The impact of government subsidy and weather on environmentally sustainable investment decision for agricultural supply chain

Abstract

This paper studies the environmentally sustainable investment of an agricultural supply chain composed of a farmer and a company, under three subsidy policies which are the non-subsidy policy, the fixed subsidy policy, and the Agriculture Risk Coverage (ARC) subsidy policy. Then, we analyse the impact of different subsidy policy and adverse weather on the costs of the government and profits of the farmer and the company. By comparing with the non-subsidy policy, we find that both the fixed subsidy policy and the ARC policy encourage the farmer to improve the environmentally sustainable investment level and increase the profit of the farmer and the company. We also find that both the fixed subsidy policy and the ARC subsidy policy lead to an increase in government spending. Our results show that the ARC subsidy policy has a significate advantage in encouraging the farmer’s environmentally sustainable investment if the adverse weather is relatively serious, comparing with the fixed subsidy policy. In turn, our results also show that the ARC subsidy policy is more beneficial for both the farmer and the company than the fixed subsidy policy if the adverse weather is relatively serious, which then leads to a higher expenditure of the government. Therefore, our conclusion serves as a theoretical basis for governments to formulate agricultural subsidy policies and promote sustainable development of the agricultural environment.