Agri09 Day IV-Workshop IV-Andre Makenete-SA Biofuels Association

Bioenergy: Enhancing agricultural

production & South African Food

Security

Presentation to the EMRC Africa

Agribusiness Forum

17 June 2009

Andrew Makenete

Absa Agribusiness 2

THE GREEN OPEC: Southern Africa – World’s Highest Biomass Potential

Africa – The “Green OPEC”

• Sub-Saharan Africa – highest potential

– Maximum 410 exajoules

– Abundant land and labour

• “Biofuels will benefit the poor” – Jacques Diouf

– Emphasis on negative aspects obscures potential

to reduce poverty in Africa

– Currently US & EU leading producers and

consumers, but inefficient producers

– Production must shift to poor countries

- Land, climate, ecosystems, labour

– Need international bio-energy framework to shift

biofuel production to S hemisphere

- EU & US to lower tariff barriers

• Important synergies

– Poverty alleviation, rural development

– Energy security – esp in rural areas

• Pan-African Non-Petroleum Producers

Association

– Formed in 2006: 12 African countries

– Aim to develop boost African biofuels industry

University of Utrecht

Absa Agribusiness 3

Contents

• Agri facts

• Explaining these facts

• Understanding the challenges

• The key drivers

• Exploring the opportunities (Why Bioenergy

works for agricultural development and Food

Security in SA)

Absa Agribusiness 4

Agri facts

60,000 commercial “white” farmers down to 40,000 in 15 years

Over 450,000 subsistence / emerging farmers supplying less than 5% of the market (number largely stagnant over past 15 years)

0ver 700,000 jobs in agriculture lost since 1990

1,0 million ha of land released from production bringing total land under (un) utilised to over 3,5 million ha – primarily dryland and most in homelands

SA GDP spend on agriculture and land reform declined to less than 4% of total spend (less than 10% as agreed by AU)

45% of SA population remains in rural areas

Absa Agribusiness 5

Explaining these facts

1. 60,000 commercial “white” farmers down to 40,000 in 15 years

SA agriculture – consolidating. Farms sizes getting larger, economies of scale forcing out the weak and poor.

Effects of market liberalisation and deregulation

Removal of all supports (price, marketing etc)

Lack of public and private sector investments in agriculture

Years of low and unpredictable returns from agriculture

General lack of competitiveness of SA agricultural exports with caps on local production (complicated by lots of issues e.g. international subsidies, poor local infrastructure making transactions costs prohibitive etc)

Relatively small local markets (limitations of size) for SA agri commodities (making SA farming / farmers extremely competitive and cost conscious)

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2. 450,000 subsistence / emerging farmers

Very little progress made in integrating these farmers

Lack of resources and supports (government and private sector withdrawn e.g.

extension services)

Land ownership and land settlements issues (very complex and discourage

activity from financiers and other agents)

No market access and compete with very successful competitive commercial

sector – largely supplying the market (infrastructure poor, market information etc

etc – therefore cannot compete on price, quality, volumes etc etc)

Poor infrastructure, information and access to supply chains

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3 & 4. 700,000 jobs in agriculture lost since 1990 & 1,0 million ha of land released

(Agriculture labour shedding not labour absorbing!!!!! Also releasing key factor of production land – leading 2 surplus productive capacity)

Significant productivity gains (SA yields increased from 3t /ha to over 4.2t/ha)

Labour laws and policies ( Increased costs of hiring)

Land policies (Extension of tenure of security)

Significant technology adoption

move away from intensive labour practices to mechanization

No incentives for agricultural production (but plenty of disincentives)

Marginal or unproductive land put out of production

Changes in agricultural practices (Wildlife / eco-tourism away from livestock and grain production)

SA imports of agricultural goods / commodities increased significantly and balance of trade actually negative for a while 2007/8 (strong rand, cheap subsidized international goods etc

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5&6. GDP spend below critical 10% level and rural population under serviced

Previous government policy Agriculture and Rural development not a priority

No focussed strategy for agricultural / rural development (not a growth area under RDP

or GEAR – labour, capital would be absorbed by other industries and sectors. SA would

industrialise rapidly)

Legacy issues not settled (SA commercial agriculture viewed with hostility & suspicion)

Land reform a political / social issue not an economic consideration

Food security to be achieved through market reforms (open markets – 2 many

assumptions, e.g. world remain in surplus state, free trade environment)

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Understanding the challenges

Tacit acknowledgment by government of failure of industrial / economic policy of past

10 – 15 years

No jobs (26 – 30% unemployment mostly in rural areas)

Food (in) security issues (misunderstood) – high food prices threatened political / social

fabric

The Result: New focus areas of new ANC government with Rural development and food

security 1 of 5 key focus areas

Agricultural Response: How does agricultural sector turn itself around to absorb labour

i.e. create jobs, ensure rural development, and enhance food security?

