Zambia - Integrated Family Farming Project

RETURN TO I n on REPORTS DESK FI COPY WITHIN ONE WEEK 5MUME F !IERATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT bNot For Public Use Report No. PA-151a APPRAISAL OF INTEGRATED FAMILY FARMING PROJECT ZAMBIA December 13, 1972 Agriculture Division Projects Department East Africa Region This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS US$1 - Kwacha 0.714 Kwacha 1 (K1) = US$1.40 Ngwee (n) 100 - Kwacha 1 Kwacha 1 million - US$1,400,560 WEIGHTS AND MEASURES 0.405 hectare (ha) = 1 acre 1,609 meters (m) - 1 mile 0.454 kilogram (kg) - 1 pound (lb) 1 metric ton = 2,204.6 pounds ABBREVIATIONS AFC = Agricultural Finance Company AOT = Associated Overseas Territory CDC - Commonwealth Development Corporation NAMB = Nattonal Agricultural Marketing Board SNDP Second National Development Plan TBZ - Tobacco Board of Zambia FISCAL YEAR Government and TBZ - January 1 - December 31 CROP YEAR October - September  ZAMBIA INTEGRATED FAMILY FARMING PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-ii I. INTRODUCTION ........................................... 1 II. BACKGROUND ............................................ 1 A. General ................................ 1 B. Tobacco Sector ..................... 2 C. Maize Sector ...................... 3 D. Tobacco and Maize Development Policy ............. 3 III. THE PROJECT AREAS ...................... 4 A. Location and Transportation ............... 4 B. Climate, Soils, Water Supplies and Vegetation .... 4 C. Population and Land Tenure ............... 5 D. Present Farmer Incomes, Farm Size, and Land Use 5 E. Smallholder Production of Flue-cured Tobacco and Maize .......................................... 6 IV. THE PROJECT ................................ 6 A. General Description .............................. 6 B. Detailed Features ................................ 7 C. Cost Estimates ...... ............................. 11 D . Financing ... ................................... 12 E. Procurement ....... .. ....... 12 F. Disbursement ....... .. ....... 13 G. Accounts and Audit ........................... 13 V. ORGANIZATION AND MANAGEMENT ........................... 14 A. Project Administration ........................... 14 B. Field Development ............................... 14 C. Credit ................ ................ 15 D. Research ................................. 15 E. Training ................................. 15 This report is based on the findings of an appraisal mission in February/ March, 1972 composed of Messrs. C. P. R. Nottidge, D. Lomnax, J. H. Cleave (Bank) and A. H. Pursell (Consultant). Mr. R. C. Taylor (Bank) contributed materially concerning the marketing aspects of Zambian tobacco. Mrs. Comer (Bank) assisted with the risk analysis.  -2- Page No. F. Recruitment of Growers ...... ..................... 15 G. Marketing .... o ................................... 16 H. Project Evaluation ........ ....................... 16 VI. PRODUCTION, MARKETING, AND FINANCIAL RESULTS .......... 17 A. Yields and Production ...... ...................... 17 B. Markets and Prices ...... ......................... 18 C. Financial Results ....... ......................... 19 VII. BENEFITS AND JUSTIFICATION ............................ 21 VIII. RECOMMENDATIONS ......... .............................. 22 ANNEXES 1. Estimated Production and Value of Major Crops 2. Area Under Tobacco, Yields and Production 3. Area Under Tobacco, Production, Price and Value 4. Tobacco Board of Zambia 5. Maize, Marketed Supply, Price, Area and Yield 6. The Development of Smallholder Tobacco Growing 7. Number of Project Participants, Their Phasing and Production 8. Farm Budget 9. Project Costs 10. Seasonal and Medium-Term Credit On-lending Rates 11. Purchase of Tractors, Vehicles, and Equipment 12. Disbursement Schedule 13. Staff Requirements 14. Analysis of Recent Trends and Outlook for Zambian Flue-Cured Tobacco 15. Sensitivity Analysis 16. Tobacco Board of Zambia - Cash Flow 17. Government of Zambia - Cash Flow 18. Economic Rate of Return 19. Risk Analysis CHARTS 1. Tobacco Board of Zambia 2. Project Organization MAP  ZAMBIA INTEGRATED FAMILY FARMING PROJECT SUMMARY AND CONCLUSIONS i. The economy of Zambia is dominated by the copper industry and average incomes in the modern sector are several times those of rural areas. To diversify the economy and raise rural incomes, and also to establish adequate reserves of staple food, Government has decided to increase investment in agricultural production, particularly by snmallholders outside those areas adjacent to the railway line. The proposed project is designed to further develop the Zambian tobacco and maize industries and assist subsistence farmers to enter commercial agriculture. Tobacco, a high value crop with export markets and suited to smallholder