The Social Side of Biofuels in Brazil, India and Indonesia

By Mairon G. Bastos Lima, PhD candidate at the VU University Amsterdam, the Netherlands

One of the most widespread—and controversial—elements of the pursuit of green economy has been the adoption of biofuel policies to reduce reliance on fossil energy. Since the energy sector is the largest emitter of greenhouse gases that lead to climate change (IPCC 2007), a transition towards cleaner fuels has become imperative. Countries that are net oil-importers and/or have large agricultural sectors have seen this as an opportunity to improve energy self-reliance and create an additional market for agriculture, with a large and elastic demand. However, it is crucial to understand how this process can affect people, particularly more vulnerable groups. How are benefits and burdens across social groups changing? How is social equity affected? Can biofuels become an effective strategy to tackle rural poverty?

These social dimensions remain understudied amid a growing body of research on purely ecological or economic aspects of biofuels. Yet, the social pillar is of key importance to an energy transition towards a more socially inclusive and sustainable green economy (UNEP 2011). This research fills that gap through the examination of ambitious biofuel policies in Brazil, India and Indonesia. The findings are based on extensive field work in each of the three countries, including more than 100 interviews with key informants (such as government policy makers, business actors, non-governmental organization/NGOs, academics, farmers and grassroots organizations) and a review of policies and relevant literature related to each case. This piece gives a brief overview of those contexts before drawing some general lessons for socially oriented biofuel policies.

Brazil

Brazil has adopted a two-tiered strategy whereby it relies on its established sugarcane agroindustry to produce ethanol and also attempts to create biodiesel production chains that incorporate small-scale farmers. The government uses a portfolio of regulatory and economic incentives including tax breaks, credit from public banks and blending mandates for both ethanol and biodiesel. However, despite its success from both an economic and emissions-reduction standpoint, the social performance in the sugarcane-ethanol industry remains very limited. The sector builds upon a highly uneven allocation of benefits and burdens in a system of very concentrated land and production ownership. The sugarcane agribusiness captures all value addition, and the rural poor participate only in low-paid jobs, as seasonal cane-cutters working under harsh and insecure conditions.

A socially oriented biodiesel policy has tried to compensate for this by promoting the inclusion of smallholders through contract-farming schemes with biodiesel industries. However, initial lack of organizational capacity led to difficult relationships between these actors, and to poor representation of farmers’ interests at contract negotiations. In addition, the promotion of a non-edible crop (castor bean) proved to be a gamble with local food security. Low yields ended up compromising the economics of purchasing crops from smallholders, leading to smallholders being abandoned by companies. Smallholders’ dependence on a single buyer then meant they were left with seeds they could neither eat nor sell.

Only the mobilization of rural social movements and the government’s commitment to a social agenda forced a revision of the biodiesel policy. This included the creation of Petrobrás Biofuels, a new subsidiary of the Brazilian state-controlled oil company Petrobrás, which started offering higher quality seeds and improved assistance to smallholders. Policy changes further required the validation of farming contracts by a representative social movement and the promotion of mixed cultivation with food crops (instead of as fuel-crop monocultures) to safeguard local food security.

India
India has, to a large extent, followed the Brazilian model and attempted to build a biofuel sector based on its established sugarcane agroindustry and on the cultivation of non-edible oilseeds such as Jatropha curcas. The policy instruments used are also similar: blending mandates, regulatory and economic incentives to agroindustry, and the promotion of contract farming with smallholders. Unlike Brazil, India only uses sugarcane molasses (and not sugarcane juice) as an ethanol crop due to tight sugar supplies. The sugarcane sector also has a much larger participation of small-scale growers. However, the overall social performance is very similar: the industry benefits from governmental incentives and from an additional market and continues to capture all value-addition stages of production, while the conditions of small sugarcane growers remain basically unchanged.

The biodiesel policy, in contrast, does not build on an existing agricultural sector but rather aims to create new production chains based on Jatropha curcas cultivation, a non-edible crop that allegedly could grow well on what the government—and many companies and researchers—regard as “marginal lands”. However, it has become clear that even though those lands are not mainstreamed into industrial agriculture, this does not mean they have no use. Rather, they have proven to be essential for resource collection, grazing, energy and food security at the local level (Rajagopal 2008). The jatropha policy has therefore led to a widespread conflict of interests between the government, private companies and customary land users, with the latter often being more vulnerable due to unclear land ownership and lack of tenure security. Meanwhile, jatropha cultivation through contract farming on privately held lands in India has also proven unsuccessful, with low yields leading to economically unviable production chains and smallholders being abandoned, worse off than before.

