Organic Cotton Supply Chains and Small Producers Governance, Participation and Strategies
Whether local producers will benefit from trade liberalisation is predicated upon their ability to enter global value chains or production networks of the lead firms. Understanding how these chains are organised, controlled and governed is the key to unravelling how the gains from these networks/chains are shared across the participants. This paper examines the issues of governance and small producer participation in the organic cotton supply chain in India with the help of a case study of a private firm. The paper assesses the prospects and ways and means of including marginal and small producers in these chains if the organic sector has to play its developmental role.
SUKHPAL SINGH
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Global value chain or commodity chain analysis (CCA) highlights the levels of integration between suppliers, producers, and consumers for a given commodity. It helps to examine changing global commercial relationships between firms within the value chain in greater depth. By focusing on the nature of transactions between those operating within a supply chain, it provides new perspective to standard international trade theory. Whereas trade theory is built on the assumption of trading partners meeting each other in free markets as independent agents, the value chain analysis facilitates an understanding of how tightly or loosely knit and how integrated or fragmented an entire chain or its links are. A value chain analysis requires distinguishing between different forms of governance and the reasons for their existence [Eapen et al 2003]. Global CCA addresses the issue of who controls global trade and industry and how agents locked into lower value segments of trade and industry can break out of this situation. The CCA is a method of analysing how and for whom such market conduits operate. It is a tool for understanding who benefits how, and how those patterns of benefit distribution can be changed. Secondly, it pays attention to power, its sources, uses, and effects in a socially differentiated environment. It is also an approach to politics and political institutions as endogenous to the existence and functioning of markets with attention to differentiated market agents involved in collective action. Finally, regulation, both state and non-state, is also an endogenous feature of markets [Ribot 1998].
Studies of governance in conventional supply chains in India, e g, in cashew [Eapen et al 2003], and fruits and vegetables [Deshingkar et al 2003] show that these chains, by and large, exclude small farmers. The newly emergent organic produce supply chains across the globe have also been found to exclude small producers due to reasons of high certification costs, smaller volumes they produce, and tighter control by chain leaders in the absence of any local market outlets for the organic producers [Raynolds 2004]. It is in this context that this paper examines governance and participation issues in the organic cotton supply chain in India with the help of a case study of a private firm. It also examines the prospects of including marginal and small producers into these chains if the organic sector has to play its developmental role.
Governance in Supply Chains
Governance which is central to value or commodity chain analysis can be defined as non-market coordination of economic activities. The firms directly or indirectly influence the organisation of global chains through the governance structures they create. Governance is nothing but the ability of a firm in the chain to influence or determine the activities of other firms in the chain. The value chain governance involves specification of key parameters of business for suppliers like what is to be produced how (processes and standards), when and how much and at what price [Gibbon 2001]. However, the issue of governance also refers to the key actors in the chain that determine the inter-firm division of labour and shape the capacities of participants to upgrade their activities [Gereffi 2001]. Chains differ significantly with respect to how strongly governance is exercised, how concentrated it is in the hands of a single firm, and how many lead firms exercise governance over chain members [Gereffi et al 2001]. Governance within a chain implies that some firms in the chain set and enforce the parameters that others follow.
The need for governance within the chain by internal and external stakeholders arises from the need for product differentiation; difficulty for the developing country producers to meet developed country market standards for technical and cost reasons, and increased concern with labour, environmental, and product safety standards either due to legal obligations or consumer, government or NGO pressures [Dolan and Humphrey 2000]. Governance is also needed because the buyer has a better understanding of the demands of the market and of the risks associated with noncompliance with standards [Eapen et al 2003]. Governance is required when the supplier lacks technical competence or market knowledge. The positioning of a product in the chain, which involves quality, consistency, variety, processing, packing, reliability, and price, requires governance [Dolan and Humphrey 2000]. The issue of governance in value chains assumes importance due to reasons of market access for developing countries in the new trade regime, fast track to acquisition of production technologies, distribution of gains, leverage points for policy initiatives, and a funnel for technical assistance. The global chains can be producer-driven or buyer-driven in terms of their internal governance [Gibbon 2001a]. In the former case, the key parameters are set by firms that control key product and process technologies whereas in the latter, the key parameters are set by retailers and brand name firms which focus on design and marketing, not necessarily possessing any production facilities [Humphrey and Schmitz 2001].
An important question in agro-commodity chains is how to devise a mechanism of regulation that can make upgrading opportunities more socially broad-based and how to devise a way of ensuring that the rewards from meeting these opportunities become more predictable [Gibbon 2001]. The issue is not whether to participate in the global commodity chain but how to do it such that it leads to sustainable and equitable income growth [Kaplinsky 2000]. Too much reliance on those at the head of the buyer-driven chain for design, technical and marketing assistance may trap exporters and producers into low-level production roles. The other important questions of governance outside the chain are: what is the role of government agencies and other external forms of regulation in determining both product and process parameters in value chains; to what extent there is a trade off between coordination and control within the chain, and use of external agencies to certify and regulate firms. Even the question of power relationships within a chain has not been given enough prominence in the discussion on chain dynamics [Gereffi et al 2001]. The division of labour within value chains and the nature of network linkage, i e, connection mechanism, governance style, and power dynamics, are important research questions [Sturgeon 2001].
