An Empirical Analysis of the Determinants of Marketing Contract Structures for Corn and Soybeans

Abstract

Contracts serve as coordination mechanisms which allocate value, risk, and decision rights across buyers and sellers. The use of marketing contracts in agriculture, specifically for crop production, has been increasing over the past decade. This study investigates the determinants of agricultural marketing contract design employing data from the USDA's Agricultural Resource Management Survey. Models are estimated to analyze the association between producer and contractor characteristics, the decision to produce under contract, and the types of contract structures observed in practice, while controlling for the potential for endogenous matching between contracting parties. Results indicate that while certain producer characteristics are significantly associated with the decision to produce corn or soybeans under contract, there is no significant association between those characteristics and specific contract attributes. AbstractContracts serve as coordination mechanisms which allocate value, risk, and decision rights across buyers and sellers. The use of marketing contracts in agriculture, specifically for crop production, has been increasing over the past decade. This study investigates the determinants of agricultural marketing contract design employing data from the USDA's Agricultural Resource Management Survey. Models are estimated to analyze the association between producer and contractor characteristics, the decision to produce under contract, and the types of contract structures observed in practice, while controlling for the potential for endogenous matching between contracting parties. Results indicate that while certain producer characteristics are significantly associated with the decision to produce corn or soybeans under contract, there is no significant association between those characteristics and specific contract attributes.

Linking apple farmers to markets

“…The significance of marketing contracts in promoting smallholders' market participation and improving their welfare in developing countries has attracted considerable attention of policy analysts. In particular, several studies have examined farmer's binary choice between participating in advanced agro-food supply chains such as supermarkets through the contractual arrangements and selling at spot markets (e.g., Miyata, Minot, and Hu 2009;Escobal and Cavero 2012;Paulson, Katchova, and Lence 2010;Goodwin and Schroeder 1994;Blandon, Henson, and Cranfield 2009;Franken, Pennings, and Garcia 2014). Most researchers find positive role of marketing contracts in serving as a price risk management and/or providing a premium to average spot market prices.…”

Marketing contracts and risk management for cereal producers

“…They follow different objectives concerning the level of expected price, the quantity produced, the quality level and the acceptable level of the different risks (production, quality, market, noncompliance and default). The marketing methods characteristics (allocation of value, risk and decision rights) and the contracting parties’ characteristics (especially their attitude towards the different risks) play a role in the adoption of these methods and contracts (Paulson, Katchova, & Lence, ). A brief summary of the empirical literature on the determinants of the adoption of field crop marketing methods is proposed in Franken et al.…”

Contrats et modes de coordination en agriculture

“…Ils sont d'une grande diversité. Dans le secteur des cultures aux États-Unis, ils confèrent plus de droits de contrôle et de décision aux producteurs que les contrats de production dans le secteur de l'élevage (Paulson et al, 2010). Ils portent sur le produit échangé et spéciient le prix du bien ou un mécanisme pour le déterminer, le lieu de livraison, la quantité à livrer et le degré d'exposition au risque de marché, et sa durée (à travers les dates de paiement).…”