Exports drive Italian tanners

Despite a prolonged economic crisis from 2008-09, the Italian tanning industry has managed to increase its output, especially in international markets. It is a world leader behind China in the production of

finished leathers, and supplies the most important luxury brands all over the world. The latest production and export data show an increase compared with pre-crisis levels.

Around 30% of all finished leathers exported around the world are “Made in Italy”, what has become a benchmark for quality and state-of-the-art environmental safeguards allowing Italian made leather to position itself at the higher end of the market.

There are approximately 10,000 tanneries in the world with an estimated US$50 billion turnover. According to figures from the Italian Tanners’ Association (UNIC), from this total 1,300 are Italian companies with a US$5.3 billion turnover and 9% of the global total workforce in the sector. Leather exports to 121 different international destinations contribute to 75% of the total turnover. The footwear industry is the largest buyer of Italian leather followed by leather goods, furniture upholstery and automotive leathers. Table 1 highlights the increasing number of Leather Working Group (LWG) rated tanneries from Italy underlining its shift toward sustainable processing.

The Italian tannery cluster model is seen as a benchmark for the industry and has become a blueprint copied all over the world. There are three main clusters in Italy: one in the

Northern region of Veneto, in the Valle del Chiampo; another in Tuscany, between Pisa and Florence; and a third one in Campania, in the province of Avellino. Each of the three districts has invested heavily in modern central effluent treatment plants and environmental controls.

UNIC industry dataLast June, the Italian Tanners’ Association (UNIC) held its 69th Annual General Meeting in Milan. During the meeting, the industry data for the sector performance in 2014 was published. Last year, the sector produced 126.7 million sq m of leather with a total value of €5 billion. The volume was slightly down (-1.7%) but the total value registered an increase (+1.5%). Total exports of leather were up 2.3%, worth €3.9 billion and accounting for 76% of the total production.

In terms of end-uses, the footwear industry comes first, registering a 2.3% decline in volume (figure 1). The leather goods’ segment saw an increase of 1.4%, mainly due to ongoing demand in high-end and luxury segments, where Italian tanners are the global leaders. Conversely, the furniture upholstery segment witnessed an 8% decline in volume despite the excellent results of many furniture brands in 2014 (as reported in ILM July-August page 44). The footwear and the furniture sectors include the Russian Federation as one its main markets and the current conflict has had a major impact on production as well as exports.

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A statistical overview of the tanning industry’s current status, from the point of view of Europe’s largest leather maker. In this report, ILM’s Giorgia Airaghi includes interviews with some of Italy’s leading tanners from the three main tanning districts

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24 september/october 2015

table 1 Italian LWG rated tanneries

Conceria Caravaggio – Tuscany

Conceria Montebello – Veneto

3C Lavorazioni Pelli – Veneto

Artigiano Del Cuoio – Tuscany

Conceria Dingo – Tuscany

Conceria Martina – Tuscany

Conceria Nuova Impala – Tuscany

Sifur Conceria – Tuscany

Scamosceria del Brenta – Veneto

Gold Rated

Gold Rated

Silver Rated

Silver Rated

Silver Rated

Silver Rated

Silver Rated

Silver Rated

Audited

Gorge of Valle del Chiampo

On a more positive note, 2014 saw some of the declines replaced by additional demand from the automotive leather sector. According to the UNIC figures, automotive leather production rose by 5.6%.

Unsurprisingly, most of the leather made in Italy last year was used in the medium-high product ranges (30%), followed by medium quality market segments (23%). Both areas remained stable compared with 2013 data. The high and premium ranges account for 22% and 17% of the production respectively, underlining the growing demand for higher value and the premium luxury brands’ use of Italian made leathers. This is also reflected in growth rates of +2.5% for high and +5% for premium leathers. The medium-low ranges recorded a slight decrease (0.8%), accounting for 8% of the production. The data confirms that higher end leather makers in the Italian tanning industry are in the best position for growth, based on quality, design and fashion (see figure 2). Like other developed countries, Italy is not competitive when compared in terms of low manufacturing cost bases.

Raw material issuesAnalysis by UNIC, based on the balance sheets of the top 175 tanneries which account for 76% of the national output, has highlighted the impact of the well documented rise in costs of raw hides and skins and semi processed leather (wet-blue, crust), an overall 9% increase compared with 2013. The result of record raw material prices was a reduction in profits and operating margins for tanners. Italy buys 93% of its raw material requirements from outside the country. In 2014, 817,000 tons of raw hides and skins, and semi-processed leather were imported from 120 different origins, down 4% compared with the previous year.