The producer-driven governance structure in global value chains in agribusiness emerged during the early 20th century, more in the form of vertical integration by transnational corporations (TNCs) [Gereffi 2001]. The deregulation in the agriculture sector has now typically been accompanied by re-regulation elsewhere within the sector, especially in the area of diet, health, and the environment. The food industry is now characterised by intrafirm, vertically integrated, transnational production systems. The food companies do not centrally coordinate global intra-firm division of labour involving global outsourcing. Rather, they are multinational and multidomestic in their operations. Most of the time, their production is locally based [Rossett et al 1999]. Trade in labour-intensive products, produced largely by developing countries, is organised by a few global buyers who work for or act on behalf of major supermarkets or global retailers. This has meant that the access of the developing countries to developed world markets is dependent on their ability to enter the global value chains or production networks of lead firms. Understanding how these chains are organised, controlled and governed is key to understanding how gains from these networks and chains are shared across the chain participants [Eapen et al 2003]. Global value chains allow the supermarkets to operate without incurring the high costs and risk of ownership of facilities or franchising, and lower transaction costs but still retaining global access to supplies. The buyers (supermarkets) in these chains dominate and govern quality through production standards.
I Organic Cotton Supply Chain Governance and Small Producers in India
There have been major changes in the opportunities available to developing country clothing industries like phasing out of material flow analysis (MFA), new global value chains and new upgrading opportunities in the form of services, volumes, and processes and products. The global retailers use a variety of channels to source materials some of which are direct from overseas manufacturers, agencies, importers, trading houses, and converters. By direct sourcing, retailers aim to increase margins by cutting out intermediaries, to reduce lead times and to better control for product quality and contract compliance though it involves significant investments in foreign countries in screening suppliers, negotiating with them and monitoring production. But most of them have attempted supply base reduction more recently in terms of number of suppliers and they now expect suppliers to provide new services like full fabric sourcing, design services and supplier-managed inventory. Most of them also refer to their suppliers as partnership or a semblance of that, mutual obligations and exchange of business information [Palpacuer et al 2005]. Organic apparel is one of those businesses in which everyone seems to know each other. Moreover, because of the unique requirements, higher costs and the sometimes itinerant supply of organic cotton, many in the industry have developed completely vertical operations from field to finished product, which ensures compliance and supply while also keeping costs low enough to make the organic apparel business profitable [Speer 2005].
The first organic cotton project started in Turkey in 1980 and was organised by a European cooperative of fair food importers called the Good Food Foundation (GFF) with local organic growers of food crops. It was supported by a new Dutch company – Bo Weevil – formed for dealing with organic cotton. By the late 1990s, projects and experiments on organic cotton were taking place in a wide range of settings in more than 17 countries in North America, Latin America, Asia, Australasia, Africa and Europe during the late 1990s [Myers and Stolton 1999]. By the late 1990s, 14,000 tonnes of certified organic cotton was grown in 15 countries with significant production coming from Turkey (29 per cent), US (27 per cent) and India (17 per cent). Organic thrust in cotton was the result of: environmental regulation in international trade in textile, benefits of trade for the developing world if they could adapt to new demand, organic as a strategy in competitive textile market, consumer response and demand, and producer interest and benefits [Myers 1999]. The largest producer of organic cotton today is Turkey, followed by the US, India and Pakistan. By contrast, China is the largest producer of conventionally grown cotton, followed by the US, India/Pakistan and Turkey [Speer 2005].
Organic cotton, which comprises the bulk of the organic clothing industry, is making its way into everything from infants’ wear to sportswear. Most surprising, perhaps, is increasing commitment to organic fiber from big players including Timberland, Nike and Marks and Spencer, which are showing a desire to be good corporate citizens by reducing the environmental impact of their respective apparel supply chains. This year, even Wal-Mart’s Sam’s Club debuted an organic yoga-inspired line of women’s wear under the Josephine Chaus label, produced by Greensource. In March 2005, Whole Foods initiated its first venture into apparel and home products in its new Austin, TXbased store, featuring clothing from Under the Canopy as part of the new line up. Certainly, one major factor is a segment of the market place identified as lifestyles of health and sustainability (LOHAS), which refers to a group of US adult consumers, some 63 million strong, who “value health, the environment, social justice, personal development and sustainable living”. There are three reasons that consumers traditionally have sought out organic apparel for: (1) allergy sensitivities; (2) lifestyle choice; and
(3) softness. Today, Nike is the largest consumer of organic cotton in the world. In 2003, three million pounds of the 120 million pounds of cotton it consumed was organic. Nike projected that in 2004, approximately 30 per cent of all Nike apparel cotton materials contained some percentage of organic cotton, and 47 per cent of all cotton-containing Nike apparel garments (more than 48 million) were manufactured with materials that contained a minimum of 5 per cent organically grown cotton. Nike’s goal is for all of its cotton apparel to contain at least 5 per cent organic cotton by 2010. Retailer Coop Switzerland is the second largest consumer of organic cotton, using 2 million pounds in 2003 [Speer 2005].
