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Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry

Author

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  • Zylbersztajn, Decio
  • Nadalini, Lygia B.

Abstract

Three hundred small tomato growers located in Brazilian northeast states, supplied a processing industry. In view of the large number of contract hazards and weak enforcement of clauses, managers have decided to move to the Midwest, where a reduced number of larger farmers have been contracted. The industry blamed high transaction costs due to the weak mechanism of public enforcement of property rights. The industry blamed some farmers of selling the product at the market for fresh consumption. Also, farmers blamed the industry for taking advantage of asymmetric information related to quality. This study presents an analysis of contract architecture and an evaluation of effects of transaction costs related variables on the likelihood of contract breaches. A panel data study with 1,523 observations and limited dependent variable models has been formulated to test hypothesis based on transaction cost theory. Results show that opportunism and the absence of courts guarantees of property rights precluded the possibility of achieving a stable contract relationship in the region.

Suggested Citation

  • Zylbersztajn, Decio & Nadalini, Lygia B., 2007. "Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry," Brazilian Journal of Rural Economy and Sociology (Revista de Economia e Sociologia Rural-RESR), Sociedade Brasileira de Economia e Sociologia Rural, vol. 45(4), pages 1-22, December.
  • Handle: RePEc:ags:rdecag:61922
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    File URL: http://ageconsearch.umn.edu/record/61922/files/a05v45n4.pdf
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    Cited by:

    1. Souza, Roberta de Castro & Neto, João Amato, 2010. "The Entry of Brazilian Fresh Fruit Small and Medium Producers Into the Global Market," Brazilian Journal of Rural Economy and Sociology (Revista de Economia e Sociologia Rural-RESR), Sociedade Brasileira de Economia e Sociologia Rural, vol. 0(Number 3), pages 1-18.
    2. Monteiro, Guilherme Fowler A. & Saes, Maria Sylvia Macchione & Caleman, Silvia Morales de Queiroz & Zylbersztajn, Décio, 2012. "The Role of Empirical Research in the Study of Complex Forms of Governance in Agroindustrial Systems," Brazilian Journal of Rural Economy and Sociology (Revista de Economia e Sociologia Rural-RESR), Sociedade Brasileira de Economia e Sociologia Rural, vol. 0(Number 4), pages 1-16, December.

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    Keywords

    Agribusiness;

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