Presented at the American Agricultural Economics Association Annual Meeting: Long Beach, California, July 23, 2006, pages 1-16. Copyright © 2006 by Kallie Donnelly and Jay E. Noel. All rights reserved. Readers may make verbatim copies of this document for non commercial purposes by any means, provided that this copyright notice appears on all such copies.
Marketing and production contracts are a widely used risk mitigating strategy in the agricultural industry. Marketing contracts guarantee a market and focuses on the product at time of delivery. The producer owns the crop until time of delivery and is paid a premium based on quality and quantity predetermined in the contract. Production contracts create long term relationships between the producer and contractor. The producer will provide predetermined services to grow the crop. The contractor will provide inputs for the producer, giving the contractor some control over the production process and ownership of the crop. Graph 1 illustrates the growth in incidence and share of production under contract from 1969-2003.
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