Cameroon - Second Western Province Rural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4177-CM STAFF APPRAISAL REPORT CAMEROON SECOND WESTERN PROVINCE RURAL DEVELOPMENT PROJECT March 29, 1984 Regional Projects Department West Africa Regional Office 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$1 = CFAF 392 CFAF 1,000 = US$ 2.6 CFAF 1,000,000 = US$ 2,550 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 (1) - 1,057 U.S. quart ABBREVIATIONS BCU = Bottomlands Cultivation Unit (UCCAO) CC = Cooperative Centre CCM = Central Tender Board CEU = Central Project Evaluation Unit (DEP, Ministry of Agriculture) COOPMUT = Department of Cooperatives and Mutual Assistance (Ministry of Agriculture) CP = Sector Chief CPA = Extension Supervisor CPAP = Chief Extension Officer CPS = Crop Protection Service CS = Cooperative Section CSC = Cooperative Service Centre DEP = Studies and Projects Department (Ministry of Agriculture) DGRST = National Scientific and Technical Research Delegation DPA = Provincial Delegation of Agriculture, FONADER = National Rural Credit Fund FSAR = Special Rural Development Fund Genie Rural = Rural Works Department of Minstry of Agriculture IRA = Agricultural Research Institute MA = Extension Agent ONCPB = Export Crop Price Stabilization Board PCC = Project Coordinating Committee PEU = Provincial Evaluation Unit (Ministry of Agriculture) PMU = Project Monitoring Unit (UCCAO) PY = Project Year RCF = Revolving Credit Fund SPU = Seed Production Unit (UCCAO) UCCAO = Central Agricultural Cooperative Union of the Western Province FISCAL YEAR UCCAO: January 1 to December 31 (October 1 to September 30, as from 1983) Government: July 1 to June 30  - i - FOR OFFICIAL USE ONLY CAMEROON SECOND WESTERN PROVINCE RUAL DEVELOPMENT PROJECT Table of Contents Page No. I. BACKGROUND ................ . 1 A. Introduction .. 1 B. The National Economy .... 1 C. The Agricultural Sector . ...... 2 D. The Coffee Sub-Sector .... 3 E. Bank Group Assistance in Agricultural Development ... 4 F. Major Sectoral Institutions ..... 4 G. Performance Under the First Project . . . 9 II. THE PROJECT AREA ...... 11 A. Geographic and Demographic Background . . . 11 B. Human Resources and Land Tenure . . . 12 C. Agronomic Traditions and Production . . .12 D. Road Communications .................................. , 13 III. THE PROJECT .14 A. Objectives and Summary .14 B. Detailed Features .*.. ................................. 15 IV. ORGANIZATION AND MANAGEMENT . . 27 A. General Project Organization . .27 B. Organization and Management . .28 C. The Extension Service .... 2....... ... .... .29 D. Developments in Cooperative Organization . .30 E. Credit to Farmers . ... . . .............. 31 F. Bottomlands Drainage and Village Water Point Construction ................................ 32 G. Feeder Road Construction. . . 33 H. Monitoring and Evaluation . ...33 V. COSTS AND FINANCING .... . ..... . . . . 33 A. Project Cost Estimates. . . 33 B. Proposed Financing ....34 C. Procurement .......... ..... . . .37 D. Disbursement Pro edures . . ............................38 E. Financial Management, Reporting and Audit .. 40 VI. PRODUCTION ESTIMATES, PRICES AND MARKETING ARRANGEMENTS AND IMPLICATIONS ...... . .40 A. Participation Rate and Production... 40 B. Crop Marketing and Price Outlook ......... ......... . 41 C. Supply, Prices and Subsidization of Inputs 44 D. Financial Implications. 46 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.  - ii - Table of Contents (continued) Page No. VII. BENEFITS, ECONOMIC JUSTIFICATION AND RISKS ....... .......... 48 A. Project Benefits and Impact ............................ 48 B. Economic Analysis and Sensitivity ...... ................ 48 C. Risks ............................................... 50 VIII. ASSURANCES AND RECOMMENDATIONS ............................. 50 ANNEXES 1. Cooperative Structure and Project Extension Service 4. UCCAO Project Management Structure 5. Project Loan Disbursement Profile 6:1 Incremental Crop Production due to Project 6:2 Consolidated Project Cash Flow for UCCAO 6:3 Government Cash Flow for Project MAPS: Geographical, Ecological and Climatic Data (IBRD 16677) Physical Development (IBRD 16678) This report was prepared by Messrs. Nightingale, Turtiainen, Nanopoulos (IBRD), Tessier Viennois, Ccuprie and Sourang (consultants); and Ms. Claussen of the West Africa Projects Department was responsible for the overall report presentation.  - iii - CAMEROON Second Western Province Rural Development Project Docanents Contained in the Project File File Code A. Selected Reports and Studies on Subsector Al . MINAGRI Annual Statistics Reports 1979/80 and 1980/81 A2. Western Highlands Project - Quarterly and Annual Doc #220 263(A1) Progress Reports YR/QR B. Selected Reports and Studies Relating to the Project 131. Project Identification Report (P.B. 4/81-FAO/CP-04/09/81) Doc #220 263(E2) I2. Identification Report Working Papers (No. 20/81-04/09/81) Doc #124 694 B3. Project Preparation Report (46/81 CMRG-FAO/CP-21/12/81) B4.. Pannel Fitpatrick/Group K 1979-81 Audit reports, comnentary and recommendations for UCCAO and Six Cooperatives UCCA. (April 1982). Afca Management Consultant Study (MCS), 1982: Audit Reports B5. (i) Main Report Doc #220 263(E5) BS. (ii) Organization and Manageaent of the Six CCAD Cooperatives Doc #220 263(s6) B7. (iii) lechnical Aspects of Coffee Handling in the UCCAO Cooperatives Doc #220 263(B7) R3. (iv) Propositions for Improving Handling Processirg and Marketing of Coffee by UCCAO Doc #220 263(BB) 39. (v) Credit Scheme Proposals for UCCAO farmers Doc #220 263(B9) 110. Minutes of the UCCAO Assembly: Terms of Reference for UCCAO Management Personnel (25/11/82) Doc #220 263( IO) 1311. Ministerial Note (No. 8S6 MInWARI/DEP) Regarding Responsibilities of UCCAO Extension Service and MINAGRI Extension Service in Western Province (27/11/82) Doc #220 263(B11) 