Uganda - Livestock Services Project

Document of The World Bank FOR OFFICIAL USE ONLY 6,je 24 76- OCr- Report No. 8486-UG STAFF APPRAISAL REPORT UGANDA LIVESTOCK SERVICES PROJECT July 30, 1990 Agriculture Operations Division Eastern Africa Department Tis docuent has a restdcted diso an ad may be used by vecipnls only in the pedoumane el their dI dties Us contet may no olbhse be disclosed wout Wodd Ban BauhItn.  CURRENCY EOUIVALENTS Currency Unit = Uganda Shillings (Ush) US$1 = Ush 440.00 1/ Ushl.00 US$0.002273 WEIGHTS AND MEASURES (Metric System) ha - hectares km - kilometers 1 - litres m - million kg - kilogram GOVERNMENT FISCAL YEAR July 1 - June 30 1/ After currency reform and exchange rate adjustment of July 1990. ABBREVIATIONS AND ACRONYMS ADP Agricultural Development Project AIHRC Animal Health Research Center (in DVSAI) APC Agricultural Policy Committee ARP Agricultural Rehabilitation Project BOU Bank of Uganda CBPP Contagious Bovine Pleuropneumonia CGS Credit Guarantee Scheme cm Component Manager CIF Cost, Insurance, Freight DC Dairy Corporation DFI District Farm Institute DTC Department of Tsetse Control (in MAIP) DVO District Veterinary Officer DVSAI Department of Veterinary Services and Animal Industry (in HAIF) ECF East Coast Fever EEC European Economic Comrsmity ERC Economic Recovery Credit ERP Economic Recovery Program ERR Economic Rate of Return FAOITCP Food and Agriculture Organization of the United Nations - Technical Cooperation Program FRR Financial Rate of Return GDP Gross Domestic Product GOU Government of Uganda ICB International Competitive Bidding IMF Inte-national Monetary Fund LCB Local Competitive Bidding MAIF Ministry of Animal Industry and Fisheries MIS Management Information System PC Project Coordinator PCU Project Coordination Unit PFP Policy Framework Paper PMC Project Management Committee PPF Project Preparation Facility PS Permanent Secretary TA Technical Assistance UNDP United Nations Development Program USAID United States Agency for International Development UVA Uganda Veterinary Association  FOR OMCIAL USE ONLY Table of Contents Pare No. CREDIT AND PROJECT SUMMARY ................i - i I. ECONOMIC SETTING ....... ....................1 II. THE AGRICULTURAL SECTOR ..... ............... 2 A. Overview .................... 2 B. The Livestock Subsector ............... 4 C. Main Constraints on Growth ............ 6 D. Sectoral Strategy ................ 8 E. Rationale for IDA Involvement ......... 10 III. THE PROJECT ........ ........................ 10 A. Project Genesis ....................... 10 B. Objectives and Strategy ............... 11 C. Detailed Features .................. .. 12 D. Tr-ining and Technical Assistance 15 E. Project Costs and Financing ........... 16 F. Financing Plan and Arrangements ...... 17 G. Procurement ........................... 17 H. Disbursements ......................... 19 I. Reporting, Accounts and Audits ........ 19 J. Impact on Rural Women ................. 20 K. Environmental Impact .................. 20 IV. ORGANIZATION AND MANAGEMENT ..... ........... 21 A. Project Coordination and Management ... 21 B. Component Management and Implementation 22 C. Reporting, Monitoring and Evaluation .. 26 D. Mid-Term Review ...... ................. 27 V. FINANCIAL ANALYSIS AND COST RECOVERY ....... 28 A. Credit for Veterinary Privatization ... 28 B. Forage Development ..... ............... 30 C. Cost Recovery of Drugs and Services ... 31 D. Government Cash Flow ..... ............. 32 This report is based on the findings of an appraisal mission in December 1989 comprising of Messrs. S. Marples, P. Blanc, J.C. Fayd'Herbe and J. Stemp. Messrs./Ms. H. Walters, G. Abarcar, and F. Peacock (Consultant) assisted in the preparation of the report. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Page No. VI. BENEFITS, MARKETING AND JUSTIFICATION ...... 33 A. Production ............................ 33 B. Marketing ....... ...................... 34 C. Prices ................................ 35 D. Economic Analysis ..................... 35 E. Project Risks and Uncertainty ......... 38 VII. AGREEMENTS AND RECOMMENDATION .... .......... 39 Annexes Annex 1 Project Cost Tables ..... ................... 41 Annex 2 Financing Plan ...... ....................... 45 Annex 3 Estimated Schedule of Disbursements ........ 47 Annex 4 Terms of Reference, Technical Assistance ... 48 Annex 5 Herd Projection Parameters ..... ............ 55 Annex 6 Summary Seed Requirements ..... ............. 56 Annex 7 Privatization of Veterinary Services ....... 57 Annex 8 Summary Economic Analysis ..... ............. 65 Annex 9 National Animal Disease Control .... ........ 69 Annex 10 Tsetse Fly Control ...... ................... 73 Annex 11 Forage Production ...... .................... 75 Annex 12 Environmental Assessment Study .... ......... 80 Annex 13 Expenditures Review on Manpower Studies - Draft Terms of Reference ..... ............. 82 Maps IBRD No. 22158 Major Cattle Movements IBRD No. 22159 Distribution uf Contagious Bovine Pleuropneumonia and Rinderpest IBRD No. 22160 Areas of Increased Incidence of Bovine Trypanosomiasis Associated with an Increasing Tsetse Distribution  UGANDA LIVESTOCK SERVICES PROJECT CREDIT AND PROJECT SUHHWRY Borrower: Government of Uganda (GOU) Amount: SDR 16.1 million (US$21 million equivalent) Beneficiaries: Ministry of Animal Industry and Fisheries (MAIF); private veterinarians Terms: Standard, with 40 years maturity Onlending Terms: US$2.3 million to commercial banks at an interest rate of 34.5 percent, repayable aver 10 years, with the Government bearing the foreign exchange risk. Project Objectives: The project has twc main objectives: (a) to reverse the decline in livestock numbers by arresting the deteriorating animal epidemic disease situation in Uganda; and (b) to improve the quiality and cost-effectiveness of livestock services provided by HAIF in accordance with Government policy that MAIF should concentrate on disease prevention, encouraging the development of private veterinary practices for curative services, and the distribution of drugs through private channels. It would need to be followed by a second operation to broaden and consolidate institutional reforms and sustainability. Project Description: The project would provide funds for: (a) establishment of a national animal disease control program and a tsetse fly control program. To complement the disease control program and improve animal nutrition, funds would also be provided to support expansion and improvement of areas under forage in the smallholder sector; (b) credit for establishment of about 60 private veterinary practices; and (c) technical assistance and training to prepare and help execute a program to streamline MAIF's organizational structure, reduce its staffing levels, and strengthen its financial and management information systems. Benefits: The project would reverse the spread of significant livestock diseases and avert major epidemics which would otherwise decimate the national herd and, complemented by animal nutrition improvements, would directly increase the production of animal products, for which there is a ready market. Crop