Export restriction debate drags on, but defending leather against animal welfare will be issue of the future
Published: 31st May 2017
Skin, Hide & Leather Council (SHALC) AGM, at the Intercontinental Hotel, OR Tambo Airport, May 26
The DTI's proposed ban on the export of raw hides and a levy on the export of wet blue hides remains the most debated issue among SHALC's members - and its most divisive. "We'll never get consensus around this table," said chairman Ernest Heunis at this year's AGM. "But we have to accept that the DTI has made up its mind that it wants to go ahead with this."
The DTI's goal is build downstream leather industries by reducing foreign competition for South African hides.
Its Industrial Policy Action Plan (IPAP) 2017/18-2019/20 includes the following among its 'Key action programmes':
Beneficiation of local raw hides through export prohibition.
Nature and purpose of the intervention: South Africa is one of few countries that enjoys a leather value chain with capabilities that should be treasured. This value chain can support rapid growth in exports from rejuvenation of the footwear industry and a globally competitive automotive leather industry.
Sector research identified a 'leakage' of good quality raw materials from the early stages in the value chain. Some 55% of bovine hides leave the country under-beneficiated. Thus the leather industry must rely on substantial imports of quality hides to supplement the shortage of local quality hides. This plays into the hands of competitor countries to the detriment of the downstream industries in South Africa.
On 26 May 2016, the National Treasury presented a 'Draft Guidelines on Export Taxes'. Based on the guidelines and procedures, the DTI, on behalf of all stakeholders, will pursue execution of a ban on the exports of 'raw hides' and export duties on the semi-finished 'wet blue' (full substance, grain split and drop split) aimed at effective diversion of the leather raw and semi-finished resources for downstream value addition.
Targeted outcomes: Development of local substitutes for imported leather and leather goods. Also, to divert raw and semi-finished leather to existing local downstream firms for beneficiation, thus creating more local employment in the leather sector.
2017/18 Q1: Submission of application to National Treasury.
2017/18 Q2: Execution of the recommendations by National Treasury through due processes.
2017/18 Q3: Monitoring and evaluation of post leather export prohibitive policy execution.
The DTI wants:
- Local hide prices to come down to levels which will allow the end users of leather - car makers and footwear, leather goods and furniture manufacturers - to be more globally competitive, both against imports and as exporters.
- All SA hides to be locally beneficiated at least to crust stage, whether they are used locally or exported.
- The balance of trade in the various leather industries to improve.
- Employment in these industries to increase.
In broad terms, the automotive, footwear upper and furniture leather tanneries support the DTI initiative, while the hide exporters - some of which are also wet blue plants - oppose it. In practice, among SHALC's active members, vertical integration and customer relationships mean relatively few can be unambiguously on one side or the other.
Most of the pure hide traders have let their SHALC membership lapse; from a peak of 32 members at the height of the export debate, there are now 20.
The complexity of the issue was summed up by Bader SA CFO Johan Snyman: His company would potentially benefit from cheaper local hides, but it would be penalised by levies on the export of its drop splits.
"If I was allowed to vote on this policy," he said, "I'd probably abstain."
Members did agree that there was a need for a comprehensive survey to ascertain accurate figures for the demand for full substance hides and grain and drop splits in South Africa "to give the DTI real figures to work with".
There was also debate - as there has been for the last few years - that exporters should negotiate lower prices for wet blues with finishing tanneries in return for their support in petitioning the DTI to allow the balance to be exported without a levy.
The exporters argue that lowering the price of hides is to the detriment of farmers, for whom hides are an important supplement to meat sales. They also argue that their exports are an established, proven source of income, and that there is no guarantee that the downstream industries will be able to absorb more than double the number of hides they currently take.
They say that however attractive or logical leather might look to governments and aid agencies, their interventions to build tannery capacity in Africa "have all failed".
"Our industry is shrinking," said African Hide Trading marketing director Steven Broughton. "Our skills are shrinking. The problem is it's a dirty industry and it's difficult to attract young people to come into it."
For its part, the DTI "believes it has given industry enough time and money to get to the crust stage", the AGM heard.
The prolonged gestation period for this legislation isn't yet over, and the DTI will return to the industry with draft guidelines on how it will be applied - hence the reason for continued debate within SHALC.
However, the DTI cancelled a planned meeting with EXCO to discuss its hide policy.
The donkey trade and imports escaping duty: Finished and crust leather imports and exports also came under the spotlight.
