Brands and retailers seeking to use more organic cotton in their ranges over the next few years are likely to face a potential supply crisis as new figures show a 21% decline in organic cotton production last year.

The "critical juncture" at which the demand for organic cotton is set to exceed supply is revealed in the just-published 2013 Organic Cotton Report from non-profit group Textile Exchange.

Describing last year as "a pivotal year in organic cotton...with strengths and challenges becoming more apparent while demand grew and production contracted," it goes on to warn: "The balance between declining production and increasing demand will have ramifications as we move into the coming years. Any fibre from years with high production will be absorbed and new demand could be an issue."

The comments echo a similar alert issued by European value fashion retailer C&A earlier this year. The company, which is the world's second-largest user of organic cotton by volume, said counteracting the shortage is a priority - and the "availability uncertainty" threatens to endanger long-term investment in organic cotton.

Textile Exchange's latest Organic Cotton Report also points out that overall production of natural fibres fell 3% in 2013, with conventional cotton production declining 4.1% compared to the year before.

This is due to a number of issues, including competition from other crops, a switch to greater use of polyester following a spike in international cotton prices in 2010-11, and a government stockpiling programme in China, the world's top consumer and producer, which removed much of the excess cotton from the world market and also contributed to high prices.

But there are also specific challenges facing the organic cotton sector, including a scarcity of good quality non-GMO (genetically modified organism) seed, and the threat of GMO contamination and the resulting loss of product integrity.

There is also a lack of business security for farmers who transition to organic agriculture. Converting to organic farming requires specialist knowledge and can take up to three years to be verified, during which time yields may dip as soils recover their fertility.

The miss-match between organic cotton supply and demand is another major cause for concern. Less than 1% of cotton grown is organic, yet more and more brands - including the two biggest users, H&M and C&A - have made commitments to use 100% organic cotton by 2020.

Separate surveys, including the Organic Cotton Survey and an annual update by European sustainable fashion NGO Made-By, also indicate brands and retailers scaled up their use of organic cotton in 2013, with total volumes increasing by around 30%.

Tackling the issues

Textile Exchange is helping to address some of the barriers to growth through its Organic Cotton Round Table (OCRT), which focuses on seed supply, business models, improving consumer awareness, and certifying value chains in order to improve and protect integrity.

Progress in the two years since the OCRT was set up includes the first ever Global Organic Cotton Seed Inventory to provide a global prospectus of non-GMO seed breeding and research activities, and technical requirements for the sector. The initiative is supported by Eileen Fisher, with pilot projects already underway backed by Inditex.

Research into new business models led by Change Agency has also catalysed two new collective impact initiatives: the Organic Cotton Accelerator driven by a group of large brands and retailers and C&A Foundation, and an aggregation of smaller brands and retailers and their organic cotton value chain partners. Both are seeking new ways of doing business that improves prospects for organic cotton farmers.

The Organic Cotton Roundtable is also focusing on improving consumer awareness about organic cotton, and a separate project is underway into the first global Life Cycle Assessment (LCA) of organic cotton cultivation.

Producer countries

When it comes to organic cotton production, positive signs are being seen in China, which last year jumped to second position in the organic cotton league table with a 27% hike in production volumes. Demand is being driven by both global clients and, increasingly, the domestic market.

Although a small player size-wise, Tajikistan in Central Asia is also focused on expansion. Not only have volumes grown by over 200%, but farmers are experimenting with a high-end extra long staple fibre (over 40mm staple length) that caters to the luxury market.

And Africa is also broadening its horizons for organic cotton and textile sustainability. While existing production in both west and eastern Africa remains fairly stable at around 8% of global share, investment in new countries (including Ethiopia, Kenya, Madagascar, Mozambique, and Zambia) is beginning to take off.

While still in its infancy, this investment alongside advances in manufacturing and other value-add with a sustainability component should result in exciting new market opportunities for Africa, says Textile Exchange.

The 2013 Organic Cotton Report for the first time combines the

Organic Cotton Farm & Fiber Report and the Organic Cotton Market Report into a single resource for the entire organic cotton supply chain.

"We are looking holistically at the organic cotton supply chain," explains LaRhea Pepper, Textile Exchange's managing director. "Organic Cotton farmers are the beginning of a long value chain and surveying the entire system is the best way to get an inclusive story."

Organic cotton top-ten

Of the leading users of organic cotton by volume last year,

Swedish fashion retailer H&M tops the list, followed by C&A, Puma, Nike, Decathlon, Tchibo, Coop Swiss, Target, WilliamsSonoma, and Inditex (Zara).

H&M increased its use of the fibre by 29% in 2013, meaning that 10.8% of the cotton used in its products was certified organic, up from 7.8% in 2012. The retailer has set a target of only using sustainable cotton by 2020.

As well as certified organic cotton, the company has invested

EUR2m (US$2.7m) in the Better Cotton Initiative's Fast Track Program, and by the end of fical 2013, Better Cotton represented 5% of H&M's total cotton use.

It has also introduced recycled cotton generated from consumer textile waste as it works towards a closed loop for textile production.

As the second biggest buyer of organic cotton, C&A says it sold 110m products made from organic cotton in fiscal year 2013, accounting for 38% of its total cotton sales. 75% of its processed organic cotton comes from farm projects supported by the C&A Foundation.

The fastest-growing users of organic cotton during the year were: Stanley & Stella, Target, Coyuchi, Puma, G-Star, Kowa, WilliamsSonoma, H&M, C&A, and Inditex (Zara).