Failures in incentive transmission along Brazil's quality beef chain

Abstract

Coordination mechanisms are key factors that affect the competitiveness of agrisystems. Brazilian beef chains are associated with less formal contractual relations compared to other food chains, resulting in frequent conflicts between cattle farmers and the processing industry. This study identifies the reasons for this phenomenon, raising the question of whether the observed incentive structures actually promote cooperation between production and industry. The study aims to explore the role of institutions and incentive structures in coordination failures within beef quality programs coordinated by the meatpacking industry. The issue is treated by considering the principal-agent theory and Transaction Costs Economics. We propose a model of incentive structures for the production of quality beef which considers specific investments made by cattle raisers and the meatpacking industry. In addition to specific investments, we also consider the role institutions play in reducing organizational failures. We adopt a mathematical and a strategic model to which game theory is applied. Quality is addressed using a multidimensional approach, since different product attributes are considered. The theoretical model is then validated in a multiple case study with three quality beef programs. The findings suggest that the complexity of designing efficient incentive structures makes the maintenance of beef quality programs an arduous task. The institutional role represented by formal contracts and horizontal coordination is a relevant aspect that has yet to be considered in preventing organizational failures. This study has academic and managerial implications.