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Drawing inspiration from American institutionalism and new institutional economics, this paper discusses the rise of large corporate farms as the transition from the classic capitalist firm to the corporate form of organization based on the separation of ownership and control. Three case studies from the Brazilian cerrado show the rise of large corporate farms to be enabled and impelled by the advance of agricultural production technologies and the search for scale economies. The key finding from the case studies is that complex technology not only necessitates large-scale farming but also generates technical and organizational solutions to the potentially pervasive agency problems. In addition to the use of sound corporate governance practices, these solutions include organizational architecture encompassing computer-aided accounting and budgeting systems, incentive-based compensation, clear definition of performance goals, and delegation of operational decisions to farm managers. Furthermore, organizational architecture has been shown to promote a culture of trust and accountability, which counteract the opportunistic tendencies of farm managers and workers.
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© 2016 Chaddad and Valentinov
International Food and Agribusiness Management Review
Volume 20 Issue 2, 2017; DOI: 10.22434/IFAMR2016.0009
Received: 14 January 2016 / Accepted: 10 October 2016
Agency costs and organizational architecture of large
corporate farms: evidence from Brazil
Special issue: Agroholdings and mega-farms in a global context
Fabio Chaddada† and Vladislav Valentinov b
aAssociate Professor, University of Missouri and INSPER, 125 Mumford
Hall, Columbia, MO 65211, USA; Deceased
bResearch Associate, Leibniz Institute of Agricultural Development in Transition
Economies, Theodor-Lieser-Str. 2, 06120 Halle, Germany
Drawing inspiration from American institutionalism and new institutional economics, this paper discusses
the rise of large corporate farms as the transition from the classic capitalist firm to the corporate form of
organization based on the separation of ownership and control. Three case studies from the Brazilian cerrado
show the rise of large corporate farms to be enabled and impelled by the advance of agricultural production
technologies and the search for scale economies. The key finding from the case studies is that complex
technology not only necessitates large-scale farming but also generates technical and organizational solutions
to the potentially pervasive agency problems. In addition to the use of sound corporate governance practices,
these solutions include organizational architecture encompassing computer-aided accounting and budgeting
systems, incentive-based compensation, clear definition of performance goals, and delegation of operational
decisions to farm managers. Furthermore, organizational architecture has been shown to promote a culture
of trust and accountability, which counteract the opportunistic tendencies of farm managers and workers.
Keywords: corporate farms, separation of ownership and control, organizational architecture, corporate
JEL code: D23, L22, Q13
Corresponding author: - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
International Food and Agribusiness Management Review
Chaddad and Valentinov Volume 20, Issue 2, 2017
1. Introduction
The rise of large industrialized corporate farms is a well-documented trend in the evolution of agricultural
organization all over the world. These farms are not only quite visible today but will likely become even
more widespread and important in the future. The driving forces of this trend in different parts of the world
vary and include, for example, food price volatility, technical change facilitating the supervision of the
production process, existence of benefits from horizontal and vertical integration, deficiencies of public
infrastructure, requirements of certification and traceability, as well as inelastic labor supply (Deininger and
Byerlee, 2012). For all their heterogeneity, these forces lead to the same effect: they facilitate and indeed
require large-scale business organization. This effect is known to cut the ground from under the prevalent
transaction cost economics argument about the superiority of family farms (Allen and Lueck, 1998; Pollak,
1985). Large corporate farms evidently do not enjoy the transaction cost advantages of family loyalty in the
organization of agricultural production activities that are very costly to supervise.
Drawing on an extensive literature review, Deininger and Byerlee (2012: 706) identify three advantages
of this kind in traditional family farms. First, family members involved in the farm business have strong
incentives to do their best since they are also residual claims to profits (and losses). Second, they benefit from
‘an intimate knowledge of local soil and climate, often accumulated over generations.’ And finally they can
flexibly adjust their labor supply to the seasonally contingent conditions of production (cf. Allen and Lueck,
1998; Pollak, 1985; Valentinov, 2007). It is clear that the rise of the large-scale industrial agriculture poses a
challenge to these arguments. The advantages of the owner-managed family farm may be real, but the driving
forces behind the recent rise of large corporate farms may decrease the relevance of such advantages over
time. Interestingly, the issue of the transaction cost advantages of large farms surfaced in the agricultural
economics literature more than a decade ago in the context of the agricultural restructuring in the Central
and Eastern Europe (cf. Rozelle and Swinnen, 2004). Valentinov and Curtiss (2005) related some of these
advantages to the broader institutional environment of agriculture, while noting that the traditional rationale
for family farming tends to be based on intra-organizational terms.
This argument seems to remain relevant today, with the qualification that institutional environment factors
must be seen to be acting in concert with the evolution of technology, very much along the lines of Hodgson’s
(1988) observation that both institutions and technology present exogenous parameters that are likely to
be neglected by orthodox economics. The essential institutional environment factors that were conducive
to the rise of the modern large-scale farms include ‘market failures related to availability of infrastructure,
technology, and property rights’ (Deininger and Byerlee, 2012: 701), but also the failures of capital and
credit markets. The effects of these factors are further enhanced by the technological developments that
helped to obviate the need for close supervision of hired labor. Far from being theoretically predetermined,
the comparative efficiency of small and large farms thus emerges to be contingent not only on the intra-
organizational considerations but also on the state of the broader institutional environment and technology.
Acknowledging this contingence, however, does not mean denying the importance of the agency problems
that must be faced by large corporate farms. Even if innovative technologies indeed largely reduce the
transaction cost advantages of family farms, it is still not clear how large corporate farms manage to achieve
effective organization of their production activities. In contrast to corporate farms, family farms embody
the ideal of the classic owner-managed capitalist firm which creates stronger incentives for owners to
internalize the wealth effects of their actions than alternative firm types do, such as corporations, public firms,
and non-profits (Alchian and Demsetz, 1972; Furubotn and Pejovich, 1972; Valentinov et al., 2015). The
organization of corporate farms obviously rests on the separation of ownership and control, and thus on the
divergence of interests between owners and managers (Berle and Means, 1932). This divergence is bound to
cause agency problems posing a serious challenge to the viability and efficiency of corporate farms. These
problems, however, are not necessarily fatal and can be addressed by appropriate governance instruments.
The aim of this paper is to draw on three case studies of large Brazilian corporate farms in order to explain
the governance instruments allowing these farms to keep their agency problems in check. - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
International Food and Agribusiness Management Review
Chaddad and Valentinov Volume 20, Issue 2, 2017
The case studies have been inspired by the idea that the mitigation of agency costs is a challenge that is faced
not only by corporate farms but also more generally by corporations which present the dominant form of
business organization in the Western world (Hansmann, 1996). The rise of corporations has been a premier
field of study by American institutional economists throughout the twentieth century. While Berle and Means
(1932) acknowledged that corporations are radically different from classic capitalist firms, Galbraith (1967)
attributed the rise of corporations to technological imperatives, and more specifically to the tendency of
modern technology to require large-scale business organization. As Allan Gruchy (1972: 142) put it, ‘the
large corporation must plan to minimize risk by controlling its sources of supply, the demand for its products,
the sources of its capital, and fluctuations in its prices’.
It is true that the planning required of large corporate farms must deal with additional agriculture-specific
issues such as site and season specificity of production, tacit knowledge, imperfections of capital and risk
markets, environmental and labor regulatory contexts, as well as pioneering and developing costs. Yet, the
institutionalist emphasis on the role of technology still seems to retain its validity in the agricultural context too.
If the benefits of corporate planning are not attainable without the separation of ownership and control, then
ownership may be seen as a ‘ceremony’ hindering the advance the progressive technologies (cf. Gruchy, 1972;
Hodgson, 2004; Samuels, 1995). In this line, Clarence Ayres (1978), a classic of American institutionalism,
argued that the logic of technological development calls for the weakening of the institution of ownership
if this institution becomes obstructive. He saw the rise of corporations as a crucial manifestation of this
weakening: ‘so great has been the proliferation of technical instruments and skills in modern business that
‘management’ has come to play a constantly increasing part in its conduct, and ‘ownership’ a correspondingly
decreasing part’ (ibid: 199). The case studies in the present paper demonstrate that the Ayresian dialectics
of ‘management’ and ‘ownership’, despite its radical flavor, lines up remarkably well with the current
governance practices of Brazilian large corporate farms.
In interpreting corporations as an institutional response to technological imperatives, American institutionalists
unfortunately paid less attention to the micro-analytic issues of agency costs and opportunistic behavior
more generally, leaving this terrain to new institutional economics. The present paper draws on both of these
schools of thought in order to make the case that the technological imperatives not only give a boost to the
separation of ownership and control but also facilitate the emergence of governance instruments that are
able to mitigate the agency problems resulting therefrom. These governance mechanisms will be referred
to as ‘organizational architecture’ and will be shown to play a crucial enabling role in the operation of large
corporate farms. Based on case studies of three of such farms operating in the Brazilian agricultural frontier
with different types of potential agency problems between owners, managers, and farm workers, the paper
describes how these problems are mitigated by organizational architectures.
2. The context: agricultural development in the Brazilian cerrado
Before describing the structures of large corporate farms, it is important to understand the context from
which they emerged. This section provides a brief analysis of agricultural development in the Brazilian
agricultural frontier and how the structure of agricultural production evolved over time. Brazilian agriculture
has experienced significant growth in the last four decades. Between 1975 and 2010, total agricultural
production in Brazil grew fourfold, making it a top-five producer of 36 commodities globally by 2008 (Rada
and Buccola, 2012). As a result of impressive productivity gains, which averaged 3.0% per year since 1975,
Brazil was able to achieve food security, real food prices decreased, and the country became one of the main
agricultural producers and exporters in the world.
