Agri09 Day IV-Workshop IV-Andre Makenete-SA Biofuels Association


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Agri09 Day IV-Workshop IV-Andre Makenete-SA Biofuels Association

  1. 1. Bioenergy: Enhancing agriculturalproduction & South African FoodSecurityPresentation to the EMRC AfricaAgribusiness Forum17 June 2009Andrew Makenete
  2. 2. THE GREEN OPEC: Southern Africa – World’s Highest Biomass Potential Africa – The “Green OPEC”• Sub-Saharan Africa – highest potential – Maximum 410 exajoules – Abundant land and labour• “Biofuels will benefit the poor” – Jacques Diouf – Emphasis on negative aspects obscures potential to reduce poverty in Africa – Currently US & EU leading producers and consumers, but inefficient producers – Production must shift to poor countries - Land, climate, ecosystems, labour – Need international bio-energy framework to shift biofuel production to S hemisphere - EU & US to lower tariff barriers• Important synergies – Poverty alleviation, rural development – Energy security – esp in rural areas• Pan-African Non-Petroleum Producers Association – Formed in 2006: 12 African countries – Aim to develop boost African biofuels industry University of Utrecht Absa Agribusiness 2
  3. 3. Contents • Agri facts • Explaining these facts • Understanding the challenges • The key drivers • Exploring the opportunities (Why Bioenergy works for agricultural development and Food Security in SA) Absa Agribusiness 3
  4. 4. Agri facts 60,000 commercial “white” farmers down to 40,000 in 15 years Over 450,000 subsistence / emerging farmers supplying less than 5% of the market (number largely stagnant over past 15 years) 0ver 700,000 jobs in agriculture lost since 1990 1,0 million ha of land released from production bringing total land under (un) utilised to over 3,5 million ha – primarily dryland and most in homelands SA GDP spend on agriculture and land reform declined to less than 4% of total spend (less than 10% as agreed by AU) 45% of SA population remains in rural areas Absa Agribusiness 4
  5. 5. Explaining these facts 1. 60,000 commercial “white” farmers down to 40,000 in 15 years SA agriculture – consolidating. Farms sizes getting larger, economies of scale forcing out the weak and poor.  Effects of market liberalisation and deregulation  Removal of all supports (price, marketing etc)  Lack of public and private sector investments in agriculture  Years of low and unpredictable returns from agriculture  General lack of competitiveness of SA agricultural exports with caps on local production (complicated by lots of issues e.g. international subsidies, poor local infrastructure making transactions costs prohibitive etc)  Relatively small local markets (limitations of size) for SA agri commodities (making SA farming / farmers extremely competitive and cost conscious) Absa Agribusiness 5
  6. 6. Explaining these facts 2. 450,000 subsistence / emerging farmers  Very little progress made in integrating these farmers  Lack of resources and supports (government and private sector withdrawn e.g. extension services)  Land ownership and land settlements issues (very complex and discourage activity from financiers and other agents)  No market access and compete with very successful competitive commercial sector – largely supplying the market (infrastructure poor, market information etc etc – therefore cannot compete on price, quality, volumes etc etc)  Poor infrastructure, information and access to supply chains Absa Agribusiness 6
  7. 7. Explaining these facts 3 & 4. 700,000 jobs in agriculture lost since 1990 & 1,0 million ha of land released (Agriculture labour shedding not labour absorbing!!!!! Also releasing key factor of production land – leading 2 surplus productive capacity)  Significant productivity gains (SA yields increased from 3t /ha to over 4.2t/ha)  Labour laws and policies ( Increased costs of hiring)  Land policies (Extension of tenure of security)  Significant technology adoption  move away from intensive labour practices to mechanization  No incentives for agricultural production (but plenty of disincentives)  Marginal or unproductive land put out of production  Changes in agricultural practices (Wildlife / eco-tourism away from livestock and grain production)  SA imports of agricultural goods / commodities increased significantly and balance of trade actually negative for a while 2007/8 (strong rand, cheap subsidized international goods etc Absa Agribusiness 7
  8. 8. Explaining these facts5&6. GDP spend below critical 10% level and rural population under servicedPrevious government policy Agriculture and Rural development not a priorityNo focussed strategy for agricultural / rural development (not a growth area under RDP or GEAR – labour, capital would be absorbed by other industries and sectors. SA would industrialise rapidly)Legacy issues not settled (SA commercial agriculture viewed with hostility & suspicion)Land reform a political / social issue not an economic considerationFood security to be achieved through market reforms (open markets – 2 many assumptions, e.g. world remain in surplus state, free trade environment) Absa Agribusiness 8
  9. 9. Understanding the challenges Tacit acknowledgment by government of failure of industrial / economic policy of past 10 – 15 years No jobs (26 – 30% unemployment mostly in rural areas) Food (in) security issues (misunderstood) – high food prices threatened political / social fabric The Result: New focus areas of new ANC government with Rural development and food security 1 of 5 key focus areas Agricultural Response: How does agricultural sector turn itself around to absorb labour i.e. create jobs, ensure rural development, and enhance food security? Absa Agribusiness 9
