report on leather sector-1 (2)

7/29/2019 Report on Leather Sector-1 (2)

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DIAGNOSTIC STUDY LEATHER SECTOR

Mar. 12

DIAGNOSTIC STUDY

LEATHER SECTORAn explanatory micro analysis of changing

markets and products

Prepared ByMuhammad Umar Ashraf

3/12/2013


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Table of ContentsINTRODUCTION ............................................................................................................................................. 3

GLOBAL RANKING OF PAKISTANS LEATHER SECTOR .................................................................... 6

SECTORAL PROFILE ........................................................................................................................................ 6

Leather Industry Network ......................................................................................................................... 7

HISTORY OF SECTOR: ................................................................................................................................ 8

PRODUCTION PROCESS ............................................................................................................................. 9

RAW MATERIALS FOR PRODUCTION PROCESS ..................................................................................... 9

PRODUCTION OF HIDES & SKINS ................................................................................................. 11

Hide and Skin Quality .......................................................................................................................... 12

Enviromental Challenges ............................................................................................................................ 17

Pictures of Treatment Plant at Royal Leather.................................................................................... 18Competitive Advantages of Leather Industry ............................................................................................. 18

Supply Side Advantages .......................................................................................................................... 19

Demand Side Advantages ....................................................................................................................... 21

Regulatory / policy related advantages .................................................................................................. 21

Impediments to Export ............................................................................................................................... 31

SWOT Analysis of Pakistan Leather Industry .............................................................................................. 34

FUTURE OF LEATHER INDUSTRY IN PAKISTAN ............................................................................................ 36

Introducing Brand Names ....................................................................................................................... 36

Focusing on Footwear Sector .................................................................................................................. 36

Tackling Environmental and Labor Issues ............................................................................................... 37

Control on Smuggling & Diseases of Livestock ....................................................................................... 37

Reduction of Duties on Machinery ......................................................................................................... 38

Suggestions ................................................................................................................................................. 38


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INTRODUCTION

Leather is one of the first manufactured materials, and the Leather Technologist can claim to be

a member of an ancient profession. Leather has long outgrown in its practical purpose and

today is regarded more as a luxury than a necessity, particularly in the affluent West.

Its global industry is valued at about 214.11 Billion US$1. Most of the producing countries are

developing countries, yet China and Italy are the leading producing and exporting nations in the

world with Global share of 37.5 % and 13% respectively2. The industry is buyer driven, with

producing countries manufacturing in line with specifications, guidelines and technical advice

provided by the buyer countries.

Regarding Pakistan, leather industry is the second largest export earning sector after textiles.

Currently, this sector contributes around 1.048 US$ billion3

in the year 2012. The leather

industry occupies a prominent place in the Pakistan economy in view of its substantial export

earnings, employment potential and growth. The Pakistan leather industry, one the most

vibrant sector of the countrys economy, is well-structured and spans various segments, such as

tanning and finishing, footwear and footwear components, leather garments, leather goods,

including saddles and harness. Well recognized in the international market, the Pakistan leather

goods constitute about 4.42% per cent of Pakistans export earnings4. This sector has the

potential to increase the exports volume by diversifying in different range of products as it is

1 Trade Map2Report on strengthening competitiveness of South Asia Sept, 3-4 20123 Pakistan Bureau of Statistics4 Pakistan Tanners Association


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contributing significantly to national exports. However this sector has experienceddecline in

exportsas compared with the last year5.

This shows that the leather sector is suffering from the economic crisis despite of several

incentives in the three year trade policy (2009- 12). Some of these incentives include:

1. Export Investment Support Fund for procurement of expert advisory (JE Austin Report)

2. Establish design centers (Pakistan Institute of Fashion and Design)

3. Establish research and development centers in Karachi and Sialkot

Sr # Commodity Exports in

Million US$

2007-08

Exports in

Million US$

2008-09

Exports in

Million US$

2009-10

Exports in

Million US$

2010-11

Exports in

Million US$

2011-12

1 Finished

Leather

415.26 299.49 341.8 465.015 445.798

2 Leather

Garments

528.15 392.54 342.66 404.25 341

3 Leather

Gloves

161.17 152.26 101.89 120.31 165.94

4 Leather

Footwear

105.36 102.88 67.07 80.92 80.04

5 Others 10.18 11.97 14.08 16.07 15.897

6 Total 1220.121 959.146 867.504 1086.584 1048.675

5 Pakistan Bureau of Statistics


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The above graph shows that before 2010-11, there was continuous decrease in export earnings

of leather industry in Pakistan, which decreased from $1.22billion in the year 2007-08 to

$0.959billion in 2008-9, to $0.867billion in 2009-10. This trend was reversed in 2010-11 and

increased to $1.086billion in 2010-11but again decreased to $1.048 billion in 2011-126.

The growth of this sector depends upon the value addition of its products and this sector also

has the capacity to export the value added finished leather like garments, gloves, footwear and

sports goods. The number of tanneries in Pakistan has increased from 529 in 1999 to 600 in

2003 and to 800 at present7. Located in Karachi, Hyderabad, Lahore, Multan, Kasur, Faisalabad,

Gujranwala, Sialkot, Sahiwal, Sheikhupura and Peshawar, the increase in the number of

tanneries can be attributed to increase in demand of tanned leather in the world markets till

the fiscal year 2007-08. However, a majority of tanneries are small and medium sized and over

6Pakistan Bureau of Statistics7 Report on Leather Sector by PITAD

0

200

400

600

800

1000

1200

1400

Exports in Million US$ 2007-08






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80 per cent of them are located at Karachi and Lahore due to availability of skilled and semi-

skilled labor and technicians and a developed market for hides and skins in both the cities.