This agricultural production growth occurred primarily in the cerrado region. The cerrado is a savannah-
like vegetation of low trees, scrub brush and grasses. It occurs entirely within Brazil and covers 204 million
hectares or 23% of Brazil’s land area. Until the 1970s, the cerrado was considered to be of limited value for
agricultural production. Major constraints to agricultural production in the cerrado included acidic soils with
low natural fertility and high biological pressure of pests, diseases and weeds. The development of the Brazilian - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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Chaddad and Valentinov Volume 20, Issue 2, 2017
cerrado into productive agricultural land required a portfolio of technologies, including the introduction of
new plant varieties and hybrids adapted to low latitudes, investments in soil fertility improvements, strategies
to control diseases, pests and weeds, use of no-tillage systems, and integrated crop and livestock production
systems. These technologies developed over the last 40 years removed the constraints to producing high-
yield crops and livestock in the poor, acid soils of the cerrado under tropical conditions.
Following these agricultural technology developments, the cerrado was opened up to agriculture and new
land was brought into production. Between 1975 and 1996, the area in planted pastures soared from 18 to
49 million hectares and the area used for row crop production increased from 9 to 13 million hectares. As a
result, about 40% of the cerrado had been converted to agricultural land by 1995. The development of the
cerrado into new agricultural land was responsible for the largest share in food production between 1970 and
1990. Since then, most of the production increases in the cerrado was due to yield growth. Grain production
in the cerrado increased from 8 million tons in 1970 to 48 million tons in 2006. In 2006, the cerrado produced
89% of the cotton, 69% of the sorghum, 55% of the beef, 53% of the soybeans, 48% of the coffee, 37% of
the rice and 30% of the corn produced in Brazil (Mueller and Martha Jr., 2008).
Since the cerrado is such a vast biome, this paper focuses on how agriculture developed in the state of Mato
Grosso, which has become the leading crop producer in the country in the last decade. Table 1 shows the
evolution of farming in Mato Grosso since the 1970s. In 1975 total land in farms was about 22 million
hectares or 24% of the state’s landmass. But only 12 million ha or 54% of the land in farms were actually
cleared of natural forests and used in production, of which 8.6 million ha were in natural pastures, 2.6 million
ha in planted pastures and 500,000 ha in temporary and permanent crops. At that time the state did not have
adequate infrastructure and was isolated from the rest of the country. In addition, the agricultural technologies
adapted to the tropics developed by Embrapa and other research institutes were yet to be developed and
disseminated. Thus farming activities in the state of Mato Grosso were predominantly extensive cattle
ranching and staple crops for subsistence both with low levels of productivity.
This situation started to change with a set of policies implemented by the military regime that aimed to
integrate the Legal Amazon1 to the rest of the country with the enactment of the National Integration Plan
(PIN) in 1970. These policies included infrastructure development (primarily roads), tax exemptions for
enterprises investing in the region and subsidized credit. The early beneficiaries of these policies were cattle
development projects. In addition to large-scale cattle ranching projects, PIN also included development
initiatives as a response to a widespread drought in the Northeast region, which increased the incidence of
poverty and famine among peasant farmers. State-led colonization projects were designed to settle poor
1 In order to implement its development policy, the Brazilian military government created the Legal Amazon, a region that includes the states of
Acre, Amapá, Amazonas, Pará, Roraima, Mato Grosso, Tocantins, and Maranhão west of the 44th meridian.
Table 1. Evolution of agriculture in Mato Grosso, Brazil (IBGE, 2006).
1975 1985 1995-1996 2006
Number of farm establishments 56,118 77,921 78,762 112,987
Total land in farms (ha) 21,949,146 37,835,651 49,839,631 48,688,711
Area cleared in establishments (ha) 11,767,758 18,559,984 24,471,635 28,559,105
Permanent crops (ha) 42,174 136,605 169,734 408,550
Temporary crops (ha) 459,093 1,992,838 2,782,011 6,018,182
Natural pastures (ha) 8,640,861 9,685,306 6,189,573 4,404,283
Planted pastures (ha) 2,602,607 6,719,064 15,262,488 17,658,375
Number of employed farm workers 263,179 359,221 326,767 358,336
Number of tractors 2,643 19,534 32,752 42,330
Number of beef cattle 3,110,119 6,545,956 14,438,135 20,666,147 - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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farmers and landless individuals in the Legal Amazon. Major state-led colonization projects settling more
than 5 million hectares were implemented in the 1970s and 1980s.
Private colonization projects organized by colonization firms and cooperatives were also relevant agents of
agricultural development in the Legal Amazon. These private colonization entities surveyed, demarcated
and occupied land, built infrastructure, opened roads, developed urban areas, and provided basic health and
education services to smallholders that migrated primarily from the southern region. Thirty-five private
enterprises organized 104 settlement projects and colonized almost 4 million hectares of farmland in Mato
Grosso between 1970 and 1990. Private colonization in Mato Grosso represented 39% of the total area
colonized in the Legal Amazon. Jepson (2006a,b) provides detailed accounts about the role of private
colonization projects in the Legal Amazon. She concludes that, ‘state incentives were, in fact, insufficient
to cause the frontier expansion. Central to Brazil’s frontier historical geography are private colonization
cooperatives and firms, both of which developed into critical organizations in the process of agricultural
expansion’ (Jepson, 2006a: 858).
As a result of these policies to develop the Legal Amazon, the number of farm establishments in Mato Grosso
increased from 56 to 78 thousand and the total land in farms almost doubled from 22 to 38 million hectares
between 1975 and 1985 (Table 1). During this period, the area actually used in production increased from
11.7 to 18.5 million hectares with notable increases in planted pastures (from 2.6 to 6.7 million ha) and
temporary crops (from 460,000 to 2 million ha). Many critics of these policies argue that this first phase
of agricultural development in the cerrado led to excessive land clearing, environmental degradation and
increased land concentration (Klink and Machado, 2005). The poor soils of the cerrado could not sustain
adequate levels of productivity after three years of being used in production. Without investments in soil
fertility, natural pastures would degrade and row crops would not produce enough to cover costs, leading
famers to abandon the land.
The integration and development policies initiated by the military government were, however, short lived.
In 1979 Brazil experienced the effects of the second oil crisis, which severely affected the ability of the
government to invest in proactive development policies. Government expenditures in agricultural policy
reached their peak in the 1980s and were significantly reduced after that (Chaddad and Jank, 2006). Following
restoration of democracy in 1985, subsequent policies related to the development of the Amazon region
cut subsidies and tax incentives to agricultural projects and started to pay more attention to environmental
issues, the protection of indigenous land rights, and land reform. Substantial tracts of cerrado and tropical
rain forests in the Legal Amazon are now off limits to agricultural expansion and remain protected in nature
conservation units and indigenous reserves. Land reform settlements also started to be implemented in the
1990s to address the issue of land concentration.
A second major push to agricultural development in the cerrado occurred after the economic reforms of the
1990s. The Real Plan of 1994 played a critical role in agricultural development throughout the country with
currency stabilization and the control of inflation. Initially, the Real Plan led to a crisis in agriculture as a
result of an overvalued currency but the currency devaluation of 1999 under a free-floating exchange rate
policy – coupled with increased international demand for agricultural commodities in the 2000s – provided a
massive boost to agricultural development. Also, since the mid-1980s, new agricultural technologies started
to become available to farmers in the cerrado, which led to the development of commercial agriculture and
ranching with increasing levels of productivity.
Between 1985 and 2006, the area with planted pastures in Mato Grosso increased from 6.7 to 17.6 million
hectares and the number of beef cattle increased from 6.5 to 20.6 million head (Table 1). The beef cattle
herd reached 28 million head in 2014 with beef production representing 20% of the state’s gross value of
agricultural production. The improvement of forages, coupled with appropriate soil management practices,
solved the issue of pasture degradation and significantly improved the economic prospects of cattle ranching - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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in the region. With the expansion and increased productivity of cattle herds in the cerrado, Brazil has become
the second largest producer and the leading exporter of beef in the world.
Even more impressive than the growth of the livestock sector has been crop production expansion – in
particular, soybean, corn and cotton. Between 1985 and 2006, the area planted with temporary crops in Mato
Grosso tripled from 2 to 6 million hectares (Table 1). Recent data show that crops continued to expand in
the state, with planted area reaching 13 million hectares and total crop production of almost 48 million tons
in 2014 (Table 2). Agricultural production growth resulted from planted area expansion and productivity
gains, which increased from 1.4 tons per hectare in 1977 to 3.6 tons per ha in 2014. Mato Grosso surpassed
Paraná as the country’s largest producer and currently accounts for 25% of the domestic grain and oilseed
production. The state produces 30% of the Brazilian soybean crop, 23% of the corn crop, and 58% of the
cotton crop. In 2014 crop production represented 74% of the state’s gross value of agricultural production,
with soybeans alone accounting for 50% of the total value.
In what follows, we take a closer look at the organization of agricultural production in Mato Grosso. Initially,
smallholders who migrated from southern Brazil formed colonization and production cooperatives to address
the market failures and transaction costs they faced in the frontier. These cooperatives are analyzed in section
2.1. Subsequently we discuss the structural changes that occurred in Brazilian agriculture since the 1990s
and how they led to the demise of most cooperatives. Without the services provided by cooperatives, most
family farmers found themselves in a difficult situation to access credit and technology, store and market
production and cope with the market failures and lack of infrastructure typical of agricultural frontiers.
