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Vertical Integration in the Pork Industry
Author(s) -
Reimer Jeffrey J.
Publication year - 2006
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2006.00850.x
Subject(s) - production (economics) , incentive , intermediary , vertical integration , business , industrial organization , property rights , control (management) , economics , microeconomics , finance , management
This article provides an economic explanation regarding why the share of U.S. pork raised on company‐owned farms with hired management (integration) is increasing relative to production through independently owned‐and‐operated contract growers (contracting). The article develops a property rights model that shows how in certain circumstances production contracts do not transfer sufficient control over the use of production assets to intermediaries. On the other hand, integration removes certain grower incentives, with the result that production on company farms tends to be relatively costly. Practical examples of factors that influence the likelihood of full integration are emphasized.