an appraisal of contract farming

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89 AN APPRAISAL OF CONTRACT FARMING G. R. Allen University of Aberdeen This article reviews the circumstances under which contractfarming, as one form of vertical integration, is necessary to secure rapid and eflcient co-ordination and adaptability within systems of food productionlmarketingldistribution. A review of American experience and attitudes indicates that contracting in the U.S.A. has been successful in matching farm production to the needs of consumers more quickly and economically than otherwise would have been possible. Contract terms have generally been ‘$air’ to United States farmers, partly as a result of a strong co-operative system, including a large number of bargaining co-operatives, but also as a result of strong competition between American agri-businesses. American experience and conclusions can be transposed to British circumstances. However, there should be greaterpublicity andanalysis of contract terms, as well as more complete information on the financial per- formance of the agri-business operations of conglomerates and other multi-product businesses. The following article is based on evidence given to the Committee on Contract Farming in December 1971. There have been some minor changes for the sake of clarification and to develop particular points in the argument. The economic case for contracting The food system - production, marketing and distribution - in the advanced countries of the English speaking world or of the Common Market can be characterised by: (1) farming systems which, with modem technology, can increasingly control crop specifications and, within limits, harvest dates and production periods and which, given reduced uncertainties for market prices and sales volumes, can more fully exploit the economic advantages of specialised and large-scale operation; (2) large-scale processing plants, fostered by modem engineering and bio- chemistry and by speedier and smoother transport which extends the catchment area for supplies, but which generally face the need for at least a forecastable, and at best a steady, flow of work to (a) minimise unit costs of their high fixed-charge operations, and (b) provide regular employment for their labour; This final revision has had the benefit of comments from Professors Dale C. Dahl (University of Minnesota), Ray A. Goldberg (Harvard Busmess School), Thomas T. Stout (Ohio State University) and James D. Shaffer (Michigan State University), and Dr. Claud L. Scroggs, Director of Economic Research of Southern States Cooperative (Richmond, Virginia).

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Page 1: AN APPRAISAL OF CONTRACT FARMING

89

AN APPRAISAL OF CONTRACT FARMING

G. R. Allen University of Aberdeen

This article reviews the circumstances under which contract farming, as one form of vertical integration, is necessary to secure rapid and eflcient co-ordination and adaptability within systems of food productionlmarketingldistribution. A review of American experience and attitudes indicates that contracting in the U.S.A. has been successful in matching farm production to the needs of consumers more quickly and economically than otherwise would have been possible. Contract terms have generally been ‘$air’ to United States farmers, partly as a result of a strong co-operative system, including a large number of bargaining co-operatives, but also as a result of strong competition between American agri-businesses. American experience and conclusions can be transposed to British circumstances.

However, there should be greaterpublicity andanalysis of contract terms, as well as more complete information on the financial per- formance of the agri-business operations of conglomerates and other multi-product businesses.

The following article is based on evidence given to the Committee on Contract Farming in December 1971. There have been some minor changes for the sake of clarification and to develop particular points in the argument.

The economic case for contracting The food system - production, marketing and distribution - in the advanced countries of the English speaking world or of the Common Market can be characterised by:

(1) farming systems which, with modem technology, can increasingly control crop specifications and, within limits, harvest dates and production periods and which, given reduced uncertainties for market prices and sales volumes, can more fully exploit the economic advantages of specialised and large-scale operation;

(2) large-scale processing plants, fostered by modem engineering and bio- chemistry and by speedier and smoother transport which extends the catchment area for supplies, but which generally face the need for at least a forecastable, and at best a steady, flow of work to (a) minimise unit costs of their high fixed-charge operations, and (b) provide regular employment for their labour;

This final revision has had the benefit of comments from Professors Dale C. Dahl (University of Minnesota), Ray A. Goldberg (Harvard Busmess School), Thomas T. Stout (Ohio State University) and James D. Shaffer (Michigan State University), and Dr. Claud L. Scroggs, Director of Economic Research of Southern States Cooperative (Richmond, Virginia).

