather/126780/

4 http://www.dawn.com/2007/05/24/ebr4.htm


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o In Bangladesh, the exporters will receive cash subsidy on the productsagainst net repatriation of the FOB (free on board) prices from July 1, 2009to June 30, 2010, according to the announcement. "The rate of cashsubsidies is almost the same for this fiscal compared to the previous one,"adding that the government has included two products - plastic pet bottleflakes and finished leather - in the list, which will enjoy cash subsidies at10 per cent and 7.50 per cent respectively from this fiscal. 5

Declining price of hide and skin products in the international markets

2.3.2 Challenges

Discussions with the entrepreneurs of hide and skin processing units in Birgunjand Biratnagar revealed that this sector is operating in traditional pattern. There isno program for technology upgradation in the leather sector. Similarly, there is no

public investment for infrastructure development and business promotionincentives. Hence, efficient utilization of high potential hide and skin is becomingthe big challenge.

Quality assurance of hide and skin with improved de-hiding and de-skinning isanother challenge in Nepalese tannery business. Quality of raw materials affectsthe quality of its processed products, which ultimately affects the domestic andinternational market.

We are importing the value added goods in much higher price by exporting theless costly raw materials or partially processed products like wet blue leather.Promotion of the domestic leather processing industries for the production ofvalue added goods is also one of the big challenges.

2.4 Identifi cation of policy suppor t needs

Most of the countries do not allow the export of raw hides and skin, and even thepartially processed wet blue stage. India discourages the export of even finished leather,and encourages the production of value added leather goods. This policy facilitatesmore earnings of foreign currencies by utilizing the domestic resources including theemployment. Hence there are the incentive provisions to facilitate the promotion of

domestic raw material based leather industries. However, there is lacking of suchcongenial environment for the promotion of leather industry in Nepal.

The traders and entrepreneurs involved in the tannery business complain that theDistrict Development Committee (DDC) tax of Rs 30.0/piece of hide and Rs 15.0/piece

5 http://www.thefinancialexpress-bd.com/2009/09/09/78578.html


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of skin under the provision of Regulation no. 207 of the Local Self-GovernanceRegulation 1999 (second amendment 2005), is not affordable due to current sharpdeclined price of these raw materials. It was noted, during discussions with the hide andskin traders that harassment activities like forceful collection of illegal charges arecommon which further adds to their cost. It was also pointed out that there is tendencyof DDC tax collection in more than one district during the transport of raw hides and skinfrom the production sites to the industries. The notice already circulated by the Ministryof Local Development does not allow the other district to charge the DDC tax for thesame goods which is already charged by the district of origin. However, the same hasnot been uniformly applied.

Unlike the facilities in other countries there is neither import tax exemption ofmachineries and chemicals nor any discount in bank loan. There is no incentive for theexport of the leather products. Hence the cost of production of the value added goods

becomes higher and it makes difficult to compete with the goods produced in othercountries, which are providing the production and export incentives as statedabove. 1,2,3,4

One of the major expenditures for the raw hides and skin supply is the salt preservation.The suppliers of this raw materials claim that it requires 8 - 10 kg of salt to preserve onepiece of hide. It is becoming difficult to continue this business, particularly during thismassive price reduction of raw hides and skin and frequent rising price of salt. Hence,the entrepreneurs operating this business are demanding subsidies in salt supply forhide and skin preservation, at least in such declining price situation. Otherwise they are

threatening to quit this job. Ultimately it is the threat for the leather industry.

It is necessary to promote the processing value added products like crust, finishedproducts or leather goods by providing possible facilities for importing machineries,equipments and chemicals for best utilization of our domestic resources.

The Trade Policy 2065, Agribusiness Policy 2063 (2006), Slaughterhouse and MeatInspection Act 2055 and its subsequent regulation 2057 and the clauses forslaughterhouse establishments under Local Governance Act 2055 are not yet beeneffective. Implementation of these policies and acts could bring much improvement inthis industry.


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2.5 Rapid Survey of Selected Tanning and Leather Processing Units to CollectEssential Information and Understand the Specific Constraints

2.5.1 Introduct ion of Hides and Skin Processing Indust ries

Currently 12 leather processing units are processing the hides and few of them haveincluded the processing of goat skin in their industries. These tanning and leatherprocessing industries in Nepal are mainly located in 4 districts - Bara, Parsa, Sunsariand Morang districts. The names and address details are given in annexes. NarayaniLeather Manufacturing Industries, Marium Leather industries, Everest LeatherIndustries, Progressive Leather Industry, Global Leather Tanning Industries, StandardTanning Industry and National Leather Industries are located around Parwanipur andBarging in Bara and Parsa districts. Similarly, Asian Leather Industries, UnitedTanneries, Nepal Tanning Industry and Universal Leather Industry are operating aroundDuhabi and Biratnagar in Sunsari and Morang districts.

Narayani Leather Manufacturing Industry is the largest leather processing unit whichproduces partially processed (wet blue) leather and finished products in its two differentfactories. Towards the finished products, the industry started to manufacture the leathergloves and some other goods since 2048 B.S. and leather jackets, wallets, bags andother goods since 2054 B.S. The Export Promotion Board offered "the export award" tothis industry every year since 1997/98 (2054/55) to 2001/2002 (2058/59) in recognitionof the outstanding performance in the export of the processed leather. Similarly, AsianLeather Industries located at Duhabi is the leading industry in the eastern region in

terms of processing quantity and trade.

Among the two leather industries located at Hetauda, Birat leather industry has recentlybeen closed. The recently established Asian Leather Arts and Tanning Industry hasstarted operation. The leather industries located at Bhairahawa, Chandrawota andNepalgunj have also been closed.

Among the four types of leather products - wet blue, crust, finish and leather goods, themajor export product is the wet blue leather. The processing of other value addedleathers is mostly limited to meet the requirement of 30% of wet blue production.

The information about collection, processing quantities, supply to domestic andinternational markets and the price system were collected. Similarly, problems,constraints and the suggestions for improvement were also noted during the discussionwith the respective personnel.


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2.5.2 Processing Quantit ies of Different Hide and Skin Processing Industr ies

The hide and skin processed by different leather processing industries is summarizedbellow (table 4)

Table 4 Hide and Skin Processed by Different Leather Processing Industries

S.N. Name of the processingindustries

Quantity processed (2006/07) Remarks

1 Narayani LeatherManufacturing Industries

3,000,000 sq. ft. of hides &520,000 sq. ft. of skin

Assumption:1 piece ofhide = 30sq. ft. and 1piece of

skin = 3.5sq. ft.

2 Marium Leather industries 1,069,260 sq. ft. of hides &30,012 sq. ft. of skin

3 Everest Leather Industries 650,000 sq. ft.

4 Progressive LeatherIndustry 900,000 sq. ft. of hides

5 Global Leather TanningIndustries

600,000 sq. ft.

6 Standard Tanning Industry 1,612,087 sq. ft.7 Universal Leather Industry 1,500,000 sq. ft. of hides8 Nepal Tanning Industry

Pvt. LtdEquivalent toNRs112,200,000.00

9 Asian Leather Industries 410,000 sq. ft.10 United Tanneries 245,000 sq. ft. of goat skin and

200,5000 sq. ft. of hides11 National Leather Data not collected Both of

similarnames

12 National Leather ,, ,, ,,

2.5.3 Constraints/Problems Perceived by Hide and Skin Processing Indus tries

The entrepreneurs of almost all the leather industries expressed the similar problemsand constraints. The problems and suggestions given by the respective industries are

given below (Table 5):


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Table 5 Problems and Suggestions Given by Leather Industries

ProcessingIndustries

Problems Suggestions

NarayaniLeatherManufacturingIndustries

Declining trend of leather export -the export was equivalent to NRs350 million in 2054/55, 270 million in2063/64 and dropped down to lessthan half in 2008/09, and still beendropped in last six months (July -December 2009).

