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Agricultural Contracts and Competition Policies.

Executive Summary

The objective of this paper is to provide insights and policy directions on the market-competition ramifications of agricultural contracts, also known as alternative marketing arrangements (AMAs). The value share of agricultural production under contracts stands around 35 percent. The use of contracts in agriculture varies significantly across commodities. Contracting is less common in major field crops and leans more heavily toward specialty crops, hogs, and poultry. There are also significant variations in the types of contracts used. The use of marketing contracts favors crops against livestock, whereas the share of production contracts is almost entirely exhausted by livestock production. The main difference between marketing and production contracts is the ownership and control of production factors. In marketing contracts, all critical farm-level production factors are owned and controlled by the farmer. In production contracts, farm-level production factors are shared between a farmer and a contractor, and the contract specifies production practices that a farmer has to adhere to.

In this study, the spotlight is entirely on livestock contracts, where competition issues are more pronounced. In the livestock industries, both farmers and packers face nontrivial risks in their production and marketing activities. AMAs provide farmers and packers a way to attenuate these risks. The reduction in various risks with the use of AMAs increases farmer welfare significantly Farmers who use AMAs are found to be more risk averse than those who rely on the spot market, and welfare increases for these risk-averse farmers when risks are reduced or eliminated.

AMAs also benefit the packers in the sense that organizing the procurement of livestock through multiple channels mitigates risks and information asymmetry problems. AMAs benefit consumers as well. An important advantage of AMAs is that through contracts packers are able to incentivize producers to produce better-quality livestock or the kind of livestock that consumers prefer. Although AMAs bring many of the benefits, there are also concerns about AMAs. Due to the rising popularity of AMAs, the spot market has become thin. Also, it has been shown that AMAs depress spot market price. Finally, AMAs tend to benefit farmers with large operations more than their smaller counterparts. Because of these concerns, there were a series of legislative attempts to ban the use of AMAs or certain features of various AMAs when various farm bills were negotiated.

In addition, a series of concerns have been raised over the years that are specific to production contracts and in particular to those used by the poultry industry. The most serious attempt of the federal government to regulate livestock production contracts is the Grain Inspection, Packers and Stockyards Administration (GIPSA) 2010 proposal to amend the Packers and Stockyards Act (P&S Act) under the 2008 Farm Bill. Probably the most controversial proposal was to significantly regulate using tournaments in settling poultry contracts. Most of the original proposals were dropped or modified. Those that remained were provisions regarding the suspension of delivery of animals, rules about the additional capital investment criteria, provisions regarding the breach of contract, and provisions regarding arbitration. The proposed regulation to truncate tournament payments such that penalties for below-average performance are no longer allowed was among the provisions not included in document, but future imposition of such a rule is still considered. Regarding the regulation of tournaments, we argue that integrators could significantly mitigate potential welfare losses due to tournament truncation by adjusting the contract parameters.

Overall, the proposed truncation policy would not significantly increase growers' incomes, and some producers could end up worse off than before the regulation. Next, whether it should be a requirement that a contract grower makes additional capital investments into the production facility under contract constitutes an unfair practice in violation of the P&S Act is a legitimate concern. The results seem to support the hypothesis that the increase in asset specificity (additional capital investment requirements) causes a fall in grower compensation rates and that greater integrator concentration results in a small but economically meaningful reduction in grower compensation.

Finally, provisions regarding the suspension of delivery of animals and provisions regarding the breach of contract are both related to the issue of contract length. Research results show potential benefits of long-term contracting relative to short-term contracts, but mandating the livestock production contracts to be explicitly long term without requiring that the contract specifies the minimum number of batches or flocks per year that the grower will receive is meaningless. However, requiring that the contracts specify the exact number of batches per year would be too intrusive because it would interfere with the integrators' supply response capabilities and could actually lead to more abrupt contract terminations and expensive litigations.

Given these arguments, we feel comfortable formulating the following set of policy recommendations regarding AMAs in general and production contracts in particular:

* Do not ban AMAs. AMAs bring numerous benefits to consumers, packers, and some farmers while hurting other farmers. Overall, the gains by those who benefit far outweigh the losses by those who lose.

* Protect the spot market. New regulations should be developed to closely monitor the competition conditions in the spot market and prevent further consolidation.

* Improve Livestock Mandatory Reporting (LMR). New regulations should be developed to amend the LMR Act of 1999 to require AMS to publish more detailed statistics such as standard deviation, skewness, and kurtosis of the prices for each marketing channel.

* Leave tournaments as the dominant mode of settling broiler contracts intact. They have been in use for more than half a century with great success.

* Support the GIPSA rule on the additional capital investment requirements as a sensible (albeit indirect) approach to dealing with the problem of integrators' market power on the market for contract grower services. The relationship between the market structure (competition) and the problem of holdup needs to be more carefully studied before proposing more drastic policy interventions.

* Explicit regulation of contract duration and the number of batches or flocks per year is difficult to justify. Therefore, the existing GIPSA 2012 provisions regarding the suspension of delivery of animals and provisions regarding the breach of contract seem to be adequate.

Aside from land-tenure contracts of traditional agrarian economies types, two main versions of contracts that we observe in the modern agriculture in the US are some form of marketing and production contracts, sometimes jointly referred to as the alternative marketing arrangements (AMAs). (1) Both of those span the space between markets and hierarchies reserved for the so-called hybrid organizations. As established by a large literature on the trade-off among organizational forms, the leading characteristics of these alignment processes is the degree of asset specificity combined with uncertainty. The main insight permeating this literature is that problems of coordination, combined with risk of opportunism and reinforced by uncertainty, are always pushing in the direction of more centralization. (2) The framework proposed by Oliver Williamson, (3) which correlates asset specificity with transaction costs to explain the trade-offs among markets, hybrids, and hierarchies (firms), can be used to explain the emergence of contracting in agriculture.

As seen from Figure 1, the simple model considers three broad modes of organization: spot (cash) markets, hybrids, and vertically integrated firms. The horizontal axis indicates the degree of intensity of coordination, also interpreted as the degree of asset specificity, whereas the vertical axis measures the cost of governance (transactions) associated with implementation of various modes of organization. Uncertainty could be introduced explicitly into the model, but here it is tacitly subsumed under the effect it has in relation to asset specificity. All three cost curves are positively sloped, indicating that governance cost increases as the centralization of coordination or asset specificity increases.

