Farmers’ Switchgrass Adoption Decision Under A Single-Procurer Market: An Agent Based Simulation Approach

Recently, a number of pilot and demonstration scale advanced biofuel facilities have been established, but commercial scale facilities are yet to become operational. To make informed decisions about this emerging industry, potential biorefinery entrepreneurs and regional policy makers need analysis of how farmers are willing to adopt these feedstocks and how will they switch land into bio-feedstock use to ensure a stable feedstock supply. This paper develops an agent-based simulation model to study farmers’ switchgrass adoption decisions over time within a specific agricultural region. We explicitly examine the effect of various contractual terms across market scenarios and consider the potential for contractual hold-ups. Results show that a contract with a payment of $175/acre plus $50/ton could make both biorefinery and farmer profitable during the simulation period. It is also shown that alfalfa, but not annual crops will be the mostly affected crop (replaced) by the introduction of switchgrass in the region of North Michigan.