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.

What’s Next?

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

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.