Fossil fibre? - cotton's days as a development tool look to be numbered

Feature | 29 November 2016

Cotton has played a transformational role in the lives of millions of people living in developing countries, but the crop’s days as a development tool look to be numbered, reports Binyamin Ali

Cotton is regarded as the most prevalent and profitable non-food crop in the world by the World Wide Fund for Nature (WWF). It is grown in more than 80 countries, with its production proving income for more than 200 million people1, while accounting for one third of all materials used in clothing. What is more, just under 80% of all production takes place in the poorest countries in the world, which has often given it the distinction of being a development tool for emerging and developing nations.

For all of its importance to the livelihoods of millions of people, as well as the textiles and fashion industries, the global cotton industry is awash with challenges and disputes. Large government subsidy programmes in China, the US and the EU distort the price of the fibre on a global scale, leaving many production programmes and small-scale farmers in developing nations unable to compete in the global market (Brazil lodged a dispute against the US at the WTO for using subsidies in a way that was counter to fair trade agreements in 2002, with a memorandum of understanding only being reached 12 years later in 20142).

Meanwhile, the harmful environmental effects of the pesticides used to grow cotton, alongside the large amounts of water needed to grow it (WWF claims it takes 20,000 litres of water to produce one kilogram of cotton) and care for it, have all conspired to pose the question, how long until the cotton industry reaches breaking point?

Government subsidies and small-scale farmers

The industry is heavily supported and distorted by the influence of government subsidies to local farmers, which has the result of affecting the price of the crop on a global scale. In seasons where prices are high, the volume of subsidies tend to be low as minimum support prices are not triggered. The most up to date (and reliable) figures on this only go as far as the 2013/14 season, but they are enough to paint a clear picture of how deep government intervention in the industry goes.

"The share of world cotton production receiving direct government assistance, including direct payments and border protection, increased from an average of 55% between 1997/98 and 2007/08, to an estimated 84% in 2008/09," reports the International Cotton Advisory Committee3 (ICAC). The committee adds that this translates to "an estimated US$6.5bn in 2013/14, down from a record US$7.4bn in 2012/13".

China funnels the most money into its cotton industry and has the most extensive state-sponsored support programme. The country accounts for more than 90% of global cotton subsidies (US$5.13bn), and lends further support "by controlling cotton import volumes and values and by applying border protection measures based on quotas and sliding scale duties, with an effective tariff of 40% on cotton imported without a quota", the ICAC adds.

This is a problem for small-scale farmers. Having said that cotton is grown in more than 80 countries around the world, only ten of them actively support their cotton industries with subsidies, while the crop is of the greatest significance to emerging economies. Such measures create a trade and export landscape that small-scale farmers cannot compete in, due to the distorted price points this leads to when national reserves are known to be high, and prices drop as a result. When this happens, economically developed nations can guarantee their farmers' incomes, whereas small-scale farmers will suffer crippling losses.



Access to finance

Reductions in the price of cotton can prove to be so disastrous for small-scale farmers because of the informal finance options that are available to them, as well as the lack of security they come with. This type of finance often takes the shape of loan sharks (who have no affiliations with banks or have an interest in offering concessions to agricultural businesses or exporters) who are happy to lend to anyone. If the global price of cotton falls below what the farmers need in order to repay their debts, it can prove to be fatal.

"Farmer suicides are linked to small-holder farmers and there's a failure of systems around agriculture that leads farmers to commit suicide," says Subindu Garkhel, the Fairtrade Foundation's cotton product manager.

"Usually the trap that the farmers are in is that they are small-holder farms who can't meet the market price. They need money to buy the input to grow the cotton so they usually take money from money lenders at a very high interest rate, in the hope that they will be able to pay it back when they have a good crop. If the crop isn't as good or it fails, they have this high load of debt. Or, even if the crop hasn't failed, their debt might be too much over a long period of time."

The "failure of systems" that Garkhel highlights is something the Indian government finally addressed in January 2016, pledging US$1.3bn4 towards an insurance scheme to protect farmers from failures, but this has been pledged for farmers of all crops, not just cotton. The lack of a formal credit line to finance the working capital needs of small-scale farmers remains a trade finance gap in the country that produces the largest amount of cotton in the world - India accounts for 28% of global production, followed by China with 20% (see Figure 1).

The situation is only marginally improved in the West African nations of Burkina Faso (where cotton exports account for as much as 10% of GDP - this was closer to 80% in 2004 before the gold boom swept through the country5), Mali and Côte d'Ivoire, who are among the largest cotton producers (they collectively account for 5% of global production).

Burkina Faso now spends US$30m on providing finance for cotton inputs, Mali provided US$38m and Côte d'Ivoire dedicated US$14m - all three nations concentrated the bulk of their resources on financing the purchase of fertilisers and planting seeds. These sums are a drop in the ocean in comparison to the whopping US$5.13bn spent by china, and the more reasonable (but still unattainable) US$450m spent by the US and Turkey. What is more, these African nations have a far less developed supply chain and national infrastructure to call upon, should they want to increase production to respond to increased demand.



