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European consumer demand driving corporate investment in organic cotton production in Ethiopia

15 June 2014

At the end of March 2014, Aycoom Agricultural Development plc, a joint venture between Ayka Addis Textile & Investment Group (holding 55%) and Omo Valley Agricultural Development plc (45%), announced the launch of a project to develop 10,000 ha of organic cotton production in Ethiopia. The project is expected to cost around 815 million birr (approx. €30.4 million at 4 June 2014).

The large-scale, estate-based project comes at a time of growing demand for organic cotton in the European market and a “cumbersome and costly” process of certification of smallholder cotton farmers. Currently, the Ayka Addis Textile & Investment Group has to import organic cotton – which cost the company 72.5 million birr (approx. €2.7 million) in 2013. The new project will enable the Ayka Group to become an integrated “end-to-end” producer of organic cotton textile products.

Commenting on the company developments, Yared Mesfin, Cotton and Textile Marketing Director of the Ethiopian Textile Industry Development Institute, observed that garments made from organic cotton were in higher demand on global markets and hence fetching a better price. The trend in rising demand is confirmed by the Textile Exchange’s 2012 organic cotton market report, which highlights growing commitment by retailers to organic cotton and sustainable sourcing of fibres, in a context of flat levels of production of organic cotton fibre. However, the Textile Exchange report also highlights that end users are concerned about other socio-economic and environmental considerations (e.g. fair trade and broader sustainability) that reach beyond simply organic forms of agricultural production and also inform sourcing decisions.

Press analysis suggests that a trend is developing of big textile companies investing in cotton cultivation in Ethiopia in order to secure their inputs. According to the Ethiopian Cotton Producers, Ginners and Exporters Association, 55,000 ha of land was under cotton cultivation in 2012/13, with 35,000 tonnes of cotton harvested. A further 20,000 tonnes of cotton was imported.  

Editorial comment

There is currently a paradox in the organic cotton market. Demand for organic cotton is high – with several global brands such as H&M, Nike, Puma and Inditex highlighting their aim to increase the use of organic cotton in their products – but production of organic cotton has been falling since 2011, after 10 years of growth. The reasons include drought, but also more structural factors such as lack of certified seed and training, contamination by GM cotton, and above all the number of cotton farmers whose economic situation is not just not improving, but worsening.

C&A, the largest user of organic cotton in 2012 (according to Textile Exchange’s 2012 report), with 39% of its products in 2013 made from organic cotton, became concerned in early April, considering the situation sufficiently serious to affect the company’s long-term investments.

Even if brands and companies are managing to sell their organic products at a higher price, small-scale producers do not appear to be sharing in the profits. Small producers are not fully engaged in the value chain, and often fail to benefit from the price premium, selling their organic cotton at the same price as non-organic cotton at the same time as achieving poorer yields. Producers can only sell their cotton as organic if they are certified, but there is no guarantee that they can either sell their cotton as organic or achieve a price premium over what they would have gained for conventional cotton. Difficulty in achieving a premium price when selling organic cotton is one of the reasons for the drop in the area under organic cultivation. In addition, even when farmers do achieve a premium price, it may not fully compensate for the lower yields and certification costs. Organic cotton, like non-organic, is vulnerable to fluctuations in supply and demand, and producers are also subject to price volatility. Becoming a part of the supply chain and securing medium-term contracts with companies and traders would appear to be indispensable conditions for guaranteeing production by and financial returns to farmers.

While the production of organic cotton is falling, along with certified Fairtrade cotton (the only scheme that guarantees a minimum price to the producer), the Better Cotton Initiative (BCI) is currently achieving considerable success. In 2013, more than 800,000 tonnes of BCI-certified cotton was produced – compared to 140,000 tonnes of organic cotton in 2011/12. The BCI scheme uses less demanding criteria, and involves all the stakeholders in the sector in order to make the production process “more sustainable and responsible”. India, which became the top global producer of organic cotton, saw its production declining by almost 50% in 2012/11 before stabilising at that level. The country has now turned to BCI cotton, which is less expensive, less constrictive and does not exclude GMOs.

These are all considerations relevant for African cotton-producing countries – a key issue being the need to respond to the global rising demand for organic cotton while at the same time ensuring that small producers are adequately rewarded, so that they do not become marginalised within organic cotton supply chains.

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