Uzbek Cotton: A Sustainability Challenge

Richard J. Coylerichardcoyle@cox.net

External Situation: The unsustainable production of cotton in Uzbekistan was causing both an environmental crisis and social tragedy of epic proportions. Non governmental organizations (NGOs) and Socially Responsible Investors (SRIs) were planning to mount a campaign against clothing brands and retailers to discontinue purchases of products made from Uzbek cotton.

The Problem

The ProblemInternal Situation: Wal-Mart management, for the most part, was unaware of the situation in Uzbekistan, creating a fertile

environment for the planned stakeholder campaign. The result would be a further erosion of the company’s reputation.

Location of UzbekistanUzbekistan is located in central Asia, bounded on the north and west by Kazakhstan, on the east by Kyrgyzstan and Tajikistan on the south by Afghanistan, and on the southwest by Turkmenistan.

Uzbekistan has an area of 447,400 square kilometers (172,741 square miles), which is slightly smaller than California or double the size of the United Kingdom.

It is one of only two countries in the world considered as “double landlocked” (bounded only by other landlocked countries).

Key Facts – UzbekistanPopulation was estimated at 25.1 million in July 2001 (about the same as Texas):

• 36.3 % aged 14 years or younger (20.2% in the U.S.)• Only 4.6 % aged 65 or older (12.8% in the U.S.)• Life expectancy is 63.8 years (78.4 years in the U.S.)• 26% live below the poverty line (13.2% in the U.S.)

Average population density was 132.6 per square mile – slightly less than South Carolina

Gross Domestic Product Per Capita: $2807, 131st in the world (U.S. $46,381, sixth in the world)

Government type: republic; authoritarian presidential rule, with little power outside the executive branch

The Cotton Sector in the Uzbek EconomyUzbekistan is the world’s fifth largest cotton producer, and the second largest cotton exporter, with major markets in Bangladesh, China and South Korea. Cotton represents 17% of all Uzbek exports, and 9.6% of the Uzbek GDP. The sector is controlled exclusively by the government.

Uzbek cotton is considered to be of high quality with long fibers, and is used in the production of premium textiles.

Although harvesting was mostly mechanized during the Soviet era, more than 90% of the cotton picking in Uzbekistan is now done by hand.

A Man-Made Environmental CrisisWater diversion for irrigation has caused the desiccation of the Aral Sea, once the world’s fourth largest saline lake. The water level has dropped approximately 70 feet since the onset of the water diversion in the 1960’s. Salinity levels have consequently risen from 10 g/l to more than 100 g/l in the remaining Southern Aral Sea.

A Dramatically Degraded EnvironmentA related decline in the groundwater level contributed to the piling up of salt at the sea surface. As a result, local vegetation has been reduced by at least 40%, which has created intensified winds. The ensuing dust storms carry concentrated salt and pesticides throughout the region, creating serious health hazards. Over 23,000 square miles (about the size of West Virginia) of agricultural land have been destroyed as a result of salinization and desertification.

A Government-Sponsored Social TragedyEach year, the government closes the schools and forces the children into the fields to harvest the cotton, exposing them to chemicals and pesticides without protection. Headmasters are given quotas. Uncooperative parents risk having their welfare benefits and utility services withheld.

Children work approximately 60 days without weekend breaks and under detrimental sanitary, health and nutritional conditions. Many suffer with chronic diseases including intestinal infections, respiratory infections, meningitis and hepatitis.

Government Controlled WagesIf paid at all, a child may earn

only 3-4 US cents per kilo

for a commodity that

is valued at US$1.15 on the

global marketplace.

The government captures the

profit on every kilo sold.

The World Begins to Take Notice2005 – The UK-based Environmental Justice Foundation releases its landmark report, “White Gold: The True Cost of Cotton”, which first alerts the world of the unsustainable situation in Uzbekistan.

2007 – The BBC airs a documentary on Newsnight, showing children being bused out to the cotton fields. Consumers are made aware that their cotton clothing can emanate from child labor.

Recognition Takes Hold in the United States

Spring, 2008 – Wal-Mart’s UK subsidiary comes under pressure from activists to take a stance on the issue. The Wal-Mart Home Office commissions a study of the problem with an external consulting firm, to verify the situation and identify possible solutions.

Wal-Mart also contacts the U.S. Department of State and the U.S. Department of Commerce to obtain the U.S. government perspective on the problem, and assess diplomatic options.

Wal-Mart Builds A CoalitionMay, 2008 – The U.S. Department of State convenes a meeting with stakeholders to determine best courses of action. Wal-Mart surprises the participants by actively supporting the NGOs/SRIs, and a spirit of cooperation emerges. The planned campaign against brands and retailers immediately dissolves.

Summer, 2008 – Wal-Mart organizes a coalition of brands, retailers and four trade associations to evaluate an industry-oriented response.

August, 2008 – Wal-Mart drafts letters which are subsequently jointly issued by the four trade associations to the Uzbek government, United States government, and other international trade associations, urging an immediate cessation of the forced labor. NGOs and SRIs issue their own letters, with more severe demands.

Fall, 2008 – Meetings with the Uzbek Ambassador to the United States are organized by the U.S. Department of State. NGOs, SRIs and companies are invited to attend.

Within Wal-Mart, all country Presidents and merchandising leaders within the apparel and home goods departments are surveyed as to any potential impacts of a ban on Uzbek cotton. An internal consensus-building process is initiated to facilitate a unified corporate position.

Wal-Mart Takes Action

Wal-Mart Announces The First Company-Wide Procurement Ban in its History

September, 2008 – Wal-Mart announces a ban on Uzbek cotton from their supply chain. Mills are required to keep documentation citing the source of all cotton purchases. This is the first company-wide ban across all international markets which Wal-Mart has ever implemented.

A press release is prepared jointly with NGOs and SRIs, who concurrently issue their own release, praising Wal-Mart’s efforts.

The story is picked up by major media outlets, generating a wave of positive coverage for Wal-Mart.

The Results

The Results

The Results

The Results

"We just thought, this is about as atrocious as it's going to get," Richard Coyle, senior director of international corporate affairs for Wal-Mart, told Fortune. "We just couldn't idly sit by."

Unprecedented RecognitionWithin 10 weeks, Wal-Mart is heralded as an “Ethical Leader”.

EpilogueFollowing Wal-Mart’s lead, 63 companies have now taken measures to exclude Uzbek cotton from their supply chains. Wal-Mart continued its leadership role by arranging a meeting with investors, NGOs and the Dubai Cotton Exchange in 2009. The Exchange was requested to cease purchases of Uzbek cotton.

External Situation: NGOs and companies remain resolved to work together in a model of cooperation, rather than antagonism.

Coalition members are prepared for several years of economic pressure and diplomacy to effect change in Uzbekistan.

Internal Situation: By taking a leadership role, the possible reputation erosion was converted into accolades for Wal-Mart.

A Successful Conclusion