university of pannonia doctoral school in...

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

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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

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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.

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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.

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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).

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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).

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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.


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

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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.

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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.

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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


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).


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

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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.


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


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

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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.


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.

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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.

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Hypothesis 5: The motivation for entering integration (external or internal motivation) affects


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.

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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.

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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

http://www.isbnsearch.org/isbn/9789639639393

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