Under standard assumptions, rational economic agents will seek an arrangement that keeps them on the lower envelope of transactions or governance costs indicated by the orange thick line. As seen from the chart, hybrids (marketing and production contracts) present the dominant mode of organization of business activities in the K1 and K2 zone in which parties remain legally autonomous and keep control over significant parts of their decision rights while sharing assets that they coordinate via these hybrid arrangements. As will be shown later, this simple stylized model is particularly helpful for illustrating impacts of changes in public policy.

According to James MacDonald and Penni Korb, contract use in agriculture has spread widely since 1969, when the Census of Agriculture first asked about contract use. (4) In 1969, 5 percent of farms used contracts, which covered 11 percent of the total value of agricultural production. These numbers increased to 10 percent of farms covering 28 percent of production in 1991 and to 13 percent of farms and 33 percent of production in 1996. The number of farms with contracts peaked in 1996 and later declined because of the redefinition of farms, which allowed more small entities to be denned as farms. Because only 0.3 percent of farms with sales below $10,000 used contracts in 2013, their expansion in the total farm population reduced the share of all farms with contracts.

In contrast, the share of agricultural production under contracts continued to grow slowly and unevenly until 2011, when 40 percent of the value of production was covered by contracts. Then, in 2013 the share of agricultural production under contracts fell sharply to 35 percent. The main reason for this drop is attributable to changes in relative prices, which led to a substantial increase in the share of crops (especially corn, soybeans, and wheat) in total value of production. With less contracting in crops (again, especially in corn, soybeans, and wheat), the increase in the share of crops in the overall value of production reduced the share of production covered by contracts.

As already hinted above, the use of contracts in agriculture varies significantly across commodities. Contracting is less common in major field crops than in other segments of agriculture. Based on MacDonald, (5) contracts covered less than a fifth of the total value of corn (17 percent), soybeans (19 percent), and wheat (13 percent) production in 2013, but farms that used contracts placed 49, 60, and 61 percent of their corn, soybeans, and wheat production under contracts, respectively. Contract production leans more heavily toward specially crops, hogs, and poultry.

For example, contracts accounted for 84 percent of the value of all poultry production in 2013. However, contracts accounted for 100 percent of the value of poultry production on farms that used contracts. The same numbers are 74 percent and 98 percent for hogs and 32 percent and 92 percent for cattle. In peanuts and tobacco, contract use expanded sharply after the elimination of the federal marketing quota programs in the early 2000s. In tobacco, contracts covered virtually all production by 2008, compared to about 25 percent in 2000. In peanuts, contracts covered 60-80 percent of production after 2004 compared to 25-45 percent in the 1996-2002 period.

In addition to variations in contract production across commodities, we also observe significant variations in the types of contracts used. In 2008, all contracts' share in total value of agricultural production was 38.5 percent, of which 21.7 percent belonged to marketing contracts and 16.8 percent to production contracts. The use of marketing contracts favored crops (14.9 percent) against livestock (6.9 percent), whereas the share of production contracts was almost entirely exhausted by livestock production (16.3 percent), with only 0.5 percent belonging to crops. (6)

The main difference between marketing and production contracts is the ownership and control of production factors, which creates the need for different compensation schemes. In marketing contracts, all critical farm-level production factors are owned and controlled by the farmer. Marketing contract represents an agreement (between a farmer and a buyer) that specifies a price or a pricing formula, a delivery outlet, and a quantity to be delivered. Typically, the pricing formula will have some bonus structure that incentivizes the farmer to supply some desired quality attributes. In production contracts, farm-level production factors are shared between a farmer and a contractor, and the contract specifies production (husbandry) practices that a farmer has to adhere to. The compensation schedule is a fee that would typically consist of a piece rate and some type of bonus structure that incentivizes the farmer to produce the commodity efficiently In general, neither input nor output prices enter the farmer's compensation formula.

Because the objective of this paper is to provide insights and policy directions on the market competition ramifications of agricultural contracts, we will focus entirely on livestock contracts, where competition issues are more pronounced. The existing literature (7) has shown that producers of the largest field crops move in and out of their contracts easily and that they combine contracts with other marketing channels freely. Moreover, producers typically rely on multiple contracts with different contractors, whereas various storage options and changes in cropping patterns provide them with further marketing flexibilities.

Except perhaps for specialty crops, buyer concentration and resulting market power does not play an important role. On the other hand, production contracts, predominantly present in livestock production (poultry and hogs), commit contract growers more closely to specific integrators and for longer periods of time. In addition, that significant economies of scale in processing limit the number of viable integrators in one geographic area together with the fact that live animals cannot easily travel long distances raises the competition issues to the forefront of policy debates.

The rest of the paper is structured in a way that organizes the material by the type of controversial features surrounding different AMAs. First, in the next section, we discuss controversies surrounding the AMAs in general and the legislative attempts to ban them. Then, we discuss issues pertaining only to the production contracts. The final section concludes with our specific policy recommendations.

AMAs in General

In livestock industries such as cattle, hogs, and broilers, transactions between farmers and packers are completed using either the spot market or AMAs. Spot market transactions refer to transactions that occur immediately, or "on the spot." These transactions usually happen within two weeks of the slaughter date of the animals. And as mentioned above, AMAs refer to all possible alternatives to the spot market and mainly production and marketing contracts. Marketing contracts are formal agreements specifying terms for transfer of livestock using pre-specified price or payment formula. Some of these formulas link the final payment to farmers to the price prevailing in the spot market for the same livestock, while others link the final payment to other things such as the price for meat products and feed price. The contracts are usually entered in at any time between placement of livestock on feed and two weeks before the slaughter date.

Production contracts specify the division of production inputs supplied by the two parties, the quality and quantity of a particular output, and the type of the remuneration mechanism for the grower. The livestock are owned by the packer who also assumes most of the price risk and some of the production risk. Usually packers provide farmers the young animals, feed, and supporting services throughout the production process, while the farmers provide the housing of the animals and the growing services.

The relationship between the spot market and the AMAs is straightforward in terms of quantity transacted. Given the same demand for meat products by the consumers, more transactions through the AMAs mean fewer transactions through the spot market. During the past 30 years, packers have relied more heavily on AMAs to satisfy their slaughter needs. As a result, the share of transactions conducted on the spot market has decreased. For example, in 1999, 36 percent of the market hogs were transacted on the cash and spot market, (8) but this share had decreased to 24 percent by 2004-05, (9) to only 5.2 percent by 2010, (10) and finally to 3 percent by 2013. (11)

However, the relationship between the two channels in terms of price is more complicated. Higher transaction price through the AMAs will attract more farmers to supply the livestock through AMAs. This will decrease both the supply and the demand to the spot market, resulting in an ambiguous effect on spot market price. Most of the studies of the US-fed cattle market find that AMAs have either a mild negative or an ambiguous effect on the spot market price. (12) On the other hand, the spot market remains important for price discovery. (13)

As mentioned above, many contracts or agreements in AMAs employ the so-called top-of-the-market pricing practice, (14) which links the final price paid to farmers to the spot market price for the same livestock. For example, the US Department of Agriculture's Agricultural Marketing Service (USDA-AMS) groups different kinds of livestock transactions into six marketing channels in its daily mandatory price reporting (MPR). One of the channels is called "market formula purchases," which includes all purchases of livestock by a packer in which the pricing mechanism is a formula price based on a market for the same livestock or the corresponding meat products. About 40 percent of all livestock transactions are conducted in this channel. (15) Because of this link, spot market price also feeds back to the transaction price in the AMAs.

