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Impacts of Voluntary Standards on Value Chains

Labeling Laws

  Impacts of Voluntary Standards on Value Chains

In past newsletters, I have discussed the proliferation of voluntary standards and shared insights from my experience with various standards and supporting supply chain systems (e.g. BCI, biofuels chain of custody). So it was with interest that I recently read The Impacts of Private Standards on Global Value Chains, Literature Review Series on the Impacts of Private Standards - Part I. (International Trade Centre, 2011); a paper that provides insight – and evidence – on the impacts that voluntary standards are having on global value chains.

From a systematic review of 63 studies –32 empirical and 31 conceptual, theoretical or methodological– the paper attempts to answer several key questions on the impacts of private standards on the value chain. Some interesting findings are summarized below.

Measurable change: Change in conventional chains appears to be limited. With this said, positive impacts have been found where dominant chain actors operate in alignment with the values promoted by standards. 

Governance: Mainstreaming strategies might change governance patterns in global value chains. In some instances, entities that are not historically part of the value chain, e.g. certification bodies,  

Opportunities: Vertical integration can occur and it often enables producers to carry out value adding activities and increase revenues; however, they also put additional demands on producers and exporters.

Small producer participation: The majority of studies indicate that standards create increased barriers to small producer participation. This is more likely when significant investments are required. For example, the study found that smallholder participation in United Kingdom-bound fresh fruits and vegetables value chains declined from 50%–55% in 1999 to under 20% in 2001, which the authors attributed to the investments needed to meet supermarkets’ demands –a cost most small-scale actors cannot accommodate.

Distribution of revenues along the value chain: Revenues derived from standards compliance increased along value chain actors with a disproportionately higher benefit to the retailer.

The review also found that compliance with voluntary standards in value chains depends on the following characteristics of the supply chain (examples are of greatest compliance):

Length of the chain: short chains with few actors.

Degree of integration: highly integrated chains.

Type of product: those with existing requirements regarding traceability, quality and safety (e.g. food).

Market conditions: high level of market concentration among actors purchasing supplies, such as retailers, manufacturers, brands.

Kind of relations among actors: long-term relations and high degree of trust.

Identification: commodities identifiable in end products (e.g. cocoa, coffee, sugar).

If we briefly consider these findings they become clear. Complex (longer) value chains are often challenging due to the sheer number of producers. A greater number of producers results in widespread production sites which makes auditing – a critical component of compliance– difficult. With increased producers the relationships among players are often short-term, significantly reducing the level of influence end buyers can have over other value chain participants.

When developing or implementing voluntary standards, it is important to understand the potential impacts they may have on the various actors in our value chains. Once we understand the impacts, we should take actions to ensure that the standards do not inadvertently hinder some actors’ (often those in most need of help) abilities to participate in these value chains.

 Question for consideration

 Are voluntary standards creating opportunities for the cotton industry or simply causing a distraction to business?



OECD Framework for Strategy on Development

Business Climate

The Organisation for Economic Co-operation and Development (OECD) recently presented its Strategy for Development, which will be adopted at the OCED Council in January 2012. It is a concise outline of the OECD's framework for a broader development strategy that OECD countries can follow. It summarizes the broader approach to development as laid out in the vision statement for the OECD 50th Anniversary Council Meeting.

The framework aims to leverage the OECD's strengths and contribute to the United Nations' Millennium Development Goals (MDGs) up to and beyond 2015. It also holds stakeholders accountable to the OECD's high standards of public policy backed by evidence-based analyses, policy dialogue and peer learning. I believe these three criteria will be increasingly important as both public and private sectors scale up sustainability development.

The OECD would take a broader approach and expand knowledge sharing and mutual accountability beyond its membership based on the idea that an open and inclusive OECD would have great impact with collective benefits. A direct goal of this more inclusive approach would be to support a wider range of developing countries in identifying, assessing and implementing more effective policies that foster strong governance. The more inclusive approach could also lead to a more level playing field between OECD and non-OECD countries.

The broader and more inclusive approach would better integrate diverse perspectives and ignite fresh thinking as well, and create opportunities for more progressive and innovative solutions to long existing challenges.  The resulting solutions would be built on the improved sharing of expertise and lessons learned from decades of experiences in development co-operations. A broad approach would also leverage policies, practices and instruments  providing countries with a more coherent strategy for development based in part by the use of more standardized tools and by stepped up evidence-based analysis.

