Executive Summary

2008 ORGANIC COTTON

MARKET REPORT

ORGANIC EXCHANGE
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 Organic Exchange Organic Cotton Market Report 2008

Executive Summary
Overview
2007 and 2008 continued to be dynamic years for the organic cotton sector, with growth and maturation not
only in the marketplace, but also in the development and adoption of standards addressing organic product
integrity and textile processing.

Organic Exchange’s (OE) 2008 Organic Cotton Market Report provides:

• An overview of the global organic cotton market with additional data for 2007 and 2008
• An in-depth look at the organic cotton programs of leading companies, the products available in the
market, developments with other organic and sustainable fibers, and key developments in standard
setting, labeling, company, and industry approaches to traceability and company integration of
social, environmental, and economic standards implementation
• Possible market scenarios for 2009 and 2010
• Recommendations for action in the coming year.

The Global Organic Cotton Market 2007-2008

The global organic cotton market grew rapidly in 2007 and 2008. Significant changes in the market are
highlighted below:

Market Size
Retail Sales: Brands continued to significantly expand their organic programs in 2007 and 2008. In
2007, global retail sales of organic cotton products reached an estimated $1.9 billion, representing
an 83% increase over global sales in 2006. 2008 retail sales are estimated at $3.2 billion, reflecting
an annual average growth rate of 63%. 2008 estimated sales are slightly lower than the $3.4 billion
projected in the 2007 Market Report.

Billions $USD
8.000
7.000
6.000
5.000
4.000
Billions $USD
3.000
2.000
1.000
0.000
2001 2005 2006 2007 2008 2009 2010

Fiber Demand: Demand for organic cotton fiber by manufacturers increased to 47,242 metric tons
(MT) in 2007, an increase of 83% over the previous year. In 2008, demand for organic fiber reached
74,839 MT, an increase of 58% over 2007.

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 Organic Exchange Organic Cotton Market Report 2008

Fiber Supply: Fiber supply continues to grow, from 57,931 MT in the 2006/07 crop year to 145,865
MT for the 2007/08 crop year, due in large measure to increased production in India and Syria.
During the past year, certified organic cotton fiber supplies have grown by 95%, which is significantly
higher than annual growth rates of 45% in 2006 and 53% in 2007.

Market Position at End of 2008: While the 2007/08 fiber supply was substantially higher
than demand, most organic farming projects were able to sell their stocks, with 12,150 MT or
approximately 8% of total production remaining at the end of the growing season in ending stocks.
However, many mills and merchants report significantly higher fiber inventories than in previous
years.

Industry Leaders
• Retailers
According to OE’s research, the five brands with the largest organic cotton
programs in 2007 were: Wal-Mart/Sam’s Club (USA), Nike (USA), Coop
Switzerland (CH), C&A (BE), and Woolworths South Africa (ZA). The market
ranking changed considerably from previous years, with Wal-Mart, C&A,
and Woolworths creating significant programs, and supplanting long-time
leaders Patagonia (USA) and Otto Group (DE).
In 2008, the ten brands and retailers with the largest organic cotton

Photo: nike
programs were: Wal-Mart, C&A, Nike, H&M, Zara, Anvil, Coop Switzerland,
Pottery Barn, Greensource, and Hess Natur.

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 Organic Exchange Organic Cotton Market Report 2008

• Manufacturers
In 2007 and 2008, production of organic cotton yarns,
fabrics, and finished goods continued to grow in key
textile production regions including China, Southeast Asia,
Indonesia, India, Pakistan, Bangladesh, Turkey, Mexico, and
the United States. Some of the world’s largest producers
of organic cotton yarns include Buhler Mills, Indorama,
Photo: Andy salm

Parkdale Mills, Pratibha Syntex, Remei, Sanko, Shanghai

Flying Dragon, and Thai Alliance. During this time period,
the number of fabric mills and garment manufacturers
producing organic cotton goods also expanded significantly.

