WE often think of a middleman as someone to avoid, the person who stands in the way, or does nothing at all.

Politicians are now in full damage control mode, racing to ensure basic food for the rakyat remains affordable.

In public, officials blamed the “middlemen mafia” for the uncontrolled rise in prices of basic items.

Many experts came forward and suggested and proposed ways to work on food security for the country.

Some politicians even boasted that “by selling or importing directly, they can eliminate the middleman”.

This strategy of claiming to “eliminate the middleman” is common in advertising done by retailers. The great frequency of its usage testifies to its believability, for the claim that money is saved by eliminating the middleman does indeed seem sensible.

After all, wholesalers and other middlemen don’t work for free. They must be paid.

So if a retailer eliminates the middleman, that retailer apparently has savings it passes on to the consumer.

If middlemen raised retailers’ costs, why would any retailer ever use such parasites?

It’s true that middlemen make profits. But these services are paid for only because they are valuable. And these services are valuable only because they reduce the prices that consumers pay at retail.

Middlemen who don’t enable retailers to lower their prices go bankrupt and are later eliminated by the market.

In contrast, successful middlemen reduce the costs that consumers pay at retail.

Wholesalers supply services to retailers similar to the services that retailers supply to end users. No supermarket grows its own vegetables, churns its own bread or kaya, or cans its own sardines.

It buys these and each of the other tens of thousands of different items on its shelves from wholesalers.

And just as retailers lower your cost of buying goods for you and your family, wholesalers lower retailers’ costs of inventory purchases.

Wholesalers specialise in transporting goods from around the country, or even the world, and assembling these in accessible, central locations at which retailers’ delivery trucks can be loaded. Also like retailers, wholesalers also generally vouch to their customers for the quality of the goods they supply.

If a retailer discovers a way to produce, on its own, some retail item at a cost lower than the price it must pay to a wholesaler, that retailer will eliminate the middleman wholesaler and produce that item itself.

And this retailer will turn this cost-saving into a competitive advantage by passing along to consumers at least some of these lower costs in the form of lower retail prices.

Eliminating middlemen from the supply chain merely because that supplier charges for its services is foolish.

If those services are valuable, if those services reduce retailers’ costs of acquiring some good for resale, then for retailers to refuse to purchase that supplier’s services results in retailers’ costs rising, not falling.

Any retailer who “eliminates” middlemen in this foolish way will itself soon be eliminated by its more competent competitors.

In our modern economy every one of us purchases from others nearly everything we use. Our economy is a vast complex of middlemen. Its supply chains span the globe.

And because these supply chains have been crafted by decades of relentless, innovation-driven competition, they are mind-bogglingly efficient.

If you doubt this last claim, ask yourself what makes possible the inexpensive Sunkist oranges from the United States or Dole bananas from the Philippines that Malaysians routinely purchase from supermarkets in the urban areas?

With the rise of the internet, many people predicted that middlemen would disappear.

After all, who needs them when buyers and sellers can communicate directly?

But far from killing them off, the internet has generated a thriving new breed of middlemen. Airbnb, Uber, Lazada, Shopee, Grab are all middlemen. Domestically, approved permit holders for motor vehicles are middlemen. Mydin, AEON, Jaya Grocer, Hero Market, all these are middlemen. Online retail giants like Lazada, Shopee are middlemen.

Think of the scale of Mydin. Their demand for incredible volumes of goods can make it seem efficient to change production from some locations to a disaggregated process across many continents, generating hugely complex supply chains. That can come with opacity - consumers become focused on what they are paying and getting but they don’t see the processes involving labour and the environment in other parts of the world, becoming numbed to those aspects.

Although most professionals don’t see themselves as middlemen, they are the millions of people in obvious middleman jobs such as sales representatives, real estate agent or mortgage broker.

Middlemen are key connectors who can help overcome information and logistical challenges that can impede the flow of goods or money.

Middlemen play an important role by linking farmers to traders and final markets, in our country where market failure is ubiquitous and food chains still consist of many stages as wholesalers prefer to work with middlemen to guarantee minimum quantity and quality, and to reduce the cost of measuring quality.

In the case of rice, fruits, vegetables and fisheries marketing, middlemen are crucial in many ways. They are the “connectors”: linking farmers or fishermen to the market. Through them, market prices and consumers’ preferences are transmitted to the farmers. In an area in which farmers are isolated, middlemen are their windows to the faraway market, local and overseas.

Middlemen are also still a major source of credit for farmers, and it is tied to their sales to the middlemen. This relationship has existed for decades and is still functioning even today.

In short, middlemen perform the marketing-cum-creditor role to the producers, functions that they have performed for umpteen years.

This symbiotic relationship is consensual and mutual.

The truth is that the person in the middle can create great value and the best middlemen are true partners who make or save a lot of money for both ends of the supply chain. – July 13, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.