Due to the many problems in conventional cotton production, organic cotton production emerged. Cotton is one of the most heavily sprayed crops in the world, according to the organic trade association. Although it represents less than 3 per cent of the world’s agriculture, cotton uses more than 25 per cent of the world’s chemical insecticides and more than 10 per cent of the world’s chemical pesticides, many of which can cause cancer, birth defects and/or nervous system damage or are known carcinogens. It is estimated that only 0.1 per cent of these chemicals reach the targeted pests, with 99.9 per cent dispersing into the soil, water and air. The difference between organic and conventionally grown cotton is primarily in the methods used to grow them, not the end product, Organic cotton production involves issues of conversion to organic, crop rotation, crop varieties, seed treatment, soil fertility management, pest and disease management, and harvesting [Elzakker 1999].
Organic Cotton in India
Cotton assumes great significance as nearly one-third of India’s export earning is from textile sector and cotton alone constitutes 60 per cent of the raw material used in this sector. The share of cotton in world textile manufacturing is around 45 per cent whereas it is around 70 per cent in India. India exports cotton in value added forms, i e, yarn, cloth and ready-made garments and ranks third in global cotton production after US and China. The yield of cotton in India is one of the lowest at 440 kg per hectare against the world average of 721 kg per hectare (200405). The area under cotton cultivation in India is 21 per cent of world but in terms of production, it accounts for 13 per cent. Cotton plays a major role in India’s economy, both in terms of providing employment directly to about 60 million people, and in terms of production of wealth and earning foreign exchange for the country. About 65 per cent of cotton grown in India is rainfed. In the last five years, India’s cotton production has fluctuated significantly. The gap in domestic demand and supply was met, on many occasions, by imports. About 54 per cent of the total pesticides used in Indian agriculture are used on cotton alone, though it accounts for only 5 per cent of the total cultivated area. On an average, Indian farmers cultivating cotton spend roughly Rs 500 crore on seeds, around Rs 500 crore on fertilisers and almost Rs 2,500 crore on pesticides every year. Spraying lethal pesticides on cotton has taken its toll on human life, e g, in 2001 in Warangal district, there were 12 deaths and over 40 persons were affected by exposure to pesticides while spraying cotton. Maharashtra and Gujarat along with Madhya Pradesh and Andhra Pradesh are major producers of cotton in India accounting for more than 75 per cent of area under cotton and 66 per cent of production as of 2004-05. These are also major growers of Bt cotton now, in that order. Erratic rainfall, poor or spurious quality seeds, deteriorated soil structure and increasing pest attacks have led to a crisis in cotton farming in India. Hundreds of small and marginal cotton farmers have committed suicide in Maharashtra, Punjab and Andra Pradesh during the past 10 years, and continue to do so every year [Menon 2003].
Around the late 1980s, farmers in some parts of India deliberately switched to organic farming, and later, the Vidarbha Organic Farmers’ Association (VOFA) was among the earliest initiatives of organic cotton farming in India, along with Maikaal bioRe in MP. The Dutch company (SKAL) was the first to explore this, and set up a joint venture for organic cotton, with GujaratState Cooperative Cotton Federation (GUJCOT) during the 1990s in the Patan district of Gujarat. The cotton was bought from farmers at the local or international market rate, whichever was higher, besides a premium of 20 per cent. The project worked well but after three years, the cotton could not be exported due to the export quota restrictions by the government. Therefore, the project collapsed [Menon 2003]. The total production of certified organic cotton fibre in 1997 was 1,175 tonnes. Maikaal bioRe with 800 growers and 900 tonnes of cotton production was the largest [Myers and Stolton 1999]. But in terms of area under organic cotton, it was of the order of 20,000 hectares as registered area and a much larger acreage (60-70,000 hectares) as unregistered [Menon 2003]. In early 2005, there were eight organic cotton projects, with 1,525 farmers across 137 villages in MP, and 2,559 farmers in 106 villages in other states.
II Case Study of ‘Vasudha’ Organic Cotton Project
Pratibha Syntex is a major Indian textile firm with 1.10 million metres per month knit fabric processing capacity at Pithampur (MP) and 30 million metres synthetic woven fabric processing capacity per month at Surat (Gujarat). It has both wet and dry dyeing facilities and claims to be the only fibre-to-garment company in India. It produces 40 million pieces of garments per year. The company has the status of a two star export house for textile products. The Vasudha (meaning “Mother Earth”) project of Pratibha Syntex for organic cotton operational since 1998-99 intends a clean and eco-friendly cotton production and has a separate supply chain with a leased in ginning mill and separate storage at farm level to avoid contamination. Pratibha Syntex’s organic project is a completely vertically coordinated supply chain from raw cotton production to garment manufacture. The company has a field office at Karhi village (80 km from Indore) in the Maheshwar block of Khargaon district which is the West Nimar region in Nimar valley. This region (Nimar) accounts for 7 per cent each of population and area of MP and receives rainfall of 800-1,000 mm annually and is moist semiarid. More than 50 per cent of its population is tribal compared with state average of 23 per cent. It accounts for 6 per cent of gross cropped area of the state, 19 per cent of which is irrigated making for 5 per cent of the state’s gross irrigated area, with cropping intensity of 111 as against 126 of the state as a whole. The region’s irrigated area and agricultural productivity percentage is lower and tribal population percentage higher than that of the state average but has higher number of energised pumpsets per 1,000 hectares of area and even higher consumption of electricity per capita and of fertilisers per hectare. Its credit deposit ratio (50) is also higher than that of the state as a whole (43). Cotton accounts for only 2.3 per cent of the state’s cropped area with major crops being paddy, soyabean, wheat and gram. But, the yields of all these crops, except soyabean and gram, are much below all India levels, with cotton yields being only 62 per cent of that at all India level [Shankar 2005].
