Government subsidy policy for green and efficient raw materials considering farmer heterogeneity

Abstract

To protect soil quality for sustainable development and raise farmers' incomes, agricultural firms are increasingly developing green and efficient raw materials (GRMs) that can improve crop yields and reduce soil damage compared to TRMs. However, farmers have heterogeneity in both the trust in agricultural information and sustainable development attitudes, leading to underestimation of the value of GRMs. This paper explores the optimal subsidy policy of the government to promote GRMs considering the effect of farmer heterogeneity using a government‐firm‐farmer Stackelberg game. Our analysis reveals that the government should subsidize both farmers and the GRM firm when the GRMs' effectiveness is not high enough; otherwise, it is more effective to subsidize farmers but not the GRM firm. Such a government subsidy policy can bring a win–win–win outcome for farmers, the GRM firm, and social welfare under certain conditions. Although higher farmers' trust in agricultural information or sustainable development attitudes can increase their subjective willingness to adopt GRMs, counterintuitively, the total farmer surplus will decrease because in this situation: (1) the government will reduce the subsidy to farmers or (2) the GRM firm will increase the GRM price. In addition, compared with considering two‐dimensional heterogeneity of farmers, considering only one‐dimensional heterogeneity or no heterogeneity of farmers will cause the government subsidy to deviate from the goal of promoting GRMs, resulting in a 59.3% reduction in GRM market demand, a 17.3% decrease in the profit of GRM firm, and possibly even making the GRM firm “die out.”

Farmers' green technology adoption: Implications from government subsidies and information sharing

“…The agricultural product distributor has not only advantages such as face-to-face and close shopping guide services and product sales but also more abundant data sources. Different from Xiao, Chen, and Tang (2020) who have termed "knowledge sharing," our model here suggests that information about markets affects the benefits of technology adoption, and this indirectly incentivizes farmers to adopt the technology (Bernard et al, 2017;Guo et al, 2022;Michler et al, 2018).…”

“…Green technology plays a vital role in improving the utilization rate of water resources, reducing water waste, and increasing crop yields (Guo et al, 2022). This is also the main reason why green technology has become more and more popular.…”

“…Examples of farmer cooperatives and local enterprises include Wuyi county farmer organization in the running chicken program 3 and Dengfenglai at Sichuan in the honey industry. 4 In addition, other papers study the case when farmers' quantities can influence prices, such as Guo et al (2022), Tang et al (2015), and Chintapalli and Tang (2021). 5 Farmers adopting green technologies may improve the quality and nutritional levels of their agricultural products (Adu et al, 2019;Hsu et al, 2019).…”

“…𝛽e can be expressed as the degree of improvement in product performance (Hsu et al, 2019;Mu et al, 2016), where 𝛽 is the market demand sensitivity coefficient under consumer green technology preference (i.e., consumer green preference), e represents the level of green technology (i.e., water saving effect), q indicates the production quantity of the farmer (we relax the relevant assumptions in our extensions, see Appendix A). Similar to Guda et al (2021), the improved agricultural infrastructure and mechanization of agriculture has largely reduced the uncertainty in crop yields in many developing countries (Chintapalli & Tang, 2022a;Guo et al, 2022).…”

“…Around improving the quality and efficiency of agriculture and cracking major bottlenecks problems such as agricultural resource tightening and ecosystem degradation, governments are committed to implementing public policies to promote green technology systems that support sustainable agricultural development (Guda et al, 2021;Guo et al, 2022;e.g., promoting green production technologies, 1 including efficient water-saving irrigation, regulated deficit drip irrigation, and arable land quality enhancement and conservation technology). Although the government has made efforts, the rate of green technology adoption is still unsatisfactory.…”