«Subsector Assessment of the Nigerian Hides and Skins Industry Prepared by: Chemonics International Inc. 1133 20th Street NW Washington, DC 20036 ...»
Subsector Assessment of the
Nigerian Hides and Skins Industry
Chemonics International Inc.
1133 20th Street NW
Washington, DC 20036
The United States Agency for International Development (USAID)/Nigeria
RAISE IQC Contract No. PCE-I-00-99-00003-00
Agricultural Development Assistance in Nigeria (ADAN)
Task Order No. 812
Under the Rural and Agricultural Incomes with a Sustainable Environment (RAISE) IQC, Chemonics International and its Agricultural Development Assistance in Nigeria (ADAN) project are working with USAID/Nigeria and the Government of the Federal Republic of Nigeria (GON) to stimulate Nigeria’s economic growth through increased competitiveness in the world market. A key component of this effort centers on determination of specific agricultural products with the greatest potential for increasing foreign exchange and employment. ADAN specifically targets increased agricultural commodity production and exports, and seeks to boost domestic sales as well through opportunistic ‘fast track’ activities, which are loosely based on development of networks and linkages to expedite trade.
At a stakeholders’ conference in Abuja, Nigeria in January 2002, participants identified five Nigerian products that held the greatest potential for export growth. Chemonics was charged with conducting subsector assessments of these products, and then developing industry action plans (IAPs) for those that indicated sufficient market opportunities.
The following subsector assessment examines market trends, opportunities and constraints, both international and domestic; production and processing requirements; operating environment issues;
and makes recommendations to address the needs of the Nigerian industries. A separate IAP provides a strategic framework for actions the Nigerian and international private sector, Nigerian government, and donors should undertake to improve the viability of these industry clusters.
Chemonics International Inc. 2 USAID PCE-I-00-99-00003-00 November 2002 Task Order No. 812
TABLE OF CONTENTSEXECUTIVE SUMMARY
I. THE INTERNATIONAL HIDES AND SKIN INDUSTRY
B. ANIMAL PRODUCTION
C. GLOBAL TRADE
C.1. Global Trade in Hides and Skins
C.2. Global Demand for Raw Hides
C.3. Global Supply of Hides
C.4. Global Demand for Sheep and Lamb Skins
C.5. Sheep and Lamb Skin Global Supply
C.6. Goat and Kid Skin Global Supply
C.6. Goat and Kid Skin Global Demand
D. DEMAND FOR LEATHER PRODUCTS
E. SUPPLY OF LEATHER
F. INTERNATIONAL TRADE STANDARDS, QUALITY SPECIFICATIONS AND PRICING
II. NIGERIAN HIDES AND SKINS/LEATHER INDUSTRY
B. NIGERIAN PRODUCTION
B. 1. Imports
C. HIDES AND SKINS PRESERVATION
D. SOURCES OF HIDES AND SKINS IN NIGERIA
E. DOMESTIC SUPPLY OF HIDES AND SKINS
F. DOMESTIC DEMAND FOR LEATHER
F.1 Domestic Consumption of Hides and Skins
G. THE NIGERIAN TANNERY INDUSTRY
H. COMMODITY PRICING AND TREND
I. LIVE ANIMALS, MEAT, HIDES/SKINS AND LEATHER PRODUCTS DISTRIBUTION
I.1. Live animals and red meat distribution chain
I.2. Hides and Skins distribution chain
I.3. Industrial grade leather distribution
A. GOVERNMENT POLICY/INFRASTRUCTURE
A.1. Federal Ministry of Finance, Budget Office
A.1.a. Manufacture – In- Bond Scheme
A.1.b. Duty Drawback Scheme
A.1.c. Export Expansion Grant Scheme
A.1.d. Export Development Fund Scheme
A.2. The Nigerian Export-Import Bank (NEXIM)
Rediscounting and Refinancing Facility (RRF):
Foreign Input Facility (FIF):
A.3. The Africa Project Development Facility (APDF)
B. SOCIO-ECONOMIC ISSUES
B.1. Environmental Effects
B.2. Impact on Employment and Incomes
Chemonics International Inc. 3 USAID PCE-I-00-99-00003-00 November 2002 Task Order No. 812 B.3. Geographical Distribution
IV. OPPORTUNITIES AND CONSTRAINTS