Organisation of Organic Cotton Production
The Vasudha project works with 3,000 growers with 21,000 acres of organic area in 108 villages within a radius of 25 km from Karhi. The organic cotton production coordination including inputs is undertaken by a new company – Green Technologies which is a subsidiary of Pratibha. The farmers in these villages range from a minimum of 5 to a maximum of 90 with landholdings ranging from three to 60 acres. The area is mostly rainfed with only 20 per cent being irrigated by tube wells, open wells and Narmada pipelines. The company has a total of 26 staff for the project with seven field officers, 14 supervisors, two consultants, one accountant and two support staff. A field officer takes care of 3,000 acres of organic area.
In about a dozen villages, 86 per cent of the project farmers are part of the organic project and are mostly certified. The company also provides drip irrigation facilities, which costs about Rs 7,000 per acre. The equipment is supplied by Laxmi Pipes and about 200 farmers have drip irrigation systems. The farmer has to make an application to the company to join the organic project as a grower stating the area proposed to be put under organic production, and availability of organic manure. It has written annual contract farming agreements with the growers. Contract farming can be defined as a system for the production and supply of agricultural and horticultural produce by farmers/ primary producers under advance contracts, the essence of such arrangements being a commitment to provide an agricultural commodity of a type, at a specified time, price, and in specified quantity to a known buyer [Singh 2002]. The contract agreement is very detailed and specific on commitments and penalties unlike many other organic farming contract agreements. It lays very clearly all the production requirements expected from the farmer, penalties for default on any of the practices and even covers noncotton crop sales at reasonable prices. The seeds and other inputs are given on credit by the company against premium on organic cotton. The company suggests timing of agricultural operations like sowing, input supply and harvesting to all farmers. The violation of organic practices by the growers leads to the extension of the conversion period or exclusion of farmer from the project. The lower yield of organic cotton is compensated by lower costs (Rs 5 per kg) and higher price (15 per cent premium on market price). The premium is paid a year later as the seeds and other inputs for the next season are supplied against this premium. But no premium is paid for the in-conversion produce. The farmers are also given regular training and technical guidance for organic produce quality. But the agreement is clearly profirm as it does not specify many obligations of the sponsoring company but hardly leaves out anything for the farmer. The project growers are certified by SKAL International, Netherlands, and the per acre cost of group certification is Rs 80-100.The company has its own ICS and its production standards meet the norms of NOP of USA, IFOAM, European Guidelines, Soil Association, UK, Oeko Tex 100, WRAP, SA8000 and IMO Switzerland. The field office maintains a farm dairy along with farm map with details of inputs used, production practices followed and output harvested. The major varieties grown are BUNNY 145, ANKUR 651, MARUTI, PARAS and DCH.
Farmer Participation: Who Are the Organic Cotton Growers?
A primary survey of 44 contract organic cotton growers in nine of the 11 villages where the company has almost complete farmer coverage was conducted with the help of a structured schedule to understand the farmer perceptions of the working of the organic project of Pratibha. Out of the total 44 farmers interviewed 5 per cent were marginal (less than one hectare of land), 22 per cent small (1-2 hectares of land), 22 per cent medium (2-4 hectares) and 50 per cent large farmers (> 4 hectares). Average landholding was found to be 15.3 acres with 50 per cent having as high as 25 acres (10 hectares) (Table 1) which is much larger compared to the average size of operational holding in the state
(2.28 hectares or 5.6 acres). Further, 40 per cent and 24 per cent of the holdings in the state are marginal and small respectively with only 20 per cent being semi medium (2-4 hac), 13 per cent medium (4-10 hac) and only 2.6 per cent large [GoP 2004]. Further, the average size of operational holdings in Nimar valley is 2.83 hectares (7 acres) and marginal and small holdings accounted for 52 per cent of total [Shankar 2005]. This shows that the company largely works with large and medium farmers as 50 per cent of its growers were really large growers with more than 10 hectares of land each. Further, the average land under contract was 12.8 acres which reconfirms the large farmer bias of the company’s organic project (Table 2). The correlation coefficient between ownership holding and organic acreage was
0.84 which again showed that larger farmers put larger acreage under the organic project. Of the total land of these growers, 79 per cent was irrigated. Most of the farmers (88 per cent) were using wells (ordinary dug wells) for irrigation and almost 80 per cent of them were organic certified. Out of the total 44 farmers, 20 per cent were in the second year, 25 per cent in the third year and 23 per cent in the fourth year of their contract with the company. But 20.5 per cent farmers were into contracts with the firm since last six years and 9 per cent since last five years. And, more of these were medium or large farmers only. It shows that the company initiated the contract organic farming with large farmers only. More recently, it is also adopting small and marginal farmers in the area to reap economies of scale of its project. The cropping pattern was dominated by cotton and soyabean in kharif and wheat in rabi with other kharif crops being chillies jowar, and maize.
