Optimal Financing Decision in a Contract Food Supply Chain with Capital Constraint

Abstract

To solve the financing problem of the food producers, we consider a two-echelon contract food supply chain composed of a family farm with capital constraints and a food processing enterprise. With no capital constraints as the benchmark model, we analyze optimal decisions of the family farm and the food processing enterprise in the case of bank financing with bank participation only and bank financing with “government, bank, and insurance” coparticipation. Then, we discuss how the risk of yield uncertainty influences the optimal decisions and profits of the family farm and the food processing enterprise under different financing situation. Meanwhile, the reason why the government subsidizes agriculture is explored, and the policy of minimum purchase price of the food is initiated when the market price is too low. Finally, the numerical examples and sensitivity analysis are presented. The results show that the bank financing with “government, bank, and insurance” coparticipation improves the welfare of supply chain members more obviously than the bank financing with bank participation only; when the rice price is too low, the policy of minimum purchase price of food is initiated, which increases the revenue and the growing enthusiasm of the family farm; the profits of the family farm and the food processing enterprise will decrease as the risk of yield uncertainty increases in the case of bank financing, and the risk of yield uncertainty will be reduced for the family farm when bank financing with “government, bank, and insurance” coparticipation.

Agricultural Supply Chain Financing Strategies under the Impact of Risk Attitudes

“…Although the purchase price of agricultural products for e-commerce has increased, it has reduced the profits of e-commerce and farmers. (3) The financing strategy of the capital-constrained agricultural product supply chain is affected by the expected output factor, degree of risk aversion, and financing interest rates of e-commerce. When the expected output factor is low, farmers with high-risk aversion will choose the e-commerce financing strategy when the e-commerce's interest rates are low, while farmers with low risk aversion will choose the e-commerce financing strategy when the e-commerce's interest rates are high.…”

“…2 The farmer determines the input quantity q for agricultural product production according to the purchase price. 3 According to the production cost, the farmer lends money to the bank at the interest rate r 0 or to the ecommerce business at r e , and the money is only used for the production of agricultural products. 4 After the production of agricultural products (t = 1), they are traded between e-commerce and farmers.…”

“…With the rapid development of agricultural product supply chains, the problem of farmers' financial constraints in the early stages of agricultural production and planting has become increasingly serious [2]. The traditional financing method for farmers is to borrow from banks [3], but due to insufficient collateral for farmers, their loans from banks are limited. To solve the problem of financing difficulties, e-commerce companies-as retailers within the supply chain-provide financing services for farmers [4], such as Jingnongdai from JD.com, Wangnongdai from Alibaba, and Huinongdai from Suning.…”

Study on the impact of R&D input intensity on technological innovation output ‐ Based on data from China’s high technology industry

“…When the technological innovation of the firm is at the primary stage of tracking and imitation, the innovation risk of the firm can be better controlled and the prospects of the product market are clearer, the capital cost of R&D is relatively low, and the bank-driven financial structure will play an advantage in information collection and processing [ 42 ]. The bank route of financing effectively mitigates the problems of adverse selection and moral hazard caused by information asymmetry through collateralization and ex post supervision of the firm [ 43 , 44 ]. However, the allocation of bank credit funds is more oriented towards policy factors than market factors, resulting in an over-concentration of credit funds in firms with high financing capacity, which may also lead to adverse credit allocation imbalances [ 45 ].…”

Design, simulation and feasibility of the innovative agricultural warehouse receipt system through dynamic programming and agent-based models

“…Often, farmers have to rely on traditional borrowing methods from banks to obtain the necessary capital for production and livelihood expenses throughout the production process. However, they face challenges within the banking system due to inadequate collateral and low creditworthiness (Luo et al, 2021). Traditional approaches like forward contracting, pre-selling, and guaranteed sales to the government are also utilized by farmers to secure nancial support in the initial stages of production.…”