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Governance

Using Information and Communication Technology to Strengthen Trust

Risk Protection

The Future of Government Smart Toolbox explores and provides recommendations on how information and communication technology (ICT) can be used to strengthen trust, leadership, management of conflict, and innovation in government. The Global Agenda Council goes even further, noting how such a change can lead to improved effectiveness of government actions. Although this paper is written in the context of government, I believe many of the principles and recommendations can be applied to the global cotton industry and can help it become stronger and more resilient over time. Let me share a few highlights.

According to a paper by the Global Agenda Council on the Future of Government, Future of Government Smart Toolbox, trust in government has decreased since surveys were collected in the 1950s. I would argue that trust in big business has also decreased in recent years, and that trust in governments, businesses and regulators has also decreased over recent years. The authors begin by explaining how trust in an organization’s leadership is vitally important to running an effective organization. One way the effectiveness of an organization can be measured by the criteria, such as:

  1. Political representation
  2. Innovation
  3. Coherent bureaucracies
  4. Anti-corruption
  5. Conflict management
  6. Service delivery

These six components are all worth considering when we switch our gaze from good government to best practices in the cotton industry. Whether we’re talking about government or industry, the goal is the same – to strengthen trust in the leaders. Rebuilding trust among the cotton industry can be achieved by improving industry performance, becoming more transparent, improving accountability and fairness, and being more responsive to industry members. Such efforts may also lead to shifts in relationships along the supply chain, which might in turn result in improved trust and stronger partnerships between actors.

Some of the six components – e.g. conflict management, political representation – are long standing issues. ITC can provide new opportunities to address these issues and strengthen leadership and trust. Three key elements of ICT that have the greatest potential to impact leadership and trust include:

  1. Information technology (IT) enables information to be more readily shared, including actions of leaders, and is available to a wider segment of an industry’s stakeholders.  Improvements in IT have contributed to a higher standard for accountability and ethical performance.
  2. Big data will allow industries to analyze more data, which can be used to increase efficiencies. The increased availability of big data can also lead to more competition, innovation and growth.
  3. Disruptive and exponential technologies have the ability to displace established entities and advance desired change at an accelerated pace. These technologies could also lead to new products and services.

The authors point out that these technologies can be most effective in improving an organization’s performance when they are implemented as part of a strategy, are supported by investments in infrastructure and new capabilities, and when they ensure access to and reliability of new services. Technologies should connect core organizations within the industry, be inclusive, engage as many stakeholders as possible, and recognize limitations. Limitations and challenges include fairness and access, and security and safety of data. The need to invest in infrastructure and personnel to support new technology should also be acknowledged.

Corruption must also be addressed if government or industry is to be trusted. Corruption undermines fairness, distorts the distribution of resources, and undermines competitiveness. Technology can combat corruption by improving access to information and participation in decision-making, resulting in enhanced accountability, a redistribution of power, and the protection of market competitiveness. 

Trust among members of the industry can be strengthened by breaking down silos and exchanging information among different parties. Sharing of information between different organizations can lead to more transparency and improved responsiveness among supply chain actors who may not have had access to such information in the past. Taking a whole industry and supply chain approach to the development of improvements will result in a wider impact and can further improve trust and foster collaboration along the supply chain or between regions.

Industries should develop technologies to ensure that they can adapt to emerging technologies and changing cultural and trade conditions.


Social Life Cycle Assessments: A Good Idea in Theory

Business Climate

I like the concept of a social and socio-economic life cycle assessment (S-LCA) to complement and address some of the limitations of an environmental life cycle assessment (E-LCA), namely taking into account social impacts – both positive and negative – that occur along the entire produce supply chain – from raw material to use and disposal.

I appreciate the need to balance the negative impacts routinely measured in E-LCAs with S-LCAs that can measure positive impact or benefits from a social and economic perspective.

However, I have my reservations about the United Nations Environment Programme’s (UNEP’s) Guidelines for Social Life Cycle Assessment of Products (S-LCA guidelines). While UNEP states that S-LCA “does not provide information on the question of whether a product should be produced or not,” the results of any S-LCA could cause the selection of different materials (e.g. polyesters versus cotton), manufacturers, and designs. These choices could have an impact on suppliers and industries (e.g. should an alternative material be favored over others).

For example, UNEP presents a mock case study of applying the S-LCA to a t-shirt. The impacts measured through the application of the S-LCA process on the mock t-shirt will involve a dataset from that product’s origin and processing. Yet, the knowledge gained in this individual product S-LCA could be applied – intentionally or theoretically – across the entire category of cotton t-shirts (or cotton apparel products), regardless of the different conditions under which the other cotton was cultivated or products were produced and used.

