Cotton’s supply and demand economics

Many cotton buying brands and retailers recognise the need to reduce the environmental and social impacts associated with cotton production. Over the last few years, significant progress has been made in developing more transparent cotton supply chains.

Cotton farmers are being trained in techniques to grow cotton more sustainably while also improving their income. However, while securing a sustainable supply of cotton is something that matters to brands and manufacturers, what will it take for businesses to commit to buying only sustainably-grown cotton?

In the face of barriers such as price and the challenges of achieving traceability, what is the tipping point?

Experience from other sectors suggests that the business proposition will be driven by two imperatives: firstly, the need for a sustainable supply of raw materials to make the garments and products, and, secondly, demand for ethically sourced clothing from retailers and their consumers.

Clearly, brands and manufacturers need to have a secure supply of cotton to make their products. But how do they trace a supply chain that is constantly changing and where both ends of the value chain have options to buy or grow another raw materials?

In China, for example, cotton farmers now find it can be more profitable to grow sunflowers than cotton. Other crops are more established, such as cocoa or apples, but every year cotton farmers can decide which crop to grow and they may not always chose to grow cotton. This therefore can change the availability of the crop, including sustainably-grown cotton.

Likewise, manufacturers and retailers have a choice of cotton or alternatives such as polyester. With the falling price of oil, polyester may well become a cheaper option. This in turn can affect the demand for sustainably grown cotton.

For procurement there is a tension between flexible sourcing and vertical integration. The challenge for suppliers is to ensure that the right fibre is available when needed and at a competitive cost. There is also a need for greater accountability and commitment to suppliers.

To increase the demand for sustainably grown cotton to the point where it becomes a profitable crop for farmers to grow, ethically sourced cotton has to become desirable.

Whilst consumers may state a preference for ethical sourced cotton, in reality they don’t go to the shops to buy cotton, they go to buy garments. How they are made is often a secondary concern after price and style.

What may change this is the view of the millennial generation – in their 20s and early 30s – who are more aware than their parents of the need for sustainably and ethically sourced products, and are more willing to pay for it. Retailers have a dual role to educate their customers on the one hand and to provide what they want on the other.

A recent survey from the Fairtrade Foundation found that 82% of UK teenagers think companies need to act more responsibly, while just 45% said they trust businesses to do so.

In general, 33% of the global population is willing to pay more for sustainably manufactured and sourced goods. However, according to 2013 Aspirational Index by BBMG and Globescan, this rises to 91% of “aspirationals”.

Aspirationals are materialists who define themselves in part through brands and yet believe they have a responsibility to purchase products that are good for the environment and society. Four in ten millennials are part of the aspirational group.

While millennials are already a potent force, they will truly come into their own by 2020, when, according to Accenture, their spending in the United States will grow to $1.4 trillion annually and represent 30% of total retail sales.

The fact that millennials also buy more clothing than previous generations means this consumer group could cause the ethical shift in fashion buying that the previous generation caused with food buying, but only if the other parts of the value chain – the farmers, mills, brands and retailers – are up to speed too. Just as Fairtrade and ethical sourcing certification have become necessary labels for food manufacturers, clothing brands will need to show consumers that they are sourcing sustainably. How much this would drive increased brand trust rather than brand share is an interesting question.

So where are we on the journey to sustainably sourced cotton? There are well established sustainability initiatives such as Fairtrade and Better Cotton. CottonConnect works with brands and retailers to delivers results from REEL (our own sustainable cotton programme), organic and Better Cotton initiatives, working to reduce water use, pesticide use and child labour while increasing farmers’ incomes and improving soil health and biodiversity.

The knowledge and programmes are available but sustainably sourcing cotton must become a business priority.

We have to find the business case for all in the supply chain from farmer to retailer. If on this journey we can inspire people to make more sustainable choices we might achieve a tipping point.