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UNIVERSITY OF PANNONIA
Doctoral School in Management Sciences and Business
Judit Csizmásné Tóth
Proprietary or contractual integration?
The examination of exploiting the benefits of vertical integration among broiler chicken
producers with flocks of more than 30,000 birds per cycle
Doctoral (PhD) Dissertation
Repertory of Theses
Consultant: Dr. Hollósy Zsolt
Keszthely
2016
2
Table of contents
1. Research objectives and significance, research questions .................................................. 3
2. Research model and hypotheses ......................................................................................... 5
3. Methodologhy and research sample .................................................................................... 9
4. Research results and theses ............................................................................................... 11
5. Answers to the research questions .................................................................................... 16
6. Conclusion ........................................................................................................................ 18
7. References ......................................................................................................................... 19
8. Publications ....................................................................................................................... 20
3
1. Research objectives and significance, research questions
The declining competitiveness of Hungarian agriculture and the current situation and
problems of the poultry sector justify addressing the role and importance of vertical
integration. The studies dealing with the difficulties of agriculture and within it those of the
poultry sector see the possibility of improving the current situation in the promotion of
integration mechanisms that address the issues of fragmentation, a low level of organisation
and concentration. (Nábrádi - Szőllősi, 2008; Udovecz - Popp - Potori, 2009). The
importance of support and encouragement of integration is underlined by the measures and
actions of the current agricultural strategy and the CAP 2014-2020. Among the steps outlined
in the agricultural strategy (National Rural Development Strategy 2012-2020) to eradicate the
current disincentives in agriculture, the promotion of integration initiatives is included.
Actions of the CAP 2014-2020 include as a key priority the promotion of horizontal and
vertical integration. Vertical integration is studied in the poultry product chain because, on the
one hand, the level of integration is the highest here (Clement, 1998), and on the other hand,
this sector in the eighties was a thriving sector of Hungarian animal husbandry.,The current
situation, however, in terms of efficiency indicators (natural efficiency indicators,
technological gap), and the concentration of poultry production lags behind compared to the
greatest European competitors, and developments, changes are necessary, thus I felt my
research was important in this area.
According to Popp (2014), the solution to the problems of Hungarian agriculture, its current
situation and the causes of its uncompetitiveness may be an efficiency-oriented strategy.
I believe that in order to improve efficiency, primarily the restrictive barriers to the
competitiveness of Hungarian agriculture should be eliminated, which in turn would have a
positive impact on the poultry industry. Thus, the primary means of improving efficiency is to
stimulate and promote vertical integration solutions – through the agricultural strategy and
operational measures (Csizmásné – Hollósy – Túróczi, 2015).
The goal was to carry out an exploratory research, and find the answer as to what factors
determine the most the exploitation of the benefits of vertical integration for enterprises
engaged in fattening broilers under ownership and contractual vertical integration. The
research examines the effects of the strategy development process, adaptability, and the
relationship with integration on the exploitation of the benefits of vertical integration. The
samples were taken from the members of the Poultry Product Council (PPC). Producers with
broiler flocks of over 30,000 birds per cycle were chosen because, according to consultation
with the PPC, enterprises above this stock size are likely to have become members of the
Product Council in order to avail of the animal welfare funds. These members of the PPC
constituted the frame for the research, which was narrowed down to producers participating in
vertical integration. The stock size of 30,000 is considered to be sufficiently large in order that
the strategy development of these businesses could be examined.
4
These research questions were formulated regarding the topic:
1. Does the strategy development of producers affect the exploitation of the benefits of
vertical integration?
2. Does the adaptability of producers affect the exploitation of the benefits of vertical
integration?
3. Does the relationship of producers to vertical integration (type of vertical integration,
reason for entering integration) affect the exploitation of the benefits of vertical
integration?
The research topic is to be considered novel because it explores a previously untested area,
and it is also relevant, given the current problems in the sector. The focus of the research is
the analysis of vertical integration processes, the support and promotion of which may
contribute to solving the problems of both agriculture and the sector.
5
2. Research model and hypotheses
Based on the research questions, three independent (explanatory) variables are identified, and
based on the literature review, the indicators are determined with which to measure these
variables. The strategy development of the producers is studied in the context of strategic
management, based on data from the period 2012–2014. Based on the literature review, the
process of strategy development is examined along eight indicators, adaptability along ten
indicators, and the relationship of the producers with integration is studied along two
indicators (Table 1).
