Nepal - Agricultural Research and Extension Project

Document of The World Bank Report No. 16658-NEP PROJECT APPRAISAL DOCUMENT NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT July 25, 1997 South Asia Region Rural Sector Development Unit  CURRENCY QQUIVALENTS USS I = Nepalese Rupees (NRs) 57.50 FISCAL YEAR HMGN-July 16 to July 15 WEIGHTS AND MEASURES The metric system is used through out the report LIST OF ABRREVTATTONS AND ACRONYMS ACD Agricultural Communication Division ADB Asian Development Bank AEPII Agricultural Extension Project 11 APP Agricultural Perspective Plan ASC Agriculrural Service Centers AVRDC Asian Vegetables Research and Development Center BARC Bangladesh Agricultural Research Center CADO Chief Agricultural Development Officer CAS Country Assistance Strategy CATC Central Agricultural Training Center CFRL Central Food Research Laboratory CGIAR Consultative Group for Intemational Agricultural Research CIMMYT Intemational Maize and Wheat Improvement Center CIP Centro Intemacional de la Papa CPRI Central Potato Research Institute DADO District Agricultural Development Officer DAO District Agricultural Offices DLS Department of Livestock Services DOA Department of Agriculture DTCO District Controller's Office FAO Food and Agriculture Organization of the Utiited Nations FCGO Financial Comptroller General's Office GTZ German Technical Co-operation IAAS Institute of Agriculture and Animal Science IARC Intemational Agricultural Research Centers ICARDA International Center for Agricultural Research in the Dry Areas ICIMOD Intemational Center for Integrated Mountain Development ICRISAT International Center for Research in Semi Arid Tropics IDA International Development Association 1114I International Irrigation Management Institute IPGRI Inernational Plant Genetic Resources Institute TITA International Institute of Tropical Agriculture IPM Integrated Pest Management IRRI International Rice Research Institute ISNAR International Service for National Agricultural Research M&E Monitoring and Evaluation MOA Ministry of Agriculture MOF Ministry of Finance MWL Mid-Wet Land NARC Nepal Agricultural Research Council ODA Overseas Development Administration of the United Kingdom PARC Pakistan Agricultural Research Center PC/PS Problem census and problem solving PCU Project Coordination Unit RADO Regional Agricultural Development Officer RATC Regional Agricultural Training Center RDA Regional Directorates of Agriculture RONAST Royal Nepal Academy for Science and Technology SMS Subject Matter Specialist USAID United States Agency for International Development WFDD Women Farner Development.Division This report is based on preparation work under taken by HMGN officials assisted by FAO/CP team in consultation with representatives of Donors based in Nepal, NGOs in Kathmandu and an appraisal mission that visited Nepal in February/March 1997. The mission comprised Gallus Mukami (Task Manager), Douglas Forno (Institutions Specialist), Jitendra Srivastava (Agricultural Research Specialist), Charles Ameur, (Agricultural Extension Specialist), Ram Chandra Mishra (Agriculturalist), Joseph Nagy (Economist), Rain Prakash Yadav (Community Mobilization Specialist), S. Shakya (Extensionist-DOA) and B. Khargi (Research Scientist- NARC). The peer reviewers were Helen Abadzi (Training Issues) and Ivar Serejski (Research and Extension Issues). Shawki Barghouti (Division Chief, SA2AW), Kazuko Uchimura (Project Adviser, SA2) and Robert Drysdale (Director, SA2) provided managerial support. Vice President: Mieko Nishimizu Country Director: Hans Rothenbuhler Sector Unit Managers: Michael Baxter/Ridwan Ali Task Leader: Gallus Mukami  NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT PROJECT APPRAISAL DOCUMENT TABLE OF CONTENTS Page No. BLOCK 1: PROJECT DESCRIPTION ..........................................................................1 PROJECT DEVELOPMENT OBJECTIVES .........................................................................1 PROJECT COMPONENTS .........................................................................1I Agricultural Research Component .........................................................................1 Extension Service Component .........................................................................1 BENEFITS AND TARGET POPULATION .........................................................................2 INSTITUTIONAL AND IMPLEMENTATION ARRANGEM\4ENT .............................................................3 Conducive Changes in Strategy and Policy Guidance ......................................................................... 4 Donor Coordination ..........................................................................5 Project Coordination .........................................................................5 Implementation of Agricultural Research Component ......................................................................... 6 Implementation of Extension service Component .........................................................................6 Research and Extension Linkages ..........................................................................7 Programming and Budgeting ..........................................................................7 Accounts and Audit ..........................................................................7 Procurement .........................................................................8 BLOCK 2: PROJECT RATIONALE ......................................................................... 10 CAS OBJECTIVES SUPPORTED BY THE PROJECT ......................................................................... 10 MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY .................................................................... 10 SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES .......... 1........ I PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION .................................. 11 RELATED PROJECTS FINANCED BY THE BANK AND OTHER DEVELOPMENT AGENCIES ...... 11 LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN ................................................. 13 INDICATORS OF BORROWER COMMITMENT AND OWNERSHIP ................................................... 13 VALUE ADDED OF BANK SUPPORT ........................................................................ 14 BLOCK 3: SUMMARY OF PROJECT ASSESSMENT ........................................................................ 15 ECONOMIC ASSESSMENT ................... 15 Project Costs ................... 15  ii Retroactive Financing and Special Account .............................................. 15 Project Benefits .............................................. 15 Economic Analysis ................... 16 Sensitivity Analysis ................... 17 Poverty Alleviation ................... 17 Fiscal Impact ................... 17 FINANCIAL ASSESSMENT ................... 17 TECHNICAL ASSESSMENT ................... 18 INSTITUTIONAL ASSESSMENT .................................................18 Nepal Agricultural Research Council (NARC ................................................ 18 Departn ent of Agriculture (DOA ................................................ 19 Project Coordination Unit (PCU ................................................. 19 SOCIAL ASSESSMENT ................................................ 20 ENVIRONMENTAL ASSESSMENT ................................................ 20 SUSTAINABILITY ................................................ 21 CRITICAL RISKS ................................................. 21 POSSIBLE CONTROVERSIAL ASPECTS ................................................. 22 BLOCK 4: MAIN CREDIT CONDITIONS ................................................. 22 EFFECTIVENESS CONDITIONS ................................................. 22 OTHER ............................................................. 22 BLOCK 5: COMPLIANCE WITH BANK POLICIES ................................................ 23 List of Annexes I. Project Design Summary ................................................. 24 2. Terms of Reference for Steering Committee ................................................. 27 3. Terms of Reference for Technical Advisory Sub-committee ................................................. 28 4. Term ns of Reference Project Coordination Unit ................................................. 29 5. Terms of Reference for Gender Specialist ................................................. 31 6. Terms of Reference for Agricultural Communications Consultant ................................................. 34 7. Terms of Reference for Extension Management Consultant ................................................. 37 8. Terms of Reference for Farming Systems Consultant ................................................. 40 9. Economic Analysis ................................................. 43 10. Linkage Mechanism between Research and Extension ................................................. 54 List of Tables 1. Project Cost by Expenditure Category ................................................2 2. Procurement Arrangements ................................................9 3. Related Projects Financed by the Bank and Other Donors ............................................... 11 4. Project Risks and Risk Minimization Measures ............................................... 21 IMPLEMENTATION VOLUME  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Project Appraisal Document Nepal Agricultural Research and Extension Project Date: July 8, 1997 Team Task Leader: Gallus Mukami Country Director: Hans Rothenbuhler Project ID: NPPA48026 Sector: Rural Development Lending Instrument: Specific Investment PTI: Yes x No Credit Project Financing Data Loan [x] Credit [ Guarantee [ Other [Specify] Credit: Amount: US$24.30 million (SDR 17.5 million). Proposed credit terms: Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.50% Service charge: 0.75% J ~. -1 .....I.........................................................................................................................*..................................................................................................................... Financing plan: (US$M) Source Local Foreign Total Government US$ 6.2 US$ 0.0 US$6.2 IDA US$8.7 US$15.6 US$24.3 Borrower: The Kingdom of Nepal Responsible agencies: Department of Agriculture (DOA); and Nepal Agricultural Research Council (NARC) Estimated disbursements 1998 1999 2000 2001 2002 (Bank FY/US$M): Annual 6.0 6.2 5.3 3.8 3.0 Cumulative 6.0 12.2 17.5 21.3 24.3 Expected effectiveness date: November 27, 1997 Closing date: September 30, 2002   NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT Block 1: Project Description 1. PROJECT DEVELOPMENT OBJECTIVES 1.1 The objective of the project is to assist His Majesty's Government of Nepal (HIMGN) improve the management and capacity of agricultural research and extension services by (a) developing location-specific agricultural technology on the basis of close consultation with farmers; and (b) improving the technology delivery system. 2. PROJECT COMPONENTS The project consists of an agricultural research component and an extension service component. Agricultural Research Component (US$16.2 million) 2.1 The project would (a) strengthen the agricultural research institutions by improving the management information system, priority setting of research programs, and monitoring implementation and evaluating impact, (b) support human resource development by training research scientists and introduce a reward system which is based on results and performance, (c) expand on-farm adaptive research which is responsive to farmers needs, and (d) provide facilities, infrastructure and working capital to enable the research institutions to accomplish their tasks. Extension Service Component (US$14.3 million) 2.3 The project would (a) strengthen the extension service by intensifying its decentralization to the grassroots level and strengthening farmer self-help groups, (b) develop the human capital by training extension staff, and implement a reward system based on results and performance (c) provide facilities, infrastructure and working capital to enable individual participants to accomplish their tasks.  -2 - Table 1. Project Cost by Expenditure Category Component Expenditure category Cost, including Percent of contingencies total (US$ millions) Agricultural research Civil works 3.8 12.5 Laboratory equipment and 2.1 6.9 farn machinery Vehicles 0.9 3.0 Technical assistance, 5.1 16.7 training and management support Incremental operating cost 4.3 14.1 Extension service Civil works 1.6 5.2 Materials and equipment, 1.4 4.6 radio and television programs, and literature Vehicles 1.9 6.2 Technical assistance, 6.0 19.7 training and management support Incremental operating cost 3.4 11.1 Total 30.5 100.0 3. BENEFITS AND TARGET POPULATION 3.1 The immediate benefits would accrue to the institutions and professional Nepalese engaged in agricultural research and extension services in the country. By improving the efficiency of the agricultural research and extension service delivery systems, the project would ultimately enhance agricultural productivity thereby increasing rural income, employment, and food supply, and reduce rural poverty. Specific direct benefits from the project would include (a) establishment of more effective and efficient local institutions, (b) delivery of relevant agricultural technology to farmers, (c) higher-quality and better-motivated agricultural extension  -3 - and training staff, (d) better integration of research and extension, and (e) increased farmer participation. 3.2 About 80 percent of Nepal's 20 million people are employed in agriculture. The project would expand coverage to include about 10 million farmers, or 1.8 million households, an increase of about 18 percent from the current 8.5 million or 1.5 million households covered. Project beneficiaries would include women farmers, at least two-thirds of whom live below the poverty line. 4. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENT 4.1 The Nepal Agricultural Research Council (NARC) and the Department of Agriculture (DOA) will implement the project over five years. The private sector, NGOs, and farmers groups would also be involved in planning and implementing project activities, including contract research and technology transfer. 4.2 NARC and DOA have prepared plans to implement the project in thirty-one districts in two phases. The first phase (up to midterm review) would include twenty-three districts. Depending on the success of implementation of the first phase, (to be evaluated at the mid-term review) the project would support the inclusion of the remaining eight districts. The thirty-one districts selected to implement the project have a sufficiently developed enabling environment and potential for improving agricultural production. These include: (a) established albeit limited markets for agricultural inputs and production; (b) basic infrastructure for delivery of research and extension services; (c) functioning grassroots institutions; and (d) suitable farming conditions for agricultural growth. 4.3 NARC and DOA would prepare detailed plans for phase two while they are implementing the first phase. The details would include (a) organizing farmers into groups with the help of local NGOs and community based organizations' support, (b) involving village and district-level committees, (c) providing technical training to the field staff on project implementation and identification of area-specific constraints to agricultural productivity. 4.4 NARC and DOA would implement the project according to a transparent decision-making process and flow of funds. The project would provide a structure for policy-making and management that would coordinate the involvement of other donors, thereby facilitating synergy among donor-supported programs. This arrangement would enhance the Government's capacity to integrate and manage support of the agricultural sector.  - 4 - 4.5 To strengthen and expand the institutional management capacity, the project would: a) introduce an institutional framework (creating a steering and technical advisory committees in MOA) to link the management of DOA and NARC through regular meetings and implementation of joint activities; b) improve the capacity of middle-level management staff through training to enhance their ability to implement an effective decentralized system which responds to farmers' needs; c) strengthen linkages between management and staff of research and extension through regular interaction, for example holding joint meetings and workshops; d) strengthen monitoring and evaluation to provide feedback to senior and middle-level management of MOA and DOA; e) promote synergy between programs supported by donors, NGOs, and the private sector and programs of MOA and NARC, through organized regular meetings and workshops to share information and technology; f) reform the current resource-driven district plans and budgets, which are based on targets that ignore quality and the trade-off between activities; g) strengthen the administrative, accounting, and procurement capacity of NARC and DOA through training to efficiently administer the IDA credit; h) re-focus the work of DOA regional and district staff to enhance their effectiveness in serving farmers' needs rather than providing local administrative services; and i) motivate DOA field staff through training and provision of adequate allowances for travel, to enable them to meet the growing demands from farmer groups as new farming systems develop. Conducive Changes in Strategy and Policy Guidance 4.6 The government has started to address some of the institutional weaknesses. For example it has established an Agricultural Development Steering Committee in MOA to provide overall policy and strategic guidance for project implementation. The committee would comprise the Secretary of Agriculture (Chair); the Joint Secretary/Under Secretary Ministry of Finance and National Planning Commission; the Executive Director, NARC; the Directors General of DOA, Irrigation, and Livestock; the Joint Secretaries of Women Farmers Development Division (WFDD), Monitoring and Evaluation (M&E), and Planning within the MOA; the Chairperson of Project Technical Advisory Subcommittee; the General Manager of the Agricultural Development Bank; and the Project Coordinator for the project as member-secretary. 