production, would help meet the diversification and income distribution objectives, while maize would add to the supply of staple food. The project production would be a small proportion of the total world market for tobacco and the local market for maize. Market prospects for both are satisfactory. ii. The Bank has made three other agricultural loans to Zambia, for forestry development, for livestock, and for commercial production of flue- cured tobacco. In the forestry project, wood quality problems have been resolved, but management shortcomings remain. The livestock project has been faced with high costs of development, an unfavorable local price for beef, poor management and delays in ranch development, and has been reappraised. The tobacco project, which is progressing satisfactorily, included provision for a specialist in "one acre" tobacco development to assist Government in establishing smallholder tobacco growing pilot schemes. The experience gained from these schemes has led to the present project. iii. Under the project, about 900 existing and 5,400 new producers would grow some 5,000 ha of Virginia flue-cured tobacco and 6,300 ha of hybrid maize over the first five-year period of a nine-year program, which is ultimate- ly designed to assist 8,800 farmers. In some cases, development would come from extension advice given to farmers already holding land in the project areas, and in other cases farmers would be settled on new holdings. No problems in recruiting growers are anticipated. The project would be implemented by the Production Department of the Tobacco Board of Zambia (TBZ) acting as develop- ment agents of Government. The project comprises the construction of crop extraction roads, soil conservation measures, tree and tobacco nurseries, domestic water supplies, baling centers, and a limited number of schools and dispensaries, and an enlargement of Government's extension and supporting services to farmers. It also makes provision for seasonal credit for farming inputs and medium-term loans for construction of grading sheds and curing barns. At full production, 8.8 million kg of tobacco, valued at US$11.2 million, and 39,400 m tons of maize, valued at US$2.1 million, would be produced annually.  - ii - iv. A loan of US$11.5 million (K 7.5 million) is proposed which would cover the foreign exchange component of the project (US$7.0 million) and 54% of local currency expenditure over the five-year period 1973/74-1977/78. This is 75% of the total project cost of K 10.9 million (US$15.25 million). Imported goods, mostly vehicles, construction equipment and tobacco requisites, to the value of US$3.0 million would be procured by international competitive bidding in accordance with Bank guidelines. Funds to meet the credit requirements of farmers would be on-lent to TBZ as the executing agency at 7-1/4% per annum and then on to farmers at 12% per annum for seasonal and 9-1/2% for medium-term credit. v. The project proposes to continue the present levy on project participants of 22 n/kg of tobacco to cover marketing, development and extension costs directly related to tobacco production. Government would take action to discontinue the present tobacco price subsidy, which has been applied to cover increased statutory wage rates, as family farmers, who do not employ labor, produce tobacco economically at unsubsidized rates. vi. The economic rate of return on the whole program, based on long-term estimates of tobacco and maize prices, would be 20% at full develop- ment and would remain at a satisfactory 14%, even if tobacco prices were to fall 20% below the estimates. If development stopped at the end of the five-year investment period, the rate of return would be 18%. Under the worst market conditions which could be reasonably regarded as a possibility, (with Rhodesia re-entering world markets as an Associated Overseas Territory of the European Economic Community,) the project would still return about 10% to the Zambian economy. A project risk analysis shows that there is only 2% probability of the economic yield being less than 10%. Net annual foreign exchange earnings, at full development, would be about US$8.5 million. The program, of which the project is part, would provide full-time employment for about 30,000 adults, at present engaged mainly in subsistence farming, and give an average family cash income at full development of K 416 (US$582). vii. Appropriate assurances have been received at negotiations and the project is suitable for a Bank loan of US$11.5 million. The Government of Zambia would be the borrower.  