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Biomass production for bioenergy use may contribute to rural development by increasing household incomes, local employment and energy supply, especially in developing countries. This paper presents a value-chain approach to evaluating the profitability and competitiveness of producing biodiesel or ethanol. We apply a ‘rapid appraisal’ accounting framework to the case of Tanzania, which is a data scarce setting and therefore well-suited to the proposed approach. The framework also estimates the number of jobs created in the biofuel sector under different production arrangements and related demand for land resource. We evaluate the potential trade-offs between different scales of biofuel production (both the scale of feedstock production and biofuel processing). We find that only sunflower-biodiesel is profitable, especially if produced in large-scale estate farming systems. Estate farming is the best option for profits and competitiveness, even if domestic biofuel production is never competitive on the international market for energy. We also find that the number of jobs depends crucially on the involvement of smallholders. Establishing out-grower schemes (or similar arrangements), rather than estate farms, should be a key policy objective if biofuels production is going to improve rural economy. However social benefits may be gained at a cost of reduced international competitiveness and increased land exploitation. [ABSTRACT FROM AUTHOR]