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views
or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB
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Draft: 18 November 2010

THE BIOFUEL DEBATE: WHY IN SOME COUNTRIES IT IS

PRO-POOR TECHNOLOGY AND IN OTHERS IT IS NOT -
JATROPHA AND MAINLAND SOUTHEAST ASIA
by Myo Thant, Asian Development Bank1
Background Paper for Conference on the " The Environments of the Poor”, 24-26 Nov 2010, New
Delhi2

SUMMARY:
Motivated by increasing concerns about energy security, climate change and the need
for agricultural development both bioethanol and biodiesel industries have expanded very
rapidly in a few short years. In developed countries, strong public policies such as use
mandates, fiscal measures, price incentives, subsidies, tariff barriers and public goods such as
research and development played a key role in this rapid development. Asia has also moved
quickly and Asian biofuels are in general more competitive than their US and EU counterparts.
The global biofuel industry hit a road bump following the rapid escalation of agricultural
commodity prices leading to an acrimonious food vs. fuel debate. This, together with the global
economic crisis, has reduced support for biofuels which is unfortunate given the potential of
biofuels for poverty alleviation in Asia. The paper examines the potential of jatropha based
biodiesel in the five countries of mainland Southeast Asia: Cambodia, Laos, Myanmar, Thailand
and Vietnam. The paper finds that jatropha which is a non food, hardy plant which can be grown
on marginal soils in arid conditions, is attractive as a biodiesel feedstock. The existing
uncultivated land area, low labor costs, the ability to provide employment and income
opportunities as well as clean energy for rural electricity generation and rural machinery mean
that jatropha has genuine poverty alleviating capabilities in Southeast Asia. Regional
cooperation among these countries can also lead to expanded markets and trade in seeds and
fuel, greater investment and dissemination of knowledge. Against this is the reality that many
Southeast Asian countries have limited ability to provide the financing, institutional support and
technical know how that is required to realize the potential. The paper concludes by noting that
while effective public -private sector cooperation is needed, strong public policies to address
these problems early is indispensable if biofuels are to be truly pro poor.

1
Dr. Myo Thant is a Principal Regional Cooperation Specialist in the Regional and Sustainable Development
Department of the Asian Development Bank.
2
For more information, see the conference website:
http://www.adb.org/Documents/Events/2010/Environments-Poor/default.asp
1. INTRODUCTION:
1 The sustained increased of oil prices over the past half decade as well as sharp price
fluctuations and concerns about climate change have generated strong interest in biofuels in
both developing and developed countries. Rapid development has taken place, many times
without an adequate technical knowledge base which unsurprisingly has led to much
controversy. Supporters talk of a biofuel revolution and portray it as the solution to the problems
of energy security, environmental degradation and rural development. At the other extreme
detractors highlight the expensive subsidies without which almost all biofuels, until very recently,
were uncompetitive. They note the insignificant and even harmful impacts that biofuels can have
on the environment. Most importantly they see a sharp trade-off between food and fuel and
directly attribute the recent rapid increase in food prices to expansion in the cultivation of biofuel
feedstock. Discussion on biofuel prospects for Asia has not featured prominently in the global
literature. Even rarer are discussions on how biofuels can play a key role in alleviating poverty in
Asia where the agriculture sector is frequently the largest single source of employment and the
largest number of poor in world resides. Asian countries are however poised to enter the global
biofuel industry and are moving ahead rapidly. Many Asian countries have very favorable
resource endowments that would make them efficient and competitive biofuel producers. Yet
other Asian countries have highly developed agro economies that could facilitate their
participation in a global biofuel industry. This paper examines the role that biofuels can play in
alleviating poverty in mainland Southeast Asia with a focus on jatropha as a feedstock for
production of biodiesel. The agro economic conditions of these countries as well as the use of
regional economic programs to develop national biofuel programs is promising as is the
increased cultivation of jatropha which being a non food crop avoids any possibility of a food vs
fuel trade-off. The paper is organized into six parts. The first section provides a short description
of biofuels and the reasons underlying their attraction. The second section discusses the
mainland Southeast Asian situation and basic facts about the jatropha plant. Section three
discusses jatropha cultivation in these countries while section four discusses factors which
would facilitate further expansion. Section five presents an overview of observed problems and
challenges while the final section discusses specific actions and policies which are required to
make biofuels explicitly pro poor.

