Bci Oc Ftc May08

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Collaboration strategy BCI OC FTC Version May 19, 2008

--- Working Paper ---

Organic cotton, Fairtrade cotton and the Better Cotton Initiative:

Three synergistic approaches to improve the social andenvironmental performance of cotton production

The collaboration strategy outline in the paper is supported by:

Helvetas; Swiss Association for International Cooperation

WWF; World Wide Fund for Nature

Better Cotton Initiative BCI

Max Havelaar Foundation (Switzerland), representing Fairtrade LabellingOrganisation (FLO)

Objectives of this working paper

The working paper has the following objectives:

To facilitate that proponents of the three approaches collaborate and emphasizesynergies and what they have in common, rather than opposing each other;

To provide consistent information on the Better Cotton Initiative, Fairtrade andorganic cotton to producers, industry and consumers;

To enable an integral perspective how the three initiatives can work in synergy toachieve an overall improvement of conventional cotton production;

To facilitate informed choice for producers, industry and consumers, and to avoid

confusion between the different approaches.

1 Why is cotton production an issue?

Cotton is one of agriculture's most water-intensive and pest-sensitive crops, often grown insemi-arid and water scarce areas. It has been estimated to consume 11% of the world'sagricultural pesticides1. Its cultivation represents over 2.4% of global arable land, involvingabout 30 million farmers. Cotton is produced in about 90 countries worldwide, many of whichare classified as developing countries. The economies of many developing countries and thelivelihoods of millions of smallholder farmers and their families are dependent on cottonproduction.

The environmental and social impacts of cotton production are widespread. Both inefficientirrigation techniques as well as an excessive and improper use of pesticides and fertilizersare a threat to the fertility of the soil and the availability of clean water for the future as wellas to biodiversity and human health. Socio-economic impacts have been reported to includesevere health and safety impacts related to pesticide use, arduous working conditions(particularly for women workers), child labour and forms of forced or bonded labour, as wellas indebtedness due to high input prices, crop failure, delayed payment and/or unaffordablerates of interest.

Achieving improvements in the social and environmental conditions of cotton production is

therefore essential for human and environmental health and the livelihood of millions of

1Kooistra, K.J., et al. 2006


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people world-wide. Unsustainable exploitation of agricultural soils and water resourcesthrough cotton production needs to be significantly reduced and production methods need torespect the principles of long-term sustainability. From a social point of view, farmers need tobe able to earn their living from growing cotton without taking unacceptable financial andhealth risks. Providing access to finance at an affordable interest rate, fair prices and timelypayment for cotton, capacity building in the field of better management practices, and access

to the necessary inputs are essential steps in this direction.

While taking different approaches and focusing on specific aspects of sustainable cottonproduction, Organic, Fairtrade and Better Cotton are generally all working in the samedirection but with different ambitions and target levels. The three approaches are in no wayconflicting or competing but rather work in synergy towards the common goals, since theyoffer a variety of ways for farmers, retailers and consumers to get involved, which in the endwill be essential to achieve large scale impact.

2 Three approaches to improve the social and environmental performance

2.1 Organic cotton

Organic cotton is produced and certified according to organic agriculture standards2. Organicfarming aims to create healthy agro-ecosystems using a mixture of techniques including croprotations, intercropping, mixed farming systems, biological control, use of adapted varieties,and a range of soil fertility management approaches.

Different to other production systems organic farming prohibits the use of mineral fertilizers,synthetic pesticides and genetically modified organisms (GMOs). Thus the organicproduction system tries to minimize external inputs and to make use of farm-own resources(e.g. green manures, biomass, organic fertilizers, botanical preparations). As a result ofthese combined production practices organic agriculture strives to realize the followingecological and socio-economic benefits:

Less soil and water contamination;

Increase of soil fertility and biodiversity;

Less health hazards for farmers and consumers;

Contribution to the mitigation of climate change by avoiding energy intensive mineralfertilizers and therefore minimizing the emission of the green house gas N20 fromfields and increase of soil organic matter contents;

Increase of farmers income due to organic premiums and reduced input costs

Reduced vulnerability of farmers livelihoods:- by avoiding debts for the purchase of external inputs;- by diversifying the farm through crop rotation and intercropping

If cotton is to be sold as organic, it requires a third party certification from independent,accredited certification agencies. These kind of certification procedures lead to additionalcosts, but ensure the integrity of the standard compliance and thereby justify a price premiumfor the farmer and also in the final market.

