Faculty Economics and Business
Master thesis
A business perspective on smallholders and certification in the Ghanaian cocoa industry
10-11-2015 Alle Metzlar
Student Number: S2184389 Neptunusstraat 13
9742 JK Groningen
Email: alle_metzlar@hotmail.com Phone: +31 (0) 612804832 MSc Business administration:
Small Business and Entrepreneurship
Student Number: 2184389 Master Thesis Alle Metzlar University of Groningen
Submitted on November 10, 2015 First supervisor: C.H.M. Lutz Second supervisor: M. Olthaar
Abstract
This study explores a business perspective in the debate regarding the sustainability of the Ghanaian cocoa
industry. A business perspective is developed by using literature from the Global Value Chain and strategic
management literature, and is explored by the collection and analysis of qualitative data to gain insights in the
strategic behaviour, choices and intent of the smallholders, as well as their resources, capabilities and their
perception of certification. The farmers are analyzed in terms of strategic intent, strategic resources and
strategic capabilities, which leads to four types of farmers that show differences in terms of strategic position
and selling behaviour. Several business opportunities to improve the strategic position of smallholders are
identified, which may be exploited by the smallholders. However, since the identified valuable strategic
capabilities demand financial resources, cooperation between farmers through cooperatives may play an
important role in developing these capabilities in order to improve the strategic position of the farmer. A
discussion on the cooperative and certification schemes in the researched community leads to the following
conclusions: (1) the cooperative should improve its organization and services in order to make farmers more
committed, more willing to invest, more engaged and better participating, (2) the cooperative should develop
clear goals and train local management in order to mean more for its members and (3) certifiers should regard
possible flaws in the system, especially since some certification schemes in the researched community, which
are organized through traders, are not appearing to function within the boundary of the rules.
Acknowledgements
This thesis is produced in cooperation with several people, to whom I owe a lot of gratitude. First of all, a lot of thanks for Agro Eco Louis Bolk Institute, who facilitated and assisted us during the research and the data collection in Ghana. Only two weeks before the travel to Ghana we were able to establish contact with Willem- Albert Toose, and despite this short term, he was able to help us in any possible way with lots of effort and enthusiasm. Besides this, Boudewijn, Dennis, Isaac and Israel offered to help us with all questions and introduced us to the Ghanaian cocoa system in the best way we could wish for. Without AE-LB this research would be impossible. Thanks a lot.
I would like to thank the supervisors of the University of Groningen, dr. Clemens Lutz and dr. Matthias Olthaar for offering me the opportunity to research this interesting topic. I appreciated the constructive feedback I received from dr. Clemens Lutz, as well as freedom I got to make my own choices throughout the research.
Furthermore, I would like to thank a lot of people that helped me during my time in Ghana. Especially Nelson, the coordinator of the project in Asankragua, who assisted me with information, a place to sleep, and
everything I needed to perform a successful research. Christabel helped me with translating in an outstanding way. Andrew assisted me with finding the farmers and preparing the interviews. I want to thank the experts, traders and especially the farmers that participated in this research for their time and insights. During the time in Ghana a lot of interesting talking partners were kind enough to schedule me in.
Several people assisted me with writing my thesis. Rosa (the fellow student that travelled with me to Ghana) and I made the first four chapters together, and without her input the research would never be as
comprehensive as it became. I hope you recover soon and be able to write an outstanding thesis. Mathijs, Sietse, Gert Jan and Willem-Jan, all good friends, deserve a notification for helping me with correcting the grammar and improving the readability of this thesis.
Finally, I would like to thank my family, girlfriend and friends for supporting me throughout this research.
Mom, dad, sister, brother, and other family, despite difficult times you were always there to help and support
me during my time in Africa, which was the best I could wish for. Clara, thanks for waiting and supporting me
during all these months that we were separated, I will do my best to make it worth it. Together you all helped
to make it a wonderful experience.
Executive summary
The transformation of the Ghanaian cocoa industry towards a more sustainable future triggered many researchers and scholars to construct a considerable body of research. However, in most of this research the perspective of the Ghanaian smallholders is systematically underrepresented (Hütz & Fountain, 2015), which is remarkable since the smallholders form the largest group of actors in the cocoa industry. Reports and models consider smallholders often as a homogeneous group that is unable to initiate change. However, this report argues that every smallholder is a unique (small) business owner. Therefore, a strategic business perspective is researched in order to increase insights in the possibilities and opportunities of smallholders in the Ghanaian cocoa industry.
This thesis explores the strategic behaviour and choices of the farmer by investigating the ways farmers use their resources, the ways farmers regard and value certification and the selling-strategies that farmers display.
The farmer’s strategic position is explored by comparing farmers in terms of their strategic intent (what do I want to achieve?) and their strategic resources (what means do I have to achieve this goal?). The Global Value Chain (GVC) approach is used as a starting point of this research since it allows the researcher to identify different stakeholders in the value chain. However, since the GVC fails to distinct between value creation and value appropriation (Olthaar, 2015), the Resource Based View (RBV) (Barney, 1991) is discussed in order to account for creating and sustaining a competitive advantage, as well as the power factors influencing the value appropriation amongst different actors in the value chain. The Collective Action (CA) literature is discussed since farmers are likely to require cooperation in order to develop competitive advantage due to their constrained access to resources (Lutz, 2012). This thesis aims to contribute to the current literature by applying and exploring insights from strategic management and collective action literature in the case of the Ghanaian cocoa industry.
Agro Eco Louis Bolk Institute (AE-LB) facilitated the researcher in order to collect qualitative data from a farmer organization located in the western region of Ghana, the Asankrangua Impact Cooperative Farmer Union (AICFU). Several expert interviews, sixteen semi-structured interviews with farmers, six semi-structured interviews with traders and three semi-structured interviews with staff members of AICFU were conducted to provide insights regarding the research questions, to assess the impact of CA and certification and to build a typology of farmers. In order to assess the resources and capabilities of a farmer, strategic valuable resources and capabilities were identified. According to Barney (1991) resources and capabilities lead to a competitive advantage when they are Valuable, Rare, Inimitable and Non-substitutable (VRIN). In order to identify strategic valuable capabilities of Ghanaian smallholders all possible capabilities are assessed and external market channels are analyzed in order to see which capabilities are valued most by the market. Four strategic valuable capabilities are identified: saving money to grow financial independency, storing cocoa beans, access to inputs and pest and disease control.
The study of the strategic behaviour and choices of farmers leads to several identified tendencies with regard to the allocation of the farmer’s resources, as well as several identified selling strategies. Most farmers seem to make conscious decisions with regard to their selling options and display strategic behaviour. Farmers make selling decisions based on social ties, material benefits, loyalty or financial security in case of emergencies.