Another study of organic cotton growers under another project (Maikaal bioRe) in the region also found that the organic growers were of higher social status (education, caste, housing and wealth) and better equipped with means of production like land, farm equipments, off-farm income, and micro irrigation systems. They also hired more labour and had higher ownership of livestock. They used as much labour in cotton as conventional growers but use of nitrogen and phosphorus was only half of that applied by conventional growers. But they used more irrigation per kg of seed cotton (6 per cent) compared with that in conventional cotton fields [Eyhorn et al 2005]. Of the total land cultivated by these growers (671 acres), 84 per cent was under organic production contracts. Almost all of the marginal, small, and medium farmers put their entire holdings under organic production but large farmers put about 82 per cent of their land under organic production. Surprisingly, 99 per cent of the land was owned by the farmers. Only a couple of large farmers had leased in altogether only six acres of land (Table 2).
All the farmers were provided with inputs like seeds, biofertilisers, biopesticides, technical knowledge, inputs on credit, and certification support. However, only 50 per cent of the large farmers had availed of drip irrigation facility. Of the total, 80 per cent farmers shifted to organic farming due to lower input cost, 72 per cent due to land improvement, 48 per cent because of good technical help, 39 per cent because of input supply by the company, and 36 per cent due to assured market. These are multiple responses by farmers as generally there are multiple reasons for such shift (Table 3). The survey revealed that 84.1 per cent of the farmers got inputs on credit, and 93 per cent of the farmers got higher price benefit. All the contract farmers were monitored by the company. The annual certification cost was also born by it which was Rs 80-100 per acre. Terms and conditions of the contract were the same for all farmers. This shows the company’s transparent and non-discriminating attitude. About 47 per cent farmers reported that their risk of crop production had decreased as their input cost had reduced considerably. Even in the case of no rain, they do not worry now, as their investment had reduced by more than 50 per cent in case of cotton. In case of crop failures, 39 per cent farmers reported the reason for the low yield of the crop to be natural calamity (low rainfall). In case of crop failure, the company did not provide any relief though it had not happened in the past yet. All the farmers received higher than the market rate for cotton due to the premium paid.
But there were differences in farmer perception of the range of premium as they sold the crop at different times of the year. Only about 5 per cent growers sold in the open market to gain from higher prices. All of the farmers came to know about contract farming through the extension network of the company. This indicates that the company has strong networking with the farmers. As far as adopting contract farming was concerned, 84 per cent of the farmers cited reduced input cost, 50 per cent technical help on use of inputs, 45 per cent land improvement, 45 per cent marketing facilities, and 36 per cent premium price. All farmers wanted to continue contract farming under the guidance of the company. As major benefits, 73 per cent of farmers cited better farming skills, 73 per cent improved soil structure, 66 per cent reliable income, 54 per cent higher income and 7 per cent considered new technology as benefit (Table 4). Of the 44 contract farmers, 61 per cent farmers reported delayed payment as a problem. Only 4 per cent farmers reported poor input supply by the company as a problem. Most of the farmers were satisfied with the company’s performance.
There is no other farmers’ organisations in the area. Only one farmer knew about another organic cotton buyer – Maikaal bioRe’s organic operations in the area. Interestingly, 68 per cent of farmers described contract farming to be good for them while 32 per cent were of the opinion that it was very good for them.
Table 1: A Profile of Pratibha’s Organic Contract Growers
(All land in acres)
| Category | No of | Total Land | Average | Irrigated | Unirrigated |
|---|---|---|---|---|---|
| Farmers | Land | ||||
| holding |
Marginal 2(4.5) 4(.60) 2 4(.76) 0(0) Small 10(22.7) 39(5.81) 3.9 28(5.29) 11(7.75) Medium 10(22.7) 81(12.07) 8.1 76(14.37) 5(3.52) Large 22(50) 547(81.52) 24.9 421(79.58) 126(88.73) All 44(100) 671(100) 15.3 529(79) 142(21)
Note: Figures in parentheses are per cent in total. Source: Primary survey.
Table 2: Distribution of Grower Land by Ownership and Contract
(Acres)
Category Own Land Leased Under Average Non(No of in Contract Land Contract Farmers) under
Contract
Marginal (2) 4 (0.6) 0 4 2 0 Small (10) 39 (5.86) 0 36 3.6 3 Med (10) 81 (12.18) 0 81 8.1 0 Large (22) 541 (81.35) 6 443 20.1 104 Total (44) 665 6 564 12.8 107 671 Acres (100) (84 per cent) (16 per cent)
Note: Figures in parentheses are per cent in total. Source: Primary survey.
