Formalization through contracts: Implications for power in smallholder cocoa supply chains

Côte d’Ivoire and Ghana, accounting for the majority of global cocoa production, exemplify the challenges of addressing environmental sustainability and social equity in informal agricultural supply chains. In this paper, we explore the implications of contractual relationships at the ’first mile,’ where smallholder cocoa farmers first market their product. Our analysis is motivated by the European Union’s Deforestation-free Regulation (EUDR), which aims to eliminate deforestation from global supply chains and is likely to accelerate contract formalization within the cocoa sector. Using in-depth case studies of Côte d’Ivoire and Ghana, we examined both formal and informal contracts, supported by 107 in-person interviews, to understand how these relationships shape smallholder agency and power dynamics. Formal contracts, as manifested through certification, offer certain structured benefits and are often viewed as a pathway to sustainable cocoa production. However, our findings reveal that they may constrain farmer agency by limiting flexibility in buyer selection and amplifying existing inequalities. Conversely, informal contracts, though opaque, appear to provide smallholders with greater negotiating power and autonomy at the first mile. These findings raise critical questions about the trade-offs inherent in formalization and highlight the need for nuanced policy approaches to achieve equitable and sustainable outcomes in global supply chains.