The organic cotton trap

 

 

September 15^th, 2015. The Environmental Protection Agency (EPA) found Volskwagen was cheating emission tests in the US. The scandal, dubbed the diesel dupe, made Volskwagen stock plummet and threatened the whole car industry. Now, fashion is at the brink of a reputation shock at least as big as Volkswagen’s. Only that, if the German car manufacturer cheated authorities, the fashion industry structures its sourcing to convince the consumer that it’s more sustainable, usually with an overprice. Organic cotton, the big sustainability promise, hides a plot of falsifications and tricks that the whole industry knows about. If it reaches the final consumer, the scandal would jeopardize the transformation of a sector that was just beginning to get rid of the stains from the past.

 

Organic cotton has become one of the main drivers of sustainability in the fashion industry. Unlike other more sophisticated strategies (such as close the loop or recycling) the consumer quickly understands that this raw material is better, greener and more responsible than traditional cotton. Its use has been repeated as a mantra in all the strategies and short-term environmental goals of all the big retailers.

 

The problem is that, unlike dieselgate, in fashion, even if the case were to reach a mainstream audience, it would be almost impossible to tell which companies, or even which garments, are smeared by fraud and which are not. What would happen if the consumer was told that the organic cotton they have in their closet is not what it claims to be? Or that it is produced with slave labor? Would it believe the industry when it preaches about sustainability if what they have based their communication is actually a great scheme in which it is difficult to tell what is true or false?

 

Although it had been an open secret in the industry for years, several events in 2020 collided to form the perfect storm. In October, Gots, one of the leading certifications for sustainable fibers, acknowledged that more than 20,000 tons of cotton in India had been certified organic when in fact they were not. The scandal came just as demand for organic cotton was exploding due to the increase of awareness on sustainability during the pandemic, putting even more pressure on supply. At the same time, the media began to fill with news about another scandal that affected cotton directly: the alleged forced labour abuses in Xinjiang Uygur Autonomous Region, where the thousands of muslims from China’s uygur minority group are working under coercive conditions in cotton fields. The scandal motivated the United States’ veto to cotton imports from the region, a chain reaction from the big brands and, finally, in 2021, a boycott of Western brands by Chinese consumers.  

 

Fashion faces one of the biggest reputational crises since Rana Plaza, which may jeopardize the biggest transformation the industry has faced in decades. But, just like in chess, the sector seems to be in a zugzwang situation: when all the moves you can make will make your situation worse.

 

 

 

 

How did we get here

 

No GMOs. No pesticides. No chemicals. And hopefully socially responsible, too. Organic cotton is the holy grail of sustainability, the driver of a new era in fashion and textiles. A back-to-basics strategy after years of scandals that began with Greenpeace’s Dirty Laundry report in 2011 and culminated in the 2013 Rana Plaza disaster.

 

Since then, fashion groups, big and small, have made great strides in sustainability, with supplier audits, funds to improve safety in factories and control up to the so-called tier 2, the second level of partners in the value chain. But none of that reaches the final consumer. Organic cotton does.

 

It is not the most sustainable raw material, much less the easiest to trace, but it is the easiest to communicate, in part because food has been working in the organic field for many years. In the consumer’s mind, recycled polyester may sound a bit more responsible, but the word organic reminds you of tomatoes that taste like tomato and free-range eggs.

 

The truth is that cotton, like all agriculture, has been organic for most of its 4,000-year history. There were no fertilizers, no pesticides, and no technology to genetically modify the seeds, which are the three qualities that differentiate organic from non-organic cotton.

 

Pesticides began to be implemented on a large scale in the 1950s, after World War II, when agriculture began to industrialize all over the planet. It wasn't until the late 1990s and early 2000s that organic farming, and with it cotton, was put on the map. One of the first initiatives was promoted by the United States Department of Agriculture, that after the Organic Foods Production Act of 1990 promoted several national standards that culminated in the so-called National Organic Program. In Europe, Turkey was one of the first countries to develop a more philosophical approach to organic agriculture.

 

 

Organic cotton is not the easiest raw material to certify, but it is the easiest to communicate

 

 

In 2002 the Global Organic Textile Standard (Gots) was created, an organization promoted by the International Association of Natural Textiles (IVN), the Japan Organic Cotton Association (Joca), the Organic Trade Association (OTA) and the Soil Association (SA) with the aim of harmonizing organic cotton standards. Four years later, they created the Global Organic Textile Standard, which continues to be the benchmark in the sector.

