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Innovative business models for sustainable biofuel production: the case of Tanzanian smallholder jatropha farmers in the global biofuel chain

Annelies J. Balkema and Henny A. Romijn

Working Paper 11.06

Eindhoven Centre for Innovation Studies (ECIS), School of Innovation Sciences, Eindhoven University of Technology, The Netherlands

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Paper for the Conference: Business of Social and Environmental Innovation, Cape Town 14-16 November 2011

Innovative business models for sustainable biofuel production, the case of Tanzanian smallholder jatropha farmers in the global biofuel chain Dr ir Annelies Balkema ([email protected]) and dr Henny Romijn ([email protected]) Eindhoven University of Technology, Faculty Industrial Engineering and Innovation Sciences

ABSTRACT This paper focuses on the smallholder outgrower model for jatropha biofuel cultivation in Tanzania. This model is based on seed production by small farmers who sell to a processing company that presses the bio-oil from the seeds locally, either for the local market or for export. This model has been implemented by a foreign investor in Tanzania, the social business model combines profit making with social and environmental objectives. This paper describes the trends and developments of this innovative business model in a global cultivation, production and usage chain, exploring the trade-offs between the people, planet, profit objectives (triple P) and how the business model adapts to survive through the different stages of the innovation process. The three stages that are distinguished in the innovation process are: (1) learning to be effective, (2) learning to be efficient and (3) up-scaling and diffusion. The observed trend is that in the different stages different roles are played by the company as it aims at shifting from subsidy funds to profit making. In the process of becoming efficient and starting to upscale, it seems harder to ensure the implementation of the social and environmental objectives. Therefore, other actors will have to play a more active role in capacity building and market regulation and additional funding has to be made available to the company for the social benefits it is generating for society.

INTRODUCTION The ambitions for biofuels are high, both on large scale usage for climate mitigation, and also on social-economic development. The target is to replace more than 20% of the European petrol and diesel consumption with bio-fuel in 2020 (Directive 2003/30/EC and Directive 2009/28/EC in 2003, Biofuel Action plan 2005, Strategy for Biofuels 2006). In addition social goals are defined, for instance, the Dutch Cramer Criteria for sustainable biofuels include criteria on GHG balance, food security, biodiversity, welfare, wellbeing, and environmental impacts (Task Force Energietransitie 2006). These targets pose a huge challenge for decision makers to ensure that promising innovative biofuel crops and processes are up-scaled in short time spans without compromising on poverty reduction and valuable ecosystems. The question whether biofuels can fulfil the high expectations is certainly legitimate and we have to make sure that strategic decision making takes to heart interests of different stakeholders and carefully addresses trade-offs between socio-economic and environmental impacts throughout the whole global production and usage chain in order to prevent export of problems to different actor groups, different regions, different dimensions of sustainability, and to future generations.

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Tanzania has the ideal geographic and climatic conditions for growing a wide range of bio-fuel crops. Tanzania is considered important in Jatropha cultivation with an estimate of up to 69,870 ha in 2010 to 620,110 ha in 2015 (GEXSI 2008). In Tanzania a foreign investor started a company with a social business model1 to supply jatropha biofuel. Instead of using plantations, the company chose for a smallholder outgrower scheme. In which independent farmers cultivate small amount of jatropha seeds on their own land besides their food crops for additional income generation. The implementation of the business model and the trends and developments over the years are described in this paper. Special attention is given to the trade-offs between the 3 dimensions of sustainability: people, planet and profit, and the roles that the company and other actors2 in this global biofuel chain can play to assure that the people objective in the form of poverty reduction is not lost in the effort to combat climate change (planet) or profit making. The theoretical framework used in the research is a combination of learning theories (Korten 1980, Douthwaite 2001), and social entrepreneurship theories (Douglas 2010, Brozak 2009, Heierli and Polak 2000, and Heierli 2008, Seelos and Mair 2009). Staff and students of the School of Innovation Sciences of Eindhoven University of Technology have been working on this research since 2005 (see Philippens 2005, Eijck van et al. 2008 and 2010, Caniëls and Romijn, 2009, 2008, Balkema et al. 2010, Hellings 2010, Romijn et al. 2011).

