Published in The Daily Star on Friday 24 July 2020
Eid-ul-Azha primed to flood the country with rawhide
Risk looms large of a recurrence of last year’s discarding of rawhides en masse during Eid-ul-Azha in Bangladesh this year for a low injection of funds in the sector and a lack of preparedness of both the government and traders.
In a countermeasure, the government plans to allow export of wet blue or leather that is halfway through processing.
Last year, nearly one crore pieces of rawhide worth Tk 100 crore were thrown away by citizens who sacrificed animals alongside small seasonal traders as they deemed the prices to be too low.
The other factors such as hot and humid weather conditions and the ongoing pandemic will also affect rawhide business during this Eid, scheduled to be celebrated on August 1.
Of the rawhide annually produced in Bangladesh, half comes during Eid-ul-Azha.
Moreover, old stocks of unsold leather, a fall in demand from international retailers and a yet-to-function central effluent treatment plant (CETP) in Savar Tannery Industrial Estate (STIE) will cause severe detrimental effects, said exporters, experts, traders and tanners.
Bangladeshi tanners and exporters have to make do with prices 40 per cent below the international rate as the country’s tanneries do not have a much-needed international certification of Leather Working Group (LWG).
As a result, most of the non-compliant tanneries at the STIE have had to make China their major export destination.
Demand from China also fell drastically because of its trade war with the US, the effects of which also fell on Bangladeshi leather businesses.
Usually, Chinese companies import Bangladeshi leather to process it in their factories and then export to European and American markets.
Experts suggested that the government allow the export of wet blue to create demand at the field level so that citizens can get proper prices.
Usually, seasonal middlemen collect the rawhide at very low prices from ordinary citizens who sacrifice animals and sell those to merchants, who then sell to tanners.
The traditional and seasonal rawhide businesses in Bangladesh are highly monopolised by syndicates of seasonal traders, merchants and tanners. As a result, citizens who sacrifice the animals have been deprived of proper prices for over decades.
“This year, we are fearing more trouble than last year as we did not get any fund from the tanners yet although Eid is knocking at the door,” said Ali Hossain, a former president of the Bangladesh Hide and Skin Merchants Association.
The century-old platform of rawhide traders is based in Dhaka’s Posta, Bangladesh’s biggest trading hub of rawhide that has been treated with salt. The other large hubs are situated in Chattogram, Natore, Palashbari, Tangail, Mymensingh and Jashore.
The merchants have traditionally supplied rawhide to tanners on credit. The tanners pay a significant amount of the arrears ahead of Eid.
The merchants lend money to regionally functioning traders, who provide the same to seasonal traders for the collection of rawhide from citizens around the country.
So the fund has a trickle-down effect, meaning if tanners do not have funds in their hands, the whole business does not take place, which was evidenced last Eid, said Ali Hossain.
Since 1990, merchants are owed as much as Tk 500 crore by the tanners.
Over the years, many small and medium merchants passed away and their businesses collapsed due to mismanagement in this business.
“Many merchants became bank defaulters as the tanners did not pay the arrears,” the third-generation rawhide trader of Posta told The Daily Star.
The number of merchants across the country has also halved over the years as people have been losing interest in this business.
Many lost their capital on failing to efficiently run their business. Only in Posta just 200 merchants remain active from nearly 600 five years ago, Hossain said.
Last year, the tanners agreed to pay a significant amount of arrears to the merchants, but nothing was done really, he said.
Previously, nearly 95 per cent of rawhides were sold through merchants across the country but now the figure has declined to 65 per cent as the tanners have started making purchases through appointed seasonal dealers.
He suggested that citizens apply salt on rawhides within five hours of the sacrifice to prevent the quality from deteriorating. The rawhide can be preserved for even up to one month if the salt is timely applied, he said.
“We are also in fund crisis now as the sales declined by 50 per cent due to lower export orders from China, the main export destination for Bangladeshi tanned leather,” said Md Shaheen Ahmed, president of Bangladesh Tanners Association (BTA).
Last month, the tanners demanded that the government provide a Tk 500 crore emergency fund for purchasing the rawhides during upcoming Eid-ul-Azha but the government did not give it.
Bangladesh Bank only allowed the tanners to reschedule their previous loans worth Tk 2,600 crore with a 2 per cent down payment.
This is inadequate for increasing inflow of money in the sector in such a short time, Ahmed said.
Nearly 95 per cent of the Tk 2,600 crore loan has been classified since 1990.
Since the tanners are not capable of paying the merchants this year, the rawhide business will face the same fate as that of last year as the seasonal rural traders will not have adequate money to buy the hides from citizens, Ahmed said.
He does not support allowing the export of rawhide or wet blue, arguing that the government placed a ban on it in 1990 to enable more value addition and job creation in the local leather and leathergoods industries.
Ahmed instead suggested that citizens preserve the rawhide with salt and have the patience for better prices to arise.
The tanners are overburdened with unsold stocks of tanned leather due to a slump in exports to Chinese buyers. Leather worth Tk 2,500 crore remained unsold in the factories, he said.
The ongoing pandemic and US-China trade war severely affected the sector, he said. Chinese customers reduced the import of leather as the US government increased tariffs on their goods to the American market.
Export of leather to South Korea, Spain and other destinations also declined for the pandemic. Moreover, compliant companies are not interested in buying leather from non-compliant factories, Ahmed added.
The government shifted the tanneries from the city’s Hazaribagh to Savar in 2017 aiming to give a formal outlook to the leather sector which has already invested Tk 7,000 crore so far and employed nearly 50,000 workers.
But the newly established STIE could bring no good news for the leather business. The CETP is yet to be fully functional.
