Ecuador - Seeds Project

Documnt of The World Bank FOR OFFICIAL USE ONLY Report No. 6147 PROJECT PERFORMANCE AUDIT REPORT ECUADOR SEEDS PROJECT (LOAN 1229-EC) April 17, 1986 Operations Evaluation Department This document has a restricted distribution ani may be used by recipients only in the performance of their official duties. Its contents may not oinerwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Name of Currency (abbreviation) Sucre S/ Currency Exchange Rate: -Appraisal Year Average 1975 US$ 1.00 = S/25.00 Intervening Years Average (1976-81; 1982;1983) US$ 1.00 = S/25.00; S/31.15 and S/42.00 respectively Completion Year Average (1984) US$ 1.00 = S/54.00 WEIGHTS AND MEASURES 1 quintal (qq) - 45.5 kg = 100 lb 1 ton = 22 qq = 1,000 kg = 2,200 lb 1 Iectere (ha) = 10,000 m2 - 2.47 ac GLOSSARY OF ABBREVIATIONS BNF - National Development Bank CIAT - International Center for Tropical Agriculture CLKKYT - International Maize and Wheat Center CNF - National Finance Corporation DCS - Department of Seed Certification EMS - Seeds Corporation INIAP - National Institute for Agricultural and Livestock Research MAG - Ministry of Agriculture and Livestock NSC - National Seeds Council OED - Operations Evaluation Department PCR - Project Completion Report PNS - National Seeds Program PPAM - Project Performance Audit Memorandum PPAR - Project Performance Audit Report PU - Project Units TA - Technical Assistance SEED TERMINOLOGY (As Used Within Project Documents) Breeder's seed - Seed of high genetic purity produced by plant breeders at research stations. Basic seed - Progeny of breeder seed produced at research stations. This seed must keep the genetic identity and the varietal purity. Registered seed - Progeny of basic seed which should reasonably maintain the qualities of the variety. Certified seed - Progeny of registered seed produced by selected farmuers under contract. It must satisfactorily maintain the genetic identity and varietal purity and its production and processing must be superised and approved by a seed certification agency. The processing consists basically of drying, cleaning, selecting, disinfecting, testing, bagging and labeling. GOVERNMENT FISCAL YEAR January 1 to December 31 THE WORLD BANK FOR OFFICIAL USE ONLY Washington, D.C 20433 U.S.A. Office of Otrector-General Operations Evaluaton April 17, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report: Ecuador Seeds (Loan 1229-EC) Attached, for information is a copy of a report entitled "Project Performance Audit Report on Ecuador Seeds (Loan 129-EC) prepared by th,; Operations Evaluation Department. Attachment 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ECUADOR SEEDS PROJECT (LOAN 1229-EC) TABLE OF CONTENTS Page No. Preface ............................... Basiz Data Sheet ............................ i Evaluation Summary ................................................. 111 PROJECT PERFORMANCE AUDIT MEMORANDUM I. Project Summary ............................................ 1 II. Main Findings .............................................. 5 Attachment: Government Comments ................................. 8 PROJECT COMPLETION REPORT I. Introduction ................................................ 11 II. Project Formulation ......................................... 12 III. Project Implementation ................................... 13 IV. Economic Impact ........... . . . ...... 20 V. Institutional Performance .................................. 21 VI. Lessons Learned ......................... ................... 22 Annexes flRD - 11860 IBRD - 11861 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. PROJECT PERFORMANCE AUDIT REPORT ECUADOR SEEDS PROJECT (LOAN 1229-EC) PREFACE This is a project performance audit on the Ecuador Seeds Project for which Loan 1229-EC in the amount of US$3.0 million was approved in March 1976. It was the Bank's first seeds project in Latin America. The project was expected at appraisal in August, 1975 to take three years to implement but actually required over seven, finally closing on March 5, 1984, at which time all funds were fully disbursed. The audit consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated April 12, 1985, prepared by the Latin America and Caribbean Regional Office. The PPAM is based on the project Appraisal Report (No. 964-EC dated March 5, 1976), the President's Report (No. P-1791-EC dated March 18, 1976) and the Loan Agreement of May 24, 1976. Bank files on the project, including correspondence with the Borrower and supervision reports, were fully consulted. Bank staff responsible for implementation of the project were interviewed. An audit mission also visited Ecuador in August 1985 to discuss the project with staff of the executing agency (the Ministry of Agriculture -- MAG), senior government officials and staffs of the National Seeds Program (PNS), the National Institute for Agricultural and Livestock Research (INIAP) and the Seeds Corporation (EMS). PNS (MAG), INIAP and EMS bore principal responsibility for implementation of the project's key components. The audit finds the PCR precise and detailed in its description of project achievements and shortcomings, and the audit supports the PCR's principal findings. The audit memorandum highlights the importance of the project to tha country's developmF .t efforts, the progress made in the proeuction of breeder's and basic seed, and the project's accomplishments in physical infrastrctural development, technical assistance and training. Issues given particular emphasis include organizational problems of improved seed production and processing, and of effective commercialization and distribution of improved seed. The draft report was sent to the Borrower for comments on January 13, 1986 and comments received have been appended to the audit memorandum. The mission wishes to thank government, INIAP and EMS itaff for the valuable assistance they provided during the mission's visit to Ecuador. - li - PROJECT PERFORMANCE AUDIT REPORT ECUADOR SEKDS PROJECT (LOAN 1229-EC) B.SIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Actual as % of Estimate Latimated Actual Appraisal Estimate Total Project Cost (US$ million) 5.0 5.7 113 Loan Amount (USS million) 3.0 3.0 100 Date Board Approval - 03/30/76 Date Signing - 05/24/76 Date Effectiveness 08/23/76 10/20/76 - Date Physical Components Completel 1980 1985 225 Proportion of Physical Components Completed 100% 95t 95 Closing Date 06/30/80 06/30/83 175 Economic Rate of Return 48% 16% 33 STAFF INPUTS FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 TOTAL Identtlication/ Preparation 17.7 6.5 24.2 Apppraisal 59.1 59.1 Negotiation 8.7 8.7 Supervision 2.5 6.7 6.4 10.1 7.0 10.0 10.0 5.6 9.4 13.6 81.3 17.7 76.8 6.7 6.4 10.1 7.0 10.0 10.0 5.6 9.4 13.6 173.3 CUMULATIVE DISBURSEMENTS FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 Appraisal Estimate (USS million) 0.5 1.8 2.6 3.0 - - - - Actual (USS million) - 0.2 0.6 0.7 1.3 2.4 2.7 3.0 Actual as X of Estimate - 11 23 23 43 80 90 100 Date of Final Disbursement: 03/05/84 Principal Repaid to: 05$1.16 million (01/31/86) MISSION DATA Date No. of 4andays Specializations Performance Types of Mission (mo./Yr.) Persons in Field Represented/a Rating/b Trend/c Problems/d Identification 1974 n.a. n.a. Preparation 3/75 2 n.a. a,b Appraisal 8/75 4 90 a,a.a,b Supervision 1 6/76 1 7 a I - - Supervision 2 10/7t 1 4 a 1 1 - Supervision 3 1/77 1 5 a 2 1 - Supervision 4 6/77 2 18 a,b 2 1 M,C Supervision 5 6/78 1 9 b 2 1 N,U Supervision 6 1/79 1 7 b 2 3 H Supervision 7 11/79 1 10 b 3 2 M Supervision 8 9/60 1 4 a 2 1 p.M Supervision 9 2/81 1 4 a 2 1 F,M Supervision 10 9/81 1 5 a 2 1 F,m Supervision 11 5/82 1 6 a 2 1 F,M,0 Supervision 12 12/82 1 5 a 2 1 F,M Supervision 13 8/83 1 5 b 2 2 F.M,T Total 179 OTHER PROJECT DATA Borrower Government of Ecuaior Executing Agency Ministry of Agriculture Follow-on Project None a a agriculturalist; b * agrioultural economist. /b I - Problem Free or Minor Problems; 2 - Moderate Problems; 3 - Major Problems. 7-c 1 Improving; 2 = Stationary; 3 - Deteriorating. 