1 Discovering new oil fields Small-scale local biofuel production and use in rural Honduras Results and lessons from the Gota Verde project in Honduras (2007-2009) Peter Moers Social Trade Organisation Coordinator Gota Verde project Tegucigalpa, Honduras March 2010
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1
Discovering
new oil fields
Small-scale local biofuel production and use in rural Honduras
Results and lessons from the Gota Verde project in Honduras (2007-2009)
1. Introduction ...................................................................................................................... 4 2. Background ...................................................................................................................... 6 2.1. History ........................................................................................................................... 6 2.2. The Yoro region .......................................................................................................... 6 2.3. Biofuel in Honduras .................................................................................................... 8 3. Project description........................................................................................................... 9 3.1. Objectives .................................................................................................................... 9 3.2. Strategy ........................................................................................................................ 9 3.3. Components .............................................................................................................. 11 3.4. Organization .............................................................................................................. 13 4. Main results .................................................................................................................... 15 4.1. Oil crop area planted: 599 ha .................................................................................. 15 4.2. Testing agricultural practices of Jatropha ............................................................. 16 4.3. Loans valued at 112 500 Euro issued to 416 farmers ........................................ 19 4.4. FUNDER establishes the regional Biofuel Centre “Gota Verde” ....................... 19 4.5. Low-tech biofuel processing equipments designed, built and tested ............... 20 4.6. Creation of the local, farmer-owned biofuel company BYSA ............................. 21 4.7. Six diesel engines adapted ..................................................................................... 22 4.8. Local currency system operational ........................................................................ 23 5. Main obstacles encountered and measures taken .................................................. 25 5.1. Dramatic fall of oil prices during second half of 2008 ......................................... 25 5.2. Strong increase of Crude Palm Oil prices ............................................................. 28 5.3. Low Jatropha yields .................................................................................................. 29 5.4. Adverse weather conditions .................................................................................... 29 5.5. Difficulties in the cultivation and processing of castor bean ............................... 30 5.6. Investment Fund for farmers exhausted in 2008 ................................................. 32 5.7. Underperformance of small farmers ...................................................................... 33 5.8. Political instability in Honduras ............................................................................... 35 6. Lessons learnt ............................................................................................................... 37 6.1. Jatropha projects require long term commitment ................................................ 37 6.2. Small farmers need short term incentives............................................................. 37 6.3. Visits from technical advisors are major motivation factor for small farmers .. 38 6.4. Jatropha promotion projects need substantial investment funds ...................... 38 6.5. Local building of equipment requires a pre-existing technical capacity ........... 38 6.6. Small-scale biofuel enterprises need to prepare for price volatility ................... 40 6.7. Biofuel may actually improve food supply ............................................................. 41 7. Conclusions .................................................................................................................... 42 7.1. About the economic feasibility ................................................................................ 42 7.2. About the technical feasibility .................................................................................. 43 7.3. About the feasibility of local marketing .................................................................. 43 7.4. Pure Plant oil (PPO) versus biodiesel ................................................................... 45
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1. Introduction
The development of the fossil oil sector in the 20th century made available
massive volumes of energy at low prices. The parts of the world that were
technologically equipped to take advantage of this cheap energy have experienced
an unprecedented increase in productivity and living standards. Oil producing
countries have seen even stronger wealth increases.
But the age of cheap oil is nearing its end. Many economists predict oil prices to
increase drastically in the next decade, due to a stagnating production, higher
production costs of the remaining oil fields and an ever-growing oil demand,
especially from China1.
The upcoming era of high energy prices may give rise to the largest
redistribution of wealth in the history of mankind. Especially tropical countries with
large areas of un(der)used arable land available can improve their competitiveness
as a result of higher energy prices. The question if small farmers can benefit
significantly from this new situation, has been central in the Gota verde project in
Honduras.
The Gota Verde initiative is in several aspects different from many of the other
biofuel initiatives that have risen during the past years:
Its products cannot be found in the ports of Rotterdam and Miami, but in the
irrigation pumps, tractors, agro-industrial equipment and vehicles used
locally in Yoro, Honduras.
Its feedstock does not come from huge monoculture plantations, but from
hundreds of small plantations and living fences, managed by small and
medium-sized farmers and their families.
