Sierra Leone - Integrated Agricultural Development Project

MTURN To RESTRICTED EPCFRTS OE FL Report No. PA-104b WITHINFIECP ONE:EK| Tlis report is for official use only by the Bank Group and specificafly authrized orpnizations or perons, ft may not be published, quoted or cjJa-0iihout Bank Group authoization. The Bank Group does not accept responsibility for the accuracy or compIetene#s of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF INTERGRATED AGRICULTURAL DEVELOPMENT PROJECT SIERRA LEONE June 6, 1972 Agreculture Projects Department  CURRENCY EQUIVALENTS Currency Unit = Sierra Leone Leone Until1 December 1971 Le 1.0 = US$1.20 US$1.0 = Le 0.833 Current Rate Le 1.0 = US$1.30 US$1.0 = Le 0.767 WEIGHTS AND MEASURES 1 acre (ac) = 0.405 hectare (ha) 1 mile = 1.61 kilometer (km) 1 square mile 640 acre = 259 ha 1 ton = 2240 pound (lb) = 1,093 kilograms (kg) 1 hundredweight(cwt)= 112 lb - 51.02 kg ABBREVIATIONS ADA 3 Agricultural Development Authority BSL Bank of Sierra Leone IITA = International Institute of Tropical. Agriculture IRHO = Institut de Recherches pour Les Huiles et Oleagineux MANR = Ministry of Agriculture and Natural Resources PHU = Project Management Unit PMWA = Permanent Mission West Africa SLP:rB = Sierra Leone Produce M4arketing Board SLPMC = Sierra Leone Produce Marketing Company FISCAL YEAR July 1 - June 30  SIERRA LEONE APPRAISAL OF AN INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS .i-....................... i I. INTRODUCTION ........................................ 1 II. BACKGROUND .1 III. THE PROJECT AREA. 5 IV. THE PROJECT. 7 A. Description .. 7 B. Detailed Features. 7 V. COST ESTIMATES AND FINANCIAL ARRANGEMENTS . .10 A. Project Costs .10 B. Proposed Financing .12 C. Procurement .13 D. Disbursement .14 E. Accounts and Audit .14 VI. ORGANIZATION AND MANAGEMENT . 15 A. Organization ..15 B. Staffing . . 17 C. Credit Arrangements and Terms of Sub-loans 18 VII. PRODUCTION, MARKETS, FARMER BENEFITS AND GOVERNMENT BENEFITS .19 A. Yields and Output .19 B. Markets and Prices .20 C. Farmers' Benefits ..................... 21 D. Government Benefits .22 This report is based upon findings of an Appraisal Mission comprised of Messrs. A. Denness, A. Stoneham, A. Cole, J. L. Ropiteau of IDA and F. Hughes (Consultant).  -2- Page No. VIII. ECONOMIC BENEFITS AND JUSTIFICATION .... .............. 22 IX. RECOMMENDATIONS ...................................... 23 ANNEXES 1. Arrangements for Rice Marketing 2. Project Credit Arrangements 3. Arrangements for Palm oil, Palm kernels and Cocoa Marketing 4. Agricultural Development Authority 5. Project Costs 6. Credit Disbursements 7. Government Cash Flow 8. Economic Rate of Return Calculation 9. Northern Province Project, Consultant's Terms of Reference 10. Forestry Project Consultant's Terms of Reference Map  SIERRA LEONE APPRAISAL OF AN INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises an agricultural project in the Eastern and Southern Provinces of Sierra Leone, for which an IDA credit of US$4.3 million equivalent is proposed. It would be the first agricultural project under- taken by the Bank Group in Sierra Leone. ii. Sierra Leonets economv is based on an export oriented mining sector producing about 85%o or total exports, of which diamonds contribute about 80%, and a mainly subsistence agricultural sector, producing about 16% of total exports and employing about 75% of the population. Diamond reserves are declining, however, and the country's future economic prospects depend largely upon the development of the agricultural sector, in which little has been achieved so far mainly because of Government's uncoordinated agricultural policies and weaknesses in public administration. This project is straightforward in concept involving simple and proven technical methods, and its success depends entirely on efficient project management. iii. The project area comprises some 1.5 million acres of the Eastern and Southern Provinces, with a population of about 242,000. The project, which would be carried out over a three year disbursement period, would include: establishing a Project Management Unit within the Ministry of Agriculture and Natural Resources (MANR); planting 510 acres of oil palm to complete a 2,000 acre estate; providing smallholders with credit for bringing 6,000 acres of inland swamp into rice production, planting 750 acres of cocoa, and planting 1,830 acres of oil palms; constructing a 9 ton/hour palm oil mill and 20 rice mills each capable of processing 500 tons paddy/annum; training project participants in modern agricultural techniques; preparing an agricultural development project in the North of the country and a forestry project in the centre of the country; and the establishment of an Agricultural Development Authority (ADA) to own and operate the oil palm nucleus estate and mill, and to take over the management of project credit operations after project dis- bursements of the IDA Credit are completed. iv. Project costs are estimated at US$5.6 million equivalent. The proposed credit would finance 77% of project costs, covering foreign exchange costs estimated at US$3.0 million, and 50% of local currency costs. The balance of US$1.3 million would be met from Central Government revenues - US$0.9 million, and subscriptions to ADA's equity of US$234,000 and US$156,000 by the Bank of Sierra Leone and Sierre Leone Produce Marketing Board respectively. Project procurement valued at about US$2.0 million would be by international competitive bidding; procurement of other goods and services would be subject to satisfactory local competitive bidding procedures. v. The project manager would be responsible to the Permanent Secretary of MANR . The project manager, financial controller, credit manager, land planning officer, mill engineer, and plantation manager, would probably be expatriates.  - ii - vi. By full development project produced exports would total: cocoa 1,230 tons and palm kernels 860 tons annually, and import substitutes: palm oil 4,300 tons, and rice 2,900 tons annually. Net foreign exchange benefits would be substantial, amounting to a value of US$21.8 million over the life of the project. Based on the Bank Economics Department's current long-term cocoa, rice, and palm produce price forecasts, and using a shadow price for hired labor justified because of unemployment, the estimated rate of return from investment in the project is 15%. Costing hired labor at its actual price decreases the rate of return by 2%. The project would increase sub- stantially the incomes of some 2,500 farm families, and create an institution to obtain and provide finance, planning, and management for agricultural development projects. vii, The Government recognizes the current weaknesses in public administra- tioni and gave assurances during negotiations that a plan for improving the markleting of domestic and imported rice would be prepared, and that suitably qualified and experienced persons would be employed to fill key project posts SO c1S to provide satisfactory management. viii. The project is suitable for an IDA credit of US$4.3 million to the Government of the Republic of Sierra Leone.  SIERRA LEONE APPRAISAL OF AN INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Sierra Leone Government has asked IDA to help finance a project to increase the agricultural production and living conditions of about 2,500 near to subsistence farm families in Sierra Leone's Eastern and Southern Provinces. 1.02 The project is based on a plan prepared for Government by the Com- monwealth Development Corporation (U.K.), under contract to the Bank. It would comprise completing the planting of a nucleus oil palm estate, and constructing a modern palm oil mill; and assisting farmers to plant cocoa and oil palm and to develop inland swamps for rice cultivation. The project would include the establishment of a Project Management Unit (PMU) within the Ministry of Agriculture and Natural Resources (MANR) to manage the project and provide credit to farmers; the improvement of farmer training facilities; feasibility studies for an agricultural development project in the north and a commercial forestry project in the centre of the country; and the establishment of an Agricultural Development Authority, which would manage the nucleus estate and palm oil mill when constructed. 1.03 This report is based on the findings of an IDA appraisal mission, composed of Messrs. A. Denness, A. Stoneham, A. Cole, J. L. Ropiteau of IDA, and F. Hughes (Consultant), which visited Sierra Leone in February/March 1971. 1.04 The project would be the Bank Group's first agricultural lending operation in Sierra Leone. II. BACKGROUND General 2.01 The Republic of Sierra Leone has an area of about 28,000 sq. miles, and a population of about 2.5 million increasing at an estimated annual rate of about 2.4%. GDP for 1969/70 was estimated at Le 347 million (US$416 mil- lion) equivalent to Le 139 (US$163) per capita. The economy has two main sectors: a well developed, export-oriented mining sector employing 5% of the economically active population and producing 20% of GDP and about 80% of total exports; and an undeveloped agricultural sector, providing a livelihood for about 75% of the population, and producing about 30% of GDP and about 16% of total exports. 2.02 The mining sector is dominated by the diamond industry. In 1971, this accounted for Le 50 million (US$60 million) or about 77% of all mineral exports. For the years 1964 through 1969, licensed alluvial diggers produced  - 2 - 58% of total diamond production. During the first quarter of 1969, 44,000 registered workers were employed in this way, together with an unspecified, but substantial number of unregistered workers working for illegal operations. Since 1969, however, the number of registered workers has declined dramati- cally to about 14,000 during the first quarter of 1971 as easily accessible alluvial diamond areas have been worked out and mining has become increas- ingly difficult and expensive. Alluvial diamond production has fallen with the decline in the work force. 