My other concern with both S-LCAs and E-LCAs is that neither gives us a complete and accurate picture – especially of the contribution that businesses have on poverty alleviation and other social or livelihood benefits. I think the importance of business to provide income, opportunity, products, and services to communities across the globe is not discussed or recognized appropriately in conversations about sustainable development or responsible sourcing. By omitting this bigger context and solely looking at product level impacts, we fail to provide a balanced and accurate picture of the larger context of global trade and economic opportunity.

Despite my concerns, I do applaud UNEP for ensuring that the S-LCA guidelines align with relevant ISO standards and LCA approaches in that they have consistent system boundaries, allocation within these boundaries, and data sources, as illustrated in Figure 1.

Figure 1: Example of social, environmental, and financial conditions assessed in LCAs

 

People

Planet

Profit/Prosperity

Internalities

(Costs and benefits)

E.g. health and safety expenditures

E.g. costs for pollution prevention

E.g. costs of raw materials, taxes, interest on capital

Externalities

(Costs and benefits)

E.g. impact on human well-being due to social impacts

E.g. biodiversity or human health impacts from pollution

E.g. reduction in crop yields due to pollution

I think the application of S-LCAs and E-LCAs is helpful as long as they are calculated and used in the proper context. We first must recognize that, while we can do more to reduce our currently high rate of consumption, businesses create opportunities and wealth, and can be drivers for positive change. We need businesses, and they will have impacts.

I feel it is prudent for the cotton industry to provide the wider context of its contribution towards global poverty alleviation and job creation to further complement LCAs that don’t otherwise provide this important consideration.


The European Commission’s New Strategy for Private Partnerships

Business Climate

Earlier this year, my colleague shared an issue paper that provides background on and objectives of The European Commission’s (the Commission’s) new strategic approach on Strengthening the Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries. The Commission believes that a new approach to private sector engagement is needed to meet current development agendas because partnerships between the private and public sectors can have a greater collective impact in developing countries than each sector working separately can. This could be beneficial to the cotton industry. 

The European Union (EU) is the largest donor of development aid worldwide. In 2010, the EU provided €53.8 billion – more than 50 percent of global aid. The Commission is the second largest donor globally, managing €11 billion of aid per year. As such a large donor of development aid worldwide, the EU is invested in ensuring that the funds are as effective as possible in this changing world.

The Commission aims to support the EU’s Agenda for Change, which focuses on new ways of engaging private sector partners through a blending of funds (e.g. loans and grants) to achieve sustainable growth in two priority areas: 

  1. Human rights, democracy, and other key elements of good governance
  2. Inclusive and sustainable growth for human development

The Commission proposed that its private partnership strategy will focus on the following top priorities:

  1. Business environment reforms: enhance effectiveness by improving the quality and prioritization of reforms that target regional and business needs.
  2. Employment impact and poverty focus of private sector development support: promote crosscutting issues such as women entrepreneurship, youth employment, and decent work.
  3. Support for micro-, small-, and medium-sized enterprises (MSMEs): support the creation of business opportunities and markets for local MSMEs.
  4. Vocational training and capacity development: provide a greater voice to employers when developing occupational standards and training programs.
  5. Access to finance: strengthen the capacity of international intermediaries and support regulatory framework reform and the development of financial infrastructure.
  6. Private sector partnership: engage in public-private partnerships and explore innovative financial instruments.
  7. Private sector as the “delivery channel” for development: consider the private sector’s ability to provide services that have traditionally come from the public sector.
  8. Private sector contribution to inclusive growth: provide economic opportunities to the poor that allow for sustainable livelihoods.
  9. Transformation towards a green economy: the private sector – a critical actor in the advancement of economic development, job creation, and poverty alleviation – should be guided by an appropriate framework.

10.  The role and responsibility of the private sector in a post-2015 framework: an active economic strategy to reach these objectives including providing incentives for public-private sector to contribute to sustainable and inclusive growth.

I am encouraged that the Commission recognizes the importance of the private sector in achieving its development goals, and I largely agree with their priorities. With this said, I would encourage the Commission to consider the following realities to allow for wider support across the private sector.

If government wants to shift the bell curve in Figure 1, they must ensure that its “pushing power” is scalable and effective. Regulations must also demand better performance over time. Government regulations often have more effect than voluntary standards (“pulling power”) on businesses’ investments and activities. An example of this is the impact that the US conflict minerals legislation has had on spurring companies and supply chain actors to act quickly – and largely consistently – across entire industries.

