The passage of the 2002 Farm Bill and the removal of the peanut quota system revealed underlying fundamental problems in the Virginia peanut industry. Lower yields and high costs plague producers at the farm level, acreage levels continue to decline and it is doubtful that peanut production in Virginia will continue at levels seen in the past. The structured market due to the quota system has provided little incentive in the past for technological investment. Investment in technology such as high oleic peanuts and capturing value at the consumer level are seen as ways to improve the situation in Virginia. In particular increased coordination at all levels of the supply chain would be needed to ensure that the consumer is brought a product with characteristics they desire. The literature provides ample information regarding the formation of alliances and coordination in general. According to Cozzarin and Barry (1998), vertical integration, similar to vertical alliances are set up for the following reasons: mitigating transactions costs, taking advantage of output or input price differentials of a competitor, and reducing uncertainties in costs and/or prices. Cozzarin and Barry (1998) also note that there is an increasing move toward vertical coordination in many agriculture sectors, the reasons cited for the current trend include: a) the growing influence of consumers in controlling the agri-food agenda; b) the increasing marketing power of large food companies; and (c) technological changes that necessitate coordination. Of these three reasons, the peanut industry falls under the first two. Vertical coordination is seen to be a solution when two or more entities are able to accomplish more efficiently their objectives than they are able to on their own. For the peanut industry, the agency theory and in particular principal-agent theory is the most applicable to the peanut industry. A linear model is used to examine the effects of increased coordination along the supply chain. The linear model also provides a snapshot of how decisions made at the farm level reverberate through the entire supply chain. The linear model includes the comparison of increased profits due to premiums at the consumer level. Results of the linear model indicate that the Virginia peanut industry will have difficulty maintaining current production levels without investment in the sector, without changing the way the supply chain operates. Principal-agent theory and specifically the work done on contracts in the pork and poultry industries provide a framework within which the peanut industry could avoid asymmetric information and moral hazard. This study attempts to identify underlying problems along with possible solutions or the Virginia peanut industry. / Master of Science

Alliances between participants in the beef industry have developed rapidly during the past 10 years. Industry surveys reveal alliances are expected to grow larger in number and become a more dominant part of the beef sector over the next 10 years. This research centers on providing design specific information to managers and decision makers involved with creating alliance organizations, thereby improving the likelihood of future alliance success. A conceptual framework was created to better understand the process of alliance formation. Each participant in the alliance first prioritizes economic motivations for joining, creates unique governance structure designs reflecting motivations, and then assesses results to decide on future participation. Simulations were performed using empirical data from a private beef alliance to analyze various margin sharing and premium allocation designs. Cattle owners were found to prefer equal margin sharing, while packers would prefer to accept a transfer of cattle owner margins rather than share packing margins with owners. Premiums were found to be substantial for cattle grading higher than a Choice YG3 quality level. Premiums averaged $12/head, $8/head, and $4/head when 75%, 50%, and 25% of cattle qualified for premium lines, respectively. Premium rights were found to be good substitutes for equal margin sharing agreements, allowing packers to accept equal margin sharing agreements while maintaining an equivalent level of return from premium rights. Marginal rates of substitution between changes in premium rights and changes in equal margin sharing levels are identified, allowing for more informed negotiations between cattle owners and packers. / Master of Science

