Unpacking innovation in the informal food sector
The food sector is an essential driver of economic activity in low-income countries, particularly for the rural poor. It serves as a vital source of income, sustenance, and employment. In these economies, formal and informal configurations of food markets often overlap, creating dynamic "grey areas" where regulatory compliance, financial integration, and economic scale vary widely. This overlap shapes the way food systems function, with informal actors, such as small farmers and traders, playing a critical role. Yet, the informal food sector is often underexplored in research and policy, despite its importance in sustaining livelihoods and ensuring food security.
This blog delves into insights from a recent meta-study on innovations in the informal food sector, highlighting how these advancements shape economic opportunities for marginalised actors and contribute to more inclusive and efficient food systems.
The problem
The informal food sector is dynamic yet fragmented, characterised by unregulated transactions, relational contracting, and reliance on personal networks. While it connects small-scale producers to local and regional markets, it is also marked by inefficiencies, limited access to finance, and persistent poverty among small farmers and traders.
The distinction between formal and informal is not always clear-cut. Formal food firms often interact with informal actors, buying produce from unregulated farmers or engaging with intermediaries who operate outside official frameworks. While informal markets offer entry points for those excluded from the formal sector, their decentralised nature poses challenges for scaling up innovations or implementing policy interventions.
Despite these complexities, the informal food sector plays a vital role in ensuring food availability and accessibility. However, its relatively unstructured nature and lack of centralisation mean that innovations, while present, often remain dispersed and understudied.
About the research
The meta-study, written by Dr Hope Michelson, reviewed peer-reviewed literature to identify innovations that have the potential to enhance the informal food sector's inclusivity, efficiency, and resilience. It explored both disruptive innovations, developments introduced from outside the sector, and sustaining innovations, which emerge organically from within.
By focusing on the informal sector, the study aimed to bridge a gap in the research, which has traditionally emphasised formal markets, such as supermarkets and large-scale exporters. The goal was to uncover strategies and practices that could improve outcomes for marginalised actors, particularly small farmers and traders, while addressing inefficiencies in the food system.
Methodology
The author used a systematic approach to review and synthesize evidence from published studies. The analysis categorised innovations based on their origins, adoption patterns, and impacts. Emphasis was placed on identifying practices that improve participation and economic outcomes for informal market actors, while also examining environmental implications where relevant.
A key focus was on understanding how these innovations interact with the informal sector's unique characteristics, such as its fragmented supply chains, numerous intermediaries, and reliance on informal credit and contracting systems.
Key findings
The study highlighted two main types of innovations transforming the informal food sector:
- Disruptive innovations
- Mobile technology: The widespread adoption of mobile phones and payment systems has dramatically lowered transaction costs and improved market access.
- External practices: Standards and systems developed in formal markets, such as quality assurance protocols, have begun to influence informal actors, albeit in modified forms.
- Sustaining innovations
- Informal actors have developed new contracting methods, aggregation models, and logistical solutions to optimise operations.
- These practices often emerge from necessity, reflecting the sector's resilience and adaptability in resource-constrained environments.
The research also identified significant knowledge gaps, particularly regarding the diffusion of innovations within informal systems and their broader socioeconomic and environmental impacts.
Next steps
The study underscores the critical role of intermediaries in informal food supply chains, illustrating their impact on market dynamics and price stability. As the World Bank's 2019 report on the future of work suggests, rather than attempting to formalise the informal sector, efforts should focus on increasing its productivity. Exploring why some actors remain informal, and how they innovate and adapt, could provide actionable insights for improving livelihoods and food security.
The informal sector thrives on resourcefulness and adaptability, often operating in environments of constraint. By studying its innovations, policymakers and practitioners can design targeted interventions that support growth and integration without imposing rigidity. Ultimately, empowering the informal food sector can drive rural development, reduce poverty, and enhance resilience in food systems.
Dr Michelson studies the dynamics of poverty and food security in low-income countries where market failures are a fact of life. One of her key subjects is the interaction of international development efforts with local and large-scale agribusiness. She investigates how small farmers respond to the expansion of international supply chains, the sourcing of agricultural products, and the buying and selling of agricultural inputs.