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(3) modem marketing and distribution (especially retail chains and super- markets) which aim to sell produce of consistent and clearly identified quality on the basis of brand image or general reputation of the retailer.

The economic benefits of this food system, as it emerges and expands, can most effectively be realised for the consumer by some form of overall and co-ordinated management, especially in respect to quality control and timing of production, marketing and processing. In the Western World there are basically three types of control:

(1) traditional competitive markets, in which the control is provided by the price signals of commodity exchanges (e.g. livestock marts or vegetable auctions), typically reinforced by governmental action to reduce price uncertainties (such as the Annual Price Review in the United Kingdom) and to set minimum standards of product quality and grades;

(2) complete vertical integration of farming and one or more other links in the food system, with common day-to-day management and ownership (e.g. Eastwood in broilers);

(3) contracting between links in the system (e.g. by Walls or Marks &Spencer), where the contract is designed to have an innovative influence on production, grading and marketing in contrast to the essentially passive character of contracts in more traditional forms of business.

The more traditional forms of market organisation and price determination, without recourse to vertical integration or contracting, will remain the appro- priate means of co-ordinating the links in the food system if one or more of the following sets of conditions, arranged in ascending order of importance, hold.

(I) Food production occurs close to, and is located among, the points of final consumption, so that an efficient marketing system does not require the large-volume bulk-assembly of produce at some central point before reaching retail stores. In such circumstances the cheapness of decentralised marketing systems compensates for the lack of grading or control over product flow inherent in the system; e.g. much of the fresh vegetable and egg marketing in the United Kingdom in contrast to, say, Californian lettuce production which mostly moves to markets more than 1,000 miles away.

(2) Control over short-term variations in prices and sales volume, either through government administered support schemes or through approved marketing organisations, removes in some degree the sting from the price and supply uncertainties of the market-place for the farmer and between him and the next link in the marketing system; or his profit margins and those of the middle man can be assured for some period ahead - say 12-18 months - by the use of futures markets.

(3) Grading schemes aim to provide no more than broad indicators of product standards and quality, and such imprecise grading is acceptable to the purchaser. (Much feed grain is sold on this basis or, as another example, some (but not all) of the beef marketed in the United States under U.S.D.A. grading standards.*)

(4) Government, or producer groups, can set grading standards with sufficient and possibly ever increasing precision as market requirements change. (It is most important in this context that special sectional interests, either

* The supply contracts and goodwill which exist between many feedlots and meat packers on the one side and buyers such as supermarkets, restaurants and quick-food chains on the other involve continuous production to tighter and more consistent standards than the broader umbrella of U.S.D.A. grading.

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among farmers or among marketing industries, are not permitted to block attempts to strengthen grading standards; nor to bring about an easing of standards already well established and required in the market-place, as was the case when the grading requirements for Choice grade beef under the U.S.D.A. scheme were changed some years ago.)

( 5 ) Agricultural extension and advisory services, which are normally run as government functions, must be attuned to the commerical needs of the innovators in product marketing, processing and distribution, and must be willing and able to put their influence in the farming community promptly and adequately behind the required adaptation in agricultural systems and practices. (Such attitudes and adaptiveness to the needs of the innovator are rarely found.)

In contrast and again in generally ascending order of importance, pre-

(a) Geographical concentration of production at some distance from the final

(b) significant opportunity for reducing price and sales volume uncertainties

(c) need for rigorous and tight product standards, (d) inability of governmental or producer grading schemes to reach these

standards, and (e) insufficient appreciation of the needs of the innovator in product marketing,

processing and distribution on the part of extension and advisory services. Co-ordination of the food production/marketing/distribution system cannot

always be achieved with sufficient speed or exactness by the ‘hidden hand of the price mechanism’, even when supplemented by government actions. So con- tracting (or vertical integration) becomes necessary if the consumer is to benefit fully from modern technologies - particularly for fruits and vegetables, sugar beet, poultry, pig meat and possibly beef. In such cases as these, there are no alternative and equally effective means of promoting precise specifications and grades, of reducing processing charges and, in some instances, of lessening business uncertainties for the farmer or middle-man; that is, of implementing a systems approach to the production, marketing and distribution of agricultural produce.*

Agricultural co-operatives and government measures can supplement the influence of contracting (or vertical integration), and possibly refine it. They are not normally an alternative.