7d- P Financial; M - Managerial; T - Technical; P - Political; 0 - Other. - iii - PROJECT PERFORMCE AUDIT REPORT ECUADOR SEEDS PROJECT (Loan 1229-EC) EVALUATION SUMMARY Introduction The project was part of government's long range agricultural devel- opment policy which in the mid 70s was focussing irtensively on expanding farm production and reducing rural poverty. The policy was to be achieved by organized schemes to produce and distribute key inputs such as improved seeds and fertilizer and by improving technical assistance and credit at the farm level. The present project was one of several identified and prepared by Government to implement this policy. Total project costs were estimated at US$5.0 million. of which the Bank Loan of US$3.0 million was to cover foreign exchange expenditures. Objectives The project's aim was to develop a modern seeds industry in Ecuador to make available to farmers substantial quantities of high quality, improved seeds for the country's important food crops including wheat, barley, oats, soybean, maize and rice. Successful implementation required the development of increased seed production capacity, improved processing infrastructure, establishment of seed certification and marketing/distvibution procedures, provision of professional staff training, foreiga consultant input and institutional development. ImpleFuentation Experience PNS, EMS and INIAP were key entities responsible for implementing the project on behalf of MAG. The project experienced serious delays arising from organizational and managemental problems within EMS which slowed plant construction and the installation of seed processing equipment. As a result, seed production and distribution appraisal targets were only 30-40% realized at the project's close and are unlikely to be fully met before 1990-95. On the positive side, the infrastructure planned under the project was essentially completed. Also, the selection of new, improved lines of breeder's and basic seed by INIAP and their bulking up by selected commercial producers proceeded satisfactorily. After effectiveness, INIAP moved prompt- ly to select candidates for training abroad and successfully organized and implemented local training. Staff training fully met appraisal objectives and was a project highlight. Overall, INIAP made a tl .-ly and highly signif- icant input into the project. - iv - The project also recruited two foreign consultants who performed generally satisfactorily (with some Government reservations in one case). The National Seed Council (N'C), created as part of the project, demonstrated itself to be of some value in policy development and coordination, although unfortunately it did not provide policy advice and leadership at the level needed. The PNS functioned more effectively but fell short in creating a strong and viable nationwide seeds program. Overall, EMS' performance was the major project disappointment. As the entity responsible for attaining the project's key production-oriented objectives, it performed disappointingly. EMS' management, financial strength, cash flow, accounting and financial auditing were all chronically weak, particularly in relation to its demanding project role. Further, EMS' position was made difficult by disincentive government pricing policies for several crops which discouraged production and reduced farmer demand for seed. Price controls on seed, the failure of Government to compensate EMS fully for foregone earnings and EMS' lack of camercial expertise also aggravated EMS' cash flow mnd weakened its effectiveness. Results The audit confirmed the PCR's conclusions that the project achieved its training and Technical Assistance (TA) objectives. The project increased INIAP's capacity to select improved strains and produce breeder's seed, and to provide an organized system of multiplying basic seed on commercial farms. It also contributed importantly to national seed production/ processing infrastructure through plant construction and expansion of storage and distribution facilities. It also put in place for the first time laboratory facilities and a field control system to underpin a national seed certification program. The project's physical achievements were thus satisfactory and in line with appraisal expectations, although they took over seven years instead of three to complete. The project was reasonably successful in strengthening policy mak- ing, coordination and implementation capacity through formation of the NSC and PNS. As noted, its most important shortfall was in seed processing and marketing/distribution because of EMS' overall weakness as a commercial ven- ture. Government is discussing privatization of EMS but so far has made no significant move to do so. Given EMS' difficulties, the audit concludes that it is unlikely that full utilization of its plant capacity will be achieved in 1990 as pro- jected in the PCR. The ERR recalculated in the PCR of 29% (down from 48% estimated at appraisal) is more likely to be closer to the 16% calculated in the PCR sensitivity analysis based on a five year slippage in reaching full platt utilization in 1995 rather than 1990 (PCR, para. 4.03). Sustainability Sustainability of project investmEnts is a moot question. One unknown is the date by which EMS will utilize its full plant capacity. The audit feels it will be at least 6-8 years. A second is whether EMS can market the full tonnage of processed seed given its marketing/distribution difficulties and the negative image it has developed with producers. EMS' improved performance is crucial to project sustainability but at present that improvement is conjectual, notwithstanding that EMS' difficulties are well known to government and moves have recently been taken to strengthen its mangement. Government has also initiated discussions concerning the possible privatization of EMS. Findings and Lessons The major findings and lessons arising from this project experience are: - the project achieved its training and TA objectives and was successful in producing improved varieties and in developing an effective multiplication and certification scheme (PCR, paras. 3.09, 3.14, 3.15; PPAM paras. 8, 9); - it was also successful in its institutional- and infrastructural- strengthening objcctives but less so in seed processing and market- ing, achievements of which have not so far exceeded pre-appraisal levels (PCR, paras. 3.11-3.13, 3.22; PPAM, paras. 5, 6, 10-12); and - the latter shortfall is related to EMS' lack of business acumen and commercial experience -- staff reorganization and strengthening, and possibly privatization are options being considered by govern- ment (PCR, paras. 3.22, 3.23, 5.02; PPAM, paras 10, 14-17). PROJECT PERFORMANCE AUDIT MEMORANDUM ECUADOR SEEDS PROJECT (LOA- 12?9-EC) I. PROJECT SUMMARY Project Description 1. Loan 1229-EC was the first Bank-financed seeds project in the LAC region. It was prepared in 1974/75 with FAO/IBRD CP assistance, appraised in August 1975 and became effective in October 1976. Previous IDA/Bank activities in Ecuador's agricultural sector included a national livestock program (Loan 501-EC and Credits 173-EC and 222-EC),1/ an irrigation project (Credit 425-EC),2/ and a fisheries project (Loan 555-EC).3/ Execution of these efforts was generally satisfactory except in the case of Loan 555-EC, which did not fully achieve its objectives. In the early 70s, government undertook preparation of several agricultural projects with strong rural development bias for which it sought funding from various external sources including IDA/Bank. This was a conscious effort to provide more balance to national development, which in the late 60s strongly emphasized petroleum and associated industrial development. It was also an effort by government to offset imports of essential foodstuffs which were expanding rapidly at the time and to reduce the impact of poverty in rural areas which government realized had been neglacted too long. 2. Government strategy was to be achieved in pa-t through organized schemes to make key inputs such as improved seeds and fertilizer more readily available to producers and by improving technical assistance and credit. The framework of a seeds industry existed in the early 70s but it required, in the words of the SAR, "...proper coordination of efforts and a strengthening of the institutions involved..." (SAR, para. ii). Project design, therefore, heavily emphasized TA, training, and improvement of processing and storage 1/ PPAR, Ecuador First and Second Livestock Development Projects (Loan 501-EC and Credit 173-EC), OED Report No. 892 dated October 21, 1975 and PPAR, Ecuador Third Livestock Development Project (Credit 222-EC), OED Report No. 2799 dated December 28, 1979. 2/ PFAR, Ecuador Milagro Irrigation Project (Credit 425-EC), OED Report No. 4251 dated December 30, 1962. 3/ PPAR, Ecuador Fisheries Project (Loan 555-EC), OED Report No. 3731 dated December 23, 1981. - 2 - facilities to strengthen key institutions4/, and the establishment of a NSC to ensure appropriate national policy and development coordination. 3. Specifically, the project as appraised comprised the following interrelated components: (a) increased production of registered and certified seed of wheat, barley, oats, soybean, maize and rice; (b) expansion of the existing seed variety release system; (c) strengthening of the existing seeds certification scheme and related support services for seed quality control; (d) construction of three large-scale certified and processing plants with appropriate storage facilities; (e) construction and improvement of some 25 seed distribution centers; (f) establishment of a NSC; (g) assistance to INIAP's seed research and development program; and (h) training and TA. MAG bore overall responsibility for the project which initially was implemented on a day-to-day basis by the Project Unit (PU) within the NSC. After 1979 and the merger of the PU and DCS, implementation was assigned to the PNS. Funds were channeled to participating entities through a special account in the National Development Bank (BNF). 