Biofuel Investment in Tanzania: Omissions in Implementation Correspondence Address: Nazia Habib-Mintz, St Edmund’s College, University of Cambridge, Cambridge, CB3 0BN, UK. Email: [email protected] Biofuel Investment in Tanzania: Omissions in Implementation 2 NAZIA HABIB-MINTZ Doctoral Candidate, Land Economy St. Edmund’s College. University of Cambridge CB3 0BN United Kingdom [email protected] Biofuel Investment in Tanzania: Omissions in Implementation 3 Abstract Increasing demand for biofuels as a component of climate change mitigation, energy security, and a fossil fuel alternative attracts investors to developing countries like Tanzania. Ample unused land is critical for first generation biofuels production and an important feature to attract foreign direct investments that can contribute toward agricultural modernization and poverty reduction initiatives. Despite the economic justifications, the existing institutional and infrastructural capacities dictate the impacts of biofuels market penetrations. Furthermore, exogenous factors like global recessionary pressure depressed oil prices below the level at which biofuel production were profitable in 2007, making Tanzania’s competitiveness and potential benefits questionable. This paper investigates the extent that first generation, jatropha-based biofuels industry development in Tanzania observed during fieldwork in Kisarawe and Bahi may fulfill policy objectives. This paper argues that without strong regulatory frameworks for land, investment management, and rural development, biofuel industrialization could further exacerbate poverty and food insecurity in Tanzania. The paper concludes with policy recommendations for first generation biofuel development while keeping in mind implications of second generation production. Since the topic is broad and multifaceted, a multidisciplinary approach is used that includes political, institutional, and agricultural economics to analyze and conceptualize biofuel industry development and food security. Keywords: Biofuels, Tanzania, Jatropha Biofuel Investment in Tanzania: Omissions in Implementation 4 1 Introduction The intensity of discussions that occupied the international policy space intensively in the run up to the Copenhagen conference clearly delineated the interplay between energy, economy, and climate change. According to the Intergovernmental Panel on Climate Change (IPCC)’s Fourth Assessment Report, limiting the rise of average global temperature to 2.0°C to 2.4°C requires stabilizing carbon dioxide concentrations at 445 ppm to 490 ppm by 2015 (IPCC 2007). About 77% of our energy is supplied by fossil fuel sources - oil, natural gas, and coal, which will grow in proportion (Goldemberg and Johansson 2004; Koh and Ghazoul 2008). The transportation sector, which contributes 21% of global greenhouse gas emissions, urgently needs an alternative for oil, as 99% of the sector’s energy consumption is in the form of fossil fuel, representing 30% of global energy consumption and 80% of fossil fuel consumption (EIA 2007; Rajagopal and Zilberman 2007). The recent IEA Global Energy Outlook, which considers the contemporary recessionary environment and environmental policies to cut emissions, projects strong growth for transportation oil demand from 85 million barrels a day in 2008 to 105 million barrels a day by 2030 (IEA 2009). First generation biofuel, which derives from plant matter and residues such as agricultural crops, municipal wastes, and agricultural and forestry by- products, are still the primary source for biofuels. The discourse on first generation biofuels is highlighted by the incomplete food versus fuel debate. Biofuel Investment in Tanzania: Omissions in Implementation 5 The global push to combat climate change puts emphasis on biofuels targets, such as EU and US blending targets, which are partially responsible for global food crop price rises (Banse and Grethe 2008; Elobeid and Hart 2007; ICRISAT 2007; OECD 2006; Segrant et al. 2008; Society 2008). While the debate continues, developing countries saw a market opportunity to utilize their comparative advantage of cheap land and labour to supply raw inputs to this fast growing industry. Three main benefits are envisaged: rural poverty alleviation through energy and income security, agricultural modernization by increasing productivity, and attracting foreign income. Biofuels industry development presents Tanzania with promises. On average, more than 200,000 people in Tanzania suffer from starvation each year (Tanzania Ministry of Agriculture 2006), making food security a major concern. 