Against a capacity of producing 90 million square feet of tanned leather, the tanneries are

presently producing only 60 million square feet tanned leather per year8.

GLOBAL RANKING OF PAKISTANS LEATHER SECTOR 9

ARTICLE POSITION

FINISHED LEATHER 15TH

LEATHER GARMENTS 5TH

LEATHER GLOVES 2ND

LEATHER FOOTWEAR 50TH

LEATHER GOODS 52ND

SECTORAL PROFILE

Pakistan is considered to be the hub of producing high quality Leather and Leather Products,

and there are about 800 Tanneries10

in the country actively engaged in producing best quality

8 do9SMEDA


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finished leather of Cow, Buffalo, and Sheep & Goat skins. Pakistan is rich in agricultural

products and has a large livestock population which plays an important role in the economy of

Pakistan by producing around 13.938 Million Hides and 49.492 Million Skins per annum in 2011-

1211

. The quality of goat skins, cow, buffalo hides in Pakistan is satisfactory. The type of sheep

skins we have in Pakistan is better in respect of grain, substance and compactness of fibers12

.

Leather manufacturers & exporters are determined to increase export of quality finished

leather and leather products. And the industry is playing their positive role in invigorating WTO

regime with quality consciousness and full sense of responsibilities to uphold the impeccable

image of Leather Industry of Pakistan as being the most significant contributor or the countrys

GDP and foreign exchange earnings, The Leather Industry of Pakistan is employing more than

500,000 peoples directly and indirectly13

.

Leather Industry Network

The leather industry network in Pakistan comprise of the following:

Livestock (Cattle, Buffalo, Goat)

Slaughter houses

Raw Hide/Skin Collection

Tanning Industry

Leather Industry

Other Allied Industries

Export Market

10 As per PTA11Economic Survey of Pakistan12 As per PTA13 do


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The other small industries that can co-exist within this network are the glue and manure

manufacturing industries that utilize the bones and discarded organs of the slaughtered animals

respectively. Besides, operating in close co-operation with the slaughter houses are

corporations that have built their services and products around the meat-consuming market -

processors of meat into various forms of fast food, processed meat transporters, deep freezer

manufacturers, cattle feed 'enhancers', drug manufacturers who sell 'meat growth hormones'

and antibiotics for cattle and even agribusiness' banks that will give loans only for cattle

'producing'. Thus the leather industry network appears to offer numerous possibilities for the

establishment of other small enterprises

HISTORY OF SECTOR:

The history of the leather industry in Pakistan dates back to the beginning of the 20th century

when hand-made leather was produced in Kasur by using flour and vegetables. Raw hides and

skins were exported to many countries around the world. The trend from cottage vegetable

tanning to wet blue initiated in the early 50s14

.

During 1950s, some well-equipped tanneries were set up at Karachi and Lahore, whileduring

60s and 70s more units were established at Hyderabad Kasur, Sialkot, Multan,Sahiwal and

Gujranwala. Starting with the production of picked and vegetable tanned hidesand skins, the

tanneries, today, are producing not only wet blue and crust, but also fullyfinished leather.

The leather industry consists of six sub-sectors namely, Tanning, Leather, Footwear, Leather

Garments, Leather Gloves, Leather Shoe Uppers, and LeatherGoods. The industry started

14 As per PTA


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production of finished leather in the early 70s. Production of leather products such as

garments and footwear started in the mid 70s.

PRODUCTION PROCESS

RAW MATERIALS FOR PRODUCTION PROCESS

The following are the types of basic raw materialswhich are being used by this industry:

Buffalo

Generally, the hides are thicker and wrinkled on the shoulder. They have a coarse grain

whilst the fiber structure is loosened15.

Goat

Goatskins, as compared to sheepskins, have a very tight fiber structure and are easily

recognized. They show a characteristic grain pattern. The structure of goatskins allows

its use in the more durable type applications in the manufacture of gloves and shoes16

.

Cattle

In this family are included bulls, cows, oxen, veals and calves. The bulls and the cows are

respectively full-grown male and female. Their hides are large and the weighing goes

from 16 kg to 37 kg, bull hides may weigh more. The hides of Veals come from younger

animals and weigh 6,5-11,5 kg. The skins of calves come from young animal and the

weighing goes from 2,5 to 5,5 kg. The main difference between calfskins and cattle

15(ICT Leather Book)16 do


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hides, from a structural point of wiew, is the fineness of grain. Calf skins have a very fine

structure as compared to cattle hides and are usefull for the finest of leathers17

.

Sheep

The sheepskins show different characteristics depending on the breed. Australian

Merino is known for the quality of wool. Unlike his wool, the quality of skin is very bad

because it contains a large grease amount and the fiber structure is weak. Merino skins

present ribness on the grain. The english sheepskins, called Domestic, have a fine grain.

The fiber structure is compact. These skins, suitable for garment leather, are exported in

pickled state. New Zealand sheepskins do not present the typical defects of Merino

breed. They are suitable for garment leather. These skins are exported in the pickled

state. The sheepskins from Middle East (Syria, Lebanon, Iran, Saudi Arabia, ecc.) are

suitable for garment and glove leathers. In fact, these skins have a strong structure, fine

grain and contain less fat. They are exported in the pickled conditions.

The sheepskins from South-Africa, known as glovers, are exported in pickled conditions.

