A value chain analysis of the organic cotton industry: The case of UK retailers and Indian suppliers

Abstract

This paper analyses the different activities within the value chain of organic cotton production in India to understand where, and how, value is added at each stage. Transforming a cotton crop into a textile and then into a final item of clothing involves many stages of processing, using many skills and technologies. We examine the activities and the prices achieved at each stage of this chain, from the farming of the cotton crop to its eventual sale in clothes' retailers.

Introduction

This paper analyses the different activities within the value chain of organic cotton in India to understand where, and how, value is added in each of the stages of the production process. A value chain analysis is a method of studying and analysing how value is added in different activities, normally within an organisational setting, through examining the costs of these activities, and how they are coordinated (Porter, 1985, Diebäcker, 2000, Azqueta and Sotelsek, 2007). However this concept has also been used to study international trade from a political economy framework (Gereffi and Korzeniewicz, 1994, Kaplinsky, 2000, Kaplinsky, 2004) and at an industry-wide level (Dahltrom and Ekins, 2005, Lakhal et al., 2008), and in line with these views and an earlier, less detailed, cotton industry analysis (van Elzakker, 1999), this paper adopts an industry-wide scope.

Transforming a cotton crop into a textile and then into a final item of clothing involves many stages of processing (Ecomtrading, 2000), often in many different countries, using many skills and technologies (Fletcher et al., 1999). We examine this process from the farming of the cotton crop to its eventual sale in clothes' retailers.

Despite increasing awareness of, and interest in, sustainable methods in both food and yarn production, there is some confusion as to what organic and organic certification really means.¹ Organic cotton is cotton that is farmed without the use of synthetic chemicals such as pesticides and fertilizers. But farming is only one of the stages of garment manufacture. As Fletcher et al. (1999) note ‘production and processing systems which take account of the environmental, social and economic health of the entire system are important … it is not enough for a product to be produced organically and then processed in a conventional polluting system’. A t-shirt made of organic cotton would typically be labelled as containing certified organic fibre, but certification would not necessarily apply throughout the whole supply chain. In contrast, a fully certified organic t-shirt, has to be certified as organic throughout the whole chain from cotton fields until it is finally sold in a store (Sanfilippo, 2007b). Because there is no clear demarcation at present between the two usages of the term organic, both types of garment are sold at a premium over non-organic cotton clothes.

In this study we examine the production chain of fully certified organic cotton, organic cotton, and non-organic cotton t-shirts in order to understand where value is added in each category. This paper deconstructs the various stages involved in the production of organic cotton garments and compares the value added at each stage when compared to a conventional cotton garment. As part of the process we consider the various drivers of demand for organic cotton.