IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v10y2018i12p4540-d187095.html
   My bibliography  Save this article

Weather Risk–Reward Contract for Sustainable Agri-Food Supply Chain with Loss-Averse Farmer

Author

Listed:
  • Hongyong Fu

    (China Research Institute of Enterprise Governed by Law, Southwest University of Political Science and Law, Chongqing 401120, China
    School of Electrical Engineering, Computing and Mathematical Science, Curtin University, 6845 Perth, Australia)

  • Kok Loy Teo

    (School of Electrical Engineering, Computing and Mathematical Science, Curtin University, 6845 Perth, Australia)

  • Yujie Li

    (China Research Institute of Enterprise Governed by Law, Southwest University of Political Science and Law, Chongqing 401120, China)

  • Lei Wang

    (China Research Institute of Enterprise Governed by Law, Southwest University of Political Science and Law, Chongqing 401120, China)

Abstract

Compared with the traditional agri-food supply chain (AFSC) whose only goal is to maximize economic benefits, the sustainable agri-food supply chain (SAFSC) starts to attract more attention. Typical challenges faced by SAFSC development are unfair pricing of produce, yield uncertainty caused by adverse weather, as well as conflict and cooperation between stakeholders and sustainable activities of SAFSC. In this paper, we establish a two-echelon decision-making model consisting of a loss-averse farmer and a loss-neutral company. A guaranteed price mechanism is contrived to mitigate the effects of uncertain procurement price on the farmers’ profit. It is found that this mechanism can improve the sustainable investment level but fails to reach the optimal level of the SAFSC system. Thus, a risk–reward contract taking into account the weather index (temperature) and the degree of loss aversion is designed. Results show that this contract can settle the distortion of the sustainable investment level and effectively motivate farmers to participate in the sustainable agricultural practice. Furthermore, we derive the conditions on the contract parameters under which both the company and the farmer are motivated to exert efforts to stand by sustainable agricultural practice.