Economic and social problems in contracting Concern over the economic implications of contracting arises under three heads:

(a) the growth of contracting can so reduce the role of traditional marketing systems and, in consequence, the volume of open and uncommitted trading that prices determined by the impersonal and, in that sense, objective forces of the market (e.g. a vegetable auction) are no longer adequately representative of overall conditions of supply and demand;

Contracting (or complete vertical integration) would not have developed so rapidly if the only need had been to develop the static economies of sc$e at each stage of the food system. These could have b n realised as external economies, according to classical economic theory. (For a discussion on these points see U. Papi and C. Nunn (editors), Economic Problems of Agriculture in Industrial Societies, Part y. Macmillan, 1969). The need to reduce uncertainty by contracting (or complete vertical integration) would have remained, but as a weaker influence than the need for system co-ordination.

conditions favourable to contracting are:

market,

arrangements,

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92 G. R. ALLEN

(b) the bargaining power between parties to a contract are so heavily tilted in favour of agri-business that farmers may not be able to negotiate ‘fair’ prices or other contract terms, and as a result will secure less favourable arrangements than agri-business would be prepared to concede if the negotiations had been between parties of equal strength and both desirous of establishing the basis of long-term continuing dealings. In addition, contract terms may vary between farmers according to their relative bargaining powers versus agri-business.

(c) Contracting, it may be conceded, enables food production, marketing and distribution to adapt as a system more quickly than under the more traditional types of competitive organisation. Contracting can offer more opportunity for speedy and striking success in adaptation, but equally, if agri-business misjudges the needs of consumers and the commercial potentiality inherent in new technological developments in the food system, for speedier and larger failures. Under contracting the farmer has more to gain, but he has also more to lose.

Social objections to contract farming are frequently raised: (a) the farmer loses his independent status; (b) contracting favours the larger farmers who can more easily meet the

rigorous requirements of this type of trading and so hastens the develop- ment of a ‘two agriculture’ agrarian society - one which adapts and prospers and one which increasingly is left behind and becomes financially poorer, at least relatively to the other;

(c) contracting is inevitably a negotiation between unequals, between economically powerful agri-businesses and economically much weaker farmers. Suspicion over the ‘fairness’ of contract terms is inevitable, especially at times when farming is experiencing financial hardship. In contracting, justice must not only be done; it must be seen to be done.

Before evaluating the economic and social criticism and concern frequently expressed about contracting, recent experience in the United States will be considered.

Contracting in the United States of America* (1) Economic benefits and types of contract In the United States integrated production and marketing systems are exception- ally important in a number of products, especially poultry and fruit and vegetables. American analysts usually use the term ‘vertical integration’ to include contracting, whereas normal British practice is to separate the two forms of market organisation. On the basis of the American definition, the following estimates of the extent of United States vertical integration in 1964 have been published by Dr. R. L. Kohls, Dean of the School of Agriculture at Purdue University: 95 per cent of broilers, 50 per cent of turkeys, 25 per cent of eggs, 70 per cent of vegetables for processing, 75 per cent of hybrid seed corn, 75 per cent of the sugar crop, 15 per cent of fat cattle, and less than 10 per cent of pigs. t There will have been some increase since 1964, particularly in cattle and pigs. In most products contracts are more important than complete vertical integration in the British sense.

* The following comments are based partly on the writer’s experience and observations during seven years in American agri-business, most of the time as Director of Economic Planning of the Agricultural Chemicals Group of W. R. Grace and Company.

t Proceedings of the International Conference of Agricultural Economists (1964), p. 401.

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American agricultural economists, either on their own account or in technical studies for the National Commission on Food Marketing, which reported in June 1966, have made extensive investigations of productionlmarketing systems in the last decade. They have examined many actual or alleged weaknesses and abuses. It is significant that contracting receives little attention, despite its importance, and where it does the comments are almost universally favourable. The following are considered to be representative examples.

