BizCLIR

In Ghana’s agricultural sector, as in much of the remainder of the economy, most economic activities begin informally. A father introduces his son or daughter into the farming practices of the family plot. A woman buys vegetables from the central wholesale market in Tamale and brings them back to her neighborhood for re-sale. A young man accumulates and repairs a collection of knapsack sprayers and irrigation pipes and nozzles, sets up a table at one of the public markets in Accra, and begins selling his wares. While no source offers a precise calculation of the percentage of agricultural businesses that operate informally (whether they are farms, traders, processors, or input and equipment vendors), smallholder farms – virtually all of which operate in the informal sector – are believed to represent some 80% of total agricultural production in Ghana. Based on anecdotal information gathered over the course of this diagnostic, along with the preponderant role of agricultural production within the agribusiness sector, it seems reasonable to assume that 75–80% of the agriculture sector operates informally.

Informality within Ghana’s agricultural economy is viewed by some as a problem to be solved and by others as a symptom of underlying flaws in the sector that, once addressed, will automatically lead to a natural transition toward greater “formalization” within the sector. From the point of view of the government and its regulatory agencies, informality complicates the collection of taxes, the compilation of sectoral statistics, and the enforcement of regulations ranging from food safety to environmental protection. From the point of view of the informal sector participants themselves, informality is seen as providing shelter from all these burdens the state seeks to impose and the costs that compliance entails. This situation is certainly not unique to the Ghanaian agricultural sector. Informality is the rule, rather than the exception, for agricultural enterprises in most developing countries of the world.

To the extent that informality is seen as an impediment to the state’s ability to oversee the sector in an orderly manner, and perhaps even as a constraint to long-term growth and profitability of sector participants themselves, the state may seek to draw informal agricultural enterprises into the formal sector. In doing so, several considerations suggest themselves:

1. Informality cannot be eliminated by legislation or regulation alone. Indeed, it is legislation and regulation that constitute primary reasons why actors determine to remain informal in the first place and prolong their informal status for as long as possible.
2. The reasons why governments see informality as a bad thing – impeding tax collection and sector regulation – have little or no traction with agribusiness participants. Other arguments must be crafted and communicated to advance the transition toward formality.
3. Many of the conventional benefits – access to credit, access to technical assistance, access to markets through FBO affiliation –commonly attributed to formality ring hollow to actors within the sector who have seen other farmers, agrodealers, or processors make such transitions, only to learn that these benefits proved elusive, but that the burdens imposed on them were real.

Ultimately, government will probably need to coax agricultural sector participants into the formal sector through a combination of light regulations and heavy incentives. Light regulations could include extended probationary periods for CPP dealers, during which the emphasis would be on training and education, rather than compliance and enforcement. Tax holidays or high earnings thresholds could also be considered, as might “tourist visas” into the formal economy, under which market traders could participate in organized market settings with temporary licenses, allowing them to verify for themselves the benefits of formal registration. Governmental success in providing access to credit for agricultural small and medium-sized enterprises (SMEs) operating in the formal sector would also serve as a positive inducement.