Management and Financing of Vertical Coordination in Agriculture: Discussion
| Autor: | Emerson M. Babb |
|---|---|
| Rok vydání: | 1992 |
| Předmět: | |
| Zdroj: | American Journal of Agricultural Economics. 74:1238-1239 |
| ISSN: | 1467-8276 0002-9092 |
| DOI: | 10.2307/1242794 |
| Popis: | Barry, Sonka, and Lajili (BSL) provide a succinct discussion of changes in the organization and management of agriculture which are moving us from open market transactions to different forms of market coordination. Farm-level product differentiation is becoming a potent engine of change. Different perspectives and theoretical frameworks are needed to understand and evaluate the new forms of coordination. BSL briefly describe how concepts such as agency relationships, transaction costs, incomplete contracting, asymmetric information, moral hazard, and boundaries of a firm may be used in analyzing vertical coordination. One reason producers may enter contractual arrangements is to reduce risk. Some of the complexities of risk sharing between borrowers and lenders are explored in all three papers. The risk inherent in a contract may be different from that anticipated by either borrower or lender. Featherstone and Sherrick also describe some of the risk allocated to producers and contractors by contractual arrangements. These may differ from conventional wisdom. For example, contract cancellation or nonrenewal is usually considered a producer risk. Most hog contracts are on an annual basis and can be canceled by either party. Contract cancellation may be a greater risk to the contractor and the lender than to the producer who can continue production as an independent. The contractor, who may also be the lender, loses access to the farm production and the lender may have loans in facilities without the anticipated controls and safeguards. If the contract were canceled because of poor producer performance, it would suggest poor judgment on the part of the contractor and adversely affect its expansion of hog contracting. If cancellation caused default on a loan, this would damage the reputation of the contractor and banks would be reluctant to make loans involving this contractor. In fact, the selection process is done very carefully. An agency relationship develops where there is mutual trust among parties, reinforced by a history of performance. It is becoming apparent that new methods and/ or appropriate data are needed to evaluate economic performance under various forms of coordination. In addition to the studies cited by FS, low returns to producers under hog contracting have been reported by Harper, Kenyon and Thornsbury and by Zering and Beals. In the face of expansion in hog contracting, it seems unlikely that finishing feeder pigs under a conract would return an average of -$0.40 per pig o labor and management during an 11 year period, compared to $4.25 per pig if finished under traditional, non-contract production, as reported by FS. Irrespective of capital constraints and risk considerations, the trends in contract hog production would not have emerged under a $4.65 per pig difference in returns. A review of the cost and return studies and discussions |
| Databáze: | OpenAIRE |
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