With regard to certification, farmers are positive, although farmers seem to lack understanding in the
difference between certification and the cooperative. Farmers find it difficult to identify the different benefits of
the cooperative and the certification. Moreover, most farmers lack knowledge about the part of the premium
that is paid to run the organization of the cooperative, which may lead to a lower level of commitment since
the farmers are not aware of the fact that the benefits of the cooperative come at a cost.
The typology which is developed based on the strategic intent and the resources and capabilities of the farmer leads to several implications. Firstly, farmers differ in terms of strategic intent, for example their willingness to grow, willingness to invest or ability to learn. Secondly, farmers differ in the amount of strategic resources and capabilities owned, for example the ability to store the beans or the access to inputs. Thirdly, the types of farmers identified based on those two factors (strategic intent and strategic resources and capabilities) display different behaviour. These differences lead to several important propositions as ‘farmers with a high strategic intent produce more cocoa/acre’ and ‘farmers with a high strategic intent are less likely to engage in side- selling’. Farmer organizations and policy makers should take these differences amongst farmers into account and should test the propositions stated. Finally, farmers are able to improve their individual strategic position by deploying the strategic valuable capabilities (storing, saving, access to inputs and pest and disease control).
However, since the cooperative has more financial resources or is able to assist the farmer in obtaining credits, the cooperative should assist the farmer in order to develop strategic valuable capabilities. The cooperative is required to improve the strategic position of the farmers in the long run and is an important resource for the individual farmer.
The discussion of the cooperative AICFU leads to the following insights. Firstly, the commitment of farmers seems low and may be improved by implementing training on the importance of the cooperative, or
implementing a membership/introduction fee instead of paying for costs through the premium. Secondly, the cooperative may improve by developing common goals and strategic intent amongst staff members and members, and by training its representatives on local level. Thirdly, the cooperative should prevent the Purchasing Clerk (PC) from having a double role (by also performing tasks as Field Officer (FO) or
representative) since it will be harder for members to decrease dependability on the PC if this person has a lot of power. Finally, several valuable investment options for farmer and farmer organizations are identified in order to improve the strategic position of the smallholders in the Ghanaian cocoa industry.
Certifiers and other policy makers can learn from the results of this report in several ways. (1) Since several
farmers are involved in side-selling, and this especially involves the farmers with a low strategic intent, policy
makers should provide training on strategic behaviour (in order to reduce side-selling as stated in the
propositions) and training on the important effect of the cooperative (in order to make the farmers more
committed to the cooperative). (2) Insights from the CA literature are provided to give clear advise in order to
make cooperatives more successful and the member’s participation more actively. More specific; cooperatives
should develop clear goals and membership/entrance fees may make the farmers more committed to the
cooperative. (3) Certifiers may learn from identified flaws, as potential misuse of the certification-scheme by
traders is discovered in the researched community. This misuse is harmful for cooperatives that follow the
rules correctly and should be avoided by certifiers in order to make the system (more) successful.
Table of content
Chapter Page
Acknowledgements 3
Executive summary 4
Table of content 6
List of tables and figures 8
List of abbreviations 9
1. Introduction 10
2. Research outline 12
3. Theory 15
3.1 GVC 3.2 RBV
3.3 Collective Action 3.4 Conclusion 3.5 Conceptual Model
4. Context 24
4.1 Cocoa sector 4.2 Chain description 4.3 Cooperatives 4.4 Certification 4.5 Challenges
5. Methodology 37
5.1 Case selection and overview cases 5.2 Methods of research
5.3 Operationalization of concepts 5.4 Validity and reliability
6. Value chain descriptions 46
6.1 Introduction
6.2 Conventional channel: PBC
6.3 Conventional channel: Akuafo Adanfo
6.4 Fair Trade channel: Kuapa Kokoo
6.5 RA + UTZ channel: Fedco
6.6 RA channel: Armajaro
6.7 Overview
7. Analysis 52 7.1 The perspective of the farmer
7.2 The perspective of the cooperative 7.3 Strategic value
7.4 Types of farmers and their selling behaviour 7.5 Valuable investment options
8. Conclusion 86
8.1 Conclusion 8.2 Recommendations 8.3 Limitations
Reference list 91
Appendices
1. Methodological appendices 95
2. Case descriptions (farmer files) 113
3. Appendices Analysis 114
4. Organization chart AICFU 123
List of tables and figures
Tables
4.1 List of active LBCs 2012/2013
4.2 Composition FOB-price of cocoa Ghana 4.3 Quality grades
5.1 Overview cases
5.2 Overview of interviews with experts
6.1 Overview value chain description
7.1 Farmers’ view on certification 7.2 Intercropping
7.3 Age, Farm size and number of sharecroppers 7.4 Shading
7.5 Evidence of lack of commitment 7.6 Goals and target of staff members 7.7 Appropriability test
7.8 Inimitability test
7.9 Superior differentiation test 7.10 Non-substitutability test 7.11 Outcome capability tests 7.12 Ranking of strategic intent 7.13 Ranking of strategic value
7.14 Overview types of farmers and rankings
Figures
3.1 Determinants of level of integration 3.2 Conceptual model
4.1 Value chain 4.2 Overview cash-flow
5.1 Location of AICFU
5.2 Conceptual model (2)
5.3 Composition of capabilities
5.4 Typology
List of abbreviations
AA - Akuafo Adamfo
AE-LB - Agro Eco Louis Bolk Institute
AICFU - Asankragua Impact Cooperative Farmers Union
CA - Collective Action
CAA - Cocoa Abrabopa
CHED - Cocoa Health and Extension Division
CMC - Cocoa Marketing Company
Cocobod - Cocoa Marketing Board
CRIG - Cocoa Research Institute Ghana
FOB - Free on Board
FT - Fair Trade
GAP - Good Agricultural Practises
GVC - Global Value Chain
KK - Kuapa Kokoo Farmer Union
LBC - Licensed Buying Company
PC - Purchasing Clerk
PPE - Personal Protective Equipment
PPRC - Producer Price Review Company
QCC - Quality Control Company
RA - Rainforest Alliance
RBV - Resource Based View
SPU - Seed Production Unit
SSU - Seed Supply Unit
TOFA - Traditional Organic Farmer Association
UTZ - UTZ certified
VRIN - Valuable, Rare, Inimitable and Non-substitutable
1. Introduction
“Anything is good if it is made of chocolate”
1, as well as many other quotes illustrate the popularity of one of the world’s most wanted candies. Chocolate appeals to the imagination of most people: for its taste, as well as its status as the candy of love.
