Contract Play Growing Role in Ag

Contracts covered 39 percent of the value of U.S. agricultural production in 2003, up from 36 percent in 2001, according to a new study by the U.S. Department of Agriculture?s Economic Research Service (ERS). The report, entitled ?Agricultural Contracting Update: Contracts in 2003,? underscores the important and growing role played by contracting among all sectors of U.S. agriculture, including livestock. 

The study, which examines data as far back as 1969, notes that the ?increased reliance on contracting is one important feature of ongoing structural change? in the U.S. agricultural economy and is closely tied to other features, including production shifts to larger farms, increased specialization on farms and great production differentiation.

Contracting continues to show a strong upward trend, covering 11 percent of the value of production in 1969 and 28 percent in 1991. While contracting appears to be growing steadily in the aggregate, growth varies within regions and among certain commodities. These contracts provide ?much closer linkages between farmers and specific buyers? and may provide contractors and buyers with greater control over agricultural production decisions, the report notes.

The study also noted that contracting terms are ?evolving to cover new and often unforeseen developments.? For example, some livestock production contracts include explicit clauses that address environmental concerns. In the future, the study also notes, ?contracts may change to facilitate greater traceability of products and to allow new forms of risk sharing and input provision.?

For view the report, go to: http://www.ers.usda.gov/Publications/EIB9/
Reprinted from American Meat Institute