productivity would improve through better soil fertility and draught animal power, and the forage component would improve soil and water conservation. Control or eradication of tsetse fly would allow re-establishment of crop or livestock production into areas currently infested. Increased milk production, resulting !rom the project, would support ongoing efforts to expand milk processing and marketing facilities. Many of the smaller dairy farmers are women. The project would benefit about 500,000 households, of which 802 depend heavily on lives ock for income. Risks: Since technology for disease control is well tested, risks arise mainly from weak project implementation. Technical assistance and training would reduce such risks. In addition, GOU has displayed a strong  - ii - commitment to strengthening MAIF capacity and redefining its functions. Efforts outside the scope of the project for ensuring financial sustainability require similar commitment, which has been sought under the Second Economic Recovery Credit. Estimated Project Costs: a/ Local Foreign Total ------------US$ million------------ National Disease Control Natl. Disease Prevention Program 0.4 2.1 2.5 Regional Support 1.2 3.4 4.6 Tsetse Fly Control 1.0 3.5 4.5 Veterinary Privatization 1.2 2.4 3.6 Forage Development Extension 0.3 0.3 0.6 Management 0.4 0.3 0.7 Training 0.2 0.2 0.4 Seed Production 0.6 0.4 1.0 Project Management 0.4 0.8 1.2 Institutional Development - 0.4 0.4 Project Preparation Facility 0.2 0.6 0.8 TOTAL BASELINE COSTS 5.9 14.4 20.3 Physical Contingencies 0.6 1.4 2.0 Price Contingencies 0.8 1.6 2.4 TOTAL PROJECT COSTS 7.3 17.4 24.7 a/ Exclusive of any duties and taxes Financing Plan: Local Foreign Total - ------- US$ million------------ IDA 4.7 16.3 21.0 Government of Uganda 2.6 1.1 3.7 TOTAL 7.3 17.4 24.7 Estimated IDA Disbursements: IDA Fiscal Year 91 92 93 94 95 96 Annual 2.1 3.0 3.5 4.0 5.3 3.1 Cumulative 2.1 5.1 8.6 12.6 17.9 21.0 Rate of Return: 49Z Maps: IBRD Nos. 22158, 22159 and 22160  UGANDA LIVESTOCK SERVICES PROJECT I. ECONOMIC SETTING 1.01 Uganda is well endowed with natural and human resources, but its ecor.omy has been devastated by nearly two decades of political instability, economic mismanagement, and internal discord. In addition to the ample availability of fertile land and favorable climatic conditions for agricultural growth, it had a relatively well developed manufacturing sector and an effective transport system. The agricultural sector accounts for about 75 percent of Gross Domestic Product (GDP), provides over 95 percent of the country's export earnings and is a major source of government tax revenue. 1.02 The initial years after independence clearly demonstrated the economic potential of the country; the average growth of GDP was close to 6 percent annually from 1963 to 1970, and prices were relatively stable. However, starting in 1970, political turmoil and economic mismanagement radically changed the situation, and real GDP declined about 20 percent during the 1970s. In early 1981 the then Government initiated a recovery program, with considerable assistance from donors, including the World Bank and the International Monetary Fund (IMF). The recovery was short lived and the renewed cycle of instability beginning in 1984 led to an escalation in expenditures, acceleration in inflation, overvaluation of the exchange rate, and an absolute decline in GDP. Eventually the economy came to a standstill in the wake of a military coup, followed by civil war. The Economic Recovery Program 1.03 The National Resistance Movement Government, which assumed power in January 1986, inherited an extremely poor infrastructure, a grossly under-utilized manufacturing sector, rampant inflation and a huge external debt with a total debt service of more than half the 1984185 export earnings. With a gradual return to political normalcy, the Government initiated an Economic Recovery Program (ERP) in the context of a Policy Framework Paper (PFP) (1987/88-1989/90) agreed with the IMF and IDA. 1.04 The first phase of the ERP was backed by a Structural Adjustment Facility from the IMF, the IDA Economic Recovery Credit (Cr. 1844-0) and other donor financing. The aims of the ERP are to lower inflation, establish financial stability, reduce imbalances in the external trade account, and create a foundation for sustained growth through the rehabilitation of productive facilities and the social, physical and institutional infrastructure. Results up to now have been mixed. The economy grew by 6.9 percent in 1987/88, and by 6.1 percent in 1988/89 Production has rebounded as peace and security returned to most of the country, and as the rehabilitation of infrastructure got under way. Although a measure of discipline has been instilled in the public service,  - 2 - the civil Fervice remains plagued by low morale and productivity, and is grossly overstaffed and underpaid. On the economic front, the major accomplishments have been the restoration of incentives for some producers of export crops, the dismantling of key price and distribution controls, and the availability of foreign exchange through a more liberalized trade regime and a devaluation of trie Ugandan Shilling. The key objective of stabilization, however, is yet to be achieved, primarily on account of a larger than programmed monetary expansion. Nevertheless, considerable progress has been made in bringing dorn the inflation rate. From an annual rate of 240 percent in FY88, the end-year inflation rate for FY89 was reduced to 86 percent, a considerable improvement in spite of exceeding the target of 55 percent. To further reduce inflation to targeted levels, the Government has instituted a number of corrective actions, including policies designed to control the demand for crop finance cred-t. The inflation target for FY89-90 has been met, with an end-year inflation of 29 percent. In the external sector, overall balance of payment pressures intensified in FY89. This reflects in particular the impact of the continuing decline in intervention coffee prices to well below programmed levels and the slowdown in the disbursements of import support assistance. 1.05 Government is presently discussing with IDA and the IMF the fourth Policy Framework Paper which outlines the policies intended for implementation during the pericd 1990191 to 1992193. The Government's macroeconomic objectives for this period are to: (a) sustain annual growth at 5 percent per year; (b) achieve financial stability and reduce the rate of inflation to below 10 percent by the end of the program period; and (c) strengthen the balance of payments sufficiently to permit a sustained improvement in the net international reserves. IDA is supporting this program through the Second Economic Recovery Credit (ERC II) (Cr. 1844-1). Specifically, ERC II is supporting a package of interrelated stabilization and structural measures which reinforce demand management, further liberalize trade and revitalize the private sector, and lead to a fundamental reorganization of public sector management. II. THE AGRICULTURAL SECTOR A. Overview 2.01 Uganda is critically dependent on its agricultural sector (para 1.01). Over 90 percent of the population live in rural areas, and more than 80 percent of the working population are involved in agricultural activities. The sector involves about 2.2 million smallholders, and is characterized by low levels of capital outlays and largely unimproved production methods. 