Intense competition for land and commodity price volatility further undermined family farm survival. The
gap left behind by cooperative failures was partially addressed with the emergence of large family groups,
corporate farming structures and new generation cooperatives.
The first wave of cooperatives in Mato Grosso (1975-1995)
Mato Grosso attracted a large number of migrants from several parts of the country – but primarily from the
southern and southeastern regions – in the 1970s and 1980s. These pioneers were smallholders who sold
small farms in their region of origin to pursue the dream of becoming commercial farmers in the agricultural
frontier. However, they faced several constraints in the frontier, including poor infrastructure, missing services,
market failures and high transaction costs to obtain farm inputs and market production.
Table 2. Evolution of crop production in Brazil and Mato Grosso (Conab, 2015).1
1976/77 1984/85 1994/95 2004/05 2013/14
Planted area (1000 ha) 37,314 39,693 38,539 49,068 56,988
Crop production (1000 tons) 46,943 58,143 81,065 114,695 193,386
Productivity (kg/ha) 1,258 1,465 2,103 2,339 3,393
Mato Grosso
Planted area (1000 ha) 2,238 1,561 3,278 8,564 13,323
Crop production (1000 tons) 3,046 2,642 7,617 24,731 47,703
Productivity (kg/ha) 1,361 1,693 2,324 2,878 3,580
1 Includes 15 crops. - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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Chaddad and Valentinov Volume 20, Issue 2, 2017
Based on case studies of a private colonization firm (called CONAGRO) and a colonization cooperative
(called COOPERCOL), Jepson (2006b: 301) concludes that:
private colonization projects provided the initial conditions of settlement by accessing state subsidies
and securing property rights in the region. Moreover, private colonization lowered the risks and
transaction costs of frontier settlement through financial support during unproductive years. It was
the promise of secure titles (and lower enforcement costs), combined with access to state loans, that
made it economically feasible for smallholders to invest in mechanized commercial agriculture in
a frontier region.
These private colonization organizations played a critical role in providing the initial conditions for families
to migrate from the south to the agricultural frontier. However, poor transportation infrastructure, distance to
markets, insufficient grain storage, and high transaction costs to obtain credit and farm inputs were common
challenges of the early colonists. Consequently, they decided to organize an agricultural cooperative to
overcome these market failures and provide the missing services they needed to be successful (cf. Valentinov,
Founded in 1975, COOPERCANA played a central economic role in regional development as follows (Jepson,
2006b). First, it invested in warehouses and grain storage facilities across the region. The cooperative stored
the grain, initially rice, and marketed the production to the government under the minimum price program.
In doing so, it enabled the farmers to have access to governmental subsidies, which they otherwise would
not have. The cooperative also assisted the farmers in accessing subsidized credit from Banco do Brasil.
The state bank funneled the total value of loans to the cooperative, which then redistributed the funds to the
farmers. COOPERCANA also provided farmers with agricultural inputs and agronomic services to plant
and harvest rice. Inputs were supplied at a discount for cooperative members, which reduced the need for
farmers to travel to Barra do Garças, the main local market located 300 km away from the settlements.
COOPERCANA also disseminated information about suitable agricultural practices for production on poor
cerrado soils. Lastly, the cooperative provided emergency flights on its DC-3 to Barra do Garças during the
rainy season, when the main unpaved road (BR-158) connecting the settlements to the town was flooded.
In the early 1980s, COOPERCANA was instrumental in helping the farmers improve soil fertility and thus
decrease dependence on rice with production diversification. Based on agronomic recommendations from
Embrapa, the cooperative provided lime, chemical fertilizers and technical advice to encourage farmers
to invest in soil fertility and avoid soil degradation. As farmers invested in soil fertility, the cooperative
introduced new crops in the region. The cooperative technical staff experimented with new soybean and corn
cultivars and tested their yields under different growing conditions. In collaboration with Embrapa research
staff, COOPERCANA implemented crop experiments and provided important agronomic information to
farmers. New technologies were disseminated to farmers in field days and educational programs. With the
availability of adapted cultivars and credit for soil improvement, agricultural production and productivity
in the region increased dramatically. Between 1983 and 1993, soybean area increased from 5,000 hectares
to 40,000 hectares, while corn area increased from 700 hectares to 3,000 hectares.
Production growth and agricultural development in eastern Mato Grosso provided the impetus for the
growth of COOPERCANA in the 1980s. In addition to the services provided to farmers explained above,
the cooperative diversified and engaged in several vertical integration projects upstream and downstream
in the value chain. These growth projects included the following: lime processing and marketing; corn, rice
and soybean seed production and marketing with own brand name; seed quality laboratory to test seeds from
third party vendors; a network of supermarkets and gas service stations; and a livestock processing plant to
become a local supplier of beef and pork.
COOPERCANA was not a unique example. Several multipurpose, local cooperatives were formed in the
1970s and 1980s across Mato Grosso by the early pioneers. Because these pioneers came mostly from the - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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southern region, the cooperatives they formed followed the traditional model of the cooperatives they knew
or were members of in southern Brazil. This first wave of cooperative development in the cerrado was also
influenced by increased federal intervention in cooperatives that lasted until 1988. Federal law 5764 of 1971
established the institutional framework within which the Brazilian cooperative system operates until today.
The 1971 law defined the legal status of cooperatives and set strict rules for their formation and functioning.
Between 1966 and 1988, a state agency known as Instituto Nacional de Colonização e Reforma Agrária
regulated and controlled agricultural cooperatives.
Despite their early successes, COOPERCANA and most of the first wave cooperatives formed across
Mato Grosso went bankrupt in the early 1990s. There were several exogenous and endogenous factors
that led to their demise. With unsustainable debt levels, these cooperatives could not survive the period of
hyperinflation of the late 1980s and the economic liberalization and macroeconomic reforms introduced in
the early 1990s. Farmers, in turn, also suffered from the economic crisis and the end of agricultural subsidies
and many were forced to exit agriculture. In addition, there were some serious management and governance
issues that prevented these cooperatives from taking the necessary steps to reinvent and survive the crisis
(cf. Valentinov and Vacekova, 2015).
Structural changes and the emergence of corporate farms (1990-2015)
With the failure of cooperatives and the consequent exit of farmers in large numbers in the 1990s, the structure
of farming became increasingly concentrated in Mato Grosso. Data from the last Census of Agriculture
show that the average farm size in the state is 431 hectares (Table 3), which is significantly higher than the
national average of 64 hectares. About 70% of the producers in the state farm less than 100 hectares. These
farm establishments include traditional smallholders and peasants who were settled in land reform projects
since 1995. The total land in smallholder farms adds up to 2.6 million hectares, equivalent to 5% of the total
agricultural land in the state. Among commercial producers, there are three size categories: small (100-500
ha), medium (500-2,500 ha) and large (above 2,500 ha). The 35,000 commercial producers in Mato Grosso
farm 45 million hectares or 95% of the agricultural land in the state.
There are about 10,000 commercial producers in Mato Grosso farming an average of 1,100 hectares (Table 3).
They are family farmers that were able to survive several crises since the 1980s and establish themselves as
commercial producers. Our field research in Mato Grosso suggests that 500 hectares is the minimum efficient
scale that a producer needs to farm to be able to acquire the machinery, build the on-farm infrastructure and
have access to modern inputs to make a living in commodity agriculture in the cerrado. These small and
medium-sized family farmers overcame collective action problems and the negative consequences of the
cooperative failures of the 1990s and formed 43 new cooperatives since then. These second-wave cooperatives
are structurally different from the traditional cooperatives of the 1970s and 1980s and focus on organizing
producer pools to buy farm inputs and market agricultural commodities with larger volumes. They have a
limited effect on market structure and performance due to their limited scale and resources (Chaddad, 2016).
Table 3. Farm structure in Mato Grosso (2006) (IBGE, 2006).
Number of establishments Area
n Share (%) Total area (ha) Share (%) Average area (ha)
0-100 ha 77,786 68.8 2,641,168 5.4 34
100-500 ha 21,334 18.9 4,503,981 9.3 211
500-2,500 ha 10,052 8.9 11,316,022 23.2 1,126
>2,500 ha 3,815 3.4 30,227,539 62.1 7,923
Total 112,987 100.0 48,688,710 100.0 431 - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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Chaddad and Valentinov Volume 20, Issue 2, 2017
Other producers, however, were able to achieve a much larger scale than this. Table 3 shows that there are
about 4,000 large commercial producers in Mato Grosso with an average farm size of 8,000 ha. These large
producers farm about 30 million hectares or 62% of the land in farms in the state. According to primary
data collected by Agroconsult, a consultancy firm, there are 38 ‘mega producers’ farming more than
30,000 hectares in the cerrado region with several of them farming more than 100,000 hectares. A recent
phenomenon that is changing the structure of agricultural production in the Brazilian cerrado is the emergence
of corporate farms since the commodity super cycle started in 2005. These new players include publicly traded
companies, privately held companies controlled by private equity funds, and subsidiaries of multinational
trading companies. These corporate farms with diverse ownership arrangements have three characteristics
in common – very large scale, professional management and access to capital markets (Chaddad, 2014).
3. Case studies of family groups and corporate farms
There are two basic types of very large producers operating in the Brazilian cerrado: family groups and
corporate farms. The dominant form is the family group, where multiple family members farm together in
areas ranging from 5,000 to 250,000 ha. These family groups were developed since the 1990s by the second
and third generation sons and daughters of the first generation pioneers as an organizational response to pool
resources and cope with the market failures, transaction costs, poor infrastructure, market volatility and lack
of credit in the agricultural frontier. On the other hand, corporate farms financed by public and private equity
markets were formed in the mid- to late-2000s to benefit from the commodity boom of the time.
