Combining choice modeling estimates and stochastic simulations to assess the potential of new crops-The case of lignocellulosic perennials in Southwestern Germany

In the future, the lignocellulosic perennial crops short rotation coppice (SRC) and miscanthus are supposed to provide renewable raw materials for a bio-based economy. To assess the potential regional supply of these crops, which are not yet widespread in Baden-Wuerttemberg (Southwest Germany), we used a two-step approach. In a first step, we conducted a Discrete Choice Experiment (DCE) in regions of Baden-Wuerttemberg that-given their site conditions-are suitable for SRC or miscanthus. The respondents were characterized by significant preference heterogeneity for both (negatively valued) perennial crops and for all presented choice attributes. Thus, it was appropriate to estimate a random parameter logit model (RPL). The attributes average yearly contribution margin, long-term purchase guarantee and cultivation by colleagues in the neighborhood had a significantly positive effect on the likelihood of cultivation, whereas the attributes contribution margin variability and initial investment need showed a significantly negative effect. In a second step, assuming realistic values for the levels of the attributes considered in the DCE, in stochastic simulations, we randomly draw part-worth utilities from the multivariate normal distribution of these parameters according to the RPL results. This way, for alternative biomass prices, we derived shares of farmers' willing to engage in perennial crop production and produced related regional supply functions. Under moderate yield and realistic input and farmland opportunity cost assumptions, the full regional miscanthus potential can only be achieved when farmers are offered either subsidies or price-risk-reducing long-term contracts. Based on empirically determined heterogeneous farmer preferences, our two-step approach is suitable to yield realistic estimations of any not yet implemented farming practices. We finally note caveats related to our analysis and discuss some policy implications of the major findings.