This should be expected whenever risk reduction is achieved. The advantage of the contract is to reduce producer losses during low price periods. But it also cuts profit potential during high price periods. Profit levels need to be compared to investment levels. Investment levels differ among contracts.
Inputs supplied by the contract partners can also differ between contracts.
A more appropriate method for contract comparison would be the rate of return on investment and investment levels determined by what each party is providing to the arrangement. The following is a listing of some of the benefits that the various parties can experience in contract production situations. When deciding on which party to contract with, there are advantages and disadvantages to each entity. Producers that contract with other farmers or local businesses may feel more comfortable dealing with a neighbour, but may feel awkward finding a workable solution to problems that arise. In addition, a contractor with a small resource base may have trouble making grower payments if the market moves against him.