Unfortunately, not every part of the chocolate industry is as prospering as the quote of Jo Brand is implying.
The main ingredient of chocolate is cocoa, while the cocoa industry is not particularly known for being foul proof (Hütz & Fountain, 2015). Besides issues of child labour and farmers’ poor working circumstances, the poverty among the cocoa farmers is the striking reality of the first stages of producing a chocolate bar (World Bank, 2007; Hütz & Fountain, 2015).
Despite this, many people are depending on cocoa: 90% of cocoa production is cultivated by an estimated 5,5 million smallholders in developing countries, while another 14 million rural workers directly depend on cocoa for their livelihoods (Hütz & Fountain, 2012). Cocoa is considered a global value chain (GVC): most beans are produced in West-African countries, while manufacturing, retailing and consumption is mainly done in Europe and the United States. In growing economies like China and India chocolate becomes increasingly popular as well (ICCO, 2014).
Due to growing consumer awareness and international attention for the industry, changes took place during the last decades. NGOs, manufacturers and other stakeholders became more active in sector-wide approaches focussing on sustainability. The most visible result of the sustainability trend is certification. Certification of cocoa is done to secure supply, to address consumer’s demands and to increase better social and
environmental conditions of farms, amongst other reasons (Hütz & Fountain, 2015).
Multiple researches have been conducted as a result of these developments. In some cases this research assisted and resulted in approaches to make the sector more sustainable. However, Aidenvironment, Newforesight and IIED criticize previous approaches by noticing that the use of supply chain or sector
approaches did not lead to a complete solution (2015). The new transformation model that is presented by the research-initiative is claimed to be more holistic, leading to tailor-made solutions for different producers.
However, as well as the previous approaches and researches, the farmers are not recognized as a force that could initiate changes leading to the solution. Regarding research focussed on sustainability, the smallholder perspective is systematically being underrepresented (Hütz & Fountain, 2015). This is illustrative for the African rural development policies, as Lutz (2012, p. 473) concluded: “so far studies paid attention to the institutional environment at macro and meso level only”.
The report of Laven (2010, p. 106) aims to include a smallholders perspective in the debate about upgrading smallholders in the cocoa industry. A link with the strategic management theory is made, but no strategic theories are used. She highlights the need for an analysis of the heterogeneity among farmers since “such insights explain different outcomes for producers that help policy-makers and NGOs develop more effective intervention that can reach the most vulnerable groups”. The reasoning indicates that Laven (2010), despite acknowledging differences among farmers, mainly focuses on solutions beyond the farmer, which means that the research has a more macro perspective as well.
Since researches based on meso and macro approaches pay little attention to differences amongst farmers, this research will address the need for an approach with a business perspective at farmer (micro) level.
1
Quote of English comedian J. Brand.
According to this perspective it is argued that every farmer who owns land and produces its own cocoa is a business-owner. Every business-owner makes its own choices, follows its own strategy and differs itself from others in its own way. This research therefore is exploring the possibilities for smallholders themselves to grow and develop their business by being unique. In Europe differentiation is a requirement to grow a successful business, why would this be different for smallholders in developing countries?
Introducing differentiation amongst smallholders by taking a strategic lens in the development discussion of the cocoa industry is the main aim of this research. The use of strategic business concepts and analysing the behaviour of the farmers accordingly will lead to new insights regarding the improvement of the position of smallholders in the value chain. In this research the initial steps of this approach will be carried out by addressing differences between smallholders in terms of their intent (what do I want to achieve?) and their resources (what means do I have to achieve this?). Combining these factors will lead to a typology which may provide a possibility for smallholders to improve their strategic position. Besides this, a typology will explain the behaviour of the farmer, provide recommendations for farmers in terms of most valuable investment- options, as well as assists policy-makers in terms of identifying suitable and less suitable farmers to aim for in building or extending projects.
The GVC approach provides the starting point of this research. The GVC assists the researcher to identify different stakeholders and forces in the cocoa value chain, which results in an understanding of the position of smallholders in the cocoa value chain. Different actors with different aims and power relations include farmers, producer organizations, traders, public bodies, manufacturers and processors, and certifiers. The GVC approach is widely used to identify opportunities for smallholders from developing countries in export value chains.
However, this body of literature does not sufficiently address the resources that are necessary to create and sustain a competitive advantage, neither does it provide insights into the forces that determine value
appropriation among actors in the chain (Olthaar, 2015; Lutz, 2012). The value appropriated refers to that part of the value created that is appropriated by the smallholder, and depends on the relative power of the actors involved in the value chain. However, within the GVC literature it remains unclear on which features this power is based.
To solve this problem, the resource based view (RBV) will be discussed as it addresses, besides value creation, also the importance of value appropriation, and the subject of competitive advantage. The RVB (Barney, 1991) claims that successful participate in a chain depends on the ownership of strategic resources (e.g. stocks of available factors such as ownership or user rights of land or human capital) and capabilities (e.g. skills and experience to deploy resources effectively). A sustainable competitive advantage can only be developed if a business, or in this case the smallholder, has control over these strategic resources and capabilities.
Many of the smallholders in developing countries are severely resource constrained (Lutz, 2012), and therefore unable to develop a strong strategic position individually. This causes the need for joint production (Thorp et al., 2005; Markelova et al., 2009; Foss & Lindenberg, 2011; Criaviotti, 2012). A collective of small farmers could leverage its bundle of resources in order to compete, just as joint investment may allow smallholders to create strategic resources that provide them a stronger position in the value chain (Olthaar, 2015). To this end, aspects of CA theories relevant to the global cocoa value chain will be explored.
The three introduced theoretical concepts are further discussed in chapter 3, after the outline of this research
is presented in chapter 2. In chapter 4 the context of the cocoa production in Ghana is described. After that,
the methodology and cases of the research will be discussed in chapter 5, which is followed by the analysis of
the traders (in chapter 6) and the farmers and farmer organization (in chapter 7). Finally, the conclusion and
recommendations of the report are presented in chapter 8.
2. Research outline
In this study the selling behaviour and choices of famers in the cocoa market is analyzed. The farmers face different buyers interested in their product. Those buyers all offer different selling conditions (credits, inputs, etc.). Furthermore, farmers differ in terms of the role cocoa plays in their life (e.g. subsistence farmers vs.
entrepreneurial cocoa farmers). This research aims to understand how farmers make their choice, and in particular the attractiveness of the contracts offered by producer organizations and Licensed Buying Companies (LCBs). This may help in understanding which farmers are interested in certification and/or producer
organization membership, and why some of these farmers are not a member, or engage in side-selling. The research will be carried out at farmer level. Important outcomes of this study are recommendations for certifiers and producer organizations to make their contracts more attractive for targeted farmers in the future and to increase loyalty of the members towards the scheme. Producer organizations may use the results to facilitate improvement of farmers’ working and income conditions through sustainable farming practices.