Promotional packagesDe-hiding and de-skinning trainingTax reduction

MariumLeather Ind.

Price fall, declining demand Support in such situation

EverestLeatherIndustries

Income tax (20% of profit), 13%VAT.Long back traditional technology.There is no Government support formodern technology development inthe tannery business.Scarce electricity supply is one ofthe most detrimental factors to causethe industries constantlydeteriorating.

Training for quality de-hiding and de-skinning.It is necessary togenerate alternativetechnology of pre-curingby salt.

ProgressiveLeatherIndustry

Leather market is much reduced in2008/09 as compared to 2007/08.Very low direct demand from abroadand our export is mostly throughIndian traders

Training for the butchersor de-hiding workersBuffalo fattening farmingEstablishment ofmachinery andprocessing facilities forfinish products that canbe used by aentrepreneur or groupEstablishment of 'leatherzone' Minimize the taxesand illegal charges forhide and skintransportation.Provide promotionalincentives for finish


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products and leathergoods.

GlobalLeatherTanningIndustries

Poor de-hiding - poor hide qualityTraditional technology,No Government support to bringchange. Unnecessary VAT, taxesand charges

De-hiding trainingPromotional supportTax reduction

NepalTanningIndustry Pvt.

Ltd

DDC taxes and illegal chargesduring transport of the raw hides.Nepalese leather with higher cost of

production can not compete with thegoods of other countries in theinternational markets due to facilitiesand subsidies in India - 6% exportcash grant, 35% grant formachineries import, duty freechemical imports and 80% grant forthe stall payment in the above statedinternational fairs

Government sector toprovide similar facilitieshere in Nepal also.

Asian LeatherIndustries

Quality of raw hide produced inKathmandu is unsatisfactory -several knife scratches and flaycutson the surface of hide. The carelessde-hiding on the ground and fleshcutting on the hides cause the cutson the hides.DDC taxes and illegal chargesduring transportationOther countries which provideadequate incentives for theproduction and export. Hence it isdifficult to fulfill the Government'srule of at least 30 % production ofcrust or finished leather to export thewet blue leather.

Department of LivestockService for extensive de-hiding and de-skinningtraining, particularly inKathmandu. Providesimilar facilities here inNepal also.

United Facilities received by Indian leather There should be import


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Tanneries industries like 6% export cash grant,50% grant for machineries import,duty free chemical imports and 90%subsidies for generator purchaseduring load shading cause the Indianleather cheaperBangladesh also provides 28 - 30%subsidies for leather export. NepalGovernment avoided the facilities of10% cash grant for the export of wetblue leather, 15% for crust, 20% forfinished leather and 25% cash grant

for leather goods some 25 yearsback.

provision for goat skinfrom India also as there iscustom system for goatskin import from othercountries.Provide similar facilitieshere in Nepal also tomake Nepalese leathercompetitive in theinternational markets.

The declining demand and price of hide and skin in the international markets is themajor problem.

2.5.4 Comparison of the Quantity of Hide and Skin Processed by DifferentIndustries in 2006/07 and 2008/09

Table 6 Hide and Skin Processed by Different Industr ies in 2006/07 and 2008/09

Name of the ProcessingIndustries

Quantit ies Processed2006/07 2008/09

Narayani Leather ManufacturingIndustries

80,000 - 100,000 piecesof hides & 150,000pieces of skin

Almost 1/2 of theprevious year

Marium Leather industries 35642 pieces of hides& 8575 pieces of skin

42252 pieces of hides& 40900 pieces of skin

Everest Leather Industries 650,000 sq. ft. 300,000 sq. ft.

Exceptionally, the collection and processing in Marium Leather industries is found to behigher in 2008/09 than in 2 years back. However, the demand has abruptly droppeddown this year as compared to the last year. The industry further reported that thirdcountry export is almost nil since last 1.5 years. And the total export is limited to India.


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Price: The price fall is well cited by the following table noted from Marium Leatherindustries. The current price reported by many other industries is still lower.

Table 7 Price Comparison of Hide and Skin

Particulars 2006/07 2008/09 RemarksRaw hides (Rs/pc) 1,219 617 transport cost and taxes extraWet blue(Rs/pc) 1,670 1,272Finish leather 1,115 + splitRaw goatskin(Rs/pc)

150 98 the raw skin was purchased inhigher price in 2006/07 butlater the price dropped downand the wet blue pricebecame lower than that of

raw skin

Wet blue goatskin(INR/pc)

144 173

2.6 Potential for Offering Quality Products at a Competitive Price

Given the potential of massive production of hides and skin, there appears to be ampleopportunity to produce quality hides and skins in Nepal. However, this would requireinvestment in training of butchers and entrepreneurs in hygiene and sanitation in theslaughterhouse and some government support for technology up-gradation such asanimal-up-hanging electric device, driving device, pulling machine, de-hiding and de-skinning knives etc.

The price of raw hide is fluctuating and mostly depends on quality. Improvement inquality brings the change in price. Mr. Khursi Dhabi Iraki of Nepal Tanning Industryinformed that the hide produced in the slaughterhouse gets higher price, usually Rs 500- 550.00 per piece because of good quality with no flaycut. It gets 5 cents/sq. ft. moreprice or $ 2.00/pc than that of produced in other places. Similarly, Mr. Sanjay Agrawal ofthe Global Tanning Leather Industries also said that the hide produced in Kanpur isgetting Rs 5.0/sqft more or Rs 200.0/pc more than that of domestic hide simply becauseof the quality. The hide of a larger sized buffalo de-hided in Kathmandu cost Rs 400.0,

but the hide of the same animal if de-hided in Kanpur costs Rs 1000.00. Likewise, de-hiding and de-skinning is better in Terai in Kathmandu. However, the size and thicknessof Kathmandu produced hide is better than that of Terai. The thickness of Terai hide isof 3 mm while that of Kathmandu hide is 4 mm, hence is better. The leather, usuallygreater than 30 sq. ft., is required for sofa set and car seat cover, and 2 sq. ft. is enoughfor shoe. Mr. Hasan Ansari of Asian Leather Industries also expressed the similarexperience about the quality difference between the hides produced in Terai and


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Kathmandu. The knife scratches and several flaycuts as indicated by the followingpictures due to unskilled de-hiding can easily be improved by the de-hiding training forthe butchers or for the workers involved in this job.

The increasing consumers' awareness to the hygienic meat adds pressure forslaughterhouse establishment and operation. The slaughterhouse system is intimatelyconnected to the quality de-hiding and de-skinning process. If butchers and the workersinvolved in slaughterhouse and slaughter places are trained for quality de-hiding and de-skinning, it will be instrumental for quality raw hide and skin production and preservation.Proper storage and transport management help keep the quality of these raw materials.

The workers in the factories informed that the hides and skin collected during winterseason is of better quality as compared to that in rainy season. This difference occurredmost probably due to insect-bites and skin affections in rainy season. These defects caneasily be reduced by the animal husbandry practices. The initiatives for commerciallivestock farms development and buffalo fattening will yield the better quality hides.

