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Typical of many agricultural sectors in the U.S. today, the poultry industry is characterized by two types of systems that result in poultry for consumption: large-scale industrial, conventional production and small-scale, alternative production. Large-scale, conventional, industrial poultry production. At the high-volume end of the continuum is the conventional, industrial poultry industry. Today, the conventional, vertically- integrated poultry industry controls and manages the production and processing of 96% of the chickens raised for meat in the U.S. (Pretanik 2007). There are 10 companies that produce more than ¾ of the chicken produced for. | Poultry in Motion A Study of International Trade Finance Practices Pol ÀnTRÀs AnD C. Fritz Foley November 2011 Abstract This paper analyzes the financing terms that support international trade and sheds light on how these terms shape the impact of economic shocks on trade. Analysis of transaction-level data from a U.S.-based exporter of frozen and refrigerated food products primarily poultry reveals broad patterns about the use of alternative financing terms. These patterns help discipline a model in which the choice of trade finance terms is shaped by the risk that an importer defaults on an exporter and by the possibility that an exporter does not deliver goods as specified in the contract. The empirical results indicate that cash in advance and open account terms are much more commonly used than letter of credit and documentary collection terms. Transactions are more likely to occur on cash in advance or letter of credit terms when the importer is located in a country with weak contractual enforcement. As an importer develops a relationship with the exporter transactions are less likely to occur on terms that require prepayment. During the recent crisis the exporter was more likely to demand cash in advance terms when transacting with new customers and customers that traded on cash in advance and letter of credit terms prior to the crisis decreased their purchases by 18.9 more than other customers. The model illustrates that these findings can be rationalized if i misbehavior on the part of the exporter is of little concern to importers and ii local banks in importing countries are more effective than the exporter in pursuing financial claims against importers. Harvard University and NBER Harvard Business School and NBER. The authors are very grateful to numerous employees at the anonymous firm that provided the data and to Matthew Johnson and James Zeitler for excellent research assistance. We also thank Kyle Bagwell Mihir Desai James Hines Kalina Manova .