4.7 The Steering Committee's strategy and policy guidance would include a vision for (a) farmer involvement in the identification, design, and implementation of project activities; (b) sustainability of research and extension activities; and (c) reduction of public sector involvement  -5- and the increased role of the private sector in agriculture. Details of the functions and terms of reference for the Steering Committee are given in Annex 2. 4.8 The Steering Committee would provide overall guidance for project implementation and facilitate coordination of activities of other donors. As such, it would enhance the Government's capacity to integrate donor supported programs into the Agricultural Perspective Plan (APP). The immediate task of the Steering Committee would be to adopt and issue a Policy Framework to guide NARC and DOA management and staff in implementing the project. 4.9 Also, the government has established an independent Technical Advisory Subcommittee to review project activities and recommend to the steering committee appropriate action, thereby enhancing the effectiveness and impact of the project. Additionally, the committee would evaluate the project during the midterm review and make recommendations on its scope, design, and implementation. 4.10 The government has appointed a qualified Nepalese professional to chair the Subcommittee which includes members from the main stakeholders, including senior technical staff representatives of extension and NARC; representatives of donors providing support to research and extension, including the Bank, an IARC, and an NGO; a farmer representative; and the Project Coordinator as member-secretary. Details of the Subcommittee's functions are given in Annex 3. Donor Coordination 4.11 The Agricultural Development Steering Committee would formalize donor collaboration in the agricultural sector by establishing a donors group of representatives resident in Nepal. The current forum, which involves periodic meetings hosted alternately by ADB and USAID representatives, would be supported through more active Bank participation. The Joint Secretary, Planning, MOA will take the lead and prepare a summary of activities relevant to the project in collaboration with other donors and schedule regular meetings to share implementation experiences and discuss future plans to support the agricultural sector. Project Coordination 4.12 The government has established a Project Coordination Unit (PCU) in the Ministry of Agriculture to coordinate implementation of the project. The government has also appointed a senior official (a Class I Officer) with qualifications and experience acceptable to the Bank to head the unit. The Project Coordinator has full authority to sanction expenditures approved for PCU, DOA, and NARC. Other senior PCU staff would include two Assistant Agricultural Development Officers, an Accounts Officer (a Class 3 officer), two non-gazetted accountants, two Assistant Engineers, one seconded Project Officer from NARC and one from DOA, and general administrative/office staff. 4.13 The PCU would prepare all documentation needed by the Steering Committee and Technical Advisory Subcommittee, including consolidation of accounts, progress reports, work programs, and budgets. The Unit would assist implementing agencies and districts with procurement and contracting activities, and it would submit documentation to the Bank as required. Terms of reference for the PCU are presented in Annex.4  -6 - Implementation of Agricultural Research Component 4.14 NARC would be responsible for implementing this component. It would: (a) streamline its organization and management as described in paras. 4.5 and 4.6; (b) develop its human capital and cooperate with other national and international agricultural research institutions to train its staff in (i) integrated pest management, (ii) farming systems, (iii) agricultural economics, (iv) biotechnology, (v) agronomy, and (vi) soil science; (c) recruit research management consultants to assist in the organization and management of research; (d) develop a demand driven agricultural research program to cover: (i) commodity research for rice, wheat, potatoes, legumes, vegetables, citrus, small ruminants and forage crops; (ii) regional research for adaptive farmer participatory research; and (iii) thrust area research for sustainable production systems. 4.15 More details on implementation of the research component are presented in the Implementation Volume of the Project Appraisal Document. Implementation of Extension service Component 4.16 The Department of Agriculture would be responsible for overseeing implementation of this component. It would: (a) streamline the organization and management of a decentralized extension service as described in paras. 4.5 and 4.6; (b) develop its human capital and collaborate with local NGOs, by (i) improving the methodology for identifying staff training needs, (ii) providing field staff with higher level training and education; and (iii) involving local NGOs in identifying farmers to be trained based on the needs and level of the farming community; (c) involve the private sector to provide extension service on a pilot scale in two- three hill districts producing high value crops (fruits and vegetables); and (d) recruit extension management and farming systems consultants to assist in the organization and management of the decentralized extension service. 4.17 Terms of reference for consultants to strengthen implementation of the extension service component are presented in Annexes 5-8. However, more details on implementation of this component are in the Implementation Volume of the Project Appraisal Document.  - 7 - Research and Extension Linkages. 4.18 DOA and NARC would: (a) strengthen their institutional linkages at all levels, for example through annual workshops with the participation of NGOs, (b) reinforce the linkages between the Regional Agriculture Development Office and the Regional Research Stations through joint identification of constraints to increased agricultural productivity and implementation of annual adaptive research programs, (c) institutionalize joint planning and monitoring of annual demonstrations and outreach programs, and (d) ensure that both research and extension prepare and publish annual inventories of research results for dissemination to farmers. See diagram for details (Annex 10). Programming and Budgeting 4.19 The project would adopt a bottom-up approach for planning research and extension activities. Farmers would identify their problems in collaboration with extension agents of the area, and local NGOs, with periodic participation of research scientists from the regional and commodity research stations. After which the District Agricultural Implementation Committee (DAIC) would prioritize and consolidate local farmers' technology needs and services in an annual plan and budget by January 31 of each year. 4.20 The District Agricultural Development Officers (chairpersons of the DAICs) would present district plans to their Regional Agricultural Development Officers for review and consolidation before submission to PCU and DOA headquarters. The Project Coordinator would organize meetings every February and March in each of the five regions to rationalize and reconcile the plans and budgets. 4.21 By April 15 of each year the Project Coordinator would submit the consolidated plans and budgets from DOA and NARC to the Technical Advisory Subcommittee for review and comment before approval by the Steering Committee. After which the plans and budgets would be submitted to MOA for review, consolidation and processing through normal Government procedures, which include review by the National Planning Commission, Ministry of Finance and approval by the parliament. The entire process is designed to be transparent. Accounts and Audit 4.22 The Department of Agriculture will implement normal Government accounting and auditing procedures, while NARC will apply its mercantile procedure as an independent institution. The PCU would maintain separate accounts for DOA and NARC, perform separate audit reporting, and maintain a separate ledger for DOA and NARC with respect to withdrawals from the Special Account. The financial management arrangements would include (a) accounting based on Project Charts of Accounts to group or classify expenditures by project components activities, disbursement categories and sources of funds, and appropriate accounting standard and reporting formats; (b) arrangements for recording monitorable physical and other indicators for comparison with related costs; (c) procurement contract management information; and (d) internal control arrangements to ensure proper segregation of duties, documented procedures for authorizations, and levels of supervision. The financial staff under the project would be trained to implement above accounting requirements.  -8 - Procurement 4.23 Under the project works consist of construction and rehabilitation of laboratories, agricultural service centers, training halls, greenhouses, and sheds. Because these works are small and scattered throughout the country and would be implemented throughout the five-year project period, they would not attract foreign bidders. Where feasible they would be procured using national competitive bidding; where national competitive bidding is not feasible force account or local contracting would be used. 4.24 NARC would use national competitive bidding (NCB) procedures satisfactory to the Association, for works valued at US$3.4 million in aggregate. It would group the works into convenient packages of at least US$200,000 by research station. NARC and DOA would use Force account or direct contracting with local contractors in the districts for all works valued at less than US$200,000 (such as construction and repair of sheds and boundary walls and rehabilitation of buildings) up to an aggregate value of US$2.0 million. Most of these works range between US$ 10,000 and 50,000. 4.25 Goods consist of vehicles, machinery, tools, equipment, furniture, and other materials. The aggregate value of goods under the project is US$5.0 million. Jointly NARC and DOA would group goods into packages of at least US$200,000 to be procured according to international competitive bidding procedures satisfactory to the Bank. They would use national competitive bidding procedures satisfactory to the Bank to procure small pieces of machinery, tools, equipment, and furniture costing less than US$200,000 per package up to an aggregate value of US$1.0 million. Construction materials required for force account works costing less US$20,000 would be procured according to national shopping procedures after comparing price quotations obtained from several suppliers (usually at least three) up to an aggregate value of US$0.2 million. Materials for agricultural development activities (seed, seedlings, fertilizer) with a total value of US$0.1 million would be purchased under the project. Purchases of such small quantities costing less than US$10,000 for use throughout the project area would be procured using direct purchase procedures satisfactory to the Association. 4.26 Consultancies and training consist of implementation support (US$2.6 million) and capacity building (US$8.5 million). NARC and DOA would contract Technical assistance on terms and conditions set forth in the "Guidelines for the Selection and Employment of Consultants by World Bank Borrowers" dated January 1997. They would procure training using in-house procedures satisfactory to the Association. 4.27 Incremental operating costs (US$7.7 million) consist of materials and labor required for operation and maintenance of project vehicles, equipment and machinery, buildings and office supplies, field trial expenditures, and incremental NGOs and staff benefits. NARC' and DOA expenditures-for these items would be made using in-house financial and administrative procedures satisfactory to the Association. 4.28 The Association will review contracts for works valued at US$200,000 or more, goods valued at US$100,000 or more, consultancies valued at US$50,000 or more, and consultancies with individuals valued at US$10,000 or more, prior to contracting. All single-source consultant contracts and other contracts would be subject to selective post-review by visiting Bank missions.  9- 4.29 Procurement arrangements are summarized in table 2. Table 2. Procurement arrangements (millions of US dollars) Category ICB NCB Other Total (figures in parentheses indicate amount to be financed by the Bank) Works Buildings and other 3.4 2.0 5.4 infrastructure (3.4) (0.4) (3.8) Goods 5.0 1.0 0.3 6.3 Vehicles, machinery, (5.0) (0.3) (5.3) tools, equipment, furniture, and materials (seeds, seedlings, fetilizers, etc) Consultancies and training Implementation support 2.6 2.6 (2.6) (2.6) Capacity building 8.5 8.5 (8.5) (8.5) Incremental operating cost Operation and 3.9 3.9 maintenance of vehicles (2.0) (2.0) and equipment and maintenance of buildings, staff and NGOs benefits Field trials 3.8 3.8 (2.1) (2.1) Total 5.0 4.4 21.1 30.5 (5.0) (3.7) (15.6) (24.3) 4.30 The credit would be disbursed to cover 90 percent of total project costs net of taxes and duties, including 100 percent of expenditures on consultancies, 70 percent of expenditures on works, and 100 percent of foreign expenditures, 100 percent of ex-factory costs, or 85 percent of the costs of goods purchased locally.  - 10- 4.31 The credit would be disbursed to cover expenditures on incremental operating costs (including vehicle and equipment operation and maintenance, office supplies, field trial expenditures and incremental staff benefits and utilities) on a declining basis over time. Disbursements would cover 75 percent of these expenditures until July 15, 1998; 50 percent until July 15, 2000; and 25 percent thereafter. 4.32 The implementing agencies would provide full documentation for disbursements for expenditures for vehicles, equipment, and fumiture under contracts exceeding US$100,000; for works under contracts exceeding US$200,000; and for consultancies and training under contracts exceeding US$50,000 (US$10,000 for individual consultants). IDA would disburse against statements of expenditure presented in an agreed upon format for all other expenditures. Implementing agencies would present supporting documents for statements of expenditure to the Bank's supervision missions and auditors for inspection. These documents would be retained by implementing agencies for one year after receipt by the Bank of audit report for the fiscal year in which the last withdrawal from the credit account was made. Block 2: Project Rationale 5. CAS OBJECTIVES SUPPORTED BY THE PROJECT: CAS Document Number 15508-NEP, of April 30, 1996 5.1 The priority sectors for IDA involvement in CAS were selected on the basis of their importance for poverty alleviation, growth, and natural resource management. In the agricultural sector CAS has determined that agricultural technology and its dissemination play an important role in alleviating rural poverty and generating economic growth in the agricultural sector. 5.2 Agricultural research is one of the priority investment areas in Nepal's Agricultural Perspective Plan (APP), which gives highest priority to research and extension on staple crops (rice, maize, wheat, potatoes, and pulses); high-value commodities (horticulture, vegetables, livestock, apiculture, and sericulture); and natural resource management (soil fertility, integrated pest management, and sustainable intensification of production systems). By supporting agricultural research and extension the project would ultimately increase rural income and improve the living standard of the rural poor. 5.3 This project is also consistent with the Bank's strategy for agriculture which supports the involvement of beneficiaries in the design and implementation of rural development programs for poverty reduction. In support of the strategy, the project would implement a decentralized approach that ensures that both agricultural research and extension are relevant and responsive to farmers' needs. 6. MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY 6.1 Main sector issues are: (a) the centralized planning process for research programs does not adequately address farmers' problems at the grass-roots level; (b) the benefit reward system for agricultural staff (promotion, salary increments and training, etc) discourages individual initiative and hard work as these aspects are not recognized by supervisors; (c) agricultural inputs (fertilizers and seed) supplied by the Agricultural Inputs Corporation are highly subsidized which can not be sustained.  - 11 - 7. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES 7.1 The first two issues discussed above would be addressed by the project. The project would support a decentralized bottom up planning process for research and extension activities. The process would involve the participation of beneficiaries, local NGOs, extension and research staff and the private sector in the identification of farmers problems and in the implementation of research programs that address these problems. The collaborative process would also improve the linkage between research and extension. 7.2 The research and extension staff would be motivated through training and a reward system which recognizes initiative and hard work. Job descriptions for all field staff would be prepared and their implementation monitored through feed-back from farmers. 7.3 Because the supply of agricultural inputs by the public sector is inadequate, in the short to medium term NARC would concentrate on increased production of breeder seed and contract the private sector for seed multiplication. The Department of Agriculture would also train a few farmers in seed multiplication and provide them with initial capital for seed production. 8. PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION 8.1 The project proposed by the government was country wide, including districts which lacked the appropriate environment for agricultural growth. It was based on a top-down process for developing research recommendations that did not reflect farmers' concerns. Additionally, the proposal lacked plans to improve linkages between research and extension services which are crucial to the success of the project. 9. RELATED PROJECTS FINANCED BY THE BANK AND OTHER DEVELOPMENT AGENCIES 9.1 Major completed, ongoing, and planned related projects financed by the Bank and other development agencies are shown below. Table 3. Related Projects Financed by the Bank and Other Development Agencies Project OED Ratings (Bank-financed projects) Outcome Sustainabilitv L __ Agricultural Extension and Research Satisfactory Uncertain Modest Project (Cr.l 100-NEP, US$15.7 million, closed 7/31/1990) Hill Food Production Project Unsatisfactory Uncertain Modest (Cr. 1101 -NEP, US$6.Omillion, closed 7/31/1990) 1 ID-Institutional Development  - 12 - Cash Crop Development Project (Cr. Unsatisfactory Unlikely Negligible 1339-NEP, US$6.0 million, closed 12/31/ 1988) Agricultural Manpower Development Satisfactory Likely Modest Project (Cr. 1534-NEP, US$8.4 million, closed 12/31/1994) Agricultural Extension II Project (Cr. Satisfactory Uncertain Substantial 1570-NEP, US$ 7.2 million, closed 12/1994) Other Development Project Project cost Agencies USA ID Improvement of Research US$12.0 million Management-Agro-Enterprise Technology Systems Project (1991-1996) Vegetable Seed Production (US$7.2 million) and Fruit Improvement in Western Region-Market Access for Rural Development Project UK/ODA Hill Agricultural Research US$19.9 million Project (1996-2003) SDC Technical Cooperation Vegetable Seed Production US$5.0 million Project (1996-2001) Vegetable and Potato Seed Project (1986-1996) ADB Third Livestock Development US$28.2 million Project (1996-2001) Secondary Crops Development Project (1989- US$6.96 million 1997) GTZ-German Technical Promotion of Livestock US$10.0 million, Cooperation Breeding Project (1992-1997) European Union Strengthening of Veterinary US$11.0 million Services and Livestock Disease Control Project (1995-2001)  - 13 - 10. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN 10.1 Lack of Responsiveness and Relevance to Farmers' Needs. The farmers group approach to extension introduced in the later part of AEP II implementation as a pilot exercise has significant advantages over other extension systems used in Nepal. The approach: (a) addresses farmers needs, (b) provides for wider coverage of extension contact with farmers at lower cost (therefore cost effective), and (c) provides greater direct interaction between technicians and SMSs and farmers. Because of these advantages, the government would implement the group approach throughout the project area and re-orient the research system toward solving farmers' problems. The project would ensure through intensive supervision that farmers' problems are identified by farmers themselves with the assistance of local NGOs and technical guidance is provided by extension agents and research scientists. The project would emphasize farmer participatory research and on-farm verification of technology. 10.2 Poor Staff Quality. The project would up-grade NARC and DOA staff through training both locally and to neighboring countries. The training program would be tailored to meet farmers' needs. 10.3 Inadequate Linkages between Research and Extension. The project would support Regional Working Groups that would prioritize the research proposals submitted by Regional Directors of Agriculture, DADOs, and ASCs. Farmers and NGOs would be involved in the selection of members of the Regional Working Groups, to ensure equal representation of research and extension staff. The main objective would be to ensure that selected proposals for finding represent farmers needs identified at the local level. 10.4 Extension Agents' Lack Motivation. The training provided to extension staff was irrelevant to farmers' needs because trainers and trainees were not motivated. DOA would prepare a strategy which introduces incentives to motivate field staff. This is one of the dated covenants in the Development Credit Agreement. 10.5 Weak Management. The project would help enhance the management capacity of NARC and DOA by introducing management information systems for personnel, finance, and program implementation. 11. INDICATORS OF BORROWER COMMITMENT AND OWNERSHIP 11.1 The Government is conscious of the problems constraining agricultural growth in general and agricultural research and extension in particular. Actions taken recently demonstrate the Government's strong commitment and ownership of the project. The govemment has: a) Reorganized MOA based on the concept of decentralization in planning and design of an agricultural development program. The reorganization would strengthen the activities of grassroots level institutions (ASCs and farmer groups). The new approach would maximize farmer participation in planning and designing of community-based development activities. b) Established NARC as an autonomous agency with powers to guide and coordinate all research activities in the country (1992) to prepare a strategic plan, which  -14- establishes priorities for agricultural research, and discusses the plan with the all donors supporting the agricultural sector. c) Approved an Agricultural Perspective Plan (1995) that highlights the strategic focus and a prioritized productivity package that is essential for holistic and sustainable development of the agriculture and rural sector. d) Adopted a National Agricultural Extension Strategy and an action plan for its implementation through a three-day workshop attended by key agricultural policy- making personnel, donors, and farmer representatives from each region (1994). e) Organized a one-day workshop to discuss outstanding issues and agree on the overall concept of the project and on specific project design considerations (late July 1996). f) Caused NARC to strengthen links with national and international research centers, for example by signing a memorandum of understanding with the Indian Council of Agricultural Research to cooperate on agricultural technical matters. Selected CGIAR centers have also been invited to participate in NARC's research program. 11.2 In November 1996 the Govemment (a) prepared an implementation plan for the project; (b) established a Steering Committee that includes the membership recommended by the Bank; (c) accepted the reduced scope of the project; and (d) established a Technical Advisory Sub- Committee to be headed by a non-government official in consultation with the Bank. The Government has also prepared the annual work plan and budget for the activities of the project to be implemented during the first year, and it has prepared bidding documents for about 25 percent of procurement under the project. These commitments establish ideal conditions for successful implementation of the project and indicate that the Government is serious about improving the economic welfare of the rural poor. 12. VALUE ADDED OF BANK SUPPORT 12.1 Aid Coordination. The Bank has been involved with the government for the past 24 years as a leading donor in supporting the agricultural sector. With this relationship the Bank would provide the government the opportunity to consolidate the disparate approaches of donors in research and extension and strengthen its conceptual and implementation capacity. 12.2 International Experience. The Bank has extensive international experience with research and extension projects. It has access to international research centers which would provide support to Nepal through the project.  - 15- Block 3: Summary Project Assessment 13. ECONOMIC ASSESSMENT [X] Cost-Benefit Analysis: NPV=US$73 million; ERR=5 1 percent. Project Costs 13.1 Total project costs are estimated at US$30.5 million, including contingencies equivalent to US$5.0 million. IDA would provide US$24.3 million (SDR17.5 million) and His Majesty's Government of Nepal would provide US$6.2 million. Of the total project cost, US$22.8 million would be for investment and US$7.7 million would be for incremental recurrent costs. Duties and taxes are equivalent to US$3.5 million. These costs are based on 1996 prices and include physical contingencies of 5-15 percent. Actual price contingencies are based on projected domestic inflation rates for local costs and projected foreign inflation for foreign costs over the project implementation period of five years. Retroactive Financing and Special Account 13.2 To expedite project start-up, IDA would retroactively finance project expenditures incurred between March 1997 (after appraisal) and credit signing (within 12 months) up to a limit of SDR 1.44 million (US$2.0 million equivalent), provided IDA procurement procedures and guidelines are followed. These expenditures would include limited procurement of vehicles and equipment, consultant services and workshops for training, and other start-up activities. To facilitate timely payment of project expenditures, a special account holding the equivalent of US$1.5 million (equal to three months' average disbursements) would be established at the Nepal Central Bank. Project Benefits 13.3 The Project is designed to dovetail with the overall objectives of the APP and provide a substantial input in terms of new agricultural technologies which, along with irrigation, fertilizer, and roads and rural electrification, are the driving forces behind the APP strategy that will increase farmer income and rural employment. 13.4 The new interventions from research, disseminated through extension, will also increase the yields and production of high-valued crops, citrus, and livestock which are also key elements of the APP strategy. The Project develops technologies to be used across all three main regions of the Terai, Hills and Mountain regions. Furthermore, since a major source of income for farm women, many of which are poor, is from high value crops and livestock, the interventions form the Project combined with the APP strategy will increase their productivity and enhance the welfare of women. 13.5 Benefits will accrue to the agricultural research and extension systems from the project. First, the project resources are earmarked and Project funds distributed in such a way as to encourage the decentralization of both the research system and the extension system. This allows more authority over budgets and expenditures by scientists in regional research institutions, on- farm (outreach) research programs, and by the RADO's and DADO's in extension. The project also encourages the institutionalization of the design, evaluation, and dissemination of technologies by creating a stronger interface and institutional linkages between component researchers from the research stations, those doing on-farm (outreach) research, and extension (farmer groups). This allows for a more bottom-up approach to identifying research priorities  -16- and organizing yearly programs and budgets for both the research and extension systems. The Project will also contribute to further developing a critical mass of research scientists through training and through international research contacts. The introduction of a competitive research grants system will focus research and make the research system more competitive. 13.6 The immediate beneficiaries are farmers although the country will benefit from more employment in rural areas and from the growth in the gross domestic product though multiplier effects. The yield and production of the main crops of rice, maize, wheat and potatoes will be substantially increased especially in conjunction with the full implementation of the APP. Economic Analysis 13.7 The expected returns from research on rice, maize, and wheat were estimated using an ex- ante economic surplus model over a time horizon of 15 years. Included in the wheat estimates are the returns from the research thrust on the rice/wheat cropping sequence. 13.8 The three commodities account for 85% of the total cropped land, 93% of all cereal production, and rice alone accounts for one-fourth of the gross domestic product. In terms of research investment, about 50% of the total Research and Extension Project funds are devoted to direct and indirect research expenditures on the three commodities. The returns on the three commodities are indicative of the returns that may be expected from remaining Project investments in research. 13.9 Two rate of return scenarios were employed. Scenario 1, assumes that the project would be fully implemented but the remaining part of the APP would not be implemented (no increase in irrigation, roads and electricity, or fertilizer levels as foreseen under APP), whereas scenario 2, assumes the project would be fully implemented but the APP would be partially implemented. Partial APP implementation means irrigation investments and policies are delayed by five years and increments in fertilizer levels reduced by 80% and 70% of expected fertilizer levels in the second and third five year periods of the APP respectively. 13.10 For scenario 1, the net present value of benefits (NPVB) and the economic rate of return (ERR) were estimated to be NRs 4,029 million and 51% respectively when the benefits and expenditures for rice, maize and wheat are taken as a group. Individually, rice, maize and wheat NPVBs were estimated to be NRs 2,619, NRs 964, and NRs 446 million with a corresponding ERR of 68%, 56% and 27% respectively. 13.11 For scenario 2, the NPVB and ERR were estimated to be NRs 7,762 million and 70% respectively when the benefits and expenditures for rice, maize and wheat are grouped. Individually, rice, maize and wheat NPVBs were estimated to be NRs 4,739, NRs 2,089, and NRs 934 million with a corresponding ERR of 94%, 80% and 36% respectively. 13.12 Project economic costs have been derived from detailed cost tables (attached), excluding taxes and price contingencies. After the implementation period, recurrent costs were maintained at a constant level for the economic life of the project. On-farm production costs were derived from crop budgets for 1994 provided by the Department of Agriculture, with minor adjustments. All local costs including labor costs have been converted to border values by using a standard conversion factor of 0.9 for Nepal.  - 17- 13.13 Because Nepal is a food deficit country, incremental production would be consumed on the farm or marketed locally. In the process, the incremental production of rice, wheat and maize would act as a substitute for imports. The economic prices for these crops were derived from the latest World Bank Commodity Price Projections issued in February 1997. The prices were adjusted for port handling at Calcutta (India) and local transportation to the Nepal boarder to determine their import parity levels. Sensitivity Analysis 13.14 A sensitivity analysis was undertaken on selected parameters. The base model results are not overly sensitive to moderate changes in supply elasticity, commodity prices, or an increase in research expenditures and the returns remained robust. Scenario I has been assumed to be the most likely out-come under the project, giving a rate of return of 50 percent. 