The government has moved to shorten the supply chain for the welfare of consumers with the Department of Commerce, Supply and Consumer Protection drafting regulations to limit the layers of intermediaries to three.

The goods and services sold in Nepal normally pass through up to seven layers of middlemen, each adding a hefty markup, forcing consumers to pay unfairly high prices, according to a report issued by the Department of Commerce, Supply and Consumer Protection.

Multi-layered supply chains are mostly seen in the trade of agricultural goods. A product with a farm gate price of Rs10 ends up with a price tag of Rs70 by the time it reaches the customer.

In most businesses, a product passes from the manufacturer to the dealer, main distributor, national distributor, local distributor, wholesaler and retailer before reaching the final user.

As there are no regulations to control the unnecessary layers of middlemen, the department said it had prepared a preliminary draft to lawfully determine the layers of middlemen in the distribution of essential goods under the Consumer Protection Act 2018.

Yogendra Gauchan, former director general of the Department of Commerce, Supply and Consumer Protection who has been hired as an expert member in the task force to prepare the regulations, says the preliminary report has recommended having only three layers of middlemen between producer and consumer.

The draft also includes recommendations to fix the market price of all essential goods and services, he said.

“We have suggested legally recognising the layers of middlemen to make the market’s supply chain transparent so that consumers can get quality goods and services at reasonable prices,” he said.

According to the department, the list of essential goods and services is also being revised as there are 29 listed daily essential items. The proposed regulations will also include standards of profit margin on essential goods and services, accordion to the draft report.

Essential consumer goods or services means goods or services that may be bought or acquired primarily for personal, family or household purposes.

The task force conducted discussions with traders, wholesalers and retailers regarding the multiple layers before preparing the draft.

Traders have opposed the new regulations which seek to reduce the layers of middlemen in the market, said Gauchan. “They said that minimising the layers will put many who have been acting as a chain to supply goods in the market out of employment.”

According to Gauchan, traders say that it will be difficult to sell goods and services in rural areas without a dealer, distributor, retailer and national distributor.

“As consumers are being cheated all around, it is necessary to bring the regulations as soon as possible. The Consumer Protection Act is already there, but the regulations are yet to be enacted.”

Gauchan, who has been involved in several market study teams, said the chain of middlemen was created wilfully and was based on nepotism. Normally, in the supply chain, a relative of the producer is the dealer or distributor. “This layer increases the prices of goods, and an increased burden is being passed on to consumers.”

He said that unnecessary market layers were mostly found operating without being registered with any government agency. “We found up to seven layers of middlemen in the market during our study,” said Gauchan.

Importers are also found having seven layers of middlemen, he said.

According to the department, a study done of nine edible oil factories showed there were six layers of middlemen—a product goes from the producer to the dealer or distributor, and then passes through the wholesaler to semi-wholesaler and retailers before reaching the consumer.

A study done of two drinking water factories found that there were five layers of middlemen in the jar and bottled water business.

Similarly, in the medicine business, there are five layers of middlemen; and in cement factories, there are six layers of middlemen. There are four layers of middlemen in the steel business, according to the department's report.