The owners of the processing enterprise are not anonymous overseas
shareholders, but the very local farmers that cultivate their lands.
The objective of the Gota Verde project is to demonstrate that biofuel
production on a small scale for local use is an economically and technically
feasible activity. The project has built an important local capacity, that is unique in
1 Demand in Asia is rising at a rate of 2 million barrels a day. Source: http://www.jodidata.org/.
back into Lempiras10. FUCOHSO11 converts Lempiras into Peces to purchase
construction materials at a local hardware store who gives special discounts when
receiving payments in Peces. FUCOSAO also plans to introduce Peces into the
local loan and saving schemes (Cajas Rurales) they support. Finally, BYSA’s
(farmer) shareholders, receive loans from FUNDER which are converted partially
into Peces, for purchases of agricultural inputs.
(Left) Sample of a 1 Pez voucher. (Right) One of the 26 enterprises that accepts Peces.
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Only two enterprises, both grocery stores, are allowed to convert Peces to Lempiras. It is expected that in the future, as biofuel production increases, more Peces will be redeemed into biofuel and less into Lempiras.
11 FUCOSOH is a local non-profit organization that introduces sustainable organic farming techniques
into farming communities in the region.
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5. Main obstacles encountered and measures taken
5.1. Dramatic fall of oil prices during second half of 2008
The year 2008 has been one of the most turbulent years of modern economic
history. The worst financial and economic crisis since the 1930s has affected the
project’s results in several ways. The graph below depicts crude oil (petroleum)
prices between 2005 to 2009, with the green bar indicating the period of
conception and design of the project and the red line the period of project
implementation. World market oil price fell from an all-time high of 147 USD per
barrel in July 2008 to less than 40 USD in December 2008, the lowest level in 3
years. At that moment, production costs of biodiesel became higher than pump
prices. The project Gota Verde was not the only victim: virtually all biodiesel
producers in Honduras stopped producing. In 2009, oil prices started climbing
again.
Graph. Crude oil (petroleum), price development 2005-2009, in USD per barrel.
The scheme below gives an impression of possible future extensions of the
jatropha biofuel production chain and its integration with other production chains, in
order to increase the added value throughout the production chain. Preparations
have advanced to add a biogas and cattle fodder component in 2010. A biogas-fed
grain drying installation may follow in 2011.
Note: The graph gives an overview of the different possibilities to extend the jatropha biofuel chain. The
easiest way to read the figure to start with the basic jatropha biofuel chain (in green), followed by an expansion with a biodiesel processor (in yellow), an expansion with edible oil crops and cattle fodder (in orange), the expansion with a biogas installation (in blue), and finally the addition of a grain drying installation (in black). Obviously, the expansion process can follow another order and can only include a few of the expansions mentioned here.
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5.2. Strong increase of Crude Palm Oil prices
Crude Palm Oil (CPO) was identified during the preparation stage of the Project
as a viable alternative to start biodiesel production. Since Honduras is largest palm
oil exporter of Central America, sufficient supply was expected to be found locally.
Graph 4. depicts the CPO price development from 2005 to 2009, with the green
and red bar indicating again the planning phase and the implementation phase of
the Project. CPO prices rarely rose above 500 USD/MT during the past 25 years.
However, driven by fossil fuel prices, the booming biofuel market and speculation,
CPO prices almost tripled in 2007-2008. In the second half of 2008, in response to
the worldwide recession outbreak, prices fell back again. In 2009, prices started
climbing again to historically very high levels.
Graph: Crude palm Oil (CPO) price development 2005-2009, in USD per MT
During the design of the project, the Jatropha yields during the first years were
expected to be several hundreds of kg of dry seed during per hectare during the
first two years and more than 1 MT per ha in year 3. In practice one can observe
great differences in yields of plantations with the same age, but even the highest
yield (400 kg/ha in year 3) is not near the original expectations.
Table . Jatropha production and yields per ha (in kg of dry seeds) in 2009
Source: Own data Gota Verde.
