Four cases of commercial brokerage in the Jatropha network between Indonesia and the Netherlands have provided detailed information to be able to understand how these brokers operate and what kind of influence they exert on developments in the Jatropha production network. The results pertain to three cases of commercial brokerage in Sumba and one on Java claiming to have a branch project in Sumba. A manager of a green investment fund who was considering investing in the project of the latter broker provided additional information about this case and gave insight into the considerations and ways of thinking of venture capital managers. The first part of the results indicates how these brokers have engaged in Jatropha projects and the shared characteristics that make them suitable for being a commercial Jatropha broker. Next is the part on the figures that these brokers have (re)produced, distinguishing data about: (1) the crop’s performance and potentials; (2) the size of their project; and (3) on the investments involved. The names of the brokers and their companies have been replaced by A, B, C and D, because this article is meant to explore patterns rather than provide information on single cases that could be used for other purposes than increasing understanding about the roles of commercial brokers.
4.1. Characterizing Jatropha Project Developers
The brokers in this study portrayed themselves on their business cards, in their email signatures and on the Internet as “president director”, “managing director” or “CEO” of a biofuel company, suggesting that their company was involved in actual biofuel production. They all lived for most of the time in the southern part of Jakarta, operating from their private homes. They had registered their companies, the legal requirement to start a business, only recently. They had neither a track record in this industry nor experience in large-scale agriculture, but they did have specific expertise that is useful in establishing Jatropha projects. The first broker in my study was an Australian mechanical engineer with long experience in the 1980s and 1990s working for irrigation projects on the island of Timor. After he retired, he became interested in biodiesel production and in 2003 started a company for small-scale palm oil processing in in Indonesia. He explained in an interview that he had turned to Jatropha after the increase in palm oil prices. Friends working for an NGO in Aceh after the tsunami suggested starting a project on pressing oil from Jatropha; they told him, “there is no fuel over here, and people used jarak (Jatropha) during the Japanese occupation in the 1940s”.
The second broker was an electrical engineer who had worked for a Californian company that built oil refineries. This led him to Indonesia, where he has lived since 1981. For a time, he operated a fleet of fishing boats, but in 2006, in the wake of a sudden price increase for diesel, he got interested in biofuel. He set up a company in Jakarta, with his Indonesian wife registered as the director.
The author learnt about the third case from a Dutch investor, who showed the author the business proposal that the company had made to him. The company had an address in Jakarta and a visiting address in Bandung, but it did not respond to efforts by the author to contact them.
The fourth is an entrepreneur whose company has been often mentioned in circuits of Dutch-Indonesian collaboration as the most promising Jatropha producer in Indonesia, for example, during the kick-off meeting of the research program, Agriculture Beyond Food in 2010. His Jatropha activities are concentrated in Central Java, and in a conversation in November, 2011, he said he also had a Jatropha project for field tests in Sumba; however, local informants in Sumba could not confirm that this test project existed. He has university degrees in greenhouse agriculture, science and innovation management, plant biochemistry and food microbiology. He specializes in translating global discourses to national and local levels (and vice versa) through presentations at seminars. All four brokers act as middlemen between potential investors and Indonesian institutions, who claim they can provide access to land: “traditional kings” and other village leaders, the district government, a private company holding a production forest concession, and the state forestry company. They are intercultural brokers between Indonesians and foreigners, emphasizing their dual identity, fluent in both Indonesian and English; but they do not speak the vernacular of the project area.
The stories of how all four ended up in Sumba are similar. They were connected to the relevant policy network for Jatropha in Eastern Indonesia; good contacts with high officials in the provincial government in Kupang, the capital of the province of which Sumba is part, or directly with the government of one of the four districts of Sumba, who advertised their territory as suitable for biofuel crop cultivation. They discussed their plans for Jatropha projects with key officials of the Ministry of Energy and Mineral Resources, in particular Assistant-Minister Dr. Evita Legowo, and the Board for the Application and Promotion of Technology (BPPT), both in Jakarta and Kupang. They collaborated with an institute of the Agricultural University in Bogor that fervently promoted Jatropha in 2006–2008, the Surfactant and Bioenergy Research Centre in Bogor (SBRC). Stimulated by the comments of influential actors in the energy policy circuit and the Presidential Decree (1/2006) on biofuel policy, brokers started looking for land, on the one hand, and capital investments, on the other, bridging the gap between the ambitious policy targets and the disappointing real situation.
