Co-ordinating Sustainable Cotton Chains for the Mass Market

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maria goldbach, stefan seuring and simone back lead to severe financial insecurity for farmers, many of whom struggle to deal with such stress, leading to health problems (Enquete-Kommission 1994: 149; Myers 1999). The spinning and fabric-production stages are not as critical as regards ecological and social impacts. Ecological impacts occur mainly due to the energy intensity of the processes. Also, small amounts of comparatively harmless chemicals are used during processing. No significant social impacts can be identified at these stages. At the dyeing and finishing stages, the conventional cotton industry uses toxic chemicals, which contaminate the waste-water and are non-degradable. Moreover, some of the substances, such as AOX, formaldehyde or heavy metals, are also liable to have human health impacts. The use of water and energy is also significant in dyeing and finishing. Ecological impacts in the clothing-production stage are minor. However, toxic chemicals, particularly the stain remover used after sewing, are often used without due labour safety precautions. In small firms especially, health and safety standards are low. Social impacts are highly significant at the clothing-production stage, and working conditions, minimum wage levels, insufficient labour rights and child labour are issues often raised. The International Labour Organisation (ILO) investigates and reports on such conditions (Enquete-Kommission 1994: 158-61; www.ilo.org). The ecological and social impacts of retailing are relatively minimal. Ecological impacts also occur at the consumption and disposal stages, but these are not within the scope of this paper. Also, transportation between the different value-adding levels along the chain has ecological impacts. These, too, may be relatively significant, especially at the retailing stage; however, they will not be discussed in this paper, as the problem is of equal significance for both conventional and sustainable cotton chains. Sustainable cotton chains The transformation process of turning conventional cotton chains into sustainable ones itself has ecological, social and economic effects which must be taken into consideration. At the farming stage, pesticides and other chemicals are replaced by biological pest control and organic fertilisers. Organic cotton farming is an integrated farming approach without pesticides and one that respects the soil’s natural regeneration cycles. This has not only positive effects on the natural environment (i.e. the soil) but positive social effects as well, by not harming human health. Ecological improvements at the farming stage have important cost effects: these can be seen in, for example, higher prices for organic cotton due to the so-called ‘transfair premium’ paid to organic cotton farmers. The transfair premium aims to compensate for possible harvest losses caused by switching to organic cotton and for the increased amount of manual work required. In addition, organic cotton needs to be certified, incurring certification costs. The sustainability-based improvements therefore lead to positive social effects by assuring higher cotton prices and often lower production costs for the cotton farmers. The social risk for the farmers consists of requiring customer demand for organic cotton. No market for organic cotton currently exists, so, in a worst-case scenario, organic cotton farmers would have to sell their cotton on the conventional spot market at a lower price, which does not cover the extra costs (even taking the transfair premium into account). Moreover, the conversion is highly time-consuming. In fibre production, for example, the transition period from conventional to organic cotton is about 3–5 years because of pesticide residues in the soil and the lack of natural soil fertility (Myers 1999). During the conversion period, the yield is much lower than it will be later and the premium paid to the farmers is not as high as for certified organic cotton. In spinning and fabric production, the major change consists of using organic instead of conventional cotton, so minor ecological problems linked to pesticide residues in cotton are eliminated. However, negative effects occur at an economic level. As the 68 GMI 43 Autumn 2003
co-ordinating sustainable cotton chains for the mass market overall amount of organic cotton supplied is often (at least in the beginning) not sufficient to reserve permanent production capacities for organic cotton, firms must set up parallel production capacity, which incurs higher costs, i.e. through separate storage and handling, and additional cleaning and switching processes. Furthermore, different market structures lead to difficulties in trading. The market for organic raw cotton, as well as the consumer market, is small and not comparable with the spot market for conventional cotton. This leads to higher financial risks. At the dyeing and finishing stage, the challenge lies in using low-toxicity dyestuff and auxiliaries wherever possible, e.g. by substituting chemical with mechanical form stabilisation and by reducing easy-care treatment to the necessary minimum. Although the substitution of chemicals may sometimes lead to higher costs for ecologically optimised cotton clothing, it is also possible to keep the cost level equal or even reduce the total production costs if the substitution is combined with more waterand energy-efficient processes. Higher costs are temporarily incurred through switching and setting up parallel production. In addition, production quantities of ecologically optimised garments are still relatively low owing to the limited availability of organic cotton as well as low demand, 2 resulting in higher costs linked to small quantity effects. In the clothing-production stage, control of social effects is managed through the introduction of SA8000, a standard aimed at improving working conditions, labour rights and wages, and defining conditions for child labour. Finally, higher costs result from increased co-ordination efforts in sustainable cotton chains which become necessary due to the limited availability of organic cotton fibres and yarns (Meyer and Hohmann 2000: 59; Seuring 2001b: 152; Goldbach 2001; Ton 1999). Sustainable cotton and yarn cannot be purchased on markets, so the transactions between the different actors along the chain must be co-ordinated differently than they would be through a purely market-based system. In the next section, co-ordination scenarios permitting transactions in sustainable product chains will be introduced and discussed. Co-ordination scenarios for sustainable cotton chains The major challenge in transforming conventional cotton chains into sustainable ones lies not in the technical feasibility of introducing ecological and social standards but in the management and co-ordination of the actors involved (Goldbach 2003; Kogg 2003; Seuring 2004a). Williamson distinguishes three different forms of institutional arrangements allowing transaction co-ordination between economic actors (Williamson 1975, 1985). These are market arrangements, hierarchical arrangements and hybrid arrangements. The choice of a suitable institutional arrangement is made with the objective of minimising transaction costs that arise from the need to co-ordinate activities between economic actors. Three characteristics influence this choice, which include: t Uncertainty of transaction. Uncertainty is differentiated into parametric uncertainty, determined by the environment, and behavioural uncertainty, i.e. uncertainty caused by the behaviour of the transaction partners. t Asset specificity. Assets include all investments that are carried out in the context of a transaction with a specific partner, such as investments in technology or human capital. 2 For the costs of greening cotton chains, see Chaudhry 1996; van Elzakker 1999a; Goldbach 2001; Seuring 2001b. GMI 43 Autumn 2003 69
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Co-ordinating Sustainable Cotton Chains for the Mass Market

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