Leather Industry

2. Export data (in Rupees) from another source:

Source: Industrial Information Network

EXPLANATION

Pakistan's leather exports witnessed a decline of 29 per cent in the fiscal year 2008-09 after a decade of constant growth. The sharp decline in the exports of highly value added and labour intensive leather sector, which is Pakistan's second top foreign exchange earner after textiles and employs some 500,000 workers, is a matter of serious concern, calling for immediate remedial steps to stem the tide.

Before 2008-09, the country's leather sector has been witnessing an upsurge in its export earnings, which increased from $271 million in fiscal year 1990-91 to $349 million in 1994-95, to $643 million in 1996-97, to $938 million in 2004-05 and to $943.788 million last year. Meanwhile, the export of leather garments moved from $736 million in fiscal year 1996-97 to $1,088 million in 2004-05.

Although the total export earnings of the leather sector increased till 2007-08, the percentage share of this sector in the total exports of Pakistan has decreased from 10.41 per cent in 1989-90 to 7.73 per cent in 1996-97, to about 7 per cent in 2007-08 and to 5.33 per cent last year. In the global leather trade of $98 billion, Pakistan's share accounted for 1.29 per cent.

 The export dropped from $19.1 billion in 2007-08 to $17.8 billion in 2008-09, imports dropped from $40.4 billion in 2007-08 to $34.9 billion in 2008-09

Basically, an export-oriented sector, major buyers of Pakistani leather and leather products area Italy, Spain, Portugal, South Korea, Germany, France, UK, USA, Dubai, etc. and the exports largely depend upon quality of the merchandise.

Pakistan share in global Hides and skins production

3. IMPORT DATA:

Source: Lahore chambers of commerce and industry

Source: Lahore chambers of commerce and industry

SOURCES OF RAW MATERIAL

Pakistan is fortunate that the raw material required by the industry is available in the country in abundance. Local availability of raw materials and low wage cost gives the country a competitive edge in the world market. The following are the types of basic raw materials which are being used by this industry: - Cow hides - Buffalo hides - Goat skins - Sheep skins.

1) Buffalo

2) Cow

3) Goat

4) Sheep

1.Buffalo:

Buffalo is considered as the specialty of Pakistan in World, because of its ample availability in Pakistan

2.Cow:

The cow row material is considered a superior raw material upon buffalo because of its fine, tight and comparatively uniform structure.

3.Goat:

It is good for making shoe upper leathers, garment and goods leather.

4.Sheep:

Leather made from sheep raw materials has a very good and softer touch and considered best for leather garments.

The industry is meeting its 75% needs of raw hides from local resources while rest of the 25-30 per cent is met through imports.

Pakistan imports leather from Saudi Arabia, Iran, and China, Dubai, Sudan, Kenya, Australia and Italy.

In the leather industry the raw materials are by-products of the meat industry, with the meat having higher value than the skin. Taxidermy also makes use of the skin of animals, but generally the head and part of the back are used. Hides and skins are also used in the manufacture of glue and gelatin.

The primary sources of raw material for the tanning industry are hides and skins from animals that have been accepted as fit for processing for human consumption at approved slaughterhouses, where the handling and treatment of cattle fully meets the appropriate animal welfare and hygiene requirements.

PRODUCTION PROCESS

There are a number of processes whereby the skin of an animal can be formed into a supple, strong material commonly called leather.

 

1. Vegetable-tanned leather is tanned using tannin (hence the name "tanning") and other ingredients found in vegetable matter, tree bark, and other such sources. It is supple and brown in color, with the exact shade depending on the mix of chemicals and the color of the skin. Vegetable-tanned leather is not stable in water; it tends to discolor, and if left to soak and then dry it will shrink and become less supple and harder. In hot water, it will shrink drastically and partly gelatinise, becoming rigid and eventually brittle. Boiled leather is an example of this where the leather has been hardened by being immersed in hot water, or in boiled wax or similar substances. Historically, it was occasionally used as armour after hardening, and it has also been used for book binding. This is the only form of leather suitable for use in leather carving or stamping.

 

2. Chrome-tanned leather, invented in 1858, is tanned using chromium sulfate and other salts of chromium. It is more supple and pliable than vegetable-tanned leather, and does not discolor or lose shape as drastically in water as vegetable-tanned. Also known as wet-blue for its color derived from the chromium. More esoteric colors are possible using chrome tanning.

