Sierra Leone - Agricultural Sector Support Project

Document of The World Bank FOR OFFICIAL USE ONLY C/?. /@'--- 5 Report No. 4833-SL STAFF APPRAISAL REPORT SIERRA LEONE AGRICULTURAL SECTOR SUPPORT PROJECT May 25, 1984 Wesrern Africa Projects Department Agriculture D This document has a restricted distribution and may be used by reciplents only In the performance of their official duties. Its contents may not otherwise be disclosed without World Barnk authorization.  CURRENCY EQUIVALENTS US$1 = Le 2.50 Leone 1.00 = US$0.40 WEIGHTS AND MEASURES (Metric System) 1 hectare 2.47 acres 1 kilometer (km) 0.62 miles 1 kilogram (kg) 2.2 pounds 1 metric ton (ton) = 2,205 pounds 1 liter (l) 1,507 U.S. quart ABBREVIATIONS AND ACRONYMS ACRE Adaptive Crop Research and Extension Project BSL Bank of Sierra Leone CTU Central Technical Unit DOPC Daru Oil Palm Company EPD Economic Planning Department GMOP5 Gambia Mattru Oil Palm Company IADP Integrated Agricultural Development Project ICAP Interministerial Committee on Agricultural Pricing IITA International Institute for Tropical Agriculture MAP Ministry of Agriculture and Forestry MANR Ministry of Agriculture & Natural Resources MNR Ministry of Natural Resources NAPCO National Produce Company NARCC National Agricultural Research Coordinating Council NATCC National Agricultural Training Coordinating Council NUC Njala University College PAU Pricing Analysis Unit PEMSU Planning, Evaluation, Monitoring and Services Unit RRRS Rokupr Rice Research Station SDTU Staff Development Training Unit SLAPCO Sierra Leone Agricultural Produce Company SLPMB Sierra Leone Produce Marketing Board WARDA West African Research and Development Association FISCAL YEAR July 1 - June 30  FOR OMCIAL USE ONLY SIERRA LEONE AGRICULTURAL SECTOR SUPPORT PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. CREDIT AND PROJECT SUMMARY * ............. iv-v I. INTRODUCTION ... ........... O SeO *.O .e 1 A. Introduction and Economic Background .................. I B. The Agricultural Sector ... to. sotooto. toe. to..... . 2 C. Government Objectives .o. **** **..............t..... 3 D. Bank and IFAD Operations in the Sector ............... .*.. 3 II. PROJECT BACKGROUND *. *.............*..* 5 A. Sectoral Constraints * *.. ....... ...... . 5 B. The Institutional Frewaework ........................... 6 C. The Incentive Framework ...........* ................... 11 D. The Technological Base ... OlOOtOSSO. 0000 . .o. tot **too@ 12 III. THE PROJECT ..............o..oo. .. ....o ......ot.. 14 A. Project Strategy .. *o..... ....... *....... 14 B. Brief Description .............o....... . 14. C. Detailed Features ........ *0 o so sot so. 4.5.5 ...... ... 16 D. Implementation Schedule , 25 IV. PROJECT COST .............................................. 26 A. Project Cost ..........o. .....* *..... .. * 26 B. Proposed Financing 27 C. Procurement 28 D. Disbursement .... 29 E. Accounts and Audit o30 V. PROJECT IMPLEMENTATION 30 A. Ministry Reorganization 30 B. Operational Improvements 33 C. Project Implementation 37 D. Pricing and Marketing 41 This report is based on the findings of an appraisal mission comprising Messrs. B. S. Gray, J. C. English, N. Okcidegbe and Jo Silverman (consultant), which visited Sierra Leone in June 1983. Mrs. F. Reza was responsible for the typing and Mrs. Layton for the overall presentation of the report. 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.  - i.i - Table of Contents (continued) Page No. VI. PRODUCTION, XARKETS, PRICES, AND FINANCIAL ANALYSIS ....... 43 A. Production . . . . . ... ................. 43 B. Markets and Prices ......................... , 45 C. Financial Analysis * * * * * .................. .. . . *. 46 D, Cost Recovery ... ..... ......*.*. .........9. 47 VII. BENEFITS AND JUSTIFICATION ........................... 47 A* Benefits ....*.*... 0 S S , 47 B. Economic Analysis ......*.... . . . . *..* ............ .. 49 C. Environment]al Impact *9 * *9t 949999999............ 51 D. Risks ....*........*..,................*.............6.... * *..*.*.*.*. 51 VIII. AGREEMENTS AND RECOMMENDATIONS ............................ 52 ANNEXES 3-1 Technical Assistance Provided to MANR 3-2 T2ree Crop Planting Program 3-3 Implementation Schedule 4-1 Project Cost by Year and Component 4-2 Project Cost by Category and Project Component 4-3 Estimated Schedule of Disbursements 5 Organization Cha-t 6-i Crop Yield Projectisns 6-2 Project Production Summary 6-3 Economic and Financial Prices - Palm Oil & Rice 6-4 Economic and Financial Prices - Coffee and Palm Kernels 6-5 Summary of Tree Crop Budget 6-6 Yarm Budget for Rice (upland and riverain) 6-7 Farm Budget for Rice (swamp rice) 6-8 Net Financial Returns 6-9 Government Cash Flow MAP IBRD No. 17501: Administrative Boundaries: Interior; Agriculture; Integrated Agricultural Development Projects.  - iii - SIERRA LEUAXE AGRICULTURAL SECTOR SUPPORT PROJECT DOCUt'!ENTS CONTAINED IN THE PROJECT FILE FILE CODE A. Selected Reports and Studies on Subsector Al. "Sierra Leone Agricultu:al Sector Review." June 29, 1983, IFAD/IDA B/R A2. USAID. Agricultural Sector Assessment Report for Slerra Leone. SL-4201 (Blue List 32521) B. Selected Reports and Studies Relating to the Project BI. Huntings: Proposed Restructuring of MAF & MNR. 127343 (Al-3) B2. MAF - Agricultural Developmnent V Project. 127343-B2 B3. IBRD - Sierra Leone Agriculture Sector Review 220743-B3 Supporting Paper III, Institutional Organization. C. Selected Working Papers (Doc. No. 220743) Cl. Institutional Development. C2. Sectoral Support (Fertilizer and Mechanization). C3. Tree Crop Development. C4. Swamp Develoypment. C5. Daru Oil Palm Company. C6. Credit Arrangements. C7. Project Cost and Economic Analysis Tables.  - iv - SIERRA LEONE AGRICULTURAL SECTOR SUPPORT PROJECT CREDIT AND PROJECT SUMKARY Borrower: Republic of Sierra Leone Amount: SDR 20.3 millioa (US$21.5 million equivalent) Terms Standard Project Descri2tioz: The project would directly contribute to Governzmeat's objec- tives of increasing domestic food production and agricultural exports. It would comprise: (a) an action program for rationalization of the institutional framework in the agricul- tural sector, including merger of ongoing integrated agricul- tural development projects with the reorganized Ministry of Agriculture and Natural Resources (MANR), privatization of Ministry operatioas in agricultural mechanization and palm oil processing, and improvements in operating systens in the MAUR aad in agricultural policy-making; (b) significeat reductions in numbers of unskilled support staff in MANR; (a) financing of improvements ia operating facilities for MANR; (d) provision of foreign exchange to fiaance key imports for the sector; (e) support of tree crop and swamp development programs; and (f) technical assistance. Provision of finance for imports would be linked to progress in the action program. Provision of key imports, principally fertilizers, spare parts and agricultural equipment, and support of swamp development and tree crop programs, would directly benefit about 80,000 farmers (aboul 25% of the total farm families), most of whom have incomes close to the absolute poverty level of US$75 per capita. The reorgaaization and strengthening of MANE would also result in improved management of foreign aid flows to the agricultural sector, which at preseat are widely dispersed and poorly coordinated. Project risks include: inability of MANR to cope with the proposed changes in organizatioaal structure, functions and systems; and inadequate interest of the private sector to participate in the privatization of services. These risks are minimized by the steps already agreed, a comprehen- sive package of technical assistance included in the project, and the degree of iaterest of the private sector which is already evident.  Bstimated Cost 1/ _ US$ millio) .Local Forleign Total institutional Support 0.7 4.0 4.7 Sectoral Support 0.l 10.6 10.7 Tree Crop Development 2.2 1.5 3.7 5wamp Development 0.6 1.1 1.7 Kagbosi Extension 0.4 0.4 0.8 Sut-projects 0.7 0.7 PP b Refioanciag - 0.9 0.9 Subtotal c4.0 19.2 23.2 Physical Contingencies 0.1 0.8 0.9 Expected Price Contingencies 2.0 2.8 4.8 TO0TAL 6.1 22.8 28.9 Financiag Plaa -Uss million) IDA 3.3 18.2 21.5 IFAD 0.8 4.6 5.4 Government 1.2 - 1.2 Beaeficiaries 0.8 - 0.8 TOTAL 6.1 22.8 28.9 Estimated Disbursementts(IDA FO): (US$ million) 1985 1986 1987 1988 1989 Anaual 2.9 5.9 5.7 5.4 1.6 Cumulative 2.9 8.8 14.5 19.9 21.5 Rate of Return: 35% for tree orop arid swamp development components (25% of base project cost). Other elements do aot lend themselves to quantification of benefits. Staff Appraisal Report: Wo. 4833-SL .I: IBRD 17501 1/ Net of taxes and duties from which the project is exempt.  SIERRA LEONE AGRICULTURAL SECTOR SUPPORT PROJECT 1. INTRODUCTION A. Introduction and Econoaic Background 1.01 Over the past several years, Bank assistance to agriculture in Sierra Leone has been concentrated in Tntegrated Agricultural Development Projects (IADPs). This was justified on the basis of the need to increase and focus resources at the field level and to create a unified source of extension, credit and input supply services. During earlier discussions on possible IDA lending operations, it was agreed that, as a subsequent phase of Sierra Leone's agricualt'ral development strategy, wider institutional improveTaents and incentive policies were required to maintain and expand the achievements of the IADPs. At the time of approval of the two ongoing Eastern and Northern IADPs, it was indicated that the next lending activity would have a broad focus on the reform of the Ministry of Agriculture and Yorestry (RAF) and the integration of the externally funded projects with the Ministry. The proposed project has been designed to meet that objective. 1.02 Sierra Leone has a total area of 72,000 kmn2, of which about 75% is cultivable, and a population of 3.7 million, growing presently at 2.5% per annum. It is in the low-income category of the countries of Sub-Saharan Africa. In the last few years, real per capita incomes have declined by nearly 2% per ani.um. The average per capita income was about US$385 in 1982 and was unevenly distributed across sectors and reg4ons. The rural population (75% of the total) have per capita incomes far below the national average; it is estimated that about 65% of them exist below the absolute poverty level of US$75. 1.03 The economic structure is characterized by two largely contrasting sectors: agriculture (largely traditional), employing about 65% of the work- force but accounting for only about 30% of GDP, and 30% to 40% of export earnings, depending on market prices; and the modern mining sector accounting for about 10% of GDP, and 60-70% of export earnings. After growing vigorously in the early 1970s, the economy has virtually stagnated in recent years. The major factors were a fall in diamond production and the cessation of iron ore mining, and in the last two years the situation has worsened with a fall in agricultural exports. This was caused by the combined effects of reduction in world demand resulting from the recession in industrial countries and the increasing overvaluation of the leone. At the same time, as domestic demand has been at a relatively high level, the rate of inflation has accelerated (the annual increase in the CPI for Freetown rose from 14% in 1981 to 30% in 1983), and the balance of payments has come under increasing pressure. The estimated current account deficit for 1981/82 was Le 159 million (US$127 million at 1982 exchange rates), nearly 12% of GDP at current market prices. This was reduced to Le 105 million (US$84 million) in 1982/83 because of  - 2 - inability to finance imports. Debt servioing has soared beoause of Government borrowing from commercial credit markets at high interest rates. Partly as a result of the narrowness of the revenue base and of the inelastioity of the tax system, revenues have not risen sufficiently to meet demands on Govern- ment, and the deficit is now very high (nearly 40% of total expenditures and 10% of GDP in 1982/83). 