IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v34y2012i5p1623-1633.html
   My bibliography  Save this article

Biofuel supply chain design under competitive agricultural land use and feedstock market equilibrium

Author

Listed:
  • Bai, Yun
  • Ouyang, Yanfeng
  • Pang, Jong-Shi

Abstract

The rapid expansion of the biofuel industry diverts a large amount of agricultural crops as energy feedstocks, and in turn affects farm land allocation, feedstock market equilibrium, and agricultural economic development in local areas. In this paper, we propose game-theoretic models that incorporate farmers' decisions on land use and market choice into the biofuel manufacturers' supply chain design problem. A noncooperative bi-level Stackelberg leader–follower game model and a cooperative game model are developed respectively to address possible business partnership scenarios between feedstock suppliers and biofuel manufacturers. The models determine the optimal number and locations of biorefineries, the required prices for these refineries to compete for feedstock resources, as well as farmers' land use choices between food and energy. Using corn as an example of feedstock crops, spatial market equilibrium is utilized to model the relationship between corn supply and demand, and the associated price variations in local grain markets. With linear corn demand functions, we develop a solution approach that transforms the original discrete mathematical program with equilibrium constraints (DC-MPEC) into to a solvable mixed integer quadratic programming (MIQP) problem based on Karush–Kuhn–Tucker (KKT) conditions. The proposed methodology is illustrated using an empirical case study of the Illinois State. The computation results reveal interesting insights into optimal land use strategies and supply chain design for the emerging “biofuel economy”.