2.03 Agricultural Sector. Sierra Leone has two major ecological zones: the northern half of the country with a long dry season where cattle and annual crops predominate; and the south with a rainfall and climate suitable for the production of cocoa, coffee and oil palm, which are Sierra Leone's ma:Ln export crops. Because of the better cash return from these three crops, agricultural development has proceeded further in the south which also con- taiLns all Sierra Leone's known diamond, timber, titanium and bauxite re- serves. This uneven development has accentuated the political and tribal differences which are a major cause of the existing unrest within the cotmtry. 2.04 Rice is the country's staple food, and until the early 1950's the cotntry was self-sufficient in this commodity. With the onset of the diamond boom in the early 1950's and the associated movement of workers away from their farms rice production fell, and imports became necessary; these totalled 48,000 tons valued at about Le 5.0 million (US$6.0 million) in 1970 (see Annex 1, Table 1). Agricultural exports in 1971 were worth Le 13.3 million (US$16.0 million) of which palm kernels contributed Le 5.9 million (44%); coffee Le 3.5 million (26%); cocoa Le 2.7 million (20%) and piassava 1/ and ginger Le 1.2 million (10.0%). 2.05 Government's agricultural development policy aims to increase the production of crops for import substitution and for export, by diversifying and expanding smallholder cropping; and to develop agriculture in the north. This project would increase the smallholder production of cocoa and palm kernels for export, rice, and palm oil for import substitution; and would prepare an agricultural development project in the country's northern region, and a forestry project in the center of the country. Institutions 2.06 Ministry of Agriculture and Natural Resources (MANR). MANR is primarily responsible for agricultural development, research and extension, but its impact on the sector is insignificant due to the wide dispersal of its limited staff and financial resources, its lack of planning and manage- meni: capability, and the pressure to implement politically motivated decisions made with little or no consideration for technical and economic factors. Government is aware of the reasons for the past failures of MANR and other institutions, mentioned below, and of the need to strengthen the institutional infrastructure and management of its agricultural development programs, but is finding it difficult to effect improvements in the absence of well prepared 1/ A coarse fiber made from the raffia palm and used in broom heads.  - 3 - development projects. However recently the Government of the United Kingdom has seconded six technicians to assist in the reorganization and strengthening of MANR, and in the preparation of development projects. 2.07 Little agricultural research is carried out. The MANR rice station at Rokupr achieved some good results in the early 1960's, but since then lack of funds and staff has curtailed effective operation. The station is now being considered for 'LUP assistance on the basis of a plan prepared by the International Institute of Tronical Agriculture (IITA). If provided, this would finance the staff needed to implement a breeding and selection program for the development of high-yielding, fertilizer-responsive, short-duration rice hybrids to replace varieties produced at Rokupr in the 1960's. For- tunately these older varieties are suitable as the initial basis for viable rice development programs until higher-yielding varieties become available. Since it is essential that Sierra Leone's rice development programs are sup- ported by efficient research, assurances were obtained from Government during negotiations that it would pursue and implement the plan for upgrading rice research at Rokupr. Little cocoa and oil palm research is carried out, but the results of research in other West African countries on both crops can be applied. High-yielding Amazon cocoa selections introduced in the 1950's and 1960's are available for seed production, and hIgh quality oil palm seed can be purchased from the Ivory Coast. No research work of importance has been carried out on the problems of farming in the North. Other agricultural research is carried out by the University of Sierra Leone at Njala, although the best of this has been economic work which can only be utilized in the context of well prepared and managed projects. Njala University College provides degree and diploma courses in agriculture, and its graduates form the senior and middle levels of MANR. While the academic standard of grad- uates is satisfactory their potential is quickly vitiated in the unproduc- tive climate of the Ministry. Two Rural Training Institutes provide farmer training courses: one in Kenema, the administrative center of the Eastern Province; and one in the Northern Province. Both institutes are inadequately staffed, training courses are too long, and the training inappropriate to farmers' requirements. 2.08 Development Financing and Agricultural Credit. The problems of financing agricultural development among predominantly subsistence farmers, and the failure of past agricultural credit schemes in Sierra Leone are dis- cussed in Annex 2. Overall, institutional credit has failed due to poor loan appraisal techniques, lack of credit supervision, and failure to enforce debt collection. Currently there is no official source of agricultural credit, and farmers are forced to borrow from each other, relatives and traders, at high interest rates. 2.09 The Sierra Leone Produce Marketing Board (SLPM), established in 1949, is responsible for marketing the country's main export crops, and fix- ing, in conjunction with Government, cocoa, coffee and palm kernel producer prices. SLPMB is required to maintain a price stabilization fund; and since 1967, has contributed Le 500,000 annually from its operating surpluses to Government for development purposes. SLPMB's present marketing arrangements are satisfactory. It operates through licensed buying agents (LBA), who are responsible for purchasing, grading, storing and evacuating produce to the  port of shipment, and through the Sierra Loone Produce Marke-ring Company (SLPMC), a London subsidiary, for overseas sales. Agents receive a cou=ission on purchases, and SLPMC charges a fee of 1/2 of 1V% to meet its costs. Further deitails are given in Annex 3. 2.10 Until 1963 SLPMB operated efficiently and was relatively free from adverse political interference. In 1963, however, SLPkOl launched a large, technically unsound, and politically motivated program of plantation and crop processing development; entered into direct crop purchasing; and began malcing direct overseas sales on unfavorable terms. The development program failed, about Le 10.5 million was lost and by December 1966 SLPMB was vir- tually bankrupt. Since 1967, all production activities have stopped except for the operation of five small palm oil mills, and SLPMB has resumed market- ing through LBA's and the SLPMC. Financial reserves have been rebuilt to about Le 4.5 million, including Le 2.6 million in a price stabilization fund; and loans totalling about Le 3.7 million have been repaid (Annex 3). 2.11 The five, small, virtually obsolete palm oil mills continue to incur substantial operating losses (see Annex 3, Table 11), and while their current operation probably can be justified due to a domestic shortage of palm oil, they will not be required once the proposed project mill is in production. It would be a condition of disbursement against the oil palm component of the project that SLPMB had submitted to IDA a satisfactory plan for the phased closure of its uneconomic mills. 2.12 The Rice Corporation (Corporation), established in 1965, has a =~~~~~~. __,e a monopoly of rice imports and distributes such imports through agents and its owia stores in major towns. The Corporat'on as required on formation to use its profits from rice importing for the developmen of ricp production. Its rice production ventures collapsed in 19S8, in: which year about Le 300,000 was lost on these operations. The Corporation's activities are niow limited to importing, and the milling and marketing of rice proAuced in Sierra Leone. Substantial losses are incurred on milling and marKeting domestic rice pro- duction, and the Corporation's three large mills operate at only about 25% calpacity due to poor location. Details of its mills and the Corporation's opearations are at Annex 1. Better results would be obtained from smaller mills located in production areas such as proposed under the project. 2.13 The introduction of a large rntmsr ui small rice m'119 Jln recent years has been of great value .o the 13ca_ industn-;. as existIng production is scattered. Small private mills are cxr:enrlv operated successfully at the village level in contrast to the larvo m4lls owned by the Rice Corporation. Consequently, the Corporation is increasnivy left anly with the responsibility of rice importation and distribution - a dec2.ining responsibility as domestic production approaches self-sufficiency. Lt 4s quest4onr.ale, therefore, whether a separate statutory body is necessary to perform this function. The Sierra Leone Produce Marketing Board (ESLP1B) would be able to carry out the function at substantially lower cost. Satisfactor. por: handling and storage facilities are available, and, in contrast to the Corporation, SLPMS account- ing and management procedures are satisfactcy, and a chain of well-established agents with approved storage facilities exists throughout the country. In view of the savings that would accrue if SLPMB assumed responsibility for  -5- importing and distributing rice, Government could make SLPMB responsible for importing rice. Government recognizes the need to improve the marketing of imported and domestic rice,-as well as the need for locating improved milling facilities in the rice growing areas. During credit negotiations, assurances were given that a study to cover these necessary improvements, including the disposal of the Corporation's uneconomic mills would be made before the end of 1973 and would be submitted to IDA for comment (see para 4.14). 