12. Hydraulic Zones in Western Province (J. C. Olivry 1976) Doc #220 263(132) 13. Organization and Management of UCCAO Operational Statute (1/83) Doc #220 263(133) C. Project Working Papers Cl. Working Paper 1, Project Cost Tables C2. Working Paper 2, Agronomic Data C3. Working Paper 3, The UCCAO Cooperatives and Credit Operations C4. Working Paper 4, Coffee Processing and Marketing C5. Working Paper 5, Food Crop Marketing and Price Trends 06. Working Paper 6, EBttomlands Development C7. Working Paper 7, Village Water Point Developnent CB. Working Paper 8, Feeder Road Developuent C9. Working Paper 9, Seed Farm Development C10. Working Paper 10, Soil Conservation and Reforestation Cl 1. Working Paper 11, Applied Research a12. Working Paper 12, Training and Extension Services 013. Working Paper 13, Monitoring and Evaluation 014. Working Paper 14, Project Management and Coordination 015. Working Paper 15, Terms of Reference for Project Personnel 016. Working Paper 16, Financial and Economic Calculations  -iv- REPUBLIC OF CAMEROON SECOND WESTERN PROVINCE RURAL DEVELOPMENT PROJECT Loan and Project Summary Borrower: United Republic of Cameroon. Loan amount: US$21.5 million, including the capitalized front-end fee of US$53,616. Terms: Standard. Cofinancing: IFAD: US$14.5 million. Project description: The five-year project would extend and consolidate ongoing operations under the Western Highlands Rural Development Project (Cr. 784-CM) to the whole Western Province, and improve the precision of the technical package for farmers. The focus would be on increased food crop production and improvements in coffee yields and quality. The project would include: (a) expansion and streamlining of UCCAO's extension services, strengthening of the cooperatives and modernization of coffee processing and marketing facilities; (b) provision of incremental inputs; and (c) supporting activities, including applied research, village water supply, feeder roads, soil conservation, reafforestation, bottomlands development, monitoring and evaluation, and the provision of technical assistance, fellowships and studies. The proposed project would support key Government objectives: (i) slowing down urban migration by raising smailholder productivity and improving rural living conditions; (ii) promoting national food production and generating additional export earnings; and (iii) decentralizing economic development by strengthening regional institutions. It would also encourage rationali- zation of policies regarding input supply, commodity pricing, and interest rates. The project faces three risks; the management risk is not considered high as the proposed activities would rely on existing structures and systems, whose effectiveness would be strengthened through improved technologies, procedures and controls, combined with train- ing. Reorganization of input supply would reduce the risk of untimely and inadequate delivery of fertilizers and pesticides to farmers. Financial weaknesses of the Robusta cooperatives would be remedied through improvements in the pricing system for coffee and in the management and accounting procedures of the cooperatives.  Estimated cost: Local Foreign Total - ------ US$ million----------- Incremental fertilizer 400 4,600 5,000 Crop protection service 1,3C0 3,800 5,100 Extension services 3,900 2,400 6,300 Soil conservation 800 200 1,000 Bottomlands development 400 100 500 Applied research 800 800 1,600 Seed farm 500 500 1,000 Village water supply 1,800 1,400 3,200 Coffee processing 3,000 7,100 10,100 Feeder roads 1,600 2,900 4,500 Project administration 400 2,300 2,700 Monitoring and evaluation 500 400 900 Baseline costs 15,400 26,500 41,900 Contingencies: physical 600 1,700 2,300 price 5,700 5,800 11,500 Total project costs 21,700 34,000 55,700 Financing plan: Local Foreign Total ----US$ million--- IBRD -- 21.5 21.5 IFAD 2.0 12.5 14.5 Government of Cameroon 14.6 -- 14.6 UCCAO and Farmers 5.1 -- 5.1 Total 21.7 34.0 55.7 Estimated disbursement: 1984 1985 1986 1987 1988 1989 1990 -------------------US$ million--------------- Bank Loan: 0.2 3-0 4.3 6.5 4.3 2.3 0.9  - vi - Economic rate of return: The estimated overall ERR is 30% calculated on the basis of total costs. The high rate of return results from the fact that for the arabica coffee zone, the project continues actions begun under the first project, and t;hus requires a lower level of investment and incremental operating expenditure than would otherwise be normal for such a project. Staff Appraisal Report: No. 4177-CM Maps: IBRD 16677/16678  CAMEROON SECOND WESTERN PROVINCE RURAL DEVELOPMENT PROJECT I. BACKGROUND A. Introduction 1.01 The Government of Cameroon has requested IBRD and IFAD assistance in the financing of a Second Rural Development Project in the Western Province. This project would follow on from the Western Highlands Rural Development Pro- ject (Cr. 784-CM). In addition to extending coverage to the entire Western Province, the second project would build on the achievements of the first and stimulate greater integration and precision in all operations. Increasing food production, improving coffee quality and strengthening of farmer cooperatives would be key objectives. The project was identified and prepared by the FAO/ IBRD Cooperative Program in 1981 and appraised in May 1982 by a mission consist- ing of Messrs. M. Nightingale, T. Turtiainen, N. Nanopoulos, P. Tessier-Viennois (IBRD), and F. Couprie and C. Sourang (Consultants). Negotiations were delayed due to major political changes in 1983. 1.02 Cameroon is located on the Gulf of Guinea, covers 475,000 km2, and includes a wide range of climatic conditions, from Sahelian in the extreme north to tropical rain forest in the south. One third of the land (156,000 kim2) is classified as agricultural. 