IDEAS home Printed from https://ideas.repec.org/a/ags/agreko/347975.html
   My bibliography  Save this article

Typology of contract farming arrangements: a transaction cost perspective

Author

Listed:
  • Mugwagwa, Innocent
  • Bijman, Jos
  • Trienekens, Jacques

Abstract

This paper proposes an alternative typology of contract farming arrangements (CFA) based on transaction cost theory. To construct the typology, we first surveyed managers of agribusiness firms and contracted farmers in Zimbabwe to understand the provisions in their contracts, the motivations for their inclusion and the level of transaction attributes, particularly the sub-categories of asset specificity and uncertainty. We then developed a two-by-two matrix of contract types based on the interaction of transaction attributes. The results show that four contract types can be distinguished: total, group, lean and market contracts. Furthermore, CFAs that are misaligned with transaction attributes have problems of side-selling and inefficiency. Our new empirically based categorization can help managers and policymakers to design CFAs that match with underlying transaction attributes, thus enhancing the stability and efficiency of CFAs.

Suggested Citation

  • Mugwagwa, Innocent & Bijman, Jos & Trienekens, Jacques, 2020. "Typology of contract farming arrangements: a transaction cost perspective," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 59(2), March.
    • Handle: RePEc:ags:agreko:347975
    DOI: 10.22004/ag.econ.347975
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/347975/files/Typology%20of%20contract%20farming%20arrangements%20%20a%20transaction%20cost%20perspective.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.347975?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Maertens, Miet & Vande Velde, Katrien, 2017. "Contract-farming in Staple Food Chains: The Case of Rice in Benin," World Development, Elsevier, vol. 95(C), pages 73-87.
    2. Sartorius, Kurt & Kirsten, Johann, 2007. "A framework to facilitate institutional arrangements for smallholder supply in developing countries: An agribusiness perspective," Food Policy, Elsevier, vol. 32(5-6), pages 640-655.
    3. Klaus Drescher, 2000. "Assessing aspects of agricultural contracts: An application to German agriculture," Agribusiness, John Wiley & Sons, Ltd., vol. 16(4), pages 385-398.
    4. Hueth, Brent & Ligon, Ethan & Dimitri, Carolyn, 2007. "AJAE Appendix: Agricultural Contracts: Data and Research Needs," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 89(5), pages 1-7, December.
    5. Jill E. Hobbs & Linda M. Young, 1999. "Increasing Vertical Linkages in Agrifood Supply Chains: A Conceptual Model and Some Preliminary Evidence," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(4), pages 478-478, December.
    6. Marc F. Bellemare & Lindsey Novak, 2017. "Contract Farming and Food Security," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(2), pages 357-378.
    7. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    8. Williamson, Oliver E, 1976. "The Economics of Internal Organization: Exit and Voice in Relation to Markets and Hierarchies," American Economic Review, American Economic Association, vol. 66(2), pages 369-377, May.
    9. Williamson, Oliver E, 1988. "The Logic of Economic Organization," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 65-93, Spring.
    10. Fulponi, Linda, 2006. "Private voluntary standards in the food system: The perspective of major food retailers in OECD countries," Food Policy, Elsevier, vol. 31(1), pages 1-13, February.
    11. repec:dau:papers:123456789/7520 is not listed on IDEAS
    12. Mighell, Ronald L. & Jones, Lawrence A., 1963. "Vertical Coordination in Agriculture," Agricultural Economic Reports 307164, United States Department of Agriculture, Economic Research Service.
    13. Peter Bogetoft & Henrik Ballebye Olesen, 2002. "Ten rules of thumb in contract design: lessons from Danish agriculture," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 29(2), pages 185-204, June.
    14. Barrett, Christopher B. & Bachke, Maren E. & Bellemare, Marc F. & Michelson, Hope C. & Narayanan, Sudha & Walker, Thomas F., 2012. "Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries," World Development, Elsevier, vol. 40(4), pages 715-730.
    15. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    16. Thomas Reardon & David Zilberman, 2018. "Climate Smart Food Supply Chains in Developing Countries in an Era of Rapid Dual Change in Agrifood Systems and the Climate," Natural Resource Management and Policy, in: Leslie Lipper & Nancy McCarthy & David Zilberman & Solomon Asfaw & Giacomo Branca (ed.), Climate Smart Agriculture, pages 335-351, Springer.
    17. Lin Li & Hongdong Guo & Jos Bijman & Nico Heerink, 2018. "The influence of uncertainty on the choice of business relationships: The case of vegetable farmers in China," Agribusiness, John Wiley & Sons, Ltd., vol. 34(3), pages 597-615, June.
    18. Johann Kirsten & Kurt Sartorius, 2002. "Linking agribusiness and small-scale farmers in developing countries: Is there a new role for contract farming?," Development Southern Africa, Taylor & Francis Journals, vol. 19(4), pages 503-529.
    19. Weseen, Simon & Hobbs, Jill & Kerr, William A., 2014. "Reducing Hold-up Risks in Ethanol Supply Chains: A Transaction Cost Perspective," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 17(2), pages 1-24, May.
    20. Saussier, Stephane, 2000. "Transaction costs and contractual incompleteness: the case of Electricite de France," Journal of Economic Behavior & Organization, Elsevier, vol. 42(2), pages 189-206, June.
