Agriculture Reference
In-Depth Information
moving north. Cutters often follow the same routes for years, returning again and again
to the same farms. Most crews are based in Kansas, Oklahoma, and Texas, but others are
based in the northern states and provinces, heading south in May and working their way
back home in time for their own harvest.
The contracts between custom combiners and farmers have a structure that dates back
to the 1940s when the industry had its first major expansion. Since that time cutters have
been paid according to a three-part formula that includes a per-acre fee for cutting, a per-
bushel fee for hauling grain to a local storage site, and a per-bushel fee for high-yield crops
(usually over 20 bushels per acre). Today the typical contract is “13/13/13” which means:
$13 per acre of harvested wheat, 13 cents per bushel hauled, and 13 cents per bushel added
to the per-acre charge for high yields.
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In unusual cases—drought, hail, long hauls, or
wind—special harvest rates would be developed to suit both parties.
As with agricultural contracts in general, farmers and cutters rely heavily on verbal
agreements, enforced with handshakes and the possibility of renewal. As Isern (1981) notes:
The custom cutter who failed to live up to his obligations to a farmer found it hard to
obtain work in the locality the next year. Likewise, if a farmer reneged on an agreement, the
word spread among custom cutters working the area, and the farmer might be left with no
harvesters at all” (92). This discussion is consistent with the earlier analysis of reputation
discussed in chapter 3.
Incentives and Implications.
In our framework, custom combining is a classic example
of a short-term custom contract (case 2) and thus must be examined in the context of the
incentives present in such an arrangement. Foremost among these are specialization gains,
moral hazard costs, and timeliness costs. By focusing on these incentives, we are able to
show the economic logic of custom combining and indirectly confront some implications of
our model. We do this by illustrating how these incentives are manifest in custom combining
and by explaining subtle variation in the use and form of custom combining contracts.
The benefit of contracting for custom combining is, of course, derived from intensively
using highly specialized equipment with skilled operators. Most wheat farmers only use
their own combines for at most twenty days each year. A custom cutter could, however,
by moving north with the ripening wheat, use his combines from 100 to 150 days each
year. Custom cutters use their combines intensively and buy new machines every two
or three years, whereas most farmers keep their own combines for a decade or more.
Williams (1953) notes these tremendous gains to specialized equipment: “The economic
keynote of the cutters' activities is the ability to get maximum utilization of their expensive
and complicated specialized machinery, as they follow the progressive ripening pattern of
the south-to-north contour of the wheat belt” (53). The gains from specialized labor are
also important. Combine operators and truck drivers repeatedly working long seasons are