A total of 324,087 tons of various types of semi and finished leathers was exported from Italy, with a value of €3.95 billion. Finished and sole leathers constituted the most exported item, accounting for 138,405 tons

and worth €3.48 billion. Leather exports within the

European Community, considering both the 15 historical and the 13 recently added members, accounted for 52% of the total, followed by 26% to the Far East, 7% to the Russian and Balkan

regions and 6% to NAFTA countries (U.S,

Canada and Mexico). Looking at the breakdown

of the regional destinations, China and

Hong Kong were the first markets for the Italian

products. Romania was the second as many Italian producers

moved their productions to this country, increasing the exports to it. (See

figure 3 and 4)

Veneto tanning districtNumbers and history: within a 130 sq km radius this territory houses the largest tanning district in Europe and is the leading production centre in Italy with the highest number of employees. It comprises the town of Arzignano and the area around Chiampo, including Crespadoro, Montebello, Montorso, Zermeghedo and Montecchio Maggiore.

The first tanning activity in the region dates back to the 1300s, in the area of Bassano del Grappa. The industry started to develop after the Second World War, expanding to become the first revenue making industry in the region. Two very

different corporate models coexist. On the one hand, there is a handful of larger

firms such as Gruppo Mastrotto, Gruppo Peretti, Rino Mastrotto

and Gruppo Dani, and, on the other hand, there is a large

quantity of smaller and medium sized enterprises.

All of these are supported by a strong local supply network of raw materials, leather chemicals and machinery, many of which are global market leaders in their field.

The Veneto region hosts 468 tanneries with

a registered turnover of €2.7 billion in 2013.

Many of the tanners are specialised in medium-

large size bovine hides destined to both furniture and

automotive interiors’ upholstery, footwear upper and

leather goods.

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43%

24%

5%

9%

17%

2%

n Footwear n Leather goods

n Furnituren Car interior

n Garments and glovesn Others

Figure 1 - Leather production volume by end-use (2014).

Source: UNIC

22%

30%

8%

23%

17%

n Premium n High

n Medium-Highn Medium

n Low

Figure 2. Italian leather production by value segment

(2014). Source: UNIC

Unsurprisingly, most of the leather made in Italy last year was used in the medium-high product ranges (30%) followed by medium quality market segments (23%)

Treatment plants - VenetoThe Veneto district has one of the oldest, but still efficiently running, central effluent treatment plants. Inaugurated in 1978, it represented a huge cost at the time but became a symbol of what local municipalities and tanneries could do together in the interest of the environment. The plant is able to treat 30,000 sq m of industrial effluents and 8-10,000 sq m of civil sewage daily, processing up to 50,000 tonnes of dried sludge per year. Acque del Chiampo, the plant’s managing company, also runs nine recycling and landfill sites.

Current developmentAccording to the “The Triveneto Districts Monitor”, an economic publication of the Italian bank Intesa San Paolo, 2014 was a good year for the tanning industry, especially for exports from the Veneto region which has a higher average trend than the overall Italian figure. Exports grew to key markets such as the United States, Germany, United Kingdom and Spain, while

lower growth was reported in new markets such as Russia and Ukraine (pre-Russia/Ukraine crisis). Tanning production in Arzignano and the leather shoes segment of the Riviera del Brenta, a world-renowned footwear centre, registered record levels of exports in 2014 that overtook the 2007-08 values.

The tanners in Veneto have recently created their own regional association which also includes traders, chemical and machinery producers, the treatment plant operator as well as by-product processors. Called “Distretto della Pelle” (Leather District), the 90 companies that comprise the association have appointed the industrial economist and researcher from the Cà Foscari University, Dr Paolo Gurisatti, to run the association. In an interview with ILM, he focused on the future difficulties and challenges facing the tanning industry, especially in what concerns the environment. “If we all work together it is easier. For example, if we are not able to extract heavy metals from the effluents, we all have a talk together, tanners, chemists and machinery producers, to find a way to simplify the process”, he explained. The members share ideas for dealing with waste, such as reusing the wastes as fertilisers or other biological nutrients for farming.

