A New Green Labeling Scheme for Agri-Food Supply Chains: Equilibrium and Information Sharing under Uncertainties

Abstract

Even though organic farming is perceived worldwide as the most eco-friendly agricultural method, its significantly lower yield compared to conventional farming poses a major challenge in ensuring food security for the ever-increasing world population. On the other hand, the adverse environmental impacts of conventional agriculture due to the uncontrolled use of key farm inputs like fertilizer and irrigation water cannot be overlooked. In this context, we develop a new eco-label to promote an efficient agricultural method that provides the right balance between yield and environmental impacts through the optimal use of these farm inputs. The proposed eco-label is applied to a game-theoretic model of a farmer-retailer supply chain under demand and yield uncertainties. We consider the demand as a function of the product’s retail price, greenness, and quality; and model yield using a crop-response function. The analytical results derived help optimize the farm inputs, retail prices, and order quantity so that the stakeholders’ profits are maximized. We also investigate the effects of yield information sharing in this supply chain and find that the stakeholders must share yield information when environmentally conscious consumers dominate the market.