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Outsourcing Decisions Of Pig Producers In Baden-Württemberg

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  • Hess, Sebastian

Abstract

The global trend of industrializing agriculture increasingly transforms farms and firms into specialized component suppliers within a multi-stage food processing chain, which creates intraindustry trade between- and within geographical regions. This can be analyzed within the framework of a hypothetical multiregional food-processing firm that benefits from outsourcing of various ‘tasks’ to other sub-contracting regions, in order to utilize lower production cost there. This paper demonstrates how this can be modeled as a multi-output cost minimization problem of the processing firm, and it is argued that with respect to agriculture, the outsourcing opportunities for the firm are determined by economies of diversification. Trade is implicitly reflected as the movement of intermediate factors towards the processing firm, and firm-level specialization of the sub-contractors is an observable outcome. This framework is applied to pig production in 1155 municipalities in southern Germany that can be interpreted as ‘almost firm-level’ data. The estimated multi-output production frontier is decomposed according to a primal measure of diversification economies. Results show that pig farms located closer to slaughterhouses tend to specialize more in one of the tasks ‘piglet production’, ‘rearing’ or ‘fattening’, while farms in regions distant from slaughterhouses tend to insource all of these tasks. Future research may extend the framework towards comparative static analyses of relevant policies.

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Bibliographic Info

Paper provided by German Association of Agricultural Economists (GEWISOLA) in its series 51st Annual Conference, Halle, Germany, September 28-30, 2011 with number 114509.

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Date of creation: 2011
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Handle: RePEc:ags:gewi11:114509

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Keywords: Outsourcing; Trade of Tasks; Economies of Diversification; Pig Production; Schweineproduktion; Agribusiness; Agricultural and Food Policy; Food Consumption/Nutrition/Food Safety; Livestock Production/Industries;

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  1. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  2. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  3. Kilkenny, Maureen, 2002. "The New Rural Economy: Discussion," Staff General Research Papers 10185, Iowa State University, Department of Economics.
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  7. Philipp Harms & Oliver Lorz & Dieter Urban, 2012. "Offshoring along the production chain," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 93-106, February.
  8. Baldwin, Richard & Robert-Nicoud, Frédéric, 2010. "Trade-in-goods and trade-in-tasks: An Integrating Framework," CEPR Discussion Papers 7775, C.E.P.R. Discussion Papers.
  9. Reardon, Thomas & Barrett, Christopher B., 2000. "Agroindustrialization, globalization, and international development: An overview of issues, patterns, and determinants," Agricultural Economics, Blackwell, vol. 23(3), pages 195-205, September.
  10. Chavas, Jean-Paul & Kim, Kwansoo, 2010. "Economies of diversification: A generalization and decomposition of economies of scope," International Journal of Production Economics, Elsevier, vol. 126(2), pages 229-235, August.
  11. Rosario Crin�, 2009. "Offshoring, Multinationals And Labour Market: A Review Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 197-249, 04.
  12. Marie-Luise Rau & Frank van Tongeren, 2009. "Heterogeneous firms and homogenising standards in agri-food trade: the Polish meat case," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 36(4), pages 479-505, December.
  13. Greenaway, David & Gullstrand, Joakim & Kneller, Richard, 2008. "Surviving globalisation," Journal of International Economics, Elsevier, vol. 74(2), pages 264-277, March.
  14. Nikolaev, Denis, 2007. "The reasons of creation and development of holding agro industrial structures in system of vertical integration sugar business in Russia," 102nd Seminar, May 17-18, 2007, Moscow, Russia 10015, European Association of Agricultural Economists.
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