Platform financing and government subsidies for heterogeneous smallholder farmers under yield uncertainty

Due to the vulnerable position of smallholder farmers and the nature of agricultural production, smallholder farmers continue to face severe capital constraints. With the development of supply chain finance, e-commerce platforms increasingly act as financiers in agricultural supply chains. To address these challenges, this study constructs a Stackelberg game model involving an e-commerce platform and a continuum of heterogeneous capital-constrained smallholder farmers subject to yield uncertainty and bankruptcy risks. We systematically compare their decision-making and preferences under bank financing and platform financing modes. Our analytical results reveal that the platform should proactively provide financing services and set interest rates as low as possible to maximise its profits, and smallholder farmers prefer the more advantageous financing models based on interest rate specific thresholds. By further incorporating the government’s interest subsidy and risk compensation policies designed to incentivise trade credit, we find that under the platform financing model, both government subsidy policies achieve Pareto improvements. Furthermore, under strictly constrained fiscal budgets (i.e., identical expenditure levels), the interest subsidy is more effective than risk compensation in boosting input quantity, platform profits, and net social surplus under identical expenditure levels, whereas risk compensation proves more effective at improving farmers’ total surplus. These insights provide actionable guidelines for platform service strategies and offer a robust theoretical foundation for designing targeted agricultural subsidy mechanisms.