The agro-processing industry in Cacadu is dominated by the production of leather and leather-related goods. These leather products are mainly used in the export orientated automotive industry in Port Elizabeth but a considerable amount is also exported to markets in Italy and Asia. Collectively, the export of these leather products generated an estimated R 39 million in export earnings for the CDM in 2008. Furthermore, CDM is well suited for the leather industry, as the Eastern Cape is home to the largest numbers of livestock.

Globally, the main sources of raw material for the leather industry are cattle, sheep and goats; however leather is considered a by-product as the animals that they receive the skins and hides from are specifically reared for the production of meat, wool and dairy products. Typically, the value of cattle hides, sheep and goat skins represents in the region of 5-15% of the market value of an animal.

 

The by-product nature of the leather industry prevents a significant waste problem that would arise if the leather industry did not exist; this is as a result of the tanneries making use of hides and skins which would, if the industry did not exist to process them, create an enormous waste disposal problem with the attendant health hazards. Leather is a renewable natural resource, if leather was not produced, it would have to be replaced by synthetic materials derived from non-renewable resources.

Due to the unique characteristics of hides and skins from newer, emerging animal industries, most of this “exotic” leather is finished for the fashion industry for use in garments, handbags, small leather, footwear and luggage. Ostrich leather falls into this category, where the main market is the export market with Europe and the USA comprising the biggest export destinations.

Within South Africa the leather industry consists of various manufacturers that use cattle, ostrich and other hide/skin as a raw material. Differentiation may be vertical (across various degrees of value adding) or horizontal (the same raw material put to different uses by different kinds of manufacturers).

 

The following tanneries are located in the Cacadu District and in the neighbouring Nelson Mandela Bay:

 

Steps in Leather Production 

The following steps are found within the stages of leather production/leather value chain:

 

§         Livestock;

§         Raw Hides;

§         Wet Blue

§         Finished Leather

§         Manufacturers

§         Retailers

§         Consumers

 

The first stage of the leather chain is the recovery of hides and skins from animals. Hides and skins are a by-product of farming stock, bred primarily for meat consumption. Thus, hides and skins are mainly recovered from slaughterhouses and farms and due to this the leather industry depends on the recovery of hides from the farming stock, thus availability of raw material depends directly on the size of the animal population, the take-off ratio and the weight/size of the hide/skin recovered.

 

The next stage of the leather chain is wet blue and finished leather; the collected raw hides are converted into what consumers recognize as leather. Most leather is tanned using chrome tanning salts. Only a small amount of shoe sole, saddle, and belt leathers are still tanned by the traditional vegetable tanning process which makes use of vegetable tannins (extracted from tree bark) as the tanning agent. The following presents the various steps of how chrome tanned leather is made:

1.) Soaking and Liming 

The salt-cured, fresh or "green" hides are soaked in water in large, slowly turning drums to wash out the salt and return the hide to the same condition as it was on the living animal. After a minimum of 4-6 hours, the water is drained off and fresh water is added. Lime and sodium sulphide are added and the drum is run on and off for five minutes every hour for the next fourteen to eighteen hours. This removes the hair and other unwanted protein in the hide and opens up the fibre structure. The following morning the hides are scraped clean of excess fat on a "fleshing machine" and the limed pelts are then loaded into another drum for further processing.

2.) Deliming, Bating, Pickling and Tanning
After the hides have been washed, ammonium sulphate is added to a fresh drum to remove excess lime. An enzymatic bating agent is added to further open up the fibre structure and clean the grain, thereafter the hides are washed again with cold water. A small amount of fresh water is now run into the drum and sodium chloride and sodium formate buffer are dissolved in it. Sulphuric acid is pumped in for a further 1.5-3 hours. The salt prevents the acid from damaging the hides. Chrome tanning salt is added and the drum is run for 1-3 hours, after which magnesium oxide is added and the drum is run overnight to an end pH of 3.6-4.0 and an end temperature of about 45 degrees Celsius.

