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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


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.

Public policies for scaling corporate responsibility standards

Regulatory Policy

With the expansion of voluntary standards and their overlap with regulations, transparency, accountability and democratic participation will be critical.

The paper Public policies for scaling corporate responsibility standards: Expanding collaborative governance for sustainable development discusses how public policies can help promote sustainable development, scale up voluntary corporate social responsibility (CSR) standards and help advance the efforts through innovation and research. Governments have begun to promote or mandate certain CSR standards in new policies.

The paper begins by presenting a brief overview of CSR standards, including their significance in the market, how they are developed and what they do or do not include.

The paper also provides an overview of relevant management, politics and international development related theories. This included a discussion of the term “voluntary standard” when these same standards are increasingly being mandated by governments. They proposed alternative terms such as “civil regulation” or “private regulation”. The paper also  proposes a “collaborative governance” framework that allows consideration of the role of voluntary standards as well as government’s role in them. The role and level of participation of governments can vary depending on the approach and objectives.  It also shares that a review of relevant literature on CSR standards indicated an absence of indication of opportunities and pitfalls of CSR standards from a public policy perspective.

The paper presents potential opportunities and limitations to existing standards. It cites six implications of CSR impacts: (government) budget-neutral improvements in corporate operations, higher value market access, enhancing local economies or social provisions. It also shared the following negative impacts: threaten protectionist effect on trade, blind spots, duplication and variance, and a distraction from legislation.

Effective best practice

The paper cites five key criteria for successful standards that could be useful to the policy-making process were identified from the relevant academic literature and NGO studies, previously cited, including codes developed by the ISEAL Alliance: accountability, independence, appropriateness, impact and interoperability.

The paper also reviews different mechanisms governments are using to leverage CSR standards for public aims. It then presents progressive and innovative approaches that governments have used to support CSR standards. It states that governments can: 1) “prepare” conditions suitable for the development and uptake of standards, 2) “prefer” CSR standards in their own operations, 3) “promote” CSR standards by assisting their adoption by others, and 4) “prescribe” the use of a standard through new regulations.

Some examples of activities governments can take include: provide technical assistance and regulatory infrastructure, stimulate collaboration amongst business and civil society, provide procurement guidelines for government agencies, and develop capacity building and training programs to assist enterprises meet criteria of voluntary standards, and require certification to a voluntary standard for permits or the likes.  

Governments should take steps to ensure their measures are relevant, fair and effective. They should also coordinate different measures to ensure synergies and eliminate redundancy of efforts and services.

The paper concludes by discussing a new dimension to collaborative economic governance that is emerging – one that involves governments engaging in CSR to help bolster their goals for pubic good. Participation of governments could lead to voluntary standards having a large influence on global trade and investment. The key will be for governments to ensure their efforts are done with effectiveness, transparency, accountability and democratic participation by all interested stakeholders.

Private Standards and Public Procurement and Contestation, Hybridity and the Politics of Private Agri-food Standards

Business Climate

I would like to share a few brief insights from two worthwhile articles from the International Journal of Sociology of Agriculture and Food, Volume 20. The first article, Private Agri-food Standards: Contestation, Hybridity and the Politics of Standards, examines how and by whom private standards are created. Some questions it addresses include who is included or excluded from the standard-setting process, how benefits and burdens are distributed, how trust, accountability and legitimacy are created, and what and whose values are reflected in the standards?

While public standards are established by government authorities and enforced through laws and regulations, private standards are voluntary and enacted through market forces (e.g. consumers preferring certified products). At times however, public regulations incorporate private standards (e.g. European Union accepting voluntary standards certification to meet biofuels sustainability criteria) and private standards adopt public standards (e.g. public food safety standards are often required in private standards). It is important for standards operating in global trade where rules and regulations are largely voluntary to have credible and authentic governance mechanisms.

The distribution of power (and costs and benefits associated with private standards) in the supply chain, a topic about which I am passionate, is also discussed in the article. The authors note that very large retailers have strong purchasing power globally and have established themselves as the primary link to consumers. Retailer-led standards can centralize their power further leaving small-scale producers and other value chain operators with little leverage.

The article suggests that private standards are no longer simply focused on reducing transaction costs and increasing market efficiencies; rather, they are now tools that brands and their suppliers use to enter new markets, coordinate efforts, and establish niche products or markets.

Another effect that is emerging from the proliferation of private standards is their ability to define “good” and “bad”. This can have indirect effects on companies who adopt standards (“good” companies) and those that don’t participate at all (“bad” companies).

These are all topics that should be considered when promoting, using or developing private standards.

The second article, Pushing the Boundaries of the Social: Private Agri-food Standards and the Governance of Fair Trade in European Public Procurement examines how private standards such as fair trade and others are integrated into European public procurement policy and programs, including how the integration of ethical standards creates a new level of governance in the global agri-food system.

The authors explore how public procurement can recognize the social movement through private standards, how legitimate these standards are to lawmakers and decision makers, and what issues can arise from the use of private standards in public procurement.

