SPECIAL ARTICLE

Energy Security and Biodiesel Implications for Land Use and Food Security
Robin Singhal, Ramprasad Sengupta

India, like other net oil-importing developing countries, faces energy insecurity centred on the uncertainty surrounding the price of oil and its supply. It has been exploring the feasibility of developing biofuels that can replace petroleum products in the transport sector. But the use of biotic resources may involve changes in the land use pattern if they are to be derived from plantation or agrarian products. Since such a change could threaten the security of food and other agrarian supplies, this paper focuses on biodiesel production from jatropha oilseeds, assessing the profitability and competitiveness of energy cultivation and the chances of it replacing food or cash crop cultivation.

1 Introduction

ndias energy policy has primarily focused on providing energy security for the macroeconomys high rate of growth and for the basic needs of households. By energy security we mean adequate, clean and efcient supply of energy for the input requirements of various producing sectors and the basic needs of households, along with insurance against the risk of a disruption in supply or volatility of prices (GOI 2006a). Oil being the dominant fuel in the world, like any other net oil-importing developing country, Indias energy insecurity is centred on the uncertainty surrounding oil prices and its supply. Since oil, like any other fossil fuel, is non-renewable, India faces increasingly difcult challenges in ensuring energy security. Among all end-uses, the scope for fuel substitution is highly restricted in the transport sector, which is a very vital one because of its role in ensuring the mobility of goods and people. There has been a worldwide search for alternative renewable fuels to mitigate the problem of energy insecurity and India has been exploring the feasibility of developing biofuels that can reduce the dependence on petroleum products for transport. However, the use of a biotic resource may involve some change in the land use pattern if it is derived from a cultivated crop, as is in the case of bioethanol and biodiesel, from sugar cane and oilseeds respectively. Since changes in land use may threaten the security of food or other agrarian supplies, this paper focuses on the production of biodiesel from jatropha oilseeds and assesses the protability and competitiveness of land use for energy cultivation by comparing ground rents (grs) in different scenarios. To assess the implication of oil price behaviour on fuel security, the paper tries to assess critical petroleum product prices such as high speed diesel (HSD) prices, which, if exceeded, would create a situation in which the cultivation of food and other crops would lose out to growing oilseeds and other biomass for the energy market.
2 Background, Objective and Rationale

Robin Singhal (rbnsinghal@gmail.com) and Ramprasad Sengupta (rps0302@gmail.com) are at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.

India has to combine the objective of energy security with the environmental sustainability of its energy system so that the eco-capacity of the earth is conserved and the environmental uncertainty arising from events such as climate change due to greenhouse gases is reduced. Indias challenge in meeting these twin objectives arise from that its energy system is highly dependent on fossil fuels, which are non-renewable and responsible for a major part of the greenhouse gases in the atmosphere (GOI 2006a). Of the total primary energy supplied to the
october 6, 2012 vol xlviI no 40
EPW Economic & Political Weekly

66

SPECIAL ARTICLE

Indian economy in 2008, the share of primary commercial energy of all kinds was 73.6% and the remaining 26.4% was from non-commercial fuels supplied by biomass and combustible wastes, procured mostly through manual collection. In the total commercial energy supply, energy resources such as coal, oil and natural gas accounted for 57.1%, 31.65% and 8% respectively, while only 3.3% was from carbon-free hydro, nuclear and other new renewable resources (IEA 2010a). The dominance of coal in energy supply is explained by that the countrys major energy resource endowment is coal and lignite, although it is a signicant importer of metallurgical coal. The major source of energy insecurity is the heavy and growing dependence on oil imports, whose price has been volatile and shown a sharply rising trend, giving rise to a situation of market uncertainty. While India had indigenous oil reserves of 769 million tonnes (mt) as on 1 April 2008, its production during 2008-09 was 33.51 mt. During 2008-09, the total renery throughput requirement was 160.77 mt and the difference of 127.26 mt was met through imports. The actual import of crude oil has often been more than that for covering such a gap due to some inventory build-up and also possibly for strategic reasons. Indias self-sufciency index for oil has gone down while its import dependence has gone up over time. The share of imports in the total supply of oil declined from 65% in 1973 at the time of rst oil price shock to a low of 20% in the early 1980s due to the discovery of the Bombay High offshore oileld and accretions in other oil basins in the 1970s and 1980s. But the dependence ratio has again been reversed, with the share of imports at 75.5% in 2008-09 and approximately 82% in 2009-10 (GOI 2010a). In view of this growing dependence on imports, the sharply rising trend of crude oil prices in the global market, combined with occasional volatility, has become a great source of concern. The Indian basket of crude oil, which was priced at $36 per barrel (bbl) in May 2004, sharply rose to $132 per bbl in July 2008, an increase of 267% in just four years or 38.34% per annum (GOI 2010b). The unit value of gross crude oil imports rose from Rs 17,272 per tonne in 2005-06 to Rs 26,230 per tonne in 2008-09. The share of gross imports of crude oil and petroleum products in Indias total export earnings reached a high of 50.2% in 2008-09 and net imports of such items is estimated to be 35.8% in the same period (GOI 2010a). There are a few other factors that add to the vulnerability of an oil-importing developing country like India. Like electricity, transport is an infrastructural service required for all kinds of economic activity and also by households. The transport sector requires energy as the prime driver in any mode by rail, road, air and water mostly in the form of oil. Road, air and water transport are almost entirely dependent on oil with no or negligible fuel substitutability. It is only in rail transport that electric traction can substitute for diesel traction, diesel being indirectly substituted by coal, gas or some carbon-free resource that generates power. Of course, the trafc density on the railway route concerned has to be high enough to make the heavy investment on installing overhead electrical traction economically viable. As passenger and freight trafc movement are vital to the economy
Economic & Political Weekly EPW

