Sustainability Building of an Agricultural Supply Chain with a Capital-Constrained Farmer in Developing Economies

We consider an agricultural supply chain consisting of a capital-constrained smallholder farmer and an intermediary platform. The smallholder farmer sells agricultural products through the intermediary platform but lacks financial resources for sustainable production. In addition to the traditional bank financing (provided by a bank), the creditworthy intermediary platform may also directly provide loans to the farmer (known as direct financing) or serve as a guarantor if the farmer has insufficient creditworthiness to obtain bank loans (known as guarantor financing). We show that under both guarantor financing and direct financing, the smallholder farmer's production level can be even higher than that in a centralized system. The farmer prefers direct financing when the production cost is small but the unit commission fee is sufficiently high; otherwise, the farmer prefers guarantor financing. As to the intermediary platform, it prefers bank financing when the farmer's production cost is sufficiently large but direct financing otherwise. The involvement of the intermediary platform significantly improves the sustainability of the agricultural supply chain in terms of farmer welfare and the total supply chain profit. Moreover, the increase of the intermediary platform's social responsibility concern can lead to a win-win outcome for all the parties, including the farmer, the platform and the supply chain as a whole