Vertical Coordination and Contract Farming
Rehber
which has strict rules due to the existence of tremendous
variety of enterprises in agriculture. Instead, the
government could determine a framework for the
contracts and enact regulation to solve disputes and take
part in arbitration or a reconciliation group.
The most direct way for the government to address
production contract issues is to regulate them
specifically. Both in Turkey (national level) and in the
USA (some states), governments have begun to regulate
contract relationships either by establishing requirements
or by requiring that legal disputes go through mediation
before one party can take the issue to court.
Governments can also require annual reports by
contractors to gather more information about contracting
and they can require registration or certification of
certain entities that engage in contracting. For instance,
licensing enables the government to control the use of
certain practices more directly and to require the use of
standardized contracts.
Government can also use indirect methods to
encourage or facilitate contract producers’ abilities to
organize and bargain for more favorable contract terms
as in some States of the USA.
In addition to the general conclusions summarized
above, some specific measures could be proposed to
have a more industrialized and vertically coordinated
agro-food system and a well functioning contract
farming in Turkey.
• There is a need for more comprehensive empirical
studies (commodity level) to better model the structure
and related problems of vertical coordination and
contract farming.
• Collecting nation-wide data related to the different
aspects of contract farming should be included in the
General Agricultural Census as in the USA.10
• Government resources used in ineffective ways such
as for price support, input subsidy and selective credit
policies should be devoted to establishing a sound
marketing and processing infrastructure through
organizations which are owned and controlled by the
producers.
• Available Agricultural Sale Cooperatives should be
rearranged so that the producers have control of their
cooperatives. That is, the direct involvement of the
government in such organizations must be replaced with
indirect support policies.
• Wholesale markets for the fresh fruits and
vegetables must be reorganized. The structure of the
present Commodity Exchanges must be changed by the
10 The Bureau of Census began collecting information about
contracts in a sample survey following the 1959 Census of
Agriculture in the USA.
establishment of futures markets as in the USA.
• Instead of privatization of the present food
processing State Economic Enterprises, especially in the
backward regions of Turkey, these should be
reorganized as producer owned firms through
cooperative or stock companies.
• Government policies regarding tax, credit,
agricultural insurance and especially extension, must be
evaluated to create a convenient environment. For
instance, in US, the marketing orders have been
strengthening the farmers’ position in the contractual
relationships.
• Both producers and integrators have to improve their
understanding and attitude about contracts and
contractual relationships. Each has to be informed about
the legal and technical issues related to contract farming
through efficient government extension programs.
Finally, it can be concluded that contractual
relationships are not only a distinctive feature of
highly industrialized agro-food systems, but also a
way for establishing an industrialized structure. In
the developing countries such as Turkey, contract
farming should be evaluated as a way to provide easier
access to credit, inputs, information, technology, and
product markets for small scale farmers. Contract
farming also contribute to development of a sound food
industry.
References
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Allen,G.R. 1972. An Appraisal of Contract Farming. Journal
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