The importance of good governance in developing countries is understated by the Commission. Good governance is an essential foundation for any successful program or system. No private or public entity should be expected to invest in a poorly governed state. Governments are in a better position and have a responsibility to promote good governance in developing countries. The Commission should emphasize the importance of good governance and take action to address it.   

I support the Commission’s focus on MSMEs, an essential segment of the supply chain. The Commission must also recognize that MSMEs often have limited resources and resiliency, which means that they might possibly present the greatest opportunity for improvement if they are introduced and integrated into a global market. The Commission’s plan to create a platform to connect EU buyers with MSME suppliers is a good approach to facilitate these connections.  

Governments should also play a role in providing safety nets for, and building the resiliency of, the most vulnerable members of society such as MSMEs and the poor. Ideally the governments of developing countries would provide this, but governments in consumer markets may also have to contribute to such needs.

Businesses can provide demand, know-how, and needed innovation. They can influence policy and help align suppliers towards such common goals as sustainable and inclusive growth. They can be more flexible, responding to changing conditions more quickly than governments can. This greater flexibility can provide a deeper level of resiliency to changing realities and markets. 

However, many retailers or end buyers do not typically make capital and long-term investments, especially in indirect supply chains. They can commit to being a guaranteed buyer, providing value to the supplier (e.g. predictable and consistent income). This may be an area where the Commission’s desired financial “blending mechanisms” can be effective. For example, if a fledgling company needs capital, a business can commit to purchasing a product that could provide assurances to lenders and other investors, who in turn would be more likely to provide the capital. Such a ”blended” solution involving several mutually dependent parties is possible these days as longer-term partnerships are replacing transactional buyer-seller relationships.

Lastly, I believe the Commission should clearly identify what their measure of success will be, make sure that benefits are reaching the most vulnerable, and do their utmost to target investments that will become financially self-sustaining over time.  

I hope the Commission’s efforts to align with and foster collaboration among private and public sectors to build a sustainable and inclusive economy are successful. It could benefit all members of the cotton industry.


International Trade Centre programs on cotton and textile industries

The International Trade Centre is a joint agency between World Trade Organization and the United Nations with the mission to contribute to achieving the Millennium Development Goals in developing countries and countries with economies in transition through trade and international business development.

They have several initiatives and programs to support priority industries and regions. Some of these include programs and resources available to the cotton industry, including those highlighted below, that I believe could be useful resources for members of cotton sector.

Cotton sector program

ITC’s efforts in this sector are specifically aimed at making Africa a stronger player in the international cotton trade. A key part of this is boosting competitiveness and establishing stronger links with cotton importers, especially in Asia.

An important part of ITC’s work in the Cotton Sector is to facilitate South-South cooperation along the entire cotton to clothing value chain. In addition, we focus on promoting African cotton in emerging cotton consuming countries in Asia.

The Cotton Exporter’s Guide is a reference book that is primarily targeted at cotton producers, ginners, exporters and traders in cotton producing developing countries, mainly, but not exclusively, in Africa. The guide provides a comprehensive view of all aspects of the cotton value chain from a market perspective, it will also help government officials to gain a deeper understanding of the crucial aspects that need to be addressed in cotton export development.

Manufactured goods program

Textiles and clothing

Buyers and retailers around the world expect their suppliers to take on more responsibilities and provide services beyond simple manufacturing and production.

To assist enterprises and associations in developing these skills to sustain their competitiveness, ITC provides support in material sourcing, supply chain management, product development and design, export marketing and the use of electronic applications.

Regional trade for global gains

The “Programme for building African Capacity for Trade” (PACT II) is a trade-related technical assistance programme, executed by the International Trade Centre (ITC) and funded by the Canadian International Development Agency (CIDA). It aims at strengthening the support capacity of African regional and national institutions to enhance export competitiveness, market linkages and export revenues of African small and medium size enterprises with a special focus on women-owned enterprises through the ACCESS! for African Businesswomen in International Trade programme.


Improving Cotton Partnerships and Messages: Reflections on Recent Meetings in the Cotton Industry

Business Climate

I had the pleasure of presenting at this year’s Cotton’s Revolutions Founders Thinking Session and attending the Cotton USA Brand & Retailer Leadership Summit on March 11th and 12th.