Indonesia
Despite having a much smaller sugarcane sector, Indonesia has pursued more or less the same strategy as India and Brazil, by providing policy incentives for sugarcane-ethanol production from molasses and for biodiesel production from palm oil and jatropha. There have been a number of subsidies and regulatory modifications to stimulate both the expansion of sugarcane cultivation and the conversion of molasses into fuel. However, other ethanol markets (such as industrial and medical applications) remain more profitable than those for fuel, meaning that there is currently no fuel-ethanol being commercialized in Indonesia. Regardless, industrial plantation expansion—with its associated impacts on indigenous peoples and traditional livelihoods—remains partially driven by a biofuel rationale. This is illustrated by the government’s recent tendency to refer to such plantations as “food and energy estates”. Meanwhile, the only benefit offered to the rural poor in such enterprises is seasonal employment under health-degrading and disempowering conditions.

The cultivation of jatropha for biodiesel on supposedly unused lands has encountered the same problems as in India, including lack of agreement among different stakeholders and low yields, thus proving economically unattractive. As such, the Indonesian biodiesel industry has relied entirely on oil palm, a crop already well established and cultivated on a large scale in the country. The most common form of oil palm cultivation in Indonesia is through partnerships between private companies and smallholders. The government acts as a facilitator, issuing permits for a company to approach smallholders and negotiate land leasing, normally for the duration of 25 years (the average productive life of the oil palm plant). If an agreement on prices and terms is reached, then the company acquires the right to cultivate (usually) 70 per cent of that land, leaving the remainder to be cultivated by smallholders, who then become contracted suppliers. As an incentive, the government grants land titles to the smallholders, something which in most cases they did not have before. On the one hand, this system provides smallholders with a stable income. However, on the other hand, their bargaining power with the oil palm companies is often weak, and frequently the payment they receive for the land ceded is small. In addition, farmers tend to believe that the 70 per cent leased to the industry will return to them at the end of the contract, whereas in reality it becomes government property. As such, this production system ends up further concentrating ownership and control over resources instead of allocating them more equitably.

Limitations, risks and opportunities for social development through biofuel policy

The first important limitation seen in the examples above relates to the promise of rural development through the mere expansion of corporate-owned industrial plantations and the jobs they create. While employment is essential, one must also consider (i) the quality and work conditions of those jobs; (ii) the self-employment and traditional forms of subsistence that might be eliminated as plantations expand; and (iii) inherent limitations to creating structural change and reducing inequality. While jobs in biofuels production might indeed alleviate poverty temporarily, inequality structures are maintained—not only in terms of income, but also in land ownership, power, decisions and control over production. Similar structural limitations are present across contract farming schemes where private industries systematically retain control over most or all stages that add value and reduce smallholders to raw material suppliers.

There are also significant pitfalls around policies aimed at including the rural poor in biofuel production chains, particularly when using non-edible crops. The fact that in all three countries smallholders contracted to plant those crops were abandoned and left to bear the social and economic consequences should not be overlooked. From the start, the policy designs left smallholders more vulnerable to market fluctuations on a single cash crop that could not be used for food or fodder, and constrained by a single buyer that could respond negatively to such market volatility by either going bankrupt or moving away. It is thus essential for rural development policies to strengthen farmers’ resilience instead of undermining it.

Biofuel policies better tailored to the needs and interests of the rural poor can substantially improve those outcomes. Support for organizational capacity and the creation of farmer cooperatives; increased participation of social movements at contract negotiation to improve bargaining power; mixed production of biofuel and food crops (rather than fuel-crop monocultures); flexibility to adjust prices according to market signals—all of these policies can improve smallholder empowerment and food security and stabilize income generation. Finally, it is important that the poor can climb up the biofuel value chain and start to lift themselves out of a condition of raw material suppliers. In other words, some degree of locally owned rural industrialization seems necessary. This will require political will and additional technical support, financial resources and organizational capacity, but it seems to be the necessary step forward if rural development goals are to be taken seriously.

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