Suggested Citation

  • Bai, Yun & Ouyang, Yanfeng & Pang, Jong-Shi, 2012. "Biofuel supply chain design under competitive agricultural land use and feedstock market equilibrium," Energy Economics, Elsevier, vol. 34(5), pages 1623-1633.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:5:p:1623-1633
    DOI: 10.1016/j.eneco.2012.01.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988312000047
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Huang, Yongxi & Chen, Chien-Wei & Fan, Yueyue, 2010. "Multistage optimization of the supply chains of biofuels," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 46(6), pages 820-830, November.
    2. Bai, Yun & Hwang, Taesung & Kang, Seungmo & Ouyang, Yanfeng, 2011. "Biofuel refinery location and supply chain planning under traffic congestion," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 162-175, January.
    3. Wu, Tai-Hsi & Lin, Jen-Nan, 2003. "Solving the competitive discretionary service facility location problem," European Journal of Operational Research, Elsevier, vol. 144(2), pages 366-378, January.
    4. Marie Walsh & Daniel de la Torre Ugarte & Hosein Shapouri & Stephen Slinsky, 2003. "Bioenergy Crop Production in the United States: Potential Quantities, Land Use Changes, and Economic Impacts on the Agricultural Sector," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(4), pages 313-333, April.
    5. Hongli Feng & Bruce A. Babcock, 2010. "Impacts of Ethanol on Planted Acreage in Market Equilibrium," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 789-802.
    6. Dicks, Michael R. & Campiche, Jody L. & Torre Ugarte, Daniel de la & Hellwinckel, Chad M. & Bryant, Henry L. & Richardson, James W., 2009. "Land Use Implications of Expanding Biofuel Demand," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(02), August.
    7. Masao Fukushima, 2011. "Restricted generalized Nash equilibria and controlled penalty algorithm," Computational Management Science, Springer, vol. 8(3), pages 201-218, August.
    8. Pierre Hanjoul & Pierre Hansen & Dominique Peeters & Jacques-Francois Thisse, 1990. "Uncapacitated Plant Location Under Alternative Spatial Price Policies," Management Science, INFORMS, vol. 36(1), pages 41-57, January.
    9. Gallagher, Paul W. & Shapouri, Hosein & Price, Jeffrey & Schamel, Guenter & Brubaker, Heather, 2003. "Some Long-Run Effects of Growing Markets and Renewable Fuel Standards on Additives Markets and the U.S. Ethanol Industry," Staff General Research Papers Archive 10648, Iowa State University, Department of Economics.
    10. Gallagher, Paul W. & Shapouri, Hosein & Price, Jeffrey & Schamel, Guenter & Brubaker, Heather, 2003. "Some long-run effects of growing markets and renewable fuel standards on additives markets and the US ethanol industry," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 585-608, September.
    11. Gallagher, Paul W. & Shapouri, Hosein & Price, Jeffrey & Schamel, Guenter & Brubaker, Heather, 2003. "Some long-run effects of growing markets and renewable fuel standards on additives markets and the US ethanol industry," ISU General Staff Papers 200309010700001445, Iowa State University, Department of Economics.
    12. John D. Anderson & Keith H. Coble, 2010. "Impact of renewable fuels standard ethanol mandates on the corn market," Agribusiness, John Wiley & Sons, Ltd., vol. 26(1), pages 49-63.
    13. Garci'a-Bertrand, Raquel & Conejo, Antonio J. & Gabriel, Steven, 2006. "Electricity market near-equilibrium under locational marginal pricing and minimum profit conditions," European Journal of Operational Research, Elsevier, vol. 174(1), pages 457-479, October.
    14. Larson, James A. & English, Burton C. & He, Lixia, 2008. "Economic Analysis of Farm-Level Supply of Biomass Feedstocks for Energy Production Under Alternative Contract Scenarios and Risk," Transition to a Bio Economy Conferences, Integration of Agricultural and Energy Systems Conference, February 12-13, 2008, Atlanta, Georgia 48706, Farm Foundation.
    15. Kevin McNew & Duane Griffith, 2005. "Measuring the Impact of Ethanol Plants on Local Grain Prices," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 164-180.
    16. Eathington, Liesl & Swenson, David A., 2007. "Dude, Where's My Corn? Constraints on the Location of Ethanol Production in the Corn Belt," Staff General Research Papers Archive 12777, Iowa State University, Department of Economics.
    17. Gabriel, Steven A. & Leuthold, Florian U., 2010. "Solving discretely-constrained MPEC problems with applications in electric power markets," Energy Economics, Elsevier, vol. 32(1), pages 3-14, January.
    18. Daniel Serra & Charles Revelle, 1997. "Competitive location and pricing on networks," Economics Working Papers 219, Department of Economics and Business, Universitat Pompeu Fabra.
    19. Mark Gehlhar & Agapi Somwaru & Peter B. Dixon & Maureen T. Rimmer & Ashley R. Winston, 2010. "Economywide Implications from US Bioenergy Expansion," American Economic Review, American Economic Association, vol. 100(2), pages 172-177, May.