(a) Professor Peter G. Helmberger and Professor Sidney Hoos, respectively

‘The need for supplementing the market mechanism with integrating relationships stems from technological and market conditions that create special problems in co-ordinating crop production with processing operation. Vegetable crops must be harvested and promptly processed at a certain stage of crop maturity in order to forestall serious quality deterioration. Growers may not have the technical know-how required to produce vegetables with the desired product attributes. To Qbtain the desired finished product, special crop varieties and cultural methods must be used. Except in areas near large centres of population, growers generally have no fresh market outlets for vegetables. Processors, on the other hand, must look to local areas for supplies. In addition, the plans for production must be made well in advance of the harvesting and processing period and at a time when processors could not know the intentions of growers and vice versa in the absence of forward contracting,

The problems of co-ordination could be left to buying and selling transactions at the time the crop is to be harvested but a moment’s reflection will reveal the difficulties inherent in that approach. Leaving planting and harvesting dates to the independent judgement of growers - without advanced scheduling - might easily give rise to an unwanted variability of total supplies among seasons and of supplies delivered to processing plants within any given season. The price differentials that a processor pays because of quality differences may be an incomplete signal of raw product attributes desired. Without forward contracting, growers would be uncertain of market outlets for their production on the one hand, and processors would be less certain of expected supplies on the other. Through radical integrating relationships, production of vegetable crops can be closely co-ordinated with the processing operation and uncertainty reduced for all parties concerned. The result is a more efficient and economical method of marketing than will prevail in the absence of such relationships.’ (Market Structure of the Agricultural Industries, edited by J. R. Moore and R. G. Walsh, Iowa State University Press, 1966, pp. 171-172.)

(b) The National Commission on Food Marketing comments on contracting at various points. Technical Study No. 1, Livestock and Meat Industry, states:

‘Vertical integration arrangements may succeed more effectively than past pricing procedures in maintaining price differentials for various qualities that encourage the production of animals yielding the kinds of meat most preferred by consumers’. @. 146).

‘It is reasonably clear that the physical production efficiencies actually achieved (under contracting) would not have come as rapidly if it would have been required that traditional agriculture - independently organised

at the Universities of Wisconsin and of California, have written:

Or again, in Technical Study No. 2 on the Poultry and Egg Industries,

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into autonomous decision-making units - should have prevailed’.

(c) And finally, Dr. R. H. Kohls in Marketing of Agricultural Products,

‘The operation of an integrated channel theoretically need not reduce effective competition as long as there are many firms competing for the contracts of capable, informed producers. In fact, in situations where the existing market news, grading procedures, and pricing facilities operate poorly, the use of integration arrangements can improve the operating situation’.

‘However, in practice, the growth of integration has sharpened the debate concerning the relative bargaining power of farm producers and marketing agencies’.

Kohls’ contrast of the economic and social aspects is a fair representation of the general academic debate on contracting in the United States.

The terms of contracts are generally sophisticated with the farmer able to choose between many alternatives. Kohls has classified contracts into three broad categories :

(1) Market-specification contracts, which specify some of the product character- istics acceptable to the integrator and usually establish some basis of payment to the farmer. Few or none of the farmer’s management decisions are transferred to the other party.

( 2 ) Resource-providing contracts, in which the specifications of certain inputs to be used and their place of purchase are stipulated. The integrator usually provides some degree of financial backing. Product prices tend to be based on the open market and income guarantees are minimal.

( 3 ) Management-and-income guaranteeing contracts. These often embody the stipulations regarding production and marketing of the other two cate- gories. In addition, they transfer all or part of the price and income risk from the farmer to the integrator who assumes a substantial part of the overall managerial responsibility involved in farming.

