THE STANDARDS FOR BIOMASS SUPPLY CHAIN RISK

1.1.1 FINANCIAL STATEMENTS, ASSETS, LITIGATION AND INSOLVENCIES

Rationale

Financial statements and assets are strong indicators of long-term credit worthiness and future solvency of suppliers. Previous litigation and insolvencies can be predictors of long-term risk.

Reporting

Reporting Requirements
Proponent shall demonstrate understanding of:
1. The supplier’s relative financial status
2. Any previous litigation and insolvencies of either the contracted party, directors, officers or related parties.

Reporting Recommendations
1. Proponent should demonstrate understanding of supplier’s financial statements for at least 3 years.

Guidance

Guidance for Reporting Requirement 1
It is noted that standard industry contracting practice for many biomass suppliers does not include provision of financial statements and, as a result, obtaining financial statement is often not feasible. The vast majority of biomass suppliers are not public companies and many are small to medium-sized operations; most therefore do not have investment grade credit status. Audited or even unaudited supplier financial statements are often not willingly made available in cases where competing markets do not require it.
Although this does not necessarily denote a lack of financial stability, it does mean that lenders and investors may perceive elevated credit risk since traditional balance sheet approaches for determining credit worthiness are often not feasible with typical biomass suppliers.
Lack of meaningful recourse can be a major obstacle in raising capital for Proponents. In order to supplement more traditional indicators, alternative ways of gauging likelihood of supplier breach or inability to fulfil supply commitments, future credit worthiness and future solvency are necessary (and a key objective of these BSCR Standards). That being said, insofar as they are available, traditional basic indicators of credit worthiness and future solvency should be sought.

Guidance for Reporting Requirement 2
Audited statements are preferred over unaudited. Credit reports, record of litigation won, lost, or settled, or insolvencies within the past 10 years, should be obtained.

Guidance Source

Abbas and Arnosti (2013); Carollo (2017, interview); Crummett (2017, interview); Davis (2018, interview); Dujmovic (2019, feedback); Passmore (2017, interview)

1.1.2 LONGEVITY AND HISTORY OF SUPPLIER PERFORMANCE

Rationale

Number of years in business is a positive indicator of future solvency. Historical performance is an indicator of future performance.

Reporting

Reporting Requirements

1. Proponent shall demonstrate understanding of supplier’s number of years in business, historical feedstock supply performance and reputation.

Guidance

Guidance for Reporting Requirement 1

Local procurement professionals with developed relationships in the region may have valuable insights about supplier’s historical performance (Lewandowski 2018).

Supplier’s historical feedstock supply performance and reputation in the market are positive predictors of likelihood of breach at some point in the future (Solomon 2018). Anecdotal feedback from competitors or other market players can be used as supporting evidence for supplier performance. Corroborating anecdotal data points from at least three independent third-parties are preferred.

A local procurement manager with developed relationships can often have insights about supplier’s historical performance and its reputation in the market.

Guidance Source

Bloomfield (2017, interview); Carollo (2017, interview); Crummett (2017, interview); Passmore (2017, interview); Solomon (2018, interview)

1.1.3 PRODUCTION CAPACITY

Rationale

Supplier production capacity can be a strong indicator of long-term credit worthiness and future solvency. Higher production capacities can denote strength of operational elements, including cash flows, that are important to future solvency.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Supplier’s monthly and annual production feedstock capacity along with any seasonalvariations for at least 3 years
  2. Whether the supplier’s commitment exceeds current production capacity over any of thepast 3 years, and if so, to what degree.

Reporting Recommendations

  1. Proponent should demonstrate understanding of equipment and infrastructure essential to production.
  2. If supplier is an aggregator, it should demonstrate adequate control over sub-contractors and/or access to feedstock over suitable periods of time.
Guidance

Guidance for Reporting Requirement 1

Written instruments validating the capacity and estimated production levels are preferred. Records of past production levels are good indicators of future production capacity (Crummett 2017). In the absence of the former, indicative confirmation of feedstock capacity can be derived indirectly from the quality and age of machinery, equipment, and facility size. Independent third- party confirmation by an expert in the field and previous experience in the region is preferred.

Local procurement professionals with developed relationships in the region may have valuable insights about supplier’s future production capacity.

Feedback from competing markets should be solicited as to the quality, quantity, consistency and reliability of supply and any seasonal variations that may be relevant (however, it is acknowledged that this may be difficult to obtain due to competitive pressures).

Guidance for Reporting Requirement 2

Commitments of supply greater than current average production capacity may be viewed as higher risk than where contracted supply represents a fraction of current production. Commitments of less than 50% of a supplier’s production capacity but more than 10% are deemed optimal. If supply commitment represents an increase versus current production capacity, then Proponent should validate the requirements for increased production in terms of capital, machinery, labour, logistics and raw feedstock availability.

Guidance for Reporting Recommendation 1

Age of equipment should be noted; newer equipment is generally more reliable than old. Equipment capacities should be consistent with supplier commitments. Proponent should understand:

  • Supplier’s ability to fix equipment on site
  • Availability of key spare replacement parts
  • Supplier’s capacity to afford replacement parts
  • Typical operational downtimes during replacements
  • Examples and explanations of supplier’s previous downtimesGround-truthing through on-site visits and/or independent third-party confirmation by an expert are preferred to understand supplier’s feedstock production capacity.
Guidance Source

Bloomfield (2017, interview); Carollo (2017, interview); Crummett (2017, interview); Passmore (2017, interview)

1.2.1 CONTRACT PRICE VERSUS MARKET PRICE

Rationale

The value of a Proponent to its suppliers is directly related to how competitive it is relative to alternative markets for the feedstock the supplier provides. Even if a long-term contract is evidenced, if the contract price is materially below competing local markets (or even based on its cost relative to spot market prices), the supplier has less incentive to work with the Proponent in a constructive manner to resolve any operational or technical problems that arise, or to refrain from claiming a technical default under the contract when it is the supplier’s interest to do so.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate understanding of supplier’s contract price, and any other key terms that differ relative to competing markets.

Reporting Recommendations

  1. Proponent should demonstrate understanding of supplier’s sensitivity to increases/decreases in price by competing markets for feedstock.
Guidance

Guidance for Reporting Requirement 1

Copies of feedstock contracts with key competing markets should be obtained, if possible. Alternatively, anecdotal feedback from multiple local experts can serve as adequate validation.