1,04 Given the pressures to maintain staffing in the face of budgetary limitations, the result has been to curb other operating expenditures, and place great pressure on available financial resources. Bank financed and other externally financed projects have suffered from erratic and often late release of oounterpart funds. In addition, because of the shortage of foreign exchange the MAF was unable to import fertilizers or spare parts for its equipment for use outside externally funded projects during 1982 and 1983. As a result, the Ministry's general field operations are at a virtual standstill. B. The Agricultural Sector 1.05 The earlier figures indicate agriculture's importance to the economy, the most important single element of which is production of rice, the staple food. Less than 40% of production enters the moaetized economy and this comes mostly from the eastern and southern areas of the country, where climatic conditions have led to the development of tree crop production, mainly cocoa and coffee for export. In the northern half of the country conditions are less favorable, as the dry season becomes longer, and the cropping system is based mainly on shifting cultivation of upland rice for subsistence. 1.06 The data base on agriculture remains fragmentary but the performance of the sector is generally accepted to have been poor, and in recent years the value of output per capita appears to have been actually falling. During the 1970s, total agricultural production rose by just under 2% per annum, increas- ing slightly towards the end of the decade in response to a steady increase in leone producer prices. This, however, amounted to a slight decline in per capita terms. After 1980 performance deteriorated and between 1979/80 and 1981/82 estimated production declined by 3.7% per year. From 1979/80 to 1982/83 purchases of coffee and cocoa by the Sierra Leone Produce Marketing Board (SLPMB) declined by about 40% and 4% respectively. However, it is believed that part of this decline has been offset by smuggling to Liberia. Rice production also fell nearly 15% over the same period and rice imports rose from 50,000 tons in 1980/81 to 95,000 tons in 1982/83, the latter amounting to about 20% of estimated consumption. 1.07 Notwithstanding the present somewhat unpromising situation, there is considerable agricultural potential in the country. Studies have indicated that, while traditional upland rice production is not economically viable as a source of marketed surplus, rice production is viable with improved technol- ogy, principally mechanized production in coastal and riverain flats, or with improved water control in inland valley swamps. Less than 10% of the 1.0 million ha swampland area suitable for agricultural use has been developed and about 50% of the tree crop potential remains untouched, leaving about 0.1 million ha suitable for further tree crop development. Potential also exists in the other subsectors. Small livestock--sheep and goats--are widespread but  generally act as scavengers, while for health reasons cattle are 1P:gC confined to the north. The fishery potential is significant, while for.'stry has an important role to play in fuel production and overall land use manage- ment, although sawn timber potential is limited. The recovery of the economy depends on the agricultural sector, since in the medium-term it is the only foreseeable engine of growth. C. Government Objectives 1.08 Recognizing the present state of Sierra Leone's economy, namely, declining commodity production, low levels of domestic savings, persistent deficits in Government financial operations and balance of payments, the Government intends to tackle two major sete of problems. These are: (a) short-term financial problems, which need to be set right expeditiously and (b) structural constraints to be addressed in the course of implementing the Second Development Plan and subsequent developmeat efforts. Some steps have been taken to address these problems in connection with the support agreement with the IMF'. The official value of the currency was adjusted from Le 1.25 to Le 2.50 per US dollar in July 1983, and commodity prices have been raised in line with this. 1.09 In terms of agricultural sector objectives, these mean giving priority to increasing production so as to reduce imports, particularly of rice, and increase exports of major cash crops, and to increasing efficiency in operations of Government agencies. These would be achieved through policies and programs that would improve ir.centives to farmers, expedite completion of successful ongoing investment projects, initiate new projects with quick yielding results, and streamline public services in agriculture, with privatization of suitable activities such as mechanical cultivation, oil palm processing, and input supply. D. Bank and .FAD Operations ia the Sector 1.10 Bank Group and IFAD operations in the agricultural sector to date have been in support of the Government's earlier strategy of emphasis on IADPc to foster the development of the sector. The Bank/IDA Group contributed to the financing of two IADPs through a phased approach under four loans/credits which were aade between 1973 and 1981. The Eastera IADP is in its third phase (Cr.323; Cr.568/Ln.1138; Cr.1094), while the Northern is in its second (Cr.568/Ln.1138; Cr.1128). IFAD is the sole external financier of the Magbosi IADP (for which the Bank is the executing agency), and a co-financier of the Northern IADP II. 1.11 The projects have been reasonably successful in meeting their physical crop development and civil work targets, but the quality of crop development was low. The crop programs have contributed to increased food production--mainly rice and palm oil; and the cocoa program is now coming into production. They have been successful il. creating an awareness among farmers of the benefits of improved practices, as reflected in the growing demand for oil palm, cocoa and coffee seedlings in the Eastern area and for improved rice seeds and fertilizers in the lorthern and Magbosi areas. However, the overall impact has been somewhat below expectations. Yield increases have not been as  high as originally envisaged and higher yielding swamp farming has not been well integrated into the traditional farming systems, which are concentrated on the uplands. The explanatory factors inolude technical weaknesses due to inadequate research, as well as organizational weaknesses as reflected in the quality of the extension services. The institutional building efforts had mixed results. Positive results were achieved in project management, engineering and financial control. 