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Whilst researching the impacts of the recession on the demand for crocodile leather and stumbling over some tales of recession-induced woes, it seems Hermes, an internationally renowned luxury fashion brand, is the shining star – bucking all trends, and potentially single-handedly fuelling demand for exotic skins, like crocodile leather.

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Hermes sales rose by 3.2% at current exchange rates to €428.4 million over the first 3 months of 2009, despite the wider market context of a floundering global economy. Much of that growth is attributed to sales of leather goods, which rose 21.7% to €206 million and has been driven by ‘robust’ expansion in China and Korea (Hermes 2009).

Hermes’ Birkin bags fanatics, including celebrities like Victoria Beckham, are paying up to $US50,000 (with bags made from exotic skins hitting the 6-digit mark) for a single bag with a waiting list of 2-3 years. Beckham reportedly owns $US2 million worth of Hermes Birkin bags (Murray and Williams 2009). Three thousand coveted Saltwater crocodile skin bags will be made this year, and limiting them in number maintains the exclusivity, luxury image and mystique surrounding them. No doubt it helps that Hermes’ key clientele are unlikely to be affected by the recession and are seemingly “recession proof”, but Hermes ability to conjure such furore over a handbag can only be admired. The exclusivity of its brand is partly reflected in its differing sales results for own stores versus distribution networks, with a 16% growth in sales (at current exchange rates) in the former and a decline in the latter. Clearly stepping into Hermes’ own stores is a far more compelling shopping experience than that found in its distribution stores.

Experts argue that “the people who can afford these goods are not affected by the recession. Even if they lost millions of dollars in the market, they are still worth hundreds of millions of dollars. If you want something super special, if you want a handmade crocodile bag and you can afford it, Hermes is the only place you’ll go”.

Hermes, usually very closed-book about its activities, has claimed that “we cannot meet demand. We are facing massive over-demand. We are limited by our ability to train new craftsmen” [Patrick Thomas, CEO, cited in Goldman (2009)]. Craftsmen in a small French town of Pantin, spend up to 2 weeks preparing each bag. In order to guarantee supply Hermes is vertically integrating its supply chain, establishing new farms in Australia: “It can take three to four crocodiles to make one of our bags so we are now breeding our own crocodiles on our own farms, mainly in Australia,” and it is looking to add to its existing number of 1400 craftsmen to alleviate the bottleneck it currently faces in turning the leather into the exclusive Hermes handbag.

Whilst Hermes success might not be replicable in any market other than the ‘luxury’ fashion market, its role in fuelling demand for crocodile skin, and in driving the demand for 8 high quality skin and skilled, highly trained craftsmen can not be ignored.

This article is cited in the Crocodile Specialist Group Newsletter. See: http://iucncsg.org/.

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The International Fund for Animal Welfare (Ifaw) has commissioned a report by Economists at Large assessing the value world wide of whale watching to support their position of an outright ban on whale hunting at the current International Whaling Commission meeting.  The report estimates that whale watching generates $2.1 billion per year.

The director of Ifaw, Patrick Ramage, is quoted by the BBC as saying “Whale watching is clearly more environmentally sustainable and economically beneficial than hunting and whales are worth far more alive than dead.”

Mr Ramage is setting up the economic argument as an “either or” but various people (such as the Icelandic whaling commissioner) have suggested that you can have some of both.  We’re back to economics 1.1 as shown in the diagram below.  The curved line shows the marginal rate of substitution between eating whales and watching whales, and the straight budget line shows the relative price of the two goods.  The “optimal” point is (theoretically) where the gradient of the lines are equal.  At this combination the maximum value is extracted.

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This piece of basic under-graduate economics probably gets us not very far to the answer of “how much hunting, how much watching?” but it does go some way to debunking the argument that if one good is more valuable than another you should only produce the first good.  People corporately probably want a bit of both.