1.03 Cameroon' s population is estimated to be 9.1 million (1983), over 40% being under 15 years of age, and about 75% being directly dependent on the rural sector. With the current 2.7% per annum growth rate the population is predicted to almost double by the year 2000, reaching about 16 million, 50% of whom are expected to be urban. Consequently a substantial increase in agri- cultural productivity is required if urban food needs are to be met from domestic production. B. The National Economy 1.04 Over the past 15 years Cameroon has experienced accelerating economic growth. Real GDP increased by an average of 4.2% per year during the Second Development Plan period (1966-71), 4.5% during the Third Plan period (1971- 1976) and an estimated 9% in the Fourth Plan period (1976-1981). The GDP is currently estimated at US$7.9 billion, representing a per capita income of US$880 in 1982/83. 1.05 The Cameroonian economy is now experiencing the most rapid structural transformation in its history as a result of rising production and export of petroleum. Prior to the exploitation of oil, Cameroon was dependent on agri- cultural products for the bulk of its foreign exchange earnings. In 1977/78, agricultural commodities accounted for 72% of all export earnings, with cocoa and coffee alone accounting for 53%. However, oil exports, started in 1977/  - 2 - 78, rose to some 52% in 1980/81 and are estimated at 63% for 1981/82. As a result, the relative share of agricultural exports (whose value remained stable) fell to 37% in 1980/81 and an estimated 28% in 1981/82. Similar, although less dramatic, shifts have occurred in the structure of domestic production. Between 1977/78 and 1980/81, the proportion of agricultural production (including forestry and fishing) fell from 32 to 26% of GDP, while oil production rose to over 11%. These trends--rising share of oil in GDP and exports, and attendant reduction of agriculture's share have continued during 1981/82 and 1982/83 and have resulted in structural changes that are likely to persist. Oil revenues are expected to dwindle by the mid-1990s at which time agriculture will again become the main source of growth. In the medium term, therefore, the Government needs to pursue structural changes in agriculture to establish the precursors to future growth. 1.06 Infrastructure developments carried out under the Development Plans have included improvement of the road network, modernization and expansion of the railway system and port facilities and the sxploitation of hydro-electric potential. C. The Agricultural Sector 1.07 Cameroon's diversified agricultural (including forestry) sector is the mainstay of the economy, providing a livelihood for about 75% of the population. The sector, divided into traditional agriculture and industrial plantations, currently involves the cultivation of approximately 2.5 million ha, or 16% of the country's cultivable area. The traditional sub-sector, comprising one million smallholdings with an average size of about 2 ha, accounts for over 93% of food crop production grown for both subsistence and the domestic market. Cocoa, coffee and cotton are produced for export. Cattle raising, mainly by nomadic and semi-nomadiic pastoralists in the North, accounts for about 15% of agricultural production of the traditional sub- sector. The estate sub-sector comprises several large predominantly Govern- ment-owned plantations producing palm oil, mainly for domestic consumption, and rubber for export. 1.08 Cameroon is largely self-sufficient in food, but cereal imports, mainly wheat and rice for the urban market, have risen since 1970. While the potential may exist for increasing rice production economically, climatic conditions do not favour wheat growing. Camerocn will, therefore, continue to import wheat and, by the year 2000, the quantity is expected to account for 25% of all cereals consumed. 1.09 There are large regional variations in cropping patterns and popula- tion densities, leading to marked regional disparities in farm incomes. Per capita farm incomes in the cocoa and coffee producing areas of the south are about US$260 (1982), whereas in the Western Highlands (maize and coffee) and parts of the Northern Province (mainly sorghum), where population densities rise to over 200/km2, they are as low as US$160. Moreover, average per capita incomes in agriculture are low compared to national per capita incomes of about $880 (1982), which accounts for steady urban migration. Government recognizes the essential role of agriculture for long term stability of the economy and is increasingly concerned by this situation.  1.10 Greater emphasis is being put on improving social amenities in the rural areas and on projects for raising the productivity of smallholding agriculture. Principal constraints to the implementation of these plans are inadequate extension services, weak institutions, inappropriate research, poor roads, and inefficient input supply and product marketing arrangements. One of the central objectives of the Fifth Development Plan (continuing from the Fourth) is to increase productivity through modernization of existing small- holder cultivation of export/cash crops, including coffee and cocoa. However, far greater emphasis is now being placed on increased food crop production for the growing urban population. With the dominant theme of avoiding decline in agricultural production as a result of the oil boom, Government's initial budgets for the Fifth Plan (1981-86) propose doubling total investment over the five years to US$11 billion (1980 terms) and devoting 24% to investments in the agricultural sector. D. The Coffee Sub-Sector 1.11 Coffee production in Cameroon for the decade to 1982 has ranged from 78,400 tons (1977) to 105,000 tons (1981), with average annual production being 93,000 tons, (25% arabica, 75% robusta). This represents about 2.4% of the world market. However, the annual export quota assigned to Cameroon by the International Coffee Organisation (ICO) has been reduced from 96,120 tons to 90,000 tons in early 1982, and to 85,340 tons in mid 1982, despite stocks of some 20,000 t (mainly robusta). These have accumulated partly as a result of poor quality and weak export administration. The ICO quota provides for an annual increase in exports of 1.3% (1,110 tons). 