The Adoption, Diffusion, and Evolution of Organizational Form: Insights from the Agrifood Sector

Abstract

The rise of contract farming and vertical integration is one of the most important changes in modern agriculture. Yet the adoption and diffusion of these new forms of organization has varied widely across regions, commodities, or farm types. Transaction cost theories have done much in helping us understand the advantages of contracting and integration over traditional spot markets and commodity brokers. However, these theories are not fully effective at explaining the variation of adoption rates of different organizational forms, in part because of their inherent static nature. This paper lays out a framework for understanding the evolution of organizational practices in U.S. agriculture by drawing on theories of the diffusion of technology and organizational complementarities. Using recent trends as stylized facts, with case studies from various agricultural industries, we argue that research identifying complementarities within specific sectors of the agrifood system will greatly improve our understanding of the organizational structure of agricultural production, and we identify several specific lines of inquiry.

Keywords: contracting, vertical integration, organizational innovation, diffusion

JEL Classification: L14, L22, Q13, O33