And what of the recession? How does this affect the logic of maintaining whale populations as tourist attractions?  Again considering the properties of the two goods in the model above may be useful. Consuming whale watching is by its nature lumpy. To go whale watching I need to travel to the country in question, probably as part of a larger holiday and I will probably do various other touristy things while I’m there.  When money gets tight it is difficult for me to cut the cost of the combined single good of “holiday to a place where I can go whale watching.” As such I’m likely not to go at all, or to go to some place cheaper without whales.  My demand for whale watching is reduced by 100%.

The problem is that whales can only be watched whole and in their natural environment. However if I shoot the whale, cut it up and put in tins it becomes a lot more transportable and less lumpy (economically speaking, I’ve never eaten whale so can’t comment on its texture). If say I would usually consume ten cans of whale meat in a year and money gets tight, presuming whale meat to have a cheaper substitute, I can chose to consume only eight tins this year. My demand for this product has only reduced by 20%.

As with so many good and markets considered by Sustainable Slump the consumption is defined by the properties of the goods themselves but also there substitutes. Is whale watching a luxury good? Probably. Is global travel going to get more expensive in the future? Probably.  Will whale watching still be worth $2.1 billion if the recession continues? Possibly not.

One thing that can be said for the recession is its ability to be thought-provoking. Having read an article about rising demand for meat and leather and its damaging impact on the Amazon and on its significant contribution to greenhouse gases (GHG) and climate change, I pondered how the recession might either exacerbate or alleviate deforestation through its impact on meat demand.

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There are several things that could happen:

  • Total demand for meat decreases as it’s a relatively expensive form of protein. This trend is supported by other changes in consumption, for example the increase in sales of eggs, which offer a cheaper protein source.
  • Demand for more expensive or ‘niche’ meat decreases (for example organic, or free-range meat, which may have less negative impacts on the environment, because it is less intensively farmed), whilst overall demand for meat remains static (picture meat on this graph).
  • Demand from the developed world drops for beef from international origins decreases, as ‘local’ produce becomes more important. These farming systems may have less direct impact on the rainforest, but their environmental impacts remains unknown and they will still contribute to GHG emissions.

In the first scenario – where total demand for meat drops, this may be a positive for the environment. In the second scenario, the impacts on the environment are likely to be negative. In the third scenario, the impact on the environment is uncertain.

To complicate matters further is the impact changing demand will have on the livelihoods of those who rely on meat production and for those who already have limited incomes to afford meat, the recession may shift consumption to wildmeat or bushmeat (much of which is illegally hunted and can contain endangered species) as a cheaper alternative.

What the recession has certainly shown us is just how interconnected income, consumption and sustainable development really is.

Crocodile skin, particularly wild crocodile, is prized in the fashion world for its glossy, beautiful appearance and has transcended the often fickle styles and trends of the fashion world, epitomising ‘classic’ and ‘timeless’ fashion. Picture Kate Moss carrying the same crocodile clutch her mother carried back in the sixties. Crocodilians specimens are also traded as meat and hunting trophies.WalletCrocodile-4Crocodilians include all alligators, caimans, crocodiles, gavials and other members of the order Crocodylia. Crocodilians are protected under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), which is an international agreement (to which states adhere voluntarily) between governments to ‘ensure that international trade in wild animals and plants does not threaten their survival’.

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The species covered by CITES are listed under three appendixes. Appendix I includes species threatened with extinction. Trade in specimens of these species is permitted only in exceptional circumstances. Appendix II includes species not necessarily threatened with extinction, but in which trade must be controlled in order to avoid utilization incompatible with their survival.

All crocodilian species have been included in CITES Appendix I or II in response to the decline in some wild populations as a result of unregulated international trade. A number of more common crocodilian species are included in Appendix II because they are so difficult to distinguish from more endangered species. As a result of CITES the majority of Crocodile leather comes from farmed and ranched (removing eggs form the wild to breed in captivity) sources. Whilst this is thought to have led to a turn-around in crocodlian populations after numbers plummeted in the 1960’s due to high levels of trade, it has also been argued that through removing traded crocodiles from their natural habitat and decreasing the need to hunt the wild crocodile, the economic incentive for conserving the wild crocodile and its habitat is reduced, or removed, alltogether.

