Models of vertical coordination consistent with the development of bio-energetics

Abstract

To foster the development of the biomasses for solid fuel it is fundamental to build up a strategy at a local level in which co-exists farms as well as industrial farms. To such aim, it is necessary to implement an effective vertical coordination between the stakeholders with the definition of a contract that prevents opportunistic behaviors and guarantees the industrial investments of constant supplies over the time. Starting from a project that foresees a biomasses power plant in the south of Italy, this study reflects on the payments to fix in an eventual contract in such a way to maintain the fidelity of the farmers. These one have a greater flexibility since they can choose the most convenient crop. Therefore, their fidelity can be obtained tying the contractual payments to the price of the main alternative crop to the energetic one. The results of the study seem to indicate the opportunity to fix a purchase price of the raw materials linked to the one of durum wheat that is the most widespread crop in the territory and the one that depends more on a volatile market. Using the data of the District 12 of the province of Foggia Water Consortium with an area of 11.300 hectares (instead of the 20.000 demanded in the proposal), it has been possible to organize approximately 600 enterprises in five cluster, each of them identified by a representative farm. With a model of linear programming, we have run different simulations taking into account the possibility to grow sorghum in different ways. Through an aggregation process, it has been calculated that farmers may find it convenient to supply the energetic crop at a price of 50 €/t when the price of durum wheat is 150 €/t. Anyway, this price is lower than the one offered by firm that is planning to build the power plant. Moreover, it has been identified a strong correlation between the price of the durum wheat and the price that makes convenient for the farmers to grow the sorghum. When the price of wheat goes up to 400 €/t then the price that must be paid to the farmers for the energetic crop is 70 €/t. Even though these results offer no definitive indications about the economic convenience of industrial firms to pay greater prices for the biomasses, they represent an important step towards the definition of contractual clauses that may prevent phenomena of hold-up and moral hazard.