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‘Biofuel pricing has to be linked to fossil fuels’
Added 520 days ago - INDIA: The Union Cabinet recently approved the national biofuel policy to encourage production of petrol and diesel by cultivating plants. The policy aims to replace 20% of diesel used in the country with bio-diesel by the year 2017, an ambitious target given the sloppy growth of cultivation over the last three-four years.
Samiran Das, chief executive officer, D1-BP Fuel Crops India Pvt Ltd, a joint venture between the UK-based D1 Oils and British Petroleum, engaged in growing Jatropha and producing bio-diesel, shares his views on what it might take to achieve that target, while ensuring there is minimum trade-off between the fertile land to grow food crops and the wasteland to grow fuel crops like Jatropha. He spoke to DNA Money’s Shaleen Agrawal. Excerpts:
The policy highlights say it will encourage cultivation of biofuel crops on wastelands and discourage the same on agricultural land. How can we make sure this actually happens on the ground, as the farmers would tend to give up cultivating food crops in favour of growing biofuel crops if they find it more remunerative?
It will be two-pronged. The government will define the minimum support prices at which the crop will be bought. To create a pull for bio-diesel, it cannot be more than the cost of fossil diesel, so that there is the ability for any company to pay so much for the grain. That’s kind of a natural progression. One need to understand what is the value we are creating and how to translate that value into the supply chain, while at the same time ensuring that the farmer gets the right value for the incremental effort and inputs that he puts into the wasteland. Once we are able to achieve this, the second thing would be automatic. If the pricing across the entire value chain is right, one finds that the amount of money a farmer gets out of growing food crops on the fertile land will be much more than if he were to grow Jatropha. This is a function of demand and supply. If the demand and supply are close to each other and move in phases towards the 20% blending goal, it can be done easily through creating a value flow that does not compromise the food security of the country. We need to create a pull for the industry, and that can only happen when the cost of bio-diesel is equal to the cost of fossil diesel without subsidies and taxes. I am sure the policy will break the goal into manageable periods and will come back and revisit the change in supply and demand situation. This is the right way to grow especially in a country like India, as this money will go into rural economy. Agricultural sector, which employs 60%-65% of the population, is growing only at about 2%-4%. If you look at the entire 60%-65% of the population, cultivation of biofuel crops gives you the opportunity to really engage the rural communities and make them a part of your growth story.
What can be the correct pricing where the farmer gets the right value for the crop he grows?
The pricing has to be linked to the fossil fuels some way or the other. The biofuel industry in the country hasn’t grown as was expected over the last three-four years because the value proposition is not right across the entire value chain. Now, as per the highlights of the policy, it attempts to ensure that each stakeholder sees value across the entire value chain. The grower has to get money as well, and the model should be such that he gets additional income for putting in incremental inputs on wastelands.
How much of wasteland is there that can be brought under Jatropha cultivation?
There is about 60 million hectares of wasteland in India, out of which the accessible wasteland - on which there is no encroachment or which is not supporting any kind of livelihood - is about 20 million hectares. If we target even 50% of that, i.e. 10 million hectares, and take an average yield of 1.5-1.7 tonnes of oil per hectare, we are talking about extracting 15 million tonnes of oil in steady state of operations, which could be as much as 10% of our total diesel use on the current date.
Wouldn’t it be better if the market was allowed to develop first and a policy introduced when there was a substantial amount of trade achieved in the product?
At the end of the day, the demand and supply of biofuels will be governed by market forces only. It’s a nascent industry and energy for us is fairly regulated. So within the construct of the industry we have today, we need to ensure that we have right mechanisms and building blocks are in place to encourage the industry without jeopardising anything else. At the current price of Rs 30-35 per kilogram of Jatropha seeds, it is creating a wrong value for the commodity, as going forward the value of crop for the farmer would drop with the decrease in prices of the seeds. Thus, the value across the entire value chain must be determined as per the value of the bio-diesel.
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