Table of Contents

I. HIGHLIGHTS

II. HIGHER PRICES IN 2000

III. SUPPLY CONTINUED TO INCREASE

IV. TRADE IN BOVINE HIDES RECOVERED

V. HIGHER PRICES BOOST EXPORT EARNINGS

I. HIGHLIGHTS

1. Markets for bovine hides and skins continued to recover in 2000 and 2001 as demand strengthened, particularly for high quality leather in line with improved economic performance in many economies. Production in developing countries rose in 2000 at a faster rate than in developed countries. Export earnings increased, sustained by higher prices and a rise in the volume of shipments.

II. HIGHER PRICES IN 2000

2. International prices of most types of hides and skins strengthened in 2000 and in the first part of 2001. The International Trade Center UNCTAD/WTO (ITC) price indices of major internationally traded hides and skins indicate an increase from the average for the first quarter of 2000 to that of the corresponding period of 2001 of 33 percent for bovine hides and about 30 percent for sheepskins and goatskins (see Figure). The increase was the result of stronger demand for leather, especially for that of superior quality, in the main leather producing and consuming countries. A resumption of a higher rate of economic growth in 1999 and 2000 in OECD countries, which are the major markets for leather products, contributed to the strengthening of demand which was also stimulated by continued changes in fashion for leather shoes.

III. SUPPLY CONTINUED TO INCREASE

3. Global output of bovine hides and skins increased in 2000 by close to 2 percent to reach 5.8 million tonnes, with higher output in developing countries more than offsetting reductions in some developed countries. The strongest growth was in Brazil, which is the second largest producer of bovine hides in the world and is expected to remain the leading producer among developing countries in 2001. In Argentina, output stagnated in 2000 as a result of reduced cattle inventories in previous years. No major changes are expected for 2001. As in 1999, expansion of hides and skins production in Asian developing countries continued to be dominated by China where increased output of bovine hides was sustained by demand for domestic tanning. Output was also higher in India where production was estimated to have risen by about 1.8 percent to over 400 000 tonnes.

4. Production levelled off in the United States in 2000 and preliminary information indicates that lower levels of slaughter resulting from reduced herds will be responsible for a decline in output in 2001. In the EC, output of bovine hides rose marginally in 2000 but is expected to decline considerably in 2001 as food safety concerns reduce beef demand. Consumption of red meat has fallen considerably, particularly in Germany and Italy, and as a consequence output of hides and skins will decline in 2001. Supply of hides and skins is likely to be reduced also in United Kingdom, Ireland and a few other countries where bovine herds have been affected by BSE and more seriously by the foot-and-mouth disease outbreak. The reduction of hides and skins output in the EU is expected to continue also in 2002 as it will take some time to rebuild herds.

5. Production recovered in 2000 in the area of the former USSR in line with increased beef demand. In Africa production is set to rise in South Africa and Kenya while little change is expected elsewhere in Eastern Africa. In Australia slaughter fell in 2000 as farmers retained stock for herd rebuilding, and consequently output declined. In New Zealand higher beef prices in 2000 and good prospects for the meat sector maintained slaughterings and production of bovine hides at the same level as the previous year, with no major changes expected for 2001.

IV. TRADE IN BOVINE HIDES RECOVERED

6. Global exports of bovine hides, which were seriously affected by weaker demand for leather and leather products in 1998, recovered in 2000. This increase of about 2 percent from 1999 reflected larger exports from the European countries, sustained by stronger demand for good quality hides of which Europe is a major producer, and to a lesser extent higher exports from developing countries. However, the increase was not sufficient to match the growth of import demand as evidenced by the rise in prices of late 1999 and 2000. Exports from the United States, the largest supplier to world markets, continued to decline in 2000 and this downward tendency is likely to be maintained in 2001 as result of lower output and higher domestic consumption by the automobile industry for new car leather upholstery. Preliminary information indicates that exports of bovine hides and skins from the area of the former USSR declined further in 2000 due to reduced purchases by some Asian countries. In Australia reduced production constrained exports of bovine hides in 2000. Developing countries' exports rose in 2000 sustained mainly by increased exports from some Far Eastern countries. This growth is likely to continue in 2001 albeit more slowly than in previous years.

7. In 2000 world imports of bovine hides and skins rose by about 2.5 percent boosted by increases in China, the Republic of Korea and Italy. China and the Republic of Korea accounted for more than 30 percent of global imports of bovine hides and skins in 2000. Asian markets recovered from the financial crisis of previous years and demand for leather and leather products strengthened since the end of 1999. In the Republic of Korea, the tanning industry, which was seriously affected by the financial crisis, is now more financially stable and its imports are expected to again increase in 2001. China is the second largest importer of bovine hides and its requirements for 2001 are likely to further increase as the demand for high quality hides by its leather industry far exceeds domestic supply. Italy is now the world's largest importer of bovine hides, and its purchases increased in 2000 sustained by renewed export demand for high quality leather and leather products which benefited considerably from the weakness of the Euro. Prospects for Italy's industry in 2001 appear to be positive, in line with improved world demand for leather and leather products. Imports of raw materials in Japan levelled off in 2000. No major changes in the Japanese leather industry are expected for 2001, as demand is likely to remain stagnant. Weaker economic growth in some other OECD countries may also temper demand for leather in coming months.

8. Global production of Sheep and Goats skins increased slightly in 2000 due mainly to a 5 percent increase in slaughtering from expanded flocks in China more than offsetting reductions in Eastern Europe and the Russian Federation. The increase in production was largely taken up by domestic processing and the volume of trade remained largely unchanged.

V. HIGHER PRICES BOOST EXPORT EARNINGS

9. Higher prices and a recovery in the volume of shipments of raw hides and skins are likely to lift global export earnings in 2000 by about 9 percent to almost US$ 3 500 million but they remained below the 1995/97 average. About 14 percent of the global receipts from aggregated raw hides and skins exports, or some US$ 530 million, accrued to developing countries in 1999 and these earnings are expected to increase in 2000. As in previous years, developed countries are expected to account for most of the growth in export earnings from raw hides and skins. The United States would remain the largest exporter of this group of commodities, despite an expected decline in the volume of its exports in 2001.

10. Developing countries as a group gain a much higher share of the global earnings for processed and manufactured leather than they do for raw skins. Between 1997 and 1999, developing countries' exports of leather and leather footwear averaged US$ 18 000 million annually, almost 48 percent of the global value. However there are considerable regional variations. The Far East has become the most important exporting region among developing countries due to its success in processing and manufacturing. To an increasing extent developing countries import raw hides and skins from developed countries to be processed and re-exported as value added products.