The informal economy: the ups and downs for agriculture

 The informal sector provides income and jobs for the most vulnerable populations in developing countries and, if gradually formalised, has potential to become a major lever for growth and development.

  • GERALD MASILA’S POINT OF VIEW

    Enhancing traceability for informal trade

    Gerald Masila explains the importance of capturing information on informal trade to start formalising the sector. © The Eastern Africa Grain Council

Gerald Masila explains the importance of capturing information on informal trade to start formalising the sector. © The Eastern Africa Grain Council

Thursday, 30 November 2017

As the executive director and CEO of the Eastern Africa Grain Council (EAGC), which brings together producers and processors, Gerald Makau Masila describes the barriers to formal trade for agricultural value chain actors. According to him, there is a need to invest in market infrastructure and to promote ICTs.

What are the key reasons for the prevalence of informal trade in Africa, particularly in agriculture?

The key reasons for informal trade, first of all, are to do with the structure of production. Most of African agriculture is carried out by smallholder farmers who produce relatively small quantities that they try to channel to the market to sell. However, because the quantities they handle and sell are so small, the trade ends up being informal. The other reason is that to be involved in formal trade, you have to abide by a number of standards that have been created from a regulatory perspective, especially for food related items. Smallholder producers, and also microenterprises that are involved in agribusiness, don’t always meet those standards and, as a result, end up having to bypass the formal system.

Are there any benefits of informal trade?

Informal trade of agricultural produce moves a substantial amount of food from production to consumption centres. If informal trade were not possible, we would be suffering massive shortages in the availability of food, and that would drive prices extremely high. Informal trade does not have to be condemned in totality, but we should be able to address some of the issues so that we can start migrating trade from the informal to the formal level.

What can policymakers do to encourage the formalisation of agricultural activities without implementing exclusionary regulations and barriers to trade?

First of all, policymakers need to appreciate the structural nature of production and trade and that it is highly dominated by small and micro-enterprises and smallholder producers. Then they need to bring in interventions such as the provision of suitable market places where these smallholders can bring their produce to sell. Central, suitable market places would provide proper marketing infrastructure for food and food items. Providing and investing in market infrastructure in this way also helps to formalise the market by providing access to information such as market prices, and the quantity of produce being sold.

There is also need for capacity building and training on food safety and food quality standards so that producers and traders are able to understand what the requirements are, and be able to meet them. This way, they would not be excluded even though they are not formal agribusiness enterprises.

How do innovative ICT systems like the EAGC’s Regional Agricultural Trade Intelligence Network (RATIN) encourage more formal trade in Africa?

One of the definitions of informality is not being able to trace information of exactly what is being sold. ICT systems are able to capture information and data about various products and agricultural commodities that are being traded through informal channels, so by capturing that data and information you are starting to formalise the sector. The information that is being collected through the use of ICT systems such as RATIN, which monitor the cost and quantity of cross-border trade, is also disseminated to actors in the value chain, including farmers, traders and processors. With this information, a farmer can decide to grow more soya, beans or rice, for example, in response to what the market is looking for, using information received through ICTs.

ICTs also help to provide services at the farmer level. We have ICT solutions that are helping to map out mechanisation requirements so farmers can use these applications to book a tractor or a dryer for their farm. Also through ICTs, we are going to get much more integration because the supplier and the producer are connected in a more efficient way. I am very confident that agribusiness will be transformed by ICTs.

Source: Spore CTA , Interview by Sophie Reeve

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