2.14 Cooperative Societies increased their activities during the 1950's and 1960's until by 1967 cooperatives handled 55% of all cocoa exports. Financial management of the movement was poor, however, and culminated in the collapse of the Sierra Leone Cooperative Marketing Federation in 1967. Today the movement is largely discredited, and complete rehabilitation is necessary if farmer confidence is to be regained. This would only be achieved over a number of years with good management. III. THE PROJECT AREA 3.01 General. The project would be carried out in an area of about 1.5 million acres in the Eastern and Southern Provinces (see Map). The area has good agricultural potential, its population is receptive to change and reason- ably experienced in growing cocoa, rice and oil palm. Rainfall and insola- tion are adequate for these crops, and extensive areas of uncultivated land with satisfactory soils are available. 3.02 Climate, Topography and Soils. Climate is tropical and character- ized by a single wet season, April through November, in which rainfall is about 100 inches, 92% of the annual total. This is followed by a four-month dry season. 3.03 Topographically, most of the area lies below the 500 ft contour and comprises gently rolling countryside dissected by narrow swampy valleys. Extensive areas of uniform soil are not common, and soils vary from stony on the crests of ridges, to stonefree clay soils on the lower slopes, and to swamp soils in the valley bottoms. All soils are acid and low in essential plant nutrients, but the latter can be corrected by the use of fertilizers. 3.04 Population. Population is about 242,000, with an average density of 103/sq mile. About 37% are under 14 years of age, and 51% between 14 and 50 years of age, reflecting the high birth rates and short life spans in the area. The average household comprises three working adults and two children under 14 years of age. 3.05 Land Tenure and Farm Size. There is no individual ownership of land, and allocation of usufruct rights is vested in the traditional tribal authorities. This is not a constraint on development since after a farmer is permitted to establish a tree crop or clear a swamp, he retains the right of usufruct until his death, when such rights are transferable to his descendants.  - 6 - 3.06 Farming Systems. Agriculture is primitive and consists mainly of the production of upland rice and other food crops under a shifting cultiva- tion system. This accounts for about 80% of cultivated land. Farmers pay little attention, except at harvest, to their cocoa and coffee plantings, which occupy the remainder of the cultivated land. Draft animals are not used because of trypanosomiasis, all tools are locally made, and only small amounts of fertilizer and pesticides are used. Yields are low, averaging about 650 lb/acre of paddy rice and 350 lb/acre of cocoa and coffee. 3.07 A planned system of land use is required for the project area to retain fertility of the uplands and use swamp areas more effectively. The valley swamps are fertile, and after clearing and introducing some water control, and using available Rokupr varieties with small amounts of phosphatic fertilizers, they produce average paddy yields of 2,200 lb/acre. Paddy yields of over 4,000 lb/acre can be obtained and sustained, when complete fertilizers, pest control, and good water management are employed. The use of swamps for rice production reduces the area of upland required for shifting cultivation, and releases land for tree crops which grow well in the area. 3.08 The main constraint to expanding swamp rice farming is the cost of clearing -- Le 36.00/acre (US$47). In 1967, Government began to pay cash grants to farmers for swamp clearance provided they built water control bunds and used fertilizer and improved seed. About 3,000 acres have been cleared in this way but follow-up has been poor in that few farmers received grants in full, credit was not provided for farm inputs, and suffi- cieant extension personnel were unavailable. As a result, bunds were construc- ted on only about half of the cleared area and only about 30% of farmers have continued the cultivation of their swamps. 3.09 Since the late 1950's project area farmers have been planting im- proved varieties of cocoa but, as with rice, they have been unable to obtain credit and inputs, or to obtain assistance from an effective agricultural extension service. 3.10 Oil Palm. In 1968 MANR started to develop an oil palm estate in the project area, and encouraged smallholder oil palm plantings. Technical and managerial assistance and planting material were obtained from Institut de Recherches pour Les Huiles et Oleagineux (IRHO); 1,490 acres of estate paLms and 1,169 acres by 117 smallholders have been established satisfactorily, indicating what is possible under a well managed scheme. 3.l1 Communications. The project area is linked to Freetown, the cap- ital, by 220 miles of road of which 180 miles are paved. The unpaved section is often impassable in the wet season, but it will be replaced with a new road, partly financed under Loan 710-SL and Credit 218-SL. A system of gravel secondary and feeder roads satisfactory for project purposes exists within the project area.  IV. THE PROJECT A. Description 4.01 The project, which would be carried out over a three year invest- ment period, 1973 through 1975, would be the first phase of a program designed to raise the incomes and living standards of about 2,500 near subsistence smallholders in the Eastern and Southern Provinces of Sierre Leone. The proj- ect would involve: (a) completing the establishment of a 2,000 acre nucleus oil palm plantation by planting 510 acres, and constructing a palm oil mill to service the estate and associated small- holder plantings; (b) providing smallholders with credits for labor, pesticides, fertilizers and improved high-yielding planting materials to: (i) clear and bring into production up to 6,000 acres of inland swamp rice; (ii) plant up to 750 acres of cocoa; and (iii) plant up to 1,830 acres of oil palms; (c) constructing up to 20 small rice mills; (d) training project farmers in efficient rice, cocoa and oil palm production techniques; (e) carrying out studies precedent to the preparation of an agricultural development project in the Northern Province of the country, a commercial forestry project for the Tama forest reserve area, a detailed study of Sierra Leone's domestic palm oil requirements and a study of the marketing and processing of domestic rice and the marketing of imported rice; and (f) establishing an Agricultural Development Authority that in the first instance would own and operate the oil mill and nucleus estate. B. Detailed Features 4.02 The project planting program would be phased as follows:  -8 - Project Year 1 2 3 Total Swamp Rice 1,000 2,000 3,000 6,000 Cocoa - 250 500 750 Oil Palm: (a) Nucleus Estate 510 - - 510 (b) Outgrowers 200 800 830 1,830 Apart from oil palm planting which would be the continuation of the ongoing program and for which nurseries are already established, the project planting schedule is phased to coincide with the need for MANR to establish a project management unit (PMU) to manage the project and to undertake farmer selection an.d training. Thus year 1 would be devoted largely to the construction of project buildings and facilities, the purchase of equipment, and the estab- lishment of cocoa seedling nurseries for the plantings planned for year 2. 4.03 Project Administration. A project management unit (PMU) would be established within MANR. The project would provide funds to finance the capital costs of establishing the management unit and its operating costs dutring the three year development period. 4.04 Swamp Rice. Farmers developing swamp rice would receive develop- ment credits for swamp clearance and drainage, and seasonal loans for the purchase of fertilizers and seed. 4.05 Cocoa Planting. Farmers planting cocoa would receive credit for crop establishment, fertilizers and capsid control. Crop establishment credits would be provided in the form of cocoa seedlings, (produced in project nurseries), insecticides, and a sprayer; and cash for part of the labor required for farm development and maintenance until plantings are four years old. 4.06 Oil Palm Planting. Participants in the smallholder oil palm scheme would be eligible for credits for crop and cover crop establishment, fertilizers and insecticides. Crop establishment credits would be provided in the form of oil palm seedlings, produced by the project management unit in a centralized nursery, cover crop seed, fertilizers and insecticides, and cash for part of the labor required for farm development and maintenance until plantings are four years old. 4.07 Nucleus Oil Palm Estate and Mill. The project would complete the establishment of the nucleus estate described in paragraph 3.10 by planting 510 acres of oil palm to bring the estate to 2,000 acres. Sufficient land for the estate has been leased by Government for a period of 50 years. 4.08 At full development, nucleus estate and outgrower production would total 21,000 tons of ffb 1/ annually. Assuming a peak monthly harvest 1/ Fresh fruit bunch (ffb) is the product of the oil palm. Each ffb is a large cluster of fruits and each fruit comprises a nut containing a palm kernel which is surrounded by oily flesh from which palm oil is extracted.  - 9 - of 15% of annual production, the yields discussed in paragraph 7.02, and 400 mill working hours monthly, peak milling capacity required would be about 8 tons ffb/hour. MANR would hire consultants to prepare tender documents, assist in bid evaluation, and oversee mill construction. During negotiations assurances were obtained from Government that consultants for these purposes, satisfactory to IDA, would be appointed. 4.09 Rice Mills. The project would establish, at suitable locations, 20 rice mills with storage and drying areas. The mills, with a processing capacity of 500 tons of paddy/annum, would be initially operated and owned by MANR. Subsequent to its establishment ADA would assume mill ownership, and be responsible for their operation, or for their transfer to private enterprise. 4.10 Farmer Training. MANR provides training at the Kenema Farmers' Training Institute for a few selected farmers from the project area. These farmers attend an 18-month residential course which covers a wide range of agricultural activities. Under the project the staffing of this institute would be improved, courses shortened to 2 or 3 weeks duration and confined to teaching the production techniques of the crops for which the farmer would subsequently receive project assistance. Courses would be followed up by further training on the farmer's own land while he receives project assistance. 