With this new approach, OECD hopes to:  1) strengthen its response to demands and needs from emerging and developing countries; 2) to add core competencies and value to the work of other regional and international organizations and donors, and 3) to leverage its multi-disciplinary expertise. The OECD will apply these criteria to the following strategic areas of work:

  • Innovative and sustainable sources of growth
  • Mobilization of resources for development
  • Governance for development
  • Measuring progress for development

Other elements of the strategy framework include prioritizing the concerns of developing countries, enhancing dialogue with key stakeholders, and upgrading the OECD's knowledge and skills.

I applaud the OECD's new approach. But I also wonder if such a large, bureaucratic organization can effectively and successfully shift to such a broad and all encompassing model.

Question for consideration

How would the OECD approach affect (or not) the cotton industry?

Investing in agricultural R&D

Risk Protection

The Organisation for Economic Co-operation and Development (OECD)'s paper on The Benefits from Agricultural Research and Development, Innovation, and Productivity Growth (2010) reviewed studies that measured agricultural research and development (R&D) in terms of productivity, innovation and social benefit. While the paper was a bit technical, it does articulate the need to look at the hard science to evaluate our efforts' effectiveness.  The review supports other findings that suggest there is a very high rate of return to agricultural R&D. It also states that despite clear benefits, the world as a whole has underinvested in agricultural R&D.

Investment in agricultural R&D could make a significant contribution to increasing agricultural productivity at a time when demand for agricultural products is growing at alarming rates. In addition, research and new technologies will be required to address emerging challenges, such as increasing weather variability, adaptation to climate change, water scarcity, limited arable land, and increased price volatility in global markets.

In 2000, the world spent 39.5 billion dollars on agricultural R&D. Approximately 41 percent of this came from private investors, with the vast majority located in industrialized countries (96 percent).[1]

China and India accounted for 89 percent of the increase in regional spending from 1995 to 2000. Although geographically large and home to more than 10 percent of the world's population, Sub-Saharan Africa accounts for just 0.5 percent of the world's gross investment in science. Moreover, the share of the bottom 80 countries slipped from 0.29 percent of the global total in 1995 to 0.26 percent in 2000[2].

These statistics show the growing gap of R&D investments in industrialized and developing countries. Given the interconnectedness of and dependency upon global supply chains, the benefits of R&D across all regions would prove beneficial throughout the global cotton supply chain.

But research alone will not create the change that is necessary. We need to test the research in the field and then bring the successful advancements to scale, focusing on developing countries where population growth will be greatest and where farmers are not yet optimizing efficiencies and production. Supporting elements such as finance, marketing and training will also be needed. Successful programs to bolster agriculture R&D will require coordinated efforts under agreed upon frameworks. Here are just a few organizations that facilitate or support agricultural research in developing countries:

CIRAD (Centre de coopération internationale en recherche agronomique pour le développement) is a French research centre working with developing countries to tackle international agricultural and development issues. CIRAD is a targeted research organization, and bases its operations on development needs, from the field to the laboratory and from a local to a global scale.

The International Food Policy Research Institute (IFPRI) seeks sustainable solutions for ending hunger and poverty.

The Consultative Group on International Agricultural Research (CGIAR) is a global partnership that unites organizations engaged in research for sustainable development with the funders of this work.

Questions to consider

How could the global cotton industry support research to benefit the targeted beneficiaries and the wider industry?

Are the above-mentioned organizations potential partners for the cotton industry?

[1] Culled from on July 13, 2011.

[2] Pardey, P., Beintema, N., Dehmer, S., Wood, S. Agricultural Research: A Growing Global Divide? August 2006.

Guidelines for Multinational Enterprises

Business Climate

As the world becomes increasingly flat with international enterprises become increasingly more pervasive, the need for a common framework to help multinational enterprises work fairly and justly is also needed.  To help multinational enterprises operate in alignment with government policies, gain the confidence of society, and improve the foreign investment climate to contribute to sustainable development, the OECD has developed Guidelines for Multinational Enterprises - Recommendations for responsible business conduct in a global context (The Guidelines).

