Case Study: Mozambique

biofuels mozambique case study

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Gender Implications of Biofuels Investments in Mozambique

Recent research indicates that biofuel expansion (sugar cane/ethanol and jatropha/biodiesel) generates growth and reduces poverty (Arndt, Benfica, Thurlow and Uaiene (2009), in Environment and development Economics). There are stronger poverty reduction effects/technological spillovers in “contract grower crop” (jatropha) compared to opposed to “plantation crop” (sugar cane). Given current knowledge, a key question that arises is: What are the gender implications of expansion of contract grower schemes in jatropha under alternative female employment intensity?

From a computable general equilibrium (CGE) model, which disaggregates by gender to assess the effects in Mozambique, preliminary findings indicate that there is a trade-off between biofuels and food production, and a larger trade-off for traditional exports due to resource competition and exchange rate effects. Increasing female worker intensity in biofuels production may not be most effective at reducing poverty, since women are important workers in agriculture, especially in food crop production. Lower food production causes prices to rise hurting urban, especially female households. Eventually even rural female-headed households are hurt by price increases (despite greater employment opportunities). Investments to raise food crop productivity will be necessary to counter-balance these effects. Investments in education also important to maximize women’s benefits in both rural (well remunerated participation) and urban and non-agricultural sectors (positive externalities).

Crown jewel of biofuel future in Africa?

Large private investments in biofuels are presently underway in Mozambique. An economy-wide, CGE model of Mozambique was developed to assess the implications of these investments for growth and income distribution (Arndt et al., 2009). The results indicate that biofuels provide an opportunity to enhance growth and poverty reduction. Overall, the proposed biofuel investments increase Mozambique’s annual economic growth by 0.6 percentage points and reduce the incidence of poverty by about six percentage points over the 12-year phase-in period. However, the benefits depend on production technology. The results indicate that an outgrower approach to producing biofuels is more pro-poor, due to the greater use of unskilled labor and accrual of land rents to smallholders in this system, compared with the more capital-intensive plantation approach. Moreover, the expected benefits of outgrower schemes will be further enhanced if they result in technology spillovers to other crops. A closer look at the gender-dimensions of biofuels growth, and its potential impact on agriculture is currently underway for this country case study.

Biofuels, Poverty & Growth

A computable general equilibrium analysis of Mozambique
Channing Arndt, Rui Benfica, Finn Tarp, James Thurlow and Rafael Uaiene
Environment and Development Economics. 2009

What is the current status of growth, agriculture and poverty in Mozambique?

From Arndt 2009: Mozambique has made large strides over the past 15 years, following the conclusion of the civil war in 1994. While Mozambique’s situation has improved over the past 15 years, it remains sobering, especially in rural areas where 70 per cent of the total population resides. About half of rural inhabitants are ‘absolutely poor,’ meaning that they have difficulty acquiring basic necessities, such as sufficient food for meeting caloric requirements (Arndt and Simler, 2007). Widespread rural poverty does not stem from a lack of agricultural potential. In contrast, agricultural conditions in Mozambique are generally favorable (Diao et al., 2007). Vast tracts of high-quality land remain unexploited. Water resources, in the form of multiple rivers, are also abundant and unexploited. Investments in commercial agriculture have occurred through two kinds of institutional arrangements. First, commercial tobacco and cotton farmers have successfully established vertically coordinated arrangements with smallholders. The second production arrangement is on a plantation basis, as is seen with sugarcane.

How is the impact of biofuel investments in Mozambique measured?

From Arndt 2009: The impact of biofuel investment is simulated using a dynamic CGE model. These models are often applied to issues of trade strategy, income distribution, and structural change in developing countries. The models have features making them suitable for such analysis. First, they simulate the functioning of a market economy, including markets for labor, capital and commodities, and provide a useful perspective on how changes in economic conditions are mediated through prices and markets. Secondly, the structural nature of these models permits consideration of new phenomena, such as biofuels. Thirdly, these models assure that all economywide constraints are respected. For instance, biofuels may generate substantial foreign exchange earnings, use a large quantity of land, and demand a substantial amount of labor. It is therefore important to consider the balance of payments and the supply of useable land and labor. Fourthly, CGE models contain detailed sector breakdowns and provide a ‘simulation laboratory’ for quantitatively examining how various impact channels influence the performance and structure of the economy. Finally, CGE models provide a theoretically consistent framework for welfare and distributional analysis.

