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STRATEGIES FOR JATROPHA BIODIESEL PRODUCTIO-

PRODUCTIO
PROFIT MODEL,
“THE CASE OF GUJARAT”

GUIDE: DR. R. PARTHASARATHY


REVIEWER: Prof. ASHWII KUMAR
SUBMITTED BY: HALAK BHATT EP 0507

Dissertation 2008-09
2008
Faculty of Planning & Public Policy, CEPT University, Ahmedabad
STRATEGY FOR JATROPGA BIO DIESEL PRODUCTION –
PROFIT MODEL, “THE CASE OF GUJARAT”

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GUIDE : DR. R. PARTHASARATHY
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REVIEWER: PROF. ASHWINI KUMAR
………………………………………………………………………
PRESENTED BY: HALAK BHATT EP-0507
……………………………………………………………………………
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………………………………………………………………………...
Dissertation: 2006-07

Faculty of Planning and Public Policy,


CEPT University
Ahmedabad: 380009.
Strategies for Jatropha Bio Diesel Production- Profit model, “The case of Gujarat”

Strategies for Jatropha Bio Diesel Production- Profit


Model, “The Case of Gujarat”

Student Guide

Halak H. Bhatt Dr. R. Parthasarathy

EP 0507

Internal Reviewer

Prof. Ashwini Kumar

Dissertation: 2006-07

Faculty of Planning and Public Policy, CEPT University


Ahmedabad: 380009.

Halak Bhatt EP-0507 C|Page


FACULTY OF PLANNING AND PUBLIC POLICY

CEPT UNIVERSITY

6.7.1 NAVRANGPURA, AHMEDABAD: 380 009

CERTIFICATE

This is to certify that the thesis titled “Strategies for Jatropha Bio Diesel Production-
Profit Model, “The Case of Gujarat” has been submitted by Ms. Halak Bhatt towards
partial fulfillment of the requirements for the award of Masters Degree in Planning with
specialization in Environmental Planning. This is a bonafide work of the student and has
not been submitted to any other university for award of any Degree/Diploma.

Prof. Talat Munashi Dr. R. Parthasarathy

Chairperson Guide

Dissertation Committee 2006-07

Date: 15th April 2009


UNDERTAKING

I, Halak Bhatt, the author of the thesis titled “Strategies for Jatropha Bio Diesel
Production- Profit Model, “The Case of Gujarat”, hereby declare that this is an
independent work of mine, carried out towards partial fulfilment of the requirements for the
award of Masters Degree in Planning with specialization in Environmental Planning at the
Faculty of Planning and Public Policy, CEPT University, Ahmedabad. This work has not
been submitted to any other institution for the award of any Degree/Diploma.

Date: 15th April 2009 Name of Student: Halak H. Bhatt

Place: Code No. : EP-0507

_________________________________

Signature
Acknowledgement

There are many people whose support I would like to acknowledge.


I would like to thank to all those people that generously supplied
me required data. First and foremost, I convey my hearty gratitude
to my Guide Dr. R. Parthasarathy, “The Director” of Gujarat
Institute of Development Research. I would also like to convey
special thanks to Mr. Harish Joshi form GIDR for helping me in
data collection. I would like to acknowledge my internal Reviewer,
Prof. Ashwini Kumar, for giving me important and valuable
comments and suggestions during research work.

A very hearty gratitude is conveyed to my parents, Dular, in-laws,


and family members who inspired and kept my spirits high all
throughout research writing. I would also like to express gratitude
to Mr Kalpesh Jani from Agriculture Diversification Centre for
giving me important contacts and information for data collection. I
would also like to convey my gratitude to Mr. Dharmesh Parekh,
Aditya Bio fuels, for kind support in data collection. I would like to
convey special thanks to Mr kirit Parekh, DFO of Surendranagar
forest department for conducting site visits to jatropha plantation
along rail way tracks and road side plantation.

I convey sincere thanks to Mr. Manoj Mehta from Gujarat Growell


agro forestry limited, Mr. V.Y. Gorakh from PCRA, for their help
and guidance to explore research in depth. I am also thankful to my
friend Mukti Rawal for providing me guidance in calculations. A
special thanks to my friends; Nidhi, Jaladhi, Yug and sirisha for
encouragement and kind help for research work.
TABLE OF CO
TE
TS

CO
TE
TS PAGE

CHAPTER 1 INTRODUCTION
1.1 Introduction................................................................................................................ 5
1.2 Structure of research.................................................................................................. 7
1.3 Research Aim............................................................................................................. 7
1.4 Research Objective.................................................................................................... 8
1.5 Research Questions.................................................................................................... 8
1.6 Scope and limitations................................................................................................. 9
1.6 Research Methodology.............................................................................................. 9
1.7.1 Data collection...................................................................................... 9
1.7.2 Analysis Methods................................................................................. 10
1.7 Literature review........................................................................................................ 11
1.8.1 Government Policies and Incentives for Bio Diesel development in
India............................................................................................................... 12
1.8.2 Bio Diesel Purchase Policy.................................................................. 13
1.8.3 National Bio Diesel Mission................................................................ 14
1.8.4 National Biofuel Policy........................................................................ 15
1.8.5 Policy Issues......................................................................................... 18
1.8.6 Enhancement of Jatropha for Bio Diesel............................................... 18
1.8.7 Environmental Benefits of Bio Diesel................................................... 20
1.8.8 Land Use Dynamics And Jatropha Cultivation..................................... 21
1.8.9 Importance of Value Chain Analysis for Bio Diesel Production from
Jatropha......................................................................................................... 24

Concluding Remarks.................................................................................................
27
CHAPTER 2 VCA FOR JATROPHA BIO DIESEL PRODUCTION PAGE
2.1 Introduction to VCA......................................................................................................... 29
2.2 Constraints and Limitations of Value Chain Analysis..................................................... 30
2.3 Value chain of Bio Diesel from Jatropha......................................................................... 30
2.4 Methodology of Value Chain........................................................................................... 31
2.5 Activity A- Jatropha Cultivation...................................................................................... 32
2.5.1 Potential of Jatropha Cultivation on wastelands.......................................... 36
2.6 Economics of Jatropha Bio Diesel Production................................................................. 41
2.6.1 Methodology for Cost of Jatropha Cultivation............................................ 41
2.6.2 Cost Concepts for Cultivation..................................................................... 42
2.7 Activity A – Cost of Jatropha Cultivation........................................................................ 46
2.7.1 Plantation on Private land............................................................................ 46
2.7.2 Plantation on Village Grazing and Fallow Land......................................... 53
2.7.3 Railway Track Side Plantation.................................................................... 58
2.7.4 Road Side Plantation.................................................................................... 63
2.7.5 Comparative Analysis of four Pilot Plantation............................................ 68
2.7.6 Revenue Generation..................................................................................... 69
2.8 Activity B – Cost of Jatropha Raw Oil Production.......................................................... 69
2.8.1 Raw Material................................................................................................ 70
2.8.2 Oil Expeller Units........................................................................................ 70
2.9 Activity C – Cost of Jatropha Raw Oil Purification......................................................... 76
2.9.1 Cost Components of Bio Diesel Production................................................ 77
2.10 Additional Costs of Jatropha Bio Diesel Value Chain..................................................... 82
2.10.1 Transport Cost........................................................................................... 82
2.10.2 Cost of Storage Facility............................................................................. 83
2.10.3 Marketing Costs......................................................................................... 83
Concluding Remarks........................................................................................................ 85
PAGE
CHAPTER 3 ISSUES OF JATROPHA BIO DIESEL VALUE CHAIN

3.1 Identifying Critical Areas to Be Focus for Jatropha Cultivation..................................... 86


3.1.1 Density of Plantation................................................................................... 86
3.1.2 Plantation Practices..................................................................................... 87
3.1.3 Intercropping............................................................................................... 87
3.1.4 Irrigation...................................................................................................... 88
3.2 Major issues of Value Chain of Jatropha Bio Diesel Production.................................... 88
3.2.1 Long and Short run Issues in Bio Diesel Production.................................. 88
3.2.2 Supply Chain of Feed Stock........................................................................ 89
3.2.3 Propagation of Jatropha Plantation............................................................. 89
3.2.4 Setting Up intermediate Oil Expelling Units and Oil Purification
Plants.................................................................................................................... 90
3.3 Profitable Model For Stakeholders.................................................................................. 90
3.3.1 Value Addition............................................................................................ 92
3.3.2 Cost Minimization and Profit Maximization.............................................. 93
3.4 Contract Farming............................................................................................................. 94
3.4.1 Tri-Partite Contract System........................................................................ 99
3.4.2 Bi-Partite Contract System.......................................................................... 101
3.4.3 Multi-Partite Contract System For Jatropha Cultivation And Bio
Diesel Production............................................................................................... 101

Concluding Remarks........................................................................................................ 105

CHAPTER 4 BROAD STRATEGY FOR JATROPHA BIO DIESEL PRODUCTIO PAGE

4.1 Strategic Approach For Intermediate Oil Expelling Units…………………… 106


4.2 Backward Linkages.................................................................................................... 107
4.2.1 Identification of Land for Jatropha Cultivation.................................... 107
4.2.2 Key Institutes And Their Contribution To Jatropha Cultivation…. 108
4.2.3 Widespread Employment Opportunities For Rural Communities... 109
4.2.4 Awareness and training......................................................................... 110
4.2.5 Monitoring Mechanism......................................................................... 111
4.2.6 Nursery Development.......................................................................... 111
4.3 Forward Linkages...................................................................................................... 112
4.3.1 Alternative Marketing Network/Channels....................................... 112
4.2.2 To Enable Interested and Eligible Entrepreneurs to set up Bio Diesel
production plants........................................................................................... 115
4.2.3 To Set Up Quality Control Facilities.................................................... 115

Conclusion.................................................................................................................. 116

Bibliography............................................................................................................... 118

LIST OF TABLES PAGE

Table 1.1 Indian Productions and Import of Crude Oil (in Million Ton)............... 5
Table 1.2 Future targets for Bio Diesel production......................................... 12
Table 1.3 Land categories and potential for jatropha cultivation.................. 23
Table 1.4 Jatropha Plantation Activities in India.......................................... 24
Table 2.1 Various Estimates of Wastelands in India.......................................... 36
Table 2.2 Percentage of Wasteland in Identified States...................................... 37
Table 2.3 Wasteland under jatropha Cultivation in Gujarat............................ 39
Table 2.4 Employment for various sub Activities of Jatropha cultivation............. 48
Table 2.5 Seed Yield per Plant under Irrigated and Rain fed condition............. 49
Table 2.6 Various Capacities of oil Expelling Units.................................... 70
Table 2.7 Basic Assumptions for Activity B............................................... 71
Table 2.8 Capital Cost of Activity B............................................................ 71
Table 2.9 Capital Cost of Activity C......................................................... 76
Table 2.10 Basic Assumptions for Activity C............................................ 77
Table 3.1 Variables affecting Cost of Cultivation.................................. 87

LIST OF FIGURES PAGE

Figure 2.1 Stages of Bio Diesel Production..................................................................... 31


Figure 2.2 Conceptual Method for Value Chain Analysis............................................... 31
Figure 2.3 Cost calculation of Three Key Activities....................................................... 32
Figure 2.4 Percentage of Wasteland from TGA in Districts of Gujarat...................... 40
Figure 2.5 Total Cost (TC), Total Revenue (TR) & Total Profit (TP) Curve –Type A1 49
Figure 2.6 Total Cost (TC), Total Revenue (TR) & Total Profit (TP) Curve –Type A2 55
Figure 2.7 Total Cost (TC), Total Revenue (TR) & Total Profit (TP) Curve –Type A3 59
Figure 2.8 Total Cost (TC), Total Revenue (TR) & Total Profit (TP) Curve –Type A4 65
Figure 2.9 Comparative TP Curve for A1, A2, A3 and A4....................................... 68
Figure 2.10 Total Cost (TC), Total Revenue (TR) and Total Profit (TP) Curves – Oil
Expelling Unit................................................................................................ 72
Figure 3.1 Value addition and Additional Costs in Value Chain.................................... 92
Figure 3.2 Tri-Partite Contract System for Jatropha cultivation................................ 100
Figure 3.3 Bi-partite Contract system for Jatropha Cultivation................................. 101
Figure 3.4 Contract Systems and Joint Venture......................................................... 103

PAGE
LIST OF ANNEXURE

Annexure 1 Cost of Jatropha Cultivation on Private Land- Type A1................................... 51


Annexure 2 Net Annual Profit from 1 Ha Jatropha Cultivation Type A1............................. 52
Annexure 3 Cost of Jatropha Cultivation on Village Grazing, Fallow Land- Type A2…… 56
Annexure 4 Net Annual profit from 1 Ha Jatropha Cultivation Type A2............................. 57
Annexure 5 Cost of Jatropha Cultivation along Railway Tracks - Type A3......................... 61
Annexure 6 Net Annual Profit from Jatropha Cultivation Along railway tracks- Type
A3....................................................................................................................... 62
Annexure 7 Cost of Road side Jatropha Cultivation - Type A4............................................ 66
Annexure 8 Net Annual Profit from Road side Jatropha Cultivation - Type A4………… 67
Annexure 9 Working Days of Oil Expelling Unit form seeds produced form 1 Ha
Plantation........................................................................................................... 73
Annexure 10 Cash Flow Statement of Raw Jatropha Oil Production- Activity B.................. 74
Annexure 11 Production forecast of jatropha raw oil and oil cake - Activity B..................... 78
Annexure 12 Annual Profit after Depreciation of Bio Diesel Production- Activity C……… 79
ABBEREIVATIONS

ASTM: American Society for Testing Materials


BIS: Bureau of Indian Standards
CBOs: Community Based Organizations
CFAT: Cash Flow After Tax
CII: Confederation of Indian Industry
CO: Carbon Monoxide
CO2: Carbon Dioxide
CSMCRI: Central Salt and Marine Chemicals Research Institute
DBT: Department of Bio Technology
DFO: Divisional Forest Officer
DoEF: Department of Environment and Forest
DRDA: District Rural Development Agency
FFA: Free Fatty Acid
FYM: Farm Yard Manure
GO: Government Organization
GOI: Government of India
GVMM: Gram Vikas mahila Mandal
HA: Hectare
HRM: Human Resource management
HSD: High Speed Diesel
HYV: High Yielding Variety
IICT: Indian Institute of Chemical Technology
IIP: Indian Institute of Petroleum
IWDP: Integrated Watershed Development programme
JFM: Joint Forest management
MNRE: Ministry of New Renewable Energy Resources
MoPNG: Ministry of petroleum and natural gas
MoRD: Ministry of Rural Development
MPNG: Monistry of Petroleum and Natural Gas
NBRI: National Botanical Research Institute
NGO: Non Governemtal Organization
NHAI: National Highway Authority of India
NREG: National Rural Employment Guarantee
NOVODB: National Oil seed and Vegetable Oils Board
NABARD: National Agriculture Bank for Rural Development
OMCs: Oil Marketing Companies
PAT: Profit After Tax
PCRA: Petroleum Conservation Research Association
PM: Particulate Matters
PRIs: Panchayati Raj Institutions
SAUs: State Agriculture Universities
SGSY: Swarnajayanti Gram Swarozgar Yojna
SGRY: Swarnajayanti Gram Rozgar Yojna
SHAI: State Highway Authority of India
SHGs: Self Help Groups
SLC: State Level Co-ordinator
TGA: Total Geographical Area
TERI: The Energy and Resources Institute
WRI: World Resource Institute
Strategies for Jatropha Bio Diesel Production- Profit model, “The case of Gujarat”

STRATEGIES FOR JATROPHA BIODIESEL PRODUCTIO) –


PROFIT MODEL,
“THE CASE OF GUJARAT”

EXECUTIVE SUMMARY

Halak Bhatt EP-0507 1|Page


Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Executive summary

EXECUTIVE SUMARY
Crude oil reserves of the world are predicted to deplete in about 40 years,
estimated by WRI. Energy is very crucial for development and Human Welfare and thus
has been considered as lifeblood of Economy and Development. Growth of an economy
is largely dependent on adequate and consistent supply of energy. Consequently global
concern for fuel supply security had propelled worldwide research for searching out
renewable energy resources for substitution. Apart from search for renewable
alternatives, it is essential to achieve Fuel independence, which is focusing on the Bio
fuel as one of the promising renewable energy option from Bio fuel crops especially
which are non food crops. Bio fuels can make significant contribution in reducing the
dependency on fossil fuel imports, and replacement of fossil fuel in sectors like transport
system, railways, industries and rural energy supply which will contribute positively to
environmental sustainability. In terms of Non renewable energy resources, there is a need
for National or Regional level energy policy which aims at balancing of various
alternatives of energy resources. Therefore, experts are now focusing towards main
concerns of sustainable energy resources which can offer supply security, economic
affordability, social acceptability and environmental viability. However, full deployment
of Bio fuels would largely depend on overcoming socio-economic, environmental and
trade barriers. Key objective of renewable energy policy should focus on optimum
production of Bio fuel in developing nations. Over the years, India is putting up high
thrust on Oil demand of 114 million tonnes out of which 112 million tonnes of oil is
consumed by only transport sector. 22% of the demand of surface transportation is
satisfied by domestic oil supply and rest is satisfied by imported Oil. 75% of India’s total
Oil demand is fulfilled by Imported Oil. Thus Diesel is one of the fastest demand
growing segments of energy sector. Currently Oil, Petrol, and High Speed Diesel are
serving prime mobility demand as a Diesel in transport sector.

As discussed above, the predominant key element of balancing non renewable


energy is diversification of Diesel in terms of its origins and types to ensure consistent
supply security, economic, social and environmental sustainability. Many nations of
world have shown their keen interest in tapping renewable energy which is not only
environmental friendly but also economic to produce. Brazil is one of the largest
countries producing Bio-Ethanol from Sugarcane. Uganda had also appreciated and

BHATT HALAK EP-0507 1|Page


Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Executive summary

started Jatropha plantation. They have also identified other aspect of Jatropha cultivation
intercropped with Vanilla plant which is suitable for harvesting and increasing water
retention capacity. Likewise other countries Somalia, Sri Lanka, Germany, and
Zimbabwe are also involved in Jatropha Plantation. By developing and encouraging Bio-
Diesel production from non edible oil seeds like jatropha, India can reduce her
dependence on imported oil and petroleum products. Considering these aspects, experts
and policy makers determined alternatives source of Diesel by introducing Bio-Diesels to
reduce huge Oil Import and price fluctuations. In case of India, huge availability of
wastelands is devoting privileged opportunity for deployment of Bio Diesel production
from jatropha and socio economic benefits to rural communities.

Widespread discussions for Bio Diesels mainly explains that, Bio-Diesel


production from food-crops like Sugarcane, maize, ground nut, coconut had raised
serious concern regarding food supply security. Worldwide, many countries are tapping
renewable energy through various food and non-food crops. But here research is very
specific for jatropha Bio Diesel production because for developing country like India,
first priority obviously is given to adequate food supply and poverty reduction.

Thus first generation Bio Diesels came into picture which refers to fuels derived
from sources like starch, sugar, animal fats and vegetable oil. They are mainly produce
by using conventional techniques of production. After series of research and
development of Bio Diesels, Second generation Bio-fuels introduced which are produced
from non-food feed stocks and wastes using advanced technical processes. They are also
known as advanced Bio-fuels and green hydro carbons. Therefore this research mainly
focuses on jatropha based Bio Diesels.

As per above discussion, worldwide Bio Diesel development is taking place in


many developed and developing countries. Subsequently Bio Diesel market development
potential will vary both in developed and developing nations. India had just entered into
global market of Bio fuel. For any market and its development, optimum production and
consistent supply are key stones which will determine failure or success of that market.
This research- which mainly addresses the issues associated with Bio Diesel production
from jatropha which is a second source of renewable energy. Research throws light on
the Value chain of jatropha Bio Diesel production and issues associated with the value
chain. Research considers Jatropha Bio Diesel Industry as a new entrant Industry in

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Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Executive summary

global market which makes it necessary to carry out Value chain analysis for jatropha
Bio Diesel production. Thus, research will focus on understanding of Bio Diesel
production trends and further improvement in Bio Diesel production sector through
Value Chain Analysis (VCA).

In order to assess the Bio Diesel production, research will touch mainly two focus
areas: one financial analysis of Bio Diesel production from jatropha and removal of
financial barriers to produce jatropha Bio Diesel. Besides these socio-economic aspects
of Bio Diesel production will also to be considered, because acceptance of rural
communities will play vital role in jatropha cultivation as well as in Bio Diesel
production sector. Unless and until, rural communities will not found any economic
benefit in jatropha cultivation, their participation and contribution may not be
satisfactorily achieved in jatropha cultivation for raw material. Hence, from the
beginning jatropha cultivation is promoted in wastelands not in agricultural productive
and fertile land. Research also focuses on various land use dynamics with respect to its
potential for jatropha cultivation. Other issues attached with Bio Diesel implications are
change in technology, infrastructure and especially automobile related changes which
needs to be considered for long run implications and desired output from it.

The roots of Bio Diesel production are deeply interacted with socio-economic
benefits to rural communities and adoption for jatropha cultivation practices on road
side, railway track side, waste lands and other huge chunks of barren and fallow lands
which are not useful for agriculture. Farmers’ commitment for jatropha cultivation can
be justified by high output from jatropha cultivation additional to their average annual
income without compromising their productive land for agriculture and farmers’ regular
income. Propagation of jatropha cultivation at regional level involves number of risks
which will determine success of failure of this action which are: financial risks, misuse
of funds at initial stages, financing, monitoring mechanism of cultivation, attracting
investors, output value of product, market competition, and socio-economic risks. Hence,
Jatropha cultivation is the key activity which can strengthen the supply chain of feed
stock for jatropha Bio Diesel industry.

Therefore the main purpose of this research is to develop the profitable model for
regional growth of jatropha cultivation and Bio Diesel production. In order to work out
profitable model, Value Chain Analysis (VCA) of jatropha cultivation for raw material

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Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Executive summary

production and Bio Diesel production will be carried out. VCA mainly covers three key
activities of Bio Diesel production.

1) Jatropha Cultivation

2) Raw oil expelling from Jatropha seeds

3) Raw oil purification

Research includes cost estimation of each activity and also measures profit or
economic output from each activity. This had directed research towards investigation of
factors which may affect cost of each activity and scale of production i.e. continuous or
batch to batch production. It was analyzed and interpreted that the major issue and gap
involved in jatropha Bio Diesel Value chain is supply chain of feed stock that is Jatropha
seeds. The only situation to reduce gap in supply chain is effective and planned jatropha
cultivation activities which will not give only high yield but will also give good
economic output to cultivators/farmers as well as stakeholders of Bio Diesel industry.
Gaps in supply chain are addressed and various contractual systems were established to
reduce gaps in supply chain.

VCA will zoom in issues related to jatropha cultivation and Bio Diesel production
from it. Here in this research also focus on various alternatives to achieve win-win
situation in jatropha cultivation and Bio Diesel production by profitable model. Win-win
situation in this context represents satisfactory output to stakeholders i.e., farmers,
cultivators, Bio Diesel producer and users. The model derived from research will be a
tool guide and replicate the same strategy at state level. Hence local realities of states
will vary accordingly i.e. socio-economy, agriculture, environmental characteristics,
local economic activities etc. In nutshell, this profit model will be developed for Gujarat
to expand, promote and accelerate Bio Diesel production through propagating jatropha
cultivation in such a manner that it gives high seed yield, good economic output and
ultimately strengthen supply chain of feed stock by focusing on backward and forward
linkages. Social acceptance in Bio Diesel production can be achieved by ensuring an
entrusted rural employment and devoting higher output to cultivator as well as to Bio
Diesel producer. Thus concluding, developing countries should formulate strategy which
devote win-win situation for cultivators and entrepreneurs of Bio Diesel production
Industry.

BHATT HALAK EP-0507 4|Page


CHAPTER 1
I TRODUCTIO

COTETS PAGE
1.1 Introduction................................................................................................................ 5
1.2 Structure of research.................................................................................................. 7
1.3 Research Aim............................................................................................................. 7
1.4 Research Objective.................................................................................................... 8
1.5 Research Questions.................................................................................................... 8
1.6 Scope and limitations................................................................................................. 9
1.6 Research Methodology.............................................................................................. 9
1.7.1 Data collection...................................................................................... 9
1.7.2 Analysis Methods................................................................................. 10
1.7 Literature review........................................................................................................ 11
1.8.1 Government Policies and Incentives for Bio Diesel development in
India............................................................................................................... 12
1.8.2 Bio Diesel Purchase Policy.................................................................. 13
1.8.3 National Bio Diesel Mission................................................................ 14
1.8.4 National Biofuel Policy........................................................................ 15
1.8.5 Policy Issues......................................................................................... 18
1.8.6 Enhancement of Jatropha for Bio Diesel............................................... 18
1.8.7 Environmental Benefits of Bio Diesel................................................... 20
1.8.8 Land Use Dynamics And Jatropha Cultivation..................................... 21
1.8.9 Importance of Value Chain Analysis for Bio Diesel Production from
Jatropha......................................................................................................... 24

Concluding Remarks.................................................................................................
27
Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Chapter 1

1.1 INTRODUCTION
India is facing problem of increased import bill due to increasing fuel demand. In
2007, India had paid $60 Billion to import crude oil which is damaging the whole economy
of India but beneficial to Arab countries. Thus global quest for fuel substitute initiated and
accelerated Bio fuel promotion as one of the renewable energy resources. Bio fuels are not
the only solution which will solve the problem of increasing fuel demand, but new
advanced alternatives like Photovoltaic Cell, hydrogen Cell, Electric Vehicles are also
coming into global frame of renewable energy alternatives. Being the fifth largest energy
consumer, India imported nearly 70% of its crude oil requirement (90 million tonnes)
during 2003-04. Estimates indicate that this figure will to 95% by 2030 (World Energy
Outlook, 2005). Table 1.1 illustrate that import bill is constantly increasing from decade of
1971 to 2001 whereas for India, there is a prior need to allocate financial resources for
overall development and growth of country as well as economy.

Table 1.1 Indian Productions and Import of Crude Oil (in Million Ton)

Year Production Import Total Import % Import Bill INR Crores


1971 6.8 11.7 18.5 63 107
1982 10.5 16.2 26.7 61 3349
1991 33 20.7 53.7 39 6118
2001 32 57.9 89.9 64 30965
2002 32 73.5 105 70 83,528
2004-05 33.3 95.9 111.7 76 1,17,032
Source: Economic Survey, 2002-03, CII, 2005; the Hindu Daily, Dated 24th May
2005

The development of Bio Diesels has generated vigorous debates on economic and
environmental aspects of Bio Diesel development. For developing countries, Bio Diesel
development has huge potential for rural employment, fossil Diesel replacement and
reduces in oil imports. Though several opportunities as well as market and environmental
risks are involved in development of Bio Diesel markets which needs to be addressed
while policy making. For developing nations, it is essential to provide economic potential
for wider growth of Bio Diesel market by adequate Bio Diesel production.

