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Biofuels in Africa:Potential for Sustainable Development

Donald Mitchell Donald Mitchell

Dar es Salaam, TanzaniaDar es Salaam, TanzaniaFebruary 24, 2010February 24, 2010

Email: don.mitchell09@gmail.comEmail: don.mitchell09@gmail.com

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Historical perspective

Decades of low commodity prices led to Decades of low commodity prices led to underinvestment especially in Energy and underinvestment especially in Energy and Metals/MineralsMetals/Minerals

Structural changes in demand for energy Structural changes in demand for energy and metals led to large price increasesand metals led to large price increases

High energy prices provide incentives for High energy prices provide incentives for biofuels along with other factorsbiofuels along with other factors

Real commodity prices, 1980-2009

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50

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1980 1985 1990 1995 2000 2005

Energy

Real commodity prices, 1980-2009

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50

100

150

200

1980 1985 1990 1995 2000 2005

Energy Metals & Minerals

Real commodity prices, 1980-2009

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50

100

150

200

1980 1985 1990 1995 2000 2005

Energy Metals & Minerals Agriculture

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Energy prices expected to remain high and are key to biofuels Oil prices expected to average $100/bbl through Oil prices expected to average $100/bbl through

2020 (according to International Energy Agency)2020 (according to International Energy Agency) Due to rapid demand growth, decline in Due to rapid demand growth, decline in

production from mature fields, restricted access to production from mature fields, restricted access to reserves, and higher costs from deep water, remote reserves, and higher costs from deep water, remote areas, and unstable regionsareas, and unstable regions

Climate change responses could make oil more Climate change responses could make oil more costly to consume if not to producecostly to consume if not to produce

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Global demand for biofuels expected to more than double in next decade Primarily due to consumption mandatesPrimarily due to consumption mandates

EU: Ethanol 4 bil lt in 2008, 13 by 2020EU: Ethanol 4 bil lt in 2008, 13 by 2020Biodiesel 9.5 bil lt in 2008, 31 by 2020Biodiesel 9.5 bil lt in 2008, 31 by 2020

Second generation technology not expected Second generation technology not expected to make a significant contribution in next to make a significant contribution in next decadedecade

Imports will be required to meet mandates, Imports will be required to meet mandates, especially in EU, but also U.S.especially in EU, but also U.S.

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High energy prices and increased biofuel production… Impact all agricultural commodity pricesImpact all agricultural commodity prices Implications for povertyImplications for poverty An opportunity for rural sectorAn opportunity for rural sector Rural poor should benefitRural poor should benefit

Some net food buyers may not, Some net food buyers may not, depending on wages & employmentdepending on wages & employment

Urban poor will face higher food pricesUrban poor will face higher food prices

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African countries well placed to export to EU, but there are risks Duty-free access under EBA & provisional EPAsDuty-free access under EBA & provisional EPAs

gives advantage for ethanolgives advantage for ethanol

little advantage for biodiesel or its feedstockslittle advantage for biodiesel or its feedstocks Higher production costs thanHigher production costs than

ethanol from Brazilethanol from Brazil

biodiesel from Southeast Asiabiodiesel from Southeast Asia Risk of preference erosion and changes in Risk of preference erosion and changes in

mandatesmandates

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Domestic market also attractive

High fuel prices in Africa region High fuel prices in Africa region

(US Cents/litre)(US Cents/litre)

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60

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140

Sub-SaharanLandlocked

Sub-SaharanCoastal

North Africa Reference (USA)

Diesel Gasol ine

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Domestic market also attractive

High fuel prices in Africa regionHigh fuel prices in Africa region Remote areas offer potential for profitable Remote areas offer potential for profitable

production-mining and other industriesproduction-mining and other industries Niche markets for ‘green fuels’ Niche markets for ‘green fuels’ Replacement for charcoal in urban areasReplacement for charcoal in urban areas

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Primary biofuels paths

Ethanol from molassesEthanol from molasses Ethanol from sugar caneEthanol from sugar cane Biodiesel from jatrophaBiodiesel from jatropha Jatropha for export as oils or seeds Jatropha for export as oils or seeds Jatopha for SVOJatopha for SVO Other feedstocks with promise: cassava, sweet Other feedstocks with promise: cassava, sweet

sorgham, oil palmsorgham, oil palm Not competitve in grainsNot competitve in grains

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Ethanol from molasses

Molasses, a by-product of sugar production, is Molasses, a by-product of sugar production, is heavy liquid with high transport costsheavy liquid with high transport costs

Low value for export or animal feed, sells for Low value for export or animal feed, sells for $25/ton in Tanzania (vs $175 in Europe)$25/ton in Tanzania (vs $175 in Europe)

Produces ethanol at $0.20-.025 per litre, vs. Produces ethanol at $0.20-.025 per litre, vs. imported petrol at $.40-.45 per litre and $0.65 in imported petrol at $.40-.45 per litre and $0.65 in landlocked countrieslandlocked countries

Malawi has done it since 1982Malawi has done it since 1982 Policies are not in place in most countries to allow Policies are not in place in most countries to allow

ethanol to be sold as fuelethanol to be sold as fuel

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Ethanol from sugar cane

Potential in Tanzania. Sekab has withdrawn Potential in Tanzania. Sekab has withdrawn but plans to restructurebut plans to restructure

Requires: large tracts of land, irrigation, good Requires: large tracts of land, irrigation, good access to portsaccess to ports

Several countries developing projects, others Several countries developing projects, others are mostly on hold due to lack of financingare mostly on hold due to lack of financing