Table 1: The examined explanatory variables and their indicators
Independent (explanatory) variables Indicators
Process of strategy development
strategy development – is a strategy being
developed?
time horizon
strategy followed
awareness
collectivity
success of strategy development
importance of elaboration
importance of implementation
Adaptability of organization
(ability to react promptly to
environmental changes)
predictability of environment
response
decision-making
attendance at further training in the past 3 years
use of professional consultants
difficulty of accessing loans
difficulty of accessing grants
age of organization
livestock
size of company
Relationship to vertical integration
form of vertical integration (ownership or
contractual)
motivation to enter integration (external or
internal motivation) Source: Based on the results of the author's own research
The dependent (explained) variable is examining the achievable benefits of vertical
integration. This variable is examined along a static and a dynamic dimension based on the
literature review. The indicators and benefits for producers that they can currently benefit
from as a result of entering vertical integration were identified along the static dimension
(provision of raw materials, provision of advanced production technology, provision of
mechanical services; depth of professional consultancy, maintenance of contractual
compliance; on-going provision of information on the changes of laws and regulations;
financing production activities; establishing a market for the manufactured products; ensuring
the appropriate sales price, fair distribution of income generated in the product chain). Of the
benefits, the rate of change of the level of agricultural risk for the producers since entering
integration was separately examined along the dynamic dimension in order to determine
whether the risks decreased over the given period (Table 2).
6
Table 2: The examined explained variables and their indicators
Dependent (explained) variable Indicators
Benefits of vertical integration
Indicators with a static view
Exploitation of the benefits of vertical intergation
(at a given time):
provision of raw materials
provision of advanced production
technology
provision of mechanical services
depth of professional consultancy
maintenance of contractual compliance
on-going provision of information on the
changes of laws and regulations
financing production activities
establishment of a market for the
products
ensuring the appropriate sales price (that
ensures a steady income and living long
term)
fair distribution of income generated in
the product chain
Indicators with a dynamic view
Reduction of agricultural risks
production risks,
market risks,
personal risks,
institutional risks,
financial risks
Source: Based on the results of the author's own research
In order to assess the level of agriculture risks, the major risk types determined by Székely–
Pálinkás (2009) and Pálinkás (2011) served as a basis: production, market, personal,
institutional and financial risks (Table 3).
7
Table 3: Types and definitions of agricultural risks
Type of
risks
Definition of risks
Production
risks
Production risks stem from the fact that the quantity and quality of outputs
produced through the use of inputs cannot be predicted precisely in advance.
In livestock production they arise from diseases, improper handling and
treatment, and inadequate rates of weightgain.
Market risks They arise from the uncertainty and unpredictability of the final product, input
prices and energy prices. After the EU accession, the poultry sector, as a soft-
regulated sector, is exposed to increased price uncertainties, since sector-
specific national grants were discontinued in the sector.
Personal
risks
The illness, injury or death of the person managing the agricultural business.
The observance of technological discipline among workers.
Institutional
risks
Impact resulting from agricultural policy legislation, such as: health,
environmental and animal welfare standards. These risks include also
contractual ones, such as: breach of contract, non-compliance with contractual
terms.
Financial
risks
Risks resulting from the financing of the business, such as: changes in interest
rates, currency exchange risk, liquidity problems.
Source: based on Pálinkás (2011) the author’s own compilation
Finally, after the identification of the independent and dependent variables and their
respective indicators, the research model (Figure 1) was set up and the hypotheses to be tested
were formulated.
Source: Based on the results of the author's own research
Strategy development
Adaptability
Relationship to vertical
integration (type of
integration, motivation
of entering integration)
Exploitation of the
benefits of vertical
integration
Reduction of
agricultural
risks
H1
H2
H3 and H5
H4
Figure 1: Research model and hypotheses
8
The following hypotheses were formulated on the basis of the research questions:
1. Hypothesis 1: The process of strategy development affects the achievement of the
benefits of vertical integration.
2. Hypothesis 2: Good adaptability affects the achievement of the benefits of vertical
integration.
3. Hypothesis 3: The type of vertical integration (ownership or contractual) has an
impact on the achievement of the benefits of vertical integration.