They are suitable for high quality garment leather. The grain pattern is fine and the

structure is compact and strong. In Nigeria there are especially cross-bred skins. The skin

structure is suitable for shoe leather, being strong. The grain structure is fine and the fat

content is much low. These skins are exported in wet blue state. Pakistani Sheep skins

are considered best for leather garments as the raw material obtained is softer to touch.

17(ICT Leather Book)


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PRODUCTION OF HIDES & SKINS18

MILLION PIECES

ARTICLE 2007-08 2011-12

HIDES (Million pieces) 12.200 13.9

SKINS (Million Pieces) 45.300 49.49

18 Economic Survey of Pakistan

0

10

20

30

40

50

60

70

80

90

100

HIDES (Million pieces) SKINS (Million Pieces)

2011-12

2007-08


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Hide and Skin Quality

Raw material quality is a prime concern of tanners the world over. The tanning industry and the

downstream industries which it supplies - footwear, furniture, automotive, clothing, leather

goods are entirely dependent for their raw material on supplies of cattle hides and sheep skins,

plus a small number of goat and other skins. While supplies and quality of hides and skins are

vital to the tanning industry, they are just by-products for the meat, dairy or wool industries.

In order for many companies in the leather industry to be competitive, they specialize in

producing particular types of leather - for example high quality and high performance leathers.

However the potential benefits can only be fully realized when the hides and skins available to

the industry reach a consistent quality, allowing tanners to buy with confidence that the

material will be suitable for the manufacture of leather to meet their target markets.

The quality of leather that the tanner can produce is determined primarily by the quality of the

raw hides that he buys. The value of the hide depends on the end use to which the leather

goes. This eventually has to be reflected in what the tanner pays for his raw material.

The quality of the hide or skin is to a large extent related to the amount of damage to the grain

(or "outside") surface. The damage may be due to skin parasites that affect the live animal,

related scratch, husbandry practices on the farm or in transport of the live animal (scratches,

bruising, or dirt contamination); it may be due to damage during slaughter or removal of the

hide; or it may be caused by inappropriate handling or inadequate preservation techniques.

Most types of damage can be reduced or avoided altogether by better management of the

animal or the hide


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Flaying

After the animal is killed the first operation is to remove the hide or skin. This is called flaying.

In Pakistan, normally it is done by hand. Small skins are pulled by hand from a hanging carcass,

resulting in a skin that presents itself as a sort of tube, which can be compared to a coverall.

Pulling a skin by hand produces rather good qualities flay. With large animals or small animals

(calf) whose skin is particularly firmly attached to the meat this sort of flaying is not possible,

and one has to resort to flaying with the assistance of a knife. Hand flaying is done simply by

detaching the hide with a knife from the fat or meat of the carcass. The less fat or meat is

attached to the hide or skin, the better it is for the butcher who sells the meat as it is obvious

that the price per kilo of a hide is far less than that of the meat. The closer the flaying knife is

held to the hide, the more likable it becomes that flay damage is done to the hide19

. However

hand assisted mechanical flaying has been introduces in Pakistan, like in Zenith Associates,

hand assisted mechanical flaying is done. It takes less time and produces a better quality hide

or skin

19(ICT Leather Book)


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Picture of Hides and Skins

Fleshing

Whether a hide is removed by hand or machine, there will always remain some meat and fat on

the hide. Removing of this meat and fat is called fleshing

Salting

There are different methods for preservation of hides and skins; however in Pakistan salting is

adopted.

Grading of Hide

Hides can be graded as follows20

#1 Hide - A #1 hide is a hide free from holes, cuts, deepscores or gouges more than half way

through the hide, visiblegrain defects and broken grain (over 1 inch long) and having a correct

pattern.

#2 Hide - A #2 hide is a hide that contains either (1) one to four holes, cuts, deep scores or

gouges in an area located insidea straight line drawn through the break in the hair of the fore

and hind shanks(Lower part of leg) (2) a grain break over 1 inch, (3) an area of warts no larger

that 1 square foot

#3 Hide - A #3 hide is a hide that contains either (1) five or more holes, cuts, deep scores, or

gouges in an area located inside a straight line drawn through the break in the hair of the fore

and hind shanks, (2) one hole or cut over 6 inches, (3) an area of warts or open grub holes

larger than 1 square foot. A machine-damagedhide will be considered#3 hides if at least 50 % of

the surface area of the hide is present and usable for leather manufacture.

20(Standards Governing the Export of North American Cattle Hides, sept 2005)


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Pre-Tannage

The first stage in pre-tannage is to restore the original moisture to the skin, which will allow all

the subsequent processing to be done correctly. The lime is then used to clean the hide

structure by removing some types of proteins and giving a degree of swelling. There is a

loosening, or destruction, of the epidermis including the hair. The fibre structure is opened up

and fats are partially removed as soaps. After the hair is removed, the alkaline swelling is

removed and there is a further opening-up of the fibre structure by enzymes. The hide, or skin,

is often called pelt in these pre-tannage stages

Pickling

Pickling is done to prepare hide or skin for tanning. It is done by adjusting the level of acidity in

salt solution. This controlled acidity is needed to allow penetration of tanning materials through

all the thickness uniformly and to combine correctly. If this was not done, the tanning materials

would react too strongly on the outer layers, not penetrate deeper and the appearance of the

surface would be damaged. The leather would also not be tanned correctly.The hide, or skin, is

often called Pickle at this stage.

Tannage

The object is to convert the pickle into leather by creating a more stable structure, which will


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Picture of Wet Blue

not putrefy and maintain an attractive appearance. In Pakistan most of the tanneries adopt

chrome tanning, whereas M/s National Tannery also has option of vegetable tanning. The

hide,or skin, is often called wet Blue at this stage.

