Determinants of Outsourcing Contracts in Agricultural Mechanization Services: the Brazilian Coffee Agribusiness Case

Abstract

The Brazilian Coffee Agribusiness system has been modified over the last years. An evidence is the outsourcing contracts in agricultural mechanization of harvesting services. Brazilian coffee growers have replaced their own machineries for specialized services firms. The Coase (1937)'s make or buy paradigm sheds light the decision of farmers of the coffee chain with the investment lens. The investigation analyzes the determinants of outsourcing contracts in the transaction of harvesting mechanization in the agribusiness system of coffee in Brazil based on a quantitative approach through a probit regression with 105 Brazilian coffee growers’ interviews. The results validated the path dependence aspect and the hypothesis of the asset specificity and uncertainty of the efficient alignment argument of the Transaction Cost Economics, pointing out the high level of education of the farmer and the adoption of contracts as a way of coordinating other transactions as determinants of the outsourcing contracts of the transaction of harvesting mechanization. The study brought a change in coffee grower’s profile to a modern pattern of decision-making with three different institutional arrangements for the transaction of harvesting mechanization: total vertical integration, tapped vertical integration and outsourcing contracts or only outsourcing contracts