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EXIM BANK: RESEARCH BRIEF

Indian Leather Industry: Perspective and Export Potential
March 2006 EXPORT-IMPORT BANK OF INDIA
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No. 22

World Livestock Population

Hides and skins are the basic raw materials for the leather industry, which originate from the source of livestock. There was an upsurge in the number of bovine animals and goats and kids during 1990-2005, while population of sheep and lambs was on a decline. Developing countries accounted for around 78% of the total population of bovine animals and 93% of world population of goats and kids in 2005.
World Livestock Population in 2005

stood at 195 million heads in 2005. Although in 1990, India had the highest population of goats and kids (21% of the total), it was overtaken by China in 1995 and the gap between the two countries has been widening.

major source of global imports of raw hides and skins.

World Leather Exports

World leather exports grew moderately, by a CAGR of 7.3%, from US$ 46 billion in 2000 to US$ 61 billion in 2004. World leather exports can be categorised in to raw hides and skins (40%), leather articles (49%) and furskins (11%). China, Hong Kong, Italy, USA and France are major exporters of leather in the world. World leather articles exports increased by a CAGR of 8.06%, from US$ 22 billion in 2000 to US$ 30 billion in 2004. China constitutes 34% of the total leather articles exports. Hong Kong (17%), Raw hides and skins (Metric tonnes) 2002 2003

World Raw Hides and Skins Production

World production of raw hides and skins was nearly 7 million metric tonnes, of which production of bovine hides and skins alone accounted for 90% in 2004. Developing countries are the major producers of raw hides and skins. China played a significant role in turning developing countries as the

World Raw Hides and Skins Production

Category
Source: FAO, 2005

Year Total World Developing Countries Developed Countries World Developing Countries Developed Countries World Developing Countries Developed Countries Source: Compiled from FAO

2004 6,667,937 6,018,291 3,460,311 2,557,980 384,932 210,264 174,668 264,714 250,363 14,351

World bovine animals population stood at 1,529 million heads in 2005. India had the largest number of bovine animals (283 million heads) with a share of 19% followed by Brazil (13%), China (9%) and USA (6%). World sheep and lambs population stood at 1,079 million heads in 2005. With a total population of 170 million heads, China had a share of 16% in the world sheep and lambs population. India (6%) lagged behind at third position, with a population of 62 million heads. World goats and kids population stood at 807 million heads in 2005. China has the highest population of goats and kids, which

6,535,454 6,806,099 Bovine Hides and Skins 5,895,375 6,147,035 3,315,001 3,547,112 2,580,374 2,599,923 Sheep and Lambskins 382,459 390,712 202,345 209,020 180,114 181,692 Goat and Kidskins 257,620 268,352 243,660 254,120 13,960 14,232

Exim Bank : Research Brief No. 22 March 2006

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Brief on New Publications

Indian Leather Industry: Perspective and Export Potential

Italy (11%) and France (9%) are other major exporters. Indias exports of leather articles have stabilized around US$ 1,033 million in 2004.
Top Exporting Countries of Leather Articles in 2004

Nadu, with a share of 52%. Other states where tanning industry is concentrated include West Bengal and Uttar Pradesh. Small scale sector accounts for large processing capacity ranging from 70-87% for different leather products.

Indian Leather Exports

In 2004-05, the industry recorded a satisfactory 5.8% export growth to reach a level of US$ 2.3 billion. Although, leather exports have increased in absolute terms, its share in total exports have declined in percentage terms from a high of 7.99% in 1990-91 to 2.89% in 2004-05. Export of Leather and Leather Manufactures (including Leather Footwear, Leather Travel Goods and Leather Garments) Year Exports (US$ million) 1960-61 59 1970-71 106 1980-81 493 1990-91 1,449 1995-96 1,731 2000-01 1,951 2001-02 1,910 2002-03 1,848 2003-04 2,163 2004-05 2,323 Source: Economic Survey, 2004-05 & RBI

Exim Bank of Indias Role in Promoting Indian Leather Sector

Export Import Bank of India (Exim Bank) has helped the leather exporting units to modernize and upgrade their production facilities, install pollution control and environmental safety systems of internationally accepted standards and develop export market for value added products through strategic export market development plans. Exim Bank implemented Agency Line of Credit and Export Development Project, joining hands respectively with International Finance Corporation (IFC), Washington and the World Bank to support small and medium enterprises in the leather sector.