2.02 The agricultural sector was devastated over the last two decades due to political turmoil and economic mismanagement. Attempts to restore the country's dilapidated agro-industrial infrastructure began in the early 1980s. The Government, helped by external funding, launched a major program for rehabilitating primarily parastatal and cooperative owned processing facilities for coffee, cotton, tea, tobacco and sugar. While  - 3 - major physical progress has been accomplished, the economic benefits are lagging, as capacity utilization remains low throughout the sector mainly because of the low level of agricultural production. Although agricultural GDP is estimated to have grown in real terms by over 5 percent annually during the last two years, output levels generally remain below those of 1965-1970. Data is unreliable, but food crop production could be as much as 30 percent lower than in the late 1960s; over the same period the population has grown from 9 m to 16 m, and is continuing to increase at over 3 percent annually. The l_estock population has declined with the rest of agriculture, resulting in a 50 percent reduction in per capita meat and milk consumption. 2.03 As the Governwzent seeks to broaden the economic base, the ERP is looking to the agricultural sector as a major source of growth over the medium term. The Government's broad sectoral goals emphasize the diversification of the export base, while achieving self sufficiency in food and improving the well being of the rural population. These goals translate into the following development objectives. First, increased production requires enhanced productivity of resources used in agriculture. While growth from land and labor being brought back into production continues, further expansion in output will have to come mainly from increased yields. Second, the production base needs to be broadened, and the heavy dependence on coffee for export earnings and tax revenue reduced. The vulnerability of the economy to changing world market conditions for coffee was amply demonstrated during 1989. Initially, such diversification will involve recapturing lost markets for tea and cotton, and the substitution of local production for imports, as in the case of sugar. The main thrust of diversification, however, will depend on the development of non-traditional exports. Third, since it will take time to overcome impediments to diversification, it is essential that the coffee subsector performs strongly with respect to quantity and quality of coffee exported, and in a manner consistent with the goals of the stabilization program. 2.04 Achievement of these objectives is hampered by economic, institutional, technical and political constraints. Producer incentives for export crops have been seriously eroded over the last four years as adwinistered prices (for coffee, tea and cotton) failed to compensate for cost increases to farmers. This erosion has been caused by low world market prices, an overvalued exchange rate, 1/ and inefficient processing and marketing institutions (parastatals and cooperative unions). Delays in payment to farmers, caused by inefficient crop finance arrangements, have further eroded producer incentives. Bad roads, in particular rural access roads, and shortages of vehicles and fuel continue to restrict productio.i. Scarcity of and limited access to foreign exchange constrain imports of inputs for farmers and agro-industries. Services such as agricultural research and extension are inadequate. The Government is unable to 1/ In March 1989, the Government acted to offset the disincentive on account of the overvalued exchange rate. In particular, the Government announced that all non-coffee exporters will be able to retain 100 percent of their export earnings for equivalent imports. The Government has also undertaken a series of devaluations of the local currency since March 1989.  - 4 - adequately remunerate public servants and finance operating costs of these services. B. The Livestock Subsector Recent Developments 2.05 Livestock production is estimated to contribute about 30 percent of agricultural GDP and between 20 and 25 percent of total GDP. Livestock is sn integral part of farming systems in Uganda and almost one third of farming households depend on livestock for the major part of their income. The production potei-tial is high because quality pasture can be grown year- round. Cattle raising is the predominant livestock enterprise. 2.06 Data on livestock numbers in Uganda are poor, but it is currently estimated that there are 3.4 m cattle, 2.5 m goats, 0.7 m sheep, 0.5 m pigs, and about 10 m poultry. Numbers of all livestock declined during the 1980s with cattle suffering the heaviest losses, declining by one tl.rd from 5.2 m, due to deteriorating disease control and looting. Most of this loss has occurred in the north and east of the country which earlier carried about 70 percent of the cattle population. 2.07 Mixed farming smallholders and pastoralists own over 90 percent of the national cattle herd, of which over 90 percent are of indigenous breeds. Pastoralists are found mostly in the northeast (Karamoja) and southwest (parts of Mbarara, Bushenyi and Masaka districts). Commercial dairy farming is based on some 124,000 animals of imported dairy "reeds (mainly Fresian) and crosses with indigenous cattle. Commercial dairy farming developed primarily in the 'fertile crescent" around the northern and western shores of Lake Victoria, and in the southwest. This industry declined dramatically in this area due to disturbances during the late 1970s and early 1980s, but grew steadily in southwest Uganda which now produces about 90 percent of marketed milk. A commercial beef ranching sector was built up in the 1960s and early 1970s which by 1984 produced about 20 percent of Uganda's beef. The IDA-supported Beef Ranching Development Project (Cr. 130-UG), implemented from 1969 to 1972, contributed to that growth. Ranchers have suffered heavily from banditry and only about 50 ranchers in the southwest, out of a total of 400 nationwide, remain viably stocked. Commercial poultry and pig production, almost entirely in small units, grew steadily from 1950 to 1970. The subsequent decline in those industries has been largely the result of a decline in grain milling and livestock feed. Imported feed additives have been unavailable and no new breeding stock has been imported. 