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Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Chapter 1

In order to assess Bio Diesel production, it is important to know some factors


which are as follow:

 Government policies and incentives


 Oil seeds production and supply
 Financial plan for jatropha based Bio Diesels
 Community participation and socio-economic benefits
 Financial structure and resources
 Market size and potential
 Competition
 Sensitivity analysis
 Plant and operating cost of Bio Diesel production

The challenges for jatropha Bio Diesel development can be broken down in three
categories. Technical Challenges, financial challenges and policy based challenges.
Technical challenges pertain to barriers regarding adoption of advanced technologies for
Bio Diesel production and production of good quality jatropha seeds. Secondly, financial
challenges are related to access to capital and finance at all stages of Bio Diesel
production. Considering thumb rule that each hectare would yield up to 3 tonnes of seed
which can yield 1 tonne oil tentatively if proper care is taken during gestation period of
jatropha. Estimation of production is based on theoretical assumptions and calculations
which reduces commitment of financial institutions to allocate any fund for large scale
jatropha plantation. Indirect cost of Bio Diesel should be less than direct costs which
should be considered as sufficient condition for Bio Diesel development. Secondly, under
necessary condition, direct cost of Bio Diesel production should be less than present day
value of HSD.

Apart from this, access to global market for supply and distribution are another
barrier for Bio Diesel producers and cultivators. Thus, there are chances of monopoly and
market completion which will affect the growth of Bio Diesel production. Perfect
competition in Bio Diesel market more or less can be achieved by formulating the policy
which enhances assured Bio Diesel production with profit to user group as well as
stakeholders involved at each stages of production. Energy security is a serious concern for
Indian policy makers, since the country depends on the petroleum imports to meet 75% of
its fuel needs. However, in longer run, the crucial issue for jatropha Bio Diesel may be the

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Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Chapter 1

availability and sufficient supply of raw materials to keep up the growing demand.
Availability of other options instead of Bio Diesel production may cause economic
externality by competition in market.

1.2 STRUCTURE OF RESEARCH


Research is designed to actually examine the various macro and micro issues
currently faced by jatropha cultivation and Bio Diesel production; and to examine role of
various stakeholders in its value chain. Research is structured in four Chapters. First
chapter mainly concerned with the current status of jatropha Bio Diesel production in India
and Gujarat. Introduction to research, research aim, objectives, methodology and literature
review are covered in chapter 1 and partly in chapter 2. Literature review will provide in-
depth review and analysis of Bio fuel policy and initiatives by GOI, importance and
significance of value chain analysis for this research and understanding of value chain
analysis for jatropha Bio Diesel production. Chapter 2 begins with detailed phases of value
chain analysis for Bio Diesel production from jatropha. It will cover financial analysis of
specific part of value chain of Bio Diesel production from jatropha considering few
assumptions for computations. VCA will cover only three key activities of Jatropha Bio
Diesel production that is jatropha cultivation for raw material, raw oil extraction and Bio
Diesel production from it.

Chapter 3 briefly documents the whole scenario of Bio Diesel production through
its value chain and identify critical areas, issues and barriers for Bio Diesel production.
This part of thesis presents a profitable model through which stakeholders and contributors
who are involved in Bio Diesel production industry at each stage can get profit from this
market and accelerate production of jatropha Bio Diesel. Chapter 4 suggests the strategy
for implementation of this profitable model at pilot basis and its efficiency and potential of
replication for the benefit of stakeholders. This part in nut shell will conclude the essence
of this research.

1.3 RESEARCH AIM


The main aim and innovative part of this research is to explore strategy for jatropha
Bio Diesel production through profitable model by resolving financial barriers and risks for
Bio Diesel production; to create win-win situation. Research also aims at exploring a
profitable model for Bio Diesel production from jatropha. The intention of this research is

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to provide an integrated account and economic analysis of jatropha derived Bio Diesel
production with respect to its economic output, consistency and scale of production.

1.4 RESEARCH OBJECTIVES


Main objective of this research is to do value chain analysis of Bio Diesel
production from jatropha and to establish strategy for Bio Diesel production and profitable
model for stakeholders as well as for Government.

Sub objectives of this research are to review the Bio Diesel development trends in
India. Research also focuses on potential of Bio Diesel development from jatropha and
review of National Bio Diesel mission by planning commission. Apart from value chain
analysis, study also aims at financial analysis of Bio Diesel production trends considering
various assumptions and various scenarios. In nutshell, various models of Bio Diesel
production will be analyzed to find out their economic benefits and production cost
minimization. Apart from value chain analysis, one objective of research is to throw light
on socio-economic benefits of rural communities who are involved in jatropha cultivation
activities.

1.5 RESEARCH QUESTIONS


The major questions that this research addresses are:

 What are the activities for promotion of jatropha Bio Diesel production?
 Why value chain analysis for Bio Diesel production is important?
 How to do value chain analysis for jatropha Bio Diesel production?
 What are the issues of Jatropha Bio Diesel Value Chain?
 How to work out profitable model for stakeholders in this context?

The first question looks at various initiatives taken by Government for propagation
of Bio Diesel Production through policy interventions and guidelines. To answer this
question, National Bio Diesel Mission, Bio Diesel Purchase policy and National Biofuel
policy had been reviewed. The next two question captures the essence of the research that
is exploring value chain analysis of Bio Diesel production from jatropha, which includes
mainly three key activities; firstly jatropha cultivation for raw material, secondly Raw oil
extraction and lastly processing of raw oil and Bio Diesel production. It also includes the
importance of Value Chain Analysis in this context. And fourth question will include

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issues of Jatropha Bio Diesel Value Chain and other gaps in value chain to identify micro
and macro level issues attached with it. Fifth and last research question will focus on the
profitable model to all stakeholders which express win-win situation for stakeholders who
are involved in jatropha cultivation and Bio Diesel production.

1.6 SCOPE AND LIMITATIONS


In order to carry out value chain analysis of Bio Diesel production from jatropha,
whole chain of activity is not considered. Only three key activities are considered which
are jatropha cultivation, raw oil production and Bio Diesel production. With respect to
explore profitable model for stakeholders, cost benefit analysis is done.

One major limitation was faced during research was less aspiration of Bio Diesel
manufacturing firm to share their marketing strategy and project implementation sites. So
during calculation of costs of activities, few standard assumptions are made to do
computation and analysis. This limitation ultimately resulted squeezing of value chain only
for three key activities.

1.7 RESEARCH METHODOLOGY


In order to carry out Value chain Analysis of jatropha Bio Diesel Production, various data
were collected from various sources. Following are the data collection methods for primary
and secondary data. Methodology also represents the analysis methods of collected data.

1.7.1 Data collection


Secondary data collection
To initialize and explore study conceptualization, literature review of desk review
several of secondary data had been done from internet resources, articles, working papers,
energy manuals, news articles and other library resources. Based on that, various
Government Organizations, NGOs, Research & Development departments, Private
entrepreneurs and organizations had been listed out and visited with appropriate inquiry
forms considering their contribution in Bio Diesel production. For research background
and rationale, various secondary sources like journals, government reports, magazine
articles, news paper articles and other library resources had been referred.

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Primary data collection


Various stakeholders were interviewed to obtain desired information. Stakeholders
would be farmers, cultivators, GOs, NGOs, private organizations, Bio Diesel production
industries etc. Common questionnaires were prepared for collection of required
information for analysis. Since the focus of the survey was on employment generation,
economic benefits, yielding capacity, area coverage, awareness, input cost from jatropha
plantation to harvesting etc. A comprehensive checklist was prepared to get required
information. As listed above, Government Organizations, NGOs, Research &
Development departments, Private entrepreneurs and organizations had been visited with
detailed and specific questionnaire to get broad spectrum of Bio-Diesel crop plantation
activities and Bio Diesel production activity to do value chain analysis for Bio Diesel
production form jatropha. Mainly three types of activities were interviewed. First was
jatropha cultivation activities, secondly oil expelling activities and third was raw oil
purification. Three various questionnaires were explored to obtain information for
research.

1.7.2 ANALYSIS METHODS


Value chain Analysis Method
In any business or market, one key factor that makes the business or market
successful or failure is Cost factor or in other words potential returns from that. Value
chain analysis is the systematic approach to examine the development of comparative
advantage in competitive market. Thus, it is essential to do value chain analysis of Bio
Diesel production which will enables us to identify the problematic or critical stages which
directly affects the price of the final product and production of Bio Diesel. This analysis
will also provide us clue for cost minimization and value maximization at specific stage.

Here scope of value chain is bound only with the production of Bio Diesel from
jatropha. It means VCA will be applied only up to production; and will not be extended to
supply and distribution in market. Value chain analysis, widely excepted paradigm; which
can focuses on dynamics of inter-linkages within the Bio Diesel production sector,
especially in a way which various stakeholders are locally and regionally integrated,
further than takes researcher to modes of economic and social analysis of Jatropha based
Bio Diesel. In this context, value chain analysis overcomes a number of important

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strengths and weaknesses of jatropha based Bio Diesel production sector. Hence, this
concept is not restricted to sectoral analysis of jatropha based Bio Diesels but will also
interlink the social and economic aspects of Bio Diesel production from jatropha.

Other Statistical Methods


Profit calculations will be carried out to calculate net benefits/profits from Bio
Diesel production from jatropha. For this analysis, discussion will be carried out with
various Bio Diesel manufacturing firms, Government Institutions and Non government
organizations who are involved in jatropha plantation activities. For cost of jatropha
cultivation, various scenarios will be assumed and considered for analysis which will help
to find out the best case scenario for regional level implication.

1.8 LITERATURE REVIEW


Literature review is organized in two parts. First part consists of review of
Government Policies and Incentives for Bio Diesel development in India which will cover
related policies, various researches and development of jatropha Bio Diesel, pilot project
implementations and other related benchmark events related to jatropha Bio Diesel. Second
part will focus on concept of comparative advantage and value chain analysis for Bio
Diesel production, which will include theoretical understanding of value chain, its
application, importance of value chain for research and related definitions to perform value
chain. It will also include whole process of value chain exploration. In order to define
comparative advantage in this context, chapter 2 and 3 will include whole understanding
about determining comparative advantage in jatropha Bio Diesel production.

‘Bio Diesel is a methyl or ethyl ester of the fatty acid made from virgin or used
vegetable oils (both edible and non edible) and animal fat. The main resources for Bio
Diesel production can be non edible oils obtained from plant species such as jatropha
curcas (ratanjyot), hevea brasiliensis (rubber), etc. Bio Diesel contains no petroleum, but it
can be blended at any level with petroleum Diesel to create Bio Diesel blend fuel or it can
be used in its pure form just like petroleum Diesel (HSD).’1

‘Two main forms of Bio Diesel now sold in US are B20 and B100. B20 is a mixture
of 20% Bio Diesel and 80% petrol Diesel, a mixture that address Diesel emissions

1
(Swarup, 2007)

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problems (30% less unburned hydrocarbons, 20% less carbon monoxide, 22% less PM and
20% less sulphates.) B100 contains no petrochemicals and it is 100% Bio Diesel which
burns much cleaner (93% less unburned hydrocarbons, 50% less carbon monoxide, 30%
less PM and no Sulphates). However B100 is referred as pure form of Bio Diesel.’2

1.8.1 GOVERNMENT POLICIES AND INCENTIVES FOR BIO


DIESEL DEVELOPMENT IN INDIA
‘In 2003-04, India, which imports 70% of Crude Oil to meet its requirement, spent
18.36 billion dollars (842.36 billion rupees) on importing more than 90 MT (million
tonnes) of Crude Oil. It is estimated that if India continues consuming Oil at this Rate, it
will be using up to 5.6 million barrels of oil per day by 2030, of which more than 94% will
be met through Oil imports.’ 3

Actually there is no substitute for petroleum products but jatropha Bio Diesel had
high potential to substitute High Speed Diesel (HSD) in transport and railway sector.
Considering HSD demand and its future requirement, planning commission had projected
Bio Diesel blending projections with help of Committee of development of Bio fuel in
India.

TABLE 1.2 Future targets for Bio Diesel production

Year Diesel Bio Diesel Area for Bio Diesel Area for Bio Diesel Area for
Demand @ 5% 5% Mha @ 10% 10% Mha @ 20% 20% Mha
MMT MMT MMT MMT
2001-02 39.81 1.99 N.A. 3.98 N.A. 7.96 N.A.
2006-07 52.33 2.62 2.19 5.23 4.38 10.47 8.76
2011-12 66.9 3.35 2.79 6.69 5.58 13.38 11.19

Source: Report of committee on development of Bio fuel

Government of India had envisaged blending of 20% ethanol and Bio Diesel across
country by 2017. To meet this target and to accelerate Bio Diesel and ethanol production,
GOI had constituted National Bio fuel Co-Ordination Committee and Bio fuel Steering
Committee under PM and cabinet secretary. In order to development of Bio fuel market,
GOI had formulated National Bio Diesel Programme (2003), Bio Diesel Purchase policy

2
http://www.treeoilsindia.com/
3
P.P. Bhojvaid, 2006; “Bio fuels towards a greener and secure future”; TERI Press, New Delhi, pg 24)

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(2005) and National Bio fuel policy (2008). National Bio Diesel mission and programme
have economic importance for following reasons.

 Saving of foreign exchange by import bill reduction


 Generation of huge rural employment
 Enhancing farm income to small and marginal farmers
 Better utilization of wastelands available in country
 Improvement in Bio fuel crop cultivation for raw material and Bio Diesel
production
 Advanced technology and processed for standard quality of Bio Diesel
production

1.8.2 BIO DIESEL PURCHASE POLICY


‘Ministry of petroleum and natural gas has been formulated a Bio Diesel Purchase
policy on 9 October 2005 which was implemented from 1st January 2006. It says that,
Public sector; Oil Marketing companies shall purchase Bio Diesel (B100) of standard
quality through its notified centres at Rs. 25 per litre (initially). Quality of Bio Diesel
should meet the norms set by Bureau of Indian Standard.’4

It was declared under Bio Diesel Purchase Policy by Ministry of Petroleum and
Natural Gas on 9th October 2005, Bio Diesel produced in the country should meet BIS
standards which would be purchased by Public Sector Oil Companies/ Oil Marketing
Companies (OMCs). The purchase of Bio Diesel can be carried out through 20 purchase
centres. For this purpose, twenty different locations all over the country have been
embarked and notified for collection of Bio Diesel for blending. umber of these
collection centres would be increased if the production of Bio Diesel in the country
increases. Bio Diesel purchase policy mainly thrust on assured market access to Bio Diesel
producers at national level and to strengthen the networking and sharing of information in
the field of Bio Diesel production industry. Depending upon the market conditions, oil
companies will be free to review price of product every six months. The Policy plays a
vital role for active involvement and participation of PRIs in promotion of Bio-Diesel.

4
The Bureau of Industrial standards (BIS) specification BIS 1460 for High Speed Diesel covers
specifications for 5% Bio Diesel blended Diesel also. BIS has also come out with the specification for pure
Bio Diesel (B 100), vide PCD3 (2242) dated 26-7-2004, which is an Indian Adaption of American ASTM D
6751.

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Other Government Institutions are involved in Bio Diesel Development programme are
NOVODB, DBT, NBRI, NABARD, and PCRA. Right now Bio Diesel blended Diesel is
extensively used by IOC in Haryana Roadways buses and Railways on trial basis.
Hindustan Petroleum Corporation Limited (HPCL) had also carried out trial application of
blended Bio Diesel in association with BEST public transport in Mumbai. Another
successful trial application of B20 blending without any engine modifications was Gujarat
State Road Transport Corporation (GSRTC) buses.

‘It is stressed in Bio Diesel purchase policy that, Bio Diesel for blending should be
of standard and approved quality. Therefore, it is made compulsory for Bio Diesel
manufacturers to get their Bio Diesel samples approved and certified by National Oil
Companies to get registered as authorised supplier in market. Along with this, Bio Diesel
purchase centres should also be equipped with minimum testing facilities for ensuring
purchase of Bio Diesel of requisite specification. Purchase centres should be identified by
consultation with the OMCs. State level Co-ordinators are dealing with Bio Diesel
manufactures’ interest to supply Bio Diesel to public sector oil marketing Companies with
proper certification by industry team.’5

1.8.3 NATIONAL BIO DIESEL MISSION


One predominant aim of National Bio Diesel Mission is to reduce dependency on
Imported Oil by producing Ethanol and Bio Diesel from sugarcane and Jatropha
respectively. Issue with ethanol production from sugarcane is water incentive plant as India
is facing serious agriculture water shortage. Ministry of Rural development had been
appointed as a nodal agency for implementation of National Bio Diesel mission in two
phases. MoRD had integrated jatropha plantation activities with its current Programmes
such as IWDP, SGSY, SGRY, and PMGSY to help poor farmers to escape from poverty.

Main goals of national Bio Diesel mission are:

 To produce Bio Diesel from jatropha and Pongamia,


 To develop and utilize wastelands and improve environment,
 To create employment opportunities in rural areas, especially to women
 To facilitate the conduct of research on non-edible Oil trees,

5
Bio Diesel purchase Policy,2005, Section 4, article 4,2, i,ii,iii

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 To promote organic farming by making de-oiled cake available to farmers


 To restore degraded lands and generate income opportunity from them

‘The first phase involving a demonstration stage for plantation of Jatropha on 4 lakh
Hectares and associated research activities for establishing the commercial viability of the
fuel and phase two for carrying out a self-sustaining expansion of the Bio Diesel
programme. In order to attract and secure private participation on larger scale,
Government of India has fixed the procurement price of Bio Diesel as Rs. 25/Litre with a
provision of revision.’6

Under this mission, Government of India had tried to club efforts and co-
ordination amongst the ministries, departments, Governmental and on Governmental
Agencies assigned for implementation of assigned responsibilities of Bio Diesel
programme. Than after, in 2003 Bio Diesel programme was launched by Government of
India from Jatropha and Karanjia plants. Government of India had declared National Bio
Diesel Policy in September 2008 to promote and develop Bio Diesel market.

1.8.4 NATIONAL BIO FUEL POLICY


It is declared under National Bio fuel policy that all central taxes on Bio Diesel and
according declared status to Bio fuel will be uniform 4% sales tax on the product across
states. In order to achieve successful results of Bio Diesel blending, certification
mechanism is developed to conform BIS standards of Bio Diesel. Along with is policy,
GOI had initiated Bio fuel strategy under which 5% ethanol blending is made mandatory
which will go up to 10% subsequently. Policy had emphasised on Bio Diesel production
from non edible oil seeds by utilizing waste, degraded and marginal lands. Policy
mentioned about Minimum Purchase Price (MPP) and Minimum Support price (MSP) and
Oil Marketing Companies (OMCs) to promote Bio Diesel production and market
development.

In National Bio Diesel policy, they had mainly emphasised on Bio Diesel
production from non food crop like Jatropha and Pongamia plantation on waste lands so
that there is no conflict with food production and price. Apart from this, efforts should
focus on potential for Bio Diesel market Development and Expansion in Indian scenario.

6
Vrijendra Singh and Nandini Nimbkar

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National Bio fuel Policy will lay foundation for the accelerated development of the sector
including research and development, capacity building, purchase policy, and registration
for enabling Bio fuel use.

‘Gujarat, Maharashtra, Madhya Pradesh, Karnataka, Rajasthan, Orissa and


Tamilnadu states are identified by GOI for jatropha plantation. In asik, in 1993, people
conceived the concept of Co-Operative agro forestry under which they had formed asik
District Eucalyptus Growers’ Co-operative Society. Subsequently, efforts grew and
people had formed the co-operative Agro-forestry Federation whose main objectives are
to organize supply of requisite propagation material, to guide farmers on cultivation
practices of agro-forestry crops, to help farmers procure loans and to stand guarantee
for repayment of loans, to organize harvesting and marketing of the agro forestry
produce, and help set up suitable processing units.’ 7

‘Bio fuel policies and subsidies should be urgently reviewed in order to preserve the
goal of world food security, protect poor farmers, promote broad-based rural development
and ensure environmental sustainability. Bio fuels present both opportunities and risks.
The outcome would depend on the specific context of the country and policies adopted.
The challenge is to reduce or manage the risks while sharing the opportunities more
widely. If developing countries can reap the benefits of Bio fuel production and if those
benefits reach the poor, higher demand for Bio fuels could contribute to rural
development.

Opportunities for developing countries to take advantage of Bio fuel demand would
be greatly advanced by the removal of the agricultural and Bio fuel subsidies and trade
barriers that create an artificial market and currently benefit producers in OCED countries
at the expense of producers in developing countries. Production of Bio fuel may create
income and employment, if particularly poor and small farmers receive support to expand
their production and gain access to markets. Policy should promote small holder
participation in infrastructure, research, rural finance, market information and institutions
and legal systems. Decisions about Bio fuels should take into consideration the food
security situation but also the availability of land and water. Sustainability criteria based on

7
Article from Business World, June 20, 2005, State experiences of Bio fuel production Accessed from
<http://www.ibef.org/artdisplay.aspx?cat_id=63&art_id=6520>)

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internationally agreed standards could help to improve the environmental footprints of Bio
fuels and trade barriers should be removed for developing countries.’8

‘Bio Diesel 2020 summit, a global market survey observes three key trends in
jatropha feed stock markets. Main three key trends are: expansion of commercial scale
jatropha plantation and oil seed production in India, with pilot programmes and larger scale
ventures between countries. Second is achieve participation of Local and National
Government and energy agencies in cultivation and production of jatropha, by establishing
partnership between international agencies for technical and financial support. And third
key trend is propagation of jatropha based programmes and projects for dual purposes, one
for government programmes integrated with employment opportunities to rural sector and
another for satisfy rising global Bio fuel demands. In case of government projects, jatropha
offers fuel independence to nation while reducing oil-import bill and establishing a means
for financial resource allocation in economic development in rural areas.

Since, 2005 India has announced plans to develop large scale plantations totalling
over 3, 50,000 hectares. India has leveraged its early mover advantage by establishing
public-private partnerships and is currently developing large scale Jatropha plantations
with financial commitments to establish over 350000 hectares. The ingress of energy
industry, their participation and investment in India is helping to provide the investment
and technology to facilitate large scale production of jatropha oil seeds. Other key factor
which can accelerate growth of Bio Diesel market in India is foreign investment by
international agencies. One benchmark of Joint venture for jatropha Bio Diesel production
was done between UK Based D1 Oils, Mohan Bio Oils, Williamson Major and Bharat
Petroleum, under which huge investment had propagated jatropha plantation and
production. This partnership could lead to large commercial scale jatropha cultivation on
nearly 1,000,000 hectares land by 2012.’9

8
Article on “ Bio fuels should promote Rural Development”, Commodity Online, accessed on 2008-10-08
08:45:00 , <http://www.commodityonline.com/news/Biofuels-policy-shoud-promote-rural-development-
12069-3-1.html>, Comments by Director General Jacques Diouf, FAO in new edition of annual flagship
publication of State of food and Agriculture (SOFA) Report, 2008
9
Feed Stock Trends: Jatropha, Bio fuels International, 62, September 2007. Issue 4, Volume 1. This article
was written by William Thurmond, Emerging Markets Online. The information provided from series of
excerpts from Bio Diesel 2020: A Global Market Survey, volume 2 www.emerging-markets.com
info@emerging-markets.com

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1.8.5 POLICY ISSUES


‘There are few drawbacks of India’s Bio fuel policy which mainly focuses on issues
of dependence of rural poor on such waste lands for diverse purposes which are not likely
to met by jatropha plantation, the potential for conflicts from the appropriation of common
pool resources like wastelands without involvement of local communities in decision
making, lack of prior experience with cultivation of jatropha on marginal lands,
government subsidies to cultivators and farmers who would mostly be large land holders,
exploitation of poor farmers and agriculture labourers. Majority of such wastelands are
classified as common property resources (CPR). This implies that a group such as a village
collectively owns such resources and membership in the group confers an individual right
to access resources.’10

Policy level issues are insufficient production and supply of raw material for
jatropha Bio Diesel which need to be taken care. In India, the quantity is not sufficient to
meet at least 0.25% blend. In order to get good quality and high oil content, tree
improvement programmes are held by government and other research institutes. In case of
large scale commercial plantation, land ownership is not taken into consideration while
delineating area for plantation. In this case, active participation and involvement of PRIs
and local people becomes very essential in decision making.

1.8.6 ENHANCEMENT OF JATROPHA FOR BIO DIESEL


As we have discussed above, Jatropha is most suitable for Bio Diesel production
compare to other food crops. India if facing problem of huge oil import bill and price
uncertainty can be mitigated by promoting Bio Diesel crop cultivation on the over 60
million ha of waste land available in country. Looking at other environmental benefits of
jatropha Bio Diesel, it burns more cleanly than gasoline, petrol and high speed Diesel. It
reduces emissions of CO2, PM, and toxic chemicals. It also has zero sulphur emission.
These characteristics have generated huge potential for inclusion of Jatropha Bio Diesel
into CDM mechanism. Besides this, one acre of jatropha plantation absorbs and reduces
500 Kg CO2 every year. So effectively if we calculate, commercial scale of jatropha
plantation can also be integrated with carbon trading mechanism.

10
Deepak RajGopal

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Jatropha plant is a shrub, originates from Central and South America. Its common
name is Ratanjyot, Jamalghota, Jangli Arandi etc. Jatropha is can grow on waste lands,
marginal lands and also on rocky soils with thin layer of humus. It can survive in harsh
environmental conditions, drought prone areas, deserts without fertilizers and irrigation
facilities. It is an evergreen shrub flourished in a very dry climate with only 250 mm
annual rain fall. This plant has thick roots which are efficient for minimum water
utilization. All parts of this plant are poisonous and toxic, therefore never grazed by
animals, which reduce crop care facilities. Farm boundaries made with jatropha plants will
reduce soil erosion from wind. Roots of this plant are very thick, dense and grow closer to
surface which protect top soil from water erosion. The nutrient uptake by this plant from
soil is very less, so there is a potential for intercropping potions with jatropha plantation.

Jatropha plants can be utilized to prevent water erosion and for soil conservation. It
can be recommended to grow as shelterbelts in controlling sand-drift, used as green
manure. Hence it grow rapidly, withstanding the cutting or looping and reluctant to
browsing by cattle or goats make it more useful in conservation and therefore also planted
as hedge.

Other benefit is high NPK value of dry leaves of Jatropha Plant which will enrich
fertility of soil. Jatropha has a very less gestation period of only two years and it will start
yielding from second year. Jatropha seeds have 30 to 40% oil content in it. Apart from Bio
Diesel production from jatropha, by products like Oil cake and glycerine can be utilized for
good quality manure and soap making , chemical industry respectively which in turn will
give economic benefits to farmers and cultivators. Oil cake and glycerine are by-products
of jatropha Bio Diesel, which has good commercial value in market. Effective Reuse of by-
products can reduce the cost of Bio-Diesel depending upon the price at which these
products can fetch. Other cost recovery can be done from the income of oil cake and
glycerol which are major by-products of jatropha Bio Diesel. Thus farmer can get multiple
benefits from Bio Diesel market.