4. Total costs of the project were estimated at US$5.0 million of which US$3.0 million (60%) was to be Bank financed and US$1.15 million (23%) and US$0.85 million (17%), respectively, were to be financed by government and EMS. The actual final cost of the project was US$5.65 million, the over- run of US$0.65 million being borne by government. Project Implementation 5. Project implementation was protracted because of a series of bureaucratic and management delays. The PU, which was established as a condition of the effectiveness, was not set up as originally planned as a semi-autonomous unit tsponsible to NSC but as a dependency of the General Directorate of Agricultural Development of MAG. This arrangement seriously reduced the PU's operational and budgetary independence and its effective- ness. The situation was recognized by both the Bank and the Borrower but it 4/ Including INIAP, EMS and The Department of Seeds Certification (DCS). The latter operated until 1979 in collaboration with the Project Unit (constituted as a condition of effectiveness), at which time the two wt:e combined into the PNS. - 3 - was not until late 1979, three years after effectiveness, that government met3ed the PU and the DCS to form the PNS directly under the Vice Minister of Agriculture. After its establishement the PNS worked satisfactorily and provided much-needed project leadership, but the slippage in the initial three project years was never able to be made up. 6. These early organization/management problems also impacted on EMS, which itself suffered major leadership, organizational and budgetary problems throughout project implementation. EMS' prOlems in turn caused serious delays in site selection for the processing plants, and in the tendering, construction and equipping of the plants. These difficulties were compounded by delays in selecting and hiring the seed processing consultant, changes in plant siting, and modifications in plant design and bid technical specifica- tions. It took until 1980 for contractors to start construction on the first two plants in Quito and Guayaquil, by which time government counterpart funds were short. A further site change was also made at Quevedo which delayed finalization of the construction contract there until September 1981, five years from effectiveness. Once started, construction was even further delayed by the contractors, whose poor quality standards were questioned continuously by the seed processing consultant which in turn led to acrimony and accusations from the contractors and from some gcvernment quarters that the consultant was incompetent. 7. The audit concluded that some contractors performed unsatisfacto- rily in several respects. Some were slow, unreliable and the quality of their work was uneven. The worst example seen by the audit was at the Quito plant at Calderon which had walls which were out of plumb, block work which was not level and concrete work which was substandard. Apart from that, some work was not properly finished and some machinery and storage silos was still not installed even at present. This situation appeared to be due to several causes including poor performance by the contractors along with organization, management and budgetary problems on the part of EMS and, to a lesser extent, PNS. As noted, some government staff also voiced strong concern regarding the effectiveness of the seeds processing consultant. There may be truth to this though the audit could not verify it, whereas the poor workmanship of '-,he contractors was clearly apparent as was also the weakness of EMS' manage- ment and finances. Taking account of the quality and delay aspects, the construction program left a lot to be desired. While 95% of the project's construction targets were eventually attained and the bulk of the infra- structure is now in place and operational, the effort was weakly coordinated, problem-prone, seriously delayed, and of questionable quality in severpl of its aspects. 8. On the other hand, INIAP's performance in increasing supplies of breeder's and basic seed was very successful. After effectiveness, ENIAP was prompt to construct and equip small-scale seed facilities at four of its experimental stations and to organize overseas and local training of seeds specialists. It was also successful in its research and field programs to provide improved breeder's and basic seed for multiplication by selected farmers to produce registered seed for commercial use. The standard of all of INIAP's operations was high throughout, notwithstanding that it experi- enced a critical period of declining budgets from 1979 orwards which hindered but did not halt its program to identify and make available improved germ- plasm for subsequent commercialization. Fortunately, it received technical support for its wheat, barley and maize breeding from CIMMYT which had two cereal specialists working In the Andean region attached to INIAP, so that the budgetary constraints were partially offset. 9. Seed production and certification procedures which were developed under the project also functioned effectively. Their success was due in large measure to staff training by INIAP in seed testing, pathology, field inspection and related certification procedures. The PNS was responsible for overall management and coordination of production and quality control assisted by INIAP and EMS and this combined effort worked well. The effort is currently limited by general budgetary constraints within MAG but it is strongly institutionalized and well staffed and is concluded by the audit to be one of the several satisfactory project outcomes. Project Results 10. Less satisfactorily, EMS' certified seed sale target of 8,772 tons set at appraisal has proved elusive. The PCR correctly reported that certifiee seed sales for 1982 were some 3,300 tons (PCR, Table 3.1). The PCR further noted: "Seed processing is expected to increase during the next few years, and with some strengthening in marketing and distribution should reach the target of 8,772 tons by 1990" (PCR, para. 3.06 and Annex 3). Unfortun- ately, EMS' 1983 and 1984 sales records, which were not available to the PCR mission but were finalized in time for the audit, showed a marked decrease in sales to 3,191 tons in 1983 and to 2,337 tons in 1984. Sales for the first six months of 1985 were 1,720 tons or an annual estimated rate of 3,440 tons. Whether EMS can increase its throughput and sales of improved seed to the appraisal target by 1990 as noted in the PCR is considered conjectural by the audit. A positive feature is that government recently appointed a new EMS General Manager who is an enthusiastic and competent individual with many ideas to improve the operation. He may succeed, although the odds are against it in the near term as it is the audit's impression that several other key posts also need changing for the organization to improve EMS' operation significantly. In the meantime, it would be more realistic to assume a delay until 1995 for EMS' full development targets to be met, in which case an acceptable ERR of 16% would still result from the project even though it would be well short of the 48% calculated at appraisal (PCR, paras. 4.01-4.03). The ERR was recalculated in the PCR using the appraisal methodology but with reduced incremental yields attributable to certified seeds (50% reduction for wheat, barley and rice and 75% for maize). The audit concurs with both the approach and the reductions. It is pertinent to mention, however, that the actual incremental yields may subsequently have to be reduced even further depending on the eventual level of uptake of improved seeds by farmers and the extent to which they are able to use them success- fully. In that event, the 16% ERR would not be attained, particularly if full utilization of EMS' increased processing capacity was to be further significantly delayed beyond 1995. 