Mexico - Agricultural Technology Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 17025 IMPLEMENTATION COMPLETION REPORT MEXICO AGRICULTURAL TECHNOLOGY PROJECT Loan 3465-ME August 29, 1997 Environmentally and Socially Sustainable Development Sector Management Unit Mexico Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of December 31, 1996) Currency Unit = Mexican New Peso US$ 1.00 = N$ 7.86 WEIGHTS AND MEASURES Metric System FISCAL YEAR OF BORROWER January 1 - December 31 ABBREVIATIONS AND ACRONYMS CONACYT Consejo Nacional de Ciencia y Tecnologia (National Council of Science and Technology) DGESAF Direccion General de Estudios del Sector Agropecuaria y Forestal (Directorate General of Agricultural and Forestry Sector Studies) DDR Distritos de Desarrollo Rural (Rural Development Districts) FMDR Fundacion Mexicana de Desarrollo Rural (Mexican Foundation for Rural Development) IICA Instituto Interamericano de Cooperaci6n en Agricultura (Inter-American Institute for Cooperation in Agriculture) INIFAP Instituto Nacional de Investigaciones Forestales y Agropecuarias (National Institute for Forestry, Livestock and Agricultural Research) NAFTA North American Free Trade Agreement PLANAT Plan Nacional de Apoyo a la Agricultura de Temporal (National Program for Assistance to Rainfed Areas, Loan 1945-ME) PROCATI Programa de Capacitaci6n, Asistencia Tecnica e Investigacion (Program for Training, Technical Assistance, and Research, Loan 2859-ME) PROCAMPO Programa de Apoyos Directos al Campo (Farm Support Payments Program) PRODERITH Programa de Desarrollo Rural Integral para el Tropical Himedo (Program for Integrated Rural Development of the Humid Tropics, Loans 1553-ME and 2658-ME) SAGAR (formerly SARH) Secretaria de Agricultura, Ganaderia y Desarrollo Rural (Secretariat of Agriculture, Livestock and Rural Development) SARH (now SAGAR) Secretaria de Agricultura y Recursos Hidraulicos (Secretariat of Agriculture and Water Resources) SAR Staff Appraisal Report SHCP Secretaria de Hacienda y Cr6dito Piublico (Secretariat of Finance and Public Credit) Vice President Shahid Javed Burki Director Olivier Lafourcade Previous Manager Michael Baxter Task Manager Gisu Mohadjer  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT MEXICO AGRICULTURAL TECHNOLOGY PROJECT (Loan 3465-ME) Table of Contents PREFACE .............................. X EVALUATION SUMMARY ............................. ii PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Evaluation of Objectives ............................1 B. Achievement of Project Objectives ............................ 1 C. Major Factors Affecting the Project ...........................3 D. Project Sustainability .............................4 E. Bank Performance ........................... 4 F. Borrower Performance ............................6 G. Assessment of Outcome ............................7 H. Future Operation .............................7 I. Key Lessons Learned ...........................7 PART II: STATISTICAL ANNEXES Table 1: Summary of Assessments .11 Table 2: Related Bank Loans .13 Table 3: Project Timetable .15 Table 4: Loan Disbursements: Cumulative Estimated and Actual .15 Table 5: Key Indicators of Project Implementaion .16 Table 6: Studies Included in Project .17 Table 7A: Project Costs ........................... 18 Table 7B: Project Financing ........................... 18 Table 8: Status of Legal Covenants ........................... 19 Table 9: Bank Resources: Staff Inputs ........................... 24 Table 10: Bank Resources: Missions ........................... 25 APPENDICES A. Completion Mission Ayuda Memoria B. Borrower Contribution This document has a restrcted 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.  i IMPLEMENTATION COMPLETION REPORT MEXICO AGRICULTURAL TECHNOLOGY PROJECT (Loan 3465-ME) PREFACE This is the Implementation Completion Report (ICR) for the Agricultural Technology Project in Mexico, for which Loan 3465-ME in the amount of US$ 150.0 million equivalent was approved on May 5, 1992 and made effective on September 16, 1992. The loan was completed on March 12, 1997 with a loan closing date of June 30, 1999. US$ 60.0 million was canceled on August 4, 1995; US$ 66.6 million was canceled on July 9, 1996. The last transaction took place on March 12, 1997. The ICR was prepared by the following staff from the Environmentally and Socially Sustainable Development Sector Management Unit (formerly in the Sector Leadership Group) and the Mexico Department in the Latin America and the Caribbean Region: Ms. Gisu Mohadjer (Task Manager); Ms. Kathryn Johns Swartz (Research Assistant); Ms. Teresa Roncal (Procurement Assistant); and Mr. Robin LeBreton (Consultant). It was reviewed by Mr. Michael Baxter, former Manager of the Sector Leadership Group and Mr. Olivier Lafourcade, Director, Mexico Department. The Borrower provided comments that are included as Appendix B to the ICR. Preparation of this ICR was begun during the Bank's final completion mission, January 19 to January 25, 1997. It is based on material in the project file, supplemented by information from the Borrower.  