Suggested Citation

  • Hongyong Fu & Kok Loy Teo & Yujie Li & Lei Wang, 2018. "Weather Risk–Reward Contract for Sustainable Agri-Food Supply Chain with Loss-Averse Farmer," Sustainability, MDPI, vol. 10(12), pages 1-25, December.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:12:p:4540-:d:187095
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/10/12/4540/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/10/12/4540/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hau L. Lee & Christopher S. Tang, 2018. "Socially and Environmentally Responsible Value Chain Innovations: New Operations Management Research Opportunities," Management Science, INFORMS, vol. 64(3), pages 983-996, March.
    2. Jia, Xiangping & Huang, Jikun & Luan, Hao & Rozelle, Scott & Swinnen, Johan, 2012. "China’s Milk Scandal, government policy and production decisions of dairy farmers: The case of Greater Beijing," Food Policy, Elsevier, vol. 37(4), pages 390-400.
    3. Tang, Christopher S. & Sodhi, ManMohan S. & Formentini, Marco, 2016. "An analysis of partially-guaranteed-price contracts between farmers and agri-food companies," European Journal of Operational Research, Elsevier, vol. 254(3), pages 1063-1073.
    4. Xiaohuan Wang & Zhi-Ping Fan & Zheng Liu, 2016. "Optimal markdown policy of perishable food under the consumer price fairness perception," International Journal of Production Research, Taylor & Francis Journals, vol. 54(19), pages 5811-5828, October.
    5. Pomeroy, Robert & Parks, John & Pollnac, Richard & Campson, Tammy & Genio, Emmanuel & Marlessy, Cliff & Holle, Elizabeth & Pido, Michael & Nissapa, Ayut & Boromthanarat, Somsak & Thu Hue, Nguyen, 2007. "Fish wars: Conflict and collaboration in fisheries management in Southeast Asia," Marine Policy, Elsevier, vol. 31(6), pages 645-656, November.
    6. Mangla, Sachin Kumar & Luthra, Sunil & Rich, Nick & Kumar, Divesh & Rana, Nripendra P. & Dwivedi, Yogesh K., 2018. "Enablers to implement sustainable initiatives in agri-food supply chains," International Journal of Production Economics, Elsevier, vol. 203(C), pages 379-393.
    7. V. R. Ghezavati & S. Hooshyar & R. Tavakkoli-Moghaddam, 2017. "A Benders’ decomposition algorithm for optimizing distribution of perishable products considering postharvest biological behavior in agri-food supply chain: a case study of tomato," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 25(1), pages 29-54, March.
    8. Irem Sengul Orgut & Julie Ivy & Reha Uzsoy & James R. Wilson, 2016. "Modeling for the equitable and effective distribution of donated food under capacity constraints," IISE Transactions, Taylor & Francis Journals, vol. 48(3), pages 252-266, March.
    9. Zhanguo Zhu & Feng Chu & Alexandre Dolgui & Chengbin Chu & Wei Zhou & Selwyn Piramuthu, 2018. "Recent advances and opportunities in sustainable food supply chain: a model-oriented review," International Journal of Production Research, Taylor & Francis Journals, vol. 56(17), pages 5700-5722, September.
    10. Davis, Lauren B. & Jiang, Steven X. & Morgan, Shona D. & Nuamah, Isaac A. & Terry, Jessica R., 2016. "Analysis and prediction of food donation behavior for a domestic hunger relief organization," International Journal of Production Economics, Elsevier, vol. 182(C), pages 26-37.
    11. Tang, Christopher S. & Zhou, Sean, 2012. "Research advances in environmentally and socially sustainable operations," European Journal of Operational Research, Elsevier, vol. 223(3), pages 585-594.
    12. Borodin, Valeria & Bourtembourg, Jean & Hnaien, Faicel & Labadie, Nacima, 2016. "Handling uncertainty in agricultural supply chain management: A state of the art," European Journal of Operational Research, Elsevier, vol. 254(2), pages 348-359.
    13. Lee, Deishin & Tongarlak, Mustafa Hayri, 2017. "Converting retail food waste into by-product," European Journal of Operational Research, Elsevier, vol. 257(3), pages 944-956.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xu Jing & Yao Guanxin & Dai Panqian, 2020. "Quality Decision-Making Behavior of Bodies Participating in the Agri-Foods E-Supply Chain," Sustainability, MDPI, vol. 12(5), pages 1-18, March.
    2. Wei Xu & Hongyong Fu & Huanpeng Liu, 2019. "Evaluating the Sustainability of Microfinance Institutions Considering Macro-Environmental Factors: A Cross-Country Study," Sustainability, MDPI, vol. 11(21), pages 1-22, October.
    3. Ajay Philip & Rahul R. Marathe, 2022. "A New Green Labeling Scheme for Agri-Food Supply Chains: Equilibrium and Information Sharing under Uncertainties," Sustainability, MDPI, vol. 14(23), pages 1-34, November.
    4. Jakob Keller & Martin Jung & Rainer Lasch, 2022. "Sustainability Governance: Insights from a Cocoa Supply Chain," Sustainability, MDPI, vol. 14(17), pages 1-23, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hezarkhani, Behzad & Demirel, Guven & Bouchery, Yann & Dora, Manoj, 2023. "Can “ugly veg” supply chains reduce food loss?," European Journal of Operational Research, Elsevier, vol. 309(1), pages 117-132.