Picture of Tanning Process

Re-Tannage

The object is: to produce different types of leather from the one semi-finished leather, which is

usually wet-blue. The retannage optimizes the serviceability of the leather, adapting it to meet

fashion requirements and the demands of customers. It also creates a dried (crust) leather to

allow satisfactory finishing of the dried leather surface.


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Finishing

The object of finishing leather is to improve its serviceability by protecting it from damage by

water, soil and mechanical action. At the same time, it adds value by improving the surface

appearance so much that the leather becomes attractive to look at and attractive to touch and

feel; any of the surface defects below the finish cannot be seen or considered by the buyer, or

the ultimate user of the leather product. Experience and an appreciation of colour effects are

needed to achieve the desired results. Finishing can modify the shade, gloss and handle of the

leather, improve its physical properties and hide any defects or irregular appearance. It is

heavily applied to corrected grain leathers and to splits in order to imitate full grain leathers

and often used to obtain fashion effects on all leathers. The lowest grades of leather need the

most finishing work, compared with the minimum amount of finishing for the best grades

Enviromental Challenges

The tanning industry in Pakistan uses machinery which are out dated and believed to

beimported from various countries in the 1970s and 1980s. Though, the country

tookadvantage 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

thecountry is subjected to air pollution due to the burning of residual into the atmosphere.

Thispollution has a dangerous effect on the health of the local population, mainly in the cities

ofKarachi, Kasur and Sialkot.

The leather industry has implemented many progressive interventions and technologies in

thepast to deal with its numerous environmental and energy challenges. Some representatives

of association of leather industry i.e. Pakistan Tanners Association (PTA) have long


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beenfacilitating a number of initiatives to address the environmental issues of the industry. Like

Agha Saidain has installed treatment plant in his factory Royal Leather to treat water coming

out of his tannery.

Pictures of Treatment Plant at Royal Leather

Competitive Advantages of Leather Industry

The leather industry can benefit from several characteristics of the Pakistani Market and the

corresponding advantages they offer. Some of these advantages are:

Supply side advantageso Availability of low cost skilled labour

o Abundance of raw material

o Availability of supporting institutions


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Demand side advantages

o Large and growing domestic market

Regulatory / policy related advantageso Government Support

Supply Side Advantages

Availability of low cost skilled labor

Pakistans advantage as a source of low cost, skilled labor is quite relevant to industries

such as manufacturing of leather goods and footwear, which are relatively labor

intensive. Pakistan has among the lowest cost of labor among key footwear producing

countries.

Labor costs in leading Footwear producing countries 21Rs./ hr Euros/ hr

Korea 7.01 Euro/hr

Taiwan 5.75 Euro/hr

Hong Kong 5.26 Euro/hr

Portugal 5.16 Euro/hr

Brazil 1.46 Euro/hr

Indonesia 0.68 Euro/hr

Romania 0.68 Euro/hr

China 0.58 Euro/hr

21(Indian Leather Sector Network Report)


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Vietnam 0.58 Euro/hr

Thailand 0.48 Euro/hr

Pakistan 0.19 Euro/hr

India 0.19 Euro/hr

Availability of Raw Materials

Pakistanhas thelarge population of cattle, buffaloes, goat and sheep.

Live Stock Population in Pakistan (Million Numbers)22

Fiscal Year Cattle Buffalos Sheep Goats Camels

2001-2002 22.8 24 24.4 50.9 0.8

2002-2003 23.3 24.8 24.6 52.8 0.8

2003-2004 23.8 25.5 24.7 54.7 0.7

2004-2005 24.2 26.3 24.9 56.7 0.7

2005-2006 29.6 27.3 26.5 53.8 0.9

2006-2007 30.7 28.2 26.8 55.2 0.9

2007-2008 31.8 29.0 27.1 56.7 1.0

2008-2009 33.0 29.9 27.4 58.3 1.0

Availability of Supporting Institutions

Pakistan has institutions that support the leather industry in specific areas such as

productdevelopment, design and R & D. These institutions enable capability building in

theindustry and help it become globally competitive. Leather Products Development

22(Annual Report of PTA, 2008-2009)


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Institute (LPDI), Sialkot and National Institute of Leather Technology (NILT), Karachi are

premier training and service providers for the leather sector of Pakistan. Northampton

University of UK has agreed to work with the leather sector of Pakistan and has already

signed a Memorandum of Understanding (MOU) with NILT to further enhance its

capabilities.23

Demand Side Advantages

Large Domestic Market

Pakistan has the large domestic market and consequently it represents a large and

growing market for leather goods.

Regulatory / policy related advantages

Year General intervention Specific intervention

1990-1991 State bank agreed to the

establishment of full-fledged

and independent sun-

regional office capable of

handling cash and attending

to the export finance matters

A grant of RS.2 million to

Pakistan tanners association

for the establishment of

leather institute

Insurance reforms machinery for footwear and

23(Austin, Leather Sector of Pakistan)


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commission proposed an

independent corporation with

a larger capital base, which

will aim at specialized

attention to credit based

exports

leather manufactures was

exempted from import duty

and sales tax

setting up of a committee for

the simplification of export

procedures has been

proposed to be headed by

secretary management

(services division) and

included representatives from

MOC,EPB,CCI&E and FPCC&I

In order to guide traders, the

ministry proposed to publish

imports and exports manuals

containing all rules and

regulations and procedures

framed under the provision of

import and export control act


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1950

1995-1996 special tariff concession(10%

customs duty with no sales

tax) has been proposed.

