Marketing minor crops : the determinants of contracting decisions

Abstract

The use of contracts in marketing agricultural production has expanded substantially over the past 30 years. In 2001, around 36 percent of the value of United States agricultural production was marketed under contractual arrangements, compared with 28 percent in 1991 and only 12 percent in 1969. The determinants of contract use are not well understood, especially for row crops. The purpose of this thesis is to examine why contract use for marketing specialty crop production varies among producers and specialty crops. This thesis uses a new data set obtained from a survey of Montana Grain Growers Association members in eight Montana counties to investigate how farmers make their marketing decisions for specialty crop production. A theoretical model is developed to form the basis of an empirical model of how producers make two independent decisions: adopting contracts and determining the proportion of specialty crop production to be marketed by marketing contract. A probit model is used to obtain parameter estimates for the contract adoption decision. A truncated regression model is used to explain the proportion of specialty crop production to be marketed under marketing contract. The results indicate that a variety of personal, farm-specific, and crop-specific characteristics affect the contract adoption decision. However, a smaller number of farm and crop-specific characteristics affect the decision about what proportion of production will be contracted. An important contribution of this study is its examination of the effects of crop-specific variables on marketing decisions. The results indicate that contracting decisions are influenced by crop-specific conditions such as the thinness of the spot cash market and production-related phenomena such as whether the crop is irrigated.