Implications of Governance Factors for Economic and Social Upgrading in Ghana’s Cocoa Value Chain

This paper identifies several governance factors that enable economic upgrading and the link between economic and social upgrading /downgrading of smallholders and Abusa sharecroppers in Ghana’s cocoa value chain (GCVC).

The findings are based on qualitative interviews and focus group discussions with various actors in GCVC. Our findings suggest two types of economic upgrading: process and product upgrading, achieved by smallholder producers and Abusa Sharecroppers in GCVC.

While process upgrading is enabled by governance factors such as price stabilization and controlling opportunistic behavior, transparency in the sale of certified beans and premium management is key for product upgrading.

Regarding the link between economic and social upgrading, we reveal that process upgrading leads to the same outcome of social upgrading and downgrading for smallholders and Abusa sharecroppers due to governance factors such as production and purchasing policies and lack of resources and capabilities.

However, product upgrading links to social upgrading and downgrading for smallholders and Abusa sharecroppers respectively owing to governance factors such as controlling resources and bargaining power.

We provide insights into key actors and their interests, drivers of change and effects of incentives that play crucial roles in shaping governance factors that influence economic and social upgrading of smallholders and Abusa sharecroppers in GCVC.

In our conclusion, we identify how regulations, institutional support and conflicts of interest are key for enabling upgrading of developing countries’ agricultural value chains.

Over the past three decades, the organization of production on a global scale has increased significantly through the use of Global Value Chains (GVCs). Research has contributed to our understanding of two key concepts: governance and upgrading in GVCs.

Governance highlights the management role of various actors, in particular lead firms, in shaping GVCs (Gereffi 2005). Governance has been linked to both economic and social upgrading in various GVCs. Economic upgrading seeks to identify ways in which economic actors can increase their share of value, while social upgrading aims to improve working conditions and labor relations (Barrientos et al. 2011; Gereffi and Lee 2016; Ponte et al. 2019b; Selwyn 2013).

While the concept of governance has fundamentally improved our comprehension of upgrading in GVCs, our understanding of the governance role played by other actors beyond lead firms remains relatively limited (Karatepe and Scherrer 2019; Lombardozzi 2021; Neilson 2014; Neilson and Pritchard 2011; Tups and Dannenberg 2023).

Previous research on governance in GVCs has primarily examined how lead firms from the Global North impact upgrading prospects, while little attention is paid to the governance role of local actors in promoting economic and social upgrading (Alford and Phillips 2018; Kissi and Herzig 2020; Selwyn 2013).

This study is situated in the literature on Global Agricultural Value Chains (GAVCs) and identifies governance factors enabling economic upgrading and the link between economic and social upgrading /downgrading of smallholders and Abusa sharecroppers in Ghana’s cocoa value chain (GCVC).

The study recognizes governance factors, stemming from multiple actors, especially local actors to the development of GCVC in a changing society. Beyond the governance factors, the study emphasizes the drivers of change and incentives derived from the relationships established among key actors that foster upgrading.

Noteworthy local actors within this study encompass the Ghana Cocoa Board (COCOBOD), License Buying Companies (LBCs), farmer cooperatives, and smallholders.

By exploring the governance factors and examining the drivers and incentives arising from the interactions among key actors, this study offers an avenue for enhanced comprehension of the evolving dynamics within the governance and upgrading of GCVC (Carbone 2017; Ponte et al. 2019b).

The research questions that this paper seeks to address are: (1) How and why do various governance factors enable economic upgrading for farmers and Abusa sharecroppers in GCVC? (2) How and why do governance factors link economic upgrading and social upgrading/downgrading for farmers and “Abusa” “sharecroppers” in GCVC?

The term sharecropping refers to a type of landowner/caretaker relationship in the agricultural production system where the latter provides labor on a piece of land in return for a share of the crops. In the GCVC, sharecropping involves two types: “Abunu”, which means dividing the income received from selling the crops into two, with each partner taking half, and “Abusa”, which means dividing the income into three, with the landowner taking two-thirds and the caretaker receiving one-third (Amanor 2010; Barrientos 2014; Bymolt et al. 2018; Kissi and Herzig 2023; LeBaron and Gore 2020).

While the Abunu sharecropper cultivates a virgin land, the Abusa sharecropper manages an already established cocoa farm.

In this study, we focus on Abusa sharecroppers because they have a restricted ability to adopt innovative practices and engage in value chain activities due to their limited control over the production and marketing decisions of the cocoa beans.

Furthermore, their diminished bargaining power is a consequence of restricted access to information, coupled with social class and identity limitations, which can increase their potential for labor exploitation (Kissi and Herzig 2023; LeBaron and Gore 2020).

GCVC presents an interesting case because of the many smallholders and sharecroppers who are more prone to upgrading challenges.

In addition, Ghana’s cocoa trade policy is described as a partial market liberalization, which limits the participation of smallholders and sharecroppers when compared to Côte d’Ivoire, which has a liberalized trade policy (Bymolt et al. 2018; Kolavalli and Vigneri 2018).

In what is described as partial market liberalization, the Ghanaian government, through COCOBOD, enjoys an export monopoly, yet allows intermediaries known as LBCs to operate the domestic purchase of beans at or above a fixed price announced by COCOBOD annually.

Additionally, social upgrading challenges such as human rights abuse, and economic upgrading challenges such as lack of living income for smallholder producers, persist in GCVC (Berlan 2013; Fountain and Hütz-Adams 2022).

