Farmers’ Willingness to Produce Alternative Cellulosic Biofuel Feedstocks in Kansas Using Stated Choice Experiments

1. Farmers’ Willingness to Produce Alternative Cellulosic Biofuel Feedstocks in Kansas Using Stated Choice Experiments Jason S. Bergtold, Jason Fewell, and Jeffery Williams Associate Professor, PhD Candidate and Professor, Department of Agricultural Economics, Kansas State University, Manhattan, KS (contact author: bergtold@ksu.edu) Selected presentation at the Sun Grant Initiative 2012 National Conference: Science for Biomass Feedstock Production and Utilization, New Orleans, LA, October 2 – 5, 2012. Funding for the primary portion of this project came from the South Central Sun Grant Initiative and Department of Transportation (Award No. DTOS59-07-G-00053), with additional funds from the National Science Foundation, EPSCoR Division, Research Infrastructure Improvement (Award No. 0903806).

2. Introduction • Much research has focused on the feasibility and logistical possibility of supplying alternative cellulosic biofuel feedstocks. • Farmers represent a significant potential supplier of biomass for biofuel production. • There still exists a strong need to examine whether farmers are willing to supply certain feedstocks (e.g. agricultural residues, bioenergy crops, etc.).

3. Introduction • Farmers in the Great Plains region of the U.S. may be well-situated for supplying certain biomass feedstocks for 2nd generation biofuels. • Some potential cellulosic feedstocks include: • Corn stover • Wheat straw • Sweet (forage) sorghum or other energy sorghum varieties • Switchgrass • Miscanthus

4. Purpose and Objectives Purpose: To examine farmers’ willingness to produce alternative cellulosic biofuel feedstocks under alternative contractual conditions Objectives: • Examine the probability of adoption in Kansas • Examine the impacts of different contract and market attributes on adoption. • Examine the impact on feedstock pricing.

5. Significance • Markets for cellulosic biomass intended for biofuel production either do not exist or are extremely limited in scope. • May provide extra revenue stream for farmers and chance to diversify crop rotations. Farmers are more likely to produce biomass with some type of contractual agreement due to market uncertainty on both sides. • Bio-refineries need an ensured supply of biomass to operate their plants and obtain financing. • The design of these contracts is important!

6. The Survey • An enumerated (face-to-face) survey was administered by USDA-NASS in Kansas from Nov. 2010 to Feb. 2011 to farms with at least 260 acres of cropland and $50K in gross farm sales. • Targeted three areas of Kansas: Northeast Corner, South Central (N of Wichita), and Western (along I-70 corridor). Each area spanned 8 contiguous counties • A sample of 485 farms was selected, of which 290 completed the survey (65% response). For this study, 277 were used due to completion of needed data. • The survey included a set of 5 stated choice questions asking if a farmer would be willing to produce sweet sorghum under different contractual conditions. • Further questions were asked about the farming operation; cropping practices, biofuel perceptions and practices; conservation; risk and marketing; and willingness to grow cellulosic biofuel feedstocks.

7. Survey Regions

8. Survey – Contract Attributes For each feedstock examined (corn stover, sweet sorghum and switchgrass) different relevant contract attributes were considered.

9. Contract Attributes Example – Sweet Sorghum

10. Survey Attributes/Levels

11. Stated Question Formats Corn Stover Scenario: Sweet Sorghum Scenario:

12. Stated Question Formats Switchgrass Scenario:

13. Willingness to Produce

14. Regional Demographics

15. What do farmers want in a bioenergy crop? • (In order of importance) • High yields • Low input costs • Ability to rotate with other crops • Maintain soil organic matter • Low fertilizer use

16. Willingness to Produce

17. Methods of Analysis • Used discrete choice statistical techniques to examine survey data and farmers’ willingness to produce alternative cellulosic biofuel feedstocks. • Error components logit model to account for unobserved heterogeneity as random effects among respondents across choices (i.e. to capture differences in preferences across respondents and correlations between choices). • Incorporated fixed effects for location (West, Central, and Northeast Kansas) • Determined farmers’ dollar amount for willingness to pay for certain potential contract features and used budgeting tools to determine farmers’ reservation prices.

18. Corn Stover

19. Corn Stover

20. Corn Stover – Contract Elements • For eachyear under contract, farmers would require an additional $1.55 in net returns per acre. That is, a farmer would be willing to forego $1.55 in net returns to have a contract 1 year shorter, giving them more flexibility. • Without a biomass harvesting option farmers would require an additional $10.69 in net returns per acre. That is, the amount the famer would be willing to pay the refinery or other custom harvester above their own harvesting costs. • Without a nutrient replacement option farmers would require an additional $11.20 in net returns per acre. That is, a farmer would be willing to pay $11.20 to have the nutrient replacement option.

21. Sweet Sorghum

22. Sweet Sorghum

23. Sweet Sorghum– Contract Elements • For eachyear under contract, farmers would require an additional $2.15 in net returns per acre. That is, a farmer would be willing to forego $2.15 in net returns to have a contract 1 year shorter, giving them more flexibility. • Without a biomass harvesting option farmers would require an additional $7.05 in net returns per acre. That is, the amount the famer would be willing to pay the refinery or other custom harvester above their own harvesting costs. • With the availability of insurance farmers would be willing to give up $5.06 in net returns per acre.

24. switchgrass

25. Switchgrass

26. Switchgrass – Contract Elements • For eachyear under contract, farmers would require an additional $1.02 in net returns per acre. That is, a farmer would be willing to forego $1.02 in net returns to have a contract 1 year shorter, giving them more flexibility. • Without a biomass harvesting option farmers would require an additional $2.09 in net returns per acre. That is, the amount the famer would be willing to pay the refinery or other custom harvester above their own harvesting costs. • With the availability of insurance farmers would be willing to give up $1.48 in net returns per acre.

27. Reservation Prices

28. Select Cost Budgets

29. Biomass Pricing ($/dry ton) Consider the following contract situation: 2 year contract on Corn Stover and Sweet Sorghum, 7 Year on Switchgrass; Biomass Harvesting Option Provided; Nutrient Replacement Provided; Insurance Provided. The table below represents the reservation prices at which farmers would adopt a contract (probability > 50 %).

30. Discussion • Farmers’ willingness to grow cellulosic biofuel feedstocks will depend on contract alternatives and the net returns from the enterprise. (Sweet,forageand energy sorghum varieties seem to represent the best alternative for Kansas). • Farmers will require an “adoption premium” to produce biofuels on farm that accounts for their risk premium, transaction costs and uncertainty.

31. Discussion • Different regions of Kansas (and surrounding regions) will give rise to different adoption patterns to biomass feedstock alternatives. There are implications for cellulosic ethanol plant locations. • Furthermore, different feedstocks will potentially require different contractual arrangements. This has implications on the negotiation and selection of feedstocks by a biorefinery.