4. Hypothesis 4: The type of vertical integration (ownership or contractual) has an
impact on the changes in the level of agricultural risks.
5. Hypothesis 5: The motivation of entry into integration (external or internal
motivation) affects the achievement of the benefits of vertical integration.
9
3. Methodologhy and research sample
During the research, of the methods of quantitative data collection, questionnaires were used.
169 questionnaires were sent out via the Google Drive online questionnaire system and in the
post to production enterprises of flocks of at least 30,000 broilers per cycle of the PPC
participating in vertical integration. Of the questionnaires 92 were returned, of which 80 could
be used in the evaluation of the questionnaires. The sampling ratio thus became 47%. The
questionnaires were anonymous. The sampling method used during the research was simple
random (SR) sampling. The econometric tests were performed with trial version SPSS 22.0
software, and to edit diagrams in addition to SPSS, the Excel spreadsheet application was
used.
During the research the indicators examined and measured on both the side of the independent
variables and that of the dependent variable showed low levels of measurment (variables
measured on nominal and ordinal scale). The methods used in the test (non-parametric tests,
crosstabulation analysis, correspondence analysis, clustering) are suitable for analysing
variables with low measurement levels, and also for examining the relationships formulated in
the hypotheses.
When analyzing the results of non-parametric tests, to analyze three or more independent
samples the Kruskal-Wallis test was used (K Independent samples), to do pair comparison
analysis, the Mann-Whitney U test (two independent samples) was used. In case of the pair
comparisons to avoid the cumulation of type I errors, the level of significance was corrected
(strict Bonferroni's alpha). The level of significance in the analysis of the results was
determined at 5%.
For the further analysis of the relationships of variables with nominal or ordinal level of
measurement crosstabulation analysis was performed, which was used mostly to strengthen
non-parametric relationships. For the graphical representation of the relationship between
quality features, correspondence analysis was performed, in which case Pearson's chi-squared
indicator was significant.
The clustering method was also used to examine the factors determining the difference
between the exploitation of the benefits of vertical integration and the changes of agricultural
risks. To examine the results, the method of two-step clustering was used, which has the
advantages that it can be applied to large data sets as well, non-metric and metric criteria can
be combined, it suggests an ideal number of clusters, eliminates outliers and standardizes by
default.
My theses were formulated after applying several test methods depending on the results
obtained.
As feedback, in order to verify the correctness of the results of the questionnaire, interviews
were carried out with producers participating in ownership and contractual integration and
with experienced experts in the field of broiler integration. The results of the interviews
conducted as feedback were taken into account when drawing conclusions and formulating
theses.
10
Properties of the research sample
30% (24 enterprises) of the respondent broiler producers with a flock of at least 30,000 birds
participating in vertical integration are members of proprietary or ownership integration, and
70% (56 enterprises) are members of contractual integration (Figure 2).
Figure 2: Composition of studied sample according to type of integration
Source: Based on the results of the author's own research
To define ownership and contractual integration, the questionnaire applied a control question,
and a business was considered to be in ownership integration if out of the elements of the
product chain (from producing raw materials to trade), it conducted at least three activities
independently (e.g.: feed production, broiler fattening, broiler processing) and also provided
some integrators services to producers. Basically, in my understanding, ownership integration
refers to the integrators activities of processors and feed processors. Contractual integration
refers to the producers who make a long-term agreement for the purchase of broilers with
their integrators and may also benefit from various services (for example the financing of
production, veterinary services, guidance on farming technology, professional consultancy on
production). Most of the enterprises studied, 72% entered integration due to the economic
benefits, and 28% out of necessity.
Based on the livestock composition of enterprises participating in the research, almost 50%
(49%) of the farmers completing the questionnaire have flocks of 30,000 to 50,000 birds per
cycle, 21% between 50,000 to 100,000 birds, and 30% have broiler stocks of over 100,000
(Figure 3).
Source: Based on the results of the author's own research
In terms of the proportions of the businesses engaged in the research according to the size of
the organizations, most producers, 72%, are micro-enterprises, 11% of them are small, 11% of
them are medium-sized, and 5% are large enterprises.
30%
70% proprietary
contractual
49%
21%
30%
between 30,000 and 50,000
between 50,000 and 100,000
over 100,000
Figure 3: Composition of the studied sample according to broiler flock size per cycle
11
4. Research results and theses
During the examination of the hypotheses, the theses were formulated on the basis of the
results.
