Today’s Butterflies Are Tomorrow’s Hurricanes
November 27, 2012 
The theme of the 2012 Mid-Year issue is, “United We Rise,” in recognition of the fact that a high level of performance in any one sector of the supply chain benefits the other sectors as well. Unfortunately, the converse of that statement is true: Divided we fall.
Rarely does success or failure occur in a vacuum in today’s interconnected world. Every action has consequences that reach far beyond its immediate impact.
Is it an overstatement to say the cotton industry is subject to “the butterfly effect”? That concept asks whether a butterfly flapping its wings on one side of the planet can trigger an escalating series of events that lead to the formation of a hurricane thousands of miles away.
Some might think it’s an overstatement, but I am guessing that spinning mills wouldn’t. Given that the cotton value chain extends all the way to consumers, mills are by no means at the end of the chain … but they are at the point where contract sanctity virtually disappears. Arbitral groups like the International Cotton Association do an admirable job of increasing sanctity up to the mill, but there is virtually no protection in the chain from cotton yarn through retail.
Like the butterfly effect, the impact of price volatility grows as it moves from one sector of the chain to the next, peaking when it reaches the mill. Given that 70% of many mills’ costs come from purchasing raw materials, it means that contract sanctity ends right at the point where cotton price volatility has its greatest impact.
For now, mill owners are coping with volatility through hand-to-mouth purchasing. It’s a good short-term strategy, but structural changes are needed to ensure the global cotton trade remains efficient and reliable. Improvements in price discovery, logistics, communication and contract sanctity need to be found to stabilize the chain and allow all sectors to succeed.
The butterfly effect doesn’t just refer to distance; it also refers to time. Every little improvement we make in the value chain today will be felt long into the future.
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