Mozambique - Agricultural Sector Public Expenditure Program Project (PROAGRI)

Report No. PID7087 Project name Mozambique-Agricultural Sector Public (+) Expenditure Program (PROAGRI) Region Africa Sector Agriculture Project ID MZPA1799 Borrower Republic of Mozambique Implementing Agent Ministry of Agriculture and Fisheries Praca dos Herois Mobambicanos Maputo, Mozambique contact - Eng. Sergio Chitara, Director Nacional de Economia Telephone 258 -1- 460026 Fax 258 -1- 460093 PID Date October 29, 1998 Project Appraisal Date May, 1998 Projected Board Date January 1999 Country and sector background Mozambique's recent macroeconomic trends promise good prospects for economic growth and sustainable development. Real GDP growth rose from an average of 6.9 percent a year in 1993-96 to 12.4 percent in 1997. Although Mozambique's GDP growth has been impressive in recent years, per capita GNP was estimated at only US$150 in 1997. Eighty percent of all Mozambicans live in rural areas, and about two thirds of them live in absolute poverty. Agriculture and natural resource exploitation is the dominant economic activity in rural areas, employing 70 percent of the labor force but contributing only 32 percent to GDP - an indication of low returns to labor in rural areas. The structure of Mozambican agriculture today reflects the legacy of colonial institutions and Government adoption of centrally planned policies following Independence (1975). For over a decade, agricultural prices were frozen and depressed through direct and indirect policies. The tightening of controls on output markets, together with the failure of parastatal enterprises to provide necessary and timely agricultural inputs, such as seed and fertilizer, resulted in a retreat of the rural population from production for the market and a return to subsistence production. During three decades of war much of the country's physical and marketing infrastructure was damaged or destroyed, and the work oxen, livestock and wildlife population decimated. Only recently returned from refugee or displaced status to their homesteads, most farmers have few resources. Since the end of the civil war and the severe drought in 1992/93, the agriculture sector has rebounded by an average of 14 percent per annum. This rapid growth is also a response to gradual liberalization of macro and sectoral policies which started in 1987. Agricultural growth has occurred in both food and export crop production. There is an overall improvement in the country's food supply. Total aggregate and per capita cereal production and supply increased substantially. Total cereal production has doubled since 1989/90. In recent years the country's production of food staples has  exceeded the needs of the 15.7 million population, but a high proportion of rural households remain food insecure for prolonged periods. Access problems and inadequate support services constrain development to areas where population density is high. Consequently, overuse of natural resources and degradation are issues. While market liberalization is virtually complete, private sector engagement in input supply is limited so far, and the effectiveness of public services in supporting agricultural development is low. Elimination of high inflation and privatization of retail banking have laid the basis for financial sector growth, though improved access to credit may not occur for smallholders without some form of public support for rural finance intermediation. Essential regulatory and public support functions need revitalization to support agricultural development. Project Objectives. The purpose of the Agricultural Sector Public Expenditure Program (PROAGRI) is to improve the impact of agriculture public expenditure in securing an enabling environment for sustainable and equitable growth in the rural sector such that poverty is reduced and food security improved, while the physical and social environment is protected. The program priorities are: - strengthen government institutions, to be able to formulate and advocate enabling policies for small holder and private sector development in agricultural sector; - strengthen the managerial capabilities of Ministry of Agriculture and Fisheries, providing transparent and sound management practices; - support public service delivery to the communities such as research, extension, livestock health etc. and finally, - support natural resources sustainable management trough provision of good practices in forest & wildlife management and land management. Project Description. PROAGRI is a long term program aimed at supporting sectoral development goals by consolidating the sectoral public expenditure program, rationalizing the role of MAP, and improving the effectiveness of MAP in policy formulation, regulation and public service provision. PROAGRI includes all agricultural public expenditure managed by the Ministry of Agriculture and Fisheries (MAP). PROAGRI will replace fragmented donor-driven projects with a comprehensive program consistent with the role of MAP in a market-based economy. PROAGRI comprises eight vertical components congruent with the main functional units of MAP, that can be clustered into three subprograms corresponding to the major outputs expected of PROAGRI: Institutional Development; Strengthening of Agricultural Support Services; and Natural Resource Management. PROAGRI's budget for the first five years program is estimated at US$ 202 million, for a period of 1999 to 2003, with the following indicative budget allocations: Sub-Programs and Components US$ M Institutional Development 30.0 Strengthening of Agricultural Support Services 76.0 Research 26.0 Extension 26.0 Support to Crop Production 4.0 -2-  Livestock Development 20.0 Natural Resource Management 71.0 Forestry and Wildlife Management 36.0 Land Management 25.0 Small Scale Irrigation 10.0 Contingencies 23.0 Total 200.0 Project financing. The Bank , donors and the government have committed themselves to co- financing PROAGRI against a set of basic principles that define the nature and direction of MAP's transformation and its support for the sector. Possible IDA financing for PROAGRI is estimated at US$40.0 millions. Project implementation. The program is scheduled for implementation in early 1999. Project sustainability. The financial sustainability of PROAGRI is contingent on (i) the continuation and deepening of Government's economic reform program, particularly in the agricultural and financial sectors; (ii) donor collaboration and commitment to support PROAGRI over a 15-20 year period; (iii) the timely and sufficient provision of counterpart funds; (iv) a substantial improvement in the managerial capacity of MAP and the implementing agencies at the provincial level. PROAGRI returns to improved regulation and service delivery are estimated to be high, and worth the effort of MAP's institutional redesign and reform. A broad assessment of the cost of PROAGRI matching it to the changes in agricultural GDP which would be needed to justify the expenditure, indicate that it will take an incremental annual rate of growth in agriculture GDP of only 0.76 percent per annum to provide an economic rate of return of 16 percent on expenditure. Poverty category. The program seeks to foster a poverty reduction pattern of agricultural growth by creating the necessary conditions for sustainable development of smallholder farmers. On that account, the program will contribute to promote rapid broad based, and private sector led growth. Environmental aspects. Potential negative environmental impacts include localized land degradation, increased risk of forest fires, reduced biodiversity, increased conflict over land and water due to expansion of cropping, livestock husbandry, forestry, and eco-tourism, reduced water flows and water tables, increased pollution and salination of soils and water courses, and pesticide induced health problems. However, the overall environmental impact of PROAGRI is expected to be positive through its support for sustainable farming systems and natural resource use. Poverty is contributing to environmental degradation by forcing farmers to exploit available natural resources in an unsustainable manner. By increasing farmers' productivity, incomes, food security, and resilience to drought and flooding, PROAGRI will help to reduce pressure on the environment - 3 -  particularly in peri-urban and other densely populated areas. Other positive environmental impacts should include growth in rural employment opportunities, decreased migration to urban centers, improved stability and sustainability of farming systems through PROAGRI's emphasis on better land husbandry and the increased integration of livestock. The Natural Resources Management subprogram should also lead to conservation of endangered ecosystems and biological diversity; an increase in wildlife populations; an increase in the stock of woody biomass; protection of watersheds and reduction of erosion; a greater store of carbon in biomass and soils; improved surveillance and monitoring of natural resource use; strengthened communal rights to resources; guidance of agricultural expansion into those areas where cropping will be sustainable; and, more sustainable irrigation development. Program Objective Category: Sector Management Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending November 27, 1998. - 4 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID.