Vertical Relationships and Food Supply Chain Coordination: The Case of Processing Tomato Sector in Algeria

Abstract

This paper analyzes the vertical relationship between growers and processors in the Algerian tomato processing industry. We use extensive data on production contract outcomes for processing tomato growers (including 3,740 coordinated contracts) to examine the performance of grower-processor vertical contracts. The results indicate that the tomato grower-processor vertical relationship undergoes some deficiencies resulted in social welfare losses and lower level in contractual performance. From the side of processors, the industry has an oligopsonic structure (with CR4: 57%). From the side of tomato growers, the results indicate a relatively higher contractual default (with 53% in average). These findings suggest that public policy should pay more attention for the performances levels of the used vertical coordination mechanism in order to provide more incentive instruments and by leveraging vertical contract for tomato growers' benefit.

The Role of Intermediaries’ Power on Contracting Decision Between Farmers and Intermediaries.

“…Over repeated exchanges information is attained, leading to the development of trust, which helps the decision-making process on making informed choices, about with whom to contract or not contract (Poppo and Zenger, 2002). Benmehaia and Brabez (2018) argue that closer coordination between farmers-processors in terms of technical assistance would help farmers achieve higher yields, which they find to be positively associated with farmers' participation in CF. It would be interesting for future research to look at the mediation effect of trust on the intermediary's advice (or technical assistance offered by the intermediary) to the farmer and contracting decision.…”

“…Relationships and contracts that are not based on trust, have a higher likelihood to default. Benmehaia and Brabez (2018) report high levels of contractual default from the processing tomatoes sector in Algeria, due to weak incentives provided by the buyer (specifically related to price). Swinnen (2016) points out that contract can create surplus in high standards production and small farmers can capture a significant part of this surplus if their holdup opportunities create incentives for the intermediary to pay the farmer a premium as part of the contract.…”

“…low specific investments) would be less likely to engage in a contractual relation with a "strong buyer", on contrary they would tend to participate in such contracts. As argued by Benmehaia and Brabez (2018) small scale farmers are more likely to contract because they are more risk-averse and place more value on contracts as a risk reduction mechanism. Our results add another critical point in understanding farmers' behaviour towards participation in CF, by pointing out that the loss of rent from a specific investment for small farmers is much lower than that of a large one.…”

Farmers’ Income Risks and Marketing Channel Choices: Case of Date Palm Processing in Biskra, Algeria

“…On the other hand, the contractual arrangements for marketing channels are also determined by several variables specific to the producers (Djermoun et al, 2014, andBenmehaia andBrabez, 2018, as examples for Algerian context). Several studies have shown that certain technological, economic and social factors influence the choice of marketing channels, i.e.…”

Resolving Recurrent Imperfections in the Dairy Production Using Gaming Simulation

“…Contracting between the different actors (production and sale of milk and other animal products) stands as a major constraint in the dairy value chain management (Zaibet et al, 2005). In their analysis of the tomato value chain, Benmehaia et al (2018) found that public policy have a role in the performances levels of the used vertical coordination mechanism by providing more incentive instruments. The lack of contracting and integration ("horizontal" and "vertical") explains the failure to account properly for how value-chain analysis are mediated by factors relating to social relations, in addition to local history and environment (Jarosz, 2008).…”