Option Contracts for Supermarket Fruit Supply Chains: Theory and Practice

Perishability increases uncertainty in food supply chains and supply chain players must respond quickly to produce changes in order to minimize loss through waste. In high income countries such as Australia, as elsewhere, waste is a function of uncertainty in decision making and lack of coordination between different players in the supply chain. Contract-of-Sale agreements between farmers and retailers may be directly responsible for crop waste at the farm gate and/or in supply chains into retail stores. Lack of coordination results in poor performance of the supply chain and inaccurate forecasts will result in excessive inventory costs, food wastage, quality-related costs and customer dissatisfaction.