Effects of Contractual Terms on the Balance of Risk

Abstract

Except of direct market sales between farmers and consumers all agricultural raw products are sold through a vertical marketing system. The transactions between producer and customers on each production stage are coordinated via open spot markets or by vertical contracts. The volume sold through contractual arrangements has increased substantially in the last decades. The launching for contractual arrangements between successive stages in a marketing system is driven by the incentive to reduce risk and to gain more certainty in the marketing processes.