With contract farming and other forms of vertical coordination expanding in the U.S., the Council for Agricultural Sciences and Technology offers producers a guide to weigh the pros and cons.

A new report from the Council for Agricultural Science and Technology (CAST) provides farmers, policymakers and community leaders a guide to weigh the advantages and disadvantages of contract farming and other forms of vertical coordination in agriculture. The report analyzes how vertical coordination in the food chain can change rural communities that have farming-dependent economies.

The report documents that vertical coordination is increasing in the U.S. and will continue to expand in rural areas as farmers seek alliances with food processors and others to provide capital, technology and markets. As a result, farmers can lower risks and costs to produce more efficiently. However, the practice is controversial because it can put traditional family farmers at a disadvantage to more integrated business structures that are typically large-scale operations. These integrated businesses also have posed environmental challenges, including manure management and odor issues resulting from the large number of animals often raised in concentrated areas.

According to the CAST report, a few communities in the Great Plains could potentially seize opportunities to attract value-added agricultural manufacturing through vertical coordination because their low rainfall and open spaces help mitigate manure management issues. However, no single formula works for every community to evaluate the pros and cons of vertical coordination.

Some of the public policy considerations addressed in this CAST report include:

  • Costs of controlling odor, waste and pests need to be charged to the producing units and not to their neighbors or other "downstream" parties.
  • If vertical coordination is deemed inappropriate, labeling backed by proper standards and enforcement may provide a useful policy option.
  • Firms will tend to go to the places with the weakest environmental standards. Thus some national standards may be appropriate. A county option is sometimes useful where environmental regulations need to differ appropriately among local areas.
  • It is essential that the U.S. continue to promote competition through antitrust and other measures.
  • Instead of investing in attempts to bring in agriculturally related industry, many rural communities will find it advantageous to use their resources to build the skills and networks of local residents to increase their options.
  • Greater transparency in vertical integration contracts would keep parties to the contract better informed and would promote competition and public awareness.

The report also addresses the role of e-commerce in rural development. It concludes that e-commerce will at best only help rural communities catch up with technology already available to both urban and suburban communities. Rural communities will need to focus on social organization rather than technology alone.

A copy of the report Vertical Coordination of Agriculture in Farming-Dependent Areas is available through the CAST Web site www.cast-science.org. It is also available by calling (515) 292-2125 or e-mailing cast@cast-science.org. Printed copies are $25.00 plus $3.00 shipping in the U.S. and Canada.

Source: CAST press release