Similarly, it is the tendency to slaughter the larger size of animals in most of theslaughter places, particularly in Kathmandu where 500 - 600 buffaloes are slaughtereddaily. There is high demand of large size hide, usually larger than 30 sq. ft. for makingseat cover of sofa-sets, vehicles and aeroplanes and so and so. Good quality of rawhides and skin with desirable sizes yields good quality leather products - wet blue, crust,

finish or leather goods.

The foreign currencies income from leather export is encouraging public and privatesectors for this business promotion. The quality is the greatest price determining factorfor either raw hide or semi-processed and processed leather. Hence, Nepalese hide andskin collection and processing business and leather industries possess good potentialfor offering quality products at a competitive price.


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2.7 Possibili ties of Involving Small Producers and Processors in the Hide andSkin Business

Currently, the hide and skin is collected mainly from commercial city areas likeKathmandu, Pokhara, Butwal and some other markets located to nearby leatherprocessing industries. This raw material is not collected at all in many districts anddiscarded as waste materials. The inadequate collection even incomplete load for atruck and poor road access to some of the mountain districts may be the major causesfor this loss. Huge quantity of hides will be collected if the collection centers withpreservation facility are established in all potential places and if transportation fromthese centers to larger collection center or the processing units is supported. In my fieldvisit in Sankhuwasawa, one of the high mountain districts of Nepal the concernedstakeholders informed me the slaughters of about 200 buffaloes daily in that district

alone. Similarly, 15 buffaloes are slaughtered daily in Salleri of Solokhumbu district.However, collection of hides is nil in these districts. Mr. Damodar Subedi, the proprietorof Nepal raw hides and skin traders and the proprietor of National Leather Industry (pvt.)ltd. Barging informed that there is a stock of 6000 - 7000 pcs. in Mudha Dhangadhi sincelong back, and about 2000 pcs stock in Banepa. Balkishna Khadki, proprietor ofAadhunik Badhshala Indrasawa, Kankeswory KTM 19 said that two years ago he usedto collect hides from Dhading, Damauli, Jiri, Solokhumbu, Charikot. But now he collectsthe hides only from Kathmandu. The hides and skin production are facing great problembecause of nominal price. And these materials are piling up for a long time. About 30pieces of hides is produced daily in the slaughter place located at the compound of live

animal market and agricultural products center Tribhuwanbasti Kanchanpur. Mr. HarkaBahadur Thapa, the president of Livestock Market, reported that unlike in previous yearsthe leather traders are not taking the collected hides and skin since last six months.There are so many places with such examples of wasting these cash products in thiscountry. Some supportive inputs for the improvement of the storage and transportationfacilities can provide the enormous opportunity for income and employment generation.

The increasing public awareness for hygienic meat process will gradually reduce thetendency of consuming skin intact meat; and a huge quantity of goat and sheep skin willbe produced in future. And it will accommodate many unemployed people in collection,supply and processing activities.

It is necessary to manage the collection of scattered resources in suitable collectioncenters until the materials become adequate for the delivery to their destination. Someincentive packages are necessary, in the beginning at least, to motivate the unemployed


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youths to operate these activities. With these promotional packages there are enormouspossibilities of involving small producers and processors in the hide and skin business.

2.8 Commercial Growth Possib ilit ies of Hide and Skin Collection and Processing

There was high demand of hide and skin in the international market in the past. Singleleather processing industry could export huge quantity of leather to abroad. NarayaniLeather Manufacturing Industries exported partially processed 'wet blue", crust or finishleather equivalent to NRs 350 millions in 1998/99. The encouraging demand and price inthe international market facilitated the commercial growth of hide and skin processingindustries. Some 15 leather industries were well operating; and collection and supplybusiness of raw hide and skin also grew well.

The import export trend and the information obtained from almost all the hide and skin

processing industries report this unwanted situation in tannery business. The slowworld economy and mass production of synthesis goods are probably the major reasonsto reduce the leather demand.

The leather export directly to abroad in the past has now been channelized throughIndian traders. The domestic industries could not produce the demand based qualityproducts in the competitive price due to higher cost of production here. Promotionalfacilities for machineries and chemical import, export incentives and capabilitydevelopment of the stakeholders involved in tannery business and processing industrieswill be instrumental for the situation improvement.

Considering environmental management and commercial utilization of industrialbyproducts it is not wise to scatter the leather processing industries. These should belocalized in a defined area - may be named 'leather zone'. Additional establishment ofhide and skin processing industries are not recommended unless the production of rawhide and skin is abundantly increased and domestic or international markets for theprocessed or semi-processed products are ensured.

However, there is high potential for commercial growth in finished products and leathergoods, particularly leather shoes, bags, belts, jackets, gloves, suitcases, briefcases inthis country. Every year these goods and finished leather for manufacturing of thesegoods are being heavily imported from India and abroad.

2.9 Analysis of Demand and Supply Gaps in Processing Hides and Skin

There is high potential of raw hide and skin collection in Nepal. More than one million ofbuffaloes and two millions of goats are slaughtered annually. Slaughters of two million


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goats yields about 6 million square feet of skin. However the processing is about 1/3 ofthe total potential. This quantity also is fulfilled from the illegal imports of raw skin fromIndia. The consumers' preference of skin intact meat is still sustaining. Theslaughterhouse and meat inspection act has banned the sale of skin intact meat; but theact has not yet been implemented. The export potential of skin to abroad is higher thanthat of hides. The leather industries are performing the job by processing mostly theimported skin. There is deficiency in abundance in this commodity.

The following export and import tables clearly indicate that the country is selling the rawand partially processed hide and skin in nominal price and buying the value addedmanufactured goods made of the same cheap raw materials. This is one of the causesof trade deficit of this country.

2.9.1 Export of Hides and Skin and Trade Shift

Hide and skin is the major exportable livestock commodity, earning approx 500 - 600millions rupees annually through its export. The export of hide and skin was increasinglyprogressing. But it was reduced by 16% in 2008/09. The export share of 1.6% in2007/08 was dropped to 0.80% only. The export of hides, goat skins and pig bristles ismuch higher as compared to the imports of these commodities (annex). However, theimport of skins of pigs and other animals is higher than the export. Among the overseascountries Italy is the major customer country of Nepalese hides and skin. It has beenimporting significant volumes of skin, usually in million square feet since long back.Previously, the major international market of Nepalese leather was Italy, where the

export was 5,446,366 square feet in 2001/02. It was dropped down as low as 710,678sq. ft. and 686,120 sq. ft. in 2003/04 and 2004/05 respectively. The incidence ofSeptember 11 is blamed as one of the causes of the trade reduction. The export wasthen gradually progressed and it was 2,937,126 square feet in 2007/08 and 3,010,142sq. ft. in 2008/09. Now, India is the major market for this business. The export wasequivalent to about NRs 158 millions to India and about NRs 298 millions to Italy in2001/02, in contrast to the export equivalent to about 346 millions in India and 180millions to Italy in 2007/08. The export was 3,010,142 sq. ft. in Italy and 8,062,777 sq. ft.in India; equivalent to NRs 200,832,000.00 and 181,777,000.00 respectively. It is foundfrom these figures that the price of hide in India is much lower as compared to that ofItaly. The total export of these leather commodities was 13,550,297 sq. ft. - equivalent toNRs 549.8 millions in 2008/09 and it was equivalent to 556 millions in the previous year.These figures do not include the export of readymade leather goods. The export quantityin Bangaldesh and China P.R. is almost equal in 2007/08 followed then by SwitzerlandHong Kong, U.K. and U.S.A. respectively. The report also reveals that skin is mainlyexported to abroad, while major market of hide is India.


