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FAO/UNEP/UN-Energy Bioenergy Decision Support Tool -
MODULE 3: Implementation and Operation
This last factor is often cited as crucial and leads FAO (2007)
to recommend that action be taken on economic performance
through intensifcation of production and marketing improvement,
alongside institutional and organizational strengthening. This might
be achieved by combining longer gestation crops with short-term
crops, which can demonstrate immediate economic beneft (FAO,
Given the diffculties with organizing farmers into groups,
alternative approaches of farmer organizations have been tried,
focusing on those, such as farmer leaders, that are more informal
and more organically designed, and entail lower fxed costs (FAO,
2007, Helin et al., 2006).
Contract farming for biofuel development is relatively new, but
lessons can be learned from contract farming in agriculture
and forestry—especially for crops that can be used as biofuels
feedstock—are relevant to this topic, and have resulted in clear
principles and criteria, such as:
• Revised set of principles, criteria and indicators on mutually
benefcial partnerships between corporate and smallholder
partners in the forestry sector (FAO and CIFOR, 2003); and
• Smallholder guidelines by Task Force of Roundtable on
Sustainable Palm Oil (RSPO, 2007).
It is also important to note that contract farming can operate in
many different ways; several different alternatives or models can
be identifed (FAO, 2001b). These models differ in the type of
contractor, the type of product, the intensity of vertical coordi-
nation between farmer and contractor, and the number of key
stakeholders involved (Bijman 2008):
Centralized model:
classical contract farming model, in which
a processor buys products from many small farmers and
characterized by “strict” coordination, i.e. controlled quality
and pre-harvest determination of quantity. The products
generally require a high degree of processing, e.g. sugar
cane, tea, coffee, milk.
Nucleus estate model:
variation of centralized model in which
products are sourced from smallholders but the frm also
has its own plantation. The plantation is used to guarantee
processing throughput and is mainly used for perennial crops
like oil palm.
Multipartite model:
collaboration between state-owned
institutions and private company contracts with farmers; this
model can include public or private providers of production
inputs and services. The degree of vertical coordination can
be high, since public and private entities may exert consid-
erable control.
Informal model:
individual entrepreneurs or small companies
make arrangements with farmers on a seasonal basis; mainly
used for crops that require minimal processing such as
fruits and vegetables. The success of this type of contract
depends on availability of supporting services. The degree of
vertical integration is lower than in formal models.
Intermediary (Middleman) model:
characterized by the
presence of at least three parties in the contractual
arrangements. A processor or trader has formal contracts
with a collector or middleman, who has formal contracts with
a number of farmers.
It is also important to remember that in addition to the different
models, institutional arrangements differ according to political,
socio-economic and cultural structures in different world regions.
Consequently there will always be a number of location-specifc
Small-Scale Schemes: Opportunities
and Risks
Developing small-scale (schemes C and D in Table 5) bioenergy
systems that will truly satisfy local needs, and contribute
to poverty reduction and food security presents a complex
challenge, usually follows an iterative path, and takes time. The
interdependence and diversity of the elements of the bioenergy
becomes important when
biofuel systems are developed in a rural community setting. The
history of rural energy development suggests that planning and
implementation cannot be strictly supply and top-down driven.
Moreover, there is increasing agreement that rural energy should
be part of a broader rural development approach if it is to have
positive and sustainable impacts on the rural poor.
It is worth bearing in mind that smallholders can be key partners
and investors (through labour and resources) in bioenergy
development even when technical and fnancial conditions require
large-scale processing. An important point in this case lies in the
contractual modalities that link companies to smallholders, and
in mechanisms for ensuring that these are respected by both
<Mod6: People and Processes >
Examples of large-scale
production with small-scale farmers include the Social Biodiesel
Programme in Brazil and the sugar-cane industry in Mauritius
<Mod7: Deployment and Good Practice>.
The relation between
investment and resource ownership can also be assessed on
the basis of the risks and rewards to different actors and how
they vary as the institutional arrangements change (for a detailed
analysis and case studies, see: Vermuelen and Cotula, 2010).
The effects of small vs. large-scale schemes tend to be quite
different; large-scale schemes tend to be less connected to
the community needs as they are focused on international or
regional markets, creating concrete economic benefts but
entailing social and environmental risks. When community
members are engaged in the whole bioenergy chain (i.e. growing
the feedstock, establishing conversion systems, choosing fnal
markets and products) there are better opportunities to internalise
socio-economic and environmental impacts. If the schemes are
well-managed with good governance systems, then the costs and
benefts are more likely to be fairly distributed. Some communities
may nevertheless prefer the higher certainty and tangible cash
benefts of working through a larger entity or company, and this
choice should be left up to the community when it comes to
specifc projects.
A crucial issue concerns the technical and fnancial viability of
small-scale operations. In this case the major challenge lies in
making such schemes affordable, accessible and appropriate to
local circumstances and people. Supportive measures are needed
in early stages of implementation and signifcant scaling-up of
small-scale schemes is necessary to match the economic benefts
of larger schemes. The choice of scale can lead to additional
risks in terms of socio-economic and environmental impacts: the
size or intensity of the risks do not necessarily depend on the