2.08 Natural grass-dominated pastures provide almost all livestock feed. .lost indigenous cattle graze on communal pastures by day and are enclosed for security at night. Tethering is practiced in more densely populated areas. Exotic and crossbred animals susceitible to tickborne diseases are usually confined to fenced dairy farms or kept in small enclosures and hand fed on a cut-and-carry basis. This practice of zero grazing is gaining popularity. A survey by MAIF of dairy farmers with exotic or cross bred animals shows that 46 percent of these farmers own  -5- only one or two cattle, and that most of them now practice zero grazing. It also showed that most of these small dairy farmers are women. Two zero grazing schemes, the Heifer Project International scheme sponsored by the Ministry of Co-operatives and Marketing together with church groups, and a zero grazing scheme sponsored by the Ministry of Agriculture, have been specifically targeted at women. The feed under these zero grazing regimes is generally of only moderate quality. The staple fodder (elephant grass) is low in protein and digestibility and results in milk yields well below the potential for exotic and cross bred cattle. 2.09 Although adept at surviving, indigenous animals are susceptible to epidemics of rinderpest, contagious bovine pluero-pneumonia (CBPP) and trypanosomiasis (spread by the tsetse fly). Productivity is low. Total herd offtake is estimated at 10 percent annually. Cows mature at 3 to 4 years of age, calve every second year and produce about 350 liters per lactation. The mortality rate for cattle over six months of age is about 7 percent annually, for calves about 25-30 percent. The high calf mortality results from disease (mainly East Coast Fever (ECF)), a low level of nutrition, and poor management. The calving percentage of imported breeds and crosses is about 60 with average production of 1750 liters per lactation. Estimated mortality rates for imported breeds are 5 percent for calves and 10 percent for cattle over six months of age. The high quality of the stock and the commensurate level of care account for these relatively low mortalities. However, t:.eir high susceptibility to endemic diseases means that any lapse in disease control can be fatal. The 3.24 m indigenous and 124,000 improved cattle now produce about 275 m liters and 74 m liters of milk per year, respectively. The annual meat production is about 55,000 tons. The annual farm gate value of milk and meat production is about US$214 m or US$75 per rural family. 2.10 The Ministry of Animal Industry and Fisheries (MAIF) is the Government agency concerned with the development of the livestock subsector and supervision of the livestock oriented parastatals. MAIF has three departments: Veterinary Services and Animal Industry (DVSAI), Tsetse Control (DTC), and the Department of Fisheries. DVSAI is responsible for animal health and oversees the Animal Health Research Center (AHRC), the Animal Breeding Center, which provides artificial insemination, and the Division of Animal Production which is responsible for animal husbandry extension and pasture development. The DTC is responsible for tsetse fly control but not for prophylaxis and treatment of trypanosomiasis which is the responsibility of DVSAI. Both departments were successful until the early 1970s but are now largely ineffective because of the long period of unrest. The parastatals within the orbit of MAIF are the Dairy Corporation which has responsibility for milk processing and marketing, the Uganda Livestock Industry which took part in the successful Beef Ranching Development Project but whose properties have since been severely looted, and the Uganda Meat Packers. The latter two are subsidiaries of the Uganda Development Corporation. The Uganda Livestock Industry is being rehabilitated with assistance from the Kuwait Fund. The Uganda Meat Packers is now operating only as a slaughterhouse for Kampala butchers. 2.11 Makerere University. The Faculty of Veterinary Medicine at Makerere was established in 1971 with assistance from the Canadian Government. Canadian support was withdrawn in 1974 aind since then UNDP has  provided some technical assistance, minor recurrent inputs and vehicles. The new facilities provided by UIDP have revitalized the practical training program. Also with UNDP assistance, the Faculty has run one-week refresher courses in animal health and husbandry subjects since December 1987. Assistance is also being provided by the Government of the Federal Republic of Germany to rehabilitate microbiology, parasitology and hematology training facilities. Undergraduate training facilities have been moribund since 1980 and the practical skills of recent graduates are totally inadequate. Annual student intake into the Faculty has risen from about 35 to between 50 and 60, of whom about half graduate. These increased numbers are well beyond the capacity of the training facilities and poorly trained graduates have been employed in the already overstaffed DVSAI. 2.12 Uganda VeterinarX Association Ltd. (UVA). The UVA is a voluntary organization composed of members of the veterinary profession with the mandate to promote and safeguard the interests of the veterinary profession in Uganda. It has few financial resources and depends largely on membership fees of USh 1,000 a year. Because of the civil unrest, it remained dormant for over a decade until its 1986 Annual General Meeting, when a new Executive Committee was elected and the members expressed enthusiasm for the privatization of veterinary services and for the revitalization of the Association to play an active part in the profession's affairs. In Jily 1990 the UVA's legal status was confirmed through registration of the Association under the Companies Act as a company limited by guarantee and not having a share capital. The Annual General Meeting sets general policy. A Board of Directors, elected by the Annual General Meeting, takes responsibility for managing the Association as a legal entity. 2.13 Uganda Veterinary Board. The Board was established to implement the Veterinary Surgeons Act of 1958 which provides for the registration of veterinarians. It has powers of disciplining veterinarians who contravene the Act in respect of malpractice, unprofessional conduct or criminality, through deregistration or reprimand. The Board has six members appointed by the Minister of Animal Industry and Fisheries. All but one are government or University employees with minimum familiarity of private veterinary practice. C. Main Constraints on Growth 2.14 Animal Health. During the period of upheaval, veterinary services deteriorated and Government disease control programs broke down. Diseases became rampant and were a major factor in a 30 percent decline in livestock numbers over the last 15 years. Rinderpest and CBPP were confined to the northeast borders of Uganda up to 1979 but have since spread westwards and southwards into two districts representing almost half the country (map 2). CBPP is also spreading south of Lake Kyoga in Luwero district and is threatening the major cattle producing areas of the southwest. Trypanosomiasis is increasing and the reinvasion of tsetse fly into a 30,000 kmZ area of Luwero, Apac and Mubende in the west and Mbarara in the south is causing a serious incidence of trypanosomiasis among unprotected stock. There is a high probability that the tsetse fly will,  - 7 - if unchecked, spread into another 15,000 km2 of the main cattle areas. Also, the tsetse-borne disease of sleeping sickness in humans has reappeared recently in the southeast and threatens to escalate. ECF has spread into most of Karamoja and high mortalities are reported. In addition to the above diseases, foot and mouth disease, brucellosis, rabies and Newcastle disease are all important causes of deaths and reduced animal production and/or pose risks to humans. The factors constraining adequate disease control include weak policy formulation, lack of equipment and transport for field services, a weak tsetse unit, uncoordinated disease surveillance, inadequate training of professional staff, absence of disease monitoring, recurring drug shortages, budget constraints and staff management and supervision. 