CONTRACTING STRATEGIES FOR EU TRACEABILITY REQUIREMENTS

A principal-agent problem was specified to define the equilibrium solution of a contracting strategy for a U.S. supplier exporting wheat to meet EU traceability requirements. The buyer (principal) offers a contract, the supplier (agent) accepts the contract, and then the supplier decides whether to offer a contract to the farmer. Nature at each level of the supply chain represents uncertainty due to adventitious commingling and imperfect information. Results indicate farmers would require 9 c/bu and suppliers 8 c/bu to induce their participation in the contracting strategy.