Flourishing informal food trade

Food Security06 Feb 2013Joost Nelen

‘Informal’ food trade is a key area in addressing food security: the best markets are those that already exist. Traditional or informal food trade persists and flourishes.

Connecting (small-scale) farms to new markets and value chains remains at the centre of current market-based development initiatives and policies. They express a belief in the formal private sectors and markets as major vehicles for economic development and also achieving food security. This has to be nuanced if we raise the food question.

In reality agriculture is characterized by high levels of informality. ‘Traditional’ or ‘informal’ food trade persists and flourishes. As informal markets, almost by definition, operate outside the reach of the state and formal chains, extensive supply networks remain consequently beyond the scope of ‘fair‘ and ‘sustainable’ trade or ‘inclusive business’ initiatives. Although study on the informal sector is not new, there is a policy bias which tends to see it as a hindrance to private sector development.

The competitiveness of modern retail compared to ‘traditional’ supply networks in developing and emerging economies appears to be exaggerated. The most efficient food chains are still the informal ones, going from grains and tubers in India, West Africa and the Latin American Andes, to fruits and vegetables in East-Southern Africa, South-East Asia and China to livestock in India and Africa: they have 80-95% of the market share. Even the dairy revolution is relative: still more than 80% of raw milk trade in India and Africa passes through informal markets (Omore and Baker, ILRI, 2012). In this basic food produce formal agribusiness (e.g. agro-processors, supermarkets) and farmers’ cooperatives get a small part (20% or less) of the market shares.

Furthermore, ‘informal’ or ‘traditional’ does not mean there is no grading for quality. Traders, vendors and consumers inspect the quality of the product before the purchase – moreover, prices depend on it – and the myriad of farmers, collectors, traders and vendors shows high degrees of cooperation or interdependence. Last but not least, women occupy a prominent place as farmers, processors and traders.

Chains are not merely ‘short’, since trade can have regional dimensions, as shown by examples of passion fruit from Kenya, pineapples from Uganda or onions from Niger (often much more important than exports to industrialized countries). Much cross-border trade of cereals and pulses passes by official as well as informal channels. Cereal and livestock markets in West Africa are lively and can go from the deep Sahel to coastal markets; some have already existed for many decades. Although in name there is free trade in the economic spaces of ECOWAS, EAC or COMESA, traders have to deal with expensive or time-consuming administration and not seldom with illicit taxes or export bans (in the case of cereals). One option is to build trade on cross-border social and ethnic relations; border relatives deal quicker with red tape or bypass it.

On the other hand, one should not consider informality exclusively as the ‘best performing’ option: it always depends on the situation. In general, informality can be a risky business. There is little social security. Food quality or hygiene is a crucial question, as much in the formal as the informal circuits. Farmers and traders cope with inefficiencies, while having little working capital (labour is determinant). Limitations of informal and traditional trade can partly be mitigated by trust-based relationships and social capital. Lack of representation at the national and regional levels can make policy makers blind to farmers’ and traders’ interests (e.g. regional market protection against subsidized imports), although invisibility may be a deliberate strategy against state or market enforcement.

Various links exist or are emerging. Supply chains to modern retail in developing, emerging economies often have their ‘feet’ in informality even if this trade cannot be defined as exclusively informal. Especially for fresh produce, there are numerous examples. In Latin America supermarkets go to ‘poor’ neighbourhoods, and commercial banks adapt their services to existing trade networks (Del Pozo-Vergnes, Tassi, Vorley, IIED, 2012). The cotton-cereal belts of Mali-Burkina Faso show how farmers diversify markets and put their cards on different chains, either formal, institutionalized (cotton), or informal (cereals, oilseeds). After state withdrawal in the 1990s mostly informal trade networks took over cereal commercialization and proved their ability to keep pace with rising food demands. ‘Formal’ associations and platforms seem not very relevant in trade, but they can be important in certain services, logistics and in policy dialogues (Nelen and Mangnus, SNV-KIT, 2012).

Informal trade can be a deliberate choice or a lack of an alternative, a reaction to high-entry costs and barriers to formal sectors, or resistance to state bureaucracy and corruption or to market subordination. In the end it is certainly too viable and too dynamic to consider it as a refuge for poor people or a relic to get rid of. And it is certainly a key area if we want to address food security.

One struggle of initiatives wanting to ‘include small-scale farmers in modern markets’ is that of formalization, often with mixed results. One of the reasons is that the targeted farmers and traders are already ‘included’, and often have been for decades, in adapting production systems and other dynamic markets which operate below our radar screen. Especially for food, we should not look at informal trade and markets as realms of underdevelopment, which have to be transformed by all means. This is not a plea for the status quo: there are technical and institutional innovations, ranging from better hygienic conditions, storage, information-communication technology, to self-regulation or appropriate standards (with the support of public agencies), associations of traders and farmers, to market regulation (reducing red tape; protection at regional level). But before doing that, a far better understanding of these food markets, trade and their actors has to be the starting point of all development interventions.