Afghanistan - Fruit and Vegetable Export Project

Document of The World Bank FOR OFFICIAL USE ONLY 5 Report No. 1782a-AF STAFF APPRAISAL REPORT AFGHANISTAN FPUIT AND VEGETABLE EXPORT PROJECT February 21, 1978 Regional Projects Department Europe, Middle East and North Africa Agriculture III |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 he disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Afghani (Af) US$1 = Afs 47.5 /1 WEIGHTS AND MEASURES 1 man 4 kg . 1 seer 7.66 kg While the metric equivalents of man and seer vary among regions the above values are those most commonly used. 1 beswa 0.05 jerib 1 jerib 0.2 ha 1 ha 2.47 acres ABBREVIATIONS AND ACRONYMS AgBank - Agricultural Development Bank of Afghanistan AMSCO - Agricultural Machinery and Services Company ARI - Afghan Raisin Institute ASC - Afghan Seed Company AVEC - Afghan Vegetable Export Company DAB - Da Afghanistan Bank EPB - Export Promotion Bank FAO - Food and Agriculture Organization GOA - Government of Afghanistan IDA - International Development Association IDBA - Industrial Development Bank of Afghanistan PACCA - Project on Agricultural Cooperatives and Credit in Afghanistan PCU - Project Coordinating Unit SIDA - Swedish International Development Authority UNCTAD - United Nations Conference on Trade and Development UNDP - United Nations Development Program FISCAL AND CALENDAR YEAR March 21 to March 20 /1 This was the GOA supported rate at the time of field appraisal and the GOA indicated that this would be the lower limit to the long term rate which it would support despite a possible short term decline to US$1 = Afs 44 which has occurred.  FOR OFFICIAL USE ONLY APPRAISAL OF A FRUIT AND VEGETABLE EXPORT PROJECT AFGHANISTAN Table of Contents Page No. I. SECTOR ..... ........................................ 1 A. Structure of Agriculture ...................... 1 B. Organization and Supporting Services .......... 2 C. Policies and Prospects ........................ 3 D. Performance under Previous Projects ........... 4 E. The Horticultural Subsector .... ............... 5 II. THE PROJECT ........................................ 9 III. PROJECT COST AND FINANCING ......................... 12 IV. PROJECT ORGANIZATION AND MANAGEMENT ................ 17 A. General ... ..................... ...... .......... 17 B. Export Promotion Unit ..... .................... 18 C. Export Promotion Bank ..... .................... 19 D. AgBank . .............. 25 E. Afghan Raisin Institute ....................... 27 F. Afghan Seed Company ..... ...................... 30 G. Afghan Vegetable Export Company ............. .. 32 H. Ministry of Agriculture ....................... 34 I. Auditing Requirements ..... .................... 34 V. PROJECT IMPLEMENTATION ..... ...................... 35 A. Procurement ................... 35 B. Disbursement ................ 37 C. Monitoring and Evaluation . 38 D. Environmental Impact ..... ..................... 39 VI. PROJECT BENEFITS AND JUSTIFICATION ......... ........ 39 A. Production, Markets and Prices .... ............ 39 B. Financial Analysis ............................ 41 C. Economic Evaluation ........................... 43 VII. RECOMMENDATIONS .................... ................ 47 This report consists of the findings of an appraisal mission of Messrs. R. Hunt, R. Hing and H. Eisa (IDA) and Messrs. H. Nyberg and E. Shoreibah (Consultants) which visited Afghanistan in June 1977 for about 3 weeks. Mr. Y. Suzuki (Y.P. IDA) assisted in the analysis and drafting of the report. This documcnt has a rtricted distrlbution and may be mud by recipients only in the performance of their official dutia. Its contents may not otherwis be disclosed without World Bank authoriation.  Table of Contents (Continued) ANNEXES 1. Financial Intermediaries Export Promotion Bank - Background, Sources of Funds, Operations Review, Additional Financing Required, Institution Building, Portfolio Analysis, Required Undertakings, Interest Rate Spread. Chart 1 - Export Promotion Bank - Outline Proposed Organization Chart Table I - Export Promotion Bank - Profit and Loss Statement Table 2 - Export Promotion Bank - Balance Sheet Table 3 - Export Promotion Bank - Projected Receipts and Applications of Funds Table 4 - Export Promotion Bank - Disbursement and Repayment Schedule Table 5 - AgBank - Projected Receipt and Application of Funds and Disbursement and Repayment Schedule 2. Financial and Economic Analysis Raisin Marketing Credit Program Table 1 - Afghan Raisin Institute - Projected Cash Flow Table 2 - Afghan Seed Company - Vegetable Seed Multiplication - Projected Cash Flow Table 3 - Afghan Seed Company - Fruit Rootstock and Seedling Production - Projected Cash Flow Table 4 - Afghan Vegetable Export Company - Projected Cash Flow Table 5 - Fresh Fruit Packing and Cooling Plant - Projected