Planting subsidies or brand building? Policy thresholds and goal conflict in agribusiness-led contract farming

Abstract

Under yield uncertainty and agribusiness-led contract farming, government intervention is important for sustaining agricultural production and supporting farmer profit. Yet production-side planting subsidies and demand-side brand-building policies operate through different mechanisms, leaving their relative advantages and applicable conditions unclear. This study examines how the government should choose between the two policies and how firm social responsibility shapes their relative performance. We develop a sequential game involving a government, an agribusiness firm, and a farmer under stochastic yield. The firm's objective incorporates concern for farmer profit. Equilibrium decisions are derived by backward induction, and the policies are compared in terms of social welfare and farmer profit. Numerical analysis illustrates the analytical results. The planting subsidy policy directly strengthens the farmer's production incentive, whereas the brand-building policy expands market demand and induces the firm to offer a higher procurement price. The benefits of brand building depend critically on its cost-effectiveness. We identify two endogenous thresholds: a social-welfare threshold and a farmer-profit threshold, with the former strictly lower than the latter. As brand-building cost-effectiveness increases, policy preference shifts through three regions: planting-subsidy dominance, goal conflict, and brand-building dominance. In the intermediate region, brand building generates higher social welfare, while the farmer remains better off under planting subsidies. Yield risk, price sensitivity, and planting costs widen the goal-conflict region, whereas higher expected yield and stronger firm social responsibility narrow it. Market size affects absolute outcomes but does not change the relative policy ranking. These findings extend the agricultural-policy literature from the design of production subsidies to the choice between production-side and demand-side interventions. They show that improvements in aggregate welfare do not necessarily translate into greater benefits for farmers.