Table 3: Distribution of Growers for Reasons for AdoptingOrganic Farming
Category No of Land Low Input Input Marketing Tech Farmers Improve Cost Support Help
Marginal21 1112 Small 10 5 7555 Medium10 9 8124 Large 2217 1910 810 All 44 32 35 17 16 21
(100) (72) (79.5) (39) (36) (48)
Note: Figures in parentheses show percentages in total. Source: Primary survey.
Table 4: Distribution of Grower Responses on Major Benefitsfor Contract Organic Farming
Category Number Better Reliable Better Higher New of Farmers Skills Income Soil Mgt Income Tech
Marginal22 2220 Small 10 10 910 8 0 Medium10 10 910 7 0 Large 2210 910 7 3 All 44 32 29 32 24 3
(73) (66) (73) (54) (7)
Note: Figures in parentheses show percentages in total. Source: Primary survey.
Further regarding the declining area under food crops, 75 per cent found no decline in area. Only 25 per cent of farmers reported some area decline under food crops. As far as effects on the labour market and wage rates are concerned, all farmers responded that supply of labour has increased and wage rates have decreased as organic does not require much hired labour especially as pesticides are not used that much now. All the farmers reported that the company had given them new technologies for farming like bio-pesticides and bio-fertilisers. Only 25 per cent of farmers reported that the company has given them drip irrigation facility. 64 per cent farmers reported that they were provided with improved seeds. Out of 44 farmers, 32 per cent of farmers suggested that they should be provided with drip irrigation facilities, 27 per cent wanted inputs to be delivered to their doorstep, 18 per cent each wanted a copy of the contract and crop insurance schemes, and 16 per cent adequate supply of good quality seeds. Importantly, all farmers were of the opinion that if more farmers came under the contract programme, their cost of certification will reduce. Moreover, insect/pest attacks will also reduce as no insects will come from neighbouring fields of non-contractual lands.
Processing and Marketing
Organic cotton products account for 10 per cent of total cotton textile production of the company. Out of a total of 50 spindles, four are used for organic cotton. The quality parameters include fibre length, fibre strength, elongatic elasticity and micronaires and colour. There is a separate godown at the mill for the organic products. There are 30 knitting machines. The company has a ready-made garments unit but branding and cutting is outsourced. The stain removing in case of organic textiles is done by water only as against chemicals in case of non-organic products. The final stages of manufacturing are pressing and ironing, tagging (brand, specifications, and price) and folding and packing. A total of 11 teams work on outer garment machines (casual wear), and a similar number on undergarment machines, under the same roof. The North American Draft Organic Fibre Standards are followed in spinning, knitting, dyeing, and finishing processes for organic cotton. The company also imports organic cotton from Turkey and Senegal and the price is 30 per cent higher than the price of conventional cotton. The company also imports conventional cotton as it is cheaper and of better quality.
The major organic product is yarn which is exported to South Africa, Singapore, Malaysia and South Korea. The second important product – garments – is exported to European countries and the US. The fabric is largely sold in the domestic market. Organic cotton products sales are of the order of Rs 250 crore and account for 5 per cent of total business in cotton. Vasudha and Natural Touch are being registered as brands for domestic and export markets. The company supplies yarn to a dozen buyers like Benneton, Cavlin Klein, De-Cathion, GAP, H&M, Nike, J C Penny, Next and Woolworths (SA); fabric to another 10 to 12 buyers like Cavlin Klein, Dokcers, GAP, Hugo Boss, H&M, Mango, Nike, LandsEnd, Sara Lee, Target, Tommy Hilfiger and Zara; and ready-made garments to another 15 to 20 buyers which include brands like Auchin, Bonbton, Benneton, Dockers, Galleries La-Fayate, Gerber, LAT Sportswear, Louis Phillipe, Muji, Monprix, Versand, Polo Ralph, Promode, Prana, Prinemps, Raymonds, Sara Lee, The Children’s Place, Today’s Man, Van Huesen, Woolsworth (SA), Basic Thinking, Colors, Pepe Jeans and Living Crafts of Germany, besides Norm Thomson, Cutter and Buck, Eco Ganik and Katherine Hammet. It also has another subsidiary company – Navrang Biofood Products for marketing of organic food products.
Some of the global buyers have their own codes of conduct on use of labour and protection of the environment for the upstream stages of the chain which are to be followed by chain partners like Pratibha. These codes are a part of the corporate social responsibility of global players. For example, the Nike code of conduct for a manufacturer or supplier includes no forced labour, no child labour below 18 years in footwear and below 16 years in other products, no home-based production, minimum wages, all mandatory benefits to labour, specified hours of work, environmental safety and protection, and documentation and inspection. Nike is 5 per cent organic in conventional footwear and accessories. On the other hand for Sara Lee (France), supplier selection guidelines include ethical standards, no violation of national legal requirements, environmental protection, no child labour (below 15 years) and specified working hours.