    21. Brent Hueth & Ethan Ligon & Carolyn Dimitri, 2007. "Agricultural Contracts: Data and Research Needs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1276-1281.
    22. Emmanuel Raynaud & Loïc Sauvée & Egizio Valceschini, 2009. "Aligning branding strategies and governance of vertical transactions in agri-food chains," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 18(5), pages 835-868, October.
    23. Vermeulen, Hester & Kirsten, Johann F. & Sartorius, Kurt, 2008. "Contracting arrangements in agribusiness procurement practices in South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 47(2), pages 1-24, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Adu-Gyamfi Poku & Regina Birner & Saurabh Gupta, 2018. "Making Contract Farming Arrangements Work in Africa’s Bioeconomy: Evidence from Cassava Outgrower Schemes in Ghana," Sustainability, MDPI, vol. 10(5), pages 1-21, May.
    2. Abebe, Gumataw K. & Bijman, Jos & Kemp, Ron & Omta, Onno & Tsegaye, Admasu, 2013. "Contract farming configuration: Smallholders’ preferences for contract design attributes," Food Policy, Elsevier, vol. 40(C), pages 14-24.
    3. Stefano Ciliberti & Simone Del Sarto & Angelo Frascarelli & Giulia Pastorelli & Gaetano Martino, 2020. "Contracts to Govern the Transition towards Sustainable Production: Evidence from a Discrete Choice Analysis in the Durum Wheat Sector in Italy," Sustainability, MDPI, vol. 12(22), pages 1-14, November.
    4. Viet Hoang & Vinh Nguyen, 2023. "Determinants of small farmers' participation in contract farming in developing countries: A study in Vietnam," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 836-853, July.
    5. Ragasa, Catherine & Lambrecht, Isabel & Kufoalor, Doreen S., 2018. "Limitations of Contract Farming as a Pro-poor Strategy: The Case of Maize Outgrower Schemes in Upper West Ghana," World Development, Elsevier, vol. 102(C), pages 30-56.
    6. Ruml, Anette & Qaim, Matin, 2020. "Effects of marketing contracts and resource-providing contracts in the African small farm sector: Insights from oil palm production in Ghana," World Development, Elsevier, vol. 136(C).
    7. Mai Chiem Tuyen & Prapinwadee Sirisupluxana & Isriya Bunyasiri & Pham Xuan Hung, 2022. "Stakeholders’ Preferences towards Contract Attributes: Evidence from Rice Production in Vietnam," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
    8. Viet Hoang, 2021. "Impact of Contract Farming on Farmers’ Income in the Food Value Chain: A Theoretical Analysis and Empirical Study in Vietnam," Agriculture, MDPI, vol. 11(8), pages 1-16, August.
    9. Pavez, Iciar & Codron, Jean-Marie & Lubello, Pasquale & Florêncio, Maria Cecilia, 2019. "Biosecurity institutions and the choice of contracts in international fruit supply chains," Agricultural Systems, Elsevier, vol. 176(C).
    10. Arouna, Aminou & Michler, Jeffrey D. & Lokossou, Jourdain C., 2021. "Contract farming and rural transformation: Evidence from a field experiment in Benin," Journal of Development Economics, Elsevier, vol. 151(C).
    11. Nguyen Hung Anh & Wolfgang Bokelmann & Ngo Thi Thuan & Do Thi Nga & Nguyen Van Minh, 2019. "Smallholders’ Preferences for Different Contract Farming Models: Empirical Evidence from Sustainable Certified Coffee Production in Vietnam," Sustainability, MDPI, vol. 11(14), pages 1-26, July.
    12. Garrouste, Pierre & Saussier, Stephane, 2005. "Looking for a theory of the firm: Future challenges," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 178-199, October.
    13. Arouna Dissa & Jos Bijman & Maja Slingerland & Ousmane Mama Sanogo & Ken E Giller & Katrien Descheemaeker, 2022. "Growing cotton to produce food: Unravelling interactions between value chains in southern Mali," Development Policy Review, Overseas Development Institute, vol. 40(5), September.
    14. Ochieng, Dennis O. & Veettil, Prakashan C. & Qaim, Matin, 2017. "Farmers’ preferences for supermarket contracts in Kenya," Food Policy, Elsevier, vol. 68(C), pages 100-111.
    15. Ayeduvor Selorm & D. B. S. Sarpong & Irene S. Egyir & Akwasi Mensah Bonsu & Henry An, 2023. "Does contract farming affect technical efficiency? Evidence from soybean farmers in Northern Ghana," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 11(1), pages 1-22, December.
    16. Ton, Giel & Vellema, Wytse & Desiere, Sam & Weituschat, Sophia & D'Haese, Marijke, 2018. "Contract farming for improving smallholder incomes: What can we learn from effectiveness studies?," World Development, Elsevier, vol. 104(C), pages 46-64.
    17. Angelo Frascarelli & Stefano Ciliberti & Gustavo Magalhães de Oliveira & Gabriele Chiodini & Gaetano Martino, 2021. "Production Contracts and Food Quality: A Transaction Cost Analysis for the Italian Durum Wheat Sector," Sustainability, MDPI, vol. 13(5), pages 1-12, March.
    18. Soullier, Guillaume & Moustier, Paule, 2018. "Impacts of contract farming in domestic grain chains on farmer income and food insecurity. Contrasted evidence from Senegal," Food Policy, Elsevier, vol. 79(C), pages 179-198.
    19. Hobbs, J., 2018. "Transaction Costs, Institutions and the Organization of Supply Chains: Three Good Questions," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277411, International Association of Agricultural Economists.
    20. Felicetta Carillo & Francesco Caracciolo & Luigi Cembalo, 2017. "Do durum wheat producers benefit of vertical coordination?," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 5(1), pages 1-13, December.

    More about this item

    Keywords

    Farm Management; International Development;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:agreko:347975. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aeasaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.