INNOVATIVE BUSINESS MODELS IN THEORY Initially, two models for jatropha cultivation were identified in Tanzania, namely (1) the outgrower model were small scale farmers cultivate jatropha besides their food crops and sell the fruits to companies that produce biofuels, and (2) the plantation model in which large scale plantations for Jatropha biofuel production are set up mostly by foreign investors aiming at export. “New” hybrid models are emerging, namely: * Block Farming (3): in which groups of farmers allocate individual plots adjacent to each other to form one large block; * Employment Guarantee Schemes (4): in which the government is a large employer of farmers using biofuel cultivation as part of Employment Guarantee Schemes, practised in India); * Rural Electrification (5): in which jatropha is cultivated for local use, for instance in hedges around a village for electrification, for instance by NGO as community based projects; * Railway Track (6): in which jatropha is planted along railway tracks to fuel trains this is done in India, * Research Plot (7): in which jatropha is planted for research only.

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Note: the term social business model refers to all business models that have the objective to contribute to solving societal problems these can also include environmental problems. Also the term sustainability includes both; people, planet and profit. Still sometimes sustainability is associated mainly with the environment, and social entrepreneurship may be associated more with poverty reduction, therefore we use in this paper often the terms social and environmental objectives to emphasis that both are included. 2 Note: there may be a confusion in the terms actor and stakeholder as it is not clearly defined who is active or not active or maybe less active, in the chain, and whether to include stakeholders that are directly and or indirectly affected by the global biofuel chain. However in this paper we chose the terms carefully and in further research we will exploit this further.

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This paper focuses on the Jatropha outgrower model (1) which may be able to combine social and environmental objectives with profit making. Social objectives focus on poverty reduction through job creation and the generation of additional income to lower the vulnerability of specific groups such as isolated remote communities, poor farmers, women, children, and/or elderly. In addition the environmental objectives can be conservation of the local ecosystem, adaptation to and/or mitigation of climate change. Two cases will be compared, namely local use of the Jatropha oil or production for export. In this last case the business model will be part of a global cultivation, production, and usage chain of Jatropha biofuels. In this global chain, different stakeholders may envision the objectives differently. While the social objectives obviously are most important for developing countries, post-industrialized countries are looking for opportunities to reduce their impacts on climate change. Furthermore, the profit making objective fits nicely in trend of international institutions such as World Bank and IMF that pursue privatization and entrepreneurial driven development “aid”. However, so far none of the jatropha processing companies in Tanzania, neither in the smallholder outgrower or plantation model, have been profit making. Most activities are still heavily depending on subsidies and so far many initiatives failed. This is of course not uncommon for an innovation trajectory in its early stage, where niche protection is required to allow for learning, network building, and market creation. Interesting from a business model perspective is that different stakeholders may play different roles during different periods of the innovation trajectory, as the source of income may shift from subsidies to profit making. This makes that companies may in the early stage of the innovation trajectory play the role that will later on be taken over by NGO’s and governmental institutions. The reason behind this is the fact that learning and market creation and even market regulation is seen as essential for future profit making but at the same time not fitting the business model of a profit making company. As such we claim that stakeholders shift their position in the continuum of social entrepreneurship during the innovation trajectory, as pictured by Douglas (2010) (see Figure 1). Therefore, one should be aware that the formal status of a stakeholder may not reflect the actual role played in the early stage of the innovation process! There may even be a shift in returns from an emphasis on social towards an emphasis on financial depending on the involved actors in the market creating and regulation (see Figure 2). Brozek (2009, p.8) also states that the decision on how to position an organization as a dynamic process. Brozek (2009) focuses on non-profit social enterprise model and describes that the position of a organization in the continuum spectrum from social to financial returns is base on the following four aspects (p.9): (a) the level of integration of the social mission in the revenue model, (b) the scalability, (c) the sources of funding, and (d) the sustainability of funding and whether this detracts from the social mission over time. Brozek (2009, p.17) concludes that the rate of innovation in the non-profit sector accelerated in the recent years. The jatropha outgrower model includes the social objectives in the operation as contracts as made with smallholders for capacity building and collection of produced seeds. Furthermore environmental objectives may be included in the revenue model through carbon credits, although this will require extra efforts in certification. The scalability is thought to be important for profit making (simple economies of scale). On the other hand this will depend on the source of funding on the longer term. The question for the Jatropha outgrower model in Tanzania is whether the social objectives remain leading, or that the environmental objectives will take over, or perhaps even those will have to be abandoned partly to assure profit making if subsidies are no longer available.

