The Value of Middlemen

As I learn more about the current structure of Cataunidos, I have come to realize that the commercialization network right now exists almost exclusively on paper. Each enterprise sells its materials separately with no coordination outside of occasional sharing of information regarding price quotations and purchasers. The plastic processing unit is currently closed for restructuring and the question of its future operational model is still somewhat up in the air. While one of the main goals of the Cataunidos-Petrobras project is to develop a management and business model for the commercialization network, these activities are essentially on pause until we have standardized financial management across the enterprises in order to have precise data and a unified operational structure. However, as I have mentioned in previous posts, sound financial management continues to be beyond the reach of the cooperatives and I do not get the sense that we have figured out how to progress on that front. This, in turn, means that the entire commercialization network is essentially stuck in neutral.

One reflection I have had recently while observing this process has been the importance of middlemen to the recycling industry. We often criticize the middlemen for unfairly exploiting the catadores by buying the materials for them at unreasonably low prices and then selling them at incredibly marked up values directly to industry while adding little actual value to the materials themselves. This is certainly true, and I myself have explained this in a previous post about the cardboard recycling industry. Middlemen often make generous profits by exploiting some of the poorest members of society. The goal is to cut these people out of the process as much as possible and allow catadores to sell directly to industry. But if this approach so obvious, how come we haven’t been able to achieve it yet? Why do even the largest associations like ASMARE still have to sell to middlemen?

The truth is that middlemen have a very important competitive advantage lacking in the associations and cooperatives: information. The middlemen are very good at controlling their production process, carefully weighing materials, recording data and price shifts in the market, and tracking how much material is coming in and out of their businesses. This helps them to be reliable suppliers of raw materials directly to industry, because they are able to combine their scale with reliability and exact information. The catadores, by contrast, have thus far proved unable to establish this control, thus undermining their ability to achieve scale through commercialization networks.

Going around the middlemen, therefore, is a larger challenge than simply pooling materials for sale or adding more value to the products. Rather, the principal challenge is establishing the control structures to better gather information in the production process and thereby eliminate the competitive advantage middlemen currently enjoy. This is the big question facing the Cataunidos network.