Leveraging the role of MSMEs in food systems transformation: Insights from fruit and vegetable chain studies across five countries

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Midstream micro, small, and medium enterprises (MSMEs) can help transform our food systems by linking small-scale farmers to markets, offering affordable food to both urban and rural areas, creating jobs and opportunities for young and female entrepreneurs, and supporting sustainable, circular food practices. However, challenges such as high levels of food loss and waste (FLW), food safety concerns, and inefficient governance structures hinder their contributions.

The study of MSMEs is important to both the CGIAR Research Initiative on Fruit and Vegetables for Sustainable Healthy Diets (FRESH) and Sustainable Healthy Diets through Food Systems Transformation (SHIFT). FRESH investigates how midstream traders in the informal sector can innovate within food systems in Benin, Tanzania, and the Philippines to sell more fruits and vegetables (FAV), while SHIFT has conducted case studies in Ethiopia and Viet Nam to explore the challenges faced by MSMEs in delivering FAV sustainably. Collectively, the case studies from these five countries illustrate the challenges and potential entry points for improvements.

Food safety is an established and growing concern across countries, but awareness levels vary

Fresh FAV pose significant food safety risks due to inadequate infrastructure for proper handling and regulation. Across the five case study countries, food safety is a universal concern for MSMEs selling FAV, as they recognize that safer fruits and vegetables can command higher prices. In Viet Nam, food safety practices and certified products are driven by demand from institutional buyers such as kitchens, supermarkets, schools, and safe food stores. Similarly, in the Philippines, institutional buyers such as Jollibee adhere to the Food Safety Act to limit residues on fruits and vegetables. However, in both countries, end consumers who primarily buy from wet markets are less concerned with food safety, instead focusing more on price and appearance. Despite higher awareness among consumers in Viet Nam, vendors in wet markets find it challenging to sell certified produce due to high prices, lack of capital, and lack of management skills. In the Philippines, many wet market consumers are not concerned with microbial or chemical contamination when purchasing food items.

In Tanzania and Benin, awareness of excessive chemical use is developing among consumers, retailers, and wholesalers. In Tanzania, there is an emerging trend to grade produce based on noticeable chemical residues and offer lower prices for such items. The focus is mainly on visible or smelly chemical sprays, with less concern for undetectable chemical use. Traders often indicate that farmers are responsible for ensuring safe food, rather than investigating their own roles and practices. In Benin, farmers report they intend to reduce chemical inputs to increase the quality of FAV and thereby the selling price. However, significant potential remains to raise food safety awareness and improve practices in both countries.

Food loss and waste has not received enough attention from MSMEs

The Food and Agriculture Organization of the United Nations estimates that globally, about 40–50 percent of root crops, fruits, and vegetables are lost through FLW each year. FLW incurred by MSMEs can be substantial due to inefficiencies in harvesting, storage, and transportation; inadequate infrastructure; and lack of modern processing and cooling facilities. In the Philippines, postharvest losses in the mango chain can reach up to 40 percent, especially for mangoes transported from Mindanao to markets in Luzon, which is partly due to a shortage of workers skilled in sorting and grading.

Most FAV MSMEs interviewed in Viet Nam and Ethiopia do not perceive FLW to be a serious concern. Out of a score of 10, with 10 indicating a very serious issue, MSMEs in Viet Nam ranked FLW as a 2 or 3, on average, and those in Ethiopia ranked it as a 4. In both countries, this may reflect the small scale at which vendors operate. Due to capacity constraints and the perishability of FAV, retailers are likely to maintain a small inventory and regularly replenish their stock in smaller quantities. This approach misses out on the benefits of economies of scale, making it economically inefficient, but it is effective for managing FLW. Key actions that retailers take when FAV products lose freshness and appeal include putting them on sale at lower prices or giving them to poorer people. If a product is fully spoiled, they either use it as animal feed or discard it. In Tanzania, the level of concern seems to be higher, with 70 percent of respondents considering FLW a significant issue, but the respondents indicated they rarely discussed or implemented solutions to address FLW. Traders in Tanzania, Benin, and the Philippines also indicate that lack of storage space and poor roads significantly affect the perishability of FAV, as produce spoils quickly and damage occurs during transportation.