 

Another turning point was the creation in 2002 of Textile Exchange, an organization that started under the name Organic Exchange to promote the use of organic cotton, although it has since diversified to include a broader portfolio of so-called preferred fibers. Meanwhile, transgenic agriculture continued to gain ground. In India, which accounts for almost half of world cotton production, the share of genetically modified crops (GMOs) went from being irrelevant in 2000 to almost 95% six years later, mainly driven by Monsanto, one of the largest agricultural biotechnology groups and a pioneer in the development of technology, today owned by pharmaceutical company Bayer.

 

 

In 2020, Gots, one of the leading certifications for sustainable fibers, recognized that more than 20,000 tons of cotton in India had been falsely certified as organic

 

 

It is difficult to determine when big retailers began to be interested in organic cotton on a large scale, although judging by the annual reports of the largest groups in the sector it was around 2010. In Inditex’s annual report from 2009 there is no mention of organic cotton. In 2011, it appears four times, and in 2019, ten.

 

H&M went from saying, in 2009, that a “small but growing” share of its garments were made with organic cotton to proclaiming two years later that it was the world’s largest consumer of organic cotton, according to data from Textile Exchange. Over time, C&A snatched the top position.

 

“The problem is that the investment was not matched by the increase in demand, and the demand exceeded the supply,” recalls Crispin Argento, former director of Organic Cotton Accelerator and current CEO of The Sourcery, an organization specialized in transparency and sustainability in the natural fibers sector.

 

Today, organic cotton represents less than 1% of the total cotton production in the world. But retail giants claim to use it in percentages that are close to 100%. How is it possible? “It is not, and the whole industry knew it, but refused to face it until it exploded in their face,” says a Spanish businessman from the spinning sector.

 

 

 

At the end of the 2018-2019 season, there were some 222,134 farmers in 19 countries around the world growing certified organic cotton. Pakistan entered the list that year and Uganda fall out, with Tanzania narrowly ahead of the United States as the sixth largest producer. However, the market is highly concentrated: the seven largest producing countries account for 97% of production.

 

 

 

An open secret

It all exploded in October 2020. After several accusations of systemic fraud in Gots certifications, the organization undertook an audit that revealed that more than 20,000 metric tons of cotton in India had been falsely certified organic. The scheme discovered by Gots included the use of false QR codes and a cloned website of the Agricultural and Processed Food Products Export Development Authority (Apeda) to authenticate the false organic cotton fiber. It was not the first time that a forgery had been discovered, but it was of this magnitude: Apeda described the scandal as a fraud “on a gigantic scale”.

 

The Gots certificate guarantees that there is physical segregation between organic and conventional cotton at each step of the value chain, that the use of chemicals in wet processes does not include certain substances considered harmful and that suppliers comply with the standards of the International Labor Organization (ILO). “It is impossible to certify all this with a single audit per year, with a visit of one to three days,” says an executive from the sector. In addition, this standard evaluates the process, but does not reach the farm.

 

The other independent body that certifies organic cotton is Organic Content Standards (OCS), which applies to any non-food product that contains between 95% and 100% organic material, without taking into account the environmental impact during the process or any social matters.

 

 

Organic cotton accounts for less than 1% of the total cotton production in the world, but retail giants claim to use it in percentages that are close to 100%

 

 

Although the case gained notoriety for the statement last year, trade journals had already covered counterfeits detected by Gots in China in 2011, although the amount was not disclosed at the time. “Certifications have been a growing concern in the sector for at least three years,” acknowledges an executive from the sector who spoke on the condition of anonymity. “If Gots says it’s 20,000 tons, multiply it by four or five and you’ll have a better idea of ​​the problem,” he adds. “Finding organic cotton is very easy, you just have to know who to ask; how much do you want? 5,000 tons? 10,000? Ask the right people in India and you get it, it’s just a piece of paper, that’s the problem,” explains another expert who has been working in the sustainable cotton and fibers sector for decades.

 

“Our system has been attacked and we fought back”, says Gots in a statement by e-mail. “A few criminals will not destroy the strong and vibrant organic sector,” they add. The organization explains that it has been developing a global and centralized database for years in order to “detect and eliminate sources of error, which are mainly human errors, as early as possible.” "With the central database, we will also be able to prevent fraud incidents, such as the one in India, in the future. Even though this was a bitter experience for us, we are emerging from it stronger than before”.

