Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

BRAZIL: Exporting Semi-Processed Leather Means Exporting Jobs

Mario Osava

RIO DE JANEIRO, Oct 28 2004 (IPS) - Brazil has adopted a policy that is costing the country income, investment and hundreds of thousands of jobs by encouraging the export of semi-processed hides instead of finished leather goods.

Representatives of the Brazilian leather industry believe the government is wasting the potential for development offered by the abundant supply of this raw material, just as it is doing in the case of coffee and soybeans.

Exports in the Brazilian leather and leather goods sector as a whole totalled 3.3 billion dollars last year. But if the government placed priority on the sale of finished leather goods, that amount could triple to ten billion dollars, and 570,000 new jobs would be created as well, according to estimates from the Centre for the Brazilian Tanning Industry (CICB).

At the same time, Brazil could attract roughly one billion dollars in investment in the manufacturing sector, CICB president Amadeu Pedrosa Fernandes told IPS.

Under the current circumstances, this capital is instead being invested in competitor countries, to which much of the Brazilian raw material is exported.

Fernandes spoke with IPS at Courovisao, an international trade fair held recently in Novo Hamburgo, the capital of the Brazilian shoe industry, located in the southern Brazilian province of Rio Grande do Sul.

Exports of Brazilian leather have tripled in the last 10 years, totalling 1.049 billion dollars in 2003. As of August of this year, they had risen a further 24.4 percent. The main reasons for this increase included the outbreaks in Europe of bovine spongiform encephalopathy (BSE) or mad cow disease and the growth in demand for leather in China.

The problem, according to the CICB, is that over 60 percent of the leather exported is "wet-blue", meaning that it has only undergone the initial tanning stage of processing. Finished leather, which is sold at almost three times the price, accounted for only 28 percent of the total.

In 2000, as a means of increasing value added in the leather and hides sector and creating jobs in Brazil, the government at the time, led by President Fernando Henrique Cardoso (1995-2003), established a nine percent tariff on exports of wet-blue semi-processed leather.

This measure contributed to an increase in sales of finished leather, leading in turn to higher earnings. But the current government, led since 2003 by President Luiz Inácio Lula da Silva, decided to reduce this tariff to seven percent as of January of this year, and plans to further reduce it to four percent next year and then eliminate it altogether in 2006.

The growth trend experienced in finished leather exports has already been reversed. Of the 28 million full hides that Brazil will export this year, 18 million will be wet-blue, Fernandes estimated.

In order to prevent an even greater reverse, the CICB is demanding that the nine percent tariff be maintained.

"What we want is reciprocity," said Fernandes, adding that other major producers have considerably higher export tariffs for semi-processed leather, "such as Argentina with 25 percent, Russia with 20 percent and India with 60 percent." Others, like China, Indonesia and Eastern European countries, also "protect their industries," he added.

What Brazilian producers would like is an even playing field, he said, with all countries either charging the same export tariffs on the raw material or eliminating them altogether. In the meantime, they are hoping the government will review its decision to cut the Brazilian tariff, which "works against the country’s interests."

As well as exporting potential employment and investment by exporting raw material, Brazil is also boosting China’s competitive power by having sent 1,200 Brazilian specialists to train Chinese workers in the leather industry, providing them with "technology and know-how," Fernandes said.

"We are giving our rivals more ammunition," said Juan Antonio Almada, president of the Brazilian Shoe and Accessory Designers Association (ABECA), which has 1,200 members.

Almada accused the government of failing to support the industry, and said that there should be an export tariff on wet-blue hides of "15 percent, at the very least." This view was shared by Roberto Gianetti, who spearheaded the establishment of the nine percent tariff in 2000 when he was the Brazilian secretary of foreign commerce.

Brazil has one of the largest and most technologically advanced shoe industries in the world. It would only take a few improvements in raw materials and design to make it the world leader in footwear, Almada said.

Italy and China, Brazil’s main competitors in the international shoe market, are also the largest importers of Brazilian leather.

With 180 million head of cattle, Brazil produces massive quantities of leather, but most of the hides are of poor quality.

The abundance of insects like ticks, due to the country’s tropical climate, and the practice among Brazilian cattle farmers of branding their stocks "up to five times" contribute to damaging the hides, which are further scratched and cut as a result of the skinning and transport methods used, Fernandes explained.

These are aspects that need to be addressed in order to achieve higher quality and greater profits, he added.