Home Page Science Agriculture Vertical Coordination Essay Example

Vertical Coordination Essay Example

Available Only on StudyHippo

Topics:

Agriculture, Business, Communism, Macroeconomics

Pages: 6 (1586 words)
Published: February 24, 2017
Type: Report

View Entire Sample

Text preview

Vertical coordination is the process of implementing all the stages such as production line, marketing and selling the final output. The other important thing about the vertical coordination is that there should be an efficient communication between consumers and producers in that how much should produce the producer and also what quality should have the product.

One of the main characteristic of the communist world was the state property, meaning that the whole state economy was controlled by the state institutions. The private property existed before the communism era, but when the world faced the communism the private property did not existed any more. The state took control over every private property and the owners of these properties, not only “lose” their property but also they were somehow discriminated.

ext-align: justify">Such regime was spread in Central Europe, such as in Albania, Chez Republic, Slovakia, and also in East Asia such as in Russia. One of the main sectors that were extremely controlled by the state was the agriculture and food production. These sectors were state-controlled not only in Communist world, but also in some other states in Africa, South Asia, and South America. In these non Communist countries, the state institutions played a very important role in agriculture production in the field of marketing and also in export field.

Between 1980 and 1990, started a global process of liberalization, meaning that in the sectors which were under the state control the process of privatization started. In that way the agriculture sector and the food sector were faced with the process of privatization, by somehow removing the control of the state ove

View entire sample

Join StudyHippo to see entire essay

these sectors.

As the globalization started in the whole world, the economies of countries of the world started to change, some of states had a decrease level of their economy and some other had increase level of their economy, meaning that the effects of globalization for different countries were different. In communist countries, the effects of globalization were in the form of liberalization of the economy, such as the liberalization of the trade, agriculture, price, etc. this happen in Central Europe, Soviet Union, and also in Eastern Europe.

State-controlled vertical coordination

Vertical coordination was also spread in state controlled agriculture and food supply chains. These states were mostly under the Communist regime where the state institutions decided about the quantity of the production by including also the exchange of inputs and outputs along the chains. The institution which was responsible for this duty was called the central command system ( Rozelle and Swinnen, 2004).

However a lot of critiques have been demonstrated for the state-controlled vertical coordination. These critiques were mainly based in that state-controlled vertical coordination were inefficient, meaning that there were motivated by political motives, and by objectives to provide cheap food for urban markets, the maximization of foreign exchange earnings, the creation of rural employment, determining the viability of certain businesses (Johnson and Brooks, 1983; Swinnen and Rozelle, 2004). Vertical Coordination was inefficient also in other states where the communism regime was not present, but the where the state had primary control over VC. As an example, the African states did not have an efficient VC, by manifesting somehow low credit payment rates (Warning and Key, 2002).

justify">The end of the state-controlled VC

As we described above, between 1980 and 1990, the world was faced with the liberalization and the privatization. The communist regimes all over the world started to fall down and thus the economy of these countries which were in transition started to have big changes. Those changes were reflected also in VC, by somehow put into crisis the previous system of VC. This is clearly understood and also expected because the VC before 1980 was in the form of state-controlled VC, and within 1980-1990 the privatization and liberalization processes had their effects in VC. Of course between these years it is somehow absurd to speak about the state-controlled VC, as the privatization and liberalization of farms and enterprises started.

The processes of privatization and liberalization at first, they had bad consequences in the agriculture sector, because farms had a decline of outputs and credit supply. Also those processes caused another consequence which was not good, the removal of price supports and the removal of input subsidies. So to conclude the transition period in the world caused the removal of the stated-controlled vertical coordination, and thus the collapse of the each country economy.

Private vertical coordination

As the stated-controlled vertical coordination was removed with the entrance of the liberalization and privatization, there was a need for the whole economy and especially for the agricultural sector to introduce a new vertical coordination which will be controlled by private sector. In developing and transition countries the process of creating new VC, the private one is growing rapidly. Now private companies collaborate with the farms and rural households in

order to get the input for their production in exchange for quality supplies.

There were two reasons why was important the creation of the private VC.

1. As the demand and the income of the consumers increased, the demand and the quality standards of products increased, and this led to the increase of the private investment.

2. The problems which farms face to supply such products reliably, consistently and timely to producers.

However the process of creating the private VC took its way, farmers did not had a comfort position, meaning that they face some problems in collaborating with private companies. As in that time private sector’s demand was for high quality input, farmers faced with a lack of investment in order to fulfill the private’s demand for a quality input and also for a high quantity demand. However, the customers demand for quality and food safety has been increased, the private VC, will be efficient and the main force which will led to success the private VC, is the private sector, by investing in such farms which have the difficulties explained above.

Private vertical coordination importance

With the falling of the stated-controlled vertical coordination, the world faced at first some difficulties in terms of economy, but with the process of liberalization and privatization the private sector took control over the economy, that means also that private sector created the private VC as a need for the whole economy, especially for the agricultural sector which in some views was the first input of the production.

Private VC creation led to an increase in economic growth, and also the

investments of private sector in rural areas where farms were located, made possible the development of these areas. As the investment took place in these areas, it is clearly understood that the productivity and quality has been increased. Also the quantity produced has been increased.

Effects of private VC

There exist two effects of the private vertical coordination:

The efficiency effects, with its direct impact which is related in the benefits got from supplying farmers. Such benefits are in output, productivity, the quality of product and also on income. The other impact of efficiency effects is the indirect one, which is related in some indirect benefits that farmers have such as: they do not have risk at all, whether their product will be sold or not, their sales are guaranteed and the price is also guaranteed, and also the marketing risk for farmers will be reduced.

The second effect is the equity effect has to do first, with the distribution of rents in vertically coordinated food supply chains and second with the exclusion of smallholders and poorer farmers in contract-farming (Warning and Key, 2002).

Study case (Comparative study of the vertical coordination in the diary chains in Bulgaria, Poland and Slovakia)

The study will be focused in three countries: Bulgaria, Poland and Slovakia. Poland is the main diary-producing country in central Europe while Bulgaria and Slovakia are only small players in the diary market.

The Polish and Bulgarian dairy sector consists mainly of small scale household production.

In contrast, Slovakian dairy sector is dominated by large scale farming enterprises. Dairy companies in Poland mainly source from small-scale

individual farms. Dairies in Slovakia source almost exclusively from large scale farming enterprises. Dairy companies in Bulgaria source both from small-scale and large-scale farming enterprises.

Studies have found that foreign investments have adopted the new technology in the agriculture sector. Also the other conclusion from studies is that foreign investors prefer to deal with large suppliers in order to minimize the transaction costs.

In order to see the effect of foreign investments in these three countries we will take into consideration the milk industry. Poland is the most diary milk producing country among these three. It produces around 12 million tones milk, while Bulgaria and Slovakia both produce around one tenth of he Polish amount. 85% of the milk production in Poland and Bulgaria consist of the small scale household’s production and a high share of their production is used for self consumptions. While in Slovakia, only 10% of family farms have dairy cows, the rest is produced by farming enterprises and 100% of this production is sold.

Another aspect in this case study is that both three countries focus a lot in the quality of the milk production. For instance in Poland, Bulgaria and Slovakia farmers who produce high quality of milk are getting premium prices from diary companies. Of course the role of the foreign investors is very important in these three countries because, first, they have improved quality of milk by introducing milk quality tests and second, they have implemented new technology better than the technology implemented by the domestic producers.

Vertical Coordination Essay Example

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards

Vertical Coordination Essay Example

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards

Unfortunately copying the content is not possible

Tell us your email address and we’ll send this sample there.