Peru has introduced a law to promote the use of biofuels with the objective to increase employment, strengthening agriculture development, providing an economic alternative to illegal drug production. In this work, the costs of biodiesel production from oil palm and Jatropha were analyzed under different scenarios. They include the participation of associations of smallholders and commercial producers as raw material provides in biodiesel business in Peru. The scenarios considered have a strong social dimension in which they explicitly consider how productions' costs change when smallholders supply a proportion of the feedstock to the industry. Production cost profiles were generated using the chemical process simulation and economical evaluation software packages provided by Aspen Technology. Total production cost found for oil palm biodiesel production ranged between 0.23 and 0.31 USD/L and Jatropha biodiesel production costs were between 0.84 and 0.87 USD/L. These production costs were analyzed and compared to biodiesel ex-factory prices and diesel fuel production cost factors. The results suggest that including smallholders in the supply chain can be under some conditions competitive with liquid biofuel production systems that are purely large scale. (C) 2012 Elsevier Ltd. All rights reserved.