Institutional Change in Agriculture and Natural Resources Institutioneller Wandel der Landwirtschaft und Ressourcennutzung edited by/herausgegeben von Volker Beckmann & Konrad Hagedorn Volume/Band 6 IngridVerhaegen Guido Van Huylenbroeck Hybrid Governance Structures for Quality Farm Products A Transaction Cost Perspective Shaker Verlag Aachen 2002
List of Figures List of Tables xvii xix 1 Introduction 1 1.1 Changes in food consumption, agriculture and rural policy 1 1.2 The development of quality farm products supply channels 3 1.3 A classification of Belgian supply channels for quality farm foods 4 1.4 Research questions 5 1.5 Methodology 7 1.6 Structure of the book 8 2 Transaction Costs Economics 11 2.1 Introduction 11 2.2 New Institutional Economics 12 2.3 Transaction Costs Economics 13 2.3.1 Coase and the firm as governance structure 13 2.3.2 Organisational Failures Framework of Williamson 13 2.3.3 Characterising transactions 15 2.3.4 Other fields of application and a criticism 16 2.3.5 Alignment of transactions with governance structures 16 2.3.6 Characterising governance structures 17 2.4 The governance of transactions 18 2.4.1 Transaction costs 18 2.4.2 Characterising transactions 19 2.4.2.1 Asset specificity 20 2.4.2.2 Uncertainty 23 2.4.2.3 Frequency 24 2.4.3 Characterising governance structures 24 2.4.3.1 Incentive intensity and administrative controls 25 2.4.3.2 Adaptation mechanism 26
x 2.4.3.3 Contracts 27 2.4.3.4 Governance structures characterised 28 2.4.4 Cost minimising alignment between transactions and governance structures 29 2.4.4.1 Asset specificity and choice of governance structure 29 2.4.4.2 Frequency and uncertainty, and choice of governance structure 32 2.5 Empirical applications 33 2.6 Critical reflections on TCE 36 2.7 Conclusion 37 3 Governance Structures of Six Quality Food Supply Channels 39 3.1 Introduction 39 3.2 Farmers' markets 40 3.2.1 Description of the initiative and its objectives 40 3.2.2 Characterisation of the transaction: asset specificity 42 3.2.2.1 Assets invested by the central authority 42 3.2.2.2 Assets invested by the farmers 43 3.2.3 Characterisation of the governance structure 44 3.2.3.1 The authority and the distribution of decision power 44 3.2.3.2 Incentive intensity 45 3.2.3.3 Adaptation mechanisms 46 3.2.3.4 Contracts 46 3.2.4 Appropriateness of the governance structure 47 3.2.4.1 Cost economies realised in comparison with market governance 47 3.2.4.2 Comparison with other governance structures 48 3.2.5 Conclusion 49 3.3 Foodteams 50 3.3.1 Description of the initiative and its objectives 50 3.3.2 Characterisation of the transaction: asset specificity 52 3.3.2.1 Assets invested by the local foodteam and the central regional structure 52
xi 3.3.2.2 Assets invested by consumers and farmers 53 3.3.3 Characterisation of the governance structure 54 3.3.3.1 The authority and the distribution of decision power 54 3.3.3.2 Incentive intensity 56 3.3.3.3 Adaptation mechanism 57 3.3.3.4 Contracts 57 3.3.4 Appropriateness of the governance structure 60 3.3.4.1 Cost economies realised in comparison with market governance 60 3.3.4.2 Comparison with other governance structures 60 3.3.5 Conclusion 63 3.4 Produits de Qualite d'autrefois 64 3.4.1 Description of the initiative and its objectives 64 3.4.2 Characterisation of the transaction: asset specificity 65 3.4.2.1 Assets invested by the cattle merchant and the co-operative 65 3.4.2.2 Assets invested by the farmers and butchers 66 3.4.3 Characterisation of the governance structure 66 3.4.3.1 The authority and the distribution of decision power 67 3.4.3.2 Incentive intensity 67 3.4.3.3 Adaptation mechanism 68 3.4.3.4 Contracts 68 3.4.4 Appropriateness of the governance structure 70 3.4.4.1 Cost economies realised in comparison with market governance 70 3.4.4.2 Comparison with other governance structures 71 3.4.5 Conclusion 71 3.5 Fruitnet 72 3.5.1 Description of the initiative and its objectives 72 3.5.2 Characterisation of the transaction: asset specificity 73 3.5.2.1 Assets invested by the organisation Fruitnet 73 3.5.2.2 Assets invested by the farmers 74 3.5.3 Characterisation of the governance structure 74