Formosa Textile Co., Lesotho

• Farming Regions and Projects

The global organic cotton supply has expanded
significantly over the past two years. It now represents
slightly more than .5% of global production, up from
.1% in 2001. According to the Organic Exchange 2008
Farm and Fiber Report, organic fiber production was

Photo: Prabha Nagarajan

57,931 MT in 2006/07 and grew by 152% in 2007/08 to
145, 872 MT.
In 2008, the top five organic cotton producing countries
were India (51%), Syria (19%), Turkey (17%), China (5%),
and Tanzania (2%). Altogether, these five countries
represent 94% of the world’s organic cotton production.
Some of the largest farming projects in the world
include Eco Farms, Mahima, Rajeco, and Vesudha in Organic cotton in India.
India, Mavideniz in Turkey and Syria, and BioRe Tanzania
in Tanzania.

Drivers of Growth
Rapid expansion of the global organic cotton market was driven in large measure by consumer interest
in green products, significant expansion of existing organic cotton programs by brands and retailers, and
the launch of organic cotton programs by new entrants to the market. Growing public sector interest
in organic farming, along with significant media coverage of organic and sustainable textiles also helped
spur growth in the wholesale and retail segments of the market.

Trends and Innovations
With regard to company actions on organic cotton, 2007 and 2008 saw greater integration between
company business, sustainability, and organic cotton strategies. This helped drive and support the
launch and expansion of many organic cotton programs and support the development of a much more
diverse set of consumer products. During this time period, companies including C&A, Woolworths
South Africa, and Greensource developed innovative new models of partnership with their farming and
manufacturing partners. OE is also seeing many companies, such as Tesco, developing new models for
traceability, as well as integrating their organic, social, and environmental standards implementation
efforts.

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 Organic Exchange Organic Cotton Market Report 2008

Report Highlights
In-Depth Look at Company Programs
The report provides examples of more than two dozen brands, retailers, and manufacturers who are launching
or expanding their programs and/or leading innovative work around farm development partnerships in 2007 and
2008.

Market Segments
In 2007 and 2008, the gateway segments of the organic cotton market – apparel for women and children, and
home products – became more robust, with a wider array of products available than in previous years. Other
segments such as accessories, youth oriented apparel, and menswear saw introductions of new products at a
scale never seen before. New segments, such as the use of organic cotton products in health care applications,
also emerged in 2007 and 2008.

Other Organic Sustainable Fibers

The number, availability, and use of other organic and sustainable fibers increased in both apparel and home
textiles. 2007 and 2008 saw the first organic certification of both bamboo and hemp, expanded use of organic
wool and organic linen, increased use of Lyocell/Tencel®, and recycled polyester.

New Developments in Organic Marketplace Standards, Certification, and Traceability

During this two-year period, OE developed the OE Blended and OE 100 standards in order to certify the organic
source of the fiber. Hundreds of companies, from all parts of the world, have been certified to these standards.
OE members have also begun to utilize the String Traceability System, a member benefit that provides
transparency throughout the supply chain. The certified organic fiber can be tracked all the way back to the
farm, ensuring that the necessary steps have been taken to protect the integrity of the fiber.

In 2008, the second version of the Global Organic Textile Standard (GOTS) was released. GOTS goes beyond
the OE standards, to certify all aspects of the production process and has both social and environmental
requirements, in addition to the tracking and integrity of the organic fiber.

In the short time that the OE and GOTS standards have been in place, hundreds of companies have been certified
to them, contributing to the increasing integrity of the organic fiber market.

Possible Market Scenarios 2009-2010

Despite tough economic conditions, continued growth is expected in 2009 and 2010, albeit at a slower rate than
projected in the 2007 Market Report and at a somewhat slower pace than in 2007 and 2008.

Market Conditions (2005 – 2008) and Possible Market Scenarios (2009 – 2010)
225,000

200,000 193,085

175,532
175,000

145,872
150,000 141,595
Metric Tons (MT)

128,723
125,000 117,021 Actual
115,851
105,319 Scenario 1 (50% Growth)
100,000
Scenario 2 (+10% Growth)
Scenario 3 (-10% Decline)
75,000
57,932
50,000 37,799
25,394
25,000

0
2004 2005 2006 2007 2008 2009 2010

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Despite difficult retail sector dynamics, most brands continue to be upbeat about the organic cotton market,
and many plan to continue expansion of their product offerings in 2009 and 2010. OE projects that global retail
sales of organic cotton products will reach a level of $4 billion in 2009 and $5.3 billion in 2010, reflecting annual
average growth rates of 24% and 33% respectively.

