World Food Policy
Materials and Methods
ability of transactions, and the capabil-
ities of the suppliers required for a spe-
cific transaction.
Value chain governance and
determinants of governance
patterns: an integrated approach
The global value chain approach
(GVC) draws on Transaction Cost Eco-
nomics (TCE) and Network theories,
while focusing on the internal logics
of sectors, such as industrial structure
and production-process characteristics
(Bair 2005). The TCE framework pro-
vides insights into the factors that deter-
mine value chain governance patterns
by convening the effect of transaction
characteristics (asset specificity, uncer-
tainty and transaction frequency) and
the associated transaction costs (both
ex-ante and ex-post costs of contract-
ing) (Williamson 1979). This approach
argues that increases in uncertainty
and the risks of opportunism result
in greater use of complex contracts or
vertical integration (Williamson 1991).
Complementarily, Network theorists
propound that problems as contractu-
al hazards need to be managed at the
inter-firm level through social mecha-
nisms, i.e. trust, trustworthiness, rep-
utation, norms, mutual dependence
and information exchange (Powell
1989; Jones et al. 1997) that are called
‘mundane’ transaction costs (Gereffi et
al. 2005). Institutional economists also
suggest that such formal and informal
institutions are “embedded” in their
cultural and social environment. Hence,
they underline historical processes and
path-dependency by which specific in-
stitutional arrangements emerge in a
given context (North 1990). Different
forms of social embeddedness raised
by network theory refer to the concept
of ‘proximity’ which valorizes the re-
T
he emergence of governance in
economics is linked to integra-
tion of international trade and
disintegration of production (Feenstra
1998). As production is increasingly
fragmented across geographical space
and between firms, many studies focus
on how these fragmentations are coor-
dinated and exchanged (Gereffi et al.
2005). While some economists see mar-
ket coordination in governance pat-
terns, Humphrey and Schmitz (2000)
refer to governance as any coordina-
tion of economic activities “through
non-market relationships”. This relates
to various ways of steering activities
that are embedded in value chains, not
only networks but also more hierarchi-
cal forms. Between the two extremes of
market and hierarchical governance,
three governance modes are identified:
“modular”, “relational” and “captive”
(Gereffi et al. 2005). In these three gov-
ernance modes, lead firms exert their
power by coordinating production vis-
à-vis suppliers without direct owner-
ship of the firms. In agribusiness value
chains, such patterns include out-grow-
er schemes, contract farming, category
management by supermarket suppliers,
marketing contracts, and farmer coop-
eratives (Humphrey and Memodovic
2006; Moustier 2010). These forms of
coordinatio