Two leading themes came out of both of these events: 1) long-term sourcing partnerships can be beneficial and should be promoted, and 2) the cotton industry should improve the image of cotton within the eyes of consumers and brands. I happened to present these two topics in the Founder’s Thinking Session and I would like to share a few points with you, along with input from participants.

Developing stronger partnerships

The cotton industry faces challenges (labor, climatic, fiber, and crop competition). These factors can have devastating impacts on members of the cotton industry, especially the least prepared and resilient (e.g. farmers, small- or medium-sized enterprises, operators in water stressed regions). Yet their success is essential for a healthy and resilient global cotton supply chain.

Currently, the cotton industry’s supply chain is largely based on transactional relationships. This structure limits potential investments to ones that are discrete, limited in size, and – in a nutshell – insufficient to address the risks the cotton industry faces. Overcoming many of these challenges will require strategic, coordinated, and complementary investments and commitment across the entire supply chain. Shifting from transactional to strategic and mutually beneficial partnerships could allow for more significant investments, both financially and through a stronger commitment to the partnership.

Sourcing partnerships can facilitate the transfer of technical skills, improved efficiencies, and greater trust, which in turn will lead to a stronger, more resilient, and more profitable cotton industry. Partnerships can also spur improvements to governance interactions throughout a supply chain, leading to the spread of good governance practices. One issue that arose during the Founders Thinking Session (and previous Thinking Sessions), was the need to address the current imbalance of power within the supply chain – brands and large exporters having an unequal share of the power or negotiating power, respectively. What is more troubling is that many brands neither have any relationship with nor understand the constraints and risks facing farmers, ginners, merchants, spinners or even mills. Yet their sourcing decisions (e.g. cancelled orders, change orders) can pose significant and negative impacts. Brands could play an important role in, and reap benefits from, the creation of a more resilient and successful supply chain. They first need to understand how the supply chain operates and what is within their sphere of influence.

Improving cotton’s image

In addition to a general consensus that the cotton industry would benefit from stronger partnerships, there was agreement that the cotton industry would also profit from telling its story. By failing to share the positive social story or the advancements in water and pesticide consumption, the industry has let others “fill the airwaves” with outdated, negative images of cotton and the cotton industry.

The cotton industry has a good story to tell.

  • It’s a renewable natural resource that is often rainfed or efficiently irrigated.
  • It is grown in more than 100 countries, 50 of which depend on cotton for a significant portion of their export earnings. More than 100 million family units work directly in cotton production, and supporting jobs are estimated at one billion people worldwide (ICAC, 2008).
  • Technology advances have reduced the quantity and toxicity of inputs. According to Cropnosis Limited, Cotton’s share by value of global pesticide consumption declined from 11 percent in 1998 to 6.8 percent in 2008. Insecticide use declined from 19 percent in 1998 to 15.7 percent in 2008.
  • Cotton production has also reduced its consumption of water. Water accounts for three percent of the volume of water used in agriculture, proportionate to cotton’s share of world arable land use, as opposed to the 11 percent consumers believe it uses.

We must create an authentic, credible, understandable, and emotional message that conveys all of cotton’s impacts and benefits. We should encourage farmers, along with other members of the supply chain, to share their personal stories. Dahlen Hancock, a fourth generation Texan cotton farmer, gave one of the most impactful and insightful presentations of the Summit by simply telling his story of running a family-owned cotton farm. It was impactful because it was authentic.

We must support these stories with credible data to demonstrate the progress the cotton industry has already made in recent years as well as the projected progress we will surely make in future years. The International Cotton Advisory Committee’s (ICAC’s) Expert Panel on Social, Environmental and Economic Performance (SEEP) of Cotton Production has done a good job of analyzing actual data from several top cotton producing regions (Australia, Brazil, India Turkey and USA). The expert panel consists of members from research institutes, international institutions, organic cotton experts, and others, and its data should be accepted as credible.

Programs such as Field to Market and their assessment tool, Fieldprint Calculator, are used by the US cotton industry to measure and evaluate their performance and impacts through a reputable and standardized methodology and system.

With this said, it would be beneficial for all if the industry worked to harmonize the plethora of sustainability standards and certifications to align efforts and communicate clear and concise messages to consumers.

The emotional aspect of cotton has a lot of potential to shift existing mindsets, create loyalty, and, most importantly, develop a relationship with consumers. Creating emotional connections with consumers who share their values can be powerful. Clothes, possibly more than any other products, are an expression of who a person is – both in terms of style and values. Clothes are admired, discussed, borrowed, and given among a wide range of consumers. Consumers who are proud of a brand or material (i.e. cotton) are likely to promote a positive image of the brand or material that can spread among friends and acquaintances.  It all begins by helping people to become proud of wearing cotton again.