James MacGregor argues that demand for wild harvested crocodilians is important in incentivising conservation. He concludes that: ‘in the crocodilian skin industry, or any industry founded on wild resources, is unwise to turn its back on the wild supply; wild crocodilian skins retain some advantages in today’s market—wild classic skins remain at the vanguard of the strategy of luxury brands.’

For several reasons one could argue that the recession might not impact demand for crocodile skin. This could be justified on the basis that:

  • Croc leather has a diverse and growing portfolio of markets and market segments and a continuing allure among customers.
  • Croc leather products are sold to wealthiest, well-established brands have no fear from crisis (as it exists today) owing to liquidity and relatively small cost. However this does account for small portion of the market. Think Beckham with her collection of $US2  million worth of Crocodile leather Hermes Birkin bags.
  • Accessories and ‘classic, timeless’ fashion pieces are increasingly being favoured, including exotic skin goods. The transfer of budget from other products to these could favour sales of croc products.

Despite these sensible assumptions, interviews with experts have revealed that the recession is undoubtedly taking its toll on the demand for wild crocodile skin – some tanneries, for example, have reported ‘no designer orders’ in the Q1 of 2009 and an significant increase in the downgrading and outright rejection of lower quality crocodile skin. Some industry participants are trying to postpone sales of wild skins to see if market conditions improve. For others, crocodile leather goods remain the ‘fastest-growing product line’ notably in the case of Hermes (who owns its own crocodile farms) claiming that “we cannot face demand. We have massive over-demand. We are limited by our ability to train new craftsmen.”

Co-existence in many countries of dangerous crocodiles and poor people has been made possible through provision of strong economic incentives to harvest sustainably. Indeed, many of the wild crocodile skins are produced under the strictest of regimes using sustainable use. Here, often poor hunters and communities are given opportunities to realise the benefits from these species who are often despised for the danger they present to human life. The changes brought about by the recession add fear that a collapse in orders owing to belt-tightening by the world’s elites will reduce their value in situ and reduce the incentives for co-existence. Closely monitoring the impacts of the recession will be key to ensuring conservation and livelihoods are not adversely affected.

I recently posted a piece, admittedly riddled mainly with questions, about how the recession would impact wildlife trade, land use, conservation and the balance between legal and illegal trade. Although a relatively small case-study in the global scheme of things, Argyll in Scotland, has demonstrated just what could happen as the economic going gets tough:

One unexpected consequence of the recession is that the needs for cheap meat and money-making are combining to bring DIY wildlife crime gangs to Scotland to poach Roe, Red, Fallow and Sika deer. There is already a lively black market for cuts of meat from these animals (Strathclyde Police).

Other anecdotal trends do suggests that this rise in poaching is not necessarily confined to Argyll and may be having more serious effects in terms of undermining sustainability, elsewhere. The Born Free Foundation has argued that ‘rising food prices, another rash of crop failures, wide-ranging impacts of the global recession, will lead to a rise in the ‘bushmeat’ trade in Kenya’. This is thought to be detrimental to conservation because a portion of the bush meat contains endangered species. A survey in 2004 revealed that 40% of meat being sold as beef or goat in certain Nairobi butcheries was either wholly or partially bushmeat – it would be useful to update this research and understand the extent to which the recession is impacting illegal wildlife trade.

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Source: Wildlife Works Ltd

Whilst on the surface it may seem that trade in illegal bushmeat is only damaging to the wildlife it affects, Born Free’s Senior Wildlife Consultant argues that “this is not just about saving individual animals, important as that is.  It is about preserving functioning eco-systems that bring benefits to every person on the planet.  The ecosystem services provided by Africa’s forests and savannahs include rainfall, carbon storage and stabilizing the global climate, so we all have an interest in preventing a few profiteers from destroying these globally important ecosystems for personal gain.”

Illegal hunting and trade of wildlife, removes the economic connection between habitat (or land) and wildlife, undermining economic incentives to conserve habitats and, as a result, environmental sustainability – not just in the specific country concerned, but globally.

