Analysis of incentive structures at producer–processor interface of beef supply chain in Brazil

Abstract

Purpose With recent shifts in market forces driven by food safety and quality concerns, managers in the Brazilian beef processing industry are forced to reevaluate their procurement arrangements with cattle producers. The purpose of this paper is to provide insight on the effect of live-weight (LW) and dead-weight (DW) procurement arrangements on farmers’ incentives to invest in cattle quality. Design/methodology/approach The research methods involve a conceptual model based on principal-agent framework and data from targeted interviews of cattle farmers and slaughterhouse managers in the Western Region of São Paulo state of Brazil. Findings Findings highlight the potential for adverse selection of low-quality cattle producers under LW arrangement and misaligned incentives for quality improvement, they also illustrate incentive compatibility of DW arrangement when the carcass yield is verifiable by producers. The evidence from field data was largely consistent with the predictions of the model and highlighted the important role of trust for a lasting procurement relationship under DW arrangement. Research limitations/implications Due to the lack of publicly available data and the challenges associated with the collection of primary field data, the sample is limited to 30 cattle producers and 5 processing firms. Originality/value This paper provides a theoretical and empirical platform for developing further research on coordination at the producer–processor interface of beef supply chain in Brazil and other countries with similar transaction characteristics. The findings will assist in designing more incentive compatible and self-enforcing arrangements between cattle farmers and slaughterhouses to enhance the product quality and the overall efficiency of the supply chain.