2. WHAT ARE BIOFUELS?

2 Biofuel is an umbrella term used to describe all fuels derived from organic matter
although their technical characteristics can be very different. Experiments with biodiesel date
back to the 1850s. The most common biofuels are bioethanol and biodiesel with the former
dominating even though the biodiesel industry has grown rapidly in the past 5 years. Bioethanol
can be produced from different feedstock including sugar cane, corn, barley, wheat and other
grains although sugar cane and corn are preferred. Ethanol can be produced by a variety of
methods. The initial step of each method is feedstock specific but in all processes the starch is
extracted, fermented and distilled. Biodiesel covers the fuels produced by processing a variety
of vegetables oils including soy bean, palm oil, rapeseed (canola) and animal fats (tallow). At
present most biodiesel is made from either soya or rapeseed although this may change as
Asian producers become more prominent. The term typically refers to fatty acid methyl esters
made by the transesterification of feedstock oil. Transesterification involves the mixing of oil,
ethanol and a catalyst (usually sodium hydroxide) to break it down and then reform it as purified
esters or biodiesels. The majority of vehicle manufacturers limit their recommendations to 15%
blends. Unlike bioethanol for which the major use is as fuel for the transport sector, biodiesels
can be used for many non transport purposes as well e.g., power generation, irrigation, small
 scale industry. Biodiesel can also be used without refining as straight vegetable oil (SVO)
although this may have adverse impacts on machinery or may require some modification of the
machines in which it is used as fuel.
3 Biofuel discussions frequently focus on the conversion of plant feedstock into
biofuels and the efficiency with which this is achieved. It is however important to keep in
mind that the conversion process is part of a biofuel value chain consisting of five or six major
elements that are closely linked. The basic elements are:
• feed stock production:
• pre processing (drying, milling, dehusking);
• conversion;
• distribution of biofuels; and
• end use applications

4 Technical, financial policy and social problems within each of these elements as well as
links between them will affect the overall competitiveness of biofuels in relation to conventional
fossil fuels. Feedstock problems can be due to problems in switching to biofuel crops, limited
experience in growing energy crops and low crop yields that increase feedstock costs. Pre
processing and transportation problems may be due to long distances between production
areas, refineries and mass market destinations. Problems in conversion relate primarily to
acquisition of technology and efficient operation rather than the technology itself which is mature
and relatively uncomplicated. Distribution and end use problems may be due to limited
infrastructure and lack of standardization of feedstock, quality control and consumer skepticism.
Each of these areas requires attention in terms of policy, research and financial support-
requirements that may be particularly demanding for many developing countries.

3. WHY BIOFUELS?

5 The demand for energy is increasing rapidly in Asia and the Pacific region and energy
use will continue to increase as countries grow. Primary energy demand in developing Asia
is expected to increase from 3.2 billion tons of oil equivalent (btoe) in 2006 to 6.3 btoe in
2030 (ADB 2009). Petroleum provides 40% of the world's primary energy. There is
therefore no real alternative to petroleum particularly in the transport sector and particularly
in large countries such as China and India. In China more than 2 million new cars were sold
annually starting in 2003 and it is currently the world's largest automobile market. Given the
current low per capita consumption rates as well as projected population and growth rates,
demand for cars and petroleum will increase (ADB 2007). Fuel requirements for
transportation will inevitably increase and biofuels are the only technically and economically
viable alternatives for large scale substitutes in the next 10 years. Assured continued
reliance on oil coupled with rapid increases in oil prices since 2003 have compelled
countries to resuscitate existing biofuel programs and/or build new ones. Countries typically
cite three objectives in promoting biofuels:

3.1 Energy security. Energy security is a broad term that encompasses different but related
political and economic issues. At heart is the view that biofuels can contribute by diversifying
energy supply sources and assuring supplies, reducing price increases and minimizing price
volatility. Displacement of petroleum fuels by biofuels would thus have two benefits: reduced
need to import from areas that are frequently politically volatile or hostile and reduced
spending on fuel imports.
 3.2 Environmental protection. Concerns about global warming and carbon dioxide
emissions have gained traction in geopolitical arenas and have generated interest in the
development of clean energy. One of the strongest arguments used to promote biofuels is
that it is renewable. Bio energy is seen as a 'clean' form of energy since the amount of
carbon dioxide released when it is burned is generally equivalent to the amount of carbon
dioxide captured in the growth of the crop that produced it.

3.3 Agriculture and rural development. The current generation of biofuels is derived from
feedstock which is purposely grown in rural areas. In many cases the farming sector requires
public support either because of low absolute levels of income and high poverty rates and/or
marked income differentials between urban and rural areas. In developing countries that
depend substantially on the agro economy for jobs and growth, biofuels have the potential to
act as an effective development agent through creation of jobs, technology diffusion and
provision of low cost fuel for small scale agricultural uses e.g. pumps, hullers, stoves, hand
held tractors. Biofuels could be particularly effective in providing fuel for decentralized power
generation stations in countries where a national grid either does not exist or is limited. For
countries that have existing sugar, oil palm and coconut industries, biofuels offer the
opportunity for further expansion and moving up the value chain.

