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Value chains is one of the hot buzzwords in agricultural development discussions these days, but middlemen are something to be eliminated. I’m rather puzzled by this seeming contradiction. I’m currently working on a paper on “fair trade” (think certified coffee or chocolate) and one of the benefits cited is that it increases returns to farmers by eliminating the middleman. Similarly, the issues paper for the UN Food and Agricultural Organization’s marking of World Food Day earlier this week cited a similar benefit of coops.
It is certainly true that when there are a small number of buyers and many dispersed, small producers, especially without current information about market conditions, the buyer has the advantage. But aren’t middlemen part of the value chain and aren’t they providing essential services in collecting and transporting goods further up the supply chain? Coops clearly can increase the market power of farmers in both buying inputs and selling outputs collectively. But if the coop also has to provide the transportation and other services previously provided by middlemen, costs to the farmer also go up and the net benefit is less obvious. There is also the issue of the extra time involved if individual farmers are responsible for delivering their product to a central collection point.
So rather than demonizing middlemen, shouldn’t we be focusing on how to deal with imperfect competition and increasing smallholder access to market information? Coops are certainly one response to balancing buyer market power, and the spread of cellphones provides more current information about prices. So that brings us back to supply chain strengthening, and middlemen as potentially part of the solution.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.