and also for the internal and external security of the country, the indispensability of oil for mobility and its non-substitutability has made it a very critical factor in the economy. Further, note that the gross domestic product (GDP) elasticity of freight and passenger trafc has been estimated by the Planning Commission to be 1.0 and 0.8 respectively (GOI 2006a). These imply a high growth of transport services in units of tonne-km and passenger-km and a high growth of demand for oil in a situation of high economic growth. While the high economic growth rates of India and China have been exerting an upward pressure in the global oil market, causing an upward shift of the market demand curve, the supply side situation is likely to increasingly tighten for two reasons. These are, one, the exhaustibility of oil as a non-renewable resource and, two, the increasing oligopolistic control of supply by the Organisation of the Petroleum Exporting Countries (OPEC). Indias domestic production of crude oil has been at a plateau from 1995 onwards. Its dependence on oil imports has increased over time and it is projected to go up to 90% by 203132, according to long-term projections of the Planning Commission. As far as global oil supply is concerned, there have been many instances in the past where a shortfall in availability from some oil-exporting nations because of factors such as war, social unrest or political instability have been compensated by an increase in production by other oil-exporting countries. However, the optimistic view held by several experts that there will be abundant oil in the near future to sustain the current high level of global oil consumption is increasingly being contested. The proponents of Hubberts peak theory warn of a not too distant future in which the supply of oil will shrink and there will be growing uncertainty about international oil markets. This also implies that in future, that is, beyond the year of the peak, the marginal cost of supply is likely to rise or shift upwards as it will be increasingly difcult to access deposits that will have to be exploited for meeting demand.
Oligopolistic Global Market

The uneven geographic distribution of oil reserves across countries has been also responsible for the global oil market becoming far from competitive and mostly oligopolistic in character, resulting in a monopolistic contraction in supply and prices being in excess of marginal cost. At the beginning of 2010, the proportion of balance of ultimate recoverable reserves was as high as 68% in west Asia and the former Soviet Union countries while it was only 17% in North America. Of the 2.5 trillion barrels of ultimately recoverable oil reserves, these two regions have a share of almost 2 trillion barrels, that is, 80% of the worlds oil resources (IEA 2010b). Such a skew in the regional distribution of oil has given rise to not only market imperfections resulting in welfare losses to societies, but also geopolitics and uncertainty, further inuencing prices and complicating the supply behaviour of the market. The recent oil price rise was thus considered not just to be a phenomenon of mere short-run signicance but of long-run importance as the tendency of rising oil prices is going to stay. It poses a challenge that the Indian economy and its polity have to address.
67

october 6, 2012

vol xlviI no 40

SPECIAL ARTICLE

Against this backdrop, the search for an alternative automotive fuel has become a matter of serious policy concern for India. The use of biotic resources such as non-edible oilseeds like jatropha as a substitute for diesel and ethanol from sugar cane for petrol have been seriously considered by Indias energy policymakers. Biofuels have several socio-economic and environmental benets, which have been the motivating factors behind promoting them in both developed and developing countries: Economic: Foreign exchange is saved by reducing the dependence on imports for petroleum products, thus contributing to a nations energy security. Environmental: The problems of local air pollution and reducing carbon dioxide (CO2) emissions that cause climate change are addressed because biofuels are considered carbon neutral. Social: Employment opportunities are created and rural development is promoted through cultivation and making oil production an agro-based industry that partially replaces petroleum. However, the production of feedstock for these biofuels would put additional pressure on agricultural resources such as land, water and so on. It is, therefore, quite important that policies, plans and strategies for energy security do not conict with other aspects of critical national importance like food security or of non-cereal agricultural supplies like cotton.
National Policy on Biofuels

A national policy on biofuels, which was evolved by the Government of India, was announced in December 2009. The policy aims at mainstreaming the use of biofuels bioethanol and biodiesel in the Indian transport sector by targeting a 20% blending of these two fuels with petrol and HSD by 2017 (GOI 2009). As per the policy, biodiesel is to be derived from the nonedible jatropha oilseed and bioethanol is to be produced from molasses, a by-product of the sugar-making process. The production of jatropha oilseeds for bio-reneries will require jatropha plantations and bioethanol plants will require more sugar cane cultivation. Both of these will cause some diversion of land use from other agricultural crops. As far as biodiesel is concerned, the policy aims to resolve possible food versus fuel conicts by promoting plantations of non-edible oilseeds like jatropha on wastelands. In the case of bioethanol production, molasses may have to be diverted from other uses such as the alcohol or pharmaceutical industries. If there is pressure in the molasses market for other end-uses as well, the area under sugar cane will have to expand at the cost of other crops. The Commission for Agricultural Costs and Prices (CACP) recommends the use of excess sugar cane juice for making ethanol only in a situation where there is an excess supply of sugar cane in the market. The issue that arises here is how to ensure regulation of land use in a regime where a private owner of land or cultivator has the liberty to take his or her decision. In a free-market regime of agricultural products, including the feedstock for energy cultivation, it may be very difcult to exercise such regulation. Besides, there is the basic question of whether there is adequate wasteland available for jatropha cultivation. Since the energy-saving potential of freight trafc is substantially more than passenger trafc and since freight trafc is
68

