This is particularly true in some agricultural sectors where there is a high level of horizontal concentration combined with vertical linkages through contracts. Risks of Contracting . There is greater and greater disparity between processors and farmers with respect to market information and bargaining power. The contractual risks to producers are buried in pages of legalese and producers are stuck with unfair contract terms. In the poultry industry, which has been vertically integrated for decades through the extensive use of contracts, we hear repeated allegations of unfair treatment of producers.
Contracting can result in the unfair shifting of economic risks to farmers.
This is common in production contracts that require producers to make substantial capital investments. For example, in the poultry industry, some producers are contractually required to make long term capital investments in buildings and equipment, but are only offered a contract that covers one flock of birds. Loss of Market Transparency. The importance of market transparency and price discovery is so fundamental that it is academic dogma. Traditionally, a hallmark of American agriculture was the free flow of market information available through auctions, terminals, and futures trading.