A few years ago, I had a chance to peek into the value chain in the construction industry and it’s obscene – don’t ask in what capacity I was involved. I will give an example of quarry stones.
I had quotations from a number of middlemen for machine dressed quarry stones ranging from KES 29 to KES 40 per piece. Somehow, I managed to go to a quarry alone only to realize the price was KES 12 per piece. That’s a huge discrepancy, isn’t it?
I have also worked in places that are big on mango farming. If you live in Nairobi, the average price of a good ripe mango ranges between kes 25 and kes 30 away from the supermarket. Did you know a middleman buys from the farmer at KES 4 per piece?
My question has always been; what has the middleman done to justify this profit margin?
At least for the guy who fetches mangoes from Eastern province goes through the trouble of hiring a lorry, go round in the villages gathering until he has a full lorry load before going back to Nairobi to sell. He needs money to pay for the mangoes and transport to Nairobi. His risks are that he could take very long driving round in the farms to get a good quantity.
What would be the fair price for this risk? I’m not sure buying at three shillings and selling at twenty is not exploitation.
For the quarry stones, the middle men’s role is similar to that of matatu touts. Their only input is to stand between the quarry and the buyer. Their key selling proposition is that the customer has no idea how much the quarry charges for the building stones. In my opinion, this guy’s risk is zero! Why then should he make more than the quarry is getting?
Have you ever required printing services in Nairobi?
Chances are you talked to a briefcase printer who quoted a certain price without showing you where the printing presses are. There are only so many people who can afford to buy a printing press. However, they depend on a large network of brokers to solicit printing jobs and bring them over. Again you would be shocked if you got to know how much the actual printer is paid for your work.
My last example is the numerous busybodies on Kirinyaga Road whose main trade is to convince anyone buying a motor vehicle spare part that you will be fleeced if you go to the shop directly. Common sense should tell you that whatever price you pay comprises the actual selling price plus his margin.
Why then does the business community tolerate them?
Brokers use many tactics to remain relevant. One, they can cripple your business if you refuse to play ball. They will either steal from you or direct customers to the competition. Secondly, they save many businesses the need to employ marketers since they bring a steady stream of work. Marketing theory credits them for creating liquidity in business. This means that they sometimes buy from producers and hold the stock when business is low thus providing much needed cash.
As a buyer, I don’t know if the price I pay for these brokers is proportionate to what convenience they offer.