ii MEXICO AGRICULTURAL TECHNOLOGY PROJECT (Loan 3465-ME) EVALUATION SUMMARY Introduction This project was identified based on a wealth of sectoral knowledge and experience, following on 17 years of experience in supporting the agricultural extension and research sector in Mexico, as well as two sector reviews. In January and February 1990, the Bank undertook two missions to prepare the Agricultural Technology Sector Review (August 20, 1992, Gray Cover Report No. 9297-ME), which was used as the basis for project identification. The project was designed to build on experience of the pilot Agricultural Extension Project (Loan 2859-ME). Project Objectives The project objectives as stated in the Loan Agreement were to improve agricultural productivity and growth through: (a) the generation of new agricultural technology through research; (b) the effective extension of new and existing technologies to producers; and (c) the improvement of the institutional capacity of the National Institute for Forestry, Agriculture, and Livestock Research (Instituto Nacional de Investigaciones Forestales y Agropecuarias, INIFAP). These objectives were not modified during project implementation since they were appropriate given the needs of the sector. These sectoral objectives remain valid. Implementation Experience and Results Several major events affected the project. The first was the heavy involvement of the Secretariat of Agriculture, Livestock and Rural Development (Secretaria de Agricultura, Ganaderia y Desarrollo Rural, SAGAR) in the negotiations between the Governments of Mexico and the United States on agricultural aspects of the North American Free Trade Agreement (NAFTA) during 1992 to 1994. The second was the devaluation crisis at the end of 1994, and the subsequent budgetary pressures during 1995 and 1996. The third was the change in Government's policy of privatizing extension and seeking external funds for research, and the emergence in 1994 of the Farm Support Payment Program (Programa de Apoyos Directos al Campo, PROCAMPO). All three events were instrumental in shifting the focus of the Government away from the project. In 1995, the Government and the Bank agreed to restructure the project based on a new strategy of public sector intervention in technology generation and transfer. After details of the restructured project were completed, the administration changed and the new administration requested that the project funds be channeled instead to the new program of decentralization - Alianza para el Campo. After extensive consultations in Mexico and in Washington in early 1996, the Government and the Bank agreed that given that the implementing agencies and mechanisms would be quite different, and that there was no consensus on next steps in project restructuring, it would be preferable to cancel this project.  iii Summary of Findings, Future Operations, and Key Lessons Learned The outcome of the project is unsatisfactory. The project failed to achieve any of its major objectives, and has not yielded worthwhile development results. Since continuation of the project along the original lines is now impossible given the policy changes that have taken place, there will be no future operation of the project in the form in which it was appraised. However, the Government has expressed its interest in pursuing the establishment of a Competitive Grants Fund. Among the key sectoral lessons from the project are: notwithstanding the current thrust towards increased private sector involvement in extension, the Government has a strong role in providing extension services in subsistence and marginal areas; the Government's extension system needs to be systematic, dedicated, and supported by a. strong research establishment; alternative approaches to extension can be successful; and the Government should encourage and finance such alternative approaches; Government may have an important role to play in funding basic research, even when the research system is opened up and international collaborations are solidified; research quality depends on the quality of human resources - systems and training cannot make up for insufficient or inadequate education. Some of the key operational lessons are: generic operational issues such as underfunding should be addressed outside of the project context; all implementing agencies must have ownership of the project; implementation arrangements should be mainstreamed to the extent possible; more flexible assistance methodologies should be explored at a time of significant policy and organizational change; during implementation it may be necessary to renew the commitment of new managers to the project's objectives and components; if projects do not receive adequate funding at a time of financial crisis, they should be canceled; implementation contracts with outside agencies can facilitate project implementation but need to be carefully monitored.  