I believe the industry will come together to seize the opportunities discussed here and during the recent Thinking Session and Summit. The cotton industry will have a bright and successful future if it does.


Considering Business Realities for Greater Impact

Business Climate

In SQ Consult’s recent newsletter article, Sustainability of supply chains: From trust to proof, SQ Consult partner, Sergio Ugarte, makes a strong case for the need for companies and policymakers to use the most credible certification schemes in the context of biomass supply chains for biofuels, including governmental mandates. He also suggests criteria to evaluate a scheme’s credibility.

I would like to share some thoughts I believe could apply to cotton.  First and foremost, as Mr. Ugarte states, credibility of a certification scheme is important. Having multiple stakeholders involved in the development of a standard and implementation mechanisms through a credible processes such as those established by ISEAL Alliance is one way to achieve a level of credibility. 

However, I believe we should look beyond the credibility of an individual certification scheme. We must provide evidence that the overall use of sustainability schemes is credible, including adoption of such schemes on a meaningful scale with improved practices across all supply chain actors. We should also consider business, trade and supply chain infrastructure that may allow or hinder adoption by mainstream brands and supply chain actors.  

Mr. Ugarte references SQ Consult’s study, Guidance for the selection of best quality voluntary standards systems for the certification of biomass, soy and palm oil, produced for International Union for Conservation of Nature (IUCN) as well as a complementary Proforest publication when he states that selection of quality certifications should be based on:

  1. Identifying the schemes with most comprehensive criteria;
  2. Choosing a strict chain of custody method suitable to the characteristics of the supply chain;
  3. Selecting schemes with highest level of assurance;
  4. Calculating the cost and benefits of selected certification options;
  5. Selecting the best quality certification scheme for your sustainability ambitions. 

I don’t disagree with any of these criteria. However, there are costs – and limitations – associated with each one, which should be considered. A business’s or industry’s ability to apply and support the schemes and financially integrate it into business (and, thus, become financially sustainable) is equally important. I would hope that this ability would become a baseline standard.

To illustrate my point I would like to share an example using my client, IPIECA. IPIECA identified the following criteria, considerations and basis for them as important to consider when adopting a chain of custody system for biofuels in the context of government mandates in their paper, Chain of custody options for sustainable biofuels. Many of these principles apply to the cotton industry.

While governmental mandates, international standards, and certification programs are instrumental in promoting responsible production of sustainable biofuels, they are susceptible to fraud if not managed correctly, and can disrupt the supply chain, increase costs, and inflate bureaucracy. The processing and administrative requirements of typical chain of custody systems (physical segregation, mass balance and book and claim) should consider the following criteria.

  1. Maintains fungibility: Works within the existing petroleum supply chain’s transport, storage, trade and marketing system without impacting biofuels ability to be freely interchanged within this system.
  2. Limits disruption: Works within existing petroleum supply chain’s transport, storage, and delivery systems without negatively impacting the industry’s ability to provide consistent sources of fuel to the general public, at times despite fuel shortages, natural disasters or systems needs to go offline.
  3. Auditable and enforceable: Ability to systematically check and verify all certified biofuel related claims of every participant throughout the entire supply chain. This is typically done by an accredited independent auditor. Regulatory authorities or qualified third-party do accreditation and enforcement.
  4. Complexity: Being comprised of multiple steps, each of which poses additional and over rigorous documentation, processing, data entry and auditing or certification requirements resulting in higher bureaucracy, additional resource needs, costs.

The following considerations will help shape the success of a sustainable biofuels program:

Few certification programs—if any—have reached a significant scale, largely due to costs, distractions to business operations, transportation costs associated linking new supplier-buyer connections, and limited appetite of consumers to pay a higher price associated with non-food/premium products.

All three systems support the overarching intention of existing government mandates: support the shift from unsustainable and GHG intensive practices resulting from biofuel production. They must enable the industry to maintain the fungible nature of the global commodity trade while ensuring a level playing field for all economic operators.

It would strengthen the integrity and credibility of the system and associated claims if governments would also enforce compliance with systems and mandates. Systems should operate transparently and facilitate an appropriate level of transparency throughout the supply chain. Systems should be auditable and, ideally, audited on a routine basis.

Systems should be coordinated with other sustainable agriculture and biofuel systems (e.g., RSPO) to prevent the possibility of intentional or unintentional double counting of certified product.

