The local tannery industry needs to improve its production process to cope with higher costs after domestic leather prices increased by 250% over the past two years to a record high due to a shortage of leather supplies.
Wet salted hide is now traded at a record 58 baht per kilogramme from 20 baht in 2010 and 48 baht at the end of last year, said Somkiaet Bongkotpannarai, president of the Thai Leather Cluster. And prices are projected to rise further.
Currently, leather supply stands at half the demand. Thailand exports 30 billion baht worth of leather products a year excluding shoes, while 80% of the leather used here is imported.
"To cope with the shortage, manufacturers are looking at alternative materials such as polyvinyl chloride and fabrics and using less leather. We're going to import leather from new sources such as the Dominican Republic, Puerto Rico and Africa," said Mr Somkiaet, who is also a consultant to Sky Leather Co.
He said the makers of various brands of shoes and bags are not very concerned about increased leather prices since their margins are already high, but tanneries, which still use old stocks, should consider improving production efficiency and energy use to cope with rising costs.
MPJ Enterprise Co has developed techniques to use chemicals for value-added products at a time no one knows when the price of leather will decline, as demand, especially from China, remains high.
With the daily minimum wage now at 300 baht, the company must pay 100,000 baht a month to staff. Labour costs are 40% of production costs.
Pantapat Sheravanichkul, a consultant to MPJ Enterprise Co, said the 10-year-old company has jointly researched innovative lightweight leather with King Mongkut's University of Technology North Bangkok. The key is to extract sapindus to remove natural fats and grease in fibres.
Removing natural fat contained in leather is part of the tanning and dyeing process, as the fats prevent chemicals from absorbing well. When washed out, chemicals contained in sapindus will cause the leather to soften and become lighter as lightweight leather that the company begun selling since last year.
Now 80% of the company's products are lightweight leather, which is 15-20% more expensive than conventional products at a price of 75-95 baht per square foot. Production capacity is 60,000 feet per month, and MPJ produces 500 bags a month, expected to double next year.
While leather is its core business, MPJ produces bags under the Besttanna brand and hopes to export them soon to other Asian countries, especially Japan and Indonesia.
"Thais want to look cool but don't want to lug handbags around. Thai and other Asian women are somewhat small and think leather is heavy," said Mr Pantapat, referring to the demand for lightweight leather.
MPJ also targets developing leather with fragrances contained in molecules.