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Figure 1: the continuum of social entrepreneurship orientation (Douglas, 2010).

Figure 2: Spectrum of social and financial returns (Brozek 2009, p.8).

Austin et al. 2006 (in Hellings 2010 p.15) claim that social entrepreneurs have less access to commercial capital markets, and therefore rely on the three F’s (friend, family and fools) for funding. Bornstein and Davis (2010 in Helling 2010 p.17 and 18) claim that an organization with a strong social objective or non-profit orientation is likely to be financed through foundations, philanthropic, or governmental subsidies. According to Bornstein and Davis (2010), a main reason for many promising organizations to remain undercapitalized and undermanaged is the limited access to capital. In our research lack of funding is very often a bottleneck for innovations. However one expects that making available funds with social objectives could counter this trend. We also observe that very often financing actors a lacking in the innovation networks, the same accounts to a lesser extent for knowledge and capacity building and inclusion of knowledge institutes and supporting NGO’s as actors in the innovation network in developing countries. These organizations could help out with respect to time and effort consuming tasks like complying with reporting requirements for governmental regulations which are according to Bornstein and Davis 2010 (in Helling 2010 p.17 and 18) are also hard to accomplish for social organizations. This is also the case for the stakeholders in the Tanzanian Jatropha biofuel sector according to our observations so far. At the moment ongoing research is looking into the possibilities of certifying smallholder Jatropha farmers for CO2 credits (see also Roks 2010). This is in line with traditional learning theories such as the 3 stages in learning in development programmes described by Korten (1980, pages 499-500): (I) learning to be effective: focussing on knowledge and capacity building which requires freedom for experimenting, note that error rates may be high in this stage; (II) learning to be efficient: concerned with reducing input requirements per unit of output, forming routines and dealing with organizational constraints;

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(III)

learning to expand: expansion of operational capacity through continuous refinements to respond to the demand for larger scales of production.

The roles of the different stakeholders can change during the learning (=innovation) process. Similarly, Douthwaite et al. (2001, p.823, Figure 2) defined different phases in the innovation process: development, start-up, adaptation, expansion and disappearance3. The main conclusion of the paper by Douthwaite et al. (2001) is that with the increase in complexity of the technology and system there is also a need for increased interaction between the originating R&D team and key stakeholders. Meaning that for innovations to become successful, a partnership cooperation of designers and those who will directly gain and lose from the innovation, is required. In the case of the global jatropha biofuel chain this is a real challenge as especially the system complexity is high and there is a large number of diverse key stakeholders. Looking at the two business models for Jatropha cultivation in Tanzania at the moment, the outgrower (1) and the plantation (2) model, one may argue that in the plantation model the number of stakeholders is less than in the outgrower model. However, interaction between stakeholders is catalyzed by the outgrower model. A discussion on who to include in the group “key” stakeholders and how to deal with direct and indirect stakes is pertinent here. In the biofuel sector the positioning of the organization in de continuum of different objective such as social, profit making and environmental is crucial in decision making as trade-offs will most probably occur. Although it would be a win-win if commercial competition could go hand in hand with a range of real local benefits (Vermeulen et al 2009). Expectations are that social objectives (contributing to local well being and conservation of local ecosystems) are most probably conflicting with the profit making objective (as up scaling and export oriented production may be required for financial feasibility). This may to lesser extent apply to environmental versus profit making. Carbon credits can form a serious and reliable income source but may pose certain limitations on how jatropha is grown, as smallholder based cultivation is more difficult to certify than plantation. Between social and environmental objectives a trade-off can occur if the push to extend biofuel cultivation for export to meet EU and US standards to mitigate climate change becomes leading above poverty reduction and conservation of local ecosystems. Therefore, active roles of non-profit oriented stakeholders are needed for market regulation to ensure the social objectives are met also in later stages of the innovation trajectory. This will be required from actors on different levels of decision making, local, regional, and global. Seelos and Mair (2009) describe social entrepreneurs playing a crucial role in devising innovative organizational models combining non-profit and profit based organizations for poverty reduction and sustainable development. This is also described in Heierli’s market approach to development, in which the effectiveness of development projects is guaranteed by governmental initiatives and funding while efficiency is increased by the inclusion of private companies (Heierli 2008 and Heireli and Polak 2000). A main argument in Heierli’s work is to use a market pull (see Figure 3) to make poverty reduction more effective. In the case of jatropha cultivation there is a market pull for biofuels to combat climate change, if this is tightly linked to poverty reduction this can result in an efficient poverty reduction strategy. 3

