Vertical Coordination and Contract Farming
Rehber
have already had large sunk investments.
Although the calculation methods are changing from
integrator to integrator, most broiler contracts have a
similar remuneration schemes based on the performance
evaluation. The performance payment is based on the
feed conversation and mortality rates. A fixed price is
determined and an adjustment made based on the
grower’s relative performance.
Standard mortality and feed conversion rates are
determined differently from integrator to integrator. The
standard feed conversion rate is calculated as an average
of the growers performances who are in the production
scheme. The standard mortality rate is determined
arbitrarily based on technical assumptions, generally 5%.
Calculation of the amount paid to the growers is
presented here as an example. The investigated firm has
determined the standard feed conversion and mortality
rates are 2.0 (fs) and 5% (ms). The grower has a 10,000
(c) head capacity, a 1.9 (f) of feed conversion rate and a
7% of (m) mortality rate. The fixed basic price per kg
live weight is 88,000 (p1) TL. 125,000 (p2) TL is the
amount considered for extra feed conversion rate above
or below the standard, whereas 200 (p3)TL is the amount
considered for extra 1% mortality rate above or below
the standard.
The amount supplied by the growers;
S = c x f (1-m) = 10,000x 1.9 (1-0.07) = 17,760 kg.
Since the grower has a lower feed conversion rate
((fs-f) = (2.0-1.9) = 0.1), he will get a bonus per kg equal
to (fs-f) x p2 = 0.1x125,000 = 12,500 TL/kg. The 7%
mortality rate is 2% ((ms-m) = (7-5) = 2) more than the
standard rate. Therefore he should get less as a penalty
equal to (ms-m) x p3 =2 x 200 = 400 TL/kg.
The price paid to this grower equal to p = p1+- (fs-f)
x p2 +- (ms-m) x p3.
p= 88,000+ 12,500 - 400 = 100,100 TL/g.
The total amount of payment;
T = S x p = 17,670 x 100,100 = 1,768,767,000 TL .
The method of calculation is presented above can be
formulized as follow;
T= S x p
T = (c x f (1-m) ) x (p1+- (fs-f) x p2 +- (ms-m) x p3
3.1.2.2. Beet-sugar Processing
There were 25 beet sugar processing plants
operating under the Sugar Factories Corporation. Four of
them recently have been privatized. The Sugar-beet
Producers Cooperatives own these plants as one of the
partners of the ownership before.
All sugar beet production has been under contract
farming since the beginning of the industry. This
production system is also important as the first
implementation of contract farming. Sugar beet has been
processed in stock companies, which are a kind of SEEs.
There were, 407,350 farmers producing sugar beet under
contractual relations with this organization in 1994.
There are also Sugar-beet Producers Cooperatives.
The relationships between companies and producers was
being organized by these cooperatives. Until 1994, the
farmer who was in contractual relationship with a
company had to be a member of the cooperative. Since
1994, this has not been required and the role of
cooperatives is not as important. After the privatization
period of 1980s contract provisions were being
determined in favor of the farmers by the producers
cooperative that had the ownership of some factories
which were running as SEEs before (Anonymous 1994).
It was argued that, this ownership integration through
producers’ cooperative has increased the financial
efficiency in the privatized plant as in the U.S. (Koening
1995). Indeed, in Turkey, there would not be any
difference in farmers’ income through the type of
integrator because of sugar beet prices are subject to the
government price support system and is determined by
the government, The increased efficiency in the grower-
owned factories could be achieved through efficient
management, better-organized delivery and payment
procedures.
In the sugar-beet production a simple pricing system
is used based on the sugar content of the beet. Every
year, the basic price which is based of 16% average
sugar content has been announced by the Council of the
Ministries. A premium is added or deducted according to
the sugar content of the beet supplied. The premium is
calculated by dividing the basic price by 16. The amount
calculated for 1% sugar content is used as a premium,
which is being used calculation the price paid to farmers.
If the supplied beet has a sugar content more than 16%,
the amount is added equal the amount of extra percent
times premium. If the sugar content below 16%, same
system is used vise-versa. In the price system, an extra
premium is also paid for early harvest to regulate supply.
The beet-sugar plants are classified into four groups
according to the harvest period to determine the early
harvest premium. That is, the early harvest premium
varied from group to group. This premium is paid only if
the beet has sugar content greater than or equal to 16%.
Detailed information about the contract content and
implementation are presented based on survey data in
the last section of this chapter.
Food Marketing Policy Center Research Report #52
17