Thus, concluding that jatropha is one of the best alternative sources for Bio Diesel
production and its potential needs to be explored. The key economic benefit one can gain
from jatropha is its kernel. The oil content is scientifically reported to vary from 25-35% in
its seeds and 50-60% in its kernel under local favourable conditions. Latex of jatropha part

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contains alkaloid liquid which is known as “jatrophine”, used for anti-cancerous


medicines.

1.8.7 ENVIRONMENTAL BENEFITS OF BIO DIESEL


Apart from its other economic and social benefits, Bio Diesel contributes very less
or no pollution compare to other fossil fuels. After lots of research on Bio Diesel engine,
substantial reduction in particulate matter (25 – 50%) is observed. Hydro carbons in
exhaust emissions can be reduced by 93% by using Bio Diesel. Apart from this, Bio Diesel
contributes greatly in reduction of smog and ozone forming hydrocarbons. Bio Diesel does
not contain sulphur, therefore emissions of sulphur oxides and sulphates from Bio Diesel
are essentially eliminated with B 100 Bio Diesel blending. Emission of carbon monoxide
from Bio Diesel is 50% less than emission from petrol Diesel. Use of Bio Diesel will have
less impact on human health as level of poly-cyclic aromatic hydrocarbons (PAH) and
nitrate PAH compounds, which are main causes of cancer, are reduced. Bio Diesel is
environmental friendly fuel which devotes great potential for environment pollution and
GHG abatement. Thus Bio fuel market has huge potential for carbon trading in global
market under CDM Mechanism of Kyoto Protocol which is economically beneficial for
India.

‘In terms of Bio Diesel handling and transportation, National Institute for
Occupational Safety and Health (NIOSH), USA had listed its aquatic toxicity as
“insignificant” in its registry of the toxic effects of Chemical Substances. Bio Diesel is not
“hazardous” under the criteria of the federal OSHA Hazard Communication standard 29
CFR 1910.1200. As per California Proposition 65- Bio Diesel contains no chemicals
known to the state of California to cause cancer.’ 11

Higher cetane number of Bio Diesel compared to petrol Diesel indicates potential
for higher engine performance. It also has superior lubricating properties which increases
functional efficiency of engine. High flash point makes it safer for transportation, shipping
and storage. Bio Diesel molecules are simple hydrocarbon chains, containing no Sulphur,
or aromatic substances associated with fossil fuels. Because of its higher amount of oxygen
(10%), that ensures complete and cleaner combustion. Fixation of CO2 up to level 10
ton/ha/year can be traded internationally under carbon trading. By products such as seed

11
Report of Committee on development of Bio fuels, Pg 100

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cake (60% crude protein) can be used as animal feed stock and organic fertilizer. Various
other products of plant such as leaf, bark, seed extracts have other industrial and
pharmaceutical uses. Small scale production is achieved by high cost of production. But
for large scale production it is cost effective based on use of technology. Other issue is
required modifications in automobile vehicles to use Bio Diesel which is currently
marketed by automobile manufacturing industries. Because of its high CFPP values,
solidification and clogging will happen in the system at low temperature around and below
0°C which can be solved by adding particular additives.

1.8.8 LAND USE DYNAMICS AND JATROPHA


CULTIVATION
Land, an important shrinking natural resource which has been neglected for
national and state level jatropha Bio Diesel mission, first requirement is availability of land
for large scale jatropha cultivation. First stage of jatropha cultivation is availability of land
for cultivation and ownership pattern of land. In that case, various mechanisms are
developed by Agriculture department, Forest Department and MoRD, which are JFM,
Agro-forestry, Social Forestry, Contract Farming etc. are widely applicable and integrated
with oil seed plantation activity. Jatropha cultivation has been done on forest land, non
forest land, fallow land, waste land, road side plantation, farm boundary plantation, along
railway tracks, under JFM scheme and social forestry etc. There are huge chunk of strip
land along railway tracks which can be effectively utilized for jatropha cultivation.

Out of 60 million ha of waste land in India, 30 million ha waste land is suitable for
Jatropha cultivation. Consequently Gujarat is also moving towards “Petro Capital” of India
which is major factor influencing Diesel demand. Gujarat is also influenced by growth
accelerators of Infrastructure, Trade, Transport, Demographic and new Technological
developments. In short energy is the most important linkage for all of these growth
accelerators.

‘There is a need to develop partnerships between Government, public and private


sectors to ensure economic benefit to poor and landless farmers.’12

12
Handbook of plant based Bio-fuels, pg. 9

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‘Jatropha is the most suitable plant which can be planted on under-stocked forest
lands managed by JFM committees, farmers field boundaries to provide protective
hedge, fallow lands, on farmers’ holding as agro-forestry along with agriculture crops,
public lands along railway tracks, highways, canals and community and government
lands in villages. It can also be planted under the poverty alleviation programmes that deal
with land improvement.’ 13

‘If 10% of India’s estimated 60 Million hectares (148 million Acres) of non-arable
land is cultivated for Jatropha or other Bio fuel crops, India could produce 4-5 million
tonnes of Bio Diesel a year, or about 10% of current of Diesel demand.’14

‘Several Indian and Business houses have in collaboration with the Government
started to establish Jatropha Plantations on Waste lands or have begun contract
Farming on Private Holdings. State Governments have also announced (Karnataka,
Uttranchal, Tamilnadu, Uttar Pradesh) state Bio fuel policies to encourage Jatropha
cultivation and Bio Diesel production by setting up Bio Diesel plants and providing
supply chains for Bio Diesel production. Fortunately, 100% Foreign Direct Investment in
new and renewable energy is allowed under the automatic route in India. Keen efforts are
done one Research & Development with collaboration with EU and other participating
countries by using science and technology and industrial capabilities. Aim of collaboration
is to accelerate programmes for increasing Bio fuel crop yields, oil content of oil seeds and
reducing environmental impact of Bio fuel usage.’ 15

‘Reliance Industries, Tata Chemicals, Essar Group, Royal Energy and D1-BP Bio
fuels worked out massive plans to explore opportunities in Jatropha cultivation for Bio
Diesel. Gujarat Government has embarked 1,900,000 acres land in Narmada Region for
Bio fuels cultivation especially Jatropha.’ 16

13
Report of Committee on development of Bio fuels, Pg 111
14
Business Standard, “India finds cheap energy may be an easy nut to crack”, March 13, 2008
15
Times of India, 12th September 2007, India’s Bio Fuel Programme to be developed on Public Private
Partnership- International Bio Fuels Conference at Brussels
16
Business Standard, August 18, 2008, “ Gujarat eyes 400 MW from Biomass waste)

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TABLE: 1.3 Land categories and potential for jatropha cultivation

Potential of Jatropha Cultivation AREA IN


Million
Ha

India have 69 Million hectares of forest cover, out of which dense forest cover 3
consists of 38 million hectares of area and 31 million hectares forest area is
under stocked. Out of 31 million of stocked forest area, 14 million hectare of
forest area is occupied under Joint Forest Management Scheme and about
2.5 to 3 million hectares of land can be brought under jatropha cultivation.

In India, around 142 million hectares of land is utilized for agriculture 3


purpose, and if we assume that farmers will utilize their around 30 million
hectares of their farm boundary for jatropha cultivation as a protective hedge
for standing crop, this will result in 3 million hectares of land under jatropha
curcas cultivation.

Another emerging concept is Agro forestry under which 2 million hectares of 2


land is held by absentee landlords can be undertaken by government for
jatropha cultivation.

India has 24 million hectares of culturable waste land out of which 10 million 2.4
hectares of lands are current fallow land and other 14 million hectares of land
are fallow land. 10% of such land around 2.4 million hectares is expected to
cover under jatropha plantation.

Wastelands which are falling under Integrated Watershed Development and 2


Poverty Alleviation programs of Ministry of Rural Development are
envisaging potential of 2 million hectares of jatropha cultivation.

Besides that, jatropha cultivation can be successfully propagated on public 1


lands along railway tracks, roads and canals, which will bring about 1
million hectares of national land coverage with jatropha cultivation.

TOTAL 13.4
Source: www.http://svlele.com

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TABLE 1.4 Jatropha Plantation Activities in India

Institution Plantation Details Remarks


National Oilseeds & 7500 Ha Model Plantation in 21
Vegetable Oils States
Development Board
Uttaranchal Bio fuel Board 10,000 Ha Year of Plantation 2005
Chhattisgarh 80 million Seedlings Year of Plantation 2005
CSMCRI-Daimler-Chrysler 20 Ha in Gujarat + 20 Ha in Year of Plantation:2003
Project Orissa
IOC-Indian Railways 1,10,000 saplings at
surendranagar, Gujarat

Source: “Liquid Bio fuels for Transportation: India country study on potential and
implications for sustainable agriculture and energy” Pg.7, TERI Publication, GTZ

Above Table 1.3 shows possibility of various wastelands which could be


undertaken for jatropha cultivation. We can see that degraded forest land, Farm boundary,
integrated watershed area, railway track side, road side and wastelands can be effectively
used for jatropha cultivation. And Table 1.4 represents various initiatives taken
specifically for jatropha cultivation by Central and state Governments.

Hence jatropha cultivation can give multiple environmental and social benefits,
adding more attractiveness in terms of its plantation propagation. In India, various land
categories have potential for jatropha cultivation which is discussed below:

1.8.9 IMPORTANCE OF VALUE CHAIN ANALYSIS FOR


BIO DIESEL PRODUCTION FROM JATROPHA
‘A value chain method that shows the sequence of a sub sector’s chain of events-
production to processing to marketing and could be used to study an industry such as
jatropha Bio Diesel production sector. A value chain is a chain of activities. Products
pass through all activities of the chain in order and at each activity the product gains
some value. The chain of activities gives the product more added value than the sum of
added values of all activities. It is important for research to mix the concept of the value
chain with costs occurring throughout the activities. Value chain is the sequence of
activities required to make a product or provide a service.

Value chain is important analytical tool for policy makers if we add following
three features: first the activities are often carried out in different parts of the world,

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hence the term global Value Chain; second, some activities add more value and are
more profitable than others (the policy makers’ concern is to help local enterprises to
move into profitable activities); third, some actors in value chain have power over others.
The powerful actors are often called the “lead Firms” who seeks to “govern” the chain.
A central concern of value chain analysis is to “unpack” the relationships between global
lead firms and local producers and the opportunities that result from entering such
relationships. Policy maker need to be aware of power and inequality in the chain, working
for powerful players can bring great benefits, but will also severely limit what the firms or
government agencies can achieve.’ 17

‘In developing countries, there is a growing Trend towards employing modern


Technologies and efficient Bio energy conversation using a range of Bio fuels, which are
becoming cost competitive with fossil fuels.’ 18

‘Coming up with good economic policy appropriate to the level of development in


an industry and country requires an understanding of how local enterprise fit into global
economy. Often some markets are not free for all open spaces. The spaces are co-ordinated
by global buyers who source different parts and services from around the world. So there is
increasing functional integration between internationally dispersed activities, outsourcing
of manufacturing and service activities from the high wage to the low wage economies
accelerates this trend. The implication for policy makers is that linkages deserve more
attention, both domestic and global. The quality of domestic linkages and domestic support
systems plays a critical role in creating international competitiveness.

Being competitive internationally requires and effective domestic value chain,


this means supplier that provide on-time delivery of high quality inputs, as well as
support institutions that can test the quality of the inputs and certify conformance with
international standards. VCA helps the policy maker to find out where the bottlenecks
are: which part of value chain holds up progress in the others? Which bottlenecks
deserve priority attention of Government? Which can be expected to be resolved by the

17
Hubert Schmitz, Pg 3-6
18
Puhan et al. 2005

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private sector and which require public-private partnership? Where can the donor
agencies help?’ 19

‘The economics of energy are concerned with the availability of energy resources
and their relation to economic activities. Energy is not a single commodity; there is a scope
for substituting one form of energy for another provided the cost can be met. Such
substitution involves the cost of diversion of other resources, manpower and skills, and
also requires time to achieve.’20

‘Value chain Analysis (VCA) has become an increasingly useful approach to


gain a comprehensive view of the various inter-locking stages involved from taking a
good or service from the raw material to production and to another consumer.VCA
could provide useful information for policymakers, at national and locals, who must
take important economic and social decisions, especially in countries who are trying to
upgrade their industries. VCA is targeted specifically towards policy-makers and planners
at different levels of Government, business association and trade unions and others
responsible for developing strategies for enterprise development and local socio-economic
development.’21

‘It is important to know some definitions to understand value chain concept. Mainly
there are three types of value chains: Simple Value Chain, Extended Value Chain and One
or many Value Chains. Simple value chain refers to the full range of activities which are
required to bring a product or service from conception, through the different phases of
production (involving a combination of physical transformation and the input of various
producer services), delivery to final consumers, and final disposal after use.’ 22

‘In order to promote Bio Diesel and to help it compete with petroleum Diesel,
several countries have drawn up tax support packages, for example, Germany and Italy
levies no Tax on Bio Diesel, UK has 20% lower tax, several US States imposed lower tax
on fuels containing Bio Diesel. After a long research by National Bio Diesel Board,

19
Hubert Schmitz, Pg 11
20
Eden. Richard; Posner. Michael; Bending. Richard; Crouch. Edmund; Stanislaw Joe; 1981; “Energy
Economics- Growth, Resources and Policies.” Press Syndicate of University of Cambridge; Australia
21
Hubert Schmitz, Pg 1-2
22
Kaplinsky. Raphael; Morris. Mike;2000 “ A Handbook for Value Chain Researh”; IDRC

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concluded that, secondary benefits of Bio Diesel programme such as, employment
generation, balance of trade, positive effect on green house gas reduction will ultimately
help Bio Diesel to compete with petroleum Diesel presentably and will have economic
benefits in longer run.’ 23

CONCLUDING REMARKS
For developing country like India, it is better option to utilization of non edible oil
seeds for Bio Diesel production which will reduce conflict of utilization of edible oil and
edible crops for Biofuel. Besides this, special focus should be on area under jatropha
cultivation because over the years, productive agriculture land had shrunk significantly to
meet growing food demand of increasing population. Other issues in production of Bio
Diesel are scattered locations of plantation, low yield due to agro-climatic conditions and
lack of required irrigation and consequently low harvest rate of seed collection resulted by
survival rate and improper care. In order to cater the largest buyers of Bio Diesel in market,
marketing strategy is evolved by NBB under which high HSD consuming sectors were
introduced to blend Bio Diesel with petroleum Diesel. But lacking effort is estimation of
state level and sector wise demand assessment of HSD requirement which will help to set
level of jatropha Bio Diesel production for 5%, 10% and 20% blending.

Value chain Analysis will help in mapping the weak and fault lines in value chain
of Bio Diesel production. Value chain becomes more apparent through which one can
visualize the interdependency of various sectors for Bio Diesel production from jatropha.
Thus, value chain approach provides a whole functional and economic framework for
sector specific actions interlinked in Bio Diesel production.

Who can be the largest buyer of Bio Diesel and for how much period? Answer of
this question is obviously Government because promoting Bio Diesel will ultimately be
beneficial to Government mainly to reduce import bill by blending Bio Diesel at 5%, 10%
and 20% rate. The challenge for government is to centralize and channelize all the
initiatives of Bio Diesel production which are fragmented and disorganized. Value chain of
jatropha Bio Diesel mainly consists of two supply chains one is production of raw material
from jatropha cultivation and production of Bio Diesel from raw material. However in
actual scenario, there is no synchronization in both supply chains. Major issue is imbalance

23
Report of Committee on development of Bio fuels, Pg 92

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between technological development and production of raw material. In the era of


globalization in agriculture sector, introduction of Bio fuel crops had exerted significant
pressure on agriculture sector, which resulted into diversification of cropping pattern,
productive soil degradation by shifting cultivation, food supply to meet growing demand of
population and rise in price because of competition between multiple uses of produce. Here
one factor which is completely neglected is allocation of land for Bio fuel crop cultivation
and selection of species or crop to produce Bio fuel. On the other side, farmers are
somehow misguided by the market externalities which ultimately affect shortfall of edible
food crop in market as it is diversified for other purpose instead of food. So, in nutshell of
above discussion, right and appropriate approach is to promote non edible food crops on
waste, marginal and fallow lands so there will be no injustice to food supply chain and
agriculture dependent farmers.

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CHAPTER 2

VCA FOR JATROPHA BIO DIESEL PRODUCTIO

COTETS
PAGE

2.1 Introduction to VCA......................................................................................................... 29


2.2 Constraints and Limitations of Value Chain Analysis..................................................... 30
2.3 Value chain of Bio Diesel from Jatropha......................................................................... 30
2.4 Methodology of Value Chain........................................................................................... 31
2.5 Activity A- Jatropha Cultivation...................................................................................... 32
2.5.1 Potential of Jatropha Cultivation on wastelands.......................................... 36
2.6 Economics of Jatropha Bio Diesel Production................................................................. 41
2.6.1 Methodology for Cost of Jatropha Cultivation............................................ 41
2.6.2 Cost Concepts for Cultivation..................................................................... 42
2.7 Activity A – Cost of Jatropha Cultivation........................................................................ 46
2.7.1 Plantation on Private land............................................................................ 46
2.7.2 Plantation on Village Grazing and Fallow Land......................................... 53
2.7.3 Railway Track Side Plantation.................................................................... 58
2.7.4 Road Side Plantation.................................................................................... 63
2.7.5 Comparative Analysis of four Pilot Plantation............................................ 68
2.7.6 Revenue Generation..................................................................................... 69
2.8 Activity B – Cost of Jatropha Raw Oil Production.......................................................... 69
2.8.1 Raw Material................................................................................................ 70
2.8.2 Oil Expeller Units........................................................................................ 70
2.9 Activity C – Cost of Jatropha Raw Oil Purification......................................................... 76
2.9.1 Cost Components of Bio Diesel Production................................................ 77
2.10 Additional Costs of Jatropha Bio Diesel Value Chain..................................................... 82
2.10.1 Transport Cost........................................................................................... 82
2.10.2 Cost of Storage Facility............................................................................. 83
2.10.3 Marketing Costs......................................................................................... 83
Concluding Remarks........................................................................................................ 85
Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
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2.1 INTRODUCTION TO VCA


This chapter will describe briefly value chain for Bio Diesel production from
jatropha. Main objective of research is to explore profit model for stakeholders from
jatropha Bio Diesel production. The concept of Value chain analysis is developed by
Michael Porter in his best seller book of “Competitive Advantage: Creating and
sustaining superior performance”. Simple definition of value chain is the full range of
activities that are required to bring a product or service from its conception through its
design or production, raw materials sourcing, intermediate inputs, its marketing and
distribution to the final consumer. Through value chain we can conceive economic
profit through benefit sharing mechanism and co operation amongst actors of value
chain. Eventually this approach would lead to co-ordination of public and private roles
and responsibilities with institutional arrangements at macro, micro and meso level.
The specific reason to do value chain analysis is to envisage the jatropha Bio Diesel
sector by giving attention to all phases of value chain, stakeholders of linking sector
and their initiatives focusing on survival and profit of jatropha plantation and Bio
Diesel production from it.

Based on discussion with various stakeholders involved at each stage, primary


activities, support activities are described in detail. Bio Diesel production can be
categorized in three stages. First is Jatropha plantation for raw material and second is
Oil extraction from raw material and third is raw oil purification. Main objectives of
Value chain analysis are to draw the value chain of Bio Diesel production from
jatropha by identifying various activities and value chain actors and their roles. Second
objective is to identify costs entailed at every stages of value chain process which will
also determine the economic benefit or output to various actors (farmers/cultivators)
involved in jatropha Bio Diesel production value chain. Value chain will also address
the issues of Bio Diesel production to meet projected blending targets and factors
affecting the consistent production of Bio Diesel. Ultimately, whole value chain
process will give microscopic view of issues involved in jatropha Bio Diesel
production. In short, for new entrant industry in developing countries like India, VCA
could provide useful information and clues for policy maker, at national, local levels,
who must take decisions considering economic and social dimensions; and especially
with respect to upgrade the particular industry. In this context, same approach is
applicable to Jatropha Bio Diesel Industry.

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2.2 CONSRAINTS AND LIMITATION OF VALUE CHAIN


ANALYSIS
Research work will not cover the complete value chain of jatropha Bio Diesel.
Hence, this industry is very premature and had just entered into global market, so it
will be difficult to carry out full VCA which also include marketing, distribution,
HRM, firm infrastructure apart from jatropha cultivation and Bio Diesel production.
Value chain analysis is highly constrained by the available time frame to undergo all
stages of activities in jatropha Bio Diesel market. Therefore based on Michael porter’s
model of VCA, it consists of primary activities such as in-bound logistics, operations,
out bound logistics, marketing and sales; secondly support activities such as
procurement, technology development, HRM and firm Infrastructure. For this
research, value chain analysis is carried out only for jatropha Bio Diesel production;
VCA will not cover marketing, sales and distribution of final product. Based on
discussion with stakeholders involved in jatropha Bio Diesel production, key activities
will be identified and VCA will be carried out only for those key activities. Ultimately,
through VCA critical stages will be identified which will affect production of Bio
Diesel as well as price of Bio Diesel.

2.3 VALUE CHAIN OF BIO DIESEL FROM JATROPHA

Fascinating part of this research is to understand the entire value chain of Bio
Diesel production from jatropha which is a key to perform economic analysis, impacts
on profit and productivity, socio economic dimensions of jatropha Bio Diesel
production and potential of its expansion at National as well as at regional level. In
this case, some components of value chain analysis are considered at regional basis
(state level). Value chain tool is used to estimate possible benefits and barriers in Bio
Diesel production cycle.

The first step to do value chain analysis is to identify the key activities of Bio
Diesel production from jatropha which can be categorized in two levels. In the supply
chain of jatropha Bio Diesel logistic components are identified as: seed processing,
transporting, oil extraction, storage and handling. The key factor for desired Bio Diesel
production from jatropha is supply chain of raw material which largely depends upon
the scale of jatropha plantation, plantation practices and market accessibility to cater

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buyers. Subsequently, after supply of raw material, again Bio Diesel production will
depends on the capacity of plant and type of technology used for oil extraction.

Here, value chain will represent the cost structure that estimate the cost
incurred during jatropha cultivation for raw material production, jatropha oil extraction
and production of Bio Diesel from raw oil. As mentioned above in constraint of VC of
jatropha Bio Diesel production, only three primary key activities are considered for
analysis that is jatropha cultivation for raw materials, raw oil extraction and Bio Diesel
production from jatropha seeds.

FIGURE 2.1 Stages of Bio Diesel Production

Jatropha Plantation and Land, employment, cost of cultivation, yield, Socio-economic Benefits,
production of Raw material- Yield/Ha, Quality of seeds, Survival Rate of plants, Storage, oil
Jatropha seeds preparation, Transportation, Selling & market

Raw jatropha Oil Extraction Extraction of raw oil, by products, quantity, reuse, revenue

Oil Purification, Industrial Bio Diesel plant, capacity, capital-cost, efficiency, loans, subsidies,
Processing of Oil, Final Product Chemical Processes for Bio Diesel production, by products, Quantity of
Bio Diesel Bio Diesel, quality standards, certification

2.4 METHODOLOGY OF VALUE CHAIN


Identification of main activities Interviewing contribution and Participation of
various stakeholders in value chain of jatropha
Discussion with Stakeholders (Bio Bio Diesel
Diesel manufacturers, farmers,
Implementation Agency of Jatropha Data Collection and financial Analysis of
Plantation Jatropha Bio Diesel Production

Outcomes and Interpretation, Identification of Critical


areas of value Chain

To explore profitable Model for Consistent production of Jatropha


Bio Diesel- A win-win Situation
Strategy for deployment of Profitable model for consistent and
profitable jatropha Bio Diesel production

FIGURE 2.2 Conceptual Method for Value Chain Analysis

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Here chiefly three activities are considered for value chain analysis.

A. Jatropha cultivation for raw material production


B. Raw oil extraction
C. Bio Diesel production from jatropha

Now, costs incurred at these three activities are calculated separately. Here for
analysis part of it, these three activities are considered separately and costs are
calculated for activities A, B and C. For activity A, various jatropha cultivation
scenarios are considered for cost calculation. Same way, for Activity B and activity C,
cost will be calculated.

FIGURE 2.3 Cost calculation of Three Key Activities

Cost of Jatropha Cost of Raw Oil Cost of Raw Oil


Cultivation (A) Extraction (B) purification (C)

2.5 ACTIVITY A: JATROPHA CULTIVATION


TYPE A1: PLANTATION ON INDIVIDUAL PRIVATE LAND
OWNERSHIP
For an individual Bio Diesel manufacturing firm, it would be beneficial to
promote jatropha cultivation on owned land because there will not be any middleman
who will grab extra commission on raw materials for Bio Diesel production. But
again, benefit of firm will depend upon the area under jatropha cultivation, cost of
cultivation and production of raw material out of it. In this case, firm can employ local
agricultural labourers for plantation activities on daily wages. Here more focus should
be given to the employment of landless farmers, small land holders and marginal
farmers which would give them additional income.

For farmer, on private farm land, discussed is based on one assumption that his
land is not agriculture productive land. In this case, owning the land and less
productivity of land could bring a higher yield justified by higher efforts in intensive
cultivation and a strict control on other input costs for fertilizer and pesticides. In this
case, it will not be affordable for marginal or small farmer to shell out bigger initial
investment on his own land accept for large land holder it will be easier. In that case,

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farmer can lease out his land for jatropha plantation on rent to other interested jatropha
cultivator. Only issue in leasing out land to private firm is minimum rent for land
which should be considered in cost of cultivation. In that case, MoU should be signed
between agriculture co-operatives and private firm to fix the value of rent for lease
period. In such case, firm can fix the production level of raw material in contract,
under which farmer can provide the land and other infrastructure by the firm which
will include storage and transportation of oilseeds to Bio Diesel plant.

Sub activities of Crop cultivation will include identification of land, making a


plantation plan; identify financial resources, implementation of plantation. The input
costs for these sub activities will be for land preparation, raw material, labour and
machinery (tractor, Power tiller, digger, other equipments) etc. Availability of good
quality of sapling or seedlings form nursery. Thus, special attention is required
towards development of nursery. Jatropha seeds are normally available in non Rainy
season.

TYPE-A2 JATROPHA CULTIVATION ON VILLAGE GRAZING


FALLOW LANDS
From the beginning, it was adopted for this research that wastelands can play a
vital role for jatropha cultivation so there will not be competition with food markets
and food supply. Another advantage is crops which will be cultivated in wastelands
will not be food crop and this will result into best utilization of wasteland and fallow
land for jatropha cultivation which are not productive for agriculture. Land which is
not giving any economic returns can be captured for jatropha cultivation. Table 2.1
shows some estimates of wastelands in India which can be utilized for jatropha
cultivation.