If we want to the cotton industry to build more sustainable supply chains and be recognized for its overall improvements, these criteria will be important. The challenge lies in achieving scale, mainstream adoption, and financial sustainability without compromising the integrity of the individual schemes and the collective approach.


International Trade Centre programs on cotton and textile industries

Protocols

The International Trade Centre is a joint agency between World Trade Organization and the United Nations with the mission to contribute to achieving the Millennium Development Goals in developing countries and countries with economies in transition through trade and international business development.

They have several initiatives and programs to support priority industries and regions. Some of these include programs and resources available to the cotton industry, including those highlighted below, that I believe could be useful resources for members of cotton sector.

Cotton sector program

ITC’s efforts in this sector are specifically aimed at making Africa a stronger player in the international cotton trade. A key part of this is boosting competitiveness and establishing stronger links with cotton importers, especially in Asia.

An important part of ITC’s work in the Cotton Sector is to facilitate South-South cooperation along the entire cotton to clothing value chain. In addition, we focus on promoting African cotton in emerging cotton consuming countries in Asia.

The Cotton Exporter’s Guide is a reference book that is primarily targeted at cotton producers, ginners, exporters and traders in cotton producing developing countries, mainly, but not exclusively, in Africa. The guide provides a comprehensive view of all aspects of the cotton value chain from a market perspective, it will also help government officials to gain a deeper understanding of the crucial aspects that need to be addressed in cotton export development.

Manufactured goods program

Textiles and clothing

Buyers and retailers around the world expect their suppliers to take on more responsibilities and provide services beyond simple manufacturing and production.

To assist enterprises and associations in developing these skills to sustain their competitiveness, ITC provides support in material sourcing, supply chain management, product development and design, export marketing and the use of electronic applications.

Programme for building African Capacity for Trade

The “Programme for building African Capacity for Trade” (PACT II) is a trade-related technical assistance programme, executed by the International Trade Centre (ITC) and funded by the Canadian International Development Agency (CIDA). It aims at strengthening the support capacity of African regional and national institutions to enhance export competitiveness, market linkages and export revenues of African small and medium size enterprises with a special focus on women-owned enterprises through the ACCESS! for African Businesswomen in International Trade programme


Envisiong a Greener, More Inclusive Future

Business Climate

When you consider that the concept of “sustainability” has existed for 25 years and has received steadily increasing focus in recent years, it’s clear that insufficient progress and commitment have been made. A transformation on a large scale is needed.

A recent report, The Future of Sustainable Development: Rethinking sustainable development after Rio+20 and implications for UNEP, presents ideas and input on ways to transform our global economy into one that is sustainable. The ideas shared below were drawn from an informal meeting of experts to discuss the possibility, which was facilitated by the International Institute for Sustainable Development (IISD).

The authors propose that equity will be central to the creation of a sustainable framework. We cannot build a just and more economically stable economy for only a portion of our population. With this in mind, experts have begun to expand the goal of a “green economy” to a “green and inclusive” economy.

Good governance must also be practiced if we are to ensure that all people have access to basic human needs along with opportunities to participate in a just and productive economy. In addition, the gap between rich and poor countries, as well as the rich and poor within countries, must be lessened.

The authors note that as we move toward a greener, more inclusive economy, we will need to decouple the growth of prosperity from the increasing consumption of resources and environmental degradation. Governments must develop policies and institute incentives to encourage sustainable behavior and investment in new technology. Subsidies and other financial incentives that lead to the overconsumption of resources must be phased out. Governments must ensure the accountability of all market players. In addition, they should fund and otherwise ignite research.

As the world’s population continues to increase and puts additional strain on our natural resources, we will need to continuously improve. I like the concept of ”no regression” – creating new benchmarks as progress is made over time. For instance, should we really be using the cost of peak oil as an energy cost baseline while new technologies become available and oil is more costly to extract?

As businesses reach their 5 to 10 year environmental goals, such as reducing greenhouse gas emissions, we must create new goals based on new benchmarks. These businesses will require larger-scale solutions to meet longer-term goals. Solutions on this scale will need to involve strong leadership, collaboration, knowledge sharing, innovation and capital.

A new movement this large and ambitious will require the support of influential, credible leaders who can reach a wide range of stakeholders. We must begin developing and fostering such leadership while providing room for others to follow without fear of failure.  

The authors suggest that all radical change in history has been driven by outsiders working with insiders. They also point out that different motives and perspectives appear to affect execution and stamina. We must learn from others (and from the past) and apply this knowledge to all appropriate areas. This is best done through productive collaboration.