Examination of hypothesis 1
Hypothesis 1: The process of strategy development (strategy development, awareness,
participation in strategy development, importance of elaboration, importance of
implementation, time horizon of the strategy, choice of right strategy to be followed) affects
the achievement of the benefits of vertical integration.
Of the investigations of the relationship between the elements of the strategy development
process and the benefits of vertical integration, on the whole three significant relationships
could be detected: between strategy development and providing advanced production
technology (p = 0.036), between strategy development and ensuring the appropriate sales
price (p = 0.005) and between the time horizon for planning and the provision of advanced
production technology (p = 0.016). The results showed that in the case of enterprises that
developed a strategy, the provision of advanced production technology and ensuring the
appropriate sales price were achieved more than in the case of enterprises that didn’t develop
a strategy. That is, the businesses may decide on the introduction of more modern production
methods within the framework of a strategic decision, and furthermore, can make a decision
within the framework of a strategy on their conduct so as to try to influence purchase prices.
The results also showed that in the case of enterprises with a long time horizon for planning
(10-15 years), the provision of more advanced production technology was achieved more than
in the case of a shorter time horizon (1-2 years and 5-10 years) for planning.
Based on the above, I can state that of the elements of the strategy development process, the
actual strategy development influenced the most the exploitation of the benefits of vertical
integration. Overall, however, the strategy development process had little effect on exploiting
the benefits of vertical integration.
Examination of hypothesis 2
Hypothesis 2: Good adaptability (e.g. use of professional consultants, attendance at further
trainings, response, difficulties of accessing loans, difficulties of accessing grants, etc.) affects
the achievement of the benefits of vertical integration.
On the basis of examining the relationship between the elements of adaptability and the
benefits of vertical integration, I can state that of the elements of adaptability, livestock
affected the most the exploitation of the benefits of vertical integration.
Examining the relationship between livestock and the benefits of integration, I was able to
identify four significant relationships based on the results of non-parametric tests, three of
which could be professionally verified. Of these relationships one is highlighted which
showed a significant difference in relation to all the groups: flock size per cycle and the
provision of advanced production technology (KW test: p=0.014 and results of MW tests).
For businesses with broiler flocks of over 100,000 per cycle, ensuring advanced production
12
technology is achieved more than in the case of businesses with broiler flocks of between
30,000 and 50,000, and 50,000 to 100,000 per cycle.
This is due to the fact that livestock per cycle also has a significant relationship with the type
of integration (another explanatory variable). In other words, based on the results, proprietary
integration is characterized by generally larger flocks (over 100,000), by being more highly
capitalized, and by also being more successful in involving external resources in production
as opposed to contractual integration. In the case of ownership integration with larger flock
sizes, the introduction of new production systems is specifically cheaper (due to the larger
volume), and they can be operated more efficiently than in the case of farms with smaller
flock sizes. In ownership integration the integrator provides advanced production technology,
however, in contractual integration it is sourced independently by the businesses without the
aid of the integrator, but the integrator can present the technologies of their own farms as a
model.
Evaluating the investigated relationships on the whole it can be stated that adaptability had
little effect on the exploitation of the benefits of vertical integration.
Examination of hypothesis 3
Hypothesis 3: The type of vertical integration affects the achievement of the benefits of
vertical integration.
The relationship between the type of integration and the benefits of vertical integration was
examined using non-parametric tests. Of these four relationships proved to be significant
according to the results of the Mann-Whitney U test. There was a significant relationship
between the type of integration and the provision of advanced production technology
(p=0.009), the provision of mechanical services (p=0.032), ensuring the appropriate sales
price (p=0.012), and the fair distribution of income generated in the product chain (p=0.011).
These stem from the fact that the participants of ownership integration can organize the
operation of the system from their own farms more optimally, among others, deliveries can be
precisely timed to the end of the fattening period, and the rotations are organized according to
processing needs. The participants of contractual integration as external producers are forced
to adapt to the production of the processors and to the operations of the potential farms of the
integrator. By incorporating several elements of the product chain, ownership integration can
implement a more organized, coordinated, and focused production and can achieve greater
insight into market conditions. All this means greater operational stability, long-term
livelihood security and an increase of efficiency for ownership integration, as opposed to
contractual integration.