The main question is;
How can the behaviour and choices of smallholders in the cocoa industry of Ghana be explained from a strategic business perspective, what is the role of certification in this , and how can farmers strengthen their strategic position in the value chain?
The academic insights from the RBV (Barney, 1991), GVC approach (Gereffi, 2005) and CA literature (Olson, 1965; Fischer and Qaim, 2014) are used to develop understanding regarding the negotiation position and strategic behaviour (or lack of) of smallholders in the cocoa industry in Ghana, and will therefore analyze their resources, capabilities and goals. GVC literature provides industry-specific details to understand the position of the actors in the value chain and how value is created (Gereffi, 2005). Strategic management literature takes a step further by distinguishing between value creation and value appropriation. The value appropriated is the part of the total value created that is captured by the smallholder. Not all value created in a chain is distributed evenly among actors, generally resulting in smallholders benefiting least (World Bank, 2007). Since every start-up in Europe is critically assessed (in particular external finance is needed) regarding its ability to appropriate value, the same approach is expected (but lacking) in the debate on smallholders in the cocoa industry. Thus, it is argued that a strategic business approach focused on firm level will aid to understand in what ways participation in the cocoa value chain may or may not be attractive for smallholders.
According to the RBV (Barney, 1991), successful participation of smallholders in a chain requires the ownership of strategic resources and capabilities to improve their negotiation position. This will help smallholders to make better deals with suppliers and especially buyers (Thorp et al., 2005). A stronger strategic position should enable the farmer to appropriate a larger share of the total value created in the chain.
In order to improve understanding of the farmers’ deployment of their resources (e.g. time spent on labour, use of land and inputs), and why they use them the way they do, the following sub question is asked:
How do farmers allocate their resources, and why?
The perceived advantages (e.g. immediate payment in cash, extra inputs) at farm level of selling to different value chains (certification schemes) influences farmers’ choice of buyer. This study focuses on several potential advantages of certification at farm level such as:
- A price premium for the farmer
- Improved access to knowledge
- Better access to credit for the farmer - Improved access to inputs for the farmer - Stable access to markets
This leads to the following sub question;
What are benefits of certification at farm level as perceived by the farmer?
While certification schemes aim to offer advantages to farmers, a majority of the farmer population supplies the traditional chain. Furthermore, a substantial part of the certified farmers engages in side selling to the traditional chain (CIRAD, KIT & WUR, 2014). Possible explanations for certified producers selling to other chains are: farmers lack incentive to sell the product as certified (due to absence of a price difference), farmer has social ties with the buyer, or the farmer sells the produce to the first buyer who can fulfil in the farmer’s immediate cash-need. Reducing side-selling will reduce the payback period for certification organizations (KPMG, 2012). The following sub question regarding the practice of side-selling is formulated:
What selling strategies can be distinguished among farmers?
Furthermore, the role of cocoa varies for individual smallholders. Smallholders differ with regard to their intentions and the resources and capabilities they own (or control). Given that farms differ, it is expected that incentives to adopt sustainable agricultural practices differ as well. To help distinguishing different types of smallholders a typology is developed that addresses two dimensions; strategic intent and available strategic resources and capabilities. Strategic intent guides strategic decision making regarding the allocation of resources (e.g. willingness to invest) in order to maintain or reach a certain status in the future. The smallholder's resources are regarded as stocks of available factors under control of the farmer (such as ownership or user rights of land, seedlings, equipment, human capital, or certification) and capabilities as a smallholder’s capacity to deploy resources to a desired end.
Based on these insights the following sub-question is developed;
What types of farmers can be distinguished based on their strategic intent, strategic resources and capabilities?
A typology is useful for several reasons: a typology will gain insights in which farmers are more likely to remain a stable supplier of cocoa in the future (and therefore be more interesting for certification), which type of farmers are more likely to be certified, and which farmers are more likely to engage in side-selling. Finally, by identifying several types of smallholders, and the differences in success between those groups, this research will have the potential to identify investment opportunities to strengthen the position of smallholders in the cocoa-industry, and to adapt certification schemes to the needs of the different types of farmers.
Since smaller are generally unable to create a large base of resources (Lutz, 2012), and therefore are not able to develop a strong strategic position individually, there is a need for joint production (Thorp et al., 2005;
Markelova et al., 2009; Foss & Lindenberg, 2011; Criaviotti, 2012). Through CA farmers can solve resource constraints, increase scale advantages and reduce transaction costs (Markelova et al., 2009). A collective of small farmers should leverage its bundle of resources in order to compete, just as joint investment might allow smallholders to create strategic resources that provide them a stronger position in the GVC (Olthaar, 2015).
These insights lead to the following sub-question;
What suggestions could be made regarding valuable investment options for different types of smallholders and
their producer organisations?
Suggestions are made how to adapt the farmer organizations to the needs of farmers. A better understanding
and fit between the farmer population, farmer organization and certification schemes may help to increase
loyalty under farmers, shorten the payback period on certification investment for both parties (farmer and
producer organization), and identify areas with room for improvement.
3. Theory
In this section describes the three main theoretical pillars of this thesis; the GVC approach, the RBV and the CA approach. The structure of this chapter is as follows. Section 3.1 discusses literature on GVC and how these insights fail to explain why smallholders are not able to appropriate values nor addresses the resources that are necessary to create and sustain a competitive advantage. Therefore, in section 3.2 insights from strategic management, and in particular the RBV, are discussed to highlight the importance of strategic resources for developing a strong strategic position and a sustainable competitive advantage. This section elaborates on the difference between value creation and value appropriation, and the importance of strategic intent. In section 3.3 literature on CA will be discussed, in particular how smallholders, through bundling of resources, may be able to solve some of their resource constraints and compete through collaboration. The chapter concludes with the construction of a conceptual model in which above mentioned theory is linked to the case of smallholders in the cocoa industry of Ghana.
