Can targeted funding make Better Cotton more competitive?

Sensemaking / Can targeted funding make Better Cotton more competitive?

Investments in sustainable production like the Better Cotton Fast Track Fund are empowering farmers, and helping to make Better Cotton a more competitive product, says Heather Connon.

By Heather Connon / 08 Aug 2013

Fair trade and organic labels are familiar enough on our t-shirts and other cotton products, and such certification schemes do play an important role in improving the sustainability of the production of the fibre.

But these schemes are based on charging a premium price for certified cotton: a barrier to scale in a competitive market. To make a big impact on the sustainability of cotton, therefore, it is vital to bring sustainable systems into mainstream production.

That is the logic behind the Better Cotton Fast Track Fund, which began in 2010 with the aim of furthering the ambitions of the Better Cotton Initiative (BCI) to become the standard for more sustainable cotton production. Eight large retailers, including H&M, Nike, IKEA and WalMart, have signed up, committing funds that are matched by the IDH Sustainable Trade Initiative, the ICCO and Rabobank Foundation, making a total of €40 million available for investment in sustainable production over the five years of the programme. Provisional figures indicate that, in the 2012-13 year, production under the programme had reached 670,000 metric tonnes (MT), up from just under 209,000 MT in 2011-12. That means the scheme is already two-thirds on the way to its one million MT target. The uptake rate among Better Cotton ginners is now 46% and among retailers 35%.  

The aim is to act as a facilitator to encourage small farmers to undergo the training and production modifications needed to qualify for Better Cotton (see ‘Better, how?’). Anita Chester, Senior Project Manager for cotton at IDH, says the programme is focussing on three core areas: agronomicals, as in ways to increase production; decent work, including health, labour conditions and trading rights; and the environment, which looks at the use of pesticides, water and so on. The Fast Track Fund is also looking at models which will help farmers gain access to good quality raw materials, finance and markets for their production.

The Fast Track Fund encourages the establishment of learning groups, so that farmers can share their experiences: more than 108,000 farmers were trained in 2012 alone. It is helping to set up producer organisations which can use their buying power to access good quality input materials and avoid the risk of buying fake pesticides or fertilisers. They can also sell the cotton collectively, using their sway as a group to get a better price.

Rabobank Foundation has earmarked €150,000 to fund the establishment of such producer groups, which are already common in other commodities. For many small farmers with no trading record, bank accounts or, in some cases, even identity cards, it will be the first time they have access to finance.

Iris van der Velden, Region Manager, Asia, for the Rabobank Foundation, sees this funding as a starting block: “The initial aim [of the Fast Track Programme] was to establish whether it would benefit farmers and the environment, and whether there was a market for the products.”

It’s early days. One producer group, ASA in India, has already been established, but van der Velden admits that it faces extra challenges as a rotational crop, used in conjunction with beans, soya and so on.

The next stage for the Fast Track Programme will be to work with the Better Cotton Initiative to set up a Volume Based Fee model, to help extend production of Better Cotton. Under such a scheme, retailers report to the BCI the amount of Better Cotton they are purchasing and the BCI then charges a fee based on these volumes. The money is then used to cover the verification costs, to finance systems to ensure the traceability of the Better Cotton supply chain and to train more farmers to improve their practices.

Demand from retailers could transform the market

Devising the model is still at an early stage but van der Velden believes it will be crucial in ensuring that the Better Cotton project can become self-sustaining.  “We decided to invest in the programme as it has a high ambition to transform the market and we believe it has the potential to do so”, she remarks. She adds that it is easier to scale up the Better Cotton production than certification-based systems, where the premium charged by famers is magnified up the supply chain, making the end product more expensive.

“The large number of retailers involved means that it is a very demand-driven programme. It is not aiming to provide a guaranteed market for Better Cotton: that would be undesirable”, van der Velden explains. “The aim is that demand [from retailers] for Better Cotton will increase.” As it does, so will the incentive for farmers to invest in the future.  

Heather Connon is a freelance journalist covering all areas of finance and investment.

Photo Credit: ictor/iStockphoto

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