 

3. Aldehyde-tanned leather is tanned using glutaraldehyde or oxazolidine compounds. This is the leather that most tanners refer to as wet-white leather due to its pale cream or white color. It is the main type of leather used in chrome-free leather often seen in infant's shoes and in automobiles that prefer a chrome-free leather. Formaldehyde tanning (being phased out due to its danger to workers and the sensitivity of many people to formaldehyde) is another method of aldehyde tanning. Brain-tanned leathers fall into this category and are exceptionally water absorbent. Brain tanned leathers are made by a labor-intensive process which uses emulsified oils often those of animal brains. They are known for their exceptional softness and their ability to be washed. Chamois leather also falls into the category of aldehyde tanning and like brain tanning produces a highly water absorbent leather. Chamois leather is made by using oils (traditionally cod oil) that oxidise easily to produce the aldehydes that tan the leather.

 

4. Synthetic-tanned leather is tanned using aromatic polymers such as the Novolac or Neradol types. This leather is white in color and was invented when vegetable tannins were in short supply, i.e. during the Second World War. Melamine and other amino-functional resins fall into this category as well and they provide the filling that modern leathers often require. Urea-formaldehyde resins were also used in this tanning method until dissatisfaction about the formation of free formaldehyde was realized.

 

5. Alum-tanned leather is tanned using aluminum salts mixed with a variety of binders and protein sources, such as flour, egg yolk, etc. Purists argue that alum-tanned leather is technically "tawed" and not tanned, as the resulting material will rot in water. Very light shades of leather are possible using this process, but the resulting material is not as supple as vegetable-tanned leather.

 

6. Rawhide is made by scraping the skin thin, soaking it in lime, and then stretching it while it dries. Like alum-tanning, rawhide is not technically "leather", but is usually lumped in with the other forms. Rawhide is stiffer and more brittle than other forms of leather, and is primarily found in uses such as drum heads where it does not need to flex significantly; it is also cut up into cords for use in lacing or stitching, or for making many varieties of dog chews.

STAGES OF LEATHER FORMATION:

1. Warehousing and sorting
   In the raw material area the skins are preserved in salt, 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, flesh and fat remnants are removed by a roller mounted knife.
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 than be processed further as suede.
8. Skiving
   The grain leather is brought to an even thickness. Irregularities are removed from the reverse side and the leather is separated into color-batches.
9. Sorting
   The leather is sorted into various quality grades.
10. Neutralizing, filling out, dyeing and greasing
    The acid resulting from the tanning process is neutralized. Then the dyeing  takes place, where appropriate with anilin-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, coloring, 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 without disturbing the natural look of the leather and its characteristics such as suppleness and breath ability.
14. Quality Control
    In between every process quality is controlled. Final control checks to ensure each individual production is to specification and sortation into various trades.
15. Dispatch
    The leather is measured electronically, wrapped and dispatched

TECHNOLOGICAL LEVEL

The tanning industry in Pakistan uses machinery which are out dated and believed to be imported from various countries in the 1970’s and 1980’s. Though, the country took advantage of these second hand machines by bringing in a large amount of foreign earnings, it failed to create a friendly environmental atmosphere in the process. A large part of the country is subjected to air pollution due to the burning of residual into the atmosphere. This pollution has a dangerous effect on the health of the local population, mainly in the cities of Karachi, Kasur and Sialkot.

The leather industry has implemented many progressive interventions and technologies in the past to deal with its numerous environmental and energy challenges. The representative association of leather industry i.e. Pakistan Tanners Association (PTA) has long been facilitating a number of initiatives to address the environmental issues of the industry. This has resulted into a more competitive, sustainable and progressive leather industry of Pakistan.

For sustainability of already implemented steps and in view of the continuous needs of the leather and tanning sector, PISD will transfer environmental and energy-related knowledge and technologies to address the ongoing issues of leather sector of Pakistan.

Cleaner Production Institute (CPI) has started the Programme for Industrial Sustainable Development (PISD). Cleaner (Energy Efficiency) Technology Project for Karachi Tanneries (CTP-KT) is a component project of PISD. CTP-KT intends to provide free of cost technical services to Karachi-based leather processing units in implementing energy efficient and environment friendly technologies.

