Compensation or penalty? Coordination strategies of a contract- farming supply chain considering contractual awareness and green planting effort

Abstract

In response to the challenges of difficult agricultural production transformation and high default risk in contract farming, and considering the impact of the strength of contractual awareness on the stability of agricultural cooperation, this study constructs a green supply chain Stackelberg game model for contract farming led by a company and investigates the impact of the cooperative’s contractual awareness on the decision-making and profits of supply chain members. Furthermore, by designing compensation and penalty contracts with both cost-sharing and profit-sharing functions, this study explores novel models of contract farming to promote the sustainable operation of the contract-farming supply chain and the development of modern eco-friendly agriculture. The results suggest that: (1) A high level of the cooperative’s contractual awareness ensures a stable supply for the company, sustaining the contract-farming supply chain and enabling both parties to achieve higher profits. (2) The enhancement of consumers’ green quality perception has a positive influence on the cooperative’s production inputs quantity and the company’s criteria for green planting effort, contributing to the dual goals of protecting the ecological environment and improving agricultural economic benefits. (3) The revenue compensation contract is ineffective for the company to effectively avoid potential default risk. In contrast, the revenue penalty contract exhibits a coordinating effect.