  10. 10. Increasing Agricultural Production The key in South Africa is about sustainable and increased agricultural production: • Market development (How does policy allow for enhancing the market for south African producers) – Increase size of market (remove producer caps imposed by limited market opportunity – 9,0 million tons of maize, 1 million tons of sugar, not biomass market for IPP to feed into electricity and power market) – We urgently need to reconsider our market channels and market infrastructure – What is the role of government in market development, particularly in opening up international / export markets • Reducing the costs of doing business – Finance costs – Infrastructure – Input supply – R&D – Information and market analysis – Policy reforms Absa Agribusiness 10
  11. 11. Bioenergy as key to increasing agricultural production 1. Bioethanol: • At 375 000 tons per ethanol plant, total of 2,625 million tons grains required (maize/ sweet sorghum) • At 3,5 tons/ha mean yield, 750 000 ha of grains only would go to ethanol production (this is very realistic figure that does not take into account potential for new areas such as Eastern Cape and Limpopo) • Additional 750,000 ha would create 75,000 direct jobs and over 20,000 indirect jobs • 7 plants provide sufficient ethanol for a possible E10 blend (1 billion liters) – save country $1- 2 billion in forex savings per year. 2. Biodiesel • Capacity to produce B5 (500 m / l) from a mixture of small, medium and large plants • Utilize 750,000 ha of land as well of mainly oil seeds • Reduce imports of diesel and also oilcake (SA imports 600,000 tons already) 3. Bioenergy can produce over 1,000 MW of renewable power (meeting the 5% White Paper Targets within 5 years – bagasse from sugar, wood pellets, other biomass sources). Faster and clearer than Eskom strategy. Also costs differential fast disappearing. Biofuels is a stimulus for investments in agriculture – more than just about any other industrial projects since it integrates the whole supply chain. Absa Agribusiness 11
  12. 12. Bioenergy key to providing jobs Stats: SA 90% dry land; Agriculture has biggest downstream multiplier effects; 1 job created for 10 ha of land 3,0 million ha available - Therefore capacity for 300, 000 direct jobs and over 600, 000 indirect & downstream 1 job supports 5 per household To create 1 job in agriculture costs: R50,000 vs. R500,000 / industrial job 1. Bioethanol • Additional 750,000 ha would create 75,000 direct jobs and over 150,000 indirect jobs • 2. Biodiesel • Additional 750,000 ha would create 75,000 direct jobs and over 150,000 indirect jobs 3. Bioenergy New biomass projects in forestry, wild grasses etc. Reduced need for burning of sugar cane, utilize grass cuttings etc etc. Absa Agribusiness 12
  13. 13. CRITICAL FACTORS – Impact for Rural Development Small-scale farmers – a competitive Small-scale farmers – a competitive advantage advantage • Energy crops can help turn marginalised • Marginalised farmers brought into a stable farmers into commercial producers supply chain, allowing „cooperative-type‟ forms of organisation and capital investment – High volumes, relatively low risks, liquid markets – Decreased capital expenditure per farmer – Long production history – Negotiating power as a purchaser and supplier – Can be stored and transported cost effectively – no requirement for cold chain • Enlarging the agri „pie‟ does not displace maintenance etc. current farmers – Allow for large-scale regional production • Stable offtake in the fuel industry facilitates risk- • Biofuel projects can act as anchor projects mitigated projects at supply level: for rural development – Finance for the un-banked – Create a stable, bankable base of emerging – Allows economic actors to plan and invest in farmers support services and infrastructure – Can be rotated with higher value cash crops – Improves agro-processing sector risk profile and other biofuel crops through offtake in the separate fuel market – The livestock industry may benefit from increased animal feed supply • Eg. Batswa ko Pele Project (North West), Drydon (Mpumalanga) – Magnet for investments since its brings together integration of value chains Anticipated investments in Bioenergy could top R15,0bn primarily into rural areas. Absa Agribusiness 13
  14. 14. CRITICAL FACTORS – Food versus Fuel Debate – South Africa • Access to and availability of food , not production (availability) the problem – SA food secure for over 20 years - Excess production in staple products a common feature – 14 m people, 43% households food insecure - But localised in homeland areas, informal settlements and townships (affordability the issue) – FAO Study: “cash-in-hand” more important for food security “The Cheapest Food is expensive if the people do not have money” L Botha 2009 • Severe market inefficiencies – Competition Commission investigation in high bread and milk prices due to collusion among big business – Spaza shops in poor areas charge higher prices in fact poor areas suffer from higher prices generally – NAMC: wheat, maize (commodity) farmgate prices divorced from retail prices – farmers get less than 30% of the total returns from agriculture • Emerging farmers need better support – New farmers deprived of the pre-1994 support – Government capacity constraints - Lack of extension services - Severe underspending on CASP & MAFISA grants - Partnerships with private sector needed - R&D investments very low Absa Agribusiness 14
  15. 15. Maize consumption and exports Total consumption Human consumption Total exports Linear (Total consumption) Linear (Human consumption) Linear (Total exports) 8000 7000 6000Metric tonnes X1000 5000 4000 3000 2000 1000 0 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 /7 /7 /7 /7 /7 /8 /8 /8 /8 /8 /9 /9 /9 /9 /9 /0 /0 /0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 Marketing years Absa Agribusiness 15
  16. 16. BIOFUELS TO BRING ABOUT AN AGRICULTURAL RENAISSANCE – FAO •Focus on the negative aspects, such as sharply increased food prices and erosion of biodiversity, obscures the sector’s huge potential to reduce hunger and poverty •Bioenergy provides us with a historic chance to fast-forward growth in the world’s poorest countries, to bring about an agricultural renaissance and supply modern energy to a third of the world’s population Jacques Diouf DG: UN Food and Agriculture Organisation Financial Times, 15 August 2007 Absa Agribusiness 16