entirely dependent on HSD, we analyse the biofuel policy issues related to jatropha-based biofuel development in India and its economic implications with respect to land use and food and agricultural security. We discuss the issue of availability of wasteland for jatropha in the third section of the paper and then analyse the competitiveness of jatropha vis--vis other crop cultivation, mainly food crops. We have used alternative criteria that inuence land use and arrived at results of comparative competitiveness. In a liberalised regime, the international price of diesel would have a determining inuence on biodiesel and jatropha prices and thereby on the GR for such land use. The paper, as already mentioned, also gives the critical import parity ex-renery gate HSD price, which, if exceeded, will enable jatropha cultivation to push out other crops, particularly in terms of GR, which represents the economic return from the use of land. In the Indian situation, the choice of land use depends on the tenancy status and economic and nancial condition of the peasant cultivator. For a peasant cultivator who has leased-in land, the paid-out cost or protability in the sense of the gross value of output (GVO) sold to paid-out cost incurred would be the deciding criterion. A farmer without much access to credit formal or informal would mainly go by cost minimisation per acre of cultivation. However, a peasant cultivator working on leased and/or own land has a mixed income, which is the difference between the GVO and all paid-out costs. Thus, the mixed income would comprise imputed wage income from the family labour engaged, interest on the value of owned xed capital (other than land) and the GR on own land, if any. The ratio of GVO to paid-out costs of all kinds gives a factor of return from all kinds of resources owned and engaged with reference to the outow of paid-out cost per hectare and is often used by the peasant cultivator as the criterion for land use. Again a landowner peasant who does not himself cultivate, or provide any xed or circulating capital or any other asset, would lease out land for the use that will earn maximum GR and this would indicate the economically rational choice from the optimum resource allocation point of view. We have examined the competitiveness of jatropha land use vis--vis other crop cultivation in accordance with the three criteria explained above. While only the paid-out cost is the deciding factor for the rst criterion, the second and third criteria will require the assumption of a jatropha oilseed price. The pricing of jatropha oilseeds will therefore be an important policy issue that inuences land use for feedstock cultivation for biodiesel. However, if globalisation liberalises agriculture, the jatropha oilseed price will be determined by market forces and equated with the marginal value productivity of jatropha oilseeds in biodiesel production and therefore with the biodiesel price. If the biodiesel market is integrated with the international HSD market, the price of biodiesel will be the import parity price of HSD linked with the import parity price of HSD appropriately adjusted for the fuel efciency differential for providing automotive energy services. In such a situation, the global oil market behaviour may have an impact on protability and the GR for land use for jatropha cultivation, which may affect the agricultural
october 6, 2012 vol xlviI no 40
EPW Economic & Political Weekly

SPECIAL ARTICLE

supply pattern of an individual country and its food security. This paper considers the competitiveness of jatropha vis--vis selected major crops in different states of India, the selection depending on the agro-climatic conditions in different states. We describe the scope of the empirical analysis of choice of land use in the context of energy and non-energy cultivation, the denition and methodology of calculation of various costs and return categories, and the data sources in Section 4. We then present the results of a competitive price for jatropha oilseeds and also the critical HSD price in the international market, which, if exceeded, will make jatropha cultivation more attractive than other crops. In the nal section, we discuss the policy implications of the results.
3 Land Availability

in the recent past, and the index numbers of both yield per hectare and of total foodgrain and non-foodgrain production have been declining quite sharply. Even with a growing population, per capita foodgrain availability has declined over the
Table 2: Availability and Suitability of Wastelands for Jatropha Plantations in India
Categories of Wastelands In Million Hectares

If the state is serious about not risking food security and regulating land use by restricting jatropha plantations to wastelands, the question is if there is enough wasteland in the country to meet the projected future demand of land for this purpose. According to projections of the demand for crude oil, based on the sustained growth of the Indian economy at 8% up to 2031-32 (GOI 2006a), and the demand for diesel (GOI 2003), Indias HSD requirement will grow from 52.3 mt in 2006-07 to 190.2 mt in 2031-32. As per the governments biofuel policy, which targets a 20% blending of biodiesel in HSD for automotive fuel use, the demand for biodiesel will grow from 13 mt in 2011-12 to 38 mt in 2031-32. According to the biofuel committees norms of per hectare yield of jatropha oilseeds, the biodiesel yield of jatropha oilseeds and the specic gravity of biodiesel, the total land requirement works out to 31.7 million hectares (Table 1).
Table 1: Projected Crude Oil, Diesel and Biodiesel Demand for India and Estimated Land Requirement for Biodiesel Production
Period Crude Oil (mtoe) Crude Oil (mt) Diesel (mt) Biodiesel 20% (mt) Land Requirement (million hectares)

1 Gullied and/or ravenous land* 2 Land with or without scrub* 3 Waterlogged and marshy land 4 Land affected by salinity/alkalinity 5 Shifting cultivation* 6 Underutilised/degraded notified forestland* 7 Degraded pastures/grazing land* 8 Degraded land under plantation crops* 9 Sands (riverine/coastal/desert) 10 Mining and industrial wasteland 11 Barren rocky areas 12 Steep sloping areas 13 Snow covered and/or glacial areas Total wastelands Wastelands suitable for jatropha cultivation
The categories with an asterisk are suitable for jatropha cultivation. Source: GOI (2005a); TERI (2005) and Biswas et al (2010).