11. Assuming that EMS can utilize its full processing capacity in the period 1990-95, the project could be concluded as successful given that all - 5 - other project components produced satisfactory results. Thus, there is in place a functioning NSC and PNS providing a stronger institutional framework for further development of a nat-onal seeds industry which did not exist before the project. Further, INIAP's capacity to produce and multiply improved germ plasm is now considerably enhanced and MAG's capacity (through PNS) to produce and certify improveA seed nationwide has been significantly strengthened. Under the training component some 165 man-months of special- ized overseas training was provided. A further five staff took M.Sc. degrees in various technical areas and 32 others attended shortcourses ranging from one to eight weeks at leading overseas seed technology institutions. There were also short courses provided by CIAT and in-country courses which provided specific on-the-job training for over 400 medium and lower level assistants. All this trained manpower is still within the country and will contribute increasingly to its development with time. 12. In summary, the results achieved by the project were satisfactory in all respects except in commercial seed processing and marketing which is currently operating at only 30-40% of appraisal targets. This will require a major reorganizing and strengthening within EMS or, possibly, privatization of its entire operation. There is a strong lobby in Government favoring such a move but so far no effective steps have been taken to implement it. It is the audit's view that a seeds processing and marketing program such as the one envisaged under the project requires a type of aggressive and flexible management not easily found in public sector entities organized along lines similar to EMS, and that privatization of the company is probably the best way to ensure timely attainment of the project's seed processing and marketing targets. This is developed further in Section II below. Sustainability 13. Given EMS' organizational and financial problems, sustainability of project achievements and benefits must be considered conjectural at this stage, in the audit's view. One question is the date by which EMS will utilize the expanded plant capacity financed by the project. So far, on the basis of EMS' seed sales records, there is no incremental benefit over the pre-project situation. The PCR concluded that full plant capacity might be achieved by 1990 but the audit, with further hindsight, feels that it could be longer, even through 1995. A second problem is whether, even assuming full capacity is achieved, EMS will be able to market easily the total approximately 8,800 tons output. It currently does not have markets developed and, given its image problems with farmers, it will take time and effort for it to do so. The audit believes that the market is there although no demand or marketing studies were included in the project and MAG data in these areas is scanty. There is a widespread belief, however, that farmers recognize the value of improved seed and are prepared to pay a premium for it. Assuming this is correct, EMS still must develop its appropriate market share. In its present form it does not particularly impress as having the capability of achieving this readily. Much therefore depends on the success of recent and future moves by government to strengthen EMS' management and operating efficiency. The necessary degree of revitalization may not be able to be achieved given the known constraints within public sector entities in Ecuador, and government could then decide to privatize EMS as it has already talked of doing. The audit's view is that such a move would probably be in EMS' best long-term interests and is one that would be most likely to ensure project sustainability. II. MAIN FINDINGS 14. As noted, the project was satisfactory overall except in seed processing and marketing and it was in the commercial aspects of these activities that it fell short. It was a crucial shortfall, particularly in the context of its constraining effects on government's attempts to increase food producti-n nationally to feed the country's rising population and to allay rural poverty. 15. The main problem is the inability of EMS to organize itself commercially. EMS is a mixed corporation 98.8% owned by BNF, MAC and the National Finance Corporation (CNF). In theory it should be largely autono- mous but in practice it has not bee:. so because of its dependence on govern- ment for budgetary resources which, in almost every project year, were late and inadequate. Its financial position was made more precarious by inadequate internal management and its inability to shape and project an appropriate image with farmers. Its commercial activities were also jeopar- dized by government pricing policies which discouraged grain farmers from producing crops and resulted in reduced demand for seed for planting. Government also controlled EMS' seed sale prices in order to encourage use of the seed by farmers but failed to increase EMS' budget as it had undertaken to do to compensate for the income foregone. The combined result of these several constraints was to restrict EMS' cash flow severely and to reduce its flexibility to manage its affairs. In fairness, these were government- imposed constraints over which EMS had no control and about which it could do little. At the time of the audit visit, for example, EMS was so short of funds that several vehicles were off the road either because of inability to procure fuel or spare parts. Also the financial audit of EMS' accounts was four years in arrears because of a backlog of audit services in government and EMS' inability to afford an independent auditor. The overall impression gained by the audit mission was an unsatisfactory one. EMS appeared to be just another arm of government, with its key management posts largely occupied by career civil servants with no expertise in seed commercialization and little to gain by performing at the exceptional level required to manage a successful commercial seed processing and marketing enterprise. This fact was more than amply demonstrated by the observation that EMS' yearly seed sales in 1983 and 1984 (3,191 and 2,337 tons, respectively) were less thar, the 1974 pre-project sales (3,380 tons) reported in the SAR (Annex 2, Table 4). 16. A key issue is whether the Bank and the Borrower should have entered into such a project relying on a government entity with the limited track record which EMS had at appraisal in 1975 to carry major responsibility in a demanding commercial sector where experience and business acumen were known to be so essential. The appraisal does not specifically comment on EMS' suitability for its key commercial role though it does note in para. - 7 - 2.10 of the SAR: "Its first year (1974) was successful... EMS had contracts with 40 seed growers, who.,.produced enough certified seed to permit EMS to process and sell...3,400 tons...". The SAR also noted (SAR, para. 2.12) that seed production expansion would require "....strong coordination at the center, additional investment in processing facilities, technical assistance and training, and a considerable promotional campaign". It further noted (SAR, para. 4.05) in discussing EMS' staff that: "The present staff, assisted by the consultants...,., would be sufficient for the initial year. Besides additional local training, the project provides for foreign fellowships for EMS in the fields of seed production, processing and storage, and quality control". No specific recommendations to ensure EMS' autonomy and financial independence, nor strengthening of its commercial abilities appears to have been considered necessary at appraisal which, with hindsight, was undoubtedly a serious project design flaw, though such an approach was consistent with other seeds projects and, indeed, with projects in general in the mid-1970s. The result is a project which, in entering its sixth year, has been successful in its TA, training and other support services development, and in its infrastructural building objectives, but is falling short by 60-70% in its major production impact by its inability to follow-through on seed commercialization. 17. A major lesson is that in projects which are dependent for their main production impact on a commercial activity, care must be taken to ensure that an organization is in place or is included in the project design which has competency in the commercial sector. It would be unusual to expect that such a demanding role could be played by a public sector entity dependent on government 2or its funding and subject to political consequences of pricing policies and other interventions. The audit concludes that it is because of this oversight that the current project is falling short and that its main production benefits will not accrue until EMS' ability to perform as a viable commercial entity is effectively addressed. This is a matter requiring prompt and effective government action. - 8 - Attachment FONDO NACIONAL DE PREINVERSION (FONAPRE) Quito - Ecuador February 18, 1986 Mr. Yukinori Watanabe Director Operations Evaluation Department The World Bank 1818 H Street, N. W. Washington, D. C. U.S.A. Ref. Project Performance Audit Report: "National Seeds Program" Dear Mr. Watanabe: I acknowledge receipt of your letter of January 13, 1986 with the draft Project Performance Audit Report on the "National Seeds Program" (in English and Spanish). We appreciate the receipt of the report and intend to forward our comments at a later date. Very sincerely yours, s/ Eng. Jose Yepez Jara Subgerente de Desarrollo Agropecuario AUDIT OBSERVATIONS: Comments not received from Borrower in time for inclusion in the audit report. ECUADOR SEEDS PROJL..T (Loan 1229-EC) PROJECT COMPLETION REPORT April 12, 1985 Projects Department Latin America and the Caribbean Regional Office ,/e，一 才以、／-&？