90% of food crops are rain fed, mainly cultivated by women with hand tools, with only one harvest a year. Although no national biofuels policy has been finalized, a biofuels industry development plan has been included in the Tanzanian Development Vision 2025, Tanzania’s National Strategy for Growth and Reduction of Poverty (MKUKUTA), and the National Energy. In October 2009 the government suspended all biofuel investments in the country and halted land allocations for biofuel development under growing pressure from non-state agents (Browne 2009; Tanzania Ministry of Agriculture 2009). This paper argues that Tanzanian underdevelopment is strongly associated with weak property rights, a misaligned decentralized governance system, and a weak infrastructural system that contributes to unplanned agro- Biofuel Investment in Tanzania: Omissions in Implementation 6 industrialization with disastrous results for the poor. The author conducted a fieldwork research project from October to December 2008 to examine jatropha as the major feedstock of the Tanzanian biodiesel production experience. There are several reasons for selecting jatropha. First, studies suggest that biodiesel is more practical than bioethanol development since first generation biodiesel is more cost competitive and will likely dominate market development in the medium term (de Wit et al. In Press; IEA 2009; OECD 2008). Lamers et al. suggest that in the short and medium terms, biodiesel will grow in the internal market, while bioethanol production is facing oppositions from the major producers (2008). Second, biodiesel is gaining attention for its lower emissions, which may play a role in climate change mitigation (EUActiv 2009; Wiesenthal et al. 2009). Third, non-edible biodiesel feedstock crops like jatropha are gaining popularity since it is not a food crop. Jatropha is also suitable for arid and semi-arid land, which is plentiful in Tanzania. Fourth, in the US and EU biodiesel subsidies are being slashed and facing threats of moratoriums, which indicate greater opportunities for biodiesel crop exports from developing countries like jatropha (Beattie 2008; Rainer 2006; van Eijck and Romijn 2008). Finally, 64% of biofuels investment in Tanzania is for jatropha with a significant amount of applications due to be processed at the Tanzania Investment Centre (TIC). Although the government plans to produce biofuels for national usage, until the country sets up national targets and a grid feed-in system, producing companies are focusing on exports. Biofuel Investment in Tanzania: Omissions in Implementation 7 The remainder of the paper is organized as follows. Section 2 discusses the methodology of the research while section 3 applies it to the poverty and food security situations in Tanzania. Section 4 presents a case study of the two districts examined in this study, Kisarawe and Bahi. Section 5 then discusses two biofuel companies operating in the districts, Sun Biofuels and East Africa BioDiesel, respectively. Finally, section 6 concludes the paper. 2 Institutional Feasibility Framework and Case Study Selection Tanzanian farmers involved in biofuels crop production are deeply embedded in chronic, persistent poverty (Bryceson 1993a; Ellis and Mdoe 2003). To analyze the complexity within which this biofuels sector operates in Tanzania, both qualitative and quantitative analytical approaches are used. This paper draws descriptive and explanatory dimensions from the conceptual frameworks of political economics, institutional economics, and global governance literature. North’s definition of institutions encompasses formal and informal, act as a set of rules that constrain human agency, and argues for the establishment of institutional arrangements to monitor, enforce, and correct rules (North 1990). Institutional theory is further elaborated by Gibson, Williams, and Ostrom, who argue based on their empirical studies that to protect vulnerability of the rural poor, rural areas of low-income countries should empower communities to play a strong role in setting and enforcing rules (Agrawal and Gibson 1999; Ostrom 1990). Biofuel Investment in Tanzania: Omissions in Implementation 8 Along similar lines, governance literature focuses on the coordination and control mechanisms of both formal and informal institutions that dictates the acceptable standards of socio-economic and environmental development endeavours (e.g. labour rights, contract clauses) (Dietz et al. 2003). The governance theme is linked with transaction costs, which is used here to explain the historical legacy of food insecurity and previous failed cash crop commercialization, like cashew nuts, in the country (Ensminger 1992). This theory underlines how the decentralized governance system affects the local population in Tanzania, which was implemented during its last structural adjustment programme. (Dietz et al. 2003) make the case for ‘‘complex, redundant and layered