Organization Department of Agricultural Economics, Kiel, Germany

Year 2000

We define contract farming as an agreement between legally independent firms for the production of a commodity for a future market. Analyzing contract farming and the intensity (quality) of contracts is as important as the extent of the contractual arrangements. Current publications do not sufficiently distinguish between contracts, which have a far-reaching and long-term influence on farm-firms and those based on spot-market transactions. A model has been developed to distinguish between different forms and features of agricultural contracts. Agricultural contracts are analyzed on the extent of authority, the duration of the contract, and the extent of investment with regard to the contract. The model provides insights into both the extent and the intensity of contract farming. Results of an empirical analysis of agricultural contracts in Germany clearly show that the majority of the contracts can be characterized as short-term agreements with few binding penalties. Hence, contracts between farmers and up- or downstream industries rarely influence the organizational structure and business development of German farms