1 MEXICO AGRICULTURE TECHNOLOGY PROJECT (Loan 3465-ME) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. EVALUATION OF OBJECTIVES 1. The project objectives as stated in the Loan Agreement were to improve agricultural productivity and growth through: (a) the generation of new agricultural technology through research; (b) the effective extension of new and existing technologies to producers; and (c) the improvement of the institutional capacity of the National Institute for Forestry, Agriculture, and Livestock Research (Instituto Nacional de Investigaciones Forestales y Agropecuarias, INIFAP). These objectives were not modified during project implementation since they were appropriate given the needs of the sector. These sectoral objectives remain valid. B. ACHIEVEMENT OF PROJECT OBJECTIVES 2. As detailed below, achievement of most project objectives was negligible, with partial achievement of some of the institutional development and physical objectives in the early years. The project had a typical start-up in 1992 for projects in the same sector in Mexico, with expenditures amounting to 76 percent of forecasted budget, but it was essentially abandoned by the Government in subsequent years. The Government changed its policy regarding agricultural research and extension, and with this change in focus came a shift in resources away from the project. Out of a total loan amount of US$ 150.0 million, only US$ 23.4 million was disbursed, and the remaining amount was canceled in two tranches (US$ 60.0 million in August 1995, and US$ 66.6 in July 1996). As a result, the project did not make a significant contribution to the sectoral objective of improving agricultural productivity and growth. 3. Generation of New Agricultural Technology Through Research. The project supported general research activities in INIFAP in 1992 and 1993. During this time, INIFAP released six hybrid maize varieties, six new varieties of beans, two improved rice cultivars, one rainfed wheat variety, and one variety of chile. By 1994, the Government had changed its policies on research funding and INIFAP had moved to a system of demand-driven externally supported research funding. From 1994 onwards, funds were not allocated to the project by INIFAP. This was partly due to the change in policy, but it was also due to the perceived lack of budgetary additionality for the project. Had INIFAP intended to change its position regarding the project, the devaluation crisis at the end of 1994 and the subsequent reductions in budgetary resources made it impossible to do so. 4. Extension of New and Existing Technologies to Producers. The project was originally designed to function in 75 of 193 Rural Development Districts (Distritos de Desarrollo Rural, DDR). In 1992, the project operated in 24 DDRs, primarily by supporting across-the-board salary increases (instead of the original performance bonuses) and recurrent expenditures. The  2 primary activities within the DDRs were on-farm demonstrations. Soil and water conservation projects were undertaken in four DDRs. In 1993, the Government decided to exclude DDRs at the productive extremes, such as in irrigated or subsistence agriculture. As a result, the scope of the project was reduced to 40 DDRs. 5. During project preparation in 1990, the Government had 10,600 extension agents working directly with producers, but soon after, the Government decided to privatize the function of direct technical assistance to farmers and concentrate instead on working with producers groups. By 1995 there were only 600 extension agents working with producers groups, supported by 372 technical specialists. By this time, the Government had also moved to a Farm Support Payments Program (Programa de Apoyos Directos al Campo, PROCAMPO), and extension agents in the DDRs were asked to spend 30 to 100 percent of their time on PROCAMPO-related activities. As a result of these changes in policy, the Government reallocated its human and financial resources away from the project, and project activities in the DDRs camne to a halt. 6. In June 1993, some project-funded extension activities were contracted out to the Mexican Foundation for Rural Development (Fundaci6n Mexicana de Desarrollo Rural, FMDR), a non-profit society created to promote rural development by helping small farmers set up and manage group enterprises. FMDR established and operated demonstration plots. 7. Improvement of Institutional Capacity of INIFAP. The project funded institutional strengthening directly and through contracts with the Inter-American Institute for Cooperation in Agriculture (Instituto Interamericano de Cooperaci6n en Agricultura, IICA). 8. In 1992 and 1993, the project funded the purchase of equipment, and the operation and maintenance of INIFAP's Management Information System, which is still in use. Periodicals were subscribed to, and computer equipment was purchased, and 11 laboratories were upgraded. At INIFAP, the project funded 22 years of post-graduate training, and several short courses, conferences, and seminars in the first two years of the project. The INIFAP-IICA contract financed operating expenditures, technical assistance, transportation, and computing equipment. The contract also funded a Project Coordination Unit at INIFAP, which continued to exist far beyond its usefulness given that there were negligible project activities, and it was finally disbanded at the insistence of the Bank. 9. At the Secretariat of Agriculture and Hydraulic Resources (Secretaria de Agricultura y Recursos Hidraulicos, SARH, which in 1995 was renamed the Secretariat of Agriculture, Livestock and Rural Development, Secretaria de Agricultura, Ganaderia y Desarrollo Rural, SAGAR), training was undertaken at the district level for staff and producers, and at the regional and central level for staff, in the early years of project implementation. Only one-third of the total amount of the SAGAR-IICA contract was used for studies, training, and monitoring and evaluation related to the project, with the remainder for general operating expenditures. 