Industry Insight: Challenges Of The Leather Supply Chain
Written by Grace George
Published 3/28/22
Updated on 6/10/22
In this Industry Insight, we will be talking about the current state of the global leather tanning industry, some of the significant risks facing consumers, and how reshoring and working with domestic tanneries like Pergamena are the way forward.
The top 5 leather producing countries (making up around 55% of the global leather industry) are China, Brazil, Russia, India & Italy, see figure 1. However, with the current supply chain, shipping, and international relations issues being what they are, there is a serious risk to the global leather supply.
Figure 1: The Top 10 leather producing countries in the world as of 2020 according to a Grand View Research Report. [1]
*Update*
The Reshoring Initiative, an organization whose mission is to help bring manufacturing back to the United States, concluded in their recently published "2021 Data Report" that
"The Ukraine/Russian war and geopolitical tension with China will drive ongoing supply chain shifts, further accelerating reshoring and nearshoring."[2]
As the Russia- Ukraine conflict continues, we wanted to include a section on how rising global tensions may affect the leather industry. As shown in Figure 1, Russia is the 3rd largest producer of leather globally, making around 10% of the world's leather. In March of 2022, the USA and the EU placed severe sanctions on Russia following the invasion of Ukraine. These sanctions were far-reaching, and luxury goods (including leather and leather goods) were one of the trade categories affected by the sanctions. However, as of June 2022, the sanctions placed on luxury goods from both the EU and USA only involve exporting goods to Russia.[3][4] If these sanctions expand into importing leather from Russia, this will leave a large hole in the supply chain. Another concerning area of this geopolitical conflict is the growing allyship between Russia and China and the tensions this is creating between China and other western countries. While currently, there are no trade embargoes or sanctions against China, the present state of affairs is troubling and should be watched closely. As shown in Figure 1, China is the largest producer of leather globally, making up 35.6% of the industry. If trade with China were to be limited, that could be detrimental to the global leather supply chain.
While the US is a major exporter of raw hides, the path for most leather goods is long and involves multiple countries. For example, a raw cowhide might leave a US farm, get processed to wet-blues (Chrome tanned) in China, sent to Italy to be re-tanned, then sent back here to the US as finished leather. This complicated path, shown in Figure 2, has worked for decades, but complex systems tend to be very fragile, subject to bottlenecks, and costly. The pandemic showed the vulnerabilities of a multinational supply chain, and experts are not hopeful for a quick return to normalcy. [5] Couple these shortages and delays with the amount of emissions and pollution caused by international shipping, and it’s easy to see why brands worldwide are beginning to look for options closer to home.[6] In the latest World Trade Organization report, it was noted that importing and exporting of goods has accounted for 20-30% of Greenhouse Gas emissions in the last decade. [7] Since March of 2021, the US has exported more than 28 million cattle hides alone, according to the USDA see Figure 3 for a full breakdown. Unfortunately, the leather supply chain is not very transparent, and it is challenging to track the path of an exact hide from farm to studio. While we in the US have governing bodies like the USDA to provide information on importing and exporting, other countries, such as China (the largest producer of leather globally), do not make such data available.
Figure 2: This diagram represents the potential shipping path for leather hides.
At Pergamena, we source all of our hides from US farms, mainly here in the northeast, and our hides never leave the country. As a result, our supply chain is far shorter than that of international tanneries and, because of this, we have more control and stability over our materials. Unfortunately, control and stability are precisely what the supply chain has lacked for many years. And, now because of the pandemic, these issues have been brought to light. The recent supply chain issues and a consumer base that is becoming more and more concerned about sustainability and the pollution of the textile industry are leading brands back toward domestic and environmentally conscious tanneries such as Pergamena, this practice is also known as reshoring.
Figure 4: This industry segmentation data was derived from the 2021 Leather Tanning & Finishing US IBIS world report. [10]
While reshoring has long been touted as the saving grace for American manufacturing, the problem for the leather industry is that there are not many American-based tanneries like Pergamena still in operation. According to the US Census Bureau, as of 2019, there were only 173 tanning facilities left in this country.[11] While 173 might not seem too bad, the Census includes all kinds of tanneries - Veg & Chrome Tanners, finishers, pre-processors, and wet-blue facilities. I could not find a comprehensive industry breakdown, but by using the information found in Figure 4 and the census report, my best estimation is there are between 14-20 tanneries left producing Veg-Tan leather. Veg-tanning is the tanning process using plant derivatives. It is generally considered the more environmentally friendly and sustainable option for leather tanning over chrome tanning, the process uses chromium and other harsh chemicals to tan hides.
Now that I have scared you, here is some hope; there are still some of us left! We have not only weathered the storm and survived the mass tannery exodus of the 1970s & 80s, but in that time, we have innovated. Our supply chain has been domestic since the 1970s, and we have been making steps towards eco-friendly, sustainable, and traceable leather since the 1990s. So, while suppliers across the world are having to notify their customers of shortages, we can still get our raw materials from farms across the country and supply our customers. To find out more about our tannery and learn about our almost 500-year family history of leather tanning check out our website about us page.
