2010 was a record-breaking year for cotton prices in global markets. In this post, Reeve Consulting presents an overview of recent market activity, considers the implications for working and environmental conditions in the supply chain and takes a look at how organic and fair-trade cotton sectors are fairing. We finish with a few suggestions for corporate and governmental purchasers looking to reduce brand risk and improve ethical and sustainable purchasing practices when it comes to cotton goods.
Cotton is the largest non-food crop in the world with over 24.3 million tonnes consumed worldwide annually. Did you know it’s also the largest employer? From farm workers to retail employees, an estimated 1 billion people are involved in the growing, processing and selling stages.
Given the ubiquity of cotton, it’s significant that 2010 was an unprecedented year for the commodity in global markets. The price doubled in a year and broke the $1 (U.S.) per pound level for the first time in 15 years.
Rising prices affects the entire supply chain
A number of factors have been attributed to the sudden price increase, a main one being poor weather conditions in top growing regions, including floods in Pakistan, a severe cold snap in China, crop-killing hailstorms in Texas and, more recently, flooding in Australia. Speculation has played a significant role, as well as export restrictions put in place by India (the second-largest cotton producer) to protect domestic supplies and prices.
Consequently, the clothing sector is feeling the squeeze of both increasing input costs and a weak consumer environment. According to media reports, the prices of jeans, t-shirts and other cotton apparel will likely increase 2 – 15% in 2011.
To avoid passing a price hike to consumers, clothing companies may reduce costs by mixing in less expensive, synthetic fibers or by decreasing pack sizes on smaller bulk products like socks. Of greater concern is that companies will move production to lower wage countries with lower duty tariffs and weaker environmental restrictions. As examples, consider how garment workers demanding a fair minimum wage are currently being treated in Cambodia and Bangladesh. Anticipating such tactics, the Ethical Trade Initiative released a statement in late-September urging retail buyers to factor in the cost of a living wage for workers in their price negotiations with garment suppliers.
Organic cotton prices are linked to conventional cotton prices
A recent edition of Engage, an e-newsletter published by the Organic Exchange, takes a close look at the organic cotton industry. The opening article suggests the extraordinary times experienced by conventional cotton have on the one hand created a beneficial seller’s market. At the same time these conditions have had a potentially damaging impact on the sector by leveling the price of organic and conventional cotton. As the Organic Exchange (OE) puts it:
“Farmers are seeing their carefully tended organic harvest end up in conventional supply chains. Organic cotton procurers are struggling to meet their usual premium commitments (which don’t make sense anymore) and on top of this the lag time for organic buyers to respond to the market is adding a further complication.”
The article concludes that if organic cotton is to be secure in a stable, appropriate value chain it needs protection from the dramatically changing commodity price. This could come in the form of working partnerships that deliver benefit to farmers as well as buyers.
This concept is further covered in a recent article in the World of Organic Agriculture – Statistics and Emerging Trends 2010 journal:
“The sector must address the protection of the farm and fiber business model to ensure farmers and those who work with them receive sufficient returns to maintain investment in farmer development and productivity.”
Protection from the commodity market rollercoaster
A number of programs have attempted to protect cotton from market conditions. Perhaps the best known is the fair trade movement. We’ve written a number of posts on the Reeve Consulting blog about the new garment certification program unveiled in 2010 by Fair Trade USA. For the first time the full supply chain of a product, not just the agricultural inputs, can receive fair trade certification ensuring workers are paid a fair, living wage for their goods and services. While only a handful of brands have completed the certification process, recent reports indicate more companies are working with Fair Trade USA to acquire certification.
Another example can be found in the recent commitment by Anvil Knitwear to double the production of organic cotton in the U.S. Through the Texas Organic Cotton Marketing Cooperative, Anvil will pay a premium for organic cotton as well as purchase any cotton making a transition to organic at a price close to the premium. The hope is that having a guaranteed buyer will encourage conventional cotton farmers to switch to organic production.
Social Alterations, an online education lab for socially responsible fashion design, has also focused on this issue and recently shared a post outlining approaches undertaken by two other global commodities – coffee and cocoa – that have similarly attempted to address the volatility of global commodity prices.
Purchasing cotton responsibly: ethical and sustainable purchasing considerations
When it comes buying cotton goods, purchasing departments can reduce risk and improve supply chain practices by considering the following:
- Making a formal commitment to specify and support sustainable forms of cotton in purchasing decisions (e.g. organic, fair trade, ethically sourced)
- Considering the origins of cotton goods including. More specifically, the working and environmental conditions under which they were made
- Investing in long-term relationships with suppliers and focusing on continued improvement
To learn more about how our clients and organizations are benefitting from these and other sustainable supply chain practices contact us.