Existing policies may limit smallholder Existing policies may limit smallholder involvementinvolvement

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Ethanol from sugar cane

Production costs are about $0.45-0.50 Production costs are about $0.45-0.50 per litre (vs. $0.37-0.38 in Brazil)per litre (vs. $0.37-0.38 in Brazil)

Profitable for export to EU because of Profitable for export to EU because of duty-free access and high EU tariffsduty-free access and high EU tariffs

Risk is that duty-free access extended Risk is that duty-free access extended to others-Brazil, South Africa, to others-Brazil, South Africa, Thailand and preferences erodeThailand and preferences erode

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Ethanol prices in EU ($/litre)

0.5

0.6

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0.9

1.0

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Sugar vs. Ethanol

The EU provides duty-free access to most African The EU provides duty-free access to most African countries for both sugar and ethanolcountries for both sugar and ethanol

One ton of sugar cane produces:One ton of sugar cane produces:82 litres of ethanol worth $.70/litre = $5782 litres of ethanol worth $.70/litre = $57or 100 kgs of sugar and 25 kgs of molasses worth or 100 kgs of sugar and 25 kgs of molasses worth $57$57

Differences in production costs and freight cancel Differences in production costs and freight cancel and joint production is best optionand joint production is best option

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Jatropha: Many questions remain

YieldsYields of 3-5 tons under best conditionsof 3-5 tons under best conditions

Value of by-productsValue of by-products for fertilizer, charcoal, or animal feed for fertilizer, charcoal, or animal feed

Labor requirements and costsLabor requirements and costs1.0-1.5 workers per hectare1.0-1.5 workers per hectareLow value prevents high wagesLow value prevents high wagesLabor can account for 40-50% of costsLabor can account for 40-50% of costs

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Jatropha

May be viable as smallholder cropMay be viable as smallholder cropGrown as hedge or intercroppedGrown as hedge or intercroppedSeeds collected at $0.10/kgSeeds collected at $0.10/kgUsed as raw vegetable oil for rural powerUsed as raw vegetable oil for rural power

Next generation of jatropha may be viable, Next generation of jatropha may be viable, breeding to improve yields, synchronize breeding to improve yields, synchronize flowering to allow mechanizated flowering to allow mechanizated harvesting, better utilization of by-productsharvesting, better utilization of by-products

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Land leases put communities as risk

Many communities are agreeing to long-term Many communities are agreeing to long-term leases on communal lands with no conditions and leases on communal lands with no conditions and no recourseno recourse

If biofuels projects fail, land is not returned to If biofuels projects fail, land is not returned to communitycommunity

Land leases can be held or sold for other usesLand leases can be held or sold for other uses This puts communities at risk of losing their land This puts communities at risk of losing their land

and not getting promised jobsand not getting promised jobs

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Food vs fuel conflicts

Can’t be avoided with First Generation BiofuelsCan’t be avoided with First Generation Biofuels Jatropha does not grow well on marginal and Jatropha does not grow well on marginal and

degraded soils and it does compete for land and degraded soils and it does compete for land and other resources with food cropsother resources with food crops

But, most African countries have land for bothBut, most African countries have land for both At the global level, biofuels will affect food prices At the global level, biofuels will affect food prices

as long as food crops are used to produce biofuelsas long as food crops are used to produce biofuels Second Generation technology offers better Second Generation technology offers better

opportunities for both food and fuel opportunities for both food and fuel

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Food Security

Food security is a complex issue and food Food security is a complex issue and food production is only one aspect production is only one aspect

Restricting production to certain crops or areas Restricting production to certain crops or areas limits the income opportunities of farmerslimits the income opportunities of farmers

A better policy is to focus on food security and A better policy is to focus on food security and allow free trade, make strategic investments to allow free trade, make strategic investments to improve competitiveness, and protect the poorest improve competitiveness, and protect the poorest with social safety netswith social safety nets

And let farmers grow the most profitable crops to And let farmers grow the most profitable crops to raise their incomesraise their incomes

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Volatility of production

Biofuel production costs will be volatile, Biofuel production costs will be volatile, since 80 percent of ethanol and 90 percent since 80 percent of ethanol and 90 percent of biodiesel costs are variable costsof biodiesel costs are variable costs

Communities and governments that depend Communities and governments that depend on biofuels could see large variability in on biofuels could see large variability in revenues and employmentrevenues and employment

Managing price risk is a major challenge for Managing price risk is a major challenge for biofuel’s producersbiofuel’s producers

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Policies are needed to help countries benefit from biofuels Biofuels can’t be sold as fuel unless laws are put in Biofuels can’t be sold as fuel unless laws are put in

place to regulate production, use and qualityplace to regulate production, use and quality Land laws don’t protect communities in case of Land laws don’t protect communities in case of

project failure, or current land users with informal project failure, or current land users with informal land use rightsland use rights

Environmental regulations are needed to prevent Environmental regulations are needed to prevent damage to fragile ecosystems damage to fragile ecosystems

Technology transfer will require modification of Technology transfer will require modification of existing lawsexisting laws

Research is needed to improve yields of biofuel cropsResearch is needed to improve yields of biofuel crops

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Conclusions

Biofuels offer new opportunities in Biofuels offer new opportunities in domestic and export marketdomestic and export market

Uncertainties about energy prices and Uncertainties about energy prices and biofuel policies remainbiofuel policies remain

Impacts will extend to food marketsImpacts will extend to food markets Poverty impacts could be significant Poverty impacts could be significant

because of impact on all commodity pricesbecause of impact on all commodity prices