Korea Agricultural Economics Association

Title The Optimal Rate of Subsidies on Smart Greenhouse Farming System Installation Costs
Author Won Seok Lee, Hyun Seok Kim
Paper Information Vol.62 No.3 (2021-9) Page 251~265
File KJAE(2021-Vol62No03)-English-05.pdf
Abstract This study derives the optimal subsidy rate on the installation expenses of smart greenhouse
farming system (SGFS) to maximize farm income. To derive the optimal support rate, this study
determines the adoption rates of SGFS by the rate of subsidy using TOA-MD model, and estimated
the price flexibility of tomato using inverse demand function. The adoption rate of SGFS by tomato
farms at the current price level increases rapidly with 50% to 100% subsidy rates. The estimated the
price flexibility coefficient of tomato is -5.12 which implies that 1% increase in tomato production
induces 5.12% decrease in the price. Using the determined SGFS adoption rates and the estimated
price flexibility of tomato, this study finds that the changes in farm income by adopting SGFS
gradually increase from 35,210,000 KRW/ha without subsidy to 38,420,000 KRW/ha with the
55% subsidy rate, then the farm income changes rapidly decrease and turn to negative at the 73%
subsidy rate. Hence, we can conclude that the optimal support rate on the SGFS installation costs
is 55% to maximize farm income.