4.2. Data on Crop Performance and Potentials
One of the main challenges for commercial brokers is to gather information and then present it in such a convincing way that the district government will issue a location permit and investors will start doing business. They present their information in business proposals, seminar presentations, through e-mails and social media on the Internet and, most of all, through face-to-face conversations. The materials accessed for this research either do not mention the sources of their information or use data from well-established research institutes that have, however, no direct link with the actual circumstances in the brokers’ project areas. Table 1
provides an overview of key figures from written materials and interviews with the four brokers whose cases are included in this paper.
Figures on Jatropha projects from four Indonesian broker companies.
Figures on Jatropha projects from four Indonesian broker companies.
|Source||Proposal 2010 interview 2011||Interview 2012||Proposal 2011||Seminar presentation 2011|
|Seed yield (ton/hectare)||8||n.a.||15||5|
|Oil content (% of seed weight)||43||30||30–40||38–42 (14 for oil, rest left in seed cake)|
|Price of seeds|
paid to farmers
|n.a. (Uses 100% plantation model)||800–1000 IDR/kg||Unclear, deducted from repayment initial input credit||280 U.S. $ per ha seed income for farmers|
|Selling price (U.S. $/ ton)|
a. Jatropha oil
b. press cake
|a. calculated with current consumers prices for diesel in Indonesia||a. 800|
|Employment (persons)||28,000 (in the sixth year)—38,000 (10th)||n.a||7,000, casual labor on daily base||180,000 families|
|Time horizon||10 years||n.a.||5 years||n.a.|
|Full production||10 years||n.a.||36 months||5 years|
To assess the level of optimism these figures represent, we can compare them with scientific data gathered from real cultivation situations and not in test situations alone. However, up to 2013, a complete list of such figures is not available. Agronomists who are working on Jatropha productivity indicated in a seminar presentation in October 2012 that of the 12 genotypes of Jatropha they had been comparing in four different climatic zones of Indonesia, the highest real production had been 850 kg/hectare, with an average between 465 and 687 kg per hectare, depending on the climate zone [29
]. The oil content of Jatropha seed is another key figure in calculations of future profit. Van Eijck et al.
] (p. 141) compared the percentages provided by the literature on this subject and concluded there is a variation between 24 and 37 percent. That makes broker B’s rule of thumb of 30 percent oil content well within the average. However, this is much higher than the 20 percent that informants in Sumba involved in the Ministry of Agriculture’s Jatropha program estimated as real oil content in practice. The business proposals usually added that researchers are developing Jatropha varieties with higher oil content, even up to 60 percent, but none mentioned that these seeds are not yet available for production.
The brokers’ data on prices in Sumba cannot be compared with other data, as there has not yet been any trade in Jatropha products. The brokers have good knowledge about the market for plant oil, and their estimations of the price of Jatropha oil are in line with that, considering that Brokers A and B mention prices in Sumba, whereas Broker D prices in Java. The figures for the selling prices of press cake and waste are estimations of prices in the future. Broker C’s proposal did not include any data on revenue, but instead concentrated on costs in a five-year period, including detailed calculations of staff salaries. He anticipated that the state electricity company and the state oil company would be willing to buy the Jatropha oil, without any clarification or elaboration.
As regards labor requirements, the brokers seem to use a rule of thumb of two or three hectares per person, in response to the claim that Jatropha projects will create rural employment. However, none of them provides any information about whether these laborers will be recruited from the local population, nor whether laborers are actually available in the planned locations. In Sumba, the latter is unlikely, because the island is sparsely populated, and according to local rice farmers, there is already a seasonal shortage of land labor. Additionally, many people in Sumba are reluctant to work as plantation laborers and prioritize food and cash crop production on their own land [31
]. Broker C only mentions “plasma farmers” (out growers) [32
], but this is an unknown concept in the target area. In an interview, Broker A explained his plans about mechanization, which does not fit with the claim of creating employment for thousands of local people.
The time horizon and moment of full production are key figures for investors. Those data inform venture capital investors about when to set their “exit point,” at which time they sell their share in the Jatropha project and move on to new innovative business opportunities [33
]. Broker D’s seminar presentation is interesting not only because of its figures and the subjects it raised, but also because of the techniques of performance applied while presenting. His communication strategy was: (1) mentioning the most urgent issues in the global debate about sustainable energy and bio-energy crop cultivation; (2) anticipating criticism; and (3) providing details, as quantitative as possible, about the solutions for these problems on which his company is working. The pace of the presentation was very fast, leaving the audience no time for digesting the information. It created an impression of technically sound business plans to tackle important global challenges. However, on careful study of the presentation, there was hardly any concrete information about real plans of operation.
