An agribusiness firm's choice to expand activities through contract farming rather than plantations, buying directly from open markets or other means reflects differences in transaction costs found in different types of procurement systems. Smallholders may enter contracts to reduce transaction costs of accessing new markets, borrowing, managing risk, acquiring information or increasing employment opportunities. The success of contracts reflects both the contracting environment and management practices. The contracting environment includes the strength of markets for contracted output, government macro policies, technical sophistication in production and attenuation of land ownership while important management elements are farm groups, selection of participants for contracts, managing contract default and conflict resolution.