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Abstract

This paper discusses a process of supplier relationship development and evolution within the agri-food chain of Central and Eastern Europe during transition. We use the case of Belgian multinational brewing company Interbrew to suggest that independent facilitators holding sufficient private enforcement capital with local farmers can be used to facilitate the required supply base of local raw materials. Traditional business models for local product procurement have been found to be inappropriate for operating within business environments characterized by financially distressed local farmers who possess limited trust in processors, lack the necessary relationship-specific assets, and face weak external enforcement. In such environments the presence of sufficient initial private enforcement capital is necessary to facilitate exchange and assist in the development of a sustainable local supply base. When the processors lack sufficient capital, we argue that independent facilitators can be successfully employed to provide the link between farmers and processors. Further increases to the private enforcement capital through provision of inputs, technical assistance, and guaranteed payments widen the self-enforcing range of the contract and reduce the risk of contractual breach. Thus the presence of sufficient private enforcement capital was critical in facilitating the development of a sustainable supply that, once established, enabled Interbrew to continue divesting of malting facilities and to focus on the core competencies of brewing and marketing beer.

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