Malawi - Agricultural Sector Adjustment Credit

Documnt of The World Bank FOR OFFMClAL USE ONLY Report No. 13603 PROJECT COMPLETION REPORT MALAWI AGRICULTURAL SECTOR ADJUSTMENT CREDIT (CREDIT 2121-MAI) OCTOBER 14, 1994 Agriculture & Environment Division Southern Africa Department Africa Regional Office This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Annual Average Exchange Rates MKIUS$ US$/MK 1985 1.719 0.582 1986 1.861 0.537 1987 2.209 0.453 1988 2.561 0.391 1989 2.730 0.366 1990 2,729 0.366 1991 2,803 0.357 1992 3.680 0.272 1993 (April) 4.200 0.238 MK 1 = 100 Tambala WEIGHTS AND MEASURES Metric System GOVERNMENT OF MALAWI FISCAL YEAR April 1 - March 31  FOR OFFICIAL USE ONLY ABBREVIATIONS ADMARC - Agricultural Development and Marketing Corporation ASAC - Agricultural Sector Adjustment Credit CSR - Center for Social Research DEVPOL - Statement of Development Policies EEC - European Economic Community EP&D - Economic and Planning Department ESAF - Enhanced Structural Adjustment Facility GDP - Gross Domestic Product GOM - Government of Malawi HESSEA - Household Expenditure and Small Scale Economic Activties Survey INDEBANK - Investment and Development Bank of Malawi IMF - International Monetary Fund 1TPAC - Industrial and Trade Policy Adjustment Credit LVD - Lands and Valuations Department MF - Ministry of Finance MFNR - Ministry of Forestry and Natural Resources MOA - Ministry of Agriculture MOU - Memorandum of Understanding NSO - National Statistics Office ODA - United Kingdom Overseas Development Administration PD - Planning Division (MOA) PER - Public Expenditure Review PFP - Policy Framework Paper POSB - Post Office Savings Bank PPM - Project Planning Manual PSIP - Public Sector Investment Program PT-F - Poverty Task Force RBM - Reserve Bank of Malawi SACA - Smallholder Agricultural Credit Administration SAL - Structural Adjustment Loan SDA - Social Dimensions of Adjustment SFFRFM - Smallholder Farmers' Fertilizer Revolving Fund of Malawi SGR - Strategic Grain Reserve SPSF - Social Program Support Fund UNDP - United Nations Development Program USAID - United States Agency for International Development This document has a restricted distribution and may be used by recipients only in the performance of their I official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFICLIL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Offi0 of DireawaI Opmutom Evuutbon October 14, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT Subject: Project Completion Report on Malawi - Agricultural Sector Adjustment Credit (Cr. 2121-MAJ! Attached is the Project Completion Report on Malawi - Agricultural Sector Adjustment Credit (Cr. 2121-MAI) prepared by the Africa Regional Office. The Borrower prepared Part II. Both project design and implementation proved deficient. The very limited attempt to "liberalize" maize and fertilizer marketing did little to change the basic role and mode of operation of the inefficient parastatal company that dominated these markets. The attempts to rationalize and increase the insignificant land-tax on the estates and to induce them to produce their own fuel-wood were without effect. The review of public expenditure in agriculture was weak. Nothing came of the pilot schemes to target fertilizer subsidies and credit to poor farmers. The attempt to halt the transfer of land from smallholders to the estates failed, possibly a desirable development since this helped small farmers to escape the disadvantages of smallholder status: as tenants on estates they were allowed to produce higher value crops and to get better prices at sale. One important achievement stands out: the end of the estates' monopoly on burley- tobacco production. Under an ASAC condition, the government permitted thousands of smallholders, officially farming less than a hectare each, to produce burley tobacco, a most profitable and labor-intensive export crop and a plus factor in land-scarce, labor-surplus Malawi. With support from USAID, these traditional, cash-poor, subsistence farmers responded by producing burley of better quality than that of the estates. They were also able to use the cash from burley sales to purchase high-yielding, hybrid-maize seeds plus fertilizer, thereby improving their precarious food security. The PCR is adequate. The project outcome is rated as unsatisfactory, institutional development as modest, and sustainability of the completed reforms as likely. An audit is planned. Robert Picciotto by H. Eberhard K6pp 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.   PROJECT COMPLETION REPORT MALAWI AGRICULTURAL SECTOR ADJUSTMIENT CREDIT (Cr. 2121-MAI) TABLE OF CONTENTS Page No. PREFACE ................................................. i EVALUATION SUMMARY .................................... iii PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE .... ........ 1 l. Project Identity . ......................................... 