The Innovative Business Models That Can Transform Cotton Supply Chains
Disruption of supply chains has been a hot topic over the last two years. Consumers in many countries are seeing empty store shelves, signs of disrupted production and logistics. When the coronavirus pandemic first hit, demand slumps hit factory owners and workers hard, with $40 billion worth of already-completed orders being canceled by clothing companies.
And yet, COVID-19 is just one of multiple pressures on supply chains. Recent sources of stress include intensifying trade disputes and political upheavals, labor shortages, as well as the climate crisis driving increasingly frequent high-cost natural disasters and changes in weather.
Beneath these cracks in supply chains lie deeper root causes — unsustainable production methods that extract and pollute, and unfair practices that distribute financial reward inequitably for producers, workers and others.
It’s time to re-design the way supply chains work and reconsider what they prioritize to help ensure critical environmental and social needs are met. Unsustainable approaches to production, structural inequalities, and power dynamics must be addressed. Those are essential for a supply chain — and economy — that is equitable and just, that stewards vital ecosystems on which we depend, and that is resilient to adapt to significantly altered climate and social conditions.
This is especially true in the case of agricultural commodities, such as cotton. Cotton is one of the world’s most important natural fibers; it accounts for approximately 30% of all raw material used in the global textile market, and the sector supports the livelihoods of around 350 million people. Unless produced using sustainable practices, cotton can contribute significantly to greenhouse gas (GHG) emissions, over-consumption of water and excessive pesticide use, among other severe issues. Half of irrigated cotton is already at extremely high risk of water stress, and that is expected to increase to two-thirds by 2040.
As part of the Cotton 2040 initiative, Forum for the Future and WRI have partnered to outline what a more resilient, regenerative and just cotton supply chain can look like. In particular, we have looked closely at the opportunity for new business models to help transform supply chains for that vision.
Here are three things we see as critical to achieving that future in this time of complex challenges and rapid change:
1. Define New Criteria for Cotton Supply Chains
We are testing and refining a handful of criteria that would further define what a “sustainable” cotton supply chain — one that is just, regenerative and resilient — looks like.
As an overarching goal, everyone in a cotton supply chain will need to be able to cope with and adapt to shocks to our climate and economy. The supply chain must avoid environmental damage to and ultimately regenerate the resources and protect and replenish the ecosystems upon which it depends. And there must be support — from companies, governments and financial institutions — to ensure that transitions, adaptations and transformations are fair and equitable.
To further define a cotton supply chain that is just and regenerative means:
- All producers and workers have power, agency and voice in decisions impacting them.
- Producers and workers enjoy sustainable, thriving livelihoods.
- Data is a force for good, collected and used responsibly. It serves all actors in the supply chain equitably.
- Resources used across the supply chain support healthy ecosystems and do not contribute to GHG emissions.
- Cotton production regenerates and replenishes ecosystems.
- Supply chain production and consumption is circular with no, or minimal, waste.
2. Find Innovative Business Models
To achieve a just and regenerative cotton supply chain, innovation is needed. Specifically, this includes business models that change the way that value is recognized and shared; switching incentives from short-term profit to thriving long-term, and from rewarding extractive practices to rewarding stewardship that puts more in (to ecosystems and society) than it takes out.
Forum for the Future and WRI looked for business model innovations and inspirations with transformative potential around the world and identified nearly 50 agricultural supply chain initiatives, of which 36 were related to cotton or textile supply chains. These included business model innovations, partnerships or technologies that sought to improve current ways of doing business.
There are several types of business model innovations identified in areas including: transparency and traceability; circularity; consumer behavior; farming practices; fair wages and farmer income; risk and price volatility. Among the cotton/textile supply chain initiatives, many focused on wages, farm practices, transparency and traceability.
In reviewing the examples, it became critical to understand where more business model innovation is needed. We looked to see which of our aspirational social and environmental criteria were most often left unaddressed and evaluated each example against a set of additional questions. This helped provide more granularity for our criteria for a sustainable supply chain. A snapshot of the results is shown in the graphic below.
Notably, few of the identified examples could answer “yes” to questions such as:
- Does it recognize and value informal work?
- Does it enable land ownership rights, including for women?
- Does it enable responsible data collection that respects privacy?
- Does it share information transparently on long-term trends; and enable joint reflection and planning?
