Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry
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Three hundred small tomato growers located in Brazilian
northeast states, supplied a processing industry. In view of the large
number of contract hazards and weak enforcement of clauses, managers
have decided to move to the Midwest, where a reduced number of larger
farmers have been contracted. The industry blamed high transaction
costs due to the weak mechanism of public enforcement of property
rights. The industry blamed some farmers of selling the product at the
market for fresh consumption. Also, farmers blamed the industry for
taking advantage of asymmetric information related to quality. This
study presents an analysis of contract architecture and an evaluation of
effects of transaction costs related variables on the likelihood of contract
breaches. A panel data study with 1,523 observations and limited
dependent variable models has been formulated to test hypothesis
based on transaction cost theory. Results show that opportunism and
the absence of courts guarantees of property rights precluded the
possibility of achieving a stable contract relationship in the region.