Governance

Total support to the agricultural sector (including producer support) was USD 375 billion in 2007-09 (0.9% of OECD GDP). This is down 2.3% from 1986-88. In all but one OECD countries, the agricultural support had declined when compared to the overall economy.  High world commodity prices and lower food stocks contributed to food security becoming central to agricultural policy debate.

Many countries implemented previously agreed reforms, others took ad hoc measures in prompt response to price volatility. Some trends in policy reforms include: delinking of support from commodity production, and increasingly linking support to better practices. Some countries adjusted the form of subsidies paid to producers because rising prices negated the need for them.

Food security was the focus of discussions when Ministers for Agriculture from the OECD countries met in early 2010.  The Ministers agreed to build on and complement policy principles agreed in 1998 and recognized:

• An integrated approach to food security is needed
• ‘Green growth' offers opportunities
• Climate change presents challenges and opportunities.

The Ministers also agreed that governments should meet many basic responsibilities that include ensuring that:

1.     appropriate institutional, regulatory and policy frameworks are in place to enable markets to function properly

2.     appropriate policies are developed to manage risk

3.     policies are coherent with general macroeconomic, trade and other policies

4.     policies support responsible management of natural resources

5.     the total costs and benefits to society are considered

6.     there is a supportive investment climate

7.     innovation is encouraged, including transfer of technologies that enhance  productivity and product quality

Some recommendations for governments to consider when shifting support from production levels to adoption of better practices include:

• State clear objectives, use evidence-based evaluations of progress, and improve transparency,
• Target support to lower income farmers and include risk management tools to protect them from price variability and crop damage.
• Encourage payment schemes that cost polluters and benefit ecosystem services providers.
• Promote climate change adaptation and natural resource conservation.
• Invest in needed infrastructure.
• Promote innovation that builds efficiency across the sector.

A stronger and more transparent global market that can reduce price variability and lead to more consistent policies that take a long-term approach which could further stabilize and strengthen the overall industry.

Tighter regulations can also result from an industry's inaction such as not acknowledging corruption or human rights violations associated with raw material production. For example, The Dodd-Frank Wall Street Reform and Consumer Protection Act signed by President Obama on July 21, 2010 mandates new auditing and disclosure requirements for companies that use certain minerals in their products originating in areas known to be mined under conditions of armed conflict and human rights abuses. On December 15, 2010, the U.S. Securities and Exchange Commission proposed rules to implement the provisions of this Act. Its focus is to ban the use of metals from the Democratic Republic of the Congo due to human rights violations that are occurring in that country.

Although the regulations don't ban the use of conflict minerals, many industries, such as the electronics and airline industries, are responding to the regulations by developing programs to rid their supply chains of conflict minerals. These programs that rely heavily on audits to confirm the origin of a given metal, are resource intensive, expensive and create new reputational and legal risks to the companies should the audits not satisfy all interested stakeholders. It could also lead to a more restrictive number of qualified suppliers (those who don't purchase any conflict minerals) and more limited source of materials that could, in turn, lead to higher prices if demand outstrips qualifying supply.

The cotton industry can learn from these events and proactively mitigate the risk of reputational damage or increased and burdensome regulations. The industry faces several challenges: 1) cotton is often perceived as being pesticide and water intensive, 2) the Uzbek government's use or acceptance of child labor during cotton harvest is gaining more public attention and action by the U.S. government, and 3) WTO rulings shifting the landscape of cotton production. The cotton industry could avoid negative reputational impacts or the risk of future regulations by addressing the areas of concern (e.g. pesticide use, child labor) as well as communicating all of the positive aspects of cotton (e.g. natural fiber, creates income to rural, poor farmers). This may become more beneficial and important as cotton prices soar and faces competition from synthetic fibers.

Question

Is there a role the cotton industry could take to minimize the risks to the industry's public perception associated with the most egregious environmentally and socially conditions?