1/ However snticipated progress in integrating the Project management urnit in Eastern IADP with MAF has not been achieved. 1.12 In the area of ru:"al credit, the Bank has financed a study, and is engaged in ongoing discussions with the Government on possible development of a rural banking system. In the forestry sector, a joint FAO/Bank mission in June 1981, identified a project which has since been prepared by FAO/CP; the project makes proposals on the reorganizational aspects of the Forestry Department and for planting fuelwood trees near Freetown, and trees for saw log produotion in the Gola area. 1.13 The emphasis in the past on a project, rather than sectoral approach, had been justified on the basis of the need to concentrate scarce resources on increasing production thruugh the IADPe. At present there are seven IADPs which account for 50% of the total development budget of the MAF. In addition to the three in whioh IDA is directly involved, EEC is supporting two (Kambia/Port Loko and Koinadugu) and ADB and GTZ one each (Moyamba and Bo- Pujehun respectively). Wbile the IADPs have certainly contributed to the transfer of substantial resources to the regions and have been major sources of extension, credit and input supply services, they still remain isolated operations dependent on foreign expertise, funding and supervision. 1.14 Institutional reform has been under consideration by Government and IDA for several years. Preparatory studies were financed under the IDA Tech- nical Assistance Credit. In 1981, Huntings Technical Services completed a major study on behalf of Government for institutional reform of MAF and the Ministry of Natural Resources (MNR - responsible for livestock and fisheries). The study was followed by the preparation of a fifth Agricultural Development Project (Ag. Dev. V) by MAF and MNR with assistance from RKWA, Abidjan, in whioh the major recommendations of the XHuntings study were further refined. During preparation, it was confirmed that institutional arrangements and incentive policies would determine the iultimate success of the IADPs, and that more thorough sectoral analysis was necessary. Accordingly, a major review of the agricultural sector was carried out by IDA/IFAD in October/November 1982.2/ The Review Mission, which worked closely with Government, concluded that there was a need for a broader sectoral credit, which would support the proposed 1/ PPARs. Credit 323-SL. OED Report No. 2066, May 1978; Credit 568/Loan 1138. OED Report No. 4581, June 1983. 2/ IBRD/IFAD. "Sierra Leone - Agricultural Sector Review." Draft June 1983.  institutional reform aspects, but also address the other major constraints of the seotor--incentive and technological--as well as provtcion for direct productive investment in rice, coffee and oil palm. 1.15 In the meantime, the severe budgetary crisis has resulted in Govern- meat failing to meet some counterpart .fand commitments to externally funded activities, and the shortage of foreigrL exchange has severely hampered MAF's operations outside the IADPs. In the 1983 planting season, MAF was unable to obtain foreign exchange to purchase spare parts for its mechanical cultivation aervices. While the institutional measures proposed will assist in improving the productivity of the sector, this will take time, as too rapid an introduc- tion of the changes could prove disruptive and reduce long-run efficiency. The financial stringency could be lessened by scaling down activities in the IADPs and increasing further the sliare of total expenditures met from external sources. However, the coverage of these projects is already relatively limited, and these extension activities should be maintained, so as to have as rapid an impact as possible on agricultural production. Furthermore, the existing extent of the IADPs is not beyond the longer term capability of the country to finance. Therefore, the Sector Review Mission recommended that additional foreign exchange be provided for financing the import of fertil- izers, fuel, spare parts, agricultural equipment and implements to ensure supplies of these essential items, and that this financing be linked to an agreed program of institutional reforms and tied specifically to provision of local counterpart funds for IADPs. II. PROJECT BACKGROUNiD] A. Sectoral Constraints 2.01 Increased agricultural production, which is central to the realiza- tion of Government's overall objectives, can be achieved through in .reases in the area under production, increased productivity in given activities, or shifts towards more productive activities. Such changes will only occur, however, if steps are taken to deal -ith the constraints which have hindered agricultural development over the past few years. These may most usefully be grouped under three broad headinigs: (a) The institutional framework. The principal problems here include the duplication and inefficient operation of services to the sector. (b) The incentive framework. Policies on prices, taxes, subsidies, and marketing have in some cases been inimical to agricultural production. (c) The technological framework. This includes inadequate agronomic practices; poor water control; and the low level of technology; nearly all agricultural energy being supplied by human labor.  - 6 - The pervasive nature of some of these constraints (especially those of an institutional or technological nature) means that a cautious and gradual approach to agricultural development is required. B. The Institutional Framework 2.02 Production related services in agriculture are currently divided between the Ministry of Agriculture and Forestry (MAF) and the Ministry of Natural Resources (MNR). Under the general supervision of MAF are the seven Integrated Agricultural Development Projects (IADPs), the Adcaptive Crop Research and Axtension Project (ACRE), Rokupr Rice Research Station (RRRS), the Torma Bum Rice Development Authority, Daru and Gambia M.attru Oil Palm estates and other smaller entities. The MNR is responsible for livestock and fisheries. External support to livestock has been limited, and that in fisheries concentrated in Tombo and Kambia projects. The principal marketing entity, the Sierra Leone Prcduce Marketing Board reports to the Ministry of Trade and Industry. In addition, support is being given to agriculture through p,-_.-rams such as World Food Program and also a number of non- governmental organizations, such as CARE, Plan International, and CRS, which are engaged in programs of assistance in rural areas focussed on agricultural activities. 1. Institutional Structure 2.03 The Ministries. Government has agreed in principle that MAP and MNR will be combined. The core organizations of MAF and MNR provide planning, extension, monitoring and evaluation, cultivation and agricultural engineer- ing, and regulatory services under centralized direction, through a classic hierarchical structure, reaching down through regional and district offices to village level. The four major divisions at headquarters in Freetown are: Agriculture, Forestry, Livestock, and Fisheries. At the regional level, MAP is represented by principal agricultural officers, supported by agricultural officers, agricultural instructors and agro-technicians. The core services are ineffective due to an absence of clear objectives, inappropriate priori- ties, inadequate funding of development programs, lack of facilities, insuffi- cient research, and extension services which are poorly paid, untrained, and badly organized. In regions where there are IADPs, there are normally two, virtually separate, extension services working within the same boundaries. The IADP staff are better paid, with better logistical support, and are generally better trained than the staff in the Ministries from which many of the IADP staff have been drawn. 2.04 IADPs. The IADPs were established with the objective of concen- trating resources in areas with agricultural promise to increase production and to foster field-level coordination of activities to ensure the avail- ability of an adequate package of support services to farmers. While these aims have been largely achieved, and it has always been understood that the Ministries would eventually assume responsibility for these programs, there has been considerable uncertainty about the timing and means of actually achieving this. The development of IADPs has led to a dual system of agricul- tural services in the field, with predictable consequences of duplication, confusion and unbalanced development. At the same time, Government's  - 7 - counterpart commitment to these externally funded projects has been a major contributing factor to the shortage of resources for the Ministry's own operations. 2.05 Organizational Problems. In spite of this duplication, the develop- ment of the IADPs has not slowed expansion of the Ministries' own staffing, particularly in daily-paid categories. Excluding the IADPs, MAF and MNR had a staffing of about 12,250 in 1981, or one employee for each 25-30 farming families. Of this staff, only 11% is technical, 1% administrative, and 88% support staff. Most of the latter are daily paid clerks or unskilled laborers mostly concentrated in MAF, whose functions are ill-defined. The result of this high staffing level is that for 1982/83 daily wages account for 51% of the recurrent cost estimates of MAF. This share has been rapidly increasing at the expense of operation and maintenance, and therefore of continuing operations, thus undermining the Ministry's ability to provide services to farmers. 2.06 The result of this overall situation has been a near eclipse of MAF/MNR and a general malaise in the public services supporting agrioulture, which can only get worse unless specific steps are takea to tackle it. Head- quarters' weakness has resulted in inadequate coordination and supervision of the various externally funded activities. The two ministries have a develop- ment budget of Le 53 million (US$21 million) in 1983/84, of which Le 11 million is from domestic sources and Le 42 million represents external funding. This budget covers a total of 70 ongoing projects, of which 34 are receiving external funding. The IADPs represent about 44% of the total development budget for agriculture. Headquarters' weakness has resulted in inadequate coordination and supervision of these various externally funded activities and the Ministries have not been able to develop a coherent overall program for development of the sector. This results in large part from the wholly inadequate level of staffing at senior levels in the two Ministries. The present staffing provision at Grade G and above, i.e., Principal Agricul- tural Officer or equivalent and above is 32 to manage an operational staff of 1,360, plus support and laboring staff of over 10,000. It has been recom- mended that for an effectively staffed combined Ministry, a staffing of about 110 in these management categories would be required. Some equivalent manage- ment staff are engaged in the IADPs, but even including an input from that source, senior management in this structure is stretched far too thinly. 