10. An important objective of the project was the establishment of a stronger funding base for agricultural research and extension, and the project included a Research Grants Fund. While this Fund was never operational, during project restructuring discussions in 1995 and 1996, details on the establishment and operation of a Competitive Grants Fund were worked out. To do so, the  3 role of the Government in the sector, and opportunities for collaboration with the private sector and producers groups were clarified. The Government has since been discussing the establishment of such a Fund with other donors, including the Inter-American Development Bank. 11. Appropriateness of Project Design. In retrospect - after several years of implementation - it is evident that even without the changes in Government policy, project implementation could have been enhanced with a different design. For example, responsibility for the new approach to extension services was placed in the Directorate General for Agricultural and Forestry Sectoral Studies (Direcci6n General de Estudios del Sector Agropecuaria y Forestal, DGESAF) in SAGAR instead of in the Sub-Secretary of Agriculture and Livestock, which was managing the Government's traditional extension system and had not fully accepted the new approach. With pressure to focus on the North American Free Trade Agreement, and with the subsequent departure of the original manager, DGESAF did not give extension activities the necessary attention. As another example, the Research Grant Fund Committee was headed by an official from the National Council of Science and Technology (Consejo Nacional de Ciencia y Tecnologia, CONACYT), an agency with which SAGAR was unwilling to cooperate or share authority. After one meeting and the signing of an inter-agency agreement, no further activities took place. 12. Monitoring Indicators. The project design included appropriate quantitative criteria for judging achievement of its objectives, although monitoring was sporadic in the early years, and neglected thereafter. In common with most agricultural research projects, no economic evaluation was attempted and it is not possible now to calculate the net present value of the project. C. MAJOR FACTORS AFFECTING THE PROJECT 13. Several major events affected the project. The first was the negotiations between the Governments of Mexico and the United States on NAFTA from 1992 to 1994. Within SAGAR, DGESAF staff were closely involved in the agricultural aspects of these negotiations and this reduced any interest they may have had to actively manage the extension component of the project, and to seek solutions to any problems as they emerged. The second was the devaluation crisis at the end of 1994, and the subsequent budgetary pressures during 1995 and 1996. The crisis reinforced the Government's policy of privatizing extension and seeking external funds for research. The third was the emergence of the PROCAMPO program, which required substantial amounts of staff time to document land use patterns, and for which the services of extension staff in the DDRs were drafted. 14. During the first year of project implementation in 1992, the project followed a typical pattern of slow start-up. With the privatization of extension services, budgetary resources were withheld from the project and were used instead for other activities. After the disappointing performance in 1993, there were ongoing discussions between the Bank, the Secretariat of Finance and Public Credit (Secretaria de Hacienday Credito Pzublico, SHCP), and SAGAR on how to reformulate the project given the changes in Government policy regarding extension and research. However, while the Government had taken steps to privatize the extension system and make the research program demand-driven, it had not articulated a strategy for appropriate public  4 sector intervention in the sector. Since it was the last year of the Administration, Government officials felt it best to wait for the new Administration to articulate such a policy. 15. Immediately after the new Administration had taken office in January 1995, the Bank - with the assistance of an international expert in the sector - started to provide assistance to the Government in articulating its strategy and policies for technology generation and transfer. A successful workshop was held with stakeholders in May 1995 to discuss and reach consensus on the strategy, and that summer, the Government and the Bank discussed a proposal for canceling US$ 60.0 million as part of the post-devaluation cancellations of the Mexico portfolio, and restructuring the project with the remaining funds based on the new strategy. Several factors prevented reaching full agreement on the restructured project: SAGAR had been conducting an internal review of its activities, and as a result moved the extension component of the project out of DGESAF and into a new unit in the newly created Sub-Secretariat of Rural Development; INIFAP's senior management was changed; SAGAR was given the mandate to decentralize its operations; SHCP insisted on seeing full details on the design and operation of a Competitive Grants Fund before agreeing to any restructuring proposal; and SAGAR and SHCP entered into discussions about the annual additionality of project funds. 