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Table 8 Comparison of Hide and Skin Export to Major Countr ies in Different Years

(Quantity in square feet and value in NRs '000)

Table 9 Summery of Trade Shift between India and 3rd Countries

(In Value (NRs '000)Particulars 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/093rd country 450,797 239,853 286,117 225,420 292,338 274,616 310211 368,013India 157,800 248,500 332,300 338,600 334,800 363,100 346,000 181,778

Year Unit Italy China Bangladesh Hongkong Thailand Total India

2001/02 Qty 5,446,366 323,000 - 433,308 131,030 8,429,008Value 297,902 16,457 - 19,476 5,716 450,797 157,800

2002/03 Qty 2,304,791 82,000 - 511,598 1,019,602 5,000,333Value 111,325 3,413 - 21,126 46,553 239,853 248,500

2003/04 Qty 710,678 2,611,344 - 773,108 1,662,250 6,627,864Value 36,753 103,199 - 32,518 67,847 286,117 332,300

2004/05 Qty 686,120 908,172 -- 1,695,749 598,832 4,821,324Value 49,587 37,382 - 70,846 24,195 225,420 338,600

2005/06 Qty 1,523,636 1,718,614 - 356,722 80,000 6,493,273 NAValue 114,218 89,298 - 15,765 3,358 292,338 334,8002006/07 Qty 1,921,420 459,146 58,500 196,916 NA 4,709,026 NA

Value 96,071 27,214 5,964 8,286 NA 274,616 363,1002007/08 Qty 2,937,126 413,485 513,100 246,267 NA 5,168,632 NA

Value 180,381 24,122 32,881 11,871 NA 310,211 346,0002008/09 Qty 3,010,142 108,000 226,977 170,750 NA 5,488,115 8,082,162

Value 200,832 6,125 14,468 8,193 NA 368,013 181,778


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0

50,000100,000

150,000200,000

250,000

300,000350,000

400,000450,000

500,000

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

3rd country India

Table 10 Key Export of Hides and Skin in the Destinations Other Than Indiain 2007/08

OverseasCountries

Goat andSheep Skin

Bovine andEquineHides

Total Quantity(Sq. ft.)

Amount (NRs)

Italy 2,937,126 - 2,937,126 180,380,799Bangladesh - 513,100 513,100 32,380,900China P.R. 123,465 290,020 413,685 24,122,146Switzerland 250,000 - 250,000 16,835,247Hong Kong 102,045 144,222 246,267 11,871,419U.K. 165,000 - 165,000 8,044,201U.S.A. 115,000 - 115,000 7,782,913Total 4,178,378 281,417625OthersOverseas

1,009,254 28,793,828

Grand Total 5,187,632 310,211,453Source: TEPC 2007/08, TEPC 2009

It is found that there is good demand of goat skin in European countries, particularlyin Italy, while the hide of bovine species is mostly exported to India and remainingsome quantity to Bangladesh and People's Republic of China.


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Table 11 Export of Hides and Skin to Abroad in Different Years

(NRs '000')2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09450,797 239,853 286,117 225,420 292,338 274,616 310,211 368,014Source: TEPC 2009, TEPC 2007/08, TEPC 2006,

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

The sudden export drop in 2002/03 as compared to the previous year was probably dueto the lower quality than those of other exporting countries. And the leather trade wasshifted to India in that year (Table 6). There was good demand and buying competitionbetween the USSR and European countries particularly Italy. The USSR used to buy allsizes of hides and skin in negotiable price and there was almost no rejection from thisparty. But Italy always rejects the low quality leather. And the hide processed in Nepal isof lower quality than that of other south Asian countries. After the USSR divided thisbuying competition was finished. Now there is very low direct demand from abroad andour export is mostly through Indian traders.

Table 12 Principal Indicators of Manufacturing Establishments

NSIC NSIC Name No. of

Estbs.

No. of

PersonsEngaged

No. of

Emps.

Wages

Salaries andFacilities

In number In Rs '0001911 Tanning & Dressing of

Leather10 514 492 21,238

Source: CBS 2008, CBS 2009


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Table 13 Exports of Hides and Skin to India

(In NRs. '000)2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09157,800 248,500 332,300 338,600 334,800 363,100 346,000 181,777Source : Nepal Rastra Bank.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

2.9.2 Export of Readymade Leather Goods to Overseas Countries

Table 14 Export of articles of leather, saddlery and harness; travel goods, handbagsand similar containers; articles of animal gut (other than silk-worm gut) to overseascountries in 2007/08

Country Export in Amounts (NRs)Sweden 8,798,080U.K. 5,252,814Total 14,050,894Other 15 countries 18,186,336Grand total 32,237,230


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2.10 Possibilities for Reducing Dependence on Import of Hides and Skin RelatedProducts wi th an Objective of Promot ing the Indust ries at the Domestic Level

2.10.1 Import of Hides and Skin from Overseas Countries

Import of raw hides and skin from overseas countries is much less as compared to thequantity of the export. The total import of this commodity was equivalent to Rs 1,715,466only in 2007/08 (TEPC 2007/08). More than half of the goods are imported from China.

2.10.2 Impor t of Raw Skin from India

It is known after the discussion with the responsible persons of hide and skin processingindustries and raw hide and skin suppliers and traders that 75 - 90% of raw skin isimported somehow from India. Describing the problem of domestic goat skin scarcity the

respective entrepreneurs and traders suggested that there should be import provisionfor goat skin from India also as there is custom system for its import from othercountries. As there is no raw skin processing industries near to border in India it is easilyavailable for the industries located to this side.

2.10.3 Impor t of Readymade Leather Goods f rom India and Overseas Countries

The import of readymade leather goods, however is much higher than that of the exportand is equivalent to Rs 497,770,964.00 (Department of Custom 2008/09, TEPC2007/08). And these goods are mostly imported from India and People's Republic of

China - equivalent to Rs 255,940,000.00 and 216,850,395.00 respectively, followed byUSA - equivalent to Rs 11,746,530.00. The import from other overseas countries isequivalent to Rs 14,234,039.00. Leather shoes are the major import from India. It isequivalent to 154,655,000.00 rupees. The imports of belts and kartus belt is also quitehigh and is equivalent to 90,456,000.00 rupees. The major imported goods are bags,handbags, suitcases, briefcases and gloves from other countries and is equivalent to242,830,964.00 rupees.

Table 15 Total Value of Readymade Leather Goods Imported from India andOverseas Countr ies in 2007/08

Country Amount (NRs)India 255,940,000People's Republic of China 216,850,395.00USA 11,746,530.00Other Overseas Countries 14,234,039.00Total Imports 497,770,964.00


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Table 16 Import Export Comparison of Leather Shoes and Other Leather MadeGoods in 2005/06

(Value in '000 NRs)Particulars Country Shoes Leather

Gloves

Leather Belts

and Kartus Belts

Leather

ClothesImport (including the importsunder business purpose,diplomatic facilities and othercustom facilities)

India 36,796 3,075 21,483 1,466Overseas 317,220 715 28,131 1,090Tibet 196,659 97 18,080Total 550,675 3,887 67,694 2,556

Export IndiaOverseas 669 219 305 2,832TibetTotal 669 219 305 2,832

Source: Customs Department Annual Report 2005/06

The export of leather made goods, in comparison with the import volume is non-significant. Hence, in contrast to import/export ratio of raw and partially processed hidesand skin, the import/export ratio of leather made goods is almost reverse. The imports ofleather shoes, leather gloves, leather belts and kartus belts and leather clothes fromIndia, abroad and Tibet were equivalent to NRs 550.675 millions, 3.887 millions, 67.694millions and 2.556 millions respectively in 2005/06. The import of these goods underdifferent types of facilities like diplomatic facility and other custom exemption facilities ishigher than that of the imports for business purpose. For instance, the import of shoesfrom India, abroad and Tibet together was equivalent to NRs 224.8 millions. But theimport under the facilities was equivalent to NRs 325.9 millions.