2.2 Fairtrade cotton

Fairtrade is a trading partnership, based on dialogue, transparency and respect, that seeksgreater equity in international trade. It contributes to sustainable development by offeringbetter trading conditions to, and securing the rights of, disadvantaged small farmers and

2e.g. the EU Regulation 2092/91 or the US National Organic Programme and the IFOAM Basic

Standards


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workers. Fairtrade certification is limited to farmers in developing countries. Fairtradeorganizations (backed by consumers) are actively engaged in supporting producers inawareness raising and in campaigning for changes in the rules and practices of conventionalinternational trade.

Fairtrade's cornerstones of the co-operation with marginalized producers are:

Social Development

o Structured farmer groups with transparent administration, which they own andgovern democratically

o No discrimination regarding membership and participation based on ILO corestandards (differentiated according to whether production is on family-basedsmallholding or on larger farm, which is structurally dependent on hiredlabour): e.g. no forced labour, no child labour

Economic Development

o Guaranteed minimum price (cost-covering; reduced risk)

o Fairtrade premium for improvement of the socio-economic situation

of the farmers, their families and communities

o Pre-financing of input costs if requested

o Long-term trading relationship

Environmental Development

o Restrict use of agrochemicals (list of banned substances)

o Encouragement towards organic agriculture

Based on standards, producer groups achieve certification for their crops and must showgradually improvements in all three domains.

2.3 Better Cotton Initiative

The BCI is a collaborative multi-stakeholder effort that aims to promote measurableimprovements in the key environmental and social impacts of cotton farming. While theactual definition of Better Cotton is still being constructed in direct collaboration with technicalspecialists and cotton farmers from various cotton growing regions, there are a number ofguiding principles that have been established.

The BCI:

will focus on a few highly significant social and environmental issues in cotton farmingand is focussed on the farm level. In order to be manageable, the global initiative will

not consider off- farm issues throughout the cotton supply chain.

will focus in those key impacts on achieving measurable reductions, which are withinreach for the majority of cotton farmers globally and therefore aims at improving theenvironmental and social conditions of bulk cotton production and not at creating apremium quality cotton product.

recognizes that the impacts of cotton farming will vary from farm to farm (e.g.smallholdings and large plantations) and region to region, and that the ability toreduce those impacts will also vary. Therefore the BCI will define Better Cotton at aglobal level but will adopt a flexible approach that is specific enough to providesolutions for farmers, but broad enough to be adopted in a wide range of conditions.

is not designed with a fully segregated supply chain and an end-product label.

However, as a minimum, the amount of Better Cotton entering the cotton market andthe social and environmental effects of Better Cotton production will be independentlyverified and transparent.


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Table 1 provides an overview on the main characteristics of the different approaches andvisualizes differences to the conventional production system, as well.

Table 1: Comparison of some characteristics of Organic cotton, Fairtrade cotton, and BCI

cotton with conventional production

Characteristics Organic Fairtrade BCI Conventional

Use of synthetic pesticides no restricted restricted(IPM)

yes

Use of synthetic fertilizers no restricted restricted(IPM)

yes

Use of genetically modified cottonseeds

no no yes(if legal)

yes(if legal)

Requirements on water saving

techniques recommended

recommended yes no

Requirements on continuing socialand economic progress of farmercooperatives (empowerment)

no yes To bedefinded

no

Premium price paid to farmers yes yes no no

Minimum standards on workingconditions

depending onthe specific

OrganicStandard

yes (dependson farmsystem)

yes (dependson farmsystem)

no (nationallaw)

Independent verification at farm level yes yes To be defined n.a.

Physical segregation throughout thesupply chain yes yes no(but possible) no(but possible)

End product label yes yes no(but possible)

n.a.

3 Synergies between the three approaches

All three approaches have generally the same objective, which is to shift an increasing shareof conventionally produced cotton to an environmentally and socially more sustainableproduction (Figure 1 on following page). As BCIs focus is on influencing bulk production, BCIcriteria will not necessarily be as far-reaching as Organic and Fairtrade in their respectivefields. By encouraging more farmers to use better practices and strive for continuousimprovement, BCI will lead to a significant and measurable change in mainstream cottoncommodity production, improving the situation of many farmers and the environment. Thesefarmers are then in a stronger position to move towards the more demanding requirements ofOrganic and Fairtrade, should they wish to do so.