4.3. Data on the Size of Land Acquisitions
All brokers in the four case studies claimed in communication with potential investors that they had already secured land and could provide them with access to thousands of hectares. However, interviews and documents indicated that there was a large difference between four categories of land access figures in these schemes: targeted land area, “secured” land, land with a legal permit for obtaining land access and, actually cultivated land.
In proposals and seminar presentations, the data concerning the targeted area reflected a potential of “available land” to be part of the project in the future, comparable to the National Biofuel Team’s targeted area, as quoted above. Much smaller in size was the area that the brokers claimed to have “secured”, referring to the memorandums of understanding (MoU) they have signed with local parties. However, such a MoU is neither a legal permit nor an agreement with land owners. Legal procedures involve a complicated sequence of permits and recommendations from various government institutions, ranging from the National Investment Board to the district level government [34
]. Eventually, the district government will provide a “location permit”, which allows the company to commence exploration of their business and negotiate with local land owners about the terms on which the company can make use of their land. Then, there is a fifth category of land access, which is not mentioned by the brokers: the area that has been released by land owners for use by the plantation. That is the only area to which a company can obtain legal access as part of the license allowing to establish and exploit a plantation. That land releasing process can be long and difficult, especially for marginal land”, because in Sumba, ownership of such land is communal, shared by the members of a clan, according to customary rules. Therefore, obtaining “secure” access to land requires a good understanding of the land law that pertains to the area targeted for project development; this means understanding procedures and authorities, at multiple levels of jurisdiction in plural legal systems [31
]. The smallest area is that which is actually being cultivated with Jatropha. The data are compared in Table 2
Data on the size of Jatropha projects in Sumba, in hectares.
Data on the size of Jatropha projects in Sumba, in hectares.
|Date or project Proposal (year)||2010||2012||2011||2011|
|“Secured” area (=MoU)||80,000||7500||5000
(10,000 plasma farmers)
|Area mentioned in location permit or concession||8000 (May, 2008; withdrawn October, 2011)||Concession withdrawn in 2012||0||n.a.|
|Actually cultivated (ha)||100 (at peak in 2009)||Nothing yet||Nothing yet||n.a.|
Only Company A really had a legal permit from the district government to start negotiating with local land owners about the terms to get access to land. He offered landowners a compensation payment of one million IDR (US$ 110) per hectare for a period of 35 years, but the landowners refused this offer. The potential investor in Case C interpreted the one-page land ownership document he had received from Broker C as a sufficient guarantee for access to land, because he did not have knowledge about legal land procedures in Indonesia. Broker B relied on another domestic company who had obtained a forest production concession 25 years ago and was now about to log the trees and replant with, among other crops, Jatropha. However, the Head of the Plantation Service in the district in Sumba explained in 2012 that the production forest concession had been withdrawn; the company would not receive a permit to log the trees. Finally, Broker D claimed to have a contract with the state-owned forest production company that would provide legal access to forestland under its authority; however, the broker never showed it to the potential investor, despite his repeated requests to see the document. None of these brokers actually owned the land for their Jatropha projects.
4.4. Data on the Investments
Since the financial crisis in 2007, there is renewed interest by institutional private sectors in expanding their investments in world agriculture [36
]; this has led many scholars to express their concern about land grabbing [37
]. The managers of this capital have been seeking target companies for their investments, and the Jatropha project developers qualified theoretically as good candidates, because their proposals provided good stories. For example, Aston Lloyd in their promotion video on the Internet advertised their Jatropha projects as “new, sustainable, ethical, and profitable” [38
]. The financial opportunities in relation to Jatropha have been created on a global scale, with centers of activity in Europe, the USA and Australia. The distance between the capital providers and the fields for cultivation and producing crude Jatropha oil is huge in terms of geography, language, social networks, legislation, interests and livelihoods. The general managers of green investment funds seek two types of partners who can bridge these gaps when they are considering investing in agricultural projects in developing countries: first, a “target company” to take care of actual production [33
]; second, a variety of specialists, to act as advisors and informants for fund managers’ risk analyses. The brokers in this paper are partners who offer investment fund managers both of these services.
In Sumba, the brokers presented themselves as directors of agribusiness companies, but in daily conversations, the local population and government representatives call them “investors”. However, the companies run by brokers have only very limited capital of their own and rely on other people or institutions willing to invest in their projects. Indeed, they are rather secretive about their financial backing. Table 3
presents information obtained through interviews with the brokers and with the general manager of a private equity fund investing in Jatropha projects.
