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Vertical Integration in the Pork Industry

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  • Jeffrey J. Reimer

Abstract

This article provides an economic explanation regarding why the share of U.S. pork raised on company-owned farms with hired management (integration) is increasing relative to production through independently owned-and-operated contract growers (contracting). The article develops a property rights model that shows how in certain circumstances production contracts do not transfer sufficient control over the use of production assets to intermediaries. On the other hand, integration removes certain grower incentives, with the result that production on company farms tends to be relatively costly. Practical examples of factors that influence the likelihood of full integration are emphasized. Copyright 2006, Oxford University Press.

Suggested Citation

  • Jeffrey J. Reimer, 2006. "Vertical Integration in the Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 234-248.
    • Handle: RePEc:oup:ajagec:v:88:y:2006:i:1:p:234-248
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2006.00850.x
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    Cited by:

    1. Traversac, Jean-Baptiste & Rousset, Sylvain & Perrier-Cornet, Philippe, 2011. "Farm resources, transaction costs and forward integration in agriculture: Evidence from French wine producers," Food Policy, Elsevier, vol. 36(6), pages 839-847.
    2. Michael Ollinger & Danna Moore, 2009. "The Direct and Indirect Costs of Food-Safety Regulation," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(2), pages 247-265.
    3. Sanxi Li & Xinyu Li & Zhan Qu, 2023. "Does vertical integration increase product quality?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(1), pages 69-80, April.
    4. Maples, Joshua G. & Lusk, Jayson L. & Peel, Derrell S., 2019. "Technology and evolving supply chains in the beef and pork industries," Food Policy, Elsevier, vol. 83(C), pages 346-354.
    5. Maksym, Volodymyr & Chemerys, Vasyl & Dushka, Vitalii & Dadak, Oksana & Martyniuk, Uliana, 2022. "Modeling of economic efficiency of pig farming in agricultural enterprises," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 8(3), September.
    6. Hu, Y. & Hendrikse, G.W.J., 2007. "Allocation of Decision Rights in Fruit and Vegetable Contracts in China," ERIM Report Series Research in Management ERS-2007-077-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    7. Du, Ying & Stiegert, Kyle W., 2009. "Strategic Vertical Pricing in the U.S. Butter Market," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 51712, Agricultural and Applied Economics Association.
    8. Claude Ménard, 2017. "Finding our way in the jungle: insights from organization theory," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04001137, HAL.
    9. Ahmet Candemir & Sabine Duvaleix & Laure Latruffe, 2021. "Agricultural Cooperatives And Farm Sustainability – A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 35(4), pages 1118-1144, September.
    10. 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), pages 1-19, August.
    11. Hennessy, David A. & Zhang, Jing & Bai, Na, 2019. "Animal health inputs, endogenous risk, general infrastructure, technology adoption and industrialized animal agriculture," Food Policy, Elsevier, vol. 83(C), pages 355-362.
    12. Seabright, Paul & Berardi, Nicoletta, 2010. "Joint Ventures as a Commitment Device Against Lobbies," CEPR Discussion Papers 7714, C.E.P.R. Discussion Papers.
    13. Franken, Jason R.V. & Parcell, Joseph L. & Patterson, David J. & Smith, Michael F. & Poock, Scott, 2010. "Cow-Calf Producer Interest in Retained Ownership," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 28(1), pages 1-11.
    14. Claude Ménard, 2017. "Finding our way in the jungle: insights from organization theory," Post-Print hal-04001137, HAL.
    15. Youhong Lee & Qingxiao Li & Metin Çakır, 2023. "Elasticities of substitution between marketing and farm inputs in a complete system of food commodities," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1450-1471, September.
    16. Kostas Karantininis & Jesper T. Graversen, 2008. "Relational contracts and adaptation: application to a pork producer contract," Agribusiness, John Wiley & Sons, Ltd., vol. 24(3), pages 342-354.
    17. Reimer Jeffrey J, 2008. "Search Costs in Identity-Preserved Agricultural Markets," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(1), pages 1-20, October.
    18. Hueth, Brent & Ligon, Ethan & Dimitri, Carolyn, 2007. "AJAE Appendix: Agricultural Contracts: Data and Research Needs," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 89(5), pages 1-7, December.
    19. Ollinger, Michael & Moore, Danna L., 2009. "The Interplay of Regulation and Marketing Incentives in Providing Food Safety," Economic Research Report 55837, United States Department of Agriculture, Economic Research Service.

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