What scenarios are considered?

From Arndt 2009: A baseline growth path assumes that Mozambique’s economy continues to grow during 2003-2015 in line with its recent performance. For each year, we update the model to reflect changes in population, labor and land supply, and factor productivity. The results from the baseline scenario are compared with four biofuel scenarios. In scenarios 2 and 3, we expand sugarcane and jatropha production separately. Scenario 4 captures the possibility of transfer of better farming practices and/or improved access to fertilizers and other inputs, by repeating the jatropha scenario but with faster productivity growth for food crops. In scenario 5, we combine the expansion of both sugarcane and jatropha, including technology spillovers, to assess the overall impact of biofuels on growth and poverty in Mozambique. In the biofuel scenarios, we create dedicated sectors for sugarcane for ethanol production and jatropha for biodiesel production. The outputs of these sectors are employed as the raw materials for dedicated processing sectors. The production structures of jatropha/biodiesel and sugarcane/ethanol are different. Overall, jatropha processing is more labor-intensive, while sugarcane processing is more capital-intensive.

What are the implications of large scale investments in biofuels for growth and income distribution in Mozambique?

From Arndt 2009: We find that biofuels investment enhances growth and poverty reduction despite some displacement of food crops by biofuels. Overall, the biofuel investment trajectory analyzed increases Mozambique’s annual economic growth by 0.6 percentage points and reduces the incidence of poverty by about 6 percentage points over a 12-year phase-in period. Benefits depend on production technology. An outgrower approach to producing biofuels is more pro-poor, due to the greater use of unskilled labor and accrual of land rents to smallholders, compared with the more capital-intensive plantation approach. Moreover, the benefits of outgrower schemes are enhanced if they result in technology spillovers to other crops. These results should not be taken as a green light for unrestrained biofuels development. Rather, they indicate that a carefully designed and managed biofuels policy holds the potential for substantial gains.

What are topics for further research?

From Arndt 2009: There are numerous topics for further research, four of which are described in the following. First, water usage is not considered explicitly in the model. While irrigation is not strictly necessary for jatropha or sweet sorghum, sugarcane typically requires irrigation and therefore has implications for water resources. The large increase inwater demand caused by biofuel crops is reflected in the water sector’s high growth following new biofuel investments (see table 5). Second, the model does not consider the potential spillovers to other exporting sectors due to increases in transport and other infrastructures required by biofuel production (i.e., the crowding-in highlighted by Hausmann, 2007). Such spillovers from foreign direct investment would enhance the benefits from biofuel production, thereby justifying concomitant public investment vis-`a-vis other investment opportunities. Third, the implications of converting unused land to biofuel production should be considered in the context of GHG emissions. It is likely that the mode of conversion and the crops planted for biofuels could substantially influence the GHG emission balance. As a perennial crop, it is possible that jatropha possesses significant advantages over other sources of biofuel crops in terms of overall GHG balance, due to relatively mild emissions as a result of conversion of new land. Conversion of bush land to irrigated land also likely has strong implications for the carbon balance. If Mozambican biofuel production is demonstrably ‘green’ in terms of CO2 balance, it is more likely to receive a significant premium in international markets providing a buffer to downside price risk. As recent oil market movements indicate, downside price risk cannot be ignored. In this spirit, other methods for mitigating downside price risk for biofuels, such as generation of electricity and identification of potential substitute crops for biofuels, should also be considered in greater detail.

Why is Mozambique a country of interest?

Mozambique’s potential biofuel industry has become the topic of much discussion and interest recently as a result of the nation’s unique combination of the ideal natural resources and climate, energy needs, and possibilities for rural development.

