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Biofuel investments and food production: findings from a sugar cane outgrower scheme in Malawi Raoul Herrmann 1,3, Charles Jumbe 2, Ulrike Grote 3, Michael.

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Presentation on theme: "Biofuel investments and food production: findings from a sugar cane outgrower scheme in Malawi Raoul Herrmann 1,3, Charles Jumbe 2, Ulrike Grote 3, Michael."— Presentation transcript:

1 Biofuel investments and food production: findings from a sugar cane outgrower scheme in Malawi Raoul Herrmann 1,3, Charles Jumbe 2, Ulrike Grote 3, Michael Brüntrup 1 1 German Development Institute, Germany 2 Lilongwe University of Agriculture & Natural Resources, Malawi 3 Leibniz University of Hannover, Germany

2 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)2 Outline  Motivation  Importance of sugar cane and bioethanol in Malawi  Quantitative findings –Income, assets –Food production  Qualitative findings  Conclusions & recommendations

3 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Background  Research project “Fair fuels?”: –Three countries/continents (Germany, Brazil, Malawi), multi-disciplinary  Subsahara Africa (SSA) component: –Lack of studies addressing longer term welfare implications (both quantitative and qualitative) –Understand potential longer term effects of large-scale biofuel expansions for rural development  Why sugarcane/ bioethanol production in Malawi? –Sugarcane-bioethanol is most proven model of biofuel production in SSA (Mitchell, 2011) –Malawi has longest experience with large scale bioethanol production in SSA –Important lessons to be learned from existing sugar/ethanol models for effects of future development 3

4 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Malawi sugar / bioethanol: overview Industry history:  1960s, first sugarcane factory and plantation in Southern Malawi  Expansion in 1970s to Central Regeion, inclusion of few outgrowers  Since 1982: bioethanol production and local blending  1990-2010: expansion of outgrower systems (rainfed and EU- / AfDB- funded irrigation expansions)  Today, sugarcane is cultivated on 23,000 ha with ~ 3,000 ha by outgrowers Industry relevance:  Second most important source of export revenues in agriculture (after tobacco)  Second largest formal employer after the state (GoM, 2006)  Fuel ethanol blending 10%- 20% since inception  Large expansion plans: future growth cluster (1 of 3) in new country export strategy; interests by new investors 4

5 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Malawi sugar sector: Production sites, study site 5 Dwangwa Sugar Mill (Illovo) & ETHCO Ltd. Nchalo Sugar Mill (Illovo) & Presscane Ltd.

6 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Methodology  Household survey implemented in 2010/11:  …plus FGDs, interviews with VC actors, two workshops/conferences in Lilongwe Quantitative analysis:  Outcome indicators: household income, assets, food production  Limitations: –No baseline data available –Therefore, ex-post analysis (with-without comparison) plus retrospective questions  Descriptive statistics and impact evaluation methods (matching, possibly IV) 6 GroupsSamplePopulation Plantation workers61~4,000 Outgrowers225~ 700 Non-growers (cane grower villages)230~5,000 Non-growers (3 control villages)98-- Total614

7 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Matching results (I): household income 7 Propensity score matching (ATT*) TreatedControlsPredicted changet-ratio Effects on annual per capita household income (in Malawi Kwacha): All sugar cane growers:122,88027,098353%4.9*** By outgrower arrangement: Rainfed outgrower113,95226,148336%3.8*** Block farm participant140,15426,926421%5.3*** *ATT = Average treatment effect on the treated

8 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Matching results (II): household assets 8 Simulated effect (ATT) t-ratio Outcome variableTreatedControls Predicted change Durable consumer goods index 0.629-0.225 6.5*** Housing conditions: Improved roof quality67%33%102% 5.8*** Improved wall quality83%76%10% 1.9* Improved floor quality58%29%100% 5.6*** Number of rooms per household member 0.480.3729% 4.3*** Services & infrastructure: Improved cooking source4% 19% 0.3 Improved sanitary facility76%59%30% 3.6*** Improved water quality source28%26%7% 0.4

9 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Biofuels and food production Biofuels contract farming and food production linkages –Community level: land/water competition versus infrastructure improvements (e.g. Strasberg, 1997, cotton in Mozambique) –Household level: intra-household competition for resources versus access to liquidity / credit –Liquidity access through (i) inbuilt credit schemes, (ii) collateral through contract, (iii) reinvestment of sugarcane income Previous research on spillovers from cash to food crops: –Sugarcane and coffee to maize production in Kenya and Mozambique (Govereh et al., 1999) –Cotton to maize production in Zimbabwe (Govereh & Jayne, 2003) 9

