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

• Develop a probability model for the poor farmers to escaping poverty. • Analyze three poverty alleviation schemes conducted by the pro-poor enterprise. • Examine the compensation strategy of different poverty alleviation schemes. • Provide valuable insights into the supply chain and poverty alleviation policy. 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. [ABSTRACT FROM AUTHOR]