Producer price risk and quality measurement

Risk-averse farmers in the produce industry grow a product whose market price is often quite unpredictable. Shippers or other intermediaries shield the farmer from much of this price risk; however, actual contracts between growers and shippers vary considerably across commodities in the residual price risk growers face. We hypothesize that imperfect quality measurement results in a moral hazard problem, and that price provides additional information regarding duality. As a consequence, an efficient contract does not shield growers from all idiosyncratic price risk. We examine this hypothesis for the case of fresh-market tomatoes.