Canada has been recognized as the largest exporter of flax seed in the world. Currently, very little flax straw is further processed, despite its potential as a value added product, with only about 7-10% of Canadian flax seed producers harvesting residual flax straw rather than burning the straw. A traditional use of flax straw has been for the production of fibre for the linen industry. Interest in flax fibre has been rekindled with the impetus to seek out bioproducts that replace non-renewal resources and provide value-added opportunities for agricultural producers. Flax fibre also has a range of potential uses in automotive parts, geotextiles, insulation material, etc. Despite this potential, the Canadian flax fibre sector remains largely underdeveloped, with fledgling supply chains and lack of investment in the necessary processing capacity. This paper develops a framework for analysing the relational exchanges at different stage of the supply chain to determine if the paucity in investment is the result of prohibitively high exchange costs. A number of distinct stages in the flax fibre supply chain can be identified: farmers producing flax seed and/or straw; processors who extract the natural fibre from the straw; and manufacturers who use the fibre in their products. The paper develops a framework that draws together insights from Transaction Cost Economics, Agency Theory and Bargaining Theory. The role of institutions in facilitating quality measurement and providing participants with information is also considered. The theoretical framework identifies asset specificity, agency measurement costs, bargaining power and under-developed institutions as key factors in the development of the flax fibre sector. From the theoretical framework, a set of propositions is developed that examine the anticipated effect of these factors on vertical coordination in the sector. The theoretical propositions are explored through a series of semi-structured interviews with parties at each stage of the supply chain (producers, fibre processors, final manufacturers), as well as with industry experts. Information from the interviews is used to identify the transaction characteristics and the institutional framework characterizing the flax fibre sector in Canada. This is analysed through a comparative case study approach with the flax fibre sector in Europe, and the wool fibre sector in New Zealand as an example of a fully developed and long-standing fibre sector. By also noting the different vertical coordination strategies that are present in these supply chains, a connection is drawn between the presence of certain transaction characteristics and the corresponding cost-minimizing exchange relationships. The case studies are used to investigate the propositions developed from the theoretical framework regarding the impact of transaction characteristics on the optimal vertical coordination strategy and the impediments to development and investment in the sector. The propositions developed in the framework are verified to a great extent by the comparative case study. The uncertainty in the exchange environment regarding the future direction of the flax fibre industry and the high measurement costs due to the absent quality and grading regime in the Canadian flax fibre set the two industries apart from each other. Both of these dimensions impact the exchange costs of a transaction and subsequently, the extent to which the parties are closely coordinated. The case studies verify that using a framework to analyze transactions provides additional insights because of the joint consideration of several features of the transaction.

Canada has been recognized as the largest exporter of flax seed in the world. Currently, very little flax straw is further processed, despite its potential as a value added product, with only about 7-10% of Canadian flax seed producers harvesting residual flax straw rather than burning the straw. A traditional use of flax straw has been for the production of fibre for the linen industry. Interest in flax fibre has been rekindled with the impetus to seek out bioproducts that replace non-renewal resources and provide value-added opportunities for agricultural producers. Flax fibre also has a range of potential uses in automotive parts, geotextiles, insulation material, etc. Despite this potential, the Canadian flax fibre sector remains largely underdeveloped, with fledgling supply chains and lack of investment in the necessary processing capacity. This paper develops a framework for analysing the relational exchanges at different stage of the supply chain to determine if the paucity in investment is the result of prohibitively high exchange costs. A number of distinct stages in the flax fibre supply chain can be identified: farmers producing flax seed and/or straw; processors who extract the natural fibre from the straw; and manufacturers who use the fibre in their products. The paper develops a framework that draws together insights from Transaction Cost Economics, Agency Theory and Bargaining Theory. The role of institutions in facilitating quality measurement and providing participants with information is also considered. The theoretical framework identifies asset specificity, agency measurement costs, bargaining power and under-developed institutions as key factors in the development of the flax fibre sector. From the theoretical framework, a set of propositions is developed that examine the anticipated effect of these factors on vertical coordination in the sector. The theoretical propositions are explored through a series of semi-structured interviews with parties at each stage of the supply chain (producers, fibre processors, final manufacturers), as well as with industry experts. Information from the interviews is used to identify the transaction characteristics and the institutional framework characterizing the flax fibre sector in Canada. This is analysed through a comparative case study approach with the flax fibre sector in Europe, and the wool fibre sector in New Zealand as an example of a fully developed and long-standing fibre sector. By also noting the different vertical coordination strategies that are present in these supply chains, a connection is drawn between the presence of certain transaction characteristics and the corresponding cost-minimizing exchange relationships. The case studies are used to investigate the propositions developed from the theoretical framework regarding the impact of transaction characteristics on the optimal vertical coordination strategy and the impediments to development and investment in the sector. The propositions developed in the framework are verified to a great extent by the comparative case study. The uncertainty in the exchange environment regarding the future direction of the flax fibre industry and the high measurement costs due to the absent quality and grading regime in the Canadian flax fibre set the two industries apart from each other. Both of these dimensions impact the exchange costs of a transaction and subsequently, the extent to which the parties are closely coordinated. The case studies verify that using a framework to analyze transactions provides additional insights because of the joint consideration of several features of the transaction.

