This article emphasizes the need to ensure that biofuels are ethically produced, so that the drive towards using biofuels does not come at the cost of the poor’s sustenance. The article sparked an interesting email exchange among the Acumen Fund team, given our exploration of energy as an issue area for investment. If you click on “comments” below, you can follow the conversation.
For this reason among a host of others, we have decided not to actively pursue investments in biofuels at the moment. Jatropha in particular has all the makings of a “gold rush” whose consequences (intended and otherwise) are still too unclear to tell at this point.
Reply to Brian TrelstadTo provide a little more detail..
There are countless ventures that are popping up that are interested in producing biofuel to be substituted for traditional petroleum. But production of feedstock for biofuels do bring up very complex issues around food substitution/crowding out, land use, and water use. We haven’t cracked the code on the right answer here, but are very sensitive to the overall issue. As an example, its highly unlikely that we would ever invest in a corn ethanol producer, even if they had a strong business plan and could deliver their product to the poor - this is because corn ethanol crowds out domestic food supply and also uses tremendous amounts of both water and land. The same can likely be said for most of the other biofuel feedstocks - sugar, beets, castor, palm, soybeans, etc.
As many would agree with our conclusion above, the development world (and press) have begun to focus on a new feedstock called Jatropha (it’s a non-edible bean that can be pressed for oil). In theory, this plant grows in relatively poor grade, arid land and thus doesn’t have some of the negative characteristics of corn/sugar, etc. However, even in this case, we’ve decided to take a very cautious approach - we’d like to see some real proof that this can cultivated in a way that compliments the local eco-culture. Additionally, we have yet to see a proposal that integrates the poor into the biofuel value chain in a way other than as marginal agricultural suppliers of the raw beans.
With all that said, we do continue to explore this space, view it as too big to ignore, and see the possibility for an entrepreneur to use the biofuel value proposition, that its cheaper to grow oil than to buy it, in order to serve the poor.
Reply to Raj KundraOne additional piece of information to add to the conversation about biofuels…
About 18 months ago, I met a very well-respected leader working for rural communities and peasants’ rights in northeastern India. I had recently been to India and heard all of the excitement around jatropha, and mentioned it to her. She informed me that there is a serious problem with people cheating peasants out of land, with the intention of future large-scale cultivation of jatropha. Since the land was previously not useful, or traditionally considered of poor quality, people were selling off their land at dirt-cheap prices with no knowledge of what it was really going to be worth.
Just more evidence, I think, that education and empowerment are always going to be a piece of every battle.
Reply to Abigail Keene-BabcockThere was a similar article in a recent issue of the Economist. This highlights the need for Acumen Fund to be mindful of the impact of our investments on socio-economic ecosystems that are generally resource-starved and vulnerable to one possible benefit coming at the expense of something equally critical, both in the short and long terms. For example, with an irrigation investment we are exploring in Pakistan, there has been an interesting discussion on whether the irrigation company should be using its local partner organization (which has tremendous influence over local communities) to target areas/communities where sustainable supply of irrigation water is so scarce that one has to be mindful of a) the longer-term environmental impact of drip irrigation as a sustainable solution and b) the opportunity cost for the poor farmer of not instead investing that $300 that he is currently considering for a drip irrigation system (with or without microfinance) in livestock or other forms of more viable income generation opportunities.
Reply to Aun RahmanA lot of inventories in the market but there is need for professional evaluation on how the poor will benefit from all these.
Reply to David WainainaThe biofuel is not less expensive as it has to be grown for 18 months before harvest.
All along the farmer has nothing to rely on for cash or foodstuff.
I wish there is innovation for biofuel coming from the maize stuff or wheat. Once one reaps the crop then have all the oil and fuel he needs.
David