16. By the end of 1995, the Sub-Secretariat of Rural Development, INIFAP, and the Bank had finalized the details on the restructured project; final expenditure data was needed in order to amend the legal documents. In February 1996, the Secretary of Agriculture, accompanied by the Sub-Secretary of Rural Development, the head of INIFAP and representatives of SHCP, visited Washington to discuss SAGAR's new program of decentralization - Alianza para el Campo. The Secretary requested that all Bank assistance, including the restructured project, be channeled into the Alianza. After extensive consultations in Mexico and in Washington, the Government and the Bank agreed that given that the implementing agencies and mechanisms would be quite different and that there was no consensus on next steps in project restructuring, it would be preferable to cancel this project, and instead to think about the possibility of designing a new project to support research and extension under the Alianza. In July 1996, US$ 66.6 million was canceled, and the final transactions related to the Special Account took place in March 1997. D. PROJECT SUSTAINABILITY 17. The project is unlikely to be sustainable. Approximately 25 percent of project expenditures have been for operating costs in an extension system that is no longer in operation. It is unclear whether staff trained by the project in 1992 and 1993 are still working in the Government's research and extension system. Upgrades to INIFAP's Management Information System and its computer network will have some sustainable impacts, and if resources are allocated by INIFAP for the continuous updating of these systems, they may be sustainable. However, budgetary shortages in the public sector in recent years as a result of the devaluation crisis have not permitted adequate system updates. E. BANK PERFORMANCE 18. Identification. This project was identified based on a wealth of sectoral knowledge and experience, following on 17 years of experience in supporting the agricultural extension and  5 research sector in Mexico, as well as two sector reviews. The project was designed to build on experience of the pilot Agricultural Extension Project (Loan 2859-ME) and in January and February 1990, the Bank undertook two missions to prepare the Agricultural Technology Sector Review (August 20, 1992, Gray Cover Report No. 9297-ME) which was used as the basis for project identification. As a result, the project was fully consistent with the priorities of the Government and the Bank's assistance strategy for the sector at the time, but the Bank misjudged the likely timing of the privatization of research and extension activities, and the possibly limited life expectancy of major public sector organizations. 19. Preparation. The Bank supported the Borrower during project preparation. At the time, preparation met the criteria for technical, financial, economic, institutional, environmental and social aspects. The Bank interacted primarily with INIFAP, and could have made more of an effort to include other agencies, such as the Sub-Secretariat of Agriculture and Livestock, in project preparation discussions. 20. Appraisal. The Bank encountered strong and committed leadership at INIFAP and DGESAF, and was able to adequately appraise the capacity of the implementing agencies under such leadership. The Bank did not - and probably could not - appraise the likely capacity of these agencies in the absence of such leadership. Nor was the Bank able to judge the limited influence INIFAP leadership had outside the agency. 21. The Bank's standards for participation in appraisal at that time were less rigorous than today, but even so, there was broad participation by scientists and extension workers in the process. Farmers had been widely consulted in preparation, and part of the project was designed to broaden the funding base for the research system by improving collaboration with producers groups. The project was based on concepts that had already been tried in Mexico and other places, and that by the standards of the time were compatible with accepted practices. 22. The Bank was well aware of past experience with Bank lending to Mexico, in which counterpart funding has been a constant problem. The Bank was able to correctly identify the nature of the risks facing the project - lack of commitment and adequacy of funding - and took steps to minimize them. The Government was requested to provide a policy letter, which it did. The Government was asked at negotiations for specific assurances that the necessary budget assignations would be made: at the time the assurances given seemed reasonable. However, the Bank did not have sufficient influence on SHCP on the issue of counterpart funding and budgetary allocation, a situation that continues even to this day. 23. Both the lending instrument and the financing package, a loan of 50 percent of project cost, were standard approaches to project financing at the time, and there were no special circumstances that would have warranted a different approach. In retrospect, especially after the impact of the devaluation crisis, a smaller project size would have been more appropriate, but this was not apparent in 1992. 