It is estimated that about 4 5 millions pairs of leather footwear are produced from thedomestic industries, and about 65 percent of raw materials required for these industriesare supplied from domestic productions (Leather goods and footwear Expo 2008). But itis also estimated that 12.5 millions of these goods are annually used in Nepal. Hencethe domestic production covers only 35 45 % of Nepalese footwear market. Theremaining demand is supplied by the huge imports, mostly from India.

The Association conducted a study of domestic leather footwear and other leather

goods industries in different places including Kathmandu Valley with the objectives ofpromoting and improving their qualities and prepared a report about the status of thisbusiness (Shrestha, 2005). According to the report, about 50 % of 154 registered leathergoods related industries are normally operating the production activities. It also reportsthat out of about 1.8 million leather shoes demand the association member industriesand craftsmen supply 0.26 and 0.677 millions of shoes.


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The information mentioned above clearly reveal that we are importing the value addedgoods in much higher price by exporting the less costly raw materials or partiallyprocessed products like wet blue leather. It is also losing the opportunities ofemployment generation in such processing industries. Hence it is necessary to promotethe processing value added products like crust, finished products or leather goods evenby providing possible necessary facilities for importing machineries, equipments andchemicals for best utilization of our domestic resources.

2.11 Hide and Skin Collection Problems Caused by Declining Prices

Price of hides and skin has tremendously been dropped down in 2008/09 and this yearas compared to the previous years. The current price of raw hide varies from NRs600/piece to less than 300/piece and NRs50 - 100/piece is that of goat skin. It wasNRs1000.00 - 1700.00 and NRs200.0 - 300.00 per piece of hide and skin respectively

just two years ago. The wide variation is mainly due to the quality difference. Similarly,the export price of partially processed and finish products reduced due to decliningdemand of these materials in the international market. The price of wet blue was INR 28- 37.0/sqft in 2006/07, 29.00 per pc in 2008, as low as INR 14.0/sqft in 2008/09. Theprice of hide exported in India was average NRs 22.5/sqft in 2008/09, while it was 3times higher for the export in Italy. However, almost 60% sale in India is much moreinfluencing. The current export price of wet blue buff is INR 17-20.00/sqft and that of wetblue goat skin is 38 - 40/sqft. The 'finished' product was sold at NRs 70.00 75.00 persq. ft. up to 2008. Now the price of this product is also declining.

The global recession is posing a big question mark over export prospects for all valueadded ranges of leather products in the second half of 2008 fiscal year. Our buyers ofleather garments in Europe are asking for a drastic price slash, booking a much reducedvolume of business for next spring in March/April 2009, said Fawad Ejaz, chairman ofthe Pakistan Leather Garments Manufacturers and Exporters Association. 6 A drop indemand for leather suggests fall in demand of leather products in the world market. Theleather garment manufacturers are being asked to lower the prices of their products.Importers are placing orders for lower volumes of business. We are servicing winterorders given in July and August, he said. But the deepening of recession in Europe andUS since September has started to hit suppliers of textiles and leather products in Asia.



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2.11.1 Price of Hide in 2007/08

Table 17 presents the price of hide in 'Quality Meat Products P. Ltd. Thankot' as anexample of the value of raw hide at the collection site in 2007/08.

Variable No. Rate NRs Amount NRsNo. of animals slaughtered daily 25 buffaloes 1100.00/pc of

hide27500.00

Salt required for preservation(kg)

250 5.0/kg 1250.00

Sale 25 pieces of hide 1250.00/pc 31250Daily profit (NRs ) 31250.0 - 27500.0 - 1250.0 = 2500.00

Moreover, the supplier has already paid Rs 100000.00 advance for hides to the

Slaughterhouse and every hide trader pays advance for hides.

This was the scenario of previous price and facility of raw hide sale at the collection site.

2.11.2 Price Situation of Hides and Skin over the Years (NRs/Sq. ft.)

These figures are the average price rate calculated on the basis of quantity (square feet)exported and the amount received.

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 53.5 48.0 43.2 46.7 45.0 135.0 60.0 40.6

Source: TEPC 2009, TEPC 2007/08, TEPC 2006

About 8 millions out of 13.6 million sq. ft. of hide and skin was exported to India in2008/09; equivalent to NRs about 182 millions. Hence the average price becomes NRs22.5/sqft. The export price for Italy is almost 3 times higher The wide price differencecould be due to higher quality of sheep and goat skin supply to Italy and buffalo hides ofvarious quality supply to India.

2.11.3 Information Collection about the Price of Raw Hide and Skin fromDifferent Sources

Mr. Thaneswore Singh, the owner of Badahari slaughter place stopped thecollection of hides from other places because of unpleasant drop of hide price.Similarly, Mr. Bal Krishna Khadki, one of the hide suppliers collected huge quantity


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of hides @ Rs1300.00/pc, then price dropped down, hence stored for 1 year withsalt preservation and lastly sold @ Rs 400.00/pc. He does not collect hides nowfrom his previous collection sites of Dhading, Damauli, Jiri, Solokhumbu, Charikotetc; he collects the hides only from Kathmandu. The hides and skin producers arefacing problem because of nominal price and piling up of their produces for longtime. Likewise, Mr. Damodar Subedi, Nepal raw hides and skin traders and NationalLeather Industry expressed pain for the declining situation of tannery business. Thehide he sold @ Rs 1700/pc two years back has now dropped down to Rs 400/pcand that of goat skin at Rs 60/pc from its previous rate of more than Rs 300/pc.There is a stock of 6000 - 7000 pcs in Mudha Dhangadhi since long back, andabout 2000 pcs stock in Banepa.

Mr. Narayan Rajthala, President of Makwanpur Meat and Fish business committee,and Mr. Krishna Poudel proprietor of Quality Meat Product Butwal and member of

Meat business committee Rupandehi similarly pointed the price fall of goat skinfrom Rs 300 - 400.00/pc in 2007/08 to Rs 40 - 50.00/pc now. Sale also is not soeasy now as it was earlier. Sometimes it needs to burry in pits. Mr. Deepak Acharyahides and skin trader of Dhangadhi, Mahendranagar sector informed that the priceof hide there is Rs 200/pc.

Similar information about the declining demand and prices was received from all thehides and skin processing industries.

The Progressive Leather Industries reported that the price of hide was Rs 1000 - 1700.0

/pc in 2007/08. Because of the high demand in the international market this industrycollected huge quantity of raw hides mostly @ Rs 1700.00/pc in 2007. Unfortunately,then the price was dropped down as low as Rs 400.00/pc for raw hide and INR14.00/sqft for wet blue product. Hence there was no sale at all in that year. Thecompany fell into big loss. Marium Leather Industries also has similar bitter experience.

Everest leather reports that in 2006 the price of raw hide was Rs 1500.00 per piece,while it was only Rs 900.00 per pc in 2007. It was Rs 1200.00 per pc in 2008, and nowRs 400.0/pc only. There is about Rs 1000.00 /pc of good quality hide of 40 sq ft in

Kanpur (India) now.

