Can the role of middleman be eliminated?

Post Source: Dawn economic and business review

By Ahmad Fraz Khan

THE role of middleman in the commodity trade is back in focus. The Sindh Assembly has enacted the Wholesale Agricultural Produce Marketing Development and Regulation which empowers the provincial government to eliminate the middleman’s role. The act has come after Punjab’s continuous maligning of the middleman for more than a decade and repeated attempts to reduce his role. But Punjab has not been able to even reduce, leave alone to eliminate, the middleman’s role. Can Sindh succeed where Punjab has failed?

Punjab failed to throw the middleman out of the commodity trade (especially wheat) because it treated him as an ‘outsider,’ who jumps in at the time of trading, exploits farmers, makes money and gets out of market. The reality, however, is different. The middleman is very much part of the production process.

In rural economy, the farmer uses land and his labour power and the middleman provides money to facilitate production. Without middleman’s credit, over 80 per cent farmers would not be able to buy seed and fertiliser. They will not even be able to prepare their fields for sowing if the middleman does not provide money for the diesel. That is how ground realities define the role of the middleman and make him an essential part of the crop cycle.

The financial role of middleman can be gauged from the fact that of the total loan requirement of around Rs1,000 billion, the formal sector (banks) provides around Rs275 billion. The government banks hardly provide Rs80 billion.

The middleman’s mode of credit is tailor-made for farmers. They get as much money as required and frequency dictated by their agricultural, and even social (family functions), requirements. No player from the formal sector has ever dared to venture where the middleman routinely does.

Punjab started this anti-middleman campaign way back in 2000 when the country, for the first time had a record wheat crop and the federal and provincial bureaucrats raised issues such as: “Pakistan is not only becoming self-sufficient in wheat but also becoming an exporting state, cleaning the production line of middleman’s exploitation etc.” Since then, Punjab has done everything administratively possible, even involving the State Bank of Pakistan to restrict commodity finance, to throw the middleman out, but failed.

Most of the emerging Far-Eastern markets like China, Singapore, Thailand and even India have not only acknowledged the role of middleman but also used him for improving the quality of agricultural produce. All successful models are available, but the provincial governments in Pakistan are trying to swim upstream now.

In these Far-Eastern markets, the middleman has been turned into a very effective vehicle of technology transfer. Since the middleman is, by far, the biggest investor, the farmers listen to him more than the extension workers who can only advise without any financial clout. There is no reason why Pakistan cannot benefit from these experiences.

These middlemen normally have 100 to 500 farmers registered with them, depending on the quantum of their investment. If the middlemen are trained in export and domestic quality issues – grading, packing and traceability – they can more easily persuade the farmers into compliance. They can be turned into trainers of trainers to educate farmers.

By making these middlemen quality conscious and linking them to exporters, their places can be turned into trading platforms for quality produce. Pakistan can never think of increasing agriculture, especially horticulture exports without developing and implementing domestic quality standards. That is exactly the point where middlemen have played their role in the Far-East and that where he should be playing role in Pakistan.

Some of the middlemen could be helped develop into bigger trading house, where literate people would also find some place.

Both Punjab and Sindh need to have dispassionate analysis of the role of middleman and his potential. It is not to suggest that the middleman should be left alone to exploit the farmers. They should be regulated in a way to reduce exploitative part.

But in order to do that, the governments have to accept their role, and then re-define it.

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