Guidance Source

Solomon (2019, interview)

1.2.2 ATYPICAL FEEDSTOCK SPECIFICATIONS

Rationale

If required feedstock specifications differ from standard specifications required by competing markets in the region, then quality/quantity breaches are more likely. If specification is not typically produced in an area, supplier is less likely to deliver it.

Reporting

Reporting Requirements
Proponent shall demonstrate understanding of:

  1. Feedstock currently produced in the supply basin
  2. The supplier’s equipment and storage capacity should atypical feedstock specifications be required.

Reporting Recommendations
Proponent should demonstrate understanding of:

  1. The proportion of quantity against supplier’s total production should atypical feedstock specifications be required
  2. Atypical feedstock specifications that are broader than typically accepted in a supply basin can function to significantly increase the stability of Proponent’s supply chain.
Guidance

Guidance for Reporting Requirement 1

This analysis shall be conducted so that the specifications widely produced by suppliers/required by competing markets, are known.

If an atypical specification forms a large percentage of total production, risk of breach tends to be lower; if the percentage is a minor proportion then risk of breach may increase.

Guidance for Reporting Requirement 2

This analysis should be examined to assess whether supplier can achieve specification consistently and at volume.

Guidance for Reporting Recommendation 1

Suppliers are more likely to default to the standard specification of feedstock they deliver to the majority of markets in the region; some suppliers will execute a contract that requires delivery of non-standard feedstock specifications.

Guidance for Reporting Recommendation 2

For example, a Proponent’s specification for pulpwood that enables a forestry producer to enhance their bottom line by allowing a smaller radius of tree-length-top can result in preferential status versus alternative markets, thus providing greater resiliency.

Guidance Source

Solomon (2018, interview)

  • (INL) says:

    The suppliers and purchaser must agree on the methods and have the capability to accurately measure the specified biomass properties.

1.2.3 FAVOURABILITY OF PAYMENT TERMS

Rationale

Payment terms that are less favourable than regional standard or those offered by competing markets can increase risk of breach—and vice versa.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate understanding of payment terms offered by competing markets; and if substantial difference is clear, it shall be justified.

Reporting Recommendations

  1. Proponent should demonstrate understanding of standard payment terms in the market, and the Proponent shall incorporate similar terms into supply contracts.
Guidance

Guidance for Reporting Requirement 1
Feedback from local experts or a credible independent third-party is acceptable.

Guidance for Reporting Recommendation 1
For example, if typical practice among competitors is to pay suppliers on a weekly basis by electronic transfer, then 30-day payments terms by cheque may pose a risk to feedstock supply.

Guidance Source

Solomon (2018, interview)

1.2.4 FAVOURABILITY OF DELIVERY TERMS

Rationale

Delivery terms that are less favourable than regional standard or those offered by competing markets can increase risk of breach—and vice versa.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate understanding of delivery terms offered by competing markets. If substantial difference is clear, it shall be justified.
Guidance

Guidance for Reporting Requirement 1

Longer delivery windows, shorter wait-times to discharge trucks, and night-time/weekend delivery can all be significant incentives to suppliers, and can contribute to supply chain resiliency when feedstock is limited.

Feedback from local experts or a credible independent third-party is acceptable for this data.

Guidance Source

Solomon (2018, interview)

1.2.5 CONTRACT “TAIL” LENGTH

Rationale

Feedstock supply under long-term contract may be considered lower risk than short-term contracts or spot agreements. Exceptions can be made in supply basins where long-term contracts are not traditional or feasible (e.g., pulpwood suppliers for pulp and paper mills), where the supply chain is robust and well established, or where long-term contracts could take away desired procurement flexibility or arbitrage opportunities.

Reporting

Reporting Requirements

  1. Long-term contracts shall be signed with the supplier; or Proponent shall otherwise evidence support for long-term supply.

Reporting Recommendations

  1. Where long-term contracts are not feasible, Proponent shall demonstrate a short-term contract. Short-term contracts with long “tails” (i.e., required contract termination notices) are preferred.
  2. Where short-term contracts (less than 3 years) are provided, autorenewals and long-tailed (more than 12 months) notice of termination are preferred.
  3. Where neither a long- nor short-term contract is produced, a letter of intent (LOI) should be acquired from the supplier, signed, sufficiently detailed, dated recently and validated by an independent third-party.
Guidance

Guidance for Reporting Requirement 1

Long-term contract means 3-10 years, although it is acknowledged the definition of “long-term” can vary between regions.

Optimal contract lengths are unit-contingent with financing/debt terms (10-20 years). In most cases however, unit-contingent supply contracts may not be feasible to negotiate (with the exception of energy crops).

In some biomass supply chains such as woody biomass where markets and supply chains are mature, long-term contracts may be neither required nor optimal. Where understanding and maturity of supply chains can be clearly demonstrated and where long-term contracts are not the norm, entering into long-term contracts may substantially increase feedstock cost without materially adding feedstock security or reliability (Parrish 2018).

A mix between long-term and short-term contracts can be sufficient to demonstrate long-term feedstock availability if supply redundancy can be adequately demonstrated (Solomon 2018). Rob (2017) suggests that at least 40% of contracts should be long-term (3-10 years).

Agricultural Residues. Passmore (2017) indicates that contracts for agricultural residues should be signed for at least 7 years.

Guidance for Reporting Recommendation 1

A long-tailed contract is one where the likelihood of renewal by the supplier is increased and the impact of termination on the Proponent is decreased by an automatic renewal clause structured in the following manner: after the end of each contract year, an additional 12 months is added to the tail-end of the contract, and where notice to terminate on the part of the supplier should be given in writing after the end of the then current term. Such a long-tailed contract can have the functional effect of making a short-term contract into a much longer-term supply arrangement. In the case of a 5-year long-tailed contract, if the supplier terminated in year 3, the Proponent would have roughly 5 full years to source replacement feedstock.

Guidance for Reporting Recommendation 3

Letters of intent (LOI)/memorandums of understanding (MOU) do not carry the security of firm, binding contracts. “Sufficiently detailed” means at minimum naming an intended term, quantity, quality specifications, price range and escalators, if any. “Dated recently” means within 12 months of the day of submission. “Validation” means confirmation by an independent third-party based upon direct feedback from the LOI signatory.

Guidance Source

Crummett (2017, interview); Carollo (interview); Robb (2017, interview); Hladik (2017, comment); Kirkwood (2018, comment)

1.2.6 CLARITY OF SAMPLE TESTING METHODS

Rationale

Inadequate or inconsistent sampling and testing methods may give results that do not accurately reflect specifications of delivered feedstock leading to disputes, disruptions and/or contract breach.