Market-specification and resource-providing types of contract were common in the early days of this means of doing business. But, as the full potential of contract integration has been developed, more alternatives have been available to the farmer with, at the same time, the tendency to move towards the tighter and more complete arrangements of the management-and-income guaranteeing types. For example, in 1964 canners of fruit and vegetables offered contracts among which 90 per cent contained a guaranteed price provision, 80 per cent provided information on crop technology, and 69 per cent covered provision of harvesting containers by the integrator.* There were, in addition, important provisions for seed, fertilisers, herbicides and pesticides, credit and date of harvesting and delivery to the processing plant.

In consequence, there can be great variations between alternative contracts in respect to base prices. For example, sweetcorn canners in Wisconsin in 1968 had contracts with price provisions ranging from a low of $12.50 per ton to a high of $21 per ton and containing various combinations of additional specifica- tions, pertaining to a range of basic provisions which included seed charge, harvest charge, compensation for passed acreage (acreage under contract but

(pp. 10-11).

Macmillan, New York, third edition, 1967 (p. 251):

But he goes on immediately to stress the social problem.

* E. V. Jesse and A. C. Johnson, ‘An Analysis of Vegetable Contracts’. American Journal of Agricultural Economics, Vol. 52, No. 4, November 1970, p. 545.

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ultimately not harvested by the processor), date of payment, insecticide applica- tion, and individual bonuses for early planting, high moisture content and yield. (See E. V. Jesse and A. C. Johnson, loc. cit.)

Broiler contracts have commonly embodied a flat-rate payment to cover depreciation of buildings (which the grower owns) and labour, as well as some profit sharing arrangement. The producer has probably far less choice of alterna- tive contracts in broilers than in other products. This fact is but one illustration of the somewhat exceptional characteristics of integration and contracting in the United States broiler industry, arising basically from the fact that it was estab- lished mainly in the south-east and south central states where under-employed farmers, with very few alternative employment opportunities, were desperately looking for additional sources of income and were not strong bargainers. If there had not been such a large, comparatively depressed agricultural area as existed in the south in the 1950’s the United States broiler industry would have developed on the Eastwood pattern of complete vertical integration to a much greater extent than has been the case.

(2) Economic and social problems From the farmer’s viewpoint contracting in broilers was initially an important opportunity for raising living standards, and competition among broiler pro- cessors prevented the integrator using his superior bargaining power to gain an excessively high return on his capital. Even so, as incomes expectations have risen steadily in the south in recent years, the integrator has become the natural target in disputes over broiler contracts or, it might be said, the scapegoat for a more general failure of overall social policy. In any case, when the industry moved into the depressed stage of its price and profit cycle in 1969 and 1970, contract disputes frequently became bitter and sometimes lead to considerable physical violence.

It should be stressed, however, that the experience in broiler contracting is the exception rather than the rule.

It is possible that in the early days of contracting after World War I1 integrators did discriminate between contracting farmers in various ways and that equal contract terms or treatment were not consistently provided for equal services. Such abuses now appear to be minor, and probably insignificant. The Jesse and Johnson analysis, already mentioned, supports this view. They found a few localities in the Wisconsin vegetable-growing industry where competition among processors was limited and, as a result, contracts less favourable to growers than elsewhere in the state. But they concluded that, in general, contracts for sweet- corn and for peas, the two crops analysed, reflected. a highly competitive situation among contractors. The variations between contract prices generally were an economic reflection of the particular non-price conditions of the individual contracts.* They conclude their statistical analysis as follows :

‘The finding of major economic significance was the relative equality of the contract net price, where net price was calculated by adjusting the quoted contract price for the effect of the contract provisions. A practical consequence of this is that while the contract may appear rather complicated by the presence

* The net contract prices, derived by adjusting the actual contract prices to eliminate the effects of non-price conditions, show some variations one with another. Some of these net dserences, when carried through to the farmer’s profit line, would be substantial. However, the authors appear to treat these ‘unexplained’ differences as imperfections of their adjust- ments and not as reflections of the real world. In any case, that is what the present writer would expect.

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of a large number of provisions, in the final analysis the net price offered to the farmer is about the same regardless of which contract he may sign’.

‘Whether these terms of trade are equitable for the farmer is, of course, another question’.

