Contract farming (CF) has long been practiced but is becoming increasingly common in both developed and developing countries with the heightened interest of consumers in food safety and quality. Under CF, farmers and buyers make advance agreements on volume, quality, time of delivery, use of inputs, and price or pricing formula. This article critically reviews the literature on CF to assess how it contributes to improving production efficiency and income of farmers in general and of small-scale farmers in particular. Although our review focuses on literature in developing countries because of its predominance, we refer to literature in developed countries (primarily the United States) to gain a deeper understanding of the impacts of CF. We find that although CF contributes to the improvement of farmers' income by introducing new crops and production methods, there is room for strengthening its effects on poverty reduction through policy.