The growing role of contract farming in agri-food systems development: drivers, theory and practice

Topic :

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 minimise 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 agri-business 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.

The paper begins with a discussion on the nature and extent of recent changes in agri-food systems. Within this it looks at the role and influence of population growth, urbanisation, income growth, trade liberalisation, mobility of capital flows, changes in transport and logistics, advances in information and communication technologies and biotechnology.

The paper then sets out the theoretical basis for contract farming before turning to the potential advantages and disadvantages of contracting for agri-food chain actors (farmers and agribusiness firms) as well as critical success factors (as mentioned above).

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