Formal contracts in fresh produce markets

Transaction costs are endemic in the fresh produce industry because of the technical and economic characteristics of the products, which give rise to high levels of uncertainty and the need for greater control in the supply chain. The study reported here used an NIE approach to explore the market conditions and producer motivation that determine the sale of citrus fruit in the Comunidad Valenciana, and to suggest whether the introduction of standard seller-buyer contracts would facilitate producers' marketing decisions and reduce uncertainty, thereby lowering transaction costs. Primary data collection involved conducting the first survey among Spanish citrus producers in respect of their choice of marketing channels. The population was the Valencian mandarin and orange producers. The results suggest that producers can be grouped according to their marketing orientation. Furthermore, marketing factors in addition to the negotiated price were found to be important determinants of the terms of the transaction. The research lends support to the policy debate for standardised citrus marketing contracts in the Spanish citrus industry. Moreover, the role of uncertainty as a major preoccupation of small scale producers, and how it might be mitigated, is probably of relevance to wider food markets. (C) 1998 Published by Elsevier Science Ltd. All rights reserved.