CROSS-COMMODITY PERSPECTIVE ON CONTRACTING: EVIDENCE FROM MISSISSIPPI

Cross-Commodity Persp ective on Contracting: Eviden ce from Mississippi

1  Introduction

Contracting in agriculture is not a new phenomenon. However, the increasing role
of concentration and industrialization in agriculture has refocused attention on the type
and extent of use of contracts in agriculture.  Data from Perry and Banker suggest that

the use of contracting has increased, in some cases dramatically, over the past five years
(Table 1).   The available data also show considerable disparity in the use of contracting

across commodities. Differing degrees of “industrialization” (Drabenstott) may be used to
describe differences across commodities, but industrialization is broadly defined and some-
what amorphous. A closer examination of the underlying fundamental differences between
commodities may be more fruitful in gaining persp ective on the reasons for differences in
contracting across commodities.

Empirical examination of contracting has understandably been focused on the poul-
try and hog sectors (Goodhue, Rausser and Simon; Gillespie and Eidman; Martin; Klieben-
stein and Lawrence; Johnson and Foster; Hennessey and Lawrence), although some work in
fruits and vegetables has been done as well (Hueth et al.).  However, examination of Table

1 shows that contracting is increasing in fiber, field crops and other livestock as well.

Contracting in agriculture is somewhat di∏icull to define because of the broad range
of potential contract types. Market transactions occur on a continuum ranging from spot
transactions to complete vertical integration (i.e., coordination through direct ownership of

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