1.12 Producer prices for coffee are reviewed annually and set by Govern- ment. In 1981 farmers received 61% of FOB value, with 19% being paid for transportation and processing and 20% as taxes and surplus. As there have been different marketing arrangements for arabica and robusta coffee, with government managing robusta marketing directly (para 6.06), a proportionally larger share of taxes and surpluses were derived from robusta than arabica. Government subsidies to coffee producers for inputs (paras 6.11-6.15) in 1981 were equivalent to 7% of FOB value, resulting in direct net taxation of coffee products of about 13%. 1.13 Approximately 45% (up to 42,000 tons) of Cameroon coffee exports originate in Western Province, which produces 90% of total arabica and 30% of the nation' s robusta. Both types of coffee originating from this zone are potentially premium quality and, although the ICO quota currently makes no differentiation, world demand for arabica coffee is consistently higher than that for robusta. This market preference might be reflected in quota changes when ICO agreements are renegotiated. For the immediate future, however, the prospects for the coffee industry in Cameroon are for a limited increase in production, within the ICO quota, to be obtained through improving production efficiency and quality from the existing plantation area, reducing costs and streamlining marketing arrangements.  - 4 - E. Bank Group Assistance in Agricultural Development 1.14 Since 1967 the Bank Group has been involved in 19 projects in the agricultural sector, amounting to a total of loans and credits of US$333.9 million. The major thrust of these projects concerned the tree crop subsector (oil palm, cocoa and rubber, 9 projects, US$172.4 million); they also included rural development (3 projects, US$57.7 million), livestock (2 projects, US$45.1 million), rice production (3 projects, US$34.7 million), forestry (1 project, US$17.0 million) and a rural development fund (RDF, US$7.0 million). Government's performance in implementing these projects has been mixed. Implementation of the Second Livestock, the ZAPI and the Oil Palm/Rubber con- solidation Projects, is hampered by serious organizational, managerial and financial problems, for which the required remedies are being examined with Government. Government's performance in implementing the other projects has been generally good and achievements have been satisfactory. The performance of the Western Highlands Rural Development Project (Cr 784 CM) (para. 1.31) has been above average, with 85% realization and a completion period of five years, or one year extension over the appraisal estimate. 1.15 Bank Strategy and Project Rationale. To assist Government's policy for modernizing agriculture, accelerating regional development and expanding food crop production, Bank lending for the next five years is expected to support broad sectoral development projects as well as extending investments in rural development projects. The proposed project would address these ob- jectives by: increasing crop productivity, strengthening UCCAO, an effective regional development agency, and helping rationalize Government's pricing policies. F. Major Sectoral Institutions 1.16 The institution of principal relevance to the project is the co- operative Union in Western Province (Union Centrale des Cooperatives Agricoles de l'Ouest-UCCAO) with its various tiers of responsibilities and functions. The Ministry of Agriculture is also represented in the project area at Pro- vincial and Department levels. However, under arrangements for the first project the Ministry's role is largely supervisory (para 4.03). This reflects Government's policy of decentralizing responsibility for managing rural development programs to regional development agencies. 1.17 The Cooperative Movement. The cooperative movement in Cameroon started in the early 1930s with the establishment of some cooperatives in the main coffee growing areas. Initial development was scattered and uncoordi- nated, but since independence the Government has promoted cooperatives as a means of providing rural services. The Department of Cooperatives and Mutu- ality (COOPMUT) of the Ministry of Agricultural is responsible for supervising cooperatives. Altogether, there are over 350 cooperatives in the country with a membership of about 320,000 families. The 66 agricultural cooperatives are grouped under four Provincial Unions. There is no centralized cooperative banking system in Cameroon and the cooperatives utilize commercial banks and Government's agricultural credit institution (Fonds National pour le Devel- oppement Rural - FONADER) as a source of loan funds for members, the coopera- tive being responsible for repayment.  1.18 Six agricultural cooperative societies representing the administra- tive departments of the Western Province together constitute the UCCAO. As a result of various programs, including enactment of the 1973 Cooperative Act, the cooperatives in the Western Province, under the apex organisation UCCAO, have attained sufficient size and stability to be financially viable units in their own account. These cooperatives have fairly uniform structure and administration. While performance of individual cooperatives has varied, the overall system in the Province has reached a stage of development where the Government has been able to entrust it with various rural development pro- grams. Thus the movement can now be used as a vehicle for implementing Government's policy of decentralization of economic and social development in the Western Province (para. 1.16). 