Burkina Faso - Second Agricultural Sector Adjustment Credit

Report No. PIC3813 Project Name Burkina Faso-Second Agricultural Sector... Adjustment Credit Region Africa Sector Agriculture Project ID BFPA35610 Borrower Burkina Faso Implementing Agency Ministry of Agriculture Cellule de Coordination PASA 03 BP 7010 Ouagadougou 03 Tel: (226) 306895 Fax: (226) 310870 Date PID Prepared April 16, 1996 Projected Appraisal Date June 3, 1996 Projected Board Date December 12, 1996 Country and Sector Background 1. Burkina Faso is a landlocked country with its southern border more than 600 km from West African port cities. The population is about 11 million, which is 80 percent rural, and growing at a rate of 3 percent/year. With a GDP per capita of US$230 in 1995, Burkina ranks among the world's poorest nations. The economy is dominated by agriculture and livestock which account for 40 percent of GDP and 60 percent of exports, mostly cotton and livestock. Traditional coarse grains (millet, sorghum and maize) are the most important farming activity. Livestock is also important (about 14 percent of GDP), but of low productivity. Rice production only covers about a third of local demand, the rest being met by imports. Other cash crops of growing importance include off-season vegetables, groundnuts and sesame. Although the performance of the agricultural sector over the past decade has been remarkable for a Sahelian country (over 4 percent annual growth), it was mainly achieved through more extensive utilization of available land. 2. The Government of Burkina Faso has, since 1991, been implementing a wide range of macroeconomic and sectoral reform measures under a first structural adjustment credit (SAC) and a first agriculture sector adjustment credit (ASAC), aiming at improving the competitiveness of the economy, reducing the State's role in the economy, promoting private sector activities, pursuing a balanced management of public funds, and improving the balance of payment situation. Above all, the first ASAC permitted to deepen the structural reforms initiated in 1991 and obtain the commitment of the Government on a medium-term reform program for the agricultural sector that needs to be sustained so that it becomes permanent 3. The main policy reforms to be undertaken in the agricultural sector are spelled out in a Letter of Agricultural Development Policy (LPDA) of  May 1992. Their implementation was initiated under the first ASAC: (i) the liberalization of traditional cereals domestic marketing and pricing and the elimination of export and import controls on these commodities stands as a major achievement in the country's effort to improve food security; (ii) domestic trade of rice has been liberalized and there are no public monopolies for paddy collection and processing; (iii) trading and pricing for oilseeds were liberalized as the Stabilization and Price Equalization Board (CSPPA) abandoned all its price stabilization functions and its export monopoly; (iv) in the livestock sector export taxes and non-tariff barriers were eliminated along with all trade restrictions; (v) a number of parastatals were privatized: Flex-Faso (fruits and vegetable production and marketing), GMB (flour company), and the management of UCOBAM (fruits and vegetable producers' cooperative). The Cereal Marketing Board (OFNACER) was liquidated. Privatization of the rice milling company (SONACOR) and CSPPA could not be completed because of delays in the bidding process and is still being pursued; (vi) both the cotton and sugar companies have been restructured and operate under a performance contract with the Government defining the cost structure, stabilization mechanisms (cotton), trade and price regimes, and performance objectives; and (vii) the role of the Ministry of Agriculture and Livestock (MARA) and its decentralized structures (CRPAs) was reviewed with a view to their restructuring. 4. Having to rely entirely on internal adjustment measures, the government failed to address the issue of the overvaluation of the CFA franc and the economic program fell short of expectations. Subsequently, the Government decided, together with other CFA zone member countries, to devalue by 50 percent the CFA franc vis-a-vis the French Franc in January 1994. This offered a new opportunity to give momentum and deepen the reform program while building on restored competitiveness and return to a growth path. In this context, the Government is implementing a third year arrangement under the enhanced structural adjustment facility (ESAF) of the IMF approved in March 1993. A second ESAF covering the period 1996-98 is being negotiated. 5. The country assistance strategy (CAS) recognize the importance to build on the positive prospects offered by a relatively stable macro- economic environment and a competitive exchange rate, and swiftly give momentum to the on going reform process of the sector through a second adjustment operation supported by an adequate public investment program. This would permit to deepen and sustain the reform process while pursuing the much needed supply response so as to restore growth. Program Objectives 6. In order to stimulate sector growth and efficiency, the proposed program would focus on: (a) improving management of sectoral public expenditures; (b) improving the management and performance of public sector institutions and agencies supporting agricultural development; (c) promoting an incentive environment for private sector operations; and (d) improving the competitiveness of key subsectors (rice, sugar, cotton and livestock). Program Description -2-  7. The proposed program would focus on: (a) the completion of the liberalization of the rice sector (prices and imports), and the elimination of the import monopoly; (b) the liberalization of the sugar sector; (c) the reform of the tariff and trade regime and the elimination of non-tariff barriers particularly as it relates to sugar, rice, wheat and flour, hides and skins, and agricultural inputs; (d) the reorganization of the cotton subsector and improvement of the cotton company's cost structure and management; (e) the implementation of the restructuring of the Ministry of Agriculture and Livestock (MARA) and its decentralized structures (CRPAs) for better provision of public services and divestiture from production and commercial activities; (f) the divestiture from CSPPA, SONACOR, and the streamlining of the role (if any) of the Price Equalization Fund (CGP); and (g) the revision of the allocation of recurrent public expenditures (national budget) and investment budgets (PIP) going to the agricultural sector. 