Reporting

Reporting Requirements

The contract shall clearly define:

  1. Sampling procedures
  2. Regularity of testing
  3. Size of samples taken
  4. From where in the loads the samples should be taken
  5. Testing standards used
  6. Testing bodies/laboratories

Reporting Recommendations

  1. Sampling/testing procedures should be based on standardized protocols, or on methods mutually agreed upon by the Proponent and the supplier. If possible, a recognized industry sampling/testing standard shall be implemented. In Canada, CSA (Canadian Standards Association) standards, and in the, US ANSI or ASTM are all common and acceptable. In cases when industry standards are not available for particular feedstock type, the sampling/testing method shall be agreed upon between Proponent and supplier.
  2. Proponent should control samples and sampling testing procedures. Third-parties may be used if required by both parties.
  3. Time between when the samples are taken and when they are tested shall be specified in the contract. Ensure that retained samples cannot undergo material changes during retention. If so, testing shall be done by both parties on retained samples before such changes occur.
Guidance

Guidance for Reporting Requirements 1-6

Hand-grab methods are discouraged due to collector bias. Contract should specify collection container to be used. Mechanical random sample grab methods are preferred.

If samples are split, adequate mixing of sample should be ensured using a standardized testing procedure.

Samples may be reduced before being sent to a lab (ASTM quartering method is recommended) and a portion may be retained by the supplier in case of dispute, if supplier requires it. 3-6-month retention of samples are standards.

Visual inspection may be suitable for acceptance or rejection of load of feedstock, however if a load is rejected, Proponent should photographically record rejected material/or remove and retain a sample in case of dispute.

Agricultural Residues. Nguyen (2018) suggests that a core sample should be deep (at least 24″) and diagonal across several flakes in a corn stover bale. A perpendicular sample on a side of a bale will likely sample from two flakes at most.

Woody Biomass. Waterfall method is recommended where three samples are collected from the beginning, middle and end of the discharge from the delivery vehicle, combined and reduced according to ASTM methodologies.

 If quality of samples can change between the time of sampling and the time of testing, Proponent should ensure that no material change can occur to sample during interim period such that the tested sample fails to accurately reflect the actual feedstock.

Guidance Source

Dujmovic (2019, feedback): Nguyen (2018, comment); Smith (2017, interview); Solomon (2018, interview); Spikes (2017, interview)

  • (Quang Nguyen) says:

    Rapid analyses are preferred over test methods that required samples to be sent to the lab because a decision must be made quickly regarding what to do with the biomass. Probes that can measure moisture and composition including ash content are preferred. Visual test, in conjunction with rapid analytical probes, can be used to qualitative determine the extent of heat damage of a bale.

1.2.7 ACCURACY/SUITABILITY OF PRICE INDICES

Rationale

If indices or pricing benchmarks are used, such indices should accurately reflect the true cost of feedstock in the Proponent’s supply basin.

Reporting

Reporting Requirements

  1. Proponent shall ensure that suitable price indices are used to reflect anticipated feedstock cost variations over time.
  2. Indices shall be appropriate for feedstock types, such that the index accurately reflects true cost of feedstock within the supply basin.
  3. Indices shall be specific to the supply basin geography, such that the index accurately reflects true cost of feedstock within the supply basin.
  4. Data underlying index shall be sufficiently granular, such that index accurately reflects true cost of feedstock within the supply basin.
Guidance

Guidance for Reporting Requirement 1

Long-term risk of supply contracts increases where increased costs due to factors beyond supplier’s control (e.g., diesel, inflation or labour cost) are not incorporated into the price with suitable indices. At minimum, Proponent shall determine whether diesel inflation adjusters are required. If increased costs are not indexed, then supplier margins can be squeezed and risk of breach over time increases.

Agricultural Residues and Energy Crops. Oil price index can be important in relation to fertilizer cost fluctuations, as fertilizer price is correlated with oil price. If a contract does not reflect fertilizer cost fluctuations, in times of high fertilizer costs suppliers are prone to breaching (Altman 2018).

Guidance for Reporting Requirement 2

Proponent should ensure that the feedstock type definitions accurately reflect the object of the index. Small definitional differences can lead to discrepancies between actual feedstock and index. For example, a Wood Chip Index can track a composite price of a variety of fibre types such as clean chip, dirty chip (e.g., chip with bark) and whole-tree chip. If the Proponent feedstock is whole-tree chip, for example, the composite wood chip price may not be an accurate reflection of the price of the feedstock.

Indices should accurately reflect feedstock cost drivers for suppliers. Indices that adjust biomass cost according to the sale price of final products (e.g., increasing supplier’s costs for wood fibre based on the Argus Index reflecting the sale price of wood pellets in Europe) may cause supplier margins to shrink and increase likelihood of dispute or breach.

 Guidance for Reporting Requirement 3

Proponent should ensure that the geography of data points in index accurately reflect the object of the index. Biomass feedstock price can change substantially depending on region: geography and locality of granular data (that form basis of index) should accurately reflect where the feedstock is coming from. For example, an index that applies to an overly broad geographic area may misrepresent real changes in prices in the actual supply basin leading to increased risk of supplier breach.

Guidance for Reporting Requirement 4

Granularity of supporting data, meaning the quantity of data points used in the index, shall be statistically significant. An index based on insufficient data points will not accurately reflect the real cost on the ground.

Currently in Canada there are no publicly available feedstock type-specific indices that are sufficiently granular to accurately indicate pricing of biomass on a local basis. In lieu of such an index, synthetic indices based on cost components of the feedstock supply chains may be applied. For example, since the cost of feedstock is to a large degree dependent on the cost of transportation, and cost of transportation is directly proportional to diesel and labour costs, as long as transport distance is capped, diesel price index and producer price index (PPI) may be sufficient proxies for forecasting changes to cost of biomass over time (Solomon 2018).

Guidance Source

Altman (2018, interview); Forest2Market (2019); Kaffka 2017 (review); Passmore (2017, interview); Solomon (2018, interview)

1.2.8 QUANTITY AND QUALITY OPTIONALITY

Rationale

Delivered quantity should be specified both annually and monthly. Proponent should have the ability to make limited up/down adjustments in feedstock delivery rates from suppliers. When Proponent has optionality over quantity from sources it enables resiliency when individual sources of supply fail.

