Last modified: 2012-09-14
Abstract
Key words. Beef cattle, Contracts, Transaction Cost Economics.
Justification. Transactions of cattle between farmers and slaughterhouses in Brazil have been traditionally undertaken through the spot market. However, in recent years, there has been a diffusion of new forms of governance, mainly formal and relational contracts. This diffusion comes together with changes in consumption pattern, increasing exports of Brazilian beef, increasing requirements related to food safety, changes in the institutional environment and the diffusion of intensive livestock production systems. There is no recent empirical literature that has established a causal relationship between the diffusion of these forms of governance and ECT determinant factors. Thus, this article brings academic contribution, as well as indications for business strategies.
Research problem. The paper aims to verify if the adoption of hybrid forms of governance can be explained by transaction attributes proposed by Transaction Cost Economics (TCE) theory.
Method. A survey questionnaire was applied to a cross-section sample of 84 farmers of the State of São Paulo, Brazil, in order to get information on the governance structure, production system and other factors related to the transactions. The empirical analysis of the survey data will be performed by means of a logit model in order to test hypotheses on explanatory factors suggested by the TCE theoretical framework. In this model, the dependent variable is a dummy: 1 for adoption and 0 for non-adoption of hybrid governance structures (formal and relational contracts).
Discussion. The rising price of land and the attribution of great importance to quality attributes, such as the tenderness and flavor of meat, stimulate the adoption of capital intensive livestock production system (feedlot around three months) in some regions. Intensification of production in the fattening phase, for example, increases the specificity of assets and risk. Moreover, the adoption of SISBOV/TRACES certification as a condition to access the European market requires additional investments (training, inspection, traceability, hardware, software and third part certification costs). The increase of risk and asset specificity fosters the adoption of hybrid forms of governance. Thus, the following hypothesis is proposed:
Hypothesis 1: the higher the asset specificity in the livestock production, the greater the likelihood of adoption of hybrid structures.
The recurrence of transactions between farmers and slaughterhouses can promote trust and thereby foster the adoption of relational contracts. Thus, the following hypothesis is proposed:
H2: the higher the frequency of transaction between the farmer and the slaughterhouse, the greater the likelihood of adoption of hybrid structures.
In Brazil, the livestock production system can be split into two main phases: the raising and fattening of animals. A farmer can hold either these two phases or only one of them. Farmers who choose to hold only the fattening phase have to buy calves at market prices. The cost of calves is around 70% of the total cost of production of cattle. As a result of this choice, one can assume that these farmers face higher risk because of price volatility. Thus, the following hypothesis is proposed:
H3: the more farmers rely on calves purchase, the higher the risk and the greater the likelihood of adoption of hybrid structures.
Expected results. The logit model will allow estimating parameters on explanatory variables of adoption of hybrid governance structures, such as SISBOV/TRACES certification adoption, feedlot adoption, time of trade relationship with slaughterhouse, purchase of calves in the market, and size of farm. The sign and significance of all estimated parameters of the model will allow testing hypotheses based on TCE theory. Partial results suggested the asset specificity and the size play a significant role in the adoption of hybrid structures.