Abstract: Under the background of random output and random market demand of agriculture, and with government subsidies for the retailer, a one-period two-echelon supply chain optimization consisting of one manufacturer and one retailer was studied. A Stackelberg game between the manufacturer and the retailer was considered, and the existence of Stackelberg equilibrium was derived. The results show that the government subsidy policy can improve the supply chain’s total profit. In addition, an interesting finding shows that, under the reasonable government subsidies and exogenous parameters, the supply chain can be coordinated with a simple wholesale price contract, which does not happen in traditional cases.

Key words: government subsidy, random yield and demand, wholesale price contract, supply chain coordination