Image of a truck filled with bushels of plantains being unloaded by workers standing on top.

Are Middlemen the Key to Stronger Value Chains in Uganda? .

February 26, 2014

“Middlemen” is a term that often has negative connotations. But Stephen McCarthy, a Chemonics value chain expert, said middlemen have a key role to play in the transformation of agricultural value chains in Uganda.

“In the development world, the term ‘middlemen’ comes with somewhat negative connotations. They have been called ‘coyotes,’ ‘hyenas,’ and ‘predatory rent-seekers,’” said Stephen McCarthy, a Chemonics value chain expert with 35 years of experience.

Mr. McCarthy was a director in Chemonics’ Agriculture and Food Security practice and the former chief of party on the Feed the Future Uganda Commodity Production and Marketing Activity, a Chemonics-implemented program that is taking a fresh approach to boosting the production and marketing of maize, coffee, and beans in Uganda.

Rather than finding ways to work around middlemen while assisting producers and end-buyers, as many donor-funded programs have done, the project is working with this oft-maligned group of value chain actors because they are confident they have a key role to play in the long-term growth of Uganda’s agricultural sector.

The middlemen of Uganda’s maize, coffee, and beans value chains include traders, processors, and village agents (i.e., business owners who aggregate producers’ crops and sell them to traders). In an environment where poor distribution networks frequently lead to market failures, Ugandan traders and village agents often enter value chains only to buy and sell farmers’ output, squeezing farmers’ margins to turn higher profits and mitigate market risk. This has earned traders and their village agents a nasty reputation among Uganda’s farmers and made international development organizations, which tend to be production-oriented, hesitant to work with them.

“Dismissing middlemen outright and thinking that farmers can be directly linked to buyers without some sort of middle, value-added function is generally ill-informed and leads to further market distortions, poor business practices, and decreasing competitiveness. Middle actors in value chains need to be brought in with incentives to drive better business practices based on effective competition and cooperation,” McCarthy said.

Using a facilitative value chain approach, the project is working to lay the foundation for greater collaboration among farmers, village agents, and traders. Because greater collaboration will require genuine changes in attitudes and behaviors, in the activity’s first year, the team focused on building relationships among value chain actors and managing middlemen’s reputation, with some early successes that bode well for the activity.

83,850

smallholder farmers brought together through value chain actor meetings

613

village agents trained

1,000

demonstration land plots established

One of the factors hindering cooperation between farmers and middlemen has been traders’ and village agents’ lack of transparency about market information, such as quality-differentiated prices. This lack of information puts farmers at a disadvantage and fuels suspicions of middlemen’s business practices.

To incentivize greater transparency, the team is cooperating with the traders’ main clients — exporters — to promote the value of information-sharing. As a result of these efforts, traders are making long-term commitments to transparency and providing price information to farmers. Farmers, incentivized by the promise of premium prices for high-quality produce, have in turn committed to supplying village agents and traders with high-quality crops, giving traders and village agents the confidence to invest in farmers.

As of February 2014, 115 traders and 613 village agents are involved with the activity. The aim is to scale-up to 182 traders and 3,000 village agents and to reach 400,000 farmers by 2015.

“Working with farmers has made life easy for us now,” said a trader in the Jinja district. “We are part of the production because we now teach them how to produce and guide them on post-harvest handling as a result of the coaching we received from USAID. We are now confident to provide money in advance to such farmers because we are sure of the quantity and quality.”

The Chemonics team has also been building relationships through value chain actor meetings, where producers and middlemen gather and share information about their services, and demonstration plots in maize, coffee, and beans. In little more than a year, the activity has brought together 115 traders, 613 village agents, 17 processors, and 83,850 smallholder farmers in management of more than 1,000 demonstration plots. The plots have helped position traders and village agents as valuable partners and service providers, demonstrate the commercial benefits of collaboration, and encourage farmers to adopt sustainable agronomic practices and technologies.

“Village agents and traders are selling genuine and affordable inputs, especially seeds, to farmers as a result of the demonstrations creating demand. This is the kind of relationship we hope to achieve with the facilitative approach, where all parties benefits from interaction and collaboration,” said Mr. McCarthy.

This kind of facilitative value chain approach is always more difficult to implement than more direct interventions because it requires genuine attitude and behavior changes. In the case of Uganda, it is especially challenging given the culture of “donor shopping” that has taken root among value chain actors who have become dependent on development programs, which discourages sustainable business models and entrepreneurial thinking.

"Working with farmers has made life easy for us now. We are part of the production because we now teach them how to produce and guide them on post-harvest handling as a result of the coaching we received from USAID.”

Trader in the Jinja District

The Uganda team is working to break this pattern of dependency by positioning intermediaries as long-term resources for producers, linking intermediaries with agricultural service providers and financial institutions, and encouraging beneficiaries to build sustainability into their business models.

“The project’s approach establishes local ownership from the start and basically does not require a ‘hand over’ because interventions are already embedded in (beneficiaries’) thinking and business plans,” said Mr. McCarthy. “Changing attitudes and behaviors takes time, but we are seeing a shift in thinking, even among the ‘old-timer’ recipients of donor assistance. What is even more encouraging is a growing cadre of new enterprises willing to invest in their success who are looking for real partnerships.”

The activity, which runs from March 2013 to March 2018, is still too young to say whether this “transformation of the middle” approach will prove to be as successful as Chemonics and its team in Uganda is confident it will be. But this early progress is a good sign that experts like Mr. McCarthy, who helped design Chemonics’ approach to the USAID activity, are on the right track.