Contract farming, a strange type of contract: more than obligation 'to give'

Abstract

Contract farming is based on agreements that are made before production decisions, providing a production coordination and uncertainty minimization for both farmer and agro-industry/distributor, unlike the simple purchase and sale operations through the open market view, when the product is delivered immediately to a price. The activities might be interdependent and the transactions are performed in a 'strange' form of governance. These transactions are carried out through contracts between farmers and agroindustry/distributor. Contract farming is used in agribusiness supply chains to ensure access to agricultural products with certain specifications, such as quality, quantity, and origin, among others. In Brazil, for instance, agricultural activities are widely performed under contract farming; however, there is no specific law for typifying it. The lack of a legal framework for this `strange' type of contract leads to misunderstanding because it might not fit properly with existing legal types. This chapter aims at discussing the 'strange' contract named contract farming. We assume that, contracts and agreements are typically related to hybrid structure of governance. Therefore, more than formal rules, informal institutions are taken into account. The analysis of contract farming is based on new institutional economics focusing on transaction costs economics.