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Agricultural Contracting and the Scale of Production

Published online by Cambridge University Press:  15 September 2016

Nigel Key
Nigel Key*
Affiliation:
Economic Research Service, U.S. Department of Agriculture
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Abstract

This study presents evidence that contracting is positively associated with the scale of production for six major U.S. agricultural commodities. Specifically, contract producers tend to operate at a larger scale than do independent producers, and the likelihood of an operation contracting increases with its scale. This relationship is strongest in the cattle and hog sectors, where it persists even among large commercial operations. Six theoretical explanations for the observed correlation between scale and contracting are proposed, including imperfect capital markets, contractor transaction costs, input leverage, grower risk aversion, asset specificity, and technological change. Information from five annual national surveys is used to examine the validity of three of the proposed mechanisms.

Keywords

marketing contractsproduction contractsriskscale of productiontransaction costs
Type
Articles
Information
Agricultural and Resource Economics Review , Volume 33 , Issue 2 , October 2004 , pp. 255 - 271
Copyright
Copyright © 2004 Northeastern Agricultural and Resource Economics Association 

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