An interesting point, referenced to Arce and Long (2007), is a potential shift from government’s imposing rule from a central entity to governance that brings together different interests, knowledge and values to shape solutions that work under their conditions and supports their shared vision.

For example, legal and legitimacy considerations may shift as societal expectations of companies increase. Taking a conservative approach to avoid legal issues may lead to scrutiny of a company’s actions and authenticity related to other issues that society feels are equally important.

The article concludes with a question of whether private standards will become a commonly used tools governments could use to promote ethical consumption. Regardless, the different role private stakeholders play in creating and implementing private standards and the way they are used by governments is creating new complexities in the interaction of public accountability, market principles and civic activism.

I believe private standards have had a positive contribution to the sustainability movement. They have brought disparate stakeholders together to work towards a common goal. Through this process, each party has a better understanding of the context under which other members of the supply chain operate, where limitations exist and how they can work together to promote sustainability throughout the value chain. We must now learn from our experiences to advance the use, effectiveness and governance of standards.

Ernst & Young and GreenBiz’s Six Sustainability Trends

Business Climate

I appreciated Ernst & Young and GreenBiz’s recent report, Six growing trends in corporate sustainability. The authors summarize findings from a survey of thought leaders on the six growing trends in corporate sustainability in the autumn of 2012. The report provides insightful information from the 282 survey respondents across 17 industries. More importantly, the authors discuss the findings in the context of the following six trends drawn from the survey results.

  1. The “tone from the top” is a key driver for corporate sustainability efforts
  2. Governments and multilateral institutions are not engaged in corporate sustainability
  3. Sustainability now includes the risks of both a shortage of and limited access to natural resources
  4. Corporations are not adequately prepared for the scale of future sustainability challenges
  5. Uptake of integrated reporting is slow
  6. Investor and shareholder inquiries on sustainability matters are increasing

Although this is not very encouraging news, I would like to share some points I found most interesting and add my own perspective on these six trends.

Tone from the top

Survey results indicate that direction and support of a corporation from the top are the main drivers for companies to integrate and invest in sustainability efforts. Sustainability has become mainstream. Nearly 70 percent of respondents cite sustainability in mission statements and say that sustainability is discussed regularly. Despite these strides, approximately half of the companies surveyed have not integrated sustainability into their business strategies.

I find it interesting to note that the board of directors plays an important role in ensuring that sustainability is on the overall business agenda. The survey found that 64 percent of respondents believe reporting to the board is a driver, while only 27 percent feel that the CEO is the most important driver. This can be quite positive and powerful. Board members may sit on multiple boards or lead another company. These members can share learnings from other organizations’ experiences and bring back ideas to their companies, resulting in increased alignment and increasingly more support from the top.

Customers are also increasingly motivating companies to take action by urging greater efficiencies (e.g. energy, packaging) and increased disclosure of working conditions or environmental impacts.

The role of governments and multilateral institutions

The report states that the lack of strong leadership from governments and multilateral institutions has created a “muddled policy environment.” Instead, respondents see large corporations as leaders in advancing sustainability at a global scale. Many also see consumers, non-governmental organizations, industry groups and governments as contributors.

This finding troubles me. Many companies have pursued the efficiency opportunities that they can tackle independently. We are now faced with the more complex issues that require long-term commitment and investment, including research and development. Companies need pragmatic, long-term policies if they are to invest in such long-term strategies, innovative research, or capital expenditures. We need governments to step up and set us all in the right direction through effective policies and incentives. President Obama’s recently announced plan to address climate change is a positive step, but additional policies and incentives will be required if we are to realize real progress.

Raw material shortages

The report cites that 51 percent of responding companies expect their business to be affected by shortages of or limited access to raw materials and natural resources in the future. Water is the natural resource most recognized as being at risk, with 76 percent of respondents mentioning water first. 

Lack of preparation for the scale of future challenges

Continuing along these lines, the report indicates that corporate risk assessment and response planning are inadequate to address the scope and scale of some of the challenges we face. Most companies have not yet adequately assessed their risk to key inputs such as water or other raw materials. Even fewer companies have taken serious steps to address such risks. 

I believe this lack of readiness needs to be given much more attention. It is not only the scale of the challenges but the complexity of the solutions that concern me. These risks will be exacerbated over time as populations grow and pressures on natural resources increase. We need all industries, governments and other actors to address the risks through harmonized and synergistic approaches.

The uptake of integrated reporting is slow

More than 5,000 sustainability and corporate responsibility reports are now produced worldwide, but the importance of integrating sustainability reporting into financial reporting has not taken hold as of yet.

The inclusion of sustainability in standard financial reports would raise awareness of sustainability issues, challenges and risks among shareholders as well as the board and senior management (including chief executive and chief financial officers – two critical supporters as the survey indicates). Many respondents also feel that integrated reporting would help reduce the separation between sustainability and other business functions.