1.9 18.79 0.97 1.2 1.88 12.66 1.93 0.21 3.4 0.2 5.77 0.91 5.43 55.27 37.38*

2006-07 2011-12 2021-22 2031-32

134.9 166.0 278.0 486.0

132.0 162.4 272.0 475.5

52.3 65.0 108.8 190.2

10.5 13.0 21.8 38.0

8.7 10.8 18.1 31.7

last decade. Such a decline in per capita availability is either due to supply-side constraints or due to increasing impoverishment of the common people. In either case, if the state wants to eradicate poverty and hunger, the priority will be to use more land for foodgrain production and this may extend to the use of developed wastelands. Even if the reclaimed and developed wastelands may not be suitable for other uses, there would remain an institutional or regulatory issue of how to regulate the behaviour of peasants in land use when free-market forces drive it unless there is an end-use-based land tax or jatropha oilseed prices are regulated as a way of controlling the market. Either way, given the political and economic situation in the country, the practicability of these would be questioned.
4 Definition, Methodology and Data Sources

Mtoe is million tonnes of oil equivalent. Source: Authors calculations based on GOI (2003, 2006).

As already mentioned, the biofuel policy aims to resolve any possible food versus fuel conict by encouraging production of jatropha oilseeds for biodiesel production only on wastelands. The government describes wasteland as
degraded land which can be brought under vegetative cover with reasonable effort, and which is currently underutilised and/or land which is deteriorating for lack of appropriate water and soil management or on account of natural causes. Wastelands can result from inherent/imposed disabilities such as by location, environment, chemical and physical properties of the soil or nancial or management constraints (GOI 2005a: 3).

The total wasteland ascertained in accordance with this denition has been classied into 13 subcategories, adding to a total of 55.27 million hectares (GOI 2005a). Of these 13 categories, the expert group considers only six subcategories to be suitable for jatropha cultivation, which gives a total availability of 37.38 million hectares for the purpose (Table 2). There would still arise two problematic issues. The overall area under foodgrain has remained static, if not mildly declined,
Economic & Political Weekly EPW

We divide the principal crops of India into ve categories: (a) cereals (paddy, wheat, jowar, bajra, maize, ragi and barley); (b) pulses (gram, arhar, urad, moong and masur); (c) oilseeds (groundnut, rapeseed and mustard, soybean, sunower, safower, sesamum and niger seed); (d) bres (cotton and jute); and (e) miscellaneous such as sugar cane and VFC tobacco. Thus, most of the crop items fall under the category of food. We conne ourselves to the 19 major states in India Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, Uttarakhand and West Bengal. The consideration of the crop mix varies from state to state depending on the availability of data. Further, to assess the competitiveness of the crops according to the different criteria, the data and information on costs and GVO were obtained from a government study on the costs of cultivation (GOI 2008). The latest estimates available are for 2004-05.
69

october 6, 2012

vol xlviI no 40

SPECIAL ARTICLE

According to the cost of cultivation worked out by government agencies, all service and input costs other than that of land, xed capital and family labour constitute the basic Cost A 1. Cost A 1 thus comprises the cost of hired human labour and values of animal and machine labour, machine hiring charges, the cost of seed, water and irrigation charges, the cost of fertilisers, manure and pesticides and capital depreciation, government taxes, duties and cess and miscellaneous expenses. If the cost of leasing in land is the rental charges paid, the total paidout (Cost A 2) cost of cultivation for any crop would turn out to be the sum of Cost A 1 and the rent paid for leased-in land. The full cost of cultivation of a crop, Cost C1, would be equal to the total of Cost A 2, the interest on owned xed capital and the imputed value of family labour. The ratio of total output to paid-out cost, that is, GVO to Cost A 2, will indicate the factors of returns from all own resources engaged to total paid-out cost or the protability of land use. Thus, Cost C1 is the total cost of production using all inputs other than the service of land, but including the cost of all capital employed, irrespective of ownership and own family labour (Sen and Bhatia 2004). The difference between GVO and Cost C1 would thus yield the GR of land. While Cost A 2 and Cost C1 are measured per unit of land, the prot margin (or protability ratio) from the own resources engaged is a ratio independent of the choice of land unit. In the case of jatropha, which is a plantation crop unlike other annual crops, we had to work out the cash ow over the life of a plantation for the different component items and work out the total amortised or annualised cost per unit of land use, the protability as the ratio of annualised GVO to annualised cash outow of cost, and the GR as the annualised equivalent rent earning calculated as the difference between GVO and Cost C1. We assumed Cost C1 and Cost A2 to be the same partly because of the cost and market structure of input and partly due to the lack of reliable information. Besides, in view of a lack of adequate region-wise data, we have been constrained to use these same estimates of the cost of jatropha cultivation for evaluating its competitiveness in all the states concerned. The cost of cultivation of jatropha curcas has been estimated on the basis of the information obtained from Paramathma et al (2004). The bio-renery cost of producing biodiesel from jatropha oilseeds has been obtained from an assessment by the department of science and technology (GOI 2006b). Further, information about the ex-renery gate price (or storage point price) for HSD has been obtained from the Ministry of Petroleum and Natural Gas. The results of the study on the paid-out cost, prot margin and GR earnings of each of the principal crops across the states under consideration with which jatropha cultivation would compete are discussed in the following section.
5 Competitiveness of Jatropha Cultivation

ratio and GR for jatropha are obtained using a discount rate of 12.5% (Table 3).
5.1 Paid-out Cost and Profitability

A market for jatropha oilseeds has not emerged in the country and the government has announced support prices to incentivise the cultivation of jatropha on wastelands. We have, therefore, assumed a range of prices for jatropha for working out its protability and GR earnings. The paid-out cost, protability
70

