The Role of Intermediaries in Supply Chain Transactions
Scaling Transparent Value Chains to Transform Agriculture
Evolving the agriculture industry towards transparent post-harvest value chains is a complex task. It requires a detailed understanding of existing challenges, digital solutions, and the reasons for which intermediaries often play a vital commercial role in supply chain transactions.
I often receive questions about Producers Market asking if we have a mission to, “disintermediate” or, “cut out middlemen and intermediaries” in the supply chain.
Intermediaries or middlemen reference the groups that work between farmers, processors, distributors and retailers and fulfill a variety of connecting and facilitating roles. These groups usually take the name of wholesaler, trader, distributor, importer or broker.
Producers Market is not against intermediaries.
In fact, there are many examples out there of value chains that require intermediary roles to facilitate farmers’ access to local, regional or diverse market channels. Intermediaries in the supply chain can take risks, provide financing, set up sales, and manage complex relationships with downstream buyers, distributors, and other stakeholders.
Intermediaries are not the enemy. And our goal is not to dismantle this vital piece of supply chains.
Our venture exists to return greater value to farmers and producers of natural products. We see unlimited opportunities to improve a broken industry by scaling the adoption of data capture, digital technology applications, and data-enabled marketing. We firmly believe that scaling these tools will result in farmers and producers bringing greater value to consumers and thus receiving higher returns on their outputs.
As it turns out, one of the most effective strategies for increasing monetary returns to farmers and producers is to bring their stories, products, and offerings greater visibility with a wider audience, including buyers who are further downstream.
The further downstream a producer is able to sell, the higher the price they will receive for their outputs. However, achieving a more direct vertical sale of outputs requires the filling of a key role around logistics, financial services, quality assurance, and other issues—a role which intermediaries often play, since most producers and downstream buyers are unable to perform these activities. As such, for most value chains there won’t be an overnight disintermediation but rather a gradual uniting of technology platforms and capacity building.
Producers Market’s vision to achieve a vertically integrated supply chain model (in which the authentic product and producer origin story is backed by validation) requires a united data flow from key value chain participants and the willingness to make supply chain source information publicly available.
This is the key point that throws a wrench into current value chain models, in which private label brands, brokers, traders, distributors and other intermediaries in the supply chain refuse to give up their sources.
Their concern is that if they make their sources publicly available, new buyers will go and contact those sources and try to output or buy out their supply. “Owning” a quality supply can be a major competitive advantage, if not the only competitive advantage, for an intermediary. Thus it is natural that they would not be in favor of publicly sharing their sources, especially since contracts may not exist, or simply aren’t enforceable.
There is not a shared sense of loyalty and trust toward intermediary relationships, and an intermediary’s profits can often be reduced if more “suitors” go after an important supply chain partner. This is especially true for a sub-sector like organic, given that demands can outpace available supply.
Producers Market holds the philosophy that a producer ought to control their destiny, and has a right to access as many sales channels as possible without any associated fees or costs to participate in such an open marketplace.
Furthermore, if we are going to lead the industry toward adopting a transparent future, then we must be okay with a producer or buyer deciding to bypass Producers Market or seek out other sales opportunities. We understand that the only way for us to keep long-term clients trading via Producers Market is to have a low-cost commission strategy, so that the services we provide outweigh any minimal transaction or sales facilitation fees.
The realities of the industry push us to build a strategy that invests in the integration of third party technology platforms for logistics and finance, and to build a market of stakeholders that can serve as banks, customs brokers, transporters, buyers and consumers—instead of trying to keep the origin a secret.
This is how we are working to transform the agriculture industry through scaling transparent value chains.
We invite you to join us: