A Normative Economic Analysis of Cooperative Biodiesel Production Using Soybeans Produced by Smallholders in Kwazulu-Natal, South Africa

Abstract

The South African biofuels industrial strategy promotes a development-oriented strategy with feedstock produced by smallholders and processed by traditional producer-owned cooperatives. This study examines a proposal to apply this strategy to small-scale farmers in KwaZulu-Natal (KZN), using soybeans as feedstock for biodiesel production. First, it is argued that value-adding cooperatives established under South Africa's current Cooperatives Act, No. 14 of 2005 (hereafter the Cooperatives Act) would fail to attract the capital and expertise needed to process biodiesel owing to ill-defined voting and benefit rights. Second, a mixed integer linear programming model is used to determine the viability of producing biodiesel from soybeans, viewed from the perspective of the smallholder as grower and co-owner of the processing plant. It is concluded that smallholder participation would require a rental market for cropland, co-ownership of the processing plant in a non-traditional cooperative or investorowned firm, information and training, and a high level of government subsidy.