What if removing middlemen can kill over 60 percent of food markets?
Middlemen are often blamed for reaping off farmers and consumers. However, most of the criticism is based on poor understanding of how markets function and the gaps closed by middlemen. All markets have unique ways of assigning roles to different actors. If middlemen were not important in coordinating supply chains and moving food from production zones to consumption areas like cities, they would have disappeared many years ago. The fact that these actors continue to be an integral component in both formal or informal markets indicates their critical role.
The market experience as a moving target
The fact that markets are always in a random dance makes the marketing experience a moving target where today’s dynamics may be totally different from what happens tomorrows. Transporters tend to be some of the most important middlemen or intermediaries because they keep food in motion. Consolidating information from diverse actors and sources such as farmers, traders, other transporters, fuel dealers, equipment manufacturers and many other sources makes transport unique informants. Being are hired to collect commodities from different production zones makes transporters aware of areas with surplus commodities, where commodities are being planted and who is getting ready to harvest which type of commodity.
On the other hand, being confined production areas makes it difficult for farmers to have such critical details that influence levels of market competition, pricing and profitability. Transporters also convey better quality information from the market to farmers than some traders who may want to keep farmers misinformed or uniformed about granular details in market operations. More importantly, based on relationships built over time, transporters can move commodities without cash being paid upfront and be paid after farmers have sold their commodities. This is critical for limiting the demand and use of cash while keeping the market moving efficiently in a fluid manner.
Who is the equivalent of a lead farmer on the market?
While the agricultural production side works through lead farmers, there is often no equivalent of a lead farmer on the market side. The assumption is that commodities can easily move in the market without a powerful broker who fully understands the market. That is where most agricultural interventions lose the plot because markets are more sophisticated than production practices where information and prescriptions have become pretty standard.
There are not more than four ways of planting maize but there are more than a dozen pathways through which food commodities are marketed. Those market pathways are often navigated by middlemen, some of whom can be in the form of lead transporters more knowledgeable about the supply chain because they deal with the farmer, the trader and the consumer. Intermediation experience empowers the transporter with unique knowledge and information about different actors. Circumstances in which farmers fail to pay for inputs and transport services can only be understood by the transporter. Farmers can also tell the transporter cases where they are mistreated by service providers, traders and other actors. All this information increases the transporter’s understanding of the food system more than agronomists and PhD graduates in agricultural economics.
Capacity to follow production cycles
Whereas farmers may not visit the market until they have something to sell, transporters often visit diverse production areas, increasing their capacity to follow production cycles intimately and become well versed with how different actors respond to different production cycles. While some farmers can specialize on tomatoes and some traders specialize on butternuts, the transporter is an all-rounder which means he can acquire knowledge about diverse commodities which he carries from the farmers to markets. He hears all the pain points from farmers, traders and consumers. However, to be professional knowledge brokers, transporters also need capacity building through which they can be vetted based on their experience in transporting different commodities, knowledge of farmers and farming areas.
A case for a fluid pricing index
An appreciation of the roles played by different kinds of middlemen can increase when food systems develop a fluid pricing index which takes into account a wide range of issues such as production zones, seasonality, transport and many others. In an ideal world, it is wrong for farmers in different production zones to be given the same prices for maize and other commodities. Farmers producing soya bean and maize in sandy soils use more inputs like fertilizer or manure than those in heavy clay soils. This means they have different costs of production. On the flip side, farmers in sandy soils may use less diesel than those in heavier soils. All these details need to be taken into account in pricing commodities.
Distances to market should also be factored in so that farmers in particular areas can know the type and size of transport they can hire cost-effectively. Such information is also critical for transporters, processors and retailers. What is often not known is that every informal market has an invisible cartel of price experts who set prices of commodities based on historical trends and supplies to the market which give signals of the volumes in farming areas. Such expertise and knowledges are not written down. That is why there is need for institutions with strong analytical horsepower to be able to set up a dynamic pricing index based on production costs and market dynamics.
It is rather far-fetched to leave such levels of interpretation to individual farmers who lack the street wisdom and quick action associated with markets as guided by the movement of commodities. Circumstances under which farmers need real-time pricing intelligence vary and include cases where a buyer suddenly shows up on-farm ready to buy commodities. In such cases the farmer has to verify some prices with institutions like eMKambo before making a decision to accept a price being offered by the buyer. The farmer may also have brought his commodities to the city market using public transport or his own transport and wants to negotiate from an informed position. All these circumstances need accurate real-time information. Historical information may be less helpful.
More prevalent circumstances in which dynamic pricing is critical is when both farmers and buyers do not have an idea of the price for a commodity they want to exchange. This is where knowledge brokers like eMKambo resort to their big picture evidence in order to generate a fair value. Unless both farmers and buyers know the value that can be unlocked by a commodity, pricing remains very difficult. Knowing distances to the main road is also critical to avoid disagreements between farmers and transporters.
In countries like Zimbabwe, most farmers identify their farming areas with wards (for example, ward 19 Guruve) but such descriptions are not enough for transporters to estimate distances and be able to source the right quantities of fuel. Given the terrain in most rural farming areas, some areas may be close to the main road but big gorges may make it difficult for transporters to reach the farm or production zones. That is why knowledge about distances is a critical component of community-led development. Development actors tend to get surprised when their interventions stop as soon as they leave, yet the real issue is that they will not have empowered communities with the right knowledge to master their context and market intelligence toward taking matters into their own hands.
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Website: www.emkambo.co.zw / www.knowledgetransafrica.com