6. Conclusions
This paper has investigated the use of coordination contracts between a biofuel producer and multiple small-scale farmers in a random yield environment, as such contracts might ensure the sustainable supply of agricultural feedstock for biofuel production and improve the performance of the biofuel supply chain as a whole. First, both the over-production risk-sharing contract (where the biofuel producer pays a discount price for the farmers’ excess units) and the under-production risk-sharing contract (where the farmers are penalized by a penalty price for the under-delivery of units) are developed to provide incentives or penalties for the farmers to increase or decrease their production, so as to align it to that required in a centralized supply chain. However, the results show that either the biofuel producer or the farmers will do less well(will profit less) with use of these two types of contract than they would have done under a decentralized system, with no contracts. Building upon this result, we further put forward a mixed contract, with an asymmetric Nash bargaining model, to achieve supply chain coordination and to satisfy both actor’ participation constraints. An empirical case for the cassava-based biofuel industry in China is applied to illustrate the proposed contracts. The results show that the proposed mixed contract with an asymmetric Nash bargaining model is conducive to the sustainable supply of agricultural feedstock and achieves Pareto improvement in the supply chain. Moreover, sensitivity analyses are conducted to reveal the effects of varying the yield uncertainty, the biofuel producer’s transfer output rate, as well as the cost parameters on the optimal input quantity, coordination factors and profits. The findings should help practitioners understand when and how to implement these coordination contracts to increase the efficiency of both the individual actors and the biofuel supply chain as a whole. The practitioners must also be aware of the possible impacts of individual conditions (price, cost, capacity) on decision-making behavior.