DDBA 8522 Week 9 Commitment Reversal Case Example

Three Seasons of Paying Before the Premium: A Reversal Case of an Apparel Brand That Funded Cotton Farmers' Conversion to Organic, Withdrew in the Final Season and Left the Farmers Holding the Cost

Student Name

Walden University

DDBA 8522: Seminar in Sustainability

Instructor Name

Month Day, Year

Three Seasons of Paying Before the Premium: A Reversal Case of an Apparel Brand That Funded Cotton Farmers' Conversion to Organic, Withdrew in the Final Season and Left the Farmers Holding the Cost

Why Conversion Is Costly

A cotton field converting to organic production cannot be sold as organic until it has been managed without prohibited substances for three years. The U.S. organic regulations require that land have had no prohibited substances applied for 36 months before harvest of a crop sold as organic (7 C.F.R. § 205.202). During those seasons, yields usually fall as farmers learn new methods for weeds and pests, while the cotton still sells at conventional prices. The farmer pays for several seasons before any premium arrives. Programs that help farmers through this period, often funded by apparel brands seeking organic supply, are among the more credible sustainability commitments in the industry, because they pay for change before it produces anything a brand can label.

The Commitment

In 2021, a composite U.S. apparel brand with about $900 million in annual sales announced that it would source 30 percent of its cotton from organic farms by 2026. To build supply, it signed agreements with 48 farms in the Texas High Plains covering about 11,000 acres. The brand agreed to pay a transition premium of 10 cents per pound on cotton grown during the conversion years, to provide agronomic support and to buy the farms' certified organic cotton at a premium of 30 percent over conventional prices once certified, for at least five years.

The Reversal

In January 2024, at the start of the third and final conversion season, the brand announced a new sourcing strategy. A sales decline and a change of chief executive led it to cut its organic target to 10 percent by 2028 and to source most of that from existing certified suppliers abroad. It ended the transition premium for the 2024 season and told the Texas farms it could not guarantee purchases of their certified cotton. The farms had already borne two seasons of lower yields. The third season, the last before certification, was the one in which the brand withdrew.

Who Held the Cost

The farms held most of it. Interviews with six of the 48 farm operators, reported in a regional farm newspaper and confirmed through the brand's own supplier communications, indicate yield losses of 20 to 30 percent during conversion. Without the transition premium in 2024 and without a committed buyer for certified cotton in 2025, several farms faced a choice between completing conversion and selling organic cotton into an uncertain market or returning to conventional methods and losing the investment of two seasons. The brand's sustainability report for 2024 described the change as "refocusing our organic strategy" and did not mention the Texas farms.

Why the Timing Made It Worse

Slawinski and Bansal (2015) found that firms caught between near-term pressures and distant aims tend to fall back on the near term when pressed, and how that retreat imposes costs on those who invested on the expectation of long-term commitment. Bansal and DesJardine (2014) argued that sustainability is about intertemporal tradeoffs: who gives up something now for a benefit later. In this case, the farmers gave up yield now for a premium later, and the brand removed the later benefit after the farmers had paid most of the cost. A withdrawal in the first season would have cost the farms little; a withdrawal in the third cost them nearly everything the conversion required.

What the Brand Gained and Lost

The brand saved the remaining transition premium for 2024, about $1.6 million on the farms' expected harvest, and avoided committing to buy certified cotton at a 30 percent premium for five years. It lost a domestic organic supply it had spent two years building and some standing with farmers it may need later. Its sustainability report counted the commitment when it was made and did not count its withdrawal, so the public record shows a brand that pursued organic cotton, not one that abandoned farmers in the final season.

What Would Have Prevented It

Contracts could have included a commitment covering the full conversion period plus at least one certified harvest, with a payment to farms if the brand withdrew early. The brand could have disclosed the commitment's terms publicly, raising the reputational cost of withdrawal. Both protections would have cost the brand little at the start and would have kept the risk of withdrawal with the party able to choose it.

Limits

The case rests on six farm operators' accounts and the brand's communications. Some farms may have found other buyers for their certified cotton.

References

Bansal, P., & DesJardine, M. R. (2014). Business sustainability: It is about time. Strategic Organization, 12(1), 70-78. https://doi.org/10.1177/1476127013520265

Land requirements, 7 C.F.R. § 205.202 (2024).

Slawinski, N., & Bansal, P. (2015). Short on time: Intertemporal tensions in business sustainability. Organization Science, 26(2), 531-549. https://doi.org/10.1287/orsc.2014.0960