1.19 UCCAO. Established by law in 1973 and operating by Government decree, dated 1974, UCCAO originally involved four arabica producers' coopera- tives, and had a monopoly in purchasing and exporting arabica coffee. UCCAO was to provide inputs and coffee processing services for its member coopera- tives. In 1978, UCCAO's objectives were broadened to include support for all agricultural production activities, and the two robusta cooperatives in Western Province joined the union. UCCAO is fully owned by its members and governed by an elected General Assembly comprising representatives of the Sections within the member cooperatives. A Board of Management representing the boards of the member cooperatives elects a president and employs a General Manager with a staff of about 160. This staff is organized into Departments of Finance and Administration, Commercial Services, Production Services, and Technical Services, each with a Director. Although UCCAO has an extensive mandate to direct agricultural development activities in the Province, its main activities include financial management, bulk purchase and transportation for coffee production inputs, management of members sales, central sorting and marketing of arabica coffee, and selling robusta coffee to the National Produce Marketing Board (Office National de Commercialisation des Produits de Base - ONCPB). Through managing the Western Highlands Project (para 1.31) the Union began to fulfill its larger role in promoting agricultural develop- ment. The project would continue this process. 1.20 The Departmental Cooperatives. Total membership of the six member cooperatives forming UCCAO is approximately 100,000 farmers, although, in practice, there is little distinction between members and non-member/users of UCCAO's services. The cooperatives are organized into Cooperative Sections (CS), each of which comprises a number of Cooperative Centers (CC) (Organigram - Lnnex 1). The structure and function of the societies and their relation- ship with UCCAO is governed by statutes. Each society has an administrative headquarters which provides a center for storage and distribution of ferti- lizers and collection and processing of parchment coffee. Cooperatives each have a Board of Directors elected by the Cooperative Sections (CS) to decide on constitutional and developmental issues and distribution of financial surpluses to farmers. For each society, a director, approved by the Minister of Agriculture, is responsible for managing the cooperative's activities as a whole. The CS is the primary unit of the cooperative organization, each has a committee constituted of delegates elected by its Cooperative Centres (CCs). The latter, numbering about 307, have little physical structure and an average  - 6 - membership of 325 farmers. Through such an organisation, farmers' views and problems are well represented and UCCAO is considered to be responsive to these views in management and policy making. 1.21 Cooperative Service Centres (CSC). Each cooperative operates a network of cooperative service centres (CSC) which offer services to members, including the supply of crop production inputs, distribution of coffee seedlings, credit and transportation, and the purchase of washed/dried coffee on behalf of their society. Of the 52 CSCs, 41 have storage facilities (total capacity 27,000 m2) and 31 have office space. The remainder act primarily as purchase depots for seasonal coffee collection teams. Approximately 60% of the CSCs have managers who are responsible for day-to-day organization under the instructions of the cooperative's board of directors. About 20 CSCs supply farm inputs and these employ at least one permanent staff member (currently totaling 70). In principle, the CSC should also provide advice and training for cooperative members, retail goods and other services, but, to date, these have not been offered. The project would help to remedy this situation. 1.22 Cooperatives' Financial Situation. In the three year period 1978 to 1980, UCCAO cooperative members produced a total of 50,000 tons of arabica coffee, 16,000 tons of robusta coffee, 16,800 tons of cocoa, with a total market value of US$94.6 million. Sales of inputs, construction materials and food crops, and other items, earned an additional US$14.5 million, producing a group turnover of US$109.1 million. From this earned income the cooperatives generated a profit of US$14.4 million in the period. Of this, about US$5.6 million was paid to farmers in the form of bonuses. However, during this period, while international coffee prices dropped by about 25%, the farmgate price for arabica coffee was increased by Government decree by 25% from an average CFAF 265 in 1978 to CFAF 330 (US$0.84) per kg in 1980. Moreover, the affiliation of the two robusta coffee cooperatives to UCCAO in 1978, while in line with Government's policy to have a single development agency in each province (para. 1.16), placed added burden on the Union's finances. This was partly the result of inadequate management of the robusta cooperatives which did not control costs and, to a large extent, from Government's practice of paying less to robusta cooperatives for coffee processing and marketing than the real costs which they incurred. Up to 40% of earnings from robusta coffee sales were retained by the ONCPB as Government revenue. UCCAO itself assumed the responsibility for covering losses incurred by the robusta cooperatives and is currently using about 85% of its surplus from arabica coffee marketing for their support. As a result, the profitability of combined cooperative operations has been drastically reduced and the profit (before bonus payment) of the group dropped from US$5.9 million in 1979 to US$1.4 million in 1981. Interim measures have been taken by Government to reduce taxes on coffee, but more long lasting reforms are required to help the UCCAO group to preserve its financial integrity. These measures would be taken as part of the project (6.06). 