Doctor of Philosophy / Department of Agricultural Economics / Jason S. Bergtold / Tian Xia / Brazil is one of the leading producers of ethanol, sugar, and sugarcane. Increasing demand for biofuels aligned with public policies prompted the expansion of sugarcane into the Brazilian Cerrado, particularly, into the states of Goiás and Mato Grosso do Sul. The overall purpose of this dissertation, comprised of three essays, is to understand the impacts from the sugarcane expansion on farmers, processors, and the market. At the market level, the first essay, estimates the impacts of public policies and market factors on ethanol and sugar, supply and demand, in Goiás and Mato Grosso do Sul, using three-stage least squares. Results show that ethanol supply is sensitive to public policies whereas the sugar supply is sensitive to market prices. Sugar and ethanol were found to be complementary outputs. For ethanol expansion to be sustainable the ethanol market must be developed to the extent that it relies on market factors and is no longer dependent on public policies. At the farmer level, the second essay, examines farmers' willingness to sign a sugarcane contract with a mill in the Brazilian Cerrado. A hypothetical stated choice experiment was conducted with farmers in Goiás and Mato Grosso do Sul. Respondents choose between three contracts (land rental, agricultural partnership and supply) and two optout options ("keep current contract" or "not grow sugarcane"). A single and a two opt-out random parameters models were estimated. The two opt-out model allowed for a better interpretation of the status quo. Willingness to pay, direct and cross-elasticity measures for contract attributes were calculated. Results showed that farmers prefer contracts with higher returns, shorter duration and a lower probability of late payments. Farmers seemed to prefer to renting out their land to the mill than to produce sugarcane themselves, which could lead to consequences for rural development and the sustainability of sugarcane expansion. At the processor level, the third essay investigates the impact of vertical coordination on input-oriented technical efficiency using data envelopment analysis (first stage) and a Tobit censored model (second stage). 204 Brazilian mills were considered. The second stage controlled for vertical integration as well as other characteristics of the mill. Vertical integration was measured as the percentage of total sugarcane used, supplied by mills. A negative, though minimal, relationship between vertical integration and technical efficiency was found. Hence, technical efficiency is not the major driver of vertical integration. Other vertical coordination strategies may bring more benefits in terms of technical efficiency (e.g. contracts). Drivers of vertical integration seem to vary according to the characteristics of the location of the mill.

The organic wheat supply chain in Canada operates in a relatively new sector for which there is very little public information to aid in price discovery. Organic wheat producers must use available information in order to decide when to sell their wheat and whom to sell to. The relatively low degree of market information, especially for producers, suggests a problem of information asymmetry, which may have ramifications for efficiency and the distribution of rents in the organic wheat supply chain. The literature on Transaction Cost Economics, Agency Theory and the Economics of Information is used in the thesis to theorize differences between methods of selling organic wheat that vary in terms of vertical coordination. The analysis involves a comparison of selling to large and small grain companies, selling through Producer-Owned Firms (POFs) and selling directly to processors. The theory predicts that producers gain from using a POF because of savings in transaction costs and higher prices. These theorized differences in transaction costs and price are due to increased sharing of information between the producer and the marketing agent, enhanced producer control over the marketer, and incentive for the marketer to provide producers with a high price. These benefits can also be realized by selling directly to a processor, but only if the producer can effectively and efficiently perform his or her own marketing functions. Average cost, price and profit margins are used as a metric for comparing each of the four governance structures. A survey of organic wheat producers in Saskatchewan was undertaken in order to collect data on organic Hard Red Spring Wheat (HRSW) transactions. The results indicate that governance structure has a statistically significant effect on organic HRSW prices and on producer transaction costs. The analysis concludes that the producer receives the greatest profit margin from selling through the vertically coordinated POF, while a marketer receives the greatest profit margin if it operates as a large grain company and purchases HRSW on the spot market. The results also suggest that organic producers that eliminate the middleman and sell directly to processors cannot market as efficiently and effectively compared with producers that use a POF. The results of this thesis emphasize that increased coordination between producer and marketer through a POF can be advantageous for the producer, but not necessarily for the marketer, due to the difference in the distribution of rents.

