Vertical Coordination and Contract Farming
Rehber
Bursa region8. This region had 6.2% of total plants, 8.2%
of established capacity, and 7.4% of total production of
Turkish food industry in 1990 (Anonymous 1993).
Although these figures reveal rather unimportant
amounts, fruit and vegetable processing, vegetable oil,
dairy and hop industry are well developed in this region.
Hop production and processing exist only in Bilecik
Province (Rehber 1998). Approximately 50-60% of the
fruit and vegetable processing plants which have rather
large capacities are located in this region. For example,
24 of the largest tomato paste plants of the 42 total are in
this region. Bursa Province by itself has supplied more
than 55% of the Turkish tomato paste production (Akgul
and Rehber 1993).
No special legislative arrangement related to
contract farming existed in Turkey until 1996. In June of
1996, the Ministry of Agriculture circulated a directive
(regulation) in order to control contractual arrangements.
Despite the general character of this direction, it was
highly detailed even describing a certain pricing
formula. This direction was immediately amended two
years later in August of 1998, to outline a general
framework compared to the detailed structure of the
previous one. It was not more than a standard contract
form giving the Directorates of the Ministry of
Agriculture at the province and district levels the right to
control and partake in the arbitration process as a third
party.
3.1.2.1.Broiler Industry
The first attempt to establish a modern broiler
industry as in the other sectors was initiated by
Government through the foundation of a Central Poultry
Research Center in 1930
Considerable progress was not be achieved until
1950. Around 1950, introduction of improved parent
stocks contributed a real transition in the sector. Further
progress could was realized after 1963 by using
imported hybrid varieties from abroad. And a
remarkable increase in exports at the beginning of 1980s
has accelerated this process (Gunes et al. 1990).
Despite the rapid development observed during the
last two decades, about 60% of the total broiler
production is grown by independent growers who have
no contractual coordination with processors. Therefore a
considerable amount of broilers in Turkey are grown by
traditional methods and are handled in an open market
system in an unorganized manner. According to 1997
data, there were 6,785 broiler farms plus farms which
8 Bursa, Balikesir, Bilecik and Canakkale Provinces were
included.
have poultry production as a side-activity. Of which,
72.6% have a capacity less than 5,000 head/per year.
The beginning of the vertically coordinated broiler
production went back to 1969 with the Turkish
Development Foundation (TKV) which was established
to serve rural development. At the beginning, TKV
started broiler production in a certain region by
providing selective credit. Later, small size broiler
growers were organized under regional Corporations
which provide chicks, feed, services, processing and
marketing. In 1985 these regional corporations were
organized under a central Corporations (Holding) was
known as KOYTUR. In recent years, the number of
regional corporations has reached 11, the number of
growers who have a contract relationship with these
corporations is 2,220 with total 75,000,000 bird/year
capacity, almost 20% of the total production capacity of
Turkey (TKV, 1998). Beside KOYTUR, 20 corporations
have controlled 90% of the industrialized part of broiler
production through contractual arrangements with
growers. Two types of vertical coordination could be
observed. First, some are fully integrated. From growers
to wholesalers, all activities from chick raising to
processing are under control of the integrator in this
system. A second system can be called partial
integration. Either some of the production inputs (chicks
or/and feed) or some services i.e. processing and feed
preparation are provided from other companies outside
the system.
Broiler contracts vary from integrator to integrator.
Many broiler contracts are only one flock in duration.
Both growers and processors have non-renewal rights. In
general, the contacts have two common features. One of
main features is the division of responsibility for
providing inputs. The other important feature is the
method used for grower compensation. The growers
provide land, housing facilities, utilities (electricity and
water), and labor. Operating expenses such as
maintenance, repair, cleaning, and manure and dead bird
disposal are also the responsibility of the farmer. The
integrator provide chicks, feed, medication and advisory
services. Typically, the processor company owns and
operates hatcheries, feed mills and processing plant
while providing transportation of feed and live birds.
Other inputs such as fuel and litter are the responsibility
of the producer. Most of the integrators require strict
technical qualifications regarding construction and
equipment of chicken houses.
Integrators can force changes in operation whenever
they wish since there is no contract to prevent such
changes. Broiler growers often complain that these
changes are excessively expensive (For example new
ventilation system) but they have no choice since they
Food Marketing Policy Center Research Report #52
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