Poverty alleviation schemes for high escaping poverty probability: Contract-only, compensation, and capacity-building

Abstract

In this paper, we examine the minimum procurement price and government subsidies for the successful implementation of three Poverty Alleviation Schemes (PASs): Contract-Only Scheme (CO), Contract with Compensation Scheme (CS), and Capacity-building with Training (CT). We consider an agricultural supply chain with a pro-poor enterprise and a group of impoverished farmers who grow, harvest, and sell the product to the pro-poor enterprise, and the government decides to subsidize the pro-poor enterprise for poverty alleviation. The price of the agricultural product and the harvest output are uncertain and negatively correlated. We consider a new type of poverty alleviation objective: the poor farmer escapes poverty if their profit exceeds the poverty line (PEP) and establishes a higher probability of escaping poverty (EPP). We use real coffee and tea prices to capture the skewness of the distribution of product prices in a numerical analysis. We find that (i) the impoverished farmers would benefit from PASs, but the pro-poor enterprise would incur risks because both parties share the uncertainty of harvest output in PASs; (ii) the local government should provide subsidies to the pro-poor enterprise to implement PASs better; (iii) CT and CS have a lower bound for the procurement price as well as local government compensation; and (iv) if the product price exhibits a left-skewed distribution, then the EPP becomes crucial, and a higher procurement price is required to increase the EPP.