The use of contracts (either formal or informal) has become attractive to many agricultural producers worldwide because of benefits such as the assured market and access to support services and the backwards and forwards market linkages created in agriculture created in a system of guaranteed production and purchase. This paper reviews the changes in agri-food systems that are leading to tighter coordination of supply chains and discusses the theoretical basis for contract farming as a chain governance strategy. It is argued that the need to minimize transaction costs in light of increasing uncertainty, asset specificity and market failures associated with changes in agri-food systems will continue favoring the intensification of contracting in supply chain management in food and agriculture.