Through cooperation with the Stazione Sperimentale, based in Naples and headed by Dr Paolo Gurisatti, the Veneto leather association has established a two-year post-degree course in three

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table 2 Leather export per typology (2014)

Typology

Large bovine

Small bovine

Sheep

Goat

Reptile

Pigs

Other animals

Chamois

Patent

Fur

Total

Value

2,727.2

447.4

200.7

75.4

64.9

30.6

44.4

102.1

266.7

113.9

4,073.2

+2.5%

+0.2%

-10.2%

-17.2%

-2.6%

+4.8%

-5.8%

+24.8%

+19.1%

-17.0%

+1.6%

€ 000,000 Var. 2013/14

Value

217.5

78.2

4.1

2.1

0.1

2.0

2.4

4.3

13.4

0.8

324.8

+0.3%

-6.9%

-16.8%

-10.4%

-11.2%

+3.3%

+3.4%

+24.2%

+19.6%

+0.8%

-1.0%

Tons Var. 2013/14

Figure 3. Leather export value by destination/region (2004-14). Source: UNIC – ISTAT (Italian National Statistical Office)

higher education centres in the area. The aim of the project is to train the next generation of tannery technicians with a strong focus on the environment. One of the major benefits of the courses will be the presence of a teaching staff comprised of 50% by technicians and engineers having experience in the industry.

Another area the association has engaged with is improving the health and safety and working conditions in the tanneries. “Following the changes made, we have seen a decrease in the number of lung diseases among the workers, after shifting some finishing operations from spray guns or solvent varnishing machines”, says Gurisatti. “We want to maintain the traditions and methods but within a modern context, highlighting an ethical code, reporting regulations and environmental protection. We want any bad behaviour to be well stopped before we have an environmental disaster to deal with”, he added.

Leading tanners - VenetoILM asked some of the most important Veneto based tanners for their opinions on the current challenges facing the industry.

The tanners in Veneto see their district as the strongest in the country, however, they also told ILM that many segments have slowed down considerably in 2015. According to them, the footwear and fashion sectors (leather goods), in particular, have decreased by 40% and 30% respectively. Much of this is linked to the high raw materials prices and the subsequent finished leather price peaks seen at the end of last year. Many now see the current price levels as more “normal”. The recent decline in raw materials prices should attract many returning, and maybe some new, customers who moved away from leather when prices became too high.

The Greek situation, and the consequent weakening of the Euro, is mainly seen as a good opportunity for Italian and European manufacturers to become increasingly more competitive in international markets. “Despite the fact that Greece seems to have found an agreement with Europe, I believe the financial market has already served the repercussions of this sad situation. The current weakness of the Euro is to be interpreted as a positive factor that allows us, Italian and European producers, to be increasingly more interesting in the global market”, said Giancarlo Dani, President of Gruppo Dani. However, Luca Pretto, from Conceria Pasubio says: “The possible loss of trust in the euro currency and in Europe itself, combined with the possibility that this is a non-reversible choice, is creating a state of uncertainty which, in the best case scenario, defers and reduces the customers’ propensity to purchase and this is not good

for the Italian economy”. The situation in Russia, due to the ongoing tensions in

Ukraine and the trade restrictions, has had a negative impact on tanners in Italy. Many leather makers are having a hard time as the Russian Federation is among the top five export markets, accounting for €866 million in 2013. Many believe the situation has been badly managed and the quick action adopted by the EU has impacted negatively on Italy’s tanners. “Wars only lead to death while peace, on the contrary, brings us prosperity”, stated Giancarlo Dani.

However, the slowing down of the BRIC economies is not a major concern for the Veneto tanners interviewed by ILM. “I don’t believe that the current slowing down of the BRICs could influence the Italian leather market, not on an export level nor for production. Leather is a precious material, a mix of quality, uniqueness and beauty”, added Dani.

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Giancarlo Dani, Gruppo Dani

Central treatment plant in Arzignano

China and its slowing economy could have repercussions for Italian exports and production but, in general, leather is believed to be a precious enough material for international producers to keep asking for it.

Finally, ILM also asked the Veneto tanners what key characteristics a company should have to survive in an increasingly globalised world. To Gianfranco Delle Mese, from Conceria Montebello, “a company should continuously evolve with flexibility. To create value, it should create efficiencies that improve the product and make it less expensive and focus on the total quality of the system, creativity, service and technology”.

Tuscany tanning districtNumbers and history: With its 300 tanneries, the Tuscan cluster includes Santa Croce sull’Arno, Bientina, Castelfranco di Sotto, Montopoli Val d’Arno, San Miniato, Santa Maria a Monte within the province of Pisa, and Fucecchio in the Florentine province.