Cash Flow Table 6 - Refrigerated Truck Transportation - Projected Cash Flow Table 7 - Grape/Raisin Production - Existing 1 jerib Vineyard Trellised in year 9 - Projected Incremental Cash Flow Table 8 - Grape/Raisin Production - New and Replacement 1 jerib Trellised Vineyard - Projected Cash Flow Table 9 - Onion and Potato Production - Operating Costs and Revenue Economic Analysis - General Considerations - Exchange Rate, Output and Input Prices. Economic Rate of Return. Table 10 - Economic Rate of Return Analysis Summary Table 11 - Economic Rate of Return - Projected Cash Flow by Component and Total 3. Technical Assistance Table 1 - Technical Assistance and Training by Component and Year Chart 1 - Phasing of Technical Assistance and Training AVEC Organization AVEC Organization 4. Chart 1 - Outline Organization of the Afghan Vegetable Export Company 5. Project Files Table of Contents A. Implementation File B. Background File MAP IBRD 13175 Afghanistan - General  I. SECTOR 1/ A. Structure of Agriculture 1.01 Agriculture is the dominant sector of the Afghan economy. It is estimated to account for 50% of GNP, about 55% of the settled labor force and about 60% of total export earnings. This contribution to the economy has been stable for some years indicating that growth in agricultural production remains in line with overall annual growth in the economy at about 3%. Afghanistan's remote landlocked mountainous location is responsible for its relative under- development and continues to act as a major constraint. Extremes of climate due to the continental location and topographic features have created an uneven pocket type dispersion of the rural population. Reliance on winter precipitation for crop irrigation, combined with the topographic extremes, limits expansion of cultivated area despite capital intensive irrigation developments. The net result is that only an estimated 13% of the land is arable; of which, due to lack of water, only 50% is cultivated. Cropping Pattern, Yields and Inputs 1.02 The cropping pattern is virtually unchanged over the last 15 years with wheat occupying 60% of cropped land. Non-food crops, of which cotton is the most important, did show a steady expansion in output up to 1975/76 but now show some tendency to level off. Since cotton is a substantial foreign exchange earner it is likely that the GOA will further increase the cotton/ wheat price ratio in the future to offset such a decline. The substantial area of non-irrigated and partially irrigated land and the need for self- reliance together with the lack of commercial alternatives, both born out of lack of market access, are largely responsible for this overall stationary pattern. With gradual increase in irrigated area and the development of a cash economy, there are indications of change to cropping patterns which relative output prices would indicate as more optimal. 1.03 Yields are low by most standards, but experiments demonstrate them capable of substantial improvement in an economically and financially viable manner. The traditional, isolated barter system is only now giving way to a more modern structure. Hence the development of the input market is still in its infancy and input levels are far below those of most other developing countries. Thus growth in yields has been slow and confined mainly to wheat. Income Distribution 1.04 In the absence of significant metropolitan areas, income distribution is largely constrained by tenancy, holding size and access to irrigation, as cropping pattern is constant. Farm incomes are low and on 1.5 to 3 ha irri- gated farms would seldom exceed Afs 5,000 (US$100) per capita; about 50% of 1/ For an in-depth review see Afghanistan Opportunities for Agricultural and Rural Development Sector Report Vols. I and II, World Bank Report No. 848a-AF, November 1975.  - 2 - the rural population is estimated to be below the absolute poverty level of US$89 per capita. While the average holding size is about 3.5 ha of arable land, ownership is skewed in most areas. Although data is not available it is believed that sharecropping is the dominant form of cultivation and a large proportion of the non-nomadic rural population consists of landless labor or sharecroppers. Recently enacted legislation sets limits on land ownership and a Graduated Land Tax requires all land holders to submit tax declarations. No water charges are levied in traditional irrigation schemes, and an effort is being made under the Khanabad I Irrigation Project (Credit 248-AF) and the proposed Khanabad II Irrigation Project to initiate the con- cept of a water charge taking into consideration equity and water use effi- ciency criteria. B. Organization and Supporting Services Government Departments 1.05 The Ministry of Agriculture is the main administrator of agricultural