Making sense of middlemenship/intermediation
As a practice, intermediation or middlemenship is a meeting point for demand and supply where expectations of consumers and producers are consolidated. Each side brings a lot of lot onto the table. The supply side is concerned about commodity volumes and prices while the demand side brings consumer tastes and preferences into the conversation. In this situation, middlemenship or intermediation is like presiding over a heated soccer match. What makes this a tough call is that consumers blame the trader if prices rise while farmers blame the trader if prices go down. Yet when the two groups meet on their own without an intermediary, progress is often stalled.
Importance of understanding different shades of middlemenship
Every agricultural value chain actor has an element of middlemenship, depending on situations. For instance, owning a ripening facility enables a big company to reap more rewards from banana farmers than producers. Unless push and pull factors surrounding middlemenship are clearly understood, it is easy for farmers to blame everyone except themselves. In most cases, smallholder farmers do not have enough volumes or capacity to bring commodities to the market. This prompts traders to leave their market stalls in urban markets and go to farming areas where they aggregate commodities before bringing to the market. At what point is this kind of middlemenship bad for farmers and consumers? Is it better for the trader to leave commodities rotting in farming areas because farmers are not able to bring to the market?
Now that almost every farmers has access to information which enables access to diverse buyers, why are farmers and farmer organizations not stamping out middlemenship if they see it as a bad practice? Trading of agricultural commodities is characterized by a couple of risky elements. For instance, most traders speculatively buy commodities early in the morning just as the market opens. Given that the market will not have settled, this is risky because prices can fall a few hours later when the market settles down such that some traders end up selling commodities at much lower prices than anticipated. By that time, the farmer will have gone.
Who determines supply which is a major determinant of price?
Is it the trader or the farmer? Since supply is firmly in the hands of farmers, it is difficult for traders to control supply. When commodities flood the market and drive prices down, farmers blame the trader as if the trader is the supplier. On the other hand, when there is a deficit, traders scramble for produce and prices rise in favor of the farmer. To a greater extent, farmers compete with each other. The market is just an intermediary. Poor prices are due to mismatches between supply and demand. Unfortunately, most farmers do not have marketing skills and thus allow auctioneer types of middlemen to sell for them while they only collect money.
African informal markets are an open system that is not closed to end users such as vendors, companies, restaurants, hotels and housewives. Farmers have choices between selling to a vendor who buys one basket of tomatoes, to a hotel which wants 200 kilogrammes or a trader who buys 50 crates at once. Many traders who are labelled middlemen buy in bulk in anticipation for selling to more customers from other parts of the country. Obviously, serious farmers who want to be viable would prefer those buying in bulk unlike selling to single customers.
If the demand for commodities comes from other cities located 100 to 500 km away, few farmers have the capacity and patience to wait for buyers from different areas to come and buy in a disorganized fashion. Effective demand from these areas has to be consolidated and that is the role of middlemen, in addition to distributing commodities where they are needed. Traders are the ones who pull demand from far-flung areas. Formal institutions like supermarkets are not prepared to do that, preferring customers who walk into their shops. That is why fruit and vegetable sections tend to be very small in supermarkets.
Agribusiness as unstructured profit pools
The way middlemen are blamed is as if they are standing in the way of farmers who should access predictable profit pools. Yet there is nothing like that. As business models are becoming highly perishable, farmers have to learn to make decisions under conditions of uncertainty. Such decisions are increasingly being shaped by factors outside the control of any single value chain actor. There is no guarantee that good choices of commodities to grow can lead to favorable outcomes. Unless farmers change their mindsets, they will not fully take advantage of their resources. Individual households do not buy in bulk compared to traders.
Bulky commodities like potatoes and cabbages can only get into the market in a more organized way through middlemen who have taken time to understand demand patterns. Same with peas that are than sorted into different categories and sizes by traders in the market. A farmer cannot do everything including mixing different commodities and accompanying his/her commodities to distant markets. That is why uncovering hidden roles and responsibilities of value chain actors is very important. Producers and consumers need each other although they might pretend otherwise. This loudly speaks to economic justice, governance, empathy, ethics and other soft issues that determine success or failure in agribusiness.
The writer, Charles Dhewa writes in his personal capacity and can be contacted on the following details; charles@knowledgetransafrica.com, charles@emkambo.co.zw, info@knowledgetransafrica.com