1.23 In 1980 the value of UCCAO's capital stood at CFAF 686 million (US$1.8 million) with the ratio of capital to assets at 1:12 and debts to equity at 1:10. This is a satisfactory financial situation. Individual cooperatives are legally obliged to transfer 15% of their operating surpluses  -7- to their reserve funds and 5% to an educational fund. These provisions, together with high coffee prices in the mid 1970s have allowed the coopera- tives to accumulate large reserves. The net worth of the group is now estimated to be CFAF 11.1 billion (US$28.3 million), which, for a marketing cooperative like UCCAO, is an excellent position. However, while the overall liquidity of the group as a whole has been quite good, there are great vari- ations between the cooperatives; the most solvent having a ratio of 7:1, and the worst, for the two robusta cooperatives, with ratios below 1:1. As stated, the robusta cooperatives have been able to operate only with the financial support from UCCAO (para 1.22). 1.24 Under the first project, audits of each cooperative and of UCCAO were completed in May 1982, together with a detailed organization and management study undertaken by consultants. The audit report, which was generally supportive of UCCAO's and the cooperatives' accounting operations, identified a number of areas where improvements could be made. For example, UCCAO has consistently made inadequate provisions for bad debts and losses on poor investments. Adjusting for these, the auditors found that UCCAO's net worth had been overstated by about 10%, even through it was still excellent (para 1.23). The accompanying study made specific proposals for remedying weak- nesses in accounting, financial management, training, and operation of services. These have been adopted as the bases for organizational improvement in the proposed project (para 3.14) and considerable progress has been made with implementing these changes. Furthermore, additional investments in the individual member cooperatives would be conditional on their effecting the proposed changes in procedures and resolution of financial queries (para 3.33). On this basis UCCAO and its member cooperatives are considered to be a suitable vehicle to handle project implementation. 1.25 Credit Operations. The cooperatives have been providing credit to their members for several years through the CSCs. In principle there are four types of credit: (a) secured seasonal credit in both cash and kind received against end-of-year bonus payments ("Credit sur la ristourne"); (b) unsecured seasonal credit in kind ("Credit special"); (c) unsecured seasonal credit in cash to robusta coffee farmers ("Credit de campagne"); and (d) unsecured medium-term agricultural equipment credit ("Credit materiels agricoles"). Seasonal credit is repayable within twelve months and security is the cooperatives' franchise on coffee purchases. Historically, credit has been mainly seasonal and for coffee production. Therefore it has not generally been available to women for food crops. Agricultural equipment credit is provided for three years for the purchase of pulpers, sprayers and wire netting for grain storage units. Exact provisions have varied between cooperatives. In 1980 and 1981 the total value of all these forms of credit was approximately CFAF 400 million (US$1.0 million) and credit was granted to about 17,000 farmers (17% of the cooperatives' members). Although the cooperatives have improved their credit operations and record keeping in recent years, deficiencies in procedures and accountancy methods still exist. The overall ratio of credit recovered to credit disbursed was 78% during the last four years, but due to stricter control this ratio was improved to 97% for years 1980-81. In general, difficulties in credit handling and constraints in its growth can be attributed to: (a) the absence of an adequate system for credit administration; (b) lack of a monitoring and  -8- supervision system; and (c) the fact that no interest is charged on loans provided from the cooperatives' own funds, which encourage delayed repay- ment. These issues would be addressed by the project (paras 3.16 and 4.17). 1.26 Coffee Processing. In 1982 a consultant's survey of the physical facilities at each cooperative assessed the organization of each factory and the associated arrangements for buying and transportation. The role played by UCCAO in processing and marketing was also reviewed. Considerable deficien- cies, including worn out machinery, poor organization, inadequate maintenance, untrained management and poorly coordinated transport at all stages, were identified. The operations of the robusta cooperatives' factories were the least efficient, although a generally poor situation prevailed. Overall it is estimated that approximately 8% of the value of UCCAO coffee is being for- feited because of poor quality and inefficient handling and a further 9% is lost due to unreliable marketing by UCCAO. As a result there has been a steady deterioration in the reputation of Cameroonian coffee, particularly for arabica, which now attracts the lowest prices in the world markets. Correc- tion of these weaknesses is vital to promoting sales of Cameroon coffee and maximizing earnings in the difficult years ahead. The project would con- tribute significantly to resolving these problems (para 4.22). 