2.15 Nutrition. Inadequate nutrition is an important consvraint to livestock production. The legume content of natural pastures is low and both digestibility and protein are below requirements for high levels of animal production, particularly dairy production. Consequently, exotic and cross-bred cattle are producing well below their genetic potential. Poor nutrition is a major factor in increasing mortality of indigenous calves from ECF. Pasture improvement is constrained by lack of seed, poor management, and the absence of an effective extension service for pasture management and animal nutrition. In view of the high cost of importing seed and the scarcity of foreign exchange there is a need to develop a capability to produce good quality seed locally. 2.16 Marketing and Processing. The live ruminant marketing system has largely broken down. Holding grounds for quarantine and night stops on stock trade routes have fallen into disrepair, MAIF livestock movement control has lapsed, and the presence of various diseases limits Uganda's access to potential export markets. Most livestock marketing is conducted outside the formal system. Similarly, about 95 percent of total milk consumption reaches the consumer through traditional marketing channels. Most is consumed on the farm and the remainder sold through local markets where it is often boiled to prevent souring. In the early 1970s, the Dairy Corporation (DC) processed 55,000 liters of fresh milk per day through its two main processing plants at Kampala and Mbale. Subsequently, due to the long period of civil strife, the supply of fresh milk declined and the DC produced recombined milk using milk powder and butter oil donated by the World Food Program and the European Economic Community (EEC) to maintain milk supplies to the Kampala area. The DC's operations are constrained by lack of transport, a deteriorated road network, and unreliable supplies of electricity and good quality water. Plant and equipment at collection centers and processing plants are generally in poor condition due to looting and inadequate maintenance. GOU is addressing these constraints with donor assistance in rehabilitating rural infrastructure and support for the DC. 2.17 Government Services. MAIF lacks operating funds and supporting investments. Most of the recurrent budget is spent on salaries and wages tut salaries have been eroded by inflation and are inadequate. MAIF is overstaffed at all levels, particuli.rly in DVSAI where the number of veterinarians has increased tenfold over the last 20 years to around 450. At the same time staff training has declined to negligible levels. There is little discipline among staff and morale is low. The role of the  -8 - DVSAI has been reduced to that of a seller of veterinary drugs but supplies are inadequate and unreliable due to lack of foreign exchange. DTC is constrained by lack of equipment and transport and its staff have been unable to V' -. abreast of evolving technology in tsetse control. D. Sectoral Strategy 2.18 The Agricultural Sector Action Program. In addition to the macroeconomic adjustments under ERP, the Government also formed in 1987 the Agricultural Task Forces (financed under a Bank Special Project Preparation Facility) to focus on areas of policy and institutional reform addressing the sectoral constraints discussed above. Their recommendations were endorsed by the Agricultural Policy Committee (APC) 21, and determined the agricultural policy agenda in the PFP. The main objectives guiding this agenda are to: (a) provide incentives for an enhanced supply response under the ERP; (b) establish efficient and competitive systems for agricultural input importation and distribution, and for maiketing of crops and livestock products; (c) restructure agricultural marketing parastatals in line with trade liberalizatior and fiscal objectives; (d) optimize the utilization of existing crop processing capacity; and (e) develop agricultural research and extension services to support increased farmer productivity and diversified agricultural production. This agenda complements the Government's efforts to improve the rural infrastructure and energize rural enterprises. The APC is translating the above agenda into a comprehensive Agricultural Sector Action Program, which would contain subsectoral action programs to be adopted over the next ten months. The proposed Agricultural Sector Adjustment Credit, for which the Government has requested IDA assistance, is expected to support the implementation of these action programs. 2.19 Livestock Subsector. Government has declared as its objectives in the livestock subsector: (a) improving the income of livestock owners; and (b) diversification of agricultural production and exports. To achieve these objectives, GOU has placed high priority on improvement in the following areas: (a) animal health; (b) animal nutrition; (c) tsetse control; (d) milk processing and marketing; and (e) Government services. There are localized donor assisted projects in animal health and tsetse control, as well as dairy processing and marketing. However, these projects do not address the weaknesses of the institutional framework for the delivery of livestock services. In animal health services, the Government's new policy is to limit the role of MAIF to disease prevention, and to encourage the development of private veterinary practice for curative services and the distribution of drugs through private channels. With IDA assistance, Government has begun a review of the functions of the MAIF as part of a comprehensive program to streamline the civil service and promote private sector initiatives. 2/ The Agricultural Policy Committee, with representation at the level of Permanent Secretary, advises the President's Economic Council on agricultural policy matters.  - 9 - 2.20 IDA's Lending Strategy for the agricultural sector aims at supporting agricultural growth through sectoral policy and institutional reforms, improved sectoral management and investments in physical infrastructure. It supports the country assistance strategy of restoring the country's productive capacity while steering the economy towards sustainable long term growth. 