13.15 The rates of return under the two scenarios are robust and in line with similar research investments in other countries indicating that agricultural research, and the research from the project in particular, is a good investment. Under scenario 1 estimates, the NPVB from research on rice alone is 2.5 times that of the net present value of the expenditures for the entire project. Details on economic analysis are presented in Annex 9. Poverty Alleviation 13.16 The Project would ultimately help to increase the productivity and production of a wide range of crops and livestock. The increase would mainly be in the dominant food crops of rice, maize, wheat and potatoes which are important to the welfare of small farmers, many of whom are poor. The marketable surplus crops derive much of the farmers' outside income. These crops are also the main food of most of the rural and urban poor. Any increase in production of these crops would contribute substantially to food security. Additionally, the increased agricultural productivity and production, through research interventions would increase employment for the rural and urban poor. Fiscal Impact 13.17 The actual expenditure on research and extension in the project area for FY96 and estimates for FY97 was NRs 123.7 million and NRs 164.2 million respectively. These expenditures exclude external donor financing. 13.18 Under the proposed project, the government plans to spend NRs. 495.0 million during FY98. Of this amount IDA would provide NRs.357.3 million and HMGN NRs. 137.7 million. Thereafter, the government's counterpart contribution to the project would be about NRs 64 million annually against average IDA disbursements of NRs 306 million. This amount is below the estimated annual expenditure in the project area. As such no incremental funds in the government budget above current levels would be required. 14. FINANCIAL ASSESSMENT 14.1 The financial rate of return is not applicable to this project. However, the project would improve the financial viability of farming enterprises through increased annual net returns to farm labor and capital investment. As a result, the disposable incomes of farmers participating  - 18 - in the project would increase, enabling them to invest in the education and health of their children and to acquire fixed assets in the long run. These results are based on farm budgets prepared using current farming systems, with increased crop yields derived from the development of relevant technology through the project. Farm incomes are estimated to increase from NRs24,700 to NRs 28,950 per household at full project development. 15. TECHNICAL ASSESSMENT 15.1 The main thrust of the project is to develop and disseminate technology that would raise farmers' incomes and meet the country's longer-term food and export needs. Given the low farm productivity throughout Nepal, distribution of improved seed varieties, albeit in limited quantities, and dissemination of inter-cropping technology for short season cash crops, including technology for high-value vegetable production, could significantly improve agricultural output over the next five years. Applicable technology is available from research institutions in Nepal and India, from some NGOs, and from the IARCs. 15.2 In the longer term a stronger research and extension capacity will have to be developed in order to resolve issues of environmental sustainability and marketing associated with agricultural intensification. Accordingly, the project has been designed to strengthen the capacity for adaptive research and collaboration with bilateral research centers and IARCs in order to take advantage of the relevant technology and know-how available abroad. The project would also seek to move research and extension away from the current commodity/discipline approach toward a more holistic "production systems" approach. The focus would therefore be on introducing integrated pest management, beginning with the rapidly emerging production of vegetables, and intensifying production in the rice-wheat cropping system, which accounts for 80 percent of agriculture production in the country, in a sustainable manner. 16. INSTITUTIONAL ASSESSMENT Nepal Agricultural Research Council (NARC) 16.1 NARC's current structure is complex and difficult to coordinate its activities, and its output is not always responsive to the location-specific needs of farmers. Disciplinary research divisions are poorly organized. Each regional research station concentrates on commodity research rather than the more relevant farmer problems, and coordination with other regional stations is weak. The project would consolidate NARC centers, transforming them into smaller, more dynamic organizations that respond to farmers' needs by developing relevant agricultural technology. 16.2 NARC currently employs 1,700 people, most of whom are poorly motivated and under qualified to do research. The project would upgrade staff through training and introduce a reward system that recognizes individual performance and output and links rewards to adoption of technology in the extension worker's area of operation. Senior staff performance reviews would be based on achievement of program objectives. 16.3 NARC's autonomous status which has been reinforced by the amendment of its Act in 1997, would allow project implementation to be monitored closely. NARC's success would be measured in termns of increases in productivity and farm incomes generated by adoption of its technology rather than by the traditional measures of inputs and outputs. The benchmarks  -19- established by the study commissioned by USAID could be used to measure NARC's performance. The USAID benchmark review would provide an indication of NARC's administrative effectiveness and would help stakeholders determine how effective and sustainable NARC is as a key institution for technology generation. 16.4 The organizational performance evaluation system consists of five clusters, each of which leads to the next, with feedback mechanisms based on critical agreed upon management standards. The five clusters include (a) human resources (personnel), funds, infrastructure, research strategy, and goals; (b) research operations (research, testing/adaptation, reporting, and dissemination); (c) output (knowledge, procedure, improved technology, and publications); (d) users (planners, consumers/producers, academics, the community, and other stakeholders); and (e) outcomes (increased production, cost reduction, profit, and achievement of objectives). 16.5 The project includes a periodic organization assessment of policies and goals, strategy, research programs and staff quality, research and extension linkages, protection of public assets, and information flow (M&E systems, periodic external reviews, MIS, internal and external reporting, and so forth). Department ofAgriculture (DOA) 16.6 Although overall responsibility for implementing the extension component lies with DOA, day-to-day decisions would remain with the district administration. The district administration, village development committees and NGOs would assume a major role in disseminating technology to farmers. The field extension staff would serve as facilitators of technology transfer. To support implementation of a decentralized extension service, more than 60 percent of its expenditure would be at the grassroots level. 16.7 The project would train extension workers, farmers group leaders and local NGOs to enhance their capacity to provide farmers with relevant advice. Some sub-centers would be upgraded to ASCs, and others would be converted to residential quarters to relieve field staff with the problem of inadequate housing. Such an arrangement would motivate extension workers to take up postings in remote areas. 16.8 The role of local institutions would change under the project. For the first time, village development committees, local NGOs and farmers groups would be given the opportunity to be actively involved in the design and implementation of project activities. The project would facilitate the participatory approach by providing resources (working capital) to teams of experts from research and extension service, and local NGOs and farmers groups to work together. The PCU would monitor the participatory approach closely using the performance indicators in Annex 1. Project Coordination Unit (PCU) 16.9 Because the PCU is new, its staff would be trained and provided with appropriate tools to function. This would involve the introduction of a computerized management information system, to assist PCU staff to analyze and consolidate data and information from districts and NARC participating in the project. The use of MIS would facilitate monitoring of implementation progress and record keeping. The monitoring and evaluation process would include assessment of community participation, human resource development and training, preparation of annual plans and budgets, and procurement and it would assess the social and economic impact of the project on participating districts.  - 20 - 17. SOCIAL ASSESSMENT 17.1 There is a gender imbalance in the decision making process in research and extension service set-up. To address the issue, the project would assist the Women Farmers Development Division in the MOA (WFDD) enhance the recruitment and training of extension staff. Women farner groups would be given equal opportunity for training and in the decision-making process to choose activities of their interest. The project would also support WFDD to develop a women's sensitization program and develop performance indicators to assess its achievements. At the national level the project would support WFDD to provide special gender-related training in agricultural and rural development to its staff. To achieve this, a gender specialist would be recruited to assist WFDD design and implement its activities 17.2 Because project benefits ultimately would be shared by all participating farmers, it would not be necessary to provide special treatment for disadvantaged groups at the village level. However, DOA would be required to give these groups special consideration in the recruiting and upgrading extension workers. The PCU would monitor implementation of the Government's plans for disadvantaged groups and bring to the Government's attention cases of neglect. 18. ENVIRONMENTAL ASSESSMENT Environmental Category (C) 18.1 The project would have a positive impact on the environment: a) The focus given to IPM research would help farmers reduce the use of herbicides and insecticides in their farning systems. b) Research on water management, soil fertility, and integrated nutrient management would provide interventions with which to combat soil degradation and ground water contamination. c) Interventions to increase crop diversification, particularly into legume crops, would increase soil fertility, thereby decreasing the need for chemical fertilizers. d) Interventions to increase the use of low-cost quality feeds for small ruminants would reduce dependency on shrubs and trees for feed and would have a positive effect on the environment. e) Much of the increase in productivity would come from introduction of improved seed and its multiplication and dissemination to farmers, which in most cases has a neutral effect on the environment. f) By contributing to the sustainability and increased productivity of the farming systems, the project interventions would reduce the immediate pressure to develop new lands and water resources in all regions, particularly in the Hill regions, where soil degradation and water problems could become acute. 19. A participatory approach adopted in the project cycle includes: Participants PreparatiQn Implementation Operation Beneficiaries Collaboration Collaboration Collaboration community groups  - 21 - Intermediary NGOs Collaboration Collaboration Collaboration Academic institutions Consultation Collaboration Not Applicable Local bodies Consultation Collaboration and Collaboration Information Sharing Other donors Collaboration and Collaboration and Information Sharing Information Sharing 20. SUSTAINABILITY 20.1 The proposed participatory approach would increase the sense of ownership in the project. Involving farmers groups, research scientists, and extension workers in identifying constraints and finding solutions to local problems would help ensure the relevancy of research. Giving more accountability to grassroots institutions, including NGOs, would enhance the efficiency of resource use. 20.2 For example contracting out research activities where necessary and privatizing extension services on a pilot scale as has been done in Nepal (No Frills and New Era) and in Estonia and elsewhere, increases the likelihood of minimizing costs. The close monitoring of implementation ensures that project activities by beneficiaries would be sustainable and that public resources will be efficiently used. Savings would also accrue from the project's emphasis on low-input technology in the short to medium term, which would reduce the use of chemical fertilizer. These savings could be used to improve agricultural advisory services in Nepal. 21. CRITICAL RISKS Table 4. Project Risks and Risk Minimization Measures Risk Risk rating Risk minimization measures Inadequate counterpart funds Medium Discussion with MOF on the requirement to fund annual program at least nine months before finalizing the budget each year. Inadequate formation of Medium Local NGOs are responsible for facilitating farmer groups formation of farmer groups. To ensure that they undertake designated tasks, the project would provide working capital. Poor prioritization of research Medium Project funds could be used only for activities previously agreed upon activities. Expenditure documents would be scrutinized before funds are released to NARC. Lack of project coordination Medium Project Coordinator would be supported by among NARC and DOA two project officers each from NARC and DOA to ensure smooth implementation.  - 22 - Implementation delays Medium PCU and M&E unit would regularly monitor because of institutional re-deployment of extension staff. changes, such as staff re- deployment Possible delay of Medium First two year's procurement plan for civil rehabilitation of research and works have been prepared and standard extension facilities caused by tender documents reviewed prior to long administrative negotiations. procedures of government Delay of international Low Terms of reference for two key consultants technical cooperation program have been prepared when recruited would assist implementing agencies in developing programs and twining arrangements. Agricultural Perspective Plan Medium The government has endorsed the plan with not implemented donors support. Overall risk rating Medium Funds released for second phase only if implementation of first phase (twenty-three districts for extension and consolidation of regional agricultural research activities) is successful. 22. POSSIBLE CONTROVERSIAL ASPECTS 22.1 No major controversial aspects are expected during project implementation. So far the Government has implemented eight conditions for negotiations which is a positive sign that it is committed to implementing the project. Block 4: Main CreditlLoan Conditions 23. EFFECTIVENESS CONDITIONS 23.1 A legal opinion on the Development Credit Agreement (DCA). 24. OTHER 24.1 During negotiations the following agreements were obtained that HMGN would: (a) cause DOA by March 31, 1998, to review and thereafter put into effect a plan to rationalize the distribution of district level staff in line with needs and pace of agricultural development in different areas and formalize the collaboration between agriculture and livestock field staff; (para 4.5); (b) maintain the Steering Committee throughout the duration of the project and advise the Bank of any change in the Committee's membership (para 4.6);  - 23 - (c) cause the Steering Committee to adopt and issue a Policy Framework Statement satisfactory to the Bank by December 31, 1997 (para 4.8); (d) maintain the Project Technical Advisory Subcommittee with its proposed and agreed membership throughout the project period and would cause the subcommittee to meet at least three times a year to review the project and advise the Steering Committee, its first meeting by January 31, 1998 to set the performance criteria and modus operandi to be used in guiding the project (para 4.9-4.10); (e) consult with the Bank prior to replacing the Project Coordinator (para 4.12); (f) maintain the PCU in the Ministry of Agriculture for the duration of the project with staff strength satisfactory to serve both DOA and NARC (para 4.12); (g) cause PCU to prepare and send to the Bank (a) consolidated annual work plans and budgets by June 30 of each year commencing in 1998, b) consolidated impact/progress reports for the project semi annually starting with the first report by December 30, 1998 (para 4.13); (h) recruit a Research Management Advisor and Extension Management Specialist, with qualifications and experience, and under terms and conditions satisfactory to the Bank, by December 31, 1997 (para 4.14-4.15); (i) cause DOA district offices and NARC to maintain separate accounts and submit copies of their monthly SOEs to the Project Coordination Unit (para 4.22); 'j) cause NARC, DOA, PCU to submit to the Bank separate consolidated un-audited accounts, including the Special Account by January 15 for the previous fiscal year commencing in 1998, and separate consolidated audited reports for NARC, DOA, and PCU, including the Special Account by April 15 of each year (beginning in 1998) (para 4.22); (k) cause NARC by March 31, 1998, to implement a management information system satisfactory to the Association and benchmarks developed by USAID's Agro-enterprise and Technology Systems Project (ATSP) at all participating research stations to ensure uniformity in assessing performance (para 16.3) and; (1) cause DOA by March 31, 1998, to develop strategies, make budgetary provision and thereafter implement incentives to motivate project field staff (para 4.5 and 16.7). Block 5: Compliance with Bank Policies This project complies with all applicable Bank policies. Team Task Leader: Gallus Mukami Country Director: Hans M. Rothenbuhler  - 24 - Annex I Project Design Summary Nepal: Agricultural Research and Extension Project Narrative Performance Monitoring and Iniportant Indicators Supervision Assumptions CAS-related Goal: To increase production and Improved household Baseline household incomes of farmers, and production, surveys and impact thereby contribute to consumption and assessment poverty alleviation. savings of farmers. Project Development (PDO to Goal) Objective: To assist HMGN improve 1. Improved 1.1 Annual progress * Agriculture plays a the management and management reports (by PCU) central role in capacity of agricultural performance within 1.2 Supervision generating economic research and extension research and extension mission reports growth in rural Nepal. services in order to institutions to improve 1.3 Project evaluation * Growth in ultimately benefit small the efficiency of service (mid-term & final) agricultural incomes farmers. delivery. leads to higher incomes 2. Improved capacity 2.1 Independent all-round, inasmuch as of the extension beneficiary the incidence of services to produce assessment. poverty is highest in relevant outputs. 