development, but its performance in influencing agricultural development has been limited by a number of inter-related factors, including insufficient funds, unsatisfactory administrative framework and lack of trained staff. The Research Department within the Ministry has been of limited effectiveness and receives low priority. Agricultural extension is the responsibility of the Department of Extension which has a total staff of about 2,600 (including nearly 140 college graduates), most lacking agricultural or vocational train- ing. The extension service is inadequate to meet the wide and pressing needs of agriculture and its upgrading is a major need. In view of the severe short- age of vocationally trained people, an IDA financed education project (Credit 674-AF) has been launched recently which would train middle level personnel in agriculture. The recently constituted Water and Power Ministry (WAPM) offers the possibility of more efficient utilization of the nation's scarce water resources, including the planning, design and implementation of irrigation projects. The Rural Development Department within the Prime Minister's Office is responsible for the implementation of minor irrigation projects. The Food Procurement Department of the Ministry of Finance has responsibility for carry- ing out the Government's wheat price stabilization policy. Since 1968 the Swedish International Development Authority has been financing a project which is executed by FAO, on agricultural credit and cooperatives. In 1973 this pilot project was changed to a nationwide cooperative program and a coopera- tive law was enacted in November 1974. The biggest weaknesses in the current cooperative structure are the absence of trained personnel and a lack of member understanding and participation. Marketing and Credit 1.06 The traditional bazaar combines the functions of both a wholesale and a retail market. It operates with only limited Government interference, and at present generally meets the needs of the volume and pattern of agri- cultural production. Government fixes prices for certain commodities (cotton  - 3 - and sugar beet) which are marketed directly with the processing companies, and has indirect influence on commodity price levels through import and export policy, wheat purchases, and pricing of fertilizer and other inputs. Since 1973, Government's pricing policy has aimed mainly at keeping domestic food prices stable; imports and exports are made on both a free trade and barter basis and are handled by Government organizations and private traders mainly through the Ministry of Commerce. The majority of farmers rely on money- lenders for short term loans, for which they pay very high finance charges. Commercial banks provide limited short term financing for processing and marketing, particularly for export. The Agricultural Development Bank of Afghanistan (AgBank), which has received 3 IDA credits so far, is virtually the only source of insitutional credit for agriculture, but because of staff constraints and loan security requirements, credits made by it so far cover only about 5% of farmers. Farm Inputs and Machinery 1.07 The use of inputs such as fertilizer and agro-chemicals is low, although the use of fertilizer has doubled since the formation of the Afghan Fertilizer Company (AFC) in 1973. The multiplication of improved seed (cereals and cotton) will be carried out by the newly established Afghan Seed Company (ASC), which is being assisted by an Asian Development Bank (ADB) loan. Due to high demand for labor from neighboring oil producing countries, a rural labor shortage is developing in certain areas. This situation is further aggravating the prevalent critical seasonal labor shortages during peak demand periods, such as harvesting of wheat, planting of second crops (June-July) and cotton harvesting in the fall which coin- cides with wheat planting. Under these circumstances, the process of farm mechanization is likely to grow, and in general, would be economically and socially justified. However on owner operated holdings, where labor supply is not a problem, returns to labor and land are low, and the proposed proj- ect is designed to improve these returns. C. Policies and Prospects The 7 Year Plan 1.08 The 7 Year Plan (1976-83) I/ lists increased output income, earnings and capital formation in agriculture as well as a more even distribution of agricultural income as its main objectives, all of which are in agreement with Bank policy. The Plan indicates that 25% of total developmental expenditure or Afs 43 billion (US$900 million) would be allocated to investment in the agricultural sector during the 7 year period. Strategies to achieve increased 1/ Government of the Republic of Afghanistan. First Seven Year Economic and Social Development Plan 1355-1361 (March 1976-March 1983), Vols. I and II. Ministry of Planning, Kabul, 1355.  - 4 - output are based on increasing and improving cultivated land, seed, fertilizer, pesticides and credit. The production aims are based on the principles of comparative advantage; but, aims such as the target of over 200% increase in sugar production give more weight to the practice of import substitution. The fact that this will reduce wheat cultivation ig an improvement in resource allocation. Although the final quantitative targets seem ambitious in view of past performance, the Plan presents a reasoned attempt at planning for agricul- tural development in a situation where data is scarce and unreliable. 1.09 The general strategy for achieving these targets is based largely on public investment and pricing policies. Thus, for example, investment in improved seed production and marketing by ASC, and extension training programs, are to increase grain yields by 28%; while altering relative output prices will cause a 4% decline in grain area giving a 24% net increase in production. Increased investment will be financed principally by increased application and collection of graduated land taxes. Notably absent from the Plan is any significant role for private investment. Whereas public investment is expected to grow by about 300% over the Plan period, similar growth projected for private investment is only 30%. Nonetheless, private and corporate taxes are projected to increase by 360% and 280% respectively. This lack of capitalization on the well recognized entrepreneurial ability of the Afghan private businessman, together with the disincentive of the projected tax burden, would appear to be a substantial drawback to achievement of the overall Plan targets. Administrative inabilities of government employees coupled with the lack of a salary incentive system are likely to cause a slower and less efficient implementation of the public investment targets than foreseen by the Plan. D. Performance under Previous Projects 1.10 In the agricultural sector, IDA has already financed 3 credit, 2 livestock and I irrigation projects. A second irrigation project is being processed. The continuum of these credit and livestock projects has shown a progressive improvement in implementation. In each case a substantial insti- tution building program has been involved and is under implementation. This reasonably successful experience of developing administrative capabilities among Afghan institutions validates IDA's policy in Afghanistan of concen- trating technical assistance in key institutions. 1.11 The Agricultural Credit I Project (202-AF) was successfully completed by the AgBank and yielded an overall economic rate of return of 46%. One com- ponent, the Minor Irrigation Schemes, although conceptually sound proved to be premature in the Afghan context, relying as it did on an unrealizable amount of interministerial and inter-community cooperation and goodwill. AgBank developed under the first credit project was further strengthened under the Agricultural Credit II Project (539-AF), which omitted the irrigation com- ponent, but introduced short term lending in agriculture to Afghanistan with notable success in promoting the use of fertilizer and increasing storage capacity of the Afghan Fertilizer Company, another basic institution.  1.12 The Livestock I and II Projects (375-AF and 649-AF) are responsible for the promotion of livestock production and export in Western Afghanistan including the development of range production systems, producer and export marketing systems and the construction of a modern slaughterhouse to meet international export standards. The establishment and development of the Herat Livestock Development Corporation, which is responsible for all com- mercial aspects of the project, was again a major step forward in the building of Afghan institutions. Progress, initially slow due to problems of satis- factory subloan collateral and co-financing in the first project, is now satisfactory in both livestock projects. 1.13 The Khanabad I Irrigation Project (248-AF) provides for moderniza- tion of an existing irrigation system in the Khanabad valley covering about 30,000 ha. Delays, initially in the ratification of the project by Govern- ment, and subsequently in establishing the Project Authority, recruitment of its staff and appointment of project consultants, caused substantial setbacks to its implementation. The amended credit agreement increased IDA's contri- bution from US$5 million to US$15 million to meet cost overruns. Construc- tion began in early 1976 and is now well advanced. Project completion is expected by the end of 1978. This project also developed another institution in Afghanistan, Khanabad Irrigation Project Department (KIP), which will be used by