1. 1 Biofuels in Africa: Potential for Sustainable Development Donald Mitchell Dar es Salaam, Tanzania February 24, 2010 Email: don.mitchell09@gmail.com

2. 2 Historical perspective Decades of low commodity prices led to underinvestment especially in Energy and Metals/Minerals Decades of low commodity prices led to underinvestment especially in Energy and Metals/Minerals Structural changes in demand for energy and metals led to large price increases Structural changes in demand for energy and metals led to large price increases High energy prices provide incentives for biofuels along with other factors High energy prices provide incentives for biofuels along with other factors

3. Real commodity prices, 1980-2009

6. 6 Energy prices expected to remain high and are key to biofuels Oil prices expected to average $100/bbl through 2020 (according to International Energy Agency) Oil prices expected to average $100/bbl through 2020 (according to International Energy Agency) Due to rapid demand growth, decline in production from mature fields, restricted access to reserves, and higher costs from deep water, remote areas, and unstable regions Due to rapid demand growth, decline in production from mature fields, restricted access to reserves, and higher costs from deep water, remote areas, and unstable regions Climate change responses could make oil more costly to consume if not to produce Climate change responses could make oil more costly to consume if not to produce

7. 7 Global demand for biofuels expected to more than double in next decade Primarily due to consumption mandates Primarily due to consumption mandates EU: Ethanol 4 bil lt in 2008, 13 by 2020 Biodiesel 9.5 bil lt in 2008, 31 by 2020 Second generation technology not expected to make a significant contribution in next decade Second generation technology not expected to make a significant contribution in next decade Imports will be required to meet mandates, especially in EU, but also U.S. Imports will be required to meet mandates, especially in EU, but also U.S.

8. 8 High energy prices and increased biofuel production… Impact all agricultural commodity prices Impact all agricultural commodity prices Implications for poverty Implications for poverty An opportunity for rural sector An opportunity for rural sector Rural poor should benefit Rural poor should benefit Some net food buyers may not, depending on wages & employment Urban poor will face higher food prices Urban poor will face higher food prices

9. 9 African countries well placed to export to EU, but there are risks Duty-free access under EBA & provisional EPAs Duty-free access under EBA & provisional EPAs gives advantage for ethanol little advantage for biodiesel or its feedstocks Higher production costs than Higher production costs than ethanol from Brazil biodiesel from Southeast Asia Risk of preference erosion and changes in mandates Risk of preference erosion and changes in mandates

10. 10 Domestic market also attractive High fuel prices in Africa region High fuel prices in Africa region (US Cents/litre)

11. 11 Domestic market also attractive High fuel prices in Africa region High fuel prices in Africa region Remote areas offer potential for profitable production-mining and other industries Remote areas offer potential for profitable production-mining and other industries Niche markets for ‘green fuels’ Niche markets for ‘green fuels’ Replacement for charcoal in urban areas Replacement for charcoal in urban areas

12. 12 Primary biofuels paths Ethanol from molasses Ethanol from molasses Ethanol from sugar cane Ethanol from sugar cane Biodiesel from jatropha Biodiesel from jatropha Jatropha for export as oils or seeds Jatropha for export as oils or seeds Jatopha for SVO Jatopha for SVO Other feedstocks with promise: cassava, sweet sorgham, oil palm Other feedstocks with promise: cassava, sweet sorgham, oil palm Not competitve in grains Not competitve in grains

13. 13 Ethanol from molasses Molasses, a by-product of sugar production, is heavy liquid with high transport costs Molasses, a by-product of sugar production, is heavy liquid with high transport costs Low value for export or animal feed, sells for $25/ton in Tanzania (vs $175 in Europe) Low value for export or animal feed, sells for $25/ton in Tanzania (vs $175 in Europe) Produces ethanol at $0.20-.025 per litre, vs. imported petrol at $.40-.45 per litre and $0.65 in landlocked countries Produces ethanol at $0.20-.025 per litre, vs. imported petrol at $.40-.45 per litre and $0.65 in landlocked countries Malawi has done it since 1982 Malawi has done it since 1982 Policies are not in place in most countries to allow ethanol to be sold as fuel Policies are not in place in most countries to allow ethanol to be sold as fuel

14. 14 Ethanol from sugar cane Potential in Tanzania. Sekab has withdrawn but plans to restructure Potential in Tanzania. Sekab has withdrawn but plans to restructure Requires: large tracts of land, irrigation, good access to ports Requires: large tracts of land, irrigation, good access to ports Several countries developing projects, others are mostly on hold due to lack of financing Several countries developing projects, others are mostly on hold due to lack of financing Existing policies may limit smallholder involvement Existing policies may limit smallholder involvement