The organic wheat supply chain in Canada operates in a relatively new sector for which there is very little public information to aid in price discovery. Organic wheat producers must use available information in order to decide when to sell their wheat and whom to sell to. The relatively low degree of market information, especially for producers, suggests a problem of information asymmetry, which may have ramifications for efficiency and the distribution of rents in the organic wheat supply chain. The literature on Transaction Cost Economics, Agency Theory and the Economics of Information is used in the thesis to theorize differences between methods of selling organic wheat that vary in terms of vertical coordination. The analysis involves a comparison of selling to large and small grain companies, selling through Producer-Owned Firms (POFs) and selling directly to processors. The theory predicts that producers gain from using a POF because of savings in transaction costs and higher prices. These theorized differences in transaction costs and price are due to increased sharing of information between the producer and the marketing agent, enhanced producer control over the marketer, and incentive for the marketer to provide producers with a high price. These benefits can also be realized by selling directly to a processor, but only if the producer can effectively and efficiently perform his or her own marketing functions. Average cost, price and profit margins are used as a metric for comparing each of the four governance structures. A survey of organic wheat producers in Saskatchewan was undertaken in order to collect data on organic Hard Red Spring Wheat (HRSW) transactions. The results indicate that governance structure has a statistically significant effect on organic HRSW prices and on producer transaction costs. The analysis concludes that the producer receives the greatest profit margin from selling through the vertically coordinated POF, while a marketer receives the greatest profit margin if it operates as a large grain company and purchases HRSW on the spot market. The results also suggest that organic producers that eliminate the middleman and sell directly to processors cannot market as efficiently and effectively compared with producers that use a POF. The results of this thesis emphasize that increased coordination between producer and marketer through a POF can be advantageous for the producer, but not necessarily for the marketer, due to the difference in the distribution of rents.

The Sino-Australian wool trade relationship is the most significant in the international wool industry. China accounts for 65 per cent of Australia’s wool exports and Australian wool around 70 per cent of China’s imports. At the same time, it has also been one of the most contentious areas of Sino- Australian trade. There have been frequent disputes, protracted trade negotiations and numerous problems unsettling the smooth flow of product from Australian woolgrowers to Chinese wool textile mills. Despite a number of investigations and several bilateral and multilateral initiatives to improve trade protocols, in particular associated with China’s accession in the World Trade Organization (WTO) in 2001, many of these longstanding problems remain unresolved. A range of different methods are employed by China-located early-stage wool processors (ESWPs) to obtain their raw wool requirements. This research applies transaction cost analysis to examine the extent to which different raw material purchasing channels have changed (and are changing) over time. The research aims both to elucidate how China-located ESWPs govern the wool procurement transaction and to investigate the interaction of socio-economic (asset specificity, frequency, uncertainty) and transactional cost factors (information, negotiation and monitoring costs) influencing the decision-making of the ESWPs. This research is unique in that it has been conducted by a wool industry “insider” who speaks Mandarin and who has applied the Transaction Cost Analysis (TCA) from the perspective of the Chinese management of the ESWP firm in order to identify possible improvements. Transaction Cost Analysis seeks to analyse the “make or buy decision” or in this case the degrees of backwards vertical integration into the Australian wool marketing system by China’s ESWPs. The “make or buy” decision has become a theoretical reality since China’s WTO accession — an institutional change that allows more vertical coordination and the potential for improved fibre selection in Australia’s wool market. Understanding these structures can provide considerable insight into how the Australian wool supply chain (particularly fibre selection and soft attribute differentiation) can be improved to the benefit of stakeholders. This is especially important from the viewpoint of improving the quality of China’s intermediate wool processing — a vital stage where any mistakes in fibre selection cannot be undone and are expensive, often only “discovered” much later at garment or fabric delivery stage. Being a natural fibre destined for the high-end apparel market, quality with consistency is always a challenge for wool, “the fibre”, in the modern textile landscape. The research finds that although the conditions exist for vertical coordination, a hierarchy structure has v only been employed by foreign processors that had pre-existent raw material infrastructure in Australia. Most Australian wool imports still enter China through intermediaries without sufficient completeness of the contract, mainly owing to the uniquely “Chinese” method of price and quality risk management. Two large privately owned Chinese processors have vertically integrated for some of their raw material needs but also use intermediaries to avoid over dependency. The fact that China has still not completely fulfilled WTO entry requirements, specifically in regards to Tariff Rate Quota administration, also contributes to state intermediary participation and sovereign risk issues that periodically destabilise Australian wool markets. Institutional reforms have had little impact on wool quality, and significant improvements in terms of outcomes for both processors and woolgrowers would only be possible by further integration of Chinese processors into Australia’s wool marketing system.

