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Why low price of rawhide does not reflect in price of leather goods?

Cheap prices of rawhide do not necessarily mean the leather goods such as footwear, belts and bags are expected to be very low as leather price only holds 5% of production cost

Bangladesh is one of the biggest producers of raw leather in the world. At the same time country’s leather sector is tremendously promising with the second-highest export earner after readymade garments (RMG). But prices of locally produced leather goods – such as footwear and bags – prices are abnormally high in the domestic markets.

low-price-rawhide-not-reflect-price-leather-goods
Figure 1: Cheap prices of rawhide do not necessarily mean leather goods.

Bangladesh Trade and Tariff Commission (BTTC) says cheap prices of rawhide does not necessarily mean the leather goods such as footwear, belts and bags are expected to be very low as leather price only holds 5% of production cost.

95% cost is associated with accessories like labor, transportation, branding, administrative and managerial works and running establishments combined with that of bank interest rates and stock lots are high.

Reasons-Bangladesh-leather-goods-higher-prices
Figure 2: Reasons of Bangladesh leather goods higher prices.

Abu Eusuf, a Professor of economics in the Department of Development Studies of the University of Dhaka said a Daily Newspaper, “Though the price of leather is very nominal in the full production and marketing cycle of leather. The bank interest rates and the cost of availing finance, accessories, marketing, establishments, showrooms, labor and others are very high, triggering prices of leather shoes to go very high.”

Which is why cheap availability and low prices of rawhide do not reflect in the prices of leather goods in the domestic markets.

cheap-rawhide-Bangladesh
Figure 3: Due to higher accessories cost, cheap availability and low prices of rawhide do not reflect in the prices of leather goods in the domestic markets. Courtesy: Mehedi Hasan

Globally the demand for high-end and semi high-end leather goods has increased, as a result, local leather footwear and leather goods manufacturers have recently focused on making such products that contribute to higher prices and comfort of leather goods in Bangladesh. For example, most leather footwear manufacturers previously used wood to make soles – the bottom part of shoes. But these days, the shoe soles are made from natural rubber, which costs higher.

In the international market, the use of synthetic or nylon thread-made non-leather footwear and other products are growing significantly.

Even a significant number of people use non-leather shoes as official shoes because they like casual attire for going to offices. Besides, non-leather synthetic products are cheaper. Which attracts a large consumer pool. These alterations have come about mainly for changes in tastes in the world of fashion.

As a result, leather shoes/products are being pressed out of the markets, leading to a negative impact on sales.

This can be seen in the export figure in recent years. The leather exports in July were down by 15.23% to $106.1 million, according to data from the Export Promotion Bureau (EPB).

low-price-rawhide-Bangladesh
Figure 4: Globally the demand for high-end and semi high-end leather goods has increased.

This has provoked leather goods manufacturers, particularly the shoe segments, to make large profits from a lower quantity of shoes to fewer customers.

This attitude is not surprising at all, as leather goods manufacturers sell goods in bulk quantities only on a few occasions around the year such as Eid-ul-Fitr, Pahela Baishakh, Eid-ul-Azha and Durga Puja.

And the rest of the year, they cannot make sufficient sales whereas they have to continually spend cash for running their businesses such as for operating showrooms and maintaining employees.

The BTTC faults an organized syndicate for keeping prices of rawhides at unusually low rates in the local markets over the previous two successive years.

Savar-Tannery-Industrial-Estate-CETP
Figure 5:  The central effluent treatment plants (CETPs) at the STIE is not complete yet.

On top of it, tanners suffered around Tk 500 crore in losses while moving their factories to Savar Tannery Industrial Estate (STIE) in 2017. To cap it all, the central effluent treatment plants (CETPs) at the STIE is not complete yet. Which started in 2014 and it was scheduled to be completed by 2017.

Leather exporters face delays in obtaining LWG certificates as Bangladesh Small and Cottage Industries Corporation (BSCIC), the authority of the estate, cannot finish construction of a central ETP at the site despite taking a project in 2012. So, the leather industry of Bangladesh is suffering heavily.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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