Christopher Burke Senior Advisor, WMC Africa
A familiar and frustrating narrative plays out every harvest season across rural Sub-Saharan Africa. Having endured erratic weather, localized climate shocks, pest outbreaks and spiraling input costs, particularly fertilizer prices, smallholder farmers take their produce to local markets and aggregation centers only to confront buyers exercising considerable market power. Prices can fall sharply, while non-standard measurements and heavily packed sacks may further reduce returns. Farmers may return home with substantially less than anticipated, exposing households to recurring food insecurity and poverty traps.
The familiar policy response is to denounce predatory middlemen, impose price controls, restrict informal brokers or introduce digital trading platforms designed to bypass intermediaries. Nonetheless, these trading networks endure. Research on African crop markets cautions against assuming widespread collusion, while acknowledging that particular market structures and barriers to entry can restrict competition.
To understand why top-down interventions often fail, we must abandon simplistic views of middlemen as merely predatory actors exploiting smallholders. Research in northern Uganda demonstrates how intermediary traders collectively sustain informal trading institutions. Such arrangements can constitute a form of regulatory substitution where private networks establish trading rules, determine participation and enforce compliance in response to persistent institutional weaknesses. They become shadow governors when control over essential market services translates into authority over the conditions of exchange.
Functional agricultural markets rely on four institutional pillars: 1) immediate liquidity, 2) standardized weights and measures, 3) reliable contract enforcement and 4) efficient market clearing and risk absorption. In high-income economies, banking infrastructure, public metrology, commercial courts and formal logistics support these functions. Across much of rural Sub-Saharan Africa, limited institutional capacity and accessibility leave important gaps, which informal intermediaries frequently fill. Yet access to institutional finance and international markets increasingly brings additional requirements imposed through private standards, commercial contracts and supply-chain compliance systems.
Liquidity of Last Resort
Formal banks rarely extend affordable credit to asset-poor smallholders lacking registered land titles or recognized collateral. High rural underwriting costs and credit constraints restrict financing, while delayed payments from institutional buyers can compound liquidity problems.
Informal traders help fill this shortfall through immediate farm-gate payments and pre-harvest advances. Recent Ugandan research confirms the centrality of cash transactions among agricultural intermediaries. These arrangements address immediate household needs, but can create dependence on particular buyers.
Private Metrology and Standards
A study on measurement standards in Tanzania demonstrates how reliance on non-standard containers and traditional measures can disadvantage smallholder farmers in agricultural transactions. Non-standard buckets, heavily packed sacks and locally accepted measurements can create functional, but asymmetrical trading arrangements.
Research on warehouse systems identifies standardization of weights and measures as an important means of reducing unfair trading practices. Informal standards persist where farmers lack access to independently verified scales, reliable market information or effective mechanisms to challenge disputed transactions. For export-oriented producers, informal trading arrangements will increasingly intersect with requirements such as the EU Deforestation Regulation (EUDR) through which traceability, documentation and verification influence access to international markets.
Informal Contract Enforcement
Statutory courts are often geographically distant, expensive and too slow to resolve small agricultural disputes. Traders consequently depend on reputational mechanisms, social relationships and repeated transactions to enforce informal agreements.
Research on Ethiopian dairy markets demonstrates how verbal agreements, trust and reciprocal relationships underpin transactions between traders and other supply-chain participants. Studies of relational contracting further show how traders extend inputs or credit in exchange for expectations of future supply.
When farmers default on advances or sell produce to competing buyers, traders may restrict future credit or commercial dealings. Research by Malin Nystrand at Roskilde University in Denmark on Ugandan rice illustrates how indebtedness can create unequal relationships while farmers retain strategies to resist commercial dependence. Where coordinated networks enforce common rules or exclude non-compliant participants, commercial relationships can acquire informal regulatory authority.
Guaranteed Market Clearing and Risk Absorption
Smallholders frequently lack affordable storage, reliable transport and access to distant markets. A recent World Bank report highlights how transport inefficiencies, inadequate storage and fragmented supply chains increase food costs and losses.
Intermediaries aggregate produce, coordinate transport and connect farmers with buyers, facilitating market clearing while bearing risks associated with post-harvest losses, transport costs and short-term price fluctuations. Their services are essential to commercial exchange, even when the terms are unfavourable to producers.
The structural challenge is that these necessary services can facilitate excessive rent extraction where competition is weak, enabling dominant buying networks to control access to liquidity, transport and markets and extract substantial margins from services farmers cannot readily obtain elsewhere. Research on Ugandan grain identifies transaction costs and limited credit as barriers to competition, although broader comparative evidence cautions against treating exploitation as universal. Farmers may sacrifice opportunities for long-term accumulation to meet immediate household needs.
Simply banning middlemen can prove counterproductive. Eliminating intermediaries without establishing reliable alternatives risks creating financial, logistical and commercial gaps. Farmers deprived of immediate payment, aggregation and transport have little choice, but to return to the same arrangements.
Policymakers and development partners could recognize informal trading networks as structural adaptations to institutional weaknesses rather than viewing them exclusively through legal or moral lenses. Successful modernization will require alternatives to essential intermediary functions while strengthening competition and accountability within existing arrangements. As agriculture becomes more integrated into formal finance and global supply chains, these networks may increasingly operate under externally imposed requirements, transmitted through commercial and regulatory relationships. Recent research on Ugandan maize demonstrates that attracting additional aggregators can improve farm-gate prices without eliminating intermediaries.
Potential responses include decentralized warehouse receipt systems, community aggregation facilities with certified digital scales, accessible rural credit and stronger producer cooperatives. An initiative in Ghana demonstrates warehouse financing does not automatically reach smallholders.
Shadow governors will continue to influence rural agricultural economies until formal institutions or trusted alternatives provide accessible liquidity, transparent measurement, effective contract enforcement and reliable market access. These networks persist not because they are invincible, but because the market cannot function without the essential services they provide.
Christopher Burke is a senior advisor at WMC Africa, a communications and advisory agency based in Kampala, Uganda. With more than 30 years of experience, he has worked extensively on social, political and economic development issues including governance, agriculture, extractives, environmental management, policy formulation, communications, advocacy, conflict transformation, international relations and peace building across Asia and Africa.
