Introduction. In the context of increasing complexity and dynamism of the agri-food system functioning, the use of the transaction cost theory and the search for ways to reduce the cost are one of the most powerful reserves for increasing the agri-food system’s competitiveness and ensuring the country’s food security. Theoretical analysis. Transaction costs are of high importance in the context of the agri-food system’s development, institutional transformation, competitiveness and sustainability. They determine the formation of contractual relationships through an arsenal of interrelated institutions, and also play a key role in the analysis of pricing in value chains. Vertical integration, being a response to the imperfection of the institutional environment, reduces some of the market transaction costs, but strengthens the market power of large players. Еmpirical analysis. The level of transaction costs is up to 50% of the food retail price, and their structure reflects the specifics of food chains and is determined by a complex of institutional, technological and market factors. The dynamics of transaction costs has a significant impact on the product chains’ institutional structure transformation. Despite the fact that there is a mixed nature of institutional coordination in key product chains, the degree of assets consolidation and production concentration is growing. Results. The main factors driving the growth of transaction costs in the Russian agri-food system include the costs of information retrieval, negotiations, contract conclusion, performance monitoring, and logistics through intermediaries (transport, storage). Drivers of transaction cost growth against the background of uncertain market signals, asymmetry of interests between producers, exporters, processors and consumers, and sanctions pressure increase both market and government-induced transaction costs, which requires a set of measures development to reduce (optimize) them both at the micro level (firm level) and at the macro level (state agrarian policy level).