Vertical Co-ordanitaion in Transition Agriculture: a Hungarian Cooperative Case Study

Abstract

The agriculture is traditional risky business, but in transition countries agricultural producers should face some additional difficulties. The agri-food chains are still suffering from underdeveloped market institutions creating severe barriers for price discovery and high transaction costs to co-ordinate market exchanges. Co-operatives are usually neglected as a possible governance structure in recent empirical analyses. This study analyzes the advantages and limitations of cooperatives for establishing an appropriate vertical coordination forms in the framework of transaction cost economics. We present a case study to show that at the recent stage of development in Hungarian agriculture co-operatives can solve some problems arising from missing and embryonic market institutions. We argue that the co-operative is a good example, how an agricultural co-operative can achieve some of the potential advantages, solving many “traditional” TCE and agency problems and serving its members with a continuing growth.