The paid-out cost of cultivating various cereals (except paddy in Karnataka), pulses and oilseeds across the states is found to be lower than the cost of cultivating jatropha (Rs 19,725 per hectare). In the case of oilseeds, the highest cost is incurred for groundnut cultivation in Tamil Nadu (Rs 16,221 per hectare). Of the nine states compared Table 3: Paid-out Cost, Profit Margin for cotton cultivation, only and Ground Rent Earnings from Jatropha Cultivation in Andhra Pradesh do farm- Value of Paid-out Profitability Ground Rent Cost Ratio (Rs per ers incur costs higher than Jatropha Oilseeds (Rs per hectare) that for jatropha cultivation (in Rs/kg) hectare) (Rs 21,183 per hectare). In 9 19,725 4.56 70,275 jute cultivation, the highest 7 19,725 3.55 50,275 expense is in West Bengal 6 19,725 3.04 40,275 19,725 2.53 30,275 (Rs 12,832 per hectare). How- 5 19,725 2.03 20,275 ever, in sharp contrast, the 4 Source: Authors calculations. paid-out cost incurred in four of the seven major sugar cane cultivating states, Maharashtra (Rs 45,536 per hectare), Tamil Nadu (Rs 37,700), Karnataka (Rs 33,136), and Andhra Pradesh (Rs 29,185), is higher than that for jatropha cultivation. The cost of cultivating VFC tobacco in Andhra Pradesh is Rs 38,145 per hectare. Jatropha cultivation thus involves a higher cost when compared with food crops, but a comparatively low cost compared with cash crops other than jute. So, jatropha cultivation would require more working capital and access to credit. Poor farmers cannot engage in it and get a higher prot margin. When jatropha oilseeds are valued at Rs 5 per kg, the prot margin is estimated to be 2.53, which is higher than those of cereals in the range of 0.89 (ragi cultivation) to 2.57 (barley cultivation). When valued at Rs 6 per kg, the estimated prot margin from jatropha turns out to be 3.04. Even at such valuations, the cultivation of pulses like gram in Uttar Pradesh and Bihar, tur in Uttar Pradesh and Madhya Pradesh, and masur in Madhya Pradesh and Bihar are found to be more promising. The pulses, however, lose competitiveness for higher valuations of jatropha oilseeds at Rs 7 or Rs 9 per kg. In the case of oilseeds, only the cultivation of rapeseed and mustard (in Rajasthan and Madhya Pradesh) and sesamum (in Madhya Pradesh, Uttar Pradesh and Rajasthan) compete with jatropha when the seeds are valued at Rs 5 per kg. Among cash crops, jatropha cultivation does better than cotton (except for Rajasthan and Haryana) and jute cultivation in terms of prot margin when valued at Rs 5 per kg. In sharp contrast, sugar cane cultivation in Karnataka (2.80), Uttarakhand (3.62), Uttar Pradesh (3.87) and Haryana (4.40) fares better in terms of protability ratio when compared to jatropha. Even at a higher valuation of Rs 6 per kg, sugar cane cultivation in Uttarakhand, Uttar Pradesh and Haryana promises a higher prot margin. Thus, jatropha cultivation when assessed in terms of protability is found to be competitive against cereals and pulses, though at a higher valuation. Barring sugar cane, jatropha does better than cash crops such as cotton, jute and VFC tobacco.
october 6, 2012 vol xlviI no 40
EPW Economic & Political Weekly

SPECIAL ARTICLE

5.2 Ground Rent Earnings and Competing Jatropha Oilseeds Price Jatropha cultivation promises a GR earning of Rs 30,725 per hectare when the oilseeds are valued at Rs 5 per kg and it increases with higher valuations (Table 3). The GR earnings for the principal crops under consideration have been classied under four ranges (Table 4). Compared to jatropha cultivation, the highest GR earning among cereals is estimated to be Rs 23,863 per hectare from paddy cultivation in Punjab. In the case of paddy, wheat, ragi, bajra, jowar and maize, the GR earnings are negative in a large number of states. Further, in pulses and oilseeds, the GR earnings are in the range of zero to less than Rs 15,000 per hectare. In some states, farmers even incur losses. Thus, jatropha cultivation fares much better in terms of GR earnings compared to cereals, pulses and oilseeds. Even in the case of cash crops such as cotton, jute and VFC tobacco, jatropha promises much higher GR earnings. But farmers can earn much higher GR earnings from sugar cane cultivation compared to jatropha and the other principal crops studied.
Table 4: Ground Rent Earnings for Principal Crops for 2004-05 (Rs per hectare)
Category Item Less than 0

could make jatropha cultivation competitive with major agricultural crops. This issue is important not only for incentivising farmers to use land for jatropha plantation, but also for being aware of the range of jatropha oilseed prices that could drive out food crops, raising the problem of food security. We discuss this competitiveness with reference to the GR criterion for land use allocation among alternative uses. The jatropha oilseeds price that is competitive to a principal crop would refer to the price level at which the per hectare GR earnings from jatropha, if sown on the same piece of land, will be equal to the earnings from the principal crop it is to replace. The competing jatropha oilseeds price vis--vis every principal crop in a state is to be estimated as covering the opportunity cost of cultivating jatropha, replacing a specic crop. Such an opportunity cost-based price would be derived from the cost of cultivation (Cost C1) of jatropha plus the GR of the crop replaced in the state concerned. The competing GVO for jatropha (in rupees per hectare) against ith principal crop in jth state would thus be equal to the Cost C1 of cultivating jatropha curcas
Ground Rent Earnings (Rs per hectare) 0 to <15,000