A FARM ANIMAL PRODUCTION AND MEAT PACKAGING
B. TANNERIES AND LEATHER PRODUCTS MANUFACTURING
V. CONCLUSIONS AND RECOMMENDATIONS
APPENDIX I: SWOT ANALYSIS OF THE NIGERIA HIDES & SKINS INDUSTRY....... 36 APPENDIX III: INDUSTRIAL PRESERVATION PROCESS
APPENDIX IV: PROJECT BACKGROUND
ROE: US$1 = N130
Table 1: Potential Income Generation from Export of Leather Products
Table 2: Farm Animal Population Distribution by Continent
Table 3: Global Trade of Hides and Skins of Farm Animals Origin
Table 4: Major Global Importers of Raw Hides (Wet Salted, ’000 Mt)
Table 5: Major Cattle Hide Producing Nations (Millions of Pieces)
Table 6: Major Cattle Hides Exporting Nations (Wet Salted, ’000 Metric Tons)
Table 7: Major Global Importers of Dried Sheep and Lamb Skin (’000 Mt)
Table 8: Sheep Skin Production (dried skin) In Major Producer Nations (’000 Tons)
Table 9: Major Exporting Countries of Sheep and Lamb Skins (’000 Tons)
Table 10: Goat and Kid Skin (dry weight) By Major Producer Nations (’000 Tons)
Table 11: Major Exporting Nations of Dried Goat and Kids Skin (’000 Tons)
Table 12: Global Trade in Finished Leather and Footwear (1997/99 Average)
Table 13: Global Trade in Leather Products, Major Countries (1997: US$70.44 Billion)............... 17 Table 14: Nigeria Farm Animal Population (1995 –2000)
Table 15: Slaughter Statistics in Nigeria (1985 – 1995)
Table 16: Quantity and Value of Selected Nigerian Live Animal Imports
Table 17: Nigerian Production of Various Grades of Hides and Skins (’000Tons)
Table 18: Hides and Skins Recovery at the Jos Abattoir, January 1999 – February 2000................ 24 Table 20: Nigerian Exports of Skins and Leather to the EU in Tons
Table 21: Current Prices of Leathers in the Nigerian Market
Table 22: Action Steps and Responsibilities
LIST OF FIGURES
Figure 1: Industry Overview of Hides and Skins Processing Chain
Figure 5: Map of Nigeria showing Hides and Skins Activity Areas
Figures 11 – 14: Large farm animals: the traditional sources of good quality hides and skins...... 39
Long-term neglect of the leather products industry in favor of oil production has left Nigeria behind the pack in competing for a global market worth $72 billion. Increases in disposable income are fuelling the international demand for high quality leather shoes, jackets, handbags and upholstery, a market which is growing steadily at 3% per annum. Developed countries, despite the fact that they are the major consumers of finished leather products, export the bulk of raw hides traded globally to developing countries for processing.
These value-adding developing countries, who are unable to keep up with the demand for tanned leather and finished leather products, are constantly seeking new sources of supply and are looking to West Africa as a potential source. With long-term investment, Nigerian stakeholders can potentially share what may develop into a $104 million market for Nigeria over the next ten years.
This increased market will be accompanied by a substantial increase in the industry’s employment level.
Table 1: Potential Income Generation from Export of Leather Products
The leather products industry, from raw materials (animals, hides and skins) through to the manufacturing of various leather products (shoes, handbags, upholstery) has tremendous potential to generate foreign exchange and create employment, especially for women, throughout Nigeria.
Nigeria already has a thriving export market; the skin of Nigeria’s Red Sokoto goat commands a premium in the international market, especially from Italy. All of the resources for tanning and producing leather products are available locally, including a large domestic and regional animal population. With strategic utilization of these resources, Nigeria could greatly increase their market share of the global leather and leather goods market.