 

The following morning the hides have been tanned and can now be called wet blue. Chrome-tanned (wet blue) leather has a characteristic bluish colour. Hides are drained for a day, then "sammed" (squeezed through a machine) to remove excess moisture, sorted visually into various grades, then split through a bandknife splitting machine and finally shaved to the correct thickness. The drop (flesh) split is trimmed and shaved for suede split, finish coating or industrial gloving split leather.

3.) Neutralising, Retanning, Dyeing and Fatliquoring
The shaved wet blue is now divided up into batches for dyeing. Due to the chrome tanning process being acidic, the leather is first neutralized with sodium bicarbonate and sodium formate or acetate, after which it is retanned with synthetic tanning agents called syntans, resins and natural tannins, which impart the desired properties to the leather being made. The leather is then dyed to the required shade and finally "fatliquored"-natural and synthetic oils are taken up by the leather to replace the natural greases removed in the preceding processes, so that the fibres will be lubricated when the leather is dried.

4.) Drying, Conditioning, Staking and Buffing
The leather is again drained overnight, set out on a setting machine to remove wrinkles and then dried. Various methods are employed:

 

After drying, the sides are sprayed lightly on the back (flesh) side with water and piled under plastic to condition and even out the moisture content for a few hours. They are then softened, and the corrected grain sides are then buffed/sandpapered to remove or minimize surface defects. Full grain sides are not buffed, but are left with the natural grain pattern and are therefore made from top quality hides.

5.) Finishing
Finishing of leather involves various pigments, resins, binders, lacquers and dyes being applied by curtain-coater, pad, roller-coater and spray machines to give the leather its final colourful, scuff-resistant look and feel. Leather is often softened after finishing by milling in a milling drum for a few hours. Finally, the area of the sides is measured and the leather is sent to the warehouse for final sorting and packing before dispatching.

 

Within South Africa, leather usage for automotive seats and trim makes up the majority of the total leather usage, contributing over 87%. Developing countries dominate developed countries in terms of numbers of livestock by between 3 to 4 times. This means that at the beginning of the 2000s, developing countries held 78.1% of the world’s 1.5 billion head of cattle livestock, and 76.6% of the world’s 1.8 billion sheep and goats. The conversion rate, however, of animal population to raw hides and skins in developing countries is far less than in the developed countries. Developing nations only produced 53.8% of the 5.7 billion tons of raw hides, compared to the developed nations’ 46.2%. A similar but slightly better picture arises for the conversion of the sheep and goat population in developing countries. Despite having 76.6% of the total sheep and goat population, their conversion rate to billion tons of world skins falls to only 67.2%.

The 15-year production trend of finished leather indicates a general increase in the global production of all types of finished leather. Global production of heavy bovine leather increased by 1.2% on average per annum, from 414 billion to 495 billion tons. The production of light bovine leather increased globally by an average of 1.4% per annum, from 9 million feet² to 11 million feet². Finally, light sheep and goat leather increased from 3.4 million feet² to 4.5 million feet².

The quality of South African hides has been positively influenced by the rise in the number of feedlots operating in the meat industry. The quality of South African hides is rated to be superior to other sub-Saharan African and Asian countries’ hides, but inferior to most hides from Australia, Argentina, the US and Europe. This is due to their relatively small size compared with the last two origins (3.5-4m²) renders them just marginally suited for upholstery and automotive leather. Only about 60% of South African hides are regarded as suitable for automotive leather.

Prices of hides are higher and rising faster in South Africa than in other countries. Since 1997 hide prices have increased by 56% in South Africa compared to 26% in Germany and 31% in the USA.

Area Identified and Land availabitilty 

Leather processing can take place in nearly all areas of the Cacadu District, provided that it is situated in an area that has an adequate supply of water, as this is one of the most crucial elements to consider in setting up a tannery, together with access to electricity and road infrastructure.

 

Close proximity to abattoirs and areas of livestock and ostrich production are advantageous. Consideration to areas with access to available semi-skilled workers is also vital; CDM is therefore well suited as the area fulfils these critical considerations.

 

The Skin, Hide and Leather Council (SHALC), is a voluntary organization for the hides, skins and leather industry, which is recognized by Government as the official representative of the multi-million South African Leather Industry. SHALC promotes genuine leather, and the Mark. The Mark gives assurance to customers and consumers that the article indeed comprises of genuine leather.

