<p>This paper analyses the terms on which small and medium poultry producers are able to enter and compete effectively in South Africa. The governance arrangements for access to key inputs in the form of breeding stock and feed are influenced by global concentration in animal genetics mediated by licensing to the lead South African producers. The introduction of contract farming arrangements is evaluated in light of the international literature on such arrangements in the poultry industry. In South Africa, contract farming is promoted by the government together with the South African Poultry Association as an effective avenue to increase the participation of SME producers. By employing theories of value chain governance, bargaining and institutional power and barriers to entry, this paper critically assesses the incentives for contract farming and its implications in terms of power asymmetries, value creation and value extraction in the poultry value chain. It finds that SME poultry producers are squeezed in exploitative relationships and that contract farming entrenches subordinate inclusion. The existing institutional governance mechanisms do not address the underlying power imbalances.</p>