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Exports only way forward, but raw material prices remain too high

Published: 30th Mar 2017
Author: Simo Simov; director; African Merino Trading

Simo Simov “pictured in our almost redundant factory”, which is capable of processing 1 000 skins per day.

Bronkhorstspruit, SA – Last year was our worst year since we first opened in 2003. Our normal turnover would be about R30 million per year. In 2015 that dropped to R10 million, and last year to under R1 million.
Essentially the export market is closed to us for several reasons:
* Russia doesn’t have the money.
* Turkey still imports, but it’s difficult.
* China is the only market that’s really open, but our processed skins prices are too high, and as a government policy, Chinese companies prefer buying raw material.
We’re concentrating on the local market, but that business can’t be grown enough to fill our tannery’s capacity of 1 000 skins per day. Also, I don’t want to undercut other local Merino plants for their business.
Although the inflation rate is officially lower, our production costs go up by 6-10% per year. The biggest cost problem, however, is the raw material. The average skin, delivered to our factory, now costs R100, which is about twice the price of Dorper skins. By comparison, we can buy Australian Merino skins – which are about 20% bigger – for US$6.
The DTI has been to our plant, and took our samples to Mosshoes, but so far they have not been able to assist us with our basic problem – raw material at competitive prices.
We had around 40 staff. We now have 7. However, we are NOT closing. I’m a born optimist, and I don’t believe the market can stay the way it is. – [+27 (0)83 413 1926, africanmerino@gmail.com]
©2017 S&V Publications
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