 

Since 2012 alone, organic cotton production has more than doubled, from 107,000 tons in the 2012-2013 season to 181,000 in the 2017-2018 and almost 240,000 in the 2018-2019, according to the latest data available. According to Textile Exchange data, there are 222,134 organic cotton farmers in the world, totaling 418,935 hectares of land certified for organic agriculture. There are also other 55,833 hectares that are in the process of conversion, insufficient to meet the demand. In parallel, the number of factories certified as Gots has skyrocketed by 30% in the last three years, reaching 10,388 factories in 2020.

 

Behind the scandal there is a systemic problem caused by the lack of supply and the growing demand. In the middle, the certifiers, who give approvals at the rate demanded by the industry.

 

 

 

 

 

How much does a word cost?

 

Organic cotton is technically like an ingredient brand. A label that, like Swarovski or Gore-tex, promises the final consumer some quality standards or a certain aspirationality, only in this case it is not who produces but who certifies who charges the price differential.

“The global business of organic cotton certifications generate more money than organic cotton sales,” says an expert with experience in international brands. “The farmer does not even know that he is producing organic cotton, he is not included in the process nor does he charge anything for it; They may know it in the United States and other industrialized systems, but not in India or Pakistan, which is where most of the cotton comes from,” adds the same executive. “Two certifiers earn more money than anyone else in the value chain,” criticizes a businessman in the spinning sector.

 

This value chain, in the case of organic cotton, begins with the fashion distributor, Inditex, C&A or H&M, which ask its garment supplier to serve it organic cotton clothes. The garment producer then looks for a fabric supplier that offers certified organic cotton. This in turn must resort to certified spinning mills to buy certified fibers, and these, in turn, buy the cotton bales from traders who also certify it. Those traders, companies like Olam International or Louis Dreyfus Commodities, are the ones who make sure that the farm that grows the cotton makes only organic cotton, to avoid contamination. Sometimes the path is shortened a bit if the fashion brand choose a spinning supplier and “nominate” them, although it is rare for them to buy directly.

 

Every step of the way, a certifier is paid. The largest of all of them, which according to different sources accounts for up to 70% of the organic cotton certification market, is Control Union. The company started with four European partners specialized in the agricultural sector and later merged with Peterson, a company in the Netherlands founded in 1920 and initially specialized in the inspection of cereal grains. The group continues in the hands of the founding families, so its turnover is unknown, it employs 4,000 people around the world and is present in seventy countries. Bio Inspecta, Ccpb, Ceres, Eccocert, Etko, GCL International and USB are other certifiers approved by Gots, although of the fifteen on the list only eight reach tier 4.

 

For each certificate, an SME, the majority in the fashion industry, pays between 2,000 euros and 5,000 euros per year, in addition to an annual fee that varies according to the factories analyzed and the type of audit required by the certificate. On average, just what is paid for Gots certificates (not counting membership fees) would generate revenues of between twenty million and fifty million euros for certifiers.

 

 

For each certificate, an SME pays between 2,000 euros and 5,000 euros per year, in addition to an annual fee

 

 

More cultivation

If the problem is lack of demand, why isn’t more organic cotton being grown? First of all, because it takes time. Depending on how the fields are in chemical terms, the transition can take between two and five years. In addition, it requires a particular type of climate, and investment is required.

But even if more cotton was grown, the problem would continue to lie with traceability. The control of suppliers beyond tier 1 (the manufacturer from which the finished garment is purchased) is relatively recent, and to know that the farm is producing organic cotton brands would have to reach tier 5 (the farm).

“Today, for a brand it is practically impossible to know if it buys the finished garment; even if they were to buy the cotton directly from the farm, it would be complex, because they would need to go to several different farmers,” says Gary Adams, CEO of the US Cotton Trust Protocol and president of the National Cotton Council of the United States.

However, there are countries that do offer more guarantees, but the capacity is still small. The Spanish company Organic Cotton Colors, for example, relies on suppliers from Turkey and Brazil, although in the latter many local certifications are not recognized by Gots, which increases the cost. Turkey is also the country chosen by Belda Llorens, which specializes in recycled yarn and which a few years ago also began to produce organic due to the increase in demand.

