Finding the way out to African swine fever: Analysis of Chinese government’s subsidy programs to farms and consumers

Abstract

African swine fever (ASF) has eliminated a third of China’s pig population since August 2018 and lifted pork prices to record levels. To rebuild the supply of the country’s staple meat and maintain social stability, the Chinese government is offering subsidies to farms (the compulsory culling subsidy, CCS) and consumers (the price subsidy, PS, or the revenue subsidy, RS). To gain a better understanding about how these subsidy programs impact different stakeholders and facilitate pork supply recovery, we develop a game-theoretic framework to analyze the government’s optimal subsidy programs under different settings. Our analysis generates the following insights: (i) The PS and RS are equivalent in terms of improving different stakeholders’ welfare. (ii) The optimal subsidy program evolves from subsidizing farms only (SF) to subsidizing both farms and consumers (SB) and, finally, to subsidizing consumers only (SC) as the government emphasizes more on consumer welfare. (iii) If a farm is confronted with the breeding capacity shortage problem, in addition to the government’s relative emphasis on different stakeholders, the optimal subsidy program is jointly decided by two thresholds regarding the breeding capacity and subsidy budget, respectively. (iv) If the farms’ yields are partially correlated, offering subsidies may discourage their production enthusiasm and reduce their profits. Specially, the SC policy dominates the highly correlated case and the structure of the optimal subsidy programs in the lowly and moderately correlated cases is characterized. (v) If there are multiple farms competing in the market, the SF (SC) policy is optimal when the government emphasizes more on farms’ profits (consumer welfare); otherwise, the SB (SF) policy is optimal if the subsidy budget is large (small) while the total number of the farms is small (large).