In rural areas Common Property Resources (CPR) plays an important role for
rural communities in terms of its multi-functionality and multi-purpose use. Other
externalities like population growth, livestock, livelihood of rural communities, social
infrastructure development always exerts pressure on common property resources.
Land use transformation is directly and indirectly affecting the rural economy,
feedstock for live stock and livelihood for communities who are dependent on CPR as
maldharis. Maldharis are basically dependent communities on animal grazing in CPR.
Thus by changing land use especially in grazing land could bring shortage or non

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availability of food and fodder which will ultimately affect the livelihood of rural
communities. These consequences can be taken care by not utilizing CPR for jatropha
cultivation.

TYPE-A3 ROAD SIDE JATROPHA CULTIVATION

It always ignored or neglected to develop the land along road side which either
may be state highway, national highway or urban road. This factor is a major
opportunity for jatropha cultivation as it will devote multiple benefits like green belts
along road side, reduction in soil erosion both the road side, shed for pedestrian and
cyclist movements, addition in road aesthetics and ultimately increasing green cover of
that region. The key institutes involved in road side plantation depending upon where
jatropha cultivation has been upheld may be state forestry department, state highway
authority, national highway authority and panchayat.

In order to initiate jatropha plantation along State Highway of any state,


permission prior to state highway authority is essential for any private entity who is
interested to propagate jatropha cultivation along road sides. Legal approval procedure
is required for road side jatropha plantation which includes proposal making, cost
estimation, identification of stretch of highway for jatropha plantation and possible
benefits to government body under this public private partnership model. Left Image is
showing jatropha plantation along village access road of “Nava” Village of Chotila
Taluka of Surendranagar district where in jatropha cultivation was done on one sides
of village access road from state highway. Plantation was done for 6 Km long stretch.
Plantation was distance of 2 meter C/C.

Photograph Credit: Author

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This plantation was done under contract farming scheme and type of contract
was purchase contract. Under this contract inputs for cultivation were provided by
Panchayat and DRDA. This plantation was promoted by National Oil seeds and
Vegetable Oils Development Board (NOVODB), under which jatropha, karanja,
pogamia, neem and other Tree Bourn Oil seeds were plantaed.

TYPE-A4 JATROPHA CULTIVATION ALONG RAILWAY TRACKS

Indian Railway Corporation (IRC) had done pilot plantation of jatropha along
railway tracks in collaboration with IOC at Surendranagar, Ahmedabad and
Gandhinagar. In this situation, cultivation is done on land which is owned by IRC. One
factor which is promising better results from this cultivation is implementation of this
action by Indian Railway which is one of the largest consumer of Diesel as fuel.

Photograph Credit: Author

Jatropha cultivation along the railway tracks has higher potential for jatropha
cultivation because land which is falling along the railway tracks are completely
abandoned and considered as waste land. This was Joint Venture of Indian Oil
Corporation (IOC) and Indian Rail Corporation (IRC). Under this Joint venture, IOC
will do Jatropha cultivation. After implementation, seed harvesting, oil extraction and
oil purification was carried out by IOC. And ultimately, this, Joint venture was done in
order to see the potential and results of HSD substitution in Railway. Utilization of land
along railway track for jatropha cultivation can devote assured results in terms of High
seed Yield. In this case, Jatropha cultivation was Joint venture of Indian Oil

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Corporation (IOC) and Indian Railway Corporation (IRC). This pilot plantation was
done in 2004 along railway side marginal land. 70 acres of land along railway track
was embarked for jatropha plantation with proper barricading.

2.5.1 POTENTIAL FOR JATROPHA CULTIVATION ON


WASTELAND

As we discussed in section 1.8.8 of Chapter 1, that wasteland should be utilized


for jatropha cultivation; this section will describe at micro level about wasteland
categories and potential for jatropha cultivation. Land is an important and limited
natural resource which is shrinking due to excessive pressure of expanding population.
Now the question comes, weather land is under private, public, community,
Government ownership. These factors are not directly related to Bio Diesel
production, but indirectly they are playing a key role in defining scale of plantation.
Therefore, the significant question crops up, how much and which land can be
undertaken for jatropha cultivation to fill the gap in supply chain.

TABLE 2.1 Various Estimates of Wastelands in India

Source Area in Million Estimated/


Ha Scientific
National Commission on Agriculture (NCA-1976) 175.00 E
Directorate of Economics and Statistics, Department of Agriculture 38.40 E
and Co-operation
Ministry of Agriculture (1982) 175.00 E
Department of Environment and Forests (B.B Vohra) 95.00 E
-ational Wasteland Development Board (MoEF, 1985) 123.00 E
National Bureau of Soil Survey and Land Use Planning, ICAR-1994 187.00 E
Society for promotion of wasteland development (SPWD-1984) 129.58 E
-ational Remote sensing Agency (-RSA-1995) 75.50 S
Dr. N. C. Saxena (Secy. RD-WD) 125.00 E

Source: “Liquid Biofuels for Transportation”, TERI Publication, GTZ

We have seen various estimates of wastelands in India, and it may be possible


to bring 10% to 20% of this land under jatropha cultivation. But at grass root level,

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many issues are involved in propagation of jatropha cultivation which includes rural
employment, deployment of land which is not CPR, scope of Inter cropping, market
availability and accessibility to cultivators etc.

TABLE 2.2 Percentage of Wasteland in Identified States

STATE TGA in Million Ha Wasteland - % TGA


Gujarat 19.6 10.40

Maharashtra 30.77 16.01


Madhya Pradesh 30.83 18.53
Rajasthan 15.57 29.64

Tamilnadu 19.18 13.30


Orissa 13.01 12.17
Karnataka 34.22 7.06

Source: Department of Land resources, GOI

Table 2.4 illustrate the status of utilization of waste land for jatropha
cultivation. And table 2.5 shows availability of wastelands across districts of Gujarat.
In Gujarat, there are 28 categories of wasteland is prevailing which includes:

1. Gullied and/or ravenous Land ( Shallow )


2. Gullied and/or ravenous Land ( Medium )
3. Gullied and/or ravenous Land ( Deep )
4. Land with scrub
5. Land without scrub
6. Water logged and Marshy Land ( Permanent )
7. Waterlogged and Marshy Land ( Seasonal )
8. Land affected by salinity/alkalinity ( Strong )
9. Land affected by salinity/alkalinity ( Moderate )
10. Land affected by salinity/alkalinity ( Slight )
11. Shifting cultivation area ( Abandoned Jhum )
12. Shifting cultivation area ( Current Jhum )
13. Under-utilised/degraded notified forest land
14. Under-utilised/degraded notified forest land ( Agriculture )
15. Degraded pasture/Grazing Land

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16. Degraded land under plantation crop


17. Sands – ( Flood Plain )
18. Sands – ( Levees )
19. Sands – (Coastal Plains )
20. Sands – (Semi Stabilized – Stab. > 40m)
21. Sands – (Semi Stab. Stab. Moderate High 15-40m)
22. Sands – (Semi Stab. To Stab. Low< 15m)
23. Sands – (Closely Spaced Inter- Dune Area)
24. Mining wastelands
25. Industrial wastelands
26. Barren Rocky/ Stone waste/ Sheet Rock Area
27. Steep sloping Area
28. Snow covered and/or Glacial Area

Out of these twenty eight categories of wastelands, wastelands suitable for


jatropha cultivation are 4, 5, 9, 10, 11, 12, 13, 14, 15, 16, 20, 21, 22, 23, 26 and 27.
Sand dunes occupy large areas in Kutch district in Gujarat. During monsoon and
cyclonic periods, there is blowing and shifting of sands causing damage to the
standing crops in the neighbourhood area. The problems encountered in sand dune
areas are wind erosion, deposition and movement of sand dunes, low soil moisture
storage, instability of soil structure and poor soil fertility which can’t be used for
agriculture purpose. Wind erosion is one of the most severe and serious problem of
land degradation.

The movement of sand dunes particularly during dry rainless period with
prevailing high speed winds seriously affects neighbourhood houses, buildings,
farm lands, roads, railways, and canal. Degraded lands often referred to as the
wastelands may be considered as those lands presently lying unutilized/partially
utilized or mismanaged. These type of wastelands can be further categorized as
culturable waste lands or degraded wastelands which inter-alia include gullied or
ravenous land, upland hilly area, waterlogged areas, salt affected lands, shifting
cultivation areas, strip lands, sandy and mining areas. The uncultivable wastelands
include barren rock outcrop areas, steep sloping lands and glacial lands.

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TABLE 2.3 Wasteland under jatropha Cultivation in Gujarat

District Area of Wasteland under Total Wasteland % of Total Wasteland under


jatropha cultivation in Ha in Ha jatropha Cultivation
Ahmedabad 439.82 36398 1.2
Amreli 199.6 82184 0.2
Banaskantha 1096.8 73018 1.5
Bharuch 296.8 21326 1.4
Bhavnagar 784.4 120352 0.7
Dang 45.2 10859 0.4
Gandhinagar 11.6 4167 0.3
Jamnagar 1153.2 171223 0.7
Junagadh-Porbandar 1256.4 93621 1.3
Kheda-Aanand 210.4 22313 0.9
Kutch 7647.6 728500 1.0
Mahesana-Patan 247.2 35999 0.7
Panchmahal-Dahod 542.4 93069 0.6
Rajkot 798.4 211852 0.4
Sabarkantha 608.4 87960 0.7
Surat 289.6 31034 0.9
Surendranagar 1045.2 108894 1.0
Baroda 242 42030 0.6
Valsad-Navsari 290.8 29754 1.0

Source: Gujarat Growell Agro Forestry Pvt. Ltd

The major causes of degradation and erosion are lack of vegetal cover, terrain,
nature of soil, rainfall and its intensity, cropping pattern and land management
practices. Cultural and traditional practices to mitigate soil degradation, soil run off
and soil loss include plantation of jatropha which is erosion resistant crop. In general,
soil loss, runoff and soil erosion can be reduced considerably and yields can be
increased by raising closely spaced jatropha plantation. Along with this, better results
can be achieved by applying some mechanical measures like erection of bunds and
terrace jatropha cultivation. Contour cultivation of jatropha can be effective for erosion

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control of hilly area. Degraded lands not suitable for agriculture can be protected and
profitably be put under jatropha cultivation.

Shifting cultivation area weather abandoned or current can be referred as


dense forest land on sloping land which is cleared and cropping is started without any
land management. This situation can be handled with promoting stabilized jatropha
cultivation with social involvement of farmers or jatropha cultivator. For that firstly
land suitable for intensive jatropha cultivation have to be identified.

Degradation of land leads to lot of precious rain water loss and along with it
valuable nutrients. The government lands, including panchayat lands do not seem to
have any caretaker. They are free for all. It is no wonder, therefore, that they are in a
very bad shape, condition and open to overgrazing and all sorts of land misuse. This
type of land management of common land can be improved and controlled by utilizing
land under jatropha plantation along with intercropping of grass which can be
provided to livestock. So, ultimately, availability of vast wastelands could be
profitably utilized under jatropha cultivation. Jatropha cultivation on wasteland will
not only provide protective vegetal cover to soil but will also serve to be an alternative
and environmental friendly source of energy.

In order to develop micro and macro level propagation of jatropha, field trials
based on agro-climatic conditions are essential.

% of Wasteland in Ha of TGA, Districts of Gujarat


20
% Wasteland Area

15
in Ha

10

0
% Wasteland Area in Ha
Districts
Ahmedabad Amreli Banaskantha Bharuch
Bhavnagar Dang Gandhinagar Jamnagar
Junagadh-Porbandar Kheda-Aanand Kutch Mahesana-Patan
Panchmahal-Dahod Rajkot Sabarkantha Surat
Surendranagar Baroda Valsad-Navsari

FIGURE 2.4 Percentage of Wasteland from TGA in Districts of Gujarat

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2.6 ECONOMICS OF JATROPHA BIO DIESEL PRODUCTION

Based on various stages mentioned above, every stage has some input costs.
We can categorize two major costs that are cost of jatropha cultivation, cost of
jatropha raw oil production and Bio Diesel production cost. In between these three
stages, other activities also play an important role in production of Bio Diesel. Broadly
if we see, cost of cultivation includes costs for purchasing inputs, such as seeds,
irrigation, pesticides, fertilizers, transportation cost, cost for attaining agriculture
labourers for plantation, planting, harvesting of oil seeds from jatropha tree.

It also includes indirect cost of post production and marketing of jatropha seeds
in market. Recovery of inputs can be achieved by selling by products (Oil cake and
Glysrol) from Bio Diesel production. Furthermore, farmers and cultivators play a
crucial role in production of raw material for Bio Diesel. Moreover, few factors will
affect final output of products are seed yield, area under jatropha cultivation, crop care
during gestation period and raw oil production from raw material. There are three
fundamental stages of Bio Diesel production which are considered for VCA are as
follows:

A. Production of raw material from jatropha cultivation

B. Raw Oil expelling from jatropha Seeds

C. Purification of raw oil through transesterification process and production of pure

Bio Diesel.

2.6.1 METHODOLOGY FOR COST OF JATROPHA CULTIVATION

Here we made an assumption that jatropha cultivation is an agricultural crop


cultivation project and research will do value chain analysis of jatropha cultivation and
production of raw materials from it. For the research, crop is jatropha, which is non
edible crop. Therefore, we made an assumption that agriculturally fertile and
productive land will not be utilized for jatropha cultivation to reduce conflict with food
crop cultivation. Any analysis of crop economy and process of cultivation requires a
long term understanding of the process and role and socio economic benefits to

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farmers in it. Second, growth performance of jatropha crop cultivation has to be


reviewed from two distinct view points; firstly financially and institutional
perspective.

In this context, jatropha crop cultivation project analysis, however provide the
basis for evaluating and comparing the relative profit of alternative investments, which
involve single or collective inputs. Analysis will clearly define the inputs invested for
various purposes along with the life of the project. Essentially, value chain of jatropha
crop cultivation takes a telescopic view of entire life of jatropha cultivation project.
This analysis mainly reflects the annual difference between benefits and costs to
calculate an index for the profit of the project over its entire life of project. For this
research, this index will be in terms of benefit/cost ratio. In jatropha cultivation project
analysis, profit is expressed as an index which characterizes the performance of the
project over its whole life, not just one year at a time.

There can be two approaches for this kind of agriculture projects analysis: the
financial and the economic. The financial analysis evaluates the project in terms of its
attractiveness to various stakeholders and other key actors participating in the project.
On the other side, in economic analysis the project is considered from the point of
view of society as a whole. But here we will do only financial analysis of jatropha
cultivation project. The reason attempting financial analysis is to study and evaluate
the financial strengths and weaknesses of cultivation and its socio-economic aspects.

2.6.2 COST CONCEPTS FOR CULTIVATION

‘The cost concepts adopted for value chain analysis and cost imputations were
prescribed as the costs of items supplied/ owned by the farmer/ enterprise.’
24

Items of costs
The items of cost of cultivation as considered in the computations.
A. Paid out costs –
1. Hired labour
i. Human labour

24
Cost concepts are adopted from "State of Indian farmer, A millenium Study,Volume 14." Titled by Cost of
Cultivation and farm Income, by Abhijeet Sen & M. S. Bhatia

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ii. Animal labour


iii. Machine labour
2. Maintenance Expenses
i. Owned animals
ii. Machinery
3. Cost on material inputs
i. Seeds ( Home Grown or Purchased )
ii. Fertilisers
iii. Manure (Owned or Purchased )
iv. Pesticides
v. Irrigation
4. Depreciation on
i. Implements & storage buildings
5. Land revenue
6. Rent paid for leased land

B. Imputed Costs
i. Value of family labour
ii. Rental value of owned land
iii. Interest on owned fixed capital

Here applicable costs are considered for value chain analysis. These costs are
direct factors affecting the cost of activity and profit or net output. Various
information regarding costs incurred for three key activities A, B and C were collected
through primary survey to calculate Cost of each activity and critical factors affecting
the scale and cost of production.

Here hired human labour and wage rates will be considered according to
statutory minimum wage rate of the region/state. Imputed costs can be referred as a
large portion of the inputs used in jatropha cultivation are internally supplied by the
cultivator/farmer/contracting agency. Value of land is not directly considered for cost
imputations as it is not clearly defined that which land has to be utilized in future for
large scale plantation. But in this case, if own land is given on rental basis or leased
out for some period, rental value of owned land will be added to the cost of
cultivation. Rental value of owned land is probably the most disputed item in cost

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computations because it is considered as an inescapable fixed cost to be realised in the


long run. In order to identification of land, nature of land rights should be considered.

‘Considering several varieties of forms of property rights of land, which can be


simply categorized into following six types:

In case of Open access lands tenure, no one can claim ownership to the land or
resource and no one can be excluded from access to it. It sometimes applies to forest
lands or range lands. Communal lands refer to the jointly held community lands in
customary land regimes. They are open to all members of community, but there are
community restrictions on their use and on access to them. Frequently they are grazing
lands. Collective lands are used for joint production by a group of farm families and
are defined by a decision of central authorities but rather through newly created
management structures. They can include individual plots and jointly worked plots.
Individual land rights under associative tenure embrace individual plots in customary
and collective regimes. Private land rights include ownership (with varying degrees of
restrictions), and other rights in a market context such as rental, leasing and
sharecropping. They may also be subordinated, temporarily and partially, to group
decisions through voluntary co-operation in selected farming tasks or in the
procurement of farm services. Ownership brings with it the right to dispose of the land
according to the owner’s wishes: in sale, leasing, rental, inheritance, and to encumber
it with contingent claims such as a mortgage. In case of State lands, property rights are
assigned to an authority in the public sector, local or national.25

Actual data are required to perform value chain and to identify the factors
directly affecting jatropha plantation activities, seed yield and survival rate which play
important role in production and supply of jatropha seeds as raw material. Apart from
this, employment potential will be estimated considering various models. For all three
key activities A, B and C cost incurred at each stage will be calculated. Here few
assumptions are made for computation because, few cost factors, agro climatic regions
and availability may vary depending upon region where jatropha cultivation is done.
Activity A is Jatropha cultivation which includes four pilot plantations which are as
follow:

25
Norton Roger, “Agricultural Development Policy Concepts & Experiences from Book section “ nature of
Land Rights”, Pg.121

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A1 Plantation on Private land

A2 Plantation on Village Grazing and fallow Land

A3 Railway Track side Plantation

A4 Road side Plantation

After calculating cost of cultivation of each type of cultivation i.e. A1, A2, A3 and A4,
average cost of cultivation will be considered for further analysis.

For calculation convenience, costs are divided into two main groups; one is
variable cost and secondly fixed costs. In this case, wage rates to the labours are
considered as variable cost because wage rates per day are fluctuating with time line
and market conditions. Variable costs will include items such as feed, seed, saplings or
cuttings from nursery, fertilizer, spray materials, pesticides and casual labour can be
controlled to some extent, and are not incurred when there is no production. Fixed
costs, for items such as taxes, insurance, and interest on loans, regular labour and
depreciation on building, plant and machinery are incurred whether or not there is
production.

For calculation of profit, inflation in market price of jatropha seeds is assumed


at 10% rate of inflation from current market price that is 7 Rs/Kg. Inflation rate is
calculated with consideration of seed current price at base year that is 7 Rs/Kg at 2010.
Price fluctuation at base year is between 18 Rs/Kg to 30 Rs/Kg. But here, plantation is
done under contract farming scheme on private land which had determined the pre-
agreed current price that is 7 Rs/Kg. However in off season when jatropha seeds are
not available because of its specific harvesting period, shortage of seeds resulted rise
of jatropha seed price in market. And during harvesting season, price of jatropha may
come down to its original price. This assumption of 10% is considered for all types of
plantation.
I-FLATIO- RATE I- SEED PRICE
Price fluctuation: 18 Rs to 30 Rs per Kg
Now, projections are made for 15 years and base year price in this case is 7
Rs/Kg. Here we assume that, Percentage inflation in Seed price for each year will be
10% from the previous base year price.

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For example, in 2010, seed price = 7 Rs/kg.


Now Inflation in Seed Price in 2011 = 7 + (10% of 7) = 7 + 0.7 = 7.7
ote: This calculation will continue from 2010 to 2025 considering previous as base
year.

2.7 ACTIVITY A - COST OF JATROPHA CULTIVATION

2.7.1 TYPE-A1 PLANTATION ON PRIVATE LAND

BASIC ASSUMPTIO-S

Based on above methodology, we assume that plantation is done on private


land which is not under agriculture use. And time period of jatropha plantation is 15
years from 2010 to 2025. The economic life of jatropha plant is expected from 40 to
45 years. The yield of seeds will stabilize from 6th year onwards. Hence, yield of seed
varies considerably according to soil type, rain fall, agro-climatic conditions and
survival rate etc. Here cost estimation is for done for jatropha Cultivation in private
land. 1 HA area is considered for cost calculations; hence it can be replicated and
calculated for larger areas of plantation. Here, few variables will vary according to the
regional characteristics and agro-climatic conditions which are as follows.

Annexure 1 illustrates the process of calculating the total cost of jatropha


cultivation on private land. The objective of cost calculation is to identify that which
critical factors are affecting the cost of cultivation in order to get higher yield and good
economic output out of it. The basic assumptions are as follows:

a. Cost of plant or saplings is 4 Rs for each from nursery.


b. Land: plantation is done one private trust land owned private body which is not
agriculture land.
c. Labour: For each activity required labour force is different. Wage ret per Man Day
(MD) is 60 Rs. Wage rates may vary according to various states. Table 2.4 shows
employment opportunities for each activity.
d. Crop period: As life span of jatropha is 40 to 50 yrs but here jatropha cultivation
and cost estimates are projected for 15 years. Project Cost calculations are done for
15 years.

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e. Yield of seeds effectively will start from 3rd year and yield will stabilize from 6th
year onwards. Seed Yield will vary depending upon irrigated and rain fed
conditions.
f. Cost of Irrigation is estimated 500 Rs/Ha. At first year 3 times irrigation is required,
one time at second year and afterwards irrigation can be provided yearly once in
three years. Depending upon the agro climatic conditions and typology of region,
cost of irrigation may include either cost of motor and pipe line for irrigation or cost
of hired vehicle with water tanker for irrigation.
g. Per plant 25 gm fertilizer is required; price of fertilizer is 6Rs/Kg. Fertilizers are
required for initial two years. If plantation is done on very poor quality of soil than
fertilizer application can be continued up to 4-5 years after plantation.

In order to estimate actual yields under irrigated condition and rain fed
condition, primary data represents that under irrigated conditions seed yield is higher
than the rain fed condition. One case is examined where 50 acre Pilot plantation of
jatropha is done on private land which is owned by “Seth Anandji Kalyanji Trust” in
2004. 50 Acre Pilot plantation is located at Chaparwadi village at Palitana taluka of
Bhavnagar District. Detailed discussion was done with comprehensive questionnaire
and check list of information required. Table 2.5 shows requirement of labour for
various activities of plantation. Information obtained from discussions is used for cost
calculations with specific input costs which are as follow:

Based on above assumptions, cost components are derived for jatropha


cultivation. One cost component is paid-out costs which include following items:

1. Hired Labour: Human Labour for cultivation

2. Cost on material inputs: Jatropha Saplings/Cuttings

i. Saplings: Purchased from private local Nursery.

3. Fertilizers : Purchased from market

4. FYM: Purchased

5. Pesticides: Purchased

6. Irrigation: Hired Facility

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7. Land: Owned by Cultivator or Individual

Saplings: Saplings will be available at 4 Rs/plant. At 1st year 2500 plants are requires
and at 2nd year 500 plants are required in case of re-plantation.

Farm Yard Manure (FYM): Cost of FYM is 400 Rs/MT. Per pit 2 Kg FYM is
required during filling of pits with fertilizer mixing.

Fertilizer: Cost of fertilizers is 6 Rs/Kg which may vary depending upon market
conditions. At first year fertilizer requirement are 50 gm/plant and from second year
25 gm/plant.

Irrigation: cost of irrigation for 1 ha jatropha cultivation works out to be 500 Rs/Ha
which include motor to pump water from reservoir and in cased of hired water tanker
especially for irrigation may change the cost of irrigation for 1 ha. Thus source of
irrigation will determine the cost factor for irrigation.

TABLE: 2.4 Employment for various sub Activities of Jatropha cultivation


Activities Employment Wage/Day in Rs.
Land Preparation for plantation 10 60
Alignment and stacking for pits 5 -do-
Digging of Pits for Plantation 50 -do-
Cost of FYM -do-
Fertilizer 2 -do-
Mixing of FYM, Pesticides 25 -do-
Cost of Plants or Saplings -do-
Planting and Replanting cost 25 -do-
Cost of Irrigation -do-
Weeding, Soil working and tilling 20 -do-
Cost of Harvesting Seeds 5 -do-
Cost of Crop Care -do-

It was observed that seed yield per jatropha plant under irrigated condition
which means that irrigation can give good production of jatropha seeds. On profit side,
the most important conclusion of the present cost estimation is that availability of

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water resources or irrigation facilities to jatropha cultivation because under rain fed
conditions, seed yield is reported less compare to irrigated conditions. The yield
results found in Kutch are 2-3 kg seed per tree under rain fed condition and based on
soil weather poor or average soil.

Here Annexure 1 shows cost of jatropha cultivation in one Hectare including


all cost composition during plantation process. Hence, jatropha cultivation project is
envisaged for future 15 years. Annexure 2 represents calculation of net annual profit
at every year from 2010 to 2025. Although, there is always a huge scope for cultivator
to recover initial investment through selling jatropha seeds when high demand is there
in off season. In this case, jatropha pilot plantation will be done on private land, total
project cost for 1 Ha of jatropha cultivation works out to be Rs. 3,50,664/- for 15
Years.

TABLE: 2.5 Seed Yield per Plant under Irrigated and Rain fed condition

Area in -o of Irrigated / 2010 2011 2012 2013 2014 2015 2016 2017
Density
Ha Plants Rain Fed
2m Irrigated 800 1200 2000 6400 12800 18400 20000 20000
1 2500
X2m Rain fed 0 800 1600 2000 6400 9600 12000 12000
Irrigated 0.2 0.3 0.5 1.6 3.2 4.6 5 5
Per Plant Yield ( Kg/Plant)
Rain fed 0 0.2 0.4 0.5 1.6 2.4 3 3

FIGURE: 2.5 Total Cost (TC), Total Revenue (TR) & Total Profit (TP) Curve –Type A1

TC, TR & TP CURVES - Type A1


350000
300000
250000
TC, TR & TP in Rs.

200000
150000
100000
50000
0
-50000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Years
TC TR TP

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Above Figure 2.5 shows Total Cost (TC) of cultivation, Total Revenue (TR)
and Total Profit (TP) curves for jatropha cultivation project on private land. Figure 2.4
represent that at first year there will not be any profit but from second year onwards
profit will increase with higher production and inflation in market price of jatropha
seeds.

Here enterprise’s Total Profit from jatropha cultivation on private land is calculated by
subtracting the Total Cost of jatropha cultivation from actual Total Revenue generated
from selling of jatropha seeds. Annexure 1 is showing various cost components of one
hectare of jatropha cultivation on private land. Annexure 2 illustrates net annual Total
Profit or net output from one hectare jatropha cultivation on private land.

