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      The economics of vertical coordination in the organic wheat supply chain

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      Shon_Ferguson_MSc_Thesis_26_Oct_04.pdf (519.0Kb)
      Date
      2004-09-29
      Author
      Ferguson, Shon Martin
      Type
      Thesis
      Degree Level
      Masters
      Metadata
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      Abstract
      The organic wheat supply chain in Canada operates in a relatively new sector for which there is very little public information to aid in price discovery. Organic wheat producers must use available information in order to decide when to sell their wheat and whom to sell to. The relatively low degree of market information, especially for producers, suggests a problem of information asymmetry, which may have ramifications for efficiency and the distribution of rents in the organic wheat supply chain. The literature on Transaction Cost Economics, Agency Theory and the Economics of Information is used in the thesis to theorize differences between methods of selling organic wheat that vary in terms of vertical coordination. The analysis involves a comparison of selling to large and small grain companies, selling through Producer-Owned Firms (POFs) and selling directly to processors. The theory predicts that producers gain from using a POF because of savings in transaction costs and higher prices. These theorized differences in transaction costs and price are due to increased sharing of information between the producer and the marketing agent, enhanced producer control over the marketer, and incentive for the marketer to provide producers with a high price. These benefits can also be realized by selling directly to a processor, but only if the producer can effectively and efficiently perform his or her own marketing functions. Average cost, price and profit margins are used as a metric for comparing each of the four governance structures. A survey of organic wheat producers in Saskatchewan was undertaken in order to collect data on organic Hard Red Spring Wheat (HRSW) transactions. The results indicate that governance structure has a statistically significant effect on organic HRSW prices and on producer transaction costs. The analysis concludes that the producer receives the greatest profit margin from selling through the vertically coordinated POF, while a marketer receives the greatest profit margin if it operates as a large grain company and purchases HRSW on the spot market. The results also suggest that organic producers that “eliminate the middleman” and sell directly to processors cannot market as efficiently and effectively compared with producers that use a POF. The results of this thesis emphasize that increased coordination between producer and marketer through a POF can be advantageous for the producer, but not necessarily for the marketer, due to the difference in the distribution of rents.
      Degree
      Master of Science (M.Sc.)
      Department
      Agricultural Economics
      Program
      Agricultural Economics
      Supervisor
      Hobbs, Jill E.
      Committee
      Storey, Gary; Brewin, Derek; Weseen, Simon
      Copyright Date
      September 2004
      URI
      http://hdl.handle.net/10388/etd-10272004-141048
      Subject
      rent distribution
      marketing
      vertical coordination
      transaction costs
      supply chain management
      asymmetric information
      producer owned firm
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      • Graduate Theses and Dissertations
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