Benefits of AMAs. In the livestock industries, both farmers and packers face nontrivial risks in their production and marketing activities. For farmers, the main risks involved are production risk, price (both input and output) risk, and marketing timing risk. Production risk mainly comes from the fact that livestock production is a time-consuming and complicated process, and this process can be affected by many factors such as weather and animal diseases over which farmers do not have full control. Price risk comes from uncertainly in both input (feed) and output (livestock) prices. Finally, marketing timing risk can be serious because once the animals reach their optimal weight for slaughter, feed conversion rate starts decreasing, and keeping them on hand is fairly costly to farmers.

Packers face their own risks as well. The meat packing process shows substantial economies of scale in processing and waste management due to the high fixed costs of running the packing plants and the highly automated nature of the production process. (16) Hence, capacity underutilization risk is a major risk for the packers. If packers cannot secure enough hogs with good and uniform quality, their plants cannot run at full capacity, and the associated implicit cost is fairly high. In addition, packers also face price risk, both for inputs (mainly the livestock) and outputs.

AMAs provide farmers and packers a way to attenuate these risks, which is one of the major reasons why AMAs and marketing and production contracts in particular penetrated so fast during the past three decades in the US livestock industries. Marketing contracts are essentially forward sales contracts between farmers and packers. These contracts are usually signed several weeks or months before the animals are ready for slaughter. Hence, the marketing timing and the capacity underutilization risks are eliminated for the farmers and packers, respectively.

Marketing contracts also include clauses on how the transaction price will be determined. For some marketing contracts, the transaction price is linked to the spot market, as mentioned above. For others, formulas such as cost plus, price window, and price floor are used. In cost-plus contracts, prices are determined by the costs of producing the livestock, which include feed, production, and management costs, plus a profit margin. Therefore, the transaction price in cost-plus contacts is independent of the spot market price, and the price risk is eliminated entirely for farmers with this type of contract. Also, no matter whether the production costs are high or low, farmers always obtain a certain profit margin. For packers, they still face some price risks as livestock production costs still fluctuate over time.

In price-window contracts, there is an upper and a lower bound for the transaction price. If the spot market price is within this price window, the transaction price is the same as the spot market price. Otherwise, the transaction price equals one of the bounds. The price-floor contracts are a special type of the price-window contracts in which the upper bound is infinity. Therefore, this type of marketing contract also attenuates the price risk for farmers and packers to a certain degree. Overall, transactions conducted through marketing contracts or AMAs in general are associated with fewer price volatilities or risks than transactions completed on the spot market. (17)

Under another important AMA, production contracts, packers own the livestock before slaughter. During the production process, packers provide young animals, feed, vaccination services, transportation services, etc., and farmers provide land, labor, and production facilities. When the livestock reach the market weight, they are removed from the farms and transported to the packers' processing and packing plants. Farmers are then compensated for their growing services. Therefore, under production contracts, the price and marketing timing risks are eliminated for the farmers. Their production risk is also reduced.

For the packers, the capacity underutilization and the livestock price risks are eliminated, and since production contracts give them more control over the production process, the livestock produced are more likely to meet their quality requirements. In return, packers take over the input (e.g., feed) price risk and part of the production risk from the farmers. The fact that production contracts' popularity is on the rise in recent years indicates that ensuring the livestock raised is meeting their quality standards is more important for packers.

The reduction in various risks with the use of AMAs increases farmer welfare significantly. Farmers who use AMAs are found to be more risk averse than those who rely on the spot market, (18) and welfare increases for these risk-averse farmers when risks are reduced or eliminated. Although packers or firms are usually assumed to be risk neutral in economic models because firm owners can diversify their portfolio, the reduction in various risks with the AMAs also benefits them because it reduces the risk diversification costs.

AMAs also benefit the packers in the sense that organizing the procurement of livestock through multiple channels mitigates the information asymmetry problems. (19) For example, producing own livestock on packer-owned farms instead of solely relying on outsider producers keeps packers better informed of competitive costs and practices. At the same time, even if own production of livestock is relatively more efficient than relying on outside suppliers (perhaps because of non-contractible relationship-specific investments), packers would want to at least partly rely on outsiders to keep pressure on in-house management to produce efficiently. In addition, procuring livestock using multiple marketing arrangements enhances packers' bargaining power when negotiating with suppliers. The threat of walking away with no deal and still being able to secure enough livestock through another channel gives a packer an upper hand when negotiating purchases.

The benefits of AMAs do not stop with farmers and packers. They benefit consumers as well. An important advantage of AMAs is that through contracts packers are able to specify various attributes of the livestock to be exchanged and to specify price premiums and discounts associated with those attributes. Therefore, packers are able to incentivize producers to produce better-quality livestock or the kind of livestock that consumers prefer.

Researchers (20) have analyzed quality differences in livestock across AMAs and tested whether various quality attributes used by the industry are significantly different across AMAs. They found that different AMAs are associated with different levels of quality of livestock. Even though the rankings are not unique, they found that marketing contracts (especially other purchase arrangements and other market formula purchases) are consistently associated with higher-quality livestock than negotiated (spot market) purchases. Furthermore, an examination of the relationship between the proportion of AMAs used to procure livestock and the quality of resulting meat products indicates that a higher proportion of AMA use is associated with higher-quality meat products. Therefore, AMAs also benefit consumers as they provide them with better-quality meat products.

Consumers will also see fewer price volatilities in the meat products when more livestock transactions are channeled through the AMAs for two reasons. First, the reduction in capacity underutilization risk for the packers through the use of AMAs means the supplies of meat products will be more stable, and hence their prices will be more stable. Second, fewer fluctuations in the prices packers pay livestock farmers will translate into fewer fluctuations in the prices packers charge the consumers. In the sense that most consumers are believed to be risk averse to a certain degree, reducing the price risks for consumers will increase their welfare.

Concerns of AMAs and Legislative Attempts to Ban Them. Although AMAs bring many of the benefits discussed above, there are also concerns about AMAs. First, a significant share of livestock are formula priced using the reported average spot market price from USDA-AMS's mandatory price reports as a base price in the formulas. (21) However, due to the rising popularity of AMAs, the spot market has become thin.

For example, as mentioned above, the share of hogs transacted through the spot market had decreased to only 3 percent by 2013. (22) This raises many concerns about whether the reported prices still convey useful and accurate market information as they were designed to be when Congress passed the Livestock Mandatory Reporting (LMR) Act of 1999. What are the sources of variations in the reported price? Do changes in reported prices from day to day reflect changing market fundamentals or just nuances of which packers are participating in the spot market each day? Could a particular packer easily manipulate the spot market to its advantage? (23) If reported prices are sensitive to which plants are buying the livestock on any given day, prices may meander from day to day not necessarily because of fundamental changes in supply or demand but because of which plants bought the livestock on the spot market.

For those using USDA-AMS price reports for market information, the reported price change from one day to the next may not be a reliable indicator of evolving market conditions. Also, an increase in the price variation in the spot market price will be translated into an increase in the variation in contract prices through formula pricing agreements. This will increase the price risk for buyers and sellers in the AMAs channel as well. Kayode Ajewole, Ted Schroeder, and Joe Parcell (24) studied the US hog market for these issues and found indeed the publicly reported daily prices are sensitive to which packing plants buy hogs. Furthermore, they found that transaction prices comprising the MPRs are not normally distributed. Hence, reporting the mean and standard deviation of the prices does not give the full picture to market participants.

Second, AMAs depress spot market price for at least two reasons. First, having the majority of their livestock supplies committed through the AMAs, packers have more negotiation power when they come to the spot market. As a result, farmers have to accept a lower price. Second, Tian Xia and Richard Sexton (25) show that when contract prices are linked to the spot price to be determined later, packers have fewer incentives to compete aggressively on the spot market because doing so would increase their purchasing costs for the livestock coming from the AMAs. As a result, farmers receive a lower price. Indeed, Tomislav Vukina et al. found that, as anticipated in the US hog market, an increase in either contract or packer-owned hog sales decreases the spot price for hogs. (26) Specifically, the estimated elasticities of industry-derived demand indicate that a 1 percent increase in contract hog quantities causes the spot market price to decrease by 0.88 percent and that a 1 percent increase in packer-owned hog quantities causes the spot market price to decrease by 0.28 percent.

Third, AMAs tend to benefit farmers with large operations more than their smaller counterparts. As there are significant transaction costs in negotiating and implementing contracts, packers are more likely to form contractual relationships with large producers rather than smaller ones. Therefore, large producers are able to reap the benefits of AMAs while small farmers take a hit because the cash market remains their main marketing channel for their livestock. This will further widen the income inequality between farmers with large and small operations.

Because of these concerns about the AMAs, there were a series of legislative attempts to ban using AMAs when the 2002 Farm Bill was under consideration. On December 13, 2001, the United States Senate approved the so-called Johnson Amendment to the Senate Farm Bill, making it unlawful for a packer to own, feed, or control livestock intended for slaughter more than 14 days before slaughter. (27) The amendment includes exemptions for packing houses owned by farmer cooperatives and packers with less than 2 percent of national slaughter. The amendment was approved 51-46 and became part of the Senate Farm Bill.

In early 2002, the amendment language was clarified to prohibit arrangements that give packers "operational, managerial, or supervisory control over the livestock, or over the farming operation that produces the livestock, to such an extent that the producer is no longer materially participating in the management of the operation with respect to the production of the livestock." (28) The new language was approved 53-46 on February 12, 2002. However, this amendment faced strong opposition in the House and was eventually not included in the final version of the 2002 Farm Bill.

There were also similar debates about banning the AMAs when the 2008 Farm Bill was under consideration. In the end, the attempt to ban AMAs failed again. But the 2008 Farm Bill did include several new clauses related to contract farming. It requires packers to maintain written records that provide justification for differential pricing or any deviation from standard price or contract terms offered to different farmers, and it requires packers to file sample contracts with the USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA). It bans certain unfair, deceptive, and unjustly discriminatory practices or devices packers use. It also requires packers to identify their dealers, and it bans packers from purchasing livestock from other packers or dealers associated with other packers. No serious attempts to ban the AMAs were made during the debate, and no new clauses regarding contract farming were included in the 2014 Farm Bill. Next, we turn to discuss the controversial issues surrounding the production contracts in particular and the legislative attempts to regulate them.

Production Contracts in Particular

The history of attempts to regulate livestock production contracts is rather long (29) Most of the attempts, either on the state or federal levels, have been deflected by the industry's successful lobbying. The most recent attempt of the federal government to regulate livestock production contracts is the GIPSA 2010 proposal to amend the Packers and Stockyards Act (P&S Act) under the 2008 Farm Bill.

Its intention was to address the increased use of contracting in the marketing and production of livestock and poultry by entities subject to the P&S Act. The stated goal of regulation was to level the playing field between packers, live poultry dealers, and swine contractors and the nation's poultry and livestock producers. Probably the most controversial proposal was to significantly regulate using tournaments in settling poultry contracts. Specifically, the proposed rule said that "if a live poultry dealer is paying growers on a tournament system, all growers raising the same type and kind of poultry must receive the same base pay. No live poultry dealer shall offer a poultry growing arrangement containing provisions that decrease or reduce grower compensation below the base pay amount." (30)

Additional proposals would also require poultry integrators to rank growers in settlement groups only with other growers with similar house types. In December 2011, GIPSA published the Implementation of Regulations Required Under Title XI of the Food, Conservation and Energy Act of 2008, (31) which went into effect on February 7, 2012. Most of the original proposals were dropped or modified. Those that remained were provisions regarding the suspension of delivery of animals, rules about the additional capital investment criteria, provisions regarding the breach of contract, and provisions regarding arbitration. The proposed regulation on the tournament system was among the provisions not included in document. However, GIPSA plans to seek additional public comments related to tournament system with an objective to reconsider possible finalization of this rule in the future. So let's address the issue of tournaments first.

Tournaments. The central feature of the cardinal tournament compensation scheme currently used in almost all broiler contracts is that individual growers are compensated based on their individual performance relative to the group average performance. The existing literature on production tournaments emphasizes their favorable theoretical properties. The main rationale for using tournaments in context of contracting with risk-averse growers is that they provide income insurance by filtering away common production uncertainty while maintaining a correct incentive structure to mitigate moral hazard.