1.27 FONADER was created in 1973 with the dual role of: (a) providing credit to farmers, pre-cooperatives and cooperatives, and (b) appraising, financing and supervising (on behalf of Government) a wide variety of rural development programs, from insecticide and fertilizer supply to village water supply and irrigation projects. The Special Rural Development Fund Project (FSAR - Cr. 723-CM) is a key element in these actions. A FONADER branch office exists in Western Province (at Bafoussam), however, its activities are limited and its total lending in Western Province was only CFAF 160-190 million (US$0.5 million) in 1981. Loans to cooperative societies have been fully recovered, whereas for loans to individuals and farmer groups, recovery has been only about 25%. 1.28 FONADER contributed US$2.5 million to a Revolving Credit Fund (RCF) established under the Western Highlands Rural Development Project (para. 1.31) for farm inputs. This fund is administered by UCCAO which contributed US$1.4 million to its creation. Funds from the RCF are lent to farmers at an annual interest rate of 9% and includes a 2% contribution to the National Guarantee Fund and a 4% administrative fee to FONADER. The difference, amounting to 3% per annum for funds borrowed from FONADER and 7% per annum for funds contri- buted by UCCAO, are retained by the RCF to cover UCCAO's aministrative costs and to provide further credit to smallholders. Although loans and annual interest charges to the RCF have been repaid by the cooperatives on time, no reconciliation has been made of individual repayments. This situation would be rectified under the project. 1.29 At the national level, the bulk of FONADER's funds were traditionally utilized to subsidize farm inputs such as fertilizers. As a consequence, funds for financing investments in cooperatives to improve their facilities and efficiency has been inadequate. To partially remedy this situation investment funds originating under the project (para 5.04(ii)) when repaid by the UCCAO cooperatives would be allocated to a special fund, to be designated  -9- by Government, for subsequent re-lending for capital investments in other cooperatives. 1.30 Provicial Delegation of Agriculture. The Ministry of Agriculture is represented in all provinces by a Provincial Delegate (DP) who is responsible for coordinating the actions of the provincial representatives of the various directorates of the Ministry. The provincial delegation is represented by a delegate in each administrative department and a senior agricultural officer (chef de poste agricole principal - CPAP) at sub-department level. The MINAGRI Delegate in Western Province is a member of the project coordinating committee (para. 4.02). G. Performance Under the First Project 1.31 The Western Highlands Rural Development Project (Cr. 784-CM) was appraised in June 1977. Estimated project costs were US$25.0 million, to be financed: by IDA US$13.0 million; Government, US$4.4 million; UCCA0, US$7.4 million; and farmers, US$ 0.2 million. The Credit became effective in December 1978. The project area encompassed the three arabica coffee-growing departmegts of the Province (Mifi, Menoua and Bamboutos) covering an area of 6,000 km . The project zone included 100,000 ha. The objective was to provide a package of complementary measures including training, extension, fertilizer and pesticides, credit, soil conservation/afforestation, applied research, improved food crop seeds, and coffee processing to stimulate pro- duction. Project financing also included institution building and development of bottomlands and village water points. The project was to extend over four years and UCCAO (para. 1.16) was designated executing agency. 1.32 The Project was planned to utilize and strengthen existing provincial resources. Thus, while the IDA Credit provided funds for establishing project units to execute certain components (soil conservation, seed farm, monitoring and evaluation, and training and extension), other components were to be executed by existing MINAGRI provincial services: rural works (G6nie Rural) for construction of water points and bottomland development, and the crop protection service (Department of Agriculture) for pest and fungus treatment of coffee. Similarly, a convention was made between the national Agricultural Research Institute (IRA) and Government for undertaking applied research work. Project extension services were to be developed within UCCAO so as to replace the existing, poorly organized extension service under the Provincial Delegate of MINAGRI. 1.33 Start-up of the project was slow because of delays in establishing a Directorate of Production within UCCAO with responsibility for the project's agricultural field activities. Progress of most project components reflected this delay. Project activities have accelerated considerably since 1980, and approximately 85% of the original objectives will have been achieved after postponing the Credit closing date by twelve months to June 1984. In response to justified demand, the original project area was extended in 1980 to include contiguous parts of the three other provincial departments (Noun, Haut Nkam and Nde) contained within the arabica coffee zone.  - 10 - 1.34 The principal achievement has been in institution building: the planning, organization, control, recording and accounting procedures estab- lished within the project are good. The project has successfully established training and extension services. A self contained, 30 bed training centre has been constructed in Bafoussam. Training service staff include two farm extension lecturers, audio visual, design and printing technicians and support staff. Six courses for selection and training of extension officers have been completed and the service has produced training materials which have been demonstrated and distributed to field staff and farmers. The following extension service staff have been appointed: a chief and a deputy chief of service, 4 sector chiefs, 53 supervisors and 190 extension agents, a signi- ficant advancement over the original calendar. An estimated 40,000 farmers have been covered by the project's extension services, compared with 30,200 envisaged at appraisal. However, at the end of the project, approximately 33% of the extension staff and participating farmers will have been involved with the project for less than one year (Working Paper 12). A project monitoring unit (PMU) has been operational for three years (para 4.21). 