2.2 Supervision rural areas. mission reports. 2.3 Annual progress reports (by PCU) 2.4 Project evaluation (mid-term & final) Outputs: (Outputs to PDO) 1. Improved Agricultural * Effective incentive Research System structure for research 1.1 Higher quality 1.1 Number of 1.1.1 Annual surveys personnel in place. research staff capable of qualified staff with the by PCU. * Achievement of an delivering relevant appropriate training to 1.1.2 Impact progress institutional adaptive agricultural address farmers report by PCU environment conducive technology in priority agricultural problems in (annual) to relevant adaptation locations. the project area. 1.1.3 Project of agricultural evaluation (mid-term technology. & final) * Project outputs bring about successful 1.2 Effective and efficient 1.2 Cost effectiveness 1.2.1 Project decentralization and agricultural research of relevant research evaluation (mid-term capacity building at the institutions delivering outputs and their & final) district and local levels improved technology cost application to 1.2.2 Independent to improve the delivery effectively. beneficiaries' problems. survey of of extension services to beneficiaries. vulnerable groups. 2. Improved Extension * Project outputs Services encourage client 2.1 Higher quality and 2.1.1 More than 60% 2.1.1.1 Impact consultations and better motivated of the time of extension progress report by beneficiary agricultural extension staff staff is spent in the field PCU (annual) participation. with farmers. 2.1.1.2 Supervision I  - 25 - mission reports * Project outputs incorporate concerns 2.2 Increased farmer 2.2.1 High attendance 2.2.1.1 Impact regarding distribution participation at farmers meetings. progress report by of benefits and gender PCU (annual) by targeting project actions to small farmers 2.2.2 High satisfaction 2.2.2.1 Independent and women. of the farmers with survey of * NARC has extension efforts. beneficiaries. sufficient level of autonomy to allow 2.3 Increased adoption of 2.3.1 Percent of 2.3.1.1 Impact independence from improved technology by farmers adopting progress report by civil service rules, and farmers. improved practices, PCU (annual) serves to improve disaggregated by 2.3.1.2. Supervision performance incentives. practice. mission reports 2.4 Establishment of more 2.4.1 Effectiveness of 2.4.1.1 Impact effective and efficient local service delivery in the progress report by institutions at the district districts PCU (annual) and grassroots levels. 2.4.1.2 Supervision mission reports 2.4.1.3 Project evaluation (mid-term and final) 2.4.2 Transparent 2.4.2.1 Project budget process. evaluation (mid-term & final) 2.4.3 Representative 2.4.3.1 Impact membership from all progress report by stakeholder groups. PCU (annual) 2.5 Better integration of 2.5 1 Relevance of the 2.5.1.1 Independent research and extension. adapted technologies to beneficiary assessment the beneficiaries (annual) concerned. 2.5.1.2 Supervision mission reports 2.5.1.3 Project evaluation (mid-term & final) Components/Activities Inputs: (Components to 1. Agricultural Research 1. US$ 16.2 million 1.1 Quarterly Outputs) 1.1 Commodity Research progress and . Government has Program disbursement adopted adequate 1.2 Regional Research reports. policies and strategies Program for consolidated 1.3 Thrust Area Research agricultural research Program and decentralized 1.4 Collaboration with extension service. scientists at other * Adequate institutions incentives exist for 1.5 Verification of timely component Technologies before implementation. Dissemination * Adequate and  - 26 - 1.6 Complementarity with timely government Other Programs counterpart 1.7 Collaborative Research contributions are 1.8 Human Resource forthcoming, as Development specified in the project 1.9 Special Studies budget. 1.10 Technical Assistance * Adequate 2. Extension Service 2. US$ 14.2 million 2.1 Quarterly incentives exist for 2.1 Decentralization progress and formation of farmers 2.2 Use of Farmers Groups disbursement groups. 2.3 Women Farmers reports. * Adequate 2.4 Staffing prioritization of 2.5 Upgrading of Existing research activities. Staff * Adequate 2.6 Identifying Staff coordination between Training Needs NARC and DOA. 2.7 Supporting In-Service * Timely Training implementation of 2.8 Use of Mass agreed institutional Communication changes, such as staff 2.9 Privatization pilot re-deployment, 2.10 Collaboration with decentralization of NGOs extension services, and 2.11 Technical Assistance adequate consolidation of research activities * Timely implementation of international cooperation programs. * Timely rehabilitation of research & extension _____ _____ _____ _____ ___ _ _____ _____ _____ ____ _____ _____ _____ ____ facilities.  - 27 - Annex 2 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT Terms of Reference for Agricultural Development Steering Committee Membership: Secretary of Agriculture (Chair) Joint Secretary/Under Secretary Ministry of Finance. and National Planning Commission, Executive Director NARC and Director Generals of DOA, Irrigation, Livestock, Joint Secretaries of WFDD, M&E, and Planning (MOA), Chair of Project Advisory sub-committee, General Manager Agricultural Development Bank and the Coordinator of the project (member-secretary) Responsibilities: The Agriculture Development Steering Committee would have the overall responsibility for ensuring the goals of the project are being met. To achieve this, the key functions of this senior level committee would be to a) guide the management of DOA and NARC in the implementation of the project, b) overview the effectiveness of DOA and NARC management in implementing the project, c) identify and correct policy or institutional constraints or conflicts that may emerge in the implementation, and d) periodically review and take stock of the progress of the project in meeting its goals and, in consultation with the Bank, make mid-course corrections as necessary. An initial task of the Steering Committee would be the adoption and issuance of a Policy Framework to guide the management and staff of NARC and DOA in the implementation of the project. Critical weaknesses impacting on the project's success which must be addressed in such a policy framework include actions by both DOA and NARC management to a) improve the quality of the technology generation and dissemination, with less focus on quantitative (supply driven) targets, b) further decentralize the authority for planning, budgeting and implementation to regional and district levels, allowing more flexibility in the use of funds at the regional and district level, c) ensure explicit responsibilities for close extension-research collaboration are spelt out in the job descriptions of DOA and NARC management and staff at the central, regional, district and field levels, and d) seek ways and pilot initiatives to better motivate staff, particularly those working at the field level. To assist the Steering Committee in the execution of its responsibilities, a sub- committee would be established and charged with periodically advising the Steering Committee of actions needed to guide the overall project. Secretariat Functions: The manager of the PCU for the project would be a member secretary of the Steering Committee and be responsible for arranging for meetings, drafting of the agenda and minutes, and execution of the Steering Committee's directions. Schedule of Meetings: The Steering Committee would meet at least twice each year to review the project.  -28 - Annex 3 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT Terms of Reference for Technical Advisory Sub-Committee Membership: A distinguished Nepalese Agricultural Professional (chair and member of Steering Committee), senior technical representatives of NARC and the Department of Agriculture, Donor Representative (1), representative of NGOs (1), IARCs (1) and Farmer Groups and Project Coordinator of the project (member-secretary) Responsibilities: The sub-committee would report to the Steering Committee at least twice annually on the extent to which the overall goals of the project are being met. As an independent advisory body it would be charged with making specific recommendations on the technical aspects of the project which enhance the effectiveness of the project's implementation and impact. It would be expected to make specific recommendations at mid-course in the project in regard to whether and under what conditions the scope of the project should be extended from 23 to 31 districts. An initial task of the sub-committee would be to establish and issue the technical performance criteria against which the overall project would be monitored and evaluated, and to agree on the first year's work program for the sub-committee. Budget: To assist the sub-committee, budgetary provision would be made under the project for visits by sub-committee members to selected areas of the project, periodic surveys and reviews by sub-committee members or through external contracts, and special studies as may be required. These funds would be made available through the budget allotted to the PCU. Secretariat Functions: The Coordinator of the PCU for the project would serve as secretary to the Sub-Committee and be responsible for arranging for meetings, reviews, contracts etc., drafting of the agenda and minutes in consultation with the chair, and preparing documentation for the Steering Committee's review. Schedule of Meetings: The Sub-Committee would meet at least three times each year to review the project. The first meeting would be held by September 30, 1997 in order to set the framework, criteria and modus operandi to be used in guiding the project.  - 29 - Annex 4 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT Project Coordination Unit Terms of Reference Staff: Project Coordinator, Assistant Agricultural Development Officers (2), Accounts Officer, non-gazetted accountants (2), Assistant Engineers (2), seconded Project officers from NARC (1) and DOA (1), administrative, typist, computer staff (7), guards and general support staff (10) Responsibilities: The PCU would have overall responsibility for ensuring the efficient management and administration of the project. Specific tasks include the following; * Secretariat to Steering Committee and Project Technical Advisory sub-committee. Responsible for logistical arrangements, scheduling of meetings in conjunction with the Chairs of those respective committees, preparation of review materials, drafting of agendas and minutes, contracting and administration of special studies, reviews etc. requested by the committees. * Review of work programs and budgets prepared by DOA and NARC for consistency with the project scope and requirement, and maintenance of up to date records relating to the project for review by Bank supervision missions. * Follow-up and assist DOA and NARC in the timely preparation and issuance of bid and contracting documents in accordance with the project implementation schedule and Bank guidelines. * Provision of detailed manual of instructions, proforma ledgers etc. along with training, to all staff in DOA responsible for administrating funds under the project. Follow-up with spot checks. Also follow-up to ensure a similar programn is being implemented by NARC. * Full authority to draw on the Special Account for the project and for the release of funds to NARC and DOA for authorized expenditures. A separate ledger would be kept for NARC and DOA withdrawals from the Special Account. * Follow-up as necessary on the timely disbursement of counterpart funds under the project * Maintenance of accurate, separate, consolidated accounts for NARC, DOA, the PCU and the Special Account. (A condition of the IDA Credit would be that the PCU would receive copies of monthly SOEs from DOA district offices, and from NARC) * Timely preparation and submission to the Bank of all documentation required in connection with the project, including interalia submission of separate un-audited accounts for NARC, DOA , PCU and the Special Account within three months of the end of the fiscal year, and separate audit reports for NARC, DOA , PCU and the Special Account within six months of the close of the fiscal year. Additionally ,consolidated progress reports would be needed within six months  -30 - of the close of the fiscal year, work programs and budgets for NARC, DOA and the PCU by June 30 each year, disbursement requests, SOEs, and bid and contractual documents for review by the Bank as required. ( The first year's work program and budget is required as a condition of negotiations) * Support to NARC and DOA in the establishment of the format by which to monitor implementation of the project and evaluate impact against the set of indicators agreed and confirmed at negotiations. The PCU would be responsible for the annual consolidation of such Progress Reports/M&E data for review by the Steering Committee and the Bank, no later than six months after the close of each fiscal year. * Organize in conjunction with DOA and NARC an annual workshop of key research and extension staff, private sectorlNGOs, Universities, donors, and IARCs to jointly review the status of Nepal agriculture as it relates to the project and to explore opportunities and options for enhancing the factor productivity of farmers. The first workshop would take place no later than October 1997 to both inform all interested groups about the project and to set the framework for collaboration under the project. * Prepare impact evaluation documentation for the mid-term review, including inputs from the Project Technical Advisory Sub-Committee, and organize the work review meeting required for this in consultation with the Bank. * Undertake the preparatory studies with inputs from NARC and DOA for the follow-up project for which funds have been included under the project.  - 31 - Annex 5 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT GENDER SPECIALIST IN AGRICULTURE TERMS OF REFERENCE Objectives 1. The consultant would assist the Women Farmers Development Division (WFDD) of the Ministry of agriculture (MOA) to: (i) design research and extension activities and methods appropriate for women farmers and for women groups; (ii) develop strategies for integrating a proper gender perspective into agricultural research and extension activities at all levels; and (iii) design a training curriculum and instruction program to sensitize male extension agents on gender perspectives in agriculture, and monitor their implementation effectiveness. Purpose and Methodology 2. In Nepal, about 96 percent of women live in rural areas, and 94 percent are engaged in agriculture. The role of women is important in both farming activities and in farm decision making. A strong male bias pervades, however, the effect of which is compounded by socio- cultural taboos. Both agricultural research and extension are mostly geared toward male farmers. Thus, messages tend to focus on the activities of male farmers rather on the wide range of agricultural responsibilities of women. The result is a highly inefficient use of resources and a negative impact on agricultural production altogether. 