 

As with the area and land availability, the land and climatic conditions are not critical for the establishment of a tannery. The tannery should comply with all municipal by-laws in terms of suitable areas in which to set up a fully functional tannery.

The infrastructure required for the operations of a tannery require access to large quantities of water, since it requires roughly 1000litres of water for 1000 skins during the tanning process. Furthermore, there needs to be adequate road and transport networks, with effective transportation to guarantee the delivery of the products. There needs to be sufficient electricity and buildings in place to ensure the effective running of the facility. CDM has access and is well linked in terms of electricity and road networks respectively and is therefore suitably matched in terms of adequate infrastructure for a tannery.

Human Resources 

A standard tannery that is able to produce approximately 1000 skins per month requires 8 workers, who will need to receive on-the-job training. The International School of Tanning Technology located in Grahamstown is an excellent source of training. Appropriate management and control skills are required throughout the process to ensure cost effective and globally competitive products and services according to the requirements of the market. Since this industry requires detailed knowledge of the processes and chemicals that are needed to effectively operate a tannery and produce competitive skins, training is extremely necessary.

 

§         This industry is characterized by high start-up capital costs and a low export orientation.

§         This industry lacks innovation in terms of leather designs.

§         There is a declining investment in research and development.

§         There is a general lack of continuous training and skills development within this sector.

§         The industry has traditionally been unable to empower previously disadvantaged individuals.

§         Unfair competition due to importation of undervalue goods and false declaration

§         The South African Wet Blue (hides and skins) is historically not competitive in terms of the price and quality produced by competitors such as Australia, Brazil and Italy, due to the size of the hides being marginally smaller and therefore not suited for upholstery.

§         Prices of local hides are higher than those of competing countries.

§         Chemicals used by local tanneries and retainers are more expensive due to high freight costs that are added to imports.

§         The environment is less friendly for informal hides’ suppliers and this is aggravated by poor veterinary structures as compared to Europe and USA.

§         Formal and rural farmers are not trained in better livestock husbandry, which impacts on the quality of hides and skins.

§         Cattle are also not well branded (tagging ID’s, freezing branding) to reduce waste from current 40% unusable material.

§         Characterized by high water consumption in a water scarce region.

 

Opportunities: 

§         There is a need for research and development on better methods to process hides and skins in order to increase the usage of available hides and skins.

§         There is potential for partnerships to be created between existing tanneries and manufacturing plants, especially within the ostrich leather industry. These manufacturers will benefit from the already existing tanneries with all relevant capital costs, where the manufacturer could ideally set up on the same property. This will create steady relationship, limit transport costs, and help grow the local market which is relatively untapped.

§         Potential exists to build on the South African Leather brand.

 

References: 

International School of Tanning Technology, 2010

International Trade Centre, 2010

Richard Ballard, Exporting and Upgrading in South African Leather Industries, 2002

P and N Environmental Development Consultants, VENISON ABATTOIR, TANNERY

AND GAME PARK EXPANSION BUSINESS PLAN, 2006

International Council of Tanners, 2010

The Department of Trade and Industry, Footwear and Leather goods: Sector Development Strategy, 2008

Personal interview with Phillipe Tannery, 2010.

 

§         All information contained within this profile was accurate at time of publishing.

§         The information contained within this report is intended only as an industry profile and does not assume to take the place of information contained within a business plan, pre-feasibility study or feasibility study.

§         The Cacadu District and service providers are not liable for any damages caused by the use of the information contained within this report.

§         The purpose of this profile is to both promote the area for investment and inform investors of relevant issues. It is advised that investors, who wish to pursue an investment within Cacadu DM, should use this profile as a basis to conduct further research.

 

The following costs incurred and income received is based on a classic case example; which outlines the potential budget for a tannery. This functions to provide investors with broad categories of costs experienced, however further research in terms of feasibility studies and business plans will need to be carried out in order to determine the relevant costs and income according to the specific enterprise entered into.

Capital Investments 

The table below outlines the costs of setting up a tannery in 2006.