Revenue and Risk Sharing Mechanism Design in Agriculture Supply Chains Considering the Participation of Agricultural Cooperatives

Abstract

Uncertain yield and demand often result in unbalanced revenue and risk sharing among agriculture supply chain (ASC) members. Agricultural cooperatives help smallholder farmers enhance their bargaining power via revenue and risk sharing and are a significant bridge between farmers and retailers. Therefore, this study aimed to design a contractual mechanism considering a cooperative’s participation in the coordination of ASCs that face random yield and demand in pursuit of risk and benefit equivalence. We first compared two- and three-echelon decentralized ASCs with a centralized system, and the results indicate that the cooperative’s participation is conducive to redistributing profit between the retailer and farmer. As a verified revenue-sharing (RS) contract cannot coordinate a two-echelon ASC under uncertain yield and demand, we developed a double revenue-sharing (DRS) contract, which has been demonstrated to coordinate an ASC system with the cooperative’s participation. A numerical analysis was conducted to show that the cooperative can influence profit distribution among the upstream and downstream members via wholesale prices. Therefore, equivalence of risk and benefit is realized and fairly allocated among the members under the DRS contract, which is of great significance to the ASC system’s stable and sustainable development.