Contract Marketing after the 2002 Farm Act: The Case of Peanuts
The elimination of the marketing quota system that regulated the peanut market since the 1930s has been accompanied by the emergence of marketing contracts between farmers and peanut buyers (mainly peanut shellers). Two types of contracts have been observed, forward contracts for delivery at harvest or at a later date and "option to purchase" contracts. We analyze the clauses of contracts used by major shellers in order to infer the motivation behind these contracts (i.e., risk sharing, reduction of transaction costs, improve coordination, exercise of market power, etc.). The analysis points out that the main role of the contracts is to replace the marketing structure existing prior the 2002 Farm Act, where peanut marketing was quite regulated. In this sense, the reduction of transaction costs associated to the need for coordinating a continuous supply of homogeneous quality seems to be the most plausible explanation.
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- Michael Sykuta & Joseph Parcell, 2003. "Contract Structure and Design in Identity-Preserved Soybean Production," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(2), pages 332-350.
- Love, H. Alan & Burton, Diana M., 1999. "A Strategic Rationale For Captive Supplies," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(01), July.
- David E. Davis, 2000. "Does Top of the Market Pricing Facilitate Oligopsony Coordination?," SDSU Working Papers in Progress 12000, South Dakota State University, Department of Economics.
- MacDonald, James M. & Perry, Janet E. & Ahearn, Mary Clare & Banker, David E. & Chambers, William & Dimitri, Carolyn & Key, Nigel D. & Nelson, Kenneth E. & Southard, Leland W., 2004. "Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities," Agricultural Economics Reports 34013, United States Department of Agriculture, Economic Research Service.
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