Improving organization forms in the agri-food industry

Purpose - The variety and change of organization forms in the agri-business industry are analyzed, extending available comparative economic organization approach (most notably transaction cost economics) with negotiation analysis and organization design theory. The paper aims to discuss these issues. Design/methodology/approach - Three extensions are proposed and argued to be particularly useful for analyzing economic organization in conditions such as those prevailing in agri-food industries. First, more consideration is given to horizontal structures and associational contracts as a particularly important response to transactional problems in this field. Second, it is acknowledged that different conditions of substitutability in different stages of the chain make it likely that transaction costs are different for different parties, bringing them to have different preferences over governance solutions, whereby a negotiation problem on efficient arrangements has to be solved. Third, the very process of integrating different parties' interests contributes in explaining the emergence of hybrids and in designing more efficient and more fair forms within the (very) large class of hybrids, and even within any sub-type of hybrid, such as sub-contracting, licensing, franchising, consortia, etc. Findings - New Pareto-improving and Nash-improving solutions are specified, and shown to provide indications for organizational change that differ from those predicted and prescribed by standard organizational economics. Those solutions are also shown to be realistic (possible in reality) through case studies on actual non-main-stream experiences approximating those arrangements. Both the analytic method proposed, and the solutions found, provide useful and currently missing tools to private and public policy makers for improving the organization of the sector. Research limitations/implications - The study specify pre-conditions for reaching superior agreements, that suggest hypotheses for empirical further research on the factors that may favor or hinder those changes. Practical implications - A trend for change is recommended for the agri-food sector, toward more associational and horizontal arrangements, rather than either toward market or hierarchical governance or any hybrid intermediate point between them. It has been shown that this prescription should hold not only across stages of the value chain, but also among firms within the same stage (in the case, the farming stage). Social implications - The proposed changes should improve the fairness of economic organization in the sector. Re-equilibrating negotiation power is an alternative way of reducing transaction costs across stages and a pre-condition for reaching more efficient and fair agreements across stages. Originality/value - Both the analytic method proposed, and the solutions found, extend economic organization theory, and provide useful and currently missing tools to private and public policy makers for designing and assessing the organization of the sector.