Demand Creation – Establishing a market for biochar – Part 4

Demand creation – what it will take to establish a strong biochar market.

Cool the Climate, Clean the Environment, Improve Public Health, Reduce Rural Poverty with Small-Scale Biochar – Part 4

 

What’s a Market Anyway?

We know what a market is. It’s where sellers exchange stuff with buyers and both leave feeling richer because they value the stuff exchanged and liked the price. Price? Supply and demand, Economics 101, right? Wrong. Markets require “property rights” created by power and expressed through rules, laws and institutions that establish weights and measures, security of contracts and currency, and so on. These, however, only help property rights do their main job: determine who profits from transactions. They may require, for example, price to reflect costs to society such as associated health costs, that is, they may allocate some value to “society,” as opposed to private actors.

So what?

To understand to the potential of small-scale biochar requires understanding markets.

Demand Creation

Steel blades blunt bronze blades and are therefore more valuable. Biochar is not obviously valuable or superior to anything. Its value must be established by demand creation.

A small-scale biochar social enterprise must sell products in distant markets. Unless it can, it will lack the funds to buy biochar from farmers who will then not make it. Value in an outside market is important locally because it signals “value” to farmers and validates claims that using biochar will benefit them.

demand creation
School children planting gardens using biochar fertilizer as part of demand creating field test program.

 

 

Demand creation is hard work. Social enterprises can grow it incrementally, for example, by capitalizing on the popularity of charcoal briquettes to sell biochar briquettes that are superior to traditional ones. (Biochar briquettes do not smoke or smell. They light faster, and burn hotter and longer than traditional charcoal.) This can provide the time required for farmers to appreciate the value of biochar as a soil amendment. Accelerating the process, however, requires energy and money for training, sales and marketing.

 

demand creation
Kwanpirom (Aom) Suksri, Rak Din’s marketing boss, with a happy farmer in a still from TV story about Rak Din.

 

These problems are common to all new products. Demand creation for biochar faces bigger problems

Barriers to Demand Creation

The rural farmers who burn largely live beyond agricultural extension in a world ruled by synthetic fertilizers. Most get their agricultural information from fertilizer and seed salesmen. If they hear anything from official sources, it is about synthetics.[1] Fertilizer salesmen do not tout homemade products. Extension agents have never heard of biochar and preach synthetics.[2] Outsiders pay national public health costs. Official development agencies, international NGOs and the big international organizations have not heard of biochar and have a different agenda for the poor.

This agenda is a key barrier to biochar adoption. The problem stems from the embedded missions of international NGOs and organizations. The laudable Sustainable Development Goals (SDGs) – to provide health care, houses, food, etc. – involve the external gifting of systems, services and supplies to passive recipients. What little agricultural aid is extended – only about 4 – 6% of total aid – goes to larger-scale projects with export potential. (The only major study of aid and investment in agriculture over time finds the data poor, but the overall results discouraging. Trends are downward facing everywhere except Asia. Despite promises made after the 2008 food crisis, ODA in agriculture continues to flag – it has not yet returned to the level of the 1980s – while commodity aid (gifting) has rapidly become the second largest component of ODA. (See Sarah Lowder and Brian Carisma, “Financial Resource Flows to Agriculture.“)

demand creation

 

Wonderful intentions, old agenda, although not necessarily. It is possible to reduce poverty and improve food security by increasing the productive prospects of the poor. It is easier, however, to extend populist programs for the poor and food “aid.” This disconnect between “policy,” understood as what is planned and “policy,” understood as what happens is seldom recognized, but critical to understanding the persistent failure of good intentions.

For governments, export agriculture makes sense. Global trade in agricultural products is booming; countries that get to commercial scale in high value crops such grapes or tropical fruits profit handsomely. Agricultural entrepreneurs positioned to glom onto such opportunities profit handsomely, too. What is unclear is how this benefits the rural poor who constitute a majority in many countries.

 

demand creation

 

Big is the way to go. Scale trumps all in agriculture, although it renders the original landholder-farmers into day laborers and makes those with access to governments and funders wealthy.

Two assumptions hide here. (1) The rural poor cannot help themselves, hence the gifting strategy and focus on the “dynamic few.” (2) Optimistically, rural-urban migration will empty the countryside and commercial agriculture will grow fast enough to embrace the remaining rural poor in expanding networks of “modern” agriculture bound together by rapidly developing distribution systems serving a sophisticated hierarchy of markets. When what is left of the world’s two billion small rural farmers are engaged in a modern agricultural economy, there will be no need for biochar nor concern about crop waste burning.

I am less optimistic. My concern about crop waste burning and interest in small-scale biochar begin from the assumption that the rural poor of the developing world will be with us for a long time.

Readily Available Demand Creation Drivers

demand creation
India, second most populous country in the world, cites WHO constantly about air pollution.

Is there no hope? Of course not. It would take little to create the demand to drive the replication of small-scale biochar social enterprises across the developing world. FAO, for example, could help with demand creation for biochar among farmers and WHO among the poor public. These organizations are global leaders that can speak to the entire world. All they need do is warn about burning, promote biochar and shape the literature disseminated globally. Imagine a village where FAO materials told farmers about restoring soil and improving yields with biochar. Imagine a market hung with WHO posters about smoke where women ask vendors if their briquettes are biochar because they want to ensure that their cook fires produce fewer particulates and harmful gases.

The Perils of Success

What threatens small-scale biochar? Market success. Why? It will invite competition from large-scale, low-cost producers. The social enterprise model will convert untouchable crop waste into biochar and deliver it to market at $136/ton (price converted from metric tonnes), solving critical climate, environment, public health and rural poverty problems.[3] Given a market, however, a large timber mill can buy a big pyrolyzer and switch from burning sawdust to dry lumber to pyrolyzing it, using the heat to dry lumber, and selling the “waste” biochar for $64/ton containerized at port, leaving the problems unsolved. No company will buy more costly small-scale biochar and managers of public companies that did could be sued for not financial malfeasance.

 

demand creation
What would you do with the stuff? Currently, it is impossible to argue with the cost/profit logic.

Valuing the Climate and Lives

We are back where we started. What is a market? How are prices determined?

The property rights embodied in this market value the profits of the timber mill and buyers of cheap biochar over the broader “values” that small-scale biochar would provide to global citizens and the billions of people living in the developing world.

We talk about valuing the climate, environment and human life. We even spend money on spot interventions to foster this or that “green industry” or care for this or that population. We do not talk about the rigged market that invisibly disadvantages the climate, environment, public health and human life. These cannot be protected by temporary interventions; they require a systemic solution. Until we embed our values in the structure of the market itself, short-term, private profit incentives will continue to prevail. If we actually value the climate, environment and the lives of all humans, we must price these values into the market. We must change the property rights that prevail in global markets to recognize the climate, environment and human life and enforce this recognition of global social good.

[1] Warm Heart survey data of what farmers know and where they acquire knowledge. Details on request info@warmheartonline.org

[2] When Warm Heart presents field trial and international data to officials and extension workers, the response is “never heard of biochar.” In China alone the Ministry of Agriculture promotes biochar to reduce smoke from crop burning, lower fertilizer use and decrease heavy metal contamination of the food chain

[3] In a global context, small-scale biochar is not only available, but a relative bargain. The newest technology promises to capture carbon at a comparable price, $94 to $232/ton, but without addressing the problems and with huge upfront capital costs. Nature, 7 June 2018

 

Next Part 5: Small-Scale Biochar a Realistic Answer to Such a Big Problem?

Download PDF: Cool the Climate (5 Part Series)

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