Data on investment capital in Jatropha projects in Sumba.
Data on investment capital in Jatropha projects in Sumba.
|Date or project proposal (year)||2010||2012||2011|
|“Secured” land in ha in Sumba||80,000||7500||5000|
|Targeted investment capital||U.S. $47,300,000||U.S. $5,000,000 ||70,089,576.06 Euro (U.S. $96,354,200)|
|Targeted investment per ha “secured” land (U.S. $/ha)||579||667||19,271|
|Capital provider targeted by broker||Merill Lynch and Morgan Stanley (cancelled in 2009); 2011 American state subsidy plus private equity||Australian stock market in 2008; reversal in 2009 2012: private equity through LinkedIn||Private equity fund in the Netherlands|
|First or “up front” payment as proposed by broker||7,000,000 $ US||n.a.||1,000,000 Euro|
Broker A in this table claimed he already had agreements with the American investment bank, Merill Lynch, for financing his project. In 2008, according to Broker B, Broker A, had received an initial amount of capital for which he bought a lot of equipment from the USA. Due to the financial crisis in 2008–2009, Merill Lynch cancelled their agreement, and Broker A had to start looking for new investors. In 2011, he was trying to find matching private investment to enable him to apply for funding from the American Government’s Overseas Private Investment Corporation. At that time, he made the elaborate and optimistic business proposal, using the figures shown in the tables.
However, in October 2011, Broker A had not yet succeeded in finding capital, and there had not been any activity in the field since 2009. The district government in Sumba then decided to withdraw his location permit; in accordance with a clause in the permit, within three years of the date of issuance the proposed project should have made clear progress.
Broker B had a bitter experience when his company was taken over by another company that promised funding through the Australian stock market. The initial public offering in 2009 raised 12 million Australian dollars. However, after three months, the partner cancelled their joint venture, leaving him with his part in shares that had become worthless. The only benefit in this short-lived joint venture was the 200,000 AUD working capital that he had received for his company. In an interview, Broker B explained the reasons for his partner company’s behavior:
All they wanted was the money. They did not produce anything. The 12 million? They spent it on consultants’ fees, which were all their friends, director’s fees, everything... And the 20 cents shares are now worth 2.5 cents.
Despite this experience, he contributed to reviving optimistic narratives about Jatropha by participating in an online conversation on LinkedIn, “The Jatropha Project”. This group discussion commenced with a person offering money and technology for a Jatropha project to anyone who could provide him with access to land. Broker B responded, offering land in Sumba. During an interview a few months later in Jakarta, he explained that the capital plus technology offer via LinkedIn had turned out to be false. The so-called investors asked him to transfer a deposit of U.S. $800 through Western Union, a notorious means for Internet scammers to obtain money. Broker B’s creative new way for accessing potential investors had not been successful.
The figures in Table 3
show the wide discrepancies between the total investment amount mentioned in the business proposals and what is proposed as upfront payment, or the first installment. However, receiving the first payment from the investors might have been the main objective of the brokers. When the total investment amount is very high and the upfront payment only 10 percent of that total, the amount that the broker would receive would still be very large, certainly by Indonesian standards. The business proposal of Broker C provokes the impression of rent seeking. His proposal was very weak and general, except for the budget, which was elaborate and detailed. Not just the total amount of targeted investment but also the ratio of investment per hectare “secured” land was much higher than in the other two proposals. Nearly 20 percent of Broker C’s budget was allocated directly for salaries and wages, with an 11 person head office staff earning monthly salaries between 4000 and 2500 dollars, whereas land laborers would only receive a minimal three dollars per day. In 2011, when the Dutch investor with whom Broker C was negotiating made a few inquiries and informed him he had hired a lawyer in Jakarta, the broker quickly pulled out, arguing that their area in Sumba was not suitable for their Jatropha project after all, because of “interethnic conflict and violence, and locust infestation”.
In summary, the Jatropha project developers in Sumba have not been successful in attracting capital for their proposed projects. “Not yet”, they would say. However, their stories show that they have been able to engage in this sector over the last few years, which means it has provided them with sufficient means to survive. Their narratives also indicate that the line between providing services and presenting misleading information is blurred. However, in the world of biofuel brokers and private equity managers, there is little or no protection from such misleading practices. The brokers themselves are vulnerable to fraudulent colleagues, and small investors who put their money in funds that have not been approved by their country’s National Financial Authority for the Financial Markets know that, in the words of Broker B, “shares are like gambling. It is risk, risk capital. That’s it, just like gambling.”