Senegal - Agricultural Credit Project

RESTRICTED Report No. TO-685a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION AGRICULTURAL CREDIT PROJECT SENEGAL December 24, 1968 Agriculture Projects Department  CURRENCY EQUIVALENTS US$ 1.00 = CFA francs 246.85 CFA franc 1 = US$ 0.oo4 CFA francs 1 billion = US$ 4 million WEIGHTS AND MEASTJRES Metric System ABBREVIATIONS BCEAO: Banque Centrale des Etats de l'Afrique de l'Ouest, the Central Bank of the West African Monetary Union. BNDS: Banque Nationale de Developpement du Senegal, the national development bank. CCCE: Caisse Centrale de Cooperation Economique, a French Government financing agency. OCAS: Office de Commercialisation Agricole du Senegal, the groundnut bulk marketing and expcrt institution. ONCAD: Office National de Cooperation et d'Assistance au Developpement, the cooperatives' supply and marketing institution. SATEC: Societe d'Aide Technique et de Cooperation, a French Government technical assistance agency. SIES: Societe Industrielle d'Engrais du Senegal, the local fertilizer factory. SIBCOMA: Societe Industrielle Senegalaise de Constructions Mecaniques et de Materiels Agricoles, the local agricul- tural machinery factory. SODEVA: Societe de Developpement et de Vulgarisation Agricole, the institution providing the extension service to farmers and some technical assistance to cooperatives.  SENEGAL AGRICULTURAL CREDIT PROJECT Table of Contents Page No. S lW/d\IRY .............. o I. IINTRODUCTION .............................. ............ II. BACKGROUND ..................... ............. 2 The Economny ................. * ...................... . 2 Agriculture .. . . . . . . . o * . . . . . .*......O...... 2 Production Improvement Program .......................... III. THE PROJECT ........................................ ........ 5 A. General Description .*...........*..* ... .*.. 5 Project Area ..................*..*...... .. 5 Institutional Aspects ....... . ...... .. .. ......... 6 Cooperatives ......... ...... 009... 0, ...*.O...v 7 Credit Procedures ............. ..... .... 7 Provision of Farm Inputs ................... . . 8 B. Detailed Features ..*..to..... ..... 11 The Credit Program ..... ........ ........ 11 Management and Extension Services ................ 11 Project Cost Estimates ...... ...................... 13 Project Finance ............ ........ ..... ..... 14 Procurement and Disbursement ..... ............ 15 IV. ORGANIZATIOJ A1ND KANAGEIMENT .............................. 16 Project Coordination ........... . .. . . . .. . . .. . .. . . ........ . 16 BNDS ......**.................. 16 Extension Services . ..... .......... 17 ONCAD ........... ...*....... 9. . .. 19 OCAS ................................... o.................... 20 (Continued) This report is based on the findings of two appraisal missions to Senegal; in July/August 1967 (Messrs. A.H. Stoneham, J. Willems, R. Rossi and D. Dunn); in December 1967 (Messrs. A.H. Stoneham and J. 1W1illems); and a follow-up mission in Hay 1968 (Messrs. W. Wapenhans, J. Dumoulin and A.H. Stoneham). This report was prepared by Mr. Stoneham.  - 2- Table of Contents Cont'd. Page No. V. PRODUCTION, 111AEL'TS AND FART\ERS' BENTEFITS .............. 20 Production .....*......................***..... ....... 20 Markets and Marketing . ........ ....... 20 Farmer Incentives .......... ........a. .... ....... 21 VI. BENEFITS AND JUSTIFICATION .............. ......... 6.... 22 VII. CONCLUSIONS AND RECOMuPETMATIONS ................ .... 23 A,\P1EXES 1. Agricultural Background 2. Extension Services 3. OITCAD Reorganization 4. Credit and BNDS 5. Miarketing and OChS 6. Farm Inputs and Outputs 7. Project Coordinating Committee 8. Economic Rate of Return TAFS 1. Senegal: Rainfall, Cultivation and Project Boundaries 2. Project Area, showing Zones  SENEGAL AGRICUITURAL CREDIT PROJECT SUI4NMARY i. In 1967 the Government of Senegal requested an IDA credit to help finance the continuation of the groundnut/millet production improvement pro- gram in the important "groundnut basin" of Senegal, started in 1964 with financial help from the EEC (European Economic Community). As presented, the project was not suitable for Bank/IDA support, but after further consul- tation and in agreement with the Government, it was substantially revised. The main emphasis would now be on the cooperative agricultural credit pro- gram, and on improving the functioning and efficiency of the institution responsible for procurement of farm inputs and for the primary marketing of groundnuts from the cooperatives. Owing to shortage of IDA funds it is now proposed that Bank Group participation be partly by Bank loan and partly by IDA credit. ii. The project would directly affect about one million of the rural inhabitants, over one-quarter of the total population of Senegal. It would cover the three-year period 1969/70 through 1971/72, and would provide credit to the cooperatives through the national development bank for the purchase of increasing numbers of simple animal-draw.i farm implements, for some of the draft animals required, and for increasing amounts of fertilizer each year. It would also provide funds to enable an international firm of management consultants to assist in the management of the cooperatives' supply and mar- keting institution for a three-year period, so that at the end of that time the institution would be able to operate efficiently with trained Senegalese staff and with the minimum of assistance from specialist expatriate staff. In addition, the project would provide funds to enable the extension service to continue to perform some technical services (in particular the preparation of farmers' annual farm input requirements) on behalf of the cooperatives, and provide funds for overseas fellowships for training staff of the coopera- tives' institnltion. iii. The main benefit would be the sustained increase in production of groundnuts and millet by increasing areas under cultivation and improving yields. This would lead to steady increases in farmers' incomes and in Government revenue during a period of loss of privileged markets and declin- ing price support from EEC for groundnuts. iv. The estimated total cost would be US$ 24 million. The proposed Bank loan of US$ 3.5 million and IDA credit of US$ 6.0 million (total US$ 9.5 million) to the Government would cover almost three-quarters of the cost of farm implements, the foreign exchange cost of the management and technical services for the cooperatives, and the cos' of overseas fellowships for staff training. About three-quarters of the loan/credit (US$ 6.92 million) would be on-lent to the development bank for financing credit for farm implements. Bank/IDA contribution to the total cost would be about 39%, farmers' about 16%, and the balance (4j5%) would be provided by the Government, both directly and through the development bank. v. The project is suitable for a Bank loan of US$ 3.5 million and an IDA credit of US"! 6.0 million (total US$ 9.5 million).  SENEGAL AGRICULTURAL CREDIT PROJECT I. IMTRODUCTION 1.01 In April 1967 the Government of Senegal applied to IDA for a cred- it to help finance the continuation of the groundnut/millet production improvement program, started in 1964 with financial help from the EEC (Euro- pean Economic Community). Total cost was estimated at CFAF 11 billion (US, 44 million) over the three-year period 1968/69 through 1970/71. IDA finance was sought for up to US$ 13 million, while the balance would come from FED (Fond Europeen de Developpement), CCCE (Caisse Centrale de Coopera- tion Economique, a French Governmenit financing agency), BNDS (Banque Nation- ale de Developpement du Senegal, the development bank of Senegal), farmers in the project area, and the Government of Senegal. 1.02 The application for credit followed a Bank/IDA identification mission to Senegal in March 1966, an IDA project preparation mission in November 1966, consisting of Messrs. P.C. Goffin, K.H.S. Haasjes and C. Brochu (FAO), and a short follow-up mission in March 1967 by Mr. A.H. Stoneham. An appraisal mission, consisting of Messrs. A.H. Stoneham, J. Willems, R. Rossi and D. Dunn, visited Senegal in July/August 1967. The appraisal could not be completed, particularly on the institutional side, because the Government, after making the credit application, had appointed an interministerial committee to reconsider policy aspects of the project and to reorganize the institutions concerned with the production and market- ing of groundnuts, and it had not completed its work. Messrs. A.H. Stoneham and J. Willems returned to Senegal in December 1967 to continue the apprais- al, but completion was again held up pending further details of the institu- tional reorganization from the Government. A follow-up appraisal mission, consisting of Messrs. WH. Wapenhans, J. Dumoulin and A.H. Stoneham, returned to Senegal in play 1968 to discuss substantial revisions and to complete the appraisal, while the data obtained on the two previous missions were updated. This report is based on the findings of the various missions, and on mater- ial supplied by the Government and the various institutions concerned with the project. Messrs. E. Wessels and J.M. Payen also contributed to the work of the missions. 1.03 The project as originally presented was not suitable for Bank/IDA support. Some of the organizational and managerial aspects were found to be unsatisfactory, and no proposals were made to meet the mosti immediate prob- lem, the weak management of ONCAD (Office National de Cooperation et d'Assistance au Developpement), the Government institution now responsible for assisting the cooperatives by providing farm inputs, marketing and tech- nical services. The project also relied upon uneconomically high rates of fertilizer application to achieve the desired increase in millet production.  