Doubts of this sort are hardly consistent with the evidence they provide, especially in their real world context of a competitive canning industry, faced by strong co-operative bargaining associations and farmers who have various alternatives for their land.

The strength of the American farmers’ co-operative movement is an important influence in ensuring ‘fair’ contract terms. The so-called Regional Co-operatives are usually efficient, large-scale agri-businesses in their own right, such as Goldkist (formerly Cotton Producers Association) which is an important broiler processor in the south-east or Land 0’ Lakes which is based on Minnesota and is one of the largest processors and marketers of dairy products in the United States. In addition, by the early 1960’s there were more than 325 co-operative bargaining associations involved in contract negotiation. One of the farm organisations, the National Farmers Organisation, exists essentially as a bargaining organisation. The American Farm Bureau has its own American Agricultural Marketing Association.

There has been some concern in the United States, as in the United Kingdom, that the decline of traditional markets erodes an objective basis for price deter- mination. However, all this means that pricing of farm products increasingly takes on the forms and practices common in manufacturing industry. Given effective farmer representation, such as through the contract bargaining co- operatives, no special problem arises, or need arise, any more than occurs between, for example, a major automobile manufacturer and component suppliers.

In a few areas, particularly for fruit in California and Florida, the bargaining strength of farmers is reinforced by Marketing Orders under which the total sales volume and prices of crops are determined. Marketing Orders have developed most in milk, largely under Federal auspices. This fact explains why contracting, in the sense of this paper, is not important in milk.

The social aspects of contracting have not raised serious doubts in the United States until the last few years. Various commentators have pointed out that the fear of becoming ‘hired hands’ is more widespread among leaders of farm organisations than it has been among contracting farmers. In many cases, as was certainly the situation in broilers in the 19503, contracting was seen by farmers as a means of increasing their own economic opportunities.

But, as already noted, a trade union type of confrontation has now developed in broilers. At a more general level of social policy, there is increasing concern that contracting and integration are one more development in an undesirable centralisation of power and, in the special context of agriculture, accelerating the trend towards a ‘two societies’ system. The most important study in this context is by Professor H. F. Breimyer, Individual Freedom and the Economic Organisation of Agriculture, University of Illinois Press, 1965. ( 3 ) Contracting and futures markets Futures markets are being developed for more and more agricultural products in the United States with, since November 1964, futures for live cattle, live pigs and for ice-packed broilers. These represent somewhat radical departures from the traditional concept of futures markets since the products involved are not inexpensively storable and, therefore, delivery of physical product at the ter- mination date is not a practical way of closing contracts as is the case, for example,

They enter a caveat:

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in grains or sugar. Hedging in traditional futures markets is used as a means of minimising storage charges. But in cattle, pigs and broilers the hedger is con- cerned with reducing his general business risks during the production period and not subsequently to it. The contracts in cattle, pigs and broilers have been successful so far and can be expected to increase in importance. They pre- suppose an adequate supply of speculative money to cover the other side of the hedging contract. There is no shortage of such funds in the United States, especially given high marginal tax rates on income relatively to those on capital gains.

These new futures markets will be used to provide more price security to farmers entering production contracts with integrators. At the same time, they reduce the value of some contracts to the more sophisticated producer, who will now be able directly to use futures markets to limit his price risks. Contracting in the United Kingdom The writer has not closely followed developments of contracting in the United Kingdom in the last seven years. The following analysis and recommendations are based on a more general consideration of (a) pertinent economic and social influences, (b) overall marketing policy in the United Kingdom since the end of World War I1 and (c) the relevance and lessons of United States experience for the British situation.

Much of the official policy and programmes towards agricultural marketing in the United Kingdom since World War I1 has been ill conceived (e.g. Egg Marketing Board, subsidy to bacon curers) and has diverted the public initiative away from programmes which foster the development of food production/ marketing/distribution as an economically efficient system. Without the contract- ing developed by private integrators, and more recently by certain farmer- sponsored organisations, the food system would not have adjusted to meet the needs of consumers in the way it has. There has been, and in the circumstances could be, no practical alternative to contracting (other than the out-and-out vertical integration in the Eastwood fashion) for achieving the changes in product form, reliability and grade standards that have, in fact, been achieved.