Nigeria faces several challenges to improving its leather production and processing industry. An example of the need for improvement is found in the shoe market. Nigeria imports close to 20m pairs of shoes annually despite its manufacturing capacity which could meet local demand and even produce export products. Nigeria also has a prosperous local food market for raw hides and skins, called “Ponmo,” which is considered a delicacy. Currently the demand for “Ponmo” competes and wins against the demand for tanning, receiving 5 times the price for products with fewer quality demands.
In order to fully utilize its manufacturing capacity for leather products, the manufacturing industry needs more sources of quality inputs. Traditionally, Nigerian hides and skins destined to become leather have been exported raw for processing elsewhere, and local industry now needs a change to more local tanning and leather preparation. What hides and skins are tanned locally tend to be of poor quality, and the limited high grade leather that is produced is almost exclusively for export.
The poor quality of hides and skins is caused by a confluence of factors, including poor livestock husbandry, inadequate flaying and preparation skills, and a lack of grades and standards for branding. Grazing nomad herdsmen produce cattle and rural women rear 90% of the sheep and goat production in their homesteads. For employment generation purposes, there are commercial opportunities in every aspect of the hides and skins production and transformation industries.
In order to compete in this billion-dollar industry, the Nigerian leather sector must transform itself from a producer and exporter of semi processed hides and skins to a producer of leather products for both domestic and export markets. Such a transformation would require four initial activities upon
which to build any initiatives:
1.) Detailed feasibility study - domestic market & production 2.) Increase the volume and unit value of animals, semi processed hides and skins and leather products 3.) Awareness campaign on the opportunities in the leather industry 4.) Establishment of a Commodity Business Bureau (CBB) Increases in the volume and value of Nigerian leather may come through individual endeavors, but for the industry to succeed as a whole, leather stakeholders - including producers, processors, exporters, financiers, and others - must receive technical assistance on several different levels. In the long-term, this assistance would come through a Commodity Business Bureau (CBB) that would ensure sustainability of the industry’s efforts. In the immediate term, however, another mechanism must be found. In Nigeria, this would through several highly organized trade associations. The trade association would arrange initial dissemination of information and training while the CBB is being developed. Once the CBB is developed, it would take the burden of providing higher-level coordination and provide technical assistance to the trade association, while the trade association would be able to focus more on firm-level assistance and industry marketing efforts. The CBB would eventually expand to provide assistance for other agricultural industries, achieving economy of scale.
Although hides and skins are primarily produces as by-products of the meat packing industry, the international trade in skins, hides and leather is more valuable than that of meat. The hides and skins are processed into finished leather, which is then converted into footwear, garments, furniture, vehicle upholstery, etc. These products have both household and industrial applications. In the footwear industry, finished leather is used for shoe uppers, linings and soles. It is also used extensively in the production of belts, various types of bags, home/office decorations and fittings, etc.
The traditional source of hides and skins are farm animals, which are reared for meat, milk, or wool.
Hides come from bovine animals (cattle, oxen, etc.) while skin is obtained from ovine and related animals (sheep, goats, etc). Three major products are obtainable from these by products: dried or wet salted raw hides/skins, wet blue and tanned leathers. The hides and skins are preserved using either the industrial process of (chromic acid) tanning or the traditional brain or bark tanning technology, which is quite common at the village level. Though brain tanned leathers are acknowledged as the best in terms of quality, industrial tanning is the most common as it is cheaper and less time consuming. The byproducts of industrial tanning are highly toxic to the environment.
Since hides and skins are by-products of the meat packing industry, the level of production of hides and skins depends on the level of demand for red meat. Other factors influencing availability of hides and skins are consumer income, population, and productivity of the livestock industry. The impact of these various factors results in large price fluctuations for hides and skins.
Developing nations account for the majority (over 70%), of the world’s cattle, sheep and goat population with the Far East leading as the major production region (see Table 2).
Table 2: Farm Animal Population Distribution by Continent
As mentioned earlier, farm animals are largely bred for meat production, and the livestock production industry focuses on early maturity, feed conversion, disease resistance, etc, all factors which have a positive impact on meat production in the animal, but not necessarily a positive impact on hide and skin production.
C. Global Trade