The focus of the study was to investigate the effect of contract farming on peasant livelihoods in Manhica district, Mozambique. A mixture of approaches which combine qualitative and quantitative methods were used in the study. The results show that small scale farmers have no control over cane prices and there is a lack of transparency between outgrowers and the milling companies on price issues. Fuelling the power asymmetries between the plantation estate and sugar outgrowers is the monopsonistic nature of the sugar industry as well as the weak nature of producer associations in Mozambique. Women participation in out grower schemes and in employment opportunities at the Maragra estate was found to be very low and this is attributable to patriarchy and low levels of education. The study also established that the process of differentiation was taking place in Manhica and being driven by non- agriculture sources of income derived from working at Maragra Estate as well as migratory work. Accumulation in productive assets and land purchases was seen as one way in which social differentiation was occurring and this had an effect of turning small-scale farmers into wage-workers. Apart from social differentiation and power imbalances, the study also noted that the introduction of sugarcane through contract farming as also leading to greater food insecurity as households become landless while others become more engaged in sugarcane production.