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Ostrich leather carrying ostrich industry

1st May 2012 , Frik Kriek; SCOT

Stronger demand helps offset loss of meat exports

While the Avian Influenza crisis in the ostrich industry is causing havoc on farms and the industry in general, ostrich leather is on a fast track to once again become the pillar of stability in the industry.

With the industry not in a position to export (raw) ostrich meat to Europe, its most popular market, for at least the next 6 to 12 months, ostrich leather will have to fill the value void as soon as possible to maintain ostrich farming a commercially sustainable enterprise as to keep ostrich farmers interested. There are a number of farmers who have the opportunity to diversify to other farming options, but for a larger group there is no alternative.

The bottom line is that to recoup some of the income lost on the meat, the minimum price increase per raw skin should be at least US$100. This means a doubling of the current price to farmers. On top of a general raw material price increase farmers can help themselves to a better income by improving the quality of their raw material. If the $100 ($6.00 per sq ft) sounds too high, it must be remembered that in a previous life, ostrich leather sold at $40.00 per sq ft and an increase of $6.00 per sq ft on the current price is by far not bringing it close to that level. Whether this $6.00 increase can be achieved will be determined by how the industry will manage this process. A reality check will also show us that in this current situation, business has changed and commerce is being conducted at a much faster pace and above all that manufacturing of ostrich leather products has changed from an artistic/craftsman manufacturing base to a very industrial process. This just might be the catch or at least one of the bridges to cross to recover the $100 per skin price increase to farmers.

The process of increasing prices will surely be supported by the reduced number of raw skins available. It is anticipated that for the next 3 seasons, volumes will be reduced by 50 % from the past 3 years’ production. This means that the industry will be the same size as in the early 1990s, when except for the few ‘renegades’, everything went through the one channel marketing system which was managed by Klein Karoo Co-Op.

There is currently the misconception that the market size increased dramatically over the past few months, which simply is not the case. The reality is that the ostrich leather market is fairly stable and hence the efforts by the industry the last couple of years to increase the market size through its generic promotion programme. What is happening now is that in the past few years the market was over supplied and that same market is now under supplied.

Secondly there is a move away from the lower-value-high-volume markets to the higher-value-lower-volume markets and I attribute this to be a result of the generic promotional programme. The industry is experiencing a strong demand for higher grades and it is currently unable to meet this demand, thereby creating the perception of a shortage.

The shortage of higher grade finished leather will force manufacturers to buy lower grade leather at higher prices. The result will be that they will have to spend more time on the cutting table to ensure that maximum value is cut from a skin.

With all the cost increases, manufacturers are also in the unfortunate situation that they will have the responsibility of introducing the substantially higher priced ostrich leather products to retailers. A further factor to consider is that with the oversupply situation in the past, finished stock was readily available which allowed for short delivery times. Spare production capacity also allowed for more flexibility to expedite deliveries. Currently finished stock is depleted and production capacity is fully utilised with the result that deliveries now take much longer than before. Customers will have to adjust to these changes so as to ensure a continued flow of material and to sustain production and meet delivery dates. The last aspect that will affect manufacturers is that credit terms will change and the normal 60 days will be shortened to 30 days or less. On the meat side companies became accustomed to the period of slaughter to payment being within 30 to 45 days. In the case of leather, the turnaround is much longer and the only place to shorten this time is on customer credit terms. The ostrich industry as we knew it for the last 10 years will inevitably change and for the next 5 years it will change much faster than ever before. The current changes in the industry were initiated by nature and in order to survive we will have to catch up with nature and deal with it in an appropriate way to ensure a sustainable industry.




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