How Informality Shapes Colombia’s Food System and Slows Rural Economic Progress

The OECD finds that informality dominates Colombia’s food system, supporting millions of rural livelihoods but limiting productivity, market access, tax revenues, and value creation. It calls for investments in rural infrastructure, land reform, agricultural innovation, and market linkages to help small farmers, Indigenous Peoples, and Afro-Colombian communities participate more effectively in formal markets and drive inclusive rural development.

A new OECD report has revealed that informality remains a defining feature of Colombia's food system, shaping the livelihoods of millions of farmers while also limiting productivity, investment, and long-term economic growth. The study finds that informal agricultural markets are essential for food security and rural incomes but have become a major barrier to value creation and sustainable development.

Agriculture remains a key pillar of Colombia's economy, contributing 8.7% of GDP and employing 14.4% of the national workforce. The sector also serves as the country's second-largest export category after extractive industries. Yet beneath these impressive figures lies a highly informal system. Labour informality in agriculture reaches 92%, compared with 55% across the economy as a whole, while more than 52% of rural land tenure remains informal. The OECD argues that these realities prevent farmers from accessing higher-value markets, formal finance, insurance, and government support programs.

The report stresses that informality should not be viewed simply as a compliance issue. Instead, it reflects deeper structural inequalities that have persisted for decades, particularly in rural regions where poverty, weak infrastructure, and limited state presence continue to shape economic opportunities.

Deep Rural Inequalities Continue to Exclude Small Farmers

The OECD identifies rural inequality as one of the strongest drivers of informal agricultural markets. Rural poverty in Colombia stands at 42%, compared with 29% in urban areas, while food insecurity affects 34% of rural households, significantly above the urban rate of 23%. Access to digital infrastructure remains limited, with only 10% of rural households owning a computer or tablet and 42% having internet access, compared with 72% in cities.

The report highlights that these challenges are particularly severe for Indigenous Peoples and Afro-Colombian communities. Indigenous groups account for 4.4% of Colombia's population, while Afro-Colombians represent 6.8% of adults. Many live in remote territories with poor transport connections, weak public services, and limited access to formal buyers. At the same time, these communities manage vast natural resources, including nearly 39 million hectares of forests and agricultural land, making them critical actors in biodiversity conservation and climate resilience.

According to the OECD, development efforts targeting these communities must balance economic inclusion with respect for cultural traditions, food sovereignty, and community-led governance systems.

Why Informal Markets Continue to Thrive

The report describes Colombia's agricultural economy as a dual system. On one side are large commercial farms with access to technology, finance, and organised markets. On the other are millions of small-scale producers operating with limited resources and weak market connections.

More than 71% of Colombian farms are smaller than five hectares, while land ownership remains highly concentrated, reflected in a rural land Gini coefficient of 0.89. Smallholders often lack access to machinery, irrigation systems, storage facilities, quality inputs, and formal credit. As a result, they depend heavily on local intermediaries and informal trading networks.

The scale of informal commercialisation is significant across major commodities. The OECD estimates that approximately 68% of panela sugar production, 60% of maize sales, 48% of potato production, and 45% of milk production are marketed informally. Even Colombia's globally recognised coffee sector, where 94% of production is exported, continues to rely on informal farm-gate transactions before products enter formal export channels.

The study identifies four main barriers preventing farmers from entering formal markets: lack of access to buyers, inability to meet quality and volume requirements, insufficient formal demand, and a rational preference for informal transactions when compliance costs exceed potential benefits.

Major Policy Lessons for Governments and Development Partners

For policymakers, the report sends a clear message: formalisation will not succeed through enforcement alone. Instead, governments must address the underlying constraints that make informality the most practical option for many producers.

Transport and logistics emerge as critical priorities. Agricultural logistics costs account for around 15% of sales, while many rural communities remain hours away from major markets due to poor road infrastructure. Weak storage systems and limited cold-chain facilities further reduce farmers' ability to participate in formal supply chains.

The OECD also points to slow progress in land reform. Colombia's National Development Plan aims to distribute 1.5 million hectares of land and formalise nearly 4 million hectares of rural property. However, by early 2026 only 4% of the land distribution target and 27% of the land formalisation target had been achieved. Similarly, just 27% of the country's territory has an updated cadastral system, well below the government's 70% objective.

Another concern is the decline in agricultural innovation. Public investment in agricultural research and development fell from 1.72% of agricultural GDP in 2015 to 0.54% in 2022. Extension services have also reached fewer farmers than planned. Yet productivity gains remain substantial. Research cited in the report suggests that many dairy farms could increase yields by 81% to 101% simply by adopting practices already used by top-performing producers.

For international development agencies, these findings highlight opportunities to support land governance, digital inclusion, climate-smart agriculture, rural infrastructure, agricultural innovation, and Indigenous economic development. The OECD argues that integrated rural development programmes will deliver greater impact than isolated interventions.

New Opportunities for Business Alongside Significant Risks

The report also carries important implications for the private sector. Rising demand for traceable, sustainable, and responsibly sourced products is creating opportunities for agribusinesses, processors, retailers, and exporters to integrate smallholders into formal value chains.

Government procurement policies provide another opening. Colombian law requires that 30% of food purchased by public institutions come from small and medium-sized producers, creating a potentially stable market for rural communities. Digital platforms, producer cooperatives, logistics services, storage infrastructure, and value-added food processing are identified as promising investment areas.

However, businesses face substantial risks. Weak transport networks, fragmented supply chains, security concerns, regulatory complexity, and low producer productivity continue to increase operating costs. Companies seeking to expand sourcing from rural areas will need to invest in farmer training, traceability systems, and long-term partnerships.

The OECD concludes that Colombia's food system can become more productive, inclusive, and resilient only if governments, development partners, and businesses work together to address the structural causes of informality. Investments in infrastructure, land governance, education, agricultural innovation, and market access will be essential to unlocking the economic potential of millions of small farmers while strengthening national food security and rural development. The report's central message is that informality is not merely an economic challenge—it is a development challenge that requires coordinated action across the entire food system.