Climate and anticipated large quantities of arable land have been mostly responsible for Mozambique’s catapult into the international biofuels debate. Most scientists agree that Mozambican climate is fit for growing biofuel feedstocks. However, the estimated available arable land is the characteristic that sets the nation apart from other countries in similar climate zones. Currently, only a scant percentage of Mozambique’s total arable land is cultivated for agricultural purposes. Studies estimate that there are between 10 and 38 million hectares of productive land in the country that could be used to grow agricultural crops. Thus there could be great opportunities for biofuel production in Mozambique if some land resources are converted to agricultural use, though without more exact data it is difficult to determine the magnitude of Mozambique’s biofuel potential.

Biofuels are a potential option that could help Mozambique decrease oil dependence and increase energy security. Achieving energy security is of great importance to Mozambique, as in many countries. Although traditional biomass sources such as wood and charcoal are the most prevalent energy sources in Mozambique, oil still constitutes an important part of the nation’s energy sector. Over 11% of Mozambique’s fuel is imported and more importantly, the money spent on these imports constitutes over 15% of the nation’s total GDP, which makes the country vulnerable to fluctuating fuel prices. One study reported that Mozambique could produce up to 6.7 EJ of bioenergy a year, contrasting with the 0.18 EJ of energy Mozambique consumes per year. Therefore, even if biofuel production capabilities are far below projected numbers, there is a good chance of exceeding national consumption with domestically produced biofuels and contributing to the international biofuels market.

Biofuels are particularly attractive in Mozambique because they are seen as an industry that could potentially address and alleviate rural development and unemployment. Roughly 78.4% of the population lives on less than $2 a day. Unemployment is extremely low. The majority of the population (60-70%) lives in rural areas and participates in agriculture. However most agricultural activities are for subsistence only and provide little to no income, supporting the estimate the only 5% of the entire population participates in Mozambique’s formal economy.

There are a number of means by which biofuels could bring about important national improvements. According to the Ministry of Energy, biofuels will enable Mozambique to achieve greater energy security by contributing to the creation of a larger national energy sector and by decreasing the demand for oil imports. The Ministry of Agriculture claims that the biofuels industry will help Mozambique grow its agricultural sector, which will increase rural development and employment. Other possible benefits not directly addressed by Mozambique’s government include environmental and health improvements.

It is important to note that Mozambique’s biofuel sector has received significant interest from foreign investors over the past few years. Private investors from around the world have started biofuel projects in Mozambique. As of 2009, the government estimated that over 12 million hectares of government-owned land had been requested for biofuel industry development, reflecting the magnitude of international interest in the biofuel industry in Mozambique.

What are biofuel options in Mozambique

Due to the available fertile land and other beneficial environmental characteristics, Mozambique has the potential to produce biofuels from a wide variety of feedstocks. A number of different feedstocks for both biodiesel (such as coconut, sunflower, jatropha, and castor seed) and bioethanol (including sugarcane, molasses, cassava, and sorghum) are expected to grow easily on Mozambican land. Thus far it appears that none have become the primary feedstock for a bioethanol or biodiesel industry in Mozambique, as is the case in other major producer countries. Current studies show that sunflowers could produce the cheapest biodiesel, though more research is necessary to better understand the potential of jatropha and its role in the biofuels market. It is anticipated that bioethanol could be produced more cheaply than biodiesel, though this is difficult assess particularly because prices may be more dependent on scale than on crops and methods.

Debate: Food vs. Fuel

According to the World Food Programme, 35% of Mozambique’s population is chronically food insecure, which raises the stakes of the food-versus-fuel debate. Pursuing biofuel production in Mozambique could potentially avoid conflict with food production if there is enough land to grow food in surplus and biofuels crops in ample quantities. This situation seems likely if estimates of Mozambican land availability are accurate. The Minister of Agriculture asserted in 2008 that Mozambique’s government would not allow biofuel production to compromise food security in any way. However concerns still remain that if agricultural techniques and technology are not efficient enough, food versus fuel conflicts could still arise.

How many and who in Mozambique would benefit?

