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One of the most widely cultivated and traded commodities in the world – cotton – entails a supply chain that can be described as highly complex and involves multiple actors, including farmers, ginners, traders, spinners, weavers, and retailers. The global production of cotton stands at over 25 million tonnes annually and its supply chain, because of the various actors involved, is characterized by significant social and environmental challenges.
Cotton is one commodity that is highly diversified in its journey from being harvested to being sold off shelves as ready made garments. Along with the geographical dispersion of production, the diverse ownership structures of cotton farms, the variability of yields and quality, the multiple processing stages involved, and the wide range of products made from cotton – everything makes its supply chain a strenuous piece to handle.
Moreover, the cotton supply chain is fragmented, with each actor operating in their own silo, often with limited information sharing or collaboration. This fragmentation results in inefficiencies, lack of transparency, and difficulties in tracking the origin and quality of cotton throughout the supply chain.
Where does cotton come from?
China is the largest producer of cotton in the world, with an estimated production of around 6 million metric tons in 2021, and Xinjiang accounts for a significant share of the production. Second on the list is India, with an estimated production of around 5.7 million metric tons in 2021 coming from states including Gujarat, Maharashtra, and Punjab. And the third largest producer is the United States. With an estimated production of around 2.8 million metric tons in 2021, US’ cotton growing states include Texas, Georgia, and Mississippi.
The cotton supply chain can be broken down into 8 steps:
- Raw cotton production
- Trader buys raw cotton from several farmers and combines all products into bulk before selling them to factories
- Factories extract the seeds, cleans the bolls, and spin the fibers into thread
- Trader buys spools of thread to be sold to mills
- Mills produce and dye the fabric
- Trader buys the fabric to sell to manufacturers
- Manufacturers create the products/textiles for retailers
- Products appear on shelves at the retail store
Why is traceability important?
Cotton has historically proved to be difficult to trace, both because it is traded as an international commodity and because the supply chain itself is long and complex, typically with 6 to 7 players engaging between fiber to retail. The trans-boundary trade can lead to an opaque and fractured supply chain with little to no traceability between the producers and end-users.
Considering the wide geographical area that cotton is produced and processed in, it becomes critical to be able to trace back its sources and ensure that cotton is ethically sourced and produced. This can help to prevent human rights abuses, such as forced labor or child labor, and ensure that workers are treated fairly.
Moreover, it also promotes sustainable practices of cultivating and processing cotton, such as reducing the use of harmful chemicals, minimizing water usage, and protecting biodiversity. This can help to reduce the environmental impact of cotton production and ensure that it is more sustainable in the long term.
For cotton traders, traceability holds a different importance. It can help in assuring the quality of the product, considering that each source has different levels of contaminants, and the level of quality determines the prices. Similarly, dye houses need to be aware of any changes that will affect colour reproduction, although they do not necessarily need to know the origin of the cotton.
What are the challenges?
Though a low risk area, the cotton supply chain is afflicted with its own set of challenges. Let’s start with the most recent one – COVID-19 pandemic. The pandemic caused long-standing supply chain disruptions, and the cotton producing countries, particularly in Africa, saw the costs associated with cotton production and export increase significantly. The logistics associated with moving cotton across national borders and ultimately shipping it overseas become more complex as well as dearer.
A WTO study on the impact of the pandemic on cotton producing Least Developed Countries (LDCs) says that serious logistic disruptions and increased storage costs at points of export still pose serious challenges for cotton marketing and trade in countries where cotton is of vital importance for the livelihoods of millions of people.
Next, talking of sustainability, unless produced using sustainable practices, cotton can contribute significantly to greenhouse gas (GHG) emissions, over-consumption of water and excessive pesticide use, among other severe issues. Half of irrigated cotton is already at extremely high risk of water stress, and that is expected to increase to two-thirds by 2040. And the definition of sustainability in the cotton supply chain should extend to being just, regenerative and resilient.
Another challenge in managing the cotton supply chain is that of unfair labour practices. In cotton producing LDCs, and some developing countries too, there have been reports of unfair labor practices like forced labor, child labor, and poor working conditions. This happens due to the absence of definitive labour laws and unions.
Probably the most talked about example of this is forced labour in Uzbekistan. The Uzbek government had been accused of forcing children and adults to pick cotton during the harvest season, and of using coercion, threats, and violence to ensure that they meet quotas. Workers were often forced to work long hours in harsh conditions without adequate food, water, or medical care. Another example is poor working conditions in textile factories in countries such as Bangladesh, where workers are often paid very low wages and forced to work in unsafe and unsanitary conditions. Workers may be exposed to hazardous chemicals, and many factories have inadequate fire safety measures, which can lead to deadly accidents.
These unfair labor practices are a serious concern for the cotton supply chain, as they can lead to human rights abuses and undermine the sustainability of cotton production. To address these issues, it is important to increase transparency and accountability in the supply chain, and to ensure that workers are protected by strong labor laws and regulations.
Lastly, volatility in demand/supply can lead to fluctuations in cotton prices, which can impact the profitability of cotton production and the viability of its supply chain. It can also impact the availability of financing for cotton production and trade, making it difficult for stakeholders to access the capital they need to invest in their businesses and contribute to the supply chain.
To conclude, the production and supply chain of cotton has come under heightened scrutiny in light of the range of social and environmental concerns that are involved. These include labour malpractices, hazardous pesticides, genetically modified cotton, and a significant pressure on water resources. Understanding the source of cotton is critical from a commercial perspective as it enables an assessment of potential risks that a brand may face. It is also important to address challenges that are prevalent in cotton producing LDCs as the product affects the economic and social development of those regions.
