Middlemen of Marketing

Middlemen are those individuals or business concerns who specialize in performing the various marketing functions involved in the purchase and sale of goods as they are moved from producers to consumers. Our concern here is within the place in the marketing processes which the middlemen occupy. There is no limitation as to the way in which they are organized for doing business. They may operate as individual proprietors, partnerships, or cooperative or non cooperative corporations. The middlemen of particular interest in agricultural marketing can be classified as follows:

  1. Merchant middlemen (Retailers,Wholesalers )
  2. Agent middlemen (Brokers, Commision men)
  3. Processors and manufacturers
  4. Speculative middlemen
  5. Facilitative organizations

Merchant middlemen

Merchant middlemen normally take title to, and therefore own, the product they handle. The buy and sell for their own gain and derive their income from the margins arising from the sales (i.e. difference between buying price and selling price). Unlike other classes of middlemen they hold uncertainty to a minimum i.e. know what the buying and selling price in going to be. They are not risk takers.

  1. Wholesalers: Any merchant who does not sell to ultimate consumer in any significant amount. He therefore can sell to other wholesalers or to industrial users or retailers. Wholesalers make a highly heterogeneous group of varying sizes and characteristics. One of the more numerous groups of wholesalers are the local buyers or country assemblers who buy goods in producing areas directly from farmers and ship the products to the larger cities where they are sold to other wholesalers and processors. In this group are grain elevators, poultry and egg buyers, and local livestock buyers. Another group of wholesalers is located in the large urban centres. This may be full-line wholesalers who handle many different products or those who specialise in handling a limited number of products. They may be cash-and-carry wholesalers or service wholesalers who will extend credit and offer delivery and other services.
  2. Retailers: Any merchant middlemen who buys goods / services for resale directly to ultimate consumers. Represent the most numerous types of agencies involved in the marketing process. In terms of undertaking marketing functions their role in no easier compared to wholesalers. In fact a retailer may have to do all the functions of marketing i.e. his job is complex. Retailer is the producers’ representative to the consumer.

Agent middlemen

All agent middlemen of marketing don’t own what they handle i.e. not take title to the goods. Are agents/representatives of owners of goods? Are basically hired by their principals or clients e.g. Kenya Planters Cooperative Union does not own the coffee it handles. They derive their income from the fees they are paid by their clients or commissions given. Agent middlemen in reality sell services to their principals, not physical goods to customers. There are three categories of agent middlemen:

  • Brokers
  • Commission agents
  • Auctioneers

Their main stock in trade is their knowledge of market in which they participate. They use the knowledge in bringing together potential sellers and buyers. Their services will be retained either by buyers or the seller who feels that he / she does not have knowledge or opportunity to bargain effectively for him / herself.

Commission Agents

The difference between brokers and commissions agents is one of degree to they are given power to handle the product that is being sold i.e. discretionary powers to assist their principals in ensuring that marketing process is a accomplished. Commission agents are given more discretionary powers over physical handling of the product, arrangement for terms of sale / purchase, collection of revenue from sale e.g. Coffee Board of Kenya, Kenya Tea Development Agency are commission agents. They are allowed to deduct their commission before remitting the difference to their principals. One must have confidence in the agents.

  1. Brokers: hey are not given any physical control over the product. They ordinarily follow directions from their principals. Usually have little power over terms of sale or revenue collection. Bring seller and potential buyer together.
  2. Auctioneers: They do not own what is handled, may be involved in a number of activities. Have places for physical display, space where participants meet, announce the date of auction, facilitate in price formation. During the bidding process the main role of auctioneer is to announce the price offered by various participants such that it is heard and the highest bidder gets the good subject to the price being equal or greater than reserved minimum price. Prices closely conform to a competitive market price. Tea and coffee are sold through auction.

Speculative middlemen

Are those who take title to goods / products with a major purpose of profiting from price movement. They are specialized risk takers. They take uncertainty as given. Is the closest to the futures market usually speculative middlemen make purchase and sales at same marketing level e.g. buying grain and selling grain i.e. have no vertical integration. They are also called traders, scalpers and spreaders. Important distinguishing feature is that even thought speculative middlemen involve themselves in movement of goods that is not their goal. Speculative Middlemen are interested in short term price fluctuations. Speculators derive their income from short term price fluctuations in goods they handle. The emergence and growth of speculative Middlemen is due to the fact that merchant middlemen are not willing to engage themselves in added risk involved in purchasing and storing of goods for longer period of time. Speculative middlemen play important role in marketing process in ensuring that commodities are available from time to time. Their activities are desirable especially if their expectations are met / true. Due to their activities we may end up with more stable market prices.

Processors and manufactures

Their role in marketing in to undertake some action on the products in order to change their form. Form changing is basically a marketing service. Manufactures and processors may take active role in other institutional aspects of marketing e.g. may act as own buying agents in the producing areas, wholesaling of finished products and promotion. Processing and manufacturing are only part of activities they get involved in.

Facilitative organizations

Main function into facilitate the activities of the other middlemen of marketing. Ensure that the activities take place in smooth manner. Does not directly participate in marketing process either as merchants, wholesalers etc. they basically establish the rules that the other participants have to follow. Others may get involved in establishing of the terms of sale and standards which must be followed, assist in grading of the produce, actual arrangement of payment for the transactions. Some of the organizations provide physical facilities for the handling of the product e.g. Nairobi City Council and other local authorities while others provide premises where participants come together. Others are involved in enforcing /policing the practices of their members. Trade and professional associations fit into this category. They gather, evaluate and disseminate information of value to the members – do research of mutual interest to members and ensure that members follow ethics. Though not active in the buying and selling of goods, these organizations have far reaching effects on nature and organization of markets. Derive income from fees and assessments of those who use their facilities e.g. marketing boards, county councils operate on the commissions and cess got.

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This module was developed by Moi University, Department of Economics and Agricultural Resource Management with support from OER Africa and Bill & Mellinda Gates Foundation