ZAMBIA INTEGRATED FAMILY FARMING PROJECT I. INTRODUCTION 1.01 Zambia's agricultural sector has been assisted so far by three Bank loans: US$5.3 million (562-ZA) in 1968 for forestry development, US$2.5 million (627-ZA) in 1969 for livestock development, and US$5.5 million (685- ZA) in 1970 for flue-cured tobacco development by commercial growers. Ini- tially, the quality of wood from the tree species planted gave cause for concern in the forestry project, but this was resolved; management issues, however, still present difficulties, and Government has been slow to makc appropriate changes. A reappraisal of the livestock project was made neces- sary by high costs of development, changes in marketing policy, an unfavor- able cost price ratio for beef, poor management, and delays in ranch develop- ment. Recommendations for a reduced development program have been ptut to Covernment and its reaction is awaited. 1.02 Progress under Loan 685-ZA (Commercial Crops Development Project) has been satisfactory although the program is behind schedule because of difficulties in acquiring land. Increased wage rates and indifferent labor management by Assisted Tenants 1/ in their first year of farming gave cause for concern at first as to the financial viability of individual farmers, despite a tobacco subsidy, but that situation has been corrected. 1.03 Although Loan 685-ZA was mainly aimed at financing medium-scale tobacco growers, it also financed a specialist in "one acre" tobacco devel- opment to assist in planning and implementing pilot smallholder schemes and to organize the training of staff. On the basis of the experience gained with the smallholder schemes, and realizing that family farms are more resilient than commercial undertakings in facing rising production costs and the possibility of falling prices, Government, therefore, submitted proposals in 1971 for the expansion of tobacco growing by small farmers. The project was prepared by Government, with assistance from the Bank's Permanent Mission in East Africa. 1.04 This appraisal report is based upon the findings of a mission to Zambia in February/March 1972 composed of Messrs. C. P. R. Nottidge, J. H. Cleave, and D. Lomax (Bank) and A. H. Pursell (Consultant). II. BACKGROUND A. General 2.01 Zambia is a landlocked country of 753,000 sq km with a population of about 4.25 million (1971), increasing at 2.6% annually. Half of this population is concentrated on the copper belt and the line-of-rail serving 17 Medium scale tobacco and maize farmers who have undergone training at a Tobacco Training College and established on farms developed under the project.  - 2 - it. The economy is dominated by the copper industry which contributes about one-third of GDP and Government revenue and 95% of export earnings. Agri- culture contributes about 15% of GDP and only 1% of exports, of which tobacco accounts for half. Marketed production and value of principal crops are shown in Annex 1. GNP per capita in 1971 was estimated at US$350, but there is a distinct division between the modern economic sector, based on mining, with a per capita GNP of US$1,500, and the traditional rural sector, outside the line-of-rail, consisting of some 400,000 to 500,000 families who are mainly engaged in small-scale agriculture, with a GNP of under US$60 per head. About 80% of family production is self-consumed and annual cash sales are about US$35 per family. Most of the marketed agricultural production is still grown in the modern sector on the line-of-rail by commercial farmers, who produce 95% of the tobacco and 60% of the maize, livestock and fresh milk sold in Zambia. The number of commercial farmers registered has declined from 1,200 at Independence to 750 (only 150 are Zambian citizens) in 1971. This decline has had a significant effect on production of maize, Virginia tobacco, beef and dairying. Government is consequently interested in devel- oping new producers of these crops. There is serious unemployment in the modern sector and alternative employment opportunities for farmers in the rural sector are strictly limited. B. Tobacco Sector 2.02 Flue-cured tobacco production started shortly before World War I, but it is only in the last 20 years that significant quantities of acceptable quality have been produced. In the 1960's annual production was about 6.4 million kg although there was a peak production in 1964 of over 11 million kg. Countrywide average plantings have declined from about 6,700 ha in the early 1960's to 5,700 ha more recently, and average production has been about 5.0 million kg over the past four years. Average yields have remained about 900 kg/ha, in spite of the droughts in 1968 and 1969 (Annex 2). 