Organic Cotton Market Report

8/8/2019 Organic Cotton Market Report

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ORGANIC EXCHANGE

822 Baldridge StreetODonnell, Texas 79351Tel: [email protected]

2008 ORGANIC COTTONMARKET REPORT

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Executve Summary


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ORGANIC EXCHANGEORGANIC COTTON MARKET REPORT 2

Organic ExchangE 2009

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Executive Summary Overview

2007 and 2008 con nued to be dynamic years for the organic co on sector, with growth and matura on noton y in the marketp ace, but a so in the deve opment and adop on of standards addressing organic productintegrity and tex e processing.

Organic Exchanges (OE) 2008 Organic Co on Market Report provides:

An overview of the g oba organic co on market with addi ona data for 2007 and 2008

An in-depth ook at the organic co on programs of eading companies, the products avai ab e in themarket, deve opments with other organic and sustainab e bers, and key deve opments in standardse ng, abe ing, company, and industry approaches to traceabi ity and company integra on of socia , environmenta , and economic standards imp ementa on

Possib e market scenarios for 2009 and 2010

Recommenda ons for ac on in the coming year.

The Global Organic Co on Market 2007-2008The g oba organic co on market grew rapid y in 2007 and 2008. Signi cant changes in the market arehigh ighted be ow:

Market Size Retai Sa es: Brands con nued to signi cant y expand their organic programs in 2007 and 2008. In

2007, g oba retai sa es of organic co on products reached an es mated $1.9 bi ion, represen ngan 83% increase over g oba sa es in 2006. 2008 retai sa es are es mated at $3.2 bi ion, re ec ngan annua average growth rate of 63%. 2008 es mated sa es are s ight y ower than the $3.4 bi ionprojected in the 2007 Market Report.

Fiber Demand: Demand for organic co on ber by manufacturers increased to 47,242 metric tons(MT) in 2007, an increase of 83% over the previous year. In 2008, demand for organic ber reached74,839 MT, an increase of 58% over 2007.

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Fiber Supp y: Fiber supp y con nues to grow, from 57,931 MT in the 2006/07 crop year to 145,865MT for the 2007/08 crop year, due in arge measure to increased produc on in India and Syria.During the past year, cer ed organic co on ber supp ies have grown by 95%, which is signi cant yhigher than annua growth rates of 45% in 2006 and 53% in 2007.

Market Posi on at End of 2008: Whi e the 2007/08 ber supp y was substan a y higherthan demand, most organic farming projects were ab e to se their stocks, with 12,150 MT orapproximate y 8% of tota produc on remaining at the end of the growing season in ending stocks.However, many mi s and merchants report signi cant y higher ber inventories than in previousyears.

Industry Leaders

Retailers

According to OEs research, the ve brands with the argest organic co onprograms in 2007 were: Wa -Mart/Sams C ub (USA), Nike (USA), CoopSwitzer and (CH), C&A (BE), and Woo worths South Africa (ZA). The marketranking changed considerab y from previous years, with Wa -Mart, C&A,

and Woo worths crea ng signi cant programs, and supp an ng ong- meeaders Patagonia (USA) and O o Group (DE).

In 2008, the ten brands and retai ers with the argest organic co onprograms were: Wa -Mart, C&A, Nike, H&M, Zara, Anvi , Coop Switzer and,Po ery Barn, Greensource, and Hess Natur.

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Manufacturers

In 2007 and 2008, produc on of organic co on yarns,fabrics, and nished goods con nued to grow in keytex e produc on regions inc uding China, Southeast Asia,Indonesia, India, Pakistan, Bang adesh, Turkey, Mexico, andthe United States. Some of the wor ds argest producersof organic co on yarns inc ude Buh er Mi s, Indorama,Parkda e Mi s, Pra bha Syntex, Remei, Sanko, ShanghaiF ying Dragon, and Thai A iance. During this me period,the number of fabric mi s and garment manufacturersproducing organic co on goods a so expanded signi cant y.

Farming Regions and Projects

The g oba organic co on supp y has expandedsigni cant y over the past two years. It now representss ight y more than .5% of g oba produc on, up from.1% in 2001. According to the Organic Exchange 2008Farm and Fiber Report , organic ber produc on was57,931 MT in 2006/07 and grew by 152% in 2007/08 to145, 872 MT.