It is important to stress that the definition of Better Cotton will be constructed in a way thatwill allow many organic and/or Fairtrade cotton farmers to also qualify as Better Cottonfarmers. It will not be a case of farmers having to choose between one or the other, ororganic and/or Fairtrade farmers having to adopt practices that are not compatible with

organic and/or Fairtrade farming to qualify as Better Cotton farmers.


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Although the method of verification for the BCI has not yet been designed, it is unlikely torequire full traceability or separation through the supply chain as it is done for Organic andFairtrade cotton. The consequence of this is that there is no intention of communicatingdirectly with consumers on article level. This will allow Organic and Fairtrade to continue togrow for the medium-high premium product categories without competition from BCI.

Env i r onmenta l

per f o rmanc e

Soc ia l per f o rmanc e

Convent ional

Produc t i on

Organic

Bet t e rCot t on

Fair

T

rade

I l legal prac t i c es (env i ronmen tal )

Ille

galpractices

(social)

Figure 1: Relation of the three approaches to more sustainable cotton production

4 Benefits for farmers and the cotton textile industry

All three approaches provide benefits to the cotton supply chain, mainly to the farm and retailends. Farmers can chose the approach which works best for them in the given regional andlocal conditions and will, in any case, benefit from an improved financial and health situation.If regional and/or local conditions for farmers change over time, they can reconsider theirformer decision and it will be easy for them to switch between Organic Fairtrade and BetterCotton method, choosing the production method, which is most beneficial for them under thegiven new conditions.

At the other end of the supply chain, the differing approaches give retailers/brands theopportunity to tailor their cotton supply according to their needs. This can include on the onehand a product range made from Organic and/or Fairtrade cotton targeted at highlyresponsible consumers, willing to pay a somewhat higher price, and on the other hand,assuming responsibility for bulk cotton production via the Better Cotton Initiative. Thus,retailers/brands can improve the social and environmental performance of their cottonmaterial flow and can still meet the various demands of their customers and expectations ofsociety.

Table 2 summarises the benefits of the approaches for farmers and textile industry.


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Table 2: Benefits of Organic cotton, Fairtrade certified cotton, and BCI cotton for farmers andthe textile industry, compared to conventional cotton production

Farmers/Farming Communities Textile Industry/Retailers

Environm. - long-term soil fertility

- increased biodiversity (includingbeneficial insects)- no water nor soil contamination

- increased reputation with

consumers for caring for theenvironment, through label

Social - no health hazards from pesticides- more financial security through

purchase guarantee

- increased reputation withconsumers for caring about thefarmers and consumers health

OC

Economic - premium price- less input costs

- market advantage through certifiedorganic products

Environm. - defined minimum standards (e.g. listof banned substances)

- reduction of reputational riskthrough basic environmentalrequirements

Social - premium is paid to the farmersorganisation (community investment)

- empowerment of farmersorganization and business skills

- minimum standards for workingconditions

- increased reputation withconsumers for taking social

responsibility

FT

Economic - guaranteed minimum price andadditional premium

- long-term trading relationship- pre-financing of inputs if requested

- market advantage through certifiedFairtrade products

Environm. - more sustainable use of naturalresources (water, soil)

- increased reputation withconsumers for caring for theenvironment

Social - less health hazards from pesticides- enhanced farmers organization and

business skills

- increased reputation withconsumers for taking social

responsibility

BCI

Economic - less input costs- better access to affordable finance- lower contamination of cotton

- securing long-term supply of largeamounts of raw material (cotton)

- brand value in terms ofcommunication

Environm. - none - none

Social - no risk through conversion to newproduction method

- low labour costs throughout thesupply chain

- Compliance burden remains withstate

Conv.

Economic - no certification/verification costs - low price of raw material and endproduct

Retailers and brands increasingly need to document environmental and social progress oftheir raw material sourcing. The three initiatives serve as useful instruments to visualize thisprogress quantitatively and comprehensibly (e.g. accomplishment of target as percentage).They can be combined to a consistent but flexible procurement strategy that allows reducingcorporate image risk arising from the use of cotton. In addition, they help companies tosecure the long-term supply of their raw material from sustainable cotton productionmethods.

Documents

Bci Oc Ftc May08