Strategic Interactions, Risks and Coordination Costs in Food Marketing Channels: The Mediating Role of Futures Markets

We examine the interaction of marketing channel members and the influence of these interactions on incentives, coordination costs, and risk allocation strategies in a food marketing channel. For this purpose we specify a three-stage principal-agent marketing channel model involving producers, wholesalers, retailers and a futures market. We compare the situation with and without futures market. The empirical results regarding the Dutch ware potato marketing channel during 1971-2003 reveals that, possibly as a result of increases in incentives to producers and wholesalers, the coordination costs of the marketing channel decreased significantly, both with and without futures trade. The coordination costs of a marketing channel with a futures market are lower than without futures, demonstrating the price discovery role of the futures markets. The results also show that risk shifted from retailers to producers and wholesalers.Contracts, Risks, Coordination Costs, Futures Markets, Food Marketing Channels, Agribusiness, Marketing,