Theofanis Tsoulouhas and Tomislav Vukina (32) showed theoretically that, absent bankruptcy concerns, a two-part piece-rate tournament is in fact a linear approximation of the optimal incentive contract. However, the risk sharing is not the only rationale for using tournaments. At least two other important advantages of tournaments justify their use in broiler contracts. Both of those work to lower the costs of contracting and are therefore useful in explaining the prevalence of production contracts and the near-complete absence of company-owned chicken farms. (33)

First, payments schemes based on tournaments require no change as technology improves. Since technological change is largely embodied in feed and chicks supplied by the integrator to all growers in a tournament, they represent a common shock that is differenced out, and the contract payments do not have to be renegotiated as technology improves. Second, tournaments commit the integrator to a fixed average payment per pound of live weight (because bonuses and penalties cancel each other out precisely by construction). Hence, the integrator has no incentive to misrepresent the productivity of any individual grower or all growers together.

Despite these favorable properties, many contract producers complain about contract settlements that are based on tournaments. The essence of these complaints is what Armando Levy and Vukina (34) termed the "league composition effect." The problem arises from the possibility that consecutive flocks produced by the same producer with similar production costs may receive substantially different payments because of different composition and, hence, performance of the tournament group.

The welfare comparison between tournaments and simple piece rates depend on the relative magnitudes of common production risk (e.g., weather) and group composition risk. (Sometimes a grower competes against a group of good growers and does poorly; other times a grower competes against a group of not so good growers and does well.) Tournaments eliminate common production risk but entail group composition risk. The results showed that when leagues are fixed over time, simple piece-rate contracts improve welfare over tournaments provided that the time horizon is sufficiently long. However, the results also showed that broiler tournaments groups are not fixed and that their composition changes significantly from flock to flock, suggesting that the observed broiler industry tournament contracts offer more welfare than piece rates contracts.

The above-mentioned proposed rule that would prevent poultry companies from offering contracts where bonus/penalty could fluctuate freely above or below the contracted base payment rate was analyzed by Zhen Wang and Vukina. (35) The proposed rule would effectively change the compensation scheme from a standard piece-rate tournament to a truncated tournament in which the below-average performance outcomes would no longer get penalized, and only the above-average performance outcomes would be rewarded. That way, the minimum payment per pound of live chickens would be the contractually agreed base payment.

In their model with risk-neutral and heterogeneous abilities agents, (36) they analyzed the principal's problem of optimal choice of contract parameters under both regular and truncated tournament scenarios. The results showed that the principal could significantly mitigate potential welfare losses due to tournament truncation by adjusting the contract parameters. The distributional effects in equilibrium are such that lower- and higher-ability growers are more likely to benefit from regulation, while average-ability growers are expected to lose.

Overall, the proposed truncation policy would not significantly increase growers' incomes, as surely must have been wished for by the policymakers who proposed this regulation, and some producers could end up being worse off than before the regulation. Also, the empirical analysis in Wang and Vukina (37) was based on the assumption that the pool of growers that the principal contracts with stays the same. However, because the results show that the loss due to regulation incurred by the integrator is the largest with the lowest-abilities growers, it is likely that the integrator may seek to terminate the contracts with the lowest-ability types and try to attract higher-ability growers. This could create substantial losses for low-ability types who could permanently lose their contracts and investments in relationship-specific assets while being saddled with mortgage payments from heavily leveraged but now vacant chicken houses.

Finally, the proposal that would require integrators to rank growers in settlement groups only with other growers with similar house types should be eliminated from further consideration. The issue of making tournament groups more homogenous or more heterogeneous has been studied by Vukina and Xiaoyong Zheng. (38) Exactly opposite from the proposed regulation, they showed that for a given average heterogeneity parameter, larger variance (more diverse groups) induces higher optimal growers' effort. Thus, the integrator always wins by mixing growers of different abilities rather them sorting them into more homogeneous groups.

The effect on growers is theoretically indeterminate because higher optimal effort leads to both higher payment and higher cost of effort. However, their counterfactual simulations show that under reasonable assumptions both the integrator and the growers gain when the tournament groups are diversified. Their research also shows that such a practice would be difficult to implement. This is because the pool of growers under contract with a particular integrator's profit center is fixed, heterogenizing some tournament groups would necessarily require homogenizing other tournament groups, and the effects from different tournaments would cancel each other out.

Additional Capital Investments Requirements, Market Power, and Holdup. The additional capital investment criteria become part of the GIPSA 2008 Farm Bill final rule, which went into effect in 2012. Additional capital investment was defined as a combined amount of $12,500 or more per structure over the life of the contract beyond the initial investment for the grow-out facilities. The term does not include cost of maintenance or repair. The criteria the secretary may consider when determining whether a requirement that a contract grower makes additional capital investments constitutes an unfair practice in violation of the P&S Act include (1) whether a contractor failed to give a grower discretion to decide against investing; (2) whether investment is the result of coercion, retaliation, or threats of coercion or retaliation; (3) whether a contractor intends to reduce or terminate operations at the relevant location within 12 months of requiring additional investment (not counting natural disasters or unforeseen bankruptcy); (4) whether some growers were required to make investments, whereas other similarly situated growers were not; (5) the age and number of recent upgrades; (6) whether investment costs can be reasonably recouped; and (7) whether a reasonable amount of time to implement these investments was provided.

As explained by Vukina and Porametr Leegomonchai, (39) after housing facilities have been constructed, processors may exploit their advantageous bargaining position by frequently requesting upgrades and technological improvements as conditions for contract renewal. Shira Lewin-Solomons (40) showed that growers may be held up since physical specificity could effectively reduce the growers' compensation without causing additional moral hazard problems. When a contract involves physical asset specificity, the fear of contract termination would induce the agent to exert high effort without the need for efficient compensation. The crux of the problem is that the potential for opportunism can have a significant influence on contract stipulations even if no actual opportunism occurs. The mere fact that the integrator could act opportunistically helps keep the growers in check.

The above argument is rooted in the standard efficiency wage result. (41) Namely, when incentive problems (caused by the grower's limited liability and the moral hazard problems associated with the fact that effort is unobservable) are sufficiently severe, growers earn positive employment rents. If these rents are high enough, the integrators may hire fewer growers, which would result in the involuntary unemployment for some growers who are perfectly willing to sign a contract but are not able to obtain one. The presence of involuntary unemployment creates an additional incentive for the grower to exert high effort because shirking increases the probability of getting fired. Because the grower utility from shirking (exerting low effort) is now lower than before, the incentive-compatibility constraint can be satisfied with the lower wage relative to the situation in which the market clears.