Note: Disappearance in the sense that the technology becomes mainstream and is no longer seen as innovation.

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Figure 3: Heierli’s market creation approach for development explained (Heierli and Polak 2000).

CASE STUDIE: Tanzanian outgrower model for Jatropha cultivation in Tanzania The out grower model is based on a vast number of independent smallholder farmers located in different regions of the country, who predominantly grow Jatropha as a hedge around their fields and homesteads. Interested farmers receive a contract for a longer period, for instance 10 years, which specifies that all their Jatropha seeds can be sold against a guaranteed minimum price to a company that presses the seeds to obtain the bio-oil. This company is founded by a foreign investor and has a “triple P (people, plant, profit) ” objective, aiming at increased employment and income generation, contribution to reduction of global warming, and profit making Working with dispersed smallholder farmers poses its own particular challenges. The great majority of smallholders are very poor. Their formal education is generally limited to a few years primary school at the most, and they lack access to quality farm inputs and relevant information to improve their land productivity. Poor and declining land productivity due to nutrient mining is a major problem in many areas of the country. Increasing pressure on land features prominently among the causes for this situation. In the past, traditional slash & burn agricultural practices were sustainable, because the cultivated land could return to long fallow after having been worked for 2-3 years, recuperating for two decades or more and recovering its prior fertility levels. These slash and burn cycles are increasingly shortening, and many former slash & burn areas have come under permanent cultivation. Farmers also expand food production into less fertile lands that were previously perceived to be less fit for cultivation. Increasing land pressure is caused by population expansion as well as commercial exploitation of prime land by large investors for purposes such as large-scale cash crop cultivation and tourism, and earmarking of land as public reserves. Many smallholder farmers do not keep sufficient animals to generate enough manure, and they also cannot afford expensive mineral fertilisers to maintain fertility of intensively farmed plots. Many also lack knowledge about benefits of mulching of harvest residues and cuttings and of intercropping with, e.g., N-fixing leguminous crops or Potash-accumulating crops that can contribute to maintaining soil fertility.