The question of net social benefits or costs aside, there remains much ambiguity about who will be most affected by biofuel production in Mozambique. There is naturally a spectrum of opinions regarding the distribution of potential benefits and detriments resulting from biofuel production. These allocations are largely dependent on the approach taken to develop the biofuel industry, which is still in its infancy. Studies indicate that benefits to the poor may also vary depending on which biofuel crops are planted. For example, jatropha may be more pro-poor than sugarcane because its production requires more manpower, which is primarily unskilled labor, and therefore creates more employment opportunities for uneducated, poor individuals.

Rural households seem poised to reap the most benefits from the growing biofuels industry, particularly from increased employment opportunities. Additionally, if outgrower schemes are pursued and technology spillovers do occur, rural communities could see more food security and increased ability to produce food for profit instead of primarily for subsistence. Unfortunately, other poor communities such as urban households and households in southern Mozambique where land is not fertile enough for productive agriculture are less likely to benefit from the biofuel industry. Furthermore these communities are more likely to feel negative impacts if biofuel production does interfere with food security because they do not supply their own food, and they rely on food markets for sustenance which makes them more vulnerable to food price fluctuations.

The Mozambican government can maximize benefits for poor communities through a number of avenues. Promoting outgrower schemes rather than plantations is one option to secure possible gains for the poor. Outgrower schemes are more pro-poor because of the employment opportunities they create (a lot of unskilled labor is required) and the income (specifically rent) they provide for smallholders of land rather than for plantation owners who generally already have financial stability. Outgrower schemes also often have additional unintended benefits. Studies show that outgrower schemes are more likely than plantation projects to result in technological developments that spillover into other crops. Technology improvements help increase crop production and efficiency, which in turn leads to more food availability and greater poverty reduction in poor communities.

Policy Environment

Since the mid 2000s, there has been increasing domestic and foreign interest in developing the biofuel industry in Mozambique. In 2007, the Energy Minister Salvador Namburete expressed government interest in biofuels when he announced plans to convert 5 million hectares of arable land to biofuels production. Late in 2007, Mozambique’s Agricultural Minister Muhate signed a $510 million contract with Central African Mining and Exploration Company (CAMEC) to plant 30,000 hectares of biofuel crop on Mozambican soil and to ultimately produce 120 million liters of ethanol a year. CAMEC, a British company, claims that this biofuel project named ProCana will create up to 7,000 jobs in Mozambique and over $40 million in revenue starting in 2010. CAMEC plans to take advantage of Mozambique’s agreement with Brazil that allows for the transfer of biofuel technology and expertise from Brazil to Mozambique. The ProCana project will use Brazilian-built ethanol factories that are set to product 600,000 liters a day in the beginning before ramping up to 1,200,000 liters a day. The ProCana project is just one of the many biofuel projects financed and organized by foreign companies and investors.

In 2008, President Guebuze continued to affirm commitment Mozambican government to biofuel development but with some caveats. Although Mozambique’s government is committed to biofuels, Guebuze said it would not pursue biofuels to the detriment of farmers or other rural citizens. Only “underutilized or empty lands” would be used for biofuels and land would not be taken away from food production purposes at any point. Guebuze also stressed support for processing its own raw materials into biofuels to ensure that the nation reap the benefits of its labor.

As recently as March 2009, the Mozambican government took further strides to ensure the development of the biofuel industry in Mozambique. The government approved the National Biofuels Policy and Strategy that sets a framework for the future biofuel industry. It acknowledges the role of both private and public investment as well as emphasizes the importance of transparency and environmental and social protection. A National Biofuels Council will be created to “coordinate, supervise, and evaluate” Mozambique’s biofuel policy and strategy. The nation intends to undertake a three stage biofuel plan beginning with a pilot phase until 2015, proceeded by an operational phase until 2020, which will be followed by an expansion of the biofuels industry. The government cited sugarcane and sorghum as the most prominent prospective candidates for bioethanol and coconut and jatropha for biodiesel. The government additionally indicated that it intends to pursue a blending mandate for gas (10% ethanol) and diesel (5% biodiesel) by 2014. In order to meet these targets, roughly 10 million liters of ethanol and 20 million liters of biodiesel a year would be required.