the proposed Khanabad II Project. E. The Horticultural Subsector 1.14 Because of the nature in which the horticultural subsector is integrated with the rest of the agricultural sector, it is not possible to separate its contribution distinctly. However, it is estimated that fruit and vegetables account for about 6% of the total cultivated area, 10% of irrigated land and about 10 to 15% of permanently irrigated land. Fresh and dried fruits, nuts and medicinal herbs make up 40-45% of total exports. Because of drought induced scarcities in 2 consecutive years, exports of fresh vegetables have been completely embargoed for the past 5 years; this appears to have reduced production in the Western and South Western Provinces, defeating the aim of the embargo. Due to their relatively high labor intensity, both fruits and vegetables do provide substantial employment within the sector, and any reduction is likely to bias income distribution against small holders. Production Constraints 1.15 Low yields and very slow growth in productivity are the principal constraints. The area under fruit and vegetables has remained quite constant despite the superior financial returns to these crops. A number of factors appear responsible for this; principally the lack of market access, particu- larly for fresh produce. This has the effect of negating the potentially higher returns to horticultural production and causing the actual returns to alternative crops to favor wheat in many years. Sharecropper and tenant farmer access to irrigated land, unequal distribution of water rights and uncertain availability of irrigation water during the summer also have an  -6- effect but more marginally so. The continued preoccupation of the farmers with wheat production is also a factor, due to the need of the producers to ensure adequate quantities of storable food for their families over the lengthy and harsh winter period. Government is now planning expansion and improvement of the public food storage and distribution facilities to reduce the individual's burden in this respect. 1.16 Another significant factor adversely affecting the production of grapes is the virtual absence of trellised vineyards. Presently trellising can be found only in the Parwan region, where a few farmers have adopted it in growing bush variety grapes. Trellising first began after the Ministry of Agriculture demonstrated its value through the SIDA supported, FAO-executed PACCA Project. These farmers are unanimously in favor of trellising and have benefitted by obtaining 3 to 5 times the yield of non-trellised vines. The traditional (non-trellised) system of vineyard production is highly labor intensive and can only be justified if labor is shadow priced at an extremely low rate. Such pricing may well have been valid in the past but continued and consistent indications are that it is no longer so. Estimates indicate that the financial rate of return to such investment, with labor priced at actual hiring rates, range from 6% down to -7% depending on the region. By comparison the financial rate of return of trellised vineyards is esti- mated at 17%. Given the significance of the grape/raisin industry to the Afghan economy this suggests that almost any effort to encourage trellising is worthwhile. 1.17 The low yields and slow growth in productivity are also due to the general low level of fertilizer use, poor quality of other inputs used, a poor extension service and poor management ability. Some of these factors are virtually unrecognized in Afghanistan, such as the need for pest controls and the use of trace elements. Others, such as the quality of vegetable seed or fruit or vine rootstock, the lack of adequate extension effort and poor management, are individually recognized but neither the extent of the deficit nor the need for an optimum input balance is perceived by farmers or extension workers. 1.18 Access to institutional credit is a major reason for the low level of inputs in horticulture. It is believed that most of the horticulturally cropped land is operated by sharecroppers and tenant farmers whose only sources of credit are the private money-lenders, who charge 25 to 30% interest for short term credit. Much of this credit is applied in the form of poor quality inputs, and thus the outlook for improving productivity is not good. Although AgBank is responsible for supplying credit to the agricultural sector, the present types of collateral (principally land titles or joint liabilities through a cooperative or group) together with the lack of devel- opment of the cooperative system almost totally prevent it from extending any credit to sharecroppers and tenant farmers. Horticulture and the 7 Year Plan 1.19 In the 7 Year Plan, fruit production is seen as of significant importance, particularly in earning