Currently, the duty on bovine full hide and side leather imports (excluding calf) is 10%. As a developing country, WTO regulations allow for a maximum duty of 15%, and this is being discussed with the DTI.
However, some importers are circumventing regulations, the AGM heard: In terms of a trade agreement, leather imports from Europe are duty free, but an example of Colombian leather being transhipped via Germany and arriving in SA duty free was cited.
Because of the barbaric trade in donkey skins - used in Chinese 'medicine' - SA leather exports are being targeted for inspection.
Several tanneries said some or all of their export containers are being stopped, and that the explanation given is that "Customs is looking for donkey skins".
It was suggested that Customs inspectors could check and then seal containers at tanneries. Bader's Johan Snyman said Customs had a similar system in place.
The AGM decided the chairman should approach the DTI to intercede with SARS to resolve the issue.
State procurement: In terms of DTI regulations, all central, provincial and municipal government departments, and all State-owned enterprises, must buy locally-made textiles, clothing, leather, footwear and leather goods, made from locally-made or sourced components, unless they are not available locally.
The regulations are being flouted, the AGM heard, with re-labelling of products as an example.
Hannitan MD Rudolf Hanni said the Department of Correctional Services was buying imported leather rather than from Hannitan "because of BEE".
Anti-leather campaigns: Although global campaigns by PETA and others against leather have so far had relatively little impact in South Africa, "these are the people who basically shut down the fur trade", the AGM was told.
There is a worldwide move to develop accredited supply chains across all industries. In the case of leather, those include farmers and abattoirs. "I've no doubt Woolworths forces its meat suppliers to follow ethical guidelines," said a speaker. "If the meat comes from an animal that has been ethically raised and slaughtered, so does the skin or hide."
Textiles and clothing also have accountability issues, and the Textile Exchange is a global non-profit organisation which "works closely with our members to drive industry transformation in preferred fibres, integrity and standards and responsible supply networks. We identify and share best practices regarding farming, materials, processing, traceability and product end-of-life in order to reduce the textile industry’s impact on the world’s water, soil and air, and the human population."
It has started a leather division, with its own website (https://responsibleleather.org/), which SHALC members were encouraged to keep abreast of. They were also encourage to regularly look at a site called https://tanneryofthefuture.org/, set up by 4 Netherlands-based leather people to "increase transparency and sustainability in the international leather supply chain".
Swedish-owned global retailer H&M, which is now in SA, has been targeted by PETA to stop stocking leather products altogether. It has responded by joining the Textile Exchange. It also issued this statement:
In a recent report, PETA raises important issues about leather. We agree with PETA that there are several challenges within the leather industry, which is why we are engaged in a global initiative run by Textile Exchange to develop joint solutions and a global standard and certification for responsible leather including both animal welfare, social and environmental aspects. As the leather we use originates from the meat industry, collaborations within and across industry borders, as well as others brands and NGOs, are important.
We are also actively looking for new, innovative non-animal deriving materials that can replace leather, such as bio-based materials. We already use five times as much synthetic leather (PU) as real leather, but we don't consider PU as a good sustainable long-term solution. Instead, we support innovative alternatives such as the mushroom leather or grape leather as well as lab-grown leather. Today, these alternatives are at an early stage of development, but our long-term ambition is to replace all leather with non-animal deriving materials. Today, less than 1% of our total range is made of leather.
Chairman's report: The chairman initiated debate on his standing down because of his expected appointment - since ratified - as the GM of the newly constituted Footwear & Leather Industries Cluster (FLIC).
Aside from time constraints, he suggested there might be conflicts of interest between the 2 roles, notably regarding the beneficiation of raw hides through export prohibition.
Both the AGM and a subsequent EXCO meeting asked him to continue as chairman.
SHALC's budget: SHALC has cash reserves, which the AGM agreed should be put to use. An accurate survey of the raw material needs of SA's tanneries was suggested.
The Leather Mark: Currently no effort is being put behind The Leather Mark, which is the property of SHALC. The chairman suggested it be handed to FLIC to manage.
SHALC's relationships with other organisations: SHALC joined SAFLIA in opposing a free trade agreement between the Southern African Development Community (SADC) and the East African Community (EAC), because of the belief that it will invite unregulated import of Chinese goods.
SHALC is also considering joining Business Unity SA (BUSA), so that it can have a seat at the National Economic Development and Labour Council (NEDLAC), the interface between business, labour and government.
SHALC has rejoined the International Council of Tanners.