Barriers to Biofuels

There are numerous barriers that may prevent or hinder the Mozambican biofuels industry from fully realizing its potential. One possible international issue that could hinder Mozambique’s goal of a global biofuel export business is EU legislation preventing EU countries from importing biofuels from crop plantations that disrupt environmental stability or food security. Studies indicate that if Mozambique were to grow its biofuel industry to accommodate an international export industry, significant land would have to be converted and biodiversity would likely suffer. Mozambique typically does not maintain as high environmental standards as more developed countries, and would therefore be unable to sell biofuels to any EU nations. Mozambique, along with seven other countries, have publicly opposed such legislation claiming it is unnecessarily restrictive and that developing countries would be most negatively affected by it.

One major domestic obstacle to the growth of the biofuel industry is the complex method of land right allocations in Mozambique. All land is owned by the government, but can be controlled by individuals groups or communities, which has the potential to limit or intensify land right disputes. Land right disputes have already arisen as a result of biofuels projects. A specific example involves the ProCana project, in which the same plot of land appears to have been promised for both biofuel production and the expansion of a transnational park.

On a more local level, farmers are concerned that much of the land labeled as available, which the Mozambican government intends to use for biofuel production, actually supports small-scale economic activities in local communities. The Mozambique Land Act protects local communities from losing their land to government land right allocations, and requires the government to consult communities surrounding any land before it is allocated for another purpose. However the effectiveness of the Act is limited, as consultations do not always occur. Moreover, chiefs and other local elites of the communities in question are most often consulted, which means that the people who will likely reap the most benefits from land allocations are the only ones involved in the consultation process. To further compound the issue, communities often lack the bargaining power when negotiating with foreign investors. Lastly, in 2002, the Mozambican government set a 90-day turn around time for land right applications. This was intended to expedite the process, and prevent investors from going elsewhere during the long wait between application and decision. Unfortunately, this also decreases the likelihood and the quality of the consultation process, further putting local communities in danger of losing their land.

While Mozambique has a lot of biofuel production potential with its large amounts of unused land, concerns have arisen about the ability of Mozambique to infrastructurally support a large biofuel industry. Low yield technology is the norm in Mozambique’s agricultural sector, therefore by simply introducing new technologies, yields could increase enormously. However, enormous widespread changes are necessary to raise agricultural yields to their full potential. For example, maize in Mozambique has one of the lowest yields in sub-Saharan Africa. One study indicated that while maize yields in Mozambique are about one ton per hectare, yields could be as high as 8-10 tons per hectare. There are concerns that Mozambique will struggle to orchestrate and finance this kind of mass agricultural turnaround.

Technological infrastructure is not the only sector that will help support Mozambique’s biofuel industry. Many studies show that Mozambique will need to make significant infrastructure investments in a variety of different areas such as transport, water, and power, in order to promote their industry. Transportation infrastructure is particularly crucial and currently lacking in Mozambique, as is evident from the fact that most agricultural products are produced but not sold in markets because they cannot get from the production sites to marketplaces. Some indicate that an expansion of the railroad system would be particularly beneficial to the growth of the biofuel industry.

Country Statistics

Current Population: 21 million
Current GDP: 6.8 billion USD

Future Projections
 
2000
2005
2010
2015
2020
2025
2030
MOZ
35
54
75
98
129
172
229
MOZ
18
20
22
24
26
28
30
Energy Use Breakdown
Supply & Consumption
 
 
 
Coal
Crude Oil
Petroleum Products
Gas
Nuclear
Hyrdo
Geothermal, Solar, Etc.
Combustible Renewables and Waste
Electricity
Heat
Total
TFC
0
0
527
16
0
0
0
7376
786
0
8705
Industry sector
0
0
69
15
0
0
0
684
719
0
1488
Transport sector
0
0
385
0
0
0
0
0
0
0
385
Other sectors
0
0
64
0
0
0
0
6692
67
0
6824
Residential
0
0
49
0
0
0
0
6692
46
0
6787
Commercial and Public Services
0
0
11
0
0
0
0
0
21
0
33
Agriculture/Forestry
0
0
4
0
0
0
0
0
0
0
4
Fishing
0
0
0
0
0
0
0
0
0
0
0
Non-specified
0
0
0
0
0
0
0
0
0
0
0
Non-Energy Use
0
0
9
0
0
0
0
0
0
0
9
Of which Petrochemical feedstocks
0
0
0
0
0
0
0
0
0
0
0
Current Biofuel Initiatives

The Petromoc Initiative:Petromoc is the government-owned national oil company. This initiative would involve setting up two biofuel production units:

Ethanol: an investment of US $28 million for the production of 27,000 tonnes of raw material per year and 33,000 m3 of ethanol.

