Farmers are able to divert deliveries to spot markets because membership in a sheep/beef meat processing co-operative does not imply high penalty risks for non-delivery. Such behaviour is possible because the meat industry is characterised by structural overcapacity and there is high competition among processors for primary supplies. Processors confronted with non-delivery choose not to make recourse to enforcement procedures considering that this would weaken their capacity to attract suppliers in the future. Other processors benefit from non-enforcement of contracts by their competitors because this provides an opportunity to attract additional supplies.