It’s important to note that most or all of these neglected areas of business model innovation are likely to have a disproportionate impact on women. If they are neglected it will undermine equitable development as women are more likely to engage in informal or unrecognized work and are less likely to own the land on which they work.
3. Use Innovative Business Models to Transform Value Propositions
To change the cotton system from one that is too often based on exploitation and inequity to one that is regenerative and just, innovations need to be transformative, enabling change at a systems level. We found too many innovations that fall short of this, prolonging the current system rather than facilitating a new one that meets the aspirations of a sustainable supply chain.
For example, several business models utilize waste material or offcuts to produce clothing. This helps make the current system “less bad” but does not intentionally cut out waste altogether. Similarly, there are programs that aim to reduce farmer poverty with market rates or price premiums for cotton, such as clothing brands paying a premium price to suppliers of certified cotton. But there is a lack of business models actively building robust farmer livelihoods based on regenerative practices.
Identifying priority areas for transformative business model innovations
In 2021, after identifying criteria and innovative initiatives that could meet them, Forum for the Future and WRI shared feedback gathered through workshops with business model experts and cotton supply chain stakeholders in India, several countries in Africa and the United States.
Each region had a unique set of priorities, but also some common interests. Coming out of these conversations there were several areas with potential for transformation in cotton business models. Specifically, the workshop participants prioritized business model innovations that:
- Ensure cotton farmers receive money/value for the services they provide (carbon sequestration, ecosystem services markets).
- Enable and incentivize the transition to sustainable or regenerative production.
- Unlock new value from traceable and transparent data.
- Reduce risk to farmers and increase their resilience (through changes in procurement like long-term contracts, insurance, finance or other functions).
- Enable exchange of sustainable crops, either cross-commodity or combining multiple sustainable standards.
- Aggregate sustainable cotton (ensuring flexibility, real-time information).
- Change or reduce the role of intermediaries to ensure farmers receive full value (such as vertical business models, direct trade).
- Support and enable landscape approaches.
The Cotton Transformation Challenge
Supply chains, for cotton and other materials, will face increasing climate, social and economic pressures. Even beyond the COVID-19 pandemic there are huge challenges on the horizon. For example, a recent report by Cotton 2040 and climate-risk specialists Acclimatise (part of Willis Tower Watson’s Climate and Resilience Hub), shows that all major cotton growing regions will face severe climate risks by 2040. These challenges are also an opportunity to reimagine supply chains with business models that deliver more.
Forum for the Future and WRI offer a framework above for how to reimagine more resilient supply chains with regenerative practices and justice for people. A scan of existing business model innovations suggests interest and activities, many focused on improving farming practices, fair wages, transparency and traceability. But there seem to be gaps when it comes to informal workers, land rights, data protection and gender equity.
Most notably, there seem to be few business model innovations that fundamentally change the value proposition. In other words, we need to see more of the business models that change what's rewarded and how rewards are distributed across cotton supply chains. It will mean changes in relationships of actors across the system — such as apparel brands connecting directly with farmers, or traders supporting farmers in new ways. It will require full traceability and transparency. And it will require a recognition that just and regenerative supply chains are not just idealistic visions but are key to creating resilient supply chains that can meet societies’ needs in an increasingly climate-disrupted world. This is our challenge.
Now is the time to transform cotton supply chains and replace old business models with something better. We need nothing short of a just and regenerative future that can offer resilience so essential for future wellbeing.
Cotton 2040 will be testing and sharing more learning in 2022. But this is a shared challenge for all those involved and interested in transforming cotton and other agricultural supply chains. In 2022, let’s:
Increase ambition for a sustainable cotton supply chain.
Review the criteria above for a just and regenerative supply chain. Set them as your aim and challenge your own organization to shift sustainability aspirations from "doing less bad" to aiming for just and regenerative.
Test and improve the business models that transform the value proposition.
Partner with actors in your supply chain, and with other stakeholders across the industry, to test these models, learn what works and share your learning to enable adoption at scale. This could be pioneering payments for enhanced ecosystem services on regenerative farms. It could be unlocking new value from traceable and transparent data. As this article describes, there is a range of possibilities that can contribute towards a different set of just and regenerative outcomes.
Cotton 2040 is facilitated by Forum for the Future and supported by the Laudes Foundation. Find out more here. The authors also wish to thank Louise Rezler, Deborah Drew and Menghun Kaing for their contributions to this work.