Biodiesel: an investment of US $30.2 million for the production of 35,000 tonnes of raw material per yaer and 40,00 m3 of bio-diesel.

The operation costs are estimated at:

  • Ethanol: USD 0.33/litre
  • Biodiesel: USD 0.41/litre
Further Initiatives for Feedstock Production:
Initiative
Location/Province
Area (hectares)
Dulco
Inhambane e Sofala
10,000 e 5,000
Mozambique Biofuels Industries
All provinces
1,500-4,500
In each province
ECOMOZ
Maputo
3,000
Grown Energy Zambezi
Zambezia
160,000
Companhia do Monapo
Nampula
190
Local Trader
Niassa
59
Madal
Zambezia
40
Caritas
Manica
140
Envirotrade
Sofala
4
Current Biofuels Policies

The government of Mozambique is preparing comprehensive bioenergy legislation, but there is no definitive indication as to the specific policies. It is expected to be completed no sooner than the end of 2008. E10 and B10 are likely to become the target blending ratios.

The Mozambican government has availed 3.5 million hectares of land for the purposes of biofuel feedstock production.

An investor who invests in a cluster unit (4 agri-techno units) and who wants to keep all future profits will have to make a minimum investment of $8 million.

A corporate investor who invests in many cluster units and have the rights to expand the operation to 500,000 hectares will have to make a minimum investment of $100 million.
Tax incentives and custom duties exemptions will apply, but specific policies will only be known after the larger legislation is enacted (2008-2009).

Mozambique Team and Collaborators

Channing Arndt

Professor
Department of Economics, University of Copenhagen
Email: channing.arndt@econ.ku.dk
Phone: 970.689.2112

Biofuels Project Team Portrait
The research program undertaken by Arndt focuses on the economic challenges faced by developing countries. Poverty, often extreme poverty, is the overriding issue. In order to reduce poverty, these countries face a series of strategic decisions with respect to: public investment in people (particularly health and education), technology, and infrastructure; the role of agriculture; the degree of openness to regional and global markets; and public finance—to name only a few. The research program has sought to contribute to the formulation of coherent national development strategies with substantial efforts in Morocco, Mozambique and South Africa to date. Focus has often been on large issues such as the evolution of poverty, the implications of the HIV/AIDS pandemic, human capital accumulation, technological change, trade policy, infrastructure investment, and drought in agriculturally dependent economies.

Rafael Uaiene

Policy Analyst
Ministry of Planning and Development (MPD)
Email: ruaiene@gmail.com
Phone: 91.11.25848731 (x 111)

Biofuels Project Team Portrait
With a Ph.D. in Agricultural Economics from Purdue University, Rafael Uaiene’s research focuses on: a) the economics of agricultural production and b) agricultural policy analysis. He serves as a bridge between MPD and the Ministry of Agriculture (MinAg). Previously he worked as Director and crop breeder at the National Agronomic Research Institute in Mozambique.

James Thurlow

Research Fellow
International Food Policy Research Institute
Email: j.thurlow@cgiar.org
Phone: 202.862.8104

Biofuels Project Team Portrait
James Thurlow is an applied development economist, whose research focuses on measuring the interactions between public policies, economic growth and poverty in low-income countries, primarily using computable general equilibrium and micro-simulation modeling techniques. His research has covered agricultural investments; rural and regional development strategies; biofuels investments; climate risk and change; and health and social security policies. He has worked extensively throughout eastern and southern Africa, as well as in Ghana, Bangladesh, Peru and Vietnam to strengthen the policies and capacity of national governments and local researchers.