In what follows, the paper describes three case studies – one family group (Produzir), one publicly traded
corporation (BrasilAgro) and one privately-held corporation controlled by private equity funds (Agrifirma)
The ownership structures are different but all involve the separation of ownership and control in the sense
that owners are not involved in operating and managing the farms. The case studies also describe how these
very large producers attempt to ameliorate agency problems with organizational architecture. The case studies
were developed based on personal interviews with corporate managers (chief executive officers (CEOs),
chief financial officers (CFOs), chief operating officers (COOs)), farm managers who run the farms and
several visits to farms in Mato Grosso and western Bahia. The personal interviews were complemented with
information from company documents, such as incorporation statutes and bylaws, annual financial reports
(when available) and presentations to investors.
Produzir S.A.
Eugênio Pinesso was the son of an Italian immigrant couple that arrived in southern Brazil in the 1930s to
work as sharecroppers on coffee plantations. Eugênio grew on the farm in northern Paraná state and, despite
not going to school, was a shrewd businessman who was an early adopter of several new technologies. He
learned how to bring low-fertile soils in to production. With hard work and a bit of luck, he was able to
make it as a commercial farmer in southern Brazil in the 1960s and 1970s. In 1983 Eugênio took the bold
decision to exchange 5 farms totaling 1,500 hectares in Paraná for 2 farms with 19,600 hectares in Campo
Verde, MT located 100 km to the east of Cuiabá, the state capital. The farms were not yet developed so
family members worked hard to clear the land and bring it into production. Eugênio had 6 daughters and
sons and most family members were involved in agriculture. They worked as a team. While some family
members worked in developing land into crop production in Mato Grosso, other family members stayed in
Since we conducted the personal interviews and collected data to write these case studies in 2014, a lot has changed in Brazil. In 2015, the country
entered a deep recession with high inflation and currency devaluation. Some farm operators who were leveraged in dollar-denominated debt found
themselves in financial distress. Many had to declare bankruptcy, merge with another entity or liquidate. The economic crisis persisted in 2016
with high political risk because Congress started an impeachment process against the President that was only resolved in August. At the same time,
farmers in western Bahia suffered three years of drought that significantly affected yields. And, for the first time many farmers in Mato Grosso
also had poor soybean yields due to lack of rain. One of the three corporate firms described in this paper was forced to liquidate not because of the
financial and production risks described above, but simply because one of their majority shareholders decided to cash in and leave the partnership.
Suddenly, the managers of the firm were left without funding to carry out the business plan for the 2015-2016 crop year and thus the company was
folded. This story highlights the importance of a robust capital structure to the survival of start-up farm corporations. - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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Mato Grosso do Sul focusing on livestock production, including hogs and beef. One of the key features of
large producers in the cerrado is that they developed as family groups, pooling resources from many family
members under the leadership of one trusted individual. With the passing of his wife in 1986, Eugênio started
to groom one his sons, Gilson Pinesso, to take over his role as the family leader.
In 1993 the Pinesso Group took another bold step with the acquisition of a 61,000-hectare farm in Nova
Ubiratã, MT located 150 km to the east of Sorriso in an area without any infrastructure, including roads and
electricity. The land was developed over time and required investments in basic infrastructure, including
building more than 200 km of roads, bridges, housing, electricity and a school for rural workers and their
families. In 2014 the district developed by the Pinesso Group had a population of 2,000 with a school, health
center, pharmacy, supermarket and service station. The farm currently produces soybeans, corn, cotton,
sunflower, beef cattle, and hogs.
In 2014 the Pinesso Group had 10 farms in the cerrado totaling 108,000 hectares. It also leased 48,000 hectares
in the new frontier state of Piauí. Planted area with crops increased from 48,000 ha in 2005 to 117,000 ha
in 2014. The area used for livestock production in planted pastures comprised 35,000 ha.
Separation of ownership and control and the potential for agency problems
In 2012 the Pinesso Group incorporated and changed its name to Produzir S.A., which literally means ‘to
produce.’ All assets were transferred to the corporate entity and family members received shares in return.
Produzir S.A. has 6 shareholders, each a limited holding company controlled by the 6 siblings (or their
descendants). The family group decided to incorporate for two main reasons. The first was to give shares to
family members, which would allow exit at fair value. The second was to enable the firm to adopt corporate
governance practices and hire professional managers. The board of Produzir S.A. is comprised of six
directors nominated by each family holding company (the shareholders) and one independent, professional
director. A CEO with professional experience in finance was hired to run the business. According to one
family member, ‘we needed someone from outside the family to make business decisions with cold blood
and without emotion.’
Organizational architecture
The CEO also plays the role of CFO and the company also hired two additional senior-level professionals – a
COO to run the farming operations and a Chief Commercial Officer in charge of commercial and marketing
decisions. This senior management team is assisted by 6 mid-level managers, 4 of which are responsible
for managing crop operations and 2 in charge of the livestock operations. The firm has 1,050 employees
with about 110 of them involved with some management or administrative function. As a result of these
organizational changes, family members are no longer involved with the business. The senior management
team receives incentive compensation based on clearly defined goals, including revenue growth and profits.
In a personal interview, Mr. Pinesso explained how the family (represented in the Board of Directors) was
able to oversee such a large farming operation. In simple terms, he stated that, ‘in agriculture, it is the eye of
the owner that fattens the ox.’ Even though the family is not directly involved with the business operation,
family members constantly visit the farms and develop personal relationships with farm managers and
workers. ‘We have formed our team over the last 30 years. Today we have the sons and daughters of our
first employees working in our firm. They have a sense of belonging to the group and we offer a lot of
opportunities for personal growth and development.’
In addition to a strong organizational culture based on personal relationships, Produzir S.A. has adopted a
control system with key performance indicators (KPIs) to monitor the performance of its production units across
the cerrado. ‘We benchmark the performance of each production unit relative to the others, which provides
a strong incentive for the teams to perform. The managers of these production units also share information - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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and best practices among themselves.’ The firm also introduced an incentive compensation system for farm
managers based on production and productivity levels achieved by each production unit. In other words, the
organizational architecture of Produzir is based on both trust built by years of relationship between family
members and farm managers and workers, coupled with formal control mechanisms (benchmarking across
operational units and incentive compensation).
A recent phenomenon that is changing the structure of agricultural production in the Brazilian cerrado is
the emergence of corporate farms since the commodity super cycle started in 2005. Corporate farms are
increasingly found in Mato Grosso, but especially in the new agricultural frontier of the cerrado known as
Mapitoba, a region comprising four states – Maranhão, Piauí, Tocantins and western Bahia. These new players
include publicly traded companies (e.g. SLC Agrícola, Vanguarda Agro, and BrasilAgro), privately-held
companies controlled by private equity funds (e.g. Agrifirma, Agrinvest and Tiba Agro), and subsidiaries of
multinational trading companies (e.g. Ceagro-Mitsubishi and XinguAgri-Multigrain). These corporate farms
with diverse ownership arrangements have three characteristics in common – very large scale, professional
management and access to risk capital from outside investors. In what follows, we describe these emerging
corporate-style structures.
Companhia Brasileira de Propriedades Agrícolas S.A. (BrasilAgro)
BrasilAgro is a publicly traded company headquartered in São Paulo, Brazil and listed in the Bovespa stock
exchange with American Depositary Receipts traded in the New York Stock Exchange. Its 2006 initial
public offering (IPO) raised 584 million BRL (about 286 million USD)
from investors based on a business
plan and a promise ‘to create value by acquiring, developing and operating properties through sustainable
and innovative practices.’ The firm did not have any assets and employed only 2 managers at the time of
listing. Since then, it has become one of the leading agricultural land development and farming companies
in South America.
The core business of BrasilAgro is the acquisition, development, operation and sale of rural properties
suitable for agricultural production. Once BrasilAgro acquires a rural property, it invests in infrastructure,
facilities and technology necessary for efficient agricultural production. It then engages in high productivity
agricultural operations aiming to maximize cash flow per area. BrasilAgro selectively divests of a farm when
it reaches its optimal value to capture capital gains. The company combines the returns generated from land
value appreciation and farming operations, while mitigating production risks with geographic diversification.
Its vision is ‘to be the leading platform for investing in and developing farmland in Brazil.’
With the capital raised in the IPO, BrasilAgro acquired 11 farms in agricultural frontier regions throughout
the cerrado. After taking possession of its first farm in July 2007, the firm planted 22,000 hectares in its
first year of operation. The planted area increased every year since then reaching 80,000 hectares in the
2013/2014 crop year. In 2014 BrasilAgro had a land portfolio of 8 farms with 180,000 hectares with an
estimated market value of 1.3 billion BRL (about 381.8 million USD). Three farms had already been sold
allowing the firm to realize considerable capital gains.
Separation of ownership and control and the potential for agency problems
The idea for the formation of BrasilAgro came from a group of investors led by Cresud, a diversified real
estate development firm in Argentina with a business unit in farming. Cresud is currently the controlling
shareholder in BrasilAgro with a 39.6% stake in the company. The remaining shares are traded in the Bovespa
stock exchange and are held by minority shareholders. BrasilAgro is listed in Bovespa’s New Market,
which requires high levels of corporate governance practices and transparency. With the decision to list in
3 BRL = Brazilian Real; conversion to USD calculated on the basis of the exchange rate on November 30, 2016. - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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the New Market, BrasilAgro was able to raise capital at a competitive cost as it offered more security and
transparency to investors.
