shifts in demand. As a rule, wholesale prices reached a seasonal low in 

 the late fall months and a peak during the summer months. The year 

 1959 was an exception to this. The live-weight price also fluctuated sea- 

 sonally. Its movement closely paralleled changes in the wholesale price. 



THE CONTRACT AND METHOD OF DETERMINING RETURNS 



The contract is the legal instrument that hinds the hroiler grower and 

 integrator. It contains various stipulations that the parties have agreed 

 to honor for a certain period of time. It is also stipulated how the con- 

 tract may be broken by the parties and what penalties may be incurred 

 by the party that breaks the contract. 



Essentials of a Workable Contract 1 ° 



The contract should possess certain basic features. First, it should pro- 

 vide incentives to develop efficiency in broiler production. Second, it 

 should be equitable in terms of sharing risks. Third, it should not be 

 complex and hard to read yet it should be clear in outlining the pro- 

 cedures to be followed by both parties, and should be so written as to 

 prevent misinterpretations that may arise from oral agreements. 



The contract should provide a method of determining payments that 

 is sufficiently flexible to permit a grower to increase unit returns through 

 improved management and through adopting new technology recom- 

 mended by an integrator. The integrator should set some standard unit 

 of measurement applicable to all his growers for determining returns. 



The equitable sharing of risks is difficult to obtain, and probably no 

 contract can take account of all the forms of risk that prevail. Price risk 

 should be shared by both parties. If the integrator attempts to absorb all 

 declines in price, he may lose a large sum of money from a precipitous 

 price drop and be forced out of business. This could also force many of 

 his growers out of business. On the other hand, if the integrator attempts 

 to pass along all the price declines to the growers in the form of reduced 

 returns, the growers may be unable to cover annual cash costs, and may 

 shift their resources or go out of business. Therefore, the integrator 

 should establish a system of payment which under no circumstances will 

 reduce annual returns to the grower below the grower's annual cash 

 costs. 



Some of the natural risks should be shared while others should not. 

 Losses from a high incidence of an unknown disease, fire, or storms are 

 risks that should be shared since neither party may be directly responsi- 

 ble. However, other losses that result from decisions made by only one 

 of the parties should not be shared. Such risks could include selection of 

 a breed or feed by the integrator that does not perform as expected. An- 

 other example would be careless managerial decisions by the grower. 

 Contracts should contain penalty clauses to compensate the party who is 

 injured by such actions. 



The contract should be specific in outlining the inputs to be supplied 

 by each party, method of determining grower payments and dates of 



16 Roy, E. P., and Thomas, W. P. Jr., Financing Production and Marketing of 

 Broilers in the South, Part II: Grower Phase, Louisiana Agricultural Experiment 

 Station Bulletin Number 57, Southern Cooperative Series, June, 1958 P. 45. 



19 