Multinational enterprises are engaged in many sectors in several developing countries - production and extraction, manufacturing and assembly. They transfer knowledge, bring significant investments and connect different regions of the world via trade. Many multinational enterprises operate under high standards of business conduct and, increasingly, promote sustainable development where they operate.

The OECD's Guidelines provides recommendations jointly developed by government and multinational enterprises. They provide principles and standards of good practice consistent with applicable laws and internationally recognized standards. The Guidelines are intended to complement and reinforce private efforts to support responsible business conduct.

The Guidelines encourage cooperation between governments through international legal and policy frameworks such as International Labor Organization's Universal Declaration of Human Rights. It also encourages governments to develop effective domestic policy frameworks that include appropriate regulations, prudent oversight and stable macroeconomic policies, among other recommendations. As presented in last week's blog, government instruments and frameworks should create a level playing field and promote good practices for both state-owned enterprises (SOEs) and competing private companies. They also clearly state the need for governments to be transparent in their interactions and consultations with the SOE and private companies.

The Guidelines set forth standards that all SOEs should meet, including self-regulatory practices, management systems and internal controls. These include the need for SOEs to implement due diligence processes that help SOEs to identify, prevent, mitigate and account for how they address their actual or potential adverse impacts as a part of business decision-making and risk management systems. With this said, the Guidelines recognize limitations of SOEs and private companies to affect the behavior of their suppliers. However, it does provide suggestions on how SOEs can positively influence suppliers, such as through the use of management contracts, pre-qualification requirements, among other tools and mechanisms. They encourage companies to engage suppliers in a manner that advances governance, responsible behavior and sustainable development - whether through direct partnership, multi-stakeholder initiatives or industry collaboration.

As presented in last week's blog, SOEs should be responsive to the public's demands for information. The Guidelines state that enterprises should disclose accurate and relevant information regarding their structure, governance, activities, financial situations, performance and ownership in a timely and transparent manner just as a private company would. They also hold SOEs to the same high standards for accounting, financial and non-financial disclosure, including annual independent, third-party audits to provide appropriate assurances of financial statements.

The Guidelines recognize the evolving need to disclose social and environmental conditions and provides recommendations for SOE and private companies to prepare for such disclosure. They present recommendations for topics ranging from human rights; employment and industrial relations; environment; combating bribery, bribe solicitations and extortion; consumer interests; science and technology; competition and taxation.

Discussion question

Is it realistic and reasonable to encourage SOEs to act, report and compete under the same conditions as privately owned multinational enterprises?

Governance of State-Owned Enterprises

Business Climate

State-owned enterprises (SOEs) serve important roles in many economies. They often operate in industries that provide public goods and services that are utilized by a large segment of the population (e.g. energy, transportation, telecommunications, water and sanitation). The unique conditions under which SOEs operate presents challenges in creating a level playing field in markets where private sector companies can compete with such enterprise.

OECD's Guidelines on Corporate Governance of State-owned Enterprises (The Guidelines) serve as the first benchmark of how SOEs are governed and operated. The Guidelines incorporates advice and recommendations from experienced policy-makers and practitioners from OECD and non-OECD countries. These Guidelines provide recommendations on how governments can find a balance between providing oversight of SOEs without imposing political interference with routine management issues. Proper governance - within the SOE and of the supporting government - is central to maintaining this balance.

The Guidelines are primarily oriented to SOEs that are their own commercial enterprises (i.e. majority of their income coming from fees and sales) under central government ownership. States can benefit from demanding that SOEs operate like private companies. To help states strengthen SOEs, The Guidelines present recommendations in the following areas:

Ensuring an effective and legal and regulatory framework for state-owned enterprises: The legal and regulatory framework for SOEs should ensure avoid market distortions and ensure fair competition between SOEs and private sector companies. The legal entity and operational practices under which SOEs operate should be streamlined and simplified. SOEs should not be exempt from laws and regulations and should face competitive conditions regarding financing.

The state acting as an owner: The state should be an active owner with responsibilities outlined in a legal structure of the company. The SOE should have a clear and consistent ownership policy to ensure a transparent and accountable governance structure. The State should not be involved in day-to-day management of the SOE and should let the SOE Board of Directors exercise their responsibilities.

