Abstract: Building a new socialist countryside is to achieve agricultural modernization, and contract-farming is an important helper to promote agricultural modernization. However, with the gradual development of contract-farming in China, the plight of supply chain financing becomes increasingly prominent because of the high risk of supply chain financing and high cost of financing, and seriously restricts the process of agricultural modernization.
Numerous theories are proposed to explain supply chain financing, mainly aimed at the traditional manufacturing supply chain. Due to the unique characteristics of the agriculture, such as the random yield, production easily affected by natural disasters, lacking of effective collateral, the contract-farming supply chain is different from the traditional manufacturing supply chain. Therefore, the optimal decision in the traditional manufacturing supply chain is not necessarily applicable to the contract-farming supply chain. In recent years, some scholars have considered the supply chain finance in the optimal decision-making of contract-farming supply chain. Surprisingly, most literature in agricultural supply chain financing neglected the effect of government subsidy on the optimal decision of contract-farming supply chain.
In view of this, on the basis of previous research results, a two-echelon contract-farming supply chain comprised of a company and a farmer with capital constraints is studied in this paper. Considering loan guarantee insurance and the uncertainty of the production yield in the contract-farming supply chain financing, the four stage dynamic game between government, bank, company and farmer is stadied under the government subsidies for the loan interest, and the effects of government subsidy on the optimal decisions and benefits of the supply chain partners are analyzed. Furthermore, the government's optimal subsidy mechanism, which is to maximize social welfare, is obtained. It is found that, (1) when the output rate in the harvest year is less than 2 times the output rate in the disaster year, the government does not need to provide the subsidy mechanism; otherwise, the government should provide the subsidy mechanism. (2)The government subsidy mechanism should be:①when the price sensitive coefficient is small, the government should not provide subsidy; ②when the price sensitive coefficient is in the middle, the government should provide subsidy partly; ③otherwise, the government should provide one hundred percent subsidy; ④when the ratio of the output rate in the disaster year and the output rate in the harvest year is increased to a certain value, the government will always provide subsidies. If the above ratio of the output rate is increased to a greater value, the government will provide full subsidies. Finally, some suggestions are put forward for the improvement of the new pattern of cooperative loan.
The above research results not only provide some managerial insights for the government to design the subsidy mechanism, but also offer some useful theoretical guidance for the agricultural related personnel in the operation and financial decision-making.

Key words: loan guarantee insurance, government subsidy mechanism, yield uncertainty, capital constrains, supply chain financing