Problems and Governance Issues in Organic Supply Chains
Other than cotton, Pratibha is also into wheat and soyabean due to the need for giving an entire crop cycle of organic crops to the farmers but it could not market the produce of these organic crops due to small volumes and high costs of processing and packaging. It also tried organic turmeric production which was sold in bulk to other buyers. The major problem in the organic market, as per company perception, is lack of regular supply and quality besides the problem of storage. As far as institutional markets are concerned, they want a whole range of food items. The problem of multiple certifications for domestic and international markets and for different buyers also raises the cost and delays deliveries. The processors need longer staple cotton with lint length more than 30 mm and need bigger volumes. At the gin level, they need stronger packing material, no ink labelling but stickers and clean trucks. For processors, dying in organic is a problem and they are looking at new products in the hygiene sector like sanitary pads but there are no manufacturing facilities in India for authentic organic cotton. The traders and processors face problems of: inconsistent supplies, insufficient volumes, lack of quality storage, lack of market information, under developed domestic market, and high quality conditions for export. Finally, it is the ginning which determines the quality of cotton in terms of length of lint which cannot be undone.
The ginning part of the chain suffers from child labour, poor working conditions, dirty surroundings and unfair wages and the chain drivers have very little control on these. Ginning, where labour cost is only 2-3 per cent of the total cost of the final product, is known for very poor labour standards, work conditions, and living conditions, especially in Gujarat and MP. There is also a practice of child labour in ginneries in MP. It is also not possible to implement minimum and equal wage in India due to the larger dynamics of society. The women may lose work or may face higher exploitation due to higher payment. Therefore, some agencies like Maikaal BioRe have gone in for their own organic certified gin and acquiring SA 8000 standards. It is also difficult to ensure fair trade standards in ginning as the nature of work is seasonal. Therefore, there is a need to create alternative jobs within or outside the gin like cleaning, white washing, and compost making. Also, making farmers comply with fair trade standards is an issue as they cannot be monitored and there is an adversary relationship between the farmer and the labour. Therefore, there is a need to maintain a separate fair trade fund with the farmer organisation for the welfare of the labour community. Though there is a fair trade for raw cotton but not having graded price and lower price for last picking makes it unfair. The fair trade price in cotton comes to 0.37 euro cent or Rs 22 per kg. There have to be individual farm contracts with groups or farmer organisations under fair trade standards and a guaranteed price for the farmer. Also, there is no pressure for fair trade in textiles. The fair trade issues in cotton include child labour in picking, women labour and their work conditions and gender gap in wages.
The contaminants (foreign matter, e g, gutka packs and human hair) are different from trash (leaves and twigs), and cannot be removed by machine. Therefore, quality improvement in terms of contamination control requires picking cotton with covered heads, not eating in cotton fields and in the cotton store area or market. The Bt cotton spread in some of the organic cotton project areas has led to mix up problems at the farm level. Whereas some farmers are frank about it and go out of organic projects on their own, others do not reveal the Bt acreage. There are Bt test kits available to check Bt cotton presence in the field which is cheaper than the lab test which costs Rs 100 per test. Some of the organic cotton players also make their farmers keep empty seed packs for evidence of seeds used as a control mechanism at the farmer level. Also, if farmers do not take seeds from the organic cotton production organisers, then there are doubts about Bt cotton seed use. Maikaal decertified 100 farmers last year as they used Bt cotton seed. Similarly, Vasudha project of Pratibha blacklisted a farmer who planted Bt cotton without its permission. At the farmer level, cleaner cotton was ensured by some farmer groups in Maharashtra by paying Rs 0.5 per kg more for cleaner picking but the farmers had problems of quality loss due to ‘mandi’ and gin conditions and delayed payments. At the farmer level, quality could be improved by not picking cotton early in the morning to avoid moisture and separating infected balls from good ones.
There is also a need to improve yields of rotation crops, develop market options for these crops and create/organise common storage and processing facilities to tackle the problems of small volume and high cost. Farmer organisation and ownership issues are also involved as the organic certification is with the sponsor or organiser, not the grower. In fact, the contract is highly biased against the farmer as almost all the terms and conditions of the contract specify only farmer obligations in working with the company. The company’s only responsibility as per the contract agreement is to procure certified organic/in-conversion cotton at 15 per cent premium over the market price for conventional cotton and try to sell the non-cotton produce of the grower. The contract has very detailed and strict conditions for the farmer. For example, the farmer agrees to keep the spray pump required for organic farming separately and not use it for any other chemical pesticide or fertiliser. The lending/borrowing of the spray pump to/from non-organic farmers is considered a default and the pump has to be subjected to testing by the company from time to time. Similarly, a farmer is to maintain a one meter border crop, as a buffer between the organic and the non-organic crops if the entire farm is not under organic farming. The buffer crop has to be one meter high and should be there for at least four months. Even the crops meant for this purpose are specified by name. Further, the farmer is not supposed to interact with any media and give any information about the project without the written permission of the company.
The contract protects the company interest at all costs to the farmer and does not cover the farmer’s production risk, e g, crop failure, and offers prices which are based on open market prices of conventional cotton/produce. This is a serious issue and it is against the spirit of contract farming and partnership as even a significant premium over market price may not help a farmer if open market prices go down significantly, which is not uncommon in India. Therefore, a minimum contract price is a must to reduce the vulnerability of cotton growers due to fluctuations in market prices, not market-based premiums.
