What are cowhides used for? Leather, right?! Well, under normal market conditions yes. But, as-of-late millions of cowhides have been discarded in landfills due to the decline in leather demand and simultaneous rise in beef consumption. Naturally, this paves the road for a massive cowhide waste issue affecting the entire beef sector.
Cowhides once accounted for two-thirds of the cattle's byproducts. Now, hides from lower quality cows have dropped to about 5% of the value of all byproducts. Some are completely worthless. And the same family farms that once benefited from the high demand for cowhides are now filing bankruptcy.
Today we’re going to be diving into the following:
- United States Beef Sales
- The Decline in Leather Demand
- Supply, Demand, and Cowhide Waste
- US Farm Bankruptcies
- Retaliatory Chinese Tariffs
- The Bottom Line
United States Beef Sales
Have you noticed the recent rise in popularity of alternative beef products like the Beyond Meat & Impossible Burgers? This would lead one to believe that beef consumption is declining, but it is quite the opposite.
In 2019, US cattle production accounted for $66.2 billion in revenue, making up 18% of the total agricultural commodities revenue— serving as the most important agricultural industry in the United States. The United States is, without a doubt, the world's largest producer (and consumer) of beef.
To build upon this further, during the pandemic beef sales in the United States increased by 23.7 percent, resulting in a $5.8 billion revenue increase over 2019, according to IRI statistics.
So it remains to be seen if America's obsession with meat is going to dampen anytime soon.
The Decline in Leather Demand
Just as American’s love for meat continues to rise, so does the abandonment of leather. America’s sharp decline in leather demand is a byproduct of shoppers and manufacturers who are opting for cheaper, synthetic alternatives. Leather makers are warning of an upcoming commercial disaster.
Source: Tariffs hit the hide market
Cowhides once accounted for 50%-66% of the animal’s byproducts, this has since fallen to about 5%-- worth less than the tongue and cheek meat. Hides that once went for $81 five years ago, are now going for as little as $4. Some hides have so little market value that cattle processors are forced to discard the natural commodity in the garbage. When we talked to a local farmer in the Pacific Northwest region, he expressed that they don’t even bother sending them to landfills anymore because it's so costly. "We just bury them on the farm", Scott Warner said.
AJ Hollander— a cattle processor who has plants located everywhere from Wisconsin to Texas— has the ability to flesh and cure 10,500 hides per day to prep them for leather processors. Ben Ganz, their Chief Operating Officer said in a social media post that it was no longer economically viable for them to process certain hides because of their low value in the leather market. Instead, the meat producers dump these hides in landfills.
High-quality leather, such as that used in high-end handbags or opulent sofas, is still in demand— but it is a small part of the industry. Plus, most animals don’t have blemish-free, perfect hides. They’re branded, or older animals who've weathered the elements on the pasture for years and have imperfect skin. Unfortunately, these are the first to be discarded since no one is remotely interested in them. Many tanneries and beef processors are telling their customers they just can’t take the lower-quality hides any more, since they have no market value.
Supply, Demand, and Cowhide Waste
As leather processors continue to go out of business due to the fall in leather demand, more and more hides are being shipped off to landfills.
In 2019, 5.5 million cattle hides previously destined for leather processors found their way to landfills— accounting for nearly 16% of all US cattle hides produced. This number will likely increase if trends continue with regard to using synthetics as a substitute for real leather.
The diversion of hides into landfills is placing tremendous pressure on our environment by substantially increasing greenhouse gas emissions. Assuming each cowhide is 100 pounds on average, this would translate to approximately 550 million pounds of landfill waste— causing an increase of over 120,000 tons of carbon emissions per year.
The cowhide industry, as you can see, is experiencing a classic supply and demand pinch. Increased meat consumption has increased the amount of hides available, while demand from companies like Tesla and customers who prefer synthetic "leather" made from fruit peels or even ground coffee has decreased.
What's the end result? The equilibrium price decreases when there is more supply than demand.
US Farm Bankruptcies
Over the recent years farmers have experienced numerous challenges affecting the farm economy: high labor & production costs, retaliatory tariffs, increasing cash rents, and high barriers to entry— to name a few. It’s also getting increasingly more challenging to compete against larger, factory farm operations.
