Components of the Value chain

Footwear production trends - Winners

Production increase – 1998-2000

Footwear production trends - Losers

Production decrease – 1998-2000

Table - Trade in Leather and Footwear in relation to the trade in other commodities

The trade component of the value chain of Leather and leather products knows no national or continental boundaries, hides from South America may be processed in India and intermediate and end products may be sold in Europe or the United States. Garments made from New Zealand goatskins may be manufactured in the Asian subcontinent and sold in the United States (UNIDO 1993). Transactions are more and more frequently being made through the Internet. Trade in bovine leather expanded by about four times from 1979 to 1996 and exports of sheep and goat leather grew by 58%, while trade in heavy leather stagnated. The developing countries share in shipments grew from 39% to 60%, but in sheep and goatskins declined from 56 to 46%, as trade from developed countries increased.

The Far East overtook Latin America as the main exporter of light bovine leather and remained the main exporter of sheep and goat leather from developing countries. Developed countries, mainly Europe and North America increased shipments of leather of all types of hides and skins (FAO 1998).

Size and direction of trade in footwear in 1997 may be visualized through the flow of end products in the footwear industry pictured in the figure below. As shown, trade in footwear is dominated by exports from Asia to the Americas, to Europe and the rest of the world. The largest flows from Europe go to the Americas and the rest of the world. Trade between the rest of the world and the Americas are very small as are exports from the Americas to Asia.

Shifts in exports of footwear during the period 1985-96 are shown in Figure 8. Exports from the Far East more than doubled during the period while Europe’s exports were reduced from 62% to 32% of the world’s total.

Figure - Net flow of Footwear around the World –1998 - (millions of pairs)

Source: World Footwear, vol.13 No. 3, May/June 1999

The major importer is the USA, which sources over 90 per cent of its needs from abroad while Japan, Germany, UK and France also remain significant importers during 1997 and in 1998.

Imports to the EU increased sharply by 10.65% in 1999, equivalent to 898 million pairs. The main suppliers to the EU and their trends are listed in Table 3. in which the dominant position of China is shown. The growth experienced by Romania is notable. This is a country where Italy is investing and cooperating. It has been reported that during that the number of shoemaking businesses in the EU shrank by 0.7% and the number of jobs lost as a consequence was 288,460 (Infonet 002).

Figure - Regional share of the World Shoe Exports

Table - Suppliers of Footwear to the EU in 1999

Source: Infonet 002. .

Consumption

Consumption of leather shoes in developing countries rose from 32% of the world total at the beginning of the 80s to 55 % in 1996 FAO (1998). A regional breakdown of footwear consumption in the world in 1998 indicates Asia as the largest consumer 42%, (with China accounting for 21%) and being followed by the Americas and Europe (SATRA 2000).

Among the 10 top consumers in terms of total annual pairs in 1998, China leads the list followed by the USA and India. In terms of per capita consumption the USA was in 1997 the first among the ten leading consumers, having been joined by six European countries and Tunisia, Saudi Arabia and Kuwait. The world average annual per capita consumption that year was estimated as 1.87 pairs. This figure hides disparities in consumption around the world. For example, Denmark consumed 5.8 pairs a year while Vietnam’s average consumption was 0.4. Forecast average annual per capita consumption for 2002 has been estimated around 1.93 pairs per capita (SATRA 2000).

It is expected for world demand for shoes to increase during the present decade with population growth and with a slight growth in the average number of shoes per person per year. This trend may be offset however, by a combination of longer lasting footwear and ageing population and a trend towards less formal attire in the industrialized world.

Table - Ten Top Footwear Consumers in the World –1997

2.4. The Leather Industry and the Environment

The leather industry has been traditionally considered as a heavy polluting industry in the tanning and finishing stages of the chain. Pesticides, chemicals and organic materials are the main sources of pollution. Chrome is the most dangerous and long-lasting chemical pollutant. Others are sulphides and solvents. Additionally the industry emits protein residues in the form of putrescible organic materials and its disposal is one of the tanners main problems since about 50% of the original hides and skins is not converted to leather and is left as solid waste (UNIDO 1993).

There are no uniform technological solutions to pollution caused by the tanning component of the leather chain. Tanning processes are complex and not standard. Moreover research to provide scientific explanations to the different stages of the processes is not providing the urgently needed breakthroughs in production technologies and alternative chemical inputs with the purpose of reducing environmental pollution. Emphasis on this type of research should be carried out in the present decade as indicated under trends and predictions. Treatment of effluents, and the recycling of water and chemicals are solutions to pollution that have been applied both in developing and developed countries. Also applied are methods to reduce the organic content of effluents produced during the unhairing or liming processes. These materials usually account for 50% of the BOD and COD load in tanning effluents (UNIDO 1993).

