Category Archives: Sustainability

Production of Identity Cottons Rising

Summary: World cotton production is increasingly identified in marketing channels by the program or initiative under which it is produced. Therefore, these programs or initiatives are called identity programs. World production of the four major identity cottons (Better Cotton Initiative (BCI), Cotton made in Africa (CmiA), Organic and Fairtrade) is estimated at 3.4 million tons in 2016/17, 15% of the world total.

Production of Identity Cottons Rising

World cotton production is increasingly dis-aggregated by the marketing program or initiative under which it is produced. There are many programs to collect data, encourage improvements in production practices or assure consumers of responsible production practices; some of the programs are organized by producers in a particular country, some are sponsored by input suppliers, and some are multinational initiatives facilitated by the private sector and governments. Because cotton is increasingly identified in marketing channels by the program under which it was produced, these are called “identity cottons.”

World production of the four major identity cottons (Better Cotton Initiative (BCI), Cotton made in Africa (CmiA), Organic and Fairtrade) is estimated at 3.4 million tons in 2016/17, up from 2.6 million tons in 2015/16 and 2.1 million in 2014/15. The proportion of world cotton production under various identity programs is likely to increase, and BCI has an objective of accounting for 30% of world production by 2020.

(As of July 2018, the most recent data available for BCI was for 2016/17 from the BCI 2017 annual report. For CmiA, the most recent data was for 2017/18, but the data was not dis-aggregated by country. For organic cotton, the most recent data published by the Textile Exchange was for 2015/16, and for Fair Trade the most recent data was for 2013/14 from a 2015 report. The lack of up-to-date statistics undermines market demand for the identity cottons, since merchants, textile producers and retailers are hesitant to enter into long term commitments when basic data on stocks, consumption, production and trade are lacking.)

Identitty_cotton_production

The four identity cotton programs accounted for 8% of world cotton production in 2014/15 (BCI and CmiA together were 7.6% of the total). The identity cottons accounted for about 12% of the world total in 2015/16 and 15% in 2016/17, with BCI and CmiA accounting for almost all.

BCI

By far the more significant of the identity cottons in terms of volume, BCI reports (http://bettercotton.org/harvest-reports/) that production in 2016/17 totaled 3.26 million tons, of which CmiA accounted for 320,000 tons. (By agreement, all cotton produced under CmiA is recognized as meeting BCI criteria.) 2016/17 BCI production net of CmiA was 2.94 million tons on 2.1 million hectares; the average BCI yield was 715 kilograms of lint per hectare, close to the world average for all cotton. 519,000 farmers were counted among BCI producers in 2016/17, meaning that average production was 6 tons per farmer.

production_of_bci

BCI says on its web site that it “aims to transform cotton production worldwide by developing Better Cotton as a sustainable mainstream commodity.” This implies that non-BCI cotton is not sustainable and not mainstream, and it implies that BCI cotton is somehow “better.” It is therefore ironic to note that 32% of cotton labeled as “Better” in 2016/17 came from Brazil, and Brazilian production is perhaps the least sustainable in the world because of heavy pesticide requirements in the Cerrado region.

The long-term outlook for cotton in Brazil, as well as in other South American countries, depends on an ability to manage the boll weevil without resorting to continued increases in insecticide applications. Brazil has not been able to implement an area-wide control program for the boll weevil, as has been done in the United States, and as many as 20 insecticide applications are made each season in Brazil for the boll weevil alone. Despite accounting for just 3% of world cotton area and 7% of world production, about one-third of all pesticides used on cotton in the world are used in Brazil.

Further, another 29% of 2016/17 BCI production was in China from the Xinjiang region in the Far West. This is also problematic because all cotton in Xinjiang is irrigated, and irrigation supplies are limited.

Nevertheless, a very simplistic comparison of yields achieved by BCI farmers in each country with farmers in the same country who are not in BCI seems to indicate that BCI farmers in many countries get higher yields.

yields

In 2016/17, farmers in Brazil, China, India, Pakistan, Tajikistan, Turkey and the USA who participated in BCI had higher yields than farmers who did not participate. The evidence of improvement is not conclusive because BCI farmers in Kazakhstan, Mozambique and South Africa did not get higher yields than their non-BCI counterparts. Further, this simplistic comparison ignores the impacts of farm size, variety selection, irrigated or non-irrigated production, differences in pest pressure, year-to-year variations in yields and other factors, but at least in a majority of countries, BCI farmers did better than their non-BCI counterparts in the most recent season.