2.11.4 Price of Wet Blue Leather and Finish Leather

The price of wet blue leather is much fluctuating. The price of this product was INR 28 -37.0/sqft in 2006/07. There was high demand, particularly for sofa set seat cover inChina in 2006/07 because of Olympic game organized there. Export price of wet blue


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leather came down to INR 23.00 per sq. ft. in 2007, it was INR 29.00 per pc in 2008. Itcame down to as low as INR 14.0/sqft in 2008/09. The price of hide exported in Indiawas average NRs 22.5/sqft in 2008/09, while it was 3 times higher for the export in Italy.However, almost 60% sale in India is much more influencing. The current export priceof wet blue buff is INR 17-20.00/sqft and that of wet blue goat skin is 38 - 40/sqft. The'finished' product was sold at NRs 70.00 75.00 per sq. ft. up to 2008. Now the price ofthis product is also declining.

The price is determined by international market - China Fair, Italy Fair, Hong Kong Fairand the most important one the Paris Fair. The Paris Fair is scheduled at September 7 -9 every year. The leather supply agreements are signed in these fairs.

2.11.5 Reasons for Leather Price Decline

There is very good relationship between the demand and the price. The decliningdemand of hide and skin products is the cause of their price downfall. Narayani LeatherIndustry exported the leather products equivalent to NRs 350 million in 1998/99, 270million in 2006/07 and dropped down to less than half in 2008/09, and still been droppedin last six months (July - December 2009). The export was 1455306 sq. ft. of hide toIndia and 614731 sq. ft. to abroad particularly America, Menjiloport (Mexico), Labodo(Texas), Hong Kong, Italy, Brazil and China in 2008/09. It was equivalent to NRs85,000000 and US$ 516,942.00 respectively. Similarly, hide collection in EverestLeather Industry was 650,000 sq. ft. in 2006/07, while it was 800000 sq. ft. in theprevious year. Now (2009) the collection and processing is only 25000 sq. ft./month or

300,000sqft per year. The export was mostly 4 containers per month two years back,now it is only 1 container per month. The products were mostly exported to Europeancountries and Japan, now it is exported to India only. Wet blue leather is the majorproduct, which is almost all exported. The finish product is supplied to domesticindustries. Now there is no skin collection and processing in this industry.

Similarly other processing industries have reported the sharp export reduction in therecent years as compared to the past.

The massive production of synthetic goods of similar outlook in cheaper price in manycountries, particularly in China and probably reduced purchasing capacity of theconsumers due to world economic recession could be the major reasons for overalldeclining demand of leather and leather goods. There was the tendency of using leatherseat covers in automobiles, aeroplanes, furniture etc in the past. The leather madeproducts are more comfortable and good for health. However these valuable materialsare being replaced by synthetic products. The federal commerce secretary of Pakistan,


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Syed Asif Shah also sees hard days ahead for exporters as recession in the westernmarkets is eroding purchasing powers of consumers. 7

Similarly, there is also well established relationship between the quality and the demand.One of the reasons for declined demand of Nepalese leather is the poor quality of rawhide due to faulty de-hiding. One of the industries demonstrated the heaps of wet blueleather to our study team as shown in the following left picture rejected by the importingcountry due to several scratches and flaycuts on the hides as shown on the right picture.

Buyers, sometimes even cancel the consignments due to poor hide quality. But thereare not such damages in goat skin, and hence the quality is usually better than that ofhides.Another major reason of demand fall is higher cost of production. The export and importsubsidies or incentives of other south Asian countries, particularly India; and lacking of

these facilities in Nepal are the constraints for the Nepalese produces to compete theinternational markets.

2.12 Existing Policies Facilitating and Hindering Processing and Marketing ofHides and Skin

2.12.1 Policies Facilitating the Processing and Marketing of Hide And Skin

The Trade Policy 2065, the Slaughterhouse and Meat Inspection Act 1998, LocalGovernance Act 1998, Animal Slaughterhouse and Meat Inspection Regulation 2000

can facilitate the value chain development of leather industry if these could be effectivelyimplemented.

Major features of the Trade Policy, 2065 are:

Easy procedure will be followed for the import of raw materials and machineriesnecessary for export oriented industries.

Necessary programs will be conducted to produce the goods within the country,for which the raw materials are available within the country

The prioritized goods, which are being exported without processing will beencouraged to export after value addition

Tariff, tax and vat except export service charge will be exempted for the export Export credit guarantee scheme will be enforced to increase the financial

resource flow



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With the consent of concerned group special steps will be followed to avoid anyunwanted activities like lockouts and strike.

The Trade Policy has considered the processed leather as the thrust area developmentas follows:

capital and technical assistance will be provided for feasible commercial farmingto supply the quality raw hides and skin

the export of processed leather and leather goods will be promoted there will be assistance in essential machineries an equipments to produce the

complete processed leather effective market promotion program will be conducted for international market

access foreign investment will be encouraged in leather processing industry loan facility with cheaper interest rate will be provided to import the machineries

and equipments facility will be provided to establish the Common Facility Centre for complete

processing of partially processed hides and skin.

The government has emphasized the export of processed leather and leather goodsinstead of the export of merely 'wet blue' leather. The compulsory provision of minimum30% crust or finish production of the total wet blue leather has assisted the production ofthese goods and supplied mostly to the domestic leather goods manufacturingindustries. According to the notice of Ministry of Commerce published on the Gazettedated 2053.7.30 additional issue 38 (kha +2), the export provision is that the exportersmust export 50% crust and finished leather and 50% wet blue leather during the 3 yearsperiod of 057/58 059/60 fiscal year. Similarly the notice of the ministry dated 2057.4.16explained further about the previous notice that the export of the wet blue leather wouldbe allowed on the basis of the export ratio of crust and processed leather or leathergoods. Likewise, the Ministry of Industry, Commerce and Supply (letter no.1140/2058.5.29) formed an Action Team under the coordination of joint secretary ofTechnology and Environment Division in order to manage the necessary means formaking the leather and leather goods export sustainable, promotion of export of value

added leather products and developing the leather industry.

Similarly the meat act and regulation don't allow the consumption of the skin intact meat;and hence favour the much more quantity of skin collection. Likewise the machineryinstallation including animal-up-hanging electric device, driving device, Pulling machine,de-hiding and de-skinning knives etc., hygiene and sanitation in the slaughterhouse andslaughter places help for quality hides and skin production.


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2.12.2 Some Hindering Factors as Perceived by the People Involved in theTannery Business

It is difficult for the Nepalese leather industry to produce 30% crust, finished or leathergoods of exportable quality with competitive price. This compulsory clause in the currentsituation may still reduce the export. The international market demand of wet blueleather is greater than that of finished products. Some of the entrepreneurs requested toavoid the compulsory condition in the current international open market system.

The south Asian countries use raw materials, chemicals and machines produced in theirown countries while Nepalese industries have to import them except raw materials.Subsidy programme of INR 290 crore for technology upgradation 8 and 6%concessionary finance rate in the leather sector in India, & 6% concessionary financerate in Bangladesh, up to 18 per cent in Sri Lanka, 9 cash support on leather footwear

export and freight subsidy in Pakistan, 7.50 per cent export cash subsidy in Bangladesh10

and re-instituted export support programs for the most high value leather products inChina 11 are some of the examples of incentives/subsidies for the promotion of leatherindustries in other countries. But none of these facilities and incentives are available inNepal. Hence the cost of production of crust, finished or leather goods is definitelyhigher than in other countries. Like other countries the major markets of Nepaleseleather products is also Europe. And thus, without export subsidies it is increasinglybecoming tough to compete in the European markets of leather goods. In order topromote Nepalese leather industry and trade the Association recommended the cashincentive of 10, 15 and 20% for crust, finished and readymade leather goods

respectively.