Source: PC-TAS, HS, ITC/ UNCTAD

World Leather Imports

World leather imports can be classified in to raw hides and skins, leather articles and furskins, with a share of 38%, 55% and 7% of the total world leather imports, respectively. Leather articles is predominantly imported by USA, Spain, UK and Belgium; whereas China, Mexico, Turkey and Romania are mainly into imports of raw hides and skins. Hong Kong, USA and Italy are chief importers of furskins. World imports of leather articles is estimated to have grown marginally from US$ 27 billion in 2000 to nearly US$ 34 billion in 2004. USA, the largest importer of this product, is predominantly captured by China. Chinas share in USAs import of leather articles has increased gradually, from 54% in 2000 to 70% in 2004.

Composition of Indian Leather Exports

Composition of Indian leather exports has undergone a radical change, from being a mere exporter of raw hides and skins, to a status of an exporter of value added leather products. From 1991-92, India has been exporting only finished leather because of export restriction on semifinished leather. Total leather and leather manufactures exports stood at Rs.10,286 crores in 2004-05. Leather footwear is the largest component of leather exports, with a share of 26%.
Composition of Indian Leather Exports in 2004-05

Major Export Markets

The main export markets for India are Germany, USA, Italy, UK and France. Due to the two bans imposed by Germany on imports from India, there was a lull in Indias exports in 2002-03. Slowly and steadily, it picked up pace and stood at US$ 326 million in 2004-05. Exports to USA, which was US$ 343 million in 200001, dropped to US$ 243 million in 2002-03 and was at US$ 266 million in 2004-05.
Destination of Indian Leather and Leather Manufactures Exports

Indian Scenario
With about 15% of the world livestock population, India accounted for only 8% of the leather production in 2002. The Indian leather industry consists of 42,000 small-scale industry (SSI) units, which account for 75% of the total production. Nearly, 2.5 million people earn their livelihood from this sector. A survey by Central Leather Research Institute (CLRI) estimated that about 1,600 tanneries were present in India in 2000. The concentration of tanning industries is mainly in Tamil

Source: DCGI&S

Source: RBI & DGCI&S

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Indian Leather Industry: Perspective and Export Potential

Analysis of Indias Export Potential

Indias major export markets for leather handbags are USA, Germany, UK and Spain. In UK and Spain, Italy is the top exporting country of leather handbags. However, China has overtaken Italy and emerged as major exporter in markets like USA, Canada, Hong Kong and Russia. India has lot of potential in these markets, as it has unique advantage of economies of scale and capability of producing niche products. Footwear is a critical segment for the Indian leather industry as this is expected to be the engine of growth for the Indian leather sector. Currently, the trend in export of Indian footwear has been encouraging; however the trend for footwear components exports has been declining. Indias exports of footwear components have dropped from US$ 238 million in 2000-01 to US$ 164 million in 2004-05. Top importers of leather footwear uppers in the world are China, United Kingdom and Canada.

World leather garments exports have increased over the years. USA, Germany and Japan were the largest importers of leather garments in the world in 2004. India was placed among the top three exporting countries of leather garments in these markets. Further, India is the largest sourcing partner of leather garments to Spain and Italy, which are the major markets for Indian leather garments. Indias other major export markets are Germany, USA and France. But, India must be cautious of China, as its unit price of leather garments is cheaper than that of India.

developing countries. Usage of many chemicals has been banned by various countries. The product specifications for leather are constantly under review, leading to greater stringency. Impact of PETA Campaigns by NGOs, such as People for Ethical Treatment of Animals (PETA), related to cruelty against animals have led to boycott of Indian leather products by many foreign companies. WTO Related Matters With the advent of WTO, the average and bound tariffs for manufactured products have fallen in the developed countries. However, the average and bound tariffs for leather products remain relatively high. Many developed countries are implementing Technical Barriers to Trade (TBT) as Non-Tariff Barriers to restrict leather exports from developing countries like India. Cost Escalation Leather exporters have to meet domestic as well international environmental norms. Testing and certification requirements add to the (US$ million)

Major Issues Affecting the Sector

The issues that are hindering the export growth of the Indian leather industry are as follows: Environmental Issues The leather industry is traditionally considered as a polluting industry in the tanning and finishing stages of the production chain. Global standards set by importing countries affect the entry and increase the cost of market access to products of

Comparison of Leather Exports by China and India to the World in 2004

Commodity Raw hides and skins Raw hides of bovine animals Other raw hides and skins Leather of bovine animals Leather of sheepskins and lambs Leather of goat and kidskins Parings and other waste leather Chamois leather Leather Articles Trunks, suitcases, etc. Leather garments Leather used in machinery Articles of gut, etc. Saddlery and harness Furskins Raw furskins Apparels of furskins Artificial fur and thereof
Source: Compiled from PC-TAS, HS, ITC/ UNCTAD