Reporting

Reporting Requirements

  1. Delivered quantity shall be specified no less frequently than
  2. If there is an allowable variance in delivered quantities, and if such variance is at the supplier’s discretion, sensitivities shall be run based on realistic worst-case delivery series.

Reporting Recommendations

  1. Delivered monthly quantities of feedstock should be at the Proponent’s discretion in order to add resiliency to supply chain. +/- 5-15% at Proponent’s discretion is recommended.
Guidance

Guidance for Reporting Requirement 1

Consistency of feedstock delivery is important to supply chain resiliency. Delivery rate shall be specified daily, weekly or monthly as appropriate. If delivery rates per time-period are not specified, then suppliers may deliver feedstock when it is available, or when it is convenient or optimal for them to do so. Contracts that fail to specify monthly delivery dates leave Proponents with relatively low control over their supply chains since suppliers under annual contract can address delivery shortfalls in a particular period with additional deliveries in another period, and still comply with annual quantity obligations.

This can result in supply surges when feedstock is abundant and delivery shortages when it is not. Inventories can be stressed, optionality reduced and Proponent’s risk increased.

Guidance for Reporting Recommendation 1

The ability to adjust delivered quantities of feedstock from various suppliers gives a Proponent the ability to mitigate shortages in supply from one supplier by increasing deliveries from another. For example, if supplier A fails to meet delivery obligations for a certain month, the Proponent can increase deliveries from suppliers B, C, D and E in subsequent months to mitigate the impact. In this way, resiliency is increased and the impact of quantity failures from individual suppliers can be mitigated.

Guidance Source

Solomon (2018, interview); D. Smith (2019, feedback)

1.2.9 DAMAGE AND RECOURSE CLAUSES

Rationale

Damage clauses/recourse provisions can function to mitigate the impact of supplier breach. Even in cases where legal recourse is not practical (i.e., small suppliers) such clauses can still act as significant deterrent to breach. If circumstances change and it becomes in the supplier’s interest to exit a contract, damage clauses/recourse can be a significant incentive for a supplier to meet its obligations in order to avoid penalty.

Reporting

Reporting Requirements

  1. Damage clauses shall be clearly stated in the contract if there is precedent for such clauses in the supply base.
  2. Lack of specific damage clauses shall be adequately justified; and ratings scores shall not negatively reflect such absent clauses.
Guidance

Guidance for Reporting Requirement 1

Damage clauses should reflect at minimum, the direct cost of replacing lost supply due to supplier breach in a timely period. For example, if a supplier fails to meet monthly delivery requirements, the Proponent may have the right to procure higher cost replacement feedstock within a certain period and deduct the difference from amounts owing to the supplier (Liew 2018).

Damage clauses that make suppliers liable for indirect damages are significantly more challenging to implement.

Guidance for Reporting Requirement 2

It is important to note that damage clauses may not be feasible in many, and perhaps most cases due to lack of precedent. If damage clauses are not status quo in a particular feedstock basin, then imposition of such may not be possible or may impose significant economic burden.

Specifically stated recourse provisions are not possible in some locales, since they can function as disincentives to suppliers. For example, in agricultural supply chains, contracts incorporating damages clauses that are too aggressive can be deemed offensive to farmers, and could create resentment among the wider supplier community (Hladik 2017).

Guidance Source

Altman et al. (2018); Hladik (2017, interview); Liew (2018, interview); Solomon (2018, interview)

1.2.10 FLEXIBILITY IN FEEDSTOCK SUPPLY QUANTITY

Rationale

Biomass suppliers are less likely to consistently meet quantity targets that are overly specific or fail to take into account natural fluctuations in supply capacity (e.g., seasonality). Providing contract flexibility tends to result in flexible supply chains (Jackson 2017).

Reporting

Reporting Requirements

  1. Contracts terms shall take into account natural and reasonable variation in feedstock supply quantity, while still ensuring predictable and adequate feedstock supply.
  2. If contracts allow for a range of quantity to be delivered at the supplier’s discretion, then scenario planning of worst-case scenario impact on Proponent (i.e., supplier delivering minimum quantities) shall be demonstrated.
Guidance

Guidance for Reporting Requirement 1

Contracts that specify a range of acceptable delivery quantities or a target “+/- X%” can decrease likelihood of breach. An analysis of feedstock production and quality against seasonality shall be conducted. Contracts shall include flexibility of supply based on seasonality. For example, moisture content is likely to change depending on the weather/season and moisture content contract specifications should reflect this.

An analysis of variation in feedstock quality shall be conducted. Contracts shall include flexibility of feedstock quality based on this analysis.

Penalty clauses that are regularly triggered can be seen as a backdoor method on the part of the Proponent for lowering feedstock costs and can foster resentment among suppliers.

Agricultural Residues. Contracts should include provisions for a specific number of acres of production, but not yield. (Jackson 2017).

Energy Crops. Studies regarding short-term contracts and wholesale contracts where suppliers are guaranteed a price per unit have been shown to be effective on high quality lands. Conversely, acreage contracts which guarantee suppliers a price per acre are best suited for low quality or unreliable lands. From the Proponent’s viewpoint, wholesale contracts are better for the short-term, whereas acreage contracts are more effective in the long-term (Okwo & Thomas 2014).

Guidance Source

Jackson (2017, interview); Kirkwood (2018, comment); Okwo & Thomas (2014); O’Leary (2017, interview); Rainey (2017, interview); Smith (2017, interview); Tang & Tomlin (2008); D. Smith (2019, feedback)

1.2.11 SLIDING SCALES DRIVING FEEDSTOCK QUALITY

Rationale

Higher quality feedstock may be blended with lower quantity feedstock to increase overall quality. Higher quality feedstock delivered by one source of supply may mitigate risk of lower quality supply by others. For example, low moisture content feedstock can be blended with feedstock of higher moisture content to decrease overall moisture content. Certain suppliers may be able to provide higher quality feedstock than required but may not do so because there is no contractual incentive. Contracts should incorporate clauses which provide incentives to compensate suppliers for higher quality feedstock.

Reporting

Reporting Requirements

  1. Proponent shall incorporate incentives or sliding scales into supply contracts, and if not appropriate, Proponent shall demonstrate why.
Guidance

Guidance for Reporting Requirement 1

It is acknowledged that in many cases feedstock quantity will be unaffected by sliding scales as it is beyond suppliers’ control, and sliding scales that provide for premiums based on higher quality may be unduly complicated and not appropriate in many situations.