xii 3.5.3.1 The authority and the distribution of decision power 75 3.5.3.2 Incentive intensity 75 3.5.3.3 Adaptation mechanisms 76 3.5.3.4 Contracts 76 3.5.4 Appropriateness of the governance structure 77 3.5.4.1 Cost economies realised in comparison with market governance 77 3.5.4.2 Comparison with other governance structures 78 3.5.5 Conclusion 79 3.6 Fermiere de Mean 80 3.6.1 Description of the initiative and its objectives 80 3.6.2 Characterisation of the transaction: asset specificity 81 3.6.2.1 Assets invested by the co-operative Fermiere de Mean 81 3.6.2.2 Assets invested by the farmers 82 3.6.3 Characterisation of the governance structure 83 3.6.3.1 Authority and the distribution of decision power 83 3.6.3.2 Incentive intensity 83 3.6.3.3 Adaptation mechanisms 84 3.6.3.4 Contracts 85 3.6.4 Appropriateness of the governance structure 86 3.6.4.1 Cost economies realised in comparison with market governance 86 3.6.4.2 Comparison with other governance structures 86 3.6.5 Conclusion 87 3.7 Coprosain 88 3.7.1 Description of the initiative and its objectives 88 3.7.2 Characterisation of the transaction: asset specificity 90 3.7.2.1 Assets invested by Coprosain 90 3.7.2.2 Assets invested by the farmers 91 3.7.3 Characterisation of the governance structure 91 3.7.3.1 The authority and distribution of decision power 91 3.7.3.2 Incentive intensity 92
xiii 3.7.3.3 Adaptation mechanism 93 3.7.3.4 Contracts 93 3.7.4 Appropriateness of the governance structure 94 3.7.4.1 Cost economies realised in comparison with market governance 94 3.7.4.2 Comparison with other governance structures 95 3.7.5 Conclusion 95 3.8 Conclusions 96 4 Classification of Hybrid Governance Structures 99 4.1 Introduction 99 4.2 Theory and literature about hybrid governance structures 100 4.2.1 Defining hybrid governance structures 100 4.2.2 Classification of hybrid governance structures 101 4.3 The six case studies: three types of hybrid governance structures 105 4.4 Testing and further defining the classification system 108 4.4.1 Testing of the classification system 108 4.4.2 Distinction between market, hybrid and internal governance 109 4.4.3 Importance of the quality objectives for the classification 110 4.4.4 The characteristics of framework, co-ordinating and participating governance 113 4.4.4.1 Framework governance 113 4.4.4.2 Co-ordinating governance 117 4.4.4.3 Participating governance 121 4.5 Classifying governance structures and determining the appropriate governance structure 125 4.5.1 Classifying the applied governance structure 126 4.5.2 Evaluating the applied governance structure 128 4.5.3 Application of this model to the 6 case studies and 12 test initiatives 129 4.6 Conclusion 133
xiv 5 Comparative Cost-benefit Analysis for Farmers Participating in Supply Channels for Quality Farm Products 137 5.1 Introduction 137 5.2 A theoretical frame for the comparative cost-benefit analysis of supply channels 139 5.3 Comparative cost-benefit analysis of six innovative supply channels. 141 5.3.1 Comparison with the common supply channel 141 5.3.1.1 Revenues 142 5.3.1.2 Direct costs 144 5.3.1.3 Transaction costs 145 5.3.1.4 Uncertainty 148 5.3.1.5 Global analysis 149 5.3.2 Comparison with individual direct sale of farm products 150 5.3.2.1 Revenues 151 5.3.2.2 Direct costs 151 5.3.2.3 Transaction costs 152 5.3.2.4 Uncertainty 153 5.3.2.5 Global analysis 153 5.4 Conclusion 154 6 Conclusions 157 6.1 Conclusions about Transaction Costs Economics 157 6.1.1 Governance structures for production and supply of quality farm products 157 6.1.2 Classification of hybrid governance structures 158 6.1.3 Application of TCE to analyse governance and profitability of supply channels 158 6.1.4 Lessons from the use of the TCE as analysis framework 159 6.2 Conclusions about supply channels for quality foods 159 6.2.1 Governance of innovative supply channels 160 6.2.2 The profitability of such quality assurance systems 161 6.2.3 Lessons for the food sector 161 6.2.4 Policy implications 162
xv 6.2.5 Possible government intervention 163 References 167