The same goes for three dumping yards designed under the STIE’s solid waste management system although the projects had been taken up a lot earlier.
“I am hopeful that the construction of two solid waste stores will be completed by mid-August,” said Jitendra Nath Paul, project director of the STIE.
Their construction was supposed to be completed a lot earlier but the deadline was extended due to delays in the release of funds and the pandemic.
“We are trying to improve the conditions of the STIE so that we can obtain the much required LWG certification at least in the silver category,” said Paul, adding that an audit was ongoing for the submission of documents for obtaining the certification.
Currently, 130 out of 155 tanneries are in operation at the STIE, Paul also said.
Bangladesh needs to obtain 65 per cent of the total marks used in the LWG certification for obtaining that in the silver category.
Of a total of 1,365 marks, some 200 should be obtained through compliance to standards by the government including ensuring the presence of a dedicated site for tanneries and the remaining 1,165 marks should be obtained by the tanners, Paul said.
However, most of the tanners are not yet ready to comply with the LWG standards.
Only two tanners at the STIE are nearly of LWG certification standards.
“We have been putting a lot of pressure on them but they have been giving excuses for not improving their standards,” Paul said.
The tanners use a lot of water when washing the rawhide alongside a lot of gas and electricity and these are among some other issues that need to be improved soon for obtaining the LWG certification.
Until Bangladesh can obtain the LWG certification, the local exporters will not be able to avail premium prices on the export of leather, he said.
Regarding the excess use of water, Md Delwar Hossain, team leader of ETP Consultants, said they have been providing suggestions on reducing the consumption but the tanners do not pay heed.
The international standard for washing a tonne of rawhide is to use 15 to 30 tonnes of water. But in the absence of the technical know-how, Bangladeshi tanners end up using nearly 60 tonnes, one of the highest rates in the world.
This led to an overflow of wastewater at the CETP during the peak processing season in Eid, leading to polluting of a nearby river and the environment, said Hossain, who also teaches at the Bangladesh University of Engineering and Technology.
He suggested that the tanners reduce the water usage rate to 36 tonnes during Eid to prevent an overflow of wastewater in the CETP.
“We are working to complete the construction of two dumping yards for storage of solid waste,” he said. He also blamed the pandemic and late fund transfers for the delay in construction.
He claimed that trials in June this year found the quality of the water treated at the CETP to be of an acceptable standard. So the pollution this time will be less if the tanners use less, he added.
The outlook for leather goods in the international market is also bleak because of the pandemic, said Saiful Islam, president of the Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh.
Factories of the local exporters of leather and leather goods are currently running at 50 per cent capacity.
He, however, said the government this year set a target of exporting leather and leather goods worth $920 million and leather footwear worth $540 million.
Achieving it depends on the government’s policy support and revival of the Western economy, he said.
Last fiscal year, the shipment of leather and leather goods and leather footwear were severely affected due to the pandemic.
Bangladesh exported leather and leather goods worth $797 million in fiscal 2019-20, which was a 21.79 per cent decline year-on-year.
Meanwhile, leather footwear exports amounted to $478 million, registering 21.24 per cent year-on-year fall, according to data from the Export Promotion Bureau.
Leather, leather goods and leather footwear are the second-largest export items after garments.
More than one lakh workers are employed in some 1,200 micro, small and medium leather and leather goods factories that have made investments of more than $1 billion, Islam said. Of those, 200 are export-oriented ones.
“Leather goods are luxury items. The pandemic-hit consumers are buying basic items and less of luxury items. So our sales also dropped significantly,” he told The Daily Star over the phone.
However, the markets of Bangladeshi leather and leather goods have increased over the years. Now, Bangladesh exports to the US, Japan, Australia and New Zealand. Previously, the main concentration was on European markets.
If Bangladesh can obtain the LWG certification, demand for those goods worldwide will soar, he said.
Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, suggested allowing the export of rawhide or wet blue so that the resources of the country are not wasted.
Otherwise, the government can also allow the export of live animals like cows and buffaloes or facilitate the export of meat so that the farmers are benefited and the country can earn foreign currency, Moazzem said.
If the government allows rawhide export, there will be no discarding like last year, the CPD research director said.
Ahsan H Mansur, executive director of Policy Research Institute, echoed the same.
He also sees the solution to averting a disaster in the leather industry in allowing the export of rawhide or wet blue to reduce the supply glut during the Eid season.
“There should be a specific place where all the animals of a particular area will be slaughtered and the traders will collect the rawhide from one spot instead of millions of places by seasonal traders,” he said.
The rawhide market is a defaulted one in Bangladesh as most of the businesspeople in this sector have classified loans with banks. As a result, banks are not eager to lend them more money, Mansur said.
Many destitute people, madrasas and orphanages were deprived due to last year’s disaster in rawhide business, he said.
“We do not want a recurrence of last year’s disaster in rawhide business. We can establish discipline in this sector — we can get a lot of benefit from this sector,” he said.
Talking to The Daily Star, Commerce Minister Tipu Munshi said the government would allow the export of rawhide or wet blue this year to prevent anyone from destabilising the market.
Banks are not interested in lending funds to the tanners as 95 per cent of tanners are bank defaulters with classified loans.
Only 20 tanners have no classified loan, Munshi said, adding that the government might either allow them to export wet blue or arrange bank financing for them.
The minister is set to fix the minimum price of rawhide this year on July 26. He predicted that this year the sacrifice of animals will decline by 40 per cent due to the pandemic.
Sheikh Fazle Fahim, president of the Federation of Bangladesh Chambers of Commerce, did not respond to requests for comment. He is acting as the coordinator on the issue of tanners’ payment of arrears to merchants.