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Production Contracts, Risk Shifting, And Relative Performance Payments In The Pork Industry

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  • Martin, Laura L.
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    Abstract

    Actual performance records of production contract farmers are used to assess the extent to which contract production reduces the risk borne by pork producers. Comparisons of contracting relative to independent market production reveal that farmers who enter into production contracts based on absolute performance measures reduce risks associated with variable income. Weak evidence is found that relative performance contracts, similar to those used in the broiler chicken industry, further reduce income variability. The effectiveness of such relative performance contracts will rely on several factors; among these are increased contract production and a more uniform pork production and processing system.

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    Bibliographic Info

    Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

    Volume (Year): 29 (1997)
    Issue (Month): 02 (December)
    Pages:

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    Handle: RePEc:ags:joaaec:15048

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    Web page: http://www.saea.org/jaae/jaae.htm
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    Related research

    Keywords: Absolute performance payment; Income variability; Pork industry; Production contracts; Relative performance payment; Risk shifting; Livestock Production/Industries;

    References

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    1. Johnson, C. Scott & Foster, Kenneth A., 1994. "Risk Preferences And Contracting In The U.S. Hog Industry," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 26(02), December.
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    Cited by:
    1. Hudson, Darren, 2001. "Cross-Commodity Perspective On Contracting: Evidence From Mississippi," Research reports 15800, Mississippi State University, Department of Agricultural Economics.
    2. McBride, William D. & Key, Nigel D., 2001. "Factors Affecting Contractor And Grower Success In Hog Contracting," 2001 Annual meeting, August 5-8, Chicago, IL 20552, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Jaenicke, Edward C. & Wang, Yanguo, 2004. "Simulating The Impacts Of Contract Supplies In A Spot Market-Contract Market Equilibrium Setting," 2004 Annual meeting, August 1-4, Denver, CO 20313, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Robison, Lindon J. & Schmid, A. Allan & Barry, Peter J., 2002. "The Role of Social Capital in the Industrialization of the Food System," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 31(1), April.
    5. Dubois, P. & Vukina, T., 2005. "Optimal incentives under moral hazard and heterogeneous agents : evidence from production contracts data," Economics Working Paper Archive (Toulouse) 200511, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
    6. 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), December.
    7. 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.
    8. Martinez, Stephen W., 2002. "Vertical Coordination Of Marketing Systems: Lessons From The Poultry, Egg, And Pork Industries," Agricultural Economics Reports 34051, United States Department of Agriculture, Economic Research Service.
    9. 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).
    10. Jaenicke, Edward C. & Shields, Martin & Kelsey, Timothy W., 2007. "Food Processors’ Use of Contracts to Purchase Agricultural Inputs: Evidence from a Pennsylvania Survey," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 36(2), October.
    11. 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 (IAMA), vol. 6(02).
    12. Volpe, Richard J., III, 2006. "Exploring the Potential Effects of Organic Production on Contracting in American Agribusiness," 2006 Annual meeting, July 23-26, Long Beach, CA 21086, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Martinez, Stephen W., 2000. "Price and Quality of Pork and Broiler Products: What's the Role of Vertical Coordination?," Agricultural Information Bulletins 33759, United States Department of Agriculture, Economic Research Service.
    14. Skully, David W., 1998. "Opposition To Contract Production: Self-Selection, Status, And Stranded Assets," 1998 Annual meeting, August 2-5, Salt Lake City, UT 21012, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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