Equitable treatment of shareholders: Both the state and the SOE should recognize the rights of all stakeholders and should allow these stakeholders to exercise those rights without prejudice. SOE should implement an active policy of communication and consultation with all stakeholders.

Relations with stakeholders: The state should recognize the SOE's responsibilities toward stakeholders and the need to report on relations with stakeholders that may affect public policy. These responsibilities should be incorporated into an internal code of ethics.

Transparency and disclosure: SOEs should be held to a high standard of transparency. They should develop consistent and aggregate reporting standards and develop efficient internal controls. They should be held to the same auditing and accounting standards as publicly listed companies, including undergoing annual independent audits and disclosure of material information. The public should be informed of the ownership and voting structure of the company, any material risks and measure to mitigate such risks, financial assistance received from the state, and material transactions with related entities.

The responsibility of Boards of SOEs: SOE boards should have the authority, competencies and objectivity to carry out their function of strategic guidance and monitoring of management. They must be held to a high level of integrity and be held accountable for their actions. Board members should be provide objective and independent judgment and each member's performance should be appraised annually.

The second part of the Guidelines provides annotations to help the reader understand the rationale for each recommendation.

Questions for consideration

How important of a role do SOEs play in the global cotton industry? Do their actions present uncompetitive conditions and prevent a level playing field for fair competition? Would improved governance improve competition such that it would strengthen the overall cotton industry?

Shifts in global economic and governance power

Business Climate

The role of the International Monetary Fund (IMF) in international financial affairs has reemerged in the wake of the recent financial crisis. The world is looking for a strong, legitimate international financial institution to help coordinate efforts among major global economic players, to offer support to countries in crisis, and to provide an impartial voice in assessing the need for corrective action when countries fall into financial, fiscal or foreign exchange misalignment. The scandal surrounding its previous director, Dominique Strauss-Kahn, and his subsequent resignation, has led to questioning the selection process to fill these prestigious and influential positions.


While Strauss-Kahn was replaced without much controversy by France's former Finance Minister, Christine Lagarde, as head of the IMF, many felt that the time had come for a non-European leader to reflect the change in global power and economic relevance. Her appointment was supported by India, China and Russia, but many observers cite her ability to handle the IMF's bailout of weak eurozone countries as one reason why an EU-based leader is appropriate at this time. With this said, many are watching to see if she follows up on her promises to remove nationality-based approaches to key appointments that have traditionally been made by the EU or the U.S. She added that this "should also [be] reflect[ed] in our employment policies, in our training policies, in the way in which we build teams, in the way in which we organize recruitment so that people are not clones of each other."


Many emerging economies are sitting on stockpiles of cash and have become forces of financial stability, while rich countries have become weighted down by debt. With the rise of the BRIC countries, the assumed leadership positions of the U.S. and Europe are in question. If new, less traditional countries enter the international stage of global economic and trade policy and regulations, the long-term implications could be substantial.


While investors and economists may be focused on how such changes could affect trade and economic stability - in the short- and long-term - I am most interested in seeing how this debate may affect the structuring and implementing of governance within global organizations such as IMF. Given the inability of these organizations to prevent or effectively respond to the recent collapse of the financial markets, combined with the lack of progress towards an enforceable and effective regulatory framework, we can ask if the current governance and organizational structure of these organizations will be effective today or into the future as economic power shifts.

Questions to consider

How will shifts in global economic power affect global governance leadership?

How will this shift affect global trade?

World Economic Forum’s Risk Response Network

Risk Protection

The World Economic Forum launched its Risk Response Network in Davos, Switzerland at the end of January 2011 to convene leading experts in managing risk from various sectors of society. The Network's first Global Risks Meeting included more than 80 experts and decision-makers who gathered to discuss ways to better manage, respond to, prepare for and seize opportunities related to global risks. Some issues and trends covered during the meeting included:

Natural disasters - The earthquake and subsequent tsunami in Japan were front and center. Japan's preparation of its citizens led to an effective and immediate evacuation that spared numerous additional lives and illustrated the need for all governments to properly prepare for natural disasters.