A sliding scale of increased payment for moisture, ash content or other key specifications less than X may, in certain cases, incentivize delivery of higher quality feedstock.

Lack of precedent or negative feedback from suppliers in a supply basin shall be a suitable reason.

Guidance Source

Nguyen (2018, comment); Solomon (2019, interview)

1.2.12 INSURANCE POLICIES

Rationale

Supplier should have all types of insurance in sufficient quantities that are necessary to cover risks associated with operations.

Reporting

Reporting Requirements

  1. Supplier shall provide Proponent a Certificate of Insurance evidencing suitable coverages and limits.

Reporting Recommendations

Supply agreements should include the following clauses:

  1. Proponent should be named as an additional insured on the Commercial General Liability and Comprehensive Automobile Liability Insurance.
  2. Policies should contain the unequivocal agreement on the part of the insurer to notify Proponent of the cancellation of, or any material change in, insurance coverage at least 30 days before the effective date of such cancellation or change.
  3. Failure of the Proponent to object to the supplier’s failure to provide a certificate or other evidence of the required insurance coverage, or object to any defect in such certificate or other evidence, should not be deemed a waiver of the supplier’s obligation to furnish the insurance coverage.
Guidance

Guidance for Reporting Requirement 1

Commercial General Liability Insurance shall be provided with a suitable limit per occurrence for:

  • Bodily/Personal Injury
  • Death and property damage
  • Worker’s Compensation Insurance of the province where operations are being conducted and complying with any statutory requirements

Employer’s Liability Insurance with a limit of $100,000 per occurrence.

Guidance Source

Solomon (2019, interview)

1.2.13 ASSIGNMENT, SUCCESSORS AND ASSIGNS

Rationale

Proponent should have the right to approve assignment of the supply contract by supplier to another party.

Reporting

Reporting Requirements
Supply agreements shall include the following clauses:

  1. Supplier shall not assign or transfer its interest in the supply agreement without the prior written consent of the Proponent, and such consent may be withheld at the sole discretion of the Proponent.
  2. The Proponent shall be able to assign or transfer its interest in the supply agreement at any time without the consent of the supplier or other limitation.
  3. Subject to the foregoing limitations, any agreement shall be binding upon, and inure to, the benefit of the successors and permitted assigns of the parties.
Guidance
Guidance Source

1.2.14 COMPLIANCE WITH LAWS

Rationale

Non-compliance by supplier can, in certain cases, present risk for Proponent.

Reporting

Reporting Requirements

  1. Contract shall specify that supplier comply with and give notices required by all laws, ordinances, rules, regulations and lawful orders of public authorities with jurisdiction.
Guidance
Guidance Source

1.2.15 WARRANTIES

Rationale

Different biomass supply chains may require different supplier warranties.

Reporting

Reporting Requirements
Supplier warranties shall contain, at minimum, the following clauses:

  1. The materials to be supplied pursuant to the agreement shall be fit and sufficient for the purpose(s) intended
  2. Supplier shall have title to the materials supplied and that the materials shall be free and clear of all liens, encumbrances and security interests
  3. Such materials shall conform with the specifications, be merchantable, of good quality and free from defects
  4. All warranties made in the agreement, together with service warranties and guarantees, shall run to the Proponent and its successors, assigns and tenants.

Reporting Recommendations
Supply agreements should include the follow clause:

  1. In the event of any defect in the materials supplied or services performed under the agreement, Supplier shall replace or repair at its own cost or expense, and at the Proponent’s discretion any damage suffered by the Proponent as a consequence of such defect. This provision shall not limit any other rights the Proponent might have at law or in equity.
Guidance

Guidance for Reporting Recommendation 1

It is acknowledged that payment for damages cause by defect in the services and/or product supplied by the supplier may not be possible in many supply basins, particularly if it is not common practice among competing markets.

Guidance Source

1.2.16 DETERMINATION OF FORCE MAJEURE EVENTS

Rationale

Force majeure clauses should not specify events which the supplier should be able to take steps to control. Supplier’s may insert non-standard events as a force majeure that can serve as soft means of terminating supply contracts.

Reporting

Reporting Requirements

  1. Proponent shall ensure that that if non-standard terms are included in the force majeure clause that such events are acceptable.
Guidance

Guidance for Reporting Requirement 1

Non-standard terms include, but are not limited to, the following:

  • Change in market conditions
  • Loss of supply
  • Breach of supply by sub-contractors
  • Mechanical breakdown.
Guidance Source

1.3.1 SUPPLIER INVENTORY AS MITIGATION OF SUPPLY VARIABILITY

Rationale

Supplier inventory can increase reliability by mitigating risk variables which can affect supply. Suppliers that are able to maintain large inventory are often more reliable than ones that do not.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Whether supplier can/does carry inventory, the size of the inventory and the ability of such inventory to mitigate relevant feedstock risks.
  2. Whether size of inventory pile varies appropriately with seasonal supply restrictions.
Guidance

Guidance for Reporting Requirement 1

Suppliers that maintain inventory or emergency storage can effectively create redundancy for themselves and reduce delivery risk.

Guidance for Reporting Requirement 2

Availability of feedstock can vary seasonally. Inventory quantities that were suitable for mitigating supply risk in one season may fail to do so in another. Size of inventory should fluctuate according to seasonal availability.

Guidance Source

Solomon (2019, interview)

1.3.2 QUALITY RISKS RELATING TO SUPPLIER’S INVENTORY

Rationale

If supplier maintains inventory for overly long periods, feedstock which was initially compliant with contract specification may degenerate; over time feedstock can undergo changes such as increased moisture content, decomposition and dry matter loss.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Whether storage times and methods can impact quality of delivered feedstock, including, at a minimum, potential for moisture changes, degeneration, dry matter loss and spontaneous combustion potential.
  2. Risks of cross-contamination with other material in supplier’s storage yard.

 Reporting Recommendations

  1. Contracts should specify requirements relating to maintenance of quality in supplier’s inventory of biomass feedstock (stacking methodology (use of stackers or push-up method by dozers), rotation of piles within certain timeframes, first-in, first-out policies, restrictions on direct on-ground storage, drainage requirements, coverage requirements, temperature monitoring).
Guidance

Guidance for Reporting Requirement 1

The risk of storing biomass over a long period usually resides with the Proponent, especially during initial startup period when plant throughput is unknown (Nguyen 2018).

Heating in inventory piles can lead to degeneration, dry matter loss or spontaneous combustion.