3.1 Global Value Chain
The GVC approach provides the starting point of this research. According to Kaplinsky (2000, p. 121) a GVC is described as “the full range of activities which are required to bring a product or service from conception through the intermediate phases of production (involving combinations of physical transformation and the input of various producer services), delivery to final consumers and final disposal after use”. Within a GVC might be a big distance between the local producer of the good and the global consumer (Bair, 2005). The GVC approach has grown to a considerable body of literature during the 1990s and onwards (Gereffi &
Korzieniewicz, 1994; 1999a; 1999b; 2001; 2003; Humprey & Schmitz, 2001; 2002; Gibbon, 2001). The GVC approach was initially referred to as global commodity chain analysis (Hopkins & Wallerstein, 1986; 1994), as this analysis was concerned with agricultural practices only. The commodity approach was then further developed by Gereffi into a unified theoretical framework that includes industrial commodity chains, to make it possible to identify and change existing power relations within chains by means of upgrading strategies (Laven, 2010). Global commodity chains differ from non-commodity chains in the sense that due to producer
anonymity large volumes are produced by multiple producers that cannot (easily) be traced back (Gereffi et al., 2005). Using the term value chain reflects the notion that value is added at each point in the chain, however, the terms value chain and commodity chain are used interchangeably (Laven, 2010).
A particular advantage of the GVC approach is that upstream and downstream events are taken into account (Van Dijk & Trienekens, 2011). The cocoa value chain can be considered a GVC, where upstream firms responsible for low value-adding activities are generally located in developing countries (farmers, purchasing clerks (PCs)), whereas downstream companies responsible for high-value adding activities are typically located in developed countries (traders, processors, manufacturers, retailers).
A concept related to governance of the value chain is the level of integration of the chain (Van Dijk &
Trienekens, 2010). The level of integration of companies is further specified by Gereffi (2005). He categorized
five types of governance by assigning high or low values to three factors; the complexity of information
required for the transaction, the codifiability of information needed for the transaction, and the capability of
actors in relation to the requirements of the transaction (see figure 3.1). These factors dictate the degree of
coordination and the degree of power asymmetry within the chain. GVCs differ from a low level of integration
(market-type) to one integrated chain (hierarchy-type).
Figure 3.1 gives an overview of the different structures.
Figure 3.1 Determinants of level of integration
The five governance types can be described as;
1. Markets: Markets are governed by price, product specifications are relatively simple and suppliers have capacity to make the products with little input from buyers. For both buyers and producers the costs of changing partners are low.
2. Modular value chains: In modular value chains the buyer specifies how producers have to make products, thus exchanges are not solely based on price. Ability to codify information is high thus cost of switching partners remains low.
3. Relational value chains: Relational value chains are characterized by complex relations and interdependency.
Switching costs are high as complex tacit information needs to be exchanged between buyers and sellers requiring high levels of specific coordination.
4. Captive value chains: In captive value chains small suppliers are dependent on large buyers as their capabilities are low and much intervention is needed from buyers. They are therefore ‘captive’ as they cannot switch easily to supply others.
5. Hierarchy: Value chains governed by hierarchy involve vertical integration.
In global agricultural several value chains governance modes are existing. Supply chains are becoming increasingly globally dispersed and buyer driven instead of producer driven (Gereffi et al. 2005). Lead firms, which are typically high-value adding firms located on the downstream side of the chain, have a lot of power and use this power to coordinate and control (govern) a chain by determining what has to be produced, how, when, and by whom (cf. Gereffi et al 2001; Gibbon et al 2008; Humphrey 2004a; Humphrey 2004b; Humphrey
& Memedovic 2006). Additionally, standards reflecting the preferences of consumer groups, governmental bodies, and NGOs influence the governance mode of the GVCs. The governance structures in the value chains determine what the intermediaries can offer the individual farmers. Chain governance defines what the quality standards are, what the involved stakeholders have to do and how the responsibilities are distributed. This means that the governance structure may affect, among others, prices and margins, minimum quality standards, the distribution of inputs and credit and access to extension services for the different actors in the chain.
Since GVC research examines the different ways in which global production and distribution systems are
integrated, it assists to improve knowledge about the possible winners and losers in this globalization process,
and how and why the gains from globalization are divided. Particularly important is how the number of gainers
can be increased (Gereffi et al., 2005). Gereffi et al. (2001) argue that global trading systems have both
positive and negative effects for people in developing countries. Inclusion in export chains is seen as an instrument to alleviate poverty (Laven, 2010). On the other hand, downsides to globalization include falling prices for producers, and cases where upgrading of products or processes does not necessarily lead to increased profits and sustainable incomes for smallholders (Gereffi et al. 2001).
GVC literature provides industry-specific details to understand the position of the actors in the value chain and how value is created (Gereffi, 2005). However, not all value created in a chain is distributed evenly among actors, generally resulting in smallholders benefiting least (World Bank, 2007). Governance structures determine the distribution of created value, and according to GVC literature, value appropriation is dependent on the relative power of firms involved (Gereffi et al., 2005). Different actors with different aims and power relations include farmers, producer organizations, traders, public bodies, manufacturers and processors, and certifying bodies. Actors such as lead firms have the power to coordinate and control a chain, where
smallholders seem to have least power. The GVC literature does provide further inside how this relative power exists. The GVC literature emphasizes the role of governance in the chain, upgrading, productivity
improvements and meeting demands of Western customers and lead firms to increase benefits of smallholders in the chain (Gereffi, 2003; Humphrey & Schmitz, 2002). Based on strategic management insights, that allude power to the resource base of the firm, it is argued that lead firms have more power, and thus a stronger strategic position, since those firms own, or have access to, strategic resources. Smallholders in the chain lack the resources to create a strong position for themselves. If value appropriation is dependent on the relative power of the actor, one should focus on how the power position then could be improved. Being part of a value chain only makes sense if the farmer is able to appropriate a reasonable part of the value created in the chain.
It is argued that the position of farmers only can be improved if they have the opportunity to develop strategic resources to strengthen their position in the chain. Thus, to assess the situation at micro (farm) level, a strategic analysis of the position of smallholders in the GVCs is required.
3.2 RBV
Most studies on the topic of sustainable cocoa production have focussed on development aims and development outcomes. Most of these studies take a macro or meso perspective, measuring impact or
identifying aims for policies. However, this perspective does not cover strategic aspects or processes to achieve those outcomes. Strategic aspects are mostly ignored in African rural development policies (Lutz, 2012). This ignorance might explain why the effects of these policies on the smallholders’ income have been rather weak.
Actors higher up in the chain, and the institutional environment that surround farmers, still largely determine the scope for change and the direction of ‘progress’ available to farmers (Laven, 2010). The strategic perspective takes a more inside-out view instead of an outside-in few of the firm, stressing that opportunities for this ‘progress’ as well reside within the firms resource base. The success of a firm depends partly on the chance they get to develop their strategic resources. Only these strategic resources may protect firms against the strong competitive forces in the value chain and enable a firm to appropriate value created within the chain.
Strategic management literature distinguishes between value creation and value appropriation, where GVC literature mostly focuses on value creation only. Since every start-up in Europe is critically assessed (in order to get external finance) regarding its ability to appropriate value, it is remarkable that the same approach is ignored in the debate on smallholders in the cocoa industry. The value appropriated is the part of the total value created that is captured by the smallholder.