4. BIOFUEL PRODUCTION

6 Global bioethanol production has increased rapidly from about 7 billion gallons in 2000
to an estimated 21 billion gallons in 2008. The two biggest producers of ethanol are the
United States and Brazil with the latter being the world's leading producer until very
recently. In 2007 the US produced 6.49 billion gallons and Brazil produced 5.02 billion
gallons. In 2008 US production of corn based ethanol reached an estimated 9 billion
gallons. In Asia the three biggest producers of ethanol are China, India and Thailand
(66,862,562 and 408 million liters respectively). (USAID 2009).

7 Biodiesel production has similarly increased rapidly over the past few years although the
volumes are small in comparison to bioethanol. Biodiesel production increased from 1.15
million tons in 2002 to 5.8 million tons in 2007. The largest producer of biodiesel is the
European Union (EU) which supplied 4.0 million tons in 2007.The largest producer within
the EU is Germany. The US has also expanded production of biodiesel using soybeans and
in 2007 supplied 499,000 tons compared to only 50,000 tons in 2002 (Steenblik 2007) In
Asia the three biggest producers of biodiesel in 2008 are Indonesia, Malaysia and China
(753,443 and 335 millions of liters respectively). Indonesia and Malaysia use palm oil as
feedstock of which they produce 85% of total global output.

8 Rapid expansion of the biofuels industry has come about through strong public sector
support. Prominent policy instruments which have been utilized include mandates on use
levels, fiscal incentives and high import tariffs as well as strong support for research and
development. In the United States excise tax credits for biofuels are the most direct and
widely used instruments. The Volumetric Ethanol Tax Credit (VEETC) of $.51/ gallon of
ethanol and $1.0 /gallon of biodiesel became effective in 2005 and is effective to 2010.
Lowering costs for ethanol blenders lowers prices for wholesalers and retailers while
passing the benefits to growers and processors. The tax credit is a subsidy to the processor
and in 2006 alone VEETC cost $2.5 billion. Overall subsidies to ethanol and biodiesel are
estimated at $5.5 billion to $7.5 billion, excluding direct payments to corn farmers (UNDP
2007). Price supports coupled with deficiency payments have helped increase output and
lowered the price of corn feedstock in the US as well. Corn has received more subsidies
than any other crop and received $51 billion from 1995 to 2005 although the distribution of
these subsidies is far from equal. One percent of corn growers received 19% of all
subsidies while the bottom 80% received only 13% (Rush 2007).

9 High import tariffs have been a major reason for the limited development of a global
biofuel market as well as the wide range of production costs. Production cost of bioethanol
is as low as $30 per barrel in Brazil but between $80-128 in the EU and slightly better in the
US ($57-80). Similarly Malaysia oil palm based biofuel has a production cost of $62 per
barrel compared to EU (rapeseed) $64-128 and US (soybean) $ 64-107/barrel (ADB 2009).
The difference between Asian production costs and other regions could become more
marked if technology transfers improve and tariff and non tariff barriers are reduced.

10 The global biofuel industry hit a major road bump in 2008.The global economic crisis led
to volatility of both feedstock and oil prices. The short term impact was the shutdown of a
number of factories including the second largest ethanol producer in the US and increasing
idle production capacity. The meltdown of credit markets also led to the worsening of capital
market conditions, tightening of trade credits and decline in venture capital and private
equity investment (Lewis 2008). An arguably larger hindrance to the continued development
of biofuels is the food vs fuel debate which broke out following sharp increases in food
prices in 2007. From mid 2007 to mid 2008 the average prices of corn increased by 60 per
cent, soybeans by 76 percent, wheat by 54 per cent and rice by 104 percent. Biofuel
detractors allege that allocating of land to biofuel feedstock production has directly and
indirectly reduced the amount of land available for food crops thereby increasing food
prices which have affected the poor in particular. The rapidly increasing use of maize for
biofuel which utilized 20% of the entire US crop in 2007 is thought to be particularly
worrisome since the US is the source of 70% of global corn exports. Further, given that 50-
60% of corn produced is used as livestock feed, biofuels are alleged to be responsible for
higher meat prices as well. In Asia the expansion of biodiesel from palm oil is thought to be
related to the rise in edible oil prices. Several analyses have attempted to quantify the effect
of biofuels on rising food costs and results vary from only 3 per cent (US Council of
Economic Advisors) to one third (OECD). (USAID 2009). Attempts to link food price
increases to increased biofuel production need, however to, at the very least consider the
following factors which influenced food price movements:
• increasing demand due to increasing population, higher disposable incomes and
changing tastes and demand for meat;
• increased transport and irrigation costs as a result of rapid increases in oil prices over
the previous three years;
• increased costs of fertilizers which are derived from petroleum products;
• reduction in supply of agricultural commodities (and stocks) due to conversion of land to
non agricultural use and bad weather and/or drought;
• slow increase in yields in large part to neglect of agricultural research and development
in many developing countries; and
• speculation and precautionary demand for food stocks and policies of some rice
exporting countries (Thant 2009)

