Vertical Integration in the Russian Agro-food Sector

Abstract

By means of the transaction cost theory, the study identifies the motives for vertical integration or coordination in the Russian agrofood sector and assesses the forms of vertical integration developed so far. One can distinguish between state-initiated integration forms and such initiated by the economic agents themselves. Whereas the aim of the former is to dilute assumed market power of the food industry, uncertainty about market partners regarding reliable supply and marketing conditions and especially the fulfillment of payment obligation is the main motive for the latter. Often the chosen forms of vertical integration or cooperation not only comprise enterprises of the whole marketing chain, but also of a whole region. This could create problems with regard to competition, since barriers to entry could be raised substantially and collusion among economic agents facilitated.