The participants in the meeting also believe that as the shift to a new economic model occurs, entities that will be negatively impacted or marginalized should be compensated to ensure they participate in the solution. We must motivate the operators of facilities or equipment facing obsolescence to abandon this newly unacceptable infrastructure in order to facilitate the switch to newer, more efficient and acceptable equipment and technology.

We are increasingly working in a global economy that involves many people from all parts of the world living under varying conditions in different cultural contexts. We must not think we can have a one-size-fits-all solution; nor should we profess to know what is best for such a diverse range of participants.

We should also integrate well-being and other measures of sustainability into our economic metrics. For example, the number of people that have access to clean water, education or sanitary services or percentage of healthy water bodies should be measured and considered. We can no longer measure growth through GDP alone.

As we can see, there is a lot to do. I hope you join us in this journey to a new economy that is green, inclusive and prosperous.

 

 

 

 


The Importance of Communication and Transparency in Africa Cotton

Business Climate

I would like to share some highlights from an International Trade Centre (ITC) initiative to improve Africa’s cotton value chain connections with Asian markets. I believe it sheds light on how recent volatility in the cotton industry has resulted in disruption and distrust, as well as on how improved relationships can be forged through gaining a better understanding of each other’s needs. While the focus of this initiative is Africa, its teachings may prove to be helpful to other members of the cotton industry in improving the relationships and communication between buyers and suppliers. Such an improvement could help raise the standards under which all operators act, build more transparency and trust, and improve efficiencies.

The paper that summarizes ITC’s initiative, Improving Africa’s Cotton Value Chain for Asian Markets, begins by providing a good overview of global trade flows and market trends. It then presents the context under which Africa cotton-producing countries operate and the relationships producers have – directly or indirectly – with banks, merchants, spinners and gins. The paper ends with an explanation of the collaborative and pragmatic approach ITC took to train cotton farmers and gin operators in the United Republic of Tanzania to reduce contamination and to improve relationships with and compensation by buyers.

Africa has the lowest yield of cotton in the world. At 355 kilograms per hectare (kg/ha) Africa’s yield was less than half of the world average of 750 kg/ha in the 2011/12 season. Africa cotton also suffers from a reputation of high-level contamination. Contamination is challenging and costly to address for spinners. As a result, Africa cotton is less preferred and reaps lower prices. Conversely, the fiber quality from many African regions is quite good.

Addressing contamination and increasing yields could improve Africa’s position as a cotton exporter. Such a focus would also positively contribute to the well-being of many rural farming communities. The future of the cotton industry will require some level of communication to and from all entities along the supply chain if it is to operate in a more stable and sustainable manner.

Communication between spinning mill and farmer has largely been nonexistent. This is in part due to the lack of direct business relationship between them. It is also due to the position and limited transparency – in either direction – of the merchant who is central to the farmer-ginner and spinning mill transactions. In addition, merchants have been reluctant to disclose information related to their suppliers or customers, as protecting this information gives them a business advantage. As a result, farmers have not been told how important manageable levels of contamination are to a spinning mill.

Banks play an important role in the cotton industry. Banks pre-finance farmers so that they can purchase needed seeds and inputs at the beginning of the season. However, banks often retain ownership of the crop as collateral until it is sold to a reputable buyer. This arrangement puts pressure on farmers to sell their cotton sooner than they might like to otherwise (when prices could rise).

Merchants play an even more central role in the global cotton supply chain. They not only help with logistics to get cotton from production regions to manufacturing regions, they can provide financial support for producers and gin operators, either directly or indirectly. Merchants can finance needed inputs or they can purchase cotton through forward contracts early in the season when producers are in need of capital.

Unfortunately, the economic crisis has led banks to being more restrictive in providing loans to international merchants. This change has resulted in fewer merchants buying forward contracts, further restricting funds available before or early in the season when farmers need capital for seeds, inputs and equipment.

Merchants can also provide the financial confidence (in terms of a contract, or purchasing futures) to allow banks to invest in farmers.

The African cotton industry and national governments should monitor and actively support farmers to continuously improve yields and lower contamination. They should also actively promote this new African cotton to buyers to improve their market position.

A coalition of industry members and ITC has done just this. Together they provided training to 1,100 farmers and gin operators on better techniques to reduce contamination during harvest and storage. The training helped participants understand the consequences of contamination and taught them how to identify and reduce contamination to levels that are acceptable to spinners. Trainers from two spinning mills from Bangladesh, a significant market for Africa, helped in this effort.

