Case Study: The Smallholder Model of Biofuel Production in Tanzania

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Case Study: The Smallholder Model of Biofuel Production in Tanzania

The experience of Diligent Tanzania Ltd reflects the operations of a commercial project however initial seed funding came from a Dutch government grant. It also received additional subsidies from a range of sustainable energy or development focused funding bodies. At this moment, 4 years after the start up, sufficient cash flow is generated to cover most Tanzania based operating expenses, however break even for overall activities has not yet been reached. Criteria used for choosing certain regions within Tanzania included availability of existing Jatropha plants and accessibility of the area from the Diligent processing and logistic facility in Arusha.


Operations Diligent has two main activities, firstly to purchase seeds from existing Jatropha trees through collection centres and secondly to promote planting using an outgrowers model. A ‘field team’ engages communities, and builds strong and lasting relationships with local farmers and decision makers. Pricing is determined by the market price for biofuel, as well as the amount one person can pick in a day. The processing facility consists of several modules therefore enabling more flexible processing. The market for the Jatropha oil, biodiesel and seedcake by-products exists both within Arusha and internationally. Sustainability aspects and international best practise The Dutch RIVM1 used Diligent as a case study for calculating the greenhouse gas balance, using Diligent oil to generate electricity in the Netherlands. Calculations show a reduction of greenhouse gas emissions of at least 60% compared with more conventional energy sources2. The general conclusion is that the model used by Diligent is positive for environmental conditions and meets the Cramer criteria for sustainability. Environmental impacts are monitored as precisely as possible, and data is put in a central database.


Production in this manner is expensive and makes the oil more expensive than fossil
diesel. However, it is a necessary initial evaluation when access to European markets is desired, and subsequent promotion of the model becomes easier.

Conclusions and Lessons learnt
It is easy to underestimate the time required for setting up a business using the
smallholder model, obtaining enough feedstock is a challenge. The agricultural sector in Tanzania is poorly developed and the taxation regime is unclear. It is important to
disseminate new lessons and keep outgrowers close to the company with up to date
information. Diligent has experienced frequent market distortions in the Jatropha seed market which troubled the trust relationship between outgrower and company. Acquiring additional funding to overcome years of investment without sufficient return is quite difficult.

Recommendations

  1. The Dutch National Institute for Public health and the Environment
  2. From: J. Struijs (2008) Shinda Shinda. Option for sustainable bioenergy: a jatropha case study - RIVM rapport

607034001, http://www.rivm.nl/bibliotheek/rapporten/607034001.pdf
 

Key variables for success include:

  • Choose a biofuel crop that already exists in the country
  • Apply accepted sustainability criteria to ensure support from donors, local governments and access to the market
  • Identify a farmer community that is (or can be) organized
  • Gain support from the government
  • Be able to attract investors who accept that the return on investment takes longer than with other projects (>4/6 years)
  • Ensure a strong management team on the ground with cultural knowledge and sensitivity capable of bridging cultural differences (there are over 120 different tribes in Tanzania, so it is necessary to employ field officers from different tribes)
  • Have a strong link in the Netherlands, to know the sector and any changes in it (for example the sustainability criteria, developing countries could take those criteria on board as well)
  • Develop strong links with local government

The dissemination of lessons learnt between all stakeholders in the sector is of crucial importance. Governments could facilitate this development by encouraging industry cooperation through starting up a national biofuel producers association. They would then also have a platform for communicating new policies or other important decisions to the stakeholders. If there is no government policy on biofuels a statement from the government stating the government position could assist investors in their decision whether of not to invest in the sector. A government stimulation programme for agriculture could assist in disseminating all agricultural lessons to the local population.

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