One of my clients, Cotton Council International (CCI), developed the Cotton's RevolutionsSM initiative to help the global cotton textile and apparel industry engage in strategic thinking focused on anticipating developments that will affect the entire supply chain. The Cotton’s Revolution held a Strategic Thinking Session in Bangkok on April 25, 2012 to discuss cotton’s record high prices and extreme price volatility  (the price of cotton had hit an all-time high of $2.27 a pound in March, 2011 – 300 percent higher than it was three years prior and prices had dropped 53 percent by July, 2011).  The session attendees also discussed how the industry can strengthen existing mechanisms and promote policies to address harmful price volatility. I was not in attendance, but I have corresponded with many participants and have found the CCI’s summary of observations insightful and worthy of sharing with others in the wider cotton or sustainability community.

The cotton industry is vast and involves a wide variety of actors – from small-scale farmers and weavers to spinners to global brands. It is influenced by entities outside of the supply chain, such as hedge funds and speculators, and faces competition from other fibers and crops (for arable land). The participants of the Bangkok Session made some key observations on the imbalance of power and lack of risk management mechanisms along the entire supply chain, highlighted by the following points:

·  There is a need to develop mechanisms to enforce contract sanctity and to continue to foster communication along the entire supply chain.

·  Speculators, hedge funds and pension plans can create artificial and higher levels of volatility, contributing to a higher level of risk for more vulnerable members of the supply chain.

·  The lack of exports from China and India, two of the largest producing countries, places the U.S., the largest exporter, in a strong negotiating position.

·  A handful of large retailers have a disproportionate negotiating power. At the same time, there are no existing mechanisms in place to manage risk associated with such actions as defaulting on contracts and incentivizing bad buying behavior.

The discussion at the Bangkok Session was not limited to the thoughtful points just outlined above. Some participants provided presentations on other aspects of the cotton and other agriculture commodities price volatility. I'd like to take a moment to reflect on a presentation by Mr. Arvind Singhal, Managing Impact of Cotton Supply Chain Volatility, that provided insight into what contributes to cotton price volatility as well as steps that some food companies are taking to manage risks in their supply chains as examples for ways to make improvements within the cotton industry.

Some of the factors behind cotton price volatility that Mr. Singhal presented include shifts in production due to climate change, government interventions (e.g. India export bans), currency movements, and the entry of large commodity speculators. He also showed how cotton has lost market share to other fibers as a result of higher prices, and how retailers have changed sourcing patterns by increasing the number of seasons, reducing lead times (which helps control raw material costs), and, in many cases, by outsourcing to a sourcing management firm (e.g. Li & Fung).

Mr. Singhal provided us with case studies on four food companies’ strategies to manage the volatility of raw materials:

·  Nestle has a four-point strategy to: 1) enhance connections with farmers and suppliers, 2) improve understanding of price movement trends and to sensitize customers accordingly, 3) innovate to replace expensive ingredients, and 4) reduce waste and improve efficiencies.

·  McDonald’s approach involves establishing long-term contracts with suppliers and vendors, buying in bulk to take advantage of the economies of scale, using “no frills” logistics, and improving their ability to forecast input costs.

·  Barilla, a leading pasta company, takes a central role in raw material procurement – even for its suppliers – and staying abreast of raw materials demand-supply conditions and how these affect pricing. Providing market intelligence to buyers helps them manage price volatility and source better.

·  Starbucks has a diversified procurement model and sources from multiple regions. However, they have suffered from entering into a contract when prices were high (and the market priced subsequently dropped) and were forced to raise retail prices.

These case studies indicate that large global brands are engaging more deeply in their supply chain, possibly creating new business relationships.

 Mr. Singhal closed his presentation with some suggestions:

·  Volatility will likely remain. Brands and retailers can dampen its effects on the other members of the supply chain by improving their understanding of upstream volatility and adjusting sourcing practices to help their suppliers mitigate risks associated with such volatility.

·  Producers and traders should work more directly with retailers.

·  Affected actors or cotton institutions should strategically address harmful, short-term government interventions.

This timely session covered issues that need to be addressed to ensure a healthy and more stable cotton industry. I feel that fair and mutually beneficial partnerships can be developed, and that such partnerships could help manage risk along the supply chain, creating stronger supply chains and industries.

I really enjoyed listening to Yvon Chouinard, Founder and CEO of Patagonia, being interviewed by Joel Makower, chairman and executive editor of GreenBiz.com. What I found most refreshing was Mr. Chouinard's straightforward, honest perspective on building a responsible economy in today's world. Many worthwhile points were discussed throughout the conversation, and I encourage you to listen to the entire interview.  

I would like to focus on the opportunities to build more responsible supply chains by shifting consumer demand, focusing on enhanced brand reputations, and scaling up positive impact through industry collaboration. Let's take a look.  

Consumer

Mr. Chouinard believes that consumers have the power to force change - and "start being citizens" - by voting with their dollar. He also believes "fashion is a very powerful force." Consumers could help make irresponsible behavior unfashionable.  

Unfortunately, consumers are neither making responsible production practices a priority nor fully understanding the issues and possible solutions. Patagonia does not wait for their customers to lead the way - they are way ahead of the consumers. Mr. Chouinard shared that "saving the planet" was ranked number 41 in a recent poll of U.S. citizens' concerns, quite a contrast to the company whose mission statement says, "[b]uild the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis."

Mr. Chouinard views the new millennium generation, consisting of 13 to 20 year olds, as being very different. They have enough information about the state of the planet to be concerned. They will demand authenticity and can see through fake efforts. They have a significant ability to shame or reward brands through social media.  

Brand

Without pressure from consumers most brands are unlikely to take it upon themselves to understand and lessen their impacts in meaningful and authentic ways. Patagonia is not like most brands. Mr. Makower noted that Patagonia has built a relationship with customers that other brands have not achieved. And, even more favorably, Mr. Makower observed that authenticity is a term closely associated with Patagonia, while other brands suffer from consumer distrust.  

Patagonia hardly advertises. Yet they are a coveted brand and enjoyed a 25 to 30 percent growth each year during the recession while other brands struggled. Patagonia provides a perfect example of what I have been promoting for quite some time: communicate to consumers (and other stakeholders) at the brand level - not at the product level. A brand name holds the most value for any company, not individual product names.  

I believe that while sustainability can strengthen the brand (consumers will want to support a responsible brand), it will not sell products. The fit, fashion, color, and, yes, cost will. Take Patagonia. If you see that name on a shirt, jacket or wetsuit, you know it was produced responsibly without needing any additional product-specific detail. Because that is what Patagonia does, as a brand and an organization: ensure that all products are produced responsibly.  

Industry

Even the most progressive and responsible companies cannot change entire industries. Mr. Chouinard shared that Patagonia was instrumental in helping WalMart, an unlikely partner, convene apparel companies in an effort that led to what is now the Sustainable Apparel Coalition. The Coalition consists of over 60 companies representing 35 to 40 percent of the world's apparel and footwear makers, along with other stakeholders. The Coalition has even developed a common performance index to align industry members' efforts on agreed upon priorities.  

Moving forward

If we wish to scale up change we will need to collaborate with likeminded companies to leverage resources, establish and drive common priorities in the supply chain, and measure and communicate progress using consistent metrics.

Collective, consistent, and committed action is needed at all levels. Consumers must send clear messages that they demand responsible products. Brands must take responsibility and use their influence to drive sustainability down their supply chains. Industry can drive change across entire sectors efficiently and consistently.