The name is absent

Vertical Coordination and Contract Farming

3.1.2.3. The Structure of Contract Farming in the
Studied Region

In the studied region, contractual relationships have
been widely observed, mainly in tomato paste, vegetable
and fruit processing industries along with spot market
transactions. Contractual arrangements account for 75%
as an average especially in tomato and peas production.
In dairy industry there was no straightforward
contractual links between producer and dairies. About
60-70% of the raw milk was sold in open market, the
remaining 30-40% was handled in some kind of open-
auction system. In the open market, processors either
have stable or mobile procurement centers or bought raw
milk through brokers and other middlemen.

In the auction system, as widely used in Balikesir
Province, producers are organized under a cooperative or
mostly under Village Service Unions which are semi-
governmental organizations. These village service
unions are having an active role in organizing these
auctions in favor of farmers. The role of these
organizations are similar to the bargaining cooperatives
in USA (Marcus and Frederick 1994). However, there
are some problems in practice.

It was observed that, in olive processing and
vegetable oil industries, cooperative organizations, spot
market transactions and long standing clients'
relationship accounted more than those of contractual
arrangements. "MARMARABIRLIK" (The Marmara
Union of Olive Sale Cooperatives) in olive and
"TRAKYABIRLIK" (The Edirne Union Oil Seeds Sale
Cooperatives) in sunflower seed processing have
significant shares and also have a regulation role in the
table olive, olive oil and sunflower oil markets. In the
region of study some olive producers are also members
of the “TARIS (A Top Management of four Agricultural
Sale Cooperatives)” which is located in Aegean Region.
Maramarabirlik, which is a sale cooperatives union, has
the biggest share in olive processing and marketing in
the region with its 8 local cooperatives and 37,418
members. Trakyabirlik is also a very efficient nation-
wide union which has 48 local cooperatives and 138,806
members. This union's 1995 share of sunflower growth
for oil production was 34.4% (Dayanikli 1995). However,
these agricultural cooperatives have significant problems as
mentioned before.

Hop production was included in the scope of this
research because of its interesting features concerning
producers and industry relationship. In the hop industry,
private sector, a state enterprise and a farmer cooperative
organization have been sharing the market. One private
company tries to grow raw material in its own plantation
along with contractual relationships with farmers as an
out-grower scheme (Glover 1987). Another private
company and State Monopoly operate in the market only
during harvesting season as buyers with an advance-paid
price system. There is also a farmers’ cooperative
organization as a third alternative. In such a structure,
despite the favorable offers, the private company could
not succeed in increasing the number of the contractee
farmers and also its market share over 60%. There is
competition between farmers cooperatives and private
companies. The role of the cooperative in marketing
shows the importance of the farmers organization in
contractual relationships and of obtaining bargaining
power through that organizations (Koening 1995; Ling
and Liebrand 1995; Rehber 1996).

3.1.2.3.1. Contents of Contracts. Twenty five
contracts have been examined from the region pertaining
to this study. There were no special legislative base in
Turkey until 1996 for production contracts which were
prepared mainly on the basis of the contract sample of
the Turkish Sugar Industry Stock Companies or of the
personal preferences of the integrators.

There were some differences in the contents of the
contract details often written in a language not easy to
understood by farmers. They appear as provisions that
the producers should obey arranged by the processors.
Contracts generally compromise 4 main sections
(Buccola 1980). In the first section, both parties are
defined; in the second, the economic provisions of the
contract and the responsibilities of both parties are
presented. In the third section includes technical
conditions and the last section includes the authority and
method for resolving disputes and dissatisfactions. The
end of a contract has a signature and authorization clause.

The length of the contracts found in our sample were
mostly one year; the only exception was the hop
production contracts which span more than one year.
Eighty percent of the examined contracts are based on
tonnage while 20% have an acreage basis. The contracts
have been signed by an individual producer or by a
producers group in which all producers are responsible
reciprocally to each other. Each producer group has a
representative or a responsible producer who has the
right to change or add provisions to the contract and also
acts as the representative of the processor. The share of
this group approach is about 60% of the investigated
contracts. Although the contract indicates both
producer's and processor's responsibilities, the producer
is also responsible for extra debt receipts, especially
when he has received inputs or payment in advance from
the integrators. While the share of payment in advance in
contract implementations was 76%, the share of the
contracts which have a debt receipts placed was about

Food Marketing Policy Center Research Report #52

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