In its 2018 Q1 quarterly report, BCI reported that brands and retailers increased their use of BCI cotton by 60% to 736,000 tons in 2017 over 2016 and that uptake increased a further 44% during the first quarter of 2018 compared with quarter 1 in 2017. Therefore, uptake of BCI cotton by brands and retailers accounts for around one-fourth of BCI production, with the other three-fourths still being sold as non-identity cotton. Therefore, after seven years of commercial activities by BCI, the quantity of cotton moving through the marketing channel from farm to retail as BCI cotton now accounts for about 3% of all cotton sold at retail. Increasing this uptake proportion will be the key to the long-term success of BCI.

Cotton Made in Africa

Production under CmiA totaled 320,000 tons in 2016/17 and a record 496,000 tons in 2017/18. Nine countries participated in CmiA in 2017/18: Burkina Faso, Cameroon, Cote d’Ivoire, Ethiopia, Ghana, Tanzania, Uganda, Zambia, and Zimbabwe. Across the nine countries, there were approximately one million African households involved in CmiA, and CmiA accounted for approximately 30% of production in Sub-Saharan Africa. The average yield among CmiA is approximately 300 kilograms of lint per hectare, broadly equal to the yields achieved by non-CmiA farmers in Sub-Saharan Africa.

sub-saharan

Yields achieved by farmers in Sub-Saharan Africa participating in CmiA were higher than yields achieved by other farmers in Sub-Saharan Africa during 2015/16 and 2017/18, but they were lower in 2016/17. The variances in relative yields may be due to inaccuracies in the statistics rather than actual differences in production outcomes. However, if available statistics are accurate, farmers participating in CmiA seem to do at least as well, and usually better, than non-CmiA farmers.

CmiA reports that 780,000 farmers participated in 2016/17, meaning that production per farmer was about 400 kilograms of lint. In 2017/18, the number of participating households rose to more than one million, and production per household was about 480 kilograms of lint.

Uptake of cotton produced within the CmiA program by brands and retailers rose to 80,000 tons in 2017, or one-fourth of the amount produced in 2016/17, and revenue from licensing fees rose to Euro 2 million. As with BCI, an impediment to increased uptake of CmiA cotton by brands and retailers is the lack of statistics on stocks, production, mill use, trade and prices by country.

Certified Organic Production

The most recent data reported by the Textile Exchange (http://textileexchange.org/publications/)is that production of certified organic cotton fell to 108,000 tons of lint on 302,000 hectares in 2015/16, indicating that the average organic yield was 357 kilograms of lint per hectare. As of 2015/16, 263,000 hectares were “in transition.” Assuming that 50,000 hectares of the transition hectares were brought into production in 2016/17 and yields remained unchanged, world production of organic cotton is estimated at about 125,000 tons in 2016/17. There were 220,000 farmers involved in organic cotton production in 2015/16, indicating that production per farmer was about 500 kilograms of lint.

An area of disappointment for organic cotton advocates has been Sub-Saharan Africa. A report from November 2017 published by the World Trade Organization shows that governments sponsored nine projects involving organic and/or Fairtrade cotton in Sub-Saharan Africa over the last decade. The projects totaled about $27 million.

Production of certified organic cotton in Sub-Saharan Africa totaled 4,542 tons in 2015/16, down from 8,922 tons five seasons earlier. Projects involving organic and/or Fairtrade cotton do not seem to be having discernable positive impacts.

organic_cotton

Fairtrade

The most recent data reported by Fairtrade is for 2014, when about 7,000 tons of lint were produced. (http://www.fairtrade.org.uk/).Fairtrade reports that there were approximately 55,000 farmers growing cotton on 61,000 hectares in 7 countries in 2014. The average yield among Fair Trade cotton farmers is less than 200 kilograms of lint per hectare. A problem common to all the identity cottons is that less than half of the cotton grown by farmers participating in the Fairtrade system was actually sold under Fairtrade terms, the rest being sold as regular cotton under commercial terms.

