Strategic outsourcing and precision agriculture: towards a silent reorganization of agricultural production in France ?

In France as in other European countries, farm outsourcing has been developing for the past twenty years. Today, this phenomenon concerns both small and large farms. What is surprising is the growing number of farmers who outsource precision farming operations that involve sophisticated technologies and specialized expertise. This stylized fact is rather counter-intuitive to the known result of transaction cost theory, according to which in the presence of specific assets, ownership prevails over outsourcing. The objective of our study is to analyze the determinants of these new agricultural outsourcing practices associated with precision agriculture. We start with the transaction costs and property rights frameworks, then discuss recent theoretical contributions of relational contracts to explain the possibility of outsourcing in the presence of high asset specificity. Empirical evidences are provided for France using a mixed research methodology. Based on original data from surveys of 1200 farmers and of 20 of medium and large custom operators, our methodology combines an estimation of discrete choice models of outsourcing for different levels of asset specificity and case studies of major farm outsourcing organizational schemes. Our results show that in the presence of high specific assets, outsourcing can be preferred to ownership for strategic reasons. This phenomenon is counter-intuitive from the point of view of transaction cost theory, but is possible when one considers possible ex-ante incentive mechanisms (expectation of specialization gains, inclusion of a bonus based on the value of the output in the formal contract, participation of a third party), and informal incentive mechanisms built through repeated interactions.