2.07 Major institutional and policy changes will be necessary to improve the effectiveness and reduce the cost of these agricultural services. Govern- ment is greatly concerned over the deficient performance, and there is a widespread desire throughout MAF for an improved operating environment which would allow more effective participation in relevant development programs. It has now been agreed in principle that MAF and MNR will be combined, and IADP staff and operations merged with the combined Ministry, starting with the Eastern IADP. The Eastern IADP (Cr. 1094-SL, 1981) provided for such a merger of Eastern IADP, but no specific plan of action was included in that project and implementation has been delayed. It is intended that the reorganization of MAF and MNR should aim to im;rove efficiency of services to agriculture, both in terms of use of resources and of impact on production, and to develop an organizational structure which is manageable but, at the same time,  flexible enough to effectively implement programs and allow for change in a developing situation. More specifically, the approach would place em)hasis on (i) reducing the scope of activities of the ministerial organization and assisting the private sector to develop its capacity to assume responsibility in areas such as production (e.g., oil palm and rubber estates), provision of inputs (e.g., credit, contracting services for land preparation, seeds, fertilizer and chemicals) and marketing; (ii) establishing a more efficient and flexible operational and financial management system; and (iii) improving strategic and operational planning for the Ministry. 2.08 Planning. Many of the operational problems identified in earlier studies of the Ministries are both causes and consequences of inadequate planning. The proposed reorganization of MAF and MNR, and merger with the IADPs, should result in decentralization of operating responsibilities to the regions. This would mean a shift at national level from responsibility for management of field operations to an emphasis on strategy, planning and the development of programs and implementation guidelines for regional and local units. 2.09 Financial Management. The current financial management and accounting system is a serious obstacle to the efficient and effective performance of necessary functions within the agricultural sector. Normal Government dis- bursement procedures are too rigid, require too many approvals and involve too many organizational units (Working Paper 1). Although IADPs and other external donor-funded projects employ different and more efficient systems, they are not uniform among themselves and are operated outside the normal Financial Regulations of Government. It is essential, therefore, that finan- cial management and accounting systems are reorganized and harmonised, that disbursement procedures within the Ministry of Finance are decentralized and that an internal audit section is established. A financial reorganization study to design a new system commuenced in July 1983. The study was carried out by Pannell, Kerr and Foster (PKF) of UK/Sierra Leone, under IDA TA Credit 970-SL, and a draft report was submitted to Government, late 1983. 2. Support Services 2.10 Research, Training and Extension. Adequate performance by extension staff requires relevant information based on applied research to extend to farmers and training in effective techniques for the communication of that information. In Sierra Leone, agricultural research has not been efficient2y or effectively designed, coordinated, managed or applied and funding has beenL inadequate. An adequate foundation for a training program has not therefore been established. Research is carried out by the Rokupr Rice Research Station (RRRS) and the Njala University College (NUC). There is insufficient coordination between them and MAF and there is no national research policy. RRRS is financially supported by UNDP and the West African Rice Development Association (WARDA) (headquartered in Liberia), and there is collaborative research with overseas centers, including the International Institute of Tropical Agriculture (IITA) in Nigeria. In 1979, the USAID-financed Adaptive Crop Research and Extension project became operational at NUC and is now providing data for the formulation of technical packages. For tree crops, there are no research programs other than a few isolated field trials. The  -9- extension and training office within MAF currently operates staff training programs, whereas farmers' training is carried out by IADPs. British tech- nical assistance has just completed the construction at Njala of a new college for middle level agricultural extension staff. 2.11 The field level extension agent is the Agricultural Technician (AT). Performance at this level is generally agreed to be unsatisfactory. The ATs have little formal training, receiving only six months of pr'l-service training in general agricultural subjeots, and are poorly paid, their annual salary amounting to only about Le 1,200 (US$480). Staff are reluctant to live in villages at such low salaries, particularly as family committments increase. Therefore turnover is high and the average level of experience low. These problems are compounded by lack of in-service training and by unsystematic supervision. 2.12 Input Supply. Input supplies for smallholders (principally fertilizer) are handled mainly by the IADPs. Except for the IADPs and private companies such as Aureole Tobacco, fertilizer is only imported by MAF, but the shortage of foreign exchange has drastically limited imports in the past two years. Sales by MAP and IADPs are at subsidized levels fixed by Government. Under credit 1094, Government agreed that this subsidy (now 60-70% following devaluation) would be phased out. Agricultural chemicals are imported and sold by the private sector. Improved rice seed is produced by outgrowers under the German-financed Seed Multiplication Project. Cocoa and coffee seedlings have been produced from local seed gardens but, as with oil palms, the practice is now to import improved seed from the Ivory Coast. In the longer term, there appears to be no reason why supply of fertilizers and chemicals, in particular, and possibly seeds, should not be left entirely to the private sector. However, in the short term, some steps need to be taken to ensure timely availability of foreign exchange for a basic level of Importation of essential agricultural inputs, in order to enable production to be increased in response to improved price incentives resulting from the devaluation of the leone. 