The first tanning settlements date back to the mid-800s, but the development that really transformed the region began in the 1950-60s. Tuscan tanners account for 28% of the national turnover and are characterised by a high level of craftsmanship, with a particular focus on higher end fashion. Production is focused on small-medium sized cattle and calfskins for footwear, leather goods and sole leather. There is a sub-cluster with the region that focuses on sole leather, located in San Miniato and Ponte a Egola.

The Tuscan tanners have also established two leather promotion consortia: Cuoio di Toscana (Tuscan Leather) and Vera Pelle Italiana Conciata al Vegetale (Real Italian Vegetable Tanned Leather) that created the brand “Pelle di Toscana”, a recognition given to the best companies according to both social and environmental criteria. The area is famous for high quality, natural vegetable tanned leathers.

Treatment plants - TuscanyThe Tuscan district has made environmental sustainability a key. The cooperation between public administration and tanners has led to the construction of treatment plants with both private and public investments. Six different complementary companies manage the treatment plants in the area.

Consorzio Depuratore di Santa Croce sull’Arno (Santa Croce sull’Arno Treatment Plant Consortium) covers 474 companies.

Consorzio Aquarno Spa (Aquarno Consortium) is a mainly private consortium, running the treatment plant at Santa Croce which purifies around 4 million sq m of industrial waste plus 1 million sq m of civil waste per year, within the Municipalities of Santa Croce, Castelfranco and Fucecchio.

Ecoespanso Srl is a mainly private company with the aim of developing, constructing and running the treatment of waste sludge produced by the cluster treatment plants. It has an annual capacity of 100-120,000 tons, which are transformed in inert material to be re-used for other productive processes without having to dispose in landfill.

Consorzio Cuoiodepur is a mainly private company that runs the treatment plant for 155 tanneries located around Ponte a Egola

and San Miniato. It has a drying plant for sludge converting it into brick production or for agriculture as a fertilizer.

Consorzio Recupero Cromo (Chrome Recycling Consortium) is a private company comprising 120 tanneries to recycle chromium liquors. The recovered chrome is returned to the tanners for re-use. The recovery plant is able to process 21,000 kg/day of basic chromium sulphate and removes chromium waste from tannery sludge.

Consorzio S.G.S. is a private company with 230 member tanners supplying waste fleshings. It processes 70,000 tons of fleshings per year.

Recent developmentsIn the past ten years, the tanners in the area have increased their production output.

According to data from Intesa San Paolo bank, exports from the Florentine leather and footwear segments during 2014 reached a record figure of €3.1 billion, growing 11.8% and accounting for almost 25% of the “Made in Tuscany” exports. The main export markets are the U.S., which registered a 10.9% increase, while Russia and South Korea have declined 14.7% and 6.6% respectively.

A double-digit growth of 16.7% for the leather and footwear segment in Arezzo was achieved with the U.S. being the first destination, accounting for €164 million. However, tanners in the district experienced a decline in output of 6.8% from the Santa Croce sull’Arno area.

Leading tanners - TuscanyThe raw material price decreases of the past months is a “blast of oxygen” for many, but is seen as temporary since the general trend for lower meat consumption will decrease the availability of hides and skins if there is an upswing of production in the Autumn. “I doubt we’ll see the same decrease in Autumn,

mainly because the drop in beef consumption means there will be an increasingly low availability of raw hides on the market”, commented Franco Donati, President of Assoconciatori.

If the Greek situation is less of a concern, the continuing sanctions to Russia are defined as a “disaster” as Russian countermeasures are having a direct impact on the fashion and footwear segments.

The slowing down of the BRIC nations, in particular Russia and China, is penalising exports. However, Stefano Caponi, President of Superior Tannery, pointed out that “the growth peak has already been reached and we were aware that this would have happened, eventually”.

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Salvatore Mercogliano, General Secretary, UNIC, the Italian Tanners’ Association

Stefano Caponi, Superior Tannery

The current circumstances have cooled down compared to the recent past. After an important recovery in the past 4-5 years, the demand is slowing down this year.

The tanners in Tuscany confirmed the importance of flexibility as one of the key characteristics for a successful company, but Caponi underlined two other factors. “I believe that establishing a goal, a target, is crucial as well as working for, and with, the client to satisfy the demands of one’s own market end, whatever this is”.