Next, let's add the asset specificity. In this case, the compensation has to be high enough that growers have a sufficient incentive not to shirk and that they earn sufficient quasi rents to justify the entire investment. Enforcing high effort now becomes cheaper because growers fear that, if terminated, they may lose part of the investment that is relationship specific. The minimum incentive-compatible wage is therefore lower than without the asset specificity, and the need for involuntary unemployment is reduced since termination is costly even with full employment. The threat of having to switch to another integrator may replace the threat of unemployment.

Vukina and Leegomonchai (42) tested the above proposition with the poultry contract grower survey data by looking at the relationship between grower payoffs and the number of substantial upgrade requests per house over the past five years. The results seem to support the above hypothesis that the increase in asset specificity (additional capital investment requirements) enables a fall in grower compensation rates, but only in the monopsonistic environments. They found no evidence of such behavior under competitive or oligopsonistic market structures.

The relationship between asset specificity on the grower side of the contract and the exercise of market power of poultry integrators on the market for grower services was also analyzed by James MacDonald and Nigel Key. (43) Using the data from the 2006 broiler version of the Agricultural Resource Management Survey, they found that greater integrator concentration results in a small but economically meaningful reduction in grower compensation. Growers who operated in the area with a single broiler company received average fees of approximately 6 percent less than the growers in regions with four or more companies.

Contract Length and Termination. Two other rules adopted by the GIPSA 2012 Final Rule (provisions regarding the suspension of delivery of animals and provisions regarding the breach of contract) are both related to the issue of contract length, suspension, and termination. Virtually all current livestock production contracts exhibit a discrepancy between the duration of the contract and the useful life of a contract's specific assets. A lot of them are actually very short term (one flock or one batch at the time); that is, the contract is implicitly renewed when the new batch of animals are brought to the farm, unless explicitly canceled by either party to the contract.

Another problem is that even if contracts are explicitly longer term, they never specify the number of batches or flocks of animals that the integrator will deliver to the contract grower per year. According to the new rule, the secretary may consider various criteria when determining whether reasonable notice has been given by an integrator to a grower for suspension of delivery of animals such as the provision of a written notice at least 90 days before the date it intends to suspend delivery of animals and whether the notice adequately stated the reason for the suspension of delivery, the length of the suspension, and the anticipated date when the delivery will resume. In relationship to the breach of the contract, the new rule requires the integrator to give the contract grower a written notice of the breach of contracts and a reasonable period of time to remedy a problem that could lead to contract termination.

The problem of contract duration and contract switch from short term to long term was recently studied by Pierre Dubois and Vukina. (44) At the theoretical core of their research is a dynamic decision model in which agents (growers) make three decisions: (1) whether to invest in observable physical capital (e.g., cool cells in chicken houses), (2) how much to invest in their own unobservable human capital, and (3) how hard to work (how much effort to exert). The first decision is discrete; the other two are continuous.

The model links these decisions to the probability of contract renewal and offers predictions about the effects of the contract switch from short term to long term on the agent's behavior. Specifically, the model predicts that a switch to long-term contracts should increase both the effort and the unobservable investment in human capital. The key assumption driving this result is the complementarity between effort and human capital. On the other hand, the effect on observable physical capital will be positive only if the starting level of human capital is high enough to justify the investment. In turn, the new steady-state levels of effort and human capital depend on whether the physical capital increased in response to the change in the probability of contract renewal.

Overall, the research results show potential benefits of long-term contracting relative to short-term contracts but, of course, does not provide any normative prescriptions related to regulatory policy proposals. From what has been said, it seems obvious that mandating the livestock production contracts to be explicitly long term (say 10-15 years) without requiring that the contract specifies the minimum number of batches or flocks per year that the grower will receive is meaningless. On the other hand requiring that the contracts specify the exact number of batches per year (e.g., five flocks per year in case of broiler contracts) would be too intrusive because it would interfere with the integrators' supply response capabilities and could actually lead to more abrupt contract terminations and expensive litigations.

Conclusions and Policy Recommendations

When discussing regulatory and policy proposals it is useful to revisit Figure 1. It is important to realize that all policies restricting the use of contracts among parties will tend to shift the AMA's (hybrids) cost curve in the northeast direction on the graph, thereby modifying the distribution of modes of organization. Such a shift is depicted by the blue dashed curve in Figure 2. As the result of this new regulation, the blue dashed curve now intersects the other two modes' governance cost curves (which stayed in place) at the abscissa points K3 and K4. Consequently, the region where the AMAs are the most efficient modes of organizing economic activity has shrunk, whereas the area where the other two modes became the most efficient has been expanded. This is especially true for vertical integration and to a lesser degree also for spot markets.

This insight is especially useful in light of yet only anecdotal evidence of a strong push by Smith-field (the largest hog company in the world) in North Carolina toward more company-owned farms and away from contracts. If this trend (which could be the result of regulation, constant torts litigation, and many other technological considerations) continues, it could have dire consequences for contract farmers who could lose their existing contracts with no possibility to replace them. Therefore, public policies must be analyzed taking into consideration the effect of regulation on the new distribution of modes of organization that any new policy can create. Considering the above-presented arguments, we feel comfortable formulating the following set of policy recommendations regarding the AMAs in general.

Do Not Ban AMAs. Several attempts were made in the past to ban the use of AMAs by packers. Fortunately, these attempts were not successful. As discussed above, AMAs bring numerous benefits to consumers, packers, and some farmers while hurting other farmers. Overall, the gains by those who benefit far outweigh the losses by those who lose. Indeed, Michael Wohlgenant (45) analyzed the welfare effects of banning the use of AMAs in the US hog industry using simulations and found it would decrease social welfare. The two main sources of welfare loss are the loss in cost efficiency in packer production and a decrease in consumer welfare due to the increase in meat prices. Similar proposals to ban the AMAs in the future should continue to be defeated.

Protect the Spot Market. On the other hand, new regulations should be developed to protect the spot market. If the current trend continues, the spot market will disappear completely in the near future. Packers should be required to purchase a certain minimum percentage of their livestock from the spot market. With more transactions through the spot market, the price discovered in the spot market will be less likely influenced by a particular buyer and more accurately reflect the changes in market fundamentals. Also, the spot market is still the main marketing channel for small farmers. If the spot market disappears, farmers with small livestock operations will be forced to exit the industry altogether.

