Economics of Small Scale Jatropha Production for Biofuels in India

Biofuels as a fossil energy alternative have gained worldwide attention for many years. The purpose of this study was to investigate the viability of the use of jatropha production for biofuels in India. The first objective was to create a data base since data were limited and jatropha yields presented in literature were quite variable. The available data were organized in a comparative table and used for a cost-benefit analysis (CBA) and a sensitivity analysis (SA). An economic model was developed to present the analyses which extended over a 20 year period for two scenarios, either with fertilization and irrigation or not. The secondary objective was to determine which conditions are required to achieve jatropha profitability. This involved calculating the impacts on Net Present Value (NPV) and Internal Rate of Return (IRR) when key variables change.;Based on a negative NPV, the first scenario was not economically viable under the initial conditions (no irrigation/fertilization). However, small changes in the initial conditions could provide a foundation for more interest, either from a governmental perspective or private investors. An increase of the Minimum Support Price (MSP) provided by the Indian government from USD 0.83 to USD 0.87/liter, for jatropha oil, will cause the NPV to reach the break even point. When the wage rate is reduced by one cent/hr, it generates a positive NPV (USD 63). Furthermore, a decrease in the interest rate from 11.42% to 6.63% would be sufficient to reach the break even point.;The second scenario provided a positive NPV (USD 2682) based on the initial conditions (irrigation/ fertilization). However, the discount rate (12%) was still greater than the IRR(10%) which means that the project would be rejected from a purely private sector perspective. Increasing the MSP by four cents creates an IRR of 14%. Decreasing the harvesting wage rate by one cent/hr generates an IRR equal to the discount rate. A 6 cents/hr wage rate decrease for processing jatropha seeds is required to generate the same result.;Future research should evaluate the benefits derived from the value of jatropha by-products and carbon credits. However, since the yields are based on expectations, significant deviations in harvest yields and profitability might be observed and continue to represent a material risk to projects. It is recommended to wait for reliable data on Indian jatropha plantations before proceeding with such projects.