11 While the debate over the magnitude of the contribution of biofuels to higher food prices
will no doubt continue it has had the effect of slowing down work on biofuels in many
 developing countries where work had just been initiated, frequently with the help of donor
agencies and NGOs which were now understandably reluctant to be seen adding to further
increase in food prices and poverty. This is unfortunate since in general Asian biofuels are
competitive with biofuels from the US and EU, even without the benefit of massive
subsidies. This is probably because while biofuel production costs are a function of
feedstock, capital recovery costs, processing, storage and transport costs, feedstock costs
constitute more than half of total costs in which Asian producers are competitive through
use of high oil content plants and low labor and land costs. Thus in 2007 palm oil based
Indonesian biodiesel could be produced for $.41 /litre while Thai molasses based ethanol
could be produced for $.46/litre. (USAID 2009).

5. SOUTHEAST ASIA

12 The countries. The countries of mainland Southeast Asia are Cambodia, Laos,
Myanmar, Thailand and Vietnam and there are several reasons for seeing them as a group.
There is a great deal of cultural and social similarity among the countries and their histories are
intertwined. The countries are with the exception of Cambodia large with Myanmar and Thailand
the two largest (676,000 and 513,000 sq km respectively) although the two most populous
countries are Vietnam and Thailand (87 million and 66 million respectively). The geographically
contiguous countries cover a diverse variety of agro climatic zones which allow the production of
a wide variety of agricultural produce. The region is a net food surplus region and Thailand and
Vietnam are the two largest rice exporters in the world while Myanmar and Cambodia have also
historically been major rice exporters. More than half of the labor force is employed by the
agricultural sector. However, with the exception of Thailand which had a gross national income
(GNI) of $2,840 in 2008, the other countries have GNIs of less than a $1000. The proportion of
population below the poverty line ($1.25 per day) was greater than 20% in all countries of the
region except Thailand. Poverty is reflected not only in low income but also in terms of access to
basic needs and social indicators such as infant mortality rates and high school completion
rates. (ADB 2010)

13 Perhaps the single most important reason for seeing mainland Southeast Asia as a
single entity is their common pursuit of regional economic cooperation. The countries are
members of different regional cooperation programs such as ASEAN, AIMECC, Development
Triangle and the Greater Mekong Subregion (GMS) program all of which lead to larger markets
and increased connectivity through trade facilitation (transport corridors), improved
understanding and reduction of risk and uncertainty and cooperation on regional public goods.
The GMS program which was established in 1992 expanded its remit to include the agriculture
sector in 2004 and initiated a Biofuel and Rural Renewable Energy Initiative in late 2006. The
overall goal of the Initiative is to develop appropriate strategies and options for the biofuel and
renewable energy sector towards reducing poverty among rural households. The project
specifically aims to:
• identify national strategies and agricultural options for small holders to participate in the
shift away from convention fuels to biofuel development in an environmentally and
financially sustainable manner:
• develop a region-wide consensus between diverse stakeholders regarding biofuel
policies, cross border investment and trade and technology development and
dissemination:
• enhance public- private partnerships on policy and investment cooperation on biofuels
and rural renewable energy
 • promote research and development on crop selection, technology choices, farming
systems and feedstock process and marketing by facilitating partnerships: and
• strengthen capacity of national institutions on the technical and economic dimensions of
planning and implementation aimed at catalyzing development on biofuels. ( ADB 2007)

14 Biofuel crops. A large variety of biofuel crops can be successfully grown in Southeast
Asia. Prominent feedstock for bioethanol includes sugar (molasses) grain, cassava and sweet
sorghum. Major biodiesel crops include oil palm, coconut and jatropha curacas which is a
drought resistant, perennial, non food plant that grows into a shrub or small tree. It originated in
Central America and has spread across the world. The plant grows on diverse soil types and a
variety of climatic conditions, has a relatively short gestation period and requires low physical
and human inputs. It can grow at temperatures from 11 degrees Celsius to 28 degrees Celsius
and can live for up to fifty years with economic productivity starting after the fifth year. The
seeds need to be hand-picked and the oil can be extracted for direct use in modified diesel
engines or refined into biodiesel for use in standard diesel engines. After harvesting seeds are
crushed, pressed and the oil is extracted and separated. Extraction and separation are less
capital intensive and can be decentralized. Yields as high as 4.8 kg plant/ year with 2200-2500
plants/ ha have been reported. Seeds contain 30-40% oil of which about 90% can be extracted.
Under these conditions per hectare yield is equivalent to about 2.2 -2.7 tons of oil. Some other
studies have however reported much lower yields. (Thant 2009).