Corporate governance practices attempt to ameliorate the potential agency costs between shareholders and
corporate managers. The Board of BrasilAgro is composed of nine directors, of which three are independent.
Together, the Board of Directors and the Board of Executive Officers are responsible for managing BrasilAgro.
The Board of Directors is responsible for establishing long-term strategies and setting general business policies
and guidelines. Professional executive officers are delegated responsibility for the day-to-day management of
BrasilAgro’s business following the resolutions of the Board of Directors. The Board of Executive Officers
is comprised of four professional managers led by Mr. Julio Piza Neto, the firm’s CEO.
The cornerstone of the business model developed by BrasilAgro is its large size, which enables it to benefit
from economies of scale. According to Julio, economies of scale are realized at two levels: the farm level
and the corporate level. Farm-level economies of scale include the following: fixed cost dilution (such as
overhead expenses and compliance costs with labor, environmental and tax laws that were exceedingly
high in Brazil); ability to attract and retain professional managers and experienced technical staff to run
each farm; efficient use of on-farm facilities and infrastructure; and operational efficiencies of modern farm
equipment. Economies of scale at the corporate level include commercial advantages in buying farm inputs
(e.g. volume discounts) and in negotiating commodity prices or forward contracts (due to higher bargaining
power). Its size and access to capital allow BrasilAgro to invest in modern information and communication
systems and to develop knowledge to make better commercial and risk management decisions. Perhaps more
importantly, size and scale lead to a lower cost of capital and the reduction of price and production risk due
to geographic and product diversification.
Organizational architecture
To benefit from these potential economies of scale, the major challenge confronting large corporate farms
like BrasilAgro is that the owners (shareholders) are not involved in the major operations and are distant
from the farms. This separation of ownership and control gives rise to conflicts of interest and agency costs
between owners, managers and farm workers. These agency costs are potentially very severe in agriculture
because of the unpredictable effects of Mother Nature. Julio believes that it is possible for a corporate farm
to overcome agency costs and thereby achieve high performance by means of a well-designed organizational
architecture. The organizational architecture of BrasilAgro includes a hierarchical structure with well-defined
responsibilities and communication channels between the corporate team in São Paulo and managers at each
farm, formal control systems, and incentive compensation based on key performance indicators.
The formal organizational structure of BrasilAgro comprises the central office (headquarters) in São Paulo
and local offices in each farm. The central office includes the top management team and staff organized by
function. Each farm is a separate business unit and profit center with its own budget and performance goals.
Each farm office is headed by a farm manager, with decision making authority over farming operations,
assisted by a deputy farm manager, an administrative officer and a chief of field operations overseeing a
team of field staff. In decentralizing operational decisions to farm managers, the company attempts to benefit
from effective and timely use of local, specific knowledge. However, decentralization of decision-making
requires effective coordination and communication between farm managers and staff at the central office.
The organizational architecture of BrasilAgro is designed to facilitate seamless coordination between the central
office and each farm manager. Information and computer technologies allow direct, real time communication
between farm managers and staff in the central office. Each farm has a scale to weigh everything arriving at
(e.g. fertilizers, chemicals) and leaving (e.g. grains) the farm gate to enforce a strict control of inventories
of farm inputs and output. The key feature of BrasilAgro’s architecture is a control system called PGP (an
acronym for production planning and management), which provided the basis for evaluating performance,
incentivizing and holding employees accountable. - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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At the core of the organizational architecture is a focus on formal systems and processes geared to foster a
culture of accountability and meritocracy. The Chief Administration Officer and his team are in charge of
developing a management control system based on formal processes and protocols called the PGP. In the
PGP system, each activity conducted by the firm, from land acquisition to land development and farming, is
standardized in a formal process with steps and KPIs. For example, KPIs for a corn field includes distance
between seeds, number of seeds planted per row meter, fertilizer weight applied per row meter, number of
drops per cm
(for pest control) and corn weight loss per hectare. This formalization and standardization
of all farming activities serve as the basis for planning, budgeting, control, incentive and performance
evaluation systems.
Planning of farm operations is the first step in the PGP system, which is the responsibility of the top
management team with input from farm managers. First, the COO and the chief technology officer plan
operations for each farm from a technical perspective following best agronomy practices. The first draft of
the plan is discussed with farm managers to receive their input and buy-in. From this interactive, participatory
process emerges the operational plan for each plot on each farm along with a budget. The operational plan
and budget for each farm then receives the input from the CEO and the head of BrasilAgro’s new business
development team. They review the technical plan from a strategic perspective focusing on expected margins
and profitability for each crop. In other words, they consider economic variables to maximize expected returns
on each farm. The outcome is an operational plan and budget that seeks to maximize cash flow generation
for each plot in each farm considering the constraints imposed by technical feasibility. The operational plan
includes the crops to be planted in each plot, the use of inputs and technology, and a detailed agenda (with
dates and KPIs) for each activity to be performed on a field from soil preparation to harvesting.
Each farm manager leads a team of field staff responsible for the execution of farming operations following
the operational plan and the budget. According to Julio, ‘the beauty of our PGP system is that each farm
plot has an owner.’ He does not mean that workers own land but rather that all activities performed on a
farm plot are traced back to a single person who is held accountable for her actions. Since the PGP describes
operations and KPIs for each farm plot, he believes that BrasilAgro is able to monitor and control from a
distance the effort and efficiency of each worker and thus minimize potential agency costs.
Execution of the plan is monitored in real time by the central office staff with the use of information and
communication technologies. When an operation is performed, the responsible field staff for that operation
updates the PGP system. As a result, the central office in the city of São Paulo has real time information
about operations carried out in every plot of every farm across the country. Field staff is also responsible for
making decisions on the field if any change to the operational plan is required. For example, if weather is
not appropriate for a certain scheduled operation, field staff has the decision-making authority to postpone
it – for example, to delay crop spraying when it rains. But a decision to change the operational plan due to
some unforeseen contingency must be justified in the PGP system. Since BrasilAgro has weather stations in
each farm plot, the central office staff has up-to-date weather information to monitor and control execution
of operations. Taken together, the operational plan and this control system foster a culture of accountability
among field staff.
Another key feature of the PGP system is that the operational plan is tied to a budget. Each farm operation
is linked to a required quantity of inputs (such as seeds, fertilizers, chemicals, fuel, etc.) and machinery use.
The field staff responsible to perform an activity (e.g. corn seeding) requests the necessary materials (e.g.
corn seeds, tractors, seeding machine, diesel, etc.) from the farm office to perform that operation. Based
on an enterprise system developed by SAP (SAP SE, Walldorf, Germany), a German multinational firm,
which integrates each farm with the central office, the use of requested materials for a given activity triggers
a reduction in inventories and an update to the budget. While the PGP system enables physical control of
operations, the SAP system provides a platform for financial control. The central office consolidates all these
pieces of information from the PGP and SAP systems for control and reporting purposes. - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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The PGP system also serves as the basis for BrasilAgro’s incentive system. For example, the variable pay
of senior staff, farm managers and field staff is partially based on how well the operational plan and the
budget are executed. More specifically, the performance of each farm manager is assessed by the executive
committee based on several objective and subjective performance indicators, including: operational yield
(hectares planted and productivity per hectare) compared to budget; SMS (safety, environment and health);
adherence to the PGP system including participation in the planning phase, execution of activities according
to the operational plan and entry of information about activities performed in the fields into the PGP system;
actual vs budgeted costs; and a qualitative assessment of dedication, effort and creativity. The performance
of field staff is also evaluated on the basis of safety, environment and health indicators and adherence to the
PGP system. The compensation package of farm managers and field staff is based on a fixed salary (65% of
total compensation) and a variable pay (35% of total compensation) based on formal performance evaluation.
Agrifirma Brasil Agropecuaria S.A.
Agrifirma was formed in 2008 with capital provided by RIT Capital Partners and Lord Rothschild, both
private equity firms headquartered outside Brazil. In 2011 it received another large investment from BRZ
Investimentos, a large Brazilian private equity firm. The current ownership structure of Agrifirma includes
two controlling shareholders – Genagro (a holding company owned by the initial investors – RIT and
Rothschild) and BRZ – and a group of minority investors. These are all ‘passive investors’ in the sense that
Agrifirma is just one asset in their diversified portfolios. As is the case with private equity firms, they have
a limited horizon of 7-8 years after which they expect to exit with considerable capital gains.
The business model adopted by Agrifirma is very similar to the BrasilAgro described above – to acquire
cheap farmland in the Brazilian cerrado, make the necessary investments to bring the land in to production
and then maximize cash flow from farming operations. Since 2008, Agrifirma has bought 70,000 hectares
of farmland in western Bahia, in three clusters of about 20,000 hectares. In 2014, Agrifirma planted 23,200
ha including soybeans, corn and cotton.
Separation of ownership and control and the potential for agency problems
As is the case with BrasilAgro and Produzir, Agrifirma owners (shareholders) are not involved in the
business. Each majority shareholder (Genagro and BRZ) appoints two directors to the Board, which also
has three seats for independent directors. The board of directors meets on a quarterly basis to set policy
and monitor business performance, but they are not involved in managing the business. Despite not being
a listed company, Agrifirma follows corporate governance rules in terms of transparency and disclosure to
minimize conflicts of interest between shareholders and senior management.
