Subsidize farmers or bioenergy producer? The design of a government subsidy program for a bioenergy supply chain

Abstract

The success of the bioenergy industry will depend, in part, on enough biomass feedstocks being grown. To increase the reliability of feedstocks supply, a government can offer two types of subsidy program: a farmer subsidy program (FSP) and a bioenergy producer subsidy program (PSP). We develop models to analyze the optimal subsidy program by capturing the interactions between the government, the bioenergy producer, and the farmers. The models incorporate the subsidy budget constraint, the environmental benefits from the use of bioenergy, the farmer's risk aversion and land capacity constraint, as well as the yield uncertainty of feedstocks. The findings reveal that both FSP and PSP are effective as long as the farmers' land capacity exceeds a threshold. If both the subsidy budget and the land capacity are sufficiently large, PSP outperforms FSP; if only the subsidy budget is limited, FSP is better; if only the land capacity is limited, FSP and PSP are equivalent. Counter-intuitively, we find that PSP always favors farmers more, while FSP favors the bioenergy producer more under certain conditions. Also, we find that FSP can better mitigate risk than PSP when yield uncertainty is high. Lastly, insights for policy makers to promote bioenergy development are highlighted.

Optimal Financing Decision in a Contract Food Supply Chain with Capital Constraint

“…Given the exogenous variables, the improvement of the welfare of supply chain members is more obvious when bank financing with "government, bank, and insurance" coparticipation than when bank financing with bank participation only, indicating that the loan interest rate and the risk of repayment in the supply chain are reduced when bank financing with "government, bank, and insurance" coparticipation, which is consistent with the conclusion of Huang and Lin [7]. Under the same risk of yield uncertainty, the profits of supply chain members in bank financing with "government, bank, and insurance" coparticipation are significantly higher than the profits in bank financing with bank participation only, indicating that government subsidies improve the profits of members of the supply chain, which is consistent with the conclusion of Ye et al [38]. Meanwhile, we consider the minimum purchase price policy in the model.…”

“…It indicates that the implementation of the minimum purchase price policy increases the welfare of the family farm, which improves the enthusiasm of the family farm, and ensures national food security. erefore, it is of practical significance for the government to participate in the financing process of the food supply chain [7,16,38]. Some management implications are as follows: first, contract farming should be vigorously developed based on the special properties of the food, which will increase the income of the farmers [25][26][27][28][29][30][31][32][33], improve their enthusiasm for growing, and then ensure national food security.…”

“…ere is a lot of literature on bank financing and upstream and downstream financing within the supply chain [9,[34][35][36][37]. However, the supply chain of agricultural products, especially food, is different from that of industrial products, and the government will provide subsidies to guarantee its supply [38,39]; therefore, agricultural supply chain financing will also involve government subsidies. Van Bergen et al [40] discuss the supply chain finance arrangement in the procurement of agricultural products and compare the three management strategies of soft tolling, hard tolling, and contract farming, and the supply chain is fully coordinated under the contract farming strategy.…”

Government subsidy policy for green and efficient raw materials considering farmer heterogeneity

“…To reduce fertilizer waste, protect soil quality, and help farmers increase crop yield, the government provides a per‐unit purchasing subsidy τ to farmers who buy GRMs to popularize GRMs and provides a fixed subsidy t to Firm 2 to induce Firm 2 to enter the market. The per‐unit purchasing subsidy scheme to farmers is widely adopted in the operations management and economics literature (Cohen et al., 2016; Ye et al., 2021) to describe the promotion of green high‐tech products, such as biofuel, bioenergy, and agri‐technology products. For example, the Chinese government provides farmers with a per‐acre subsidy for soil improvement techniques and high‐quality seeds 9 .…”

Introduction to the special issue on OR models for developmental studies

“…The design of a government subsidy program for a bioenergy supply chain?" Fei Ye, Zigong Cai, Ying-Ju Chen, Yina Li, and Gang Hou (Ye et al, 2020) studied the combined effect of bioenergy adoption and farmer subsidy. Bioenergy has attracted significant attention in recent decades worldwide, driven by concerns for energy security and sustainable development.…”