Property rights and reputation in the dairy agro-industrial system

Sudré, Carolina Andrea Gómez Winkler; Souza, José Paulo de; Bouroullec, Melise Dantas Machado

doi:10.1108/RAUSP-07-2020-0145

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Sumário

Research Paper • RAUSP 56 (4) • Oct-Dec 2021 • https://doi.org/10.1108/RAUSP-07-2020-0145 copy

Property rights and reputation in the dairy agro-industrial system

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Purpose

The purpose of this study is to understand the effect of governance structure alignment, property rights protection, and reputation in generating efficiency in dairy agro-industrial system in Paraná, Brazil, and Midi-Pyrénées, France.

Design/methodology/approach

Descriptive qualitative research, comprising semi-structured interviews with producers, processors and key agents of the dairy agrindustrial system in Brazil and France, in 2016/2017.

Findings

As a result, it was identified that measurement generates information about transacted dimensions and when it is shared can generate affect reputation in transactions that leads to system improvement. It was also observed that, in the dairy agro-industrial system, reputation acquired does not reduce all the measurement costs, as the product requires measurement in each all collection, regardless of the reputation created.

Research limitations/implications

As a limitation of the study, there is a difference in the moments when the interviews were done. In 2016, in France, the context was low prices, while in 2017, in Brazil, there was a rise in prices. This difference could have influenced some responses to the interviews, mainly about efficiency by producers.

Practical implications

Reputation, protecion of property rights by measurement and information sharing allows reduction costs (transaction, measurement and negotiation costs). This efficiency implies improvement to the system, in cases of milk producers and processors.

Social implications

Improvements in the dairy system can have repercussions on several other improvements such as better distribution of income among agents in the chain; better-paid producers, which implies the improving quality of lives of these people; better products offered to consumers.

Originality/value

From a complementary perspective of transaction cost economics and measurement cost economics, reputation and protection of property rights are discussed with a focus on efficiency. Empirically, the paper contains heterogeneous data collected from two countries: Brasil and France.

Keywords
Measurement; Reputation; Property rights; Governance structure; Dairy agro-industrial system

Producer*	Time in milk production (years)	Average production per animal (liters/day)	Governance structure
1	35	24	Contract and integration
2	38	25	Contract
3	10	25	Tacit agreement (informal contract) and integration
4	21	27	Tacit agreement (informal contract)
5	30	30	Contract
6	17	23	Contract
7	41	23	Contract
8	7	27	Contract
9	5	15	Tacit agreement (informal contract)
10	5	20	Tacit agreement (informal contract) and integration
11	8	18	Contract
12	20	21	Contract
13	5	19	Contract
14	25	31	Contract
15	17	22	Contract
16	25	20	Contract
17	10	24	Contract
18	40	20	Tacit agreement (informal contract)
19	30	22	Tacit agreement (informal contract)

Country	Processor	Producers suppliers	Type of company
FR	1	2,300	Cooperative
FR	2	400	Industry
BR	3	130	Industry
BR	4	369	Cooperative
BR	5	1,000	Cooperative

Governance structure	TCE	MCE	Effect
Formal contract	Alignment (presence of idiosyncratic attributes)	Alignment (clearly defined dimensions and objectivity of measurement, with low cost)	Possibilities of opportunistic behavior are reduced due to the protection of legal rights Production of superior quality milk
Informal contract	Non-alignment (specific asset existence)	Non-alignment (objective measurement)	Mistrust in the relationship Minimum investments in production Minimum quality milk