The report cites some challenges to integrated reporting including the potential for legal risks associated with increased transparency, the difficulty of aligning sustainability processes with financial processes, and the potential lack of executive and board support.

While too many companies are putting off the integration of sustainability and financial reporting, we need to start. Risk-averse companies should, at a minimum, socialize the inclusion of sustainability into financial reports – possibly keeping to more general statements and shying away from detailed metrics and commitments. Others should include the appropriate level of detail, including key performance indicators and goals.

Investor and shareholder inquiries are increasing

The report indicates a rise in stakeholder and investor questionnaires as well as shareholder proposals on social and environmental issues. However, I can’t help but recall the last sustainability conference I attended or the numerous mentions that no investors are asking anything about environmental or social risks and progress during quarterly investment calls. we need to see continued pressure from investors and consumers on corporations in the areas of the unspoken risks of resource scarcity and environmental degredation.

The Ernst & Young and GreenBiz report on these six trends shows some positive advances. But what I see more clearly is that more progress must be made. Motivating more impactful investments based on science that can be more widely adopted by mainstream business would be the top priority in my book. This shift requires governments to set the course for where we must go and implement policies and incentives to encourage businesses to invest in research, technology or upgrading equipment and facilities and take action to reach the common goals.

Long-term Global Growth Scenarios

Business Climate

I recently read a very interesting OECD Working Paper: Long-Term Growth Scenarios that presented growth projections of OECD and non-OECD countries over the next 50 years under two scenarios: 1) gradual structural reform and fiscal consolidation with the aim of stabilizing government debt to GDP ratio, and 2) various deeper policy reforms. The models focused on the interactions between technological progress, demographic change, fiscal adjustment, global imbalances, and structural policies.

Understanding future shifts in economic and trade dynamics is important for any entity working in the global economy. Some of the findings that were common to both models are highlighted for you here.

The growth of non-OECD G20 countries – first led by China, which will then be surpassed by India and then by Indonesia – will outpace OECD countries. This is largely due to the “catch up” opportunities for non-OECD countries. The difference between OCED and non-OECD countries will stabilize over time. Global GDP could grow at around 3 percent over the next 50 years. The non-OCED countries’ current growth rate of 7 percent will decline to 5 percent after 2020 and will end up closer to 2.5 percent by 2050. Meanwhile, the growth rate for OECD countries will average 1.75 to 2.25 percent after recovering from the global financial crisis.

There will be marked shifts in the global economy during this same period. China and India’s combined GDP equaled less than half of the total output of seven major OECD economies in 2010, and yet their combined GDP will exceed these same seven OECD economies in 2025 and will outpace the entire combined OECD membership by 2060!

Differences in the GDP per capita rate will remain significant until 2060. While income per capita will more than quadruple by 2060, living standards in China and India (and other emerging countries) will remain significantly lower than in leading countries in 2060.

GDP per capita gaps often reflect differences in technology levels, capital intensity, human capital, and population, all of which depend in part on differences in structural conditions and policies.

Growth is driven primarily by advancements in multifactor productivity (MFP), which is  measured as the difference between output and total inputs, and human and physical intensity. Two factors contribute to the projected MFP. First, MFP growth can be spurred as new firms – along with their superior innovation and technology – enter new markets, thereby driving competitors to improve their own innovation and technologies as they compete. Second, international trade openness promotes innovation among partnering firms and enhances the diffusion of advanced technologies.

The model used in this study assumed that sustained MFP growth through technological improvements will be crucial for GDP per capita developments. Historically, cross-country gaps in MFP and, to a lesser degree, human capital, have accounted for the bulk of cross-country differences in GDP per capita.

Let’s take a look at some key policy-related factors that will shape the macro projections. They include:

Retirement and life expectancy: Aging is expected to reduce the share of the working-age population in most countries. Policies that maintain the same proportionate level of activity per lifetime would be needed to sustain a strong labor force. One example is increasing the age at which a person receives a pension.

Educational attainment (defined as average years of schooling): Accumulation of capital is correlated to accumulation of education – that leads to a higher skilled labor force – and is another driver of growth. From 1970-2010 the average number of years of schooling for adults increased by four years, and it is expected to increase by two years between 2011 and 2060.

Market and trade regulations: When market and trade regulations are loosened trade opens up and leads to an increase in the speed of convergence towards the technological frontier, thus increasing MFP – and growth in general.

Government debt to GDP ratios: High government indebtedness in many OECD countries, along with the possibility of higher interest rates, suggests a need for fiscal consolidation. Fiscal consolidation lowers real interest rates, fiscal risk premiums, and public indebtedness, and leads to more investment and output growth.

In summary, the authors postulate that without ambitious policy changes, global imbalances will increase and hinder economic growth, depending on region. These imbalances – and resultant growth impediments – can be mitigated with ambitious fiscal consolidation and deep policy structural reforms than milder alternatives.

The cotton industry should consider and plan for a future depicted in the long-term scenarios. Shifts in global trade will demand it.

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