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Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry

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  • Zylbersztajn, Decio
  • B. Nadalini, Lygia

Abstract

Three hundred small tomato growers located in Brazilian northeast states, supplied a processing industry. In view of the large number of contract hazards and weak enforcement of clauses, managers have decided to move to the Midwest, where a reduced number of larger farmers have been contracted. The industry blamed high transaction costs due to the weak mechanism of public enforcement of property rights. The industry blamed some farmers of selling the product at the market for fresh consumption. Also, farmers blamed the industry for taking advantage of asymmetric information related to quality. This study presents an analysis of contract architecture and an evaluation of effects of transaction costs related variables on the likelihood of contract breaches. A panel data study with 1,523 observations and limited dependent variable models has been formulated to test hypothesis based on transaction cost theory. Results show that opportunism and the absence of courts guarantees of property rights precluded the possibility of achieving a stable contract relationship in the region.

Suggested Citation

  • Zylbersztajn, Decio & B. Nadalini, Lygia, 2007. "Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry," Revista de Economia e Sociologia Rural (RESR), Sociedade Brasileira de Economia e Sociologia Rural, vol. 45(4), January.
    • Handle: RePEc:ags:revi24:341892
    DOI: 10.22004/ag.econ.341892
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    References listed on IDEAS

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    1. Elizabeth M. M. Q. Farina & Thomas Reardon, 2000. "Agrifood Grades and Standards in the Extended Mercosur: Their Role in the Changing Agrifood System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(5), pages 1170-1176.
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    Crop Production/Industries;

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