Download the "Guiding Principles for Responsible Contract Farming Operations" (.pdf)
Contracts, formal or otherwise, are one of the main instruments utilized to coordinate transactions in agri-food value chains. Contracts have, in particular, been used as a mechanism of linking farmers and processors, reducing the uncertainties of transactions that take place in open markets, where price, quality and quantity are largely unpredictable. If a processor needs a regular supply of agricultural raw materials, within a planned delivery schedule and following strict quality standards, he or she may use contracts with farmers to ensure that his or her procurement specifications are better met. Farmers, on the other hand, may look for contracts with processors as a way to guarantee a market for their output or to facilitate access to finance and technology. Although contracts are not free of potential disadvantages for the contracting partners, if properly designed and enforced, they can play a significant role in agribusiness development. FAO has been working with contract farming issues through the activities of its three technical groups - management, marketing and finance.