PROBLEMS FACED BY THE INDUSTRY

1.Quality:

Good quality leather is mostly exported and is not available for high value-added Leather Garments & Leather Products.

Leather garments in Pakistan are made mostly from low grade & medium grade leather. Lack of proper training and inadequacy of skills in slaughtering are among the most important factors leading raw hides and skins towards lower grades or even to rejection. Furthermore, inadequate knowledge of preservation techniques and lack of sufficiently designed collection and storage facilities may cause problems that are associated with the lowering of the quality and quantity of raw material. Hence, the need for strengthening training facilities for manpower at all levels through hiring of experts.

The quality of raw hides and skins generally depends upon the quality of livestock. The hides and skins removed out of young and healthy cattle may be taken as the best in its quality provided the conditions in which these are removed and also their collection, preservation and storage is satisfactory.

In fact, there are many factors which affect the quality of leather at pre-slaughtering, during slaughtering and post-slaughtering stages. It is estimated that around 20-25 per cent of the hides and skins are affected by pre-slaughtering damages, like skin-cuts, rashes, diseases, injuries etc.

2.Cost of production:

Cost of production is also very high in Pakistan as compared to our competitors like China and India.

The high cost of various inputs especially utilities and taxes make our products uncompetitive in international markets.

3.The issue of chrome

Chromium III salts are used extensively in the tanning process. Approximately 90% of the leather manufactured is tanned using chromium III. This is because chromium is the most efficient and versatile tanning agent available and it is relatively cheap. It has been used in the leather industry for almost 100 years and when it was introduced as an alternative to vegetable tanning extracts from oak bark and similar sources, it heralded a new era for the leather industry. It reduced the time taken within the tanning process from months to days, and offered leathers with properties that were previously unattainable. The leather industry only uses chromium in its safest and most stable form - chromium III.

However, due to misconceptions about chromium and a failure to recognize the distinctions between chromium III and chromium VI, which is generally understood to be toxic, the tanning industry has often been placed under unwarranted pressure by regulatory bodies with regard to both the use and disposal of chromium and chromium-containing materials. Chromium VI compounds are not used by the tanning industry

4.Energy Issues

Generally, a leather unit consumes over 0.97-1.87 MJ i.e. 270-300 KWh of energy to produce 100ft2 of finished leather. The absence of energy efficient technologies and lack of proper maintenance of steam pipes, steam traps and insulation are causing wastage of significant amount of energy in most leather processing units.

5.Environmental challenge:

       

Leather tanneries in Pakistan produce all three categories of waste: wastewater, solid waste and air emissions. However, wastewater is by far the most important environmental challenge being faced by Pakistan's tanneries.

• Wastewater: Although the exact quantity varies widely between tanneries, a normal requirement of around 50-60 liters of water per kilogram of hide is suggested. ETPI's sample audits of tanneries in Pakistan show that in some cases the consumption of water is as high as three times the suggested requirement. The overall water discharge also demonstrates a high degree of seasonal and daily fluctuation. For most part, the current practice is to discharge this water into the local environment without any treatment.

Solid Waste: Two types of solid wastes (tanned and untanned) are generated from leather production processes. Solid waste include dusted curing salts, raw trimmings, wet trimmings, dry trimmings, wet shavings, dry shavings, buffing, and packaging material. It is estimated that for a tannery averaging 10,000 kilograms of skins per day, a total of some 5,500 kilograms of solid waste would be produced per day.

In general, it is found that solid wastes from tanneries (except for dusted salt) have secondary users in the local market. Glue manufacturing and poultry feed makers are a major user group of this waste.

However, an important problem with this use is the presence of chromium in it. The use of chrome contained solid waste for poultry feed preparation could cause serious health problems for poultry consumers.

• Air Emissions: There are two sources of air pollution from tanneries in Pakistan. The first relates to emissions from generators (diesel-based and operated only during power breakdowns) and from boilers. Emissions were found to be well below the NEQS level. Ammonia emission during processing and washing of drums, though intermittent but important has adverse effects on workers health.

 Hydrogen sulphide emission during mixing of acid and alkaline wastewater in drain is also a serious health hazardous. Segregated discharge of acidic and alkaline effluent can help to avoid the hydrogen sulphide

gas emission.