24. Implementation indicators were agreed upon at negotiations. The indicators for research were fairly comprehensive, but the indicators for extension were sketchy. At negotiations, the Government agreed to develop impact indicators based on the results of a productivity study to be  6 carried out during the project. This study was not carried out and impact indicators were not developed. 25. Supervision. Bank supervision was within the parameters planned at appraisal: 30.0 staff weeks were budgeted for the first 30 months of the project, and actual staff time spent was 31.4 staff weeks. One supervision mission per year was planned, which probably would have been adequate if all had gone well with the project. The Task Manager in charge of project preparation left in April 1994, and since then the project had two task managers. Field offices and country implementation reviews did not, and were not expected to play any significant role in project supervision. 26. After the disappointing performance in 1993, there were ongoing discussions in 1994 between the Bank, SHCP and SAGAR on how to reformulate the project given the changes in Govermnent policy regarding extension and research. It was agreed that such discussions should be undertaken with the new Administration. From early 1995 onwards, the project was under intense supervision and restructuring, and received significant attention from senior managers at the Bank and in the Government. 27. The performance ratings in the supervision reports accurately reflect the Bank's perception of project performance, and were progressively downgraded. Supervision missions accurately reported on the status of covenants. F. BORROWER PERFORMANCE 28. Preparation. The main project counterpart agency during project preparation was DGESAF, which had a very strong manager. However, the project was largely prepared by JNIFAP, with assistance from IICA, and the quality of preparation was satisfactory. The fact that INIFAP did not communicate more effectively with other agencies most likely caused problems in project design and implementation. 29. Implementation. SAGAR and INIFAP responded as expected to the incentives in the overall policy and institutional environment during project implementation. Given the importance of the NAFTA negotiations, DGESAF - a unit specializing in economic analysis and studies - focused on those instead of the project. Changes in fiscal policies as a result of the devaluation crisis that began in December 1994 and continued for two years. This resulted in major budgetary pressures in SAGAR and INIFAP, and created a disincentive to resolve issues in a project that was seen as a drain, instead of an addition, to budgetary resources. US$ 60.0 rmillion was canceled in 1995. As a result of privatization of extension and research, the focus of Government activities was shifted to other activities, such as PROCAMPO. 30. Without explicitly saying so, especially to the Bank, the Government severely underfunded the project: in 1992 actual allocations were 76 percent of appraisal estimates; in 1993, 36 percent, in 1994, 15 percent; and by 1995, 11 percent. The overall pattern of expenditures did not fit the original design, and there were some problems with the procurement of ineligible items, especially at the DDRs.  7 31. INIFAP was headed by five different people during the period of project preparation and implementation, with each new person bringing in a different management team. Within SAGAR, the misplaced extension component was eventually moved from DGESAF to the Sub-Secretary of Rural Development, but it was never moved to the Sub-Secretary of Agriculture and Livestock, which was managing the traditional extension system. In the early years of project implementation, DDRs had a significant degree of autonomy to adapt project implementation to the requirements of local conditions, and therefore the quality of implementation was variable. 32. The project financed major contracts for implementation with IICA and FMDR. Neither contract was carefully supervised or audited by the Government. However, an independent evaluation of FMDR's activities by the European Community, which was undertaken for other purposes, was positive as to the impact and cost effectiveness of FMDR's activities. G. ASSESSMENT OF OUTCOME 33. The outcome of the project is unsatisfactory. The project failed to achieve any of its major objectives, and has not yielded worthwhile development results. While it had some early impact at INIFAP and SAGAR, these impacts have not proved to be sustainable. During project restructuring discussions, the Bank was able to provide assistance to the Government in collaborating with stakeholders to articulate a strategy and approach to the development and funding of agricultural research and extension. Based on these discussions, the Bank assisted the Government in designing an appropriate role for itself by funding private sector and producers group activities through a Competitive Grants Fund, and funding and implementing Government activities. While the difficulties in the project provoked these