1996-1997 Exemption from the payment

of excise duty on refinance

credit were extended in Toto

to all export products

Exports would be allowed

subject to registration of

export contracts with EPB to

monitor exports and ensure

equality

Export finance borrowings

were exempted from the

payment of excise duty

1998-1999 A ban on the export of raw

hides, and skin and wet blue


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leather imposed earlier was

proposed to be lifted (amidst

strong reaction from

European tanners and also to

meet WTO regulations),

however an export duty

@20% on their exports has

been proposed to protect the

local industry and to meet the

requirements of domestic

consumption

Duty drawback for finished

leather, leather made ups

were corrected and enhanced

In order to enhance export of

value added leather

garments, it was proposed

that duty free and tax free

import of accessories up to

5% of the FOB value of

exports may be allowed for


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the value added garments

2001-2002 Foreign currency export

finance facility will be

introduced to enable

exporters to meet their

import requirements by

borrowing from the facility at

LIBOR 2%. Repayments will be

made from their export

proceeds

Inclusion of leather

manufactures and footwear

to the list of items that have

zero rating of Dollar exports

to Afghanistan

Exemption to exporters with

total export of less than $1

million from export

development surcharge

Establishment of warehouses

in major cities around the

world to market the products

of exporters through binded

stores to ensure quality and in

time delivery. Partial funding


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will be provided from the EDF.

Setting up of a scheme funded

by EDF to help exporters

acquire SA 8000 certification

that will help them for

purchases by major buying

houses

To develop a linkage between

production and markets

setting up of special

organizations has been

proposed for the furtherance

and development of the

entire range of activities from

production to export

marketing for leather

products

2003-2004 Establishment of an up

gradation fund to be managed


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under public-private

partnership to finance the

initiatives for technological up

gradation social environment

and security compliance,

setting up combined effluent

and waste water treatment

plants

For technical management

and export marketing

,consultancy services will be

provided at the enterprise

level on 50:50 cost sharing

basis from the up gradation

fund, however for declining

sector like leather

contribution from fund may

go up to 75%.

Launching of a new scheme

has been proposed to enable

exporters to acquire brand


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names, support will be

provided to exporting

companies for obtaining bank

loans at concessional rates

under the prudential

regulations of SBP

It has been proposed to hold

an annual mega event in

Karachi EXPO and Lahore

EXPO to be called PAKISTAN

EXPO where all products of

Pakistan with an export

potential will be put on

display

To enhance retention by the

exporters to the extent of

10% of their export earnings

for international

advertisements, commission

etc, which was previously 5%

Financial assistance for


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acquiring ISO certification will

be continued

To reduce cost of electricity

for industrial sectors ,it was

proposed that WAPDA may be

asked to allow off peak hours

rates and bulk rates for

industrial consumers

2006-2007 6% R&D support was

proposed (background

2007-2008 It was proposed that zero

rating of sales tax or duty

drawbacks as well as federal

excise duty refund against

goods exported to ISAF and

defense logistics agency may

be allowed on production of

receipts issued by Afghan

customs authorities

confirming that they have

received the goods, which will


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be reconfirmed by the

representatives of the agency

located in Pakistan

It was proposed that duty free

import of footwear samples

for exporters to meet their

export commitments may be

allowed and this facility be

extended to manufacturers as

well, to improve the quality

and keep them abreast with

latest fashion

2008-2009 In order to assist exporters to

comply with environmental

standards 6% mark up subsidy

on loans to set up in-house

effluent treatment plants has

been provided

It was also proposed that that

the subsidy given from EDF

may be increased to 8% or


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50% of the markup,

whichever is lower

Cost of hiring consultants for

benchmarking studies will be

continued on cost sharing

basis

Impediments to Export

Leather and leather garments industry of Pakistan have serious challenges to survive in

International market. High tech. must be used to improve the quality of products and

for this purpose skilled labor force is also required. This is a serious issue and need to

be addressed as early as possible. There is a growing need to prepare labor force

having capacity to produce leather garments on scientific lines and to meet the

demands of international market.

Leather garments in Pakistan are made mostly from low grade and medium grade

leather and good quality leather is mostly exported and is not available for high value

added Leather garments and products. These sectors will lose their market shares in

global markets as they have stiff competition with China and India, if leather is not


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made available in good quality. 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.

Cost of production is very high in Pakistan. Utilities and taxes make our products

uncompetitive due to high cost in international markets. Pakistan can capture the lost

market share by reduced cost of production.

Most of the developed countries faced slump after the incident of 9/11. Similarly

buyers from Pakistan shifted their purchase from the local industry; therefore the

local industry suffered a lot. These buyers shift their production from Pakistan towards

China and India. Similarly nowadays due to global recession, the purchasing power of

the consumers declined and as a result the demand also decreased of leather

products. This resulted in overall decline in the exports of leather products from

Pakistan.

Leather tanneries in Pakistan produce all three categories of waste: wastewater, solid

waste and air emissions. However, wastewater is by far the most

importantenvironmental challenge being faced by Pakistan's tanneries.


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Wastewater: Although the exact quantity varies widely between tanneries, anormal

requirement of around 50-60 liters of water per kilogram of hide issuggested. The

consumption of water is as high as three times the suggested requirement. Theoverall

water discharge also demonstrates a high degree of seasonal and dailyfluctuation. For

most part, the current practice is to discharge this water into thelocal 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,

wettrimmings, dry trimmings, wet shavings, dry shavings, buffing, and packaging

material. Itis estimated that for a tannery averaging 10,000 kilograms of skins per day,

a total ofsome 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 secondaryusers

in the local market. Glue manufacturing and poultry feed makers are a major

usergroup of this waste.