Thus, it is argued that a strategic business approach focused at firm level will help to understand why
participation in the cocoa value chain may or may not be attractive for smallholders. It is argued that
successful inclusion of smallholders in GVCs requires the deployment of strategic resources and capabilities in the farming systems (Lutz, 2012). Consequently, the inclusion of smallholders in GVCs only makes sense if they have the opportunity to create strategic resources (Lutz, 2012). Thus, to assess the situation at micro (farm) level, a strategic analysis of the position of smallholders in the GVCs is needed.
3.2.1 RBV: Resources and capabilities
Initially, Penrose (1959) proposed that the source of competitive advantage resides inside the resource base of the firm. Only after Barney (1991) conceptualized attributes of strategic resources (resources that have the potential to result in sustained competitive advantage), the RBV has become a prominent theory within the field of strategic management. Resources include all assets, information, knowledge, etc. that enable the firm to conceive and implement strategies that improve its efficiency and effectiveness. According to Barney (1991), the only way to gain a sustained competitive advantage relative to other firms, and therefore a favourable strategic position, is to control valuable, rare, inimitable and non-substitutable (VRIN) resources. As argued by Barney (1991), firm-specific immobile resources which are simultaneously valuable and rare, have the potential to lead to a competitive advantage. If, additionally, these resources are inimitable and non- substitutable, they could lead to a sustained competitive advantage. Firm specific resources may be
heterogeneous and difficult for competitors to replicate, and therefore, important differences in cost or benefit advantages arise from these firm-specific resources.
The strategic position is, amongst other factors, concerned with the organization’s strategic capability, also referred as resources and competences (Johnson et. al., 2009). It is argued that successful inclusion of smallholders in GVCs requires the deployment of strategic resources and capabilities in the farming systems.
For smallholders in GVCs this means that their position can only be attractive if they own strategic resources and capabilities (Lutz, 2012). This is confirmed with more general theory of Sirmon et al. (2008), who state that it is crucial for small firms that want to appropriate more value in a chain to make an attractive value proposition by leveraging the resource advantages.
3.2.2 Strategic intent
The role of cocoa varies for individual smallholders. Smallholders differ with regard to their intentions and allocate the resources available to them accordingly. According to Prahalad and Hamel (1989) strategic intent implies a sizable ‘stretch’ between current capabilities and resources, and aspirations. The traditional view of strategic planning focuses on fit between existing resources and current opportunities, where strategic intent creates an misfit between resources and ambitions. The firm then closes this gap by systematically allocating resources towards the goal. Prahalad and Hamel (1989) give five steps that need to be accounted for in order to facilitate the goal. These steps, when adapted slightly, can also be applied to the case of smallholders in the cocoa industry; Firstly, a sense of urgency needs to be created that puts a focus on signals that are required for improvement. Certification can be seen as “an intervention to shake up farmers”
2 since it providessmallholders with a sense of urgency and stimulates them to set and reach goals. Secondly, a competitor focus needs to be developed so that every ‘employee’ (smallholder) is able to benchmark his or her efforts against best practices in the industry. Thirdly, employees need to be provided with the right skills, training and extensions. Farmers obtain know-how on producing good quality cocoa mainly from their families, but also through radio broadcasts and newspapers (Laven, 2010). LBCs, NGOs, and Cocobod furthermore provide extension services (which provide farmers training on Good Agricultural Practices (GAP) or business skills). The better smallholders are able to obtain know-how, the more efficient they can allocate their resources. Fourth, the firm should be given time to digest one challenge before launching another, and fifth, clear milestones and
2
Stated by expert AE-LB
review mechanisms need to be established to track progress. This imposes a bottleneck as record keeping imposes a big challenge on the generally poorly educated farmer population.
3.3 Value appropriation through CA
According to the RBV the availability of critical resources explains why some actors in a chain realize high returns while others end up with losses. Therefore it is important for the smallholder to develop these kinds of resources. Since smallholders are often resource constrained (Lutz, 2012), creating strategic resources and capabilities concerns a major challenge for the farmers which hampers the development of a competitive advantage. While proponents of the RBV emphasize that this competitive advantage results from resources housed within the firm, the relational view broadens this perspective by emphasizing that a firms critical resources may extend beyond firm boundaries (Dyer & Singh, 1998). Dyer and Singh (1998, p. 661) indicate that the combining of resources may be a source of “relational rents and inter-organizational competitive advantage”. By acting together, firms can generate supernormal profits that cannot be generated by either firm in isolation. When firms are willing to make relationship specific investments, productivity gains are possible (Williamson, 1985). Recently more and more focus have been put on the need for and benefits of joint production for resource constrained individual smallholders at the bottom of value chains (Thorp et al., 2005;
Markelova et al., 2009; Foss & Lindenberg, 2011; Criaviotti, 2012). Through CA farmers are able to solve some of the resource constraints they face, increase scale advantages and reduce transaction costs (Markelova et al.
2009). A collective of small farmers could leverage its bundle of resources in order to compete, just as joint investment may allow smallholders to create strategic resources that provide them a stronger position in the value chain. Literature on cooperatives shows the importance of group composition, group size, governance and selection mechanisms, strategic positioning, and willingness to invest. To this end, aspects of CA theories relevant to the global cocoa value chain will be explored.
3.3.1 Collective action
CA is described as ”voluntary action by a group to pursue shared objectives” (Marshall, 1998, as cited in Markelova et al., 2008, p. 623). CA is regarded as an instrument to strengthen the market position of smallholders as it improves access to all kinds of club goods (even local public goods) and GVCs for rural households (Thorp et al., 2005). Farmer groups can also provide platforms for capacity building, information exchange, and innovation in rural settings (Fischer & Qaim, 2012). Aggregation of farmers has many advantages. An organized group of smallholders is better able to access credit and is able to save money by bulk-buying quality inputs such as fertilizer. An organized group may afford machinery that makes them more efficient or less dependent on labour. As a group, farmers are more likely to be a reliable supplier to a wholesaler who needs large amounts, or meet sophisticated demands of supply chains (Robinson, 2013).
Many farmers in developing countries, and particularly in Africa, are not organized in producer organizations (CIRAD, KIT & WUR 2014). In Ghana the farmers’ level of organization is low, as farmers are not formally organized, but are rather organically structured around buying centres and their PCs (CIRAD, KIT & WUR, 2014). The lack of investment in farmer organisation makes it increasingly difficult to meet (changes in) demand, for which being organised becomes more and more a prerequisite (Laven, 2010).