二多必＇斤 - 11 - ECUADOR SEEDS PROJECT (Loan 129 =FC) PROJECT COMPLETION REPORT 1/ I. INTRODUCTION A. Agricultural Setting 1.01 Agriculture is the mDst important sector of the Ecuadorian economy in terms of output and employment, and second only to oil as a source of foreign exchange. However, in the early 1970s crop production had virtually stagnated resulting in serious shortages and increasing food imports, To confront this situation, the Government took a series of economic measures which included increasing the the availability of farm credit and abolishing import duties on agricultural inputs. It also sought to encourage farmers to use improved production practices and new seeds generated by the National Institute for Crop and Livestock Research (INIAP). It was this goal which gave origin to the present project. By 1975, after 13 years of research supported in part by the Rockefeller Foundation and bilateral and international agencies,, INIAP had developed and tested improved varieties for most of the major crops, although intensified research was still needed to obtain improved varieties of soft corn, beans and pasture species. At this point, Government decided that expanded seed multiplication, production and distribution of these varieties was needed. B. The Existing Seed Industry 1.02 In 1975, when the project was appraised, Ecuador already had a small seed industry. Legislation was enacted in 1972 establishing a Department of Seed Certification (DCS) within the Ministry of Agriculture (MAG), to establish seed regulations and standards. A Seeds Corporation (EMS), the first in Ecuador, was established in April 1973 as a joint Government-private sector enterprise to process and distribute certified seed produced by selected farmers under contract. At that time, however, Ecuadorian farmers were still using their own seed for 86% of the crop area and that seed was generally of low physical and genetic purity. The objective of the project, for which the Government requested Bank assistance, was to attain a better organized national seed system and thus extend the benefits of improved seed over a much broader area. 1/ This PCR was prepared by LAC Projects Division C based on data from Bank files and a Bank mission to Ecuador in November 1984. The National Seed Program of the Ministry of Agriculture assisted the mission in gathering the information needed for the completion report; however, the report requested had not been completed before the mission's arrival. - 12 - II. PROJECT FORMULATION A. Preparation and Appraisal 2.01 The project was prepared in early 1975 with assistance from the FAO/IBRD Cooperative Program and was appraised in August 1975 by a Bank/FA0 team. The following deviations from the preparation concept were introduced: (a) Provision for the production of seeds for forage crops: rye-grass, alfalfa, guinea grass and perennial soybeans; (b) Investment credit for seed growers was deleted. The appraisal considered that it would not be necessary, nor convenient, to include Bank financing for this purpose because: (1) the seed producers would be selected from large-scale and well equipped farmers, thus, very little additional machinery would be required; and (ii) Government financing and USAID financing for oilseeds were available for agricultural machinery with credit for up to seven years at 9% interest; and (c) It was agreed to create an executive office under the proposed National Seeds Council (NSC) for national coordination of project activities. 2.02 The project as appraised in August 1975 was the first Bank-financed seeds project in the region. It provided for the construction of seed processing, storage and distribution facilities, establishing a seed certification standard and system, strengthening research to develop and multiply new varieties of seeds, the formation of an independent National Seeds Council to establish seed policy, and provided for technical assistance and training to support the project. 2.03 After circulation of the Issues Paper and consultation with the other Bank offices involved, a Decision Memorandum was issued without holding a decision meeting because all persons agreed with the recommendations made in the Issues Paper and there were no other issues raised during its revitw. B. Project Objectives and Description 2.04 The p)incipal objectives of the project were to: (a) develop a modern seeds industry; (b) increase the food supply; (c) reduce imports; and (d) provide exportable surpluses. The project sought to achieve these objectives by providing for: (a) The installation of three seed processing plants, including storage facilities, with a capacity of 13,000 tons of seeds; - 13 - (b) The expansion of storage facilities at the four INIAP research stations responsible for providing breeder seed and for producing basic and registered seed, to handle an additional 500 tons; (d) The provision of additional personnel and equipment; (e) The establishment of a National Seeds Council (NSC) for national policy regulation and coordination; and (f) The training of personnel in different aspects of the industry, plus related technical assistance. C. Project Cost and Financing 2.05 Total project cost was estimated at US$5.0 million of which the Bank loan of US$3.0 million would finance the foreign exchange cost of the project (Annex 1 and 2). The Government of Ecuador was to on-lend about US$2.0 million of the loan for civil works and seed processing to the parastatal corporation, EMSemillas. III. PROJECT IMPLEMENTATION A. Achievements 3.01 The loan was signed on May 24, 1976, and became effective October 20, 1976. In the meantime, the conditions of effectiveness had been met: the National Seeds Council (NSC) had been created, a Project Executing Unit headed by an Executive Director had been established, and an agreement between the Government and the National Development Bank (BNF) as "Agente Fiduciario" had been signed. The a,praisal assumed a three-year implementation period; thus, the project was originally expected to be completed by May 1979 and closed by June 30, 1980. Eventually surmounting a series of problems, the project was completed and the loan fully disbursed in March 1984, about seven and a half years after it became effective. Table 3.1 shows project targets and accomplishments by project component. 3.02 Overall, the project achieved its objective: by contributing to the establishment of a seeds industry and increasing agricultural production. However, various factors have postponed realization of the full expected benefits. These factors included delays in (a) hiring staff and consultants; (b) making counterpart funds available; and (c) contracting construction and purchase of processing equipment. Consequently, financial and economic benefits are less than those projected at appraisal. - 14 - Table 3.1 Summary of Achievements Component As Appraised As Completed 1976 1984 a. Establishment of the Established as a In 1979 the PU Project Unit - now the dependency of the was combined with National Seeds Program General Directorate the Seeds Certifica- of Agricultural tion Unit and became Development, MAG the National Seeds Program (PNS). b. Seed processing (EMS) All to be 100% Quito plant 98% Construction and finished Guayaquil plant 85% equipping of 3 seed Quevedo plant 45% processing plants All 3 are now operating. c. Seed Certification Establish norms and Accomplished (PNS) regulations to implement seed law, inspect, test and certify seeds for all qualified producers Accomplished d. Certified Seed Production 8,772 tons 3,300 tons. Now estimated that full development product- ion of 8,772 tons of seed will be achieved by 1990. e. INIAP (1) Development and Number of varieties 5 varieties of wheat, release of new not specified 2 of barley, 4 soft varieties maize, 4 hard maize, 3 rice, 4 soybeans (2) Production of basic Not specified 158 tons and registered seed f. Nattonal Seeds Council To be established Accomplished (NSC) g. Technical Assistance Intl. tech. experts 72 man months 92 man months Overseas training 200 man months 163 man months Local training 150 participants 412 participants - 15 - The Project Unit 3.03 The Project Unit was formally conctituted before project effectiveness. However, its proposed functions as a semi-autonomous unit responsible to NSC were not fully realized, mainly because of the limitations of NSC (para. 3.11-3.13). To begin with, the Project Uni- was not set up as a semi-autonomous unit responsible to NSC as originally planned, but as a dependency of the General Directorate of Agricultural Development of MAG. Over the following months it became of growing concern to the Project Unit that this arrangement had reduced its administrative, operational and budgetary flexibility. The Bank also expressed its concern to the Borrower. In late 1979, the Government combined the Project Unit and the Seed Certification Department into a new National Seeds Program (PNS) reporting directly to the Vice Minister of Agr,'.culture. The PNS functioned satisfactorily. Seed Production and Processing 3.04 This component, implemented by the Seed Corporation, EMSemillas (EMS), accounts for two-thirds of the loan. EMS is a mixed corporation 98.8% owned by three public sector entities: Banco Nacional de Fomento (BNF) Corporacion Financiero Nacional (CFN) and the Ministerio de Agricultura (MAG). An additional 0.4% is owned by the small private seed firm, CESA, and the remaining 0.8% by about a dozen individuals. 