The role of institutions in controlling compliance with the obligation to conclude contracts for the supply of agricultural products

Abstract

Motivation: In order to protect the interests of farmers (agricultural producers) in 2015 an obligation to conclude contracts for the supply of agricultural products was introduced, and since 2017 has been in force to impose fines on buyers of agricultural products if they purchase without a contract or if the contract is defective. The National Center for Agricultural Support (KOWR) is an institution whose tasks include control of compliance with this law. Observation of transactions in agriculture allows us to believe that the established legal regulations do not solve the problem of abuse of market power by recipients and the institutional solution does not shape economic processes.Aim: The aim of this article is to present the activity of the KOWR as an institution controlling the observance of the obligation to conclude contracts for the supply of agricultural products and its evaluation.Results: Analysis of the KOWR’s reports showed that between February 2017 and March 2022, a total of 465 controls were carried out, resulting in fines of PLN 6 670 428,19 for purchases of agricultural products without a contract or due to a defective contract (about 93% of this amount was imposed on purchasers in 2021). The relatively small number of checks carried out is due to the lack of complete information on the actual purchaser of agricultural products who is obliged to purchase agricultural products under contract. In the analyzed period, inspections were carried out based on notifications of suspected breach of contractual obligations and at market entities designated for inspection (mainly milk purchasers). In conclusion information asymmetries on the market for agricultural products do not only occur in “classical” forms. Incomplete information may be available to both parties, but also from the body responsible for monitoring compliance with the rules governing the conclusion of such transactions.