Economic and Legal Aspects of Vertical Integration

Vertical integration, on the other hand, is the grouping of two or more complementary firms on different levels of the production-marketing process. For example, a processor and a farmer may unite or a supplier, farmer, processor and wholesaler may combine under centralized management. The key idea is the extent of control that can be exercised by the central decision maker or integrator, It is important to understand that vertical integration is concerned only with single enterprises or single commodities at the present time. A multi-enterprise farmer may integrate only part of his farming operation. A farmer who deals in wheat, corn, hogs, cattle and poultry may only combine his hog operation with a processor or supplier. Vertical integration necessarily involves the transfer of controls. Therefore, standard loaning operations, open credit accounts and non-control-transfer contracts that farmers may make cannot be considered forms of vertical integration