The popularly accepted rice production system in Taiwan is contract cultivation. This paper investigates the production efficiency of rice farming under the contract cultivation system. Data obtained from the financial accounts of 60 rice-farming families are used and estimated in a translog cost function. The efficiency indicators are the elasticities of input demand combinations with respsect to own and cross-input prices and the average incremental cost. The results show that contract labour demand is the msot rigid input for the adjustment of rice production efficiency. The low elasticities of input substitution and of per-unit output variable cost further prove the limitied ability of rice farmers to improve efficiency except via deregulation and land policy. Some policy implications are also presented.