World Exports 24323.43 3986.67 1148.57 15226.62 1018.18 481.03 222.37 124.25 30,279.64 5303.68 21377.56 40.99 95.01 635.57 6802.91 1692.67 2590.03 74.83

Exports from India 587.26 2.90 1.19 299.55 18.48 231.10 0.34 0.04 1033.00 37.02 297.39 9.20 4.90 58.51 1.00 0.00 0.43 0.10

Share of India (%) 2.41 0.07 0.10 1.97 1.81 48.04 0.15 0.03 3.41 1.10 1.39 22.44 5.15 9.21 0.01 0.00 0.02 0.13

Exports from China 1400.99 0.03 1.17 1103.64 70.21 39.13 0.72 10.21 10259.00 3953.03 2304.76 0.68 0.31 157.69 2007.42 0.26 1384.32 29.04

Share of China (%) 5.76 0.00 0.10 7.25 6.90 8.13 0.32 8.22 33.88 74.53 10.78 1.66 0.33 24.81 29.51 0.02 53.45 38.81

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Brief on New Publications

Indian Leather Industry: Perspective and Export Potential

costs of leather manufacturers. However, it is observed that small supplier firms may not be able to comply with stringent environmental standards. High costs of compliance impose real economic costs on firms. Chinese Competition Chinese leather industry ranks top on the raw material resources, product yield and import and export trade in the world. China is one of the major competitors to Indias leather sector as it has the capability to produce large volume at low price. Chinese leather exports have increased by three-fold after its entry into WTO.

in the sector is vital for enhancing the export potential of this sector. Investment by Large Corporates Indian leather industry is dominated by household and small scale sectors. Corporate presence would enhance the capability of producing quality leather products. The large capacity would also bring down the unit cost and increase the competitiveness in international markets. New Markets Diversification of export markets is another important strategy for Indian leather industry. Consolidation in new markets such as Croatia, Slovakia and Serbia would sustain the export growth momentum for the Indian leather industry. Imports of leather articles by these countries have increased in the range of 2030% in a period of five years. New Trends The industry needs to keep itself abreast with latest fashion trends in the sector. It is observed that Italian buyers pay attention not only to the quality of the leather products but also to the accessories used in the garments. It is imperative that adequate care is taken about the packing material. Diverse Marketing Techniques India needs to adopt aggressive marketing techniques in order to endure global competition. The industry could undertake business delegation to secure overseas investments and technology partnerships, besides building brand image. Developing countries like India should have two pronged marketing strategy of simultaneously targeting both low price and high quality markets, rather than the traditional strategy of being a low price-low quality supplier. Enabling Infrastructure The development of the Calcutta Leather Complex is a positive sign as all amenities are available at one

place. Such exclusive leather complexes could be developed in other major production centres. Improvements in efficiency of ports, internal transport, customs procedures and supply chain management are necessary for augmenting the productivity and exports in this sector. Fairs and Exhibitions It is imperative that Indian exporters participate in fairs and exhibitions organized in the international market. It could serve as a good platform to showcase our products. Lack of information about Indian leather manufacturers also acts as a hurdle for international buyers. Training Facilities Training programmes should enable the industry to foresee and adapt to changing trends and technology. It is imperative that the staff is skilled and well qualified to train the students. Further, programmes need to be conducted to make Indian exporters aware of different standards and requirements in the global market to ensure that Indian exports do not get rejected due to environmental norms.
The contents of the publication are based on information available with Export-Import Bank of India and primary desk research through published information of various agencies. Due care has been taken to ensure that the information provided in the publication is correct. However, Export-Import Bank of India accepts no responsibility for the authenticity, accuracy or completeness of such information.

Strategies for Indian Leather Sector

The Indian leather industry is targeting over US$ 5 billion exports by 2010 and is expected to add about additional 1 million direct and indirect jobs during this period. At present, the industry employs 2.5 million people directly and indirectly. Shifting of Manufacturing Base Major world tanning firms are in the process of shifting their manufacturing base to developing countries due to high wage levels and strict environmental norms in developed countries. Factors such as availability of leather, production know-how, processing of shoes work in Indias favour. India could effectively use these advantages to augment its share in global production and exports. Government Support Technology upgradation and modernization of the entire leather value chain should be given priority. Recently, the Government has approved Rs. 290 crores for modernisation and technology upgradation programme. Strong Production Base The industry should lay emphasis on design and technology, quality and innovation and economies of scale. Skill development for the manpower engaged

Note: Indian Rupees are referred in crore and lakhs: 1 crore : 10 million 1 lakh : 100 thousand
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Exim Bank : Research Brief No. 22 March 2006

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