CROSS-COMMODITY PERSPECTIVE ON CONTRACTING: EVIDENCE FROM MISSISSIPPI

Cross-Commodity Perspective on Contracting: Evidenc e from Mississippi

Examples are poultry and some hog contracts.

Some contracts such as cash forward contracts and marketing pools are viewed as simple
marketing tools from the producer’s perspective. However, the supply chain management
uses and implications of these contracts suggests that a broader, vertical coordination view
of these tools is warranted. Viewing traditional marketing tools in this fashion may bear
fruit in understanding why producers contract.

The purpose of this paper is two-fold. First, primary data collected on contracting
behavior and underlying fundamental explanatory factors for a cross-section of Mississippi
farms is presented.  Second, these data are used to offer some perspective on the role that

theoretically important variables may be playing in contracting decisions. The purpose is not
to provide a comprehensive analysis of contracting, per se, but to provide some perspective
on differences across commodities and outline future research needs.

2  Related Literature

There is a rich literature in the area of vertical integration and coordination.  Within

this literature, transactions cost economics has emerged as a primary explanatory tool for
examining contracting and vertical integration relationships (Williamson 1979, 2000). Un-
like neoclassical economic theory, transactions cost economics assumes that transactions do
not occur in a frictionless environment. Rather, transactions cost theory holds that the
cost of carrying out a transaction in the marketplace will have a direct effect on the vertical
stucture of the market/firm. Despite criticsms of the transactions cost theory as tautological

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