WHAT WILL BE IN 2009?
Instead of listening to academics and ‘experts' in predictions of the future, COUROBUSINESS opted for registering and disclose some of the most important entrepreneurs of the tannery industry. Entrepreneurs buy, industrialize and sell leather inside and outside the country. The opinions, unidentified for business reasons, show, in essence, the degree of uncertainty that dominates the expectations of each and everyone.
Will the exports decrease?
‘We can estimate a first half of 2009 with a few businesses, both in domestic and in external market. In the domestic market forecasts are worse because of the global crisis which will be more strongly felt in Brazil in the next year'.
‘If the dollar remains above R$ 2.50, exports may decline less than expected. But they certainly will. The segments that present a higher demand of Brazilian leather are the furniture and automotive ones, both for padding. The American crisis which has spread to Europe paralyzed these markets'.
‘Yes, we will export less in value and in quantity, because the supply of raw material should also decline. The foreign market would represent a smaller piece in 2009 due to decreased demand in the automotive and furniture segments, in addition to the reduction not so relevant in other segments'.
‘Talking about the future at the moment is still very premature, but I believe that the exports of leather and of almost all the products of Brazilian tariff will suffer a reduction in 2009. The crisis has been installing very quickly in central economies and the having a huge impact in the consumption in such markets. Even a more favorable exchange rate does not seem sufficient to sustain exports at the current situation'.
‘The response in general to this question would be yes, leather export will decrease. I would fragment this issue like that: a) the automotive leather segment might present a drastic reduction b) the furniture leather segment might decrease to half unless the building construction industry has a reaction above the expected in all over the world c) the segment of leather for footwear and artifacts might grow d) the segment of leather for clothing should also grow; e) generally, the automotive and the furniture segment accounts for 60% of the consumption, therefore, even the growth of other segments would not compensate for the loss in volume of these segments'.
‘Considering the participation of the leather in around 40 to 50% of products geared to upholstered furniture and automotive, there is a high difficulty to increase or even maintain the current volumes of exports that have already strong signs of decline. Automotive and furniture industries, with government and financial support, are restructuring due to the recession of developed countries such as Japan , the United States and Europe . If we compare the price of the green leather below US$ 0.30/kg, there are no comparative references in the last 20 years, which could indicate a good time for stocks; At the same time, however, the American leather, which has no history of current prices, is around US$ 0.50/kg (Branded Cows). There is no indicator that can direct us towards a consistent resumption in foreign businesses.
‘Because of the competitive price of Brazilian leather, a recovery in exported volume should occur in 2009, which might close this year decreasing about 30% in comparison with 2007. At the same time, the next year may present a decrease in the exported value, due to the lower price of the leather'.
‘The logic says that the world's demand will collapse as a whole, at least until the 2 nd half of 2009. However, every slaughter in Brazil is decreased. Eventually these two forces can balance. But it is important to note that, as one of the major markets of Brazil is China , and this one as a platform for processing hides into finished products to Europe and USA mainly, it will suffer more than the average of the others on economy. But, yes, our export will decrease'.
The domestic market will continue a good purchaser?
‘ Not in the first half. From the second half, with the levels of the prices of leather, many manufacturers of leather articles replaced it by another raw material times ago, and they should return to using the leather, which could result in the end at good year, but with business concentrated in the second half'.
‘I think that the demand will decrease from the analysis of the reduction of Brazilian GDP (Gross Domestic Product); on the other hand, the possibility of the utilization of leather can be greater in some articles regarding the price'.
‘ I do not think so. We are living the euphoria of purchases of year-end in trade, but in the first quarter of 2009 we will have to pay the debts and breach of contracts might occur, because interest rates are higher. In the automotive and real estate segments the slump in activity is already brutal and stocks are accumulating. If unemployment appears strongly, there is no doubt that the reduction in the domestic market will be considerable'.
‘In the domestic market, despite the excellent performance of growth in the last quarter of this year, we also have a clear sign of economic slowdown. Despite this situation, I believe it will be in the domestic market that we will have better opportunities in 2009.
‘The domestic market should have a regular performance only. Although perhaps in lower doses than in other countries, the Brazilian consumption should also be affected. However, Brazilian footwear will also have attractive prices in foreign markets. And this could provide an increase in leather demand from manufacturers of Brazilian footwear'.
‘In the industry which is working for the internal market, there will be a small reduction'.