2.21 In the recent past IDA assistance for agricultural development has consisted of a broad based sector operation, the Agricultural Rehabilitation Project (ARP) (US$70 m, Cr.1328); two area development projects, the Agricultural Development Project (ADP) (US$10 m, Cr.1539) and the Southwest Region Agricultural Rehabilitation Project (US$10 m, Cr.1869); a Forestry Rehabilitation Project (US$13 m, Cr.1824); and a Sugar Rehabilitation Project (US$24.9 m, Cr.1893). The objective of the ARP was to increase foreign exchange earnings through improved resource allocations in the export crop subsector, rehabilitation of agro-processing facilities, provision of sector imports, and improving marketing efficiency. The project was successful in rehabilitating export crop processing faciliti3s, and financed a large part of agricultural input imports over the last six years. The establishment of an institutional capability to support and rationalize policy making in pricing of export commodities was a major project contribution. Policy initiatives for crop marketing reforms could not, however, be successfully pursued due to political instability. 2.22 The twc area development projects aim at increasing farmer productivity in the southwest and the north and eastern parts of the country through distribution of agricultural inputs, re-establishing extension services and rehabilitation of rural roads. Progress in implementation has been slow. The main constraints have been (a) political instability particularly affecting the ADP; (b) inadequate counterpart funding and cumbersome administrative procedures to obtain foreign exchange for import of inputs; (c) lack of supporting infrastructure, and (d) limited project implementation capabilities in the agricultural sector ministries. Similarly, progress on the Forestry Rehabilitation Project has been slow. Implementation of the Sugar Rehabilitation Project, aimed at restoring sugar production at the Kakira Sugar Estate to historical levels, is proceeding satisfactorily under private sector management. 2.23 The Agricultural Sector Adjustment Credit, designed as a hybrid operation and scheduled for FY91, would (a) complement ERC II in supporting financial stabilization through controlling crop finance credit expansion; and (b) promote growth through agricultural marketing reforms, enhancing coffee export incentives, increasing the efficiency of the Government's Public Expenditure Program, and strengthening agricultural research and extension institutions. As such, it would pave the way for specific investment projects, including the development of rural enterprises and essential agricultural support services.  - 10 - E. Rationale for IDA Involvement 2.24 Rebuilding the livestock sector is an important element of restoring productivity in agriculture. The establishment of efficient viable livestock services is therefore fully consistent with country assistance strategy. Rebuilding the national herd would lead to increases in both meat and milk production, improve the level of nutrition and reduce the import of milk products. IDA has been involved with livestock sector studies carried out since 1984 and has been taking the lead among donors in the dialogue on this sector. Joint efforts between IDA and the Government have identified the problems in the subsector and led to the preparation of the proposed project. The proposJd streamlining of MAIF's structure and staffing builds on efforts initia'ed under the Second Technical Assistance Project (TA II, Cr. 1434), and supplements civil service reform initiatives under ERC II (Second Tranche conditionality) aiming at functional rationalization within selected ministries including MAIF. 2.25 TA II financed a functional review of MAIF, including an inventory of current staff resources and their responsibilities. From this starting point there is now a need to define and implement a timebound and monitorable Action Program to reduce staff numbers and promote cost effective delivery of selected animal health services within a more limited mandate for the public sector, including development of private veterinary practices, voluntary retirement schemes, staff retraining etc. The preparation of this Action Program is being financed under the Third Technical Assistance Project (TA III, Cr. 1951) and is expected to be completed in December 1990. The proposed Livestock Services Project would finance the implementation of the Program. IDA involvement is necessary to provide continuity to these efforts as well as to complement and support other donor projects to improve animal health and production. III. THE PROJECT A. Project Genesis 3.01 Following publication of the Bank's Agricultural Sector Memorandum in July 1984, GOU formed an Agricultural Policy Committee with an Agricultural Secretariat in the Bank of Uganda. Four Task Forces were set up by the Agricultural Secretariat to advise Government on rehabilitation of the agricultural sector, including one for the livestock subsector. Political changes in 1985/86 delayed progress but in 1986, the Livestock Task Force's interim report identified animal health, milk production, milk marketing, tsetse fly control and privatization of veterinary services as priorities for rehabilitation. Subsequently, FAO/TCP undertook a feasibility study, and in March 1987 the Livestock Task Force presented a proposal for a livestock services project. GOU engaged consultants funded under a Project Preparation Facility (PPF) to work with the Agricultural Secretariat from February to June 1989 to prepare the project. The project was appraised in Deceaber 1989.  - 11 - B. Objectives and Strategy 3.02 The project has two main objectives. The first and immediate objective is to reverse the decline in livestock numbers by dealing with the alarming animal epidemic disease situation. To this end the project would support an emergency national disease control program. and tsetse fly control program. The disease control program would be complemented by improved animal nutrition through support for forage development. The second objective is to bring about improvements in MAIF which will lead to a smaller, more cost effective organization able to discharge its responsibilities to the livestock sector in an efficient, effective and professional manner. This will involve ins'itutional reform, re-training and a scheme for privatization of veterinary practice. The project to be implemented over a five year period would need to be followed by a second operation to broaden and consolidate institutional reform, ensure sustainability and at the same time provide further assistance to MAIF's animal health and production services. 3.03 The beneficiaries of the project will be smallholders, and larger cattle and dairy farmers who are all affected by the present endemic disease problem and all of whom are users or potential users of veterinary services. Secondary beneficiaries are the consumers of meat and milk in Uganda who, as a result of the project, will benefit from an increased supply of both commodities. 3.04 In order to implement the project, MAIF will need to be considerably strengthened in its animal disease control activities, with major efforts directed towards training and equipment and TA. At the same time as this strengthening is under way in disease control, the prototype veterinary privatization component will be seeking to move MAIF out of curative veterinary practice which can be better handled by the private sector. The longer term objective would be to have MAIF out of curative veterinary practice and confined to a regulative and endemic disease control role, plus providing extension services to smallholder farmers. 