Agriculture Reference
In-Depth Information
Producer Motives for
Production Contracting
contracts, compared with 33.7% for livestock.
Furthermore, the share of total US agricultural
sales under production contracts increased
from 10.6% in 1996 to about 18% in 2003,
in contrast to the stable trend in marketing
contracts (MacDonald and Korb, 2006).
Table 12.1 summarizes the share of produc-
tion under contract by commodity and con-
tract type for recent years. Given that
producers lose some of their autonomy under
the terms of production contracts, their
choosing these contracts over spot markets is
somewhat surprising, thus justifying a quick
review of producers' motivation.
Over the last five decades, the literature has
offered a fairly consistent list of motives for agri-
cultural producers to choose contracting, but
there has been no consistency in opinions of
which motives are most important. In 1963,
Mighell and Jones identified four reasons for
coordinating by non-market means: to increase
efficiency, to obtain (or reduce the cost of)
financing, to reduce uncertainty, and to gain
market advantage. Ahearn et al . (2005) said the
two most commonly cited reasons for entering
Table 12.1. Share of total agricultural sales by commodity, contract type and year, 1991-2003. Sources:
MacDonald and Korb (2006) a nd the USDA's Agricultural Resource Management Survey for relevant years.
Share of total sales (%)
Item
1991-1993
1994-1995
1996-1997
1998-2000
2001-2002
2003
Commodities produced under
marketing contract
All commodities
17.0
21.2
21.5
20.4
19.7
21.7
Crops
22.8
24.0
21.1
22.5
24.7
29.7
Maize
10.2
13.8
12.9
12.6
14.7
13.8
Soybeans
9.6
9.8
13.2
9.7
9.5
13.6
Wheat
5.8
6.2
9.0
6.9
6.4
7.5
Sugar beet
88.5
83.7
74.6
83.1
95.8
95.1
Rice
19.7
25.2
25.8
30.5
38.6
51.8
Groundnuts
45.2
58.3
34.2
44.9
27.9
53.3
Tobacco
0.3
0.6
0.3
1.9
52.6
54.8
Cotton
30.4
44.4
33.8
42.9
52.6
50.9
Fruit
N/A
61.0
54.3
63.3
60.1
67.2
Vegetables
N/A
45.3
32.3
27.3
31.5
36.4
Other crops
6.3
14.0
18.7
21.2
30.9
44.7
Livestock
11.6
18.2
22.0
18.4
14.5
13.7
Broilers
5.9
3.4
4.0
3.9
4.2
1.1
Hogs
N/A
2.4
2.7
9.1
6.1
6.8
Cattle
N/A
4.3
5.9
4.6
2.7
3.4
Other livestock
0.1
6.8
4.9
10.7
3.5
7.4
Dairy
33.6
56.7
58.0
53.4
48.0
50.5
Commodities produced under
production contract
All commodities
11.8
13.0
10.6
16.9
18.0
17.5
Crops
1.9
1.9
1.8
4.2
3.1
1.1
Vegetables
N/A
9.7
6.1
12.4
10.6
6.3
Livestock
21.1
24.7
22.9
29.6
33.8
33.7
Broilers
82.8
81.2
80.1
84.9
88.1
95.5
Hogs
N/A
28.7
47.3
76.3
78.1
84.8
Cattle
N/A
14.7
11.1
19.7
18.3
25.4
Other livestock
0.1
2.6
N/A
N/A
5.5
N/A
Dairy
0.2
0.2
0.1
0.2
0.7
0.6
 
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