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Marketing Agreement, Food Safety and Contract Design

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  • Liang, Jing
  • Jensen, Helen H.

Abstract

Recent outbreaks of food-borne illness related to fruit and vegetables have led to increased concerns about the safety of produce. In response, the industry has adopted marketing agreements to ensure consistency of product safety. Contracts now are widely used between processors and growers to specify product safety attributes. This paper uses a principal-agent model to examine how the inclusion of a marketing agreement influences the behavior of growers and processors under processor-grower contracts. We conclude that: (1) the processor offers a contract with a higher premium and a lower base payment under the contract with a marketing agreement (2) contract parameters change in similar manner under the two contracts (3) under a contract with a marketing agreement the processor earns less profit. The individual contract scenarios are discussed in detail.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6434.

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Date of creation: 2008
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Handle: RePEc:ags:aaea08:6434

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Keywords: contract; food safety; principal-agent; market agreements; GAPs; on-farm inspection; Food Consumption/Nutrition/Food Safety; Marketing;

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  1. Crespi, John M. & Marette, Stephan, 2003. "Some Economic Implications Of Public Labeling," Journal of Food Distribution Research, Food Distribution Research Society, vol. 34(03), November.
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  9. Ligon, Ethan, 2002. "Estimation of an Efficient Tomato Contract," Staff General Research Papers 10235, Iowa State University, Department of Economics.
  10. S. Andrew Starbird, 2005. "Moral Hazard, Inspection Policy, and Food Safety," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 15-27.
  11. Rachael E. Goodhue, 2000. "Broiler Production Contracts as a Multi-Agent Problem: Common Risk, Incentives and Heterogeneity," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 606-622.
  12. Yanguo Wang & Edward C. Jaenicke, 2006. "Simulating the Impacts of Contract Supplies in a Spot Market-Contract Market Equilibrium Setting," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 1062-1077.
  13. Julie A. Caswell & Eliza M. Mojduszka, 1996. "Using Informational Labeling to Influence the Market for Quality in Food Products," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(5), pages 1248-1253.
  14. Starbird, S. Andrew, 2005. "Supply Chain Contracts and Food Safety," Choices, Agricultural and Applied Economics Association, vol. 20(2).
  15. Roger G. Ginder & Brent Hueth & Philippe Marcoul, 2005. "Cooperatives and Contracting in Agriculture: The Case of West Liberty Foods," Center for Agricultural and Rural Development (CARD) Publications 05-wp408, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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