Degrees of formalization of agricultural entrepreneurs: going beyond registration

Abstract

The dichotomous view of formalization – ‘registered’ versus ‘not registered’ – is a widely adopted approach for analyzing entrepreneurs and their businesses. It, however, fails to adequately capture the multiple dimensions of the formalization process and limits the scope of interventions to promote business formalization. Hence, this study expands the conceptualization of agribusinesses’ formalization from a dichotomic view to a richer and more dynamic perspective. Using data from a survey of 819 agribusinesses in Benin, we develop a framework that considers multiple dimensions of formalization, namely registration status, compliance with tax law, and compliance with labor law and examine factors that influence the position of entrepreneurs on the formalization continuum. The result shows that agricultural entrepreneurs operate at varying degrees of formalization. Among the surveyed businesses, we found that about 46% were wholly informal, 6% were largely informal, 22% were only registered, 24% were largely formal, and 3% were wholly formal. Entrepreneurs who displayed higher levels of formalization were largely based in urban areas and older, with higher incomes and educational levels. They were also associated with greater awareness of the formalization procedures, had higher tax morality, and perceive a high risk of detection. The result underscores the need to rethink the dichotomous view of formalization and offers insights for targeting policy efforts to increase formalization in agribusinesses.

RÉSUMÉ

La vision dichotomique de la formalisation – « enregistrée » versus « non enregistrée » – est une approche largement adoptée pour analyser les entrepreneurs et leurs entreprises. Cependant, elle ne parvient pas à saisir de manière adéquate les multiples dimensions du processus de formalisation et limite la portée des interventions visant à promouvoir la formalisation des entreprises. Par conséquent, cette étude élargit la conceptualisation des agro-industries d’une vue dichotomique à une perspective plus riche et plus dynamique. À l’aide des données d’une enquête menée auprès de 819 agro-entreprises au Bénin, nous développons un cadre qui prend en compte les multiples dimensions de la formalisation, à savoir le statut d’enregistrement, le respect de la législation fiscale et le respect de la législation du travail, et nous examinons les facteurs qui influencent la position des entrepreneurs sur le continuum de la formalisation. Le résultat montre que les entrepreneurs agricoles opèrent à différents degrés de formalisation. Parmi les entreprises interrogées, 46 % étaient totalement informelles, 6 % étaient largement informelles, 22 % étaient seulement enregistrées, 24 % étaient largement informelles, et 3 % étaient totalement formelles. Les entrepreneurs affichant des niveaux de formalisation très élevés étaient principalement basés dans des zones urbaines et plus âgés, avec des revenus et des niveaux d’éducation plus élevés. Ils avaient également une plus grande connaissance des procédures de formalisation, avaient une moralité fiscale plus élevée et percevaient un risque de détection élevé. Le résultat souligne la nécessité de repenser la vision dichotomique et offre des pistes pour cibler les efforts politiques visant à accroître la formalisation dans les agro-industries.

Keywords:

• Entrepreneurship
• formalization
• tax
• labor
• small business
• agriculture
• Benin

MOTS-CLÉS:

• Entrepreneuriat
• formalisation
• fiscalité
• travail
• petite entreprise
• agriculture
• Bénin

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the International Foundation for Science (IFS) under the grant agreement NO. I-3-S-6473-1 and the International Fund for Agricultural Development (IFAD) under the grant 2000001374 for the International Institute of Tropical Agriculture (IITA) for the project ‘Enhancing Capacity to Apply Research Evidence (CARE) in Policy for Youth Engagement in Agribusiness and Rural Economic Activities in Africa’.

Notes on contributors

Frejus Thoto

Frejus Thoto is a researcher at the Faculty of Agronomic Sciences, University of Abomey-Calavi, Benin and the Director of ACED, a think tank active on food and nutrition security issues. Frejus has expertise in agricultural development, food security, and knowledge management.

Thomas Jayne

Thomas Jayne is University Foundation Professor of Agricultural, Food, and Resource Economics at Michigan State University. His works span numerous topics, including food marketing and price policies, changes in land-use patterns, sustainable intensification, employment, and rural transformation.

Felix Yeboah

F. Kwame Yeboah is an Assistant Professor and Coordinator of the African Youth Transformation Platform at Michigan State University. He has over a decade of experience providing critical analysis and consultation on issues at the nexus of agricultural and food systems' transformation, environment and natural resources, and youth livelihood in both the US and Africa.

Barthelemy Honfoga

Barthelemy Honfoga is an agricultural economist and Associate Professor at the Faculty of Agronomic Sciences, University of Abomey-Calavi (Benin). He has expertise in agricultural research and development, agricultural marketing, food security, business development, and policy analysis.

Anselme Adegbidi

Anselme Adegbidi is a Full Professor at the Faculty of Agronomic Sciences, University of Abomey-Calavi (Benin). His research interests include agricultural marketing, agribusiness development, agricultural productivity, and poverty reduction.