Do farms and purchasing firms always benefit from engaging in contract farming?
As with any other form of contractual relationship, there are also potential disadvantages and risks associated with contract farming. If the terms of the contract are not respected by one of the contracting parties, then the affected party stands to lose. Common contractual problems include farmer sales to a different buyer (side selling or extra-contractual marketing), a company’s refusal to buy products at the agreed prices, or the downgrading of produce quality by the company. A frequent criticism of contract farming arrangements is the uneven nature of the business relationship between farmers and their buyers. Buying firms, who are invariably more powerful than farmers, may use their bargaining clout to their short-term financial advantage, although in the long run this would be counterproductive as farmers would cease to supply them. These problems notwithstanding, the balance between advantages and disadvantages for both firms and farmers seems to be on the positive side: contr