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In practice, therefore, the bulk of company’s social responsibility activities are directed at these independent farmers. This means knowledge sharing to improve agricultural practices, not only for their Jatropha crop but also for the food plot. One aspect that is always emphasized is that although the cultivation of jatropha may be a welcome source of income, farmers should prioritise food production, so jatropha should only be grown as hedges or – perhaps – in an intercropping arrangement with food crops. In the initial years after the company’s establishment, hundreds of independent farmers were visited regularly by company’s field officers and agricultural extension workers from the Ministry of Agriculture, who were paid and received motor bikes on top of their government salary to carry out this extension work. Lack of government finances for effective agricultural extension among Tanzania’s large numbers of dispersed smallholder farmers is a big problem in the country, which can be addressed to some extent through such public-private cost sharing. However, there is a possible dilemma: In this particular case this arrangement seems to work reasonably well in the interest of all concerned, because the company insists on a societal responsible approach. However, some divergence between the promotion of private-company interests and public societal interests could occur, for example due to sheer lack of knowledge on the part of the company about what the farmers’ alternatives for Jatropha hedges are and what benefits they may be giving up by shifting to Jatropha. There may be other useful hedgeplant species that they could utilise, for instance as animal fodder, sources of nutritious litter for the food plot, firewood, or natural medicine, which would inevitably get de-emphasised in trainings aimed at explaining the benefits of Jatropha as a hedge crop and how to cultivate it in the best way4. In 2011, during the preparations for official sustainability certification of export of the Jatropha oil to the EU, we noted that company staff lack awareness of alternative hedge crops and their uses in different areas (source: Romijn & Heijnen, personal observations). The farmers receive advice on jatropha cultivation. In the first years of the company’s operation farmers also received the first seeds for free to start their jatropha business. The knowledge about cultivation is transferred both individually and in collective training meetings. Since the company also wants to contribute in other areas, awareness training about AIDS is also given to staff and farmers. Another emerging dilemma is that this extension work is very expensive because of high transport costs and its high labour intensive character. The first repeat visits paid to farmers in 2011 for the purpose of their registration in a farmer data base for the NTA8080 export certification made it very clear that one initial training visit is not enough. The company has to keep coming back, mainly because the farmers need to be assured that the company is a serious long-term investor. Many biofuel investors in Tanzania have proven to be “fly-by-night” operations and farmers are very aware of this. Therefore, their trust in the company can only be built over a period of time, and when it is backed by personal nurturing of the relations5. The “Planet”dimension concerns the company’s aim to contribute to combating global warming. Diligent’s jatropha vegetable oil is a biofuel that can reduce CO2 emissions by between 40% to 90% -the concrete outcome depending on factors such as prior land use, the efficiency of seed collection and processing, the type and location of end use, and the manner of utilisation of the by-products6.

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add ref about the Kenyan hedge study. Information from Mr Meshack and Mr Shedrack, Diligent officers who are compiling the farmer data base for the NTA8080 certification, September 2011. 6 estimates derived from: de Visser, Hellings and Romijn (2011) NTA8080 feasibility study for Diligent, Eindhoven, mimeo, June. This report used the EU Biograce GHG calculation methodology. 5

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The use of by-products such as the residual seedcake in particular raises a lot of controversial issues. First, there is a major trade off between meeting greenhouse gas (GHG) emission reduction objectives on the one hand, and contributing to long-term local food production capacity on the other. This has to do with the odd fact that the company’s current practice of utilising the seedcake for energy purposes – through briquettes and pellets as replacements for wood and charcoal – yields a much higher GHG reduction outcome in the officially approved GHG calculation methodologies than its truly sustainable alternative use as an nutrient-rich organic fertiliser for the farmers. This odd result occurs because these calculation methodologies neglect long term problems of nutrient mining as a result of harvesting biofuels without taking care of nutrient replenishment. Ideally, they should take this into account by requiring firms that do not return the seedcake to the soil to estimate a counterfactual equivalent minimum amount of mineral fertiliser and associated transport that would be needed in order to achieve a neutral nutrient balance. Given the high GHG emissions associated with mineral fertilisers, this would yield a much truer picture of the real costs of not using the seedcake for soil maintenance. But instead, only the text of various biofuel norms requires firms to contribute to the prevention of soil quality deterioration (see, e.g. the RSB and the Dutch NTA8080). In such texts, as always, there is some leeway for different interpretations – a company could claim responsible practices by pointing towards efforts to ensure that farmers practice timely weeding, pruning, mulching and intercropping instead. However, it is unclear whether these practices by themselves would be sufficient to ensure maintenance of soil fertility. There is, then, an implicit disincentive arising from leading international biofuel governance systems against the good practice emphasized by leading Jatropha experts, that returning the nutrient-rich Jatropha cake (or a suitable substitute) to the soil is indeed necessary for long-run soil fertility maintenance (Achten et al; Jongschaap et al). For the company, however, the issues with the use of the seedcake go even beyond this. Aside from detracting from its official GHG reduction impact, adopting the practice of returning the seedcake to the farmers would also entail a logistical and financial nightmare, not least because the firm cannot easily and cheaply rent haulage capacity in trucks going upcountry. Moreover, by failing to utilise the seedcake for direct energy purposes, the firm would lose out on valuable earnings. The press cake can be readily used as briquettes in industrial boilers, or, when mixed with rice husk, as pellets in cookstoves. Thus, there is also a trade off between contributing to long term local food security and the company’s need to sustain its operations by making a profit. And there is yet a third type of trade off associated with the seedcake, which revolves around food security versus ecology. Press cake is a competitive and effective substitute for increasingly scarce wood that is widely harvested illegally, and for increasingly expensive charcoal that is produced widely from illegally harvested wood. There is already a ready market for these Jatropha energy products in the urban areas. By harnessing the seedcake for energy, jatropha thus helps to mitigate forest degradation. Moving to the company’s profit imperative, it is not hard to see that the choice of end use of the oil also involves thorny issues, especially revolving around the question to what extent a substantially larger company can continue to maintain a “people planet profit (PPP)” focus in the future. It is quite clear that from a GHG reduction perspective, but also from the point of view of local economic development, local use of the straight vegetable oil would be preferable by far. The oil can be used in pure form in stationary engines such as in Tanzania’s ubiquitous diesel generators that provide electricity during frequent blackouts, or it can be blended with fossil diesel up to 50%50% in transport vehicles. This use profile would yield an almost 90% GHG emission reduction compared to fossil diesel, and it would also help to alleviate – albeit in a modest way – Tanzania’s extreme oil import dependence. For the immediate future, the company expects that it can directly