Supply chain

The cotton supply chain is one of the most fragmented in the world. As a result, one of the biggest problems with developing nations' supply chains is the informal nature of the structure in place. This informality has a habit of opening up windows of opportunity for various players to involve themselves in the production process (it is not uncommon for there to be in excess of eight different official parties involved) and extract a cut.

Figure 3 illustrates the makeup of Burkina Faso's cotton production supply chain, via the country's national cotton company, Sofitex. As the graph shows, there are nine parties involved in the country's cotton production and export process, but in order for some farmers to break into this supply chain, they can often turn to unofficial money lenders or farmland owners.

The International Islamic Trade Finance Corporation (ITFC) provided a US$91m pre-export trade finance facility to the country in December 2015 to support its cotton industry - this is exactly the type of support developing nations need in order to reform their supply chains, but development finance deals alone won't be enough. Methods of production will also need to be improved to aid efficiency and create a sustainable global industry.



Sustainability and environmental impact

The cotton industry has been grappling with the question of sustainability since the harmful effects of pesticides began to slowly be understood in the 1970s; the sustainability and long term future of the industry has been in question since. One of the biggest challenges it faces is changing the established production methods that have such a negative environmental impact.

"Cotton cultivation has been a pesticide-intensive activity worldwide," observes the ICAC6. "Indiscriminate use of chemical pesticides has caused a wide range of problems such as escalation of cultivation cost, destruction of beneficial insects, development of insecticide resistance and consequent surge of pest intensity."

Attempts to reduce the level of dependence on pesticides have been made by various environmental campaigns, but take-up from the retail industry has been slow. Only 17% of all sustainable cotton was bought by retailers in 2015, with the remaining 83% being diverted back to the conventional market7. This lack of take-up has acted to devalue its worth and disincentive farmers from continuing to invest in sustainable methods.

What is more, cotton is an extremely thirsty crop. Some observers claim that it requires the most water of any naturally grown commodity, but this is very difficult to verify due to a lack of data and differing practices across cotton farms. The Fairtrade Foundation and WWF both claim that it takes 2,700 litres of water to make just one t-shirt (this has been widely disputed as production practices vary across nations and local farms), while Organic Cotton summarises the problem in an equally sobering fashion.

"If cotton is cultivated intensively, it requires large amounts of water for irrigation. This causes soil salinisation, particularly in dry areas and hence a degradation of soil fertility. The diversion of entire rivers into huge irrigation channels in Central Asia has led to the gradual drying-up of the Aral Lake, one of the largest inland waters in the world8," Organic Cotton states.

Unlike pesticides, water is essential to the growth of cotton and can't simply be removed from the production process. The best the industry can do is to improve water efficiency levels. Unfortunately, alternatives to cotton such as polyester also require copious amounts of water for cooling, while a by-product of nylon production is nitrous oxide; a greenhouse gas 310 times more potent than carbon dioxide.

Have we reached breaking point?

The Fairtrade Foundation, WWF and numerous other non-profit organisations such as the Better Cotton Initiative have all taken a strong interest in the cotton industry. This level of engagement from so many intergovernmental organisations, none of whom are after a profit, rarely bodes well for the health of an industry - clearly, all is not well.

Subindu Garkhel is unequivocal as to where she believes the industry is heading, "It is a race to the bottom," she says. "The [fashion] brands want the cheapest price for their t-shirts and I myself come from the supply chain, and I still have friends working there who just rubbish everything I say. They say none of this means anything until the buyers stop asking for a price which is cheaper than last year. This is the problem. Even with the most ethical brands, their buyers will go back to the suppliers and say we want our t-shirts to be two cents less than last year. How does this all mathematically even make sense, when the price of everything is going up?"

Whether this endless push for cheaper cotton turns out to be the straw that finally breaks the camel's back remains to be seen, but the parallels that can be drawn between the crop and oil are uncanny; a highly in-demand commodity that has been used for centuries and comes at a high cost to the environment, but one that less harmful synthetic alternatives have so far proved unable to replace.

As such, the economic realities of supply and demand suggest that the global cotton industry will continue to trundle on along its current tracks, in the same way that oil has. Opportunities for exporters and supply chain financers will continue to exist, while sustainable cotton initiatives will try to increase their market share to ensure the crop remains a development tool for developing nations. But if the combined forces of the fashion industry and government subsidies simultaneously continue to depress prices, cotton could very well become a luxury commodity that small-scale farmers can no longer afford to grow.

Binyamin Ali is deputy editor of TFR



  1. See forum for the future report, 'The future of cotton':

  2. WTO dispute summary:

  3. ICAC report, 'Production and trade policies affecting the cotton industry':

  4. See Guardian article here:

  5. IMF Country Report, Burkina Faso:

  6. Environmental and social impact of cotton cultivation:

  7. Pesticide Action Network report, 'Mind the gap: towards a more sustainable cotton market':

  8. The risk of cotton farming:

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