April 1, 2007｜Mongolia
Taking into account total world production, cowhide production has increased by 1.3% and sheep- and goatskin production has increased by 1.9% over the last few years.
In particular, many leather processing factories were established in China, South Korea, Mexico, Brazil, India, Pakistan and Thailand. Among those the fastest growing processing country is China, whose exports of leather products increased by 19.2% in 2005 compared with 2004 and imports increased by 5.7%. China exported $14.6 billion worth of shoes in 2005 which accounted for 50% of world shoe production.
Today, 60% of cowhide and 72.1% of sheep- and goatskin products are produced in developing countries, whereas the amount of leather production has decreased in developed countries.
Furthermore, while cowhide production is declining, sheep- and goatskin production is increasing and has become predominant worldwide.
The Mongolian Leather Processing Industry Sector
The Mongolian leather processing sector comprises factories involved in the processing and exporting of untreated animal hide materials, leather and fur garments, and is one of the leading economic sectors in the country. The Mongolian leather processing industry is directly dependent on herders as well as the meat-processing industry in terms of raw material resources.
The leather processing industry used to produce 5.1 million skins, 1,100m2 of sheepskin, 400,000m2 of goatskin, 1,000 tons of sole leather, approximately 240,000 items of various leather garments, 4.1 million pairs of shoes, and 180,000 pure coats per year, which constituted 6.5% of total Mongolian industrial production in the 1980s.
The structure of the sector changed during the transition from the centralized-planning system to the free market economy in the last decade. The forms and structures of processing factories have been changed into new small medium enterprises with various processing capacities since 2000. Today the majority of enterprises in the sector are factories with small capacity.
The Mongolian leather processing sector has the following characteristics:
The Production and Capacity Utilization of Leather Factories
Today there are 64 leather factories in Mongolia with diverse production capacities, of which 34 operate conventionally, 26 carry out initial processing of skins and 8 carry out wet blue processing. They have production capacities for processing 8.3 million pieces of skin and 0.6 million hides. According to research, the initial processing of skins enterprises are using only 18.3% and the wet blue processing 40% of their total production capacities.
These factories processed 3.0 million skins and exported them to China in 2002-2004, and supplied 450,000 skins and 100,000 hides to the domestic market.
The capacity utilization of the factories in 2004 decreased to half that in 1989 and this was related to factors such as stagnation in the activity of large companies, antiquated technology and techniques, changes in business direction and the limitation of market consumption.
Even today capacity utilization of the factories is not increasing. For example, the biggest Mongolian hide processing factory’s capacity utilization doesn’t even reach 10%.
Although leather and fur processing SMEs established between 1992-1998 are small-capacity, they are producing finished products and supplying a small portion of the domestic market.
Export and Import of Leather
Raw material exports make up a large percentage of the exports of the Mongolian leather production sector. Ninety-nine percent of processed leather is exported to China. Looking at the average for the last two years, the factories have produced 6.0 million skins and exported 3.0 million pieces of wet blue. In contrast, 450,000 pieces were supplied to the domestic market. However, 1.5 million raw skins were exported to China.
As the quality of domestic wet blue production doesn’t meet the requirements of the companies producing finished goods, imports of wet blue from South Korea have increased in recent years. According to 2004 statistics, 3.8 million pieces of wet blue were imported in 2004.
Worldwide, 10-18% of the expenses of leather factories go on purchasing chemicals. This varies depending on the country’s geographical location and its level of economic development. In Mongolia, all chemicals used for leather processing are imported, which takes time and is costly due to Mongolia being a landlocked country, so that the total cost of chemicals accounts for approximately 24% of total production costs.
Local leather processing industries are heavily dependent on imported chemicals, as they are not produced in Mongolia and are imported mostly from China.
For improving the quality of products, it is important to increase the selection and the quality of chemicals, and their proper use.
Due to the insufficient financial means of Mongolian producers, they are not able to use high-quality and environmentally-friendly chemicals. Thus this reduces the market competitiveness of products in the leather sector.
Environmental issues should not be left out from the subject of the leather processing sector. The maximum amount of water pollution arises during the wet-processing of skins. In addition to water, organic solvents, phenols and mineral salts are used in leather processing. Worldwide, 80-90% of leather processing factories use chromium (III) for the suppuration of skins. The matter of the amount of chromium contaminating the waste water from leather factories is a critical issue.
For European leather processing companies, environmental expenses accounted for about 5% of their circulating capital and that caused a decrease in their leather production. On the other hand, the leather processing industry is growing in Asia and the USA. China, however, has limited the import of raw skins through regulating its tax policy and has paid attention to imported wet blues recently, which is connected with protecting its environment.
Due to the large amount of utilization of sulfides and ammonia in leather processing, the appearance of hydrogen sulfide has resulted and it has polluted the surrounding soil and air enormously. Also, due to the usage of chromium in the suppuration of skins, its residues have become waste in the environment, which has became a matter of serious public concern. The waste outlets of some companies are not connected to the centralized waste water treatment center, and this is causing environmental problems.
Since the waste water treatment center for the leather processing sector was founded in 1972, it has had a capacity for cleaning 10,000m3 of waste water per day. Unfortunately, its technology is outdated and has never been modernized so that the quality of the cleaning is at an inferior level. A large chromium (III) content in waste water is having a strongly negative impact on the biological cleaning capability of the waste water treatment center.
Issues Relating to the Development of the Leather Processing Industry
The above mentioned situation certainly presents an issue to Mongolian policy makers as to whether they need to further develop the leather processing sector or not. Since there are quite substantial raw material sources in Mongolia, developing the sector is probably the right thing to do. Although various approaches to solving this issue have been initiated by a number of investigators, scientists and producers, an appropriate and definitive solution has not yet been found.
Due to resource-based raw materials being considered the only factor in determining development policy for the sector, other important factors influencing the development of the sector get ignored. Therefore, the most important factor in determining the development policy of the sector is market change and market reform. If there is no market, the sector will not advance, even if high quality goods are produced.
As mentioned previously, the production of hide products has decreased, whereas production of sheep- and goatskin products has increased in recent years, and that means the demand for sheep- and goatskin products is going up. But we must acknowledge that this situation could reverse in a few years time. That is why the sector needs to be flexible in order to adapt to any rapid change in the market.
Many SMEs pursuing this principle have been established in Mongolia since 1990. But their widely-scattered geographic locations have had a negative influence on the sector’s development, as well as on the environment.
In conclusion, I believe that the following courses should be followed in order to develop the leather processing sector in Mongolia effectively:
I view the Mongolian leather processing sector positively but what we need is to forge the will to implement our thoughts and plans systematically and intensively.