Understanding Farm-Level Incentives within the Bioeconomy Framework: Prices, Product Quality, Losses, and Bio-Based Alternatives

Abstract

The bioeconomy framework emphasizes potential contributions of life sciences to novel, bio-based products and to discover economic uses for what would otherwise be considered waste or loss in traditional production systems. To best exploit this perspective, especially for biowaste innovations, economists should develop behavioral models that integrate decision-making with biophysical concepts. The supply to bioeconomy uses of farm production otherwise lost depends on the relative net benefits of adjusting production across a range of quality levels. Without understanding such incentives, one cannot fully anticipate the effects on prices and consumer welfare due to new alternatives. The analysis here examines farm-level incentives that determine quality, sales and loss levels, and possible switching of supplies to alternative uses. We present a farmer decision model of the distribution of product qualities, total losses, and the adoption of alternative profitable activities, such as for antioxidants or other novel bioproducts. We demonstrate how the introduction of bio-based alternatives changes opportunity costs of resource use, altering product quality proportions and sales to traditional markets. Adopting biowaste alternatives depends on scale, productivity, and fixed costs; adopting these reduces the proportion of production going to traditional buyers/consumers and shifts downward the distribution of traditional product (e.g., food-grade) qualities.