Similarly, local taxes under the provision of Local Self Government Regulation 1999(second amendment 2005) for raw hides and skin and even harassment activities likeillegal forceful money collection in several places along the transport route due tounstable political and conflict situation are hindering the promotion of this business.

III. SWOT ANALYSIS

3.1 Strength

Domestic raw material based industry

8 http://www.financialexpress.com/news/mof-approves-rs-290crore-capital-subsidy-for-leather/126780/ 9 http://www.dawn.com/2007/05/24/ebr4.htm10 http://www.thefinancialexpress-bd.com/2009/09/09/78578.html11 http://www.chineseleather.org/news/?id=94


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About one thousand of Nepalese people are employed in hide and skinprocessing units (CBS, 2008) and another one thousand people are in collectionand supply business.

Likewise, about 200 industries of leather goods are getting raw materialsproduced in the country (Leather Footwear and Goods Manufacturers'Association of Nepal).

By now, it is one of the important exportable livestock commodities which isconstantly earning foreign currencies.

3.2 Weakness

Relevant policies, acts and regulation are not effectively implemented. It is increasingly becoming difficult for Nepalese leather products to be

competitive in the international market due to the additional subsidies and

incentive facilities in India and other countries. Traditional tendency of consuming skin intact meat is adversely affecting the

adequate supply of domestic raw skin. Similarly, technologies and expertise are better in other countries, and

technology is much traditional here. Our major export is the wet blue leather instead of more value added finished

leather and leather goods. These final value added products are mostlyimported.

Unwanted and scattered animal slaughtering processes in open ground producethe hides and skin mostly of inferior quality.

3.3 Opportunity

Very high potential for value chain development of hide and skin. After the enforcement of Slaughterhouse and Meat Inspection Act 2055 and the

respective regulations there is potential of improvement in quantity and quality ofraw hides and skin that may bring much change in this sector.

If the Government creates congenial environment by supporting the technologyimprovement and trade promotion incentives in this sector there may exist

tremendous scope to increase the export of leather and leather made goods.Market access in all WTO member countries widens further the scope of thisindustry.

Currently, the readymade leather goods are mostly imported in Nepal. But thereis ample opportunity for import substitution because of cheaply and easilyavailable labour forces and abundant domestic hides and skin production. Publicsupport for quality improvement and infrastructure development may promote


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the processing units for producing more value added crust, finished leather andleather goods production.

3.4 Threats

If the existing unstable situation continues longer If the policies, act and rules are not congenial for leather industry and trade If our production becomes unable to compete the international markets

IV. AREAS FOR FAO - GOVERNMENT COLLABORATION IN THE MEDIUM-TERMPERIOD

Promotional inputs and Training programs for value chain development of hidesand skin

Technical assistance for the improvement of leather industries, particularly forthe promotion of value added finish leather or leather goods

Capacity development of respective entrepreneurs, suppliers/traders andsupportive staff to facilitate the access for international market

4.1 Possible Investment Project Outline

It is recommended to include the following components in the value chain developmentof hides and skin p rogram for impact of import substitution of skin and leather goods andexport promotion of hides and skin and their products.

4.1.1 Business Development

This component addresses the value chain development of hides and skin involvingeven the small producers and processors in this business. Under PPP principle, theProject would provide finance support open to applications for value chain developmentof hide and skin from traders and entrepreneurs of tannery business. Applicants wouldhave to meet appropriate criteria which will be developed by the team of experts. Thecriteria would include contribution from the applicants. The implementation modalities

will be a simple and for the term of the Investment Project only. Directorate of LivestockMarket Promotion and respective agencies would assist applicants to prepareinvestment plan. Member from respective association and FNCCI could be involved inpreliminary assessment of proposals.


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4.1.2 De-Hiding and De-Skinning Training

In order to produce the quality hides and skin without any flaycuts and its preservation,DLMP, with close coordination with the Directorate of Livestock Training and Extension,will organize practice-based de-hiding and de-skinning training at the spot. This programwill be conducted in the slaughter houses and major slaughter places, particularly inKathmandu in the beginning and will gradually cover most of the slaughter places later.The training plan and schedule will be prepared after consultation with the respectivestakeholders. At least one well equipped de-hiding and de-skinning training room andone hide and skin preservation room will be established for regular training activities.

4.1.3 Capacity Development

This component will include the slaughterhouses and hide and skin processingindustries within the country and abroad for the capacity development of respectiveentrepreneurs, suppliers/traders and supportive staffs and for efficient domestic andinternational market management of their products. The value chain linkage will bedeveloped through workshops, trade fairs involving all levels of products and any of thefull range of the enterprises involved in their value chains.

4.1.4 Impact and Outcomes

The investment project impact ( goal ) and outcomes ( objectives ) are proposed, with theactivity components to achieve these outcomes.

Impact: import substitution of skin and leather goods and export promotion of leatherand the leather goods

Outcome: 1: adequate domestic production of hides and skin with quality assurance. 2:adequate supply of raw materials to domestic leather industries. 3: capabilitydevelopment of domestic leather industries to produce quality finished products andleather goods to reduce their imports. 4: export promotion of these products.

4.1.5 Working Procedure

The interested eligible organization/ entrepreneur/traders/suppliers must share thedefined share of total investment to participate in PPP Programme. The procedure isgiven bellow:


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V. RECOMMENDATIONS

It is necessary to organize a workshop on value chain development of hide andskin involving the participation of policy makers, entrepreneurs, traders, suppliers,producers and any other stakeholders related to this industry. This forum can beinstrumental to dig out the problems and find the way out for the promotion of

tannery business. The already approved relevant act and policies including the trade policy must be

effectively implemented. One of the major expenditures for the raw hides and skin supply is the salt

preservation. Hence, it is essential to provide subsidies in salt supply for hide andskin preservation, at least in such declining price situation.

It is suggested to provide subsidies for machineries and chemical imports for valueadded leather goods production.

There should be training programs for producers, traders and respectivestakeholders to develop their capabilities to produce the quality and value addedgoods and to compete in the open market system. It is also necessary to establisha well equipped training center for the regular value chain development trainingoperation.

Production of quality hides and skin is attached with the quality of animalslaughtered particularly complete bleeding and de-hiding or de-skinning process.The enforcement of the Slaughterhouse and Meat Inspection Act 2055 as early aspossible is one of the major way-out to improve the quality of meat and hides and

Notice from DLMPfor proposalsubmission

Evaluation andselection of the

proposals by specialevaluation committee

Agreement betweenselectedentrepreneur andDLMP

Projectimplementation

Regular monitoringand reporting


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skin both. Similarly, it is necessary to improve the animal transport systemaccording to animal welfare norms. And also provide licenses to the traders whofulfill the defined standards.

Unless the producers, butchers, traders and consumers understand thecommercial value of hides and skin and health hazards from the consumption ofskin intact meat it will be difficult to bring much change in quality production.Hence, massive meat training for butchers and concerned persons and extensivepublic awareness activities must be launched with the involvement of NGOs,CBOs and consumers organizations. Training curriculum should include the de-hiding skill training for the butchers or workers involved in de-hiding job,particularly in Kathmandu to produce good quality of hides.

It also necessary to support the hide and skin processing industries to participatein the important International Leather Trade Fair and grant assistance for stallmanagement in these fairs.