Lack of access to required goods and services provides an incentive to organize for greater economic
independence (Gray, 2014). In addition other benefits of cooperatives can involve asset-building opportunities,
responding at local business, increases in local wealth, training and education of members and consumers,
greater civic participation, socially just community change. Furthermore, they could reduce exploitation and
inequalities. The only way for smallholders to improve their position and to avoid suppression of other parties in the value chain is to organize themselves so farmers have a voice
3.
Gray (2014) draws on lessons learned during the development of African-American cooperatives during the 20
thcentury. Cooperative formation and operation needs to account for adequate training and education of members, stable and adequate capitalization, stable and adequate numbers of clients, the building of trust and solidarity among members, support from the community, communication mechanisms, including meetings, conventions, newsletters and newspapers that connect members to members and members to the
organization. Furthermore cooperative success was more likely if members valued (racial) solidarity and concern for community. Group solidarity is as important to a cooperative as the pooling of resources and channelling CA, as solidarity can be leveraged with activities such as leadership development and women and youth development. Cooperation had a greater likelihood of success if the study of democratic organization and consumer and cooperative economics were emphasized. Furthermore cooperatives were more successful when their members had incomes that were stable and sufficient, to allow the members to remain independent of the cooperative. Organizations composed of members with low incomes/who were impoverished had greater vulnerabilities to maintain stable equity, raising capital and remaining independent of creditors.
Cooperatives that were facilitated and supported by local and national organizations had a greater likelihood of success. This institutional support is lacking in the Ghanaian context (Laven, 2010). Furthermore, team and committee structures allows for the development of shared leadership, multiple leaders and mutual
responsibilities. These structures can be ‘borrowed’ from affiliated organizational sponsors, which in the case of Ghana is common; as NGOs put down initial structures and train members so that that they could gradually take over the management and coordination of the cooperative (Glin et al., 2015). However, cooperatives often fail as soon as the third party assisting in the foundation steps out, or when funds dry out
4. Furthermore the importance of member owned and geographical embeddedness of the organization cannot be overstated (Gray, 2014). When cooperatives are set up by individuals from outside the community, the risk is high that the cooperative will collapse when these leaders leave. It has happened that more educated and experienced people from the city have used cooperatives as an opportunity to prey on the ignorance of the local people
5.
Though, even when cooperatives fail, members seem better off after they join or joined a cooperative. In addition to providing goods and services, the cooperative provided experiences and training that members might not get elsewhere. In addition, members were often able to establish credit and buy or develop asset (e.g. land, machinery) and earn financial return on their activity (Gray, 2014).
3.3.2 Group composition, group size and governance mechanism.
Group composition
Groups may be composed of heterogeneous members with respect to what they are able to contribute, and even regarding their individual interest. However, the group should be homogenous with respect to group goals (Olson, 1965; Gary, 2014). Olson (1965) describes the surprising tendency for the exploitation of the great by the small in small groups. However, smallholders will cooperate voluntarily if individual gains of getting access to a club good are higher than the individual costs.
Group size
3
Information provided by expert CRIG
4
Information provided by expert CRIG
5
Information provided by expert CRIG
In many cases, small groups are more efficient and viable than large ones as governance costs increase with group size, while benefits created need to be shared among more members (Olson, 1965). Even though more resources are accumulated as group size increases, it becomes more difficult to realize and govern voluntary contribution. This is referred to as “the paradox of group size” (Wincent et al. 2010, p. 45).
Governance mechanisms
To prevent opportunistic behaviour, governance mechanisms need to be put in place. Groups can either be governed in a formal or informal (relational) way or in a mixture of both. Informal mechanisms are based on trust and its underlying normative behaviours operate as a self-enforcing safeguard (Poppo & Zenger, 2002), However, lack of trust is an issue in the Ghanaian cocoa sector and one of the main reasons farmers refrain from cooperating (Laven, 2010). Formal governance mechanisms involve formal contracts. However complete contracts are non-existing (Besanko, 2013), neither do smallholders have the resources to realize formal governance forms. Therefore, smallholders need to rely on informal governance mechanisms (Ostrom et al.
1992).
Other important issues to for understand the performance of cooperatives concern the strategic positioning of a cooperative, as the commitment of the members is based on the goals and vision of the cooperative.
Selection mechanisms are also important since CA comes with risk of free riding behaviour. Selecting at the
‘gate’, based on criteria such as size or production potential, reduces inefficiencies and reduces the chance of free-rider behaviour and opportunism. Some form of compulsory membership is in most circumstances indispensable to union survival (Olson, 1965). Willingness to invest is important as without significant investments of members a cooperative will not work. Members should show commitment to sell through the cooperative, accept mutual credit systems, and accept standard production techniques, amongst other requirements (Lutz, unpubllished).
3.4 Conclusion
Literature on GVC contributes to understand how value is created within a GVC. However, it does not provide many insights in forces that determine the distribution of value among actors in the chain. The inclusion of smallholders in GVCs only make sense if they have the opportunity to appropriate enough of the value created in the chain, to provide for a living income for the farmers and their families. Strategic management literature, and specifically the RBV, provides a complement to the GVC literature as it addresses factors that determine value appropriation. The RBV provides theoretical insight to understand and analyse the importance of ownership of, or access to, strategic resources that secure such value appropriation. Successful inclusion of smallholders in GVCs thus requires the deployment of strategic resources and capabilities. However, most smallholder are resource constrained. Through CA some of the farmers’ constraints can be resolved, as shared resources can be developed that strengthen the strategic positioning of the collaboration firms in the GVC.
The ownership or control over strategic resources and capabilities lead to a stronger strategic position, and
should enable the smallholder to appropriate a larger share of the total value created within a GVC. It is argued
that the successful inclusion of smallholders in GVCs requires the deployment of strategic resources and
capabilities in the farming systems, and that these strategic resources and capabilities may be developed
through CA.
3.5 Conceptual model
The model in figure 3.2 combines the previous discussed concepts.
Internal analysis
By performing an internal analysis understanding is gained regarding the intent of the smallholder, and the resources available to him or her.
First, strategic intent guides decision making in order to reach or maintain a goal in the future. Smallholders have different intentions and allocate the resources and capabilities they own (or control) accordingly. Our aim is to gain insights in the different intentions farmers may have, and what goals they set for themselves.
(Especially in small businesses the goals of the owner are fundamental for change/the direction of the business). Some farmers run their farm as a business, while others are pre-occupied with other jobs and run the farm on the side.
Second, successful inclusion of smallholders in GVCs requires the deployment of strategic resources and capabilities by the farmer. For smallholders in GVCs this means that their position can only be attractive if they own strategic resources and capabilities (Lutz, 2012). It would prove interesting to see which resources and capabilities are available to smallholders in the cocoa industry in Ghana. Strategic intent influences how individual smallholders deploy their resources (e.g. how they cultivate their land, spent their time or money).