15,000 to < 30,000

30,000 and above

Cereals

Paddy Wheat Ragi Bajra Barley Jowar Maize

MP, Jharkhand, Kerala, Assam Chhattisgarh, Jharkhand, WB Karnataka Haryana, UP, Maharashtra, Gujarat, Rajasthan, Punjab TN, MP, Maharashtra, AP, Rajasthan UP, MP, Rajasthan, Uttarakhand, Jharkhand, HP

TN, UP, Orissa, Chhattisgarh,WB, Uttarakhand, Karnataka, Bihar, Haryana, AP UP, MP, Uttarakhand, Bihar, HP, Haryana, Gujarat, Rajasthan, Punjab TN

Punjab

UP, Rajasthan Karnataka AP, Chhattisgarh, Karnataka, Bihar Maharashtra, Rajasthan, Chhattisgarh, Jharkhand, UP, MP, AP, Bihar Gujarat, Karnataka, UP, MP, Maharashtra, AP TN, UP, Orissa, MP, Rajasthan, Chhattisgarh, AP Orissa, AP, Rajasthan UP, Jharkhand, Bihar, MP Gujarat, AP, Karnataka, TN Haryana, UP, WB, MP, Gujarat, Rajasthan MP, Maharashtra, Chhattisgarh, Rajasthan Maharashtra, AP, Karnataka Maharashtra TN, UP, MP, Gujarat, Rajasthan Chhattisgarh Maharashtra, Karnataka, Haryana, Gujarat, AP, Rajasthan Orissa

Pulses

Gram Orissa Maharashtra Maharashtra Maharashtra Assam

Tur Urad Moong Masur Oilseeds Groundnut Rapeseed and mustard Soybean Sunflower Safflower Sesamum Nigerseed Fibres Cotton Jute Misc Sugar cane

Orissa Orissa TN, MP Assam, WB

Punjab AP TN, UP, Uttarakhand, Maharashtra, Haryana, Karnataka

VFC Tobacco
Source: Authors calculations based on GOI (2008).

AP

Barring Andhra Pradesh, sugar cane cultivation in all the other states promises a GR in the range of Rs 30,489 per hectare in Uttar Pradesh to Rs 52,934 per hectare in Karnataka. However, at higher valuations of jatropha oilseeds such as Rs 7 per kg, sugar cane cultivation remains competitive only in Karnataka. As the jatropha oilseeds market in India is still in its infancy, one of the concerns of policymakers is the oilseeds price which
Economic & Political Weekly EPW

plus GR (or opportunity cost of land use) from an ith principal crop in jth state. Using the above estimated competing GVO for jatropha oilseeds, we nd the corresponding value of one kilogram of jatropha oilseeds, assuming 10 tonnes per hectare to be the yield of jatropha oilseeds, based on the yield pattern reported in Paramathma et al (2004), and considering a time horizon of 14 years with the yield stabilising at the level attained in the fth
71

october 6, 2012

vol xlviI no 40

SPECIAL ARTICLE
Table 5: Competing Jatropha Oilseeds Price (Rs per kg)
Crops No of Competing Jatropha States Seed Price Range Median Competing Jatropha Seed Price

Cereals

Paddy Wheat Maize Jowar Bajra Ragi Barley Pulses Gram Tur Masur Urad Moong Oilseeds Groundnut Rapeseed and mustard Soybean Sesamum Sunflower Nigerseed Safflower Fibres Cotton Jute Miscellaneous Sugar cane VFC tobacco

