Sustainable farming practices adoption in agriculture supply chain: the role of indirect support versus cost subsidy

Due to the growing environmental concerns and associated health issues of using fertilisers and pesticides in agriculture, Zero Budget Natural Farming (ZNBF) is gaining traction to guide farmers toward sustainable farming practices. Therefore, to promote sustainability and also to safeguard the interests of small farmers who adopt ZNBF, the government in developing economies are adopting two prevalent intervention mechanisms: (i) cost subsidy and (ii) indirect support. However, little has been done to provide clear-cut directives on when to employ these intervention mechanisms, especially in the presence of heterogeneous farmers and yield uncertainty. Therefore, in this paper, we consider a supply chain comprising a government, small farmers, and consumers, and we perform a comparative analysis to understand the prevailing conditions under which a particular policy outperforms another in maximizing social welfare by promoting ZBNF practices. We develop a government-farmer game-theoretic model wherein the government first selects the intervening mechanism to maximise social welfare, followed by farmers' sowing decisions. Our analysis reveals that both policies positively impact the adoption of ZBNF practices; however, in the scenario of higher environmental damage, cost subsidy outperforms the indirect support mechanism. On the contrary, for medium and lower environmental damage, the choice of intervention depends on the proportion of environmentally conscious farmers. Specifically, the government should extend indirect support only if there exists a critical mass of environmentally conscious farmers. Our findings from analytical and numerical analysis assist the government in identifying and designing the appropriate intervention mechanisms whereas to farmers in their showing decisions.

Automated summary

Due to environmental concerns and health issues, Zero Budget Natural Farming (ZBNF) is gaining popularity in guiding farmers towards sustainable practices. Governments in developing economies are adopting cost subsidies and indirect support to promote ZBNF and safeguard small farmers, but there is a lack of clear directives on when to use these mechanisms, especially in the presence of heterogeneous farmers and yield uncertainty.