Partial Vertical Integration, Risk Shifting, and Product Rejection in the High-Value Export Supply Chain: The Ghana Pineapple Sector
Summary High-value export supply chains hold potential to improve smallholders' welfare, but their relative production inefficiency and moral hazard problems can cause exporters to prefer vertically integrated plantation production. However, pineapple exporters in Ghana produce both for their own account and purchase from smallholders. We hypothesize that vertical integration is only partial because exporters face large market risks that smallholders, surprisingly, are better able to absorb. We show empirically that exporters' average rejection rate of export-quality fruit is high and varies in response to unanticipated fluctuations in European demand. These results support the hypothesis and are consistent with theories of partial vertical integration but not the standard principal-agent paradigm.
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