Ghana - Ashanti Region Cocoa Project

Report No. 827a-GH FILE COPY Appraisal of Ashanti Region Cocoa Project Ghana November 18, 1975 Western Africa Regional Office Not for Public Use Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1 ^ .1538 ei. US$0.8667 WEIGHTS AND MEASURES 1 ton = 2,240 lb - 1,016 metric ton 1 acre 0.405 hectares 1 mile = 1.609 kilometers ABBREVIATIONS AIB S Agricultural Development Bank CMB Cocoa Marketing Board C14C Cocoa Marketing Company CRI Cocoa Research Institute ERCP Eastern Region Cocoa Project FAO Food and Agriculture Organization of the UN GCMA Ghana Cooperative Marketing Association GHA Ghana Highways Authority ISSER = Institute of Statistical, Social and Economic Research LBA Licensed Buying Agent MCA Ministry of Cocoa Affairs NRC National Redemption Committee PBA Produce Buying Agency PU Project Unit SRI a Soil Research Institute SSVD = Swollen Shoot Virus Disease FISCAL EAR July 1 - June 30  GHANA ASHANTI REGION COCOA PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS .......................... i - iii I. INTRODUCTION ........ ............ ................. II. BACKGROUND ................................ 2 A. General ..................................... 2 B. Agricultural Sector ......................... 3 C. Cocoa ....................................... 3 D. Eastern Region Cocoa Project .... ............ 9 III. THE PROJECT AREA ................................. 11 A. Institutions ................................ 11 Ministry of Cocoa Affairs (MCA) .... ....... 12 Cocoa Buying and Marketing .... ............ 12 Cocoa Cooperatives ........................ 12 Agricultural Development Bank (ADB) ....... 12 B. Physical and Soil Characteristics .... ....... 13 Soils, Climate and Relief .... ............. 14 Population ................................ 14 Farming Activities ........................ 14 Farm Size ................................. 15 Labor ..................................... 15 Land Tenure ............................... 16 iarketing ................................. 16 Cooperatives ................ 16 Seed Gardens .............................. 16 Services .................................. 16 IV. THE PROJECT .................... .................. 17 A. General Description ....................... 17 B. Detailed Features ........................... 17 This report is based on a preappraisal report made by Government; by a mission to Ghana in October and November 1974 comprising Mr. A.R. lhyte (RMWA) and Mr. J. Braudeau (Consultant); and a mission in May 1975 by M'r. P.S. Zuckcerman, who was responsible for the preparation of this report.  TABLE OF CONTENTS (Continued) Project Area .............................. 17 Replanting Schedule ....................... 18 Participating Farmers ..................... 18 Planting Material .......................... 19 Buildings .................................. 19 Training .................................. 19 Cooperatives .............................. 19 Feeder Roads .............................. 20 Project Monitoring and Evaluation ......... 20 Project Administration ..... ............... 20 V. COST ESTIMATES AND PROPOSED FINANCING .... ........ 21 A. Project Costs ....... ........................ 21 B. Proposed Financing ..........................21 C. Credit Terms ................................ 24 D. Procurement ................................. 24 E. Disbursement ................................. 25 F. Accounts and Audits ......................... 26 G. Proposed Project Expansion ..... ............. 26 VI. ORGANIZATION AND MANAGEMENT ...................... 27 Project Management ........................ 27 Cooperatives and Marketing .... ............ 27 Credit Procedures ......................... 28 VII. PRODUCTION, MARKETS, FARMER BENEFITS AND GOVERNMENT REVENUES .............................. 28 A. Yields and Production ....................... 28 B. Markets and Prices ........................... 29 C. Farmers Benefits ............................ 30 D. Government Revenues ......................... 30 VIII. BENEFITS AND JUSTIFICATION ........................ 31 IX. AGREEMENTS REACHED WITH THE BORROWER .... ......... 33 ANNEXES 1. Regional Production of Cocoa 2. Prices Table I - Projected Selling Price for Cocoa and Distribution of Proceeds Table 2 - Estimated Economic Tree Producer Price of Cocoa 3. Project Area Cooperatives  TABLE OF CONTENTS (Continued) 4. Cost Estimates Table 1 - Project Costs Table 2 - Per Acre Annual Costs Table 3 - On-Farm Costs Table 4 - Project Administration Staff Table 5 - Vehicle Costs Table 6 - Equipment Cost Table 7 - Recurrent Costs 5. The World Cocoa Market 6. Farm Budget 7. Disbursement Schedule 8. Financial Implications to Government Table 1 - Project Costs to Year 7 Table 2 - Illustrative Government Cash Flow Table 3 - Estimated Government Cash Flow for a 16,000 Acre Planting Table 4 - Estimated Government Cash Flow for Proposed Project and 16,000 Acre Annual Planting Program 9. Economic Analysis Table 1 - Economic Costs and Returns 10. Terms of Reference - Study on Farm Inputs. 11. Draft Agreement between Project Unit and Participating Farmer. 12. Implementation Schedule. MAP - IBRD 11531R (November 1975)   GHIANA ASHIANTI REGION COCOA PROiJECT Summary and Conclusions i. The Government of Ghana has requested Bank assistance to finance the rehabilitation of the cocoa sector in the Ashanti Region, a follow-on to the Bank's first involvement in the cocoa sector - the Eastern Region Cocoa Project (Credit 205-GH). This report is based on data collected by Government in 1974, and on two bank missions to Ghana in October/November 1974, and MIay 1975. ii. Cocoa covers some 3.0-4.5 million acres and accounts tor one-third of total cultivated land area in Ghana. About one quarter of the total popu- lation or 2.5 million people are directly involved in cocoa farming. Cocoa accounted for 62% of foreign exchange earnings on average between 1971-73 and provided about one-third of Government current revenues. This reliance on cocoa appears to be increasing for in 1966/67 cocoa accounted for only 16% of Government revenues. Despite its importance, the cocoa sector is presently in a decline. iii. The five primary reasons for the