South Africa grapples with policy challenges of developing a biofuels industry

Few would argue with Science and Technology Minister Mosibudi Mangena’s insistence that we tread carefully when developing a national biofuels policy. At the same time, it would be folly to delay the legislation on which such an industry would be built for longer than necessary.

The trouble is, biofuels are by definition agricultural products; the feedstock, whether for the production of bioethanol, biogas or biodiesel, would have to be grown on an industrial scale if biofuels are to meaningfully — and sustainably — reduce our reliance on fossil fuels.

However, South African agricultural conditions are not conducive to such increased demand. As the minister rightly points out, we have to carefully weigh agriculture’s ability to provide food security against fulfilling SA’s rapidly growing demand for transport fuel produced from biofuel feedstock. SA has neither the soils nor the water to do both without the environment suffering irreversible damage.

These circumstances should not in themselves prevent the government from reaching decisions on fuel specifications and standards, support programmes and market regulation. If our farming constraints force us to choose between importing fuel or food, then policy should reflect that.

Nothing is ever that simple, of course. SA is one of the world’s lowest-cost sugar producers and we export about 45% of the yield, which makes bioethanol production from sugar fermentation an attractive option. At an appropriate level of production, greenfield sugar-cane development would not be necessary to retain food security in this sector. But setting up industrial-scale ethanol plants requires significant capital investment over a relatively long period, and investors would require some sort of assurance that there would be a sustainable long-term return on investment. No such certainty can be provided, and the price volatility of a weather-dependent crop such as sugar can be absorbed by only the biggest of ethanol producers. Moreover, as the South African Sugar Association points out, SA is unlikely to be able to sustain an exportable surplus in a deregulated world market. This change could happen as soon as 2015, when
preferential trade arrangements for the world’s least developed nations expire.

If sugar is not the answer, then what about other crops? In SA, the obvious candidate is maize, but as a staple food to most of the population and an essential ingredient in the production of protein, food security is much more of an issue than with sugar. Although our commercial maize farmers are extraordinarily efficient, the merest dip in rainfall during any one of several critical growing phases can result in a production crash, as has happened this past season.

Clearly, neither of these two main carbohydrate crops is ideally suited to form the basis for a successful biofuels industry, and this is even less so when small-scale growers are brought into the equation. The government wants to create conditions in which biofuel production would benefit small-scale maize growers, because the barriers to entry are low and the basic requirement — land — is becoming available through agrarian reform. But small-scale farming can achieve neither the volumes nor the consistency that industrial ethanol plants demand. That may explain the government’s dithering in producing enabling legislation.

The best thing it could do is to abandon the idea of manipulating our fledgling biofuels industry to specifically benefit small-scale maize growers. Meanwhile, commercial farmers who see opportunities in other biofuels, such as producing biodiesel from oilseed, and who are in a position to achieve the necessary scale and absorb the risks, are being held back by the lack of a clear policy that would allow them to get on with it.

Business Day