The market demand for jatropha would depend on the marginal value productivity of jatropha oilseeds in biodiesel production. In the transport sector, biodiesel will be used for blending or as Source: Authors calculations. a substitute for HSD. In such a situation, the biodiesel price will year of the plantation. The estimated crop-wise jatropha oilseeds be determined on an energy parity basis vis--vis HSD. In other value, if xed, will thus be sufcient to cover the opportunity words, the value that will be offered for jatropha oilseeds will ultimately depend on the HSD price, which will further inucost of diverting the agricultural land for jatropha cultivation. Further, the estimated value of one kg of jatropha oilseeds ence the biodiesel price. In this section, we analyse what the corresponding to a specic crop and the cost of conversion of raw critical biodiesel and HSD prices are, estimated on the basis of jatropha oil into biodiesel taken together gives us an estimate crop-wise competing jatropha oilseed prices. The critical biodiesel price for a particular agricultural crop is of the critical biodiesel price that would induce a reallocation of resource in agriculture. The bio-renery cost of producing estimated taking into account the competing jatropha seed price biodiesel from raw jatropha oil (excluding the cost of raw mate- corresponding to that crop and the bio-renery cost of producing rial) is estimated to be Rs 9.50 per kg of biodiesel (GOI 2006b). biodiesel from raw jatropha oil. The amount of jatropha seeds Note that the critical biodiesel price calculated is the minimum required for producing one kg of biodiesel is estimated to be price of biodiesel for which returns to a farmer are just sufcient 3.28 kg. Thus, adding the cost of raw material and the biorenery cost gives us an estimate of the value of Table 6: Critical Biodiesel and HSD Prices (Rs per Litre) Crops No of Critical Biodiesel Median Critical Critical HSD Median Critical one kg of biodiesel. Using the conversion factor States Price Range Biodiesel Price Price Range HSD Price of one kg of biodiesel being equal to 1.2486 Cereals Paddy 15 12.24-19.06 13.12 13.15-20.47 14.09 litres of biodiesel, we determine the value of Wheat 12 11.78-16.35 13.59 12.65-17.56 14.60 Maize 10 11.77-14.47 12.59 12.64-15.54 13.52 biodiesel in rupees per litre. On an energy Jowar 6 12.12-12.86 12.51 13.02-13.81 13.43 parity basis, we estimate the corresponding Bajra 5 12.45-12.73 12.53 13.37-13.67 13.45 critical HSD price. The conversion factor used Ragi 2 11.68-12.97 12.33 12.55-13.92 13.24 is based on the caloric value of HSD and bioBarley 2 12.49-14.46 13.73 13.95-15.53 14.74 diesel. One kg of HSD is equal to 10,170 kiloPulses Gram 8 13.10-15.26 14.24 14.07-16.39 15.29 Tur 7 12.77-15.27 14.24 13.72-16.40 15.29 calories and one kg of biodiesel is equal to Masur 4 13.36-15.58 14.34 14.35-16.73 15.40 9,470 kilocalories. The critical HSD-linked bioUrad 8 12.08-14.32 13.15 12.97-15.38 14.12 diesel price range for all the principal crops, Moong 4 12.15-13.56 12.88 13.04-14.56 13.84 which, if exceeded, will make jatropha cultiOilseeds Groundnut 5 11.93-14.46 13.66 12.81-15.53 14.67 Rapeseed and mustard 7 12.58-16.04 14.90 13.51-17.23 16.00 vation competitive, are calculated (Table 6). Soybean 4 13.08-14.19 13.62 14.04-15.24 14.62 The HSD domestic storage point price was Sesamum 6 12.69-14.60 13.80 13.63-15.68 14.82 Rs 26.16 per litre on 30 September 2008 and Sunflower 3 12.94-13.32 13.22 13.90-14.30 14.20 this declined to Rs 22.61 per litre on 1 May Nigerseed 2 12.78-13.32 13.05 13.72-14.31 14.02 Safflower 1 13.29 13.29 14.28 14.28 2009, on account of uctuations in crude oil Fibres Cotton 9 11.53-17.11 15.66 12.39-18.37 16.82 prices. In comparison to these HSD storage Jute 3 12.34-12.98 12.48 13.26-13.94 13.41 point price levels, our estimated critical HSD Miscellaneous Sugar cane 7 20.52-26.70 22.02 22.04-28.63 23.65 prices are on a much lower side. We have also VFC Tobacco 1 13.99 15.02 calculated the median critical HSD price against Source: Authors calculations.
72
october 6, 2012 vol xlviI no 40
EPW Economic & Political Weekly

15 12 10 6 5 2 2 8 7 4 8 4 5 7 4 6 3 2 1 9 3 7 1

1.76 - 4.36 1.59 - 3.33 1.58 - 2.61 1.72 - 2.00 1.84 - 1.95 1.55 - 2.04 2.05 - 2.61 2.09 - 2.91 1.97 - 2.92 2.19 - 3.03 1.70 - 2.56 1.73 - 2.27 1.64 - 2.61 1.89 - 3.21 2.08 - 2.51 1.94 - 2.66 2.03 - 2.17 1.97 - 2.18 2.16 1.49 - 3.62 1.86 - 2.04 4.91 - 7.27 2.43

2.10 2.28 1.89 1.86 1.87 1.80 2.33 2.52 2.52 2.52 2.11 2.01 2.31 2.77 2.29 2.35 2.14 2.07 3.06 2.04 5.49 -

to cover the opportunity cost of diverting land from cultivating a principal crop to jatropha cultivation. A farmer will be induced to divert his land for cultivating jatropha if the ex-renery gate price of biodiesel exceeds this critical price level. On an energy parity basis, the corresponding critical import parity ex-renery gate HSD prices have also been calculated, which again reect the minimum price of HSD, which, if exceeded, would make the cultivation of jatropha attractive. On the basis of the GR earnings for principal crops and a range of jatropha oilseed prices, we have calculated the median competing jatropha oilseeds price for each principal crop (Table 5). However, the choice of the crop sown depends on the agricultural season, whether it is the rabi or kharif season. As a result, a farmer may grow more than one crop in an agricultural year. However, for estimating the GR earnings for principal crops we have assumed that farmers cultivate only one principal crop a year.
5.3 Critical HSD Linked Biodiesel Prices

SPECIAL ARTICLE
Table 7: Coefficient of Variation (CV) for Critical Bio-diesel and HSD Prices
States No of Crops Average Critical Biodiesel Price (Rs per litre) CV Average Critical HSD Price (Rs per litre) CV

Kerala Orissa HP Assam Chhattisgarh Bihar Jharkhand Gujarat Punjab West Bengal MP Rajasthan AP UP Tamil Nadu Maharashtra Haryana Uttarakhand Karnataka

1 7 2 3 7 5 5 7 3 4 12 12 12 12 8 12 6 4 9

12.75 12.88 12.69 12.52 13.21 14.30 12.81 14.35 17.51 13.07 13.59 13.92 14.75 14.26 14.14 13.80 16.86 15.04 14.64

1.01 1.17 1.30 3.50 6.91 7.13 7.85 7.98 8.91 9.55 10.05 14.24 15.63 19.81 25.02 27.07 31.18 31.27

13.69 13.83 13.63 13.45 14.19 15.36 13.76 15.41 18.80 14.03 14.59 14.95 15.85 15.31 15.19 14.82 18.10 16.15 15.72

