LAL Sector_Knowledge pieces

1. Raw Hides and Skin Supply
constraint and possible solutions
For stakeholders Discussion and Action
Feb 19, 2016

2. Back grounds
• By 1989, there were 10 tanneries (eight public and two private)
Their collective beam house capacity was nearly all commercially supplied:
• 1.4 M Raw Hides
• 14 M Raw Sheep and Goat Skins
Govt Tanneries:
• Addis Ababa, Awash, Ethiopian Pickling- in Addis Ababa
• Modjo, Ethiopian in present Oramia,
• Kombolcha in Present Amhara ,
• Asmera Pickling and Keybahir Tannery in Present Eriteria
Private Tanneries
• Dire, Walia – in Addis Ababa
• This led to the banning of export of Raw hides and skins since 1989.

3. Back grounds
By 1989 the export reached US$50 Million.
• About 80% of sheep skin in pickle stage
• 70% of goat skin in wet blue stage
• 40% of hides were produced in to wet blue stage
The balance were produced in to crust and basic finished leather
and supplied to local shoe and LP manufacturers
20% sheep skin
30% goat skin
60% of hides
There was hardly any import of leather and hence shortage of
finished leather for manufacturers. Manufacturers get leather
by way of:
• Quota
• Personal connections.

4. Financing RHS supply
• Tanneries were adequately liquid and financially strong
(Golden days)
• The production cycle for semi processed leather was
relatively short (less than a week)
• The export was to tanneries who procure and keep the
semi processed leather (pickle and wet blue) in bulk
• The terms and conditions of the over draft facility
was very favourable

5. Financing RHS supply
• The imported chemicals for semi processed that require long lead
time and tie up working capital are relatively few
• chrome,
• sulphide,
• wetting agents,
• disinfectants,
• organic acids
• The production cycle for semi processed leather was relatively short
• Pickling- three days
• Wet blue-One days
• Aging -one day

6. Financing RHS supply
• Tanneries were adequately liquid and financially strong (Golden
days)
• There was a good trust between Tanneries and RHS Traders and
among RHS traders of different level
• This helped to bridge the gap due to mismatch in seasonality of
supply and demand RHS
• Therefore tanneries used to invest their liquidity to
influence and trigger more supply of raw hides and skin

7. Financing RHS supply
• Tanneries also collect door to door during holiday seasons and respond
to possible supply shock particularly
• September (New year, Meskel and Arafa Holdays),
• Januray (Mewlid, Genna and Timekt) and
• May (Fasika, Ramadan)
• Slack seasons (the rest nine months ) purchases is usually made through
big and middle traders
• Therefore most Tanneries used to advance raw hides and skin traders
encourage RHS supply
• Also give bonus for big suppliers who supplied above target or
quota

8. Recent issues in Financing RHS supply
• In recent five years Tanneries are increasingly become
illiquid due to the following recent developments:
• Limited domestic market for the semi finished and basic
finished leather
• Tanneries could not respond to increased demand finished
leather market properly
• Tanneries have not yet acquire proper finishing capacity and it
took too long
• Limited/no domestic demand for semi-processed leather
• Export of semi-processed leather is restrictively taxed
and hence no demand

9. Recent issues in Financing RHS supply
• Tanneries couldn't bridge the gap due to mismatch in seasonality of
supply and demand RHS and led to erratic price development
• Tanneries are increasingly abandoning collecting door to door during
holiday seasons led to collection and spoilage of the resources
• Tanneries are not purchasing RHS from traders led to spoilage of RHS
in the hands of trader that is being over stocked
• Some RHS traders start contracting illiquid tanneries underground to
process the RHS to prevent spoilage of RHS
• The over all result is wastage of resources and commotion demanding
emergency/crisis magnet measure

10. 0%
5%
10%
15%
20%
25%
30%
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Chart Title
Supply Demand
Recent issues in Financing RHS supply
Seasonality of supply
September (25% of supply)
New year, Meskel and Arafa Holdays
January ((25% of supply)
Mewlid, Genna and Timekt
May (25% of supply)
Fasika, Ramadan..
Slack Seasons:((25% of supply)
Oct-Dec, Feb-April, Jun-August

11. Statistical Bulletin No 532 570 573 578 ??
Report Date 1.3.12 1.4.13 1.8.14 1.3.15 Estimate
Report Coverage 2011 2012 2013 2014 2015
Ethiopian Calendar 2004 2005 2006 2007 2008
Initial Stock 95 99 104 111 115
Birth 30 30 33 35 37
Birth Rate 31% 31% 32% 32% 32%
Total Stock (1+2) 125 129 137 146 152
End Stock 99 104 111 115 120
Harvest (3-4) 26 26 26 31 32
Harvest Rate (4/1%) 26% 25% 24% 27% 27%
Death 14 12 13 13 13
Death Rate 15% 12% 13% 11% 11%
Legal Export 0.41 0.41 0.41 0.41 0.55
Illegal Export 1.73 1.73 1.73 1.73 1.58
Domestic Slaughter (5-6-7-8) 6 12 12 16 17
Availability (M Pieces) 21 24 25 29 30
Availability (M Sq Ft) 212 245 282 295 307
Recent Trends in Livestock population and availability Raw hides and skin

