Farm contracts and their role for market integration
M.Sc. Eglantina Pazaj, Prof. Dr. Bahri Musabelliu
Basic goal of this benchmark is to provide a theoretical background not only for analysis of specific contracts in agriculture that should operate between producers (agents) and processors (Principal). Normally, for an explanation of this issue, must rely on principal agent theory, theory which provides important explanations for the necessity of the system of contracting between producers and processors, and why not, to proceed with the need for integration (horizontal, vertical perhaps conglomerate) in agribusiness industries. This theory deals with situations in which an economic entity, in case the total processing industry, but not limited to, (the principal) of “delegate” responsibilities (tasks) an agricultural producer of raw materials (the agent). Delegation of tasks that the agent makes decisions that affect not only their activity but also on it’s own principal. Normally, in a principal-agent relationship, the latter is threatened by formal or informal contracts that represent the interests of the principal in exchange for a fee.