decline and farmers unwillingness to invest in new cocoa plantings are: (1) Government's policy of low producer prices that inhibits maximization of production from existing trees, militates against new investments in cocoa, in particular replanting low yielding over- aged trees, and encourages smuggling; (2) lack of effective technical assist- ance to farmers; (3) inadequacy of the farm input delivery system coupled with an import licensing system that gives no apparent priority to inputs for the cocoa sector; (4) unfavorable age profile of Ghanaian cocoa trees due to its excessive component of over-aged trees; and (5) lack of a coherent overall development plan for the cocoa sector. iv. The proposed project would help finance the replanting of 30,000 acres with high yielding hybrid cocoa in the Ashanti Region which was once the center of Ghana's cocoa sector, but where economic activity is now declining. Planting of the cocoa would be spread over three years and the proposed Bank loan would be disbursed in the same period. As cocoa takes about four years to come into production, an additional four years would be needed to maintain all 30,000 acres of plantings until they come into bearing, a total of seven years. v. A project to replant 30,000 acres out of three to four and a half million acres of cocoa is meaningless unless it becomes the initial phase of a major replanting program extending over many years, and there would be little justification for the Bank financing it unless it was ready in princi- ple to lend its support to the later stages of the program. The proposed three year 'time-slice" operation is thus seen essentially as a part of a long-term cocoa development program with repeat operations following in later years, rather than as the financing of a single discrete project.  - ii - Conditions of making the loan include a number of macro level changes and studies to help reverse the cocoa sector's decline. The changes include establishment of an overall development plan for the cocoa sector, and of a rational and informed pricing policy; improvement in the farm input's distri- bution system and placing cocoa seed gardens under sound management. vi. The proposed project would involve some 10,000 cocoa farm families. Credit in kind for farm inputs, and in cash for 80% of labor requirements, would be provided in the first three years of planting. Other elements of the project involve planning for feeder roads; training of farmers and project staff; and funding of an independent evaluation of project progress. vii. The project would be carried out by a Project Unit (PU) established in the newly formed Ministry of Cocoa Affairs (MCA). PU would be semi- autonomous. The Project Manager and Financial Controller, both Ghanaians, have been appointed. viii. Project costs are estimated at US$21.9 million for the 1975/76- 1977/78 three-year planting period made up as follows! US$8.1 million for farm development; US$2,1 million for vehicles and equipment and operating costs; US$4.2 million for staff salaries; US$0.5 million for project evalua- tion and technical assistance; US$0.7 million for general project administra- tion recurrent costs; and US$6.4 million for physical and price contin- gencies. The foreign exchange costs would amount to US$5.3 million, about 24% of total expected project cost. The proposed loan of US$14.0 million would finance 64% of total expected project costs net of taxes and duties and would cover 100% of the foreign exchange costs and 53% of local costs. The Bank loan would be made to Government repayable at 8-1/2% interest over 30 years including an eight year grace period for principal. The remainder of local costs would be financed by Government (36%). ix. In the past Bank financing of cocoa projects has often included the cost of maintaining all plantings up to and including the fifth year of growth. The proposed US$14.0 million loan represents about 28% of the esti- mated cost of the traditional full 7-year project or 100% of foreign exchange costs and 9% of local costs. The additional cost required to maintain all project plantings till the fifth year of growth would be approximately US$27.7 million of which farmers would contribute US$6.0 million. It is estimated that of the US$21.7 million required from Government only US$15.0 million would be additional funds since about 75% of PU staff wo'ald come from MCA where they would not need to be replaced and would not therefore constitute an additional expenditure for Government. x. International competitive bidding in accordance with IBRD guidelines would be used for vehicles, and equipment for the feeder road component (US$1.3 million) and spraying machines (US$1.1 million). Insecticides (US$0.9 million) would be procured by negotiated contract with suppliers. Contracts costing less than US$5,000 equivalent would be let pursuant to such competitive practices as  - iii - are appropriate. Goods manufactured in Ghana would enjoy a 15% preference margin or the applicable level of tariff protection, whichever is lower, for bid evaluation purposes. Contracts for procurement of goods and services costing less than US$20,000 equivalent and which cannot be bulked for ICB, would be awarded on the basis of local competitive bidding in accordance with procedures satisfactory to IBRD. Technical assistance and technical evaluation services would be provided by consultants selected in accordance with normal IBRD procedures. xi. Proceeds of the IBRD loan would be disbursed over three years (1975/76-1977/78) and would finance 100% of foreign exchange costs of sprayers, vehicles and equipment; 100% of foreign exchange costs of technical assistance or 90% of local costs; 100% of foreign exchange costs of insecticides or 80% of local costs; 90% of total costs of seedlings, subloans to farmers, and evaluation studies; and 40% of staff salaries disbursed by PU. xii. At maturity, in 1983/84, production from project plantings would be about 10,000 long tons of dry cocoa, which represents about 2% of Ghana's present total production or about US$10.8 million in foreign exchange earn- ings in 1974 prices. Farmers' net incomes per acre would increase by 0 57.9 (US$50.2) during debt repayment and