Biomass feedstock contracts: Role of land quality and yield variability in near term feasibility Adaora Okwo a, ⁎, Valerie M. Thomas a,b a H. Milton Stewart School of Industrial & Systems Engineering, Georgia Institute of Technology, 755 Ferst Drive NW, Atlanta, GA 30332, USA b School of Public Policy, Georgia Institute of Technology, 685 Cherry Street, Atlanta, GA 30332, USA abstract article info Article history: Received 26 May 2012 Received in revised form 31 May 2013 Accepted 10 November 2013 Available online 4 December 2013 JEL classification: D86 L14 Q11 Q21 Q24 Q42 Keywords: Agricultural contracting Next-generation biofuels Land use Dedicated energy crops Switchgrass 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 contractin 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. © 2013 Elsevier B.V. All rights reserved. 1. Introduction In recent years there have been many studies which estimate poten- tial biomass feedstock availability in the United States and the resultant impacts on agriculture and the environment. Perlack et al. (2005) pro- duced one of the first studies estimating the potential supply of biomass feedstock for bioenergy production. This study considered supply based on technical feasibility. Since then, many studies have been conducted to estimate supply based on economic feasibility. Four economic models, FAPRI, FASOM, GTAP, and POLYSYS, have been particularly influential in both informing and evaluating agricultural and energy policy as it relates to the economic costs of large-scale production of biofuels and its resultant impact on the agricultural landscape. These partial and general equilib- rium models evaluate deviations from baseline projections of the agricultural sector, over several decades, as the system adjusts to meet various policy goals or responds to various system shocks. The Food and Agricultural Policy Research Institute (FAPRI) model uses extensive data from the world agricultural market to develop baseline projections of the U.S. agricultural sector as well as internation- al commodity markets (FAPRI, n.d.-a). The FAPRI/CARD International Ethanol Market Model extends the FAPRI model to include projections of “the production, use, stocks, prices, and trade for ethanol for several countries and regions of the world” (FAPRI, n.d.-b). Various studies employ the model to evaluate bioenergy production including an appli- cation which considers the global impact of local land allocation deci- sions in response to expanding ethanol production (Fabiosa et al., 2010), and an application which considers biofuel expansion under four policy/energy price scenarios and the resultant impact on agricul- tural commodities (Hayes et al., 2009). The Forest and Agricultural Sector Optimization Model (FASOM) sim- ulates land allocation responses to policy in the forest and agricultural sectors. Simulation results depict the land allocation in each period which maximizes the net present value of total welfare—the sum of consumer and producer surplus (Beach and McCarl, 2010). With respect to biofuel production, the model has been used to assess market impacts of changes in demand for biomass feedstocks as well as the impact of meeting the renewable fuel targets set forth in the Energy Independence and Security Act of 2007 (Beach and McCarl, 2010). The Policy Analysis System (POLYSYS) model has been used frequently to assess the impacts of biofuel production on agriculture and the Energy Economics 42 (2014) 67–80 ⁎ Corresponding author. Tel.: +1 310 920 2480; fax: +1 404 894 0390. E-mail addresses: aokwo@gatech.edu (A. Okwo), valerie.thomas@isye.gatech.edu (V.M. Thomas). 0140-9883/$ – see front matter © 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.eneco.2013.11.004 Contents lists available at ScienceDirect Energy Economics journal homepage: www.elsevier.com/locate/eneco