An analysis of the farmers contractual preferences in process innovation implementation

Abstract

Purpose The purpose of this paper is to consider how farmers cope with the uncertainty-related broiler process innovation in long-term contractual relationships. Design/methodology/approach This paper conceptualizes the process innovation implementation in terms of governance structure adaptation. The focus of the study is on the property and decision rights combination in process innovation implementation. It is argued that this approach highlights a key aspect of the nexus between governance mode and innovation within inter-firms relationships. Findings The results first show that the allocation of the decision rights between the farmer and the processor explains the process innovation implementation and, second, that the farmer contractual preferences are caused by the expected costs of the adaptation. Third, estimates of transaction and production costs variations are proposed. Research limitations/implications This study considers only the uncertainty stemming from the process innovation, whereas further uncertainty sources may influence the contract negotiation. Second, the lack of sample representativeness requires further information to be gathered. Finally, the investigation could be developed by modeling the farmer-processor negotiation. Practical implications The results indicate that effective governance structures in poultry production should give room to the adaptation in order to facilitate process innovation. Originality/value To conceptualize the process innovation implementation as an adaptation of the governance structure strengthens the knowledge of innovation in the sector context and contributes to the extent of the applied field of transaction cost economics.