The recent holiday season has exacerbated issues being felt by the sellers of raw skins and hides in Addis Abeba, according to SAMSON BERHANE, FORTUNE STAFF WRITER. With the increased supply, and long term depleted demand, many are having to store their products for extensive periods of time in small warehouses. This leads to the concern that many will simply have to be binned. The reason for the depleted demand stems from the global market, where prices have been consistently decreasing alongside demand. This impacts actors throughout the entire supply line - from the buyers of raw hides to the exporters of finished products.
Bilal Jino, 34, has been engaged in the business of supplying raw skins for the past 10 years. After he buy the skins from sheep slaughterers and households, he sells the product to wholesalers, which then supply tanneries.
During last week’s Mesqel holiday, where a large number of Christians in Ethiopia celebrate the True Finding of the Cross, he collected over a hundred skins. He sold them on for 22 Br a unit, on average, making a maximum profit of only seven birr a skin, along Gabon Street, where he sells his products.
Local skin and hide prices are going down. In wet salted conditions, the price has exhibited a threefold decline compared to what it was six months ago. All the market actors in the value chain are having a tough time selling skins, as tanneries internationally face a reduction in demand for the products, particularly from China.
“I have never been in such a crisis in my entire business career,” said Bilal.
As the holiday approaches, slaughtering is a common phenomenon practiced in many parts of the country. In particular, followers of the Orthodox Christian church slaughter more livestock during the holiday than at any other time.
“The recent holidays make the situation worse, since the supply was very high due to the slaughtering season,” Bilal added angrily.
According to Bilal, the problem has been on rise since last Easter, six months ago.
Bilal puts the skins in his small warehouse with an area of nine square metres.
“Some skins have been damaged due to the excess supply of the product,” Bilal underscored.
Another collector, Shemisu Atlash, who has been in the business for the past eight years, argues that the real cause of the problems is unclear for those at the bottom of the business pyramid.
“Someone from the government should inform us what is going on before things get even worse,” said Shemisu.
After collecting skins and hides from different skin collectors situated in various areas, wholesalers, such as Yilma Eshete, sell them directly to tanneries.
Yilma has been engaged in the business from an early age. It is been a decade since the 29-year-old opened his own wholesale business.
For the Meskel holiday, he bought skins and hides from collectors situated in areas along the streets of Fit. Habtegiorgis, Gabon, Addis Gebeya and others. After he buys the skin and hides, he will mix them up with salt to keep their condition as good as possible.
Besides the price decline, the tendency of lagging payments is another headache for wholesalers like Yilma, since he sells most of the time on a credit basis.
“There are companies that didn’t manage to pay even two years after receiving the product,” said Yilma.
“Recently, the government called both parties to make the situation clear,” according to Yilma.
After the meeting, he came to realise that the main reason for the failure of the companies to fulfil their promises was because of the continuous price decline of skins and hides on the global market.
Currently, Yilma buys the skins and hides for 18-25 Br a unit and 80 Br a feresula (17 kg). The former showed a decline by almost 40 Br, while the latter exhibited a 70 Br decline compared to the same period last year. He sells skins and hides, mainly to locally owned tanneries, for 25-30 Br and hides for 150 Br a kg.
“Our earnings have almost declined by a hundred percent,” Yilma added. “If the condition continues like this, we might be forced to bin the collected skins and hides.”
To protect factories from a price hike by brokers who speculate on prices, forcing factories to incur losses, the government set the prices of animal skins and hides sold to factories back in 2011 and 2014.
“If the government intervened and gave protection to factories during the inflation period, there should also be an intervention during the deflation period,” Yilma asserted.
“We are aware that the whole supply chain has been disturbed,” said Birkinesh Golfa, marketing support directorate director of the Leather Industry Development Institute (LIDI). “The fall in the global market price and falling demand for skin and hides are the cause of the disturbance.”
To balance the supply and demand in the industry, the government, through the Ethiopian Industrial Inputs Development Enterprise (EIIDI), is currently purchasing skins and hides from wholesalers and selling them to tanneries with a promissory note, issued without even a bank guarantee.
“The bank guarantee doesn’t seems a solution to the problem, so we drop it and supply the skins and hides on a credit basis,” Birkinish added.
The EIIDE was established in 2015, by absorbing the then Merchandise Wholesale Import & Trade Enterprise, to supply basic commodities to industries either on a credit or consignment basis. This is in addition to its role as a commercial representative to various foreign companies. The raw materials supplied by the Enterprise range from basic commodities, like sugar and palm oil, to building materials, foodstuffs, paper, stationery items, and also leather and leather products.
An expert of leather shoes, who wished to be unnamed, argued that the major problem for the disturbance is the vulnerability of commodity producers in the country to international price changes.
“The decline in the price of the final product, like shoes and gloves; the rise of fabrics to substitute for leather, and the recent economic crisis are all factors that have contributed to the continuous price decline of hides and skins internationally,” said the expert. “The government should asses the root cause in the whole supply chain and provide a permanent solution to it.”
“The low quality of hides and skins, deteriorating logistics system and weak infrastructural development are factors that affect all the components of the supply chain,” the expert added.
Last month, UNCTAD, in its annual trade development report, warned that emerging economies, like Ethiopia, are in danger of vulnerability to commodity prices, as the commodity cycle is in its second year of a sharp downturn.
The past 15 years’ merchandise trade growth that took place in countries like Ethiopia are the result of a rise in commodity prices and the volume traded, the report added.
According to UNCTAD, the price of hides and skins exhibited a 20pc decline in 2015 compared to the previous year. The UN body forecast that the price of hides and skins will continue to decline by the same percentage in 2016.
During the last fiscal year, earnings from the export of leather and leather products reached 115.3 million dollars – down by 12pc compared to the previous fiscal year. Likewise, the volume also declined by 3.2pc to approximately 5,980 tn.
Finished leather accounts for 50pc of the earnings made from leather and leather products.
In addition to the fall in global demand for leather products, the lack of advanced technology, shortage of experts, financial and management problems, repeated power disturbances and low promotion of local products on the global market are the major reasons for the underperformance of the industry, according to LIDI.
The government had planned to increase the leather industry’s annual exports to 500 million dollars by the end of the GTP I. However, unlike the plan, in 2014/15, the country exported only 131.6 million dollars’ worth of leather and leather products – only 17 pc of the earnings made from the country’s major exports, Coffee and it account for 3.9pc of the country’s export income.
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