3.05 The EMS seed production targets set at appraisal have not yet been reached. The main problem have been delays in equipment procurement, plant construction and installation of seed processing equipment. These delays were cumulative and stemmed from the following: (a) sites had not been selected for the plants by the time the project became effective; (b) final plant designs and bidding documents were not completed until after the seed processing consultant was hired; (c) the seed processing consultant was not contracted until a year and three months after project effectiveness; (d) by the time the bidding documents were ready, the shortage of local counterpart funds was becoming a constraint and contracting was initiated in 1980 for only the Quito and Guayaquil plants; (e) although the Quito contract was awarded, the initial Guayaquil bids were rejected as too high and rebid; (f) at Quevedo, due to the shortage of counterpart funds, the Borrower proposed an alternative site for the Quevedo plant, this proposal was supported by the seed processing adviser and accepted by the Bank; (g) after the necessary modifications in the bidding documents, bidding was carried out and a contract let in September of 1981 to complete the Quevedo plant and place it in operation; and (h) delay in the installation of equipment at the Guayaquil and Quevedo plants was also caused by legal proceedings against the original suppliers of the seed processing equipment. 3.06 The aforementioned delays could not have been anticipated. However, with the benefit of hindsight and the Bank profil!s since developed for various types of projects, it is clear that the appraisal estimate of three years for implementation was not realistic. However, all three plants are now in partial operation, and because of the persistent efforts of - 16 - project staff, the installation will be completed soon. Seed processing is expected to increase during the next few years, and with some strengthening in marketing and distribution should reach the target of 8,772 tons by 1990 (Annex 3). Seed Certification and Production 3.07 In spite of counterpart funding constraints, seed certification and production under the project functioned effectively in controlling seed quality of growers and production of EMSemillas. At the cime of appraisal, the Seed Certification Department (DCS) in the Ministry of Agriculture wae a new entity responsible for quality control measures including field inspection and seed testing. When the Seed Certification Department (DCS) was combined with the Project Unit in 1979, the new National Seeds Program (PNS) assumed responsibilities for quality control. This work was strengthened by the project through training of staff in procedures for field inspection, seed testing, seed pathology and seed certification management. Trained staff at two PNS laboratories provide official testing for seed quality. The vehicles provided under the project made possible regular field inspections to assure physical and genetic quality. 3.08 Certified seed production reached 3,300 tons in 1982, 25% of the appraisal target (Annex 3). There are several constraints to increasing production: (a) availability of basic seeds; (b) farmers ability to produce quality seed; and (c) seeds pricing policy. Basic Seed Production (INIAP) 3.09 The performance of the INIAP in providing breeder's seed and in producing basic and registered seed was satisfactory. After project effectiveness, INIAP moved rapidly to procure the equipment provided under the loan, select candidates for advanced training overseas, and construct the planned seed storage facilities at four experiment stations, all of which was completed by early 1979. There was a delay by the Borrower in carrying out the agreed purchase of 150 ha of additional land in the highlands for INIAP production of registered wheat seed. Plans for this land purchase were eventually cancelled because of: (a) decreasing demand for wheat seed as a result of declining wheat acreage; and (b) a decision that only breeder's seed and basic seed would be produced on INIAP stations while registered seed would be produced under contract by selected farmers and supervised by INIAP and PNS. 3.10 Since 1979, INIAP has gone through a critical period of declining budgets. This has hindered but not halted its role in providing higher yielding new germplasm for multiplication by the seeds program. During this period, INIAP has obtained some technical support for its wheat, barley and maize breeding from the International Maize and Wheat Center (CIMMYT) which has its two cereal specialists for the Andean region stationed at INIAP. - 17 - National Seeds Council (NSC) 3.11 The role envisioned for NSC at appraisal was to aavise on seed policy, analyze seed supplies and recommend policy measures to attain timely seed policy, authorize release of new varieties for seed multiplication based on INIAP's recommendations, propose to MAG from time to time the review of seed prices and regulations, and, on MAG's request, execute internktional projects related to seed production and distribution. 3.12 The NSC has demonstrated its value in establishing annual need production goals and in providing a degree of coordination and continuity for the overall seed system. However, it has not provided policy advice and leadership to the extent required. 3.13 The strength of the NSC as an institution has been that its membership includes the main entities involved with seeds -- the Minister of Agriculture and his Director of INIAP, the Technical manager of BNF, a representative of the seed processing enterprises and a representative of the seed growers. The weakness of NSC has been its lack of independence. Its functioning was interrupted by several changes of Ministers at MAG. Thus, the NSC has not developed an institutional strength of tts own. Technical Assistance 3.14 Both of the internationally recruited technical experts financed under the project performed satisfactorily and contributed to the considerable progress that has been made in training staff and improving seed processing and seed quality. The two positions were: (a) a seed production and certification specialist; and (b) a seed processing and storage expert who also served as technical advisor to the Executive Director in the day-to-day execution of the project. At appraisal, both positions were considered crucial to project implementation and the SAR included draft terms of reference for both. Although the Loan Agreement provided for retroactive financing for technical assistance and overseas training, the seed certification specialist was not hired until September 15, 1977 and the seed processiag specialist on January 30, 1978. Both positions were filled following the Bank Guidelines for the use of consultants and each covered three years of consultancy. Because of the delays in contracting and construction of the civil works mentioned earlier, the Borrower requested, and the Bank agreed, to extend the appointment of the seed processing and storage expert for a total of 20 additional months. Training 3.15 Overall, the training provided under the project was successful. Overseas training fellowships, as well as local training with the help of consultants, was provided for staff of EMS, INIAP and PNS. The overseas training covered 163 man-months of advanced and specialized training in the technical aspects of the seed industry. Five staff members took MSC programs and 30 attended short courses ranging from one to six weeks at leading seed technology institutions abroad. Short-term training was carried out under the Seeds Program launched at the International Center for Tropical Agriculture (CIAT), Cali, Colombia. CIAT training was valuable because of - 18 - its orientation to specific needs of the region and its Spanish language instruction. In-country courses and seminars taught by senior local staff and the consultants, trained 412 technicians and producers. One suggestion for any future projects that include a seed corporation, is to give greater attention to training in financial management and marketing. B. Project Cost 3.16 Actual project costs was US$5.65 million (Annex 1), slightly higher than the original appraisal estimate of US$5.05 million. Implementation costs obtained from the accounts of the participating entities are shown in Annex 1. Cost overruns in US dollar terms were relatively small because the local currency was devalued from S/ 25/US$ to S/ 54/US$ during 1976-1984, thus compensating for local inflation. C. Procurement 3.17 Procurement was carried out in conformance with procedures of the Loan Agreement. Contracts for construction of three seed processing plants were let following .ternational Competitive Bidding procedures. Detailed bidding documents we.