Demand for organic fiber to support brand demand is expected to increase in 2009 to 92,998 MT, an increase
of 24%. Demand for organic fiber to support brand demand is expected to increase to 123,272 MT in 2010, an
average annual increase of 33%.

If fiber production rates hold steady or increase in the coming growing seasons and fiber demand grows at the
rates described above, the global organic cotton market will have substantially more fiber available at the farm
level and in mill inventory than in previous years. If fiber production rates decline slightly in 2008/09, the global
organic cotton market is expected to experience tight supply and demand conditions, similar to previous years.

In 2008, farmers with committed partners had well planned, strategic growth and subsequently had little to no
remaining stocks. However, those farmers who planted on speculation or expanded without market partners
may have shifted the market into a state of oversupply heading into 2009.

We evaluated three potential fiber supply scenarios for the coming two years, similar to the approach we have
taken in previous reports. These scenarios reflect different assumptions about the level of planting done by
organic farming projects around the world, based in large part on the level of certainty they have about fiber
sales at the end of the growing season and expected pricing and profitability for cotton versus other crops which
can be grown on their land.

Scenario One assumes that the number of farmers and amount of land dedicated to organic cotton production
grows at a rate of 50%, a level comparable to the average annual growth rate in organic cotton production
during the past several years. This scenario could occur, particularly if large numbers of farmers plant on
speculation without end of harvest contracts. OE strongly discourages farmers from taking this kind of risk, but
felt it was important to consider this scenario, as it reflects growth trends experienced in prior years.

Scenario Two assumes that the amount of organic cotton production grows at a rate of 10% per year during
the next two years. This scenario assumes that farmers who are in committed value chains with contracts
and/or in-depth planning information continue to plant at the level needed to support ongoing organic cotton
brand programs. In addition, this scenario enables a small amount of additional fiber to be produced to meet
expected brand demand in 2009 and 2010.

Scenario Three assumes that organic cotton production drops by 10% from 2007/08 levels. This scenario
assumes that farming projects that planted on speculation decide to scale back or eliminate their production.

If fiber supplies grow in the coming 2008/09 growing season, and fiber demand grows at the rates described
above, the global organic cotton market will have substantially more fiber available at the farm level and in mill
inventory than in previous years.

If fiber production rates grow by 50% in the 2008/09 growing season, as assumed in Scenario One, and fiber
demand grows at the rates described above, the global organic cotton market will have fiber availability at the
farm and mill level equal 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 67% over supply situation for fiber in 2009. If inventories are
assumed to be 42,000 MT, the market oversupply of fiber grows to 88% in 2009.

If fiber production rates grows by 10% in the 2008/09 growing season, as assumed in Scenario Two, and fiber
demand grows at the rates described above, the global organic cotton market will have fiber availability at the
farm and mill level equal 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 35% over supply situation for fiber in 2009. If inventories are
assumed to be 42,000 MT, the market oversupply of fiber grows to 48% in 2009.

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 Organic Exchange Organic Cotton Market Report 2008

If fiber production rates drop by 10% in the 2008/09 growing season, as assumed in Scenario Three, and fiber
demand grows at the rates described above, the global organic cotton market will have fiber availability at the
farm and mill level equal 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 supply situation for fiber in 2009. If inventories are assumed
to be 42,000 MT, the market oversupply of fiber grows to 28% in 2009.

If fiber supplies come into balance with fiber demand in 2009, as projected under Scenario Three, market
conditions are expected to remain tight in 2010. However, if fiber supplies significantly exceed demand, such as
under Scenarios One or Two, the oversupply situation is likely to persist into 2010.

Conclusions and Recommended Next Steps

Given these possible market conditions, we encourage participants in the organic cotton market to assess the
risks and opportunities and make informed choices about planting, fiber purchases, and product offerings.
We strongly recommend that farmers secure purchase commitments prior to planting in 2009 and take other
measures to ensure sale of their fiber before and at harvest.

Manufacturers are encouraged to seek planning information from their customers to better help them
determine appropriate levels of fiber to hold in inventory. We also encourage them to strategically plan fiber
purchases with their customers, and to formalize their purchase agreements with farmers or merchant/brokers
through forward contracting.

Brands may want to explore opportunities for expanding their organic programs with their business partners, as
for the first time in many years, supplies of organic fiber, yarns, and fabrics are more available than in previous
years.

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