Requests to Federal Government
‘To create an exchange of protection to exporters in case of large fluctuations.
To reduce freight and port costs.
To working for the withdrawal of demand for health certificate, in countries such as China , for tanned leather at any stage.
To return the export tax paid by the export of Wet Blue, in return for investments in addition of value and in new manufacturing plants.
To develop, with the segment, a serious and compromised industrial policy.
Automatically restoring the federal tax credits arising from the Kandir Law.
To facilitate the import of salted hides, eliminating the sanitary control which is inefficient, bureaucratic and slow, making almost impossible the operation.
To reduce the basic interest rate.
To expand the supply of working capital with longer terms.
To eliminate the incidence of the Import Tax on machinery and equipment which have no similar in Brazil '.
‘Tax reform is the issue no. 1, knowing that it should contemplate the possibility of not accumulating tax credits. Besides, the reimbursement of accumulated credits is essentially important.
To expand the supply of credit lines of long-term for export'.
‘Less spending on costing the public machine (less salary readjustment, less hiring, etc.), more government investments, reduction of the tax burden and of interests'.
‘I could suggest several measures, but at the stage we are, if the government meet the law only and reimburse the industries within the provisions of the Kandir Law, it will be nice'.
‘In the next year we will continue insisting in the strong concentration of taxes withheld from exporting companies. More than ever, the government needs to make efforts to help exporters, both in tax credits, as in credit lines available and appropriate interests'.
‘Speed up in refunding tax, federal and state credits.
Line of financing for working capital specifically for the segment.
Effective mechanisms for financing of exports with compatible costs (ACC's ECAs etc.). Speech x practice are opposites. ‘
‘Brazil follows expecting a clearer industrial policy, which can be expressed through tax reform, relaxation; reduction of public spending; speed up in releasing export credits; mechanisms to stimulate productive activities.'
The tax on the Blue should continue?
‘Definitely, NO!'
‘Yes, it is an essential instrument for the development of the industry that adds value'.
‘I do not know. But this issue certainly deserves to be reassessed'.
‘I frankly do not think that the tax on Wet Blue change the higher or lower export of the product in Brazil . If you observe the export it is clear that the tax has not decreased the export of Wet Blue leather. The tax changes the situation only if it was set at levels near or above 15%'.
‘In the export tax on the Wet Blue, the 9% helped, but it did not have the desired effect. In my opinion this rate should be similar to the great world owners of raw material, which are between 15% until the export prohibition'.
‘Only then we could stimulate the domestic industry to invest more and more in the addition of value and to get stronger as the main exporter in this segment'.
‘The numbers of exports show good results because of this tax. It is clear that there is a stimulus to adding value to the leather in Brazil . However, it is important the theory that the revenue of this tax goes into actions that can benefit the leather chain. Then we would have an extraordinary response from the segment, which has an unmatched capability, combined to the availability of raw materials, high technology and trained labor and creativity, characteristics of Brazilian people'.
‘This issue should be discussed in the midst of the tax reform. And yet for bilateral agreements that Brazil should do as the main consumer markets in order to balance the segment's tariffs, leaving the dialectic of diplomacy of this government about the MERCOSUR and South-South axis. We are against the tax and the way that it is collected, because from the beginning till today it brought no benefits to the segment, what we have seen is some industries which have been benefited, creating an unfair competition'.
‘The tax on Wet Blue transfers resources only from private to public segment. It cannot stimulate investment in addition of value. The market is above it. It is already time for it to be finished'.
EDITOR'S OPINION
It seems that it's an impossible task to predict 2009. On average, it is expected the slump in the export quantity. Despite this, or because of this, many are betting on the domestic market, including for expectations in the price of leather. However, the future is still covered with a gray fog, but the list of demands to the government is long. We can highlight the important policy concerns, such as charges aimed at reducing public spending. Reduction of the tax burden, lower interest rates and long-term credit supplies are some recurrent litigation which increase during the crisis. In addition, the demand for the release of federal and state tax credits, which is one of the highest tax abuses of the Country. Such tax credits are like working capital to zero cost, because they belong to companies, but they are cynically ‘kidnapped' by government authorities. As for taxation of Wet Blue, there are more doubts than certainties about its usefulness. What will be in 2009, subject of this article, is still an enormous challenge.
Revista Courobusiness, Edição nº 61 – nov/dez 2008.