3.05 The proposed project would have six main components: (i) a national animal disease control program, including the establishment of mobile service units equipped to control disease outbreaks and the rehabilitation of MAIF's diagnostic disease control program; (ii) tsetse fly control in the Luwero, Mubende, Masindi and Hoixa districts (areas not covered by other donors); (iii) forage development through seed production and services covering about 7,500 milk producing farms, 12,000 ha of communal and ranch areas and about 10,000 km of grass strips to protect terraced cultivation in the southwest; (iv) credit and training to assist in the establishment of private veterinary practices; (v) institutional development, including technical assistance to help execute a program to streamline MAIF's organizational structure and reduce its staffing levels; and (vi) project management support to MAIF in the areas of financial management and procurement.  - 12 - C. Detailed Features 3/ National Animal Disease Control (US$7.1 m) 3.06 In order to contain the deteriorating bovine disease situation which now threatens the most productive dairy cattle populations, emergency measures are necessary. The project would establish three mobile service units, additional to the one unit being fielded by tLe ADP, in priority disease control districts to contain the major epidemic diseases. Tbe mobile service units would assist District Veterinary Officers (DVOs) in the field diagnosis and eradication of rinderpest and CBPP, the diagnosis and treatment of trypanosomiasis, the control of ECF and the eradication of rabies. Each of the units would have two 4-wheel drive personnel vehicles, two 4-wheel drive pick-ups to move equipment, and a mobile laboratory. The mobile laboratories would be equipped for field diagnosis and to store sera and specimens for despatch to the AHRC. They would also hold rinderpest, CBPP and rabies vaccines for the field service units. These units would be self contained for all vaccination programs. Funds would be provided to purchase annually 5 million doses of CBPP vaccine, and a total of 200,000 doses of rabies vaccine. Rinderpest vaccine would be supplied under the Pan African Rinderpest Campaign (EEC) project. In order to re-establish and strengthen veterinary services within a narrower GOU mandate, six new district veterinary offices would be constructed in districts with no facilities and 27 existing offices renovated. Twenty-four district offices and 29 veterinary cen:ers would be supplied with cold chain and other veterinary equipment. The project would also provide for importation of selective curative dr'gs (US$1.3 m) during the first two years of implementation. This provision is considered necessary to ensure the availability of drugs to combat key diseases recognizing that in due course the private sector will be relied upon for importation of such drugs. The 410 field staff would be provided witn motorcycles. AHRC would be strengthened to provide effective complementary diagnostic support. A serum bank would be established as a basic tool for disease surveillance. Equipmen', reagents and facilities would be supplied to enable the center to carry out serological testing for CBPP, identify and quantify breeding diseases of cattle and diseases of small ruminants. To support the development of this component the project would provide technical assistance in veterinary epidemiology and laboratory technology. An epidemiologist would assist in the establishment and operation of the mobile service units and provide staff training. A Laboratory Technologist would be attached to AHRC to assist in re-equipping the laboratory and training staff in up-to-date technology, and provide support to diagnostic work in the field by the project's four mobile laboratories, and at regional and district veterinary offices. 3/ Costs given in parenthesis represent base costs.  - 13 - Tsetse Fly Control (US$4.5 m) 3.07 The objective of this component is to eradicate tsetse in the Luwero, Mubende, Masindi and Hoima districts of Western Uganda. Under the project the DTC would survey and map the tsetse fly infestation and density, and undert;..? a coordinated control program using baits, targets and traps. Operations would be based at Hasindi. The project would halt the spread of tsetse fly in Luwero District from the northwest and prevent the imminent infestation of a further 3,000 sq km of land. The tsetse would be eradicated progressively westwards to the west of Masindi town. 9,000 sq km of land containing 200,000 cattle would be cleared in this operation. Adaptive field trials would be conducted to test new technology used successfully in other countries with similar environments. Particular attention would be paid to developing cost effective sustainable control measures using new bait technology with the involvement of local livestock owners. Funds would be provided for the renovation of DTC's staff housing, office accommodation and laboratory and workshop facilities at Masindi. The project would also finance vehicles, plant and equipment, fly traps, insecticide, odor attractants and incremental operating costs, as well as technical assistance and training. A tsetse control specialist would be recruited to assist in establishing and planning the control program and adaptive trials and to provide in-service training to DTC staff in new tsetse control techniques. The project would include the rehabilitation of DTC's laboratory facility and provide equipment necessary for the monitoring of effects of insecticides and other chemicals that may be used by the project. Forage Development (US$2.6 m) 3.08 The component would be directed at improv.!ng forage production, management and utilization at the farm level, with particular emphasis on dairy production. Project activities would be concentrated in the 'milkshed" areas of the "fertile crescent' and the southwest. Under the project improved forage incorporating pasture and tree legumes would be developed for about 7,500 farmers. A total area of about 4,000 ha of tree legumes and 40,000 ha of pasture legumes would be established on individual farms with project support. In addition about 12,000 ha would be oversown with legume seed in communal and ranch areas. Tree and herbaceous legumes would be established on about 10,000 km of grass strips in Kabale District to protect cultivated terraces from soil erosion and provide forage and fuelwood. The project would support the establishment and development of local seed production on a farmer contract basis. Support would be given to DVSAI to establish a Forage Development Unit to be responsible for seed production and forage extension. Funds would be provided for renovation of the DVSAI seed store, laboratory and housing at Entebbe. The project would also finance vehicles and equipment. including seed testing and processing equipment, seed purchase and incremental operating costs