An analysis of the farmers contractual preferences in process innovation implementation

Abstract

Purpose The purpose of this paper is to consider how farmers cope with the uncertainty-related broiler process innovation in long-term contractual relationships. Design/methodology/approach This paper conceptualizes the process innovation implementation in terms of governance structure adaptation. The focus of the study is on the property and decision rights combination in process innovation implementation. It is argued that this approach highlights a key aspect of the nexus between governance mode and innovation within inter-firms relationships. Findings The results first show that the allocation of the decision rights between the farmer and the processor explains the process innovation implementation and, second, that the farmer contractual preferences are caused by the expected costs of the adaptation. Third, estimates of transaction and production costs variations are proposed. Research limitations/implications This study considers only the uncertainty stemming from the process innovation, whereas further uncertainty sources may influence the contract negotiation. Second, the lack of sample representativeness requires further information to be gathered. Finally, the investigation could be developed by modeling the farmer-processor negotiation. Practical implications The results indicate that effective governance structures in poultry production should give room to the adaptation in order to facilitate process innovation. Originality/value To conceptualize the process innovation implementation as an adaptation of the governance structure strengthens the knowledge of innovation in the sector context and contributes to the extent of the applied field of transaction cost economics.

Can contracts substitute hierarchy? Evidence from high-quality coffee supply in Brazil

“…Our results show this as an efficient solution to coordinate high-quality supply through the allocation of decision rights on production process for external suppliers (Ménard, 2018a, b). In fact, we support the idea that allocation of property and decision rights are key drivers in the coordination some transactions not only because the parties “[…] do not have all information required to fully optimize or because their bounded rationality prevents them from processing efficiently all information available […]” (Ménard, 2014, p. 574), or the complexity of innovation processes (Martino and Polinori, 2018), but also because of complex effects of quality uncertainty in agri-food chains.…”

“…Thus, while the literature focuses on innovation (Martino and Polinori, 2018), we present that allocation of property and decisions rights is also a key determinant when quality uncertainty emerges. These results shed light on the approach of Ménard (2018a, b) as a promising research agenda in TCE.…”

“…We, in turn, study whether this hybrid arrangement with decentralized decision rights is able to manage this quality uncertainty (Raynaud et al , 2009), but maintaining a supply with the high intensity of strategic investments to achieve the high level of quality in coffee beans. While the extant literature applies this new approach of Ménard (2018a, b) on innovation processes (Martino and Polinori, 2018), we contribute to the literature by focusing on the governance of quality supply based on the transaction attributes of asset specificity, uncertainty and incentives.…”

“…Conversely, this study tests the vertical integration replacement by a hybrid arrangement when there is a proper definition and allocation of property and decision rights (Barzel, 1997, 2002; Ménard, 2018a, b). While the extant literature on TCE usually focuses on make or buy solutions (Macher and Richman, 2008; Oliveira and Zylbersztajn, 2018), we contribute to this field by empirically testing a recent approach based on hybrids arrangements and their allocation of property and decision rights (Ménard, 2018b), which only few studies have paid attention (Martino et al , 2017; Martino and Polinori, 2018). Specifically, we test a case where the coordination of a transaction is moved from an inefficient hierarchy to an efficient hybrid arrangement due to its ability to “[…] keep strategic property rights separated but share significant decision rights because it is the best way to create added value […]” (Ménard, 2018b, p. 6).…”

Coffee farmers' incentives to comply with sustainability standards

“…The threeyear contract incentive takes on two levels (zero or one). The choice of long-term contract is aligned with the transaction costs approach for reducing uncertainty considering specific investments, as investigated by Martino and Polinori (2019) in the poultry context in Italy.…”