-e prepared with assistance of the consultant in seed processing. The Bank reviewed and responded promptly to the invitations to bid, the proposed awards, and contracts were let in a timely manner. D. Disbursements 3.18 Disbursements were slow and varied from appraisal estimates largely because of the delays in contrceting for construction and purchase and installation of equipment. The cost and disbursements for civil works exceeded original estimates by about 100%, while the expenditures for plant and other equipment only increased by about 10% (Annex 2). The unallocated portion of the loan was used entirely for civil works and equipment. About US$75,000 of the technical assistance and training funds was reallocated to complete the seed processing plants (Annex 2). E. Progress Reporting, Accounts and Audit 3.19 While acceptable progress reports were submitted annually by the Project Unit, audit reporting wAs not satisfactory. Project accounts were established by BNF as the financial agent and by EMS and MAG as the project executing agencies in accordance with the Loan Agreement. Independent audits of the BNF maintained accounts were submitted annually through 1982, and the 1983 report is being prepared. Audits of the EMS accounts were carried out only through June 31, 1981; audits of subsequent years have been delayed for lack of funds. The Controller General has now agreed to conduct these audits. - 19 - F. Seed Pricing and EMS Financial Performance 3.20 At appraisal it was seen that the planned long-term investment it. plant and facilities by EMS would not be financially viable at price levels proposed for certified seed. The SAR offered two alternatives -- the Government could subsidize EMS to compensate for the projected operating losses and also pay for new investments, or the price of certified seed could be raised. During negotiations it became clear that the initial proposal to maintain a 12% increase (in real terms), and also provide subsidies an a contingency would be unworkable. The Government's representatives objected to any reference to possible subsidies. Consequently, the final language of the Loan Agreement adopted a conflicting position that "the Borrower shall, from time to time, affect such adjustments in prices paid by farmers for Certified Seed supplied by EMS and adopt such other measures as shall be necessary in order to (a) enable EMS to achieve in fiscal year 1977 and in each fiscal year thereafter, a rate of return of not less than 10% on its net assets, and (b) ensure that the farmers will have the necessary incentive to utilize Certified Seeds." Although supervision missions discussed the need to increase seed prices to maintain the viability of EMS, with MAG, the Bank was also faced with the need to promote a wide use and acceptance of seeds; thus in the short-term the need to promote seed use was considered the highest priority. 3.21 The 10% return on investment has not been achieved. EMS requested seed price levels that would provide for profitable operation; however, the Ministry of Agriculture has fixed prices at low levels in order to encourage use of certified seed by farmers. Because of the low fixed price policy EMS has not achieved operating profitability. For 1983, the most recent year for which financial information is available, the ratios of net benefits/sales, net benefits/equity and net benefit/assets are 2%, 1.6% and 0.7%, respectively. G. Demand for Certified Seeds 3.22 To date EMS has only distributed seed, it has not developed a marketing system, a promotion program or an objective measure of seed demand. However, with the present subsidized price policy for seeds, demand has generally exceeded supply with EMS having always disposed of its production and imported seeds in addition. Imported seeds have been sold at prices well above those of EMS. 3.23 There is a considerable increase in farm level production attributable to the use of certified seeds, especially corn, barley, soybeans, and rice, the main product lines of EMS (Annexes 4 and 5). The increase in yields, due to the use of improved seeds, reduces the cost of crop production. Quantitative estimates indicate that because costs of seeds represent only about 4-8% of total production costs, the reduction in costs per unit of incremental production, could range from 5% in the case of wheat, to almost 40% in the case of corn. Consequently, the use of certified seeds would be profitable at prices between ,0% and 50% higher than current market - 20 - prices of regular seeds; EMS prices have generally not been more than 20% higher than farm-gate prices. It is therefore projected that, if EMS were to develop a strong marketing program, it would be possible to dispose of full development seed production at increased prices. With such a policy it would be possible, over time, to privatise EMS in line with curr4nt Government policy. F. Compliance with Covenants 3.24 There were four principal areas of assurances under which compliance was not considered adequate: Assurance Experience a. Maintaining project accounts EMS and MAG were usually about two and auditing. years late in compliance. Audit reports, when received, were considered adequate. b. The Borrower shall adjust seed Prices were adjusted infrequently and prices from time-to-time to provide set at low subsidized rates to EMS a rate of return not less than encourage farmer use of seeds. EMS 10%. did not achieve its target of a 10% rate of return. c. The Borrower was required to Additional land was not required acquire additional land for the use because seeds were multiplied by of INIAP to produce basic seeds. private growers, and the demand for wheat seed did not increase as expected. d. BNF would make operational BNF did not make specific loans for credit available to farmers seed production reportedly because produciag seeds. they were unable to supervise that kind of credit. IV. ECONOMIC IMPACT 4.01 The economic rate of return of the project is now estimated at 29% (Annex 6) for a 20-year period, compared to the 48% estimated at appraisal because: (a) full development took nine years instead of five; (b) incremental yields attributable to the use of certified seeds are 50% of the appraisal estimates for wheat, barley and rice, and 75% for corn. 4.02 The same methodology applied at appraisal was used for calculating the new ERR of 29% (Annex 6). The estimates are based on the following assumptions: (a) benefits from incremental yields attributable to switching from traditional to certified seeds began in 1977; (b) the maximum processing capacity for certified seeds is 8,772 MT, and is expected to be - 21 - achieved in 1990; and (c) costs of the project are determined by the investments and recurrent costs incurred by the participating entities during the years 1977-1984. All costs and benefits are expressed in constant 1984 sucres (Annex 6). 4.03 A sensitivity analysis was carried out to test: (a) the impact of a 20% reduction in output prices for rice, corn and soybeans; and (b) a delay of five years beyond 1990, to achieve full processing capacity. The resulting ERR's were 26% and 16%, respectively. These ERRs are still above the opportunity cost of capital in Ecuador. V. INSTITUTIONAL PERFORMANCE Performance of Borrower 5.01 The initial project management structure required to assure coordination of the implementing entities, functioned inadequately at first. Neither the Project Unit nor the National Seed Council provided effective leadership. This seemed to be caused in part by the organization of the Project Unit, as a dependency of the Directorate for Agricultural Development of NAG. When the Government combined the Project Unit and the Seed Certification Department into a new National Seeds Program (PNS), reporting directly to the Vice Minister of Agriculture, the program performance improved. The National Seed Council depended very much on the Ministry of Agriculture, and its operation was interrupted several times by changes at the Ministerial level. However, the NSC did help to provide a degree of coordination and a forum for discussion of issues related to improved seeds. 5.02 The main delays in implementation were encountered in the seed processing component implemented by EMS. The location and purchase of construction sites and the procurement of civil works and equipment for the seed processing plants was slow in getting underway. At first there were delays in release of funds by the financial agent, BNF; but procedures were later modified to expedite handling. Delays in yearly appropriations of counterpart funds and in getting Government clearances for various actions also caused delays in civil works and installation of equipment. 