We conceptualize governance factors as the regulation and coordination of activities by key actors through a variety of formal and informal instruments to influence value addition and distribution of profits in GAVCs (Boström et al. 2015).

We also define economic upgrading as the improvement in the income of smallholders and sharecroppers, and social upgrading as the improvement in working conditions resulting from increased income (Barrientos et al. 2011).

This article contributes to the agricultural value chain literature of developing countries by arguing that understanding the governance factors that shape the behavior of key actors is crucial for promoting upgrading in GAVCs.

A focus on multiple actors is key for economic and social upgrading in GVCs because of inclusiveness in decision making, improved trust and equitable distribution (Kumar and Beerepoot 2019; Ponte et al. 2019a; Sako and Zylberberg 2019).

In the next section, we present our conceptual approach, with a particular focus on the role of multiple actors in governance and upgrading in GAVCs and GCVC before explaining our methods of qualitative data collection and analysis in the methodology section.

Then, we present our empirical results and discussions in light of the drivers, incentives, and governance factors that lead to economic upgrading in GCVC and the interlink to social upgrading.

Finally, in the last section, we present our main findings and highlight future research and policy avenues in promoting governance factors enabling upgrading in GAVCs of developing countries.

Conceptual approach

Here, we explain governance factors that facilitate economic and social upgrading/downgrading of smallholders in GAVCs and GCVC.

Governance and upgrading in GAVCs

The earlier conceptualization of GVC governance distinguished between buyer-driven chains, such as the apparel and agriculture industries, and producer-driven chains, such as the automobile and electronics industries, as a broad way to capture the relationships between different actors (Gereffi 1994).

In buyer-driven chains such as GAVCs, earlier literature has explained relationships more as captive governance by which lead firms drive, coordinate, and normalize the actions of various actors through concrete practices (such as codes of conduct, certification standards, and multi-stakeholder initiatives) and organizational forms (Carbone 2017; Gibbon et al. 2008; Ponte et al. 2019b).

However, recent studies have paid more attention to the governance role of other key actors and have shown that governments, intermediaries, and NGOs, play critical roles in the facilitation, regulation, implementation, and distribution of concrete practices in GAVCs (Alford et al. 2021; Alford and Phillips 2018; Kissi and Herzig 2020; Lund‐Thomsen et al. 2021; Strambach and Surmeier 2018).

Therefore, the governance of GAVCs can be described as a “multipolar governance,” as explained by Ponte (2014). This shows that various key actors exercise some level of control that shapes the production and distribution of profits that alters economic and social upgrading in GAVCs.

Economic upgrading in GAVCs can be defined as the process by which economic actors—such as labor, smallholder producers, processors, manufacturers and distributors—move from low-value to relatively high-value activities (Gereffi 2005). The literature distinguishes four different types of economic upgrading in GAVCs:

(1) process upgrading (where economic actors transform inputs into outputs more efficiently);

(2) product upgrading (where economic actors move into more sophisticated product lines);

(3) functional upgrading (where economic actors acquire new functions to increase skill capacity); and (4) chain upgrading (where economic actors move into new but related sectors) (Humphrey and Schmitz 2002).

In GAVCs, economic upgrading is primarily associated with product and process upgrading, as highlighted in previous studies (Kilelu et al. 2017; Neilson 2014). This can be attributed, in part, to the lack of industrial upgrading policies that would support their progression (Pipkin and Fuentes 2017). Furthermore, lead firms tend to prioritize and provide more support for product and process upgrading compared to functional and chain upgrading (Bassett et al. 2018; Dünhaupt and Herr 2022).

Recent advancements in GAVCs literature have expanded beyond solely focusing on economic upgrading to understanding social upgrading and the relationship between the two (Ponte 2022; Rossi 2019; Teipen et al. 2022). Social upgrading acknowledges that all actors fully participate with rights and entitlements to promote and improve labor conditions along GVCs (Rossi 2013).

Social upgrading considers both measurable (e.g. health and safety, working environment and working hours) and non-measurable (e.g. freedom of association, the right to collective bargaining, non-discrimination) indicators (Rossi 2013).

Social upgrading has traditionally been applied by the International Labor Organization (ILO) to wage labor in an industrial setting or agricultural plantation context (Neilson 2019). Therefore, the early conceptualization of social upgrading neglected self-employed smallholder producers and their wage workers (Barrientos et al. 2011).

However, recent conceptualization shows how the social upgrading of suppliers, including smallholders, interacts with economic upgrading governance paths (Gereffi and Lee 2016) and livelihood approaches (Neilson 2019).

The ultimate success of product and process upgrading and their link to social upgrading is not always clear and positive due to uncertain interests, demands and distribution of gains (Barrientos et al. 2011; Rossi 2019; Selwyn and Leyden 2022).

Key actors in GAVCs pursue their upgrading objectives within the constraints imposed by the institutional context (Mohan 2016; Neilson and Pritchard 2011; Ponte 2022; Trienekens 2011). Therefore, governance factors matter in achieving upgrading in GAVCs.

Governance factors refer to the regulation and coordination of activities by key actors through a variety of formal and informal instruments to influence value addition and distribution of profits in GAVCs (Boström et al. 2015).

CLICK HERE to continue reading the full paper jointly authored by Evans Appiah Kissi and Christian Herzig in the AgriFoodEcon.com