The growing role of contract farming in agri-food systems development: drivers, theory and practice
The interest in contract farming as a mechanism to coordinate linkages between farmers and agribusiness firms has increased considerably in the recent past. This paper reviews the changes in agri-food systems that are leading to tighter coordination of supply chains and discusses the theoretical basis for contract farming as a chain governance strategy. It is argued that the need to minimize transaction costs in light of increasing uncertainty, asset specificity and market failures associated with changes in agri-food systems will continue favouring the intensification of contracting in supply chain management in food and agriculture. The international experience reviewed suggests that, under appropriate enabling environments, the potential advantages of contracting for farmers and agribusiness firms tend to outweigh the potential disadvantages. Potential socio-economic benefits are a further incentive to the promotion of contracts as a component of agribusiness development strategies. Critical success factors for sustainable contract farming are pointed out and issues for additional reflection are suggested.