Brazilian Footwear Industry Shows Difficulties in Exporting

Brazilian footwear exports have decreased in August 2016 compared to the first semester of the year. The President of the Brazilian Shoe Manufacturers Association (Abicalçados), Mr. Heitor Klein, claims that decrease has been caused by the Brazilian currency (real – R$) recent appreciation, which has been making the country’s exports less competitive. However, the exchange rate valuation is not the only aspect to blame for the lack of competitiveness of the footwear industry in the international market. When looking at an overall picture, there are other important aspects motivating the sector’s lack of competitiveness which should be analyzed.

Expectations are that the Brazilian real will strengthen even more in 2017, which will affect shoe companies, leading some of them to cancel prospections of new customers. Currently, some shoe manufacturers claim they are facing several obstacles when negotiating prices with foreign buyers who are demanding a cutback in the Brazilian prices.

The footwear industry in Brazil has relied for a long time on the Brazilian Government’s support in protecting the sector, allowing businesses to work under an unsustainable model. In addition, the lack of an industrial policy between industries and products are also negative. For instance, trade remedy measures on essential inputs for the manufacturing of shoes, such as rubbers (E-SBR) and synthetic leather (PU), which have been applied throughout the years are currently under analysis.

Trade remedy measures on such inputs affects the cost of production of the final product, making it more expensive. Consequently, big Brazilian exporters (e.g. Alpagartas), end up having to increase their prices in the foreign market, and as a result export at higher prices. The current economic and political situation Brazil is most likely going to force the footwear industry to adjust to the global competitive market.

Instead of relying on the appreciation or depreciation of the currency to sell at competitive prices in the international market, the Brazilian footwear industry should try to reduce its production costs through investing in its production process, participating in the current synthetic leather antidumping case against the application of duties to imports, among other alternatives, to become more competitive internationally.

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