Using Feed Supplements to Curb Livestock Methane Emissions? The Role of Endogenous Production

40 Pages Posted: 19 Aug 2024

See all articles by Lusheng Shao

Lusheng Shao

University of Melbourne

Jayashankar M. Swaminathan

University of North Carolina (UNC) at Chapel Hill - Operations Area

Date Written: August 01, 2024

Abstract

Feed supplements have recently been touted as an effective means to reducing methane emissions from livestock (e.g., cattle and sheep). In this paper, we examine the environmental implication of this innovation in a supply chain setting. We develop a parsimonious game theoretical model to study a farmer's production and adoption decisions and the manufacturer's pricing decision for the supplement. We find that the use of feed supplement may have unintended consequences because it could incentivize the farmer to increase the livestock production quantity, resulting in more methane emissions. Although reducing the feed supplement's production cost (e.g., R&D grants) incentivizes more adoption of the supplement, the total methane emissions may be higher. Similarly, providing financial incentives to farmers for methane emission reductions (e.g., carbon credits) may cause more damages to the environment. We extend our model to a competitive setting with two symmetric farmers and demonstrate that these findings are robust in this setting. These results vanish when the farmer does not strategically adjust its livestock quantity, thereby highlighting the important role of endogenizing the farmer's production decision when examining the effectiveness of feed supplement in curbing methane emissions. Our findings also caution that government support to the manufacturers for production cost reductions (or to the farmers for cutting methane emissions) may backfire from the environmental perspective.

Keywords: methane emissions, livestock production, feed supplement, sustainable agriculture

Suggested Citation

Shao, Lusheng and Swaminathan, Jayashankar M., Using Feed Supplements to Curb Livestock Methane Emissions? The Role of Endogenous Production (August 01, 2024). Available at SSRN: https://ssrn.com/abstract=4913591

Lusheng Shao (Contact Author)

University of Melbourne ( email )

198 Berkeley Street
Carlton, 3031
Australia

Jayashankar M. Swaminathan

University of North Carolina (UNC) at Chapel Hill - Operations Area ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

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