The need for formal contracting will be reduced as farmers’ marketing groups are formed or enlarged, i.e. to the extent that conditions (c)-(d) of page 91 are met. But, by establishing reputation for quality standards and control of product flow, these groups are simply building up goodwill, i.e. developing the capability of substituting informal for formal contracting, with equally tough discipline for the farmer-member in either case.

After making allowance for the special circumstances already noted for the American broiler industry, the experience in the United States is probably valid for British farmers. United States agri-business firms are probably more com- petitive, one with another, than their British counterparts when seeking and negotiating contract terms and, through the more effective American develop- ment of co-operatives and co-operative bargaining associations, face more checks and balances. On the other side, British integrators probably have a greater sense of ‘fairness’ - stronger in British commercial life than in the United States - and would likely exercise more constraint in using any given degree of bargaining power versus weaker parties in a contract. Conclusions Experience with contract farming in the United States shows that this means of vertical integration meets critical needs of co-ordination in the increasingly sophisticated system for producing, marketing and distributing agricultural products in the Western World and that it can be developed to be mutually

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advantageous for consumers, farmers and integrators. Widespread contracting, or failing that complete vertical integration, is necessary if the full opportunities of modern technology are to be realised. In theory integrators can make big mistakes in projecting the evolution of the

food system, to the serious financial harm of themselves and of contracting farmers. In practice this has not been an important risk, considering the overall history of contracting.

Contracts need continual, independent review to ensure that individual farmers secure equal terms for equal service and that there is no discrimination between them, to check that alternative contracts remain truly competitive and to reduce any risk of serious errors in long-term strategy among integrators. Vigorous bargaining co-operatives, and wide publicity of contract terms, always subject to review by farmers’ organisations and by independent economists and food technologists, are sufficient means for the purpose.

American experience suggests that a wide choice of alternative sets of contract conditions is often economically feasible, simultaneously guaranteeing the integrator’s objectives and enabling the individual farmer to select terms of business suiting his situation and financial objectives. It is an open question whether this issue has been adequately explored in the United Kingdom.

The participation of active co-operative bargaining groups, N.F.U. super- vision of contracts and wide publicity of contract terms will probably provide a sufficient basis for ensuring that justice is not only done, but is also seen to be done. However, the farmer’s attitude towards the middleman has long been ambivalent and has contained a fair element of suspicion and mistrust. Whether these attitudes are justified or not, their recurrence from time to time is an historical fact, and they are likely to become more acute in contracting situations, particularly where the smaller and managerially less sophisticated farmer is involved. Agri-business integrators should be required to publish more financial information on their contracting and related activities than is commonly the case, particularly in multi-product companies where the results of particular product lines or subsidiaries ‘disappear’ in the financial summaries normally available. It is desirable that there should be fuller financial public accountability on the part of agri-business integrators than is normally found in Annual Reports and similar documents. Accounts should be presented in sufficient detail, and on a consistent basis from year to year, so that the general public in general, and farmers in particular, can be meaningfully informed on profits and return on capital to a decentralised level within agri-business operations. In such a presenta- tion it would be necessary to know how corporate and divisional overheads have been accounted, since allocation procedures would significantly influence reported results for individual reporting units. Recent United States develop- ments for greater divulgence of financial information by individual product line or operating division in conglomerates or other diversified businesses may be relevant here.

However, when all is said and done, the economic criticisms which can be raised against contracting are minor.

From the social viewpoint concern must be expressed that contracting is one of the manifestations of the inegalitarian tendencies of modern technology, a concern which will become more forcefully felt by agricultural policy makers in Britain as we become more closely associated with the Common Market and its peasant-orientated farming systems. Means will need to be found, albeit with subsidisation, whereby the less progressive farmers can benefit from the oppor- tunities inherent in contract farming. No doubt the appropriate method would be public financial support for agricultural co-operatives to take on this special welfare function.