3. To promote women's activities in the rural areas, WFDD was established in 1992 under the MOA with the mandate to formulate short and medium-term strategies for incorporating gender dimensions into agricultural development policies, programs and projects. So far, WFDD has been constrained by lack of experience in planning and in designing a global program due to insufficient trained personnel to deal with gender issues. 4. The work will be carried out in close cooperation with MOA, WFDD and the Institute of Agriculture and Animal Sciences (IAAS) faculty in Agricultural Extension and Rural Sociology. The assignment will commence with field visits to the Hills and the Terai districts to assess women's role in and contribution to agriculture. Assessments will also be made of the nature and of the extent of NARC and DOA incorporation of research and extension studies on and activities for women farmer groups into their respective programs.  -32 - Assignment Topics 5. Based on background information obtained from field visits, and from discussions with WFDD and IAAS personnel, the consultant will: (i) identify the areas where women need support as they face particular constraints in terms of access to resources and to information; (ii) define the main factors that contribute to the formation of women farmers groups, their operation and function, using the problem census/problem solving as well as the rapid rural appraisal approaches to ensure the women's participation in design and evaluation; (iii) examine the information needed to adjust extension to better reach women farmers, to modify the focus of research to address women's specific activities and constraints, and to properly monitor and evaluate women's programs; (iv) make recommendations as to an integrated but flexible extension system for all farmers including women farmers, and define ways to deliver extension services to women to overcome their constraints of time, mobility, and lower education level; (v) identify women farmers training needs, priorities, type of training, duration, and training venues; (vi) suggest the best ways of ensuring lateral exchange of information among women's groups and villages; (vii) define WFDD personnel's short and medium-term training needs including pre-and in-service training to enable male extension agents to work effectively with women farmers, and M.Sc courses on gender perspectives in agriculture; (viii) design gender sensitivity training for extension workers, project staff, community leaders, and for decision makers; (ix) indicate whether and how to use the mass-media to transfer messages to women farmners; (x) suggest ways for women farmers to generate agricultural and non- agricultural income; and (xi) train her assigned local counterparts in accordance with a detailed training program prepared in liaison with WFDD and IAAS; and  - 33 - Nature, Timing and Length of Assignment 6. The international Gender Specialist will be recruited for a total period of five months, split into two months each in year 1 and 2, and one month in year 3. The consultant will work closely with WFDD personnel at the center, a local gender specialist engaged for 20 person months over the project first four years, and with five WFDD Regional Subject Matter Specialists for women in agriculture. The consultant will also work closely with the Extension Management Specialist, the Agricultural Communication Specialist, and the local Extension Management and Training consultants. Training of Counterparts 7. The consultant will finalize with WFDD, and submit to MOA, a training program for her local Gender Specialist and for the 5 regional SMS for women in agriculture by the end of her first two months stay in Nepal. Both WFDD and MOA will prepare relevant key indicators for the proper monitoring and evaluation of the local counterparts training program. Reporting 8. The consultant will submit a progress report at the end of each stay. The report will highlight the progress, the difficulties and the constraints encountered. It will also detail the status of the counterparts training program as against initially defined targets. Qualification and Experience 9. The candidate should have agricultural sciences, rural sociology and gender analysis background with preferably a post-graduate degree in one of these areas. The consultant should have a broad range of international experience and some exposure to cases in Asia. Finally, the candidate must be fluent in English and have proven teaching skills.  - 34 - Annex 6 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT AGRICULTURAL COMMUNICATIONS CONSULTANT TERMS OF REFERENCE Objectives 1. The consultant will assist the Ministry of agriculture (MOA) strengthen the Agricultural Communication Division (ACD) at the center, and establishing effective Agricultural Communication Units at the regional levels for design and use of appropriate media. To that end the Agricultural Communications Specialist will need to: (i) recommend the most suitable communication technologies for use in Nepal's agricultural research and extension programs; and (ii) develop and present training courses for ACD at the center, the regions (RADO) and IAAS staff in the use of communication strategies, media, and technics, paying particular attention to the design of media to meet the needs of specific audiences. Purpose and Methodology 2. To date ACD has concentrated on producing a successful radio program for farmers. It also produces print media. There is, however, little or no linkage and coordination with other agencies involved in the transfer of knowledge and training. There is no audience awareness either in terms of what farmers want as information, or how print material should be presented for farmers to understand. There is no evaluation as to the impact of agricultural communications on farmers knowledge and on their income. Last but not least, extension takes little to no advantage of this formidable tool. 3. Despite the above weaknesses, the use of communications has considerable potential in Nepal, especially in the Hills where many farmer households are still of difficult access. Finally, radio is by far the most cost/effective means for transferring knowledge. Assignment Topics 4. Based on the background information obtained from field visits, and from, discussions with communication specialists, the consultant will: (i) design the necessary awareness campaigns and impact evaluation surveys in order to better target and adjust current radio programs and print media; (ii) prepare a communication strategy, prioritize themes and topics, categorize farmers including women and youth, taking into account designs, methods, materials and technologies;  - 35 - (iii) define with NARC, MOA, IAAS and the end users, the type of communication media appropriate per category of farmers, as well as for the extension agents; (iv) establish with IAAS a training module for extension personnel aimed at teaching how to become an active communicator, and when to make the best use of mass-media and of print material to complement extension visits; (v) ensure through proper venues the lateral exchange of information among farmer groups and villages; (vi) devise the organization and management of multi-level, multi-dimensional agricultural development communication system that is responsive to farmer groups information needs; (vii) prepare together with IAAS training programs for JT/JTAs to become better communicators, for farmer indigenous specialists to become active communicators within farmers groups and village development committees, for faculty members in how to communicate effectively with the farming community, and for communication units on how to produce video, films and print media to raise levels of awareness, understanding, and support for the ATDP goals, and objectives. Nature, Timing and Length of Assignment 5. The international consultant in Agricultural Communication would be hired for a total period of three months spread over the first two years of the project (one month in year 1 and two months in year 2). A local communication specialist would be employed for six months distributed over the first two years. The consultants would work as a team to articulate a nationwide system for agricultural development communication, design strategies, and identify message-media packages for production, and conduct a training course for the communication specialists on communication strategies and technology. Training of Counterparts 6. Because of the overall short stay of the consultant in Nepal, the training of the local counterparts will be rather limited. Thus, the priority will be on the various types of media to consider given the diversity of the farmers, of their environment, and of their level of understanding. The producing of video-films and of print media would be treated as an option in the training program, knowing that these aspects can easily be learned in neighboring India. By the end of the first stay in Nepal, the consultant should have finalized the counterparts training program and set the key indicators needed to evaluate future progress. Reporting 7. The consultant will produce a short progress report at the end of the first month in the country. A more thorough report will be prepared at the end of the second and last stay in Nepal. The latter report will be essentially the set of recommendations and of proposals made by the consultant in order to strengthen ACD at both the center, and in the regions.  - 36 - Qualification and Experience 8. The international consultant should have agricultural sciences, rural sociology and communication background with preferably a post-graduate degree in rural sociology. The candidate should have strong international standard and a record of development communication program and institution building in developing countries, preferably in South Asia. The candidate must be fluent in spoken and in written English, and have proven teaching skills.  - 37- Annex 7 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT EXTENSION MANAGEMENT CONSULTANT TERMS OF REFERENCE 1. Objectives The consultant would have a key role helping MOA/DOA conceptualize the country's current agricultural extension system so that it be based on a farmer-centered Group Approach. The consultant would therefore: (i) assist MOA/DOA in restructuring its extension system and management of the extension service based on bottom-up and demand driven farmer-centered group approach using all necessary techniques including PC/PS and RRA; (ii) help promote a participatory approach whereby farmers, including women and youth, are encouraged to give their views on what they expect from extension, how they would like it to operate, and, how they could eventually contribute (given extension's current limitations); (iii) develop a management system in extension from the field to the central level which ensures that planning and implementation reflect farmer groups particular problems and constraints; (iv) review the training courses for trainers responsible for mobilizing and teaching farmer groups the PC/PS and RRA approaches to agricultural development; (v) liaise with IAAS in developing curriculum and materials for the teaching to the extension staff the purpose and methodology of participatory approach to community resource development and planning; (vi) provide advice and assistance in the training of trainers at central, regional and district levels; and (vii) assist MOA/DOA further develop a national strategy for extension that gives increasing responsibilities to farmers, associates other partners already providing knowledge transfer to the rural community, anticipates a gradual divesting over the long term of the public sector from as many support services to agriculture possible, and defines a new role for the Government. 2. Purpose and Methodology Agriculture extension in Nepal has essentially been based on a top-down technology transfer approach over the past three decades. Numerous extension systems and approaches have  -38 - been tested and/or implemented, each having its own strengths and weaknesses. The T&V system was the most widespread system in the late 70s. It is estimated that by 1991, technology dissemination to farmers through that system was reaching an average 5 to 10 percent of the total rural population through interpersonal contacts between extension workers and contact farmers. Subsequently, however, and due to financial constraints HMGN adopted a decentralized farmer groups approach to render extension more cost-effective. The challenge to the MOA is to make extension available to all farmers, in one form or the other, while remaining within a budget the country can afford over time. In view of Nepal's rapidly evolving agriculture on one hand, and given the national and local budgetary constraints on the other, extension now needs to rely on the quality of its agents not on their sheer numbers. Also, a more systematic use of the mass-media would be made. The consultant would work in association with the local extension management and training specialists of each region and in cooperation with IAAS. Cooperation would also be sought from DOA's central, regional and districts levels. The consultant will interview extension personnel having implemented the PC/PS approach, farmers involved, and analyze reports. 3. Assignment Topics Models would be designed within a regional context to make the best use of existing personnel, while relying on other partners when available, on other means of knowledge transfer and, on possible contributions by farmers. Extension cannot reach all farmers on a one-on-one basis nationwide, nor should it. Thus the proportion of farmers that would be reached through groups and during a given period of time would be defined. The extension specialist will therefore be asked to: (a) define the main categories of farmers and their various sources for advice; (b) carry out an inventory of the various types of groups formed so far and analyze the reasons for their success and/or for failure; (c) review the other partners involved in the transfer of knowledge, the way they are organized, how they operate and, at what estimated costs; (d) determine possible areas of duplication, of complementarity and, of comparative advantage; (e) propose flexible approaches to extension using farmer groups and other means, that derive from interviews with farmers, researchers, scholars, representatives of NGOs and, the private sector; (f) review and/or define clear, updated terms of reference and profiles for all the categories of extension agents; (g) provide - together with the human resource specialist - guidance as to the extension agents and the farmers training requirements.  - 39 - (h) review the current links with the local research networks and devise simple mechanisms to ensure such links; (i) make proposals for the complementary increase use of audio-visual aids, including radio and television broadcasts and other means that suit users' comprehension levels; and (j) anticipate how extension is likely to evolve within the next five to ten years and work out the corresponding budgets; 4. Nature, Timing and Length of Assignment The international Extension Management Expert will be recruited for a total of 16 months as follows during the project period: 4 months each in the project's first four years. Local Extension Management and Training Specialists would be hired for a total of 82 person/months spread over the project first four years. 5. Training of Counterparts The consultant will present DOA a detailed training program of his counterparts, by the end of his first three months with the project. The training program will need to be endorsed by both DOA and IAAS. The latter two entities will, together with the consultant define key indicators for the proper monitoring and evaluation of the counterparts training program which will start at the end of the consultant's third month with the Project. 6. Reporting The consultant will submit regular progress reports at the end of each of his/her stay in the country. Theses reports will highlight the progress made in the assignment as well as the status of the training of the counterparts. The consultant will finalize an Operational Guidelines on the approach to extension based on farmer groups, the widening of the knowledge dissemination process using mass media, and the resorting to other partners including NGOs and the private sector. 7. Qualification and Experience The candidate should have agricultural sciences, agricultural economics and rural sociology background with preferably a post-graduate degree in one of these areas. The consultant should have strong practical experience in extension and be knowledgeable of the main approaches to extension in the world. He/she should have at least 10 to 15 years experience in the field and possibly some prior experience in the Nepali context. The candidate should be fluent in English (spoken and written) and have proven teaching skills.  - 40 - Annex 8 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT FARMING SYSTEMS CONSULTANT TERMS OF REFERENCE Objectives I. The consultant would assist and train research staff in design and implementation of on- farm research trials in cooperation with extension personnel and farmers for evolving location specific technology recommendations for farmer groups. He will therefore make proposals to: (I) improve the current farming systems approach and methodology; (ii) strengthen and expand the outreach research program with farming systems perspectives; (iii) promote farmer-centered technology development programs specific to the various ecological zones; and (iv) establish institutional linkages between research, extension and higher education. Purpose and Methodology 2. Farming systems in Nepal, especially in the Hills, are complex, dynamic systems which evolve in response to agro-climatic, ecological, technological, socio-economic and, political conditions. No least important, the farming systems need increasingly to adopt certain principles of agricultural sustainability. 3. The current links between research and extension are weak. Also, research tends to be compartmentalized between agriculture and livestock as well as between the farmers various activities. This is adversely affecting the relevance and the effectiveness of the technology being transferred to farming communities. 4. While the farming system approach will emphasize close interaction of the various agronomic and livestock subsystems typifying both subsistence and commercial farm operations, research will need to be shaped by community consultation. This would ensure that farmers obtain recommendations that are relevant to their activities and truly address their priority problems and constraints in a holistic perspective. 5. The work will be carried out together with the proposed outreach director of NARC and the stations directors. The key approach will be to take stock of the experiences and successes of outreach programs supported by the ARETP. The end results should lead to: (i) the developing of relevant technology through research; (ii) the disseminating of appropriate technology and managerial improvements through extension; (iii) the developing of relevant policies to encourage production and sustainability; and (iv) the implementing of appropriate support systems for farm-households.  - 41 - Assignment Topics 6. The consultant, in association with the NARC project coordinator and the outreach director, will: (I) advise and assist the outreach research director in formulating, prioritizing, coordinating and supervising integrated outreach programs based on farming system perspectives at regional, district and local levels, both in the Terai and in the Hills, in collaboration with DOA/DLS and IAAS; (ii) advise and assist the director, coordinators of outreach research and station/center chiefs on the determination of appropriate allocation of resources to the outreach priority research programs; (iii) advise and assist the chiefs/coordinators of NARC operational units in monitoring, reviewing and in evaluating ongoing and completed outreach research programs; (iv) provide training and guidance to scientists involved in outreach research programs on principles and methodologies of farming systems research taking into account farm families objectives, resources and capacity and how these affect adoption rates of agricultural technology; (v) train his assigned local counterparts in accordance with a detailed training program prepared in liaison with MOA and IAAS; (vi) review IAAS curriculum on farming systems approach or, in abstentia, contribute to the formulation of such curriculum; and (vii) work in close collaboration with the Extension Management Specialist, the Agricultural Communication Specialist, the Gender Specialist and the local Extension Management and Training consultants. Nature, Timing and Length of Assignment 7. The international Farming Systems (outreach) Research Expert will be recruited for a total of 12 person months as follows during the project life span: 2 months the first year, 4 months each the second and the third year, and 2 months the fourth year. A local Farming System Research Specialist engaged for about 35 months within the five years of the project would build up on the international consultant to further strengthen the links between research, extension and farmers. Training of Counterparts 8. The consultant will at the end of his first two-month stay in Nepal prepare a detailed training program for the central and the regional counterparts assigned to him. The proposed training program will be submitted to both MOA and IAAS for their comments and  - 42 - endorsement. The latter two entities will, together with the consultant, define key indicators for the proper monitoring and evaluation of the counterparts training program which will start the second year. Reporting 9. The consultant will submit a progress report at the end of each of his stays in the country, highlighting the specificities of the farming systems approach in the nepali context, the limitations, and the constraints. Also, he will prepare a Farming Systems Operational Guidelines no later than the end of his second mission to Nepal. Qualification and Experience 10. The candidate should have agricultural sciences, agricultural economics and rural sociology background with preferably a post-graduate degree in one of these areas. The consultant should have a broad range of international experience and possibly some prior experience in the Nepali farming systems programs and projects. Finally, the candidate must be fluent in English and have proven teaching skills.  - 43 - Annex 9 NEPAL AGRICULTURAL RESEARCH AND EXTENSION PROJECT Economic Analysis The Nepal Agricultural Perspective Plan (APP) sets out a strategy for overall economic growth that centers around the acceleration of agricultural growth. The strategy calls for agricultural growth to be accelerated mainly through policy changes and concentrated investments in: (1) shallow tubewell irrigation in the Tarai, (2) well-controlled year-round water supplies in both the Tarai and Hill regions, (3) agricultural roads and rural electrification, (4) fertilizer, and (5) the technology systems of research and extension. The strategy relies on increasing production and productivity of basic food crops, high value crops, and livestock over the next 20 years. The Nepal Research and Extension Project outlines the investments that will be made in the technology systems of agricultural research and extension. This annex presents an ex ante economic analysis that estimates the economic rate of return (ERR) to investments made under the Research and Extension Project. The analysis uses the economic surplus approach for estimating the benefits from investments in research and extension and follows the methodology outlined in Alston et al. (1995) and the method used by The World Bank Staff Appraisal Report for Bangladesh (World Bank, 1996a). The analysis focuses on estimating the ERR from research and extension investments in the basic food crops of rice, maize, and wheat. While high value crops and livestock are very important to Nepal and to the APP strategy, rice, maize and wheat dominate Nepal's agriculture. Rice, maize and wheat account for 85% of total cropped land area and 93% of cereal production. Rice alone accounts for about one-fourth of the gross domestic product (Manandhar and Shakya, 1996). About 50% of the Project funds will be directly or indirectly invested to increase production and productivity of the three commodities. Thus, a quantitative estimate of the benefits and returns for these three dominant commodities will give a good picture of the size and rate of return to the overall project. The Empirical Model The small open-economy economic surplus model (Alston et al., 1995, p. 380) was used ex-ante to calculate the change in economic surplus from a shift downward in the supply curve due to the adoption of interventions attributed to agricultural research. The small open economy model is used because some trade in rice, maize and wheat usually takes place internationally (both official and unofficial trade) each year but the trade is not large enough to influence world prices. The empirical model formula for estimating the change in economic surplus (benefits from investment in research) is as follows: ATSt = Kt P'tQ't * (1 + 0.5Kt s) (1)  - 44 - Where ATSt is the change in total economic surplus attributed to research investment, P't is the pre-research commodity price, Q't is the pre-research quantity produced in year t, e is the elasticity of supply, and Kt is the proportionate shift downward in the supply curve in period t attributable to research investment. Quantity Q't can be adjusted for exogenous increases from non-research sources by a linear appreciation factor. Exogenous factors such as increased inputs, increased land utilization, or research spill-in effects from other countries can increase production apart from production increases brought about through indigenous research and extension efforts. The exogenous increase is calculated as Q't = Qo (I+s)t where Qo is the initial base production quantity and s is the growth rate trend expressed as an annual percentage change. The proportionate shift Kt is further adjusted as follows: Kt = ((E (Y) /s) - (E (C) / (I + E(Y) ))) x (pAt (I - t)) (2) where E(Y) is the expected proportional yield change per hectare given that research is successful and the resulting interventions fully adopted, E(C) is the proportionate change in variable costs required to achieve the expected yield, p is the probability of research success, St is the linear research depreciation factor, and At is the rate of intervention adoption by farmers which may take on the traditional S-shaped adoption curve growth pattern. A research lag may be introduced. For example, if research on a new variety takes 7 years before it is available for dissemination to farmers, then the first 7 years of the rate of intervention adoption is zero (i.e., A1, ... , A7 = 0). The change in total economic surplus as calculated by equation (1) is calculated for a 15 year future time horizon for research that is undertaken over the life of the Research and Extension Project (5 years). The net present value of the benefits (NPVB) is then calculated and given by: n NPVB = E (ATSt - Ct) (I + r)-t (3) where Ct is the cost of research investment in year t, r is the discount rate, and n is the time horizon over which the benefits of the research investments are realized. The NPVB indicates the amount of total funds returned from the investment in research. The economic rate of return (ERR) is calculated relating the benefits (ATSt ) to the 5 years of research expenditure and is the discount rate that results in a zero NPVB. The ERR is calculated as: n O = Z (ATSt -Ct )( + ERR)-t (4) Project Interventions The Research and Extension project will allow new interventions to be produced and disseminated to farmers. The specific research programs and interventions are outlined in Annex  - 45 - ??. In the case of crops, the interventions will have the most impact on increasing production and productivity by increasing the yield/ha, and in some instances, allow for increased cropping intensity. Although increases in quality may come about, the prime impact will be on increased production and productivity. The priority rice research areas under the Project are soil fertility and integrated nutrient management, and new varietal development (increased yield, disease resistance). Priority research areas for maize are varietal development (increased yield, disease resistance, and drought tolerance), agronomic and soil fertility management, and post harvest management technologies. Wheat research priorities are mainly focused on varietal development (increased yield, disease resistance, and milling quality). The Project support given to IPM research and other programs will also contribute to increased productivity of the three commodities. A major research thrust is the support of research on the sustainable intensification of the rice/wheat cropping systems. Studies to-date have indicated that, with appropriate interventions, the rice-wheat cropping system can have a major impact on increasing farm level income, production, and productivity (Hobbs and Morris, 1996; Hobbs et al., 1996). A major constraint is the labor and time shortage at rice harvest leading to late planting of wheat resulting in poor wheat crop establishment. Other constraints are fertilizer and irrigation water availability and declining soil fertility problems. Interventions from the Project include earlier maturing rice varieties, wheat varietal improvement, soil nutrient management, mechanization of rice harvest to allow timely planting of wheat, reduced tillage and no tillage options for timely wheat planting resulting in lower costs and lower soil degradation. Mechanization calls for the use of Chinese tractors and harvesting and seeding equipment. It is estimated that 0.5 million hectares (mostly in the Tarai) are now under full rice/wheat production and that the potential exists to increase this amount to 0.85 million hectares. The increase of 0.35 million hectares would increase total wheat plantings by almost 30%. The potential land for rice/wheat cropping is now mainly planted to rice. Thus the main effect from the rice/wheat cropping systems research and resulting interventions would be to increase wheat production through both an increase in hectares planted and from a productivity increase. However, increasing the number of hectares sown to rice/wheat not only depends on research interventions but also on the APP improvements to irrigation and fertilizer use. Model Scenarios The APP (pgs. 39-41) outlines five different cases of what may happen to growth rates depending on the extent of the implementation of the overall APP strategy. The five cases are: (1) All APP policies and interventions are implemented including increases in expected fertilizer use rates and improved irrigation to provide a full impact. (2) Same as case 1 but only one-half of the expected improved irrigation area has been realized. (3) Same as case 2 but irrigation improvement delayed for five years. (4) Same as case 3 but expected application rates of fertilizer are reduced by 80% in the second APP five year period, then by 70%, 65% in the two subsequent APP five year periods and then continue at 60% of the maximum expected fertilizer levels under the APP. (5) Present policies and priorities continue with no effect from the APP.  - 46 - Under case 1, fertilizer application rates would increase from the present average 25 kg/ha to 42 kg/ha in 1999-2000, 64 kg/ha in 2004-2005, to 94 kg/ha in 2009-2010 and to 131 kg/ha in 2014- 2015 and remain at this rate thereafter (APP, p. 91). Under APP case 1, arable area expansion by irrigation over a period of 20 years is estimated to be a net increase of 13,000 hectares in the Mountains, a net increase of 85,000 hectares in the Hills, and a net increase of 578,000 hectares in the Tarai (APP, Table 4-2, p. 73). The increases in the Mountains and Hills comes from increasing year-round surface water while in the Tarai, approximately 15% comes from an increase in year-round surface water and 85% from increased ground water (shallow tubewell) irrigation. Total arable land does not change from increasing irrigation, however crop area expansion is increased through the ability to multiple crop. The NPVB and the ERR to research and extension investments under the Research and Extension Project depends on the extent of the implementation of the APP. Both the NPVB and the ERR would be expected to be higher under APP case I than under APP case 5, For this report, the economic surplus analysis has been run for two separate scenarios as follows: (1) Scenario 1: Research and Extension Project fully implemented but other APP policies and priorities not implemented (APP case 5). (2) Scenario 2: Research and Extension Project fully implemented but irrigation improvement delayed by five years and expected application rates of fertilizer reduced as in APP case 4. The above two scenarios will indicate the NPVB and the ERR for the minimum returns that could be expected without the APP (scenario 1) and for what could be expected when the APP is moderately successful. Returns would be expected to be higher than scenario 2 returns for the full implementation of the APP. NPVB and ERR for each of the above two scenarios is first calculated for rice, maize, and wheat separately using the empirical model. The analysis of the rice/wheat cropping sequence research is amalgamated with the overall wheat analysis. Once this is complete, a NPVB and ERR is calculated for the three commodities as a group. The Data Market Related Data and Information Commodity prices (P't): Economic values are used as prices and are borrowed from a recent Nepal irrigation sector project economic analysis (World Bank, 1996b). The prices per tonne used in the analysis are NRs 14,210, NRs 13,510, and NRs 15,900 for rice paddy, maize and wheat respectively. Production quantities (Q't): The initial production quantities (Qo) used in the analysis are 3,160, 1,275, and 875 thousand tonnes for rice paddy, maize and wheat respectively and are 1991-92 to 1995-96 five year averages (Manandhar and Shakya, 1996). Corresponding average yield/ha for rice, maize, and wheat are 2,255, 1,650, and 1,400 kg/ha respectively. Supply elasticities (E): Reliable supply elasticities for rice, maize