Guidance for Reporting Recommendation 1

For example, first in-first-out, or maximum length of storage before inventory must be shipped.

Depending on feedstock type, storage method should be specified in the contract. All material risks related to outdoor storage should be considered (Nguyen 2018).

Guidance Source

Nguyen (2018, comment); Smith (2017, interview)

1.4.1 SUPPLIER’S DEPENDENCE ON, OR PREFERENCE FOR, COMPETING MARKETS

Rationale

Supplier may have a vested interest or preference to supply to specific competitors for biomass feedstock. Preferences may be due to historical, long-term, or personal relationships, less stringent feedstock quality requirements, more flexible operating hours by competing markets, or supplier’s dependences on competing markets to accept or purchase other products/by-products. During periods of feedstock shortage such suppliers may be more likely to allocate the scarce supply to a competitor resulting in supply disruptions for the Proponent.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Knowledge of competing markets including, at minimum; approximate quantities, percentage of total supplier feedstock production and competing market’s demand, and length of time supplied if supplier provides feedstock to competing markets
  2. Knowledge of the quantity and relevance of the risk of leverage a competing market could exert on supplier if supplier provides feedstock and any other products or by-products to such competing markets.

 Reporting Recommendations

  1. Proponent should demonstrate understanding of supplier’s relationship with competing markets, if possible.
Guidance

Guidance for Reporting Requirement 1

Relationships between traditional markets such as pulp and paper companies, and suppliers such as forestry producers or sawmills can be personal and span several generations.

If for example, a sawmill produces both chips and bark as by-products and has traditionally provided both to a local papermill, and if it has contracted part of its chip supply to the Proponent, then in times of chip shortage, the papermill may be able to compel deliveries of chips by threatening to refuse to take supplier’s bark, thereby leveraging supplier to breach obligations to Proponent.

Anecdotal feedback from local experts can serve as adequate validation of vested interests.

Guidance for Reporting Recommendation 2

Anecdotal feedback from local experts can serve as adequate validation of vested interests.

Guidance Source

Hladik (2017, comment)

  • (Quang Nguyen) says:

    Guidance for Reporting Requirement 1

    May want to include an example for agricultural residue. Corn stover has a well-established market for animal feed and bedding. In drought years, the suppliers tend to give favorable considerations towards feedlot and feed aggregators.

1.4.2 SUPPLIER AS A COMPETITOR

Rationale

The risks of feedstock costs going up and availability going down increase if a supplier is also a competitor to the Proponent. In times of feedstock shortage, the risk of supply commitments not being met increases.

Reporting

Reporting Requirements

  1. Proponent shall determine if supplier is also a competitor. If so, determine degree to which Proponent relies on that supplier. If loss of feedstock supply can materially impact Proponent, supply chain redundancy or other mitigation measures shall be understood.
Guidance

Guidance for Reporting Requirement 1

If a competitor for feedstock is also a supplier, the risks of feedstock costs going up and availability going down increase, since supplier will favour its own feedstock requirements in times of shortage.

Guidance Source

Jenkins (2017, interview)

1.5.1 OWNERSHIP OF LAND/MEANS OF PRODUCTION

Rationale

Suppliers that own land where feedstock is produced, or a production facility, tend to have better control of supply chains and present lower degrees of supply risk.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Supplier’s land/facility ownership
  2. Suitable control measures in cases where the supplier does not own/lease land/facility where feedstock is produced.
Guidance

Guidance for Reporting Requirements 1-2

Many forestry companies do not own the land on which they harvest. In such cases, strong agreements are essential.

Attributes of concern include biodiversity-enhancing management and biomass income generated from the land. Understanding these various factors, and clearly communicating the goals for the land within the agreement will benefit harvesting operations that do not occur on supplier owned lands (Rabotyagov & Lin 2013).

In general, suppliers that own all means of production and transportation are more reliable than ones that do not.

Guidance Source

Rabotyagov & Lin (2013)

1.5.2 OWNERSHIP OF EQUIPMENT

Rationale

In most cases, supplier which own or lease equipment for harvest, collection and processing feedstock are lower risk than those who are not. For example, third-party harvesting equipment may not be available when required. Short harvest windows may be missed if a farmer and contractor cannot schedule harvest times that are convenient and quantity shortages can result. However, in some circumstances reliance on third-party equipment to harvest or produce feedstock can decrease supply chain risk. For example, when harvesting agricultural residues such as corn stover, the use of a third- party company with standard equipment specializing in harvesting, collection and transportation may decrease quality variations (e.g., ash content) of final feedstock.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Supplier’s equipment ownership
  2. The risk of using a third-party’s equipment in cases where the supplier does not own/lease equipment.

Requirements Recommendations

  1. Proponent should demonstrate precedent for the use of a third-party’s harvesting, collection and transportation services.
Guidance

Guidance for Reporting Recommendations 1-2

For example, a supply chain where a large number of suppliers have historically utilized third- parties with success may demonstrate lower risk.

Guidance Source

Brechbill et al. (2011); Hladik (2017, interview); Solomon (2018, interview)

  • (Quang Nguyen) says:

    Guidance for Reporting Recommendations 1-2

    The types and conditions of harvesting and collection equipment and their operation procedures have significant impact on the quality of supplied feedstock. The agreements should specify the types of equipment and normal operating procedures for harvesting, collecting biomass.

1.5.3 OWNERSHIP OF TRANSPORTATION/LOGISTICS

Rationale

In most cases, suppliers that own or lease transportation equipment necessary to transport biomass from forest or field are lower risk than those who do not. However, in some circumstances, reliance on third-parties to transport biomass is common practice and does not contribute to risk.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate understanding of the risk of using third-parties, both in cases where supplier provides transportation but does not own/lease means of transportation, and in cases where transportation is provided by Proponent (or contracted to a third-party by Proponent).

Reporting Recommendations

  1. Proponent should demonstrate precedent for the use of a third-party’s transportation services.
Guidance

Guidance for Reporting Requirement 1

This should include an understanding of any scheduling issues with transportation company and supplier.

Guidance for Reporting Recommendation 1

For example, a supply chain where a large number of suppliers have historically utilized third- parties with success may demonstrate lower risk.

Guidance Source

Brechbill et al. (2011); Hladik (2017, interview); Solomon (2018, interview)

  • (Quang Nguyen) says:

    Guidance for Reporting Requirement 1
    The types and transporting biomass trucks must be compatible with the receiving facilities. Also, trucks used for transporting materials other than biomass must be cleaned to avoid contamination.