The results were confirmed by the clustering examination to be presented at a later stage and
by the results of the feedback, thus based on the results of hypothesis 3 the following thesis
was formulated:
Thesis 1: Of the benefits of vertical integration, advanced production technology, the
provision of mechanical services, ensuring the appropriate sales price and a fair distribution of
income are more noticeable in the case of enterprises of proprietary integration than those of
contractual integration.
13
Examination of hypothesis 4
Hypothesis 4: The type of vertical integration (ownership or contractual integration) affects
the level of risks arising from vertical integration.
Non-parametric tests were used to examine the relationship between the type of integration
(variable with low level of measurement) and the changes in the various agricultural risks
since entering integration. Of these relationships only one proved to be statistically significant
according to the results of the Mann-Whitney U test, the type of integration and the risk
arising from changes in broiler prices since entering integration (p=0.029).
Based on the results it can be stated that the risk arising from changes in broiler prices since
entering integration rather decreased for the businesses participating in proprietary
integration, while the same risk did not change in the case of the enterprises under contractual
integration.
The proprietary form of integration reduces the vulnerability of the producers to market
conditions by mitigating market risk. The reduction of risk stems from the fact that the
businesses under proprietary integration encompass several elements of the product chain,
thereby they have better insight into market conditions. The businesses under ownership
integration usually have a decisive role in determining prices, and the price strongly depends
on the bargaining position of the players. Due to their position, the enterprises of proprietary
integration are in a better bargaining position than the producers under contractual integration.
There was no significant difference with respect to other risk factors (production, personal,
institutional, and financial risk).
The results were confirmed by the clustering examination to be presented at a later stage and
by the results of the feedback, thus based on the results of hypothesis 4 the following thesis
was formulated:
Thesis 2: Since entering integration, the risk arising from changes in the price of broiler
chickens has rather decreased in the case of enterprises of proprietary integration, as opposed
to what the enterprises of contractual integration have experienced.
14
Examination of hypothesis 5
Hypothesis 5: The motivation for entering integration (external or internal motivation) affects
the achievement of the benefits of vertical integration.
Non-parametric tests were used to examine the relationship between the causes of entering
integration and the exploitation of the benefits if vertical integration. Of these relationships
four proved to be statistically significant and professionally verifiable according to the results
of the Mann-Whitney U test. There was a significant relationship between the motivation for
entering integration and the provision of advanced production technology (p=0.008), the
provision of mechanical services (p=0.008), ensuring the appropriate sales price (p=0.003)
and a fair distribution of income (p=0,029). Businesses entering integration for economic
benefits are more characterized by the provision of advanced production technology, the
provision of mechanical services, ensuring the appropriate sales price and a fair distribution of
income than enterprises that enter integration out of economic necessity.
The reason for this is that enterprises entering integration for economic benefits have a better
bargaining position compared to their counterparts that are forced to enter integration. The
results are supported by the significant relationship between explanatory variables causes of
entry and livestock (MW test: p = 0.002). Businesses that enter integration for economic
benefits have larger flocks, and thereby have a better bargaining position in the market, and
have the opportunity to enter into better functioning integration. As members of more
functional integration, their production and operations may be safer, more organized and more
efficient due to the higher quality of services provided by the integrator. The businesses that
are forced to enter integration are left with forms of less attractive integration due to their less
favourable bargaining position. They consider integration as the only means of staying in
business, by entering integration they see mostly the negatives such as the partial loss of their
independence and the additional costs of participating in integration relative to their
production in the free market. But in addition to the negatives, they consider the benefits of
integration, and by making a rational decision, ultimately they become parts of the integration
process.
The results were confirmed by the results of the feedback, but this variable could not be
involved in clustering, thus no thesis was formulated based on the results of this hypothesis,
the results are only treated as a statement based on the results of the nonparametric tests.
15
The results of clustering
During clustering two distinct clusters were identified based on the types of integration and
the pertaining variables using the method of two-step clustering. 62.5% of the test sample
units were classified into one of two clusters. Most of the farmers, 36% are included in the
first cluster (18 enterprises), and 64% of the farmers (32 enterprises) in the second cluster.
The quality of clustering falls into the good category.
Based on the results of clustering, the producers operating in ownership integration are more
effective, and manage to make better use of the benefits of vertical integration, and their risks
rather decreased in the case of one market risk factor since entering integration, than
enterprises in contractual integration.