and wheat do not exist. The more inelastic the supply elasticity (closer to zero), the larger the change will .be in the net benefits (ATSt). Thus, to avoid inflating the net benefits to any great extent, the supply elasticity is set to 0.8 for all three commodities and thus represents an intermnediate to long-run supply  - 47 - elasticity. For comparison, a sensitivity analysis shows the results under a supply elasticity of 0.7 and 0.9. The discount rate (r): The interest rate used for discounting the benefits and research expenditures in equation (3) to obtain the net present value is set at 12 percent. This is in line with World Bank discount rates used for similar projects. Exogenous growth rates (s): Past annual percentage growth rates (1980-81 to 1995-96) in rice, maize and wheat production have been 1.1%, 2.1% and 1.8% respectively. These growth rates can be attributed to both indigenous research and extension investments and to exogenous factors. In the analysis, the growth rate trend (s) is set at 1% for scenario I and 2% for scenario 2 for each of the three commodities. It is anticipated that there would be a higher degree of spill- in effect with the momentum of the APP. Research Related Data and Information Research related data and information pertains to the research and extension costs of the Project and to the parameters in equation (2). The information for the parameters in equation (2) was solicited primarily from personal interviews with research managers and scientists and key extension personnel. The information relies on their perceptions of the future but these are based on their many years of previous experience. A. Parameters that remain constant over the three scenarios Research expenditures (C): As research and extension are both responsible for increasing production and productivity under the Project, both expenditures are included as costs in the analysis. The Project expenditures for each of the three commodities are presented in Table I and are the yearly expected direct and indirect expenditures to be made under the Project. Also Included in Table I is the amount to be spent on rice/wheat systems research which focuses mainly on increasing wheat production in rice/wheat growing areas. The expenditures shown in Table I have been derived from the Project Cost Summary figures in Annex ?? by identifying and proportioning out the direct and indirect research and extension expenditures pertaining to each commodity. Probability of research success (p): Because not all research is successful, the proportionate shift down the supply curve due to research is adjusted by the probability of research success. After discussions with researchers, the probability of research success was set at 70% (i.e., p = 0.7) for all commodities which is a conservative estimate. Research depreciation rates (3t ): The research depreciation rates used are those suggested by Alston et al., (1995 p. 382). Depreciation starts in the ninth year at Sg = 0.95 and decreases yearly by an absolute 5 percent. B. Parameters that change with each scenario Expected proportional change in yield (E(Y)): Increases in the yield/hectare from APP implementation will come mainly from interactions among (i) technology interventions (research and extension), (ii) increased fertilizer use, and (iii) increased irrigation use inputs. The effect on  - 48 - yield increments of all three inputs will have to be accounted for in the analysis and the costs to increased fertilizer inputs and irrigation netted out so that a rate of return to research and extension can be obtained. Scenario 1: With policies and investments in fertilizer and irrigation remaining as they are (no APP), future increases in yield/ha will only come from research and extension interventions interacting with present fertilizer use and irrigation levels. Without the APP, increase in fertilizer use and increased irrigation will take place but at a very slow rate of increase leading to a minimal impact on production and productivity increases. In the absence of the Research and Extension Project, the present Nepal research and extension service can be expected to undertake sufficient research to cover maintenance research as well as add to increased yield/ha for rice, maize and wheat, mainly through new varietal development (with the aid of International Centers). The Research and Extension Project is seen as bolstering existing research programs as well as supporting some new research endeavors. On average, a conservative estimate of the perrnanent change in yield/ha from all expected interventions is 15% (i.e., E(Y) = .15) for all three commodities in the analysis given that research is successful and fully adopted. However, only a proportion can be claimed by the Research and Extension Project and this is set at 60%. The remaining 40% is claimed by the on-going national and international expenditures on these research programs. The rice/wheat cropping sequence area in Nepal grew at 3% per year between 1975-76 and 1991- 92 (Hobbs et al., 1996). However, in the absence of improved irrigation, roads and rural electrification from the APP, the growth rate is likely to decline substantially even with research on the rice/wheat cropping systems under the Research and Extension Project. While there will no doubt be an increase in the area of rice/wheat sequence planting that will be directly related to the research under the Project, it is reasonable to assume that the impact would be small. For this reason, returns to rice/wheat research and extension efforts are not calculated for scenario 1; they are however, calculated for scenario 2 where irrigation from the APP comes into play. Scenario 2: In addition to increases in yield/ha from research and extension, yield/ha will also be increased by more fertilizer use and irrigation inputs. Fertilizer and irrigation policies and investments will be those a described under APP case 4. Fertilizer application rates would increase from the present average 25 kg/ha to 34 kg/ha in 1999-2000, 45 kg/ha in 2004-2005, and to 60 kg/ha in 2009-2010. Using a ratio of 10:1 for the average kilograms of grain/kilogram of fertilizer nutrient use, as used by the APP (APP p. 47), this translates into an average percentage increase in yield/ha from increased fertilizer use for rice, maize, and wheat of 5% for the second five year period, and 12% for the third five year period. Since no breakdown on fertilizer use by crop is available, it is assumed that fertilizer application is equal on all three crops. For modeling purposes, production quantities related to the percentage increases in production from increased fertilizer use (i.e, from the 5% and 12%) are added to Q't in equation (1). Both surface irrigation and ground water irrigation improvements are proposed under the APP. However, investments in surface water schemes are slated for the last half of the APP period and, as indicated by the APP, will have only a modest effect on crop output over the remaining life of the APP Project (APP, p. 74). As the APP indicates, the driving force with respect to cropped area and production increases is ground water development. Table 2 shows the increment in crop area expansion from the APP irrigation thrust. This is land that is now mainly in rainfed  - 49 - crops (rice and maize in the wet season) that will become irrigated year-round and thus have the potential for multiple cropping, of which the rice/wheat cropping sequence will likely dominate. Thus irrigation will (i) increase the yield/ha of the wet season crops now grown on the soon to be new irrigated land, and (ii) allow for increased production of wheat and other crops in the dry season on the newly irrigated land. It is assumed that fertilizer would be applied at the full APP rates of 152 nutrient kg/ha (APP, table 5-2). In terms of (i), irrigation is estimated to increase the average rice yield/ha by 45% and double the average maize yield/ha (World Bank, 1996b, Table 59). It is assumed that as the new irrigation land becomes available in the Tarai, 80% will be used for rice and 20% for maize production in the wet season. For (ii) above, the average irrigated wheat yield/ha that can be expected on the newly irrigated land is 3,000 kg/ha (World Bank, 1996b, table 59). Research scientists estimated that about 350,000 hectares are suitable for the rice/wheat cropping sequence but the number of hectares devoted to rice/wheat will depend on the pace of the increments in crop area expansion from the APP. Scientists and extension specialists indicated that 10% of the hectares suitable to rice/wheat could be put into production each year over a ten year period once the interventions (including irrigation) were made available to the farmers. For scenario 2, irrigation improvement is delayed by five years and thus, so is the acceleration of the rice/wheat cropping sequence expansion. An adoption rate of 10% per year is used starting in the second five year period. As in the case of fertilizer, production quantities related to the increases in production from increased irrigation use are added to Q't in equation (1) in the appropriate models. As there is an interaction effect between the increased fertilizer rates and the new interventions (mainly new varieties) from the Research and Extension Project, the permanent change in yield/ha (E(Y)) from all expected interventions would be higher than the 15% used in scenario 1. The permanent change in yield/ha from all expected interventions is set at 18% in the second five year period and 20% in the third five year period of the analysis. Thus E(Y) = 0.18 and 0.20 for all three commodities in the analysis given that research is successful and fully adopted. The proportion that can be claimed by the Research and Extension Project is set a 70%. Research lag and adoption rate (At): Many of the research programs are on-going and in addition to some new research, the Project funds will mainly bolster many of the on-going programs. Thus the research lag period will be shorter than if the research programs were all starting new. Research lags can be up to eight years before a new variety is available for dissemination to farmers but shorter for other interventions. A four year research lag is used for an overall research lag across all interventions for each commodity in the analysis. Scenario 1: The farmer adoption rate over all interventions was set at 5 percent starting in year 5 to allow for the research lag and increased to 10 percent in the next year and increasing by an absolute 5 percent each year thereafter. Thus 55% of all hectares will have adopted the interventions by the last year of the 15 year time horizon (by the year 2011) which is a conservative estimate. Scenario 2: The adoption rate of the Research and Extension project interventions would be expected to be higher in scenario 2 than in scenario 1 because of the momentum of the overall APP project. For scenario 2, The farmer adoption rate over all interventions was set at 15 percent starting in year 5 to allow for the research lag and increased to 20 percent in the next year and increasing by an absolute 5 percent each year thereafter up 50% but increasing by 10%  - 50- per year thereafter. Thus 80% of all hectares will have adopted the interventions by the last year of the 15 year time horizon. Proportionate change in variable costs (E(C)): The adoption of an intervention may involve a change in the amount of purchased inputs required to make use of the new intervention. The costs from intervention adoption may increase or decrease the production costs/ha or may have no effect on the cost structure. These cost changes (E(C)) must be accounted for by either subtracting or adding them to the overall change in economic surplus. Scenario 1: Little change in production costs are anticipated under scenario I for rice, maize and wheat in the absence of improved fertilizer use and irrigation. The interventions are mostly improved seed and better agronomic and soil management practices. Production costs/ha are assessed as being 2% above present average production costs/ha for scenario 1 (based on crop budgets from Departnent of Agriculture Development, 1994). Scenario 2: The economic price of fertilizer, delivered plus application cost, is NRs 25/kg nutrient (based on World Bank, 1996b). This translates into an incremental fertilizer cost/ha of NRs 225 for the second five year period and NRs 500 for the third the five year period under APP case 4 fertilizer application rates. Given an overall average cost of production of NRs 8,000/ha (Department of Agriculture Development, 1994) for rice, maize and wheat, the percentage in the increase in production costs from adding the incremental fertilizer application is 3% for the second five year period and 6% for the third five year period of the analysis. For the rice/wheat cropping sequence, operation and maintenance economic costs for shallow tube wells is NRs 2,717/ha (World Bank, 1996b, p.3). The initial investment cost of a shallow tube well is NRs 20,000/ha (APP, Table 4-5). Amortized over 15 years at 12% gives an annual cost of NRs 2,936. These costs are netted out in the calculation of the change in economic surplus. Under the Research and Extension Project, interventions in the rice/wheat cropping systems include (i) reduced or minimum till, and (ii) introduction of tractors and equipment. Reduced or minimum till for wheat planting will reduce the production costs/ha while, the introduction of tractors will increase the production cost/ha. The cost of land preparation for planting wheat in the rice/wheat cropping sequence is estimated at NRs 2,160/ha (Hobbs et al. 1996, p. 44). The cost of a Chinese tractor and seeding and harvesting equipment is estimated to be NRs 110,000 which, when amortized over 15 years at 12%, gives a yearly cost of NRs 16,150. As the average holding size of land is about one hectare, it is likely that only large farmers (or farmer groups) could afford the tractors and equipment but a rental market would develop for smaller farmers. Minimum tillage would mean a savings of the NRs 2,160/ha but a rental charge/ha would have to be paid for the tractor and equipment. As yet, no rental market exists. The rental charge would likely be under NRs 2160/ha and thus, in all likelihood, there would be a savings.from the shift to minimum tillage. In the analysis, because of the unavailability of the rental market rate, it is assumed that the tractor rental cancels out the savings from reduced tillage which will may bias the returns downward. Results and Sensitivity Analysis Base Model Returns: Table 3 presents the base model results and selected sensitivity analyses. The base model results indicate significant rates of return for both scenarios I and 2. The overall  -51 - ERR to rice, maize and wheat research as a group from the Project was estimated at 51% in scenario 1 and 70% in scenario 2. The returns from scenario 1 would be expected to be the minimum rates of return. Rates of return, had they been calculated for the full implementation of the APP (APP case 1), would be expected to be higher than those calculated for scenario 2. The NPVBs and the ERRs are consistent across the three commodities with rice being the highest followed by maize and then wheat. This mainly reflects the size of production. For example, rice production is about 3.5 times as large as wheat production and thus the returns from the interventions for rice are gathered in over a wider production base. The returns to wheat research may seem small particularly in light of the research thrust on the rice/wheat cropping sequence. They are lower than the 75-84% IRRs estimated by Morris et al., (1996) for past wheat research rates of return but their analysis is only on wheat breeding with a different investment schedule and time horizon for the analysis. However, they estimate that future returns for wheat breeding are likely to have an IRR of 38%-48%. But considering the size of the wheat production base and the fact that the hectares available for wheat in the rice/wheat cropping sequence were increased at 10% per year, the base model results are favorable. Finally, given that the entire discounted net present value of the Nepal Agricultural Research and Extension Project (economic) expenditures is NPs. 1,016 million, it is interesting to note that the NPVB for rice (scenario 1) is NPs 2,619 million. Thus the returns from the investment in rice research from the project (scenario 1) alone returns more than 2.5 times the cost of the entire project. Sensitivity Analysis: Most parameters were given moderate values so as to be sure not to bias the results in favor of high rates of returns. Yield increments from research interventions were set at moderate levels as was the probability of research success which was set at 0.7. The analysis was carried out over a 15 year time horizon but could have been carried out over or twenty or even thirty years as the effect of some of the interventions would be producing benefits at that time. A lengthier analysis time horizon would undoubtedly have made a positive increase to both the NPVB and the ERR. However, because of the discounting effect (at 12%) of obtaining the NPVB and the research depreciation factor (