1.5.4 SUPPLIER AS AN AGGREGATOR OR BROKER

Rationale

Aggregators may effectively provide supply chain redundancy and eliminate risk and complexity of dealing with multiple sources of supply by combining supplies into a single master contact. Aggregators can add much needed stability into biomass supply basins by increasing offtake stability for both suppliers and markets. An aggregator can be a more reliable long-term offtake for suppliers by virtue of having multiple markets; and can be a more reliable long-term supplier for markets by virtue of having multiple suppliers. Further, when a single supplier breaches, the aggregator can source from another.

Both aggregators and brokers are intermediaries. Aggregators consolidate and manage feedstock procurement from a number of smaller suppliers. Brokers tend to act as intermediaries between a single source of supply but brokers of multiple sources of feedstock are common. Aggregators act as principles in the supply of feedstock and assume the contractual obligations of a direct supplier; brokers do not.

Definitional confusion between aggregators and brokers is common. If an aggregator does not assume supply risk of sub-contractors then they are more accurately deemed either a “procurement manager” or “broker”. Aggregators add more value in terms of risk mitigation than other intermediaries. An aggregator premium should relate to the degree to which they are able to mitigate feedstock supply risks.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Intermediary’s sources of supply
  2. Intermediary’s control over sub-contractors
  3. How intermediary can mitigate risk of breach by individual sub-contractors
  4. Ability of intermediary to warrant supply of feedstock.
Guidance

Guidance for Reporting Requirement 1

Proponent should execute non-circumvent agreement if required by intermediary as precedent for source disclosure.

Guidance for Reporting Requirement 2

Provision of intermediary’s contract terms with sub-contractors should be verified. However, it is acknowledged that most intermediaries will not disclose contract terms with sub-contractors as this would compel disclosure of margins.

Guidance for Reporting Requirement 3

Multiple sub-contractors can provide aggregators with redundancy in case of breach by one sub- contractor. Number of years in business and degree of activity in Proponent supply basin can provide aggregator with superior ability to mitigate risk of breach by sub-contractors.

Guidance Source

Solomon (2018, interview)

1.5.5 FEEDSTOCK AS A SECONDARY TRANSFORMATION

Rationale

A secondary transformation dependent upon the production of primary products; e.g., forest residues, corn stover, bark, or sawmill chips (unless from a dedicated chip mill) are all secondary transformations of a primary product.

Risks are higher if feedstock is a secondary transformation of a primary, more valuable product. It may not be economical for suppliers to produce biomass on its own, in the absence of markets for the primary product. For example, a supplier may produce dimensional lumber as its primary product and wood chips as a by-product, therefore relying on the health of the housing market for production levels. If the demand for dimensional lumber drops, so can the availability of sawmill residues.

In case of agricultural feedstocks such as corn stover, the feedstock is a by-product of a primary crop. Since the primary crop is significantly more lucrative than the residue, it will be a priority for the producer. If production of the primary crop requires resources be taken away from the production of secondary crop (e.g., in case of shorter harvesting windows due to weather), the secondary feedstock supply will suffer. In times of stretched resources, suppliers may also perceive harvesting and collection of the feedstock as a nuisance, potentially decreasing production levels.

Understanding the economic drivers for suppliers’ primary product can help gauge risk levels for secondary transformation biomass products.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Relationship between the primary product and the secondary transformation
  2. Historical and projected market demand for supplier’s primary product
  3. The sensitivity of biomass feedstock production to demand fluctuations of the primary product.
Guidance

Guidance for Reporting Requirement 1

Note how increases or decreases in production of the primary product affect the production levels of the secondary product.

Guidance for Reporting Requirements 2-3

In order to understand future biomass production levels, the demand for the primary product needs to be forecasted. Create a market analysis of the primary product determining the volatility of the production throughout different times of the year. Sensitivities to changes in demand should be modeled. If forecasts indicate an unstable demand for the primary product, long-term risk of biomass supply may be high. Finally, look for opportunities to increase the efficiency of the production of the secondary product (Kizha & Han 2016).

Chip production levels in a sawmill are proportional, and therefore highly sensitive to, lumber production levels. For example, recent softwood tariffs imposed by the US government caused significant reduction in supply of lumber (and sawmills residues) in many Canadian mills.

Similarly, agricultural by-products may be dependent on demand for a particular commodity, as agricultural commodities are typically replaced with others when market demand changes (e.g., wheat is replaced by rye).

Create a market analysis of the primary product determining the volatility of the production throughout different times of the year. Contrast this analysis with a sensitivity analysis of the secondary product (biomass) to the primary product.

 

Guidance Source

Bloomfield (2017, interview); Krigstin (2017, interview); Kizha & Han 2016; Nguyen (2018, comment); O’Leary (2017, interview); Rainey (2017, interview); Rob (2017, interview); Solomon (2018, interview)

1.6.1 DISTANCE FROM THE PROPONENT

Rationale

The greater the distance from a supplier to a plant, the more exposure it has to weather and fuel cost risks, and the greater the competitive pressure (to breach) that a closer competitor can exert.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. The maximum distance beyond which it becomes uneconomical or risky to transport feedstock
  2. The geographical limits of supply, as well as how such limits may change over time and the cost/risk that distance changes may result.

Reporting Recommendations

  1. Proponent should demonstrate understanding of the supplier’s distance with respect to competitors, and the existing barriers that function to mitigate pressure to supply alterative short- haul markets.
Guidance

Guidance for Reporting Requirement 1

If suppliers are handling transportation and providing feedstock FOB Proponent’s site, then shorter delivery times will enable supplier to maximize margins. Generally, transport distances of 80-115km are considered viable, although this depends on the economics of the Proponents (Baylies 2017).

Guidance for Reporting Requirement 2

Woody Biomass. Suppliers will systematically be harvesting from geographically diverse locations.

Guidance Source

Baylies (2017, interview); Kaffka (2017, interview)

  • (Quang Nguyen) says:

    Guidance for Reporting Requirement 1
    Comment on the statement “… transport distances of 50-75 miles are considered viable …”: does this imply transportation by truck? Longer distance may be viable if transportation by rail or barge.