15 An added attraction of jatropha production is that it has a large number of co- products
that are the result of the transesterification process. Seedcakes, residual by-products of the oil
extraction process, are valued as an organic fertilizer and contribute to pest management due to
the presence of potent biodegradable toxins. Seedcakes can also be used for co-firing in
combined heat and power plants. Glycerol is another co-product of jatropha production. Roughly
1 kg of glycerol is produced per 10 kg of biodiesel and can be used to make soaps and
industrial lubricants. Fruit hulls are combustible and can be used as green manure and for
biogas production while the leaves which have anti- inflammatory properties can be used for
medicines.

16 Jatropha is attractive to policy makers since it is not a food crop and does not
necessarily compete with food production systems and its price is not directly linked to global
food prices. Further, it requires few inputs and little irrigating and can grow on marginal lands.
Extraction from trees is difficult and labor intensive which in labor surplus Asian countries can
be a highly desirable feature. Given this, a large number of Asian countries have invested
heavily in jatropha plantations even though scientific data is still very limited. India is actively
promoting a jatropha based biodiesel industry. Existing studies suggest that jatropha based
biofuel is viable and the cost of biodiesel from this source is R21/l ($.47) Gonsalves 2006).Yield
estimates vary hugely however and further research is needed. Yields depend on a range of
factors such as water, soil conditions, altitude, sun and temperature as well as age of plants.
The National Biofuel Center of the Petroleum Conservation Research Association of India
Reports an expected yield of 1.5tons/ ha in wasteland plantations which would translate into
about 500 kg of oil, equivalent to about 540 liters. The Center of Excellence for Jatropha
Biodiesel Promotion gives a much higher estimate of around 10 tons of seed yield per ha or
3,400 liters (ICRISAT 2007).

17 The People's Republic of China is also aggressively exploring jatropha based biodiesel.
It is estimated that two million hectares are available for jatropha cultivation which would lead to
a yield of 5.85 million tons (Xiaoyang Wang 2007). As in India a wide range of yield estimates
exist ranging from .3 ton -.7 ton (340 liters to 795 liters) on barren land to .7-2.5 tons (2840
 liters) on normal soil (Weyerhaeuser 2007). Cost of production of jatropha based biodiesel is
CNY4-11.5 /liter which compares favorably to German rapeseed derived biodiesel which costs
CNY 5.9-7.9/ liter. It is however unfavorable compared to diesel which was being sold for CNY
4.52-4.92/liter in northern PRC in mid 2007 (Weyerhaeuser 2007).

6. JATROPHA EXPANSION IN MAINLAND SOUTHEAST ASIA

18 Thailand is the only country in this country grouping to have successfully produced
biofuel commercially. This is unsurprising given its long interest in the field and its need to
reduce dependance on crude oil imports which increased from $6.67 billion in 2002 to
$19.77 billion in 2006. Thailand has well defined targets for biofuel development and utilizes
a package of support pollices which include pilot testing by the public sector, guaranteed
markets through mandates on fuel type use, price incentives, research and quality control
and standards. Biodiesel production can be traced to the early 1980s when farmers
experimented with home made fuels derived from palm oil and coconuts. The government
became actively involved only in 2005 when it became concerned that 46% of the 100
million litres of crude imported yearly was for diesel. Oil palm is currently the only crop used
as a feedstock for biodiesel. The government has mandated the use of B2 (diesel blended
with 2% biodiesel) starting in 2008.By 2011 B2 will be replaced by B5 and biodiesel
production is projected to rise to .89mt (ADB 2009). Future biodiesel feedstocks will be
primarily from palm oil and jatropha. The government plans to develop oil plantations
totaling .7 million hectares which will yield 4.8 million liters a day of biodiesel by 2012. A
further 1.2 million liters/day is expected to come from plantations of neighboring countries
and 2.5 million liters per day will be met through jatropha feedstock.

