The food and agriculture sector offers many opportunities to apply concepts from the new institutional economics (NIE). Indeed, some of the earliest modern studies on economic organization focussed on agricultural contracting such as cropsharing (Stiglitz 1974), land tenancy arrangements (Roumasset and Uy 1980; Alston and Higgs 1982; Alston, Datta, and Nugent 1984; Datta, O'Hara, and Nugent 1986), marketing cooperatives (Hendrikse and Bijman 2002), and markets for commodities like honey (Cheung 1973) and fresh fish (Wilson 1980; Acheson 1985). Food and agriculture contracting are particularly interesting because of their unique characteristics. First, agricultural commodities are produced according to biological production functions, meaning that their production schedules are often “fixed” by nature. Combined with the seasonal nature of production, this typically leads to high levels of uncertainty and physical, site, and temporal asset specificity. Second, because agricultural commodities are often highly perishable, monopolistic and monopsonistic market structures are common. Third, agriculture operates in a unique political and regulatory environment, with substantial effect on ownership patterns and economic incentives. Agriculture is often viewed by policy makers as a “special” sector, not only because food is a basic human need but also because the independent farmer – often in a highly romanticized caricature – is usually viewed as an essential element of a nation's character.
Operating in this unique institutional environment, food and agricultural producers have adopted a number of specialized institutional arrangements to increase productivity, improve quality and variety, and protect relationship-specific investments, among other objectives.