Furthermore, new regulations should be developed to closely monitor the competition conditions in the spot market and prevent further consolidation of this market. If the spot market becomes concentrated as the current trend continues, then packers could easily manipulate the spot market price to their advantage, and this will harm not only those farmers who rely on the spot market but also the contract farmers as contract prices are often linked to the spot market price in purchasing agreements. The 2008 Farm Bill made some progress in this aspect by requiring packers to identify their dealers and bans packers purchasing livestock from other packers or dealers associated with other packers, and more could be done.

Improve Mandatory Price Reports. One of the main goals of the LMR Act of 1999 was to provide useful and accurate market information to participants in the livestock industries. However, currently, USDA-AMS only reports the quantity and average price of transactions that go through each marketing channel. As discussed above, because of the thinness of certain channels and the high concentration of the livestock industries, the reported average prices may not reflect changes in market fundamentals and not give market participants the whole picture.

New regulations should be developed to amend the LMR Act of 1999 to require AMS to publish more statistics based on the data packers report to them. For example, in addition to the mean, the standard deviation, skewness, and kurtosis of the prices for each marketing channel could be reported. Also, a concentration measure such as the Herfmdahl-Hirschman Index of the transactions for each marketing channel could be reported. These statistics are not based on individual transactions, and hence revealing them does not constitute a breach of the data privacy and confidentiality requirements mandated by Titles 13 and 26 of the US Code. With this additional information, market participants can better understand the price information reported in the MPRs, and the livestock markets are expected to operate more efficiently.

In addition, we advance the following set of policy recommendations regarding the production contracts. First, leave tournaments as the dominant mode of settling broiler contracts alone. They have been in use for more than a half-century with great success, and their use has spread to Brazil, Europe, and other countries where chickens are produced on large scale.

Second, because of the increased livestock industries' concentration and the fact that live animals are ill-suited to travel large distances, the concerns about the integrators' market power on the regional markets for contract grower services are well-founded, and some regulatory intervention can be justified on efficiency grounds. Therefore, we support the existing GIPSA rule on the additional capital investment requirements as a sensible (albeit indirect) approach to dealing with this problem. The relationship between the market structure (competition) and the problem of holdup needs to be more carefully studied before proposing more drastic policy interventions.

For example, as indicated by Vukina and Zheng (46) the post-2012 data and research results seem to indicate that the competition in the markets for grower services in the poultry industry is improving in the core-producing regions of the country as production is gradually shifting from the periphery to the core, and the competition is intensifying in the sense that the number of plants per contract grower is increasing. Of course, some micro-regional competition issues still remain, as well as the potentially more precarious position of the remaining contract growers in the peripheral production regions faced with the prospects of plant closures and permanent loss of contracts. This new asymmetric regional distribution of contract production makes any new regulatory proposal difficult to design and even more difficult to implement and enforce.

Finally, when it comes to contract duration, it has to be recognized that short-term contracts and no guarantees on the number of batches or flocks per year introduce significant degrees of uncertainty and volatility into the contract growers' income streams, yet explicit regulation of these contractual features does not appear to be desirable. Therefore, we believe that the existing provisions regarding the suspension of delivery of animals and provisions regarding the breach of contract as promulgated with the new GIPSA 2012 rule are adequate.

About the Authors

Tomislav Vukina is a professor of agricultural and resource economics at North Carolina State University. His research and extension programs are focused on economic organization of agriculture, economics of incentives and information, and personnel economics. He is nationally and internationally known by his work in economics of agricultural contracts and economics of the poultry industry.

Xiaoyong Zheng is a professor of agricultural and resource economics at North Carolina State University. He studies markets with asymmetric information. His published and working projects include empirical studies of auctions (public works, timber, and conservation reservation), contracts (marketing and production contracts in agriculture), and insurance (health and crop). He is also an applied econometrician, applying microeconometrics methods to study policy-relevant issues in food demand, health, and international trade.

Notes

(1.) AMAs are also referred to as captive supplies in the literature.

(2.) Claude Menard, "The Economics of Hybrid Organizations," Journal of Institutional and Theoretical Economics 160, no. 3 (2004): 1-32.

(3.) Oliver E. Williamson, "Comparative Economic Organization: The Analysis of Discrete Structural Alternatives," Administrative Science Quarterly (1991): 269-96.

(4.) James MacDonald and Penni Korb, Agricultural Contracting Update: Contracts in 2008, USDA Economic Research Service, February 2011.

(5.) James M. MacDonald, "Trends in Agricultural Contracts," Choices 30, no. 3 (2015).

(6.) MacDonald and Korb, Agricultural Contracting Update: Contracts in 2008.

(7.) MacDonald, "Trends in Agricultural Contracts."

(8.) Glenn Grimes and Ronald L. Plain, "U.S. Hog Marketing Contract Study," University of Missouri, Department of Agricultural Economics, January 2009, http://hdl.handle.net/10355/8942.

(9.) Tomislav Vukina et al., "GIPSA Livestock and Meat Marketing Study, Volume 4. Hog and Pork Industries," RTI International, January 2007.

(10.) Jong-Jin Kim and Xiaoyong Zheng, "Effects of Alternative Marketing Arrangements on the Spot Market Price Distribution in the U.S. Hog Market," Journal of Agricultural and Resource Economics 40, no. 2 (2015): 242-65.

(11.) Kayode Ajewole, Ted C. Schroeder, and Joe Parcell, "Price Reporting in a Thin Market," Journal of Agricultural and Applied Economics 48, no. 4 (2016): 345-65.

(12.) For example, Emmett Elam, "Cash Forward Contracting Versus Hedging of Fed Cattle, and the Impact of Cash Contracting on Cash Prices," Journal of Agricultural and Resource Economics 17 (1992): 205-17; Marvin L. Hayenga and Dan O'Brien, "Packer Competition, Forward Contracting Price Impacts, and the Relevant Market for Fed Cattle," in Pricing and Coordination in Consolidated Livestock Markets: Captive Supplies, Market Power, IRS Hedging Policy, ed. Wayne D. Purcell (Research Institute on Livestock Pricing, April 1992), 45-65; Ted C. Schroeder et al., "The Impact of Forward Contracting on Fed Cattle Transaction Prices," Review of Agricultural Economics 15, no. 15 (1993): 325-37; Clement E. Ward, Stephen R. Koontz, and Ted C. Schroeder, "Impacts from Captive Supplies on Fed Cattle Transaction Prices," Journal of Agricultural and Resource Economics 23 (1998): 494-514; and John R. Schroeter and Azzeddine Azzam, "Captive Supplies and the Spot Market Price of Fed Cattle: The Plant-Level Relationship," Agribusiness 19, no. 4 (2003): 489-504.