However, an important problem with this use is the presence of chromium in it. The

use ofchrome contained solid waste for poultry feed preparation could cause serious

healthproblems for poultry consumers.

Air Emissions: There are two sources of air pollution from tanneries in Pakistan.

Thefirst relates to emissions from generators (diesel-based and operated only

duringpower breakdowns) and from boilers. Ammonia emission during processing and

washing of drums, thoughintermittent but important has adverse effects on workers

health.Hydrogen sulphide emission during mixing of acid and alkaline wastewater in


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drain is also aserious health hazardous. Segregated discharge of acidic and alkaline

effluent can help toavoid the hydrogen sulphide gas emission.

SWOT Analysis of Pakistan Leather Industry

SWOT analysis for leather sector based on the information already provided in this article

isgiven below.

STRENGTHS

Existence of more than sufficient productive capacity in tanning.

Easy availability of low cost of labour.

Exposure to export markets.

Managements with business background become quality and environment conscious.

Presence of qualified leather technologists in the field.

Comfortable availability of raw materials and other inputs.

Massive institutional support for technical services, designing, manpower

developmentand marketing.

Exporter-friendly government policies.

Well-established linkages with buyers in EU and USA

Pakistan is an emerging market

There is abundance of raw material for converting into value-added products

Weakness

Low level of modernization and up gradation of technology and the integration of

developed technology is very slow.

Low level of labour productivity due to inadequate formal training / unskilled labour.


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Lack of modern finishing facilities for leather.

Highly unhygienic environment.

Unawareness of international standards by many players as maximum number of

leather industries are SMEs.

Difficulties in accessing to testing, designing and technical services.

Environmental problems.

OPPORTUNITIES

Scope of supplying finished leather to multinationals around the Globe.

Growing fashion consciousness globally.

Use of information technology and decision support software to help eliminate the

lengthof the production cycle for different products

Product diversification - There is lot of scope for diversification into other

products,namely, leather garments, goods etc.

Growth of international and domestic markets of leather sector.

Threats

Export of Wet Blue is the major threat for Pakistan Leather Industry

Stiff competition from other countries like India and China etc.

Non- tariff barriers - Developing countries are resorting to more and more non

tariffbarriers indirectly.

Improvement in quality to adapt the stricter international standards.

Fast changing fashion trends are difficult to adapt for the Indian leather industries.


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FUTURE OF LEATHER INDUSTRY IN PAKISTAN

Introducing Brand Names

Leather and Leather products from Pakistan have carved a respectable place in the

worldmarket. Some of leather products from Pakistan especially leather jackets are much

indemand but under the foreign renowned brand names. Made-in-Pakistan label and

brandsborn 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

leatherproducts they manufacture. In light of the Agreement on trade related aspects

ofintellectual property rights (TRIPS) of WTO, Pakistan through Trade Marks Ordinance,2001,

provides effective protection and rights to the owner of trade marks.

Focusing on Footwear Sector

Footwear, the largest segment of the leather industry around the world has beensurprisingly

neglected in Pakistan. Foreign franchised companies have become householdnames in Pakistan.

This is despite the fact that the entire stuff and skill they use belong toPakistan.

Moreover, having a strong industrial base, Pakistan's leather industry looks treadingwithout

shoes. This vacuum in leather industry calls for the attention of the industryleaders to bridge

the gap to give a comprehensive look to the leather and leather productsindustry in Pakistan.

One of the options to enter the field of footwear sector is to seekpartnership with international

brand producers by offering them attractive incentives.


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Tackling Environmental and Labor Issues

Regarding environmental concerns of WTO, the industry has made little progress in thisregard.

Combined effluent treatment plants need to be built so that hazardous chemicalsfrom the

tanneries do not affect the environment. Moreover, the industry needs to tackleall the labor

issues to which the consumers in the importing countries are sensitive to. Itneeds to be ensured

that the leather industry in Pakistan adheres to the working conditionrequirements that have

been developed by certain international bodies, particularly, theassociations of leather

industries in the importing countries of the west. Under the WTOregime, member countries can

impose penalties or restrict imports from exportingcountries whose industries do not observe

environmental/labor concerns or socialcompliance.

Control on Smuggling & Diseases of Livestock

Leather manufacturing sector in Pakistan can also suffer because of massive smugglingof

livestock to other countries, shortage of raw material and absence of the organizeddairy

farming in the country. Steps should be taken to overcome these problems

Moreover, diseases in the livestock in Pakistan can prove hurdle in the manufacturingand

exports of finished products of leather. Concrete measures need to be taken toovercome this

threat to the livestock as a result the live animals are suffering fromdifferent diseases that

damage the quality of the leather and tarnish the image of productsat international level.


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Reduction of Duties on Machinery

The duties on the import of tanneries related machinery need to be further reduced.

Themachinery made locally is technologically inferior which not only increases the cost

ofproduction but restrains from developing at par with the international market.

Suggestions

The enclosed tables shows the ranking of Pakistan in the in the export of leather products and

footwear, There is, sufficient, a room for improvement in this sector. According to different

exporters and exporters associations, Pakistani exports value can increase easily, if the

following steps are taken

The custom duty on shoes should be increased to promote local industry.

The items of shoes locally produced and mainly used by poor people should be

exempted from sales tax.

Leather garments should be given R&D support.

A separate industrial estate can be established for leather sector

Duty draw back rates should be increased

Tanneries should be encouraged to establish treatment plants like Royal Leather.

Adopt minimum export price (MEP) for wet blue.

Increase the regulatory duty from 20% to 50 % on the export of raw and wet blue hides.

