To sum up, there are several theories on contract farming. The theory of life-cycle focuses on the degree of vertical integration of industries in different stages of their development. Transaction cost theory refers to the existence of a firm through minimizing its transaction costs. Furthermore, three characteristics of a transaction are illustrated, including uncertainty, asset specificity, and frequency. Finally, value chain governance addresses the importance of three types of economic governance, consisting of markets, networks, and hierarch
The majority of studies on effects of contract farming on productivity and income of farmers are conducted in the short term and obviously, conclusions are proposed for a short run. However, the long term impact of contract farming on productivity and income of producers are still ambiguous. Farm households have to face problems of contract farming related to delays in delivery or payment, quality deterioration, the lack of bargaining power, and uncertainties in production and marketing (Rehber, 2007).