Contracts as a Risk Management Tool

A contract is usually defined as a written or oral agreement between two or more parties involving an enforceable commitment to do or refrain from doing something. In agriculture, contracts between farmers and agribusinesses specify certain conditions associated with producing and/or marketing an agricultural product. By combining various market functions, contracting generally reduces participants’ exposure to risk. In addition to specifying certain quality requirements, contracts also can specify price, quantities to be produced, and services to be provided.