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Abstract
Recent outbreaks of food-borne illness related to fruit and vegetables have led to increased
concerns about the safety of produce. In response, the industry has adopted marketing
agreements to ensure consistency of product safety. Contracts now are widely used between
processors and growers to specify product safety attributes. This paper uses a principal-agent
model to examine how the inclusion of a marketing agreement influences the behavior of
growers and processors under processor-grower contracts. We conclude that: (1) the processor
offers a contract with a higher premium and a lower base payment under the contract with a
marketing agreement (2) contract parameters change in similar manner under the two contracts
(3) under a contract with a marketing agreement the processor earns less profit. The individual
contract scenarios are discussed in detail.