Modelling the economic returns to labour for Jatropha cultivation in southern Africa and India at different local fuel prices

Abstract

Jatropha curcas L. (Jatropha) has emerged as a biodiesel crop of great contemporary importance. The global hype surrounding this crop, the relatively poor understanding of its agronomy and the unpredictability of its yields, generates the potential for unsustainable practice of biodiesel production. The aim of this research is to ascertain if Jatropha production could be an appropriate driver for rural development in India, South Africa and Zambia, especially if yields prove to be lower than original predictions. A spreadsheet based financial model has been developed from life-cycle economic analysis of the Jatropha-biodiesel production chain to determine if steady-state income can support labour wages in India and southern Africa, under local wage legislation, at different yield, production cost and fuel price scenarios. The analyses are conducted with many common variables, but the model uses country specific parameters to contextualize local scenarios. The main assumption of the model is that the biodiesel sales price is proportional to the prevailing petro-diesel price. Results suggest that minimum wage rates in South Africa are too high to support production at the current fuel price. India and Zambia have the potential to generate profits under specific circumstances, which are dominated by yield, labour wages, prevailing petro-diesel prices and market opportunities for by-products. The validity of assumptions used in the model needs to be verified with primary data. However, the model provides a powerful framework for investigating alternative scenarios and identifying important system vulnerabilities and sensitivities, all of which are discussed in this article.

Introduction

Liquid biofuel is one of the fastest-growing markets for agricultural products globally [1]., [2]. One feedstock of contemporary importance is Jatropha curcas L., (Jatropha), which produces inedible oil seeds with good properties for biodiesel production. Due to claims of high yields and wide environmental tolerances [3], [4] over 900,000 ha have been planted globally to Jatropha, with anticipated future plantings estimated at over one million hectares per year [5], this despite very limited data on yields, management requirements and profitability [1]., [6]. Jatropha is a wild crop in the sense that very limited selective breeding has been undertaken and experience growing this species is highly varied [7], particularly with regard to yield. Reported yields range from less than 500 kg ha⁻¹ to over 12 tonnes, the median of which lies at approximately 2 tonnes per year (Appendix A1), considerably lower than the range of 3–5 t predicted by a group of experts in 2007 [8] and far lower than the anticipated yields in excess of 5 t ha⁻¹ given in many investors’ development plans (e.g. D1 Oils Plc [9]; Gem BioFuels [10]; Indian Oil Corporation Ltd [11] and Sun Biofuels Ltd [12]).

Predominantly, Asia, Africa and Latin America are the regions making significant efforts with 104, 97 and 41 projects having been identified in those respective regions [5]. India was one of the first countries to embrace Jatropha cultivation, with the widespread cultivation of over 400,000 ha [5]. Important African players are Zambia, Tanzania, Madagascar and Mozambique. Brazil is the most important country in terms of area planted in Latin America [5]. Promoters of Jatropha motivate that the benefits associated with this biodiesel feedstock are a solution to many of the developing world’s socio-economic problems [3], [5], [13], [14], [15], [16], [17], [18], [19], [20], [21] as it generates high levels of rural employment, improves national balance of trade and stimulates both agricultural and non-agricultural sectors associated with the Jatropha-biodiesel production chain.

Jatropha plantations in Africa and India can be characterized according to their scale of production and the markets they target (von Maltitz and Setzkorn, 2013). The types of biofuel projects of interest to this study are those specifically aimed at supporting national and international liquid fuel blends. Projects are thus incentivised by cash from the crop and not by local fuel security [22]. The biofuel industry provides support and inputs, financing, technological assistance and a market [22]. Arguably, biofuels are an attractive farming option on account of the assistance received by the farmers [23] in addition to the intrinsic value of the biofuel crop itself. A number of farming models are currently being used and tested in India, which are discussed by Harrison et al. (2013), and in Africa by von Maltitz and Setzkorn (2013).

In India, trees have been planted on communal land, usually with the involvement of non-governmental organisations, using public works type programmes and the fruits are available as a non-timber forest product for villagers to pick. In addition, a number of companies are assisting small-scale farmers to grow Jatropha on a portion of their privately owned land. The Indian Oil Corporation (IOC) is entering into joint ventures with state governments to establish and manage plantations on government land, where rural employment is offered. In Africa, land tenure plays a significant role in determining the types of farming models implemented. Land tenure in Africa is complicated but can generally be classified as either statutory or customary; covering a suite of customary ownership, land-use rights and post-colonial land redistribution. Large-scale commercial farming is usually undertaken on land in private statutory tenure but, in Mozambique and Lesotho for example, all land is state owned and biofuel corporations can only acquire land for feedstock production on long-term lease agreements.

Production for local markets appears to be more important than export, especially in Asia. In the first global market study on Jatropha conducted by GEXSI [5], two-thirds of all projects analysed work with local small-growers, often in combination with managed plantations. Half the projects identified in Asia and 66% in Africa work with local small-growers. The majority of all projects identified have nurseries and apply cultivation techniques such as pruning and fertilization, and approximately half of the projects use some type of irrigation [5], this despite many of the especially early project plans suggesting that Jatropha is a hardy crop that can be cultivated with very little or no inputs [16], [17], [18], [20].

More recent experience suggests that Jatropha responds well to management inputs, for example: it needs to be pruned often initially to establish higher yields; it cannot at present be harvested mechanically; it requires pesticide application and weeding; and the labour requirement during establishment is high [3], [4], [24]. Additional management inputs increase the labour requirement which may contribute greatly to the generation of rural employment opportunities. On the contrary, the significant increase in labour cost could potentially undermine the profitability of Jatropha cultivation. For Jatropha to reduce poverty and improve rural livelihoods, the biodiesel production chain needs to be profitable enough to sustain the labour cost of production. As a minimum requirement, in commercial plantations where labour is employed, the legal minimum wage needs to be supported. For independent pickers and small-scale farmers, income must exceed the opportunity costs of labour. The maximum financial return for labour is governed by the production efficiency of the chosen feedstock and the price at which biofuel can be sold. Since liquid biofuel directly replaces fossil fuels its value is effectively set by the prevailing price of the petroleum product, unless distorted by differential taxation or subsidy [25]. A slight discrepancy in the comparative pricing of the refined products of biodiesel and petro-diesel may exist, arising from the lower calorific value of biodiesel. Nevertheless, the retail value of biodiesel should fluctuate proportionally to the petro-diesel price.

The aim of this research is to ascertain if Jatropha production could be an appropriate driver for rural development, especially if yields prove to be lower than original predictions. This research considers the labour wage implications of Jatropha-based biodiesel projects in southern Africa and India, under local wage legislation, at different yield, production cost and fuel price scenarios.