19 Vietnam like Thailand has well defined plans for development of biofuels but is still in the
initial stage of biofuel development. It plans to develop three types of biofuel in the future:
bioethanol from starch and molasses, biodiesel from catfish oil and plant oil and biogas
from animal waste. To date jatropha production is at a trial phase only although the country
has extensive tracts of bare and infertile land on which the plant can be grown.

20 The situation in Myanmar is in many ways the most intriguing since it has the most
potential among all the countries of mainland Southeast Asia. The country has no
comprehensive strategy or package of incentives as in Thailand yet in very late 2005
directives for planing 500,000 acres of jatropha in each of the 14 states and division of the
country, were issued from the highest political office. (Sein Thaung Oo 2007). Based on this
the area planted to jatropha will expand from 2.53 million ha in 2007 to 3.23 million ha in
2010. The way in which the plan was implemented has drawn criticism and observers have
noted that no investment in collection, processing and refining has been made on either a
large or small scale. At the same time Myanmar does have at least one privately owned
and operated modern jatropha plantation of 10,000 acres in the Ayarwaddy Delta with
about 650 workers, each of which is paid about $45/day in addition to meals. (Cheam
2008). Small holder operations also exist but reportedly use SVO on machinery with mixed
results.

21 The government of Lao PDR has strongly promoted biofuel for energy security as well
as rural development since 2006. Several private sector enterprises from neighboring
countries are active and to 2009 26,000 hectares of jatropha had been planted. The vast
 majority of the planted area is under the '2+3 model' under which the farmer provides land
and labor while the company supplies inputs, technical advice and access to markets. (ADB
2009).

22 Jatropha production in Cambodia is also at the experimental level. In central Cambodia

a village level biofuel project in Kompong Chang provided the communities with small oil
expellers to process jatropha seeds. The project which was funded by the Canadian
government ended in 2006 but was continued by a private firm. NGOs and academic
institutions are also involved in the dissemination of the technology used in the project.
Potential for jatropha production in Cambodia is facilitated by the relative availability of
agricultural land and microfinance as well as the existence of over 600 rural electricity
generating enterprises which are an obvious source of demand for biodiesel.

7. FURTHER EXPANSION OF JATROPHA BIODIESEL

23 Further expansion of jatropha bidodiesel is both desirable and possible as a result of

several factors on the supply side and the demand side as well as the utilization of regional
cooperation frameworks which already exist.

24 Land availability. The ADB estimates that the five mainland Southeast Asian countries
have between them 9.8 million hectares of uncultivated agricultural land. The quality of
these lands is in all probability not the best but this not a hindrance to jatropha cultivation.
Of this total the majority, 6 million hectares, is in Myanmar alone. Cambodia, Laos, Vietnam
and Thailand have 1.5, .89, .64 and .8 million hectares of uncultivated land respectively
(ADB 2009). The amount of uncultivated land in Cambodia and Laos is not inconsiderable
in relation to their relatively small population base. Further, as Matsumoto has noted, land
will become available as a result of yield improvements (jatropha as well as food crops) and
improvements in road transport. He estimates for example that .5 million hectares for
ethanol production is available in Savanakhet province of Laos which is connected to
Thailand in the west and Vietnam in the east through the East West Economic Corridor
(Matsumoto 2009).

25 Yield increases of both food non food crops will lead to an increase in land area
available for cultivation in practical terms. World Bank data show that while area available per
person ranges from a low of .13ha/person in Vietnam to .41 ha/person in Thailand, the yield gap
(the amount that actual yields fall short of potential production) is less than .5 in all countries
except Vietnam (World Bank 2010). Cross country yield gaps of biofuel feedstock can be
substantial. Sugar production in China is 77 tons/ ha compared to 53 tons/ha in Thailand and
only 19 tons/ha in Cambodia. Even within the same country yields for the same crop can very
greatly. E.g. oil content of jatropha in Myanmar ranges from 26.1% to 41.3% (ADB 2009)

26 Labor costs. Jatropha seed collection is a labor intensive process for which no
mechanical substitute has been devised yet. Given this, labor costs can be a key factor in
dictating the competitiveness of jatropha biodiesel. Reliable cross country data on agriculture
labor costs is not readily available and is subject to substantial definitional differences (food
included, seasonality, provision of space for living ) A proxy however can be derived from
garment worker salaries. In 2008 labor costs in Cambodia and Vietnam were $.33/hour and
$.38/hour respectively, much lower than the $1.29/hour in Thailand and even lower than in
inland China ($ .55-.8/hour) Low as these wages are, wages in Myanmar for comparable activity
is even lower. Kubo reports garment works salaries as being between $35-38 per month in 2008
(Kubo 2010) while another report states that average workers receive $.4-.8 per day.
(Department of State 2008).