Most governments have crisis management procedures under various scenarios, but some may lack the capacity to react in the moment. Proper planning for a nimble and quick response that includes assessing a situation, identifying required resources, and developing appropriate actions will prove to be invaluable when disaster strikes.

The need for transparency and for clear and scientifically based communication was also evident when the nuclear power plant was damaged. This level of disaster preparedness requires a framework and a process to evaluate and communicate data in a timely manner.

After initial response and recovery are complete, the community or country must then rebuild. The Risk Response Network recognizes the importance of emotional rebuilding that must be adequately addressed and supported along with the physical and economic rebuilding.

Supply chain and transport risk - Global trade depends on a reliable web of interrelated transportation and supply chain systems. However, most supply chains are more of a compilation of smaller supply chains that may intersect at various points and times. Regardless, the effects in one region of the world can have a ripple effect across the global web of supply chains.

Risk is a shared responsibility and collaboration between governments and industries - and across regions - is needed. More effective coordination of communication pathways and knowledge sharing could help improve response mechanisms if a major disaster or disruption occurs. Two questions that should be addressed are: where are risks most vulnerable? How can we make systems more resilient?

Resource scarcity - Expert members of the Risk Response Network believe the availability of natural resources is possibly the most critical factor in world markets and trade issues. We have seen political riots over food shortages - and related trade actions - in recent years. As competition for increasingly limited resources heightens, we will likely see more geopolitical conflict and social migration.

Resource scarcity is linked to numerous issues including: geopolitics, climate change, urbanization, waste and technology. Developing multi-stakeholder partnerships through strong governance frameworks will be important in adapting to and managing resource constraints.

Cyberspace - Recent phenomena like the emergence of WikiLeaks as a source for sensitive information, worm attacks such as the Stuxnet virus and the role of the internet in political uprisings and regime changes in the Middle East demonstrate both the power and vulnerability of information technology. Information is pervasive, uncontrollable and scantly protected. These conditions warrant comprehensive and effective risk identification and mitigation measures and strategies.

Users and operators will benefit from continuing education on cyber risks (and ways to protect against them as four megatrends advance: big data, cloud computing, pervasive devices and the personalization of IT.

Risk Response Network also discussed reputational risk and organizational risk. The experts agreed that risk management approaches must be aligned with an organization's strategic missions. The organization must also create a culture of risk awareness that would include allowing decision makers to have reliable access to real-time data.

Above all of these risks and factors are concerns about U.S.-China relations, cyber warfare, debt and sovereign risk, and weaknesses in the international monetary system. These concerns could pose significant risks if people's confidence in the system is minimized. The recent collapse of the financial market and commodity volatility illustrate the need for stronger and more effective global governance. Bodies such as the International Monetary Fund and development banks should operate under a framework of rules, policies, systems and enforcement mechanisms.


Question to consider

Does the global cotton industry have frameworks, processes and systems in place to respond to the risks mentioned above?

OECD's "Guiding Principles for Regulatory Quality and Performance"

Regulatory Policy

OECD's "Guiding Principles for Regulatory Quality and Performance" states, "the goal of regulatory reform is to improve national economies and enhance their ability to adapt to change." Given the state of the cotton market, climate change impacts, growing populations, political unrest and the recent collapse of global financial markets the need for national economies to adapt to change has never been greater.

OECD guidance focuses in part on helping countries improve their regulatory policies and tools, open markets and fair competition, and reduce regulatory burdens. They present the values of dynamic, ongoing and multi-agency approach to implementing regulatory reforms.

The seven principles OECD suggests governments follow when undertaking regulatory reform are:

1.     Adopt broad programs that establish clear objectives and frameworks for implementation. This should be done at the highest political level possible and include key elements of regulatory policy -policies, institutions and tools- applied across all levels of government. They should have a sound legal basis and align with identified goals, focus on minimizing costs and market distortion, create benefits that justify any costs, be compatible and consistent with other regulations or competition, as well as trade and investment principles.

2.     Assess impacts and review regulations systematically to ensure that they meet their intended objectives efficiently and effectively in a complex and ever changing landscape.  A system to review the effectiveness of policies and regulation on a routine basis should be implemented. is the focus of this principle. The review should be based on performance-based assessments, target regulations that present the highest potential benefits, and include new regulations.