In 2008, the top ve organic co on producing countrieswere India (51%), Syria (19%), Turkey (17%), China (5%),and Tanzania (2%). A together, these ve countriesrepresent 94% of the wor ds organic co on produc on.Some of the argest farming projects in the wor dinc ude Eco Farms, Mahima, Rajeco, and Vesudha inIndia, Mavideniz in Turkey and Syria, and BioRe Tanzaniain Tanzania.

Drivers of Growth

Rapid expansion of the g oba organic co on market was driven in arge measure by consumer interestin green products, signi cant expansion of exis ng organic co on programs by brands and retai ers, andthe aunch of organic co on programs by new entrants to the market. Growing pub ic sector interestin organic farming, a ong with signi cant media coverage of organic and sustainab e tex es a so he pedspur growth in the who esa e and retai segments of the market.

Trends and Innova ons

With regard to company ac ons on organic co on, 2007 and 2008 saw greater integra on betweencompany business, sustainabi ity, and organic co on strategies. This he ped drive and support theaunch and expansion of many organic co on programs and support the deve opment of a much more

diverse set of consumer products. During this me period, companies inc uding C&A, Woo worthsSouth Africa, and Greensource deve oped innova ve new mode s of partnership with their farming andmanufacturing partners. OE is a so seeing many companies, such as Tesco, deve oping new mode s fortraceabi ity, as we as integra ng their organic, socia , and environmenta standards imp ementa one orts.

Organic co on in India.

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Formosa Tex le Co., Lesotho P H O T O :

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Report Highlights

In-Depth Look at Company Programs

The report provides examp es of more than two dozen brands, retai ers, and manufacturers who are aunchingor expanding their programs and/or eading innova ve work around farm deve opment partnerships in 2007 and2008.

Market SegmentsIn 2007 and 2008, the gateway segments of the organic co on market appare for women and chi dren, andhome products became more robust, with a wider array of products avai ab e than in previous years. Othersegments such as accessories, youth oriented appare , and menswear saw introduc ons of new products at asca e never seen before. New segments, such as the use of organic co on products in hea th care app ica ons,a so emerged in 2007 and 2008.

Other Organic Sustainable Fibers

The number, avai abi ity, and use of other organic and sustainab e bers increased in both appare and hometex es. 2007 and 2008 saw the rst organic cer ca on of both bamboo and hemp, expanded use of organicwoo and organic inen, increased use of lyoce /Tence , and recyc ed po yester.

New Developments in Organic Marketplace Standards, Cer ca on, and TraceabilityDuring this two-year period, OE deve oped the OE B ended and OE 100 standards in order to cer fy the organicsource of the ber. Hundreds of companies, from a parts of the wor d, have been cer ed to these standards.OE members have a so begun to u ize the String Traceabi ity System, a member bene t that providestransparency throughout the supp y chain. The cer ed organic ber can be tracked a the way back to thefarm, ensuring that the necessary steps have been taken to protect the integrity of the ber.

In 2008, the second version of the G oba Organic Tex e Standard (GOTS) was re eased. GOTS goes beyondthe OE standards, to cer fy a aspects of the produc on process and has both socia and environmentarequirements, in addi on to the tracking and integrity of the organic ber.

In the short me that the OE and GOTS standards have been in p ace, hundreds of companies have been cer ed

to them, contribu ng to the increasing integrity of the organic ber market.Possible Market Scenarios 2009-2010

Despite tough economic condi ons, con nued growth is expected in 2009 and 2010, a beit at a s ower rate thanprojected in the 2007 Market Report and at a somewhat s ower pace than in 2007 and 2008.

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M e t r i c T o n s

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Market Conditions (2005 2008) and Possible Market Scenarios (2009 2010)

Actual

Scenario 1 (50% Growth)

Scenario 2 (+10% Growth)

Scenario 3 (-10% Decline)


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Despite di cu t retai sector dynamics, most brands con nue to be upbeat about the organic co on market,and many p an to con nue expansion of their product o erings in 2009 and 2010. OE projects that g oba retaisa es of organic co on products wi reach a eve of $4 bi ion in 2009 and $5.3 bi ion in 2010, re ec ng annuaaverage growth rates of 24% and 33% respec ve y.

Demand for organic ber to support brand demand is expected to increase in 2009 to 92,998 MT, an increaseof 24%. Demand for organic ber to support brand demand is expected to increase to 123,272 MT in 2010, anaverage annua increase of 33%.

If ber produc on rates ho d steady or increase in the coming growing seasons and ber demand grows at therates described above, the g oba organic co on market wi have substan a y more ber avai ab e at the farm

eve and in mi inventory than in previous years. If ber produc on rates dec ine s ight y in 2008/09, the g obaorganic co on market is expected to experience ght supp y and demand condi ons, simi ar to previous years.