foreign exchange, and also as a basis for future processing industries. The Plan targets call for an annual increase of  7 4.2% in fruit production which compares with an annual growth of 0.8% in the previous 7 year period. The projected annual growth of 2.9% in the yield is very high when compared with the annual rate of 0.25% actually achieved in the pzevious 7 years. Grape production projections of yield (3.5% p.a. versus 1.3% p.a.) and output (4.7% versus 1.3% p.a.) are similarly ambitious. The past 7 year period's high export growth rate of 9% p.a. was at the expense of a decline in the per capita domestic consumption. The implied projected per capita consumption increase of 1.5% p.a. appears reasonable, but if achieved may result in a reduction in the grape/raisin export availabilities as the high yield projections appear impossible to realize in the Afghan context. The proposed project will assist in moving towards the Plan's goals, but is unlikely to overcome the lack of realism. The 7 Year Plan's targets for vegetable production, calling for increases of 3.9% p.a. in area, 2.1% p.a. in yield and 7.0% p.a. in total output, seem more reasonable than for fruit. But, taking the past 7 year period's annual growth of 0.3% in area, 1.2% in yield and 1.4% in total output, together with the production constraints outlined, the targets still appear somewhat optimistic. Since export of vegetables is not explicitly foreseen in the Plan, the implied projected per capita consumption increase is 4.5% p.a. But, this would require a per capita real income increase of 8% p.a., or a reduction in price which would, of course, affect output. Any vegetable exports would require the removal of the export embargo. 1.20 The general conclusions are that: (a) for fruit production, substan- tial investment and effort will be necessary to maintain exports at their present level without any curtailment in domestic consumption; (b) for fruit, the 7 Year Plan targets are unlikely to be realized, but in order to generate increased export volume and quality and thus earnings, additional investment and effort in inputs and production, and improved processing should be under- taken immediately; and (c) for vegetables, the Plan targets are achievable if the necessary investment and effort is made, an exporting system is rapidly developed and access to export markets is permitted. Marketing Problems 1.21 Preliminary estimates of the absorptive capacity of Afghan fruit export markets indicate that this is not a limiting factor to expansion. Existing export levels fail to fulfill agreed quotas negotiated in trade agreements. But many of the institutional arrangements established under bilateral trade agreements are inhibitory. The major problems are the delay in payment and the unilateral adjustment of prices by the importer (mainly by the USSR). These cause Afghan traders to market domestically, where returns are faster. Also the allocation of the bulk of export quotas to private traders, as opposed to fruit cooperatives, has resulted in raisin production remaining unsold during periods of surplus production. 1/ The wide variation in quality due to lack of grading and the poor quality of packaging, if any packaging at all, are also very significant limiting factors. The continued 1/ Discussed in detail in Horticultural Subsector Survey - Afghanistan, Vols. I and II, World Bank Report No. 1324-AF, May 1977, page 61, para 8.19  - 8 - appreciation of the Afghan currency is also an influencing factor. Many of the trade agreements are now due for renewal and the authorities should take this opportunity to reduce payment times and arrange for final price deter- mination before the goods leave the country. The authorities must also provide access to export markets for vegetables, and give further considera- tion to the exchange rate issue. 1.22 Grading, processing and packaging of Afghan fruit for export is sparse and inferior. The income tax system is such as to cause discoura- gement to private investment in fixed assets and is considered to be sub- stantially responsible for the low level of value added to fruit exports. The discouraging private investment climate has also affected the storage and transportation system, which, although presently adequate in volume capacity, is poor in terms of reliability and quality. Since no refrigerated transport or storage now exists, the volume and quality of fresh produce exports is restricted and the ability to manage the market is almost non-existent. At present the Government is actively involved in establishing joint ventures with international firms (Western European and USSR) to provide improved truck transport for exporters, involving protocols to reduce the tax difficulties. However, there is need for rationalization of the entire income tax system to provide (i) a climate which will encourage investment, particularly in grading, processing and packaging; and (ii) a broader tax base to offset any loss in tax revenue. 