4.11 Northern Province Project Study. Previous development in Sierra Leone has been concentrated in the eastern and southern parts of the country, and this unequal development has accentuated tribal and political differences. PMWA 1/ has tentatively identified a project in the country's Northern Province, and, under the project, consultants would be employed by MANR with terms of reference and under conditions satisfactory to IDA to assist MANR complete the preparation of this project. Assurances to this effect were obtained during credit negotiations. Draft terms of reference for consultants are at Annex 9. 4.12 Forestry Project Study. Although Sierra Leone has considerable timber resources it is presently importing annually Le 600,000 of sawn wood and wood products. Currently the Kenema District forest reserves are being commercially exploited, and Government is considering the development of the proposed Tama forest reserve (North Eastern Sierra Leone). Recently Government and the Food and Agricultural Organization of the United Nations carried out a forest inventory of the area which projects an annual output of 760,000 cubic feet of sawn timber. Under the project consultants would be employed by MANR, with terms of reference and under conditions satisfactory to IDA, to prepare an economic feasibility study and investment plan for the extraction of the timber, its processing and marketing; and if proven viable, a plan for a phased replanting program. Assurances to this effect were obtained during credit negotiations. Draft terms of reference for consultants are at Annex 10. 1/ IBRD Permanent Mission in West Africa.  - 10 - 4.13 Palm Oil Market Study. In addition to project plantings at Daru, Government has established an oil palm estate (1968) and outgrowers scheme (1971), known as the Gambia oil palm plantations near Matru in the South of Sierra Leone which, including the already committed plantings for the 1973 plmnting season, would total about 3,600 acres by July 1973. As Sierra Leone would not be a competitive producer of palm oil on the world market, any further expansion of the oil palm industry, including plantings on the Gambia plantations and associated oil palm mill developments, should follow a detailed market survey of domestic requirements. Currently, the African Development Bank is investigating the domestic palm oil market in Sierra Leone with the view to the possible financing of an oil palm mill for the Gambia Scheme. Depending on the outcome of this investigation, consultants would be employed by MANR, under the project, to carry out any additional market studies that may be required, and during credit negotiations, assurances were obtained from Government that it would not expand the Gambia oil palm plamtations beyond the 1973 plantings, and neither would it initiate any ner oil palm development schemes, additional to the project without prior conisultation with IDA, and that consultants would be employed by MANR with terms of reference and under conditions satisfactory to IDA. 4.14 Rice Marketing Studies. Due to Government efforts to promote the development of domestic rice, which should result in a decline in rice imports, it is likely that the Rice Corporation (para 2.13) will face further annual losses in the near future. Government is already taking a close look into thhe activities of the Rice Corporation, and is exploring means whereby the present substantial losses can be reduced and the efficiency of marketing ancd milling undertaken by the Corporation can be improved. Under the project, consultants would be employed by MANR to assist in the preparation of a plan for rice marketing and milling (para 2.13) and during credit negotiations, asE,urances were obtained that consultants would be employed by MANR with terms of reference and under conditions satisfactory to IDA. 4.15 Agricultural Development Authority. While a strengthened MANR (para 2.06) would be able to successfully carry out the crop establishment, farmers' training and planning component of the project, it would not have the freedom of decision making required for commercial operation of the oil mill and nucleus estate, and for providing agricultural credit on a national scale. Thus, by the second year of the project, a statutory body, the Agricultural Development Authority (ADA), would be established in the first instance to be responsible for the palm oil mill and nucleus estate; and after credit disbursements are complete, for the credit fund. Details of the proposed organization and responsibilities of ADA are given in para 6.04 and in Annex 4. V. COST ESTIMATES AND FINANCIAL ARRANGEMENTS A. Project Costs 5.01 Estimated project costs total LE 4.3 million (US$5.6 million) with a foreign exchange component of Le 2.3 million (US$3.0 million) or 53% of total costs. Costs are detailed in Annex 5 and sunmmarized in the following table.  -11- Summary of Project Cost Estimates Le (Million) US$ (Million) Foreign For- For- Exchange Local eign Total Local eign Total Percent On Farm Costs Cocoa 0.05 0.02 0.07 0.07 0.03 0.10 30 Rice 0.29 0.10 0.39 0.37 0.13 0.50 26 Oil Palm - Outgrowers 0.11 0.09 0.20 0.14 0.12 0.26 46 Oil Palm - Nucleus Estate 0.12 0.05 0.17 0.16 0.07 0.23 26 Total On-farm Costs 0.57 0.26 0.83 0.74 0.35 1.09 31 Project Administration and Services Staff 0.46 0.11 0.57 0.60 0.14 0.74 20 Vehicles 0.02 0.13 0.15 0.03 0.17 0.20 90 Vehicle Operation and Maintenance 0.04 0.05 0.09 0.05 0.07 0.12 60 Equipment 0.03 0.04 0.07 0.04 0.05 0.09 63 Buildings 0.07 0.11 0.18 0.09 0.14 0.23 40 Rice Mills 0.08 0.11 0.19 0.10 0.14 0.24 60 Oil Palm Mill 0.31 0.92 1.23 0.40 1.20 1.60 75 Administrative and Rents 0.06 0.03 0.09 0.08 0.04 0.12 33 Total Project Administration and Services 1.07 1.50 2.57 1.39 1.95 3.34 59 Agricultural Develop- ment Authority (Head Office Costs) 0.04 0.04 0.08 0.05 0.05 0.10 50 Studies and Consultants 0.05 0.19 0.24 0.07 0.25 0.32 79 Physical Contingencies 0.09 0.10 0.19 0.12 0.13 0.25 53 Price Contingencies 0.18 0.21 0.39 0.23 0.27 0.50 53 Total Project Costs 2.00 2.30 4.30 2.60 3.00 5.60 53 _ ~ -c _ _ _ _ 5.02 Project costs include a 5% physical contingency and a price con- tingency of 6% compounded per annum on all project costs. Project costs exclude farm family labor to which a cash cost is not attributed. Costs are based on Government salary and wage scales; up-to-date building costs; recent quotations given by suppliers of vehicles and materials; and farm input and labor data provided by the Ministry of Agriculture and the University.  - 12 - Pro,ject costs do not include taxes on imported goods, should Government require payment of import taxes on items included in project costs, the cost of such taxes would be additional to Government's contribution to project costs. This issue was agreed with Government during negotiations. B. Proposed Financing 5.0'3 A credit of US$4.3 million would be made to Government on standard IDA terms to meet 77% of total project costs. US$3.0 million or 70% of the credit would cover project foreign exchange costs, and the balance of US$1.3 million (30% of the credit) would finance 50% of local currency costs. The remaining 50% of the local costs totalling US$1.3 milLion would be met from Government budgetary allocations of US$0.9 million, and from borrowings of US$234,000 from the Bank of Sierra Leone and US$156,000 from the Sierra Leone Produce Marketing Board, see para 6.06. Government wouLd have to make available a further Le 0.3 million (US$0.4 million) over the three years subsequent to completion of the three year project development period. These funds would be needed to bring all cocoa and oil palm acreages and cleared swamps into full development. During credit negotiations an assurance was obtained from Government that these funds would be made available. Assurances were obtained that funds required for the project would be made avaLlable two months in advance and in block form, on the basis of monthly estimates prepared by the project manager and approved by the Permanent Secretary of MANR. 5.04 Details of project financing would be as follows:  - 13 - Proposed Financing Government IDA Total Le US$ Le US$ Le US$ '000 '000 % '000 '000 % '000 '000 D On-Farm Costs 166 216 20 666 866 80 832 1,082 100 Project Adminis- tration and Services Expatriate Staff 46 60 20 184 239 80 230 299 100 Local Staff 69 90 20 276 359 80 345 449 100 Vehicles 15 20 10 140 182 90 155 202 100 Vehicle Operation and Maintenance 35 46 40 53 69 60 88 115 100 Equipment 28 36 37 47 61 63 75 97 100 Buildings 36 47 20 144 187 80 180 234 100 Rice Mills 75 97 40 113 147 60 188 244 100 Oil Palm Mill 306 398 25 919 1,194 75 1,225 1,592 100 Administration and Rents 83 108 100 - - - 83 108 100 Subtotal 693 902 27 1,876 2,438 73 2,569 3,340 100 Agricultural Devel- opment Authority 15 20 20 62 79 80 77 99 100 Studies and Consultants 48 62 20 190 247 80 238 309 100 Physical Contingencies 20 27 11 166 215 89 186 242 100 Price Contingencies 45 56 11 348 455 89 393 511 100 Total Project Cost and Financial Requirement 987 1,28 23 3,3 4,300 77 4,295 100 C. Procurement 5.05 Procurement of the palm oil mill and its construction, rice mills, vehicles, tractors, spraying machines, and fertilizers valued at about US$2.0 million (Le 1.5 million) would be through international competi- tive bidding, and bids for imported goods would be evaluated on the basis of their CIF cost free of all import and other duties. Government is not party to any preferential tariff arrangements. Other purchases amounting to about US$0.5 million would be subject to local competitive bidding. During negotiations tender procedures for local procurement were agreed between IDA and Covernment.  - 14 - D. Disbursement 5.06 Disbursement of the credit would be against: (a) 80% of loans disbursed to participating farmers and the cost of oil palm estate field development. About US$0.85 million (Le 0.65 million); (b) 100% of the cif costs of the palm oil mill and rice mills; and of the cif cost of imported vehicles, machinery, fuel and spare parts, totalling about US$1.65 million (Le 1.3 million); (c) 80% of the planning, building and furnishing of project buildings, totalling about US$0.20 million (Le 0.1 million); (d) 80% of the cost of local staff salaries, totalling about US$0.35 million (LE 0.3 million); (e) 80% of the cost of expatriate staff (including recruitment costs) and of consultant and specialist services engaged by MANR totalling about US$0.50 million (Le 0.4 million); and (f) 80% of the cost of the Headquarters staff and services of the Agricultural Develoiment Authority (ADA) totalling about US$0.1 million (Le 0.05 million). An tnallocated amount of US$0.65 million (Le 0.5 million) would meet physical and price contingencies on the above items. Annual disbursement of the proposed IDA credit by categories is detailed in Annex 6, Table 1, and a quarterly disbursement schedule in Table 2. Expenditures would be evidenced by contracts, shipping documents and certified records of expendi- tuire. Any surplus credit amounts would be cancelled. E. Accounts and Audit 5.07 Project accounts and records of disbursements made to individual farners would be maintained by PMU, and individual loan accounts for all farners receiving project credit for oil palm, cocoa and rice production would be transferred to ADA at the end of the project disbursement period. The estate and mill would maintain separate accounts and, in addition, duplicate loan accounts for oil palm outgrowers. All accounts would be kept in accordance with Government regulations governing the accounting procedures of statutory authorities. The accounts of PMU, ADA, the oil palm estate and oil mill would be audited annually by an independent auditor, mutually acceptable to Government and IDA; and audited accounts together with copies of the auditor's reports would be submitted to IDA within four months of the closing of each financial year. During negotiations, assurances to these effects were obtained from Government.  - 15 - VI. ORGANIZATION AND MANAGEMENT A. Organization 6.01 The project would be carried out by a project management unit (PMU) responsible to the Ministry of Agriculture. During credit negotiations it was agreed as a condition of credit effectiveness that the unit had been established, and that the Project Manager and Financial Controller had been appointed and had taken up their duties. PMU would 1?e responsible for project implementation during the disbursement period, but on the formation of ADA would hand over to it the ownership and operation of the oil mill and nucleus estate, and the supervision of the oil palm outgrowers. PMU would, however, continue to administer project credit to the farmers and operate the rice mills until IDA disbursements had been completed. 6.02 PMU, which would exercise overall project management and financial control, would operate from a project head office at Kenema, the administrative center of the project area. The unit would be staffed with the following key personnel: Project Manager, Deputy Project Manager, Financial Controller, Credit Manager, Land Planning Officer and a Rice/Cocoa Officer. The oil palm estate and outgrowers scheme would be managed by a plantation manager, assisted by a supervisor for the outgrowers scheme. After the establishment of ADA, the plantation manager and his staff would be responsible to the Managing Director of ADA. 6.03 Field management of the cocoa and rice schemes would be effected through three main field offices, to be located by the Project Manager, each staffed by an Agricultural Officer, a number of agricultural instructors, and supporting staff. As far as practical, farmers would be formed into operational groups which would facilitate cocoa planting, swamp clearance and credit supervision. When disbursements are completed in 1976, the project headquarters unit would be withdrawn, and all extension work would revert to the district service of MANR; and the credit service would operate under ADA. 6.04 The Agricultural Development Authority (ADA) (this name is used for project purposes) would be a statutory body established by Act of Par- liament before March 31, 1974. ADA would be responsible for providing credit, technical and managerial services to agricultural projects; and developing commercial agricultural projects on its own behalf. It would have a Board of nine directors, seven appointed by Government and one each by SLPMB and BSL, which would be responsible to the Ministry of Agriculture and Natural Resources. Government would appoint one of the Board members, other than the Managing Director, as Chairman of the Board, and the Board would appoint a Managing Director as ADA's chief executive officer. Further details of ADA's organization are given in Annex 4. 6.05 To assist Government in preparing suitable legislation for ADA, and to assure smooth assumption of responsibilities, Government would appoint a Managing Director designate not later than June 31, 1973. An assurance  - 16 - to this effect was obtained from Government during credit negotiations. Assurances were also obtained that ADA would be established before March 31, 1974 or one month prior to the commissioning date of the palm oil mill, or whichever is the earliest, with legislation and financial structure satisfactory to IDA; that ADA would adopt a policy statement (see Annex 4, para 2) satisfactory to IDA; that this policy statement would not be changed without IDA's agreement; and that ADA would not undertake responsi- bilities other than those assumed under the project without the concurrence of IDA. 6.06 ADA's share capital would include Government equity of Le 1.9 mil- lion, including Le 0.5 million representing the value of the oil palm estate taken over at the beginning of the project and further developed during the first two years of the project by PMU, Le 0.9 million representing the foreign exchange cost of the oil palm mill constructed during the first two years of the project, and Le 0.5 million ropresenting the value of the credit fund at the completion of disbursements under the project. The Bank of Sierra Leone (BSL) and SLPMB would make equity contributions to ADA of Le 180,000 and Le 120,000 respectively. These amounts would initially be in the form of loans to Government to cover the local construction costs of the oil palm mill, but would be converted to equity when ADA has been legally formed. Assurances to these effects were obtained during negotiations. 6.07 While ADA's statutes would permit the payment of annual dividends of up to 5%, it is proposed that dividends would be paid initially only to BSL and SLPMB. This would allow ADA to accumulate the funds that it would require to expand its activities. 6.08 Marketing Organization. ADA would be appointed a licensed buying agent of SLPMB; it would make deliveries of palm kernels produced by the project mill direct to SLPMB in Freetown. During credit negotiations, an assurance was obtained from Government that ADA would be appointed an LBA for this purpose. 6.09 It is Government policy that SLPMB should be responsible for millgate purchase and wholesale distribution of all project produced palm oil. SLPMB already has experience in distributing and marketing palm oil from its own mills (see Annex 3), but it has not prepared a marketing plan for project oil. During credit negotiations it was agreed that a condition of credit disbursement against the oil palm component of the project would be that Government would present IDA with a plan, drawn up by SLPMB, for the satisfactory marketing of project oil, and that a draft agreement, to be signed by SLPMB and ADA prior to mill operation, would be prepared setting out millgate pricing arrangements and guarantees that SLPMB would purchase all project palm oil. 6.10 Project paddy would be milled at the small village mills set up by PMU. The milled rice would be sold on the open market. PMU would retain rice to cover milling costs and credit repayments and the remainder would be returned to farmers. Project cocoa would be sold through SLPMB licensed buying agents (LBA's).  - 17 - B. Staffing 6.12 Previous attempts by the SLPMB and Rice Corporation to carry out large scale agricultural development have failed at a heavy cost to the economy (see paras 2.10 and 2,12). There have been three main reasons for these failures: poor planning, lack of management, and political inter- ference. Satisfactory staff would be the key to the success of the project, and unless Government agrees to employ expatriates in key posi- tions, this project is likely to suffer the fate of previous development efforts. During credit negotiations assurances were obtained from the Government that these positions would be filled by suitably qualified individuals mutually acceptable to IDA and the Government, until such time as Sierra Leonean staff, who would be trained on the project, had gained sufficient experience to replace them. As described in para 2.07 there is no shortage of academically qualified agricultural technicians. For project financial calculations it has been assumed that expatriates would be required in the following positions for the periods indicated: Project Manager - 3 years; Financial Controller - 3 years; Credit Manager - 4 years; Land Planning Officer - 3 years; mill engineer - 4 years; Plantation Manager - 4 years; and Managing Director of ADA for 3 years. Government gave a further assurance to the effect that Sierra Leoneans appointed as Deputy Manager of PMU and Deputy Manager of ADA would be mutually acceptable to Government and IDA. During credit negotiations it was agreed that a condition of credit effectiveness would be that the Project Manager and the Financial Controller had been appointed on conditions, and with terms of refere.nce, satisfaction to Government and IDA, and that they had taken up their duties. It was also agreed that a further condition of credit effectiveness would be that suitable arrangements had been made for the appointment of the Deputy Project Manager, Credit Manager, Land Planning Officer and Plantation Manager on condition, and with terms of reference, satisfactory to Government and IDA. 6.13 The credit officer would be assisted by three qualified Sierre Leone agriculturalists who would receive inservice training in credit operations. They would ultimately be seconded to ADA to form the core of its agricultural credit staff. 