Invoices for the export of wet blue should be in sqft only and no invoices showing rate

per kg or per piece may be accepted

Temporarily ban the export of wet blue for the time being. Temporarily banning the

export of this item is also allowed under WTO. If we consider article XI of GATT which


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deals with "General Elimination of Quantitative Restrictions", and which is No

prohibitions or restrictions other than duties, taxes or other charges, whether made

effective through quotas, import or export licenses or other measures, shall be

instituted or maintained by any contracting party on the importation of any product of

the territory of any other contracting party or on the exportation or sale for export of

any product destined for the territory of any other contracting party.

If temporarily banning the commodity is not feasible then take the following steps

Adopt minimum export price (MEP) for wet blue

Increase the regulatory duty from 20% to 50 % on the export of raw and wet blue hides

Invoices should be in sqft only and no invoices showing rate per kg or per piece may be

accepted


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Enclosures


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Global trade in this specific product (000 US$)

List of Top Ten Importing markets for Leather Skins and Hides exported by Pakistan

Importers Exported value in 2009 Exported value in 2010 Exported value in 2011

World 270343 415652 467882

Hong Kong, China 74028 123777 124096

Italy 30693 47711 65464

China 34454 46999 47862

Republic of Korea 23922 37878 45812

Turkey 8604 18174 22986

Indonesia 2342 8240 15680

Viet Nam 10430 12706 15042

Germany 11315 13345 14188

Spain 8331 9964 13560

India 8419 12877 12975

List of Top Ten Importers for Leather Hides and Skins

Importers Imported value in 2009 Imported value in 2010 Imported value in 2011

World 19696498 26318987 31190450

China 4462401 5939141 6845256

Italy 2196942 3345410 4325884

Hong Kong, China 2222573 3074092 3434813

Germany 927774 1118101 1325193

Viet Nam 671769 921602 1043223


Spain 508648 587485 847626

Romania 603686 619983 738680

Mexico 407801 538037 736585

Turkey 295996 473295 722179

List of Top Ten Exporters for Leather Hides and Skins

Exporters Exported value in 2009 Exported value in 2010 Exported value in 2011

World 20875761 30144143 32067394

Italy 3861293 4631449 5361757

United States of America 1863363 2905178 3326049

Hong Kong, China 1770915 2300335 2546528

Brazil 1160770 1742435 2045753

Germany 911195 1166005 1433039

Australia 599207 889757 1021900


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India 562082 789832 1014617

Spain 591480 753118 983297

Argentina 662843 1001060 925833

France 502693 712619 903402

List of Top Ten Competitors of Pakistan for Leather Skins and Hides imported by Hong KongExporters Imported value in 2009 Imported value in 2010 Imported value in 2011

World 2222573 3074092 3434813

Italy 456982 601665 676362

China 162559 257393 372509

India 207453 314546 314199


Brazil 139918 183190 200766


Argentina 99504 142012 124765

Chinese Taipei 97289 113035 120321

Pakistan 70922 111414 114270

Thailand 73123 109907 99117

List of Top Ten Competitors of Pakistan for Leather Skins and Hides imported by Italy

Exporters Imported value in 2009 Imported value in 2010 Imported value in 2011

World 2196942 3345410 4325884

France 198254 372141 482944

Brazil 279219 393234 467653


Spain 97035 131852 192674

Nigeria 108722 166939 188250

India 81439 124739 184070

United Kingdom 78296 129703 172084

New Zealand 91894 117651 171426

Germany 95523 139046 165559

Netherlands 49640 92991 138354

List of Top Ten Competitors of Pakistan for Leather Skins and Hides imported by ChinaExporters Imported value in 2010 Imported value in 2011 Imported value in 2012

World 5939141 6845256 7122340


Australia 498459 698247 695348

Italy 639872 705623 637983

Brazil 489577 529814 590988


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India 257884 301049 386398

Chinese Taipei 429151 360083 312882

Argentina 242778 206567 212233

Thailand 191129 170491 185375

United Kingdom 120704 204165 183913


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Global trade in this specific product (000 US$)

List of Top Ten Importing markets for Articles of Leather exported by Pakistan

Importers Exported value in 2009 Exported value in 2010 Exported value in 2011

World 577907 618842 681344

Germany 78826 107664 130267


France 47258 54481 53172

United Kingdom 40615 41385 43047

Spain 59713 53091 42473

Netherlands 26158 28933 39634

Belgium 31512 33000 35854

Italy 17293 20154 23240

Sweden 16347 20548 23096

Turkey 24676 19240 19279

List of Top Ten Importing markets for Articles of Leather

Importers Imported value in 2009 Imported value in 2010 Imported value in 2011

World 46246922 54061734 64884625


Hong Kong, China 4302467 5063690 6203205

Japan 4811544 5145376 5711096

Germany 3083516 3435322 4143760

France 2884366 3216013 3967905

Italy 2468775 2754961 3226210

United Kingdom 2412702 2694140 3063531


Spain 1412144 1498963 1733745

China 713070 1122977 1687188

List of Top Ten Exporters for Articles of LeatherExporters Exported value in 2009 Exported value in 2010 Exported value in 2011

World 42950283 51747360 65767666

China 15115638 20845585 26892327

Hong Kong, China 5463149 6015987 6895327

Italy 4373436 5033873 6818456

France 4278317 4867508 6256370

Germany 1761635 1819172 2182638


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India 1417471 1446996 2023911

Viet Nam 653502 856880 1425108


Belgium 1133935 1139326 1324976

Netherlands 646639 731007 1167685

List of Top Ten Competitors of Pakistan for Articles of Leather imported by Germany

