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European Review of Agriculture Economics Vol 27 (4) (2000) pp.431-447
© 2000 Oxford University Press and the Foundation for the European Review of Agricultural Economics

The value of price- and quantity-fixing contracts for piglets in Finland

KS Pietola1 and HH Wang2

1 Agricultural Economics Research Institute, Helsinki, Finland
2 Washington State University, Pullman, WA, USA

Summary

This paper estimates the value for price- and quantity-fixing contracts to trade weaned piglets from farrowing farms to finishing farms. These values are estimated using quasi option values, driven up by volatile returns to investment in hog production units. The results suggest that hog producers have an incentive to choose vertically coordinated or integrated production systems when investing in hog production. The value of the price- and quantity-fixing contract was estimated as 7.3 per cent of the investment outlay in farrowing units and 2.7 per cent of the investment outlay in finishing units. The corresponding value of the option to suspend production in finishing units was estimated at 1.7 per cent.

Keywords: vertical coordination, contracts, quasi option values, hog industry


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