1.04 In an effort to produce a program which could be considered suitable for Bank/IDA support, the original project has been substantially revised, after consultation and in agreement with the Government of Senegal. The main emphasis is nrow on the agricultural credit program, and on improvement in the operation of OINCAD. W4hereas the original request was for an IDA credit to help finance the project, it is now proposed funds be provided by a blend of Bank loan and IDA credit. II. BACKGROUND The Economy 2.01 Senegal's agricultural sector employs over 85% of the 3.6 million population, and is the main source of economic activity. Agriculture is predominantly subsistence farming (millet) with groundnuts as the one impor- tant commercial cash crop. Since achieving independence in 1960, Senegal has had to face economic problems caused by the loss of her position as the focal point of the former French West Africa, and by the loss of privileged markets and prices for groundnuts due to the entry of France into the Common Market. The industrial sector is advanced, though small in size. The rail and road networks are fairly well developed. There are four ports, of which Dakar is the most important. Agriculture, however, remains and is likely to continue for a long time as the mainstay of the econorm. Industry and transport rely heavily on the handling, processing and marketing of groundnuts and groundnut products for their prosperity. Past Bank/IDA financing of rail and port facilities has been oriented towards more efficient evacuation of the ground- nut crop.i/ Agriculture 2.02 The background to agriculture is given in more detail in Annex 1. Rainfall is the greatest single factor affecting agricultural development. Average annual precipitation varies from 400 mm in the north to 1,500 mm in thle south (Map 1), with sharply defined wet and dry seasons. A drought occurs fairly regularly about once every four years, affecting the north more than the south, and the last was in 1966. About 11% of the total land area is cultivated, and probably a further 18% could be brought under economic culti- vation. In an average year groundnuts nowJ represent about one-half of total agricultural production by weight, millet one-quarter and rice and cassava one-eighth between them. Over four-fifths of the groundnut crop comes from the three contiguous regions of Thies, Diourbel and Sine Saloum (Map 2), which are known collectively as the "groundnut basin". In this area the soils are generally sandy, while there are some rich fertile alluvial soils in the basins of the four rivers (Senegal, Saloum, Gambia and Casamance). 1/ (a): IDA Credit 96-SE, September 1966, US$, 9 million for the railway: improvement of track and purchase of rolling stock; (b): Bank Loan 493-SE, May 1967, US$ 4 million for the port of Dakar: improvement of harbor facilities and dredging.  -3- 2.03 Groundnuts and millet are grown in rotation, being planted in June and harvested in November. The total area cultivated for groundnuts has increased by about 605) over the past 15 years, and is now over 1.1 million ha. Average yields have increased by about 12% over the same per- iod, and are now about 950 kg/ha, compared with an average of about 850 kg/ha for the whole of Africa, and 1,800 kg/ha in the USA. Total aver- age annual production has increased by about 80% over the same 15-year per- iod, and is now just over one million tons. Senegal is the fourth largest groundnut producer in the world (after India, Mainland China and Nigeria) and accounts for one-fifth of total African production. Average annual production of millet now totals 500,000 tons on an area of about one million ha. Millet is grown mainly for consumption by the farmers themselves, but increasing quantities are finding their way into local markets. The demand in the larger towns is relatively small owing to the availability of more sophisticated alternatives, particularly rice and wheat. 2.04 Long-term development plans are centered on diversification of crops, in particular rice, sugar, cotton, tobacco and edible groundnuts, but significant increases in their production depend upon further research and experimentation, and on the development of irrigation. The Casamance and Oriental provinces have the greatest development potential for rainfed crops, and the Senegal River for irrigated crops. 2.05 The only large-scale extension service in the country is in the groundnut basin, and was until recently provided by the Societe d'Aide Technique et de Cooperation (SATEC) (Annex 2), a French Government technical assistance agency. It is now provided through a new Senegalese institution, Societe de Developpement et de Vulgarisation Agricole (SODEVA), which is managed by SATEC (para 4.08). The extension effort is intensive, and has been mounted as part of the production improvement program (para 2.08). The service also provides important assistance to the cooperatives at farm level. Land titles in the accepted sense do not exist, but a recent land law (1964) has helped to improve land tenure. Although rural land belongs to the State, at village level it is allocated to cultivators through the elders, who can also reallocate it when mismanaged or not cultivated. 2.06 The cooperative movement has long been active in agriculture, and there are some 1,500 societies throughout the country. Groundnut coopera- tives, which are the most important, play an effective role in the supply of farm inputs, and in the marketing of the crop. ONCAD (Annex 3) is responsible for assisting the cooperatives by providing farm inputs, market- ing and technical services. Seeds are produced locally and a national seed stockpile for groundnuts is maintained by ONCAD. The National Agricultural Research Center is responsible for research on groundnuts and some other crops, and maintains demonstration plots in most of the regions. 2.07 Most of the demand for farm machinery comes from the groundnut basin, and is for light animal-drawn implements and carts, which are manu- factured locally. Imports of mineral fertilizer have increased rapidly over the past few years, and are now over 60,000 tons annually. A new factory, SIES (Societe Industrielle d'Lngrais du Senegal), which is partly financed  by TFC,I/ started production in March 1966 and is expected in future years to supply the w.hole of the country's requirements of mixed fertilizers (para 3.12). Credit for agricultural inputs (implements, draft ani- mals and fertilizer) is supplied through D1U1DS (Annex 4) to the cooperatives. There is a local trade in produce, livestock and vegetables, but commercial marketing is mainly confined to a government institution, OCAS (Office de Commercialisation Agricole du Senegal) (Annex 5), wqhich is responsible for the bullk marketing and export of groundnuts and for imports of rice. Production Improvement Program 2.08 The current Development Plan (1965-69) stresses that increased agricultural production for import substitution as well as increased ground- nut production is essential for a healthy development of the economy. This is of vital importance in view of the loss of export revenues which Senegal is facing as a result of the 1964 Yaounde Convention between EEC and asso- ciated countries. The Convention provides that groundnut exports from Senegal urill no longer enjoy a privileged market in France after 1969. In order to cushion the impact of the resulting loss in income, EEC has been financing, through FED, a five-year (1965-69) production improvement program (Annex 1, para 10). The main objectives of the program are to minimize the losses in foreign exchange earnings arising from the elimination of the privileged market, and also to minimize the reduction in income to farmers arising from the necessity to lower the groundnut buying price. The aim is to bring about a 25/ overall increase in production of groundnuts over the five-year period, by increasing both acreages and yields, particularly in the groundnut basin. Simultaneously, production of subsistence ard other crops is being expanded to accelerate import substitution, and efforts are being made to diversify the types of crops cultivated. The program directly affects about one million of the rural inhabitants, over one-quarter of the tctal population of Senegal. 2.09 Funds have been provided for the extension service, a fertilizer subsidy, processing and storage facilities, soil and seed improvement, and facilities for training draft oxen. Total cost over the period 1965 through 1969 is expected to be a maximum of CFAF 4.9 billion (US$ 19.6 million), of which 29% is for financing the extension service (originally to October 1967 but since extended to June 30, 1968), and 34% for fertilizer subsidy to the end of 1969. Farm implements have been supplied through credits to the cooperatives by BNDS. Funds for such credits were not included in the FED finance for the program, and have been provided to date by BEDS with aid from CCCE. 2.10 It is difficult to evaluate the impact of the program to date. Fluctuations in total annual production have always been substantial, due mainly to the influence of the weather on yields. Furthermore, the cyclical drought wzhich generally occurs about every four years tends to make evalua- tion over a short period misleading. Groundnut production in 1967/68 1/ Investment Agreement No. ll-SE, dated August 19, 1966. IFC investment US$ 3.46 million approximately.  (1.06 million tons, provisional) was about the same as in 1964/65 (1.02 million tons), with one of the intermediate years showing a record crop for Senegal, and the other a low crop due to drought conditions (Annex 1, Table 1). In spite of the irconclusive data, there is evidence that the long-term impact of the program will be beneficial, particularly in famil- iarizing farmers with the use of fertilizers and better cultural practices. Average annual production for the four years 1969/70 through 1972/73 should reach 1.20 million tons, which would be a 25% increase over the annual average for the four years 1962/63 through 1965/66, and in line with the program's target. III. THE PROJECT A. General Description Definition 3.01 The project would seek to provide sustained increases in farmers' incomes and in government revenues during a period of declining export prices due to loss of privileged markets and decreasing support prices for groundnuts. Its main objective would be to ensure that the rate of produc- tion of groundnuts and millet in the project area continues to increase, both by bringing additional land under cultivation and by increasing yields. Improved seeds and more efficient services to the cooperatives would play their part in bringing this about, but increasing yields would be mainly due to increasing rates of fertilizer application. The project would con- tinue some of the more effective services provided by the current production improvement program in the groundnut basin, and would improve some of the organizational weaknesses revealed through the operation of the program to date. It would cover the three-year period 1969/70 through 1971/72. It would provide, through BNDS and the cooperatives, further credit for the purchase by farmers of farm implements, draft animals and fertilizer. It would improve the functioning and efficiency of the supply, marketing and technical assistance services of ONCAD by meeting the cost of qualified management services, which would be responsible for reorganizing and assist- ing in the management of ONCAD for the three-year period. It would also provide funds for overseas fellowships for ONCAD staff. Finally, by meeting their cost, it would ensure that the services to cooperatives at present being provided through the extension services would be continued until more suitable alternative arrangements could be worked out. Project Area 3.02 The project.would be confined to that area of the groundnut basin in which an extension service is provided under the production improvement program (see Map 2). This covers about 85% of the groundnut basin, and excludes the very marginal areas. The project area comprises three specific zones (North, Center and South), within each of which the conditions of climate, pedology and demography are relatively homogeneous. There are, hmoever, substantial variations between them. Yields increase progressively from the North to the South Zone, due mainly to higher rainfall and better soil fertility. Area cultivated would increase by one-quarter, from  - 6 - 2.0 million ha to 2.5 million ha over the three-year period. This increase wiould be partly due to an increase in the area under fallow which would rise from the present 12% to about 18% over the project period. Most of the increase would be in the South Zone, where the total area under cultivation would increase by about one-third, compared with about one-fifth in the other two zones. Except in parts of the densely cultivated area around Diourbel, groups of farms are separated from their neighbors by belts of idle land covered with natural vegetation. In the past there has been some reluctance to use any part of these belts for cultivation, mainly owing to doubts about ownership and possible disputes with adjacent groups of farms. The demand to farm more land which arises from the increasing use of draft implements has led to increasing cultivation of these belts, and the recent law to improve land tenure has eased problems of oiwmership and disputes. The increase in the area cultivated under the project would be met by addi- tional cultivation in these belts. land clearance would be done by the farmers themselves. 3.03 Total rural population in the project area is at present almost one million, of which about half is in the Center Zone, one-third in the South, and the balance in the North. The overall increase in population over the project period would be about 5%; 3% each ir. the North and Center Zones by natural growth, and 9% in the South Zone, of which 6% (2% per year) would be due to immigration from other areas of Senegal. Total number of farmers is 166,000, which would rise to about 176,000 at the end of the period. The average size of a farming family is six persons, of whom four are active. The average size of a farm is at present 11 ha, which would rise to a little over 13 ha at the end of the period. Under farming condi- tions in Senegal, this is a satisfactory size. Institutional Aspects 3.04 The three institutions directly concerned with the project are ONCAD, BNDS, and SODEVA. ONCAD would continue to be responsible for dis- tributing farm inputs to the cooperatives, and fcr collecting their ground- nut crops for bulk sale to OCAS, as well as for managing the groundnut seed stockpile. BNDS would continue to finance through the cooperatives fertil- izer by short-term credits, and implements and some draft animals by medium- term credits. It would also be responsible for payment to the cooperatives for the crops, after making deductions for farm input advances (in kind for the seed stockpile, and in cash for the other inputs). SODEVA would con- tinue, for the time being, to spend about half its time on providing exten- sion services proper, and the other half on services to the farmers on behalf of the cooperatives (para 3.22). The future provision of these latter serv- ices would be the subject of a special study as part of the improvement in the services provided by ONCAD. 3.05 In order to provide the necessary coordination, a Project Coordin- ating Committee would be set up, consisting of a senior official of the Ministry of Planning and Industry as Chairman, together with representatives of the ministries and institutions concerned with the project as members. Details are given in para 4.01.  -7- Cooperatives 3.o6 Of the farmers in the project area, 55% are presently members of cooperatives. Although this level of membership may appear small, the credit program is avai'lable to almost every farmer in the area, since under the extended family system one membership covers the needs of other near relatives. There are 876 cooperatives in the project area with an average membership of 102 each. Each member contributes CFAF 1,000 to its share capital, which is held by BNDS and used as a guarantee fund against credits advanced. Credit is granted by BIDS to each cooperative as an institution, which is responsible for repayment. The two most important officeholders are the president and peseur ('"weighmaster"). The latter is the financial agent responsible for weighing in the farmers' produce, and in due course paying them for it. Some abuse of the office of peseur has been observed in the past, and the present position is not wholly satisfactory. A solu- tion to the problems of the office would be sought as part of the improve- ments to be made in the services provided by ONCAD. 3.07 Proper books of account are not at present being maintained within the cooperatives, and until improvements in the organization of ONCAD are underway the position is unlikely to get better. However, the present system of receiving groundnuts and paying for them through the cooperatives has been working for many years. The collective responsibility of the cooperative for the debts of its individual members is in keeping with the concept of the traditional Senegalese extended family, even if individual men,bers may at times receive unfair treatment. Although there are indica- tions that some members are becoming increasingly dissatisfied at the lack of financial information, particularly as to their personal indebtedness, the project should not be held up pending the introduction of satisfactory accounting methods and procedures. Assurances have been obtained from Government that it will take appropriate steps to introduce, through ONCAD, uniform accounting procedures acceptable to Bank/IDA not later than the end of 1973. An earlier date would be impracticable in view of the many prob- lerns involved. Credit Procedures 3.08 BNDS imposes a credit limit on each farmer of 25%o of his last year's sales of groundnuts through the cooperative to ONCAD. Requests for credit are developed during the preceding summer by the extension workers in consultation with each individual farmer, and include financing for fertilizer, farm implements and some animals. The forms covering the de- mands of each farmer within each cooperative are made out in quintuplicate, and individual copies are forwarded to BNDS, ONCAD, SODEVA and the Govern- ment. By this means, all concerned have full information on the total requirements for the coming year. After consideration and approval of the proposed lending program at various regional levels and subsequent Govern- ment approval of the total at cabinet level, ONCAD places the necessary orders for fertilizers and implements, and BNDS calculates its total credit requirements. IJhen the goods arrive at local ONCAD storehouses, they are distributed to farmers who arrange their own transportation to their farms. At harvest time members bring their groundnuts to the cooperative's own storage area and are given receipts for the quantities delivered. ONCAD  - 8 - duly takes delivery and advises BMDS of the quantities for marketing, after deducting the seed stockpile requirements. BNDS calculates the deductions for repayments due on credits advanced, after which payment is made through MCAhD and the cooperatives to the farmers. A small part of the payment (about 3%) is retained and paid later in the season, when the farmers' food and cash reserves are at their miniraumn. By this means the requirements for the seed stoclkmile and repayments of credit are made a first charge on the proceeds of the harvest, and the risk of bad debts to BIDS is thereby mini- mized. These procedures would be continued under the project, except that the regional representatives of BIHS would make payments direct to the coop- eratives instead of through OIJCAD, and the necessary coordination would be ensured through the Project Coordinating Committee (para 4.01). Provision of Farm Inputs 3.09 Seeds and pesticides. Full details of farm inputs are given in Annex 6. ONICAD maintains the groundnut seed stockpile which supplies over 80% of the country's total annual requirement of seed, which at present is almost 110,000 tons. Before they can sell the balance of their production, farmers receiving credit hand in at harvest time 125 kg of unshelled nuts for every hectare they intend to farm in the following year. At sowing time they are supplied with 100 kg of unshelled seed nuts for every 125 kg handed in, the extra 25 kg being eventually sold to pay for the running of the stock- pile. ONCAD's management of the seed stockpile has been unsatisfactory. Inappropriate storage, handling and distribution have led to adulteration, spoilage and waste. The provision of satisfactory technical control and commercial management of the stoclpile would be included as part of the improvements to be made in the services provided by ONCAD. The use of pesti- cides is almost exclusively confined to groundnuts, and about 80 tons per annum are used in the proJect area. Farmers pay cash for pesticides when collecting their groundnut seeds for sowing. 