Figure 5: This industry segmentation data was derived from the 2021 Leather Tanning & Finishing in the US IBIS world report. [12]
For American tanneries to ramp up production, we need access to raw hides. While we at Pergamena are very proud to say that we take a waste product of the meat processing industry and turn it into a luxury material, most of the smaller processing plants in the US do not want to work with tanneries. Preserving the hides takes additional care in processing; the hides are also considered bio-waste and must be kept away from the meat. Because these small meat processing plants that generally work directly with small farmers are not set up to save hides, they will actually charge the farmer to dispose of the hides. Large meat processing facilities will usually work synchronously with large tanneries that are built very close to the plant for easy transportation of the hides.
Figure 6: This diagram represents the market share (the portion of a market controlled by a particular company or product) of the top four companies in the meat industry. This data was derived from the IBIS World report “Meat, Beef & Poultry Processing in the US”[13]
The meat processing industry is highly centralized, with 52% of the meat processing industry controlled by four companies, see figure 5. Because of the lack of competition in this industry, farmers and ranchers have seen dwindling returns for decades, and there have been countless workplace violations in the last decade. Additionally, JBS, Cargill, and Tyson foods are currently engaged in a class-action lawsuit in which they have been accused of price-fixing since 2015. [14] [15] [16] In response to this Oligopoly-like control we have seen farmers and ranchers band together to form meat processing cooperatives in the last few years. The Bay Area Ranchers Co-op and Sustainable Beef LLC are some examples of co-operatives cropping up. The goal is that these co-ops being owned and operated by farmers and ranchers will increase the quality of care for the animals and employees, while also increasing profits for the farmers and ranchers. These co-ops are a viable option for long-term domestic rawhide supply as they will need to sell every part of the animal to make a profit. For over a decade, Pergamena has been building our traceable leather line by working with organizations like White Oak Pastures and we are continuing to grow our line every year. While we would love to work more closely with the individual farmer or rancher, the problem is it’s very difficult for these individuals to get their hides back from the processing plants. As more and more Rancher-run Co-ops are emerging, they give us the ability to complete the cycle and truly use every part of the animal.
We here at Pergamena are hopeful that through the process of reshoring, aided by farmers, ranchers, and co-operatives, there will be a return of American manufacturing and tanning. This return not only helps our economy but will better meet the needs of American designers, producers, and consumers. We have the ability to restructure and create a better system for everyone.
[1] (“Leather Goods Market Size, Share & Trends Analysis Report By Product (Footwear, Home Decor, Apparel), By Type (Genuine, Synthetic), By Region (North America, Asia Pacific), And Segment Forecasts, 2021 - 2028” 2021)
[2] (“RESHORING INITIATIVE® 2021 DATA REPORT: | Reshoring Blog | Reshoring Initiative” n.d.)
[3] (Council Regulation (EU) No 833/2014 of 31 July 2014 Concerning Restrictive Measures in View of Russia’s Actions Destabilising the Situation in Ukraine 2022)
[4] (Imposition of Sanctions on `Luxury Goods’ Destined for Russia and Belarus and for Russian and Belarusian Oligarchs and Malign Actors Under the Export Administration Regulations (EAR) 2022)
[5] (Goodman 2022)
[6] (Nast 2021)
[7] (“TRADE AND CLIMATE CHANGE INFORMATION BRIEF N°4” 2021)
[8] (“U.S. EXPORT SALES Cattle Hides - Whole - Excluding Wet Blues From: 03/24/2021 To: 03/17/2022” 2021)
[9] (“U.S. EXPORT SALES of Cattle Wet Blues-Unsplit (Whole or Sided) From: 03/24/2021 To: 03/17/2022” 2021)
[10] (Ross 2021)
[11] (“CB1900CBP All Sectors: County Business Patterns, Including ZIP Code Business Patterns, by Legal Form of Organization and Employment Size Class for the U.S., States, and Selected Geographies: 2019” 2019)
[12] (Ross 2021)
[13] (Schulman 2021)
[14] (“US Department of Labor Cites JBS Foods Inc. for Repeated Safety Failures after Worker’s Death at Swift Beef’s Colorado Facility | Occupational Safety and Health Administration” 2021)
[15] (Wheeler 2016)
[16] (Edwards 2022)
For any inquires or to work with us please contact us at sales@pergamena.net
Pergamena is an artisanal leather and parchment tannery based in the Hudson Valley Region of NY. We are owned and operated by Jesse K. Meyer, the latest in a long line of Meyers to continue the family tradition of tanning dating back to the 1550s. While the family tannery has had multiple names over the centuries, we have always had a commitment to quality, innovation, and care. Part of our commitment to care involves our materials sourcing and our tanning method. All of our hides have been sourced domestically since the mid-1970s, and we have exclusively used Veg-tanning since the mid-1990s.
Bibliography
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Council Regulation (EU) No 833/2014 of 31 July 2014 Concerning Restrictive Measures in View of Russia’s Actions Destabilising the Situation in Ukraine. 2022. http://data.europa.eu/eli/reg/2014/833/2022-03-16/eng.
Edwards, Jessy. 2022. “Judge Gives Green Light to JBS SA’s $53.5M Settlement Over Beef Price Fixing Claims.” Top Class Actions, March 1, 2022. https://topclassactions.com/lawsuit-settlements/consumer-products/food/judge-gives-green-light-to-jbs-sas-53-5m-settlement-over-beef-price-fixing-claims/.
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“RESHORING INITIATIVE® 2021 DATA REPORT: | Reshoring Blog | Reshoring Initiative.” n.d. Reshoring Initiative. Accessed June 8, 2022. https://reshorenow.org/blog/reshoring-initiative-2021-data-report/.
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