Risk Sharing and Transactions Costs in Producer-Processor Supply Chains

by Allan W. Gray and Michael D. Boehlje

Choices 4th Quarter 2005,  20(4)

Supply chains have been a dominant focus of both academic research and business strategy in the food and agribusiness industries for the past decade. Much discussion, analysis, and experimentation with various forms of vertical alignment using governance structures such as strategic alliances, joint ventures, contracts, and vertical integration has occurred. Much of the recent debate and discussion, as well as the controversy concerning the development of these arrangements has focused on the production sector, and in particular, the linkages between producers and processors.

The effectiveness and long-term viability of a supply chain is determined in no small part by how well the coordination governance structure manages the sharing of the risks and rewards of the supply chain among its participants. The different types of risks encountered in alternative supply chain business structures, the incidence of risk on the part of individual supply chain partners and the sharing of risk and reward among supply chain participants has important implications for who will be the most likely participants in a supply chain, as well as the benefits the various players will receive.

Full paper available for download at http://www.choicesmagazine.org/2005-4/supplychain/2005-4-13.htm