Conclusions

Cotton made in Africa and BCI are growing, while organic and Fairtrade cotton are shrinking. The major difference is that CmiA and BCI allow the use of modern agricultural technologies (CmiA does not accept biotechnology), while organic and Fairtrade require the use of labor intensive technologies from the early 20th Century. CmiA and BCI are initiatives that help farmers improve by providing training in the use of Best Management Practices, and farmers find such help useful.

Yields achieved by BCI and CmiA farmers seem to be higher than yields achieved by other farmers, indicating that the two programs are having beneficial impacts. However, the chief challenge for both initiatives is to increase the volume of cotton sold in the marketing channel under their respective labels.

Age of Cheap Polyester Ending As Environmental Concerns Mount

AGE OF CHEAP POLYESTER ENDING AS ENVIRONMENTAL CONCERNS MOUNT

Cotton has been attacked by environmental groups for decades for the use of pesticides, fertilizer, and water. Meanwhile, the man-made fiber industry has experienced unchecked growth with hardly a word regarding the damage caused by fossil fuel extraction, fiber production and end-of-life disposal of man-made fiber products, especially in China.

As China started to industrialize in the early 1980s, textile production was a leading area of investment. In 1990, polyester fiber production in China was about 1 million tons, but by 2015, polyester production in China had grown to approximately 35 million tons, equal to 70% of the world total. The 35-fold increase in polyester production in China in 25 years is the single biggest factor reducing world demand for cotton today.

Since 1990, China’s man-made fiber sector has enjoyed record growth, with fixed asset
investment breaking all records as new capacity was added throughout the supply chain, from
the production of feedstocks to finished fiber products. This growth occurred with little consideration for air and water quality. The policy of economic growth and jobs first meant that
any attempt to enforce the few regulations which existed were systematically overlooked. During this period, China became the largest man-made fiber feedstock and fiber producer in the world and came to dominate the sector.

There has been wholesale destruction to China’s water, air and soil caused by the unparalleled pace of industrialization over the past twenty years. Recent reports indicate that 80% of the
underground water supply is unsafe to drink. Any visitor to Beijing in the winter can testify to the smog and the “Airocalypse”, the term used to describe the periods when the air is unhealthy and almost unbreathable.

Previous Chinese government appeared to view environmental issues as part of a western conspiracy to limit China’s growth. However, things have changed under the leadership
of Xi Jinping. President Xi took office in November of 2012 and has led a radical shift in Chinese environmental policy, with air and water quality exceeding economic growth in terms of importance to his government’s agenda. Other data, such as from social media and
spending habits, illustrate that the issue has become extremely important to the Chinese people.

One significant difference in the administration of Xi Jinping is that the Communist party has reasserted power from the top down. In the past, local governments often ignored directives from Beijing, and city, county and provincial leaders focused on economic growth, often at any cost to the environment or individual rights.

However, under Xi Jinping, Beijing’s directives now override local economic concerns, and a series of important new laws and enforcement initiatives were launched in late 2016 to tackle air and water pollution. These programs have real power, and the effort to rein in industrial pollution is influencing almost every major business that has an impact on air or water quality.

China’s production of MEG and PTA,the main raw materials for polyester fiber, entered a phase of uncontrolled growth after the global financial crisis of 2008. China responded to the financial crisis with the launch of a$586 billion stimulus plan that allowed for the flow of funds into investments in industrial sectors at subsidized interest rates and easy terms.

Chemical feedstock industries have large capital requirements, and the stimulus plan
provided the capital for these industries to rapidly expand. In just the last five years, PTA
capacity in China has grown by more than 200%, and in 2016 China accounted for 56% of global PTA production. In addition, from 2011 to 2017, China’s MEG production increased more than 500%. A large block of these MEG plants use coal as a feedstock.

Polyester staple fiber accounts for about 22% of China’s total polyester production, and filament accounts for 51%. Viscose fiber production has also accelerated in recent years, with China today accounting for 65% of global production.

There are no comprehensive statistics on the number of polyester fiber production plants in China, their ownership, sources of financing or operating costs. However, the growth in polyester production in China has been so rapid, so enormous and so incongruous with investment patterns in other countries in Asia, that it is impossible to believe that industry expansion is a result of competitive, private sector investment.

