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The relationship between industry structure and production contracting: raising questions at the beginning of a trend

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  • Blank, Steven C.
  • Volpe, Richard J. III
  • Erickson, Kenneth W.

Abstract

This study assesses the possible relationship between industry structure and the expanding use of production contracting. We propose that there are unique structural constraints in each commodity market that determine the potential for production contracting. We test hypotheses on (1) the expected positive relationship between concentration in an agribusiness industry and the extent of production contracting for the relevant commodity, (2) the expected negative relationship between the share of a commodity produced on contract and the number of products made from that commodity, and (3) the expected negative relationship between the number of commercial uses applicable to a commodity and the concentration of buyers of that commodity. We present empirical data from a small cross section of commodities that are consistent with these hypotheses. Also, we explore the significant differences between agricultural producers who enter into production contracts and those who remain independent. Based on our results, we draw preliminary inferences on the future of production contracting in American agriculture-its potential for expansion as well as its fundamental limitations

Suggested Citation

  • Blank, Steven C. & Volpe, Richard J. III & Erickson, Kenneth W., 2008. "The relationship between industry structure and production contracting: raising questions at the beginning of a trend," 2008 Annual Meeting, June 23-24, 2008, Big Sky, Montana 291743, Western Agricultural Economics Association.
    • Handle: RePEc:ags:waeabi:291743
    DOI: 10.22004/ag.econ.291743
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