Agency relationships in PDO products management: the role of economic associations

The study aims to introduce a simple theoretical view concerning agency relationships in agrifood chains, by considering an association of olive oil producers whose behaviour is the basis of the theoretical view. The circumstances, which are firstly taken into account in the analysis are : a) a large number of small farms is involved in producing the raw agricultural product; b) a high degree of heterogeneity usually affects the raw agricultural product; c) the final demand is supported by consumers who are able to assess differences in the quality of the final product d) the PDO (Protected Designation of Origin) label reduces drastically the possibility of substituting the raw agricultural product. Therefore, the co-ordination process among economic agents has to support the concentration of the agricultural product and ensure the particular features of the final product. This means that the co-ordination process have also to include solutions to the problems related to the goals of the consumers. If the features of the agricultural raw material do not correspond to the need of the PDO production process, then an asymmetric information occurs between the farmers and the agents of the processing stage. Thus, the hypothesis that the heterogeneity of the raw agricultural product should be more efficiently managed by an agency relationship rather than by a market process is discussed. An association of producers could define a principal-agent relationship with agents of the processing stage. The association (principal) can stipulate a contract with the management of the processing stage (agent) and specify its needs to meet fully the PDO conditions and satisfy the final consumers. Therefore, the association and the contract are assumed as basic elements of the institutional dimension of the coordination process.