The cost of construction of a polyester plant with a capacity of 250,000 tons per year is estimated at about US$150 million. It has been widely reported that the national, provincial and local governments in China encourage industrial expansion through loans that are never repaid made by government-owned banks. There are numerous stories in China of “ghost cities” and industrial plants producing only for inventory because they have no customers. Given the emphasis by all levels of government in China on textile production since 1990, it is highly likely that much of the expansion of polyester production capacity occurred with the help of loans that have become grants. It would be naïve to think that the expansion in polyester production in China occurred because Chinese consumers were demanding more polyester or that other market forces encouraged such growth. The expansion resulted from the industrial policies of the Government of China.

Enormous Polluter

The man-made fiber sector has been an enormous polluter of both air and water. Until now, environmental controls were not enforced in China. However,the new initiatives have begun the process of bringing these industries into compliance, and pollution controls are having significant impacts on the man-made fiber sector and textile operations. Viscose fiber plants in a few areas have been forced to close due to smog emissions, and the polyester fiber supply chain has had major disruptions due to shut downs and closures. Coal based MEG plants have been forced to close because of air pollution.

Much of China’s man-made fiber production base is located only a few hundred miles from either Beijing or Shanghai, and these populations are demanding clean air and safe water. Average income based on measures of purchasing power parity for the Tianjin region is US$33,290, for Beijing $32,995, Shanghai $32,684 and for the entire province of Shandong it is $27,428. The importance of the spending power of this population is now more important economically than the benefit of the jobs provided by the older industrial plants. Consequently, the man-made fiber sector will be either forced to close or to install treatment facilities.

Polyester staple fiber (PSF) is made up of virgin polyester and recycled polyester. The recycled PSF plants do not have end-of-pipe wastewater treatment systems, and thus they release a host of potentially dangerous substances, including antimony, cobalt, manganese salts, sodium bromide and titanium dioxide. To install the necessary water treatment equipment would end the economic advantage of the recycling process. In the crackdown on pollution, the recycled polyester fiber plants are being shut down.

In addition to water pollution issues, the recycled PSF plants in many areas are fired by coal, and in East China this is a chief source of air pollutants. In Hebei, which is close to Beijing, a number of plants have been recently closed which removed as much as 500,000 tons of production capacity from the market. This, plus the other closures, has had a significant impact on prices.

The demonization of cotton is very misguided. The facts are quite clear: the process of converting crude oil, natural gas and coal into a wearable fiber is very damaging to the environment if expensive environmental safeguards are not in place. This fact is now coming to light in China. The enforcement of the environmental standards and cleanup will be costly, which could mark an important turning point for the cotton industry.

Since the 2008/09 global financial crisis, cotton has lost approximately ten percentage points of market share, driven by the production of cheap man-made fibers, especially polyester fiber. The production of cheaper apparel has caused environmental destruction in the regions in which artificial fibers have been produced.

The pace of expansion of feedstock and polyester fiber and filament production may have peaked. New capacity will be much more expensive to bring on line as plants will be required to meet stricter environmental standards. Energy consumption in East China is changing, and the days of cheap coal based plants are over. Any feedstock plants using coal or coal based energy will be closed or will have to invest inexpensive new equipment. PSF is a heavy consumer of water, and this is becoming a precious commodity.

In the near-term, China’s production capacity of PSF is adequate, so there is enough idle capacity to come on-line to fill demand. However, additional growth will be much costlier.

These new dynamics mean that a PSF floor price is developing in China, which indicates that cotton should expect an increase in consumption just from changes in fiber blends. This floor price will be near the 55 – 60 cents per pound level for now, and may even move higher.

Cotton still faces a battle with consumer preference, its ability to innovate and meet changing tastes. Cotton also faces the task of communicating to the consumer the environmental cost of man-made fiber production, while also improving its own track record. Nevertheless, the changing price dynamics of polyester staplefiber in China will be an important global macroeconomic development during the next decade.

China’s Clampdown on Pollution is changing the Textile Environment

CHINA’S CLAMPDOWN ON POLLUTION IS CHANGING THE TEXTILE ENVIRONMENT

China’s move to enforce environmental regulations has entered a new phase, and by one estimate, a third of all factories in China have experienced at least some temporary closures. The Chinese Purchasing Manager Index (PMI) for October declined to 51.6 from a 5-yearhigh of 52.4 in September. The large-company PMI remained above 50,but the medium- and small-company PMI’s contracted to 49.8 and49.0, respectively; any index value below 50 denotes contraction. The China National Bureau of Statistics (NBS) said that the PMI for high energy-consuming and polluting companies declined as a result of the government’s crackdown on pollution violators.