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Increasing Agricultural Production

The key in South Africa is about sustainable and increased agricultural

production:

• Market development (How does policy allow for enhancing the market for south African

producers)

– Increase size of market (remove producer caps imposed by limited market opportunity –

9,0 million tons of maize, 1 million tons of sugar, not biomass market for IPP to feed into

electricity and power market)

– We urgently need to reconsider our market channels and market infrastructure

– What is the role of government in market development, particularly in opening up

international / export markets

• Reducing the costs of doing business

– Finance costs

– Infrastructure

– Input supply

– R&D

– Information and market analysis

– Policy reforms


Bioenergy as key to increasing agricultural production

1. Bioethanol:

• At 375 000 tons per ethanol plant, total of 2,625 million tons grains required (maize/ sweet sorghum)

• At 3,5 tons/ha mean yield, 750 000 ha of grains only would go to ethanol production (this is very realistic

figure that does not take into account potential for new areas such as Eastern Cape and Limpopo)

• Additional 750,000 ha would create 75,000 direct jobs and over 20,000 indirect jobs

• 7 plants provide sufficient ethanol for a possible E10 blend (1 billion liters) – save country $1- 2 billion in

forex savings per year.

2. Biodiesel

• Capacity to produce B5 (500 m / l) from a mixture of small, medium and large plants

• Utilize 750,000 ha of land as well of mainly oil seeds

• Reduce imports of diesel and also oilcake (SA imports 600,000 tons already)

3. Bioenergy can produce over 1,000 MW of renewable power (meeting the 5% White Paper

Targets within 5 years – bagasse from sugar, wood pellets, other biomass sources). Faster and clearer

than Eskom strategy. Also costs differential fast disappearing. Biofuels is a stimulus for investments in

agriculture – more than just about any other industrial projects since it integrates the whole

supply chain.


Bioenergy key to providing jobs

Stats: SA 90% dry land; Agriculture has biggest downstream multiplier effects;

1 job created for 10 ha of land

3,0 million ha available - Therefore capacity for 300, 000 direct jobs and over 600, 000

indirect & downstream

1 job supports 5 per household

To create 1 job in agriculture costs: R50,000 vs. R500,000 / industrial job

1. Bioethanol


• 2. Biodiesel


3. Bioenergy

New biomass projects in forestry, wild grasses etc. Reduced need for burning of sugar cane,

utilize grass cuttings etc etc.


CRITICAL FACTORS – Impact for Rural Development

Small-scale farmers – a competitive

advantage

• Energy crops can help turn marginalised

farmers into commercial producers

– High volumes, relatively low risks, liquid

markets

– Long production history

– Can be stored and transported cost

effectively – no requirement for cold chain

maintenance etc.

– Allow for large-scale regional production

• Biofuel projects can act as anchor projects

for rural development

– Create a stable, bankable base of emerging

farmers

– Can be rotated with higher value cash crops

and other biofuel crops

– The livestock industry may benefit from

increased animal feed supply

– Magnet for investments since its brings

together integration of value chains

• Marginalised farmers brought into a stable

supply chain, allowing „cooperative-type‟ forms

of organisation and capital investment

– Decreased capital expenditure per farmer

– Negotiating power as a purchaser and

supplier

• Enlarging the agri „pie‟ does not displace

current farmers

• Stable offtake in the fuel industry facilitates risk-

mitigated projects at supply level:

– Finance for the un-banked

– Allows economic actors to plan and invest in

support services and infrastructure

– Improves agro-processing sector risk profile

through offtake in the separate fuel market

• Eg. Batswa ko Pele Project (North West),

Drydon (Mpumalanga)

Small-scale farmers – a competitive

advantage

Anticipated investments in Bioenergy could top R15,0bn primarily into rural areas.


CRITICAL FACTORS – Food versus Fuel Debate – South Africa

• Access to and availability of food , not production (availability)

the problem

– SA food secure for over 20 years

- Excess production in staple products a common feature

– 14 m people, 43% households food insecure

- But localised in homeland areas, informal settlements and

townships (affordability the issue)

– FAO Study: “cash-in-hand” more important for food security

“The Cheapest Food is expensive if the people do not have

money” L Botha 2009

• Severe market inefficiencies

– Competition Commission investigation in high bread and milk

prices due to collusion among big business

– Spaza shops in poor areas charge higher prices in fact poor areas

suffer from higher prices generally

– NAMC: wheat, maize (commodity) farmgate prices divorced from

retail prices – farmers get less than 30% of the total returns from

agriculture

• Emerging farmers need better support

– New farmers deprived of the pre-1994 support

– Government capacity constraints

- Lack of extension services

- Severe underspending on CASP & MAFISA grants

- Partnerships with private sector needed

- R&D investments very low


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BIOFUELS TO BRING ABOUT AN AGRICULTURAL RENAISSANCE – FAO

•Focus on the negative aspects, such as sharply increased food

prices and erosion of biodiversity, obscures the sector’s huge

potential to reduce hunger and poverty

•Bioenergy provides us with a historic chance to fast-forward

growth in the world’s poorest countries, to bring about an

agricultural renaissance and supply modern energy to a third of

the world’s population

Jacques Diouf

DG: UN Food and Agriculture Organisation

Financial Times, 15 August 2007

Agri09 Day IV-Workshop IV-Andre Makenete-SA Biofuels Association

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Transcript of Agri09 Day IV-Workshop IV-Andre Makenete-SA Biofuels Association