2.03 The decline in the area of tobacco planted resulted from the departure of expatriate commercial growers, the enactment in 1967 of a Government decree greatly increasing farm wage rates and fringe benefits, an attractive maize price, and general labor unrest in the country. Helped by a subsidy introduced for the 1969/70 crop, tobacco planting has now stabilized. The subsidy formula excludes all tobacco valued at 5n/lb (lln/kg) or less from consideration and pays on all other tobacco, regardless of grade, the difference between a support price 1/ and the average auction price. In 1969/70 the subsidy averaged 17.6n/kg (US$0.24/kg) on all tobacco, and in 1970/71 under 15n/kg (US$0.21/kg) as part of a support price of 83.6n/kg. The cost to Government was over K 840,000 in each year. 2.04 The average gross realization price to growers over the last 12 years, without subsidy, has varied between 51 n/kg (US$0.73/kg) and 97 n/kg (US$1.39/kg): the overall average being 66 n/kg (US$0.94/kg) (Annex 3). There has been no discernable trend in average export prices for Zambian tobacco 1/ The initial support price was 38 n/lb (83.6 n/kg) and this was raised for the 1972 crop to 41 n/lb (90 nlkg) to compensate for increased minimum statutory wages and other benefits for labor.  - 3 - over the past decade. A tobacco levy of 0.03 n/lb is exacted on all tobacco sold, and money collected for flue-cured is passed on to the Virginia Tobacco Growers Association of Zambia, who use it primarily for research. 2.05 The Tobacco Board of Zambia (TBZ), a statutory body was formed in 1968 under the Tobacco Act. It was originally concerned only with the operation of an auction floor and a tobacco processing, redrying and packing plant, but, following amendments to the Act in 1970, it added a Tobacco Production Department. This Department assumed the responsibility for carrying out extension, training and production programs formerly directed by the Ministry of Rural Development. TBZ obtains income from operating the auction floor and packing plant and from funds granted by Government for its tobacco production and training schemes (Annex 4 and Chart I). The auction floor has a sale capacity of 200,000 kg daily and the packing plant an annual capacity of 18 million kg. 2.06 Local annual consumption of Zambian tobacco is about 1.1 million kg cured leaf - about 20% of production - and about 60% of the flue-cured production is exported to the United Kingdom. The future of the market depends particularly on the world position of Rhodesia and the links which Zambia establishes with the European Common Market (para 6.07). C. Maize Sector 2.07 Maize, the major staple food of Zambia, is produced both as a subsistence crop with surpluses for sale on smallholdings, and as a cash crop on commercial farms. Most of the crop does not move through commercial channels, but, of the part that does, some two-thirds comnes from commercial farms (Annex 5). 2.08 Production is greatly influenced by both weather conditions and prices. Changes in these, aggravated by sales arising from chance surpluses to subsistence needs, have caused years of shortage in marketed supply followed by considerable surpluses. Because of a combination of a high price (K 4..0/bag of 90 kg), a 30% subsidy on fertilizers, and extremely good growing conditions, the 1972 crop is expected to set a new record. All sales of maize are made to the National Agricultural Marketing Board (NAMB) formed in 1969. The Board has to accept all maize offered at prices declared by government before planting and it sells to millers at prices similarly prescribed. The retail price of maize meal and flour is also controlled. The Board's selling price for maize is generally below the cost of purchase, handling, and storage, and NAMB is thus subsidized by Government as part of its policy of keeping down consumer cost. D. Tobacco and Maize Development Policy 2.09 In an attempt to reduce the extreme dependence of the economy on the mining sector, Government, under its Second National Development Plan, 1972-1976, (SNDP), emphasizes first an expansion of agricultural production to improve income and increase exports; and second, a transformation of  - 4 - traditional farming into market-oriented commercialized farming to help solve employment and income distribution problems. Constraints to increasing in- vestment in the rural sector are a lack of staff for planning and executing, Zambia's small internal market, and a landlocked position which restricts production for export to only those items having a high value:weight ratio. 2.10 Flue-cured Virginia tobacco is given priority among agricultural exports. The organisation and facilities for its development already exist, it is high value, and it is especially suited to smallholder production. Current commercial production must be maintained until the small farmers can develop, thus a parallel policy, which gives the commercial farmers incentive to stay in tobacco, is being contemplated by Government. 