12. 212
245
282 295 307
101 111 122 135 148
101 111
73 67 59
0
50
100
150
200
250
300
350
2004 2005 2006 2007 2008
Chart Title
Availablity Supply Purchase
Sustainable Term:
Production of RHS and
supply has wide gap
Immediate Term: Supply
and recent years purchases
gap is widening

13. 0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Production Supply Purchases Wet end Crust Basic Finsishing Proper Finishing
• Nearly two third of
the produced hides
and skin are not
supplied to modern
sector (Hides is the
bulk)
• Currently more than
half of supplied is
not being purchased
due to
RHS production, supply and processing capacities in
percentage based on production

14. -
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
RHS Production RHS Supply Current Purchase Wet end Capacity Crust Capacity Basic Finishing Capacity Proper Finishing
Capacity
Demand by Shoe and
LP
Supply to Shoe and LP
Hides & Skin
RHS production, supply and processing capacities
Million Pieces

15. 0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
Sheep
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Hides
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
Goat

16. 203
34
24
56 54 54
27
45
13
45
37
15
127
100
74
22
37
11
47
30
12
57
48
33
10
16
5
-
50
100
150
200
250
300
350
In Million Square Feet
Hides Sheep Goat
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
RHS
Production
RHS
Supply
Current
Purchase
Wet end
Capacity
Crust
Capacity
Basic
Finishing
Capacity
Proper
Finishing
Capacity
Demand
by Shoe
and LP
Supply to
Shoe and
LP
In Million Pieces
Hides Sheep Goat

17. Proposed Solutions
Emergency measure: The problem is Industry illiquidity
Mobilize the relevant financial resources for emergency/
crisis management in the supply of RHS ( Who? How?)
Facilitate the immediate processing of the RHS available
at the hands of the RHS traders and slaughter houses
Facilitate the collection of the RHS by working closely
with Village collectors, RHS Traders and Tanneries

18. Implementation strategy
Emergency measure:
Engage tanneries with beam house capacity to provide a semi-
processing services
Engaged tanneries receive and convert the RHS, select, grade,
quantify and store the pelt or wet blue
Facilitate the RHS traders to sell the pelt or wet blue for
tanneries who are interested and capable to buy it and
process it to finished leather
The sells could be on bidding process with a clear Technical and financial criteria (Facility, Market, Price, Financial
position, Cash, Credit terms, track records…… )

19. Proposed Solutions
Sustainable Measure:
Establish a kind of revolving fund by estimating the fund requirement to
purchase and semi-process the RHS that is produced during the major
holiday seasons (Sep, Jan and May) to stabilize seasonal supply shock
• September (New year, Meskel and Arafa Holdays),
• Januray (Mewlid, Genna, Timekt and weddings) and
• May (Fasika, Ramadan)
Mobilize the relevant financial resources to increase the liquidity
of RHS traders and Tanners to manage the slack seasons (the rest
nine months ) purchases
Improve the value addition or manufacturing capacity (Key inputs,
production, Leather Finishing, Shoe and other leather products
(LGGG), Marketing skills (shift from sales approach to market
approach)

20. 295
101
240
202
160
59
98
29
-
50
100
150
200
250
300
350
RHS
Production
RHS Supply Wet end
Capacity
Crust
Capacity
Basic
Finishing
Capacity
Proper
Finishing
Capacity
Demand by
Shoe and LP
Supply to
Shoe and LP
Vision: Through iterative process
• Process all the produced RHS in to
300 M Sq. ft leather
• Supply Shoe and LP factories 300
Sq. ft of requisite type and quality
leather
• Improve immediate supply to shoe and
LP factories
• Improve proper finishing capacity
and scale up
• Improve shoe and LP processing
capacity
• Improve supply of RHS
Proposed Solutions- Sustainable Measure

21. Proposed Solutions
• Ministry of Industry (MoI
• Ministry of Trade (
• Ethiopian Industrial Input
Development Company (EIIDC)
• Leather Industry Development
Institute
• Leather Industry Associations
• Ethiopian Raw hides and skin
Traders Association
• Chemical Companies/Suppliers
• Tanneries
• Shoe Factories
• LGGG manufacturers
• Raw Hides and Skin Traders
• Raw Hides and skin Producers
(Abattoirs, Butchery traders,
………..)
• Development projects
Key roles by actors:

22. Thank you