The reverse in flow of international trade in raw materials and the relocation of leather production from developed to developing countries which took place in the period from 1960 to 1980, transferred the most highly polluting wet processing away from the OECD countries at the time that environmental concerns and regulations had started to grow and be imposed. The implementation of the latter affected cost of effluent treatment installations. In many developing countries environmental regulations were not existent or when available, were not strictly imposed. The transfer of leather production to developing countries was accelerated by a combination of restrictions within these countries against the exports of raw hides and skins and the introduction of other incentives to promote higher level processing. The undesirable polluting situation in developing countries started to change and by the early 90s the tanners were under pressure to invest in effluent treatment facilities 14. It should be clear that “the traditional tanning technology cannot be replaced with an entirely new “clean” process, because strictly speaking there is no basic tannery process”

There are however many steps that can be taken which require little or no capital investment such as: strict process control (avoid overdosing of chemicals) water conservation at all stages, recycling of some floats and simple treatment of wastes. UNIDO estimates that these measures could eliminate 50% of the total pollution load discharged into the environment in developing countries.

In the EU the cost of pollution treatment ranges from 2 to 4% of the value of output. Relative expenditures in developing countries may be less, particularly if regulations are less stringent. In India it was estimated at 1.2% (UNIDO 1993). Technological developments promoted by environmental regulations can provide reductions in total production costs.

Reductions in environmental pollution from tanning operations may be seen as a factor of competitiveness since trade may be restricted when internationally environmental accepted regulations are not complied with, and also because as stated earlier, the use of cleaner production technologies may well reduce total production costs.

Common effluent treatment plants have become central to leather complexes 16 such as the leather product districts in Tuscany, Santa Croce, Alzignano-Veneto in Italy, industrial tanning zones in Izmir and Tuzla in Turkey and one under construction in Calcutta.

The Izmir industrial tanning zone is run as a private corporation and has a common effluent plant capable of treating 36,000 cubic meters per day, before discharging into the Marmara Sea distant 14 km. In Tuzla the number of recently relocated tanneries is close to 220 and their common effluent treatment plant has a capacity of 38,000 cubic meters per day.

The concept of modular planning of tanneries including their relocation from polluted areas into modern engineered industrial complexes, with full environmental safeguards and infrastructure, is considered key to the progressive leather manufacture in the future according to T. Ramasami, director of the Leather Research Institute in India. (Ramasami1999).

Trends and Predictions

Trends

The table illustrating trends contains a resume of structural changes to be expected in the industry in the medium term and demands made to process engineering and the chemical industry for improving leather properties, the environmental conditions of leather manufacturing and leather finishing.

A continuation of present trends in relocation is expected, such as the relocation of the production of 'wet-blue' leather in hide producing countries and of leather finishing in the vicinity of manufacturers of leather articles.

There is concern about the availability, price and quality of hides and skins and the need to conform to environmental specifications during processing. Also evident are the demands made to the chemical industry for further developing the scientific understanding of leather processing as the basis for designing chemicals capable of improving processes and the properties of finished leather and leather products, within sound environmental conditions.

Predictions

With a 2005 perspective, R. Turner recently identified the following six drivers for change in the footwear industry: quality, customer satisfaction, demographic trends, and environment, costs and production methods. Footwear sales would have considerable growth, more elderly people would determine market needs, Sourcing and brands would predominate, zero defects would be the "real" goal and additional legislation could be introduced related to product safety. Gonzalez-Quijano from Cotance predicts that the key issue in the future to move towards sustainable development and increasing market shares and trade in the leather industry would be related to a socio-environmental performance concept that should provide answers to the following questions placed by consumers: - Under which conditions products were/ are made? -How environmentally friendly is/ was the use of chemicals and the management of resources in the different segments of the leather value chain?

Proper answers to these questions will require from industry the application of acceptable environmental and social strategies and programmes and the development and application of benchmarking, social mapping of labour conditions and practices prevailing in factories and workshops around the world. Industry associations and industrial development support institutions should undertake this work. To face increasing competitive pressures the footwear supply chain will have to respond to customers demand. A customer-value business is proposed for the shoe industry in the new millennium in which solutions would no longer be developed by industry and distributors without consulting the customer. (Report by G.M. Colletta, May/June 2000).

Development and Trends; Demands to Process Engineering and the Chemical Industry

Source: Dr. Taeger, Globales, Marketing Leader, BASF, in: L. Vila, BASF, “Status and Outlook of the Leather Industry in the New Millennium”, Round Table on the Leather Industry, Bologna, May 6 2000.

Predictions made on global changes to take place by 2010 in the footwear industry indicate a continuation of the present concentration of manufacturing in developing countries unless costs of sourcing from distant countries rise significantly and localized markets re-emerge. Southeast Asia will continue to play a dominant role in the global production of footwear with China contributing 40%. The concentration of production in this region may be affected by environment and social production conditions as well as by the imposition of quotas. Increases in production in South America may be expected. The monetary union in Europe may further polarize footwear manufacture in the southern regions and borders of Europe.

Branding will continue to be important not only in sport shoes. Sourcing companies and agents will continue to gain strength and will have greater influence in the entire supply chain including design, specifications, the production process and the implementation of quality systems and partnerships with suppliers with increased sharing of information.