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Agricultural Contracting and the Scale of Production

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  • Key, Nigel D.

Abstract

This study presents evidence that contracting is positively associated with the scale of production for six major U.S. agricultural commodities. Specifically, contract producers tend to operate at a larger scale than do independent producers, and the likelihood of an operation contracting increases with its scale. This relationship is strongest in the cattle and hog sectors, where it persists even among large commercial operations. Six theoretical explanations for the observed correlation between scale and contracting are proposed, including imperfect capital markets, contractor transaction costs, input leverage, grower risk aversion, asset specificity, and technological change. Information from five annual national surveys is used to examine the validity of three of the proposed mechanisms.

Suggested Citation

  • Key, Nigel D., 2004. "Agricultural Contracting and the Scale of Production," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(2), October.
  • Handle: RePEc:ags:arerjl:31273
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    Cited by:

    1. Franken, Jason R.V. & Pennings, Joost M.E. & Garcia, Philip, 2009. "Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(2), August.
    2. repec:spr:agfoec:v:5:y:2017:i:1:d:10.1186_s40100-017-0088-7 is not listed on IDEAS
    3. Katchova, Ani L., 2013. "Agricultural Contracting and Agrifood Competition," Staff Papers 164515, University of Kentucky, Department of Agricultural Economics.
    4. Reise, Christian & Liebe, Ulf & Mußhoff, Oliver, 2012. "Präferenzen von Landwirten bei der Gestaltung von Substratlieferverträgen für Biogasanlagen: Ein Choice-Experiment," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 61(3).
    5. Key, Nigel D. & McBride, William D., 2008. "Do Production Contracts Raise Farm Productivity? An Instrumental Variables Approach," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(2), October.
    6. Abebe Ejigu Alemu & Miet Maertens & Jozef Deckers & Hans Bauer & Erik Mathijs, 2016. "Impact of supply chain coordination on honey farmers’ income in Tigray, Northern Ethiopia," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 4(1), pages 1-21, December.
    7. 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).
    8. MacDonald, James M. & Korb, Penelope J., 2011. "Agricultural Contracting Update: Contracts in 2008," Economic Information Bulletin 101279, United States Department of Agriculture, Economic Research Service.
    9. Reise, Christian & Liebe, Ulf & Musshoff, Oliver, 2012. "Design of substrate supply contracts for biogas plants," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124428, Australian Agricultural and Resource Economics Society.
    10. Mußhoff, Oliver & Hirschauer, Norbert & Fahlbusch, Markus, 2014. "An Investigation into the Factors which Determine Farmers’ Acceptance of Supply Contracts: The Ethanol Beet Example," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 63(1).

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    Keywords

    Production Economics;

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