As estratégias para executar o transporte rodoviário de granéis sólidos agrícolas no Brasil são um desafio à tomada de decisão. Este trabalho emprega a coordenação vertical e a análise da decisão para apresentar uma discussão acerca do processo decisório nas organizações. O método de análise multicritério, baseado em curvas de valor, permite a comparação de arranjos de governança em situações específicas. Para isso, foram definidos os principais objetivos, critérios e variáveis dos problemas de verticalização no transporte, e os resultados obtidos apontaram que o transporte verticalizado apresentou pior desempenho do que alternativas híbridas ou terceirizadas. Tal resultado suporta que em ambientes com alta dependência de custos e com baixa especificidade do ativo há maior tendência de se encontrar estruturas híbridas ou coordenadas via mercado. O levantamento descritivo do transporte rodoviário com empresas embarcadoras de cargas agrícolas bem como o resultado do modelo multicritério aplicado apontaram um mercado de transporte altamente terceirizado, que seria fomentado pela atual incerteza e baixa profissionalização dos transportadores rodoviários. À medida que a diferença de preços entre o modelo terceirizado e verticalizado diminui, há preferência pela estrutura hierárquica, dado o seu melhor desempenho nos benefícios oferecidos. Diante das mudanças no ambiente institucional, tal como a regulamentação dos transportes, os arranjos competitivos podem sofrer alterações. Para os tomadores de decisão, as estruturas verticalizadas poderiam compor com maior escala as estratégias das embarcadoras à medida que os custos da operação própria se aproximem dos valores praticados pelas transportadoras. / The strategies to perform the transportation of agricultural commodities by truck in Brazil are a challenge to decision making. This paper brings together vertical coordination and decision analysis, to present a discussion of decision making in organizations. The Multiple Criterial Decision Analisys (MCDA), method based on value functions, allows comparison of governance arrangements in specific situations. After define the main objectives, criteria and variables found in transport verticalization problems, the results showed worse performance of verticalized arrengements than hybrid or outsourced alternatives. This result supports that in environments with high dependence on low costs and asset low specificity are more likely to meet hybrid or market coordinated structures. However, the descriptive survey of road transport with agricultural shippers and the results of the multicriterial model indicated a highly outsourced transport market, which would be fostered by the current uncertainty and low professionalism of haulers. As the price difference between the outsourced model and vertical decreases there is a preference for hierarchical structure given his best performances in the benefits offered. Given the changes in the institutional environment, such as the transport regulation, competitive arrangements may change. This type of preference by decision makers would compose the vertical structures with more scale strategies by shippers.

As estratégias para executar o transporte rodoviário de granéis sólidos agrícolas no Brasil são um desafio à tomada de decisão. Este trabalho emprega a coordenação vertical e a análise da decisão para apresentar uma discussão acerca do processo decisório nas organizações. O método de análise multicritério, baseado em curvas de valor, permite a comparação de arranjos de governança em situações específicas. Para isso, foram definidos os principais objetivos, critérios e variáveis dos problemas de verticalização no transporte, e os resultados obtidos apontaram que o transporte verticalizado apresentou pior desempenho do que alternativas híbridas ou terceirizadas. Tal resultado suporta que em ambientes com alta dependência de custos e com baixa especificidade do ativo há maior tendência de se encontrar estruturas híbridas ou coordenadas via mercado. O levantamento descritivo do transporte rodoviário com empresas embarcadoras de cargas agrícolas bem como o resultado do modelo multicritério aplicado apontaram um mercado de transporte altamente terceirizado, que seria fomentado pela atual incerteza e baixa profissionalização dos transportadores rodoviários. À medida que a diferença de preços entre o modelo terceirizado e verticalizado diminui, há preferência pela estrutura hierárquica, dado o seu melhor desempenho nos benefícios oferecidos. Diante das mudanças no ambiente institucional, tal como a regulamentação dos transportes, os arranjos competitivos podem sofrer alterações. Para os tomadores de decisão, as estruturas verticalizadas poderiam compor com maior escala as estratégias das embarcadoras à medida que os custos da operação própria se aproximem dos valores praticados pelas transportadoras. / The strategies to perform the transportation of agricultural commodities by truck in Brazil are a challenge to decision making. This paper brings together vertical coordination and decision analysis, to present a discussion of decision making in organizations. The Multiple Criterial Decision Analisys (MCDA), method based on value functions, allows comparison of governance arrangements in specific situations. After define the main objectives, criteria and variables found in transport verticalization problems, the results showed worse performance of verticalized arrengements than hybrid or outsourced alternatives. This result supports that in environments with high dependence on low costs and asset low specificity are more likely to meet hybrid or market coordinated structures. However, the descriptive survey of road transport with agricultural shippers and the results of the multicriterial model indicated a highly outsourced transport market, which would be fostered by the current uncertainty and low professionalism of haulers. As the price difference between the outsourced model and vertical decreases there is a preference for hierarchical structure given his best performances in the benefits offered. Given the changes in the institutional environment, such as the transport regulation, competitive arrangements may change. This type of preference by decision makers would compose the vertical structures with more scale strategies by shippers.