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AEXURE 1 : Cost of Jatropha Cultivation on Private Land- Type A1
Particulars Cost of Jatropha Cultivation on Private Land- Type A1
Items 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Land Preparation for plantation 600

Allignment and stacking for pits 300


Digging of Pits for Plantation 3000
Cost of FYM 2000

Fertilizer 870 495

Mixing of FYM, Pesticides 1500

Cost of Plants or Saplings 10000 2000

Planting and Replanting cost 1500 300

Cost of Irrigation 1500 500 500 500 500 500 500

Weeding, Soil working and tilling 1200 1200 1200

Cost of Harvesting Seeds 480 720 1200 7680 15360 22080 24000 24000 24000 24000 24000 24000 24000 24000 24000 24000

Cost of Crop Care 300 300 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Sub Total 23250 5515 2900 7680 15860 22080 24000 24500 24000 24000 24500 24000 24000 24500 24000 24000
Contingency Margin of 10% of
2325 552 290 768 1586 2208 2400 2450 2400 2400 2450 2400 2400 2450 2400 2400
Cost
Grand Total 25575 6067 3190 8448 17446 24288 26400 26950 26400 26400 26950 26400 26400 26950 26400 26400

51 | P a g e
AEXURE 2 : Net Annual Profit from 1 Ha Jatropha Cultivation Type A1
Particulars et Income from 1 Ha Jatropha Cultivation Type A1

Area under Plantation 1 Ha

No of Plants in 1 Ha 2500 Plants

80% Survival 2000

Income Stabilization Year

Cost stabilization From 6 Year onwards

Yield Stabilization

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
YEARS
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th

Cost of Cultivation 25575 6067 3190 8448 17446 24288 24288 26400 26950 26950 26400 26950 26950 26400 26950 26950

Seed yield/Plant 0 0 1 2 3 5 5 5 5 5 5 5 5 5 5 5

Yield/Ha in Kg 400 600 1000 3200 6400 9200 10000 10000 10000 10000 10000 10000 10000 10000 10000 10000

Net Yield/Ha after 2% Loss 392 588 980 3136 6272 9016 9800 9800 9800 9800 9800 9800 9800 9800 9800 9800

Sale price of Seeds @ 7Rs/Kg,


10% Inflation in price of seeds 7 7.7 8.5 9.3 10.2 11.3 12.4 13.6 15.0 16.5 18.2 20.0 22.0 24.2 26.6 29.2
every year
Gross Income by Selling Seeds 2744 4528 8301 29218 64280 101643 121529 133682 147050 161755 177931 195724 215296 236826 260508 286559

Annual Net Income in Rs. -22831 -1539 5111 20770 46834 77355 97241 107282 120100 134805 151531 168774 188346 210426 233558 259609

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Strategy For Jatropha Bio Diesel Production – Profit Model, “The Case of Gujarat”
Chapter 2

2.7.2 TYPE-A2 PLANTATION ON VILLAGE GRAZING AND


FALLOW LAND

BASIC ASSUMPTIO)S

As mentioned in Table 2.1 that fallow and wastelands in villages can also be
under taken for jatropha cultivation. Employment will remain same for some common
activities like land preparation, alignment, pit digging, plantation, re-plantation,
mixing of FYM etc. The basic assumptions for this type of plantation are as follows:

a) Cost of plant or saplings is 2 Rs for each from nursery. Here mainly small and
marginal farmers will grow jatropha. Small, medium and marginal farmer will get
50% subsidy in jatropha saplings and Forest Department will provide them
saplings or cutting at 2Rs/plant.
b) Land: plantation is done on fallow and grazing land owned by Panchayat which is
not agriculture land.
c) Labour: For each activity required labour force is different. Labour cost has been
put at an average wage rate of 60 Rs per Man Day. Table 2.4 shows employment
opportunities for each activity.
d) Crop period: As life span of jatropha is 40 to 50 yrs but here jatropha cultivation
and cost estimates are projected for 15 years. Cost calculations are done for 15
years.
e) Yield of seeds effectively will start from 3rd year and yield will stabilize from 6th
year onwards.
f) Here jatropha plantation will depend on rain fall instead of irrigation. So here, cost
of irrigation is zero.
g) Per plant 25 gm fertilizer is required; price of fertilizer is 6Rs/Kg which will be
provided by Panchayat.

This case study represents jatropha cultivation on Village Grazing and fallow
land in Godavari Village of Muli Taluka of Surendranagar district. In this scenario, 3
ha area of CPR was covered under jatropha cultivation. As already indicated in
assumptions that plantation will survive in rain fed condition, cost components will be
different from Type A1. Following are paid-out costs by Panchayat:

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1) Hired Labour: Human Labour will be local farmers. First priority of


employment is given to small, marginal and landless farmers.

2) Cost on material inputs: Seeds are purchased from DFO of local Forest
department Nursery.

3) Fertilizers : Purchased

4) FYM: Purchased

5) Pesticides: Purchased

6) Irrigation: Rain fed plantation

7) Land: Owned by Cultivator

Saplings: Saplings will be available at 2 Rs/plant. At 1st year 2500 plants are requires
and at 2nd year 500 plants are required in case of re-plantation.

Farm Yard Manure (FYM): Cost of FYM is 400 Rs/MT. Per pit 2 Kg FYM is
required during filling of pits with fertilizer mixing.

Fertilizer: Cost of fertilizers is 6 Rs/Kg which may vary depending upon market
conditions. At first year fertilizer requirement are 50 gm/plant and from second year
25 gm/plant.

Irrigation: cost of irrigation will be zero because plantation will sustain of annual rain
fall.

It was found during primary survey that in this case of rain fed condition and
where annual rain fall is very less, survival rate is only 55%. As compare to A1 type,
seed yield and survival rate are very low in absence of proper crop protection measure
and irrigation for survival. In this model of jatropha cultivation on village grazing and
fallow land, total project cost for 1 Ha of jatropha cultivation works out to be Rs.
1,49,166/- for 15 Years.

Below Figure 2.6 represents the relationships between Total Cost curve, Total
Revenue Curve and Total Profit Curve. We can observe that profit can be maximized
if the sales are maximized. Other way round, if sales realization is same but at higher
output, then also profit can be maximized.

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FIGURE: 2.6 Total Cost, Total Revenue and Total Profit Curves – Type A2

TC, TR & TP CURVE- Type A2

150000
TC, TR & TP in Rs.

100000

50000

-50000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Year TC TR TP

Annexure 3 simply illustrates the cost of jatropha cultivation on village grazing and
fallow land. In this scenario, plantation will survive on annual rain fall. In this case,
village panchayat is main enterprise implementing jatropha cultivation on CPR of
village. Labours for jatropha cultivation were listed beneficiaries under NREG
scheme. Employment opportunities were given to small, marginal and landless
farmers. Here cost of irrigation will be nil but against this seed yield will be lower than
irrigated condition. Annexure 4 illustrates the net annual profit/ Total Profit
calculation.

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AEXURE 3 Cost of Jatropha Cultivation on Village Grazing, Fallow Land- Type A2
Particulars Cost of Jatropha Cultivation on Village Grazing, Fallow Land
Items 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Land Preparation for plantation 600

Allignment and stacking for pits 300


Digging of Pits for Plantation 3000
Cost of FYM 2000
Fertilizer 870 495

Mixing of FYM, Pesticides 1500

Cost of Plants or Saplings 5000 1000

Planting and Replanting cost 1500 300

Cost of Irrigation 0 0 0 0
Weeding, Soil working and
1200 1200 1200
tilling
Cost of Harvesting Seeds 0 330 660 1650 5280 7920 9900 9900 9900 9900 9900 9900 9900 9900 9900 9900

Cost of Crop Care 300 300 0 0 0 0 0 0

Sub Total 16270 3625 1860 1650 5280 7920 9900 9900 9900 9900 9900 9900 9900 9900 9900 9900
Contingency Margin of 10% of
1627 363 186 165 528 792 990 990 990 990 990 990 990 990 990 990
Cost
Grand Total 17897 3988 2046 1815 5808 8712 10890 10890 10890 10890 10890 10890 10890 10890 10890 10890

56 | P a g e
AEXURE 4 Net Annual profit from 1 Ha Jatropha Cultivation Type A2
Particulars et Income from 1 Ha Jatropha Cultivation Type A1
Area under Plantation 1 Ha
No of Plants in 1 Ha 2500 Plants
55% Survival 1375
Income Stabilization Year

Cost stabilization From 6 Year onwards


Yield Stabilization

YEARS 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th

Cost of Cultivation 17897 3988 2046 1815 5808 8712 10890 10890 10890 10890 10890 10890 10890 10890 10890 10890

Seed yield/Plant 0 0.2 0.4 0.5 1.6 2.4 3 3 3 3 3 3 3 3 3 3

Yield/Ha 0 275 550 687.5 2200 3300 4125 4125 4125 4125 4125 4125 4125 4125 4125 4125

Net Yield/Ha after 2% Loss 0 270 539 674 2156 3234 4043 4043 4043 4043 4043 4043 4043 4043 4043 4043

Sale price of Seeds @


7Rs/Kg, 10% Inflation in 7 7.7 8.5 9.3 10.2 11.3 12.4 13.6 15.0 16.5 18.2 20.0 22.0 24.2 26.6 29.2
price of seeds every year
Gross Income by Selling
0 2075 4565 6277 22096 36459 50131 55144 60658 66724 73396 80736 88810 97691 107460 118206
Seeds
Annual Net Income in Rs. -17897 -1912 2519 4462 16288 27747 39241 44254 49768 55834 62506 69846 77920 86801 96570 107316

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Chapter 2

2.7.3 TYPE-A3 RILWAY TRACK SIDE PLANTATION

BASIC ASSUMPTIONS
In terms of Railway track side plantation, one case study was conducted in
Surendranagar where 70 hectare area was under jatropha cultivation along railway
tracks. In this case also, hired labour will remain same for some common activities
like land preparation, alignment, pit digging, plantation, re-plantation, mixing of FYM
etc. The basic assumptions for this type of plantation are as follows:

a) Cost of plant or saplings is 3 Rs for each from forest nursery. Here mainly small
and marginal farmers were employed for jatropha cultivation. Small, medium and
marginal farmer will get 50% subsidy in jatropha saplings and Forest Department
will provide them saplings or cutting at 2Rs/plant.
b) Land: plantation is done on fallow and grazing land owned by Panchayat which is
not agriculture land.
c) Labour: For each activity required labour force is different. Wage ret per Man Day
(MD) is 60 Rs. Table 2.4 shows employment opportunities for various activities.
d) Crop period: As life span of jatropha is 40 to 50 yrs but here jatropha cultivation
and cost estimates are projected for 15 years. Cost calculations are done for 15
years.
e) Yield of seeds effectively will start from 3rd year and yield will stabilize from 6th
year onwards.
f) Here jatropha plantation will depend on rain fall instead of irrigation. So here, cost
of irrigation is nil (zero).
g) Per plant 25 gm fertilizer is required; price of fertilizer is 6Rs/Kg which will be
provided by Panchayat.

Following are paid-out costs by Panchayat:

1) Hired Labour: Human Labour

2) Cost on material inputs: Seeds : Purchased from Forest department Nursery

3) Fertilizers : Purchased

4) FYM: Purchased

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5) Pesticides: Purchased

6) Irrigation: Hired Facility

7) Land: Owned by Cultivator

Saplings: Saplings will be available at 3 Rs/plant from forest department nursery. At


1st year 2500 plants are requires and at 2nd year 500 plants are required in case of re-
plantation.

Farm Yard Manure (FYM): Cost of FYM is 400 Rs/MT. Per pit 2 Kg FYM is
required during filling of pits with fertilizer mixing.

Fertilizer: Cost of fertilizers is 6 Rs/Kg which may vary depending upon market
conditions. At first year fertilizer requirement are 50 gm/plant and from second year
25 gm/plant.

Irrigation: cost of irrigation for 1 ha jatropha cultivation works out to be 200 Rs/Ha.
Cost of irrigation is comparatively less than other option; because irrigation was
provided from water tank situated near by location within Railway premises.

FIGURE: 2.7 Total Cost, Total Revenue and Total Profit Curves – Type A3

TC, TR & TP Curve- Type A3

350000
300000
TC, TR & TP in Rs.

250000
200000
150000
100000
50000
0
-50000
2010 2012 2014 2016 2018 2020 2022 2024
Years TC TR TP

In this case, for irrigation purpose, water is provided by Railway authority.


Irrigation is not must but life saving irrigation for plant at initial 3-4 years is required
for survival. Table below shows the cost components of Jatropha cultivation along
Railway tracks. Such input costs will be provided by IOC. Referring Annexure 5,

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total project cost for 1 Ha of railway track side jatropha cultivation works out to be Rs.
3,708,71/- for 15 Years. And annual Profit is calculated in Annexure 6.

The above figure 2.7 shows inter-relation between Total Cost (TC), Total
Revenue (TR) and Total Profit (TP) from jatropha cultivation along railway tracks. It
can be seen that high efforts and good inputs availability is success factor in this type
of plantation because profit is becoming positive from second year onwards which is
quiet earlier then other plantation types.

In this case annual benefit can be increased if seeds are stores properly and sold
in off season when there is shortage of seeds. Inflation rate is calculated with
consideration of seed price at base year that is 7 Rs/Kg at 2010. Price fluctuation at
base year is between 18 Rs/Kg to 30 Rs/Kg. But here, plantation is done under
contract farming scheme on private land which had determined the pre-agreed price
that is 7 Rs/Kg. Here same assumption for 10% of inflation rate is considered and
output cost is calculated accordingly. In this model of jatropha cultivation, net annual
profit is higher than other three options. Higher profit can be justified by higher seed
yield can be further justified by good inputs for jatropha cultivation which is essential
for good output value.

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AEXTURE 5: Cost of Jatropha Cultivation along Railway Tracks - Type A3
Particulars Cost of Jatropha Cultivation along Railway Tracks
Items 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Land Preparation for


600
plantation
Allignment and stacking for
300
pits
Digging of Pits for Plantation 3000
Cost of FYM 2000

Fertilizer 870 495

Mixing of FYM, Pesticides 1500

Cost of Plants or Saplings 7500 1000

Planting and Replanting cost 7500 1500

Cost of Irrigation 600 200 200 200 200 200 200


Weeding, Soil working and
1200 1200 1200
tilling
Cost of Harvesting Seeds 510 765 1275 8160 16320 23460 25500 25500 25500 25500 25500 25500 25500 25500 25500 25500

Cost of Crop Care 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Sub Total 25580 5160 2675 8160 16520 23460 25500 25700 25500 25500 25700 25500 25500 25700 25500 25500
Contingency Margin of 10%
2558 516 268 816 1652 2346 2550 2570 2550 2550 2570 2550 2550 2570 2550 2550
of Cost
Grand Total 28138 5676 2942.5 8976 18172 25806 28050 28270 28050 28050 28270 28050 28050 28270 28050 28050

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AEXTURE 6: Net Annual Profit from Jatropha Cultivation Along railway tracks- Type A3
Particulars et Income from 1 Ha Jatropha Cultivation Type A1
Area under Plantation 1 Ha
No of Plants in 1 Ha 2500 Plants
85% Survival 2125
Income Stabilization Year

Cost stabilization From 6 Year onwards


Yield Stabilization

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Years
0Yr 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th

Cost of Cultivation 28138 5676 2943 8976 18172 25806 28050 28270 28050 28050 28270 28050 28050 28270 28050 28050

Seed yield/Plant 0.2 0.3 0.5 1.6 3.2 4.6 5 5 5 5 5 5 5 5 5 5

Yield/Ha 425 637.5 1062.5 3400 6800 9775 10625 10625 10625 10625 10625 10625 10625 10625 10625 10625

Net Yield/Ha after 1% Loss 421 631 1052 3366 6732 9677 10519 10519 10519 10519 10519 10519 10519 10519 10519 10519

Sale price of Seeds @


7Rs/Kg, 10% Inflation in 7 7.7 8.5 9.3 10.2 11.3 12.4 13.6 15.0 16.5 18.2 20.0 22.0 24.2 26.6 29.2
price of seeds every year

Gross Income by Selling


2945 4860 8909 31361 68994 109097 130442 143486 157835 173619 190980 210079 231086 254195 279615 307576
Seeds
Annual Net Income in Rs. -25193 -816 5967 22385 50822 83291 102392 115216 129785 145569 162710 182029 203036 225925 251565 279526

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Chapter 2

2.7.4 TYPE-A4 ROAD SIDE PLANTATION

BASIC ASSUMPTIO*S

In order to calculate cost of cultivation along road side, one case study was held
in Nava Village of Chotila Taluka of Surendranagar district where in jatropha
cultivation was done on both sides of village access road from state highway. In this
case, approval was taken from panchayat to cultivate jatropha along road side. Hence,
this cultivation was done under contract farming scheme and type of contract was
purchase contract in which firm will purchase the produce from road side plantation.
First of all contract was signed between panchayat, contracting agency and local
APMC official, under which villagers have done plantation on both the sides of 10 Km
stretch. In this case panchayat had hired local labour force for some common
activities like land preparation, alignment, pit digging, plantation, re-plantation,
mixing of FYM etc. Panchayat had supplied basic input costs under NREG scheme to
give employment to small and landless farmers. The basic assumptions for this type of
plantation are as follows:

a) Cost of plant or saplings is 3 Rs for each from nursery. Here local small and
marginal farmers are motivated to develop on farm nursery to promote easy and
local availability of jatropha saplings. Along with this, individual nursery rising
will give additional income to small and marginal farmers. So here, jatropha
saplings were taken at 3Rs/Sapling from farmers who had developed on farm
jatropha nursery.
b) Land: plantation is done on Village access road from state highway which is
not used for agriculture purpose.
c) Labour: For each activity required labour force is different. Wage ret per Man
Day (MD) is 60 Rs. Table 2.4 shows employment opportunities for various
activities. Here Panchayat will list out the farmers who had done contract with
private firm and they will become the labour and will be paid by Panchayat.
d) Crop period: As life span of jatropha is 40 to 50 yrs but here jatropha
cultivation and cost estimates are projected for 15 years. Cost calculations are
done for 15 years.

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e) Yield of seeds effectively will start from 3rd year and yield will stabilize from
6th year onwards.
f) Here jatropha plantation will be irrigated thrice in first year and twice in second
year. Irrigation will be hired from a large farmer who have tractor with water
tank.
Per plant 25 gm fertilizer is required; price of fertilizer is 6Rs/Kg which will be
provided by Panchayat.

Following are paid-out costs by Panchayat:

1) Hired Labour: Human Labour

2) Jatropha Saplings: Saplings/ Cuttings of Jatropha at 3 Rs/ per each

3) Fertilizers : Purchased by interested cultivators/beneficiaries from Panchayat

4) FYM: Purchased by beneficiaries from Panchayat

5) Pesticides: Purchased by beneficiaries from Panchayat

6) Irrigation: Hired Tractor with water tank from large farmers

7) Land: Owned by Panchayat ( or State Highway Authority )

Saplings: Saplings will be available at 3 Rs/plant local farmers who had developed on
farm small nursery with capacity of 100 to 150 plants..

Farm Yard Manure (FYM): Cost of FYM is 400 Rs/MT. Per pit 2 Kg FYM is
required during filling of pits with fertilizer mixing.

Fertilizer: Cost of fertilizers is 6 Rs/Kg which may vary depending upon market
conditions. At first year fertilizer requirement are 50 gm/plant and from second year
25 gm/plant.

Irrigation: cost of irrigation for 1 ha jatropha cultivation works out to be 200 Rs/Ha.
Cost of irrigation is comparatively less than other option; because irrigation was
provided from water tank situated near by location within Railway premises.

The cost components of such type of jatropha cultivation along with the basis
of costing are exhibited in Annexure 7. The project cost for 15 years works out to be

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Rs 324627/-. Along with this, Annexure 8 show net annual Profit from 2010 to 2035
which had effectively started from 3rd year onwards.

FIGURE: 2.8 Total Cost, Total Revenue and Total Profit Curves – Type A4

TC, TR & TP Curve - Type A4


300000
250000
TC, TR & TP in Rs.

200000
150000
100000
50000
0
-50000 2010 2012 2014 2016 2018 2020 2022 2024

Year TC TR TP

From figure 2.8, we can observe that for initial 3 to 4 years, profit is not sufficient to
recover initial investment. But from fifth year, profit is increasing hence; beneficiaries/
interested farmer will put sincere efforts in jatropha cultivation which is giving them
additional source of income. Above Figure 2.8 also shows relationships between Total
Cost (TC) of cultivation curve, Total Revenue (TR) and Total Profit (TP) Curve which
represents that TP can be derived from calculating difference between TR and TC.

TP = TR – TC

Where, TP = Total Profit

TR = Total Revenue and

TP = Total Profit

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AEXTURE 7: Cost of Road side Jatropha Cultivation - Type A4
Particulars / Items Cost of Jatropha Cultivation on Road Side
Years 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Land Preparation for plantation 600

Allignment and stacking for pits 300


Digging of Pits for Plantation 3000
Cost of FYM 2000
Fertilizer 870 495

Mixing of FYM, Pesticides 1500

Cost of Plants or Saplings 7500 600

Planting and Replanting cost 1500 300

Cost of Irrigation 1500 500 500 500 500 500 500


Weeding, Soil working and
1200 1200
tilling
Cost of Harvesting Seeds 450 675 1125 7200 14400 20700 22500 22500 22500 22500 22500 22500 22500 22500 22500 22500

Cost of Crop Care 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Sub Total 20420 3770 1625 7200 14900 20700 22500 23000 22500 22500 23000 22500 22500 23000 22500 22500
Contingency Margin of 10% of
2042 377 163 720 1490 2070 2250 2300 2250 2250 2300 2250 2250 2300 2250 2250
Cost
Grand Total 22462 4147 1787.5 7920 16390 22770 24750 25300 24750 24750 25300 24750 24750 25300 24750 24750

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AEXTURE 8: Net Annual Profit from Road side Jatropha Cultivation - Type A4
Particulars / Items et Income from 1 Ha Jatropha Cultivation Type A1
Area under Plantation 1 Ha
No of Plants in 1 Ha 2500 Plants
75% Survival 1875
Income Stabilization Year

Cost stabilization From 6 Year onwards


Yield Stabilization

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Years
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th

Cost of Cultivation 22462 4147 1788 7920 16390 22770 24750 25300 24750 24750 25300 24750 24750 25300 24750 24750

Seed yield/Plant 0.2 0.3 0.5 1.6 3.2 4.6 5 5 5 5 5 5 5 5 5 5

Yield/Ha 375 562.5 937.5 3000 6000 8625 9375 9375 9375 9375 9375 9375 9375 9375 9375 9375

Net Yield/Ha after 2% Loss 368 551 919 2940 5880 8453 9188 9188 9188 9188 9188 9188 9188 9188 9188 9188

Sale price of Seeds @


7Rs/Kg, 10% Inflation in 7 7.7 8.5 9.3 10.2 11.3 12.4 13.6 15.0 16.5 18.2 20.0 22.0 24.2 26.6 29.2
price of seeds every year

Gross Income by Selling


2573 4245 7782 27392 60262 95290 113934 125327 137860 151646 166810 183491 201840 222024 244227 268649
Seeds
Annual et Income in Rs. -19890 98 5994 19472 43872 72520 89184 100027 113110 126896 141510 158741 177090 196724 219477 243899

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Chapter 2

2.7.5 COMPARATIVE ANALYSIS OF FOUR PILOT PLANTATIONS

It was found during analysis that under irrigated condition, higher yield can be
achieved. In case of rain fed cultivation, yield is not that much satisfactory. In four
various scenarios, average cost of cultivation is calculated
= Cost of (A1+A2 + A3 + A4)
4
Average Cost of Jatropha Cultivation in 1 Ha for 15 Years = Rs. 298832
Average Annual Profit = Rs. 107551

Type A2 plantation is giving very less production output because of it was rain
fed plantation and absence of any crop care action and monitoring of growth of
plantation. On the other hand, railway side jatropha cultivation will give not only high
seed yield but also give higher net annual profit. Hence every action during
implementation is integrated with net output from 1 Ha of jatropha cultivation. Figure
2.9 shows that maximum profit can be obtained from Type A3 model plantation which
is plantation along railway tracks. On the other side, there is high depression in net
annual profit from type A2 model plantation. As factors affecting the profit are
survival rate, sees yield, oil content, quality of seeds and demand in market. Although
with higher profit, cost components will go high but that application is not required at
every year of project life. But still there are many loop holes before implementation,
during implementation and after implementation which ultimately affects the economy
of production of Bio Diesel from jatropha and its value chain.

Figure 2.9 Comparative TP Curve for A1, A2, A3 and A4

TP Curve for A1, A2, A3 & A4


300000
250000
Total Profit in Rs.

200000
150000
100000
50000
0
-50000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Years Type A1 Type A2 Type A3 Type A4

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2.7.6 REVENUE GENERATION

In various scenario of jatropha cultivation, revenue generation will depend


upon intensive efforts during plantation, protection and irrigation to cultivation. By
selling of seeds at 7 Rs/Kg, cultivator will get benefit from third year onwards, and
benefits will stabilize from sixth year onwards. Thus, benefits cultivator can get
assured benefits only if cultivator provides proper inputs at the beginning years are
supplied sufficiently to grow jatropha.

Initial investment in jatropha cultivation can be recovered by selling seeds in


off season when prices of jatropha seed are higher up to 18 Rs/Kg. Price of jatropha
seeds fluctuates between 7 to 18 Rs/Kg depending on supply of raw material from
cultivation activities. In off season, generally there is shortage of jatropha seeds, in
that case private land owner can grab this opportunity to earn maximum benefit from it
by selling seeds at 18 Rs/Kg. In fact, during calculations of net annual profit, 5%
inflation in seed price is assumed which may increase depending upon market side
demand and consistency of production. This shortage is occurred mainly because there
is not enough supply of jatropha seeds to market. Again looking at backward linkages
of this issues, there is a vast different in yield, cost of cultivation and net income in
A1, A2, A3 and A4 scenarios which can be looked after while implementation period.

2.8 ACTIVITY B- COST OF JATROPHA RAW OIL


PRODUCTION

Activity B is an intermediate activity in which raw jatropha oil is extracted


from jatropha seeds produced from cultivation. This activity mainly consists of seed
drying, crushing of jatropha seeds and production of raw jatropha oil. Oil cake is a by
product produced after seed crushing. This by product can be used as a Bio fertilizer
and manure for agriculture purposes. If seed quality and oil content in seeds are good
that 1 Kg seeds will give 0.38 litre jatropha raw oil. This raw oil can also be used for
rural energy sources like in lanterns, stoves and for other domestic (cooking, lighting)
purposes. Normally oil cake is sole at price of 5 Rs/Kg and local farmers are main
buyers of this product.

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Chapter 2

2.8.1 RAW MATERIAL

Jatropha seeds are raw material for jatropha raw oil production which can be
obtained from APMC markets, seed supplier or seed retailer. Apart from this, seeds
can be available to Bio Diesel manufacturing firm from contract farming scheme.
Seeds can be available from retailer or home grown. In this case we consider that
seeds are available from retailed at price of 7Rs/Kg.