Organizational architecture
The corporate structure based in São Paulo is comprised of the board of directors and a senior management
team of 4 professionals (CEO, CFO, COO and legal counsel) assisted by support staff. The firm estimates
that this corporate structure costs about USD 60 per hectare and serves the purpose of providing a governance
structure to attract investor capital at low cost. As the firm grows with the acquisition of more farmland, this
corporate cost is expected to be diluted. ‘Our corporate costs are heavy given the current size of our farming
operations. This is why growth is crucial for Agrifirma in the future,’ according to Fabiano Costa, the CFO.
The COO, Rodrigo Rodrigues, oversees all farming operations conducted in the three clusters in western
Bahia. The field staff includes 30 managers responsible for basic administrative functions (e.g. human
resources, accounting, finance, commercial, etc.) and 450 farm managers and workers. Each farm cluster
is managed by one farm manager, who reports directly to the COO. The organizational architecture at the
farm level is very similar to BrasilAgro, including a hierarchical structure, formal budgeting and control - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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Chaddad and Valentinov Volume 20, Issue 2, 2017
systems, and performance-based compensation. According to Rodrigo, the major challenge of Agrifirma is
to recruit, develop and incentivize human resources.
Agriculture is not a one-man show. You have to develop a good team to execute the business plan
laid out by the board of directors. Unfortunately in Brazil, especially in remote frontier regions like
western Bahia, talent is a scarce resource. It will take time, patience and commitment to form a team
and an organizational culture focused on delivering results to shareholders.
Agrifirma estimates that overhead costs associated with farming operations are about USD 100-120 per
hectare. According to Rodrigo,
organizational architecture is the backbone of any large scale, corporate farming entity. It is a substitute
for the personal ties and informal organization of traditional family farms. However, it takes time to
develop because there is a learning curve. The difference is that formal organizational architecture
is scalable. Once you make it work, there is no limit to how large you can grow.
4. Discussion
Table 4 summarizes the main organizational characteristics of the three case studies from the Brazilian
cerrado. First, despite the fact that each firm adopts a different ownership structure, they all share the same
common characteristic – the separation of ownership and control. The owners provide risk capital but are
not involved in management decisions. The separation of ownership and control allows these large corporate
farms to access risk capital from outside investors – e.g. capital markets, private equity firms – and to hire
professional managers. However, it introduces conflicts of interest between owners and managers – i.e. the
classic principal-agent problem.
The second organizational characteristic shared by corporate farms is that they adopt sound corporate
governance practices, including a board with independent directors, the separation of the roles of Board Chair
and CEO, and transparency. The objective of corporate governance is to assure investors that they will receive
a return on investment (Shleifer and Vishny, 1997) and to minimize conflicts of interest between owners
and corporate managers. Consequently, the firm is able to raise equity capital from investors at a lower cost.
A third common organizational characteristic is that corporate managers delegate operational decisions to farm
managers and workers. Although discretion of farm managers might be limited by a budget and operational
plan, there is significant scope for opportunistic behavior as pointed out in the literature (e.g. Allen and Lueck,
1998). Hierarchies, formal control systems, performance evaluation and incentive compensation are used
in combination to mitigate such agency costs between workers, farm managers and corporate managers. In
the case of the family-owned corporation Produzir, informal mechanisms based on personal relationships
appear to complement more formal control mechanisms. It remains to be seen whether a strong corporate
culture based on trust is a substitute or complement to formal organizational architecture.
Corporate governance and organizational architecture are necessary to reduce agency costs in corporate
farms, but they cost money. In fact, they constitute fixed costs that are not found in the traditional family
farm. Managers of these corporate farms are constantly monitoring such ‘bureaucratic’ costs (Williamson,
1991) on a per hectare basis and benchmark against competitors to keep them as low as possible. The
presence of bureaucratic costs in corporate farms is a major incentive for them to grow to dilute these costs
over more hectares.
In the broad spectrum of the institutionalist literature, J.K. Galbraith’s vision of industrial corporations
stands out as a particularly useful contrast with the organizational characteristics of Brazilian large farms.
As in the case with corporations studied by Galbraith, the rise of large farms is enabled and impelled by the
emergence of complex production technologies. Another similarity with Galbraith’s story is that the large - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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farm size and the complexity of technology led to a shift in the power structure away from owners toward
professional managers, whom Galbraith designated as the ‘technostructure’. These similarities are reflected
in the first above-mentioned organizational characteristic related to the hiring of professional managers. It
is also important to point out that the emergence of large corporate farms in the Brazilian cerrado is also a
response to the strong competitive pressures (e.g. competition for land) and complexities (e.g. high transaction
costs, pervasive market failures, inefficient credit markets, poor infrastructure and market volatility) of
farming in the agricultural frontier, thousands of kilometers away from markets. The challenges of farming
in the cerrado, coupled with the demise of most agricultural cooperatives in the 1990s, make it increasing
difficult for the traditional family farm to survive and prosper.
In contrast to other institutionalists (e.g. Ayres, 1978; Berle and Means, 1932; Gruchy, 1972), Galbraith tended
to assume a harmonious relation between the corporation and the technostructure, whose ‘members seek to
adapt the goals of the corporation more closely with their own; by extension the corporation seeks to adapt
social attitudes and goals to those of the members of its technostructure’ (Galbraith, 1967: 217). In addition,
he did not see a serious conflict potential in the relationships between the technostructure and the workers. In
Brazilian corporate farms, the potential for conflicts of interest and opportunistic behavior between owners,
managers, and workers is apparently present but can be controlled through organizational characteristics
related to corporate governance, organizational architecture and informal control mechanisms. While corporate
governance installs a system of checks and balances to control the actual power of the ‘technostructure’,
organizational architecture creates disincentives for workers to shirk from the careful fulfillment of their
duties. It is noteworthy though that organizational architecture is by no means inconsistent with organizational
culture based on accountability and trustful personal relationships, thus providing support for Galbraith’s
vision of the convergence of various individual goals within the corporation. Corporate managers’ ambitions
Table 4. Summary of case studies.
BrasilAgro Agrifirma Produzir
• Publicly traded corporation
• One majority shareholder
• Privately-held corporation
• Controlled by 2 private equity
• Family-owned corporation
• 6 family trusts are the only
• Listed on BOVESPA new
• Chairman of the Board is not
the CEO
• 3 independent directors
• Company is not listed but
follows best practices in
corporate governance and
• Chairman of the Board is not
the CEO
• 3 independent directors
• Board comprised of 1
representative from each
family plus 1 independent
• Board delegates management
decisions to professional
• Team of professional
managers runs the firm
• Operational decisions
delegated to farm managers
• Discretion of farm managers
limited by budget and
operational plan
• Clearly-defined performance
• Incentive compensation
• Team of professional
managers runs the firm
• Operational decisions
delegated to farm managers
• Discretion of farm managers
limited by budget and
operational plan
• Clearly-defined performance
• Incentive compensation
• Team of professional
managers runs the firm
• Operational decisions
delegated to farm managers
• Organizational culture based
on personal relationships
• Introduction of benchmarking
between operational units and
incentive compensation to
complement informal control
Planted area
• 80,000 hectares • 23,000 hectares • 108,000 hectares - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
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to cut bureaucratic costs through constant production growth are indicative of the forces of circular cumulative
causation, which likewise play a major role in Galbraith’s evolutionary account of corporations.
5. Conclusions
Agricultural economists tend to frame their discussions of very large farms by the conceptual dichotomies
of ‘small size’ versus ‘large size’ or family labor versus hired labor. The present paper informs the study of
very large farms by invoking a further conceptual perspective inspired by American institutionalism and
new institutional economics. According to this perspective, very large farms embody the supersession of the
classic capitalist firm (i.e. the traditional family farm), resting on the identity of the owner-manager, by the
corporate form based on the separation of ownership and control. As a result, large corporate farms face the
critical challenge of coping with the potentially pervasive agency costs. Firms adopt different organizational
architectures to cope with agency costs, including personal relationships and trust, delegation of decision
making to farm managers, performance evaluation systems, incentive compensation programs and formal
control mechanisms.
In line with the institutionalist perspective, the case studies from the Brazilian cerrado show the advance of
agricultural technology to be a key determinant of the rise of very large farms. The key finding from the case
studies is that complex technology not only necessitates large-scale corporate farming but also generates
technical solutions to the potentially arising agency problems. In addition to the use of sound corporate
governance and supply of outside capital, these solutions are presented by organizational architecture
encompassing computer-aided accounting and budgeting systems, incentive-based compensation, clear
definition of performance goals, as well as the delegation of operational decisions to farm managers.
Paradoxically, a crucial outcome of organizational architecture is a culture of trust and accountability that
is seemingly at odds with Allen and Lueck’s (1998) assumption of opportunistic propensities of hired
agricultural labor. Our case study findings lend empirical support to the institutionalist theory of self-enforcing
technological imperatives but also call attention to the institutionalist concerns about their societal effects
that may be particularly disruptive in rural areas.
Finally, our analysis informs the organization and management of large-scale farms. The introduction of new
technologies and the opportunity to benefit from economies of scale and access external finance at lower cost
to fund land development costs and production growth are the major drivers of the separation of ownership
and control. Yet, farm managers need to be aware that capital providers require sound corporate governance
practices and transparency, including board independence, the presence of external directors and the adoption
of generally accepted accounting principles (GAAP) accounting rules. Additionally, farm managers must face
the fact that agriculture requires the use of local, specific knowledge so that farm workers can quickly adapt
agronomic practices to changes in local conditions. Large-scale farms, therefore, delegate decision-making
authority to farm managers and workers, which introduces the classic principal-agent problem. The article
describes some informal and formal organizational solutions that can be adopted by farm managers seeking
to control this problem. While these solutions have proved to be quite effective so far, it is nevertheless well
to remember that the emergence of large-scale corporate farms in Brazil is a recent phenomenon. Only time
will tell if these solutions will remain effective in the longer term.