As women are involved in farming, cotton picking, manufacturing, design, and retailing of organic cotton products, the gender issues in organic cotton production include the role of women in decision to go organic, workload on women due to organic input preparation and use, lower wages for women and social cost of certification. So, the organisation of chains (extension, documentation) from their perspective is required with more gender sensitivity.
III Conclusion and Strategies for Better Governance
The organic cotton value chain in India is very complex and wide due to the large variety of final products from towels to sanitary napkins. But the farmers and the labourers are the weakest links in the chain driven by importers, exporters and retail chains. In this context, marketing of organic cotton needs to take into account local markets, developing niche markets, generic promotion of the organic textiles market, government applying environmental criteria to its own buying policies for institutions such as police forces, schools, army, air force, navy, railways and so on, blending organic cotton with conventional cotton in textile production, working with environmentally sensitive companies; and linking with local industries geared to making organic products (such as the hand-loom industry in India which contribute 20 per cent of the Indian textile production and where handmade and custom-made designs of fabrics can easily be handled). There is already a good beginning made with the two stakeholders’ workshops being organised this year by Solidariadad where farmers, NGOs, processors and buyers participated.
Major conditions for successful interlocking between agribusiness firms and small producers include increased competition for procurement instead of monopsony, guaranteed market for farmer produce, effective repayment mechanisms, market information for farmers to effectively bargain with companies, large volumes of transactions through groups of farmers, for lowering transaction costs, cooperation among genuine agribusiness firms in the area, and no alternative source of raw material for firms. Further, for the sustainability of company-farmer partnership schemes, it is important that the company is able to successfully market its products so that farmers do not suffer from lack of markets. Building relationships of trust with farmers through company reputation rather than marketing gimmicks is crucial. This requires mutual respect, fair and transparent negotiation processes, realistic assessment of benefits, long-term commitment, equitable sharing of risk, and sound business plans. Innovative pricing mechanisms like bonus at the end of the processing cycle, shares in company equity, dividends, producer’s fixed price, and quality-based pricing, which reward performance can help contract performance.
Market access for small producers depends on: (a) understanding the markets, (b) organisation of the firm or operations, (c) communication and transport links, and (d) an appropriate policy environment. So far as the role of the government in the commodity chain is concerned, it can proactively help the stakeholders in the chain to identify the opportunities and threats in the global commodity chains. It can also assist producers in entering the chains [Kaplinsky 2000]. If, in a given country, a few chains command majority of the organic sector, then development policies and programmes need to learn how to deal with this handful of big companies. However, it is important to promote good business practices that optimise retailer-supplier relations, protecting both sides. This can be initiated by establishing or improving contract regulations and business rules of practice some of which are already available in the form of legal provisions in the US and Argentina. These practices can also be forced by private sector codes of practice. These changes and the basic requirements that are imposed on growers are conditions which will have to be met if the growers are to be able to tap the powerful market of the supermarkets. Therefore, it is crucial that the government and donor agencies help small farmers and entrepreneurs to make the investments in equipment, management, technology, commercial practice and the development of strong and efficient organisations to meet the market requirements.
Global buyers can have a role to play in assisting suppliers to improve practices and become compliant. The standards need to be flexible and interwoven with local conditions if they are to benefit poor workers. They must also involve local stakeholders who reflect the interests of workers in the process of standards setting and monitoring. The policy challenges on standards include standard setting, monitoring compliance, providing assistance to achieve compliance, and sanctions on non-compliance. Much depends on how standards are implemented, monitored, and verified.
The main requirements of small farmers in this changing environment are better access to capital and education. Management capacity is as important as physical capital and the most difficult thing to provide. Further, collective action to deal with scale requirements needs to be designed to satisfy new product and process standards or to avoid exclusion from the supply chain. Collective action through cooperatives or associations is important not only to be able to buy and sell at a better price but also to help small farmers adapt to new patterns and much greater levels of competition. The small farmers require professional training in marketing and in technical aspects of production. There is also need to strengthen small farmer organisations and provide them with technical assistance to increase productivity for the cost competitive market, provide help in improving quality of produce, and to encourage them to participate more actively in the marketing of their produce in order to capture value added in the supply chain.
Further, labour issues in organic contract farming, like in conventional contract farming, are not yet addressed. The organisation of labour is an important measure to prevent or eliminate some of the ills of the contract farming system for labour. The associations of contract farm labour can also be used for monitoring wage and work conditions. In fact, there could be legal provisions to involve labour representatives when companies and growers/growers’ groups decide on labour and wage issues. As a civil society intervention, there could be codes of conduct for farmers for use of labour which can be enforced by contracting agribusiness firms who should also work towards more ethical and human labour standards constantly.
EPWEmail: sukhpal@iimahd.ernet.in
[This paper was presented at the seventh international conference on management in agriFood chains and networks, June 1- 2 , 2006, Ede, The Netherlands.]
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