Interrelated Operations

Interrelated Operations
Food production relies on a highly advanced and organized industry.

Decisions to produce a product are not random. The industry is a systematic and rhythmic process.

Throughout production, manufacturing/processing, distribution, and marketing, the cost and availability are carefully monitored and controlled.

Further, because the industry is high volume, low markup, small losses anywhere along the chain can mean large losses to the food producer.

Any trend toward contract production and vertical integration as opposed to open production, implies that firms at one stage of production exert more control over the quality of output at other stages.

For example, past processors who prefer a specific type of wheat for a specific type of pasta gain control over planting decisions or seed selection that were previously made by farmers who sold their wheat on the spot market.

Farmers are compensated for relinquishing control through bonuses for quality and though reduced uncertainty.

Recent changes in vertical coordination have been accompanied by an increase in concentration in the food sector.

These developments have raised two primary policy concerns: market power in the processing sector and environmental protection.
Interrelated Operations