Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry

Revista de Economia e Sociologia Rural, No. 4, September-December 2007

Posted: 23 Aug 2007

See all articles by Decio Zylbersztajn

Decio Zylbersztajn

University of São Paulo (USP) - Department of Administration

Ligia Bello Nadalini

University of Sao Paulo - Faculty of Economics - Administration and Accounting (FEA)

Abstract

Three hundred small tomato growers located in Brazilian northeast states, supplied a processing industry. In view of the large number of contract hazards and weak enforcement of clauses, managers have decided to move to the Midwest, where a reduced number of larger farmers have been contracted. The industry blamed high transaction costs due to the weak mechanism of public enforcement of property rights. The industry blamed some farmers of selling the product at the market for fresh consumption. Also, farmers blamed the industry for taking advantage of asymmetric information related to quality. This study presents an analysis of contract architecture and an evaluation of effects of transaction costs related variables on the likelihood of contract breaches. A panel data study with 1,523 observations and limited dependent variable models has been formulated to test hypothesis based on transaction cost theory. Results show that opportunism and the absence of courts guarantees of property rights precluded the possibility of achieving a stable contract relationship in the region.

Keywords: agro-food governance, transaction costs and strategy, agro-industry contracts

JEL Classification: D23, L23

Suggested Citation

Zylbersztajn, Decio and Nadalini, Ligia Bello, Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry. Revista de Economia e Sociologia Rural, No. 4, September-December 2007, Available at SSRN: https://ssrn.com/abstract=1008920

Decio Zylbersztajn (Contact Author)

University of São Paulo (USP) - Department of Administration ( email )

Av. Prof. Luciano Gualberto
908 - Predio 1 Sala C14
Sao Paulo 05508-900
Brazil
55-11-3032-5966 (Phone)
55-11-3032-5966 (Fax)

Ligia Bello Nadalini

University of Sao Paulo - Faculty of Economics - Administration and Accounting (FEA) ( email )

Av. Prof. Luciano Gualberto 908
São Paulo SP, São Paulo 05508-900
Brazil

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