What is vertical coordination?
Vertical coordination is the process of implementing all the stages such as production line, marketing and selling the final output. The other important thing about the vertical coordination is that there should be an efficient communication between consumers and producers in that how much should produce the producer and also what quality should have the product.
One of the main characteristic of the communist world was the state property, meaning that the whole state economy was controlled by the state institutions. The private property existed before the communism era, but when the world faced the communism the private property did not existed any more. The state took control over every private property and the owners of these properties, not only “lose” their property but also they were somehow discriminated. Such regime was spread in Central Europe, such as in Albania, Chez Republic, Slovakia, and also in East Asia such as in Russia. One of the main sectors that were extremely controlled by the state was the agriculture and food production. These sectors were state-controlled not only in Communist world, but also in some other states in Africa, South Asia, and South America. In these non Communist countries, the state institutions played a very important role in agriculture production in the field of marketing and also in export field.
Between 1980 and 1990, started a global process of liberalization, meaning that in the sectors which were under the state control the process of privatization started. In that way the agriculture sector and the food sector were faced with the process of privatization, by somehow removing the control of the state over these sectors.
As the globalization started in the whole world, the economies of countries of the world started to change, some of states had a decrease level of their economy and some other had increase level of their economy, meaning that the effects of globalization for different countries were different. In communist countries, the effects of globalization were in the form of liberalization of the economy, such as the liberalization of the trade, agriculture, price, etc. this happen in Central Europe, Soviet Union, and also in Eastern Europe.
State-controlled vertical coordination
Vertical coordination was also spread in state controlled agriculture and food supply chains. These states were mostly under the Communist regime where the state institutions decided about the quantity of the production by including also the exchange of inputs and outputs along the chains. The institution which was responsible for this duty was called the central command system ( Rozelle and Swinnen, 2004).
However a lot of critiques have been demonstrated for the state-controlled vertical coordination. These critiques were mainly based in that state-controlled vertical coordination were inefficient, meaning that there were motivated by political motives, and by objectives to provide cheap food for urban markets, the maximization of foreign exchange earnings, the creation of rural employment, determining the viability of certain businesses (Johnson and Brooks, 1983; Swinnen and Rozelle, 2004). Vertical Coordination was inefficient also in other states where the communism regime was not present, but the where the state had primary control over VC. As an example, the African states did not have an efficient VC, by manifesting somehow low credit payment rates (Warning and Key, 2002).
The end of the state-controlled VC
As we described above, between 1980 and 1990, the world was faced with the liberalization and the privatization. The communist regimes all over the world started to fall down and thus the economy of these countries which were in transition started to have big changes. Those changes were reflected also in VC, by somehow put into crisis the previous system of VC. This is clearly...
References: Johnson, D.G. and K.M. Brooks (eds.). 1983. Prospects for Soviet Agriculture in the 1980s. Bloomington: Indiana University Press.
Rozelle, S. and J. Swinen, 2004, “ Success and Failure of Reforms: Insights from
Transition Agriculture”, Journal of the Economic Literature 42(2): 404-56.
Warning M. and N. Key, 2002. The Social Performance and Distributional Impact of
Contract Farming: An Equilibrium Analysis of the Arachide de Bouche Program in Senegal. World Development, 30(2): 255-263.
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