10 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Food production linkages (I): descriptives (preliminary) 10 VariableTotal Cane grower (n=139) Non growers (n=309) Land area under food crops (ha)1.92.7***1.6 Food plot change since 2000 (in ha)0.771.12**0.61 Fertilizer & pesticide expenditures (MKW)13,97124,774***9,111 Household hires labor (%) 33%44%*28% Share having access to credit (%)22%48%***10% Food production in ton (cereal equivalent)1,82,3**1,5 Food crop yields (t in cereal eq. per ha)1,21,11,3*** Maize yield (t / ha)1,51,31,6 Rice yield (t / ha)1,81,71,8

11 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Food production linkages (II): econometric results (preliminary) OLS / Tobit results Matching results (PSM) Marginal effectsSE ATT Bootstrapped SE Change in food crop area (log) 0.303***-0.1060.1080.079 Labor hiring for food crops (log) 4.650***-1.7641.347**0.664 Purchase of inputs for food crops (log) 0.743**-0.314 1.292***0.451 11

12 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Determinants of participation (probit results) 12 Coefficient Standard Error Age of head (years)0.07350.0877 Age of household head (squared)-0.0007180.000834 Sex of hh head (1=female)0.3800.479 Education household head (1=only primary)0.3680.484 Education household head (1=at least secondary)1.569***0.549 Household size-0.142*0.0813 Total land holding in 2000 (log of hectare)0.658***0.190 Household owned a wetland plot in 20001.094***0.369 Wealth assets (consumer durables) in 2000 (frequency weighted)0.006370.0106 Farm assets in 2000 (frequency-weighted)0.03470.0411 Livestock ownership in 2000 (Tropical Livestock Units)-0.117**0.0462 Fishing assets in 2000 (frequency-weighted)-0.01230.00996 Official role in the community (any household member) (1=yes)0.2310.536 Years living in the community-0.007020.0123 Household with access to non-farm income (1=yes)-1.427***0.447 Ethnical minority (1 = non-Chewa & non-Tonga)-1.133***0.355 Constant-2.9692.081 Observations313 Dependent variable: Outgrower participation ( * p < 0.1, ** p < 0.05, *** p < 0.01 )

13 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Qualitative interviews highlighted that… Conflicts along the value chain:  Particularly between farmers and management company due to production costs, untransparent processes, fees  Farmers/management company and processor regarding “residues” revenue management (e.g. payment for bagasse) Conflicts within new expansions (farmers, communities, estates,...) due to land issues:  Cases of farmers pushed from their land by traditional authorities  Neighbouring communities attacking investments  Unsolved land claims by initial inhabitants of estate land (before 1980) Increasing in-migration and urbanization around the estates  Demand for more public investments in services & infrastructure but little revenue collection on local level 13

14 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Conclusion & recommendations (I) Indications of large benefits for direct participants: –Indications of strong effects on outgrowers’ welfare in terms of incomes, housing investments and asset wealth –In terms of food production, preliminary results suggest positive and significant associations with expenditure for food crop production –But, more research needed on food & nutritional security effects Inclusiveness of outgrower schemes: –Participation seems to be biased towards initially larger, better-off outgrowers –Number of beneficiaries is still very small compared to the amount of investment (which is mostly provided by public loans) –Moreover, effects on non-participants uncertain –Reflect on alternative (better?) business models for greater benefit sharing (e.g. community trust farm  pilots in southern Malawi, Tanzania) 14

15 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Conclusion & recommendations (II)  Need to solve land conflicts and manage conflicts of interest within value chain, possibly with careful state support: –More careful ex-ante assessment in future outgrower expansions –Need for stronger empowerment of outgrowers to improve negotiation within VC (  EU/Concern universal capacity building)  Rural development beyond farms: –Communal development (rural hubs, local taxes, public investments) Overall sector support: Current monopoy of Illovo in sector likely to challenged by new entrants Need to increase capacity within ministry/university to support and regulate the sector 15

16 © 2014 German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)16 Thank you for your attention! German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) Tulpenfeld 6 D-53113 Bonn Telephone: +49 (0)228-949 27-0 E-Mail: DIE@die-gdi.de www.die-gdi.de www.facebook.com/DIE.Bonn


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