27 Employment creation. As noted earlier jatropha seed collection is a labor intensive

process. World Bank data shows that jatropha provides 420 jobs per 1000 hectares, better than
sorghum, soybeans and grain,. Further, the amount of dollar investment required per job
created by jatropha is only $2,400 compared to $200,000 for soybeans or $11,400 for oil palm
(World Bank 2010). Jatropha cultivation is therefore a cost effective way of employment
generation and provides additional income to rural household even without factoring in fuel sale
profits or the sale of by- products.

28 Energy consumption. Energy consumption has increased rapidly over the 1993-2005
period in almost all countries on the back of rapid growth and market liberalization. Vietnam
demand grew at an annual average of 10.2 % in this period and even Myanmar and Laos grew
by 8.5% and 8.2% respectively. Similarly transport fuel demand grew rapidly. In Vietnam
demand for transport fuel grew by 365% over the 1990-2005 period (ADB 2009). Increasing
consumption and higher oil prices have together created major problems for those countries
which are heavily reliant on imports or have limited resources for imports. Laos which imports all
its fuel, spent $231 million or 6% of GDP on fuel imports alone in 2009 (Gaillard 2010). In
Myanmar domestic consumption has been rising and has been far in excess of production for
two decades while imports have been constrained by lack of resources. Increases in diesel
prices from $1.42/ gallon in 2003 to $4.62/ gallon in 2007 seriously affected the rural economy
particularly in relation to the prevailing low levels of income (ADB 2009). Domestic biodiesel
cannot hope to fully supplant fossil fuel production or imports but a substantial amount of energy
security combined with rural development and higher incomes could be possible through
jatropha based biodiesel production.

29 Access to electricity. Access to electricity is still very constrained in mainland Southeast

Asian countries except Thailand and when available, can be extremely costly. The percentage
of the population without electricity ranges from 15.8% in Vietnam to 88.7 % in Myanmar (IEA
2006). Industrial rates in 2004 ranged from a low of US cents 3.51/kWh in Laos (with ample
hydro electric resources) to 12.58 -15.72/kWh in Cambodia (Williamson 2005). In Cambodia
where a national grid does not exist and rural electricity is mainly provided by 600 small Rural
Electrical Enterprise (REEs) and battery charging, electricity rates are uniformly high, ranging
from $1. kwh for battery chargers to $.53/ kWh for REEs (Williamson 2005). This may however
still be better than the $13.33/hour from small diesel generators (more than six times the
national grid rate) reported in the Mandalay area of Myanmar in 2008 (ADB 2009). There can be
no development without electricity while high rates will deter many activities. The possibility of a
steady supply of 'clean' biodiesel, close to sources of consumption such as decentralized power
generators may perhaps be the single biggest pro poor benefit that biofuels can offer.

30 Regional cooperation in mainland Southeast Asia is now firmly established and plays a
key role in enlarging the size of markets while establishing physical connectivity among
contiguous countries. Mutually beneficial cooperation in several areas is possible and will
greatly accelerate national efforts. Joint efforts to promote high quality seeds is possible as
is the sharing of technical knowledge and best practices. Trade in seeds and biodiesel
machinery is possible. Regional sales of fuel are less likely in the short term but should not
be ruled out; particularly in those production sites which are close to major Thai
consumption sites.Trade in fuels will however require regional agreement on standards and
 certification methods. Cross border investment in jatropha and biodiesel is already
happening on a limited scale and can be expected to increase although national efforts to
ensure that the investment is pro poor and that countries and communities have means of
renegotiating long term contracts which may have become one sided may be needed.