Lack of trust and chain governance limits the functioning of MSMEs

Across the five countries, trust issues are prevalent, with exploitation occurring among some actors within the value chain. In Viet Nam, difficulties in securing inputs and outputs highlight a lack of connections and trust between midstream MSMEs and other chain actors. The absence of contracts and institutional agreements creates market information gaps that negatively affect producers. In Benin, producers rarely communicate directly with the final consumer, allowing traders to have significant influence over prices and leading to regular conflicts between the two groups. Focus group discussions with Ethiopian MSMEs identified the interference of brokers in setting product prices as a major challenge to business expansion. Similar challenges with brokers occur in Tanzania, where both farmers and traders indicate brokers act as a barrier to direct linkages between them.

“Brokers are the ones who influence the fluctuation of prices and bargain [for] prices with farmers…that affects the business, and they also withhold relevant information from us.” – FGD participant at Ziway/Batu, Ethiopia. 

Source: SHIFT case study, Ethiopia

This challenge highlights the need to strengthen both horizontal and vertical supply chain governance in food systems, incorporating formal and informal structures. While implementing rigid agreements such as institutional contracts could minimize exploitation in the value chain, these agreements can be difficult for MSMEs in the informal sector to secure due to their lack of organization and information, and risk aversion. Although repeated contracting with one buyer could reduce risks through a long-standing relationship, the coordination of costs and risks of unsold or spoiled produce make it less advantageous compared to selling to multiple buyers, especially given the price fluctuations and perishability of the products. It is important to strike a balance between regulations that support MSME functioning and reach public goals, and empower MSMEs as the key agents of change. Depending on the national, institutional, and even cultural environment, this will likely not be a one-size-fits-all approach.

“When the supply was high, the farmers asked me to (help) buy their products. When the supply was low and the price increased, when I came to buy, they [had] sold all their products to other people already.” 

“Restaurant and kitchen X ordered in a large quantity, but the payment took so long to process…I do not want to do business with them.” 

– Research participants, Viet Nam 

Source: SHIFT case study, Viet Nam 

Joining insights for impact and future research directions

Insights from FRESH and SHIFT’s research highlight the diverse roles and challenges faced by MSMEs across different contexts. Enhancing food safety standards, improving infrastructure, and fostering trust within the value chain are critical to reducing FLW and ensuring product quality. However, these efforts must be tailored to local contexts and market dynamics, acknowledging the informal nature of many MSMEs and their specific operational challenges.

Further examination is needed to identify incentives to motivate informal MSMEs to positively contribute to food system outcomes. This research should involve vendors and midstream actors, acknowledging their informal nature and the specific logistics of operation and governance. Additionally, such work should consider the behaviors of all actors and the contextual environment within which MSMEs operate to identify key agents and leverage points for change.

This blog was coauthored by Trang Nguyen and Emma Termeer, researchers at Wageningen University and Research and part of SHiFT’s Work Package 2 on Micro, small, and medium enterprises and the informal sector and the CGIAR Research Initiative on Fruits and Vegetables for Sustainable Healthy Diets (FRESH).

The International Food Policy Research Institute and the Alliance of Bioversity International and CIAT lead SHiFT in close collaboration with Wageningen University and Research and with contributions from the International Potato Center. SHiFT combines high-quality nutritional and social science research capacity with development partnerships to generate innovative, robust solutions that contribute to healthier, more sustainable dietary choices and consumption of sustainable healthy diets. It builds on CGIAR’s unparalleled track record of agricultural research for development, including ten years of work on food systems and nutrition under the CGIAR Research Program on Agriculture for Nutrition and Health.

The FRESH Initiative is being implemented by CGIAR researchers from IFPRICIMMYT, the Alliance of Bioversity International and CIATIWMI, and CIP in close partnership with the World Vegetable CenterApplied Horticultural Research, the University of Sydney, the Institute of Development StudiesWageningen University & Research, the University of California, DavisBorlaug Institute of South AsiaSokoine University of AgricultureWayamba University of Sri Lanka and the Philippines Department of Science and Technology-Food and Nutrition Research Institute, along with other partners.  

Header image: A fruit display along the street in the city center of Cotonou, Benin. Photo by Remi Kahane/Global Horticulture Initiative from Flickr.

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