1.23 Substantial policy changes, some of which are developing, are required in the sector in order to generate a more optimum use and more equitable distribution of resources 1/ and a number of programs need to be initiated or further developed and strengthened in order to promote the neces- sary changes. Land reform legislations have opened the way for restructuring farm size and ownership but a more active implementation program still remains necessary to permit redistribution. In combination with needed horticultural extension and education programs, such improvements would lead to more optimum land use and increased crop productivity. At present, virtually no extension expertise is available in horticulture and there is no legal basis for uti- lizing security instruments other than land title mortgages. Legal reform in the areas of crop and chattel mortgages are outstanding needs to facilitate the use of short term credit. More rapid progress is required in the on-going cadastral survey program as assignment of land titles subsequent to such survey would extend credit access to a large number of farmers. Selective development of the cooperative system to provide sharecroppers with access to credit is also necessary for improving aggregate productivity in horti- culture. 1.24 With the exception of the collateral issue, these policies are addressed and advocated in the 7 Year Plan and specific targets are set out. 1/ These are treated in some detail in World Bank Report No. 1324-AF, Horti- cultural Subsector, Afghanistan, Vols. I and II, May 1977 and World Bank Report No. 848a-AF, Afghanistan, Opportunities for Agricultural and Rural Development Sector Report, Vol I and II, November 1975.  - 9 - But definite programs, designed to achieve these objectives, have not been spelled out. The emergence of a gradual but steady development of these policies and programs is necessary, as soon as adequate investment is avail- able to capitalize on the increased production capability. Such programs would supply the necessary market access for this increased output. II. THE PROJECT Objectives 2.01 The main objectives of the project are to: (a) provide new, and improve and expand existing marketing channels for the export of raisins, vegetable seeds and fresh vegetables; (b) increase production of grapes and vegetables, and raise labor productivity; and (c) develop operational capabili- ties in the project related institutions. Project Components 2.02 The project would consist of seven components: (i) Raisin Market-. (ii) Vegetable Seed Multiplication and Fruit Rootstock Production; (iii) Veg:: table Exports; (iv) Agroindustries Credit; (v) On-farm Credit; (vi) Marketinr credit; and (vii) Technical Assistance and Training. These components are cribed below. Investment financing would be channeled through 2 specialized banks, one for agroindustries and raisin marketing and one for on-farm credi) Implementation of the noncredit components would be by specialized Government controlled commercial institutions while the credit components would be under taken by private investors. Monitoring and evaluation would be in the hands of the Agroindustries Export Promotion Unit (EPU) located in the Ministry of Commerce. 2.03 Raisin Marketing. The existing Afghan Raisin Export Promotion Ins tute would be expanded and reorganized as the Afghan Raisin Institute (ARI) under the project to extend marketing services to producers and improve its existing services to processors and exporters. A quality control department would be added in the ARI to promote improved quality at the farm level and the processing plants through implementation of approved grading standards ar each level. Laboratory equipment necessary for implementing these standards would be provided under the project. Eight storage plants with a total capacity of 22,000 tons would be constructed at suitable locations, within the grape producing areas, which would incorporate precleaning, grading and storage facilities. Attached to these storage plants would be 4 small vine- yards of about 0.8 ha each, which would be taken on lease by ARI from private farmers and would be developed and operated to demonstrate and promote quality improvement techniques including trellising, pruning, harvesting, drying and packing. 