Analyst Insight: The cotton supply chain is facing many challenges as it seeks to transform itself to one that is much more sustainable. The global demand for cotton continues to grow, with requirements from more than just the apparel sector — think of healthcare swabs. It also needs to meet regulatory and consumer pressures around poor labor practices in the supply chain, and adjust where climate change and extreme weather are threatening cotton-growing areas. 

Cotton remains one of the most widely consumed natural fibers. It represents about 25% of all the fibers processed by the global textile sector, in addition to its critical application in other industries. Cotton cultivation provides direct livelihoods for 100 million households in 75 countries, of which 90% are in lower-income countries. The processing of raw cotton products was reported to have a global retail market value of more than $18 billion in 2021, and is projected to exceed $22 billion by 2027 at a compound annual growth rate of 3.58%.

Following are the three main areas of risk currently affecting cotton production, all of them reinforcing the need for multi-tier supply chain visibility. 

Forced Labor

Farming cotton is highly labor-intensive and operates in difficult-to-observe environments, often in lower-income countries. That makes it prone to the incidence of poor labor practices. China is one of the world’s largest cotton producers, and around 80% of its production comes from the Xinjiang Region, known for its use of forced labor. A growing list of global regulations, such as the Uyghur Forced Labor Prevention Act (UFLPA) and German Supply Chain Act, are designed to prevent the importation of commodities that involved the use of forced labor anywhere within a multi-tier supply chain. The fines and penalties for failing to comply with these regulations are growing.

Climate

Increased climate risk is affecting many major growing areas, such as India, the U.S., Brazil and Pakistan, where flooding or water shortages have already had significant impacts on production. Cotton plants need specific temperatures and moisture levels to produce fibers of sufficient quantity and quality.

It’s been estimated that if there were a global mean temperature increase of 2 degrees Celsius by 2045 to 2065, at least one of the climate hazards of heat stress — extended droughts, extreme rainfall and flooding — could adversely affect cotton plant growth. Such crop losses could significantly affect about half of all cotton-growing areas by 2040.

Achieving Sustainability

Demand is growing for sustainably grown cotton, based on voluntary sustainable standards. This move to achieve more sustainable production is likely to ramp up in the short term, placing more financial pressures on growers. There are also likely to be demand pressures: Recently Inditex, parent company of the fast-fashion giant Zara, pledged to source 100% of its cotton from sustainable, organic or recycled sources by 2025.

Where organizations are seeking to source cotton, particularly that which is sustainable, they’ll need to acquire full understanding of the multi-tier supply chain and the parties involved within it. 

Outlook: Expect to see users of cotton seeking to improve the visibility of their multi-tier supply chains. They’ll be doing this to avoid regulatory fines for poor labor practices, protect themselves from reputational damage, and understand their exposure to other risks, including those related to climate. They overall goal will be to achieve a more sustainable and cost-effective cotton supply chain. 

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