The global concern with regard to climate change, due in large part to the greenhouse gas emissions resulting from the use of fossil fuels particularly for transport, has spurred many countries to try to develop alternatives that have diminished negative environmental impacts. One course of action that has taken on much recent significance has been the rapid development of fuels from plants, commonly referred to as “biofuels.” In the Philippines, this innovation in alternative fuels is directed towards replacing imported petroleum fuel, which is seen as largely benefiting motor vehicle owners and transport operators, in addition to claimed environmental benefits. However, the impacts of these fuels on groups at the base of the socio-economic pyramid, particularly small farmers and agricultural workers, are unclear. It is the goal of this study to examine such effects, determine the ways that this development of alternative fuels is affecting the welfare of such groups, and determining possible points of policy intervention so that socio-economic benefits are broadly diffused using a value chain analysis.

Two types of biofuels are currently being produced in the country. Coco-methyl-esther (CME) is made from coconut oil and is mixed with petroleum diesel in a 2 percent blend. Bioethanol, on the other hand, is produced from sugar cane and molasses and is blended with gasoline in a 5 percent mixture (with some commercially available blends going as high as 10 percent). These blends are mandated by the biofuels law (Republic Act No. 9367) that was passed by Congress in 2006. The law has, as one of its objectives, to “increase rural employment and income.”

Coconuts and sugarcane are produced in farms of varying sizes. Small coconut and sugarcane farmers usually own between one and five hectare farms and participate in the value chain as producers of the primary feedstocks for both types of biofuels. However, since their contributions are relatively small compared to the established traditional markets for coconuts and sugarcane, the biofuels industry so far has had little or no impact on their socio-economic condition now and in the immediate future. There are many reasons for this negligible impact and they have much to do with how coconut and sugarcane as traditional agricultural crops developed in this country. The traditionally feudal relations in agricultural production, only recently upturned by agrarian reform, predominantly benefited large land owners. Poor farmers worked either as tenants or owned very small parcels of land that were sufficient, if at all, only for subsistence purposes. Reform redistributed lands to small farmers but both agricultural crops have suffered from structural weaknesses in their respective markets as well as from what many claim to be a lack of support from government. The fact that the biofuels industry is at its initial phases of development in this country is also a contributing factor. CME production is currently wholly produced within the country but bioethanol is not and ___percent is currently imported as only two bioethanol plants are currently operating. In addition, the present economic downturn has depressed oil prices, which in turn has dampened the enthusiasm for more investments in biofuels. It is also the case that coconut and sugarcane are not considered ideal feedstocks for biofuels because of food security concerns and other non-food crops are being developed to replace them. The vision of revitalizing the rural economy through the development and promotion of biofuels remains illusive but it is early days and it remains to be seen whether the development of alternative feedstocks and the expansion of the biofuels markets will lead to significant improvements in the life of the rural poor.

Research Problem

The study seeks to determine the specific mechanisms as to how farmers and other poor groups participate and benefit from the development of biofuels through the entire value chain from cultivation to final output. The results of this study should result in specific policy recommendations that will address the energy and income needs of the BoP in the context of government’s biofuel promotions program.

Specifically, the study will:

  1. determine the economic conditions (prices) and technical conditions that will make fuel plant cultivation profitable for small farmers
  2. determine how small farmers and workers can participate all along the value chain of biofuel production and identify the mechanisms that enable them to do so
  3. determine how poor communities can access these new markets and fuels and what technological innovations for doing so are available or need to be developed
  4. determine possible negative social and environmental impacts
  5. identify changes in government policies on fuels that may be necessary in order to make innovations available to the poor inexpensively.

The full text of the report will be uploaded soon.