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Investigating potential contract models to stimulate commercial production of energy crops

Kimming, Marie LU (2008) IMEN41 20081
The International Institute for Industrial Environmental Economics
Abstract
Perception of risks and related costs associated with energy crop cultivation pose a barrier to expansion of production, and therefore economies-of-scale are not achieved and investments in new infrastructure harder to justify. In this study, the risk perceptions for agro-biofuel production in Sweden, France and Finland are delineated and a new contractual arrangement to reduce such risk perceptions proposed based on 55 in-depth interviews conducted with agro-biofuel producers and users.
The proposed contract model is based on three factors; degree of duration (number of years), degree of flexibility (number of price negotiations per year or per contract duration, and possibility to cancel the contract if circumstances change) and degree... (More)
Perception of risks and related costs associated with energy crop cultivation pose a barrier to expansion of production, and therefore economies-of-scale are not achieved and investments in new infrastructure harder to justify. In this study, the risk perceptions for agro-biofuel production in Sweden, France and Finland are delineated and a new contractual arrangement to reduce such risk perceptions proposed based on 55 in-depth interviews conducted with agro-biofuel producers and users.
The proposed contract model is based on three factors; degree of duration (number of years), degree of flexibility (number of price negotiations per year or per contract duration, and possibility to cancel the contract if circumstances change) and degree of cost control (the producers’ level of integration into the production chain). It was found that the degree of duration preferably is medium-long, about 5 years, and the flexibility high, whereas the degree of cost control might vary between farmers depending on their activity level and possession of machinery and negotiation skills. Entrepreneurial farmers with machinery and high negotiation skills want a high degree of cost control, in particular if the energy crop is a large share of their income. Active farmers prefer a medium high degree of cost control, assisting during harvest with own machinery (such as driving a side-wagon next to the harvester) and inactive farmers a low degree of cost control because they value the low labour-input.
The price of the agro-biofuel product is linked to the price of conventional biofuels (such as wood chips from forestry), but with shared risk of increased prices for transport fuel via a partial indexation of the price to the diesel price. “Windfall profits” from for example subsidies or the COemission trading scheme are suggested to be allocated to the producer as an incentive for production. 2
The active farmers were found to be the least satisfied with the decision to grow an energy crop, in part because they to a larger extent have substituted cereal production with energy crop production, and the grain prices rose dramatically in the beginning of 2008, and in part because they have difficulties to be as profitable as the entrepreneurial farmers (who can harvest themselves and negotiate contracts directly with the fuel-users, thus avoiding costly middlehands) and have higher demand on profitability than the inactive farmers (who have retired or work outside the farm). (Less)
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author
Kimming, Marie LU
supervisor
organization
course
IMEN41 20081
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Energy crops
language
English
id
1481070
date added to LUP
2009-09-29 13:00:29
date last changed
2009-09-29 13:00:29
@misc{1481070,
  abstract     = {Perception of risks and related costs associated with energy crop cultivation pose a barrier to expansion of production, and therefore economies-of-scale are not achieved and investments in new infrastructure harder to justify. In this study, the risk perceptions for agro-biofuel production in Sweden, France and Finland are delineated and a new contractual arrangement to reduce such risk perceptions proposed based on 55 in-depth interviews conducted with agro-biofuel producers and users.
The proposed contract model is based on three factors; degree of duration (number of years), degree of flexibility (number of price negotiations per year or per contract duration, and possibility to cancel the contract if circumstances change) and degree of cost control (the producers’ level of integration into the production chain). It was found that the degree of duration preferably is medium-long, about 5 years, and the flexibility high, whereas the degree of cost control might vary between farmers depending on their activity level and possession of machinery and negotiation skills. Entrepreneurial farmers with machinery and high negotiation skills want a high degree of cost control, in particular if the energy crop is a large share of their income. Active farmers prefer a medium high degree of cost control, assisting during harvest with own machinery (such as driving a side-wagon next to the harvester) and inactive farmers a low degree of cost control because they value the low labour-input.
The price of the agro-biofuel product is linked to the price of conventional biofuels (such as wood chips from forestry), but with shared risk of increased prices for transport fuel via a partial indexation of the price to the diesel price. “Windfall profits” from for example subsidies or the COemission trading scheme are suggested to be allocated to the producer as an incentive for production. 2
The active farmers were found to be the least satisfied with the decision to grow an energy crop, in part because they to a larger extent have substituted cereal production with energy crop production, and the grain prices rose dramatically in the beginning of 2008, and in part because they have difficulties to be as profitable as the entrepreneurial farmers (who can harvest themselves and negotiate contracts directly with the fuel-users, thus avoiding costly middlehands) and have higher demand on profitability than the inactive farmers (who have retired or work outside the farm).},
  author       = {Kimming, Marie},
  keyword      = {Energy crops},
  language     = {eng},
  note         = {Student Paper},
  title        = {Investigating potential contract models to stimulate commercial production of energy crops},
  year         = {2008},
}