It has to be observed that 2009 was an exceptionally dry year due to the “El
Niño” phenomenon. This clearly affected the yields: several plantations had even
lower yields in 2009 than in 2008. Nonetheless, yields are disappointing. Gota
Verde is not unique in experiencing low yields. Worldwide the Jatropha has lost its
“wonder plant” image and investors are increasingly cautious. The hypothesis that
Jatropha can be cultivated commercially on marginal lands (that are not apt for
agriculture) has not been validated in any part of the world so far. It becomes more
and more clear that commercially interesting yields can only be obtained by
providing the plant with an optimal combination of nutrients and water. This
requires higher investments than assumed until now. Seed improvement programs
are needed to increase yields and investigation in cultivation practices to determine
optimum investment packages for farmers. Comparative studies with other biofuel
crops under the same circumstances are also important. In the meanwhile BYSA
will have to diversify its income sources to reduce risks.
5.4. Adverse weather conditions
In October 2008, the north and east of Honduras was hit by Tropical Storm #16.
Although the phenomenon never reached the strength of hurricane, it was by many
farmers considered as the worst natural disaster since Hurricane Mitch struck
Honduras in 1998. More than 600 mm of rain fell over a period of 12 days causing
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flooding of rivers, landslides and turning many agricultural lands in impenetrable
swamps for almost two weeks. Statistics indicate that more than 40.000 people
were displaced and more than 72.000 ha of agricultural land (almost 10% of all
land under cultivation in Honduras) was affected. Total losses are valued at 154
mln USD. Almost the entire intervention area of Gota Verde (in the red circle) was
affected.
Graph. Areas affected by Tropical Storm #16
Graph source: UN World Food Programme (WFP), affected areas in pink, red circle indicates project area.
(Left): inaccessible road after heavy rainfall.
The project lost 25 ha of oil crops (about 7% of the total area planted with Gota
Verde support): 12 ha of jatropha, 5 ha of castor bean and 8 ha of sesame. The
investments lost in these 25 ha amount to approximately 9 250 USD, of which
three-quarters were contributed by the Gota Verde Investment Fund (which will
absorb these losses) and the rest by farmers. Given the dimension of the
phenomenon, the 7% loss is relatively small in comparison with the average loss of
crops in the region.
An analysis of the causes of the losses has led to more strict selection criteria
for both the location of the plantations and for the period of establishing the
plantations (per crop).
5.5. Difficulties in the cultivation and processing of castor bean
In order to increase the amount of oil available for processing in the short run,
in the beginning of 2008 it was decided to substitute part of the jatropha investment
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plans for castor bean. Its fast growth (4-5 months until harvest) and its wide use as
a biodiesel feedstock in Brazil were considered the main benefits of this crop. The
first trials with oil extraction gave good results. This would become the first
commercial castor bean effort registered in Honduras.
The castor bean trial has produced mixed results: farmers that cultivated the
crop in the valley had disappointing yields. The time of sowing proved to be poorly
chosen: in the beginning rather than in the second half of the rainy season. Of the
107 ha of castor planted in 2008, 47 ha was lost due to the “Tropical storm #16”
(see 5.4), a long drought spell in August and river floodings in November of the
same year. Moreover, the quality of the seeds purchased appeared to be poor,
resulting in low germination percentages. Thanks to a training organized in
September 2008 by experts from El Salvador, the capacity of the project and of
BYSA in the area of castor bean cultivation was improved. However, for many
plantations this was too late: in total only 4 MT of seed was collected in 2008.
Farmers had become disappointed by the crop and most of them eliminated the
crop after the 2008 trial (although it can produce for a second year).
On the other hand, coffee farmers that planted castor bean as a shadow plant
generally showed satisfaction with the crop, although at the moment of harvest,
only a minor part of the production was actually recollected due to organisational
problems. IHCAFE, the Honduran coffee institute, supervised the trials of 100 ha of
new coffee plantations with castor as a shadow plant and has shown interest to
expand the experience in the coming years, paying more attention to the
recollection process.
(Left) Salvadorean expert César Urbina in a castor bean training session in Yoro.
(Right) Use of castor bean as a shadow plant among coffee farmers.
Also the processing of castor beans proved to be more difficult than expected:
the extraction result is highly dependent on the temperature of the seeds at the
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moment of extraction. Also the separation of the thick castor oil from the sediments
proved to be a major challenge. In the course of 2009, the castor oil pressing
process was improved14 and several successful extraction press trials were carried
out. Also a successful trial was carried out using castor oil as a lubricant in a two-
stroke engine (a grass-cutter). More and longer tests are necessary, but this
application looks promising for small-scale, local use.