2.04 These stores and vineyards would be the center point of the ARI implemented program to improve raisin quality at the farm level. The stores would also become marketing points for raisins produced by farmers. Pricing of raisins would be based on professional grading. Storage and marketing  - 10 - credits, and a market information service would be available to the producers as incentives to participate. A market information and promotion service would also be made available to traders at the export level. Technical assis- tance and training would be furnished for on-farm quality control, storage, processing and export quality control as well as marketing and accounting and in developing farm and export: level grading and certification systems. 2.05 Vegetable Seed Multiplication and Fruit Rootstock Production. The project would provide facilities, equipment and technology to produce (a) vege- table seeds, and (b) vine and fruit tree rootstocks. Production of vegetable seeds 1/ would be mainly undertaken for export through contractual arrangements between the existing Afghan Seed Company (ASC) and an international seed com- pany, who would supply the imported foundation seed and possibly the necessary technical expertise. The latter would undertake to accept the multiplied seed for international sales through its own marketing organization. Due to small domestic demand with perhaps the exception of onion seed, the project does not envisage production for domestic use in the near future. Nonetheless, the project would provide the production technology to meet future domestic demand. ASC has a legal monopoly on the production of all seed in Afghanistan, and has recently received a loan from the Asian Development Bank (ADB) to support wheat and cotton seed production and marketing. The activities of this project com- ponent would compliment ACS'sE crop rotations under the ADB wheat and cotton seed project. A number of reputable seed firms have expressed interest in the component. Two of these have actually visited Afghanistan in connection with the component and are now reviewing it internally. Both the Government and the ASC have been encouraged to enter contractual arrangements with a suitable firm as soon as possible. 2.06 The project would also finance a greenhouse, laboratory and farm equipment, and technology for production of seedlings and rootstocks, mainly for vines but also for some stone and pome fruits. ASC would also be respon- sible for this component and would work very closely with the Ministry of Agriculture, and the Agricultural Faculty of Kabul University. It would liaise with these institutions to remain abreast of varietal developments in their research and trial programs, and avoid duplication of research efforts. Con- centration would be on the production of vine seedlings because of the need to meet the projected expansiona in vineyards. 2.07 Vegetable Export. Under the project, a new company, the Afghan Vege- table Export Company (AVEC), would be established in Herat to export vegetables to neighbouring countries, principally to Iran. Initially it would export potatoes and onions, due to their low perishability, but later could expand its business to cover higher valued and more perishable vegetables. The com- pany would let out contracts for the production of 5,000 tons of potatoes and onions among local farmers artd would also produce crops on its own farm of about 500 jeribs (100 ha), which would be established in the Herat area as a part of the project. This faLrn would ensure a minimum supply to permit con- tinuous operation year round, permit rapid start up and ensure some supplies 1/ Beans, Onions, Eggplants, Tomatoes, Lettuce, Brassicas, Melons, Cucumbers and Carrots.  - 1J. - to meet export market contracts. The project would provide (a) equipment for handling, washing, grading and packing the vegetables for export, (b) two suitably insulated, temperature modified stores-of 2,000 tons capacity each, where vegetables could be stored to permit flexibility in marketing, (c) a small cold room for seed potatoes, and (d) two insulated 10 ton trucks for transporting vegetables to the export markets. However the majority of the export transportation would be carried out by rented trucks, of which there is an adequate supply for dry cargo including potatoes and onions. 2.08 Construction of 2 deep wells equipped with pumps and associated water distribution networks is also included in the project for providing irrigation to the land to be cultivated by AVEC. Necessary farm equipment would also be provided by the project. 2.09 Agroindustries Credit. The project would make available through the Export Promotion Bank (EPB) a line of credit to assist in the develop- ment of horticulturally related agroindustries. This credit is expected to be taken up by 3 fresh fruit grading and packing plants with cold stores, and 5 articulated type refrigerated trucks of about 20 ton capacity. These plants are likely to be located around Kandahar, an area of extensive fruit production, adjacent to the traditional export markets in India and Pakistan. Much interest 4