Abstract
China’s biofuel industry faces the problem of insufficient supply of biomass feedstock because farmers lack the funds to carry out their planting plans. Moreover, natural disasters can easily expose farmers to bankruptcy risks, making it difficult for farmers with limited capital to obtain financing from banks. This paper studies the government’s subsidy programmes for helping farmers obtain financing: a poverty alleviation programme (PAP) and a social welfare programme (SWP). We construct a biofuel supply chain model including the government, the bank, farmers, and companies, which optimizes the biomass feedstock production and the government subsidy in different subsidy programmes. We find that high planting efficiency leads to a lower subsidy interest rate for farmers in PAP, while in SWP, high planting efficiency can promote the government to set higher subsidy interest rate when the competitive intensity between bioenergy companies is weak. Furthermore, the total biomass feedstock planting area and the optimal subsidy interest rate in SWP are larger (smaller) than those under PAP when the planting efficiency is higher (lower) than a certain threshold. An extension of our model shows that the government’s subsidy policy for the farmer with financial constraints will reduce the benefits of the farmer who does not need to borrow from the bank. The government’s failure to implement subsidy programmes can sometimes lead to a higher total income for farmers.
Highlights
With the development of the global economy, the consumption of fossil fuels has increased rapidly
Using a contract farming scheme, we construct a biofuel supply chain system consisting of the government, the bank, two biofuel companies and two farmers and investigate how to optimize the biofuel supply chain in which farmers are subject to capital constraints and face an uncertain yield environment
We find that for farmers with high planting efficiency, when the government implements poverty alleviation programme (PAP), it is only necessary to determine a low subsidy rate to optimize the income of farmers
Summary
With the development of the global economy, the consumption of fossil fuels has increased rapidly. Aiming at the problem of insufficient supply of biomass feedstocks in China’s biofuel industry, we construct a biofuel supply chain consisting of the government, the bank, farmers, and agricultural companies, and study how to optimize the biofuel supply chain so that farmers with financial constraints can execute their operation under yield uncertainty. The government often provides subsidy programs to promote biomass feedstocks development These characteristics are not considered in the second stream literature on supply chain finance mentioned above. Our study comprehensively considers the financial constraints of farmers, the risk of bankruptcy and the yield uncertainty, the government subsidy programs, as well as the competition intensity between companies purchasing biofuel feedstocks.
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