(13.) Yoonsuk Lee, Clement E. Ward, and B. Wade Brorsen, "Procurement Price Relationships for Fed Cattle and Hogs: Importance of the Cash Market in Price Discovery," Agribusiness 28, no. 2 (2012): 135-47.

(14.) Tian Xia and Richard J. Sexton, "The Competitive Implications of Top-of-the-Market and Related Contract-Pricing Clauses," American Journal of Agricultural Economics 86, no. 1 (2004): 124-38.

(15.) Kim and Zheng, "Effects of Alternative Marketing Arrangements on the Spot Market Price Distribution in the U.S. Hog Market."

(16.) Vukina et al., "GIPSA Livestock and Meat Marketing Study, Volume 4. Hog and Pork Industries."

(17.) Vukina et al., "GIPSA Livestock and Meat Marketing Study, Volume 4. Hog and Pork Industries."

(18.) Xiaoyong Zheng, Tomislav Vukina, and Changmock Shin, "The Role of Farmers' Risk Aversion for Contract Choice in the US Hog Industry," Journal of Agricultural and Food Industrial Organization 6, no. 1 (2008): 1-20.

(19.) Tomislav Vukina, Changmock Shin, and Xiaoyong Zheng, "Complementarity Among Alternative Procurement Arrangements in the Pork Packing Industry," Journal of Agricultural & Food Industrial Organization 7, no. 1 (2009).

(20.) Vukina et al., "GIPSA Livestock and Meat Marketing Study, Volume 4. Hog and Pork Industries."

(21.) John D. Lawrence, "Hog Marketing Practices and Competition Questions," Choices 25, no. 2 (2010): 1-11; Ron Plain, "U.S. Market Hog Sales, 2002-2014," University of Missouri, Department of Agricultural and Applied Economics, May 2015, http://agebb.missouri.edu/mkt/vertstud14.htm.

(22.) Ajewole, Schroeder, and Parcell, "Price Reporting in a Thin Market."

(23.) Nigel Key, "Production Contracts and the Spot Market Price of Hogs" (presentation at the annual meeting of the Agricultural and Applied Economics Association, Denver, CO, July 25-27, 2010).

(24.) Ajewole, Schroeder, and Parcell, "Price Reporting in a Thin Market."

(25.) Xia and Sexton, "The Competitive Implications of Top-of-the-Market and Related Contract-Pricing Clauses."

(26.) Vukina et al., "GIPSA Livestock and Meat Marketing Study, Volume 4. Hog and Pork Industries."

(27.) For more information, see Chuck Grassley, "Grassley Readies Amendments for Farm Bill Debate," press release, December 10, 2011, http://www.grassley.senate.gov/news/news-releases/grassley-readies-amendments-farm-bill-debate.

(28.) R. A. McEowen, P. C. Carstensen and N. E. Harl, "The 2002 Senate Farm Bill: The Ban on Packer Ownership of Livestock," Drake Journal of Agricultural Law 7 (2002): 267.

(29.) See, for example, Tomislav Vukina, "Vertical Integration and Contracting in the U.S. Poultry Sector," Journal of Food Distribution Research 32, no. 2 (July 2001): 29-38.

(30.) Grain Inspection, Packers and Stockyards Administration, "Implementation of Regulations Required Under Title XI of the Food, Conservation and Energy Act of 2008; Conduct in Violation of the Act," Federal Register 75, no. 119 (June 22, 2010): 35352.

(31.) Grain Inspection, Packers and Stockyards Administration, "Implementation of Regulations Required Under Title XI of the Food, Conservation and Energy Act of 2008; Suspension of Delivery of Birds, Additional Capital Investment Criteria, Breach of Contract, and Arbitration," Federal Register 76, no. 237 (December 9, 2011): 76874-90.

(32.) Theofanis Tsoulouhas and Tomislav Vukina, "Integrator Contracts with Many Agents and Bankruptcy," American Journal of Agricultural Economics 81, no. 1 (1999): 61-74.

(33.) Charles R. Knoeber, "A Real Game of Chicken: Contract, Tournaments, and the Production of Broilers," Journal of Law, Economics, & Organization 5, no. 2 (1989): 271-92.

(34.) Armando Levy and Tomislav Vukina, "The League Composition Effect in Tournaments with Heterogeneous Players: An Empirical Analysis of Broiler Contracts," Journal of Labor Economics 22, no. 2 (2004): 353-77.

(35.) Zhen Wang and Tomislav Vukina, "Welfare Effects of Payment Truncation in Piece Rate Tournaments," Journal of Economics 120, no. 3 (2017): 219-49.

(36.) In this context the standard definition of abilities as innate characteristics or acquired skills based on education, experience, etc., is extended to include any time-invariant growers' idiosyncrasies such as geographic location, the vintage and quality of production facilities, or similar factors.

(37.) Wang and Vukina, "Welfare Effects of Payment Truncation in Piece Rate Tournaments."

(38.) Tomislav Vukina and Xiaoyong Zheng, "Homogenous and Heterogenous Contestants in Piece Rate Tournaments: Theory and Empirical Analysis," Journal of Business and Economic Statistics 29, no. 4 (2011): 506-17.

(39.) Tomislav Vukina and Porametr Leegomonchai, "Oligopsony Power, Asset Specificity and Hold-Up: Evidence from the Broiler Industry," American Journal of Agricultural Economics 88, no. 3 (2006): 589-605.

(40.) Shira B. Lewin-Solomons, "Asset Specificity and Hold-Up in Franchising and Grower Contracts: A Theoretical Rationale for Government Regulation?," University of Cambridge and Iowa State, September 2000.

(41.) Carl Shapiro and Joseph E. Stiglitz, "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review 74, no. 3 (1984): 433-44.

(42.) Vukina and Leegomonchai, "Oligopsony Power, Asset Specificity and Hold-Up."

(43.) James M. MacDonald and Nigel Key, "Market Power in Poultry Production Contracting? Evidence from a Farm Survey," Journal of Agricultural and Applied Economics 44, no. 4 (2012): 477-90.

(44.) Pierre Dubois and Tomislav Vukina, "Incentives to Invest in Short-Term vs. Long-Term Contracts: Theory and Evidence," B.E. Journal of Economic Analysis & Policy 16, no. 3 (2016): 1239-72.

(45.) Michael K. Wohlgenant, "Modeling the Effects of Restricting Packer-Owned Livestock in the U.S. Swine Industry," American Journal of Agricultural Economics 92, no. 3 (2010): 654-66.

(46.) Tomislav Vukina and Xiaoyong Zheng, "The Broiler Industry: Competition and Policy Challenges," Choices 30, no. 2 (2015): 1-6.
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