The project has six main aims:

1. To investigate contract development and supply chain management within agri-food chains in Moldova and Ukraine, with a particular emphasis on the evolution of supply chain management and exchange relationships following the initial reforms, privatisation and restructuring that has occurred within this sector.

2. To develop a theoretical understanding of the causes, consequences and implications of contractual and relationship problems and foreign direct investment upon individual economic agents choice of exchange mechanism, organisational structure, and investments decisions.

3. To quantify the relationship between firm level performance and supply chain structures, through an econometric analysis of survey data collected during the project, focusing on contractual relationships, transaction costs, and geographical market structures.

4. To conduct a series of case studies analysing contractual, organisational and supply chain development within Moldavian and Ukrainian agri-food chains. These cases will focus on: the development of contractual arrangements; the forms of contractual enforcement mechanisms and institutions used to support exchange; the impact of Foreign Direct Investment (FDI); firm and supply chain organisational structures adopted; financial and investment facilitation and stimulus programs offered.

5. To develop a series of industry “lessons of best practice” for the development of contractual and business relationships and organisational and supply chain structures.

6. To develop policy recommendations concerning future market restructuring, regulation, and privatisation.
 
 

Large falls in agricultural output coupled with strong decapitalisation of the agricultural and food production system have been witnessed in Ukraine and Moldova since the break up of the Soviet Union, as in other NIS and CEEC countries (OECD, 1998). A combination of factors are often provided as possible causes for these falls in output and capital input use: (1) declining terms of trade; (2) problems in access to external financial resources; (3) market uncertainty; (4) disruption caused by farm restructuring, privatisation and land reform; (5) weather and; (6) disruption of the traditional market exchange systems within the agri-food chain (Jackson and Swinnen, 1995).

The first five causes have received substantial attention in the literature following the initial reforms in the early 1990’s (see Swinnen (1998b) for a comprehensive review of the literature), however only superficial attention has been focused upon the restructuring of agri-food chains and its affects on production, investment, and output (McCorriston and Sheldon, 1997).

A key research question is how restructuring and privatisation of the agri-food chain has impacted on competition, the internal and external organisational structures of markets and firms, incentives for innovation, investment and technology adoption and firm level performance. Moreover, factors explaining firm level variations in performance at the processing level and the role of supply chain management in leading to these variations in performance have received little attention.

Previously, the agri-food chain was based upon a system of strongly vertically integrated and centrally planned geographical monopsonistic structures with higher authorities providing complete contractual enforcement. However, following privatisation within these transitional countries, producers have faced severe financial distress, a loss of traditional markets and a weakening of contractual and legal enforcement mechanisms. The latter has allowed many enterprises to act opportunistically, holding-up exchange transactions. This opportunistic behaviour is recognised as a serious constraint to the restructuring of the agricultural and food processing sectors of transition economies and are most commonly observed as extreme delays in payment for delivered product (Gow and Swinnen, 1998a; Gorton et al, 1998). These delays have adversely affected firm cash flows and profitability reducing their ability and willingness to adopt new technology, make relationship specific investments, access external financial resources, undertake restructuring, and commit to long-term contractual arrangements (Swinnen and Gow, 1997; Gow and Swinnen, 1998a&b; Gorton et al, 1998).
 
 

Four key questions will guide the research:

1. Why have some food processors coped with the restructuring process so much better than others?

2. In what way are firm level variations in performance related to different contractual relationships and supply chain structures?

3. What impact has FDI had on the food processing sectors in Ukraine and Moldova and the supply chain relationships between processors and farmers?

4. How can the performance of food processors in Moldova and Ukraine be improved?
 

The project is financial supported by INTAS and will run for three years (April 2000 - March 2003). Four workshops are planned to co-ordinate the programme. The first will in Moldova (2 and 3 rd July 2000).