including training. Technical assistance in forage development would also be provided to support development of this component. Privatization of Veterinary Services (US$3.6 m) 3.09 The project would support a prototype component for the establishment of private veterinary practice. Credit would be made  - 14 - available through commercial banks for on-lending to veterinary practitioners, at present in Government service, for the establishment of new private practices. Credit would also be made available for UVA to establish a wholesale veterinary supply cooperative for the supply of drugs and small equipment to its members. The UVA would be responsible for executing the privatization component but would engage a firm of consultants acceptable to IDA to advise on and manage this part of the project. Funds would also be provided for Makerere University to provide improved post graduate training including courses in business training for veterinarians intending to enter private practice. Funds and TA would also be provided to the University to support establishment of a veterinary diagnostic center to be run on a full cost recovery basis. Further details are given in Annex 7. Institutional Development of MAIF (US$0.4 m) 3.10 Because of the need to react to a succession of epidemic disease emergencies over the last decade, and as a result of GOU policy to employ all new graduates, MAIF, and in particular its DVSAI, has lst the capacity to provide a balanced spectrum of cost effective services to the subsector. The DVSAI has focussed increasingly on animal health, to the neglect of animal husbandry, as its financial constraints have been accentuated. Those constraints have been in part the result of growing staff numbers, and therefore staff costs, leaving a dwindling percentage of total cost for operations. A similar relationship between staff costs and operations cost has built up in the DTC. At the same time the essential responsibilities of these Departn-ents and the technologies to be employed to meet them have also changed over the decade. Responsibility for clinical medicine and production of breeding stock inter alia should now and will be passed to the private sector. The DTC's role would be greatly changed because it would employ new field techniques which would permit it to contract part of its work, and involve beneficiaries increasingly ', field operations. The staff numbers which this new strategy of the DTC would require are a fraction of its present numbers. 3.11 The project would help MAIF to define priorities in allocation of resources so as to maximize its impact on productivity in the subsector and to put in place staff structures to serve the subsector more effectively within a reduced spectrum of services, i.e. to implement the Action Program referred to in para 2.25. Consultants financed under TA III have been engaged for preparation of the Action Program. Terms of reference for this consultancy are given in Annex 13. Assurances were given that GOU and IDA would reach agreement on the Action Program to be implemented under the proposed project no later than December 31, 1990. The project would provide an internationally recruited Organization and Management Specialist to the MAIF to assist in the implementation of the Action Program. Funds would be provided for a vehicle, office equipment and incremental operating costs. Project Management Support to the MAIF (US$1.2 m) 3.12 The project would provide for a locally recruited Financial Controller/Procurement Specialist to help MAIF set up financial systems for budgeting and recording project expenditures and to assist with  - 15 - international procurement and Bank procedures with which MAIF has lim ted experience. Funds would be provided for transport, office equipment and incremental operating costs. The project would also finance monitoring and evaluation which MAIF would contract Makerere University's Faculty of Veterinary Medicine to undertake. D. Training and Technical Assistance 3.13 The project would provide training and technical assistance designed to fill specific skill gaps resulting from Uganda's technical isolation over much of the last twenty years. Funds would be provided for selected veterinary and animal production staff to complete short courses or study tours outside Uganda in the fields of tsetse control, forage development and veterinary epidemiology. The project would finance undergraduate and post graduate training at Makerere University in business studies and clinical medicine tailored to private practice. Throughout the project, emphasis would be given to in-service training. All project veterinary officers would undergo refresher training covering recent advances in epidemiology and laboratory, diagnosis of the main diseases currently epidemic in Uganda. All staff associated with the forage development component would participate in an initial three week orientation/technical workshop. Subsequently, four day workshops would be held annually and all field teams would be regularly supervised by coordinating unit staff. Farmer training in forage development would be conducted through field days and selected short courses at District Farm Institutes (DFI). Training in environmental aspects with particular reference to the safe use of chemicals would be provided for project staff and farmers. Training would be in the form of short courses at DFIs planned and implemented by MAIF in collaboration with the Ministry of Environment. 3.14 Internationally recruited technical assistance would be required to assist with project implementation in areas of specialization currently unavailable in Uganda. TA would be provided for the positions of Veterinary Epidemiologist, Laboratory Technologist, Tsetse Control Specialist, Forage Development Specialist, Organization and Management Specialist, and Business Management Specialist (UVA). 3.15 Technical assistance totalling 22 staff years of which 5 staff years would be local consultancy has been included in the main component costs. Terms of reference were discussed with Government at appraisal and agreed at negotiations (Annex 4). Contractual arrangements for recruitment of consultants indicated in para 3.14 would be completed prior to credit effectiveness.  - 16 - E. Proiect Costs and Financing Cost Estimates 3.16 The total costs of the project including physical and price contingencies are estimated at US$24.7 m (Ush 10.891 m) net of taxes and duties with a foreign exchange component of US$17.3 m (Ushs 7,644 m) or about 70 percent. Project costs include an amount of US$800,000 provided under a PPF, of which US$650,000 has already beeu disbursed. Project costs are suizarized in Table 3.1 and detailed in Annex 1. Table 3.1: PROJECT COSTS SUMMARY (UGANDA?. SEILLLIN'S '1:Zo; USt '000) Z Total --------------------------------- --------------------- ZForeign Bese Local Fzreis. .stal Local Foreign Total Exchanse Costs A. NATIONAL DISEASE CONTROL NATIONAL DISEASE PREVENTION PROGRAN 158,583.4 - ' `0 4Zs?OO720.0 361.1 2.126.? 2t48.0 2.5 12 REGIONAL SUPPQRT 524r730.5 1494s513.4 2,O:?044.0 1,193.0 37,374.6 44567.6 74 2 Sub-Totl3 NATIONAL DISEASE CONTROL 5