    2. Pérez, Eduardo & Marthak, Yash V. & Méndez Mediavilla, Francis A., 2023. "Analysis and forecast of donations at domestic hunger relief organizations impacted by natural disasters," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    3. Sucharitha, Rahul Srinivas & Lee, Seokcheon, 2022. "GMM clustering for in-depth food accessibility pattern exploration and prediction model of food demand behavior," Socio-Economic Planning Sciences, Elsevier, vol. 83(C).
    4. Li Chen & Hau L. Lee & Christopher S. Tang, 2022. "Supply chain fairness," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4304-4318, December.
    5. Rohmer, S.U.K. & Gerdessen, J.C. & Claassen, G.D.H., 2019. "Sustainable supply chain design in the food system with dietary considerations: A multi-objective analysis," European Journal of Operational Research, Elsevier, vol. 273(3), pages 1149-1164.
    6. Pagare, Dewang & Biswas, Indranil & Agrahari, Amit & Ghosh, Sriparna, 2023. "A small farmer’s market choice in the presence of multiple markets: The Indian case," European Journal of Operational Research, Elsevier, vol. 311(2), pages 739-753.
    7. Luo, Na & Olsen, Tava & Liu, Yanping & Zhang, Abraham, 2022. "Reducing food loss and waste in supply chain operations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 162(C).
    8. Himanshu Gupta & Manjeet Kharub & Kumar Shreshth & Ashwani Kumar & Donald Huisingh & Anil Kumar, 2023. "Evaluation of strategies to manage risks in smart, sustainable agri‐logistics sector: A Bayesian‐based group decision‐making approach," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4335-4359, November.
    9. Mahmoudi, Monirehalsadat & Shirzad, Khadijeh & Verter, Vedat, 2022. "Decision support models for managing food aid supply chains: A systematic literature review," Socio-Economic Planning Sciences, Elsevier, vol. 82(PB).
    10. Cai, Ya-Jun & Choi, Tsan-Ming & Feng, Lipan & Li, Yongjian, 2022. "Producer's choice of design-for-environment under environmental taxation," European Journal of Operational Research, Elsevier, vol. 297(2), pages 532-544.
    11. Ranjeet Rajput & Sri Vanamalla Venkataraman, 2022. "A violent market price contract for agribusiness supply chain," Annals of Operations Research, Springer, vol. 315(2), pages 1971-1996, August.
    12. Akkerman, Renzo & Buisman, Marjolein & Cruijssen, Frans & de Leeuw, Sander & Haijema, Rene, 2023. "Dealing with donations: Supply chain management challenges for food banks," International Journal of Production Economics, Elsevier, vol. 262(C).
    13. Na Luo & Tava Lennon Olsen & Yanping Liu, 2021. "A Conceptual Framework to Analyze Food Loss and Waste within Food Supply Chains: An Operations Management Perspective," Sustainability, MDPI, vol. 13(2), pages 1-21, January.
    14. Xiaolong Guo & Lihong Cheng & Yugang Yu, 2022. "Government subsidy policy for green and efficient raw materials considering farmer heterogeneity," Production and Operations Management, Production and Operations Management Society, vol. 31(11), pages 4095-4112, November.
    15. Salvatore Ammirato & Alberto Michele Felicetti & Massimiliano Ferrara & Cinzia Raso & Antonio Violi, 2021. "Collaborative Organization Models for Sustainable Development in the Agri-Food Sector," Sustainability, MDPI, vol. 13(4), pages 1-22, February.
    16. Zhang, Juan & Huang, Jian, 2021. "Vehicle product-line strategy under government subsidy programs for electric/hybrid vehicles," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 146(C).
    17. Ilkyeong Moon & Yoon Jea Jeong & Subrata Saha, 2020. "Investment and coordination decisions in a supply chain of fresh agricultural products," Operational Research, Springer, vol. 20(4), pages 2307-2331, December.
    18. Sadjady Naeeni, Hannan & Sabbaghi, Navid, 2022. "Sustainable supply chain network design: A case of the glass manufacturer in Asia," International Journal of Production Economics, Elsevier, vol. 248(C).
    19. Do, Quynh & Ramudhin, Amar & Colicchia, Claudia & Creazza, Alessandro & Li, Dong, 2021. "A systematic review of research on food loss and waste prevention and management for the circular economy," International Journal of Production Economics, Elsevier, vol. 239(C).
    20. Jon M. Stauffer & Manoj Vanajakumari & Subodha Kumar & Theresa Mangapora, 2022. "Achieving equitable food security: How can food bank mobile pantries fill this humanitarian need," Production and Operations Management, Production and Operations Management Society, vol. 31(4), pages 1802-1821, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:10:y:2018:i:12:p:4540-:d:187095. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.