Vertical Coordination and Contract Farming
Rehber
On a historical perspective, the Turkish food
industry has a triple structure. On the one side, State
Economic Enterprises (SEEs) had been established for
processing sugar-beets, meat, fish, and milk. Some of
these are subject to privatization and some plants have
already been privatized in the past decade. SEEs in
Turkey have taken a significant and a pioneer role in
food industry from the beginning of the Republic.
Especially the sugar industry since 1926 was not only
the real pioneer in development of Turkish industry; it
also was the initiator of contract farming. The Turkish
Dairy Industry had an important share in processing of
milk (some of them are privatized now). Most of sugar-
beet production and marketing are under the control of
the Turkish Sugar Factories Corporation. The Turkish
Tea Company, the Meat and Fish Organization, the
Turkish Fields Products Office and the State Monopolies
Directories are some of the other important SEEs in the
processing and marketing of related agricultural
products.
The second type of organization in the Turkish food
industry is cooperatives. The first agricultural sale
cooperative was established in 1911 to process figs.
According to the 1993 data, there were 433 Agricultural
Sale Cooperatives (ASC), 13 ASC Unions and 732,514
member farmers. Some of the large foods processing
plants still belong to these cooperative organizations.
The estimated shares of the Sale Cooperatives are dairy,
2.93%; olive oil, 6.8%; vegetable oil, 9.7%; fruit juice,
5%; and flour, 1% (Mulayim 1995). Beside these sale
cooperatives, Sugar-beet Producers Cooperatives, Tea
Producers Cooperatives, and Village Development
Cooperatives which have some food, processing and
handling plants must be considered. Agricultural Sale
Cooperatives have serious institutional, financial and
managerial problems (Mulayim 1997). They are
administered and controlled by the Ministry of
Commerce instead of their members. They are mainly
financed by State sources and have been acting as SEEs.
Therefore, the term privatization is used incorrectly for
these cooperative organizations (Rehber 1995).
However, from the main cooperative principles’ point of
view announced by the International Cooperative
Alliance, agricultural cooperatives in Turkey could not
be accepted as real cooperatives except Village
Development Cooperatives (Rehber 1993).
The third and most promising part of the food
industry is the private sector. It is expected that the
Turkish food industry will be developed in this structure
in the future through relatively large private corporations
which are viable in the changing and globalized market
conditions of the world.
Turkish agricultural policy is outlined in five year
Development Plans. The principles of agricultural policy
could be summarized as follows:
• Price support system.
• Agricultural extension services.
• Intervention to market both inputs and products
through Public Organizations, Cooperatives and SEE.
• Custom and credit facilities.
• Extension of irrigation.
The price support system was initiated in the 1930s
through intervention in wheat and grape markets by
purchasing in the market in order to regulate price. By
the end of 1970, the number of commodities in the price
support system had reached to 30. The economic
liberalization program embarked upon in early 1980s
has caused this figure to fall to 10 in 1990 and to 9 in
1996 (Muthoo and Onul 1996).
Turkey has taken part in almost all political,
economic and military movements of the West after
World War II. Turkey also signed an association
agreement with the EU in 1963. Despite it’s eligibility
underlined on several occasions, Turkey is still waiting
to be a full member of the EU despite the custom union
agreement signed in 1996. Turkey is the first country to
enter the Custom Union with the EU without being a full
member. The Custom Union covers industrial and
processed agricultural products while agricultural
products remain out of its scope. Turkey should adjust
her agricultural policy to adopt the Common
Agricultural Policies.
3.1.2. Vertical Integration and Contract Farming in
Turkey.
When we evaluate the structure of Turkish food
industry from the point of view of vertical coordination,
the relationships have been varied from spot market
transactions, long established client relations to
contractual arrangements. As observed in the
investigated region, the spot market transaction was
dominant in some sub-sectors while contract farming
was the only way of vertical coordination in others.
National figures about the application of contract
farming are not available. Beet sugar processing, and the
commercialized part of broiler production operate under
contractual relationships. In vegetable and fruit
processing contract farming has been used widely along
with the other procurement ways. In these chapter,
broiler industry and beet sugar processing have been
reviewed separately while vertical coordination and the
structure of contractual relationship in other sub-sectors
are presented based on a field survey conducted in the
Food Marketing Policy Center Research Report #52
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