This study measures the magnitude of transaction costs incurred by milk producers in their contractual relations with dairy processors in two different coordination mechanisms: centralized contracting through a marketing board and decentralized bilateral contracting. Interviews and surveys were conducted to estimate transaction costs faced by producers marketing through the Québec milk marketing board in Canada and bilateral contracts in England and Wales in the United Kingdom using the measurement methodology of the cost of exchange. Our results show that the relative magnitude of transaction costs incurred by producers across both settings is quite low, which indicates that both hybrid coordination mechanisms minimize transaction costs in the dairy sector. However, results from the bilateral contracting setting indicate a strong heterogeneity of transaction costs levels among farmers. In that respect, the milk marketing board and its institutional setting would act as a collective insurance, pooling transaction costs and sharing them among producers. Our analysis leads to recommendations on bilateral contracting. JEL classifications: B4, D02, L14, Q13
This article builds on new institutional economics to characterize the functions played by meso‐institutions in bridging the gap between the macro‐institutional layer at which general rules are established and the micro‐institutional layer within which transactions are organized. The argument is substantiated through a comparative analysis of the regulatory settings designed to secure the safety of raw milk in Brazil, Canada, and Italy. We show that similar rules may lead to very different operational impact, depending on the arrangements through which these rules are implemented. The analysis also points out some consequences for the organization of supply chains and public policies.
Although markets for high quality products might represent an interesting outlet for smallholder farmers from developing countries, access to those markets is challenging, as appropriate institutions helping farmers to comply with quality requirements are often missing. To overcome the institutional constraints and to link smallholders to markets, three types of institutional arrangements are often proposed: contract farming, producer organisations and partnerships. While many publications have explored the merits of each of these arrangements, a systematic comparison and evaluation of all three has not been done, particularly from the perspective of the constraints that smallholders face when seeking to improve product quality. In this chapter, we seek to make such evaluatory comparison. To do so, we first identify the most limiting institutional constraints faced by smallholder farmers related to quality improvement. Second, we provide an overview of each arrangement's ability to address these constraints. Third, we determine how combinations of the three arrangements can be used effectively in quality improvement in smallholder value chains.
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