In 2008, farmers with commi ed partners had we p anned, strategic growth and subsequent y had i e to noremaining stocks. However, those farmers who p anted on specu a on or expanded without market partnersmay have shi ed the market into a state of oversupp y heading into 2009.

We eva uated three poten a ber supp y scenarios for the coming two years, simi ar to the approach we have

taken in previous reports. These scenarios re ect di erent assump ons about the eve of p an ng done byorganic farming projects around the wor d, based in arge part on the eve of certainty they have about bersa es at the end of the growing season and expected pricing and pro tabi ity for co on versus other crops whichcan be grown on their and.

Scenario One assumes that the number of farmers and amount of and dedicated to organic co on produc ongrows at a rate of 50%, a eve comparab e to the average annua growth rate in organic co on produc onduring the past severa years. This scenario cou d occur, par cu ar y if arge numbers of farmers p ant onspecu a on without end of harvest contracts. OE strong y discourages farmers from taking this kind of risk, butfe t it was important to consider this scenario, as it re ects growth trends experienced in prior years.

Scenario Two assumes that the amount of organic co on produc on grows at a rate of 10% per year duringthe next two years. This scenario assumes that farmers who are in commi ed va ue chains with contracts

and/or in-depth p anning informa on con nue to p ant at the eve needed to support ongoing organic co onbrand programs. In addi on, this scenario enab es a sma amount of addi ona ber to be produced to meetexpected brand demand in 2009 and 2010.

Scenario Three assumes that organic co on produc on drops by 10% from 2007/08 eve s. This scenarioassumes that farming projects that p anted on specu a on decide to sca e back or e iminate their produc on.

If ber supp ies grow in the coming 2008/09 growing season, and ber demand grows at the rates describedabove, the g oba organic co on market wi have substan a y more ber avai ab e at the farm eve and in miinventory than in previous years.

If ber produc on rates grow by 50% in the 2008/09 growing season, as assumed in Scenario One, and berdemand grows at the rates described above, the g oba organic co on market wi have ber avai abi ity at thefarm and mi eve equa to that of previous years. Assuming work in progress inventories at the end of 2008of 2,100 MT, the market is projected to see a 67% over supp y situa on for ber in 2009. If inventories areassumed to be 42,000 MT, the market oversupp y of ber grows to 88% in 2009.

If ber produc on rates grows by 10% in the 2008/09 growing season, as assumed in Scenario Two, and berdemand grows at the rates described above, the g oba organic co on market wi have ber avai abi ity at thefarm and mi eve equa to that of previous years. Assuming work in progress inventories at the end of 2008of 2,100 MT, the market is projected to see a 35% over supp y situa on for ber in 2009. If inventories areassumed to be 42,000 MT, the market oversupp y of ber grows to 48% in 2009.


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If ber produc on rates drop by 10% in the 2008/09 growing season, as assumed in Scenario Three, and berdemand grows at the rates described above, the g oba organic co on market wi have ber avai abi ity at thefarm and mi eve equa to that of previous years. Assuming work in progress inventories at the end of 2008 of 2,100 MT, the market is projected to see a 7% over supp y situa on for ber in 2009. If inventories are assumedto be 42,000 MT, the market oversupp y of ber grows to 28% in 2009.

If ber supp ies come into ba ance with ber demand in 2009, as projected under Scenario Three, marketcondi ons are expected to remain ght in 2010. However, if ber supp ies signi cant y exceed demand, such asunder Scenarios One or Two, the oversupp y situa on is ike y to persist into 2010.

Conclusions and Recommended Next Steps

Given these possib e market condi ons, we encourage par cipants in the organic co on market to assess therisks and opportuni es and make informed choices about p an ng, ber purchases, and product o erings.We strong y recommend that farmers secure purchase commitments prior to p an ng in 2009 and take othermeasures to ensure sa e of their ber before and at harvest.

Manufacturers are encouraged to seek p anning informa on from their customers to be er he p themdetermine appropriate eve s of ber to ho d in inventory. We a so encourage them to strategica y p an ber

purchases with their customers, and to forma ize their purchase agreements with farmers or merchant/brokersthrough forward contrac ng.

Brands may want to exp ore opportuni es for expanding their organic programs with their business partners, asfor the rst me in many years, supp ies of organic ber, yarns, and fabrics are more avai ab e than in previousyears.

Organic Cotton Market Report

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