1.7.1 FUNDAMENTAL FEEDSTOCK PRODUCTION EXPERIENCE

Rationale

Risk is higher when a supplier has limited experience with planting/growing/harvesting/processing and/or collecting biomass. Limited experience may be common for stover or forest residue supply chains where farmers or forestry producers may have no previous experience. In cases where experience is lacking, Proponent should show that steps have been taken to ensure proper training, knowledge dissemination and monitoring.

Reporting

Reporting Requirements

  1. In situations where suppliers are inexperienced with any area of biomass feedstock production, a comprehensive protocol that documents best practices and training shall be provided by the Proponent.

Reporting Recommendations

  1. Certain stages for biomass production should be outsourced to a specialized company if warranted.
Guidance

Guidance for Reporting Requirement 1

Energy Crops. Mitchell (2017) proposes that regular field training in seeding should be carried out for energy crop production.

Guidance for Reporting Recommendation 1

An alternative to training is outsourcing aspects of production to specialized companies. This approach may be preferable where there is a large number of producers that need to be trained in biomass cultivation and harvesting. Outsourcing such activities to a specialized company can significantly lower the risk of quality issues, particularly homogeneity issues that can result from non-standard production techniques (Mitchell 2017).

Guidance Source

Mitchell (2017, interview)

  • (Quang Nguyen) says:

    Guidance for Reporting Requirement 1

    Outsourcing to a specialized company (as recommended in 1.7.1) can also significantly lower the risk here.

1.7.2 PRODUCTION SCALE EXPERIENCE

Rationale

Scale-up entails risk. Risk is higher when a supplier has limited experience with the production of the quantity of feedstock required.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate understanding of whether supplier commitments exceed current outputs and if so, whether such commitments exceed capacity to produce with current equipment, manpower and supply/customer base.
Guidance

Guidance for Reporting Requirement 1

Supplier’s infrastructure (e.g., equipment, manpower, etc.) capabilities for additional capacity should be known, as well as their access to feedstock in relation to quantity targets. Proponent should also be aware of supplier’s control of feedstock, and the barriers that may exist for them to access additional feedstock.

Guidance Source

Solomon (2019, interview)

1.8.1 SUPPLIER’S EQUIPMENT EFFICIENCY

Rationale

Equipment efficiency significantly influences supplier’s feedstock production capacity. Understanding supplier’s equipment capability enables understanding of their ability to produce feedstock of suitable quality.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate understanding of the supplier’s equipment efficiency, its potential improvement and whether it is sufficient for the Proponent’s needs.
Guidance

Guidance for Reporting Requirement 1

Conduct interviews with machine operators to understand equipment efficiency and average downtime. This information could be used to determine the risk of supply interruptions.

Supplier’s equipment, including its performance, should be evaluated by fuel procurement manager.

In certain cases, contracts can specify equipment and maintenance standards (e.g., knife maintenance schedules for wood chippers).

Additionally, exchange of information with machine operators or operational managers could increase equipment efficiency. If a supplier is informed from the start of the Proponent’s needs, it can adjust its equipment and operations to suit the market (Abbas and Arnosti 2013).

Track the effects different machineries have on different types of feedstocks. Refer to literature and studies regarding machinery and machinery efficiency (Lee et al. 2017).

Guidance Source

Abbas and Arnosti (2013); An and Searcy (2012); Dujmovic (2019, feedback); Lee et al. (2017)

  • (Quang Nguyen) says:

    Guidance for Reporting Requirement 1

    Equipment types are also important as they impact the quality of feedstock. For example, wheel rakes will pick up more soil than bar rakes in windrowing corn stover. Round balers produce round bales which are not the same as square bales. The recommended number of layers of net warp for large round bales are is 4. Some suppliers may cut cost by using only 3 layers which can cause bale integrity issue during handling and storage.

    Having the same equipment for all suppliers would be difficult. This leads to the previous recommendation of using a specialized supplier who has the same equipment and procedure for harvesting, collecting and transporting biomass to reduce the variation in biomass properties.

1.9.1 FEEDSTOCK PRODUCTION PRIORITY

Rationale

When biomass feedstock is a secondary or non-core line of business, or when it is a by-product or a residual from a more valuable primary product, then suppliers may not put sufficient effort to consistently produce it. Risk of breach increases when production and/or delivery of feedstock compromises supplier’s ability to make a primary product.

When biomass feedstock is a by-product of another main higher margin or main product, such as corn stover (e.g., corn) or forest residues (e.g., pulpwood), supply may not be a top priority for a supplier.

Reporting

Reporting Requirements

  1. Proponent shall determine relative importance of contracted feedstock production to supplier, especially whether production of feedstock is low margin or relatively small additional net
  2. Agricultural Residues. Proponent shall understand and model the harvesting window for the primary crop. If that harvesting window is small then the chance that the residue harvesting and collection will be ignored by the farmer
Guidance

Guidance for Reporting Requirement 1

Suppliers with a vested interest in continually supplying the Proponent have lower risk of breach. This can be achieved through providing partial ownership of the Proponent to the supplier or long-term bonuses based on a history of consistent supply.

Guidance for Reporting Requirement 2

This is a more common situation in secondary transformation agricultural feedstocks (e.g., stover) where the supplier may need to harvest in a particular window which, if missed, may make non- harvest much more likely. In cases where the production of the primary product interferes with the supplier’s ability to produce a biomass by-product (e.g., stover), risk of non-supply may increase. Additionally, in times of stretched resources, suppliers may perceive harvesting and collection of the feedstock as nuisance, potentially decreasing production levels.

Guidance Source

Hladik (2017, interview); Mills (2017, interview); Muth (2017, interview); Carollo (2017, interview); Krigstin (2017, interview)

1.10.1 PLANNING FOR HUMAN RESOURCE RELATED EVENTS

Rationale

Changes to supplier’s human resource situation can have a significant negative effect on performance.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate understanding of supplier’s organizational structure and top management. For family-owned businesses, determine the impact of loss of key personnel on contractual obligations.

Reporting Recommendations

  1. If supplier operations are small and dependent on certain ownership, then a succession plan should be in place.
Guidance

Guidance for Reporting Requirement 1

Feedstock supply, especially from small to medium-sized suppliers, can be significantly affected by human resource related events, such as having a key employee quit, or an owner passing away.

Guidance Source

Conrad IV et al. (2016)

  • (Quang Nguyen) says:

    Guidance for Reporting Requirement 1
    Industries that compete for skilled workers can attract farm operators away from the suppliers. As an example, in the southwest Kansas area where oil and gas industry can attract skilled labors from the farming sectors. Such events can impact the supply and quality of biomass.