8. This second phase operation would also promote a coordinated donor effort to improve the impact of adjustment measures through the preparation of a new program of investments to enhance supply response and private sector development. These activities would be financed by other donors or the Bank through separate operations under the Ag. SECAL policy framework. Priority areas of intervention would be: i) continued support to the institutional restructuring of MARA and the provision of agricultural services; ii) implementation of a rehabilitation and support program for cotton growers' cooperatives and improvement of SOFITEX management; iii) review of the agricultural PIP, laying the ground for preparation of a future sector investment approach; iv) review of the micro-finance situation in the rural sector and strengthening of viable financial intermediation systems in rural areas; v) definition and implementation of a rice development program to support liberalization of the sub-sector; vi) development of specific subsectors that face good prospects: fruits and vegetable, livestock, private irrigation. Program Financing 9. IDA financing is tentatively planned at US$ 30 million, however the amount will depend on balance of payment support requirements for 1996 and 1997. The program was identified and prepared during two joint missions in March and November 1995 with the CFD, the French Ministry of Cooperation and the EU. Program Implementation 10. The MARA would have overall responsibility for program execution and would work closely with the Permanent Technical Secretariat of the SAC (PTS-SAC) under the Ministry of Finance. A Coordination Unit has been established under the first ASAC and a number of thematic working groups entrusted with technical preparation and implementation. Lessons from previous IDA involvement 11. MARA has devoted a great effort towards the implementation of the LPDA and of the sectoral reforms agenda. Where delays have appeared, they were driven by a lack of ownership towards the proposed changes and -3 -  were eventually eliminated through constructive dialogue and full understanding of the issues at stake. Closer and better links would also need to be established between the ASAC Coordination Unit and the PTS- SAC for better reciprocal understanding and integration of proposed agendas. The first ASAC, while fostering important reforms and the liberalization of key sectors, could not achieve significant supply response and growth mainly because of the overvalued real exchange rate of the CFA FRANC and the lack of competitiveness of the economy. The recent devaluation offers new prospects for effectively combining a deepening of the reform program and investments for stimulating growth. Poverty Category 12. The proposed credit will have an indirect but positive impact on poverty alleviation. The implementation of the proposed measures and reforms will help improve growth prospects and, hence, increase employment opportunities, especially in the cotton and rice growing areas. The program would promote better pass-through of international prices and widespread revenue distribution through more effective and transparent pricing policies and incentive structures. The planned restructuring of agricultural services would improve the efficiency, coverage and effectiveness in the delivery of basic services which will mostly benefit farmers with the lowest productivity. Specific attention will also be devoted to the development of more gender-conscious extension messages. Environmental Impact 13. The proposed program would have no negative impact on the environment Participation 14. The program preparation process has fully involved a wide range of stakeholders including relevant staff of the various Ministries concerned, farmers representatives and the private sector, through working groups and national workshops. This would be pursued during implementation to broaden participation and ownership. Program Benefits 15. The proposed operation would complement on-going reform efforts carried out in the context of PFP and SAC discussions and provide critical balance of payment support. It would concentrate on the most important areas of policy reform and promote investments so as to restore growth in this key sector of the economy. Building on the opportunities offered by the CFA FRANC devaluation, the program would stimulate private sector involvement and supply response for a number of commodities whose competitiveness has been restored. Policy changes in trade and removal of non-trade barriers will remove rents, improve competitiveness and promote private sector development so that it can compete on a leveled field. Limiting Government intervention would serve the purpose of eliminating market and price distortions, reducing transaction costs, encouraging more efficient use of resources, and permitting more profitable investment in those - 4 -  activities where Burkina has a comparative advantage. Program Risks 16. Some doubts will understandably persist on the capacity of the Government to tackle the vested interests which patronize some economic activities and appropriate rents from the market. Moreover, the restructuring of MARA and the CRPAs is likely to require considerable Government commitment since staff lay-offs are likely. Sufficient commitment in this respect will need to be gathered upfront and implementation monitored closely. Program design would include a large number of upfront conditions while also allowing for supervision and implementation assistance. A constructive dialogue and enhanced communication has been pursued during ASAC preparation and will be continued during implementation so that the general public and the institutions concerned can be made aware of the rationale of the reforms and of the expected benefits for increased ownership. Contact Point: Task Manager Adolfo Brizzi The World Bank, AF4AE 1818 H. Street N.W. Washington D.C. 20433 Tel.: (202) 4734624 Fax: (202) 4738229 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project - 5 -