The first cluster, which was named “the front runners” on the basis of their results, comprises
producers mainly in ownership integration, with broiler flock sizes of over 100,000 birds. The
front runners evaluated access to credit as easier than enterprises in cluster 2 (laggards). Of
the benefits of vertical integration, the provision of advanced production technology, the
provision of mechanical services, the fair distribution of income generated in the product
chain and ensuring an appropriate sales price are more typical of the businesses belonging to
the first cluster than in the case of enterprises belonging to cluster 2. In the case of enterprises
belonging to the first cluster, the risk of change in the price of broilers rather decreased since
entering integration as opposed to the enterprises of cluster 2.
The second cluster, which is called “the laggards” on the basis of their results, comprises
producers under contractual integration who mostly have flocks of between 30,000 to 50,000
and 50,000 to 100,000 birds. The laggards evaluated access to credit as more difficult than
businesses in cluster 1 (front runners). Of the benefits of vertical integration, the provision of
advanced production technology, the provision of mechanical services, the fair distribution of
income generated in the product chain and ensuring an appropriate sales price are less typical
of businesses belonging to cluster 2 than in the case of cluster 1. In the case of businesses
belonging to cluster 2, the risk of change in the price of broilers mostly remained unchanged
since entering integration.
The data obtained during the examination of clustering thus confirmed the results obtained
and theses formulated during the examination of hypotheses 3 and 4.
16
5. Answers to the research questions
Answers were formulated to the research questions based on the research findings.
1. Does the strategy development of producers affect the exploitation of the benefits of
vertical integration?
Contrary to my expectations, strategy development had a minor impact on exploiting the
benefits of vertical integration. This may be due to the fact that the success of the market
participants doesn’t depend on a particular type of strategy or a specific (definable) planning
period, or the informed nature of planning. A statement cannot be made based on the findings
of the research, according to which enterprises pursuing a certain strategy, or planning for a
certain period, or only consciously developing a strategy would be more successful than their
counterparts. The success of enterprises is rather influenced by their ability to choose the most
appropriate type of strategy and time horizon suited to them in their specific environment,
taking into account their organizational characteristics, and by their ability to change their
strategy in the right time to adapt to changes in the environment.
2. Does the adaptability of producers affect the exploitation of the benefits of vertical
integration?
Adaptability slightly affected the exploitation of the benefits of vertical integration. Of the
elements of adaptability, flock size per cycle had the greatest effect on exploiting the benefits
of vertical integration. Of the benefits of integration, the provision of advanced production
technology was affected the most by flock size per cycle. The research findings clearly
demonstrated that modern production technology is more typical of businesses with flocks of
over 100,000 broilers per cycle than of farms with smaller flocks. The reason is that flock size
per cycle has a significant relationship with the type of integration (another explanatory
variable). Based on the research findings, almost 70% of the farms participating in ownership
integration had flock sizes of over 100,000, while this figure was only around 30% in the case
of contractual integration.
In ownership integration the integrator provides advanced production technology, while in
contractual integration the businesses source it independently without the aid of the integrator,
however, the integrator can present the technologies of their own farms as a model.
Enterprises participating in ownership integration are more capitalized, thus they find it easier
to carry out investments and to take advantage of tendering opportunities. Furthermore, in the
case of proprietary integration, as they are farms with larger flocks, specifically it is cheaper
to obtain new production technology (due to the increased volume), and these instruments can
be operated more efficiently than in the case of their counterparts with smaller flocks.
3. Does the relationship of producers to vertical integration (type of vertical integration,
motivation for entering integration) affect the exploitation of the benefits of vertical
integration?
The relationship between the producers and vertical integration strongly influenced the
exploitation of the - static and dynamic - benefits (see Table 2 previously) of vertical
integration. The type of integration had a strong impact on exploiting the benefits of
integration. Of the static benefits, long-term, strategic benefits such as the provision of
advanced production technology, the provision of mechanical services, ensuring the
17
appropriate sales price and a fair distribution of income prevailed more in the case of
enterprises participating in ownership integration than in the case of those under contractual
integration. These stem from the fact that the participants of ownership integration can
organize the operation of the system from their own farms more optimally, among others,
deliveries can be precisely timed to the end of the fattening period, and the rotations are
organized according to processing needs. The participants of contractual integration as
external producers are forced to adapt to the production of the processors and to the
operations of the potential farms of the integrator. By encompassing several elements of the
product chain, ownership integration can implement a more organized, coordinated, and
focused production and can achieve greater insight into market conditions. All this means
greater operational stability, long-term livelihood security and an increase of efficiency for
ownership integration, as opposed to contractual integration. The research findings also
confirm that the businesses of ownership integration generally have larger flocks compared to
the enterprises of contractual integration.
