Why we need to transform commodity value chains (and what this means for cotton)

Why we need to transform commodity value chains (and what this means for cotton)

By Charlene Collison

When conditions in a system change to the point where it can’t cope, the system either dies or transforms. This is true for natural systems, and also for complex human-created systems like global value chains. The COVID-19 crisis is revealing cracks in commodity value chains, and society now has to make a choice: to persist with operating unsustainable supply chain models until they break; or to transform them.

Let’s take cotton: like many agricultural commodities, the cotton system is based on a production model that inherently lacks environmental and social resilience. Unless grown according to sustainable standards, cotton can guzzle increasingly precious water, pollute soils and ecosystems with excessive chemical fertilisers and pesticides, and leave farmers highly vulnerable. It often traps millions of smallholder farmers, who produce the majority of the world’s cotton (over 60%), in a cycle of poverty. In today’s mainstream cotton system, it is normal to pay a price which does not factor in the true environmental or social costs of production, and to award the largest share of profits to actors at the end of the value chain, leaving those who produce it without a living wage and bearing the majority of risk. Critically, the system functions under the assumption that commodities can easily and cheaply be transported around the world in a mobile, international economy.

Changing assumptions around globalised economies, open borders and global value chains

Crises reveal stresses that were already present in the system, but which have been ignored or tolerated because it was still possible for the system to function. COVID-19 is a wake-up call that the conditions required for globalised commodity systems such as cotton to work can no longer be taken for granted. We are already seeing these conditions arrested as apparel companies shut up shop in droves, leaving mills, factories and thousands of workers in their supply chains without support to survive until they re-open. Meanwhile, as anxious consumers invest in food and household essentials, apparel brands are seeing sales plummet, with one estimate predicting at least a 20% drop in brand value. Countries and regions are closing their borders to travel and to trade. Meanwhile, the price of cotton has fallen to record lows. 

Many less resilient, or harder hit actors across the supply chain will not survive this crisis. Scores of brands are already failing. We don’t yet know what the impact of COVID-19 on farming communities will be, as a lockdown is unfeasible for outdoor workers. Most farmers, already growing next season’s crop, lack the resources to cope with the fall in demand, and the continued price drop due to short term oversupply. This may be the year that food trumps fibre as farmers shift to more essential crops, causing devastating impacts on actors further up the supply chain, like ginners and spinners, on which production centres depend. Once lost, this essential infrastructure is unlikely to recover; the cotton system in some areas is likely to change beyond recognition.

More system shocks on the horizon

And this is just the beginning. The knock-on impacts of COVID-19, devastating as these are, are early tremors of a series of climate crises that will profoundly shake the operating conditions for commodities systems. The availability of water, and viable agricultural land, will be scarce. Competition for precious resources is likely to result in protectionist policies by struggling governments. Conflicts and war are likely to follow, interrupting the free flow of goods we now take for granted. With more than four trillion consumer products being made, shipped and sold across the globe each year, the scope of the problem is vast. With production capacity weakened, and the crunch of a major recession, the disruptions brought by climate change are almost certain to take many global commodities systems beyond breaking point.

When the first waves of the COVID-19 crisis is over, systems will not spring back to operate as they did before because the fundamental operating conditions they depend on will have changed. When conditions change, systems have to change with them. If they don’t, or can’t change far or fast enough, they collapse. 

We must grasp the difficult truth that the context for agricultural commodity systems will continue to change, often radically. For them to function in the future, we need to use a narrow window of opportunity to re-shape these commodity systems to be regenerative, distributive and resilient in a post-COVID and increasingly climate-changing world.

Future thinking: cotton scenarios

COVID-19 is showing us, as crises tend to do, that the status quo can take sudden and radical shifts that in times of normalcy we would never admit possible. This is a common experience at Forum for the Future, where for decades we’ve been working with futures thinking and scenarios, exploring them with our corporate and foundation partners to build understanding and prepare for risks and opportunities they may face across the various ways the future might play out. These scenarios are designed to explore plausible versions of the future which work under radically different conditions – including pandemics, closed borders and fortress economies. For those of us who have created and delved into the implications of these scenarios, experiencing the current COVID-19 world feels eerily and disconcertingly all-too-familiar.

Before COVID-19, asking people to question the assumptions that shaped the status quo was often met with polite sniggers of disbelief. Scenarios such as Fashion Futures 2030<2 °C Futures and Cotton 2040 included explorations of the polarities of a globalised, interconnected world vs a localised, fragmented one. They posed questions such as what the world might be like if the economy was no longer global, but nations closed ranks to operate in regional blocs. One of the Cotton 2040 scenarios explored what might happen if climate change or other disruptions meant cotton was no longer grown in certain regions of the world.

Yet once people suspended their disbelief to explore their risks and opportunities, the scenario planning process raised calls for vertically integrated supply chains, alternative sustainable and circular business models, industry-wide net positive and regenerative supply chain goals, and proactive cross-industry climate change planning. In a COVID-19 world, these possibilities no longer seem so far-fetched, but obvious and critical necessities.

Collaborative and radical system change

While we can’t predict the future, the evidence is all too clear that it will be characterised by disruptions, even more severe than the ones we are currently experiencing. This has far-reaching implications for how we need to re-structure our societies, expectations and way of life. For agricultural commodity value chains which provide so many of the basic products on which we depend, this means re-shaping for long term resilience. This level of change can only be achieved by a systemic, collaborative approach involving actors from across the supply chain.

This is why initiatives such as Cotton 2040 exist. Cotton 2040 is an ambitious collaborative initiative aiming to drive change in the cotton system so it can thrive and contribute positively to environmental, social and economic challenges in an increasingly disrupted world. It aims to accelerate progress and maximise the impact of existing sustainable cotton initiatives, bringing together leading international brands and retailers, sustainable cotton standards, and other stakeholders across the value chain. Facilitated by Forum for the Future, with funding from Laudes Foundation (formerly C&A Foundation), the platform envisages a sustainable global cotton industry which is resilient in a changing climate; which uses business models that support sustainable production and livelihoods; and where sustainably produced cotton is the norm.

Over the next three years (2020-2022), Cotton 2040 and its partners will deliver a set of three interconnected workstreams with the biggest potential to drive a systemic shift to mainstream sustainable cotton through collaborative efforts.

  1. Planning for climate adaptation: Creating sector-wide collaborative action to understand and adapt to the changing climate.
  2. Sourcing sustainable cotton: Driving the uptake of sustainable cotton with brands and​ retailers, building on the success of the CottonUP guide launched in 2018. 
  3. Developing sustainable business models: Supporting a widespread shift towards alternative business models which ensure fairer distribution of value and risk between stakeholders, and enable the regeneration of land and resources.

The immediate impact of COVID-19, like the disruptions that climate change will bring, is causing immense human suffering and hardship. It shows up the weaknesses of systems that were already not fit for purpose and will be less and less able to function in the context that is emerging. So much now depends on whether we learn from this lesson. We can create supply chains that help to regenerate the ecosystems and communities in which they are grown, which ensure those who produce them livelihoods they can rely on, and which meet society’s needs without borrowing from the future. There will be hard choices about what to take with us and what to leave behind. But we can make those choices, together, now, or wait until the next crisis to make them for us in ways that cause more suffering. We can change these critical systems so they work for all of us, but only if we act now, and together.

For more information about Cotton 2040, and Forum’s work in creating equitable, resilience value chains, contact Charlene Collison.


Cover photo by Mike Carberry, Cotton Australia
This article was originally posted on Forum For The Future.

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