8. CHALLENGES TO EXPANSION

31 The paper has to this point discussed how jatropha in mainland Southeast Asia can play
a key poverty alleviating role through employment and income generation, provision of fuel
for decentralized electricity production and secure access to green fuel for a wide variety of
applications in rural settings.Actual investment in jatropha based biodiesel has been rather
limited but even this small body of evidence suggests that challenges to more widespread
production are numerous. The following include some of the more prominent problems
which must be faced.
• Actual land availability is unclear. One of the key attributes of jatropha is that it can go
grow on marginal lands with limited rainfall. Productivity however improves with the
quality of the land and if it is planted on slightly better land, at the margin it may start to
compete with food crops. Biodiesel from jatropha planted as fences or along railway
lines may prove to be more the exception or uneconomical.
• Lack of markets on both the supply and demand sides may slow industry expansion.
Supply and demand will both have to be jump started together since neither exists
currently for the lack of the other. Small holders are unwilling to take on risks unless they
have a secure source of demand when trees began to bear fruit after a few years.
Farmers may not grow jatropha without some level of guaranteed demand, subsidies
and buy back arrangements. Downstream refiners may be unwilling to make longer term
investments in refining capacity unless they have a secure and adequate source of
supply
• Large scale investments require a strong private sector or public private partnership.
Should these be missing the market will mainly be for rural area biodiesel applications
which may not attract the same level of private sector interest and capital in which case
public sector involvement and that of civil society and community based organizations
become be critical. While countries such as Cambodia have a history of strong NGO
involvement in rural development and the creation of cooperatives, marketing
associations and smallholder organizations, others such as Myanmar and Laos have
considerably less experience. Relevant institutions are needed to ensure that small
producers link up with users yet manage to capture more value despite the different
layers of intermediation.
• Credit for investment in all phases of the value chain is needed but countries differ
widely in their ability to provide financing. Here again Cambodia seems to be ahead of
Laos and Myanmar largely because of its liberal approach to the banking sector as well
as the widespread involvement of NGOs in rural development
• High costs of collecting jatropha seeds for oil extraction from small and scattered plots
has been noted as an issue in both Myanmar and Vietnam. An additional issue is the
heterogeneity of seed quality inherent in collecting from a large number of small
producers which makes quality control more difficult.
• In almost all countries with the possible exception of Thailand, technical knowledge
about jatropha, particularly in rural areas, is lacking. More research and development
and training and extension services are required to improve land use practices and
 yields. Further knowledge on the best uses of jatropha by- products is also needed since
they are a major source of income.

9. PRO POOR JATROPHA

32 As discussed earlier all five mainland Southeast Asian countries have plans to develop
biofuels in general and jatropha in particular but only Thailand and Vietnam to a much more
limited extent, are providing the public policies needed for a supportive environment.The
following actions are needed to ensure that emerging jatropha biodiesel industries are pro-
poor.
• conducting environmental impact assessment of jatropha and drafting guidelines for the
utilization of land. A detailed mapping and identification of unproductive areas suitable
for jatropha can help ensure that investments are directed to marginal areas and food
vs. fuel trade-offs and deforestation are minimized;
• establishing a centralized institution to address current gaps in knowledge, skills and
equipment to support jatropha development at the village and community level;
• establishing a government standardization and certification system for biodiesel (national
and regional levels);
• establishing appropriate rural institutions. Cooperatives for example can bundle the
interests of the poor, establish partnerships and organize large feedstock suppliers
which will create countervailing power to larger firms operating in the energy market;
• protect labor rights of biofuel workers and those of seasonal workers and women and
children in particular;
• protect against possible loss of access to land which was previously untitled or marginal
land which becomes economically valuable;
• provide public sector support to small scale owners and entrepreneurs at all stages of
the biodiesel supply chain. Support could include provision of finance and insurance,
fiscal incentives and local supply quotas such as Brazil's Social Seal Fund whereby
biodiesel producers who buy feedstock from small family farms receive partial or total
federal tax exemption;
• provision of microcredit which is directly aimed at renewable energy and crops. Valuable
lessons from China's Rural Energy Enterprises Development or India's Renewable
Energy Development Agency can be learned and applied (UNEP 2009); and
• provision of practical advice on merits of alternative business models which differ
according to the degree of involvement of the producers in the supply chain. Producers
should understand general risk versus return profiles and how models differ by
ownership, benefits and decision making.

10. CONCLUSIONS

33 The biofuel industry has come a long way in a very short time as a result of many
different motivations and strong public sector intervention in almost all developed countries
and some developing countries. Asian biofuels are in many cases competitive against
biofuel produced in the US and EU. The potential for further expansion and for biodiesel to
play a key pro poverty role in mainland Southeast Asia is strong. Cultivable land exists and
 labor costs are low. The different regional cooperation frameworks available to these
countries enhance this potential even more. While more knowledge about the jatropha crop
is still needed, what is available suggests that earlier optimism is not misplaced. The plant
is hardy, is not a food crop, has useful by-products and has high labor requirements. Given
this a pro poor role for jatropha based biodiesel is clearly discernible in at least three levels:
employment and income generation, provision of fuel for decentralized power generating
systems and access to green fuel that can be used in a wide variety of rural environment
situations. Realization of the full potential of jatropha based biodiesel however requires
strong and explicit public sector policies throughout the value chain, particularly in the
creation of appropriate rural institutions, research and development and provision of credit.
Success in regional efforts to promote research, agree on biofuel standards and facilitate
cross border investment and trade including refined fuels, will further magnify the impact of
country level actions.

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