2.13 Credit. There is no countrywide agricultural credit system for small farmers in the country. Currently, the main sources of agricultural credit are the IADPs. Under the Eastern Project, an independent Farmers Finance Company was established to facilitate provision of credit and inputs. The other projects engage in credit activity directly through commercial services sections. As a source of credit, the IADPs have had mixed results. The Bank of Sierra Leone (BSL) has had the situation under review for some time. A workshop on Agricultural Credit and Banking in 1978 initiated a proposal for development of a rural banking network, based on systems in the Philippines and Ghana. The rural banks would be local institutions, receiving deposits and making loans within a limited geographic area. Following study, a modest start has been made with the establishment of one rural bank in 1983 with BSL assistance; and it appears to be working successfully, two other banks will be opened in 1985. This approach appears appropriate in the circumstances.  - 10 - 2.14 At the present time, for a variety- of reasons linked to the previous overvaluation of the leone and the tying up of large funds in the foreign exchange pipeline, the banking system in Sierra Leone is excessively liquid. Hlowever, because of lack of security the banks are hesitant to move beyond the few private commercial enterprises in lending to agriculture. It is possible that rural banks backed by BSL could obtain adequate funds for agricultural lending from the onmmercial banks. However, if government borrowing require- ments remain high and commercial activity picks up, the availability of funds for agricultural lending could be limited. In order to foster the growth of banks in rural areas, and continued commercialization of agriculture, con- sideration might be given to adoption of measures to reserve a minimum share of commercial bank lending for agricultural purposes, at least a part of which could be channeled through the banks. 2.15 Machinery Services. In order to stimulate increased rice production, and in the absence of any privately operated agricultural contracting services, MAF established a tractor fleet to undertake land preparation. This activity has presented continual problems, charges have never covered costs, controls over tractor operation have been weak, aad the service has been dependeat upon Government subventions. Shortage of Government funds and particularly of foreign exchange has led to a lack of fuel and spare parts, which has drasti- cally reduced the capacity of the MA? services. The principal result of the decline in services has beea to undercut the efforts of those farmers who were attempting to develop coastal and riverain areas for rice production. That such problems are not endemic to the country is shown by the much more satis- factory performance of the Torma Bum Rice Development Authority which, however, does have the advantage of operating larger areas well suited to mechanical cultivation. It has now been generally agreed that means must be fould to turn the MAY machinery services over to the private sector and to eliainate the subsidies now being given. 2.16 Marketing. The major agricultural marketing institution is the Sierra leone Produce Marketing Board, which is part of the Ministry of Trade and Industries. The SLPMB markets the main export crops and fixes product prices for export crops after consultation with Government. Purchasing, grading, storage and transportation to central collection points are the responsibilities of a network of Liceased Buying Agents, a system which seems to work satisfactorily. They are paid on the basis of the producer price, fixed overheads, and profit margins. The National Agricultural Produce Company (IAPCO) is a subsidiary of the SLPMB and is essentially its trading arm, being involved in rice trading and processing and export crop purchasing. Surplus production of rice and groundnuts is small, the market highly fragmented and transport difficult. SLPMB indicates that they are willing in prinoiple to purchase paddy at the guaranteed price at their depots, but acoess to them is difficult for most farmers. Purthermore, their domestic purchases only amounted to 5,000 tons in 1982/83, since, at the high official rate of exchange, a significant margin could be made on importation of rice. Limited amounts have been taken in by IADPs mainly as loan repay- ment. Improved access to marketing channels, as well as appropriate prices, will be necessary if local production is to be expanded to replace imports.  11 - 2.17 Parastatals. The major parastatals involved in crop production and processing, other than SLPMB and NPCO, are the Gambia-4attru Oil Pali.t Company (GMOPC) and the Daru Oil Palm Company (DOPC). These two operatioas have a total processing capacity of 21 tons fresh fruit bunches (ffb) per hour and their own plantations of 3,600 ha. They are also supported by about 3,400 ha of smallholder plantings. A second phase loan for GMOPC is under negotia- tion with African Development Bank (ADB), which would include new smallholder planting of about 2,000 ha. The financial performance of the mills has been poor and has been seriously affected by the lack of a commercial approach, inefficient, very low throughput processing operations, and low outgrower response to the opportuni y to sell fruit bunches to the mill, due to the unattractive prices fixed i'y Government at the mill gate. The production of outgrowers' fruit bunches is estimated at 14,000 tons per year, but less than 10% of this quantity is sold to the mill. Under these coaditions, the farmer prefers to process by traditional, inefficient methods at home and sell either on the Goverament-controlled wholesale market, or freely on the retail market. The mills have been seriously affected by lack of foreign exchange for design modifications and spares, and of workshop and process control laboratory facilities. Following mill modifications and repair, and with improvement of millgate prices, the delivery of fruit bunches to the mills is expected to iaprove sufficiently to allow economic quantities of fruit bunches to be processed. Rehabilitation of the GMOPC is to be financed under the proposed ADB loan. Similar improvements are required at DOPC. It is desirable that toth enterprises be privatized. A major Sierra Leone producer of soaps, vegetable oils, and fats has expressed an interest in taking a major share in a merged enterprise. 