15. 15 Ethanol from sugar cane Production costs are about $0.45-0.50 per litre (vs. $0.37-0.38 in Brazil) Production costs are about $0.45-0.50 per litre (vs. $0.37-0.38 in Brazil) Profitable for export to EU because of duty-free access and high EU tariffs Profitable for export to EU because of duty-free access and high EU tariffs Risk is that duty-free access extended to others-Brazil, South Africa, Thailand and preferences erode Risk is that duty-free access extended to others-Brazil, South Africa, Thailand and preferences erode

16. 16 Ethanol prices in EU ($/litre)

17. 17 Sugar vs. Ethanol The EU provides duty-free access to most African countries for both sugar and ethanol The EU provides duty-free access to most African countries for both sugar and ethanol One ton of sugar cane produces: One ton of sugar cane produces: 82 litres of ethanol worth $.70/litre = $57 or 100 kgs of sugar and 25 kgs of molasses worth $57 Differences in production costs and freight cancel and joint production is best option Differences in production costs and freight cancel and joint production is best option

18. 18 Jatropha: Many questions remain Yields Yields of 3-5 tons under best conditions of 3-5 tons under best conditions Value of by-products Value of by-products for fertilizer, charcoal, or animal feed for fertilizer, charcoal, or animal feed Labor requirements and costs Labor requirements and costs 1.0-1.5 workers per hectare Low value prevents high wages Labor can account for 40-50% of costs

19. 19 Jatropha May be viable as smallholder crop May be viable as smallholder crop Grown as hedge or intercropped Seeds collected at $0.10/kg Used as raw vegetable oil for rural power Next generation of jatropha may be viable, breeding to improve yields, synchronize flowering to allow mechanizated harvesting, better utilization of by-products Next generation of jatropha may be viable, breeding to improve yields, synchronize flowering to allow mechanizated harvesting, better utilization of by-products

20. 20 Land leases put communities as risk Many communities are agreeing to long-term leases on communal lands with no conditions and no recourse Many communities are agreeing to long-term leases on communal lands with no conditions and no recourse If biofuels projects fail, land is not returned to community If biofuels projects fail, land is not returned to community Land leases can be held or sold for other uses Land leases can be held or sold for other uses This puts communities at risk of losing their land and not getting promised jobs This puts communities at risk of losing their land and not getting promised jobs

21. 21 Food vs fuel conflicts Can’t be avoided with First Generation Biofuels Can’t be avoided with First Generation Biofuels Jatropha does not grow well on marginal and degraded soils and it does compete for land and other resources with food crops Jatropha does not grow well on marginal and degraded soils and it does compete for land and other resources with food crops But, most African countries have land for both But, most African countries have land for both At the global level, biofuels will affect food prices as long as food crops are used to produce biofuels At the global level, biofuels will affect food prices as long as food crops are used to produce biofuels Second Generation technology offers better opportunities for both food and fuel Second Generation technology offers better opportunities for both food and fuel

22. 22 Food Security Food security is a complex issue and food production is only one aspect Food security is a complex issue and food production is only one aspect Restricting production to certain crops or areas limits the income opportunities of farmers Restricting production to certain crops or areas limits the income opportunities of farmers A better policy is to focus on food security and allow free trade, make strategic investments to improve competitiveness, and protect the poorest with social safety nets A better policy is to focus on food security and allow free trade, make strategic investments to improve competitiveness, and protect the poorest with social safety nets And let farmers grow the most profitable crops to raise their incomes And let farmers grow the most profitable crops to raise their incomes

23. 23 Volatility of production Biofuel production costs will be volatile, since 80 percent of ethanol and 90 percent of biodiesel costs are variable costs Biofuel production costs will be volatile, since 80 percent of ethanol and 90 percent of biodiesel costs are variable costs Communities and governments that depend on biofuels could see large variability in revenues and employment Communities and governments that depend on biofuels could see large variability in revenues and employment Managing price risk is a major challenge for biofuel’s producers Managing price risk is a major challenge for biofuel’s producers

24. 24 Policies are needed to help countries benefit from biofuels Biofuels can’t be sold as fuel unless laws are put in place to regulate production, use and quality Biofuels can’t be sold as fuel unless laws are put in place to regulate production, use and quality Land laws don’t protect communities in case of project failure, or current land users with informal land use rights Land laws don’t protect communities in case of project failure, or current land users with informal land use rights Environmental regulations are needed to prevent damage to fragile ecosystems Environmental regulations are needed to prevent damage to fragile ecosystems Technology transfer will require modification of existing laws Technology transfer will require modification of existing laws Research is needed to improve yields of biofuel crops Research is needed to improve yields of biofuel crops

25. 25 Conclusions Biofuels offer new opportunities in domestic and export market Biofuels offer new opportunities in domestic and export market Uncertainties about energy prices and biofuel policies remain Uncertainties about energy prices and biofuel policies remain Impacts will extend to food markets Impacts will extend to food markets Poverty impacts could be significant because of impact on all commodity prices Poverty impacts could be significant because of impact on all commodity prices