The Politics of Middlemen in Agri-Input Retail
Are the middle men really evil as common narrative would like us to believe?
There is an old urban legend from the suburbs of America that I often love to narrate. Please bear with me if you've heard me narrate this before.
Many years ago, there used to be a notorious gang of clothing store thieves in the United States. Their modus operandi was simple but elegant. They used a long stick to remove large numbers of clothes from racks at once, thereby robbing the stores very quickly.
And one day, as the urban legend about this crime goes, the gang was caught when one store, at the suggestion of a cop, arranged its clothes with alternate hangers facing opposite directions (see the photograph below). This messed up the racking and the gang's modus operandi and slowed down the thieves by forcing them to remove one hanger at a time.
(Image Credits: Venkatesh Rao, Politics of Productivity, Breaking Smart Newsletter)
I love this story because it helps me illustrate a point I've come to appreciate deeply in all these years of immersion in the world of agri-input retailing.
Middlemen play the political game of agri-input distribution for a good reason.
Unlike what English speaking urban #Agtech folks like you and me would like to believe, Middlemen have not organised themselves in the agri-input supply chain with evil notorious means to enslave the farmers. Sure, the shenanigans exploit when the right opportunity arises. But, you can't make a point-blank statement calling middle-men evil, just because media loves to paint a villain and the shakers and movers of agritech (read investors) are betting on disintermediation.
Here is a sample which riled me up. This excerpt (with my annotated WTFy comments) is from a report on the "Agritech Innovations: Transforming Indian Agriculture" by the Foundation for Economic Development (FED).
Are you seriously saying that you are not going to focus on margins because you are deploying technological levers? I am not the type to pick bones to fight. But, this is an unfair characterisation of the traditional channel.
Picture this fantasy moment with me for a while.
You are an agritech startup founder talking about Indian Agritech scene in a global investor forum and you are asked to describe middlemen most objectively. It will be a hard challenge, I know. But, go on with my fantasy for a moment.
If you are really honest, this would be the best one-line answer.
Middlemen offer hyper-local infrastructure to farmers to help them avail timely credit and inputs based on their contextual, relationship-driven understanding of farmers'cropping cycles.
Why else do you think farmers are selling their produce mostly to local private dealers, who are more often agri-input dealers?
Image Source: Harish Damodaran | Indian Express:
When the National Sample Survey Office’s (NSSO) released ‘Some Aspects of Farming in India' report in 2016, they published insightful data about the sale of selected crops by the agency of sale for the two halves of the agricultural year (July 2012 to June 2013.)
Now, if you are celebrating the fact that government have given farmers the freedom to choose where they sell their produce, instead of being bound by law to sell in APMC Mandis, why did so many sell to local private dealers in 2012-13?
Although the NSSO report doesn't provide credit data, for anyone who understands the ground reality, it would be obvious. The answer lies in the supply of credit. When farmers don't have formal sources of credit, they resort to informal credit from local agri-input dealers, under the condition that the harvested produce be sold to them.
Now am I advocating for status quo saying agri-input credit is better served by agri-input retailers? No, we need all the innovation we can muster to offer agri-input credit in more flexible terms to farmers. But, let's not throw the baby out of the bathwater.
Many e-commerce and in fact, agri retail outlet experiments launched by agri-input manufacturers have been killed by the laws of economics because they took for granted this fundamental requirement of credit to farmers.
Long story short, if you look beyond your biases and observe what's happening on the ground, two visions about the future of agri input commerce have been playing out, competing with each other.
Vision #1: Traditional Agri-Input Retailers don't matter in the long run, as they never had the right skin in the game in the first place, often colluding with agri-input manufacturers at the expense of farmers.
Vision #2: Traditional Agri-Input Retailers matter in the long run, as it is impossible to serve farmers in a vacuum and ignore the complex web of relations they are enmeshed in.
(I have written about Vision#1 in this article here)
Don't ever think that this is a binary game of which vision will win in the long run. It could very well happen that both these visions could co-exist. It is never a zero-sum game especially in the economics of agribusiness.
And to wrap up, if you are reading through the lines, the moral of the opening hanger-thieves story is very clear.
There is no such thing as a "disorganized" channel. Every state of "organization" of a channel is a means of control for somebody. If you don't know who that is, it probably isn't you.