(Left) testing grass cutter powered by a two-stroke engine, using castor oil as a lubricant.
(Right) Castor oil extraction trial in Ocotepeque.
Castor remains on the Project’s agenda due to its important industrial potential,
its adaptability to different micro climates and because it fits well in the biofuel
chain. However, in 2009 castor was maintained only as an experimental crop. No
commercial upscaling is planned until good yields, full domination of the extraction
process and successful local applications have been achieved.
5.6. Investment Fund for farmers exhausted in 2008
When the project was designed, it was anticipated that the yields of the existing
(2006) jatropha plantations would be sufficient to revolve part of the investments
from 2008 onwards. This revolved part of the investment fund, together with a
growing willingness of financial institutions to invest in the crop, was expected to be
sufficient to plant 250 ha in 2009. However, jatropha harvests in 2008 were
minimal: only sufficient for certain extraction experiments. Moreover, the low oil
prices in combination with the financial crisis made that financial institutions were
(and still are) very reluctant to invest in crops that do not have a proven track-
record.
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Mainly by preheating the castor beans and the press before starting castor oil extraction.
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Given this situation, it was decided to suspend further establishment of
Jatropha plantations in 2009, unless fresh funds would be raised or third
organisations would be willing to invest in new crop areas. The little funds that
remain in the investment fund would be used exclusively to maintain the areas
established in previous years, especially those areas that are in good or regular
conditions.
Fortunately, in 2009 the strategy of involving third organisations bore fruits: two
institutions showed serious interest in the project’s objectives: TechnoServe and
Fundación Cosecha Sostenible (FUCOHSO). With the support of TechnoServe
and 91 ha of jatropha and intercrops was established in 2009. FUCOSOH financed
intercrops and gave technical assistance to 23 ha (33 small farmers). BYSA took
care of the processing and marketing of a large part of the products.
Finally, FUNDER was successful in its negotiation with the Ministry of
Agriculture to obtain of finance for corn and beans (as a Jatropha intercrop) for
small farmers.
5.7. Underperformance of small farmers
The introduction of a new crop requires fine-tuned promotion strategies. More
so, if it takes several years before the plants become productive and the final target
group consists of small farmers. Farmers that participate in the Gota verde project
cover all socio-economic pyramid: from large, well-off cattle farmers to small
subsistence farmers that still live largely outside the money economy. The weight
of the participating farmers is on the lower end of this pyramid. A study carried out
by the University of Zamorano15 shows that the smallest (often subsistence)
farmers tend to have the worst jatropha plantations. Various factors explain this
tendency:
the quality of their lands
their short-term needs make that they tend to neglect long-term investments
(“short horizon”)16
15 Samuel Oblitas: “Factores socio económicos que influyen en los productores de piñón al momento de
desarrollar el cultivo de jatropha” (Zamorano, 2009). See: http://www.gotaverde.org/userfiles/file/D53l - Estudio Samuel Oblitas_ES.pdf
16 Gota Verde (as many other Jatropha projects with so-called “outgrowers”) has experienced that
farmers tend to neglect their Jatropha plantations soon after they are established, because it takes 3 years before the plantations generate their first significant harvest and 5 years to reach full production. Given the
their lack of resources to maintain the plantations without external support17
their need for intensive technical assistance to keep motivated
Especially this last factor appears to be important. Subsistence farmers that
have received additional attention performed actually much better than medium
and larger farmers that received the same amount of attention. However, since the
technical advisors have to attend up to 80 farmers, additional attention for small
farmers is difficult to realise: technical advisors have targets formulated both in
number of ha to be established and number of farmers to be attended. Possible
solutions to improve the performance of small farmers are:
Contract para-technicians (good performing farmers that are compensated for
assisting other farmers in their area);
Offer the sowing of intercrops between the jatropha rows;
Reduce the targets for technical advisors in terms of area and increase target in
terms of number of small farmers, so technical advisors can give more attention
to small farmers;
Increase coordination with other institutions that give technical assistance or
credit to the same farmers;
Offer a complete support package (agricultural inputs, mechanisations, credit if
necessary) from the establishment of the plantation until it reaches maturity;
Organize exchanges between farmers;
Stimulate the sense of ownership of farmers of their processing enterprise, by
organizing meetings, visits to the processing plant, etc.