1.01 1.19 1.28 3.49 6.93 7.12 7.86 7.99 8.89 9.54 10.06 14.25 15.64 19.83 25.01 27.07 31.19 31.26

Source: Authors calculations.

each crop. Except sugar cane, the highest estimated median critical HSD price is Rs 16.82 per litre for cotton cultivation and the lowest median price is Rs 13.24 per litre for ragi cultivation. Sugar cane is the only crop where the estimated median critical HSD price is Rs 23.65 per litre. To promote the use of biodiesel as a transport fuel across states, the government announced its biodiesel purchase policy on 9 October 2005 and xed the price of biodiesel at Rs 25 per litre for the oil marketing companies. The highest estimated median critical biodiesel price is Rs 15.66 per litre for cotton cultivation and the lowest Rs 12.33 per litre for ragi cultivation. However, in the case of sugar cane cultivation, the median biodiesel price is Rs 22.02 per litre. These low estimates of critical biodiesel and HSD prices are of great signicance because of the growing uncertainty over the availability of low-cost crude oil reserves in the near future. Thus, a rising trend in the price of crude oil and petroleum products such as HSD cannot be ruled out. It may be noted that higher prices for petroleum-based fuels such as HSD will promote the cultivation of energy feedstock and this may put constraints on the availability of the agricultural land for the cultivation of principal crops. Further, to assess the vulnerability of cultivation of principal crops because of low critical HSD and biodiesel prices, we have estimated the coefcient of variation (CV) for each state using the
References
Biswas, Pradip Kumar, Sanjib Pohit and Rajesh Kumar (2010): Biodiesel from Jatropha: Can India Meet the 20% Blending Target?, Energy Policy, 38 (3), pp 1477-84. GOI (2003): Report of the Committee on Development of Biofuels, Planning Commission, Government of India. (2005a): Wastelands Atlas of India, Department of Land Resources, Ministry of Rural Development, Government of India. (2005b): Biodiesel Purchase Policy, Ministry of Petroleum and Natural Gas, Government of India. (2006a): Integrated Energy Policy, Report of the Expert Committee, Planning Commission, Government of India.
Economic & Political Weekly EPW

estimated critical biodiesel and HSD prices for the principal crops respectively (Table 7). A lower CV makes food or other agroproducts vulnerable to a competitive threat from energy cultivation if the imputed critical prices of biodiesel or HSD are lower than the actual prevailing one. As expected, there is only a marginal difference between the CV for critical biodiesel prices and critical HSD prices. Note that Kerala is the only state for which we could not estimate the CV because paddy is the only crop considered. In states such as Orissa, Himachal Pradesh and Assam, the estimated CV for the critical HSD prices is found to be close to 1%. In the case of Orissa, seven principal crops have been taken into consideration. This implies that there is a greater threat to the cultivation of these crops as farmers will be more attracted to the cultivation of jatropha curcas. In Chhattisgarh too, seven crops have been taken into account and the CV is estimated to be 3.49% for the critical HSD prices. Further, the CV is estimated to be less that 10% in Bihar, Jharkhand, Gujarat, Punjab, West Bengal and Madhya Pradesh, implying the greater attractiveness of jatropha cultivation in these states. On the other hand, in Haryana, Uttarakhand and Karnataka, the CV is found to be 27%, 31% and 31% respectively. This in itself reects the much lower attractiveness of jatropha cultivation in these states.
6 Conclusions

The study nds that jatropha plantations will involve higher paid-out expenses to be incurred by Indian farmers, thus restricting the potential benets of the development of an agrobased energy producing industry to only a section of the farming community having access to credit at a reasonable cost. Given the assumptions and the criteria used in the study, jatropha cultivation fares better in terms of prot margin and GR earnings in comparison to a variety of food and non-food agricultural crops with the exception of sugar cane. On account of the overall competitiveness of sugar cane and jatropha cultivation on the one hand and the volatility of crude oil prices on the other, a major thrust on the development of biofuels as alternative fuels for the Indian transport sector can pose a challenge to the security of food and non-food agricultural supplies. In addition, the low estimate of the CV of critical HSD prices, making jatropha oilseeds competitive vis--vis other agricultural products, reinforces the seriousness of the challenge of energy versus food and agricultural supply security.
IEA (2010a): Energy Balances of Non-OECD Countries (Paris: International Energy Agency Publications). (2010b): World Energy Outlook (Paris: International Energy Agency Publications). Paramathma, M, K T Parthiban and K S Neelakantan (2004): Jatropha Curcas (Coimbatore: Tamil Nadu Agricultural University). Sen, Abhijit and M S Bhatia (2004): State of the Indian Farmer: A Millennium Study, Cost of Cultivation and Farm Income, Vol 14 (New Delhi: Academic Foundation). TERI (2005): Detailed Project Report for the National Mission on Biodiesel, Prepared for Department of Land Resources, Ministry of Rural Development, Government of India (New Delhi: The Energy and Resources Institute Press).

(2006b): Techno-economic Assessment of Bioenergy in India, Technology Information Forecasting and Assessment Council, Department of Science and Technology, Government of India. (2008): Report of the Commission for Agricultural Cost and Prices for the Crops Sown during 2007-08, Ministry of Agriculture, Government of India. (2009): National Policy on Biofuels, Ministry of New and Renewable Energy, Government of India. (2010a): Basic Statistics on Indian Petroleum and Natural Gas, Ministry of Petroleum and Natural Gas, Government of India. (2010b): Report of the Expert Group on a Viable and Sustainable System of Pricing of Petroleum Products, Government of India.
vol xlviI no 40

october 6, 2012

73