 

Turkey has a share of only 10% in the global organic cotton market, compared to 51% of India and 17% of China and on a par with 10% of Kazakhstan. In the 2018-2019 season, India was also by far the country that contributed the most to production growth, with 37,138 tons more than the previous year, followed by Turkey, Tajikistan, China and Uganda.

The second largest producer, China, is also tainted by another large-scale scandal that goes far beyond organic cotton and which also erupted in 2020. International organizations such as the United Nations (UN), together with governments, academics, and non-governmental organizations, have denounced that in the Xinjiang region the government of Xi Jinping subjects the Muslim minority of Uyghurs to forced labor, “re-education” camps and drastic birth control measures, in addition to other human rights violations. This region accounts for 85% of China’s cotton production and 20% of world supply. Much of that cotton ends up in Chinese textile and garment factories, so it is often difficult for fashion companies that source in the country to trace the origin of the raw material.

 

 

Turkey has a share of only 10% in the global organic cotton market, compared to 51% in India and 17% in China and on a par with 10% in Kazakhstan

 

 

Beijing argues that they are vocational training centers and that inmates access them voluntarily, but in December 2020 a report published by the American think tank Center for Global Policy revealed that more than 570,000 Uyghurs were being forced to work in cotton fields, and more than a million were in prison. Just a month later, the US Customs and Border Protection banned all cotton imports from the region.

 

The reactions followed one another in a domino effect and brands such as PVH, Fast Retailing, Burberry, Gap or even Inditex (although their statement is no longer visible on Google) condemned what the United States Government described as genocide, and some such as H&M or Nike said publicly that they did not use cotton from the region or would stop using it. China has responded with boycotts and H&M has even been removed from the country’s e-commerce platforms and at least six of its stores have been forced to close by its landlords.

 

 

It all exploded in late 2020, when Gots, one of the leading organic cotton standards, recognized that 20,000 tons of cotton had been certified organic in India when in fact they were not. Just a few months earlier, the Xinjiang scandal had been uncovered.

 

 

 

 

At the end of March, the UN called on the sector to “examine its value chain”. “Uyghur workers have allegedly been forcibly employed in low-skilled, labor-intensive industries, such as agribusiness, textile, and garment, automotive and technological sectors,” said Dante Pesce, the chairperson of the group of UN experts. The UN collected information that linked more than 150 companies, Chinese and foreign, with “sever allegations of human rights abuses.”

 

This scandal, added to the increased demand on certifications after the discovery of counterfeits in India and the problems in the value chain due to the disruptions caused by the coronavirus, has further constrained the supply of organic cotton and has triggered prices, in what one executive calls “the great escalation.”

The price differential was already high before the pandemic. Organic cotton seeds ranged from $ 425 to $ 600 per ton. Conventional cotton was being sold for between $ 165 and $ 210 per ton, according to a report made last August by the United States Department of Agriculture. In recent months, prices have doubled. At the fibers level, the difference between organic and conventional has gone from between forty and fifty cents to almost one dollar. In the final garment, it has gone from between ten and fifteen cents per garment to exceed thirty cents.

 

And that’s taking into account that the prices of all cotton, which is traded on the futures market, have also skyrocketed. “Last year he hit bottom and now there has been a rebound effect that has led him to exceed pre-Covid levels,” explains a manager at a big fashion retailer.

 

This price impact has been enough so that large distribution groups have already started to consider using other sustainable raw materials, such as recycled cotton. “It's a matter of being very transparent, I don't think the customer is expecting everything to be organic,” says the director of a Spanish fashion group.

 

 

Scandals and increasing demand have led to a rise in prices, which in recent months have doubled

 

 

 

The solution

The transition to other raw materials could be one of the ways for the fashion industry to get out of the crossroads, and the large operators are already moving in that direction. Inditex, for example, already covered its back in 2019, when it announced its new set of sustainable goals. The group set a goal that by 2025 100% of its cotton will be of three types: organic, Better Cotton Initiative (BCI) or recycled.

 

The BCI is an entity dedicated to the promotion of sustainable cotton crops in socially responsible, more environmentally friendly and economically sustainable environments, but not organic stricto sensu. The platform’s goal was that by the end of 2020 five million farmers, the equivalent of 30% of world production, would have made the transition.