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sell its bio-oil relatively easily to large-volume diesel consumers (such as safari companies) on local markets. However, the strategy of the government of Tanzania concerning the future local use of biofuels for transport remains uncertain; there are no signs that blending at the pump will be allowed within the coming years. This puts a cap on local market expansion and even endangers the company’s survival as a profit making entity. The company is still not yet profitable six years after its start up, and after having received several substantial subsidies. Initial co-ownership shares with another foreign company in the same region but in another economic sector were replaced in 2009 by a 40% share by a charitable foundation. Due to continued financial deficits, the foundation later took full ownership, with the explicit requirement that within the next one year the company demonstrates capability to reach breakeven, for which the company will have to double the throughput of seeds. The Foundation principally aims to provide temporary bridging support for what it sees as the company’s final steps towards commercial viability. Even some years before the takeover, it had become evident that the company had to develop longterm supply agreements with a number of reputable and reliable clients, mainly in the overseas aviation sector where there is significant interest in utilising jatropha as a raw material of biokerosene, due to the scarcity of suitable aviation biofuels. The aviation industry has come under increasing pressure to reduce GHG emissions. Although airplanes have already become much more fuel efficient in the last decades, further significant reductions cannot be achieved through technical measures alone. Replacement of fossil fuel with biofuel is therefore seen as the only possible route to achieve significant further reductions in the future – provided that these biofuels have been produced in a responsible way, with a significantly positive overall greenhouse gas balance. In view of this situation, the company has formulated ambitious plans for up-scaling export to the EU. It has estimated that it will reach out to over 50,000 farmers by 2013, up from 5000 contracted farmers (collectively owning approximately 3500 ha of jatropha hedges) in 2010. The company is invited to supply of Jatropha oil as feedstock for bio-kerosene production to fuel airplanes. Airplane passengers are expected to pay extra for their tickets to finance the bio-kerosene for “green flying”. A key reason for this interest is the fact that the company aims for socially and environmentally sustainable production, reducing global greenhouse gas emissions, generating additional income for rural households in impoverished areas, and contributing to environmental protection of degraded lands, at least through erosion prevention and deforestation mitigation, if not through maintenance of soil fertility on foodcrop land. To enable long term export transactions, however, the company will need to demonstrate this sustainability through independent verification and certification. The Dutch NTA 8080 certification scheme, which has just become operational, was chosen for obtaining compliance with EU biofuel import regulations. This scheme has, however, not yet been fully elaborated for smallholder/outgrower models of biofuel production. In order to make this applicable, several questions remain to be addressed, such as: what level of organisation is required to enable certification at a group level; what kind of data is necessary for certification, and how feasible and costly is it to obtain these data; what monitoring structures will need to be put in place? In particular, further research and testing is to be done to establish the least-cost method for data collection and monitoring at the level of individual smallholder farmers, to find out whether the costs for this data collection and monitoring is indeed outweighed by better market prospects from the bio-oil products. Compared to plantation biofuel concepts, smallholder schemes for biofuel production are more complex and costly to certify, because of the higher costs of data collection and monitoring. There are also open questions about whether this is an affordable business model, revolving around trust building through personal contacts with farmers. Already a few years ago,