ITC, using local frameworks and engaging with relevant stakeholders, has also developed a regional strategy to improve the cotton sector’s performance and competitiveness in the global market. The strategy involved five initiatives that I think can be applicable and useful in other regions and in a variety of sustainability contexts:

  1. Conduct a situational analysis: form an understanding of performance level and capacities to inform where attention should be focused.
  2. Identify issues that reduce competitiveness: this effort should be at all stages of the supply chain.
  3. Reinforce public-private platforms: enable coordinated dialogue and action to optimize resources and align priorities.
  4. Develop market-led plans: these plans should be responsive to customer needs and also articulate national and regional priorities.
  5. Establish regional coordination bodies: these bodies should monitor and help deploy resources when needed.

ITC and its partners also helped facilitate learnings and collaborations with other countries that have successfully developed beneficial trade relationships. ITC helps the initiative in four ways:

  • Integrating learnings from other regions into farmer trainings.
  • Developing stronger relationships and capacity along the supply chain.
  • Encouraging intra-African cooperation to share learnings.
  • Promoting sourcing from other developing countries for supplies and inputs.

The African cotton industry has a long way to go to become on par with other cotton-producing countries that have high yields (e.g. Australia, Turkey, Israel) and reputations for low levels of contamination (e.g. Australia, U.S., Brazil). With the support of international organizations, cooperation of banks, and partnerships with merchants and spinning mills, Africa cotton can reposition itself in a better light – and in a more competitive position.


Unilever’s Sustainable Living Plan: Progress Report 2012

Business Climate

I have been a fan of Unilever for quite some time. They recognize that responsibility comes with scale and they should provide leadership to pursue transformative solutions to meeting increasing resource demands with minimal impact. They are sober about the risks and challenges we face and take a strategic approach to address them, including investing in meaningful and impactful initiatives and partnerships.

In 2010, Unilever launched its Sustainability Living Plan that frames seven categories: health and hygiene, nutrition, greenhouse gases, water, waste, sustainable sourcing and better livelihoods. Unilever believes that using sustainability lens throughout their business helps them enhance their brand, reduce costs and wastes, drive innovation, and positively contribute to the environment and society. They are honest about their vision to double in size while reducing environmental impacts and positively contributing to social conditions. I appreciate their frankness about growing a profitable business is still their core mission. They recognize that their performance must be aligned with values and that consumers are their top priority.

Unilever has done their homework. With much thought and input from others, they developed their own Sustainable Agriculture Code to set priorities and guide their efforts when providing a fair market to farmers and small-scale operators. The Code is comprehensive and covers each of the seven elements of Sustainability Living Plan framework. They also have plans to source 100% of their agricultural raw materials from sustainable sources by 2020.

They recognize that smallholders need assistance in the form of training, better quality seeds and fertilizers to help them improve yields (and income). So, they help them. In their tea program alone, Unilever has trained 450,000 farmers in sustainable practices – just think of their potential scale in all key products. As they strengthen their positive contributions to farmer livelihoods, Unilever sill place a special importance on women who they consider have a ‘multiplier effect’ on lifting families out of poverty.

Unilever has also measured their products’ carbon and water footprints to gain a better understanding of where their impacts and opportunities exist along their supply chains. The majority of their greenhouse gas emissions and water impacts come from consumer use of their products (68% and 85%, respectively) followed by raw materials production (25% and 15%, respectively). They have goals to reduce both the carbon and water footprints in half by 2020.

They are trying to create new products that reduce the impacts during use by the consumer. They also work to address the raw material stage of the supply chain.

Traceability remains a challenge for Unilever in some commodities but they are actively working on solutions. They have initially used ‘book and claim’ certificates[1] to address impacts associated with palm oil but are working with partners and suppliers to enable them to trace their palm oil back to the plantation.

Lastly, but certainly not least, they recognize that real breakthroughs are needed which requires strong partnerships. Innovation and science-based solutions will both be required.

While there are limitations to Unilever’s impact, they are having significant influence and are creating the elements (e.g. trainings, codes, metrics) that are adopted by others who do not have the resources to create this initial change. Unilever is also motivating and enabling positive change throughout their supply chains as well as setting higher expectations of other brands and sparking competition with competitors to make similar strides.

I hope more companies, big and small, follow Unilever’s lead.


[1] “Book and claim” certificates represent the social and environmental attributes associated with a certain quantity of certified palm oil even if that oil is not used in the buyer’s supply chain.


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