discussions, the Bank would have been willing to provide this assistance to the Government outside the context of the project. Therefore the seemingly positive outcome of these discussions should not be ascribed to the project. H. FUTURE OPERATION 34. Since continuation of the project along the original lines is now impossible given the policy changes that have taken place, there will be no future operation of the project in the form in which it was appraised. Instead, the Government is channeling extension resources through the Alianza para el Campo. This program is based on local decision-making by state and municipal authorities, together with producer organizations, and co-financing by federal and state authorities and producers groups. The Government has expressed its interest in pursuing the establishment of a Competitive Grants Fund. L KEY LESSONS LEARNED 35. Sectoral Lessons. The process of articulating a new sectoral strategy for the Government, and designing appropriate Government interventions in the sector has uncovered some important lessons: * The Government's role in extension ranges from the establishment of the regulatory framework and structure of incentives to the direct provision of services. The Government should define its role as a pre-requisite to the definition of its extension program.  8 * Producers in highly productive and wealthier areas will have access to private sector supply- driven extension services, and are more likely to organize themselves to demand such services. The Government therefore has a strong role in providing extension services in subsistence and marginal areas where the private sector is unlikely to act in the foreseeable future. * The Government's extension system needs to be systematic, dedicated, and supported by a strong research establishment. * Alternative approaches to extension can be successful. T;he Government should encourage and finance such alternative approaches, but needs to be careful in selecting and monitoring them. * Opening up the research and extension system by making it responsive to producers groups demands and externally funding it has the advantage that the system becomes more relevant to local conditions. * Once international collaborations are solidified, and the country can benefit from research conducted elsewhere, the Government may still have an irnportant role to play in funding basic research. * Research quality depends on the quality of human resources - systems and training cannot make up for insufficient or inadequate education. 36. Operational Lessons. There are many lessons to leam from a project such as this, which had a deep-rooted foundation of sector work and preparation, followed by problematic implementation, significant efforts at restructuring, and eventual cancellation. Some of the lessons are: 3 If there are chronic problems of project underfunding in a sector, try to resolve those issues before making a project commitment. * Make a determined effort to involve all affected agencies in the process of project design and preparation. * To the extent possible, use existing institutions for project implementation, and mainstream project activities and components. * Recognize the difficulty of designing and implementing projects at a time of significant policy and organizational change, and seek more frequent, more flexible assistance methodologies. * Establish a climate of easy interchange of ideas between the Government and the Bank, so that changes in policy during project preparation and implementation are discussed with the Bank, and the projects are adjusted accordingly.  9 * Recognize that a change in management at the implementing agencies will impact the priority attached to the project, and it may be necessary during implementation to renew the commitment of new managers to the project's objectives and components. * Create an incentive for the project implementing agencies to continue funding the project by giving the project additionality in the agency budgets. * Accept the fact that a financial crisis will dominate other concerns, and will force implementing agencies to re-prioritize. If the project does not receive adequate funding at a time of financial crisis, cancel the project. * Implementation contracts with outside agencies can facilitate project implementation, but make sure the contracts are clear regarding the responsibilities of these agencies, and are carefully monitored and audited. * Project restructuring is only possible if all the affected agencies are in agreement. If the agreement of one agency is lacking, cancel the project and seek other vehicles with which to support the Government.  10 MEXICO AGRICULTURAL TECHNOLOGY PROJECT (Loan 3465-ME) PART II: STATISTICAL ANNEXES Table 1: Summary of Assessments Table 2: Related Bank Loans Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Studies Included in Project Table 7A: Project Costs Table 7B: Project Financing Table 8: Status of Legal Covenants Table 9: Bank Resources: Staff Inputs Table 10: Bank Resources: Missions  11 MEXICO AGRICULTURAL TECHNOLOGY PROJECT (Loan 3465-ME) Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macro Policies 0 E [1 E3 Sector Policies O E El Financial Objectives 0 O E3 [I Institutional Development 0 E 0 O Physical Objectives