1.35 In terms of physical achievements, the project will have realized the following: design and construction of 200 water points (of 220 planned), provision of 2,900 coffee pulpers (of 3,000 planned); cultivation of 200 ha of the seed farm (of 300 ha planned), and the initial distribution of improved seeds: hybrid maize (100t), beans/groundnut (50t) and potatoes (50t). Achievements in promoting soil conservation will exceed the pilot expectation with the creation of 36 demonstration sites. An estimated 450 ha of eroded slopes will have been planted with trees (100% of plan). In addition to creating a topographic survey capability, 350 ha, or 88 percent of the 400 ha bottomlands planned for drainage will be achieved. However, due to delays in establishing the terms governing their use, only 260 ha of these bottomlands will be cultivated (in 1730 individual farmer parcels). Six Cooperative Service Centres (CSCs) will have been constructed and a further 16 renovated, thus completing 60 percent of the original objective. Most of the shortfalls have resulted from late starts and over optimistic targets. Progress under each component has been thoroughly analyzed and targets under the second project (para 3.02) account for the experience gained to date. 1.36 During the project, annual fertilizer application will have increased by approximately 3,000 tons over PYO level, but due to problems affecting national procurement and financing of inputs, this is equivalent to only 30% of the appraisal plan. In 1983 Government took action to improve the financ- ing and supply aspects of crop inputs (para. 6.13). Similarly, the achieve- ments in treatment of coffee against pests and diseases, although in line with original proposals, are now considered sub-optimal due to poor timing and selection of priority areas and national shortages of chemicals. Assurances were obtained at negotiations regarding permanent improvement in the organi- zation of input supplies (para. 6.13). 1.37 Apart from the problem in input supply, weaknesses in the first project included over-emphasis on coffee production and lack of attention to improving coffee quality, coffee marketing and the balance between coffee and food crop production. In order to avoid over-complexity, the first project included only minor direct participation of the six UCCAO member cooperatives,  although 85% of farmers are members. Other problems related to weak IRA support for the applied research component, delayed initiation, and over- ambitious monitoring and evaluation. Insufficient definition of their relationship with the project resulted in lack of cooperation from provincial and departmental MINAGRI delegates. These problem areas have been reviewed and would be addressed in the second project. 1.38 Implementation of the Western Highlands project was also constrained by problems encountered by the associated Feeder Roads Project (Cr. 749 - Ln. 1494). Cost overruns and central management difficulties have delayed construction and reduced the length of roads which can be achieved with the funds available. As a result, only about 400km (44%) of the 900 km of cate- gory A feeder roads programmed for reconstruction/maintenance in Western Province, are likely to be achieved. The Government has now reorganized and decentralized feeder road construction for the remaining category A feeder roads and these are likely to be completed during the second project. 1.39 Despite these shortfalls, the first project has had a significant impact on agricultural production in the area. Incremental coffee production is expected to reach 2,200 tons per year, or 70% of the level anticipated at appraisal (3,160 tons). The complex mixed cropping regime in the project area (para. 2.05) makes it extremely difficult to measure food crop production levels; however it is estimated that the overall increase in rainfed food crop production during the first project has exceeded predictions by 10,000 tons (5%). No project cost overrun is anticipated and disbursements are expected to be completed within one year of the appraisal estimated disbursement period. The economic rate of return for the first project is re-estimated at approximately 17%. The shortfall over the appraisal estimate (20%) is due primarily to lower coffee production resulting from inadequate supply of fertilizers and chemicals. II. THE PROJECT AREA A. Geographic and Demographic Background 2.01 The project would serve the whole of the Western Province (IBRD Map No. 16677), which occupies 13,930 km2 (3% of the national territory), about twice the area of the first project. This includes a total of 407,000 ha of cultivable land (2.5% of the national total), of which an estimated 250,000 ha are cultivated annually. The Province has some 1.0 million inhabitants or about 12% of the national population. Approximately 80% are rural and agrarian. The area is densely populated, with an average of 72 inhabitants/km2 varying from 27/km2 in the Noun to 221/km2 in the Mifi. This compares with a national population density of 18 inhabitants/km2. 2.02 Ecology and Climate. There are four soil types in the project area: (i) ferralitic, covering 85% of the Province, of which one third has reasonable agricultural value; (ii) black androsols of medium-high potential; (iii) brown entrophe soils of high potential; and (iv) hydromorphic alluvial soils of high potential when drained. The rainy season extends for 9 months,  - 12 - with annual precipitation varying from 1,500 mm (eastern lowlands) to 2,000 mm (Western Highlands). Mean annual temperatures range from 20