Explaining Agro-Industrial Contract Breaches: The Case of Brazilian Tomatoes Processing Industry

Three hundred small tomato growers located in Braziliannortheast states, supplied a processing industry. In view of the largenumber of contract hazards and weak enforcement of clauses, managershave decided to move to the Midwest, where a reduced number of largerfarmers have been contracted. The industry blamed high transactioncosts due to the weak mechanism of public enforcement of propertyrights. The industry blamed some farmers of selling the product at themarket for fresh consumption. Also, farmers blamed the industry fortaking advantage of asymmetric information related to quality. Thisstudy presents an analysis of contract architecture and an evaluation ofeffects of transaction costs related variables on the likelihood of contractbreaches. A panel data study with 1,523 observations and limiteddependent variable models has been formulated to test hypothesisbased on transaction cost theory. Results show that opportunism andthe absence of courts guarantees of property rights precluded thepossibility of achieving a stable contract relationship in the region.