6.14 The cocoa/rice officer, three agricultural officers and fifteen agricultural instructors would be selected by PMU from existing MANR staff and would be transferred to PMU. Assurances to these effects were obtained from Government during credit negotiations. Other project staff requirements would be met from graduates from the university and secondary schools. 6.15 Sierra Leonean staff would gain experience that would enable them to follow up the works of expatriates on this project, and to hold more important positions in the project that would be planned for the Northern Province. In particular, it is expected that Sierra Leoneans would be trained to replace the expatriate plantation manager, mill engineer, and credit manager employed under the project.  - 18 - C. Credit Arrangements and Terms of Sub-Loans 6.16 Loans to project farmers would be made by PMU for cocoa, oil palm, and swamp rice development. These loans would bear interest of 8%, which is 1% below commercial bank lending rates for short-term loans. However, this rate would be sufficient to cover the costs of loan adminis- tration including bad debts. Payment of interest on cocoa and oil palm credits would be waived until the plantings, made with the credit, come into production. This is justified, since under SLPMB pricing policies farmers receive less than the market value of their produce and it is not foreseen that this situation will change significantly in the short term. 6.17 During the project disbursement period, farmers would be eligible for credits to develop the following maximum acreages: rice 3 acres; cocoa 2 acres, and oil palm 10 acres. Farmers would be allowed credit for only one of the above crops, and it would be a condition of the credit that all developments would be completed in a single year. Cocoa Planting 6.18 Credit of up to Le 148/acre (US$192) to plant and maintain to first harvest 2 acres. The term of the credit would be twelve years at 8%, interest which would be waived for the first five years. Development credit repayments would not exceed 66% of the net cash return to the farmer after repayment of the seasonal loans and would start in year 6 (Annex 2, Table 1) . Rice 6.19 Credit of up to Le 49/acre (US$64) to clear and drain, and bring to first harvest up to 3 acres. Of the Le 49 75% would be for hired labor, the amount to be determined by the availability of family labor which would be considered during PMU's appraisal of each credit application. The term of the credit would be six years with interest at 8% and a grace period of one year. Development credit repayments would not exceed 29% of farmer's net cash returns after the repayment of seasonal loans (Annex 2 Table 3). Oil Palm 6.20 Credit of up to Le 105/acre (US$137) to plant and maintain to first harvest up to 10 acres. The term of the credit would be 13 years; the inl:erest of 8% per annum would be waived for the first three years. Repayments would start in year 4 and would be so adjusted, together with the seasonal loan repayments, not to exceed a total debt service equivalent to Le 8.5/ton (US$11) for f.f.b.  - 19 - 6.21 Credits would be disbursed in annual installments of: Le Year 1 2 3 4 Total US$ Cocoa 2 acres 172 43 35 45 295 874 Rice 3 acres 14A7 - - - 147 191 Oil Palm 10 acres 833 116 101 - .o050 1,365 Credits would be disbursed in cashi and kici16 directly by the project unit, subject to satisfactory completion of farm work. 6.22 To ensure satlsfactory yields from proJect cocoa, rice and oil palm farms, following conclusion off development credit disbursement under the project, ADA would make seasonal Loans available to project farmers for fertilizers, insecticides, fungicides and hired labor. Seasonal loans would be set, for up to Le 24Jacre (US$31) for cocoa; Le 'I/acre (US$14) for rice; and Le 9/acre (US$12) for oil palm. Farmers would pay a service charge of 10% per annum on the value of all seasonal loans. This would be sufficient to cover credit administration costs, a bad debt allowance and the costs of supplying seasonal inputs to the project area. 6.23 Farmers' loan agreements would obligate the participants: for rice, to deliver paddy, equivalent to the value of their annual loan repayment, to the nearest project operated rice mill; for fresh fruit bunches, to deliver to the oil mill; and for cocoa, to arn LBA satisfactory to ADA. For ffb and cocoa, loan repayments would be deducted from the proceeds of the sales. All loans would become payable immediately if the participant ceased to market produce through the agreed channels; and in the event of persistent repayment default the agreement would allow ADA, when operative, to operate a defaulter's farm until his loan had been repaid in full (See Annex 2). 6.24 Rice farming loan agreements would take a slightly different form in that several farmers who would be grouped or. a single swamp (see para 6.10 and Annex 2) would be required to sign a loan agreement making them collec- tively responsible for the repayment of the total credit extended to members of the group. During credit negotiations it was agreed that a condition of effectiveness of the proposed credit would be that Government had agreed forms of farmers' loan agreements incorporating the above and satisfactory to IDA. VII. PRODUCTION, MARKETING, FARMER BENEFITS AND GOVERNMENT BENEFITS A. Yields and Output 7.01 Cocoa: Trials carried out bv 1ANR in the project area with hybrid cocoa on the heavy clay soils of the lower slopes of the valleys have vielded  - 20 - over 900 lb dried cocoa/acre in their fourth year after planting. Because of the number of farmers involved, however, variations in farm management standards and yields are inevitable. It is estimated that cocoa planted under the project would begin yielding in its fourth year with an average yield of ,200 lb/acre, reaching an average mature yield of 700 lb/acre in its seventh year, after which it is assumed that yields would remain constant until the plantings are 25 years of age. 7.02 Oil Palm: Oil palm yield estimates are based on a satisfactory analysis of project area ecological conditions carried out by IRHO, and growth and yield indications from estate palms planted in the project area in May 1968. It is estimated that estate and smallholder's palms would begin yielding in their fourth year, and would reach average mature yields of 5 tons ffb/acre, and 3.8 tons ffb/acre respectively in their seventh year. The :Lower yields from smallholders' palms reflects the generally lower farm main- itenance standards that are anticipated for smallholders. These yield estimates are in line with yields experienced elsewhere in West Africa under similar ecological conditions. 7.03 Swamp Rice: Swamp rice trials in the project area have produced yields in excess of 3,000 lb of paddy/acre, using the 1960 Rokupr varieties, which do not respond well to fertilizers. It is assumed that project farmers would continue to use such varieties during the early years in which a swamp :Ls being cleared and brought into production, and while growers are learning the techniques of swamp management; and that in this period yields would Lncrease from 1,800 lb/acre in the first cropping year to 2,200 lb/acre in ihe third year. After this time improved varieties should be available from Government's UNDP assisted rice research program (para 2.07), and higher yields attainable. Account is not taken of this possibility in project evaluation. 7.04 At full development the project would produce annually about 230 tons of cocoa; 4,300 tons palm oil; 860 tons palm kernels; and 2,900 tons of milled rice. B. Markets and Prices 7.05 Cocoa: Sierra Leone's average ar.nual cocoa production of 4,000 t:ons is less than 0.5% of total world production (Annex 3, Table 13). Project production of about 230 tons at full production would not have a measurable effect on the world cocoa supply situation, but would form part of the estimated annual growth in world production of 3.5%. The Bank Economics Department estimates that prices in 1980 are likely to be about US$0.27/lb in 1971 dollar terms compared with about US$0.28/lb for the first cluarter of 1971. 7.06 Palm Kernels: Project palm kernel production of about 860 tons/ annum at full development would be exported by SLPMB, which would also handle project produced cocoa. The Bank Economics Department estimates that by 1975, t:he second year of this operation, world market price will fall to US$138/  - 21 - ton cif Europe if palm kernels are to remain competitive with alternative vegetable oil sources and this price has been used in calculating project economic benefits. 7.07 Palm Oil: Project palm oil would be produced for domestic consump- tion only, substituting for a substantial part of Sierre Leone's increasing vegetable oil imports. These totalled 3,200 tons costing Le 911,000 (US$1.09 million) in 1970 (see Annex 3, Table 17). Domestic requirements of vegetable oil are expected to increase in line with a population growth of about 2%, and may expand further because of income increases. Annual domestic consumption of palm oil, the favored oil in Sierra Leone, is currently estimated at about 29,000 tons, of which 600 tons are produced by SLPMB mills, and the remainder from wild palms processed by traditional methods. If consumption increases only in line with population growth, annual requirements of palm oil in 1985 would increase by about 8,000 tons, by which time project production would reach a maximum of 4,300 tons/annum. In view of this and the fact that the produc- tion from wild palms is declining, no problem is foreseen in absorbing project palm oil. In calculating project economic benefits, all oil palm is treated as import substitution and valued at a price equivalent to US$163/ton cif Freetown, which is equivalent to the Bank Economic Department's forecast for palm oil cif Europe for 1975 (Annex 3, Table 18). In finan- cial estimates, it is assumed that as project production increases mill- gate prices will fall from about Le 200/ton when the mill starts operations to about Le 128/ton in 1983. These prices compare with present SLPMB palm oil sales prices of Le 224/ton, and soybean oil import costs of Le 300/ton. 7.03, Rice: Rice imports averaged 23,000 tons/annum from 1954 to 1969, or 16% of annual consumption. They are growing, and cost about Le 5 million in 1970 (see Annex 1). At full production project rice sales would total about 2,900 tons/annum and would substitute for imported rice. In the calculation of economic benefits a price of US$125.7/ton has been used. This price is equivalent to the cost of importing rice, forecast to have a fob Rangoon price of US$81.3/ ton. This is based on the Bank Economics Department's 1980 price projections for rice of quality that is imported by Sierra Leone (see Annex 1, Table 13). C. Farmers Benefits 7.09 Project area farmers are close to subsistence and their cash incomes low; probably about Le 80/annum per family or Le 16/capita. Under the project they would continue to produce most of their existing cash and subsistence produce with the exception of upland rice for which a 50% reduction is assumed. No project participant would receive credit for more thian one project activity and therefore incremental net farm incomes would vary according to crops, and after completion of debt service, would be annually per family about: cocoa Le 132, oil palm Le 462, and rice Le 143 (The respective incremental per capita incomes would be Le 26, Le 92 and Le 29). Individual crop budget details are given in Annex 2, Tables 1, 3, and 5.  - 22 - D. Government Benefits 7.10 Government direct revenue from the project would be small, since project production would be directed to the domestic market, and Government receives the bulk of its agricultural sector revenue from export duties in the absence of an effective system of income taxation in rural areas. Revenue from exported project cocoa and palm kernels would be about Le 22,000/annum at full production. The project however, would generate surpluses for ADA. These surpluses would be generated by the revolving cretdit fund and by the palm oil estate and mill operations (see Annex 4), would be used to finance agricultural development, and would reduce Govern- merit budgetary support to this sector. Government's costs and revenues including ADA surpluses are detailed in Annex 7. VIII. ECONOMIC BENEFITS AND JUSTIFICATION 8.01 The project's primary benefits would be the increased production of palm oil and kernels, cocoa and rice, and resulting foreign exchange earnings and savings, and higher incomes for about 2,500 farm families compris- ing about 13,000 people. The project would demonstrate the benefits of i-mproved agricultural techniques, show the value of supervised credit, and integrate agricultural production with essential processing and marketing facilities. In addition the establishment of ADA would provide a permanent organization for management of commercial agricultural operations and a chatnnel for supervised agricultural credit after the project disbursement period. Rural employment would be increased at a time when opportunities in minLing, particularly alluvial diamond mining, are declining; and the project wouild be an initial step towards diversification of the national economy through agricultural development. 8.02 The return to the economy from the project is calculated in Annex 8. Based on yields, costs, and prices estimated in this report and assuming a project life of 25 years, the rate of return to the economy is about 15%. No cost is attributed to family labor, since under present circumstances farmers lack the opportunity to do more than traditional and virtually subsistence farming. Hired labor is costed at a shadow rate of Le 0.42 sirLce this probably represents the amount produced by an additional worker engaged in subsistence farming and is justified in view of the levels of un- employment in the project area (see para 2.02). When hired labor is costed at its cash cost the rate of return falls to 13%. At full development the prciject would provide annually about 3,000 man-years employment. 8.03 Project rates of return have been tested for their sensitivity to an overall 10% reduction in estimated yields; and to a range of commodity price estimates. The results of this sensitivity analysis are tabulated in Annex 8, and show that only in the unlikely event of yields and prices both falling below estimates that the returns would be marginal.  - 23 - 8.04 The project involves both additional foreign exchange earnings from expanded exports and foreign exchange savings from the substitution of domestic production for imports. The net value of foreign exchange benefits over the life of the project would amount to US$21.8 million (Annex 8, Table 5). IX. RECOMMENDATIONS 9.01 During credit negotiations, agreement was reached on the following principal points: (a) The Government would prepare, for comment by IDA, by the end of 1973, a study for i proving the marketing and milling of domestic rice, including the disposal of the Rice Corporation's uneconomic mills and for the improved marketing of imported rice (para 2.13); (b) Consultants satisfactory to IDA would be employed to assist MANR complete the preparation of a project in the Northern Province (para 4.11); (c) Consultants satisfactory to IDA would be employed to prepare a feasibility study and investment plan for the commercial development of the Tama Forest Reserve (para 4.12); (d) During the credit disbursement period, Government would not expand the Gambia oil palm plantations beyond the already committed 1973 plantings, nor would it initiate any new oil palm development additional to the project, except as recommended by a study undertaken by consultants with terms of reference and conditions satisfactory to IDA (4.13) (e) Government would legally establish ADA before March 31, 1974 or one month prior to the commissioning date of the oil palm mill, whichever is the earliest (para 6.05); (f) During the credit disbursement period ADA would not under- take responsibilities additional to the project, without the prior concurrence of IDA (para 6.05); (g) Suitably qualified individuals mutually acceptable to IDA and Government would be employed in the following positions until such time as suitably qualified Sierra Leoneans are available to replace them: Project Manager; Financial Controller; Credit Manager; Land Planning Officer; Mill Engineer; Plantation Manager; and Managing Director of ADA (para 6.12);  - 24 - (h) Sierra Leoneans appointed Deputy Project Manager and Deputy Manager of ADA would be mutually acceptable to Government and IDA (para 6.12). 9.02 Conditions of credit effectiveness would be that: (a) Government had established a Project Management Unit and that the Project Manager and Financial Controller had been appointed and had taken up their duties (para 6.01); (b) Suitable arrangements had been made for the appointments on terms and conditions mutually acceptable to Government and IDA of the Deputy Project Manager; Credit Manager; Land Planning Officer; and Plantation Manager (para 6.12); and (c) Government had agreed forms of farmers' loan agreements satisfactory to IDA incorporating the conditions set out in para 6.23 (para 6.24). 9.03 Conditions of credit disbursement against the oil palm component of the project would be that: (a) SLPMB had submitted to IDA, a satisfactory plan for the phased closure of its uneconomic palm oil mills (para 2.11); and (b) SLPMB had submitted through Government to IDA, a plan for the satisfactory marketing of project oil, together with assurances that a draft agreement to be signed by SLPMB and ADA, prior to mill operation, would be prepared setting out mill gate pricing arrangements, and guarantees that SLPMB would purchase all project oil (para 6.09). 9.04 The project would be suitable for an IDA Credit of US$4.3 million. May, 26, 1972  ANNEX 1 Page 1 SIERRA LEONE INTEGRATED AGRICULTURAL DEVELOPMENT PROJECT Arrangements for Rice Marketing Background 1. Although rice is the staple food of Sierra Leone, imports have averaged 23,000 tons annually since 1954, and totalled 48,000 tons or about 16% of total requirements in 1970 (see Table 1). In 1965/66, the Agricultural Statistical survey 1/ estimated local paddy production at about 394,000 tons, of which about 10% was taken up for seed and by storage losses, and the bal- ance consumed. During the same year, about 19,000 tons of clean rice were imported, giving a total milled rice consumption of about 255,000 tons, equivalent to about 250 lb per capita/annum. The population has increased since 1965 by about 2.0% per annum to about 2.5 m in 1970, but domestic rice production has grown more slowly. This has been reflected in increased im- ports, which rose to an average of 30,000 tons for 1968-70, with an annual average cost of about Le 3.3 million (US$4 million). 2. It is Government policy that Sierra Leone should become self-suffi- cient in rice production and the project would contribute to this objective. Project incremental rice production at full development, after deducting project farmers' subsistence requirements would be about 2,900 tons in 1978. With a growth in consumption at a rate equal to the expected increase in population, this would represent about 7% of the additional production required by 1978 -- 35,000 tons -- to meet the incremental demand due to population growth alone. Therefore, the project would contribute only to a reduction in the rate of increase in import levels. The Rice Corporation 3. By 1963, Government intervention in the rice industry was consid- erable, and a Commission was established to consider future arrangements for rice production and marketing and, in particular, to examine the operation of the Ministry of Agriculture's Rice Department. It recommended that a public authority should be established to: (a) engage in rice production; (b) import, and distribute rice at controlled prices; and (c) purchase, mill and market domestic rice at controlled prices. 1/ Carried out by the Central Statistics Office, Sierra Leone.  ANNEX 1 Page 2 Thte Rice Corporation was established in 1965 under the Ministry of Trade and Industry to perform these functions. Pzoduction 4. It was envisaged that the Corporation would finance its own large- scale rice production projects and a subsidized plowing scheme for small-st.