    20. Benjamin, Catherine & Houee-Bigot, Magalie, 2007. "Measuring Competition between Non-Food and Food Demand on World Grain Markets : Is Biofuel Production Compatible with Pressure for Food Production ?," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9854, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    21. Ervola, Asta & Lankoski, Jussi E. & Ollikainen, Markku, 2011. "Agriculture and Climate Change: Socially Optimal Production and Land Use," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114339, European Association of Agricultural Economists.
    22. Jacek Krawczyk, 2007. "Numerical solutions to coupled-constraint (or generalised Nash) equilibrium problems," Computational Management Science, Springer, vol. 4(2), pages 183-204, April.
    23. Tyner Wallace & Taheripour Farzad, 2008. "Biofuels, Policy Options, and Their Implications: Analyses Using Partial and General Equilibrium Approaches," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(2), pages 1-19, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rincón, Luis E. & Valencia, Monica J. & Hernández, Valentina & Matallana, Luis G. & Cardona, Carlos A., 2015. "Optimization of the Colombian biodiesel supply chain from oil palm crop based on techno-economical and environmental criteria," Energy Economics, Elsevier, vol. 47(C), pages 154-167.
    2. Lingling Wang & Tsunemi Watanabe, 2016. "A Stackelberg Game Theoretic Analysis of Incentive Effects under Perceived Risk for China’s Straw-Based Power Plant Supply Chain," Energies, MDPI, Open Access Journal, vol. 9(6), pages 1-20, June.
    3. Wang, Xin & Lim, Michael K. & Ouyang, Yanfeng, 2015. "Infrastructure deployment under uncertainties and competition: The biofuel industry case," Transportation Research Part B: Methodological, Elsevier, vol. 78(C), pages 1-15.
    4. Bai, Yun & Ouyang, Yanfeng & Pang, Jong-Shi, 2016. "Enhanced models and improved solution for competitive biofuel supply chain design under land use constraints," European Journal of Operational Research, Elsevier, vol. 249(1), pages 281-297.
    5. repec:eee:appene:v:195:y:2017:i:c:p:370-381 is not listed on IDEAS
    6. De Laporte, Aaron V. & Weersink, Alfons J. & McKenney, Daniel W., 2016. "Effects of supply chain structure and biomass prices on bioenergy feedstock supply," Applied Energy, Elsevier, vol. 183(C), pages 1053-1064.
    7. An, Kun & Ouyang, Yanfeng, 2016. "Robust grain supply chain design considering post-harvest loss and harvest timing equilibrium," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 88(C), pages 110-128.
    8. Wang, Xiaolei & Ouyang, Yanfeng & Yang, Hai & Bai, Yun, 2013. "Optimal biofuel supply chain design under consumption mandates with renewable identification numbers," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 158-171.
    9. Cobuloglu, Halil I. & Büyüktahtakın, İ. Esra, 2015. "Food vs. biofuel: An optimization approach to the spatio-temporal analysis of land-use competition and environmental impacts," Applied Energy, Elsevier, vol. 140(C), pages 418-434.
    10. Cebi, Selcuk & Ilbahar, Esra & Atasoy, Aylin, 2016. "A fuzzy information axiom based method to determine the optimal location for a biomass power plant: A case study in Aegean Region of Turkey," Energy, Elsevier, vol. 116(P1), pages 894-907.
    11. Huang, Yongxi & Chen, Yihsu, 2014. "Analysis of an imperfectly competitive cellulosic biofuel supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 72(C), pages 1-14.
    12. repec:eee:enepol:v:110:y:2017:i:c:p:631-643 is not listed on IDEAS
    13. Avelino Gonçalves, Fabiano & dos Santos, Everaldo Silvino & de Macedo, Gorete Ribeiro, 2015. "Use of cultivars of low cost, agroindustrial and urban waste in the production of cellulosic ethanol in Brazil: A proposal to utilization of microdistillery," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 1287-1303.
    14. repec:spr:annopr:v:236:y:2016:i:1:d:10.1007_s10479-013-1497-y is not listed on IDEAS
    15. Okwo, Adaora & Thomas, Valerie M., 2014. "Biomass feedstock contracts: Role of land quality and yield variability in near term feasibility," Energy Economics, Elsevier, vol. 42(C), pages 67-80.
    16. repec:eee:eneeco:v:67:y:2017:i:c:p:35-48 is not listed on IDEAS
    17. repec:eee:rensus:v:75:y:2017:i:c:p:1089-1100 is not listed on IDEAS
    18. Espinoza Pérez, Andrea Teresa & Camargo, Mauricio & Narváez Rincón, Paulo César & Alfaro Marchant, Miguel, 2017. "Key challenges and requirements for sustainable and industrialized biorefinery supply chain design and management: A bibliographic analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 350-359.
    19. repec:eee:proeco:v:193:y:2017:i:c:p:654-662 is not listed on IDEAS
    20. repec:eee:appene:v:218:y:2018:i:c:p:266-281 is not listed on IDEAS

    More about this item

    Keywords

    Biofuel; Supply chain; Land use; Spatial market equilibrium; MPEC;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:34:y:2012:i:5:p:1623-1633. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eneco .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.