2.18 Private Commercial Enterprises. A limited number of commercial enterprises do exist, principally in the fishing sector and related to provi- sion of supplies to the higher income consumers, e.g., meat and poultry. Beyond these the most significant activity is in the tobacco sub-sector where the Aureole Tobacco Company is now expanding local production significantly. The company has its own field extension staff and in 1983 had 6,500 contract growers with a total of 1,050 ha under tobacco. Provision of inputs and curing is fully controlled by the company, which plans to expand its operation to cover 2,225 ha through 14,000 growers by 1986. The company is fully satisfied with local grower performance and has started a limited export of high quality fire-cured leaf. C. The Incentive Framework 2.19 Past pricing policies of the Government have had a serious effect on agricultural production, mainly because of the exchange rate policy. The overvalued leone imposed low producer prices. In the case of main export crops, coffee and cocoa, the farmgate prices were further lowered because of the 30% export tax. As a result of low producer prices, there was a marked increase in smuggling of coffee and cocoa to Liberia, amounting to about 30% of production, according to come estimates. In the case of rice, although there has been an official Government minimum price, this has normally been below actual market prices and, therefore, inoperative. Through SLPMB, Government has been the sole rice importer in recent years, and because of the  - 12 - overvalued exchange rate, this has been a profitable activity for the agency, especially since market prices have beea close to that implied by the unofficial exchange rate, 2.20 Some steps to address these problems have been taken in connection with the support agreement with the IMF. The official value of the currency was adjusted from Le 1.25 to Le 2.50 per US dollar in July 1983, following a period in which a parallel commercial market for foreign exchange was operating. The Goverament minimum price for husk paddy was raised from Le 12 to Le 18 per bushel in early 1983; in July 1983 SLPIB buying prices for coffee and cocoa were raised from Le 1,904 to Le 3,472 and from Le 1,568 to Le 3,034 per ton respectively. Considerably increased interest in production of these crops has been reported. However, due to the chronic shortage of foreign exchange, an unofficial market still exists and it remains to be seen if these prices will continue to provide an adequate inceative. 2.21 Given the limited level of oommercialization of agriculture and the potential for local monopsonistic situations to arise, there will remain a need, even after the interim period of adjustment to the new exchange regime, for a mechanism of guaranteed buyiag prices, in order to provide producers with some guidance and security. In the past, the problem of low producer prices has been compounded by delays in price adjustments. As a result, price signals have often been too late for producers to respond, and delayed announcements of price often caused disruptions in the market. Intermini- steral review of proposals on agricultural prices and taxes prior to sub- mission to Cabinet has been uneven, and MAF has lacked an adequate data base on agricultural production and farm prices, or the analytical capability to adequately fill its role in this area of agricultural price formulation. Technical assistance is required to establish a data base and carry out s-icing analysis. D. The Technological Base 2.22 Virtually all production in Sierra Leone is undertaken by small- holders and production systems are characterized by low-input/low-output traditional technologies, which have undergoae little change. The major opportunities for improvement are judged to be in lowland rice production, use of mechanical power for cultivation, and improvement of perennial crops. 2.23 Lowland Rice. Rice is now largely produced in upland areas under shifting cultivation. Because of steady population growth, fallow periods have been progressively reduced until the systea now threatens to break down. About 16% of the country consists of low Lying "swamplands," much of which is potentially suitable for agricultural use. Considerable efforts have been made by IADPs and others, e.g., lGOs, to stimulate use of inland valley swamps for rice production, but in many cases the water control structures were poorly constructed and maintained. The reasons for the limited development of local valley bottom swamp areas are complex. They include lack of experience in hydraulic engineering or hydrological data in the country, lack of expertise among small farmers in the construction and maintenance of small water control structures, lack of technical support to farmers following initial conastruction, socio-cultural factors, the fact that user rights over  - 13 - these areas are sometimes not clear, the lack of draught power for cultivation and labor constraints (seasonal requirements and intra-farily division of labor). There is a need to develop central technical expertise at Ministry headquarters in this area, drawing upon existing experience in the IADPs etc., to develop an agreed approach more attuned to farmers' situations, and to improve the capability of extension staff to assist farmers. An 'AO-fuaded engineer has been in Sierra Leone for six months initiating such a prograa, but his funding will terminate before mid-1984. 2.24 Mechanization. Labor, rather than