5.2.1. Impacts of Informal Rules on Value Chain Performance

Impact on Access

Overt discrimination in access to markets is often observed as a consequence of gender-based rules. Cultural norms that restrict women’s ability to travel outside the home or village, and to talk or directly interact with men are a common phenomenon. In parts of Pakistan, for example, women handicraft producers can not leave their houses to go to the market. They are forced to sell only to door-to-door buyers or via their male relatives. With little decision-making power, the ability to participate in training or opportunities to contact potential new buyers, their prospects for upgrading are stifled.[1] Gender-related constraints are also reported in Bangladesh around access to market information in the vegetable sector. Katalyst’s vegetable sector project, for example, found that women can not directly meet or talk to input retailers, who are the main source of market information and advice on vegetable cultivation; so have to negotiate access mechanisms via male relatives.[2]

The impact of gender-based rules on access to land in rural south Asia was examined comprehensively by Bina Agarwal her landmark book "A Field of One’s Own".[3] She argues that the most important economic factor affecting women is the gender gap in command over property. A key element of her analysis is an exploration of the factors underlying the gap between (formal) law and (informal) practice, and between (formal) nominal ownership and (informal) effective control.

Impact on Relationships

Vertical Linkages

Informal rules can restrict the participation of certain groups in value chain activities by reducing their access to resources (skills, market information, networks) and assets (financial, technology). Effective vertical linkages between these participants may also be constrained by culturally mandated limits on their mobility and/or social interactions.

The impact of informal rules is not necessarily negative on value chain performance. For example, in Bangladesh’s maize sector, a study found that informal arrangements for the leasing of land and sub-contracting of cultivation (share-cropping) meant that the economic benefits of formal large-scale commercial contracting were spread much wider and to poorer households than had originally been expected.[4] Similarly, the social norms found within tight ethnic and social networks can facilitate strong commercial performance. Somali migrant and refugee communities, particularly in Nairobi, maintain strong market linkages with Somalia, serving both as a source of goods unavailable in Somalia and as a market for traditional Somali food products, such as camel milk.[5]

But while these networks can lay the foundation for substantial wealth creation within the network, as closed communities, they can limit broader value chain competitiveness through the use of unhelpful tactics. Such tactics include the wielding of political influence (e.g., special rules or exemptions as a result of political links and/or bribery) and economic power (e.g., operating at a loss to drive others out of business).

Norms greatly influence the acceptability and therefore prevalence of side-selling, price reductions and other breaches of contract by producers and buyers that are detrimental to vertical relationships. Where the norm is to abide by formal rules, enforcement becomes less costly and vertical linkages are likely to be strengthened. If this is not the case, a substantial amount of resources is needed to enforce regulations, creating inefficient linkages. For example, in Mindanao, most products are traded “all in” (i.e., without any grading). As a result, standards set by government agencies become ineffectual and buyers have to send their own agents to verify quality at the point of purchase.[6] Norms of civic cooperation reduce enforcement costs by leading individuals to internalize the value of standards and regulations even when the probability of detection for violation is negligible.

In many Southeast Asian cultures, strong norms exist regarding ‘saving face’. Anything that might hurt another's self-esteem is to be avoided or else the relationship will be at risk of being terminated. Buyers are restrained from making criticisms no matter how constructive—thus making it difficult for value chain players to strictly impose standards.[7]

Horizontal Linkages

The informal rules around who, how and when dispersed smallholder farmers or MSE operators can cooperate is critically important to reducing high transaction costs. If informal regulations support the formation of strong and honest groups then transaction costs can be effectively lowered through the organization of associations or cooperatives. Even in communities that have informal regulations that support cooperation, however, opportunistic and predatory behavior occurs. Communities are not homogeneous and often have subdivisions that result, given the opportunity, in one group taking advantage of another group. Within cohesive groups, some individuals may be incompetent or act dishonorably. The existence of social commonalities does not, therefore, mean that value chain actors trust indiscriminately. Rather a “double filter” is applied to guide with whom to do business. The first filter is characteristic (ethnicity, caste, culture or religion) and the second filter is the proof of honesty and competence which can only be achieved through the experience of engaging in transactions with others who are not part of the same social group.[8]

Belonging to a specific social group can generate social capital and benefit members through reduced transaction costs, shared risk and collective learning. Research conducted along the international border between Niger and Nigeria found that price differences were lower when the trade occurred between markets with the same ethnic compositions as opposed to among members of different ethnic groups. Although a lot of trade occurs among members of different ethnic groups, the absence of formal credit markets requires informal borrowing among traders, and this is facilitated by members of the same ethnic group.[9]

Social capital can have a downside. Under certain circumstances, characteristics of belonging may also require obligations that are detrimental to economic development at the household level. For example, in Bali successful entrepreneurs were constantly harassed by their kinsmen looking for loans and jobs; this harassment prevented entrepreneurs from accumulating capital and investing in the expansion of their enterprises.[10] In the Andes in Ecuador successful enterprise operators converted to Evangelical Christianity to avoid social and financial obligations to the Catholic Church feast days and ‘Cofradis’, the community Catholic religious leaders.[11]