The type of integration also had an effect on the dynamic benefits of integration (changes in
agricultural risk). Based on the research findings, the businesses participating in proprietary
integration can mitigate an important market risk factor as opposed to contractual integration,
namely the risk arising from changes in the price of broilers. In the case of the enterprises of
ownership integration, the risk arising from changes in the price of broilers rather decreased
since entering integration, as opposed to the enterprises of contractual integration, where it did
not change. The proprietary form of integration reduces the vulnerability of the producers to
market conditions by mitigating market risk. The reduction of risk stems from the fact that the
businesses under proprietary integration encompass several elements of the product chain, and
thereby they have better insight into market conditions. The businesses under ownership
integration usually have a decisive role in determining prices, and the price strongly depends
on the bargaining position of the players. Due to their position, the enterprises of proprietary
integration are in a better bargaining position than the producers under contractual integration.
There was no significant difference with respect to other risk factors (production, personal,
institutional, and financial risk).
The motivation to enter integration also had a significant impact on the exploitation of the
benefits of vertical integration. In the case of enterprises that entered vertical integration due
to economic benefits, several benefits of vertical integration can be better achieved (provision
of advanced production technology, provision of mechanical services and ensuring the
appropriate sales price, a fair distribution of income) than in the case of businesses that
entered integration out of necessity. The reason for this is that businesses that enter integration
for economic benefits have a better bargaining position as they have larger flocks than
businesses that are forced to enter integration, and thereby they have the opportunity to enter
into better functioning integration. As members of more functional integration, their
production and operations may be safer, more organized and more efficient due to the higher
quality of services provided by the integrator. The businesses that are forced to enter
integration are left with forms of less attractive integration due to their less favourable
bargaining position. They consider integration as the only means of staying in business, by
entering integration they see mostly the negatives such as the partial loss of their
independence and the additional costs of participating in integration relative to their
production on the free market. But in addition to the negatives, they consider the benefits of
integration, and by making a rational decision, ultimately they become parts of the integration
process.
18
6. Conclusion
The research results have shown that the type of vertical integration (proprietary or
contractual) and the reason for entering integration have the greatest impact on exploiting the
benefits of vertical integration. Adaptation and strategy development have only a minor effect
on the utilization of the benefits. Enterprises in proprietary integration can take advantage of
several benefits of vertical integration, and they can also decrease one important market risk
factor, the risk in the change of the price of broilers compared with businesses in contractual
integration. Agricultural policy and sectoral strategy on the one hand should prioritize the
more specific elaboration of measures to support and promote forms of vertical integration
organized on the basis of ownership, and on the other hand, they should help and encourage
the further establishment of connections under contractual integration based on relationships
of trust. This step is absolutely essential to further improve the situation of the poultry sector
and to help restore its international competitiveness.
In line with the strategy developed by the PPC, my opinion is that it would be important to
encourage forms of vertical integration in the form of well-designed development and
investment programmes, but to support and encourage integration, preliminary steps would be
required. The participants of the integration process should be made committed to entering
and to staying in integration. Incentive measures would be necessary that in addition to
providing the producers with the benefits of entering integration would yield other advantages
as well. A good example could be to primarily support businesses that are currently involved
in vertical integration under the call for tenders 'Modernisation of livestock farms'.
It would be necessary to create a more predictable economic and legal environment in order to
decrease the level of activity of the black and grey economies. Support for forms of vertical
integration encompassing the product chain is needed and also encouraging the participation
in these (through contractual integration) by introducing tax incentives, for example.
Even after conducting the research and interpreting the results, I believe that it would be
worth investigating this area further. It would be useful to conduct a similar study on the
processing side at any rate, thus the findings from the producers’ and processors’ surveys
would be comparable.