Chapter 12 family farm bankruptcies for the 12-month period ending March 2020 saw a 23% YOY (year over year) increase. For the fifth year in a row, these filings have increased.
Recently published data has shown 2020 bankruptcy filings dropped 7%, but this should not be a sign the farm economy has recovered. The 7% drop could be due to several things; bankruptcies can currently only be filed online, also due to the inability of many debtors to obtain Paycheck Protection Program loans some farms may be avoiding filing for bankruptcy in the hopes of applying for the PPP. Lastly, the USDA recently suspended debt collections and foreclosures on farm loans to support distressed borrowers. So the reduction in filings may certainly not reflect accurate conditions.
Chapter 12 bankruptcy is often the last option for farmers, as many have likely already exhausted other options; reducing their operating costs, liquidating assets, or transitioning their operation to avoid bankruptcy. A solitary year of positive ranch pay is probably not going to turn around a homestead's multi-year venture toward insolvency.
Retaliatory Chinese Tariffs
In the previous section we touched on the impact retaliatory tariffs could be having on family farm exports. We're gonna go a little deeper into this with regard to the export of cowhides.
Currently, China has imposed a general 12.6% tariff on leather goods, plus an additional 25% tariff on cowhides. Which is now part of China’s $75 billion tariff on US exports. So while America and China are going tit-for-tat regarding trade tariffs, certain industries are struggling to survive.
China is the world's largest importer of hides and skins, thanks to its vast leather goods industry. China receives more than half of all skin and hide exports from the United States.
Source: Tariffs hit the hide market
But as of late, China's leather industry isn't doing so good either. Prior to the imposition of these tariffs, China's demand for hides had been declining, owing to a variety of factors such as synthetic material substitution, increasing labor costs, and tightening environmental regulations. Petroleum-based synthetic materials are posing a growing and significant threat to the leather industry, especially in the footwear industry.
China's accelerated shift to less expensive synthetic materials is mimicking the United States trend. Also, labor costs in China have risen, prompting several factories to relocate to other parts of Asia. Over the last 30 years, shoe manufacturers have recorded a 500 percent rise in labor costs, according to the USDA's Foreign Agriculture Service.
Environmental regulations have also tightened dramatically over the last few years with Chinese regulators now putting their foot down on waste water, solid waste, and gas emitted by tanners and shoe factories, according to the same FAS report.
The Bottom Line
Despite the decline in the Chinese leather industry, China will continue to be a major market for American hides. Further, the recent tariffs are not to blame for the difficult price setting in which US hides are working. These price decreases are more closely linked to market fundamentals. This price decline has been happening for a few years now and has been pushed along by three significant factors: increased supply of hides (due to higher consumption of beef), abandonment of leather goods, as well as struggling demand from China.
So what's the solution to this? What can simultaneously address the over supply of cowhides while also helping small farmers boost their income and gain some economic stimulation back?
Humans have been using animal hides for shelter, clothes, and containers since prehistoric times. Currently, our best solution is to extract gelatin from the bone and hide. The gelatin market is expected to increase 1.35% in volume from 2019-2024. But can the gelatin market adapt to the oversupply of cowhides and find sufficient use for this new supply of gelatin in the current market? It remains up in the air at this point.
Another option would be to repurpose the hides into another type of food product. Everyone has heard of pork rinds, but what about... beef rinds? Our company is taking these unwanted cowhides and turning them into something new... and tasty.
Beef rinds are a delicacy in other countries but are non-existent in western society. We're delivering the world's first commercially available beef rinds to market while- so far- reducing our carbon footprint by 11 tons. We're aiming for a zero-waste business model; we use the raw skin for beef rinds and then render the leftover fat into tallow which we use to fry the rinds in. We even use the hair from the hide as compost.
We're teaming up with small farmers across the Pacific Northwest to help them generate revenue from a waste product and positively contribute to their solvency & financial health.
Beef rinds are keto (zero-carb), paleo, high in collagen, and pack a great nutritional profile sporting a range of amino acids. Our beef rinds are fully supply-chain traceable, upcycled, grass-fed & finished, humane, hormone & antibiotic-free.
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