2.11 Faced with fluctuating supply and high transport costs that limit opportunities for maize export and make imports extremely costly, Government intends to secure and maintain self-sufficiency by accumulating a national reserve of at least 180,000 m tons. Market requirements for human consumption and stockfeed are projected at 360,000 m tons in 1972, to exceed 550,000 m tons in 1976 and reach about 720,000 m tons by 1980. Consumption is expected to continue to increase by about 7.5% per annum slowing to 6% after 1975. III. TIIE PROJECT AREAS A. Location and Transportation 3.01 The Project is principally located in the tobacco-growing areas of the Southern and Eastern Provinces, with one small scheme in the Western Province (for location, see Map). 3.02 All Project areas are linked to Lusaka, where the tobacco processing and auctioning facilities are situated, by either rail or all-weather roads. Each area is also served by an adequate local road network. Zambia Railways operates the rail services and two Government-owned road transport organiza- tions provide road haulage. Outlets to the sea are by the Great North Road to Dar-es-Salaam in Tanzania and by the Great East Road via Malawi to Beira in Mozambique. The distance from Lusaka to each port is approximately 1,600 km. B. Climate, Soils, Water Supplies, and Vegetation 3.03 Climatic conditions are similar throughout the project areas. Evenly distributed rainfall in the November to March growing season ranges from a mean of 710 mm in the tobacco-growing areas of the Southern Province to 1,015 mm in the Eastern, Central and Western Provinces. From March to October, there is normally no effective rain. Temperatures are suitable for tobacco growing and frosts do not occur during the cropping period though all project areas are subject to hail, and hail insurance is taken out by all tobacco growers through the Zambia State Insurance Corporation Ltd.  3.04 Soils throughout the project areas are well drained and well suited to flue-cured tobacco and maize production. 3.05 Project areas lie at altitudes suitable for tobacco and maize production between 1,065 m and 1,220 m above sea level. Domestic water supplies are adequate and obtainable from rivers, dams, boreholes, or wells. 3.06 All project areas consist of open woodland characterized by Brachystegia and Julbernadia tree species, which provide ideal fuel for tobacco curing. C. Population and Land Tenure 3.07 The areas selected for project activity lie within or adjacent to areas of relatively high population density by Zambian standards. Densities range from 37 families per km2 in the Southern Province and the Chipata district of the Eastern Region to 10 families per km2 in the Western Province and the Lundazi district of the Eastern Region. The average family consists of 8.0 persons in the Southern Region, 8.5 in the Eastern Province and 6.0 in the Western Region. It is estimated that there are between 2.5 and 3.5 adult equivalents per family available for full-time work on farms. 3.08 Most of the Project area is Reserve or Trust Land, held by the President. This title, however, is qualified by the customary rights of Zambians, as tribes or portions of tribes, to occupy and use the land. Individual Zambians thus become entitled to the sole and exclusive right of occupancy in accordance with customary law. The remainder, formerly expatriate-owned farms that were acquired by Government for the development of smallholder tobacco growing, is State Land, the title to which is also held by the President. Such land can be and is leased to individuals for periods of up to 100 years. D. Present Farmer Incomes, Farm Size, and Land Use 3.09 In project areas where flue-cured tobacco has not been introduced farmer cash income has been derived solely from the sale of small quantities of maize, groundnuts, sorghum, and millet, surplus to subsistence requirements. A recent survey in the Eastern Province showed that these sales amount to about K 25 (US$35) annually per family. Other project areas have not been surveyed but it is estimated that incomes are likely to be of the same magnitude. 3.10 No accurate assessment has been made of farm size in project areas, but the average size holding has been estimated to be 12 ha in the Southern Province and the Chipata district of the Eastern Province and 15 ha in other areas. 3.11 In the past, the traditional "Chitimeni" system of agriculture has been practiced whereby trees are felled, brushwood burned, and subsistence crops established and grown among the stumps until the soil becomes impoverished.  - 6 - Land is then allowed to revert to fallow for some years before it is cropped again. During recent years, however, the increasing use of fertilizers has tended to replace shifting cultivation. Cattle are common throughout project areas, being kept rather for social than economic reasons. Some progressive farmers use oxen for cultivation, and the practice is on the increase. E. Smallholder Production of Flue-Cured Tobacco and Maize 3.12 Smallholder flue-cured tobacco production started in 1968/69 at 930 kg, increased to 28,900 kg (0.6% of national crop) in 1969/70, and reached 100,950 kg (1.7% of national crop) in 1970/71 (Annex 6). Estimated production for the 1971/72 crop is 240,000 kg (5% of total crop). Average prices obtained were 67.8 n/kg and 70.0 n/kg in 1969/70 and 1970/71, respectively (country averages being 62.5 n/kg and 68.9 n/kg in each of those years). Farmers receive inputs through TBZ, which grows and supplies tobacco seedlings at central nurseries. Details of tobacco production methods are given in Annex 6. TBZ has constructed centers at which tobacco is bulked and baled prior to transportation to the auction floors where it is stored until sale. At present farmers pay to TBZ a charge of 22 n/kg of tobacco sold which covers baling expenses (2.2 n/kg), transport (2.6 n/kg), auction floor charges (1.7 n/kg), tobacco levy (0.7 n/kg), hail insurance (3.4 n/kg), field to floor insurance (1.1 n/kg), and development and management costs (10.3 n/kg). 3.13 Extension service to farmers is provided by TBZ which recruits and trains staff at either the Popota Tobacco College or the Mukonchi Training Unit. Short- and medium-term credit to farmers for the purchase of seasonal inputs and construction of curing barns and grading sheds is provided through a block allocation of money from the Agricultural Finance Company (AFC). Loans are administered by TBZ and recovered by stop orders on the sale of tobacco. The repayment of credit has been satIsfactory, 100% of advances being collected in the first-three years of operating and 80% collected by due date in 1970/71, whcn bad weather produced low yields of tobacec. TBZ also runs a tractor hire service to assist farmers with basic cultivation in the early years of establishment. 3.14 Traditionally farmers have planted low-yielding varieties of maize, but since they have begun to use the hybrid varieties and fertilizer, made available through seasonal credit, yields of 50 bags of 90 kg/ha are now common. IV. THE PROJECT A. General Description 4.01 The project forms part of the Government of Zambia's ongoing smallholder flue-cured tobacco development program, which would be completed in 1980/81. It covers the five year period 1973/74 to 1977/78 in the Eastern Southern and Western Provinces (for location see Map). In the project period:  - about 5,400 new growers would be settled and scme 900 existing maize and tobacco growers serviced. The growers would be in 21 sections, which would each average about 400 growers at the close of the nine-year development phase, and three pilot sections of 120 growers each. In addition to subsistence crops, the farmer would cultivate 0.5 ha of tobacco and 1.0 ha maize in his first year rising, over five years, to 1.0 ha of tobacco and 1.0 ha of maize; - crop extraction roads would be constructed, basic soil con- servation measures undertaken, and tree and tobacco nurseries, domestic water supplies, tobacco baling centers, and a limited number of primary schools and dispensaries provrided; - credit would be provided through the establishment of a revolving credit fund. Short-term credit would be used to purchase seasonal inputs. The medium-term credit would be used by farmers to construct curing barns, and grading sheds and to purchase tools. Credit would also be provided for the purchase of tobacco baling requisites and; - project management, including housing, vehicleis, equipment, and a tractor hire service would be establisheld within TBZ, which would plan and execute the project and provide extension and credit services to farmers. 4.02 The Ministry of Rural Development would have overall responsibility for the project but implementation would be carried out by the Tobacco Pro- duction Department of TBZ, which would also be responsible for marketing the tobacco. Maize would be sold to NAMB. B. Detailed Features Phasing 4.03 Development of sections, recruitment of growers, and planting of tobacco and maize would be phased approximately as follows: (Cumulative totals) 1973/74 1974/75 1975/76 1976/77 1977/78 Total sections established 9 /1 11 16 21 21 Total pilot sections established - 3 3 3 3 Total farmers 1,650 /2 2,800 4,050 5,200 6,300 Total tobacco area (ha) 1,050 1,850 2,800 3,900 5,000 Total maize area (ha) 1,650 2,800 4,050 5,200 6,300 /1 All existing. /2 900 existing.  4.04 This phasing takes into account the availability of extension staff and the capacity of project planning staff (Annex 7). 