• Solid Waste

Two types of solid wastes are generated from leather production processes (i.e. tanned and un tanned). Solid waste includes dusted curing salts, raw trimmings, wet-blue trimmings, dry trimmings, wet-blue shavings, dry shavings, buffing, and packaging material etc. On an average a tannery processing 10,000 kilograms of raw material per day produces some 5,500 kilograms of solid waste daily. The solid wastes do have secondary use in glue manufacturing and poultry feed making etc. However, the use of chrome-containing solid waste for poultry feed preparation can cause serious health problems for poultry consumers.

PRICING STRATEGIES

The leather grading system employed by leather upholstery manufacturers and suppliers is used as a means of differentiating and marketing individual types of leather by price, based on quality or style.

The grading system is the method manufacturers use to present their pricing structures to retail dealers. Leather suppliers also use a grading system to distinguish their leathers and prices to manufacturers.

This classification works efficiently and is simple to understand within the context of each individual leather line, but problems crop up if one attempts to compare or contrast leathers from line to line or from manufacturer to manufacturer.

With lower grades typically beginning at "A" or "1", one producer's "C" may be another's "5" or "6". Problems arise because the system is far from uniform. The thing about grades that makes it confusing is there is no industry standard. The grade represents the cost that the manufacturer pays for the leather. Leathers can look distinctly different but reflect the same price. Leather craft's grading system features five grades, but 90% of the line primarily addresses its four lower grades and contrasting price points, encompassing 350 SKUs and 40 patterns.

The lower grades represent various different leather qualities ranging from pigmented hides to corrected hides to anilines.

But the fifth or top grade is reserved for select European premium skins — not its typical tonnage.

NOTE: This year the price of a cow hide ranges from Rs 1,600 to Rs 1,900, goat Rs 240 to Rs 250 per skin and for sheep the price stands at Rs 370 to Rs 400 per skin.

GOVERMENT POLICIES AND INCENTIVES

To stem decline in leather exports, the government has announced a number of steps for giving a boost to leather apparel industry in its 3-year strategic trade policy framework 2009-12. These steps, as announced by federal minister for commerce, on July 26, 2009, include facilities from Export Investment Support (EIS) Fund for procurement of expert advisory services, matching grant to establish design studios/centres and establishment of research and development centres in Karachi and Sialkot. In addition, this sector would be able to avail EIS Fund facilities that include sharing 25 per cent financial cost of setting up laboratories and matching grant for setting up of effluent treatment plants.

 The commerce minister announced that a scheme is also likely to be launched to compensate inland freight cost to exporters of leather garments and some other items, like cement, light engineering goods, furniture, soda ash, hydrogen peroxide and sanitary ware.

To ensure predictability of electricity supply, commerce minister said, the ministry of water and power and electricity distribution companies will enter into agreements with cluster of industries whereby electricity will be supplied at mutually agreed times. The agreements would have punitive and compensation clauses and the compensation could be in the form of electricity charges credit.

Chairman, leather exporters association, has commended the government decision to release funds for hiring experts for research and product development. He said, this will considerably help in improving exports. However, the target of six per cent increase in exports this year is low as the country has much more potential and the government should have aimed for a higher target.

Chairman tanners association, termed the new trade policy to be "hopeless for the leather sector." He said: our foremost demand was to provide rebate on exports which other regional countries enjoy, for instance most of our regional countries get up to 15 per cent rebate on all leather product exports. What we get is less than one per cent rebate from the government."

TRADE POLICY

The leather garment industry strongly recommended for imposition of 20 per cent export duty on export of semi-finished and finished leather in the forthcoming trade policy. This would help availability of good quality leather produced locally.

'Fox Furs' are much in demand abroad. This should be removed from negative items list under import/export order. Export of garments using allowable fox fur trimmings for decoration should also be permitted for boosting export of value added leather garments.

There is an immediate need for establishment of a Leather Board in Pakistan which should operate as an independent body and funded by the government from export development fund. The board should be headed by a person exporting value-added leather products.

Value-added exports like leather garments where there cannot be any further value-addition should be exempt from Export Development Surcharge.

Re-export of temporarily imported goods supplied by buyers should be allowed without sight letter of credit or advance payment if supplied as free of cost. The present policy does not provide provision for export of such goods in original and unprocessed form due to cancellation of export order or changes in design/style of the order.

