Vertical Coordination and Contract Farming
Rehber
1995 (Anonymous, 1995). One of the main obstacles of
the Turkish Agriculture, and of course general
development efforts, is the rather high ratio of
population engaged in agriculture that live in rural areas.
Turkey has 779,000 sq. km total area, one-twelfth that of
the U.S. There are approximately 4 million farms,
increasing from 3.1 million in 1960. The farm structure
in Turkey is very fragmented. In 1991, 66.9% of farm
households were cultivating an area smaller than 5 ha.
More than 95% of all farms and over 60% of the total
land fell into the less than 20 ha farm size group. There
are about 37 State Farms which have an average of more
than 1000 ha. Most of these operate under the control of
Ministry of Agriculture (General Directorate of State
Farms). Although subject to privatization in the recent
two decades, they played an important role in the early
development stage of Turkish agriculture through
introduction of high-yield seeds, new production
techniques, and application of contract farming.
Development of the Turkish food industry as in the
other sectors, was initiated with the foundation of the
Republic. The first sugar factory was established in 1926
(Hershlag 1958). Considerable progress has been
achieved through five-year plans and annual programs
which began in 1963.
This progress accelerated in the 1970s, with market-
oriented policies instead of inward-looking strategies.
Turkey embarked upon rather comprehensive
liberalization and structural adjustment programs
especially after 1980 (Uygur 1995).
Despite several incentives devoted to the sector in
the five-year development plans since 1960, food
industry has not reached the desired level in Turkey.
Although it is difficult to find reliable data, it could be
said that the share of food supplied through processing
10-20%, as compared to 60% in the developed world.
Growth rates ranging between 4% and 7% were
achieved during the planned period. There are rather
serious problems concerning the development of the
food industry. The most important, as defined by the
industry, is raw material procurement problem and
vertical co-ordination between farmers and industry.
There were 25,368 firms in the food industry
according to the 1990 Industry Census of Turkey up
from 22, 300 in 1988. Only 500 of them were higher
capacity factories which have modern technologies.
About 2,000 were lower capacity plants, the remainders
were small size units with undeveloped technologies
(Anonymous, 1993). Breakdown of firms by the number
of the employees is presented in Table 3.1. Of the total
25,368 firms, 53% were grain mills and bakeries. Dairy
and dairy products and fruit-vegetable processing plants
were the second and third having 17% and 16%
respectively.
The food industry share of the total employment in
manufacturing industry was 15% while 13% of total
value added of the manufacturing industry belonged to
the food-processing sector. The total established capacity
of the food processing plants is more than sufficient to
meet domestic and export demand, but some shortage
still exists because of the low capacity utilization in the
entire industry. It was estimated that only 31% of the
total production capacity was utilized in 1990 (Cetin et
al. 1996).
According the 1996 data, the manufacturing industry
share of total domestic GNP was 23.36%. Food
processing had the highest share of the manufacturing
sector income (Anonymous 1998). Total Turkish exports
were 23.167 billion dollars in 1996, 9.75% of which has
come from the food industry (2. 651 billion dollars).
Food industry imports were 1.7 billion dollars, 4% of the
total import value (Anonymous 1998).
Three different systems could be observed in
marketing of agricultural products. Some are marketed
in an organized system in which State Economic
Enterprises and Cooperative organizations exist.
Agricultural Sale Cooperatives have an important role in
the price supporting system. Commodity Exchanges
organized and controlled by law and regulations under
the control of Ministry of Commerce may be included in
this system. According to recent data, there are 98
Commodity Exchanges which are located in province
centers and some large districts. These are not very
effective (Doser and Rehber 1987).
Fresh fruit and vegetables are marketed in the
wholesale market system under the control of
municipalities. In this system, brokers and middleman
have an important role while the first system outlined
above is working in favor of producers.
The third group of agricultural products are
marketed in totally free-market.
These explanations are made only to give a picture
of the agricultural marketing structure of Turkey. It does
not mean that each product is sold in one of these three
systems. For example, if we consider milk marketing,
85% of the milk supply is handled and marketed in an
unorganized manner by farmers, middlemen and
approximately 2,800 small manufacturing plants. Only
15% of the total supply is handled by large capacity
plants which have modern technology. The number of
milk plants which have 1000 ton/year processing
capacity was 1,308 in 1992, 91.5% belong to the private
sector, 3.6% State Enterprises, and 4.9% cooperatives
(Anonymous 1995). Consequently it can be said that
most of agricultural products are handled in free-market
conditions.
Food Marketing Policy Center Research Report #52
14