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Exploring economics: the secret life of t-shirts

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# 3.1 Value added

Each stage of the supply chain adds value to the product. For example a spinning factory will buy in cotton and turn it into yarn. This will increase the value of the cotton as the yarn will have a greater value than the raw cotton. Therefore, the value added is the final value of the yarn minus the price the factory managers have paid for the cotton. As the cotton is developed from fibre to woven material and then into the final garment, value is added each step of the way. The aim of this section is to consider how this added value is distributed through the supply chain. In particular, it will investigate whether the value added varies over the supply chain. If so, at what stage is the most value added?

Figure 3 (repeat) The supply chain of a t-shirt.

## Activity 17

Before reading on, where in the supply chain of cotton do you think the most value will be added?

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In a study focusing on the case of Indian producers and UK retailers, Rieple and Singh (2010) estimate the value of a cotton t-shirt at each stage of production. These values are shown in Table 6. In their work Rieple and Singh break down the t-shirt supply chain into more stages than in Figure 3.

Table 6 shows the value of 1 kg of cotton t-shirts as calculated by Rieple and Singh (2010).

Table 6 Value in the cotton industry
Price (US$) Stages and product Selling price of cotton per kg Farming (crop) 0.56 Ginning (fibre or lint) 1.29 Spinning (yarn) 2.56 Knitting (grey fabric) 3.17 Dyeing and finishing (dyed fabric) 5.60 Garment stitching 12.68 Finished garment 64 Source: Rieple and Singh (2010). ## Footnotes * 1 kg of t-shirts equates to 4 t-shirts ## Maths skill 8: working with decimals 2: subtraction The subtraction of decimals is carried out using the same process as addition. You should work as if the decimal point isn’t there and then add into the answer in line with the decimal points above. Without using a calculator work out the following: 1.Subtract 2.42 from 5.76 2.Subtract 2.68 from 6.96 3.Subtract 2.5 from 3.86. Hint: Use 2.50 rather than 2.5 to ensure that the decimal place is in the correct place in your answer. ## Activity 18 In Table 6 the selling price of cotton is$0.56 per kg. Once the fibre has been separated from the seed at the ginning stage this increases to $1.29 per kg. What is the value added at the ginning stage? To use this interactive functionality a free OU account is required. Sign in or register. Interactive feature not available in single page view (see it in standard view). ### Answer The value added at this stage would be 1.29 - 0.56 = 0.73 Calculate the missing value added figures to complete the table. Price (US$)

Stages and product

Selling price of cotton per kg Value added
Farming (crop) 0.56 0.56
Ginning (fibre or lint) 1.29 0.73
Spinning (yarn) 2.56
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Knitting (grey fabric) 3.17 0.61
Dyeing and finishing (dyed fabric) 5.60
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Garment stitching 12.68 7.08
Finished garment (1kg is 4 t-shirts) 64
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