3.10 Compared with the research effort on groundnut seeds, little is being done to improve the varieties of millet, but one promising variety has been developed, although its impact at farm level has so far been negligible. Government is conscious of the importance of high quality millet seed and is increasing its efforts to get these improvements down to farm level. 3.11 Fertilizer. For groundnuts three different fertilizer formulae are in use (Annex 6, para 12), one in each of the zones. That in the North in- cludes a small quantity of molybdenum to compensate for trace element defi- ciency. The composition of the fertilizer currently used includes a high percentage of potash. Experimental trials in progress do not indicate that the application of this level of potash to groundnut crops has much, if any, effect on groundnut yields in the project area. These trials are being vig- orously pursued, and if the results so warrant, the fertilizer formulae will be suitably modified. If the potash component could be reduced or eliminated, fertilizer costs would be substantially reduced. Present cultural practices do not include inoculation of the soil with nitrogen-fixing bacteria. While this has not been tested in Senegal, experience elsewhere indicates that in the long run the requirements for nitrogen fertilizer might be reduced if inoculation was introduced. Government intends to start inoculation tests as early as practicable. One fertilizer formula for millet is used through- out the three zones (Annex 6, para 12).  - 9 - 3.12 Credit for fertilizer would be supplied to farmers through the project. At present about 85% of all fertilizer used in the country is applied to groundnut crops, most of it in the project area. Total consump- tion in the project area for groundnuts and millet would be expected to rise from 59,000 tons of mixed fertilizer in 1968/69 to 89,ooo in 1971/72, an increase of about 50%. The bulk of this increase would be used for ground- nut production, since fertilizer consumption for millet, at present around 15,000 tons per annum, would not be expected to rise more than 10% during the period. Supplies from 1969/70 onwards would come from the local factory, SIES (para 2.07).1/ Cost of fertilizer delivered to the farmer is CFAF 23,000 per ton, and is not expected to rise now that fertilizer is pro- duced locally. 3-13 Fertilizer is presently subsidized to the farmer on a differen- tial scale (Annex 6, Table 1), the subsidy being about 30% for groundnuts and almost 50' for millet. These subsidies would be reduced progressively and would be eliminated for groundnuts around 1972/73 and for millet about two years later. Although different fertilizer prices to farmers for ground- nut and millet production could lead to some misapplication cf fertilizer, in practice they appear to work reasonably well? anal no serious abuse has been noted. 1Jhile subsidies at the same rate for bcth groundnut and millet production would have obvious advantages, any change at the present time would be likely to confuse the farmers and disa-apt consumptlon. The most important consideration for the next few years is to ensure that farmers apply the fertilizer at the appropriate rates. Accordingly, no change in the present system of subsidies is envisaged. 3.14 At the rates proposed, estimated total cost of fertilizer to the farmer under the project would be CFAF 4.21 billion. Estimated total cost of' the subsidy would be CPAF 1.24 billion (US$ 5.0 million), of which CFAFT 0.51 billion is available through 1969/70 from existing FED financing. The Government anticipates that FED would consider financing part of the subsidy in 1970/71 and subsequent years, until it is eliminated. The farm budget estimates demonstrate that on the diminishing subsidies proposed, farm incomes would continue to increase (Aniex 6, Table 7). 3.15 Implements. All implements and carts required would be supplied through the project on credit to the farmers. At the present time about 75% of the project farmers own seeders, 50C0 cultivators, and 20% harvesters. At the end of the project period these percentages would be expected to increase substantially, with well over 90% of farmers owning seeders. Carts would be supplied as replacement for existing units, but no increase in their numbers is colntemplated. Total project requirements would be about 213,000 imple- ments and 11,000 carts, with a total value of about CFAF 2.h billion (US$ 9.8 million). Of this, about CFAF 1.1 billion (45%) would be for replacement of existing implements and carts. 1/ For the 1968/69 season SIES supplied 11,000 tons in the project area.  - 10 - 3.16 Kost of the implements at present in use arxd some of the carts have been manufactured by a local factory, SISCOHiA (Societe Industrielle Senegal- aise de Constructions Hiecaniques et de Niateriels Agricoles), which was set up in 1963 to fabricate agricultural and other machinery. BNDS holds 45% of its share capital, and the balance is held by private enterprise. SISCOMA is well managed and its financial position is satisfactory. It is well able to meet the project requirements for implements. It fixes its own selling prices, and so far these have always been below the cif prices of equivalent imported equipment. There is no formal understanding between it and the Government as to its selling prices to meet project requirements. Since, however, part of the loan/credit would be used to finance 75% of the total cost of implements under the project, assurances have been given by the Government that OMCAD would procure implements for the project on the basis of local competitive bidding, extended to local agents of overseas manufac- turers as well as SISCO.HA. A survey made of such agents shows that a suffi- cient number would be interested to make local bidding meaningful, provided that each consignment was not too small. Assurances have also been given that bids could be made on part or the whole of the requirements for imple- ments, that each consignment would be large enough to obtain favorable ship- ping rates from port of loading, that if a contract was awarded to an import- er the necessary import licenses and foreign exchange would be made avail- able, and that OHCAD would retain the right to award the whole or part of any invitation to bid to the best qualified bidder. 3.17 Draft animals. At present almost 70p of farmers in the project area own draft animals, and at the end of the project period the percentage wou?Ld be expected to rise to over 80. Horses, the most numerous and the most expensive of the draft animals, would be held at their present level. The biggest numerical increase would be in donkeys. However, part of the resources of the extension services would be concentrated on increasing the pairs of oxen in use. At present only 1% of the farmers own oxen. This concentration would be mainly in the South Zone, where rainfall is higher and the prospects for the use of oxen are encouraging. About 10% more farm- ers own seeders, the most extensively used implement, than own draft animals, and this imbalance is expected to remain at the end of the project period. This is not considered a problem, since draft animals are frequently borrowed by neighboring farmers to work their own implements, and without any deleter- ious effect on overall production. 3.18 Animals financed under the project through credit would be confined to all the oxen required. Farmers would make their own arrangements for buy- ing horses and donkeys. No difficulty is anticipated in meeting the project requirements for animals from within the country. Total requirements for draft animals for the project would be about 48,000 donkeys, 28,500 horses, and over 11,000 pairs of oxen, at a cost of about CFAF 1.48 billion (US$ 5.9 million). Of this total about CFAF 1.00 billion (two-thirds) would be for replacement of existing animals. Cost of oxen supplied on credit would be about CFhF 0.51 billion. It is proposed that ONCAD would pay the sellers of the oxen. The precise method of payment has yet to be worked out, but would be included in the ONCAD reorganization proposals.  - 11 - B. Detailed Features The Credit Progpram 3.19 Total cost of farm inputsi/ for the three project years would be about CFAF 10.0 billion (US$ 40.0 million) and detailed estimates are at Annex 6, Table 6. Credit requirements would be about two-thirds of the total, as follows: CFAF billions 1969/70 1970/71 1971/72 Total (%) Implements 0.77 0.77 0.82 2.36 ( 33) Draft animals 0.12 0.18 0.21 0.51 ( 7) Total medium-term 0.89 0.95 1.03 2.87 ( o0) Fertilizer (short-term) 1.07 1.39 1.74 4.20 ( 60) Total credit 1.96 2.34 2.77 7.07 (100) The fertilizer credit is seasonal, and would, therefore, be completely repaid before advances were made for the next season. Thus, BNDS incremental cap- ital requirements to finance the fertilizer program would be about CFAF 0.86 billion, being the difference between the 1968/69 advances of CFAF 0.88 billion and the 1971/72 figure. The total sum required to finance the pro- ject credit program would thus be about CFAF 3.73 billion, of which CFAF 2.87 billion (77%) medium-term and CFAF 0.86 billion (23%) short-term. 3.20 Credits to cooperatives for fertilizer would be advanced an an annual interest rate of 5%, and be repayable at the end of the season. Cred- its for farm implements and draft o::en would be advanced at a rate of 5.5%, repayable over a period of five years without any grace period. The credit procedure outlined in para 3.08 would be followed. Individual farmers would receive credit only in kind, and they would repay their loans through the cooperatives by deductions from crop proceeds. The cooperatives would be recouped for any additional costs and/or losses which they incurred by making further deductions from the farmers' crop proceeds. Actual interest rates to farmers could thus be expected to exceed 5.5%, though they are likely to remain somewhat below the commercial bank rate of 8%. Management and Extension Services 3.21 In the past the main restraints on production have included the untimely availability of farm inputs and the poor quality of the seeds sup- plied from the stockpile. This has been to a large extent due to the very poor management of ONCAD and its predecessor institutions (para 4.10). Gov- ernment is fully aware of the need to reorganize ONCAD, and in October 1968 invited suitably qualified consultants to review the current operations, and 1/ Pesticides, fertilizer, implements (cost and maintenance), and draft animals (cost and upkeep).  - 12 - subsequently to supply such management and other services as would be neces- sary to implement the recommendations made for operational improvement. A copy of the letter of invitation and terms of reference is attached as Annex 3. Evaluation of the replies received would be made by the Government, and negotiation of the contrac-t with the successful consultant would be made in cooperation with Bank/IDA, probably in January/February 1969. The prin- cipal objective would be to reorganize ONCAD over three years, so that at the end of that period it would be able to operate efficiently with trained Senegalese staff with the minimum assistance from specialist expatriate staff. The contract would be in two phases, the initial phase covering 60 days, at the end of which the consultant would submit a comprehensive report covering reorganization over a further period of three years. The subsequent plhase would cover the agreed management services for the three years. The total cost cannot be evaluated precisely until the consultant has been selec- ted. TIeanwhile, it has been tentatively estimated at US' 2.75 million, made up of US$ 2.50 million to co-ver the cost of supplying the management serv- ices, plus US1. 0.25 million for counterpart training. The estimate for management services includes 50 man-years of senior experts (20 in the first and 15 in each subsequent year) and the essential overhead ex=penses. The estimate for counterpart training covers the total cost of overseas fellow- ships for key Senegalese management personnel. The cost of management serv- ices and counterpart training would be included in the project. 3.22 About half the time of the SODEVA extension workers in the field is spent on providing services to the farmers on behalf of the cooperatives. Services include preparation of annual individual farm input requirements, help with the weighing in of the harvest, with payments for crops, and with the semi-annual meetings of the cooperatives. These latter services are partly occasioned by the lack of proper cooperative accounts. Nominally the provision of cooperative services is the responsibility of ONCAD, and the contract of the management consultants would include a review of the serv- ices required by the cooperatives, both those currently being performed by the extension service and those not at present covered (cooperative accounts). This would take the form of a report, one year after the second phase of the contract commences, advising whether ONCAD, Government, or some other organ- ization should provide these services, what should be their function and scope, and to what extent ONCAD would be able to contribute to their imple- mentation. In the interim the contract between the Government and SODEVA (para 4.08) would ensure that the extension service continues to give its current services to farmers on behalf of the cooperatives. The cost of the services provided by SODEVA to the cooperatives, estimated at US$ 2.52 million, would be included in the project.  - 13 - Project Cost Estimates 3.23 The estimated total cost of the project is CFAF 6 billion (US$ 24 million), as follows: Total project cost Foreign exchange CFAF US$ CFAF US$ Expressed in billion million %I' billion million %2/ I. Farm inputs Implements 2.36 9.44 40 o.64 2.56 27 Animals 1.50 6.00 25 -- -- -- Fertilizer o.86 3.44 14 0.50 2.00 58 Total 4.72 i8.88 79 1.14 4.56 23 II. Technical services ONCAD management 0.69 2.75 11 0.44 1.75 64 SODEVA cooperative services o.63 2.52 10 0.18 0.70 28 Total 1.32 5.27 21 0.62 2.45 46 III. Grand total 6.04 24.15 100 1.76 7.01 29 _/ Percent of total project cost. 2/ Percent of item cost. (a) Costs for implements and draft animals are based on prices prevailing in Senegal at the end of May 1968.3/ The foreign exchange component of the implements assumes they would be procured from SISCOIKA; (b) Cost of fertilizer covers the i-ncremental requirements of BNDS to finance fertilizer distributed under the project (para 3.19); (c) Cost of ONCAD management services is in accordance with para 3.21; (d) Cost of SODEVA cooperative services covers one-half of the cost of the extension service in the project area, exclusive of counterpart training (paras 3.22 and 4.09). In late June the Government decided to raise legal minimum salaries in the private sector by 25%. This is expected to have some impact on the costs of industrial production within Senegal, including farm implements and fertilizer supplied for this project. It is too early yet to determine the precise effect of this on the project.  - 14 - Project Finance 3.24 Sources of funds to finance the project would be as follows: CFhF US$ Expressed in billion million % Farmers' contribution 0.97 3.88 16 BMDS resources 2.00 8.00 34 Government funds 0.69 2.77 11 Bank/IDA loan/credit 2.36 9.50 39 Total 6.04 24.15 100 (a) Farmers' contribution would cover the cost of the draft horses and donkeys; (b) BMDS resources of CFAF 2.00 billion would cover 25% of the cost of the implements, the full cost of the oxen, and the incremental fertilizer credit. The proposed financing of BNDS is discussed in para 4.04; (c) Funds for which Government would be directly responsible for providing, CFAF 0.69 billion, are for the balance of the cost of ONCAD management, and the SODEVA cooperative services not provided through the loan/credit. CCC' has indicated that it is prepared to contribute about CFAF 0.45 billion (US,: 1.8 million) by way of long-term loan towards the total cost of the extension service in the project area, presently estimated at about CFAF 1.47 billion (Annex 2, para 12), so that with CFAF 0.18 billion from the loan/credit, Government would be responsible for providing the balance of about CFAF 0.84 billion. Government would also be responsible for pro- viding finance for part of BNDS resources and for the fertilizer subsidy, towards which FED has agreed to contribute CFAF 0.51 billion in 1969/70 and indicated it may consider contributing in subsequent years, until the subsidy is phased out. 3.25 The Bank/IDA loan/credit of CFAF 2.38 billion (Us$ 9.5 million) would be made up as follows: CFAF US$ ExDressed in billion million % Implements 1.73 6.92 73 ONCAD management services 0.38 1.50 16 ONCAD counterpart training 0.06 0.25 3 SODEVA cooperative services 0.18 0.70 7 Unallocated 0.03 0.13 1 Total 2.38 9.50 100  - 15 - (a) The allocation for implements would cover 75% of their cost up to a maximum of US$ 6.92 million, aind would be on-lent by Government to BI\DS at 3.5% for 14 years, including a grace period of four years (para 4.03); (b) The US. 1.50 million for O0NCAD management services would cover the actual foreign exchange component of the cost of these services, which has been tentatively estimated at 60% of their total cost (para 3.21); (c) The sum of USp 0.25 million for counterpart training within ONCAD would cover the total cost of such training; (d) The US$ 0.70 million for SODEVA cooperative services would cover the foreign exchange component of these services, estimated at 60% of half the total cost of expatriate personnel employed by SODEVA (Annex 2, para 12). Procurement and Disbursement 3.26 Procurement of the implements required under the project would be on the basis of local competitive bidding, as set out in para 3.16. Disburse- ment of loan/credit funds for implements would be on the basis of 75% of sums advanced by BMDS to ONCAD for implements purchased, up to a total of US$ 6.92 million. Due to planning requirements, ONCAD had to place orders for some of the implements and carts needed for the 1969/70 planting season before it was clear that Bank/IDA financing could be forthcoming. Some of these were placed with SISCOMA, without competitive bidding. They amount to about USr, 760,000, and during negotiations it was agreed that this sum would be met out of the Bank/IDA loan/credit. 3.27 Disbursement of loan/credit funds for ONCAD management services would be limited to the actual foreign exchange cost of these services. Dis- bursement would be in accordance with procedures to be established during negotiation of the managemenrt contract. Disbursement procedures for Bank/IDA funds for ONChD counterpart training would also be agreed during negotiation of the contract. 3.28 Disbursement of loan/credit funds for SODEVA cooperative services would be on the basis of 30% of the total cost of expatriate personnel second- ed to, or working directly for, SODEVA. The estimate of their total cost is CFAF 628 million (USq 2.5 million) (Annex 2, para 12). 3.29 In view of the protracted period between first appraisal and nego- tiation of the loan/credit, Government asked for some retroactive financing to be considered. During negotiations, it was agreed that retroactive financ- ing back to October 1, 1968 would be accepted. The total sum is not expected to exceed US$ 1 million, and would consist of the US$ 760,000 for implements ordered from SISCOMIA (para 3.26), about US$ 150,000 for carts already ordered for the 1968/69 planting season from SISCOIA under Government bidding pro- cedures, and about US$ 50,000 for SODEVA expatriate staff to the end of 1968.  - 16 - 3.30 On the basis of the above, disbursement of project funds over the project period would be approximately as follows: US$ million 1969/70 1970/71 1971/72 Total Farmers' contribution 1.40 1.28 1.20 3.88 BNDS resources 2.40 2.75 2.85 8.00 Governm.ent funds 1.04 0.92 0.81 2.77 Bank/IDA funds 3.36 3.14 3.00 9.50 Total 8.20 8.09 7.86 24.15 The TDA credit would be disbursed before the Bank loan, and would be ex- hausted sometime late in 1970/71. IV. ORGANIZATION AND 1ANAGEYENT Project Coordination 4.01 The successful execution of the project depends to a very large extent upon close cooperation between BNDS, ONCAD, SODEVA and the Govern- ment, and upon a high standard of management of the three institutions. Cooperaticn between ENDS, SODEVA and the Government is at present very good, but has no formal basis. During negotiations, Government agreed that a Pi-oject Coordinating Committee would be set up by Presidential Decree with the Secretary of the Groundnut Committee, the Directors General of BNDS, ONCAD, SODEVA, a representative each of the Ministries of Finance, of Planning and Industry, and of Rural Development as members, and with a senior official nominated by the Nfinister of Planning and Industry as Chairman. The Committee would ensure the close coordination and coopera- tion of the member organizations and Government in the execution of the project through procedures which would be laid down in the Decree. The precise method of procuring and financing farm implements would be set out in an addendum to the Decree. A summary of the main provisions of the Decree is at Annex 7. BN_DS 4.02 BNDS (Annex 3) was formed in 1964 by the fusion of two existing credit institutions, and is responsible for providing financial and tech- nical help for all projects concerned with the social and economic develop- ment of Senegal. In practice it has concentrated on agricultural and industrial development, and the high level of other credit it inherited has been steadily reduced. Its fixed capital is CFAF 1.36 billion, of which Government owns 56%, CCCE 28%, and BCEA0!/ 7%. Its total assets are now of the order of CFAF 12 billion. Since its inception it has followed a prudent financial policy. It has consistently been profitable, and has built up adequate reserves, which at September 30, 1967 were equivalent to 1/ Banque Centrale des Etats de l'Afrique de l'Ouest, the Central Bank of the West African Monetary Union.  - 17 - more than one and a half times its bad and douibtful debts. It is competent- ly directed, and its staff, all of whom are Senegalese, are generally well trained and efficient. Based on its past per-ormance, BNDS is considered to be a suitable institution to administer the credits to cooperatives under the project. 4.03 BITS makes credit and loans available for most purposes at 5% per annum short-term and 5.5% medium and long-term. Most of its long-term and rnedium-term loan capital (mainly from BCEAO and CCCE) is borrowed at 3.5%, which gives it a margin of 1.5 to 2.0%. Its accounts demonstrate that on this margin it has in the past been able to meet its administrative expen- ses and accumulate adequate reserves. Accordingly, it is proposed that the Bank/IDA loan/credit for implements would be on-lent by Governmrent to BNDS at 3.5% (para 3.25), and that for the time being BNDS would continue to make loans at its current interest rates. It would be a condition of effectiveness of the loan/credit that an agreement covering the terms and conditions of on-lending by Government to BNDS, and satisfactory to Bank/ IDA, had been signed. 4.04 The CFAF 1.73 billion (US$ 6.92 million) of the loan/credit on- lent to BNDS would cover BI\IS financial requirements for medium-term agri- cultural credit during the project period (Annex 4, para 26). BNDS would be able to meet the balance of the total project short-term financial re- quirements for fertilizer in the project area through its present discount- ing facilities with BCEAO and the Treasury. However, it has other financial conmitments, including provision of funds for the marketing of the groundnut crop each year, and for long-term investment in industry. Accordingly, during negottations assurances were obtained that Government would undertake that BNDS was provided with adequate resources for all purposes on terms and conditions satisfactory to Bank/IDA, and that its constitution would not be altered without prior Bank/IDA approval. BNDS in its turn would undertake to continue to charge interest on all its loans and credits such as to enable it to cover all its operating expenses, to maintain adequate provi- sions for bad and doubtful debts and to maintain adequate reserves. 4.05 Auditing is at present carried out by one appointee each of Gov- ernment and CCCi. This arrangement is not acceptable to Bank/IDA, and pro- vision for independent annual audits from 1968 onwards was confirmed during negotiations. Arrangements are in hand for a French accounting firm, Fiduciaire France-Afrique-Senegal, with offices in Dakar, to make the audit for fiscal 1967 and 1968. No other suitably qualified firms operate in Senegal. Extension Services 4.06 Until July 1968, SATEC provided the extension service in the pro- ject area under a 1964 agreement with the Government. Its operations are described in more detail in Annex 2. It has been responsible for training a cadre of competent extension workers, together with some of the necessary supporting staff of senior officers. Total cost of the service for the three-year period 1965 through 1967 was CFAF 1.2 billion (US$ 4.8 million).  - 18 - Extension workers in the field now number 700, witli a further 85 seniors, of whom 36 are expatriates. The numbers of expatriates have been declining, but some difficulty has been experienced in finding suitable Senegalese to take over the top positions. The extension workers are recruited from litexates in the villages, and given training in simple techniques which they pass on to the farmers. Each worker is responsible for an average of about 230 farm- ers. They now enjoy the confidence of the farmers and have contributed to the improvement in farming techniques achieved to date. The SATEC operation has been well organized and managed. The simplicity of its technical program has enabled inexperienced villagers to be readily trained into field workers and to carry out their clearly defined part of the operation. A very good esprit de corps has already been built up. 4.07 Under its agreement with the Government, SATEC undertook to provide an extension service in the project area with the objectives of increasing groundnut production, diversifying production (particularly by promoting in- creased millet production), promoting more intensive cultivation by the intro- duction of draft animals and more modern farming methods, and forming an extension service outside of the existing public service capable of contin- uing the work after it leaves. Its impact on increased groundnut production has not been as great as was hoped, partly because the prospects of a sig- nificant increase in production are limited in about half the area by natural conditions of soil and rainfall. Furthermore, the ready availability of additional land for cultivation and the limitations on the timely availabilit:r of farm inputs have reduced the potentialities of this relatively intensive extension service (para 3.21). Additionally, about half the time of its staff has been spent on providing a service for the cooperatives (para 3.22), a role not usually associated with an extension service. 4.08 In order to transform the extension service into a wholly Senegal- ese institution, SODEVA was set up to take over the SATEC operations in July 1968 (Annex 2, part C). All the Senegalese staff have been transferred to SODEVA on the same terms and conditions of employment. SATEC, under an agree- ment with SODEVA, will provide management services and expatriate personnel during the first three years of SODEVA's existence. The SATEC mission chief has been appointed Director General of SODEVA up to June 30, 1969, when a Senegalese will take over. The number of expatriates will be reduced from 42 in 1968/69 to eight in 1970/71. Assurances were obtained during negotia- tions that the constitution of SODEVA would not be amended without prior Bank/IDA approval. 4.09 Combined cost of the whole of the SATEC/SODEVA operation in the project area is estimated to be of the order of CFAF 1.47 billion (uts 5.9 million) over the project period, including counterpart training (CFAF 0.21 billion, or US.$ 0.85 million). The cost of expatriates would average 43% of this total, but would diminish rapidly from 52% of the cost in the first year to 27% in the third and would be expected to decline further in subsequent years. The cost to the project of the SATEC/SODEVA services on behalf of the cooperatives (CFAF 0.63 billion, or US$ 2.52 million) covers half the cost of staff (Senegalese and expatriate) and overhead expenses. Of this, expatriate staff accounts for CFAF 0.31 billion (US$ 1.24 million).  - 19 - ONCAD 4.10 ONCAD's main duties in the project area are to provide a service to cooperatives, including the provision of farm inputs, the primary mar- keting of their groundnuts, management of the seed stockpile, and technical services. ONCAD was formed in October 1966 to succeed regional farmers' organizations, but the responsibility for farm inputs and for primary mar- keting was not added until a year later. It was clear from the start that a drastic reorganization was necessary before ONCAD could operate efficient- ly. As a prerequisite to reorganization, Government appointed SATEC to report on its organization and functioning. The main findings of the report are: (a) help to cooperatives is minimal; (b) management of the seed stockpile is unsatisfactory; (c) it is overstaffed and inefficiently organized; (d) accounts are unsatisfactory and in arrears; and (e) as a result, operating costs are abnormally high. 4.11 The reorganization proposals of SATEC are in three parts, con- cerned with overall policy, internal organization and operation, and staf- fing policy. As to overall policy, ONCAD should be prepared to divest itself of those operations which could be done more efficiently by private enterprise, in particular by selling off its transport fleet, thereby re- ducing its staff from the present level of about 1,600 to below 1,000, and eliminating the greatest single loss element in its operations. As to or,,anization and operation, management should be in two parts, one concerned with the commercial aspects of providing farm inputs and marketing services, and the other with providing technical services to cooperatives (instruction in cooperative methods, bookkeeping, etc.). The commercial services should be reorganized with some 20 commercial centers in the groundnut basin con- trolling the many village depots. A small transportation bureau in Dakar should be set up to control the movement of transport and to use it effi- ciently. Of great importance to the project, the seed stockpile should be reorganized to include technical supervision by a technical authority. Revision of the whole of the administrative, accounting and executive serv- ices is also recommended. As to staffing policy, the more qualified of the remaining staff should be retrained and the rest dismissed, which would leave no more than 500 to 600 personnel on completion of the retraining program. Government is in general agreement with the main findings of the SAThC review but has reservations on the advisability of transferring the transport fleet to private enterprise. 4.12 The Bank and IDA are cooperating with the Government to find a suitable firm to help manage ONCAD, and participation in the project would be conditional on the Government appointing a firm acceptable to, and on terms and conditions approved by, Bank/IDA. It would be a condition of effectiveness of the loan/credit that the chosen firm had been engaged. Invitations to study the problems and make proposals have been sent out to selected firms, and it is anticipated that the choice of consultants will be made in January/February 1969 (para 3.21). The financing of ONCAD would be one of the subjects to be considered and reported upon by the consul- tants. Assurances have been obtained during negotiations that ONCAD's con- stitution would not be altered or amended during the disbursement period without prior Bank/IDA approval.  - 20 - OCA_ 14.13 ONC0D. has the monopoly for buyring groundnuts from the cooperatives and is responsible for their bul' sale to OCAS. OCAS (Annex 5), which was formed on October 1, 1967, is responsible for the bulk marketing of ground- nuts, as well as the importation of white rice for consumption. Its pred- ecessor had the additional responsibility of providing farm inputs, now transferred to ONCAD. However, it has relatively greater responsibilities for marketing groundnuts, having now to sell in world markets instead of in the protected French market. As newly constituted and with two advisors to advise the Director General on financial and commercial affairs, it is cap- able of marketing the crop satisfactorily. V. PRODUCTION, NARn-TS AMB FARMERS' BENEFITS Production 5.01 Total production of groundnuts in the project area is estimated to rise from 0.82 million tons in 1968/69 to 1.21 million in 1971/72, an in- crease of almost 50, over the project period, which would be accounted for by approximately equal increases in area and in average yield. After allow- ing for seed requirements, local consumption and losses in storage, about 0.99 million tons would be available for marketing in 1971/72 compared with an estimated 0.67 million tons in 1968/S9, an increase of over 40%. Total production of millet is estimated to rise from 0.40 million tons in 1968/69 to 0049 million in 1971/72, an increase of almost one-quarter over the pro- ject period. This would be accounted for by an increase in area of about 16% and an increase in average yield of 55. iMarkets and Marketing 5.02 The prospects of the international groundnut market are discussed in Annex 5 in more detail. The projections indicate a general increase in the grotAh rate of output in both developing and developed countries, and a very moderate growth in imports. The possible increase in consumption in developing countries would, in the next few years, mainly come from domestic and subsistence production and would thus have little impact on the world market. In the short term prices are not likely to be affected substantially and present forecasts indicate a cif (European ports) export price by 1970/71 of about CFAF 40,300 per ton, as compared wzith an average of CFAF 43,500 for 1967 and CFAF 40,500 for the first half of 1968. The 1967 average masks a year of declining prices, from CFAF 46,ooo per ton at the beginning, to CFAF 37,500 at the end. 5.03 Past policy for the producer price for groundnuts in Senegal has been dependent on the preferential market price in France, the size of the fertilizer subsi&-r and the requirements for Government revenue. Although the preferential market price has been abolished, EEC is giving some price support through 1969/70 (Alxnnex 5, para 10), but for 1970/71 onwards Senegal will be entirely dependent upon world market prices for its earnings from groundnuts. Government declares the price at which ONCAD will buy ground- nuts from the cooperatives before the harvest each year, and reduced the  - 21 - average producer price (which had been constant since 196L) by 15% to C'FAf 17.8 per kg for '967/68. This reduction was not sufficient to cover the entire fall in export earnings, and consequently there was some reduc- tion in Goverinment income during that 7year. For the project years such income wgould, however, show a steady improvement, from an estimated CFAF 4.1 billion in 1968/69 to CFAF 5.1 billion in 1971/72. In the project estimates a reduction in the average producer price in the project area from CFAF 17.7 per kg in 1968/69 to about OFAF 16.5 in 1971/72 has been anticipated, at which prices the incentive to the farmers would remain adequate. Govern- ment revenue would rise (as above), while the cif export price would de- cline from CFAF 41.9 per kg to 40.3. 5.04 A little over half the groundnuts marketed is processed locally by the four oil millers. A recent agreement has been signed between them and the Government setting out the method for the annual bidding for ton- nages to be processed and the prices to be paid. The price is related to the world market price over each ten-day period in which deliveries are made. After a few initial difficulties it is now working satisfactorily. GCAS sells the balance of the crop on world markets, the bulk going to Europe. An office in Paris is maintained to ensure adequate liaison in the European markhets. 5.05 Surplus millet is marketed locally by the farmers themselves. The amount available for markceting would rise from 0.15 million tons in 1968/69 to 0.23 million in 1971/72. In the project estimates, consunption per head of the rural population has been assessed at 250 kg per annum, and incomes calculated after making this deduction. Farmer Incentives 5.06 The agricultural and financial estimates at farm level have been made on thle basis of the totals for each of the three zones. It is not practicable to work on the basis of an average individual farm unit, since in none of the zones does the number of implements or draft animals reach unity per farmer, and there are no reliable data available to show the difference between farms using hand methods of cultivation and farms using draft animals and implements in the various zones. 5.07 Total cost of farm inputs and farm incomes has been estimated for the three zones ard for the project as a whole (Annex 6, Tables 2 through 5) and average farmers' incomes have been summarized (Annex 6, Table 7). These include net income per farmer after deducting cost of farm inputs, and the figures bring out the great difference in incomes between the South Zone and the other two, incomes in the former being about twice those in the latter. In terms of suitabilityfr groundnut production, the North and Center Zones are relatively marginal when compared with the South Zone and with Senegal Oriental and the Casamance (Annex 1, para 9). 68% of the pro- ject farmers live in these marginal areas. However, annual net incomes in each of the three zones would show a steady increase over the project per- iod in spite of the decline in groundnut buying prices, the overall average being from CFAF 75,COO in 1968/69 to CFAF 92,000 in 1971/72. Annual incre- mental increases in gross income and in farm inputs are included in the tables, and show that at the fertilizer density rates and subsidies  - 22 - proposed, the incentives to farmers to continue to use fertilizer would be quite adequate in the Center and South 7ones, and just adequate in the North. The tables do not show incentives for millet separately, but from calcula- tions made these w.ould be adequate. In accordance with these estimates, average overall increase in net incomes to farmers wolild be over 20% over the project period. lTlis is expected to provide sufficient incentives to farmers to participate actively in the project. VI. BTLTE'ITS Al) JUSTIFICATIONT 6.01 As in most agricultural projects which rely for a large part of their success upon credit to and participation by small farmers, a quantita- tive assessment of the overall benefits cannot be made with accuracy, but the main benefit would be the sustained increase in production of groundnuts and millet during the project period. This would produce increases in farm- ers' incomes and in Government revenue during a period of loss of privileged markets and declining price support for groundnuts. Other important benefits would be the continued increase in the number of draft farm implements in use, the continued improvement in farming techniques, and an overdue improve- ment in the quality of service given to cooperatives by ONCAD, which should in due course lead to a strengthening of the cooperatives themselves. The anticipated improvement in thle management of the groundnut seed stockpile should ultimately