Household level spillover effects from biofuels: Evidence from castor in Ethiopia

- Large positive spillover effects from castor, a biofuel feedstock, exist on smallholders.
- We use micro-level evidence from Ethiopia and a matched plot pair design.
- Productivity is 35-52% higher on plots intercropped with castor.
- The increase in productivity is linked to better access to inputs being part of the biofuel feedstock production contract.
- Our results nuance the view that biofuels necessarily harm smallholders' food security.

The indirect effects of biofuels are mostly considered negative. In this paper, we argue that there may be a positive indirect effect of biofuels on food security and poverty. Using micro-level evidence and a matched plot pair design through which we control for plot and farmer characteristics, we show that the introduction of castor production for biofuel in a poor country as Ethiopia can significantly improve food productivity of rural households who produce raw material for biofuel production. This spillover seems particularly linked to enhanced access to inputs and technical assistance which were provided as part of biofuel feedstock production contracts. Our results thus document another mechanism through which biofuels may influence smallholders' food security, a mechanism that did not receive attention so far.