Exporters Imported value in 2009 Imported value in 2010 Imported value in 2011

World 3083516 3435322 4143760

China 1438961 1560932 1775617

India 318461 350448 446163

Italy 269423 296480 368279

France 147109 173789 218645

Netherlands 101949 122127 209766

Viet Nam 114594 124892 151537

Pakistan 85885 102646 138841

Switzerland 59041 62658 94736

Turkey 80658 88393 88820

United Kingdom 44565 60358 64887

List of Top Ten Competitors of Pakistan for Articles of Leather imported by USA Exporters Imported value in 2009 Imported value in 2010 Imported value in 2011

World 8556312 10523583 11718948

China 6323190 7950373 8515850

Italy 559203 602979 811800

France 323830 384803 448028

Viet Nam 196047 282865 388653

India 247282 270547 326467

Indonesia 107915 142131 152930

Mexico 88417 80655 110185

Philippines 70429 82818 95933

Thailand 68372 80868 93581

Pakistan 84942 79387 91056

List of Top Ten Competitors of Pakistan for Articles of Leather imported by FranceExporters Imported value in 2009 Imported value in 2010 Imported value in 2011

World 2884366 3216013 3967905

China 1193163 1412360 1596757

Italy 664812 682207 1038698

Spain 181182 181292 265238

India 151366 182869 206195


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Viet Nam 85100 84527 103052

Belgium 62773 66311 79787

Germany 53496 55718 70483

Pakistan 62326 72738 68087

Tunisia 36711 44227 57338

Turkey 47736 47669 54922


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List of Top Exporters of Pakistan

S/No. Name of Exporter(s) Export Performance Export Performance

in Pak Rs. In US $

01. M/s. Nova Leathers (Pvt) Ltd., Karachi Rs. 5,055,599,007

US

$ 59,115,985

02. M/s. Din Leather (Pvt) Ltd., Karachi Rs. 2,494,341,353

US

$ 29,054,646

03. M/s. EPCT (Pvt) Ltd., Lahore Rs. 2,072,782,287

US

$ 24,268,988

04.M/s. Muhammad Shafi Tanneries (Pvt)Ltd., Karachi Rs. 1,736,029,562

US$ 20,299,691

05.

M/s. H. Sadar Ali Akhtar Ali (Pvt) Ltd.,

Lahore Rs. 1,522,091,700

US

$ 17,848,167

06.

M/s. Dada Enterprises (Pvt) Ltd.,

Lahore Rs. 1,521,400,800

US

$ 17,790,000

07.

M/s. Noor Leather Garments (Pvt)

Ltd., Karachi Rs. 1,376,690,828

US

$ 15,473,652

08.

M/s. Eastern Leather Co. (Pvt) Ltd.,

Lahore Rs. 1,282,800,000

US

$ 15,000,000

09.

M/s. Royal Leather Industries (Pvt)

Ltd., Lahore Rs. 1,282,212,491

US

$ 14,993,130

10.

M/s. Multan Hide Co. (Pvt) Ltd.,

Multan Rs. 1,138,000,000

US

$ 13,306,829

11.

M/s. Siddiq Leather Works (Pvt) Ltd.,

Lahore Rs. 1,174,103,611

US

$ 13,196,624

12. M/s. Khas (Pvt) Ltd., Karachi Rs. 1,123,908,007

US

$ 13,142,049


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13.

M/s. Prime Tanning Industries (Pvt)

Ltd., Sheikupura Rs. 1,104,278,000

US

$ 12,912,512

14. M/s. Leather Coordinators, Sahiwal Rs. 1,098,200,000

US

$ 12,841,441

15. M/s. Hafiz Tannery, Karachi Rs. 1,021,450,880

US

$ 11,944,000

16.

M/s. Premium Leathers (Pvt) Ltd.,

Lahore Rs. 1,015,909,367

US

$ 11,879,202

17. M/s. MIMA Leather (Pvt) Ltd., Karachi Rs. 957,995,211

US

$ 11,202,002

18.M/s. Muhammad Ashraf & Sons,Karachi Rs. 855,200,000

US$ 10,000,000

19.

M/s. Khawaja Tanneries (Pvt) Ltd.,

Multan Rs. 855,200,000

US

$ 10,000,000

20.

M/s. Leathertex Gloving (Pvt) Ltd.,

Lahore Rs. 772,351,645

US

$ 9,031,240

21.

M/s. HMB Tanneries (Pvt) Ltd.,

Lahore Rs. 654,300,000

US

$ 7,354,164

22. M/s. Mahmood Brothers, Karachi Rs. 580,915,565

US

$ 6,792,745

23.M/s.Universal Leather (Pvt) Ltd.,Karachi Rs. 571,960,240

US

$ 6,688,029

24.

M/s. M. Muhammad Shafi& Co.,

Karachi Rs. 535,892,693

US

$ 6,266,285

25.

M/s. Khas Industries (Pvt) Ltd.,

Karachi Rs. 342,080,000

US

$ 4,000,000

26. M/s. Hussain Leather Craft, Karachi. Rs. 285,890,737

US

$ 3,342,969


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27. M/s. Blooming Leathers, Karachi Rs. 131,637,450

US

$ 1,539,259

28.

M/s. Unique Tanning Industries (Pvt)

Ltd., Lahore Rs. 70,550,000

US

$ 824,953

29. M/s. Chawla Tanneries, Kasur Rs. 66,797,300

US

$ 750,785

30.

M/s. Permair Leather Pakistan (Pvt)

Ltd., Lahore Rs. 43,784,000

US

$ 511,974

report on leather sector-1 (2)

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