Optimal interest rates and farmers’ financing strategies on e-commerce platforms

Abstract

Purpose E-commerce platforms offer a novel financing channel for the capital-constrained farmers. This paper aims to explore the financing strategies of contract farming supply chains that support stable agricultural production and economic development amid farmer competition and yield uncertainty. Design/methodology/approach This paper constructs a contract farming supply chain model with an endogenous platform interest rate. Unlike existing studies, our model incorporates farmers’ financing mode choices under competition between two farmers. In the extended model, we restructure the sales mode to verify the robustness of our conclusions. Analytically, we primarily employ theoretical analysis to ensure the generality of our findings. Findings Firstly, as the probability of normal production increases, farmers will expand their planting quantity and the platform's loan interest rate will decrease accordingly, potentially even offering interest-free loans. Secondly, for farmers, when the probability of normal production is low, they opt for bank financing to maximize planting quantity and profit. However, when the probability of normal production is higher, they prefer their competitors to choose bank financing. Lastly, for the platform and the supply chain, when the probability of normal production is higher, farmers using platform financing can maximize their profits. Originality/value This paper innovatively examines the strategic choice of financing channel in the competition among homogeneous farmers. It expands research on various sales modes of platforms, which is of great significance to the operational decisions of large-scale agricultural households on e-commerce platforms.