Vertical Coordination and Contract Farming
Rehber
60%.
The price and payment systems vary from contract
to contract. The rate of the contracts in which the
constant price approach has been used was 36%,
whereas the constant price plus a premium system was
used in 44% of the investigated contracts.
3.1.2.3.2.Contracts From the Producers' Point of
View. In the study region, interviews have been carried
out with 75 contractee and 16 farmers who do not have
contractual relations. Of these 65% have been producing
field tomatoes. Contract farming was also widely used in
the production of broccoli and green pepper. In the
production of sugar beet and tobacco, contractual
relationship is compulsory as in all of Turkey. Sixty two
percent of the farmers who were interviewed, indicated
guaranteed price and sale as the main reasons for signing
a contract. Credit facilities and technical aids were
indicated as secondary reasons. Producers generally
interpret contracts as the only way of coordination, and
are not necessarily being interested in what is written on
the contracts. However, 54% of the producers who
replied to questions about contract provisions, said they
did not read the contract beforehand and merely signed
it. Twenty percent of the producers who read the
contract indicated they could not understand most of the
language used. In practice, contracts are prepared by the
processors and offered to the producers to sign who
would like to produce under contract. Sixty percent of
the farmers have expressed some problems concerning
the contractors’ responsibilities such as delay in
payment, delivery, inadequate technical input aids, and
information. Processors would like to spread delivery
over a long period. This causes a backlog in front of the
delivery points and very often quality deteriorates
resulting in a loss of the quality premium.
Interviewed farmers have not been happy with the
group approach to signing contracts. For example, in
sugar beet production, each group consisted of 30
farmers. The first farmer in the list was the group leader
and the second one was the second in command, they
sign the contract for group members. The most
important problem with this approach is that group
members do not meet and do not feel responsible to each
other. It is clear that there is no benefit with this group
approach beyond being a sound guarantee for the
processor. Attitudes of group leaders acting as
representatives of the processors would not be an
acceptable behavior for the other farmers in the group.
Almost all of the producers would like to have a
contract which is authorized by a third party, preferably
represented by the Farmers Union or Directorate of
Agriculture or by the so called 'muhtar' (the elected head
of village).
Respondent farmers replied 95% positively to the
question for organizing a bargaining cooperative as
widely seen in the USA. Sixty five percent of them
stated difficulties on establishing such an organization.
In the study region, 25 farmers, who are not
involved in a contractual relationship were interviewed.
Only 16 questionnaires were evaluated. Seventy three
percent indicated they were familiar with contract
farming, and 56% had contracts previously. Disputes
related to price and method of payment were primary
reasons for not continuing with contracts. As observed in
the hop production, these dissatisfactions along with the
availability of other marketing alternatives have caused
an attitude against contract farming.
However, even the contractee farmers had a
tendency for using other alternatives to decrease market
risk.
3.1.2.3.3.Contracts From the Processors’Point of
View. It is a fact that the processors prepare contracts
which means that they determine the conditions of the
contracts. However, most of the interviewed processors
have agreed that all contract provisions could not be
realized. Consequently, contract production could not
function as a way of providing raw material, which have
quality and quantity requirements.
The contractor firms argued that, farmers are
reluctant to use modern inputs and technologies which
were generally advised by the field experts of the firms.
According to the processors, the most significant
problem has been purchasing the commodities and
payment. Except for the sugar beet price which is subject
to government intervention, all product prices are
affected by the price in the open market regardless of the
price in contracts. When the spot market prices are
higher than the prices placed in contract, it was argued
that farmers were selling the products in open market,
which have been produced under contract. In order to
avoid this, farmers are forced to sign an open debt
receipt in addition to the contract. Moreover, the farmer
who is acting in the same manner repeatedly has been
punished by contract exclusion for at least a few years.
In practice, this approach was called the 'red pencil'.
Conversely, when the contract price is over the open
market price, farmers try to supply more product which
they have obtained from relatives or from outside of the
contract's parcels.
There has been a competition between firms and
provinces. When a shortage occurs in the production or
when demand for processed food has increased, firms
which do not have any contractee farmers, have been
offering higher prices to the contractee farmers of other
Food Marketing Policy Center Research Report #52
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