Middlemen do encounter problems in the process of carrying out their business. Explain.

Answer Details

Middlemen are the traders (wholesalers, retailers, agents and brokers) who stand between the producer and the final consumer and help to move goods through the channel of distribution. In carrying out this work they face a number of problems.

• Shortage of capital: many middlemen, especially small retailers, lack enough funds to buy stock in large quantities or to extend credit to customers.
• Poor transport and high transport costs: bad roads and inadequate transport make it costly and slow to move goods, and raise the risk of damage in transit.
• Inadequate storage facilities: lack of good warehouses and cold stores leads to spoilage, especially of perishable goods.
• Price fluctuations: sudden changes in prices can leave a middleman with stock bought high and sold low, causing losses.
• Bad debts: goods sold on credit may not be paid for, tying up capital and causing losses.
• Competition: keen competition among many traders reduces profit margins.
• High and multiple taxes and levies: numerous charges from local and other authorities raise costs and reduce profit.
• Perishability of goods: foodstuffs and other perishables deteriorate quickly, so unsold stock is lost.
• Government regulation and price control: restrictions, licensing and controlled prices limit the trader's freedom and margins.
• Insecurity: theft, armed robbery, fire and other hazards threaten goods and money.
• Difficulty in obtaining supplies: irregular or insufficient supply from producers disrupts business.
• Inflation and rising costs: a general rise in prices raises the cost of restocking and squeezes profit.

These problems raise the cost of distribution, reduce the middleman's profit and can ultimately raise prices to the final consumer.