Alternatively, whether the smallholders enjoys an abundance of resources or is severely resource constraint may have an influence on strategic intent. For example, a farmer who possesses a large acreage may have different goals than a small farmer.
Furthermore, a collective of small farmers could leverage its bundle of resources in order to compete, just as joint investment might allow smallholders to create strategic resources that provide them a stronger position in the GVC (Lutz, no date).Through CA farmers are able to solve resource constraints, increase scale advantages and reduce transaction costs (Markelova et al., 2009). An organized group of smallholders can access credit better, they can save money by bulk-buying quality inputs such as fertilizer. They could afford machinery that makes them more efficient or less dependent on labour. As a group, farmers can more reliably supply a wholesaler who needs large amounts, or meet sophisticated demands of supply chains. Moreover, most certification schemes require farmers to get certified as a group.
External analysis
The goal of the external analysis is to document the different channels a farmer has access to. In practise, it means that the different options that the farmer has in terms of the PCs that are buying cocoa in the community, are being reviewed.
Third; the governance structures in the value chains determine what the intermediaries can offer the individual farmers. Chain governance defines what the quality standards are, what is required of the involved
stakeholders, prices and margins, the distribution of inputs and credit and access to extension services for the different actors in the chain. In the case of certification, joint action is often a qualifying condition to participate in the chain, since farmers generally get certified on group level.
Fit
Fourth, Resources that are Valuable, Rare, Inimitable and Non-substitutable have strategic value, however the
exogenous environment determines under which conditions the firm’s resources are valuable (Priem & Butler,
2001; Barney, 2001). This means that the bundling of VRIN resources may only lead to the creation of a
competitive advantage if it results in a product or service that is valued by the market. Thus, strategic value describes the fit between the VRIN characteristics of the resources owned by the firm, and the characteristics (qualifying conditions) of the value chain the firm is in.
Fifth, the strategic position of the farmer is determined by the strategic value. The strategic position
determines the farmer’s ability to appropriate a part of the total value created in the chain. A stronger strategic position enables the farmer to appropriate a larger share of the total value. Strategic behaviour is influenced by their strategic position (whether weak or strong) and entails the selling behaviour of farmers (whether they perform in side selling), their willingness to cooperate with other farmers (individuals cooperate if expected individual benefits from cooperation exceed individual costs (Olson, 1965)).
Figure 3.2 Conceptual model
4. Context
4.1 Cocoa sector
4.1.1 Cocoa
Cocoa is a primary commodity produced for export, with little added value and traded in the form of cocoa beans or semi-finished products (Laven, 2010). Cocoa is mainly produced in West-Africa, while consumption takes place all over the world.
Cocoa-beans grow from the Theobroma Cacao, a four to eight meter tall tree. The cocoa-tree grows naturally at altitudes below 300 meter, desires 1000-3000 millimetres of rainfall per year and survives in temperatures between 21 and 32 degrees only. These requirements cause that the tree only grows within 20 degrees of each side of the equator (Fenger, 2013 based on Kawa, 2008).
Cocoa grows in fruits (pods) which contain thirty to fifty beans and is harvested during the main harvesting season, which runs from (late) September to March. A smaller additional harvest is produced during the middle season, from May to September (ICCO, 2014).
64.1.2 Cocoa in Ghana
The cocoa produced in West-Africa serves more than 90% of the European consumers (Hütz-Adams and Fountain, 2012). Ghana is the second largest exporter of cocoa in the world, after Ivory Coast. Ghana produces 18% of global cocoa (KPMG, 2012). The cocoa sector makes the highest contribution to the Ghanaian GDP of all sectors in the country. Foreign exchange from cocoa amounted to about US $2.8 billion in 2011, translating into 23% of total export earnings (ISSER, 2012).
Cocoa was introduced as a crop in Ghana in the last half of the 19
thcentury, since Ghana qualifies perfectly for the described conditions to grow cocoa-trees (Fenger, 2013). Currently, the sector employs over 800,000 farm households across the country, which accounts for 30% of the population (COSA, 2013). These figures point out the same fact: cocoa is essential to Ghana.
4.1.3 Farm plots
On average farmers own small plots of land (Glin et al., 2015). This is mainly because of the land-system in Ghana. There are three main reasons why the current situation is leading to small plots of land:
(1) Land ownership in Ghana is important, land gives a certain amount of status and is seen as something that remains valuable, and therefore is regarded as a form of social security. Selling is not something one would do fast. This results in several plots of land that are not being cultivated, but are not being sold either. (2) Land inheritance of family-owned land, which is either done via a matrilineal or patrilineal system (depending on the tribe), leads to smaller plots since farmers often divide their land amongst their children. Because of the first reason, children do not sell the land to each other, resulting in divided plots of land. (3) Finally, plots of land become smaller due to the system of sharecroppers. Sometimes, when a farmer is unable or unwilling to work on (all of) his or her land, an agreement with a sharecropper is made. A sharecropper is someone working on the land for a share of the gains. According to the Ghanaian law, abunu sharecroppers
7become owner of 50%
of the operated farm, at the end of the contract. This divides the plots of land into smaller parts. Because of these reasons the farming of cocoa often happens on a small scale: Ghanaian cocoa farmers work on average on about 5 acres of land (Hainmueller et al., 2011).
6
Information verified by expert AE-LB
7
The different tenure systems will be explained in more detail in paragraph 4.2.1
Thus, land is being divided in small plots, while Ghanaians remain unwilling to sell their land in general.
Exceptions exist: in some instances there are land-owners that decide to sell their land. However, this is not done on a large scale, and often regarded as a final solution in case of emergencies. In general one prefers to leave the land uncultivated (social security for the future), or cultivated by others (sharecroppers) rather than sell the land. Stimulating Ghanaians towards a more liberalized land-system in which plots are traded more regularly proves to be difficult since it requires a change in cultural norms.
8Box 4.1 Patrilineal system and matrilineal system
4.1.4 Formal institutions
Since cocoa is essential to the Ghanaian economy the government is reluctant to lose its influence in the industry. In contrast with other West-African cocoa-producing countries like Ivory Coast and Nigeria, Ghana did not liberalize its cocoa sector over-night. Experiences of those countries are not positive: the consumer price decreased and became unstable. Ghana liberalized the cocoa industry only partly: Ghana maintains the fixed producer price, which is determined at the start of the main harvest season annually (COSA, 2013; Laven, 2010).
In the following section the partly-liberalized sector is further described, along with the actors involved in the chain.
Figure 4.1: Value chain
8
