17 Economic Assessment

Implemented by:
Flemming Nielsen (FACT/Banana hill) (2009)

Main findings:
Based on the current evidence the minimum farm gate price that farmers will accept is 2 MZN/kg. Farmers can harvest 1-3 kg/h including decortication, or more than 5 kg/h excluding decortication. The value of one persons work range from to 22 to 240 MZN per eight-hour working day which compares favourably with salaries paid for manual labour. There is hardly any paid labour available in the area.

If Jatropha oil lamps are introduced they will have to compete with the LED lamps. Currently LED lamps are so cheap to purchase and run that Jatropha oil lamps are not competitive.


Background

The economics of the Jatropha value chain is uncertain. A rapid economic assessment was undertaken to determine the minimum farm gate price that farmers will accept. Comparing this value with other crops together with the labour requirements will indicate how competitive Jatropha is with other crops. The difference between the minimum farm gate price and the price of Jatropha oil alternatives determines margin that the oil factory has to work within.

It is also assessed if Jatropha is competitive as lamp oil.

Minimum Farm Gate Price

A main objective was to gain insights into the economics of Jatropha production for small scale farmers.

Two farm gate prices that are particularly interesting for the project are:

  • The minimum price at which significant expansion of Jatropha hedges will take place, i.e. the price at which farmers will shift resources from other crops to Jatropha production; and

  • The minimum price where farmers will Jatropha maintain production. Below this price farmers will switch to other crops.

Where nothing else is mentioned "farm gate prices" are implied.

In farming systems where farmers can shift their resources between various alternative cash crops these prices can be assessed relatively easy. However, in the Bilibiza project area it was found that there is very little in terms of cash economy.

Seasonality of Labour Demand
Most farmers tell that sesame is the only crop they can sell. This year they get 35 MZN/kg (0.97 EUR/kg) but that is unusally high and not likely to be reached again soon. In a group interview with 20+ farmers as well as individual interviews we probed "what will happen if the price for sesame drops to 20 MZN/kg". The answer was that it would not make any difference. They would continue to produce and sell the same amount. We next halved the suggested price and received the same answer again. Farmers insisted that even at 1 MZN/kg they would continue to produce as they presently do because they have no alternative and they need income to buy some necessities they can't produce themselves.

We probed for the response to increased prices on sesame and here the reaction was that production would continue as usual. Food crops for own consumption is the first priority and farmers are not tempted to change this even if cash crop prices increases.

That this is not just empty talk was illustrated by an incidence that took place during my stay at Bilibiza. Two farmers brought sacks of Jatropha to the project and asked for a price of 75 MZN/kg. They were offered 2 MZN/kg which they accepted. The project staff who offered the 2 MZN insist that the farmers would have accepted 1MZN/kg if he had offered that. Notice that this is not even farm gate prices as the farmers transported the seeds themselves.

Based on the current evidence the minimum farm gate price that farmers will accept is 2 MZN/kg or lower and the price elasticity of supply is very low.

During the period that farmers have been paid 5 MZN/kg by the project they have expanded the area under Jatropha. However, the expansion is likely driven to a large extent by the extension effort of the project and the attention the project gets from the presidents wife, ministers and other dignitaries. Under these circumstances it is not possible to assess the minimum farm gate price required for continuous expansion of Jatropha production under more normal circumstances.

Provided the high priority given to food production for own consumption any significant expansion of Jatropha production is likely to come through increasing the number of farmers cultivating Jatropha instead of increased Jatropha production by the farmers already producing. This is positive seen from a food security perspective. However, it will keep transport costs high as long as oil is processed at one central location and thus have negative impact on the carbon and energy balance of the project.

Labour use for harvesting Jatropha

The labour requirements for harvesting were measured and are reported elsewhere on this site. It was found that:

  • Farmers can harvest 1-3 kg/h including decortication

  • Farmers can harvest at least 5 kg/h excluding decortication

These figures are at the low end of figures from the literature. A reason may be that the hedges are young and have relatively few fruits and that the poor pruning practise makes it difficult to reach fruits on long branches.

Relative economic advantages to farmers

With the harvest tests it is possible to give some indication of how attractive Jatropha production is to farmers.

First of all the price of 5 MZN/kg that is currently paid to farmers is too high for oil extraction to be profitable. A price of 2.5 MZN/kg is considered realistic.

Using the figures from the harvest trials the income from eight hours of harvesting is 20 to 60 MZN/day.

Through interview with a number of farmers it was found that manual labour is paid 30 or 35 MZN/day depending on whether meals are included. Work agreements are often based on payment for a given task so a fast and strong person may earn 30 MZN for three hours work while others spend ten hours doing the same task. For calculations an eight hours working day is assumed.

If it is assumed that the only time farmers spend on Jatropha is for harvesting, it appears that Jatropha is on average a better income earner than employment.

To assume that only harvesting takes time is approximately true after the first year when the raising of seedlings and planting takes significant time. Apart from harvesting weeding and pruning is required for maintenance. Usually the Jatropha hedges are so dense after two years that they shade out most weeds so weeding is minimal. Pruning is quick and is done during the dry season when the labour demand is low so the opportunity cost is close to zero.

A comparison with the only cash crop in the area, namely sesame, would be interesting but no data are available. To collect useful data on sesame production data collection for one full season would be required. That is outside the scope and means of this project.

Another way to look at the economic benefits to the farmers is to assume the Jatropha oil is used locally and substitutes kerosene or diesel. Locally kerosene prices were found to vary from 22 MZN/l by the main tarmac road to 50 MZN/l at isolated areas.

For the calculations the following assumptions are made:

  • Jatropha oil is sold at the same price as kerosene and diesel;

  • A hand-press capable of 1 l/h is used;

  • 5 kg of seeds are required for 1 l oil because of the low efficiency of the hand-press;

  • seeds are picked at 1-3 kg/h

The value of one persons work will range from to 22 to 240 MZN per eight-hour working day. Again this compares favourably with salaries paid for manual labour.

Ideally the transport time for carrying the seeds to the press as well as the purchasing cost of the press should be included in the calculation. Data on transport time is not available and I am not aware of any data set they can be derived from.

Economics of Jatropha for lamps

It was found that the sale of kerosene is decreasing because farmers are switching from kerosene lamps to LED lamps.

The lamps are home made from cheap parts made in China and consist of a bright blue LED (10 MZN) connected to 3 size A batteries (5 MZN a piece). The total cost of the lamp is 25 MZN and it provides light for two month. Because the LED works till it is physically damaged and because batteries that have become too weak for use in radios are reused for LED lamps the real price is significantly lower. Farmers will continue to add an increasing number of weak batteries to maintain the voltage.

The LED lamps gives less light than kerosene lamps and are most popular with young people. Their use is increasing fast.

If Jatropha oil lamps are introduced they will have to compete with the LED lamps. The last mentioned provides light for around 0,1 MZN/h (assuming the long term cost is half of the price of a new lamp and lifetime of 120 hours). If one liter of Jatropha oil cost 20 MZN it has to give light for 200 hours (assuming zero cost of the lamp). With a kerosene price of 50 MZN/l one liter of Jatropha oil must give light for 500 hours. This is not likely to be achieved.

These figures are indicative only and do not take into account that the amount of light varies between the different technologies. However, they indicate that Jatropha oil lamps will have problems competing with LED lamps.

In Negue farmers make candles by stuffing bamboo sticks with Jatropha kernels. This may be the cheapest way to make light from Jatropha.


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