INSTITUTIONS AND PRICE TRANSMISSION IN THE VIETNAMESE HOG MARKET

International Food and Agribusiness Management Review Vol. 2/No. 3/4/2001

by the assemblers and paid a fixed price per kilo of carcasses sold according to the
services they provide.

Institutional Structure

The institutional analysis of the market uses data collected in a survey of 300
assemblers and other actors in the marketing chain in nine provinces throughout
the country. The analysis reveals that institutions governing hog transactions are
different in the North and the South. The results presented in detail in a previous
paper (Le Goulven, 2000) show that along the hog marketing chain, in Vietnam
as in other countries, there is strong uncertainty as to the quality of the products,
as well as the production cycle patterns and market conditions.

In T_1, assemblers have to cope with uncertainties that concern hog yields (ratio
carcass weight/live weight), health (sanitary aspects), and fat content (percentage
of meat), since they are buying live animals and selling carcasses. These
uncertainties can lead to opportunistic behavior by producers trying to feed the
hogs before the transaction, or to hide the real state of health of the hogs from
buyers.

On the one hand, this risk can be partly reduced if one is able to evaluate the
quality of the carcass from a live hog. Such an estimation results from specific
knowledge each buyer can acquire by being taught or by learning-by-doing. This
knowledge is gained individually even if common criteria can usually be used.

On the other hand, specific contracts can be adopted as institutional mecha-
nisms to regulate the exchanges and reduce the risk of ex-ante opportunism. The
results from the survey reveal that actors coordinate through oral contracts that are
identified as relational contracts (Macneil, 1974), where the identity of the parties
and the social milieu within which the contract is consummated are relevant. The
terms of the contracts are such that information costs and actors’ risks are reduced.
The survey also showed that oral contracts in T₁ are enforced by mutual trust built
between the two parties in repeated transactions. This trust is exchanged in the
same way as the product. If party A cheats at t_n (the producer does not tell the
collector that his hog is sick), party B will either cheat at t_n11 (the collector gives
a price which is not the real price of the market), or break the contract as a result
of loss of trust in the partner (the collector will never again buy hogs from this
producer). The social content of personal relations “carries strong expectations of
confidence that the other will abstain from opportunism” (Granovetter, 1985).

In T_2, uncertainties about the quality of the meat and the market conditions still
generate high transaction costs due mainly to the risk of perishability of the hogs
brought to town, and of the carcasses given a lack of refrigerating systems or
urban stockyards. To reduce these costs, assemblers resort to the services of urban
agents (slaughterers in the North, brokers in the South) that work with meat
retailers and provide a daily regularity in the selling of carcasses. Surveys reveal

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