4.05 Scheme and section development is expected to be divided mainly between the Southern and Eastern Provinces, where the greatest number of smallholder tobacco growers are already located. Initially, five sections would be established in the Southern Province, eight in the Eastern Province and one in the Western Province. Because it is impossible to predict the areas in which tobacco growing would expand most rapidly, provision would also be made within project financing for seven unallocated sections, which, with the agreement of the Bank, would be allocated to any of the three scheme areas or as extensions to proposed pilot sections. Assurances that Bank approval would be sought for proposed allocations were obtained at negotiations. Furthermore, to ensure rational development, assurances were also obtained that the location and program for scheme and section development for each calendar year would be agreed with the Bank prior to January 1. 4.06 Three pilot sections would be developed in the second year of the project, each building up to 120 growers over a three year period. These pilot sections would provide information for possible future expansion of smallholder tobacco production, and would be located in areas where tobacco growing has not been tried,their exact location would be dictated by population densities, soil suitability and farmer interest. Assurances were obtained at negotiations that, prior to development, Bank agreement be obtained as to the location of the pilot sections. Scheme and Section Planning and Development 4.07 Scheme headquarters would be established in the Eastern Province at Lundazi and Zemba (with a small sub-headquarters at Sinde/Vubwe because of distance) and in the Southern Province at Gamela. Each scheme would build up to at least five sections, each section expanding at the following rate: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total number of farmers 20 70 120 200 300 350 400 4.08 Section and pilot scheme planning would be carried out by staff located at scheme headquarters. All project areas have been aerially photo- graphed and some planning is already complete. 4.09 A section would cover a maximum of approximately 26,000 ha gross, which would allow growers to be within 8 km of a baling center and a centrally operated nursery. Two types of development would be involved. On State Land (para 3.08) development would be of a settlement nature and holdings would include, for the typical family, a minimum of 11.5 ha of arable land with additional woodland for fuel for tobacco curing. On Reserve or Trust Land, development would be carried out by extension services to existing farmers, selected for participation only if they have sufficient land to maintain a satisfactory farming rotation and enough natural timber for at least four years of tobacco curing. Assurances to this effect were obtained at negotiations. Wherever possible, sections would be adjacent to one another.  - 9 - 4.10 With present techniques of curing it is estimated that 1 ha of natural woodland is required every year to cure the annual leaf production from 1 ha of tobacco. The amount of natural woodland on project areas would supply sufficient fuel for the next five to 10 years without regeneration or replanting. Thereafter alternative fuels would be required. In most of the Eastern Province there is ample evidence that natural woodland can be replaced by planting Eucalyptus species, and provision would be made for TBZ to establish tree nurseries to supply seedlings. Farmers would be encouraged to plant up to 2-1/2 ha of trees over a period of five years, which would provide enough fuel to cure 1 ha of tobacco annually from the sixth year onwards. In the Southern Province and part of the Eastern Province, however, there was no evidence of suitable replacement tree species at the time of appraisal, but some of these areas lie adjacent to coal fields. Information was subse- quently obtained as to the feasibility of coal for tobacco curing and on alternate tree species that could be satisfactorily established. Coal proved to be a satisfactory and economic substitute in Southern Region whereas in Eastern Province, no satisfactory alternate tree species could be recommended, and the sections involved will be developed elsewhere. Infrastructure 4.11 TBZ would provide each section with a water supply sufficient to meet domestic and seedbed requirements, a minimum of basic soil conservation measures and crop extraction roads. On average, about 130 km of crop extraction roads would be constructed on each section, linking up with existing road networks. A small road and terrace construction unit would be located in the Eastern Province, but in other areas, adjacent to the line-of-rail, local contractors or Government hire service would meet construction needs. The project would provide necessary equipment for drilling boreholes and shallow wells to augment machinery owned by the drilling section already established within TBZ. Maintenance of roads and water supplies would, during the project period, be undertaken by TBZ and assurances were obtained that satisfactory arrangements would be made for the maintenance of these facilities after the development period. 