APPENDIX A: Criteria for a Just and Regenerative Cotton Supply Chain
|Criteria||Description||Business Model Example|
Production environments are regenerating and replenishing
|Cotton is grown in ways that regenerate soil health, water quality and ecosystems. Sustainably grown cotton is the norm, with farmers rewarded for good stewardship and contribution to net positive impacts and practices. Cotton production is understood as part of, and contributing to, wider living systems on which all life depends.||
Payment for ecosystem services (e.g. ecosystem services market approaches, Impact Incentives, Pur Project)
Sourcing “Cotton in conversion” — enabling transition to regenerative production (e.g. Patagonia)
Resources used across the supply chain support healthy ecosystems and do not contribute to GHG emissions
|Key natural resources — such as carbon, water and soil — are factored into costing and decision-making. Marketing and pricing encourage and incentivize sustainable consumption and products are designed for longevity and circularity. Greenhouse gas emissions are net zero, and on a net positive trajectory.||
Shadow carbon pricing (e.g. Royal DSM)
Marketing a “capsule wardrobe” to consumers (e.g. Ninety Percent)
Re-use models (Vestiaire Collective)
Commercially supported landscape models
Cotton supply chains are circular, with no or minimal waste
|Waste is designed out at every stage — from production through processing, shipping, storage, sales and consumption. Transport is reduced and some supply chains are shorter. Unused materials are repurposed, reused or recycled. Products are designed for recyclability and repurposing. Technologies that support recycling at scale are mainstream.||Mudd jeans — designing for recyclability|
Producers and workers enjoy sustainable thriving livelihoods
|Living wage / income is built into business models throughout supply chains. Financial risk and reward are shared equitably among supply chain actors. Multi-year contracts and long-term commitments for producers are the norm, as are conditions which enable better social, economic and environmental outcomes. Communities have access to sectoral information, research, technology, investment, markets, critical resources, infrastructure and education to develop their potential.||
Cooperatives plus vertical integration (e.g. Divine Chocolate, Ethicus)
Shared insurance policies, limiting onus based on a chain of custody model
Long-term contracting and multiplication contracting arrangements
Shared assets and capital — technological, resourcing and land — models
Sustainable commodities (knowledge) exchange
Smallholder producers and workers have power, agency and voice in decisions impacting them
|All actors across the cotton value chain have equal opportunity to communicate and participate in decision making and discussions on sectoral challenges and opportunities. They have transparent information over supply chain mechanics, ownership of their intellectual property, voice on how contracts are shaped and adapted, and the means to adapt practices and decisions to their specific context.||
Farmer cooperatives influencing trade terms (Chetna Coalition)
Examples where producers control processing facilities
Data is a force for good, it’s collected and used responsibly and serves all actors in the value chain equitably
|Producers own and access their own data and benefit from business models that increase value through transparent data. Fair payment is exchanged for collecting and sharing good-quality data and value chains are fully traceable and transparent. Information on pricing and margins is widely available, creating a more level playing field for negotiation throughout supply chains.
Consumers can make informed purchasing decisions and those who make commitments can be held accountable. Predictive data (e.g. on climate change or product demand) non-proprietary, enabling informed decision-making at every level.
Publishing prices/margins throughout the supply chain (e.g. Everlane, Uncommon Cacao)
Platform that enables farmers to collect and sell on-farm data (e.g. Farmobile)
Customer demand is communicated to producers in real-time (e.g. Bombyx)
Everyone in the value chain is more able to cope with shocks, adapt to climate change impacts and other disruptions
|There is capacity across the value chain to adapt to mid-and-long term disruptions, including climate change impacts. Financial/ social safety nets or mechanisms are in place to allow continuity during periods of disruption.||
Risk-sharing at times of crisis, e.g. contracts that share risk
Insurance e.g. crop insurance
Support is in place for a just transition to adapt and transform the sector
|There are active transition pathways and support that combine climate mitigation, adaptation and increased equity across the value chain. The transition specifically focuses on justice and includes those who are no longer able to grow or process cotton as well as those that continue in the sector.||
Crop replacement models —aggregators/traders facilitate cross-sector support for farmers who are no longer able to produce cotton to grow a short-term cash crop.
New relationships and configurations across value chains support adaptation and transformation.
For further information on a just and regenerative approach to business see A Compass for a Just and Regenerative Business by Forum for the Future and World Business Council for Sustainable Development.