New study:
European leather use could determine future of the Brazilian Amazon
A new study commissioned by the Rainforest Foundation Norway found that the law on deforestation-free products passed by The European Union may have a significant impact on the economic viability of slaughterhouses in the Brazilian Amazon.
TRANSPORT: Cattle transport in the Brazilian Amazon. Photo: Victor Moriyama/RFN
By José de Melo and Tim Steinweg.
The law may shift the demand for leather away from slaughterhouses with high-deforestation risks, turning these facilities into loss-making assets and reducing the attractiveness of future investments.
Cattle ranching is the leading cause of deforestation in the Brazilian Amazon. Europe’s reliance on cattle that grazes on recently deforested land for its leather has numerous negative impacts on the rainforest and its inhabitants, including climate change, shifts in rainfall patterns, and harm to indigenous communities.
The law on deforestation-free products passed by The European Union last year made it obligatory for companies to guarantee that goods placed in the EU market have not led to deforestation and forest degradation. Leather is one of the commodities that lies within the scope of this new regulation, and slaughterhouses that fail to comply with these new regulations may no longer be able to sell leather to European customers.
DEFORESTATION: Cattle ranching is the leading cause of deforestation in the Brazilian Amazon.
Misleading narrative
The narrative that leather is a waste product ignores the fact that leather sales account for a big share of the profit margins of slaughterhouses. In 2021 alone, the leather goods market was valued at more than 700 billion USD.
We are surrounded by leather products. Furniture, fashion accessories and car interiors all have leather in common. But leather has not been given the same amount of attention when it comes to deforestation risks compared to other commodities such as soy and palm oil. This is largely due to the misleading narrative that leather is a waste product of the beef industry and therefore buying leather is a form of recycling.
The report, developed by the Brazilian economic research institute NINT and commissioned by the Rainforest Foundation Norway, found that in many cases leather is crucial for the economic performance of slaughterhouses and therefore cannot be dismissed as a waste product.
SLAUGHTERHOUSE: Cattle hides are processed into leather at a Brazilian slaughterhouse. Leather sales account for a big share of the profit margins of slaughterhouses. Photo: Victor Moriyama/RFN
Increased economic risks
The new report has mapped the economic importance of hides and skins for slaughterhouses in Brazil in light of the new European regulation.
The EU- regulations on deforestation-free products can create an economic imperative for change in investing in leather production in the Brazilian Amazon. The regulations may have a significant impact on the leather industry, especially on European manufacturers with their great appetite for leather, and will put non-compliant slaughterhouses at risk of becoming stranded. The new study has found that existing slaughterhouses operating with profit margins of 2% or less would cease to be viable businesses if they can no longer supply to the European market. Investment in new slaughterhouses would only make sense if expected profit margins sit above 13%.
Cattle ranchers, slaughterhouses, tanneries and meatpacking companies in Brazil will all need to comply with European jurisdiction in order to keep their profit margins. This is especially valid for slaughterhouses with higher exposure to the EU markets.
This is why investors, shareholders, banks and entrepreneurs should be cautious before expanding slaughterhouse capacity in the Brazilian Amazon.
Imperative for change
Around a quarter of the hides and skins that originated in Brazil in 2021 ended in the EU, with the automotive, footwear and furniture industries being the main end users of Brazilian leather.
The study found that slaughterhouses in the Brazilian states of Amazonas, Tocantins, Goiás and Maranhão are more exposed to the European market and, therefore, more likely to be affected by the new regulation.
The change in demand caused by the new EUDR will create an imperative for change in the sector.
The facts: Why is leather production bad for the rainforest?
- Cattle ranching is the leading cause of deforestation in the Amazon. Around 75% of all deforested trees in the last 10 years were cut down to provide space for cattle grazing, slaughterhouses and tanneries.
- The deforestation caused by the leather industry contributes to destabilizing the world’s climate. Deforestation decreases Amazon’s transpiration which in turn decreases humidity and rainfall in several adjacent areas to the Amazon.
- Deforestation also increases global greenhouse gas emissions in circulation since trees are important for absorbing carbon dioxide from the atmosphere, so the destruction of rainforests contributes to climate change.
- The leather tanning process involves the use of large amounts of water and chemicals, contaminating rivers and groundwater and harming local wildlife and ecosystems.
- Deforestation and pollution caused by the leather industry often negatively impact indigenous communities that depend on the rainforest for their daily life and cultural traditions.
Contacts:
José de Melo
Senior Cattle Supply Chain Adviser, Deforestation-free Markets
(+47) 406 15 292
jose@rainforest.no