2.8.2 OIL EXPELLER UNITS

Oil expeller machines are used to expel oil from Jatropha seeds. In market, oil
expellers of various capacities are available. Seed crushing capacity of oil expellers
varies from 1 Tonne/Day, 2 Tonne/Day and 5 Tonne/Day. Depending upon crushing
capacity, cost of oil expeller will vary.

Table 2.6 Various Capacities of oil Expelling Units

Type of Oil Expelling Unit A : Oil Expeller B : Oil Expeller


Capacity 1 T/D 2 T/D
Cost Rs. 2,50,000/- Rs. 3,25,000/-
Power 5 HP 10 HP
Space Requirement 20’ x 20’ 20’ x 25’

‘Although oil extraction can be done with or without seed coat, for jatropha,
utilization of a mechanical de-hulling system (to remove the seed coat) can increase oil
yield by 10%. Choosing efficient extraction methods can increase the yields by more
than 5%. While in cold pressing (< 60° C), around 86-88% efficiency is achieved, hot
pressing (110-120° C) can increase it to around 90%. On the other hand, the solvent
extraction method enhances the efficiency up to 99%.’
26

Normally if seed quality is good than oil content of seeds will be 35% of its
weight. Jatropha raw oil and oil cake is produced after seed crushing. 1 Kg seed will
yield 0.38 Litre oil. Here we assume that seed produced from one Hectare will be

26
Liquid Biofuels for Transportation: TERI, GTZ, pg 38

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Chapter 2

supplied to this crushing unit. For cost computations of oil expelling from jatropha
seeds, basic assumptions are as follows

Table 2.7 Basic Assumptions for Activity B

Item Unit Rate quantity Estimated cost


Oil expeller unit A 2,50,000 1 Rs. 2,50,000/-
Installed Capacity- 1 T/D
Building 800 Rs/Sq. Ft 20’ x 20’ Rs. 3,20,000/-
Seeds @ 5% inflation at 7 Rs/Kg 1000 Kg/Day Rs. 7000/-
every year

Here we assume that oil expelling unit will work depending upon the supply of
feed stock supply from one hectare of jatropha plantation. Annexure 9 represents the
production forecast and no of working days in a year from seeds produced one hectare
of jatropha plantation. Initial investment is done by private enterprise which includes
costs of building construction, cost of raw materials, oil expelling unit and casual
employees to operate oil expelling machines. Considering these cost components,
capital cost of project works out as follow:

Table 2.8 Capital Cost of Activity B

Cost in
Items/ Particular
Rs
Cost of Building........................................................................................ 320000
Plant and Machinery.................................................................................. 250000
Labour........................................................................................................ 15000
CAPITAL COST..................................................................................... 585000

In case of annual depreciation, we consider 15% depreciation on Machinery


and 10% depreciation on Building. Capital investment is done by private enterprise as
equity. Hence oil expelling unit will not work continuous throughout the year. Batch to
batch production is assumed because of in sufficient feed stock availability. So casual
employees are appointed considering working days of plant. Casual employee will be
paid 500 Rs/Day. Salaries paid to employees will be considered as variable costs. It is
assumed that price of raw material will inflate at rate of 5% at every year. By product,

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oil cake will be sold at 5 Rs/Kg considering inflation of 1% in per unit price at every
year. And seed price are assume to inflate at 5% rate every year. Annexure 10
represents cost estimation of oil expelling activity.

FIGURE 2.10 Total Cost (TC), Total Revenue (TR) and Total Profit (TP) Curves – Oil
Expelling Unit

TC, TR & TP Curves- Oil expelling unit

600000
TC, TR & TP in Rs.

500000
400000
300000
200000
100000
0
-100000
10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
Years TC TR TP

Figure 2.11 represents net annual income of oil expelling unit when seed
produced from one hectare area which are directly supplied to this unit. The most
important factor which is affecting the profit is quantity of production and the sales of
product. We can see that Oil expelling units are not gaining sufficient profit to recover
investments because limited feed stock (jatropha seeds) is supplied to oil expelling
unit. After sixth year when seed yield will stabilize from one hectare land, oil
expelling unit will be in working condition only for 12 to 13 days of a year. Now
instead of batch to batch production, continuous production will increase the net
annual profit against the fixed costs of annual depreciation and maintenance cost for
non working days.

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AEXURE 9: Production forecast of Oil Expelling Unit (Activity B)

NO OF
RAW OIL CAKE SALE OF WORKING
SEED YIELD UNIT RAW OIL IN SALE PRICE SEED IN
YEAR MATERIAL BY OIL CAKE DAYS
IN KG PRICE LIT OF RAW OIL TONNE
COST PRODUCT 5RS/KG CAPACITY
1T/D
2010 500 7 3500 190 325 21 5 0.5
2011 750 7.8 5828 285 488 23 5.2 0.8
2012 1250 8.6 10781 475 813 26 5.3 1.3 1
2013 4000 9.6 38294 1520 2600 29 5.5 4 4
2014 8000 10.6 85012 3040 5200 32 5.6 8 8
2015 11500 11.8 135647 4370 7475 35 5.8 11.5 12
2016 12500 13.1 163661 4750 8125 39 6.0 12.5 13
2017 12500 14.5 181664 4750 8125 44 6.1 12.5 13
2018 12500 16.1 201647 4750 8125 48 6.3 12.5 13
2019 12500 17.9 223828 4750 8125 54 6.5 12.5 13
2020 12500 19.9 248449 4750 8125 60 6.7 12.5 13
2021 12500 22.1 275779 4750 8125 66 6.9 12.5 13
2022 12500 24.5 306114 4750 8125 73 7.1 12.5 13
2023 12500 27.2 339787 4750 8125 82 7.3 12.5 13
2024 12500 30.2 377164 4750 8125 91 7.6 12.5 13
2025 12500 33.5 418652 4750 8125 100 7.8 12.5 13

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AEXURE 10 Cost Estimation of Raw Jatropha Oil Production- Activity B
PARTICULARS 2010 2011 2012 2013 2014 2015

1 2 3 4 5 6

CAPACITY UTILIZATION 100% 100% 100% 100% 100% 100%


RAW OIL RAW OIL RAW OIL RAW OIL RAW OIL OIL
RAW OIL
OIL CAKE OIL CAKE OIL CAKE OIL CAKE OIL CAKE CAKE

PRODUCTION 190 325 285 488 475 813 1520 2600 3040 5200 4370 7475

SELLING PRICE 21.0 5.0 23.3 5.2 25.9 5.3 28.7 5.5 31.9 5.6 35.4 5.8

SALES VOLUME 3990 1625 6643 2511 12290 4310 43655 14205 96914 29263 154638 43328

TOTAL SALES 5615 9154 16600 57860 126177 197966

COSTS

VARIABLE COSTS

RAW MATERIAL 3500 5828 10781 38294 85012 135647

Salaries to Employees 0 368 613 3920 6125 6125

Operation Cost 570 855 1425 4560 9120 13110

T0TAL VARIABLE COST 4070 7050 12818 46774 100257 154882

FIXED COST

DEPRECIATIO

PLANT AND MACHINARY-15% 37500 31875 27094 23030 19575 16639

BUILDING-10% 32000 28800 25920 23328 20995 18896

TOTAL DEPRECIATION 69500 60675 53014 46358 40570 35535

TOTAL COST=FiXED+VARIABLE 73570 67725 65832 93131 140827 190417

PROFIT AFTER DEPRECIATION=SALES-TOTAL COST -67955 -58571 -49232 -35271 -14651 7549

PROFIT AFTER TAX -67955 -58571 -49232 -35271 -14651 7549

74 | P a g e
PARTICULARS 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

7 8 9 10 11 12 13 14 15 16

CAPACITY UTILIZATION 100% 100% 100% 100% 100% 100% 100% 100% 100% 200%

RAW OIL RAW OIL RAW OIL RAW OIL RAW OIL RAW OIL RAW OIL RAW OIL RAW OIL RAW OIL
OIL CAKE OIL CAKE OIL CAKE OIL CAKE OIL CAKE OIL CAKE OIL CAKE OIL CAKE OIL CAKE OIL CAKE

PRODUCTION 4750 8125 4750 8125 4750 8125 4750 8125 4750 8125 4750 8125 4750 8125 4750 8125 4750 8125 4750 8125

SELLING PRICE 39.3 6.0 43.6 6.1 48.4 6.3 53.7 6.5 59.6 6.7 66.2 6.9 73.5 7.1 81.5 7.3 90.5 7.6 100.5 7.8

SALES VOLUME 186574 48508 207097 49964 229878 51463 255164 53006 283232 54597 314388 56235 348970 57922 387357 59659 429966 61449 477263 63292

TOTAL SALES 235082 257061 281340 308171 337829 370622 406892 447016 491415 540555

COSTS

VARIABLE COSTS

RAW MATERIAL 163661 181664 201647 223828 248449 275779 306114 339787 377164 418652

Salaries to Employees 6125 6125 6125 6125 6125 6125 6125 6125 6125 6125

Operation Cost 14250 14250 14250 14250 14250 14250 14250 14250 14250 14250

T0TAL VARIABLE COST 184036 202039 222022 244203 268824 296154 326489 360162 397539 439027

FIXED COST

DEPRECIATIO
PLANT AND
14143 12022 10218 8686 7383 6275 5334 4534 3854 3276
MACHINARY-15%
BUILDING-10% 17006 15306 13775 12397 11158 10042 9038 8134 7321 6589

TOTAL DEPRECIATION 31149 27327 23993 21083 18541 16317 14372 12668 11174 9864
TOTAL
215185 229366 246015 265286 287365 312471 340861 372830 408713 448891
COST=FiXED+VARIABLE
PROFIT AFTER
DEPRECIATION=SALES- 19897 27694 35325 42884 50464 58151 66031 74186 82702 91664
TOTAL COST

PROFIT AFTER TAX 19897 27694 35325 42884 50464 58151 66031 74186 82702 91664

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Chapter 2

2.9 ACTIVITY C - COST OF JATROPHA RAW OIL


PURIFICATION

After production of raw jatropha oil, it is further sent for purification process.
The process of raw oil purification and converting it into pure Bio Diesel is called
transesterification process. Hence, large capacity plants for transesterification of raw
jatropha oil can be used to produce Bio Diesel from raw oil. This can be useful for
centralized production of Bio Diesel. However, smaller units of Bio Diesel production
plants can also be set up having production capacity of 10 – 20 liter per day as pilot
plants at village cluster level. Solvent extraction plant is used for oil purification.
Capital cost of project is as below:

Table 2.9 Capital Cost of Activity C

Items/ Particular Cost in Rs


PHYSICAL COST OF PROJECT - A
Cost of Building............................................................................... 1200000/-
Plant and Machinery......................................................................... 4000000/-
I1TELLECTUAL COST OF PROJECT - B
Head Supervisor.............................................................................. 120000/-
Administrative Staff........................................................................ 21000/-
Technical Consultant........................................................................ 17000/-
CO1TI1GE1CY MARGI1 OF 10% (A+B) = C 535800/-
PRILIMI1ARY EXPE1SES 2% OF (A+B) 107160/-
TOTAL CAPITAL COST 6000960/-

Depreciation on plant and machinery and building is considered 15% and 10%
respectively. Few assumptions are as below.

Here we assume that capacity utilization will increase with availability of raw
jatropha oil. Capacity utilization will be 30%, 50%, 70%, 80%, 85%, 85%, and 90%
from 2010 to 2016 respectively. From 2016 onwards, capacity utilization will be
consistent up to 2035. Here we envisage the future scenario for Bio Diesel production
considering above capacity utilization. Annexure 11 represents production forecast
and no of working days of oil purification industry. Price of Bio Diesel will be 37

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Rs/Lit for first five years and 2% inflation is considered on price of Bio Diesel from
sixth year onwards. Annexure 12 illustrates cost components of oil purification
industry which includes depreciation on building and plant and machinery, fixed costs,
variable costs, interest on loans and profit before tax.
Table 2.10 Basic Assumptions for Activity C
Particulars
Capital Cost 6000000 ( 60 Lac )
Equity 3600000 ( 36 Lac)
Loan 10900000 ( 1.09 Cr )
Loan Repayment Period 60 months ( 5 Years)
Interest Rate on Loan 12%
Operation cost 4 Rs/Lit
Maintenance Cost 10% of Plant-Machinery cost
Non Operating Expenses 0.2 Rs/Lit
Cost of Sales 38.9 Rs/Lit
Overhead cost 5 Rs/Lit
Installed Capacity 900 T/Y
Capacity Utilization 30%

2.9.1 COST COMPONENTS OF BIO DIESEL PRODUCTION

Cost components are divided into two parts. First is fixed costs and second is
variable cost. Variable costs include operating costs, maintenance cost and over head
costs which are calculated in Annexure 12. Fixed costs include cost of depreciation on
plant and machinery and building, interest on term loans at 12% interest rate.
Annexure 13 shows calculation of Loan Repayment Schedule with Interest rate. Total
cost is calculated by summing up of fixed costs and variable costs. Profit after
depreciation can be calculated by deducting total costs from actual sales realization.
Applicable tax as per present norms is 33.99%. Applicable tax is deducted from Profit
after depreciation which will give Profit After Tax (PAT).

In this oil purification process, two products are produces. One main product is
pure jatropha Bio Diesel and other by product is glycerol. Bio Diesel can be sold to
OMCs and notified/registered collection centres. Glycerol can be utilized by cosmetic
industry, soap making industry and automobile industry as lubricating oil.
BHATT HALAK EP-0507 77 | P a g e
AEXURE 11: Production forecast of Oil Purification Plant (Activity C)

Wage to Technical o of
Capacity
Staff 100Rs/Day with Wage to Technical Staff Oil purification Plant
Year m3/Y Lit/Y
5% Inflation Every Utilization 100Rs/Day T/Y working
year Days
900 1047 1046512 365
100 30% 10950 2010 270 314 313953 110
105 35% 13414 2011 315 366 366279 128
110 40% 16097 2012 360 419 418605 146
116 45% 19014 2013 405 471 470930 164
122 50% 22183 2014 450 523 523256 183
128 55% 25621 2015 495 576 575581 201
134 60% 29348 2016 540 628 627907 219
141 65% 33383 2017 585 680 680233 237
148 70% 37749 2018 630 733 732558 256
155 75% 42468 2019 675 785 784884 274
163 75% 44591 2020 675 785 784884 274
171 75% 46821 2021 675 785 784884 274
180 75% 49162 2022 675 785 784884 274
189 75% 51620 2023 675 785 784884 274
198 75% 54201 2024 675 785 784884 274
208 75% 56911 2025 675 785 784884 274

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AEXURRE 12 Annual Profit after Depreciation of Bio Diesel Production- Activity C
PARTICULARS 2010 2011 2012 2013 2014 2015
1 2 3 4 5 6
CAPACITY UTILIZATION 30% 35% 40% 45% 50% 55%
BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL
PRODUCTION 313953 54000 366279 63000 418605 72000 470930 81000 523256 90000 575581 99000
SALES UNITS(LIT,KG) 313953 32400 366279 37800 418605 43200 470930 48600 523256 54000 575581 59400
SELLING PRICE 30 25 30 25 30 25 30 25 30 25 30 25
SALES VOLUME 9418604.7 810000 10988372 945000 12558140 1E+06 14127907 1E+06 15697674 1E+06 17267442 1E+06
TOTAL SALES 10228605 11933372 13638140 15342907 17047674 18752442
COSTS

VARIABLE COSTS
OPERATING COST 1255814 1465116 1674419 1883721 2093023 2302326
MAINTENANCE COST 367500 312375 265519 225691 191837 163062
OVERHEAD COST 1569767 1831395 2093023 2354651 2616279 2877907
Salaries of Staff 10950 13414 16097 19014 22183 25621
T0TAL VARIABLE COST 3193081 3608887 4032961 4464063 4901140 5343294
FIXED COST
DEPRECIATION
PLANT AND MACHINARY-
551250 468563 398278 338536 287756 244593
15%
BUILDING-10% 120000 108000 97200 87480 78732 70859
TOTAL DEPRECIATION 671250 576563 495478 426016 366488 315451
INTEREST ON LOAN 1216910 1002238 760340 487763 180617
TOTAL FIXED COST 2559410 2155363 1751296 1339796 913593 630903
TOTAL
5752491 5764250 5784257 5803859 5814733 5974197
COST=FiXED+VARIABLE
PROFIT AFTER
DEPRECIATION=SALES- 4476113 6169122 7853883 9539048 11232942 12778245
TOTAL COST

79 | P a g e
PARTICULARS 2016 2017 2018 2019 2020 2021
7 8 9 10 11 12
CAPACITY UTILIZATION 60% 65% 70% 75% 75% 75%
BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL
PRODUCTION 627907 108000 680233 117000 732558 126000 784884 126000 784884 126000 784884 126000
SALES UNITS(LIT,KG) 627907 64800 680233 70200 732558 75600 784884 75600 784884 75600 784884 75600
SELLING PRICE 30 25 30 25 30 25 30 25 30 25 30 25
SALES VOLUME 18837209 2E+06 20406977 1755000 21976744 1890000 23546512 1890000 23546512 1890000 23546512 1890000
TOTAL SALES 20457209 22161977 23866744 25436512 25436512 25436512

COSTS

VARIABLE COSTS

OPERATING COST 2511628 2720930 2930233 3139535 3139535 3139535


MAINTENANCE COST 138602 117812 100140 85119 72351 6150
OVERHEAD COST 3139535 3401163 3662791 3924419 3924419 3924419
Salaries of Staff 29348 33383 37749 42468 44591 46821
T0TAL VARIABLE COST 5789765 6239905 6693164 7149073 7136305 7070103

FIXED COST

DEPRECIATION
PLANT AND
207904 176718 150210 127679 108527 92248
MACHINARY-15%
BUILDING-10% 63773 57396 51656 46490 41841 33892
TOTAL DEPRECIATION 271677 234114 201866 174169 150368 126140
INTEREST ON LOAN
TOTAL FIXED COST 543353 468227 403733 348339 300737 252279
TOTAL
6333118 6708133 7096896 7497411 7437042 7322382
COST=FiXED+VARIABLE
PROFIT AFTER
DEPRECIATION=SALES- 14124091 15453844 16769848 17939100 17999470 18114129
TOTAL COST

80 | P a g e
PARTICULARS 2022 2023 2024 2025
13 14 15 16
CAPACITY UTILIZATION 75% 75% 75% 75%
BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL BIODIESEL GLYSROL
PRODUCTION 784884 126000 784884 126000 784884 126000 784884 126000
SALES UNITS(LIT,KG) 784884 75600 784884 75600 784884 75600 784884 75600
SELLING PRICE 30 25 30 25 30 25 30 25
SALES VOLUME 23546511.63 1890000 23546512 1890000 23546512 1890000 23546512 1890000
TOTAL SALES 25436512 25436512 25436512 25436512
COSTS
VARIABLE COSTS
OPERATING COST 3139535 3139535 3139535 3139535
MAINTENANCE COST 5227 4443 3777 3210
OVERHEAD COST 3924419 3924419 3924419 3924419
Salaries of Staff 49162 51620 54201 56911
T0TAL VARIABLE COST 7069181 7068397 7067730 7067164
FIXED COST
DEPRECIATION
PLANT AND
78411 66649 56652 48154
MACHINARY-15%
BUILDING-10% 30502 27452 24707 22236
TOTAL DEPRECIATION 108913 94101 81359 70390
INTEREST ON LOAN
TOTAL FIXED COST 217826 188203 162717 140781
TOTAL
7287007 7256599 7230448 7207944
COST=FiXED+VARIABLE
PROFIT AFTER
DEPRECIATION=SALES- 18149504 18179912 18206064 18228567
TOTAL COST

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Chapter 2

2.10 ADDITIONAL COSTS OF JATROPHA BIO DIESEL


VALUE CHAIN

Hence, Bio Diesel industry is new entrant industry in global market; there are lot of
issues attached with procurement, storage, transportation of raw material which adds
cost of production if it is not handled properly with intervention of stakeholders or
association at local level.

2.10.1 TRANSPORT COST

Depending on the location of jatropha cultivation and the intermediate production unit
which is jatropha oil extraction, cost of transportation will be added in the cost of
jatropha Bio Diesel production. Hence, transport cost will be an additional cost which
may increase the cost of production. Here we assume that cost of transportation is α
which will be added to cost of raw oil production. Cost of transportation should be
considered while selecting location for setting up oil expelling units. Hence, oil
expelling unit is an intermediate production unit, which holds the importance in value
chain and production cycle of jatropha Bio Diesel industry. Transport cost should be
considered because cultivator/producer/farmers themselves participate in the selling of
produce, and the expenses incurred by them on this account should be considered as a
part of production process itself and, therefore, included in the cost of production.

Transport cost is variable cost which is subject to change according to special location
of industry with respect to jatropha cultivation area. In addition, changes in
transportation cost can shift geographic location of production industry units.

Cost addition to B = Cost of Activity B + Cost of Transportation (α)

Profit will reduce to cultivator if jatropha cultivator will shell out money for transport.
ormally transport cost is Rs 1 to Rs 2.5 per Kg. In order to control and minimize
transport cost or procurement cost, regional level buying centres or collection centres
of produced should be established. This will not only eliminate middlemen but also
provide direct access to market to farmer/cultivator. This mechanism is reflected in the
concept of contract system which is discussed in Chapter 3.

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2.10.2 COST OF STORAGE FACILITY

It was found during field observation that, oil expelling units are set up in such a
manner that they have to incur cost of storage facility of jatropha raw oil. If we assume
the cost of jatropha raw oil storage till it will be sold to purification plants is β.
So, Additional cost to B = Cost of Activity B + Cost of Storage (β)

Cost of raw oil storage has to be considered because Oil expelling industry will keep
additional closing stock of raw oil which can be sold when there is high demand in
market and when feedstock is not available to run the oil expelling unit.

2.10.3 MARKETING COSTS

The main reason of inadequate people participation in jatropha cultivation activities is


lack of assured market demand of produces and price fluctuations of jatropha seeds.
Thus, there is a serious need to develop seed markets at three levels: first at village
cluster level, second at Tehsil/Taluka/Block Level, and third at district level.
Somehow marketing techniques adopted by private firms/seed retailers/seed suppliers
are indirectly affecting the price of jatropha seeds which is resulted into price
fluctuations in harvesting season and lean season. Marketing cost can be reduced or
controlled if marketing is done by Government Agencies like APMC, Agriculture co-
operatives, Agriculture universities, NOVODB and other state level government
agencies.
Here we assume that marketing cost for Activity A = γ

Additional cost to A = Cost of activity A + (γ1);

Where γ1 = marketing cost of private firms/seed supplier/seed retailer

Additional cost to A = Cost of activity A + (γ2);

Where γ2 = marketing cost of incurred by associated Government Agency

(γ2 < γ1, because, Government is Public sector and nationalized marketing will reduce
cost)

Additional cost to A = Cost of activity A + (γ3);

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Where γ3 = 0, Private firm is Producer of Bio Diesel will directly purchase seeds from
cultivator through contract farming system

We can interpret from above three scenarios that, third scenario completely eliminates
marketing cost of seeds to cultivators/farmers. And second scenario represents
comparatively less marketing cost than first scenario.
Now same concept of marketing cost is applicable to Activity B and C.
In case of Raw oil expelling Unit (Activity B), we assume marketing cost = θ
If Activity B and C are operating separately than activity B will have additional cost of
marketing of Jatropha raw oil.

Additional cost to B = Cost of activity B + (θ1);

Where θ1= Marketing cost for product produced from B


If we imagine that Activity B and C are operated by a single firm, than marketing cost
for Activity b will be Zero, because quantity if jatropha raw oil is produced from B
will be directly supplied to Production unit C which does not require any marketing
for selling.

Additional cost to B = Cost of activity B + (θ2);

Where θ2= 0, because Direct supply of raw jatropha oil to Activity C


In case of Activity C, we assume Marketing cost C = δ

Additional cost to C = Cost of activity C + (δ1);

Where, δ1= Marketing cost to private firm producing Bio Diesel

Here we assume that, Bio Diesel is produced by nationalized OMCs and/or OMCs had
done contract with private firm to supply Bio Diesel produced in that production unit.

Additional cost to C = Cost of activity C + (δ2);

Where, δ2 < δ1, because (assumes that) Bio Diesel is produced by Nationalized
OMCs, thus reducing marketing cost compare to δ1.

We can conclude that, marketing cost can always be cut by identifying end user of
product. For each activity of jatropha Bio Diesel value chain, conceptual marketing
costs are compared which shows that direct selling of raw material producer and Bio

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Diesel industry reduces marketing cost. Same can be interpreted for Activity B and C
that both scenarios; integration of B and C and Contract agreement between Bio Diesel
producer and OMCs; reduces marketing cost of final product.
Thus, for Bio Diesel production industry, an efficient marketing system is an
important means for raising the income levels of farmers and for promoting jatropha
cultivation activities.

CO2CLUDI2G REMARKS

Summing up, Bio Diesel play an important role in reduction of green house
gases, they will have to be produced in both economically efficient manner and in a
way that does not undermine socio economic benefits to stakeholders. In longer term,
the biggest challenge may be the consistency of oil seed supply as feed stock to meet
growing demands, which is limited by competition from other uses and land use
constraints.

In this era of globalization in agriculture sector, emerging concept of contract


farming can reduce income risks of price and production variability, ensure market
access and provide higher returns to cultivators. This mechanism is mainly introduced
for vertical integration of supply chain by HYV production, consistent and assured
flow of jatropha seeds as raw material to obtain desired amount of Bio Diesel
production.

Over all conclusions of this chapter appears to be that the there are lot of
deficiencies in feed stock supply (jatropha seeds) chain for Bio Diesel production
activity. In addition, lack of rural marketing efforts are reducing interests of cultivator
and private entity to engage into a contract for jatropha cultivation which can give
promising good yield and income to cultivator as well as private entity.

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CHAPTER 3

ISSUES OF JATROPHA BIO DIESEL VALUE CHAI

PAGE
COTETS

3.1 Identifying Critical Areas to Be Focus for Jatropha Cultivation..................................... 86


3.1.1 Density of Plantation................................................................................... 86
3.1.2 Plantation Practices..................................................................................... 87
3.1.3 Intercropping............................................................................................... 87
3.1.4 Irrigation...................................................................................................... 88
3.2 Major issues of Value Chain of Jatropha Bio Diesel Production.................................... 88
3.2.1 Long and Short run Issues in Bio Diesel Production.................................. 88
3.2.2 Supply Chain of Feed Stock........................................................................ 89
3.2.3 Propagation of Jatropha Plantation............................................................. 89
3.2.4 Setting Up intermediate Oil Expelling Units and Oil Purification
Plants.................................................................................................................... 90
3.3 Profitable Model For Stakeholders.................................................................................. 90
3.3.1 Value Addition............................................................................................ 92
3.3.2 Cost Minimization and Profit Maximization.............................................. 93
3.4 Contract Farming............................................................................................................. 94
3.4.1 Tri-Partite Contract System........................................................................ 99
3.4.2 Bi-Partite Contract System.......................................................................... 101
3.4.3 Multi-Partite Contract System For Jatropha Cultivation And Bio
Diesel Production............................................................................................... 101

Concluding Remarks........................................................................................................ 105


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We have discussed whole value chain of jatropha Bio Diesel production and cost
components of production stages. Even though there are many advantages of Bio
Diesel in terms of its environmental performance, it is necessary to focus on the
economics of production which will make the production system economically
sustainable. In the production of Bio Diesel, main factors which will determine the
cost of production and profit are cost of seed procurement and selling price of by-
products. In chapter, we have discussed about the cost of activity A, B and C and the
annual profit from it. However we have discussed and calculated profit of three key
activities in Chapter 2 with respect to its raw material availability and its supply from
jatropha cultivation. It seems very clear that, presently at this stage, the pace of
jatropha cultivation and production of raw materials is very low which ultimately
affects the scale of production and output of production units. Here, prime issue of
jatropha Bio Diesel value chain is gap in supply chain of raw material from Activity A
to intermediate oil expelling production unit B.

