Biomass feedstock contracts: Role of land quality and yield variability in near term feasibility

Adaora Okwo and Valerie M. Thomas

Energy Economics, 2014, vol. 42, issue C, 67-80

Abstract: In the absence of an infrastructure for the harvest, storage and purchase of cellulosic biomass, contracting is an important mechanism through which biorefineries can ensure adequate feedstock supply. We develop an optimization model to assess the economic potential of dedicated energy crops when profit-maximizing farmers allocate croplands of varying quality toward biomass in response to multi-year contracts. We evaluate the economic competitiveness of perennial grasses with traditional commodity crops, in a case study of switchgrass production in Tennessee. Assuming short-term contracts, we consider the importance of payment structure, land quality, energy crop yield and projected commodity crop returns on a farmer's decision to accept a contract for biomass production. We find that a wholesale contract, in which the farmer is guaranteed a price per unit biomass, is most effective on the highest quality of land, while a contract in which the farmer is guaranteed a price per acre is most effective on lower quality land. From the biorefinery perspective, a wholesale contract is most effective for short-term contracts while an acreage contract is most effective for long-term contracts. Breakeven pricing will only secure feedstock from farmers who produce commodity crops with unfavorable price outlooks on lower quality land; therefore, the contract price must include a premium in order to compete for space in the crop mix. The yield profile of energy crops has a significant effect on the terms at which short-term contracts will be accepted and land allocated toward feedstock production. The extent to which energy crop yields observed in field trials can be maintained at commercial scale also has a substantial effect on the scale at which farmers would be willing to participate in energy crop production.

Keywords: Agricultural contracting; Next-generation biofuels; Land use; Dedicated energy crops; Switchgrass (search for similar items in EconPapers)
JEL-codes: D86 L14 Q11 Q21 Q24 Q42 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:42:y:2014:i:c:p:67-80

DOI: 10.1016/j.eneco.2013.11.004

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