1 2. Background ............................................ 1 Past Government Programs and External Assistance ..............2 Results of Past Adjustment Operations ...................... 3 The Government's Development Objectives and Strategy .... ....... 4 Bank's Overall Strategy ............................... 4 3. Agricultural Sector Adjustment Credit (ASAC) ...................... 5 4. Implementation: Macro-Economic Reforms ....................... 6 External Sector .................................... 6 Public Finance ..................................... 7 Banking and Monetary Policy ............................ 8 Outcome . ....................................... 8 Evaluation ...................................... 10 Public Sector Investment Program ......................... 10 5. Implementation: Agricultural Sector Reforms ...................... 14 Cash Crop Allocation ................................. 14 Output Prices ...................................... 17 Output Marketing and Input Distribution ..................... 20 Rationalization of ADMARC Funding and Functions ............. 21 Fertilizer Procurement and Financing ....................... 24 High Yielding Flint Maize .............................. 25 Land Allocation and Use ............................... 26 Woodlots . ........................................ 27 Food Security ..................................... 28 Social Dimensions of Adjustment (SDA) ..................... 30  Page No. 6. Overall Evaluation ....................................... 31 Credit Conditions and Covenants .......................... 31 Weakness in Project Design ............................. 32 Performance of Government and IDA ....................... 32 7. Second Tranche Release and Disbursement ........................ 33 8. Sustainability .......................................... 33 9. Main Lessons Learnt ...................................... 35 Preparation, Supervision and Management of Structural Reforms ... ... 35 Smallholder Burley Tobacco Program ....................... 36 Coordination and Follow-up ............................. 36 Public Expenditures .................................. 37 Poverty-related Pilot Schemes ............................ 37 Environment ...................................... 37 PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE ....... 38 1. Background ........................................... 38 2. Objectives of ASAC ...................................... 38 3. Performance of the Economy ................................ 39 4. Performance of the Economy within ASAC Program Period ............. 41 5. Post-ASAC Implementation Period Performance ..................... 42 6. Policies Proposed Under ASAC ...... ...... ................... 42 6.1 Macro-Economic Policies .............................. 42 6.2 Macro-Economic Policies Implemented ...................... 43 External Policies ............................... 43 Public Finance Policy ............................ 44 Fertilizer Subsidies .............................. 45 Tax Reform .................................. 45 Monetary Policy ............................... 46  Page No. 7. Agricultural Policy Reforms .. 46 7.1 Cash Crop Allocation ................................ 46 7.2 Rationalization of ADMARC Funding and Functions ............. 48 Memorandum of Understanding ...................... 48 Improved Efficiency through Expansion of Private Sector ... ... 48 Divestiture Program ............................. 49 7.3 Fertilizer Procurement and Financing ....................... 50 7.4 Food Security ..................................... 51 8. Other Comments on the PCR ................................ 52 9. Future Agricultural Adjustment Programs ......................... 53 10. Conclusion ............................................ 53 PART HI: STATISTICAL INFORMATION ........................... 54 TABLES 1. Related Bank Loans/Credit ................................. 54 2. Credit Data ........................................... 55 3. Credit Timetable ........................................ 55 4. Cumulative Credit Disbursement .............................. 56 5. Use of Bank Resources .................................... 57 ANNEXES 1. Macro-Economic Reforms (Table 1) ............................ 59 2. Agricultural Sector Reforms (Tables 1 - 15) ....................... 63 3. Policy Agenda Action Matrix ................................ 81 PROJECT DATA SHEET   PROJECT COMPLEIION REPORT MALAWI AGRICULTURAL SECTOR ADJUSTMENT CREDIT (Cr. 2121-MAD PREFACE This is the Project Completion Report (PCR) for the Agricultural Sector Adjustment Credit (ASAC) to Malawi, for which the IDA Credit 2121-MAI in the amount of SDR 52.6 million was approved on 3 April 1990. IDA reflows of SDR 4 million for Malawi (Cr. 21211- MAI) were approved in late 1991. A Dutch Grant of Dfls 5.0 million and a UK Program Aid Grant of