The regulatory clampdown is showing no signs of weakening. Factories that burn coal or use electricity generated by coal, factories that are heavy water users and factories that discharge pollutants into water or air, are being shut down or forced to make significant investments in expensive treatment technology. Some factories are being closed altogether because they simply cause too much environmental damage. Even if a factory complies, a subcontractor could be shut down, disrupting the supply chain.

As of 2017, the size of the disruption is only a ripple going through the textile supply chain, but this is only the beginning. Other than new factories in the western region of Xinjiang,most of the country’s massive petrochemical, man-made fiber, textile and apparel operations are in Eastern China, which has the dirtiest air and water in the country.Iconic textile regions, such as Shandong and Hebei, are at the heart of the pollution crackdown.

The primary raw materials for producing polyester and other man-made fibers are crude oil, coal and natural gas, and one key target of the pollution crackdown is the use of coal. Polyester is produced from Purified terephthalic acid (PTA) and monoethylene glycol (MEG). Both are sometimes made from coal, and production of each has been affected by the closure of coal based plants.

While new production capacity is reportedly set to come on line in the man-made fiber sectors of China,there are also indications that the environmental regulations are curtailing domestic production and leading to increased imports of fiber. The increase in Chinese polyester fiber production from 1 million tons in 1990 to 35 million tons by 2015 put significant pressure on South Korean and Taiwanese producers, formerly the largest exporters. Ironically, in recent months China has actually begun to import polyester staple fiber. Imports in September from South Korea were up100% from a year ago, and imports from Taiwan and Thailand were also noted. This is quite unusual.

Recyclers Affected

As crazy as the argument seems, there is a lot of hype in the apparel world regarding yarns made from recycled plastic water bottles, calling them Eco-Friendly. Recycling has become a big business in China, but the recycling process is energy intensive, and a large number of recycling plants have been closed in recent months. China has also announced that as of the end of2017, it will no longer allow the import of plastic bottle waste which is used as a raw material, leading to reduced prices for bottle waste in exporting markets. China is aggressively moving away from the products which have destroyed its environment. This will have huge consequences as it shakes the foundation of the global man-made fiber industry.

Viscose Production Curtailed

Much-hyped viscose fiber, which has taken market share from cotton due to its advantage in adding softness to products, is also being affected.Breaking down wood pulp into a fiber is environmentally damaging unless expensive equipment is installed, which has not happened in much of the Chinese industry. Water is an important resource for viscose manufacturing, and plants in China have typically been built adjacent to rivers and linked to their pollution.

Bamboo is also a popular raw material for viscose fiber in China and a couple of other locations in Asia. Bamboo has been promoted as a more environmentally friendly type of viscose because the bamboo is typically grown on marginal land. However, the process to breakdown bamboo is also harmful to the environment unless the process is strictly controlled. Worker safety is a major concern. Twenty-one companies in China now account for 65% of global viscose fiber production. One of the largest is in Jiangxi Province and has been sighted for releasing untreated waste water into China’s largest fresh water lake, Poyang, and for contaminating nearby rice fields.

Polyester Costs

The production cost of polyester fiber is increasing and will continue to move higher. Chinese fabric cost will move higher,as well. Unlike cut and sew operations, which can migrate to the cheapest locations, man-made fiber production and dyeing and finishing operations, which are linked to the discharge of untreated effluent, are capital intensive and cannot be moved easily. India, which would be one logical relocation target, already has a pollution crisis of its own. Vietnam, which has drawn some of the largest investments in textile production in recent years, has already taken a tough stance on dyeing and finishing after seeing what these industries have done to the Chinese environment. Therefore, THE AGE OF CHEAP POLYESTER IS OVER.

We expect the impact of the crackdown on pollution in China to actually be evident in the2018/19 season in the cotton industry and will have an effect on prices by stimulating demand. Increases in world cotton mill use may be stimulated if the CotlookA Index falls to less than 75 cents per pound.