The exporters may also be allowed to retain 5 per cent of their export earnings for international advertisements and commission etc

AFTER WTO & FUTURE PERSPECTIVES

As far as the implications of WTO on the leather industry are concerned, the Agreement on Technical Barriers to Trade (TBT) and the Agreement on the application of Sanitary and Phytosanitary Measures (SPS) can have significant impact on Pakistan’s ability to increase the exports in this sector. However, the environmental issues related with the leather industry in Pakistan could have significant negative effects on its exports. Another problem could be related to the quality of Pakistan's leather exports. If the Pakistani exporter does not improve the quality of the product, the current competitive advantage that Pakistan has in this field could quickly fade away.

Leather products like jackets, shoes and gloves account for more than two-thirds of leather exports while tanned unfinished leather accounts for a third. But the industry is struggling to compete in an increasingly tough market.

China and India are fighting for market share by beating Pakistan with cheaper input costs. Meanwhile, in Pakistan the debate in the leather sector rages about whether unfinished leather should be exported.

The exporters of leather garments want exports of raw leather to be restricted to give them a competitive advantage of cheaper raw material. But the tanners claim every right to fetch the best price for their products.

Hides and skins and leather are covered under the Agreement on Agriculture of WTO. Moreover, the Agreement on Agriculture also has indirect implications for the sector through meat and dairy policies. However, leather and leather products are covered under the general provisions of the GATT 1994.

No import tariffs are applied to raw hides and skins in Pakistan at present. Tariff escalation is an issue for leather and leather products as import tariffs vary according to the level of processing; i.e. finished leather, leather bags, leather shoes etc. Carry high tariffs in some countries.

Future of Leather Industry in Pakistan - Recommendations

1. Introducing Brand Names

Leather and Leather products from Pakistan have carved a respectable place in the world market. Some of leather products from Pakistan especially leather jackets are much in demand but under the foreign renowned brand names. Made-in-Pakistan label and brands born in Pakistan have yet to come. Steps need to be taken by the industry in this regard. Renowned Pakistani firms need to register trade marks with respect to the leather products they manufacture. In light of the Agreement on trade related aspects of intellectual property rights (TRIPS) of WTO, Pakistan through Trade Marks Ordinance, 2001, provides effective protection and rights to the owner of trade marks.

2. Focusing on Footwear Sector

Footwear, the largest segment of the leather industry around the world has been surprisingly neglected in Pakistan. Foreign franchised companies have become household names in Pakistan. This is despite the fact that the entire stuff and skill they use belong to Pakistan.

Moreover, having a strong industrial base, Pakistan's leather industry looks treading without shoes. This vacuum in leather industry calls for the attention of the industry leaders to bridge the gap to give a comprehensive look to the leather and leather products industry in Pakistan. One of the options to enter the field of footwear sector is to seek partnership with international brand producers by offering them attractive incentives.

3. Tackling Environmental and Labor Issues

Regarding environmental concerns of WTO, the industry has made little progress in this regard. Combined effluent treatment plants need to be built so that hazardous chemicals from the tanneries do not affect the environment. Moreover, the industry needs to tackle all the labor issues to which the consumers in the importing countries are sensitive to. It needs to be ensured that the leather industry in Pakistan adheres to the working condition requirements that have been developed by certain international bodies, particularly, the associations of leather industries in the importing countries of the west. Under the WTO regime, member countries can impose penalties or restrict imports from exporting countries whose industries do not observe environmental/labor concerns or social compliance.

4. Control on Smuggling & Diseases of Livestock

Leather manufacturing sector in Pakistan can also suffer because of massive smuggling of livestock to other countries, shortage of raw material and absence of the organized dairy farming in the country. Steps should be taken to overcome these problems

Moreover, diseases in the livestock in Pakistan can prove hurdle in the manufacturing and exports of finished products of leather. Concrete measures need to be taken to overcome this threat to the livestock as a result the live animals are suffering from different diseases that damage the quality of the leather and tarnish the image of products at international level.

5. Reduction of Duties on Machinery

The duties on the import of tanneries related machinery need to be further reduced. The machinery made locally is technologically inferior which not only increases the cost of production but restrains from developing at par with the international market.

REFRENCES

• http://jang.com.pk/thenews/jul2009-weekly/busrev-13-07-2009/p4.htm
• Lahore chambers of commerce and industries
• Pakistan tanneries association
• Trade Development Authority of Pakistan (TDAP)
• Furniture Today magazine, article published on September 16, 2001