3.     Ensure that regulations, regulatory institutions charged with implementation, and regulatory processes are transparent and non-discriminatory. This includes the need to consult with significantly affected stakeholders at the earliest stage of the process. The consultation should be open, transparent and include an appeals process that does not unduly delay business decisions.

4.     Review and strengthen where necessary the scope, effectiveness and enforcement of competition policy. Vigorous enforcement of competition law should be applied where collusive behavior, abuse, monopolization or anticompetitive mergers pose risks to constructive progress.  Governments should provide enforcement agencies with the proper authority and capacity needed to enforce competition policy. Governments should also raise public awareness of the role and benefits of healthy competition that is void of corruption and collusion.

5.     Design economic regulations in all sectors to stimulate competition and efficiency, and eliminate them except where clear evidences demonstrates that they are the best way to serve broad public interests. Governments should ensure that regulatory restrictions on competition are limited and in line with public interest.  OECD promotes efficient means to address areas of potential market abuse. This can be true when competition increases due to privatization and market reform. They promote non-discriminatory access to essential network resources, inter-connected geographic networks, and considers price caps and price monitoring where warranted.

6.     Eliminate unnecessary regulatory barriers to trade and investment through continued liberalization and enhance the consideration and better integration of market openness throughout the regulatory process, thus strengthening economic efficiency and competition.  OECD encourages governments to work with other countries with a focus on transparency, non-discrimination, harmonization towards international standards, and streamlining of conformity assessment procedures and application of competition principles.

7.     Identify important linkages with other policy objectives and develop policies to achieve those objectives in ways that support reform. Governments should apply principles of good regulation, review and policy adaptation. This is especially true in areas of safety, health, consumer protection and energy security.

The cotton industry operates in a wide range of countries that have varying degrees of governance. Strong governance is essential for any fair and open market. The above principles provide solid guidance on how to improve all governments' governance programs and should be promoted.


Can the cotton industry take actions to promote stronger and more effective governance programs in OECD countries? If so, should it take such action?

OECD Competition Assessment Toolkit


Governments are charged with establishing and enforcing laws and regulations that promote and protect fair public policies. These obligations can be fulfilled by several means and policy options including laws and regulations that increase competition.  This increased competition can benefit a country's - or industry's - economy through overall economic performance, which leads to new business opportunities, and reduces the cost of goods and services to consumers.

The Organization for Economic Co-operation and Development (OECD), - an excellent source of governance related guidance documents, toolkits or other resources- created the  OECD's Competition Assessment Toolkit to assist governments in fulfilling their charge of promoting and protecting fair public policies .

The toolkit is designed to help governments identify unnecessary regulatory restraints and develop less restrictive alternatives that achieve given objectives without limiting constructive competition. It can be used to evaluate existing or new laws and regulations - across a country's economy or in a sector such as the cotton industry.

A full competition assessment includes: 1) clearly identifying policy objectives, 2) identifying alternative regulations that would achieve the same objectives, 3) evaluating the competitive effects of each alternative, and 4) comparing the impacts of each alternative. Within the toolkit there is also a Competition Checklist that serves as a strong starting place as it helps entities to screen for laws and regulations that have the potential to restrain competition so they can focus on areas of most concern. The checklist and toolkit focus on identifying laws or regulations that could potentially have one of the following three effects: 

1.     Limit the number of suppliers by:

  • Granting exclusive rights to a supplier
  • Establishing license, permit or authorization processes that are stricter than necessary for consumer protection
  • Limiting the ability of certain types of suppliers to engage in the business, often due to geographic relevance or supplier size
  • Creating high entry costs thus limiting entry of small or medium sized companies
  • Creating geographic barriers for suppliers to provide goods or services, invest capital or supply labor such as limiting the flow of goods or services across jurisdictions


2.     Limit the ability of suppliers to compete by:

  • Controlling or significantly influencing the prices for goods or services - minimum prices prevent low-cost suppliers from providing better value to consumers while maximum prices can reduce incentives for suppliers to innovate or improve quality
  • Limiting freedom of suppliers to advertise or market themselves that can lead to false or misleading advertising or are so broad they unduly restrict competition
  • Setting quality standards above what consumers require and that advantage certain suppliers such as requiring specific technologies that are only available or affordable to certain suppliers
  • Raising costs of production for some suppliers relative to others such as "grandfather clauses" that exempt existing suppliers from certain regulatory or technology requirements