In some contexts, the incentives to cooperate are not sufficient to inspire individual actors to associate, even informally. This is often the case when there is no ability to exert sanctions on those who do not uphold their responsibilities as group members. In places where there has been migration and the community is ethnically and/or religiously heterogeneous, the ‘rules of the game’ have to be established. For groups to function effectively, a shared understanding is needed of accepted behavior and the sanctions that can be used against those deemed to have broken the rules—including overt or less obvious forms of shaming and peer pressure. Establishing these 'rules of the game' takes time, sometimes even generations.[12]

Impact on Behavior


The distribution of benefits from the growth and increased competitiveness of a value chain is strongly influenced by the ability of each group of actors to upgrade. Upgrading requires access to information on end markets and opportunities for upgrading, as well as access to the resources and assets necessary to upgrade. Because information is often accessed through social capital and social networks, it may not be easily available to or shared by all value chain actors. For instance, if a higher value market can be accessed with improved production processes, but such processes go against the ‘traditional’ way of doing things, this new information may be ignored by value chain actors. In Zambia, cattle bind families into social networks through dowry payments and exchanges for other social support. The result is that the value of the cattle is in the number a family has, and how they are used to link to other family networks. Since the cattle is a social rather than a commercial asset, veterinary services have to be at a low enough price point to warrant the cost. Keeping the cattle alive is important; keeping it fat and meaty is not.

Informal regulations may also affect the incentives for upgrading. In Kenya, women have traditionally been responsible for horticultural production for household consumption, with surpluses sold in local markets, while men have been responsible for the export cash crops of coffee and tea. Growing demand in Europe stimulated production of french beans in the Meru District of Kenya, driven by three lead firms that contracted 600 household farms. The success of the crop shifted the control of the income earned by the women to the male household head. Although women continued to produce the crop, the men owned the land and the lead firms signed contracts with them. The loss of income to the women increased their vulnerability as well as that of their families as the men were prone to spend the income in bars.[13]

As informal regulations change over time—particularly in response to socio-economic, political and environmental shifts—opportunities for upgrading may be created or lost to social groups often targeted by development projects, such as women or the poor. Traditionally, Indian producers of coir yarn (fiber extracted from coconut husks) have been low and outcaste women from families with no access to land, using a tool associated with a ‘backward’ caste. In the late 1980s, demand for coir yarn dropped dramatically, and at the same time there was an increase in demand for laborers in the Middle East. The higher castes with land that could be mortgaged to purchase job visas left vacancies in the occupations of masonry, carpentry and tailoring in Kerala and Tamil Nadu in southern India, which opened up opportunities for lower caste males from coir yarn producer families. Consumption increased due to an influx of remittances in the 1980s, which in turn created job opportunities for lower caste women. The resulting exodus of producers from the coir yarn value chain necessitated the introduction of machines to meet existing global demand. Skilled workers were then required to operate the machines and wages increased, which led to the production of coir no longer being regarded as a low caste profession.[14]


  1. Behind the Veil Project
  2. Gibson, A. (2005) Bringing knowledge to vegetable famers, Katalyst case-study 1, Springfield Centre
  3. Agarwal, B. (1994) A Field of One's Own: Gender and Land Rights in South Asia. Cambridge University Press.
  4. Gibson, A. (2006) Enhancing the supply-side of the Maize market, Katalyst case-study 2, Springfield Centre
  5. AU-IBAR & NEPDP (2006) Kenya Livestock Sector Study. USAID/Kenya
  6. Boquiren, M. and Idrovo, I. (2010) Facilitating Behavior Change for Improved Competitiveness & Poverty Reduction
  7. Marian Boquiren during E-Consultation: The Impacts of Social Norms on Value Chain Performance, April 27-29 2010
  8. Humphrey, J. & Schmitz, H., 1998. Trust and inter-firm relations in developing and transition economies. Journal of Development Studies, 34 (4), pp. 32-61
  9. Aker, J.C., Klein, M., O'Connell, S. & Yang, M., 2010. Borders or Barriers? The Impact of Borders on Agricultural Markets in Niger. Unpublished Paper.
  10. Geertz, C. 1963. Peddlers and princes: Social change and economic modernization in two Indonesian towns. Chicago: University of Chicago Press
  11. Portes, A. & Landolt, P., 1996. The downside of social capital. The American Prospect 26
  12. Porter, G. & Lyon, F., 2006. Groups as a means or an end? Social capital and the promotion of cooperation in Ghana. Environment and Planning D: Society and Space, 24, pp. 249-262.
  13. Dolan, C., 2001. The 'good wife': Struggles over resources in the Kenyan horticultural sector. The Journal of Development Studies, 37 (3), pp. 39-70.
  14. Rammohan, K.T. & Sundaresan, R., 2003. Socially embedding the commodity chain: An exercise in relation to coir yarn spinning in southern India. World Development, 31 (5), pp. 903-923.