Promotional packages for buffalo fattening farming are suggested. Establishment of machinery and processing facilities for finish products common

to entrepreneur or for the group use for the promotion of manufacturing of valueadded finish goods.

Establishment of 'leather zone': The leather processing industries in India are alllocated in mainly Madras, Kanpur and Culcutta; that also in a very localized place.This makes it easier to establish a common chrome treatment plant to reduceenvironment pollution and to utilize other byproducts of the processing plants.

Minimize the taxes and illegal charges for hide and skin transportation. Provide promotional incentives for finish products and leather goods. The

provision of at least 6% export promotion grant for the export of hide and skinproducts, subsidy in electricity expenditure and incentives for alternative powersupply management during load shedding period.


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References

Annual Report 065/66. Department of Livestock Service, Hariharbhawan.Annual Report (Barshik Bastugat Bibaran) 062/63. Department of Customs,

Tripureswore,

Annual Report 064/65. Central Quarantine Office, TripuresworeAnnual Report 065/66. Regional Livestock Service Directorate, Biratnagar.Annual Programme 065/66. Directorate of Livestock Market Promotion, Hariharbhawan.Annual Report 065/66. Quarantine Office, Biratnagar.A Glimpse of Nepal's Foreign Trade. Ministry of Industry, Commerce and Supply. Trade

and Export Promotion Center, Pulchock. 2007.A Glimpse of Nepal's Foreign Trade. Ministry of Industry, Commerce and Supply. Trade

and Export Promotion Center, Pulchock. 2009.Final Report on Nepal-India Trade on Livestock & Livestock related products. Agri-

business and Trade Promotion Multi-purpose Cooperative, Anamnagar.Local Self Governance Regulation 1999 (second amendment 2005). Ministry of Law,

Justice and Parliamentary Management, Legal Books Management Committee,Kathmandu.Nepal Overseas Trade Statistics 2007/08. Trade and Export Promotion Center,

Pulchock.Nepal Foreign Trade Statistics 2008/09 Vol-I & Vol.-II. Trade and Export Promotion

Center, Pulchock.Selected indicators of Nepalese agriculture and population. Ministry of Agriculture and

Cooperatives Agri-business Promotion and Statistics Division, Gender Equity andEnvironment Division. 2008. Singh Durbar, Kathmandu.

Nepal in figures 2009: GON, NPC, Central Bureau of Statistics, Ramshahpath,Kathmandu

Statistical Pocket Book Nepal 2008: GON, NPC, Central Bureau of Statistics,Ramshahpath, Kathmandu


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Annexes


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Annex 1

List of Tanning and Leather Processing Indust ries Consulted

S.N. Name of Leather Industries Contact person Phone1 Narayani Leather

Manufacturing Industries, headoffice Chachan Market MahabirRoad BargingFactories - Chainpur andBarging

Mr. Netra Prasad Mainali,Mr. Deepak Shrestha

051-529836,521468

2 Marium Leather industries,Lipni Birta VDC 8, Parsa

Pharrukh J. Lari(discussed withRabibhushan Srivastav)

051-524220,9855021529

3 Everest Leather IndustriesParwanipur, Bara Sanjaya Giri,Binod Chaudhary 051-52204097251420944 Progressive Leather Industry,

ParwanipurBijaya Shankar Hada 051-521514,

98450204045 Global Leather Tanning

Industries (Pvt.) Ltd., leatherComplex, Lipni Birta 9, Parsa

Sanjay AgrawalRamesh Kumar Singh

985020000051-522093

6 National Leather, Parwanipur Damodar Subedi,Hari Gautam

051-529814

7 Standard Tanning Industry,Parwanipur

Mobin Iftarbar (Pro),Krishna Shrestha

(Manager)

051-521270

8 Nepal Tanning Industry Pvt.Ltd. Budhnagar, Biratnagar 18,Morang

Director, Mr. Khursi DhabiIraki

021-435175,435786

9 Asian Leather Industries (Pvt.)Ltd., Duhabi, Sunsari

Managing Director Mr.Hasan AnsariDirector Mr. Afid Ali Ansari

9852020308

985202567010 United Tanneries, Duhabi 9,

SunsariExecutive Director Mr.Parweg Akhtar

9842022802

11 Universal Leather IndustryKatahari, Morang

Jakis Haque Miya(discussed with Bijay Sah)

021-522302


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Annex 2Overseas Exports by Commodities and Countries FY 2007/08

(Raw hides and skins other than fur skins and leather)

S.N. HS Code Descript ion, Commod ities/ Countri es Unit Quantity Value (Rs.)

Chapter41

Raw hides and skins ( other than fur skins ) andleather

Sq.ft. 5,187,632 310,211,453

233 41012000

Whole hides and skins, of a weight per skin notexceeding 8 kg when simply dried, 10 kg when dry-salted, or 16kg. when fresh, wet-salted or otherwise

preserved

Sq.ft. 391 16,060

Hong Kong 45 6,849

Japan 346 9,211

234 41022100

Raw skins of sheep or lambs (fresh, or salted, dried,limed, pickled or otherwise preserved, but nottanned, parchment-dressed or further prepared),without wool on, Pickled

Sq.ft. 3,465 242,605

China P. R. 3,465 242,605

235 41022900 Raw skins of sheep or lambs preserved but nottanned without wool onSq.ft. 3,200 227,446

Japan 3,200 227,446

236 41039000 Raw hides and skins, whether or not dehaired or split Sq.ft. 1,736 135,501

Italy 36 9,201

Mauritius 1,700 126,300

237 41041100 Tanned or crust hides and skins of bovine or equineanimals in wet state, full grains, unspiit, grain splitsSq.ft. 696,100 42,722,933

Bangladesh 513,100 32,380,900

Bulgaria 18,000 1,709,100

France 63,000 4,143,460

Japan 5,000 410,177

Netherlands 62,000 2,340,101

Spain 4,000 156,695


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S.N. HS Code Descript ion, Commod ities/ Countri es Unit Quantity Value (Rs.)

Turkey 31,000 1,582,500

238 41041900Tanned or crust hides and skins of bovine or equineanimals, without hair on whether or not split, but notfurther prepared, in the wet state

Sq.ft. 626,390 34,215,665

China P. R. 283,020 15,758,054

France 35,000 2,013,606

Hong Kong 144,222 7,396,145

Japan 3,521 67,439

Netherlands 200 14,106

Taiwan 70,000 3,895,542

Ukraine 36,045 2,037,295

Vietnam 54,382 3,033,478

239 41044900 Tanned or crust hides and skins of bovine (includingbuffalo) or equine animalsSq.ft. 2,160 161,730

Japan 2,160 161,730

240 41051000Tanned or crust hides and skins of sheep or lambs,without wool on whether or not split, but not furtherprepared, in the wet state

Sq.ft. 747,720 50,270,194

Hong Kong 102,000 4,468,425

Italy 645,720 45,801,769

241 41062100Tanned or crust hides and skins of goats of kids,without wool on whether or not split, but not furtherprepared, in the wet state

Sq.ft. 2,839,370 166,650,971

China P. R. 120,000 8,019,900

Italy 2,051,370 119,187,747

Mexico 19,000 789,375

Pakistan 9,000 449,688

Romania 110,000 5,541,900

Swaziland 120,000 7,620,481Switzerland 130,000 9,214,766

U.K. 165,000 8,044,201

U.S.A. 115,000 7,782,913

242 41062200 Tanned or crushed hides and skins of goat of kids, in

Documents

Hide Skin - Final Report _TC