Innovation in Agriculture: Incentives for Adoption and Supply Chain Development for Energy Crops

The literature on technology adoption provides key insights that can explain the incentives and barriers to the adoption of new energy crops for producing biofuels to displace fossil fuels. Energy crops are perennials with high upfront costs and establishment lags. They also differ from conventional crops in their riskiness. Their production involves foregoing returns from existing uses of the land. These features differ spatially and across farmers due to difference in farmer risk and time preferences. Understanding patterns of adoption is important for designing farming systems, supply chains, and policies. The literature investigates the influence on the adoption decision of many sources of heterogeneity across time and location including differences in the characteristics of technologies, farmers, market conditions, and policy incentives. Factors likely to influence adoption are explained using the example of two high-yielding and promising energy crops: miscanthus and switchgrass. Energy crop adoption decision is shown to be based on monetary factors (profit and costs) and the composition of mechanisms to address risk and uncertainty available to a region, as well as the risk and time preferences, attitudes, and beliefs of farmers. The paper ends with a discussion of market mechanisms and policy incentives to induce adoption and create supply chains needed to engender this industry.