All of these measures have been applied in the Gota Verde project, especially
during the last year (2009), with a clear improvement in the results. It is clear that
these measures increase the costs of a Jatropha promotion project, but at the
same time they increase the project’s impact on poverty alleviation.
immediate needs of most small farmers, they give prefer to attend their short-cycle crops (mainly corn and beans) and neglect the jatropha plantations, especially the weeding. This negatively affects the development of the Jatropha plants that have to compete for sun and nutrients with the weeds.
17 Many medium and larger farmers can use resources that are already available for other crops, in the
jatropha cultivation, e.g. irrigation pumps, tractor, transport, contracted labour.
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Jatropha intercropping with corn and tomato
In March 2009 a survey was held by the project’s agronomists to determine the
quality of the plantations still existing at that moment. Main objective of the
exercise was to define a strategy on how to distribute the technical assistance
efforts to the different areas. The results show that an important proportion of the
area (more than a quarter) is in a (fairly) bad shape. The attention was focused on
the regular and recoverable bad plantations, to upgrade them to a higher category.
The exercise will be repeated each year in April to determine the progress.
Table. State of Jatropha plantations, per geographical sector, in ha, March 2009, Gota Verde
Sector Good Fairly good Regular Fairly bad Bad Total
1 29 20 28 30 18 124
2 20 33 14 67
3 26 12 23 4 4 69
Total 75 32 84 34 36 261
Source: Own data Gota Verde.
Farmers that did receive support for intercrops perform significantly better than
farmers that did not. An important lesson to be drawn from this experience is that
when planning a jatropha project with small farmers, it is important to budget not
only the establishment of the jatropha plantations, but also the intercrops and the
maintenance of the plantations during at least the first 4 years. A challenge will be
to select farmers that are really interested in jatropha and not merely in the credit
for the intercrop.
5.8. Political instability in Honduras
On June 28, 2009, Honduras’ President Zelaya was sent into exile by the
military after several months of confrontation between the President, Parliament
and the Supreme Court about the constitutionality of holding a referendum on a
change in the constitution. This action caused worldwide indignation, international
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political isolation of the Honduran government and civil unrest in many parts of the
country. In an effort to control the unrest, the interim government installed curfews
at night and initially even during the day. Demonstrations of both supporters and
opponents of the ousted president blocked roads, causing severe travel limitations
during various months. Government also closed several times the international
airports, limiting international travel options. Many countries advised their citizens
to avoid traveling to Honduras. Some of the activities involving European
participants, had to be cancelled for this reason.
The operational work within in Yoro did not suffer greatly, because the turmoil
became more and more concentrated in the capital Tegucigalpa and the curfews
were not applied strictly in the rural area of Yoro.
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6. Lessons learnt
The Gota Verde project has been one of the most comprehensive experiences
worldwide in testing and analyzing what works and what does not, when promoting
biofuel crops (and especially jatropha) among small farmers. In this section, the
main insights of the past 4 years will be summarized.
In addition to these general lessons, the Project has produced a wealth of
knowledge in the technical area (agricultural, biofuel processing, engine
adaptation). This knowledge has been integrated in the various manuals that can
be found on the website18.
6.1. Jatropha projects require long term commitment
The main lesson of the Project is that the creation of a fully sustainable biofuel
chain, based (mainly) on Jatropha, takes at least 5 to 6 years. Main reason is the
low productivity of Jatropha during its first years. Other reasons are the time
needed to train local technicians (agronomists, car mechanics, processing
personnel) and to convince potential clients of the safety of the biofuels. It is
possible that in the future, when improved Jatropha cultivars are developed and
biofuels become more mainstream, this time span can be shortened. Organizations
that promote Jatropha projects should be aware of this long term commitment.
6.2. Small farmers need short term incentives
It is not realistic to expect that small farmers maintain their plantations without
further support. The long time required until the plantations are productive (4-5
years), the uncertainty about future yields, in combination with the often urgent
immediate needs at the household level, make that farmers prefer focusing their
attention to short-cycle crops, like corn, beans or vegetables. Farmers need
additional, short-term incentives to maintain their plantations. Providing support for
the establishment of short-cycle intercrops (preferably oil crops) has proven to be a
good strategy: farmers maintain and fertilize the areas between the Jatropha rows