5.03 On the positive side, EMS management made use of the delay in initiating construction to take into account experience gained and regional changes in seed demand. This resulted in modifications of the final design, sizing and location of the processing and storage facilities as follows: (a) the size of the highland processing plant was reduced reflecting the decreasing demand for wheat seed; (b) a temporary processing plant was established at Riobamba, a dry area with temperate climate where seed could be stored without air conditioning and maintain its viability; and (c) the plant originally proposed in the south was instead located at Quevedo, a rapidly growing production area for soybeans and hard corn. - 22 - Bank Performance 5.04 This was the first seeds project, as such, in Latin America and one of the early ones in the Bank. In view of the implementation delays that occurred, the preparation and appraisal estimates of three years for project implementation was unduly optimistic. 5.05 With respect to supervision, Bank performance was reasonable. During the eight year implementation period, 14 supervision missions, including the final completion mission, provided regular Bank follow-up in the field. Project officers responded promptly to correspondence and procurement documentation from the Project Unit and in general expedited implementation. However, during supervision, the economic issues (seed demand, supply and pricing, and the financial situation of EMSemillas) received inadequate attention. VI. LESSONS LEARNED 6.01 The potential returns to successful investments in multiplication and distribution of improved seeds are high; however, difficulties of implementation should not be underestimated. Difficulties encountered were inadequate technical capacity, adverse weather conditions, labor problems and management constraints. In addition, there were normal bureaucratic delays and shortage of counterpart funding. Within this context, several specific lessons have been learned, particularly with regard to grain import policy, seed pricing, seed marketing and organization of the seed industry. Consistent Policy Objectives 6.02 While attempting to stimulate wheat production in various ways, including research and the seed production program, Government price policy was giving farmers opposing signals. Producer prices of wheat declined, in real terms, relative to competing crop-livestock commodities due to the policy of linking producer prices to the import price of wheat at the official exchange rate which became significantly overvalued in the period 1977-1981. The price disincentives for wheat arose from a policy of importing wheat at the official exchange rate while imports of other competitive products were either prohibited (e.g. butter and cheese) or allowed only at close to the free exchange rate. As a result of these policies, wheat imports increased substantially and the area planted to wheat declined from 69,635 ha in 1974-76 to 32,000 ha in 1981-83. Consequently, the projected increase in demand for certified wheat seed did not materialize. --early there was a need for greater consistency between seed policy and overall Government trade policy. Pricing Policy and Objectives of Developing an Efficient Seeds Industry 6.03 A long-term pricing policy and objectives for developing an efficient seeds industry need to be clearly defined in seeds projects. The level of seed prices was decided each year by the MAG, taking into account - 23 - political considerations and applying a policy of low prices in order to expand use of certified seeds. This approach has protected and subsidized EMS while also delaying its development as an efficient enterprise. Protection of EMS probably discouraged development of a competitive private sector seeds industry. 6.04 Private Sector Involvement in Seed Multiplication. Seed policy should provide more opportunity for development of private seed companies. In this context, the new administration in Ecuador is studying various alternatives for a broader role of the private sector in strengthening the seed industry. 6.05 Seed Marketing. The distribution of EMS seed has depended heavily on institutional ties with one of its main shareholders, the National Development Bank (BNF). BNF provides for distribution of seeds to its Borrowers, but is not effective in reaching smallholders in the Sierra and the lowlands. Future projects should include detailed marketing and distribution plans. Quality Control 6.06 Field inspections, seed testing, and seed certification are being handled adequately by PNS inspite of persistent problems with delays in budget allocations and availability of operating funds. For impartiality, quality control should remain in the public sector, but standard fees might be set for the services provided. Procurement 6.07 In any future projects, site locations, final studies and procurement documentation for seed processing plants should be finalized, or nearly so, by negotiations. Training 6.08 Future projects should provide training in administration, financial management and marketing. - 24 - Annex 1 ECUADOR bEEDS PROJECT (Loan 1229-EC) PROJECT COMPLETION REPORT Summary of Project Costs Original (1976) Estimate Actual (1984) Local Foreign Total Local Foreign Total ----- -US$ '000--------- ------US$ '000-------- Natl. Seeds 450 438 888 873 690 1,563 Program 1/ INIAP 282 200 482 251 260 511 EMS 560 1,609 2,169 1,527 2,050 3,577 Physical 129 224 353 contingencies Price 619 541 1,160 contingencies TOTAL 2,040 3,012 5,052 2,651 3,000 5,651 1/ Project Administration (NSC) and Seed Certification (DCS) combined. - 25 - Annex 2 ECUADOR SEEDS PROJECT (Loan 1229-EC) PROJECT COMPLETION REPORT Withdrawal of the Proceeds of the Loan Allocation as per Actual Disbursement Category Loan Agreement Disbursement (US$ Equivalent) (US$ Equivalent l.A Imported processing and storage 1,200,000 973,416.36 machinery and equipment and spare parts for EMS plants. 1.B Local transportation, installation, 100,000 126,086.83 assembly and testing of the machinery and equipment included in Cat. l.A. 2. Other imported machinery, equipment, 400,000 848,825.30 vehicles and other imported items. 3. Civil Works 250,000 524,951.52 4. Technical assistance and overseas 600,000 526,719.99 training. 5. Unallocated 450,000 Total 3,000,000 3,000,000.00 - 26 - Annex 3 ECUADOR SEEDS PROJECT (Loan 1229-EC) PROJECT COMPLETION REPORT Sales of Processed Certified Seeds 1976 1977 1978 1979 1980 1981 1982 1990 Rice 814 470 615 813 1,142 1,485 1,027 2,694 Barley 83 64 75 102 23 63 33 85 Corn 220 442 650 905 343 803 662 1,728 Soybeans 106 527 603 832 756 672 983 2,568 Wheat 1,165 1,161 1,223 1,083 1,142 515 415 1,085 Various -- -- -- -- - - 234 612 Total 2,388 2,664 3,166 3,753 3,407 3,538 3,354 8,772 SOURCE: EMSemillas Estimated Area Sown with Certified Seeds (ha) Rice 16,280 9,400 12,300 16,260 22,840 29,700 20,540 38,616 Barley 922 711 833 1,133 256 700 367 688 Corn 13,750 27,625 40,625 56,563 A." 50,188 41,375 77,598 Soybeans 1,855 7,529 8,614 11,886 .J,800 9,600 14,043 26,337 Wheat 10,591 10,555 11,118 9,846 Ao,382 4,682 3,773 7,076 Various -- - - -- - - 4,680 8,777 Total 43,398 55,820 73,490 95,688 65,716 94,870 84,778 159,000 SOURCE: Mission Estimates Annex 4 - 27 - Ecuador Seeds Project (Loan 1229-EC) Project Completion Report Estimated Total Harvested Area by Crops and Portion in Certified Seeds. Ecuador 1982 Total Area in 2 of Crop Area in Cros Area Certified Seeds 1/ Certified Seeds (Ha) (Ha) (Ha) Wheat 33,058 3,773 11.4 Barley 33,921 5,927 17.5 Soft corn 61,087 184 0.3 Hard corn 155,418 41,191 26.5 Soybeans 21,326 14,043 65.8 Rice 131,720 26,540 20.1 1FFrom certified seed provided by EMS with exception of 23% of the certified rice and 932 of the certified barley provided by private firms. - 28 - si I I ! I I *~ il *a ' ~, SELDS PROJECT P.C.R• IMCUENENTAL ECON~eIC AeALYht1 ------------------------------------------------ --------------------------------------------------- 119S4 iHOU'tID SUCRAIC> ly// 1970 1979 1980 1991 1982 5983 1984 1925 1996 PkJ£LI KENEFI1S fKL~LMtIAL &Lot#. 8078.0 W:2!2.* 75157.7 53192.3 117259.4 93224.8 106262.0 119759.0 139956.0 162746.0 nåFtUNASL SLLØSS VkOGA tølitltølN COsis 3243.0 13964.8 275.0 3772.5 t4203.8 $1534.0 7515.2 3660.0 - kLCukkkl CubiS 15518. 16467.2 1t315.0 12567.2 20000.0 14276.5 9704.5 82194.0 &2194.0 12$94.0 .iL.løl.aI 18761.. 40432.0 15660.0 I63J9./ 34:*0J.C 25012.5 1/219.? 1596!.0 12194.0 12194.0 1NMtsinNI LUStSi 1938.9 IS0*éI.2 9737.9 - 35,.6- ke.ukatS. L005< - - 50616.0 10616.0 10686.0 1066.0 10.0 Q1616.0 10686.0 I0.16.0ø 1tut.ral 8938.9 18051.2 20353.8 10616.0 &06tø.6 10616.0 1b416.0 Ib68.0 10616.0 10616.0 ta %Ltlø cukfIW#4FIQ#4 q ' IMISINIl COSiS 44t?.4 - 39704.5 100392./ 41510.0 19659.9 2481-2 - &LC"ktøt cosis 10606.0 12832.0 13/66.0 1t26J.0 12204.0 12900.0 13500.0 16600.0 19400.0 36000.* Su14.1at 58100.6 12632.0 5340.5 1116/5.7 53714.0 32659.9 t1901.2 I6&00.0 59400.0 3600.4ý ILCNICAL ASSISIAULL iAt" 946./ 493.6 415.$ 323l.i. 1514.0 894.3 - - SktlE CMFPDRATION 41t5.2 *177.0 2044.7 920.0 924.1 150.3 - - - LOCAL teCN. ASSI. - 1310.4 2252.3 644.0 3678.0 109.4 - - - Sjbtutat 946.' IG/9.2 7614.t '920.2 6k12.0 I927.9 150.3 - - - ?ult tkOiECl COSi 36747..' /1694.4 93099.0 144551.6 1 411.4 71086.2 43967.2 430/8.0 42210.0 58810.0 MIt I-bUJEC bl.Nfkl1IS ne1 -0 16/'. 4 21iJ.4 -1/94t.3 -9I359.4 12/5.0 22200.5 62294.1 /'691.0 96746.0 123936.at 1*u...1*.er I'a I'/84 8534 5..er,...I.-n-*. ur keutsirre of møt ýtre.øa I* fattt 29.I2% 「무 不