Abstract
This paper analyzes the vertical relationship between growers and processors in the Algerian tomato processing industry. We use extensive data on production contract outcomes for processing tomato growers (including 3,740 coordinated contracts) to examine the performance of grower-processor vertical contracts. The results indicate that the tomato grower-processor vertical relationship undergoes some deficiencies resulted in social welfare losses and lower level in contractual performance. From the side of processors, the industry has an oligopsonic structure (with CR4: 57%). From the side of tomato growers, the results indicate a relatively higher contractual default (with 53% in average). These findings suggest that public policy should pay more attention for the performances levels of the used vertical coordination mechanism in order to provide more incentive instruments and by leveraging vertical contract for tomato growers’ benefit.
Highlights
A first exercise of production contract for processing tomatoes in Algeria was initiated last year, where the Ministry of Agriculture approved changes in the tomato supply chain by regulating the vertical relationships between tomato growers and processors by the remuneration of growers through a premium price (1 DA for a produced and delivered kg of industrial tomato)
Mean of farm size (MFS), the mean of contracted quantity (MQ0), the mean of delivered quantity (MQ1), contract commitment percentage (CP) and the value of the computed θ index
In terms of regional locations of tomato growers, the mean of farm size (MFS) is between 4.75-6.75 ha, where it should be noted that higher values in MFS are located in regions without processors (Ain Defla, Tipaza, Souk Ahras, Oum Bouaghi and Relizane), which in turn include few tomato growers
Summary
A first exercise of production contract for processing tomatoes in Algeria was initiated last year, where the Ministry of Agriculture approved changes in the tomato supply chain by regulating the vertical relationships between tomato growers and processors by the remuneration of growers through a premium price (1 DA for a produced and delivered kg of industrial tomato). We have obtained an extensive data on the contractual terms of all loads of processing tomatoes produced in Algeria over its first exercise, and observe the contractual terms involving growers’ farm size, production and yields for each of these loads. The data used in our study include all loads of tomatoes (3,759 growers) delivered to 20 processors over 2016 exercise in which single type of contract is employed. The structure of the contracts we observe is relatively simple
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