-L. rice farmers, from profits made on sales of imported rice at internal prices, substantially above those on the world market. The Corporation inherited tractors and other equipment from the Ministry of Agriculture and Natural Resources (MANR), but this was insufficient for the planned expansion of rice production and about Le 1 million worth of new equipment was acquired. 5. The Corporation's programs failed to make an impact on rice produc- tion and by June 1968 the Corporation's production losses amounted to Le 303,000. Consequently, Government returned all rice production activities to MANR. The Corporation's failures were caused by bad management and by political interference, which prevented it from operating commercially. Both the Government, which did not pursue a sound coordinated policy on rice development, and the Corporation, which lacked managerial and technical abi- ity, were responsible for the heavy financial losses sustained between 1965 and 1968, and for the external debts created by supplier credits, accepted for machinery which was mostly unsuited to Sierra Leone rice production <oLi- ditions. Imports 6. The Corporation has a monopoly for importing rice and estimates annual requirements in consultation with MANR. Supplies are arranged by the Corporation from the most favorable source. The Corporation appoints Licensed Selling Agents (LSAs) for the distribution of imported rice and fixes selling prices and trading margins in consultation with Government (see Table 9). LSAs are given quotas, which are keenly sought by all traders, because the retail prices at which the LSAs are supposed to sell imported rice are not widely observed, and by selling rice at open market prices, LSAs realize attractive profits. The Corporation's retail prices are of doubtful value since they cannot be enforced on the large number of retail outlets that exist throughout the country, and therefore do not provide consumer protec- tion. Consumer protection can be assured better in future by channelling supplies of imported rice into a competitive market, and a distribution of profits reflecting costs more closely would follow the removal of the retail prices determined annually by the Rice Corporation, which currently favor the LSAs and petty traders to the detriment of the Corporation.  ANNEX 1 Page 3 Marketing and Milling of Domestic Rice 7. Only 20% of domestic rice production enters commercial channels, the remainder being consumed. Trading is carried on mainly by private trad- ers 1/, with less than 5% of paddy production being sold to the Corporation for milling. The Corporation announces annually the prices at which it will purchase and sell and in 1971/72 these are: (a) Producer prices (i) dried husk rice (paddy) -Le 2.30/bushel (60 lb net) (ii) dried native cleaned rice (upland)-Le 7.00/bag (168 lb net) (iii) dried native cleaned rice (swamp) -Le 8.80/bag (168 lb net) (b) Corporation selling prices (Freetown) (i) wholesale price - Le 10.80 (160 lb) (ii) retail price - Le 11.40/bag (160 lb) 8. The Corporation maintains a buying organization for husk rice and native cleaned rice in the main surplus growing areas. It has Licensed Buy- ing Agents (LBAs), who are responsible for buying from producers at fixed prices and who receive an allowance of Le 3.33/ton. However, producer prices are not enforced and rice is purchased in a variety of measures and without quality controls. The Corporation has great difficulty in attracting substan- tial supplies of paddy and in the Southern Province relied in the past on cooperatives that were under Government pressure to supply it. There is gen- eral dissatisfaction with the buying services of the Corporation, because traders are able to offer higher prices. In these circumstances, the Cor- poration's annual purchases of husk rice have fallen to less than 4,000 tons annually (see Table 11). Inevitably, a fall in tonnage of rice handled in- creases unit costs of the Corporation's buying organization. 9. During 1970/71 paddy was purchased at a milled rice equivalent of Le 124/ton, while milled rice was purchased at Le 117/ton. At this paddy price and with the Corporation's milling and administrative expenses (Table 10), a ton of milled local rice costs the Corporation Le 162/ton, which was Le 10.8/ton more than the maximum Government controlled wholesale price at which it sold rice ex-Freetown in that year. In 1971 the Corporation offered even higher paddy prices in an attempt to increase its purchases. These prices will increase the cost/ton of rice by an additional Le 19, thereby contributing to larger losses. 10. The Corporation operates the following three rice mills: 1/ The Rice Corporation Act of 1965 restricts trade in rice to Sierra Leone citizens.  ANNEX 1 Page 4 Location Establish1ed Capacity (tons of paddy/hour) Mambolo 1950 2/3 Torma Bum 1956 2/3 Freetown 1959 (extended in 1963) 2-1/6 Average milling costs in these mills from 1965/66 to 1968/69 are given i) Table 10. These are abnormally high for large mills and costs/ton milled would not be reduced significantly by increasing throughput, because direct expenses represent the larger part of total costs. It is unlikely also that the mills could operate at full capacity even if adequate supplies of padd., were available, because of frequent breakdowns and their limited parboiling and drying facilities. In view of the Corporation's losses on milling and marketing domestic rice, and its low turnover, it is necessary to reconsider both the need for these mills and the role of the Corporation in the market- ing of domestic rice. Since the mills are old, poorly equipped, and in the case of the Freetown mill, badly located, it is opportune to consider the:il closure or sale to private operators, thereby eliminating losses from t1'Li continued operation by the Corporation or by Government. 11. Since its eatablishment, the Corporation has suffered from politi-- interference and its management has been unable to operate commercially as envisaged by the Commission, which led to its establishment. Financial coi-> trol within the Corporation has been very weak, operations have not been costed properly, stores have been lost, debts to the value of Le 288,00 had accumulated by June 1969, and annual accounts have not been published since the end of the financial year 1967/68 (see Tables 2-7 for the latest accounts'. Accumulated losses up to June 1969 are estimated at Le 610,000, of which pad.y production activities accounted for Le 303,000 by June 1968 (see Table 6), when they were returned to MANR. Gross trading profits from imports totalling about Le 1.2 m by June 1969 (see Table 8) had been absorbed by losses on pro- duction projects, domestic paddy marketing and milling operations, and on ad- mdnistrative overheads, while additional deficits have been financed by Gov- ernment advances, details of which are not available. Future Milling and Marketing Arrangement for Domestic Paddy and Rice and Imported Rice 12. The Corporation's and Government's failure to promote the domestic rice industry is apparent from failure to substantially reduce imports and the reduction in paddy offered for sale to the Corporation (see Table 11). Changes are required to stimulate local paddy production, and improve milling and marketing efficiency. A major step to creating such conditions would be for the Corporation to handle wholesale distribution only, and not to set prices for retail sale of its rice, and to control the release of imported rice stocks so as to maintain reasonable domestic prices until local supplies are sufficient to meet domestic requirements.  ANNEX 1 Page 5 13. The introduction of a large number of small rice mills in recent years has been of great value to the local industry. The unit cost of a typical small mill is about Le 7.3/ton 1/ of husked rice milled compared with an average of Le 26/ton in the Corporation's mills between 1967-69 (excluding parboiling and drying). At the same time, the larger mills inevitably in- curred heavy transportation costs and average transportation distances would be shortened by the replacement of the large mills by small village mills. However, it is recognized that the small mills may only have an economic advantage over larger mills until large contiguous areas of produc- tion are developed. Nevertheless, in the meantime, the scattered distribu- tion of existing production and the planned development of rice so far favors small mills, and in contrast to the large mills, private mills are currently being operated successfully at the village level. 14. The changes proposed above imply that the Corporation would be left only with the responsibility of rice importation and distribution -- a de- clining responsibility as domestic production approaches self sufficiency. It is questionable, therefore, whether a separate statutory body is necessary to perform this function. The Sierra Leone Produce Marketing Board (SLPMB) is capable of importing and distributing rice without significantly increasing its present reasonable overhead expenses (see Annex 3). Satisfactory port handling and storage facilities are already available for crop export and these could be readily adapted for rice imports. In contrast to the Corpora- tion, SLPMB accounting and management procedures are satisfactory, and a chain of well established agents with approved storage facilities exists throughout the country. In view of the substantial savings that would accrue to Sierra Leone's economy if SLPMB assumed responsibility for importing anld distributing rice, Government should plan to dissolve the Rice Corporation and make SLPMB responsible for importing rice. The annual savings on over- head administration alone would be about Le 150,000 and after the disposition of the large rice mills, would total about Le 200,000. Project Paddy and Rice Marketing Arrangements 15. The project includes rice production on 6,000 acres of inland swamp. After deducting 1,250 lb of paddy per family for subsistence 2/, and assuming a paddy to rice conversion rate of 60%, and an average holding size of 3 acres, project rice sales at full development would be about 2,900 tons building up as follows: 1/ FAO - Integrated Development of the Agricultural Sector - Sierra Leone, ESE:SF/SIL 3, Technical Report No. 3, Rome, 1970. 2/ The balance of family subsistence requirements would come from traditional upland rice farming.  ANNEX 1 Page Year 1 2 3 4 5