Abstract
The current chapter demonstrates an application of the theoretical framework of vertical coordination, more specifically the application of contracting in productive partnerships, to integrate smallholders into the value chain of a specialised crop. The aim of the chapter is to derive implications for industry participants on how to integrate smallholders with vertical coordination. Therefore, we take a closer look on vertical coordination and contracting in productive partnerships. We have taken the value chain of brandy production in Armenia and used the Yerevan Brandy Company (YBC) to perform our case study, with which we can analyse vertical coordination mechanisms used by the company. Further, we want to identify factors that drive processors and smallholders to enter into contracts. Qualitative interviews were conducted with the YBC, their grape suppliers, as well as experts from related fields. We analysed the data with a qualitative content approach. Results show that the YBC uses different measures of vertical coordination, i.e., contracts and farm assistance in the form of consultancy and input supply. The company tends to use production contracts rather than pure marketing contracts, as it is actively engaged in the production process. The use of contract farming is beneficial for both the processing company and the smallholders.
Highlights
After the collapse of the Soviet Union in 1991, the whole food chains in Armenia and other Eastern European countries experienced an economic breakdown due to the beginning of the transition process
The case of the Yerevan Brandy Company (YBC) in the Armenian brandy industry can be seen as a benchmark example for other countries and their agricultural sectors where the structure of smallholders is still prevailing, too
Armenian table wine production was shifted mainly to brandy production, which led to a significant change in the Armenian wine culture
Summary
After the collapse of the Soviet Union in 1991, the whole food chains in Armenia and other Eastern European countries experienced an economic breakdown due to the beginning of the transition process. At the same time, changing consumer demands forced retailers and processors to adjust and improve the structure of the food chains to meet consumer demands and to overcome the supply problems. Agricultural Economics chain to overcome the problems of supply disruption and minor quality [2, 3]. These structural changes and their consequences are still present today. Hanf et al show the influence that foreign investors have taken in the development of the Armenian wine and brandy business They use different Armenian companies, among others, the YBC [10]. The case of the YBC in the Armenian brandy industry can be seen as a benchmark example for other countries and their agricultural sectors where the structure of smallholders is still prevailing, too. Integration of smallholders into the value chain: vertical coordination and contracting
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