Whenever a situation changes some business somewhere will probably find a way to benefit from it.  A company within the Mitsubishi conglomerate seems to be onto a winner by cornering the market in bluefin tuna, buying 40% of current (vastly unsustainable) supply.  They are then freezing much of this stock at -60° allowing it to be stored for several years and released onto the market at a future date.

 The International Commission for the Conservation of Atlantic Tunas (ICCAT) was formed in 1969 when stocks of Atlantic bluefin were abundant.  It is little wonder that their failure over the last 40 years (bluefin stocks are 10% of their levels in the 1970s) to limit bluefin catch at sustainable levels has caused many in conservation and fisheries science circles to say that ICCAT really stands for the “International Conspiracy to Catch All Tuna”.

Bluefin tuna has evolved to be a highly efficient predator.  Their circulatory system can increase their blood temperature to increase the efficiency of their core muscles providing them with outstanding acceleration and a top speed of 45mph.  They have one of the highest hemoglobin counts per unit of blood of any fish allowing rapid delivery of oxygen to their muscles.  A human analogy would be a Tour de France rider using EPO.  The only downside of evolving such an incredible combination of circulatory and muscular systems is that it makes the bluefin one of the tastiest fishes around and a key ingredient of many types of sushi.

Tunas are becoming incredibly valuable.  Last year a 276 Kg fish sold for $55,700 (that’s about $200 a kilo!). Mitsubishi claim only to be freezing to maintain year round supply, however they have a clear incentive to build up a stockpile, under either of the two possible tuna population scenarios:

Scenario 1

The ICCAT heeds its scientists and implements a total ban on bluefin tuna (hopefully in time to prevent population collapse).  Supply of bluefin entering the market stops leaving Mitsubishi with a monopoly supply of a highly valuable fish.  Prices climb to astronomical heights.  Mitsubishi make a killing.

Scenario 2

The ICCAT ignores its scientists and allows bluefin tuna to be fished to extinction.  Supply of bluefin entering the market stops leaving Mitsubishi with a monopoly supply of a highly valuable fish.  Prices climb to astronomical heights.  Mitsubishi make a killing (twice).

While there is much academic debate about the role of wildlife trade in supporting or encumbering conservation and economic development efforts in developing countries, there is agreement on one issue – that illegal wildlife trade threatens conservation. It undermines nations’ efforts to manage their natural resources sustainably and causes massive economic losses in lost earnings. It damages legal wildlife trade (which can be a useful economic incentive for conservation if properly managed) by threatening the resource on which so many people rely (Traffic.org). It provides few conspicuous incentives for good land management by those living with the natural resources or for those in the supply chain to invest in good management practices.

Illegal wildlife trade is a significant market and although by its very nature is impossible to measure, it is thought its value runs into hundreds of millions of dollars. Significantly, illegally traded products are less likely to contribute to sustainable conservation initiatives on the ground. In the case of wildlife trade, illegal is defined under CITES.

By its very nature, illegal activity is unseen, and there are few robust analytical approaches to help us understand the economic system of illegal trade or the scale of it. Yet, the recession provides an ideal opportunity to understand the drivers of wildlife trade [good and bad] by allowing us to better understand market dynamics by glimpsing change as it happens. We can see what happens to trade and to conservation when for instance, demand for all commodities falls or if demand for luxury handbags in Japan falls (of which crocodile leather is used to make some), or if the costs of captive-breeding and farming crocodiles increase. Might we see illegal trade increase relative to legal trade? Or vice versa? Or more subtle changes? Are illegal and legal trade complementary or substitutes? Do they work in parallel or in opposing ways?

Furthermore, how do these insights translate on the ground: as demand for some commodities fall, what options are there for alternative income sources for communities and under what circumstances might illegal activities become attractive as a viable source of income? How will land use patterns change and how will this affect wildlife habitats? How will the incentives for conservation change?

Sustainableslump is calling for more research right now to help us better understand this illegal trade, the economic and social drivers and how cross-cutting policies might be effective in reducing or eliminating illegal trade and establishing effective market-based incentives for conservation and sustainable wildlife trade.