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Risk Preferences and Contracting In the U.S. Hog Industry

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  • Scott Johnson, C.
  • Foster, Kenneth A.

Abstract

Much of the increase use of vertical coordination in the U.S. swine industry has taken place through contract production. While the incidence of contracting is much higher in non-traditional hog production areas, a growing number of Midwestern producers are being faced with contract options. A variety of contractual arrangements are available through feed companies, integrators, genetics firms, and packers. However, little is known about the profitability and risk characteristics of these alternatives. This research suggests that risk neutral producers in the Midwest would prefer independent production, and risk averse producers would prefer to choose among the various types of coordination arrangements.

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  • Scott Johnson, C. & Foster, Kenneth A., 1994. "Risk Preferences and Contracting In the U.S. Hog Industry," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 26(2), pages 393-405, December.
    • Handle: RePEc:cup:jagaec:v:26:y:1994:i:02:p:393-405_02
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    1. Rehber, Erkan, 1998. "Vertical Integration In Agriculture And Contract Farming," Working Papers 25991, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    2. Unterschultz, James R., 2000. "New Instruments For Co-Ordination And Risk Sharing Within The Canadian Beef Industry," Project Report Series 24046, University of Alberta, Department of Resource Economics and Environmental Sociology.
    3. Poray, Michael C. & Gray, Allan W. & Boehlje, Michael & Preckel, Paul V., 2003. "Evaluation of Alternative Coordination Systems Between Producers and Packers in the Pork Value Chain," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 6(2), pages 1-21.
    4. Rehber, Erkan, 2007. "A Global Overview of Contract Farming," Monographs: Applied Economics, AgEcon Search, number 259079, November.
    5. Buhr, Brian L. & Smith, Rodney B.W., 1998. "Formula Market Contracts In The Swine Industry," Conference Papers 14483, University of Minnesota, Center for International Food and Agricultural Policy.
    6. Parcell, Joe & Cain, Wayne, 2014. "Ranking Specialty Crop Profitability: Iterative Stochastic Dominance," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170663, Agricultural and Applied Economics Association.
    7. Key, Nigel & Runsten, David, 1999. "Contract Farming, Smallholders, and Rural Development in Latin America: The Organization of Agroprocessing Firms and the Scale of Outgrower Production," World Development, Elsevier, vol. 27(2), pages 381-401, February.
    8. Yang, Xi & Paulson, Nicholas D. & Khanna, Madhu, 2012. "Optimal Contracts to Induce Biomass Production under Risk," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124699, Agricultural and Applied Economics Association.
    9. Martin, Laura L., 1997. "Production Contracts, Risk Shifting, And Relative Performance Payments In The Pork Industry," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 29(2), pages 1-12, December.
    10. Hudson, Darren, 2001. "Cross-Commodity Perspective On Contracting: Evidence From Mississippi," Research Reports 15800, Mississippi State University, Department of Agricultural Economics.
    11. Mao, Hui & Zhou, Li & Ifft, Jennifer & Ying, RuiYao, 2019. "Risk preferences, production contracts and technology adoption by broiler farmers in China," China Economic Review, Elsevier, vol. 54(C), pages 147-159.
    12. Key, Nigel D., 2002. "How Much Do Farmers Value Their Independence? Estimating The Risk And Autonomy Premia Associated With Production Contracts," 2002 Annual meeting, July 28-31, Long Beach, CA 19688, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Mao, Hui & Zhou, Li & Ifft, Jennifer, 2017. "Risk Preferences, Contracts and Technology Adoption by Broiler Farmers in China," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 257248, Agricultural and Applied Economics Association.
    14. Gillespie, Jeffrey M. & Davis, Christopher G. & Rahelizatovo, Noro C., 2004. "An Evaluation of U.S. Hog Producer Preferences Toward Autonomy," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(3), pages 1-16, December.
    15. Franken, Jason R.V. & Pennings, Joost M.E. & Garcia, Philip, 2009. "Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(2), pages 1-19, August.
    16. Boehlje, Michael & Roucan-Kane, Maud & Broring, Stefanie, 2011. "Future Agribusiness Challenges: Strategic Uncertainty, Innovation and Structural Change," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 14(5), pages 1-29, December.
    17. Granoszewski, K. & Spiller, A., 2014. "Vertragliche Zusammenarbeit bei der energetischen Biomasselieferung: Einstellungen und Bindungsbereitschaften von deutschen Landwirten," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 49, March.
    18. McBride, William D. & Key, Nigel D., 2003. "Economic And Structural Relationships In U.S. Hog Production," Agricultural Economic Reports 33971, United States Department of Agriculture, Economic Research Service.
    19. Preckel, Paul V. & Boehlje, Michael & Gray, Allan W. & Kim, Sounghun, 2004. "Vertically Aligned Vs. Open Market Coordination: Dominance Or Co-Existence?," 2004 Annual meeting, August 1-4, Denver, CO 20099, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Key, Nigel D. & McBride, William D., 2001. "Does Contracting Raise Farm Productivity? The Impact Of Production Contracts On Hog Farm Performance," 2001 Annual meeting, August 5-8, Chicago, IL 20721, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    21. 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.
    22. Cakir, Metin & Balagtas, Joseph Valdes & Wu, Steven Y., 2009. "Allocation of Authority in Agricultural Production Contracts," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49577, Agricultural and Applied Economics Association.
    23. Charles R. Knoeber, 2000. "Les contrats de production dans l'agriculture américaine. Une caractérisation de la recherche empirique actuelle," Économie rurale, Programme National Persée, vol. 259(1), pages 3-15.
    24. Mussell, Al & Mayer, Holly & Martin, Larry J. & Grier, Kevin & Westgren, Randall E., 2003. "PRICE DISCOVERY MECHANISMS AND ALTERNATIVES FOR CANADIAN AGRICULTURE; Part I: A Review of Pricing Mechanisms in Agriculture," Miscellaneous Publications 18121, George Morris Center.

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