Do we want to eliminate middlemen in agribusiness? Think twice.

To understand the whole middlemen scene, let’s take a short history lesson. Until recently, by law, Indian farmers of most states were not allowed to sell their produce directly to an urban retailer. The farmer had to go to her local APMC or “mandi” to sell it. The farmer could however sell directly to the end consumer but only if the produce was less than 400 kg. Thus, if Reliance mart, for example, wanted to purchase tonnes of potatoes, they had to compulsorily procure it from APMCs which were operated by licensed traders. This was because the government wanted to make sure that farmers don’t get exploited by private traders and that they received a fair price. While this sounds reasonable and even moral, it completely backfired and resulted in middlemen! A gang of middlemen! It created a barrier between the farmer and the consumer, providing middlemen an avenue for exploitation. A farmer grows produce in bulk (often more than 400 kg) and thus, by law, has to go through mandis, inadvertently turning them into a monopoly. Very often, the so-called “licensed” traders in these mandis would collude and purchase the farmer’s produce at atrociously low prices. Additionally, the farmer was required to pay APMC market fees - a tax, which further reduced margins.

 

Imagine a farmer living in a remote village. He spends on transport to carry bulk produce to a mandi and sells it to the wholesaler. The wholesaler then sells to multiple retailers and peddlers, who then sell the produce to consumers. Each stakeholder in this value chain keeps adding a margin to the actual cost of produce and keeps bumping up the price. Thus, when an end consumer pays Rs 30 for a kilo of potatoes, the farmer only ends up earning Rs 3 or 4. It’s not fair on either the consumer or the farmer, because consumers overpay and farmers underearn. As if this wasn’t bad already, oftentimes middlemen used to illegally hoard bulk produce and artificially reduce the supply thus creating hyperinflation (think: crazy high onion prices).

 

Can the middleman be sidelined?

 

Middlemen often exploited farmers because of inherent information asymmetry in the system. Negating this is possible only when there is a direct link between the farmer and the consumer, leading to information symmetry. With the new agricultural reforms under Atmanirbhar Bharat Abhiyan, the government is planning to achieve just that. Under the new reforms, a farmer can now directly sell her produce to a retailer, in the process, cutting the many middlemen. The whole point is that farmers should have a say in the pricing of their produce. The state has changed its role from restricting to empowering farmers with awareness, knowledge, and decision-making power.

 

An unsavory opinion

 

I am going to say something now that might not sit well with a lot of us. We have always imagined middlemen as conscience lacking and greedy, whose only aim is to exploit farmers and grow rich at their expense. Media portrayal has furthered this image. However, like in everything else, nothing is black and white in agribusiness. We have to understand and appreciate that middlemen, at their core, are facilitators. The average Indian farmer is not multi-talented. It is difficult to grow as well as “market” their produce to the end-consumer. He lacks the education, awareness, and expertise necessary to efficiently market their produce. There is a real chance that, if the farmer were to do everything on his own, he would end up losing more than that he has traditionally lost. In my personal interaction with many farmers, they assert that marketing is a “headache” for them. They want to grow good and bountiful produce and want to receive good prices but they do not want the responsibility of marketing their produce. They cannot sit in a shop waiting to sell their vegetables when there is work at the farm. Middlemen exist precisely for this reason. They assist farmers in obtaining the best prices as they have knowledge of the market requirements and skills to market the produce.

 

Let’s go one step further. The farmer grows wheat grain, which then needs to be cleaned, crushed, and reduced before it is packed and sent to the consumer in smaller units. Every function is essential because there is a difference between what a farmer grows and what we eat and the farmer alone cannot do this. Certain produce, such as fruits and vegetables are perishable, which means they have to be sold before they go bad. It is not possible for a remote farmer to sell produce in bulk within the stipulated time. The middlemen system employs hundreds of thousands of people who make sure that produce reaches the customer fresh, and on time.

 

Food for thought

 

What happens when technology comes and replaces all these middlemen? What happens when private businesses take over by “shortening” the supply chain? They claim that they will eliminate the middlemen but aren’t they the new middlemen? A lean supply chain is welcome because it brings efficiency as long as farmers receive a majority proportion of what the consumer pays. But we must ask questions. If big businesses are going to be the new middlemen, it is likely that nobody wins, except them. Farmers will still be an exploited lot and the existing middlemen will be out of jobs. Instead of eliminating middlemen and inviting private investment, why doesn’t the government regularize the market and give MSP on all produce, thereby giving the farmer a guaranteed price for his produce? And many more…

 

Please share your thoughts J

Image source: DailyMirror