19
6. References
1. Csizmásné Tóth J. – Hollósy Zs. – Túróczi I. (2015): Hatékonyság és integráció a
magyar mezőgazdaságban – Gondolatok Mészáros Sándor – Szabó Gábor
vitaírásához, Gazdálkodás, 59. évfolyam 1. szám, 47-61. p.
2. Clement, E. W. (1998): Vertical Integration Comparison: Beef, Pork, and Poultry.
Oklahoma Cooperative Extention Service, Oklahoma State University.
3. Nábrádi A. – Szőllősi L. (2008): A baromfiágazat versenyképességének helyreállítása,
Gazdálkodás, LII. évfolyam, 5. szám, 418-431. p.
4. Pálinkás P. (2011): Kockázatkezelési eljárások alkalmazása az Európai Unió
mezőgazdaságában. Doktori Értekezés, Szent István Egyetem, Gödöllő.
5. Popp J. (2014): Hatékonyság és foglalkoztatás a magyar mezőgazdaságban.
Gazdálkodás, LVIII. évfolyam, 2. szám.
6. Székely Cs. - Pálinkás P. (2009): Agricultural Risk Management in the European
Union and in the USA. Studies in Agricultural Economics. Budapest: Agrárgazdasági
Kutató Intézet – Magyar Tudományos akadémia. No. 109, 55-72. p.
7. Udovecz G. – Popp J. – Potori N. (2009): A magyar agrárgazdaság versenyesélyei és
stratégiai dilemmái. Gazdálkodás, LIII. évfolyam, 1. szám.
20
7. Publications
PUBLICATIONS IN FOREIGN LANGUAGE
Journal
Judit, dr Csizmásné Tóth – Zsolt Hollósy: Is there a Way out? Assessment of the Situation of
the Hungarian Poultry Sector, Economica- A Szolnoki Főiskola Tudományos Közleményei
2014/1. pp 26-34.
J. Csizmásné Tóth: The relationship between agricultural strategy and integration in the
poultry industry, Analecta - Review of Faculty of Engineering Analecta Technica
Szegedinensia, 2014. vol. 8, no.2. pp 114-119
PUBLICATIONS IN HUNGARIAN LANGUAGE
Journal
Csizmásné Tóth Judit: Stratégia és integráció kapcsolata az agrárvállalkozások körében,
Economica - A Szolnoki Főiskola Tudományos Közleményei 2010/3. 51-59. oldal
Csizmásné Tóth Judit – Hollósy Zsolt – Túróczi Imre: Hatékonyság és integráció a magyar
mezőgazdaságban – Gondolatok Mészáros Sándor – Szabó Gábor vitaírásához, Gazdálkodás,
2015 59. évfolyam 1. szám, 47-61. oldal.
Conference publication
Csizmásné Tóth Judit: Stratégia, integráció és fenntartható fejlődés kapcsolata az
agrárgazdaságban, LII. Georgikon Napok, Gazdaságosság és/vagy biodiverzitás" 52.
Georgikon napok. Konferenciakiadvány, 2010.09.30-2010.10.01, ISBN:978 963 9639 393
Csizmásné Tóth Judit: Integráció stratégiai megalapozása az agrárgazdaságban, A Szolnoki
Főiskola konferenciája „TUDOMÁNY HATÁROK NÉLKÜL”, azaz a
„VÁLSÁGJELENSÉGEK ÖSSZEFÜGGÉSEI A GAZDASÁGBAN ÉS A
TÁRSADALOMBAN” a Magyar Tudomány Ünnepe rendezvénysorozat keretében,
Konferenciakiadvány, 2010.11.16, ISSN 1585-6216, pp. 91-102
Conference presentation in hungarian language
Csizmásné Tóth Judit: Stratégia, integráció és fenntartható fejlődés kapcsolata az
agrárgazdaságban, LII. Georgikon Napok, Nemzetközi Tudományos Konferencia, Keszthely,
2010.09.30-2010.10.01
Csizmásné Tóth Judit: Integráció stratégiai megalapozása az agrárgazdaságban, A Szolnoki
Főiskola konferenciája „TUDOMÁNY HATÁROK NÉLKÜL”, azaz a
„VÁLSÁGJELENSÉGEK ÖSSZEFÜGGÉSEI A GAZDASÁGBAN ÉS A
TÁRSADALOMBAN” a Magyar Tudomány Ünnepe rendezvénysorozat keretében,
nemzetközi konferencia, Szolnok, 2010.11.16