4.12 TBZ would construct and maintain houses and offices for its staff both at scheme and section level, and provide and equip each section with a small baling center operated by the sectional staff. The baling center would be expanded in the fourth year to accommodate additional tobacco production. Vehicles, both personnel and load carrying, would be provided. 4.13 Each farmer being settled would construct two curing barns and a grading shed in the first year. TBZ would assist in the construction by providing a medium-term loan, repayable over five years. This would be used to purchase roofing poles, corrugated iron sheeting, flue pipes, door frames and doors, and barn thermometers. The credit would also be used to pay a TBZ labor force which would be available to assist with construction. The total credit requirement of the construction items would amount to K 166 (US$231) per farmer (Annex 8). Credit would not be needed for house construc- tion. Additional barns would be erected and financed by the farmer in the third and fifth years of tobacco growing and extensions would be made to his grading shed in the fourth year. Established farmers in areas covered by enhanced extension services would be expected to construct curing barns and  - 10 - a grading shed prior to the planting of the first tobacco crop and would receive credit similar to that provided to settlement farmers. Growers entering settlement schemes are given 14-year leases to the land, subject to renewal. 4.14 TBZ would also construct a limited numbers of primary schools and dispensaries, generally to be located in settlement areas only and suf- ficient to provide the minimum requirements. Assurances were obtained at negotiations that Government would provide the necessary staff and medicines and would continue to be responsible for the maintenance and running of these services. Agricultural Services 4.15 Project participants would obtain seasonal production credit estimated to average K 143 in the first year, K 136 in the second, K 155 in the third, K 145 in the fourth, and K 155 in the fifth year of farming and thereafter (Annex 8). This would be distributed mostly in kind -- basic land cultivation by the tractor hire service (para 4.16) in the first three years only, seedlings, fertilizer, insecticides, polythene sheeting and hail insurance for tobacco and seed and fertilizer for maize. Project costs include provision only for incremental supplies of seasonal inputs and baling requisites. Assurances were obtained during negotiations that no farmer would receive credit from project funds to grow more tobacco and maize than he could care for with available family labor. Section managers would satisfy themselves that the farmer had the capability and facilities to handle the crop for which credit was requested. It is unlikely that a farmer would attempt to increase his acreage from his own resources, but any that does would be carefully watched by section staff to ensure he is not overreaching himself. 4.16 TBZ has in the past assisted tobacco farmers with basic tillage operations through a tractor hire service. Project farmers will continue to receive this assistance only for the first three years following their estab- lishment, after which cultivation would likely be done with oxen, which are readily available in project areas. Project costs provide for a mechanical supervisor at scheme level and for a mechanic at section level capable of carrying out routine maintenance and minor repairs. The mechanical supervisor would assist with major repairs. 4.17 Experience in Zambia and elsewhere indicates that it takes at least five years of concentrated extension and administrative effort to ensure the success of settlement schemes and for farmers to become fully familiar with the growing and handling of a non-traditional crop such as tobacco. The costs of administration and extension have therefore been considered as investment costs for the five-year development period. Ecology 4.18 Although flue-cured tobacco production would, in the course of time, remove the greater part of the indigenous tree cover, the project would establish exotic tree species as replacements, besides constructing basic soil conservation works to prevent erosion. All planning and layout of settlement areas would be on a conservation basis, and no persistent insecticides or weedicides would be used by project farmers.  - 11 - C. Cost Estimates 4.19 Project cost estimates and the foreign exchange element are summarized in the following table. Details are in Annex 9. Foreign Local Foreign Local Foreign Exchange Currency Exchange Total Currency Exchange Total Component