Chain-wide consequences of transaction risks and their contractual solutions : managing interdependencies in differentiated agri-food supply chains

Agri-food supply chains are characterized by strong interdependencies between the different stages. These interdependencies may lead to risk-spillovers, as when a downstream company is exposed to risks resulting from activities further upstream in the supply chain. For example, a change in the formula used to calculate the price in a farmer-processor transaction, may reduce incentives for farmers to produce high quality products. This can increase the risks that low quality products are exchanged in the processor-retailer transaction. The present thesis has examined the challenges which companies face in managing such interdependencies and associated transaction risks.More specifically, it has examined: (1), how risks arise in the supply chain as a result of the interdependencies between the various transactions making up the supply chain; and (2), what types of governance solutions are suitable for supply chain companies to implement in order to reduce or eliminate their exposure to these risks. Mainly economic risks resulting from conflicts of interests between the supply chain companies have been considered. Both a theoretical and an empirical approach have been used in the thesis. The theoretical approach is largely grounded within Transaction Cost Economic (TCE) literature. Empirical research has been conducted in a specific sub-section of the agri-food sector: the pork meat industry. Transactions have been examined between the companies operating in pork supply chains in various EU countries as well as in Brazil. Based on the analyses presented in the four studies of the thesis, various types of strategies have been identified which managers can use to minimize, alter, transfer or share their exposure to risk in the supply chain. These strategies include: (1), the use of specific provisions in contracts with suppliers or buyers (e.g., to fix prices or not); (2), the balancing of supply and demand side contract provisions; (3), the use of risk pooling vehicles, like jointly managed quality management systems or collective brands. Furthermore, the conditions under which these strategies should be employed have been identified. Compared to previous research, this thesis discusses more detailed strategies and considers the consequences of their use for the whole supply chain.