Informal MSMEs in the agricultural and rural sector

Transitioning from the informal to the formal economy is a long-term process as the informal sector thrives in the context of high unemployment, underemployment, poverty, gender inequality and precarious work. Often, informal labour in the agriculture sector is characterized by low productivity. Yet, in many countries, agriculture is a jumping-off point for developing MSMEs such as Arabica coffee production, consumption, and its entrance to regional supply chains as a high-quality niche.

Thus, agriculture should not be simply discounted as a traditional barrier to formalization. This indicates that countries need to carefully evaluate their agricultural sector before applying policies that could move people out of agriculture but not necessarily out of poverty, particularly if limited opportunities for non-farm jobs deter labour movement.

To address transitioning to the formal sector, the main MSMEs that require focus are single-person operations or family firms/farms; very few are owned or operated by employers with hired workers.²²⁸ Typically, they work at a low level of organization, on a small scale and with little or no division between labour and capital as factors of production.

Developing skills relevant to rural transformation will need to access better quality education and training adapted to local conditions and economic opportunities. It strengthens legal frameworks, protects and encourages rural actors’ organization and social dialogue, and promotes local rural development strategies that move rural populations into formal employment opportunities. A healthy and dynamic agricultural sector is essential for rural transformation, generating strong linkages to other economic sectors. Close economic integration of rural areas with neighbouring urban areas and creating rural off-farm employment can narrow rural-urban disparities, expand opportunities, and encourage the retention of skilled people, particularly youth.

The ILO finds considerable potential for rural job creation not only in farming, agro-processing and rural industry but also in building rural infrastructure, sustainable management of natural resources, waste and residues.²²⁹ Rural communities in ASEAN countries face challenges related to access to essential services (public goods), economic opportunities and some degree of incoherence about planning associated with the rural-urban divide. Additionally, economic transformation also squarely depends on, among other things, developing and implementing comprehensive strategies that are more resilient to shocks and inclusive of climate change (destabilization).