3.1 IDENTIFYING CRITICAL AREAS TO BE FOCUSED


FOR JATROPHA CULTIVATION
Analysis mainly represents few area of concern which should be considered and
focused during jatropha cultivation. The main reasons behind this are to identify the
factors which directly affect the cost of cultivation and seed yield.

3.1.1 DENSITY OF PLANTATION

Density of plantation will depend upon absence or presence of inter-cropping


and which crop is selected for inter cropping. In case of without inter cropping;
plantation can be cone at 2m x 2m distance of raw. Density of plantation will also
affect the seed yield per hectare area.

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TABLE: 3.1 Variables affecting Cost of Cultivation


variables Impact Positive/.egative
Density of plantation High Seed yield 
Low Seed yield 
Plantation in watershed area Reduce cost of irrigation 
Irrigation Yield 
Cost of Cultivation 
With intercropping plantation area Coverage 
Reduction in Seed Yield 
Additional Income Generation

Without inter cropping Good Area Coverage in Cultivation 
additional income


3.1.2 PLANTATION PRACTICES

Normally, jatropha seeds or saplings from nursery can be used for plantation. It
is advisable to do land preparation for plantation pre-monsoon and plantation during
starting raining season. Land preparation of land will include cleaning of soil, levelling
of soil, removal of unnecessary plantation, digging of pits and sowing of seeds or
saplings from nursery. Jatropha can be transplanted in raw with spacing of 2m x 2m,
2m x 3m, 3m x 3m, 5m x 3m.

3.1.3 INTERCROPPING

In case of intercropping, spacing between raw can be increased depending


upon which crop is intercropped. For 2m x 2m spacing, one hectare land can
accommodate 2500 plants and 2m x 3m spacing 1666 plants/Ha. Irrigation is required
for two three years after plantation both the flowering stages. In India, flowering
seasons are between September-December and March- April. And on second year
onwards, irrigation is not required if the soils are deep. In shallow and sandy soils, life
saving irrigation at summer is required.

Intercropping with other value added crop, particularly low water requiring
crops can be grown which provide additional income to farmer. Intercropping can be
done for initial two years with jatropha plantation are green gram, black gram, til,

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ginger, turmeric, arhar, masoor, ragi, kulthi, Niger, soyabean, moong, urad, wheat,
cowpea, cluster bean, water melon, mustard, guar and dhaincha. Depending upon the
regional agro-climatic conditions, these crops can be grown for initial two years with
jatropha which will give additional income to the grower. Apart from intercropping,
shadow cropping can also be done by selecting leafy, fodder and short duration
shadow loving crops. Average cost of intercropping will be Rs. 10,000/- per Acre of
land and may vary depending upon which crop is selected for intercropping. It will
yield on an average 6 tonnes per acre based on density of plantation in intercropping.

3.1.4 IRRIGATION

The frequency and amount of irrigation should be provided depends on the


type of soil, prevailing agro-climatic conditions, annual rain fall and life span of
jatropha tree. No irrigation is required in monsoon period and two months for post
monsoon period. But frequent irrigation at alternate months or between 2-3 months
prior to the flowering season is advisable for higher seed Yield. However in this case,
adoption of drip irrigation system will not only reduce the water requirement but also
increase the seed yield and cost of irrigation at alternate year. Through drip irrigation
system, life saving irrigation can be done easily and economically cheaper manner.
However, in order to ensure good yield, irrigation twice a year is required in region
having low rainfall.

3.2 MAJOR ISSUES OF VALUE CHAIN OF


JATROPHA BIO DIESEL PRODUCTION

3.2.1 LONG AND SHORT RUN ISSUES IN BIO DIESEL


PRODUCTION
Hence, Bio Diesel production in Gujarat is at very pre-mature level and other major
issue is less availability of feedstock supply for Bio Diesel production. Bio Diesel
manufacturing firms mainly involved with batch to batch production because
feedstock supply is not consistent and sufficient. Production practice of jatropha Bio
Diesel is directly affecting cost of Bio Diesel. Shift from batch to batch production to
continuous production will reduce per unit cost of production.

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Another long run issue will be appropriate engine modifications in vehicles to


accommodate blended Bio Diesel, no doubt currently many trucks, cars and tractors
can run on Bio Diesel blended Diesel without any engine modification. But macro
level perspective and longer timeframe of Bio Diesel implications may have problems
of engine modification for vehicle industry.

Hence lot of discussion is done in literature review regarding reduction in GHG


emission from blended and pure Bio Diesel use. In order to achieve goal of
environmentally cleaner fuel, local, regional as well as national level implication and
propagation of Bio Diesel blended fuel in vehicles becomes one of the important focus
area for policy maker and government.

One leading challenge for Bio Diesel industry in India is to get access into national
and Global market. Hence getting into market will not be very easy and every time
favourable for jatropha Bio Diesel industry which is very immature currently. The
prime challenge is commercial level of jatropha cultivation. As we have seen that, cost
of jatropha Bio Diesel production is directly related to price of feed stock. Hence, cost
of jatropha cultivation can be brought down which will have direct impact on the price
of jatropha seeds.

3.2.2 SUPPLY CHAIN OF FEED STOCK

Hence feed stock or raw material supply is the basic necessity of any production. Here
in case of jatropha Bio Diesel production, appropriate supply of feed stock-jatropha
seeds is very important aspect of scale of production, its consistency and economy of
production. It was found that, there are huge price fluctuations in price of raw
materials because of its less availability and shortage in lean season.

3.2.3 PROPAGATION OF JATROPHA PLANTATION

To reduce the gap in supply chain of jatropha seeds as feed stock for Bio Diesel
production units, the foremost action is effective propagation of jatropha cultivation
and high seed yield from it. Various mechanisms of jatropha cultivation can be
explored in order to obtain ensure production and supply of feed stock to production
units. Jatropha cultivation can be propagated by seeds/cuttings/saplings from nursery.

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Local level nursery development initiatives can solve the problem of availability of
plantation stock.

3.2.4 SETTING UP INTERMEDIATE OIL EXPELLING UNITS AND


OIL PURIFICATION PLANTS

Other dominant issue of value chain of jatropha Bio Diesel production is selection of
location for oil expelling units and oil purification plants. Furthermore, oil expelling
units and oil purification production units should be established and operated with co-
ordination and integration. Normally technology development is not taking place at the
nearest vicinity of jatropha cultivation where the raw material is produced. Because of
long distance, private firm will have extra expense of transportation of raw material
from far away which is not economically beneficial. In that case, firm should locate oil
expelling units and oil purification plants within vicinity of jatropha plantation area.

3.3 PROFITABLE MODEL FOR STAKEHOLDERS

Main objectives behind exploring profitable model are as follows:


1. To propagate jatropha cultivation at low risk and with good economic return
2. Providing prior employment to small, marginal and non workers from rural
areas
3. Catch the better opportunities for private investors as well as Government
Organizations in Bio Diesel production sector by devoting them promising
economic output
4. Increasing awareness amongst rural communities for environmental and social
benefits of jatropha cultivation
5. A proper way of capacity building in terms of cultivation practices, importance
of jatropha cultivation and

First condition of jatropha Bio Diesel industry is jatropha plantation activities


through which raw materials can be produces as well as employment opportunities can
be generated. Here farmer /cultivator can get multiple roles with respect to jatropha
cultivation, nursery development and seed selling. This integration becomes smoother
with inclusion of various local governments like PRIs, TSPs, DRDA, Forest
department, MNRE, NABARD and agriculture co-operatives. Traditionally farmers or

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cultivator will not get ready to cultivate jatropha on wastelands but they can be trained
to get knowledge and multiple benefits of jatropha cultivation. This situation clearly
depicts full public participation in jatropha cultivation activities which can become
easier with collective efforts of NGOs, Private organizations and local governments
listed above.

For any industry, continuous production brings higher scale of production,


increase in sales realization, reducing unit cost of production and ultimately affecting
the profit of an enterprise. In value chain of Bio Diesel industry, consistent crushing of
seeds and oil purification prevails difficult because of uncertainties in availability of
raw material-jatropha seeds. In this case, if entrepreneur want to operate production
plant with full capacity utilization, necessary condition is availability of raw material.

Here for new intermediate production unit that is oil expelling unit, with seed
crushing capacity of 1 Ton per day, currently is operated only for 13 to 15 days a year.
This condition is envisaged under assumption that seed produced from one hectare
land will directly go to oil expelling production unit. In that case, if entrepreneur made
efforts to maintain the feed stock requirements to operate oil expelling unit for 300
days from 365 days, raw material requirement works out as availability of 300 Ton
jatropha seeds (1 Ton requirement for 1 Day). Considering this oil expelling unit, area
under jatropha cultivation should be 24 Ha for one oil expelling unit. Here we have
assumed seed yield from 6th year of stabilization; and seed produced during first to
four years will be sold to existing oil expelling units which are already established and
under operation. Entrepreneur should maintain inventory of raw materials for
production unit.

Besides this, investor should also focus on the storage of produced quantity
hence it cannot be sold at one time in market. Therefore, storage facility for final
product is essential till its selling into market. In that case, capacity of storage should
accommodate 50% of produced quantity. One Kg seed can produce 0.38 lit,
considering that quantity of raw oil will be 114000 lit annually. Now we assume that
closing stock of product will be 50% and which had to be stored in a proper manner by
the investor. In this case, cost of storage facility can be referred as additional cost of
production.

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VALUE ADDITIO.
QUALITY STANDARDIZATION & CERTIFICATION
PACKAGING
MARKETING
DISTRIBUTION

ACTIVITY A ACTIVITY B ACTIVITY C

SUPPLY CHAI. SUPPLY CHAI.


AREA UNDER PLANTATION SETTING UP OIL EXPELLERS
SEED YIELD DISTRIBUTION OF RAW OIL
COST OF CULTIVATION AVAILABILITY OF FEED
ECONOMIC OUTPUT STOCK
MARKET DEMAND CLUSTER DEVELOPMENT

Figure 3.1 Value addition and Additional Costs in Value Chain

3.3.1 VALUE ADDITION

Value chain also consists of stages of value addition. Here, value addition can
be represented as a appearance, presentation, quality standards, advertisement skills of
the product. In this case, value addition to seeds from activity A, involves quality of
seeds, packaging (jute or plastic bag) and quality standards (oil content of seeds). In
case of intermediate oil expelling unit and oil purification unit, value addition to Bio
Diesel includes quality standards (BIS, ASTM), packaging, marketing and distribution
of product. According to Bio Diesel purchase policy, notified Bio Diesel purchase
centres purchase Bio Diesel with quality standardization and proper certification
system. These state level notified Bio Diesel purchase centres are directly supported
by OMCs and ultimately by MNRE. There is value attributed to final product in terms
of its more attractive presentation or advertisement to increase selling in market. In
fact value will be added to product when OMCs will get sufficient quantities of Bio
Diesel to blend with petro-Diesel, only after that, OMCs interest can be increased in
marketing of Blended Bio Diesel with petro Diesel. Therefore OMCs are less
interested for marketing of blended Bio Diesel because less availability of Bio Diesel
can damage their market reputation and incur loss in terms of marketing cost.

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3.3.2 COST MINIMIZATION AND PROFIT MAXIMIZATION

As we have discussed in chapter 2 regarding additional costs incurred in value


chain, it is important for decision maker to focus on the aspects of cost minimization.
Without knowing, understanding and analyzing the reasons of cost maximization, it
would be difficult to shrink additional costs of production. It was clearly understood
that, additional costs involved with jatropha cultivation activities and Bio Diesel
production industry are transaction costs, transport costs, storage costs and marketing
costs which can be effectively reduced by adopting contract system. It is advisable to
establish storage facility as close to the jatropha plantation area as possible to
minimize handling and limiting transport costs. Suitable location can be located within
vicinity of 2.5 Km from plantation site. Thus, reducing additional costs will
automatically result into profit maximization. Other way of maximizing profit can be
selling of produce at higher price in market when there is a shortage of jatropha seeds
into market.

Here one predominant factor which is affecting the production quantity and
profit is availability of raw material/feed stock for production of Bio Diesel. Other
factors which affect the profit are sales of production, output per unit of production
and input cost required for production. Now for any production industry, it would be
necessary to explore alternatives of profit maximization having various constraints in
production activity. Now in this case, constrain means the input costs required for
production, output value of product and sales of quantity produced. These three are the
major factors which should be considered by the Bio Diesel production Industry/firm
because these factors are major constraint for profit maximization of industry.

Now here we assume that for jatropha cultivation activity, there are several
inputs requited and cultivators/farmers generates profit at fixed rates R1 and R2 per unit
of outputs, and quantity produced are Q1 and Q2, then its Total Profit at the time period
can be expressed as:

P = R1 Q1 + R2 Q2........................................................................ [1]

If some inputs are necessary to produce quantity Q1 and Q2, can be expressed
as:

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X = F (Q1, Q2)............................................................ [2]

Where X = various units of Inputs required for Production

Now we can say that profit maximization is the combination of Q1 and Q2 for a
given amount of X inputs which can be found from equation:

P = R1 Q1 + R2 Q2 + λ [X0 – F (Q1, Q2)].......................................... [3]

Where, λ = Log range Multiplier


X0 = Fixed amount of input
Q1, Q2 = Quantities of production
P = Profit
R1, R2 = Output per unit of production

Now in order to maximize profit, the second order condition above equation
must be satisfied. Here we can conclude that high input cost will give good quantity of
product and better marketing network can increase sales volume of production
quantity. However, output per unit of production affects the Total Profit curve so,
producer must get output value in such a way that fir can recover the investments or
input cost of production with profit margin.

3.4 CONTRACT FARMING

Contract farming gives a new dimension to Waste land development and


conservation through jatropha cultivation and ultimately to the production of Bio
Diesel from jatropha seeds.

‘The developments in the field of marketing, food habits, technology and


agriculture in new economic environment have brought about a new arrangements in
raw material production and procurement, known as contract farming. Under the
contract system, a farmer agrees to supply a pre-agreed quantity of a certain quality
produce at a pre-agreed price, place, time to the processing or marketing firm, which
may or may not provide certain facilities like provision of inputs, finance, and so on.
Contract farming can be defined as a system for the production and supply of
agriculture and horticulture produce by farmers/primary producers under advance
contracts the essence of such agreements being a commitment to provide an

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agricultural commodity of a type, at a specified time, price and place in a specified


quantity to a known buyer.’27

‘Contract farming is known by different variants like the centralized model


which is a company-farmer arrangement; the out-grower scheme which is run by the
government/public sector/joint venture, the nucleus out-grower scheme involving both
captive and contract farming by the contract agencies; the intermediary model where
middleman are involved between the company and farmer; and satellite farming
referring to any of these models.’28

‘There are five models of Contract farming namely, The Centralized Model,
The nucleus Estate model, the multi-partite model, the informal model and the
intermediary model. A sponsor decides to follow a model depending on the market
demand, production and processing requirements and economic and social viability of
the farmers. In a centralized model a sponsor buys produce from a large number of
small farmers. It is vertically co-ordinated with quota allocation and tight quality
control. The model is also useful for products where market requirements necessitate
frequent changes in the farm technology with fairly intensive farm level support from
the sponsor. Nucleus model is a variation of the centralized model where the sponsor
also manages a central plantation. The sponsor provides significant amount of material
and management inputs under the model. This model is for such crops which require
significant long term investment and generally immediate processing after harvest.
The multi-partite model may involve a variety of organizations, frequently including
statutory bodies. This model can develop from e.g. through the organization of farmers
into co-operatives or the involvement of a financial institutions. The informal model is
characterized by individual entrepreneurs or small companies. It may also involve
informal production contracts. It often requires government support services such as
research and extension. The intermediary model involves sponsor in subcontracting

27
Bhaumik S. K. and Sukhpal singh, pg 190, 194
28
Eaton and Shepherd, 2001; GOI, 2003

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linkages of farmers with intermediaries. All above models are very much adopted by
different sponsors for different commodities.’29

In this context contract farming varies depending on the nature and type of
contracting agency, technology, nature of crop/produce and the local/regional context.
The contract can be of three types: (a) procurement contracts under which only sale
and purchase conditions are specified; (b) partial contracts in which only some of the
inputs and technical assistance is provided by the contracting firm and produce is
brought at pre-agreed prices; and (c) whole contract under which the contracting firm
supplies and manages all the inputs on the farm and the farmer becomes just a supplier
of land and labour. Whereas first type of contract is generally referred as marketing
contract and other two contracts are referred as production contracts. Beneficial part
for small and marginal farmers of contract farming scheme is an access to new
technology, high quality crop and good quality inputs which otherwise may be beyond
their reach and capabilities. Under this mechanism jatropha cultivation could be done
on private land by giving land on Lease to other implementing agency. In that case
cost components will be different. One additional Cost will be Rental value or lease
rent paid to the landlord.

‘Few key elements which had proved as success factors for Pepsi-CO model of
contract system were as below:
 A proficient Research and Development Team
 Expansion of Partnerships with Local Agencies including Public sector enterprises
 Widespread skilled executives for technology transfer
 Timely Supply of all required inputs free of cost to contracted farmers, some
quality inputs on credit
 Punctual/dispatch/delivery/procurement of produce from every individual
contracted farmer through the system of “Quota Slips”
 Advanced means of communication with contracted farmers
 Regular and timely payments to contracted farmers through computerised receipts
and transport system
 Maintenance of perfect logistics system and global marketing standards

29
Agricultural Marketing, April June-2005, B.K Paty, Marketing Officer, Directorate of
Marketing & Inspection, Ministry of Agriculture, Government of India

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Hence, looking from macroeconomic point of view, contract farming can


reduce impact of market fluctuation and imperfections in produce, farmers’ access to
capital/credit, proper allocation of land and labour, better management at local and
regional level, thus ultimately reduce transaction cost of produce. Besides this,
contract farming scheme, to some extent, also reduces cost of cultivation because it
provides easy access to inputs and technical assistance to produce more efficiently.
One criticism for contract farming mechanism represents this production mechanism
as a capitalist penetration of agriculture for capital accumulation and exploitation of
farming sector which leads to “self Exploitation” of farmers by allowing indirect
control of land and labour to contracting firm.'30

In Indian context, Agriculture produce Market Committees are formed as a


nodal agency which will deal legal aspects of contract farming. In this mechanism,
firstly farmers are motivated to cultivate jatropha on their farm boundary. Awareness
programmes are initiated by Community Based Organizations (CBO) with the help of
NGOs or other private organizations. Hence there is always a risk of market
imperfections on jatropha cultivation, as prices of jatropha seeds fluctuates because of
insufficient supply of raw material. As a result of this market risks, contract farming
can be beneficial for jatropha growers, Government and Private organization.

The main rationale for consideration of contract farming is to reduce risk of


input and output market failure or fluctuations. Here contracts can be seen as a tool to
reduce or limit the cost of cultivation either by raising productivity or cutting
additional costs directly and income risks by sharing risk factors between cultivator
and sponsored firm. In addition contract farming may be regarded as a means to
reduce costs of jatropha cultivation, transaction costs of Bio Diesel production. For
this case, contracts substantially can reduce income risks for cultivators associated
with inputs and productivity. Private sector participation can be easily promoted
through adopting contract farming scheme for jatropha cultivation activities as well as
for Bio Diesel production industry. Contract system is becoming very useful for
provision of institutional frameworks for smooth delivery of various inputs, credits,

30
A.K. Goel, Dr. Vikram Singh, From By-Monthly Publication “ The Spice”, Volume
4, March 2003, Published by The National Institute of Agriculture Extension
Management (MANAGE), Ministry of Agriculture, GoI.

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price incentives and new technology development. As we have discussed stakeholders


and institutes involved at various stages of value chain, contract farming represents the
integration and co-ordination of these components to ensure supply of required inputs,
procurement of product and appropriate technology development for Bio Diesel
production.

Contract farming involves pre-agreed price of produce between contracting


agency and cultivator/farmer, along with quality, quantity, coverage/acreage and/or
time frame. In this mechanism, contracting agency provides all inputs required for
jatropha cultivation and the farmer/cultivator is responsible for land and labour.
Contractual agreements with the farmers provide access to production service and
credit as well as knowledge of new technology. Pricing agreements can significantly
reduce the risk uncertainty of market place. Small and marginal farmers are normally
very reluctant to adopt new technologies because of the possible risks and costs
involved. In contract farming, private agribusiness can usually offer improved
methods and technologies because it has a direct economic interest and output in
improving farmers’ production to meet its demand to get profit out of it. The
additional benefit of contract farming can be skill development amongst farmers with
respect to record keeping, inventory of selling of commodity, improved methods of
applying fertilizers and pesticides, better irrigation facilities and the knowledge of the
importance of quality and demand of product in market.

Ii is possible to work out various alternatives of integration of institutes


discussed above considering three aspects of input supply, land and labour. Normally
contracts can be signed between two parties, three parties or more than three parties. In
view of above, contract farming arrangements need to be encourages widely across
states of India. While doing so, Government needs to protect the interest of both
farmers as well as the industry equitably. This would require arrangements for
registration of sponsoring companies and recording of contract farming agreements, in
order to check unreliable and spurious companies. A dispute resolution mechanism
should also be established between jatropha cultivators and buyer/sponsor agency
which can quickly settle issues, if any, arising between the farmers and company under
a quasi judicial manner. Various probable scenarios are illustrated as below.

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3.4.1 TRI-PARTITE CONTRACT SYSTEM

Figure 4.1 illustrate that in this contract system contract agency will made legal
contract with interested farmers/cultivators for jatropha cultivation in presence of
APMC official as witness to make the process transparent and smooth to function.
However this contract can be referred as tri-party contract in which interested farmers
are responsible for land and labour. Contracting agency supplies all required inputs to
farmer/cultivator against it, farmers/cultivator have to supply pre agreed quantity of
produce at pre agreed price within specified time period. In this case of crop loss,
APMC provides credit facilities to farmers for payments which can be waive off for
BPL families in some cases.

In this three tire system, one alternate can include sponsor, the farmer and an
implementation agency which could be a public or a private body or a local NGO. The
implementation agency conducts contract farming with the set of quality specification
and guidelines set by the corporate which is the ultimate buyer. The implementing
agency conveys the contracted price as agreed by the purchaser of the commodity
under contract to farmer. The implementation agency may charge some minor share of
the produce from the buyer and from the farmer as an extension charge.

Firstly contracting agency can identify land for jatropha cultivation and arrange
training programme for interested farmers. Before this, awareness and knowledge
sharing regarding the jatropha cultivation and additional income generation to farmers
should be carried out by contracting agency. Then after, list of interested farmers and
contracting agency will sign the contract for pre-agreed quantity of produce at pre
agrees price in front of APMC official. This is completely legal/statutory process but
somehow contracts can also be verbal which shifts lot of risks for farmer/cultivator.
Therefore is always advisable to follow legal procedure in signing contracts between
different parties.

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Figure: 3.2 Tri-Partite Contract System for Jatropha cultivation

The merits of contract system are inclusion of small and marginal farmers who
can no longer be competitive without access to modern technologies and support. In
India, almost 80% of the farmer population constituent of small and marginal farmers
who are not capable for major investments in land improvement and modern inputs.
Contract farming can fill up these gaps by providing the farmers with quality inputs,
technical guidance, management skills, credits as well as knowledge of new
technologies. Demerits against merits of contract farming are inefficient management
or marketing problems of the contract system as a forward linkage which is
manipulated so that purpose of contract system is not achieved fully.

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3.4.2 BI-PARTITE CONTRACT SYSTEM

Figure 3.3 Bi-partite Contract system for Jatropha Cultivation

This is the simplest contract system in which contract agency undersign


contract with interested group of farmers/cultivators. Contracting agency can be any
private organization, Non Government Organization (NGO) and Government
Organizations i.e. NABARD, APMC, DRDA, Wasteland Development Board,
NOVODB, PRIs etc. Hence this system reflects direct interaction, integration and co-
ordination of Contracting agency and interested group of Farmers/cultivators, it is
clear that interested group of farmer can be agriculture co-operatives, SHGs, JFM
committees, CBOs and GVMM etc.

3.4.3 MULTI-PARTITE CONTRACT SYSTEM FOR JATROPHA


CULTIATION AND BIO DIESEL PRODUCTION

The multi-partite model may involve a variety of organizations, frequently


including statutory bodies and private national or international organizations also.
There is a need to recognize role of State and central Governments in order to impetus
production of Bio Diesel from jatropha seeds. Figure 4.3 represents institutional
arrangements between various public and private sector. This contract system
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indirectly depicts Joint venture between public-public sector and public-private sector.
Public sector includes various Government Departments who are directly or indirectly
associated with jatropha Bio Diesel production. As we have discussed in chapter 2
regarding land use aspects and jatropha cultivation activities, potential wastelands
which can be identified for jatropha cultivation are under ownership of either state
government or central government. Now depending upon category of wasteland to be
utilized for jatropha cultivation purpose, following Government Agencies came into
picture for legal or statutory process to use land for the same purpose.

 District Rural Development Agency (DRDA)

 National Wasteland Development Board (NWDB)

 Indian Railway Authority

 Panchayati Raj Institutions (Gram Panchayat)

 Forest Department

Land which can be identified for jatropha cultivation is under tenure of these
departments. Other side represents the entrepreneurs who are interested to produce Bio
Diesel from jatropha. Logically if we see, jatropha Bio Diesel can substitute with HSD
and can reduce our dependence on imported oil, Ministry of New Renewable Energy
(MNRE) and Ministry of Petroleum and Natural Gas (MPNG) can play important role
to promote Bio Diesel production from jatropha. These interests can be further
extended to state level OMCs. Oil Marketing Companies can act as a largest buyer of
jatropha Bio Diesel which is very important for marketing of jatropha Bio Diesel. But
OMCs can show their interest in marketing of blended Bio Diesel only if they get
consistent supply of sufficient quantity of Bio Diesel for blending.

To perform this task, tie up between two Government agencies and; between
Government agency and private sector becomes essential. The reason behind
establishing this link is to ease of Government land leasing for jatropha cultivation
activities. Undoubtedly the common feature which is being constant in this joint
venture system, Bi-partite and tri-partite contract system is employment opportunity to
rural communities.

