Vertical Coordination and Contract Farming
Rehber
and more employees. There is high firm concentration in
the sector. The total sales of the nation’s top 20 food and
beverage manufacturers accounted for 52% of the
industry wide sales. The total share of the top four firms
is 20.3% in 1997.
Cooperative movement in Turkey was also started as
a Government initiative. Today, about one third of the
farmers are members of Agricultural Sale Cooperatives
(ASC) which have considerable share of the food
processing and marketing industry. Unfortunately,
despite several attempt to reorganize them, ASC are still
running as SEEs, i.e. the member farmers have no
control over management. Some of the large processing
plants belong to these cooperatives. Instead of
establishing a democratic structure where the farmers
have the right of control and management, processing
plants of these cooperatives are considered to be
privatized.
Agricultural cooperatives have a significant role in
the agro-food system of the USA. Cooperatives have
considerable share in providing production input,
marketing of agricultural products, and food processing.
Among the marketing cooperatives, bargaining
cooperatives are special for U.S. agriculture. The
cooperative movement started in the U.S. as a private
initiative instead of direct state involvement. This
movement was supported by enacting laws that
encouraged group action in agriculture. For instance, the
Capper-Volstead Act of 1922, Cooperative Marketing
Act of 1926 as well as Agricultural Fair Practices Act of
1967 have promoted and facilitated group action in
agricultural markets.
Futures markets used to facilitate many agricultural
products have a long historical background in the USA
while these are only recently realized in Turkey despite
the availability of commodity exchanges for agricultural
products since 1892.
There are also significant differences among the
agricultural policies of Turkey and the USA. Market
intervention through support purchases for a limited
number of agricultural products, direct input subsidies,
and providing selective credit are the main agricultural
policy methods in Turkey. Besides the price support,
supply restriction, credit programs and subsidies,
marketing orders have an important role in the U.S.
As a main distinctive feature of the industrialized
agriculture in the U.S., vertical coordination through
contractual relationship is widely used. In general,
approximately one-third of the total value of agricultural
production is realized under contractual agreement.
Some sub-sector such as broiler and beet-sugar
industries are totally integrated either through
contractual relationship or vertical integration. In
Turkey, contractual relationship started to be used by the
state as a natural result of the government initiated
industry structure. Today, only beet-sugar processing is
realized under totally contractual arrangement, while in
other sub-sectors (broiler and vegetable processing)
contractual relationships have been developing parallel
to the development of the processing industry.
In the USA, there is no specific regulation at the
federal level directly related to contract farming. Many
States have proposed legislations, and some (Minnesota,
Wisconsin and Kansas) have specific legislations in
place. A special regulation on contract farming was
enacted in 1996 and later amended in 1998 in Turkey.
There are differences among the content of contract
farming legislation. In Turkey a general framework is
outlined in addition to giving responsibility to the
Ministry of Agriculture as a third party to involve in case
of disputes. Legislative arrangements in the U.S. usually
content stipulations to protect farmers rights.
There is similarity between the weak position of the
farmers in the contractual arrangements both in Turkey
and the USA, even though some of the farmers are well
organized under bargaining organizations in the States.
The content of contracts (such as payment
mechanisms) is rather comprehensive in the U.S. This
has come as a result of a long history in contracting as
compared to the contracts in Turkey. It is not surprising
to observe similarities between the general content of
contracts in the present globalized word considering the
contract production activities of some multinational
American companies (Pioneer, Philip-Morris, Cargill) in
Turkey.
4. A Cooperative Approach to Contract Farming
Outgrower schemes have been used mostly in the
developing world as a means of contract
implementation. They have a great variety with their
hybrid structure and multiple objectives. Therefore, it is
not easy to point out a standardized form for those
schemes. A simplified model is discussed here for a
standard (Private company scheme) contract production
form to have a fair and successful implementation of
contract farming for both sides, the agricultural sector
and the economy as a whole (Figure 4.1) (Rehber 1998).
First, producers/growers and integrators (handler,
processor etc.) must want to collaboration and/or
cooperate. Both for the producers and processors, it is
important to have established reputations for honesty
and fair dealing. That means, farmers should look at
integrators as partners who are working for them rather
than rivals. The same behavior is expected from the
integrators. Both sides are in need of each other in order
Food Marketing Policy Center Research Report #52
28