Campania tanning districtNumbers and history: There are two main tanning centres in Campania, one centre in Solofra, in the province of Avellino, and another in Grumo Nevano-Aversa, between the provinces of Naples and Caserta. Some records date the first tanning settlements in the area of Solofra back to the Samnites period. The roots of the tanning industry date back to the Middle Ages and several coexisting factors explain the choice of the region: abundance of water, the presence of chestnut woods and an excellent geographical position thanks to the proximity of the commercial ports of Naples and Salerno.

Solofra’s territory covers an area of 115 sq km in the south-western province of Avellino. The cluster includes the municipalities of Montoro Inferiore, Montoro Superiore and Serino with around 400 companies between tanneries, tier-1s and garment manufacturer representing a turnover of €1.5 billion, with a strong focus on sheep and goatskins.

The cluster of Grumo Nevano-Aversa is in the centre of the region, between Naples and Caserta, covering an area of almost 160 sq km. Its origin, however, is to be found in the city of Grumo Nevano.

Treatment plants - CampaniaThe environmental situation in Campania is an extremely delicate matter. Since the 1970s, there has been a much publicised illegal dumping of industrial waste and toxic and nuclear refuses in the countryside, often followed by fires that released harmful substances into the soil and the air. Moreover, since mid-1990s, municipal and industrial solid waste was dumped into overfilled landfills. Despite the countless measures employed by the region and the state to solve the situation, the problem reached a peak in December 2007, when municipal workers refused to pick up any waste as it was deemed too dangerous. The situation has been partially solved only in 2012, by shipping the garbage to an incinerator in Rotterdam, the Netherlands.

The situation with the treatment plants in the tanning cluster is almost as complicated as the domestic garbage collection. In April 2015, COGEI, a company that has been running the treatment plant of Carpisano since 2010, found itself in dispute with the local authorities. After a period of uncertainty, the tanners requested to run the treatment plant themselves just like in Veneto and Tuscany, under the association Co.De.So., a consortium of tanners

established in 1984 under the umbrella company

Co.Di.So., the former manager of the treatment plant before COGEI. The current situation remains unclear to this day.

Current developments

The Solofra tanning district today produces

all types of leather but is particularly known for the

production of small skins. Unlike the other two major

clusters, tanners in the region work more for the domestic

market, but exports are growing. With regards to the environment,

the local produces have created the eco-compatibility brand “Distretto

conciario di Solofra”.

Leading tanners - CampaniaThe southern tanning district works closely with luxury brands which have lowered the number of orders compared with recent years. Tanners in the area contacted by ILM said to be cautiously optimistic because they believe orders and production will return shortly. “The current circumstances have cooled down compared to the recent past. After an important recovery in the past 4-5 years, the demand is slowing down this year, some big firms having declared to prefer to empty the warehouses prior to restarting supply. Luckily, it’s not a trend that concerns all the major brands”, said Giovanni Russo, President of Russo di Casandrino.

The tanners report that raw material price decreases have, so far, been barely felt and fed through. In fact, they claim that some types and/or origins of skins have even increased their prices but, as some explained, the raw materials’ market is complex and subject to speculation, hugely affecting prices.

Tanners engaged in producing leather for the footwear segment describe the Russian situation as a “frontal clash” and a big mistake. The tanning industry in the area has been strongly hit by the Russian export ban on footwear. They blame Northern European countries for almost never taking into account the interests of the Southern countries within the EU. According to Giovanni Russo, “to

Italian tanners, Russia is a main supply market of semi finished wet-blue, which has been blocked since last October due to the export ban imposed by local authorities. They legitimise their actions saying it is a safeguarding measure for their local tanneries and footwear producers, but it is hard to think there is no link with the European sanctions and the current climate”.

The Greek situation and weaker euro are seen both as an opportunity and an inconvenience. The weaker euro is positive for the non-European exports, however, it has had a negative impact on the purchase of raw materials outside the EU borders.

Tanners contacted by ILM were also concerned about the double-digit slowing exports to the Chinese market, their main export destination.

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New President of UNIC, Giovanni Russo of Russo di Casandrino

9%

7%

36%

17%

4% 5% 5%5%

6%3%

3%

n China and Hong Kongn Romania n Spain

n Germany n Francen Portugal n U.S. n Poland

n Vietnam n Tunisian Others

Figure 4. Major export destinations for Italian leather

by value 2014. Source: UNIC elaborations on ISTAT data (Italian

National Statistical Office)