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Government agencies which can supplement land and/or labour for jatropha
cultivation in this joint venture contract system is DRDA, Forest Department, PRIs,
Indian Railway Authority, National highway Authority of India (NHAI) and State
Highway Authority of India (SHAI). Hence National Bio Diesel Development Board
and State Bio Diesel Development Board should be constituted in order to accelerate
the Bio Diesel production from jatropha. In India, National Bio Diesel Board is not
constituted it is still under process. Here joint venture can also be taken up between
Government organizations and Private sectors, i.e. CSMCRI which is Central
Research Institute, had signed MOU with General Motors for jatropha cultivation at
Bhavnagar. So likewise, International firms and private sectors can also be a part of
joint venture of Bio Diesel production from jatropha. Apart from this, international
agency can select a right and eligible partner which is important for implementation of
such huge and complex mission of jatropha cultivation and Bio Diesel production

Figure 3.4 Multi-partite Contract System

Joint venture contract system or multi partite contract system is not restricted to
jatropha cultivation but it also extended to Bio Diesel production from jatropha seeds.
Thus, we can say that indirectly this contract system is multi-partite contract system

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where various stakeholders are associated with each other for various levels of
activities. In case of technology development, State agriculture universities had played
important role to produce Bio Diesel from jatropha. Thus Agriculture universities can
contribute in terms of infrastructure required for Bio Diesel production like plant and
machinery and technical assistance. In case of setting up technology development,

Contract terms can be structured and standardize to tailor the degree of risks
during each stage of Bio Diesel production. The reasons for adoption of contract
farming scheme for jatropha cultivation as follow:

 To distribute state level burden of seed production and procurement


 Motivation/encouragement by Information dissemination and awareness
 Flexibility between cultivator and contracting agency
 Easy access and availability of financial credits and technology
 Direct access to market
 Reduction of market risks for input and output

In this context of jatropha cultivation activity, contract system is important but


many contextual factors and actors may affect the result of contract system which
needs to be considered. One major benefit of multi partite contract system is reduced
transaction cost of wasteland under Government ownership for jatropha cultivation.
Normally there are chances of inter-ministerial conflicts with respect to give legal
permission regarding leasing of land for jatropha cultivation. In this case, more than
one ministry can play vital role in jatropha cultivation with regard to mutual
agreements or contract agreements. This multi-partite agreement, there is a huge scope
for transfer of technology option which is important aspects of jatropha biodiesel value
chain.

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CO.CLUDI.G REMARKS

The most crucial evident in jatropha cultivation activities is fluctuation of


market demand of jatropha seeds for future years and threat to the viability of jatropha
cultivation, which has come about because imperfection of input and output markets.
It can be strongly emphasized that jatropha cultivation should be done without
compromising agriculturally productive land and without disturbing regional crops and
productivity. This fact has lead to decision maker first to identify potential wasteland
for jatropha cultivation with local public participation or employment generation to
landless, small and marginal farmers. This is one side of coin. Second side of coin
represents that, cultivators/farmers should get assured output from their efforts
contributed to jatropha cultivation which require proper integration of market
entrepreneurs and producers in this field of Bio Diesel industry. Chapter 3 had we
have discussed about various contract systems which reflects that jatropha cultivation
activities can be accelerated more smoother with adoption of contractual conditions
hence produce has a very specific end user. Contractual system is a tool to implement
jatropha cultivation with maximum efforts by cultivators/farmers which will give them
good output.

Contract farming systems have some bottlenecks from farmers’ perspective. If


contracted farmers/cultivators are getting higher output value per unit of production
then the contract agreements, the farmers renege on the contract in terms of Minimum
Support Prise (MSP). This advantageous market condition may lead to competitive
environment for seed buyers and contracting agencies, which is good to some extent.
But it should not turn into sudden inflation in seed price which will definitely increase
the cost of jatropha biodiesel production. Apart from that, in Indian context, contract
farming system is always been criticised for lack of transparency, disputes, weak
communication and supply of quality inputs for cultivation. These are the major
hindrances of contract farming system which should be looked after by contracting
agency as well as by farmers through increasing their awareness and knowledge
regarding contract systems.

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CHAPTER 4

VCA FOR JATROPHA BIO DIESEL PRODUCTIO

CHAPTER 4 BROAD STRATEGY FOR JATROPHA BIO DIESEL PRODUCTION PAGE

4.1 Strategic Approach For Intermediate Oil Expelling Units…………………… 106


4.2 Backward Linkages.................................................................................................... 107
4.2.1 Identification of Land for Jatropha Cultivation.................................... 107
4.2.2 Key Institutes And Their Contribution To Jatropha Cultivation…. 108
4.2.3 Widespread Employment Opportunities For Rural Communities... 109
4.2.4 Awareness and training......................................................................... 110
4.2.5 Monitoring Mechanism......................................................................... 111
4.2.6 Nursery Development.......................................................................... 111
4.3 Forward Linkages...................................................................................................... 112
4.3.1 Alternative Marketing Network/Channels....................................... 112
4.2.2 To Enable Interested and Eligible Entrepreneurs to set up Bio Diesel
production plants........................................................................................... 115
4.2.3 To Set Up Quality Control Facilities.................................................... 115

Conclusion.................................................................................................................. 116

Bibliography............................................................................................................... 118
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Hence we have discussed in chapter 3 about various contract systems and


factors which are directly or indirectly affecting the production of Bio Diesel and
ultimately the entire value chain of jatropha Bio Diesel production, chapter 4 describes
the broad spectrum of strategy to accelerate jatropha Bio Diesel production by
resolving issues involved with value chain of this industry.

As we had discussed in this chapter regarding cost minimization and profit


maximization in spite of having constraints related to input cost, quantity of
production, output per unit of production and sales realization volume, it is very
important to provide strength to its backward and forward linkages of jatropha
cultivation, setting up oil expelling units and oil purification plants. These backward
and forward linkages will provide us with an alternative view in assessing relative
importance of various sub sectors of Jatropha Bio Diesel value chain and their
interdependent economy for making profit out of it.

As we had concluded that there are gaps in supply chain of jatropha seeds to
jatropha Bio Diesel industry, there is an urgent need to take actions with respect to
strengthening of supply chain of jatropha seeds. In order to meet the anticipated
blending rates with petro Diesel, following are the backward and forward linkages
which can smooth the progress of Bio Diesel production from jatropha seeds.

4.1 STRATEGIC APPROACH FOR I+TERMEDIATE OIL EXPELLI+G


U+ITS

The necessary pre-condition for Oil expelling unit i.e. intermediate production
unit; is sufficient supply of jatropha seeds for crushing which will supply raw oil to oil
purification plants. Here 1 Ha will yield 0.5 T jatropha seeds at first year. So if oil
expelling units having seed crushing capacity of 1 T/Day are being established at the
same year of plantation, the effective area under jatropha cultivation works out to be
600 Ha for single oil expelling unit. Now to obtain the sufficient availability of feed
stock for single oil expelling unit, we have to focus on the channels through which
information, raw material and capital is flowing between oil expelling units and row
material producers. This can be interpreted as a network of economic interdependence
on each other to make profit out of it. This system will not only give profit to
stakeholders but will also reduce gaps in supply chain of jatropha Bio Diesel value
chain.

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Now it becomes extremely important to explore a strategic approach or action


plan for intermediate unit in such a way that production units can function with good
economic output through which scale of jatropha Bio Diesel production will be
improved.

To embark wasteland for jatropha cultivation activity

To establish better networking between firms and jatropha cultivators

To establish smooth supply chain through better marketing facilities

Thus we can say that, these are broad strategy to explore a profitable model for
oil expelling unit which is an important part of whole jatropha Bio Diesel value chain.
To obtain desired result, it is highly important to look into backward linkages and
forward linkages of jatropha cultivation activity and supply/distribution of produce
from it. This distribution/supply network can be termed as forward linkage for single
oil expelling unit.

4.2 BACKWARD LINKAGES

Here in this context of Jatropha cultivation on 600 Ha of wasteland, the backward


linkages mainly thrust on embankment of wasteland

4.2.1 IDENTIFICATION OF WASTELAND FOR JATROPHA CULTIVATION

First step is to identify land for jatropha cultivation across various districts of
Gujarat depending upon availability, suitability of wasteland and agro-climatic
conditions. Annexure 14 represents the status of wasteland available and waste land
suitable for jatropha cultivation across districts of Gujarat. Annexure 14 also illustrates
percentage of wasteland under jatropha cultivation till date. Through this, few districts
have huge potential for jatropha cultivation with respect to availability of wastelands.
Now for single intermediate oil expelling unit, minimum 600 Ha area should be
covered under jatropha cultivation only after that one oil expelling unit can function
with good economic output.

With active involvement of local governments, wastelands should be identified


for jatropha cultivation which includes common lands, marginal and degraded lands,
land along canals and roadways, along railway tracks etc. Total Length of state

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highways in Gujarat is 4956 Km. Out of total length; assuming that it would be
possible to brought 20% length under jatropha cultivation after checking suitability
and feasibility. 20% length covers 990 Km length. It is advisable to do two raw
jatropha along both sides of 990 Km with 2’ x 2’ spacing. No of plants on road side
plantation will be 1982400. As we have seen in chapter 2 that survival rate of plants in
case of road side plantation is 75%, total plants will be 1486800. Through this road
side plantation, 7434 Ton seeds can be produced. High quantity and quality Seed yield
can be justified only by intensive efforts in agronomy practices of jatropha at initial
years.

Based on national Bio Diesel mission, first phase mainly covers pilot plantation
of jatropha cultivation for demonstration and assessment of its success. First phase
include plantation on forest and non forest land use in various states across country to
meet 20% blending with HSD. States identified for jatropha cultivation are Gujarat,
Rajasthan, Maharashtra, Madhya Pradesh, Tamilnadu, Orissa, Karnataka Based on
national Bio Diesel mission, GOI had identified jatropha plantation specifically on
wastelands. Major components of this mission are nursery development, plantation on
forest and non forest lands, seed collection, setting up oil extraction units,
transesterification plants, blending, marketing facility and research and development to
fill loop holes during implementation.

4.2.2 KEY INSTITUTES AND THEIR CONTRIBUTION TO JATROPHA


CULTIVATION

In order to manage and implement entire mission of Jatropha cultivation,


National Bio Diesel Board is required which is still under proposal. In absence of any
state level centralized institution which will take care of all aspects of Jatropha
plantation activities. At present, efforts made for jatropha cultivation and to monitor
input and output are so scattered which is creating knowledge gap amongst
stakeholders, local people and cultivators.

In order to utilize degraded forest land for jatropha cultivation, Joint Forest
management Committees (JFM) and State Forest Department should show proactive
and co-ordinated efforts. Apart from that, State forest department can also establish a
special link of Joint Forest management Committee (JFMC) which can actively
participate in jatropha cultivation on degraded forest land.

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Furthermore, Local Self Governments like Gram Panchayats can take


initiatives of jatropha cultivation under National Rural Employment Guarantee
(NREG) Scheme which can provide employment opportunity to landless, small and
marginal farmers. Therefore, inclusion of small, marginal and landless farmers makes
National Mission on Bio Diesel more successful.

National Oil seeds and Vegetable Oil Seeds Development Board (NOVODB)
had undertaken Research and development of High Yield Variety (HYV) Jatropha
seeds as a Genotype or clone which can produce better quantity and quality of oil
besides being high yielding. NOVOD Board has constituted two national Networks on
R&D Programme, out of which one is “National Network on Jatropha & Karanja” and
second is “National Network on Wild Apricot & Cheura by involving institutes like
ICAR, CSIR, TERI, ICFRE and State Agricultural Universities (SAUs) to contribute
towards development of high yielding verities with high oil yield and improved
cultural and seed production practices yield.

Agriculture universities can play important role in terms of Research and


Development Activities regarding jatropha Bio Diesel industry. In India, State-wise
Agricultural Universities involved in National Network Programme on Jatropha
Research which are Tamilnadu Agriculture University, Anand Agriculture University,
Navsari Agriculture University, Assam Agricultural university etc. These institutes are
deeply involved in Research and Development on TBOs in order to get higher oil
seeds.

4.2.3 WIDESPREAD EMPLOYMENT OPPORTUTITIES FOR RURAL


COMMUNITIES

The involvement of voluntary social organizations, Self Help Groups, local


rural communities and NGOs can contribute significantly in this endeavour of jatropha
cultivation activities and raw material supply chain for Bio Diesel production industry.
NGO can play important role to train local landless, small and marginal farmers to
contribute their effort in jatropha cultivation activities which can serve as an additional
source of income.

In case of joint venture-contract system, huge employment opportunities can be


generated with help of various schemes provided by District Rural Development

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Authority. Various schemes for labour supplement are National Rural employment
guarantee (NREG), Integrated Tribal Development Programme (ITDP) which is part
of 10 Point Programme and Women empowerment and employment. Apart from this
concerned department can also assign the task to local NGOs for increasing awareness,
training and employment opportunities associated with jatropha cultivation activities
amongst rural communities. General awareness training can be provided by concerned
Government department or by hired NGOs.

Information dissemination and awareness are grass root level strengths of


jatropha cultivation activities. District Rural development authority can be integrated
in this process by employing farmers under National Rural Employment Guarantee
(NREG) Scheme.

Achieving access to markets for selling of jatropha seeds can be difficult for
individual cultivator/farmer, especially when end use of product is very specific,
which require specialized commercial expertise or effective farmer associations and
organizations that can acquire such opportunities for catering seed buyers. Expertise
farmers’ association will not only pave direct access to market but will also serve as a
trained professionals who can deal with weighing, packaging, labelling, dispatching
and other aspects of supply chain.

4.2.4 AWARENESS AND TRAINING

It is observed during primary data collection that farmers or cultivators are not
mentally acquainted to adopt the concept of contract farming though it can be
economically beneficial for them. Because of this confined vision in their mind
regarding advantages of contract farming, direct impact is on public participation. In
villages if we perceive, there is huge potential of jatropha cultivation on farm hedges
as protective boundary and village roads. But farmers are not that much willing to
grow jatropha because they don’t have any awareness and knowledge about
importance of jatropha. Even they don’t know that jatropha cultivation can offer them
additional source of income and if they participate with enthusiasm, they can also set
their cluster level oil expeller unit for jatropha seed crushing. This will give not only
employment opportunities but also give fuel for cooking and lighting. Besides this,
they can also utilize by product from jatropha raw oil production as manure and Bio-
fertilizer.

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Training should be in place to boost the efforts in deployment of jatropha


cultivation and Bio Diesel production. Education campaign for awareness can
accelerate Bio Diesel production. Information dissemination regarding benefits of
jatropha plantation is required at local, regional and national level. There is a need to
encourage public participation at local level in decision making process and
implementation of jatropha cultivation activity.

4.2.5 MONITORING MECHANISM

There is no such monitoring mechanism after implementation of jatropha


cultivation where for initial three years of plant’s gestation period, it is advisable to
monitor its growth, dieses infection, provision of adequate fertilizer and life saving
three times annual irrigation. This will ultimately increase survival rate and seed
production. Apart from that, jatropha cultivation activities should be implemented with
proper inventory of records of land under jatropha cultivation, seed yield, survival rate,
employment, cost of cultivation and other records related to jatropha cultivation and
seed production, selling etc.

4.2.6 NURSERY DEVELOPMENT

In order to obtain saplings/cuttings/seeds for plantation, nursery rising at local


level as well as at regional level is essential. Apart from private nurseries, farmers can
also be motivated and encouraged to develop nursery on their farm of 50-100 plant
capacity through which they can generate additional income and easy availability of
plantation stock. For easy availability of planting stocks (sapling/cutting/seed) it is
necessary to arrange seeds/cuttings/saplings. For large scale jatropha plantation
jatropha cuttings would not be available in such huge quantities. For one hectare of
jatropha plantation at 2m x 2m spacing, that will be 2500 plant/Ha, requirement of
seeds will be 5 Kg. It is obvious that jatropha saplings/cuttings will not be available
easily in a huge stock. To meet required plantation stock, on farm nursery
development at local level should be raised which will be handled by farmers.
Government and private nurseries should be encouraged to prepare seedlings of
jatropha and same encouragement should be provided to interested farmers. In this
case farmers’ co-operatives, Self Help Groups (SHGs) and Community based
organizations should be framed by local public participation.

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In order to implement nursery development at local level, contracting agency


can offer the farmers for development of on-farm-jatropha-nursery and can also do
purchase agreement. A farmer can establish 100 saplings from his farm which will not
affect regional cropping system but will give additional income to farmer.

4.3 FORWARD LINKAGES

In order to reduce risk factor for cultivator, credit facilities should be provided
by the State Authority at micro level for jatropha cultivation activities, on farm and
special nursery development, establishment of seed collection, procurement and
setting up of oil expelling units at cluster level. In this case, it is important for investor
and cultivator to know role of National Bank for Agriculture and Rural Development
(NABARD). NABARD is acting as an apex body at National level as well as at state
level which is involved in policy formulating, planning, implementation and
operations in the field of rural and agricultural credits. This apex body is actively
involved in extending credit support for renewable energy development in rural areas
along with other financial institutions. NABARD’S thrust area is development of
wasteland through energy crop plantations, Bio Diesel crops/ Tree Bourn Oilseeds
(TBOs) and providing 100% refinance to banks at concessional rate of interest. This
type of information regarding role financial institutions should be disseminated
amongst stakeholders of Bio Diesel industry.

4.3.1 ALTERNATIVE MARKETING NETWORK/CHANNELS

For some special agricultural crops like jatropha, it has been realised that the
marketing channel for such product should be as short and direct as possible.
Elimination of middlemen from marketing channel is the way to deliver full profit to
cultivator/farmer who had put efforts in cultivation. This will not only bring
satisfaction level from farmer/cultivator side but also bring faith in cultivator regarding
assured output from jatropha cultivation. The produce (jatropha seeds) should move
quickly and directly to the consumer or production units. If farmer/cultivator directly
sells their produce to the consumers, it will not only save losses but may also increase
farmer’s/cultivator’s share in the price paid by consumer that is Bio Diesel production
entrepreneur. Therefore, direct marketing by the farmers should be encouraged as an
alternative marketing channel.

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Day to day, the reality of the jatropha Bio Diesel industry, supply chain
information, value addition, trading of produce, competition and efficient market are
becoming essential key stone of value chain of jatropha Bio Diesel production
industry. The sustainable and professional relationship between cultivator and Bio
Diesel producer play a vital role. Government marketing agency like Agriculture
Produce Market Committee can create better environment for marketing of produce
form small and marginal farmers/cultivators by providing them a holistic platform.
Agriculture Produce Market Committee (APMC) government agency which has
expanded marketing channels at three levels: they are Tehsil/Taluka level, District
level and State Level. APMC can act as intermediate government agency to provide
platform for direct co-ordination between contracting agency and farmers/cultivators.

The Agriculture Produce Market Committee of the local area can provides all
necessary facilities to seed buyers like space, water, shade, counters and storage
facilities for seeds. In that case, State Agriculture Marketing Board (SAMB) provides
financial assistance to Agriculture Produce Market Committee for extending various
services to the farmers as well as to buyers. Besides this, APMC can also provide
advanced weighing machine for product (jatropha seeds). This can be highly beneficial
for agriculture co-operatives, Self Help Groups, Joint Forest Management committees
and Community based organizations; who contribute their effort at village level in
jatropha cultivation activities for seed production. Another interesting role of local
level APMC can be appreciated is to provide business tactics farmers/cultivators,
SHGs, JFMCs, CBOs and GVMM.

Apart from that, any disputes arising between buyer and seller during trading of
jatropha seeds can be settled by the supervisor of Agriculture Produce Market
Committee by meeting with concerned parties. In that case, for transparent process,
supervisor of APMC has right to verify contract agreement if any. Through this
mechanism, not only marketing will become easier and smooth but chances of disputes
amongst contracting agency and farmers/cultivators will also be reduced. The
Agriculture Produce Market Committee can collect one per cent of actual sale
realization of jatropha seeds from buyer and seller as market fee for the services and
facilities provided by the committee to the farmer-seller and contracting agency-buyer
with special permission from SAMB. And the rate of market fees prescribed by

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APMC may vary from state to state. The main functions of APMC as intermediate
agency include:

 Creation of necessary facilities for the smooth conduct of trade in the market area

 Granting licenses and supervising the conduct of market functionaries

 Settling disputes between buyers and sellers in the matter of quality, quantity and
payment

 Dissemination of market information

 Framing of by-laws and initiating or taking action against the violators of the rules

The prime objective of this marketing channels is to provide direct link


between farmers-seller and contracting agency-buyer with intermediate Government
Agency which is APMC. This marketing channel is described for tri-partite contract
agreements which are discussed in Chapter 3. This marketing mechanism ensures
marketing costs at minimum levels as middlemen are completely eliminated from
marketing activities and network.

These marketing networks can also be expanded to village cluster level where 3
or 4 villages collectively enjoys better marketing infrastructure free of cost with full
support and co-operation of PRIs and can receive considerable high prices for jatropha
seeds than what they receive from middlemen at village or primary markets at nearest
town. Additionally, farmers can also get benefit in the form of better interaction with
other farmers, co-operatives, CBOs, SHGs, GVMM, JFMCs and with other
departmental personnel.

Apart from this structure of marketing channel, another initiative for reducing
transaction costs is establishment of farmer-seed producer and Bio Diesel producer
which is called two-partite contract system. Thus, this type of marketing infrastructure
can serve as the wheels for carrying out easy and quick trading of raw materials-
jatropha seeds for jatropha Bio Diesel industry. The availability of marketing
infrastructure will not only reduce the transaction costs and produces powerful impetus
to jatropha seed production and trading but also affect the income distribution in
favour of landless, small and marginal farmers by increasing their direct access to
market. It can be envisaged that infrastructure facilities for marketing purpose like

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transport and communication can significantly increase horizontal and vertical


integration of jatropha seed production activities and market. Infrastructure facilities
for marketing can be classified in two ways. One of these is physical and second is
institutional. Above discussion elaborate all aspects of both of physical and
institutional infrastructure for jatropha seeds marketing. The physical infrastructure
involves roads, railways, transport facilities, electrification, storage,
telecommunication, grading, packing and physical processing. Where as institutional
infrastructure can be explained in terms of co-operatives, APMCS, SAMB, SHGs,
CBOs, and GVMM.

4.3.2 TO ENABLE INTERESTED AND ELIGIBLE ENTREPRENEURS TO SET


UP BIO DIESEL PRODUCTION PLANTS

Apart from vertical co-ordination in value chain, horizontal co-ordination also


holds equal importance and focus in value chain of jatropha Bio Diesel production.
Horizontal co-ordination in this case can be explained in terms of appropriate
technology development along with seed production process. The major challenge
from the side of Bio Diesel production industry is establishment of oil expelling
production units and oil processing plants by eligible entrepreneurs. As we have
discussed about joint venture contract system in chapter 3 which clearly reflects that
State level OMCs can play vital role in encouraging and promoting establishment of
Bio Diesel production units to produce jatropha Bio Diesel.

In case of technology development, intermediate productions units should be


established in such a manner that it do not exceed the additional costs than total
revenue otherwise it will not give any profit to that production unit. For example, if 5
to 6 villages are identified for jatropha cultivation on Government wasteland, than oil
expelling unit should be set up considering this cluster of identified villages. Other
important condition for oil expelling unit is minimum 600 Ha area should be under
jatropha cultivation which will strengthen supply of raw material.

4.3.3 TO SET UP QUALITY CONTROL FACILITIES

Today markets are becoming more stringent in regard to product quality and
therefore greater market penetration for new entrant industry usually requires close
attention to quality issues of final product. These quality standards are equally

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applicable to jatropha seed quality and jatropha Bio Diesel quality. Now a day, boom
in Bio Diesel industry had resulted in to quality compromise of jatropha Bio Diesel
which can be witnessed by the consumers of Bio Diesel or blended Bio Diesel. These
issues must be resolved with special attention. Therefore, Bio Diesel Purchase policy
mainly explains that Bio Diesel cannot be sold directly in market. State level OMCs
have declared notified purchase centres at various districts where Bio Diesel quality
standards are checked with Bureau of Indian Standards (BIS).

CO+CLUSIO+

The main advantage of deployment of Jatropha Bio Diesel is its renewability,


ensuring energy security and clean environment. Furthermore, Bio Diesel industry will
lead to utilization of wasteland and rural employment generation. By substituting petro
Diesel, it significantly reduces harmful emissions which ultimately global
environmental problem of global warming. It is inevitably true that deployment of Bio
Diesel supplements the overall socio-economic growth by better utilization of waste
land, employment generation and augmentation of renewable source of fuel to achieve
fuel independence.

The pace at which we are utilizing non renewable fuels like petro-Diesel, there
must be a strong proactive action from our side which will determine energy security
for our coming generations. In order to achieve the goal of Bio Diesel blended Petro-
Diesel, Nation had formulated National Bio Diesel Mission, Bio Diesel Purchase
policy and National Biofuel Policy to encourage Bio Diesel production from jatropha.
It was envisaged through policy that deployment of blended Bio Diesel will definitely
improve country’s energy security and reduce country’s dependence on imported Oil
as well as reduce emission levels of petro Diesel. Though Bio Diesel industry is new
entrant into the global market of renewable energy but it had ignited keen interest and
imagination of many experts, stakeholders, decision makers and also both public and
private sectors.

A new paradigm of Contract Farming can become a sole way to improve


supply chain of Jatropha Bio Diesel Production. Contract system will not only
internalize transaction cost of produce but will also devote access to new technologies,
quality inputs and good economic output to farmers/cultivators besides all prevailing

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Chapter 4

market risks. Contract farming is not only the solution to all the problems of supply
chain but this system can be evaluated as a pathway to early and easy access to credit,
input, information and market access to such product like Jatropha seeds. Contract
Framing should be practices by decision maker in order to improve feed stock supply
chain by evaluating its backward and forward linkages.

The prime objective of all policy, programme of Bio Diesel is to meet the Bio Diesel
blending rates through promotion of Bio Diesel industry in various parts of India to
ensure production of Bio Diesel from jatropha cultivation. But the main problem
which is barricading the targeted production of Bio Diesel in less availability of feed
stock (jatropha seeds) for Bio Diesel production. Hence, deficiency in supply chain of
raw material is ultimately affecting the consistent production of Bio Diesel. The policy
will fail if the Bio Diesel production will not fulfil the blending targets with petro-
Diesel. In order to, make the policy successful, necessary condition is to improve the
supply chain of raw material to jatropha Bio Diesel industry and along with that
appropriate technology development to make production economically efficient
manner. I hope that this research would provide some valuable insights into various
issues related to Bio Diesel industry and its production cycle, which will persuade
decision maker and policy maker to consider it while formulating any strategy, action
plan and agenda. I am keen that this strategy can be replicated for other states of India
so that we meet the requirement of specified Bio Diesel blending rates which will
provide a sustained and environmental friendly energy security.

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