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the company began to find that the high costs involved in the labour-intensive farmer recruitment and extension work were becoming a major bottleneck on the road towards profitability. A solution is being sought in a partnership with an foreign sponsored local NGO, that aims to organise farmers into groups, give training, and establish linkages with market parties to help enhance their income generation opportunities. This NGO and the company have entered into a fifty-fifty cost sharing agreement. By the company’s manager’s admission, the arrangement is highly productive because the two organisations share the same aims, hence it has become a major force behind the company’s ongoing expansion drive, while also contributing to substantial cost savings. However, many unsolved issues still remain, especially the problem of soil degradation, which could yet become a major issue in the NTA8080 certification. CONCLUSIONS & DISCUSSION The social business model in the form of smallholder outgrower schemes for jatropha cultivation in Tanzania can create substantial benefits for local development in the form of poverty reduction through additional income for local farmers and sustaining local environment through small scale cultivation and the substitution of traditional fuels that cause deforestation. The effect on climate change is expected to be positive as well although further research is required. However, so far the company that implemented the business model has not been able to generate a profit. The business model has passed through the innovation stage of learning to be effective, and made serious efforts to become efficient, and is now reaching the stage of up-scaling. To become more efficient the company reduced the costs of farmer support by devolving this task in an NGO. A main bottleneck in efficiency is still the lack of supporting infrastructure, such as electricity provision required for normal business activities but also to run the large oil presses. Another bottleneck is market regulation required to be able to be cost effective at prices for fossil fuels which are often subsidized, and to be able to access additional funds in the form of carbon credits. To become profitable, up-scaling is required and additional funding seems legitimate based on the societal benefits generated. The Tanzanian government plays a key role in market regulation locally, through admission of land rights, import/export regulations and subsidizing/taxing of fuels. Although the role of the Tanzanian government changed to be more active in regulation over the past decade, the question is whether this will be enough to ensure the prevalence of social and local environmental objectives above profit making and mitigation of climate change. Note that at the moment the seed prices paid to the farmers are still low, and should be higher to substantially be effective for poverty reduction. Furthermore, researchers from the Tanzanian Sokoine University stress the importance of opportunities for technology expansion and technology transfer (Mkoma and Mabiki 2011). The additional funding may be realised through carbon credits although certifying the smallholder outgrowing scheme seems very complex and expensive due to the large number of actors involved. Therefore, the question might be raised who will cover the cost of certifying? Perhaps additional funding can be raised through higher fares for green flying? If certification is unaffordable for smallholders then the question is whether certification is the right policy tool for enhancing social business in Africa, since it may exclude the target group defined in the policy itself. Namely the local

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well being, welfare and sustaining local ecosystems named in the Dutch Cramer Criteria (Task Force Energietransitie 2006). The described social business model seems to be tailor made for the high expectations we pose on biofuels, however, the profitability can only be guaranteed if we are willing to pay for the substantial social and environmental benefits. As such the implementation of the business model demands a larger more active private component to make it work in the next stage of innovation being upscaling and diffusion. To deal with the complexity of the large number of divers stakeholders in the global cultivation, production and usage biofuel chain and the trade-off between sustainability dimensions (people, planet, profit) makes that we have to push for further innovations in the decision making and financing of these social business models. The biofuels and innovative business models are still a stage of "tight rope walking" balancing to deal with trade-offs between the different dimensions of sustainability in a new sector where we are trying to deal with huge global issues as how to ensure livelihoods, food security, soil fertility, biodiversity, and combat climate change. Therefore, a more active role for governmental institutions to move from subsidizing innovation initiatives and learning trajectories towards subsidizing social and environmental impacts is important to guarantee up-scaling of jatropha outgrower scheme in a sustainable manner.

ACKNOWLEDGEMENT: The biofuel research at the TU/e School of Innovation Sciences is sponsored by the Netherlands Organization for Scientific Research in the program for Ethical and Societal Exploration of Science and Technology (http://www.nwo.nl/nwohome.nsf/pages/NWOA_73HBPY_Eng).

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