# **3 Simulations**

The main objective of this paper is to investigate the distributional impact of an expansion of jatropha production and associated biofuel production from jatropha in Mali. We first look at three scenarios of increasing production of jatropha. These simulations are performed by exogenously increasing the land in the jatropha sector and capital in the biofuel sector<sup>27</sup> . We performed a fifteen fold increase in land for jatropha production going from 3,000 to 45,000 hectares. The capital in the biofuel production sector is increased exogenously by fivefold to correspond to cultivation of jatropha in the increased lands<sup>28</sup> . This set of simulations can be seen as similar in nature, though larger in scale, than the extension of the biofuel industry in line with the objectives established by the ANADEB at 23,000 hectares for 2015<sup>29</sup> .

Within this first set of simulations we perform the increase in scale with three set of assumptions. In the first case, we assume that the additional land used for cultivating jatropha comes from unused idle land (Sim1a) and in the second case; the expansion of the sector is done on arable land used to produce other agricultural products (Sim1b). These two extreme case scenarios provide us with upper and lower bounds for our comparative analysis. Additional capital used in the jatropha sector and biofuel sector is taken from other sectors of the economy exogenously<sup>30</sup> . For the last simulation of the first set we repeat Sim1b and introduce endogenous labor supply. For this assumption we use a standard wage curve as in Annabi et al (2005). In this scenario, the additional workers needed to produce jatropha can come from new labor (extra workers and/or more hours worked by active workers). However, if the scenario produces downward pressure on the real wage, we will observe an increase in unemployment.

In the next set of simulations, we consider a policy intervention to promote the biofuel sector. This policy consists in subsidizing biofuel market prices by 20% This policy provides an additional comparative advantage to this sector compared to fossil fuels. We fund this subsidy with a 1% tax on fossil fuels<sup>31</sup> . This tax rate is assumed because in simulation 2a, a

> 27 We reiterate both land and capital are mobile across the agriculture sub-sectors. However, capital mobility between agriculture and other sector is assumed to be restricted. Given the increase in production of jatropha considered in the study, an increase in the number of biodiesel plants is needed to process jatropha produced. The additional capital is taken from other sector exogenously and hence the total capital in the economy is held constant.

> 28 A priori, this could seem like a large increase but it represents less than 0.03% of the total capital. The large proportional increase is tied to the small initial figure. This can be interpreted as constructing 18 additional plants from 4 at the reference period.

> 29 We fixed the objective to double this 23,000 hectares surface in order to generate observable changes in our CGE model.  One could also consider the different interventions made by the ANADEB as enumerated in section 2 and in Coulibaly et al (2010). One example for these interventions is the education of farmers regarding the benefits of increased jatropha cultivation. According to MaliBiocarburant data, they can produce biofuel at 550FCFA per litre with no subsidy while gasoil is sold at 625FCFA per litre.  However, our scenario analysis focuses only on exogenous expansion.

> 30 For this assumption, the volume of capital is so small that is has little effect on other sectors since it constitutes less than 0.05% of capital of the rest of the economy. We exogenously increase the capital in the biofuel and jatropha sector and decrease the volume of capital by 0.03% in other sectors.

> 31 A small tax was required to fund the subsidy given the small relative size of biofuels compared to fossil fuels. Hence, applying a small tax on fossil fuels will produce little general equilibrium effects.

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