The authors are grateful to the editors and anonymous reviewers for their helpful comments. Dr. Chaddad
acknowledges the support of INSPER to conduct the field research and personal interviews in Brazil used
to develop the case studies. Dr. Valentinov acknowledges the support from the Volkswagen Foundation. - Wednesday, April 05, 2017 11:46:46 PM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:
International Food and Agribusiness Management Review
Chaddad and Valentinov Volume 20, Issue 2, 2017
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... Examples of structural heterogeneity in the farming sector abound. When it comes to large-scale farms, the case of the "mega farms" found in the Brazilian cerrado that combine a "factory-style" organizational setup with family ownership can be considered (see Chaddad, 2016;Chaddad and Valentinov, 2017). In Eastern Europe, several agroholdingssome of them being family-owned firms that adopt a corporate legal formcongregate a broad set of stakeholders that include the State and external investors (see Hermans et al., 2017). ...
... For instance, Allen and Lueck (2004) contended that although the proliferation of corporate farms under conditions of uncertainty was unlikely, technological development would contribute to the growth in the average size of family farms. Nevertheless, Chaddad and Valentinov (2017) showed that technological development has led to the emergence of "mega soybean farms" in Brazil, a phenomenon that implies not only the management of growing areas of farmland but also the adoption of some type of corporate legal form and, in some cases, the attraction of external investors and the separation of ownership and control (see also Chaddad, 2014). In this sense, new technologies can positively affect both the ability of a farmer to manage a higher plot of land and the access to timely information on the performance of hired workers and managersa scenario that may enable the use of a "factory-style" structure. ...
... Another potential constraint to the establishment of a corporate form relates to the peculiarities of the activities conducted: given that the use of a corporate form implies the "partitioning of assets," one condition behind its adoption should be the separability between people and assets (Grandori, 2010). This is the case of emerging large-scale farm structures characterized by the intensive use of technology (see Chaddad and Valentinov, 2017). In contrast, whenever traditional and tacit knowledge is important, the separability between people and assets is likely to be low, limiting the adoption of a corporate form. ...
Purpose The purpose of this paper is to provide a multidimensional framework for the identification, description and comparative analysis of alternative farm structures and their properties for economic development. Design/methodology/approach Integrating previous typologies and considering a large set of examples, the authors identify six attributes that are necessary to characterize and compare farm structures: size; strategy; organizational form; legal form; who the owners are; and degree of separation of ownership and control. They also discuss potential complementarities between those organizational attributes and specific features of the institutions of developing and emerging countries, such as contract enforcement and property rights protection regime, and developed capital markets and corporate law. Findings Conceptually and empirically, effective farm structures can deviate from the templates traditionally considered – “small family-owned farm” or “large factory-like corporate farm,” combining structural attributes in diverse ways. The dimensionalization of farm structures also helps in revealing complementary institutional traits at the regional or larger system level that may foster development processes. Research limitations/implications The paper is limited to theory building and case-based evidence. Nevertheless, it provides dimensions that can be measured on a larger scale and by quantitative studies. Originality/value This paper sheds light on organizational diversity in agriculture and on a wider set of feasible development paths.
... The development of so-called agroholdings is a well-documented phenomenon for a number of transitional and emerging market economies (Chaddad/Valentinov 2017;Visser et al. 2012 ...
... Rural societies in Ukraine and some other transitional countries are characterised by high risk aversion, lack of trust, preference against being self-employed, lack of self-reliance, and corruption and nepotism (Koester 2005). Professional HRM and new labour monitoring technologies provide successful solutions to the problems of opportunistic behaviour by employees (Chaddad/Valentinov 2017). However, investments in these solutions often fail to pay off quickly. ...
Previous studies point to many inconsistencies regarding the determinants of job quitting. This study focuses on the impact of nurses’ job satisfaction, work motivation, nursing practice environment, personal characteristics and absenteeism on their intention to leave the job. An anonymous survey was performed on a sample of Croatian registered nurses. The results indicate that nurses’ job dissatisfaction, combined with a higher rate of absenteeism, represents a clear indication of their future turnovers. Nursing practice environment and personal motivation do not have a significant direct effect on the Intention to leave the job, but do have an indirect one through job satisfaction.
... The development of so-called agroholdings is a well-documented phenomenon for a number of transitional and emerging market economies (Chaddad/Valentinov 2017;Visser et al. 2012). Agroholdings are large-scale farming entities typi- Agroholdings, turbulence, and resilience: The case of Ukraine 373 cally consisting of a mother company that holds a controlling stake in dozens or hundreds of corporate farms and manages several dozens or hundreds of thousands of hectares of farmland (Hermans et al. 2017). ...
... Rural societies in Ukraine and some other transitional countries are characterised by high risk aversion, lack of trust, preference against being self-employed, lack of self-reliance, and corruption and nepotism (Koester 2005). Professional HRM and new labour monitoring technologies provide successful solutions to the problems of opportunistic behaviour by employees (Chaddad/Valentinov 2017). However, investments in these solutions often fail to pay off quickly. ...
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The agricultural sector in transitional and emerging market economies is marked by the prominence of agroholdings, i.e., conglomerates of agricultural enterprises controlling up to hundreds of thousands of hectares of farmland. Drawing on secondary information from Ukraine, this paper explores how institutional turbulence gives rise to agroholdings. The key hypothesis is that membership in an agroholding presents a strategy for agricultural enterprises to remain resilient in the midst of the severe institutional turbulence characteristic of a transitional economy. The focus on resilience provides a tentative explanation of why the remarkable growth of agroholdings fails to be accompanied by evidence of their superior efficiency.
... 'Mega-farms' 1 are relatively few, but they account for an increasing share of the agricultural land base and farming output of the province. While there is an emerging literature on mega-farms (Hermans et al. 2017), most studies have focused on regions such as Australia (Plunkett et al. 2017), South America (Chaddad and Valentinov 2017;Senesi et al. 2017), and Eastern Europe (Deininger et al. 2013;Gagalyuk 2017;Visser et al. 2013;Kuns et al. 2016). Very little is known about the structure, organization, and evolution of mega-farms in the North American context. ...
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Unequal access to land, driven by decades of consolidation and concentration, is of increasing concern around the globe. This article analyzes growing farm consolidation and land concentration in the province of Saskatchewan, considered Canada’s agricultural powerhouse. Drawing on Land Titles data and Census of Agriculture statistics, we document trends associated with a changing farm structure such as increasingly large land holdings, growing ownership concentration, and the emergence of a class of mega-farms. The largest farms, many of which have roots in family enterprise, are becoming increasingly complex in their organizational form and in their relationships to farmland, rented and owned. Our qualitative analysis allows us to provide an ‘on the ground’ view of these trends, including the multiple social and environmental changes wrought by on-going consolidation. We argue that these trends are contributing to a homogenization, flattening, and emptying out of Saskatchewan rural landscapes. Furthermore, we document increasing competitive pressures and land market dynamics that will likely continue to exacerbate land inequality and impede the entry of new farmers. Our research underlines the importance of new, more sophisticated ways of conceptualizing the family farm and its evolution from ‘farm to firm’.
... Research points to the following factors that drive agroholding development: a growing global demand for food (Hermans et al., 2017); inflows of external capital that led to growth via acquisitions of standalone farms (Gagalyuk and Valentinov, 2019;Petrick et al., 2013); reduction of country-specific transaction costs (Matyukha et al., 2015); and preferential public policies resulting from market power imbalances, lobbying and political objectives of self-sufficiency and export orientation of the domestic agri-food sectors . Some researchers suggest that agroholdings are able to improve their performance and decrease transaction costs through investments in modern technology and economies of size enabled by favorable access to external capital (Chaddad and Valentinov, 2017;Gagalyuk and Valentinov, 2019). Other studies have found that agroholdings tend to be less profitable than standalone farms (Balmann et al., 2013;Ostapchuk et al., 2019). ...
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This paper presents a dynamic perspective on the processes of farm restructuring following farm acquisitions by large-scale agroholdings in Ukraine. In particular, the paper employs a large dataset of farm-level data and several quantitative techniques to explore how the acquired farms’ resource bases are integrated after acquisitions and what outcomes an acquisition brings about for farm growth, profitability and productivity. In general, acquisitions positively affect farm growth and productivity while agroholdings use various resource allocation, resource redeployment and investment/divestment instruments for the post-acquisition integration of farms. The variation in achieving profitable post-acquisition growth of farms is contingent upon a number of farm pre-acquisition characteristics, strategic growth orientations and timing of acquisitions.
... Perkembangan ilmu akuntansi seharusnya juga menghitung nilai-nilai selain materi atau aset berwujud yang diperoleh, tetapi juga menghitung nilai aset tak berwujud yang dibangun dengan adanya nilai ikatan sipallambi' dalam setiap transaksi bisnis (Chaddad & Valentinov, 2017;Rizaldy, 2013). Pemilik lahan ada juga yang memperoleh bagi hasil dengan menerima uang tunai hasil penjualan gabah karena menurut pemilik lahan dan petani dalam kesepakatannya mereka tidak memiliki tenaga untuk mengangkut dan mengolah gabah menjadi beras. ...