Agents interviewed	Region	Highlights	Reduced analysis
Producer 15	Central-Eastern	“My relationship with the cooperative only stimulates me. It gives me security in my investments, I’m not afraid; if I were alone I know that I would be more vulnerable”	Reputation created between agents
Processor 04	Central-Eastern	“From the point of view of supply, I give nine. I trust them that there will be no shortage of milk in the industry, that the rules are being complied with, in this regard they are readiness”	Reputation created between agents
Producer 10	North	“Measurement does help. You can talk about very concrete things, it is very vague without analysis. Before, what was concrete was the number of liters I delivered and how much the buyer paid me. Now we have the analysis for us to base it on”	Measurement generates trust in the relation
Producer 16	West	“Measurement generates confidence, for sure. If we trust, we see that the activity is serious and we continue”
Producer 12	Central-Eastern	“Measurement helps, it’s important. If you have any suspicion, you can also have a retest. They store the sample and if we have any questions, they analyze it again”
Producer 17	West	“The cooperative, we know that every month we will receive our payment”	Reputation is created by path dependence
Producer 18	West	“Until today I never had a problem with payment, the cooperative has always paid us up to date … Our buyer was never late. He is not the one who pays the best, but he is the one who always pays. We have that confidence”	Reputation is created by path dependence
Producer 10	North	“In the relationship with the processor, there is a lack of transparency, an open game … They say that they pay the same for everyone, but when we talk to producers, we see that it is so not. We need to negotiate more seriously”	Reputation is not created
Producer 09	North	“Our situation today is unsatisfactory. Here, in our region, nobody can negotiate. When there is a problem in the evaluation of our milk, we suspect and do the counter test”	Reputation is not created
Producer 09	North	“With milk income, I cannot reinvest, nor do I encourage myself to continue in the activity”	Fewer investments
Producer 19	West	“We have already gone through a lot of financial difficulties, including a year ago we took money out of our pockets, from saving to stop. Every month I have something pending which makes it difficult to invest”	Fewer investments

Region	Property rights protection	Reputation	Effect
Central-Eastern	Formal contract, measurement, institutional rules and information sharing	Created	Reduction of coordination costs Continuity of the relationship Quality milk production Reduction of opportunistic attitudes Investments in milk production
West	Informal contract, measurement and institutional rules	Created (path dependence)	Continuity of the relationship Fewer investments in milk
North	Informal contract, measurement and institutional rules	Not created (distrust, a greater potential for opportunistic attitudes)	Continuity of the relationship due to lack of options Fewer investments in milk production

Governance structure	TCE	MCE	Effect
Mandatory formal contract	Alignment (specific assets transacted)	Alignment (clearly defined dimensions and objectivity of measurement, with low cost)	Possibilities of opportunistic behavior are reduced due to the protection of legal rights (milk attributes)
Vertical integration	Alignment (increase in specific assets in the production of Blue Blanc Cœur and bio milk	Non-alignment (measurement cost low and objective control)	Investments only in differentiated milk production
Informal contract	Non-alignment (specific asset existence)	Non-alignment (objective measurement)	Mistrust in the relationship and discouragement in transaction continuity

Agents interviewed	Highlights	Analysis
Processor 1	“… there are 13.000 producers and we are unable to control and trust 100% in all”	Reputation is not created between agents
Producer 1	“I don’t trust the processor … To improve my confidence, it would have to be more transparency”	Reputation is not created between agents
Producer 2	“I continue in the activity because I invested to produce quality milk and I get paid for that”	The protection of additional milk price (legal right) encourages continuity in the activity
Producer 7	“I invested in quality milk production and the payment for these attributes is guaranteed by the contract. So, I continue because of that”
Producer 1	“The buyer can take advantage of us because they fix the base price. So, when the product is not good on market, they lower the price”	Opportunism due to the lack of economic rights protection
Producer 4	“Buyers can take advantage because they define the base price of milk. This relation is bizarre, we sell the product, but we don’t define the price? And there is no negotiation?”	Opportunism due to the lack of economic rights protection
Processor 2	“It’s not easy to switch buyers. … Today, in the contractual scheme, the duration of the relationship is between 5 and 7 years. This change is difficult. The case of exchanging buyers is minimal”	Difficulty of exchanging buyers
Producer 8	“Here it’s not easy to change buyers. If a producer stops selling to the buyer, no one will want to buy from him to make other producers afraid”	Difficulty of exchanging buyers

Property rights protection	Reputation	Effect
Mandatory formal contract, measurement, information sharing and institutional rules	Not created	Reduction of coordination costs Continuity of the relationship (contractual clauses)

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E-mail: rausp@usp.br

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[1] *Corresponding author Carolina Andrea Gómez Winkler Sudré can be contacted at: carolinagwinkler@gmail.com