A framework for profitability evaluation of agroforestry‐based biofuel value chains: An application to pongamia in India

Abstract

Abstract Biofuel production from oilseed trees in small‐scale agroforestry systems is considered as a strategy for energy security, rural development and ecosystem services provision in low‐income countries. However, the economic potential of these systems remains unclear, as profitability studies commonly ignore key methodological issues such as quantitative uncertainty analysis, full accounting for opportunity costs, and inclusion of all value chain actors. This study addresses these methodological shortcomings and develops a framework for quantifying the long‐term financial performance of agroforestry‐based biofuel value chains. The framework is applied to a case in South India, to calculate profitability of pongamia (Millettia pinnata) cultivation and processing. The results show that pongamia cultivation has limited financial potential, and is only profitable in small‐scale settings, in the middle to long term and for a subset of farmers. If biodiesel is envisaged as the end product, the value chain requires substantial fiscal and marketing support to be economically viable. For current prices, financial performance is much higher if the seed oil is marketed instead of processed to biodiesel. Increased mechanization, increased yields and optimized agroforestry set‐ups might improve financial outcomes and reduce risks for both farmers and processors. These findings are case‐specific, while the developed framework opens the door to comprehensive investigation of the financial performance of other oilseed tree species and in other regions.

Keywords

• agroforestry
• biodiesel
• financial analysis
• pongamia (Millettia pinnata)
• rural development
• value chain design