Shaping Supply Chain Governance

The production process is becoming more complex and involving multiple companies and countries. A lot of research has focused on how these activities are coordinated and how interfirm transactions are governed. However, the existing literature is neither complete nor clear enough to understand how external and internal factors influence the shaping of a firm’s choice of mechanisms to govern transactions along the supply chain. Building from the existing literature, this paper proposes a conceptual model with two dimensions. The dimension of determinants includes three components: institution environment, industry structure and transaction characteristics. The dimension of governance patterns consists of five mechanisms a firm may use to govern its economic transactions along the supply chain: market contract, production contract, relational contract, relational production contract, and hierarchy. The paper provides prescriptions for the firm’s choice among five supply chain governance patterns under different conditions of the above three components of determinants.

Contract production as a method to reduce welfare loss caused by market uncertainty of seed potato

The aim of this study is to show whether contract production between seed and food potato producers lessens market uncertainty, reduce welfare losses for both parties and increase efficiency in the entire potato chain. These problems were approached from the point of view of the principal-agent theory combined with different contract models. Results indicate that no contract model provided seed potato producers with average positive net profits, and profitability ratios for seed potato farms stayed below one. The results indicate that seed potato producers trading on a fixed-price and pre-emptive market could sell their seed potato for 13 per cent less than on a transaction market, but with equal net profits. The more consistent supply chain leads to less market uncertainty. If the food potato producer was not party to the contract, there was no marked decrease in market uncertainty. With contract production the needs of contract parties could be controlled, but it will be up to the objectives of the party offering the contract, which party in the potato chain most benefits from the contract production.;

Production Contracts, Risk Shifting, and Relative Performance Payments in the Pork Industry

Actual performance records of production contract farmers are used to assess the extent to which contract production reduces the risk borne by pork producers. Comparisons of contracting relative to independent market production reveal that farmers who enter into production contracts based on absolute performance measures reduce risks associated with variable income. Weak evidence is found that relative performance contracts, similar to those used in the broiler chicken industry, further reduce income variability. The effectiveness of such relative performance contracts will rely on several factors; among these are increased contract production and a more uniform pork production and processing system.