3.     Reduce the incentive of suppliers to compete vigorously by:

  • Creating a system of self-regulation or co-regulation as this can often result in the creation of anti-competitive impacts
  • Requiring information on supplier outputs, prices, sales or costs to be published which could be improperly used by large suppliers to monitor - and possibly undercut - competitors' market behavior
  • Exempting the activities of a particular group of suppliers from general competition law
  • Reducing mobility of customers between suppliers through "switching costs"

While this toolkit is intended for governments' use, it can be applied by other entities that have a vested interest in government trade policies, such as the cotton industry or some of its members. Alternatively, industry members that feel they are disadvantaged by conditions of anti-competition, especially in OECD countries, can use the toolkit as a framework to work with a government to address their concerns.


Is the toolkit useful in the context of the cotton industry? If so, should its use be encouraged?

Harmonizing and selecting certification schemes

Business Climate

Ecolabels and certification schemes can be very useful in helping consumers choose products that are healthier for them, the earth or otherwise benefit farmers and supply chain actors. That said, despite the over 300 ecolabels worldwide, their overall impacts are relatively small when looking at the scale of global trade. Additionally, if ecolables and certification schemes are not done under a strong governance and compliance structure they can have unanticipated consequences including false claims, overburdening certain segments of the chain).

ISEAL Alliance, the global association that develops guidance and helps strengthen social and environmental standards, recently published The ISEAL 100 Survey - A Survey of Thought Leader Views on Sustainability Standards 2010 that summarizes responses from thought leaders across the spectrum of business (80 per cent of respondents), government and civil society (together making 20 per cent) about their views on product certification.

ISEAL makes four general conclusions from the report. Firstly, social and environmental standards (certifications) are becoming a widely used tool to implement corporate social and environmental responsibility. Secondly, credibility is a critical factor in deciding whether or not to use a standard system. Thirdly, standards drive operational improvements stem from the shared language and agreed processes to deliver sustainable results. Finally, standards should strive to build a coherent landscape by minimizing overlap and confusion over claims.

I commend ISEAL for conducting and sharing the results of the survey and support their conclusions. However, I came away with additional - perhaps equally relevant - conclusions. When you consider the survey was of companies that have taken a leadership role in sustainability, I would have expected a much higher level of standards support (only 73% of businesses would use more standards in the future) and rate of adoption (8% of these leading businesses don't use standards at all). But more surprising yet was that only 1 in 3 respondents mentioned the ultimate purpose of standards - to improve livelihoods, human rights, environmental protection - as a benefit of their use.

Many businesses cited the high cost of using standards, limited relevance to business, and the complexity and overlap in the standards landscape as areas of frustration. In addition, 48% of businesses said they needed to do more work within their organizations before committing to the strategic use of standards.

Ecolabels work well for specialty products that have a high-end value (buffering the price premium) and short supply chain (no or limited processing). Safety focused certifications in the food and drug industries make a lot of sense and can be easily understood by the average consumer.

However, certification schemes aimed at making social, environmental and economic impacts that require tracking through a complex supply chain (commodities) are cumbersome, costly and less understood (and valued) by the average consumer.

In order for the cotton industry to adopt a standard a clear business benefit must be demonstrated. Yet, only 21 percent and 15 percent of businesses evaluated financial benefits and farm-level impact assessments respectively, when considering the use of a standard. I feel that more attention should be given to building capacity at the ground level and the business benefits to the supply chain actors. This along with truthful and understandable communication of challenges and measured improvements will increase the credibility of standards - not only in the eyes of consumers but the industry and non-governmental organization as well.

Use of certifications, standards and ecolabels will likely increase over time. But if the goal is to make measurable improvements at ground level and engage and build trust among all members of the cotton industry than strong governance and industry collaboration is required.

BCI is a leading option but its success depends on full adoption by the industry. With this said, there are other certifications schemes operating in the cotton industry, namely Fairtrade, organic and Cotton made in Africa.


Will the cotton industry benefit from certification schemes? If so, would be it beneficial to consolidate existing schemes into one?


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