 

For every kilo of Better Cotton lint procured from a gin processing Better Cotton by a merchant or a spinning mill lint, BCI members (ranging from spinners to retailers) earn a Better Cotton Attributed Unit of Cotton (Bccu). After gin level, BCI requires a mass balance CoC model. Mass balance is a volume tracking system that allows Better Cotton to be substituted or mixed with conventional cotton. However, it ensures that the quantity of physical cotton sold with a Better Cotton claim cannot exceed the quantity of cotton purchased with a Better Cotton claim (accounting for relevant conversion rates), as explained by the organization on its website.

 

In other words, the cotton that ends up in the garment of a brand that is a member of the platform does not necessarily have to be more responsible, but it does show that that company is supporting the global transition of the sector. The BCI is, therefore, a kind of community in search of a better future.

 

Marks & Spencer, which pioneered the use of organic cotton in Europe, has used only BCI certified cotton since 2019. Currently, of all cotton production in the world, 0.93% is organic, compared to 11.4% that is certified as BCI. Taking into account also the cotton that would pass the BCI conditions, whether certified or not, the quota reaches 21.91%. However, companies like H&M are opting for the opposite process and prioritizing other types of cotton, under the denomination of sustainable.

 

 

 

 

Recycled cotton is the route through which most large operators are already choosing , but the problem is that there is still not enough capacity in the market to respond to demand and, furthermore, it depends on the certifiers themselves.

 

Even so, specialized producers (such as Hilaturas Ferre or Belda Llorens, in Spain) foresee that the supply will increase, also favored by the directive prepared by the European Union on circularity, with which intends to force the collection of all waste during the supply chain, including post-consumer. Within the framework of this measure, the European textile and clothing employers’ association, Euratex, is already working on five textile recycling hubs in five European countries.

 

Another option would be to shift efforts towards what is actually the most widely used raw material in the fashion industry, polyester. In fact, polyester represents 52% of the total fibers produced in the world, compared to 23% for cotton. The rest is distributed between cellulosic fibers (with 6.4%) and to a lesser extent wool, silk and others.

 

Currently, 14% of the polyester produced is already recycled, although this raw material also has its own limitations. On the one hand, it also depends on the same certifiers that accredit standards such as the Global Recycled Standard (GRS), the Recycled Claim Standard (RCS) or the SCS Recycled Content Standard. In addition, it presents a major marketing problem: after years of communicating organic cotton as the pinnacle of sustainability, the customer would have to be convinced that a raw material made from petroleum, of lower quality and which is also recycled, is actually the best option. But it wouldn’t be the first time: in 2011, when cotton saw a record price hike, all fashion giants filled their collections with polyester to minimize the impact on the margin, although then it was a temporary change.

 

Still, there are several forces, in addition to the cotton problem, that are moving in that direction: last February, Textile Exchange and the United Nations Fashion Industry Charter for Climate Action teamed up to launch a new initiative to boost the use of made of recycled polyester. The goal is for the use of this raw material in the fashion industry to go from 14% today to 45% in 2025, which would further widen its gap with organic cotton.

In addition, both recycled polyester and BCI hardly present an extra cost for the final distributor. In this scenario, the best solution, although the most complex, is therefore to improve traceability and ensure that, regardless of the raw material used, it is what it is later said to be in the store.

 

Within organic cotton there are several pilot projects that include the use of blockchain, DNA markers or microbiomes to increase control throughout the entire value chain, although they are still in an early phase. The one that has received the most support is the Organic Cotton Traceability Pilot, promoted by Fashion for Good, the C&A Foundation and the Organic Cotton Accelerator, together with technological partner Bext360, which is intended to explore the use of blockchain and technology based on the DNA for traceability specifically of organic cotton. Kering, Zalando and PVH have also financially supported the initiative.

 

Fashion is at a dead end in which the only possible way our is to crash and turn around. But any result will be worse if it is the consumer who makes it crash. If reputational crises, both internal and external, have taught the sector something, it is that the customer can ignore disasters, catastrophes, and crises of all kinds, but not be lied to. At stake this time is not a bad press problem that can be extinguished in a couple of days, but years of investment and effort towards a better fashion industry.

 

Although it appears that organic cotton is leading the sustainable fashion strategy towards a zugzwang, the current crisis could also be a catalyst towards a better strategy and a greener future, just as the Rana Plaza catastrophe forced the industry to look for a more sustainable sourcing from the social point of view.