Sipallambi’ Culture in Profit Sharing Practices. This study seeks to examine the profit-sharing system based on sipallambi’ culture. The method used is descriptive qualitative with the Bastem family harmony as the informant. The results of the study show that the harvest-sharing system implemented by smallholders is not solely used to provide or help other people to earn income. This system is intended to provide benefits to both parties who make the agreement. The distribution of results must prioritize justice in it. Sipallambi culture '(mutual help) becomes the foundation for this community.
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A soja é uma importante cultura para a economia do Brasil, sendo que na safra 2016/2017 produziu 113,9 milhões de toneladas, representando 32,43% da produção mundial. Apesar da sua representatividade, a soja enquanto uma oleaginosa tem sido pouco explorada em áreas de renovação de canaviais, cujo total de hectares pode alcançar 1 milhão/ano no Brasil. Diante disso, o estudo tem por objetivo avaliar economicamente dois sistemas de plantio, em três diferentes perfis de propriedade rural, com três cenários de preço distintos e com uso de área arrendada e própria no Estado de São Paulo. Verificou-se em 36 possibilidades que a produção de soja em área de renovação de canavial é viável para todos os sistemas de plantio, em área arrendada e própria e nos três perfis de propriedade. Apenas no cenário pessimista de preço, a cultura mostrou-se inviável para área arrendada e plantio convencional em área própria. Constatou-se que o sistema de plantio direto além de conservacionista é o que apresenta o melhor desempenho econômico e a utilização de área arrendada pode alavancar os resultados econômicos. A combinação da abordagem do Fluxo de Caixa Descontado com a Análise Custo-Volume-Lucro permitiu uma análise diferenciada do investimento ao apontar os limites mínimos que variaram entre 29 ha 1.065 há para viabilizar economicamente a produção entre a diferentes estratégias e perfil de produção e cenário de preços.
The article considers the possibilities of using geoinformation technologies in studying vertically integrated structures in agriculture of Russia as an important factor of innovative development of the agrarian sphere at the present stage. The use of GIS technologies is an effective tool for identifying spatial patterns of placement of the largest vertically integrated formations (agroholding) and the level of their territorial concentration by regions of Russia. Geo-information technologies are also an effective method of exploring the territorial and functional structure of large agroholdings at the regional (meso-) level. The strategic importance of large vertically integrated structures in ensuring the food security of the country was analysed. The important role of agroholdings is noted in ensuring innovative modernization of agriculture and in ensuring commercialization of innovation as a result of improvement of the material and technical base of agro-industrial complex and application of new technologies: efficient soil processing technologies, information technology of production process management, agricultural robotics and wider use of GIS-technologies for agro-management and support of agrotechnical operations. In order to identify and investigate spatial and temporal regularity of territorial organization of agroholdings, possible options were identified and thematic databases for GIS ArcView GIS were developed, which are the basis for geographic information modeling and mapping of various aspects of placement of vertically integrated structures. Functional and organizational-management structure of agroholdings is considered. Factors of formation and territorial differentiation of agroholdings in different regions of Russia have been identified and analyzed, the largest land users have been identified and the rating of the largest vertically integrated structures by revenue has been given. Spatial analysis of patterns of formation and development of agroholdings was carried out, positive and negative consequences of their functioning were revealed. The territorial and sectoral structure of a large regional agroholding in the Republic of Mordovia was studied in detail, the main factors of the functioning and development of this form of organizational and managerial innovations were identified.
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This article analyzes the agribusiness regionalization process in MATOPIBA, which, unlike other fractions of the Brazilian territory, has the predominance of corporate farms in soybean agricultural expansion, with a strong presence and association with internationalized / financierized capital, land and labor outsourcing. We found a typology of seven groups of corporate farms operating in the region and the intense interrelationship between them, whose strategies of accumulation by spoliation are derived from production (agricultural producers), but also from speculation and financialization (agricultural real estate) or both.
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Sustainability of nonprofit organizations is a key concern for today’s nonprofit scholars and practitioners. Building upon the nonprofit economics literature, the present paper introduces the distinction between the demand-side and supply-side determinants of nonprofit sustainability and makes the case for the discrepancy between them. This discrepancy presents not only a generic conceptual explanation of the nonprofit sustainability problems but is also applicable to the context of the European rural nonprofit sector. Three arguments are advanced. First, the notorious implementation problems of LEADER partnerships can be explained as a manifestation of the above discrepancy. Second, and related, the rural context implies the tendency of the supply-side determinants of nonprofit sustainability to undermine the demand-side ones. Third, recent empirical findings from the Czech Republic show that this tendency does not necessarily imply the possibility of a clear classification of the demand-side and supply-side sustainability determinants. Rather, those features of rural areas and communities that significantly affect the size of the local nonprofit sector exhibit a controversial entanglement of demand-side and supply-side identities.
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The present paper applies the logic of John Kenneth Gailbraith's institutional economics analysis of corporate power to inquiring into the societal role of the nonprofit sector. Building on Galbraith's insight that corporations cause subtle but pervasive societal imbalances, the paper locates the role of nonprofit organizations in compensating for these imbalances, thus showing corporations and nonprofit organizations to be mutually complementary rather than antagonistic actors. This argument is supported by Niklas Luhmann's vision of the precarious relationship between the complexity and sustainability of social systems as well as by Kenneth Boulding's analysis of the farmer and labor movement. Luhmann's and Boulding's perspectives show profit-seeking corporations to be social systems developing high technological complexity at the cost of sacrificing their societal sustainability, while the improvement of the latter constitutes the rationale of many nonprofit organizations. The same systems-theoretic logic suggests, however, that nonprofit organizations may tend to underestimate the technological complexity of implementing their mission-related activities, thereby undermining their own effectiveness.
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Private colonization is the use of companies and cooperatives to survey, demarcate and occupy land, build infrastructure, open roads, plan urban areas, and provide health services and education. Although state-directed colonization projects are strongly implicated in recent environmental and social changes in the Brazilian Amazon, areas settled by private colonization were larger than state-led settlement. The paper considers this poorly examined aspect of the region's recent settlement history by focusing upon a colonization cooperative and private company that settled smallholders from southern Brazil to eastern Mato Grosso State between 1970 and 1980. The analysis emphasizes how private colonization cooperatives successfully secured land title, setting the stage for subsequent commercial agricultural development. This study rejects prevailing interpretations of private colonization as a tool of authoritarian government in Brazil. Rather, private colonization secured land tenure and organized an economically viable production system in a frontier environment of unpredictable state bureaucracies, high transaction costs, risk, and precarious markets.
The Economics and Organization of Brazilian Agriculture: Recent Evolution and Productivity Gains presents insights on Brazilian agriculture and its impressive gains in productivity and international competitiveness, also providing insightful examples for global policymakers. In Brazil, as in many countries, many economists and policymakers believe that agriculture is a traditional, low-tech sector that crowds out the development of other economic sectors and the country. This book shows that this anti-agriculture bias is ill-informed, and with population growth, rising incomes, urbanization and diet changes - especially in developing countries like China and India - on the rise, the demand for food is expected to double in the next 40 years. Brazil has the natural resources, technology and management systems in place to benefit from this expected growth in food consumption and trade. Through real-world examples, the book shows how other low-latitude countries with tropical climate and soils like Brazil - especially in sub-Saharan Africa - can benefit from the agricultural technology, production, and management systems developed in Brazil. Case studies in each of three key categories, including technology, resource management, and effective government programs provide valuable insights into effective decision-making to maximize the effect of each. Provides important and practical insights into achievable agricultural options via case studies Addresses the use of natural resources, technological advances, and management systems to create viable, adaptive economic growth Applies lessons learned in Brazil to improving both economic and ecological resource-sustainable agriculture for other regions and countries.
With searing wit and incisive commentary, John Kenneth Galbraith redefined America's perception of itself in The New Industrial State, one of his landmark works. The United States is no longer a free-enterprise society, Galbraith argues, but a structured state controlled by the largest companies. Advertising is the means by which these companies manage demand and create consumer "need" where none previously existed. Multinational corporations are the continuation of this power system on an international level. The goal of these companies is not the betterment of society, but immortality through an uninterrupted stream of earnings.
The core business of BrasilAgro was the acquisition, development, operation, and sale of rural properties suitable for agricultural production. The company sought to acquire rural properties offering significant potential for cash flow generation and value appreciation. Once BrasilAgro acquired a rural property, it invested in infrastructure, facilities, and technology necessary for efficient farming activities. It then engaged in high productivity agricultural operations that aimed to maximize cash flow per area. The international competitiveness of the Brazilian agricultural sector is attributed to a number of factors, including public investments in agricultural research and increased rural credit availability, which led to significant productivity gains since the 1970s. Econometric analysis in Rada and Valdes indicates that public agricultural research expenditures had more influence on productivity gains for the most efficient farms, whereas rural credit availability, transportation, and primary school infrastructure investments helped to reduce the productivity gap between the most efficient and the average producers.
Brazil's economic strategy has shifted hesitatingly during the last several decades from one of producer protection to trade competitiveness. Exploiting the variations these shifts have afforded, we use a sequence of decennial agricultural censuses to examine Brazilian policy implications for agricultural competitiveness and efficiency. Total factor productivity is decomposed into best-technology and efficiency elements, each subject to policy influence. We find technology growth, at 4.5% per annum, to have been extraordinarily high, particularly in the south. But because productivity among average producers has fallen rapidly behind that on the technical frontier, total productivity growth has been a much more modest 2.6% per year. Public agricultural research programs most benefit the country's technological leaders, widening the gap between frontier and average producer. Credit, education, and road construction policies instead narrow that gap. Credit and road programs especially enhance efficiency in the south, where efficiency losses have been greatest.