The Mechanism of Contract Farming from the Perspective of Transaction Cost Economics

Agricultural industrialization is becoming an important feature of modern agriculture. To establish trade relations through contract is an enterprise plus mode. The paper explains the mechanism of contract farming based on simplified analytical framework from transaction costs economics perspective. Analysis shows that by the impact of agricultural properties and changes in market structure,organizational cost curve will be non-linear trend. Trading through contract is the result that the company and farmers weigh the transaction costs and management costs in the established conditions. As the result,it obtains the relative advantage to the firm and the market. But Enterprise plus Farmers is a mixture of future and risk. It has potential advantages,but do not entirely unconditionally display in practice.