contribute to higher yields through improved seeds. k6.02 The increase in output of groundnuts from the project should offset the decrease in export earnings arising from the declining support of the export price by EEC. The increase in the amount of millet marketed locally should strengthen its availabili-ty in the rural areas, where most of the demand arises, and may avoid increases in imports of wheat and rice. 6.03 Thatever method is used to calculate the economic rate of return on the project, the rate itself is bound to be high, since at the present stage of development of farming techniques in the project area the simple additional inputs involved produce incremental outputs of relatively high value. The economic rate of return, based on the cost of the extension serv- ice, management services, other capital costs of the production improvement program, incremental cost of farm inputs for the three project years and the incremental benefit of the increased production arising therefrom, would be very high, since a net benefit would be shown for each year except the first. A more realistic method would be to consider the overall impact of the pro- duction improvement program from 1964 onwards and to include the full known costs up to 1971/72, including those of this project. On this basis, taking incremental groundnut production at fob prices, including the costs of trans- portation, marketing and the extension and management services, deducting the millet consumed by the rural population as being the opportunity cost of labor, and calculating over a life of 10 years, the economic rate of return would be about 25% (Annex 8). Assuming the incremental value of output for the years 1969/70 through 1974/75 was reduced by 10%, the rate of return would be about 20%/. Assuming this reduction in value of output was coupled with an increase in cost of inputs of 10%o over the same years, the rate of return would be about 14h.  - 23 - VII. COITCLUSIONS ANt RECOTENDATIONS 7.01 During negotiations the followlng agreements, assurances and understandings were arrived at between the Bank, IDA and the Government: (a) Uniform accounting procedures for the cooperatives acceptable to Bank/IDA would be introduced, through ONCAD, before the end of 1973 (para 3.07); (b) ONCAD would procure farm implements through local competitive bidding procedures, and Government would make available any necessary import licenses and foreign exchange permits (para 3.16); (c) A Project Coordinating Committee would be set up by Presiden- tial Decree (para 4.01); (d) BNDS would be provided with adequate financial resources for all purposes on terms and conditions satisfactory to Bank/IDA, and its constitution would not be altered without prior Bank/IDA approval (para 4.04); (e) BEDS would undertake to continue to charge interest on all its loans and credits such as to enable it to cover all its operating expenses, to maintain adequate provisions for bad and doubtful debts and to maintain adequate reserves (para 4.04); (f) Annual audits of EIDS' accounts would be made by an inde- pendent firm of auditors (para 4.05); and (g) The constitutions of SODEVA and ONCAD would not be altered without prior Bank/IDA; approval (paras 4.08 and 4.12). 7.02 It would be a condition of effectiveness of the loan/credit that: (a) an agreement between the Government and BNDS covering the on-lend ing of the loan/credit, on terms and conditions satis- factory to Bank/IDA, had been signed (para 4.03); and (b) the firm of consultants to assist in the management of ONCAD had been engaged, on terms and conditions satisfactory to LIank/IDA (para 4.12). 7.03 The project is technically sound and economically justified. It wou' d be suitable for a Bank loan o. US$ 3.5 million and an IDA credit of USC 6.0 million. December 24, 1968  AIMEX 1 AGRICULTURAL BACKGROU1 Main Crops 1. Agriculture is principally a two-crop culture. Groundnuts are grown as a cash crop in rotation with millet as a subsistence cereal. The only other crops of any importance are rice and cassava, although small quantities of maize, cowpeas, sweet potatoes and other vegetables are also grown. Table 1(C) gives details of production, area and yields of the principal crops (other than groundnuts) from 1963/64 to 1966/67. Groundnuts 2. Details of the production of groundnuts, including areas under cultivation, production, quantity marketed and yields, are given in Table 1(A). Annual averages over four-year periods have been used for 1947 through 1963 ao minimize the effect of the cyclical drought, and are shown also for the period 1963-1967. These figures show that the area under cul- tivation is now over one million ha, and has increased by over 60% since 1947-1951. Annual production reached one million tons in 1965/66, and has almost doubled since 1947-195i. The lower figures for 1966/67 reflect the effect of the drought during that year. Table 1(B) gives a breakdown of groundnut production by administrative regions for the year 1965/66 and shows that over four-fifths of the crop comes from the three contiguous regions of Sine Saloum, Thies and Diourbel, which are known collectively as the "'groundnut basin". In these regions soil preparation for groundnut planiting usually starts after the second rains in June; sowing and fertil- izing is done at the end of June; two or three weedings are made in July and August; and the crop is harvested in November. Harvesting is done after the last rain of the season, if possible, because of the susceptibil- ity of the crop to a fungus which produces toxins harmful to humans and animals. Millet 3. Estimates of recent annual production of mlillet are given in Table 1(C). Although accurate figures are not available, annual producticn is now over half a million metric tons, and average yields are now about 500 kg/ha. This crop is grown mainly for consumption by the farmers them- selves, but increasing quantities are finding their way into the local mar- kets. The demand in the larger towns is relatively small owing to the availability of more sophisticated alternatives, particularly rice and wjhe at. Land Tenure h. In 1964 a Law was enacted to improve land tenure. Land was di- vided into public and registered land (mainly in the towns) and national land (mainly in the rural areas). National land was further subdivided into various zones for specific purposes, and the balance, by far the larg- est in area (called "zones des terroirs"), was classified for exploitation by the rural population through rural councils, but under the ultimate  A'1:JEX 1 Page 2 control of the State. Land titles in thie accepted sense do not exist, but each village has a committee of elders which allocates the land and has the right to reallocate any which is not being farmed or is being mismanaged. The traditional farm unit is the "carre" which is a group of farms worked by members of the same family, but its significance is diminishing and the individual farm is now the more important unit. Except in the most thickly populated area in Diourbel (Map 1), most carres are separated from their neighbors by belts of idle land covered with natural vegetation. In the past there has been some reluctance to use any part of these belts for agri- cultural purposes, mainly owing to doubts about ownership and possible dis- putes with adjacent carres, but there is evidence that the 1964 Law has improved the position. The increasing use of farm implements and the demand to farm more land which arises therefrom necessitates the use of further areas from these belts for agricultural production. Cooperatives 5. The cooperative movement has for some time past played a signifi- cant role in the development of agriculture. Cooperatives were first organ- ized by the colonial administration at the beginning of the century. Since independence the Government has attempted to strengthen their influence among the rural poopulation, particularly by increasing their marketing responsibil- ities and by the expansion of rural credit through them. .VJhen first formed a cooperative is given a trial period of two years during which it is eligi- ble for short-term credit only; thereafter it can also obtain medium-term credit, up to five years. Five functional types of cooperatives are in existence, including fishing and livestock, but the only type of major im- portance is the groundnut cooperative which was primarily organized to handle the marketing of the crop, but whlch now has an equally important role as the channel for agricultural credit. There are at present some 1,500 socie- ties throughout the country. 6. A study is at present under way to consider the possibilities of rehabilitating and regrouping the cooperative movement so that it can play a more active part in the agricultural development program. The major obstacle to any regrouping is that individual cooperatives would then tend to lose their village and family character, which is at present their main strength, particularly over security for credit. Fesearch 7. Agricultural research is carried out by several institutions, of which the most important is the Institut cis Recherches Agronomiques Tropi- cales et des Cultures Vivrieres (IPAT), which deals mainly with genetics and cultural improvement of crops (soil and water management, fertilizers, crop protection, etc.). It does not in general concern itself with crops covered by the four other more specialized French research institutes, which deal with oil producing crops, animal protection and veterinary medicine, cotton, sisal and tropical fruits. IRAT is a French institute, whose work in Senegal is carried out through the National Agricultural Research Center at Bambey, where groundnut research is concentrated. The Center has six regional re- search stations, where work on specific problems is done and where demonstra- tion fields have been developed.  ANIEX 1 Page 3 Development 8. The first four-year Development Plan (1961-65) aimed at a growth rate of 8' per year, 6% in agricultural production and 13% in industry and mining. In practice the rate was just over 2%, although agriculture in- creased by just over 4%. Under the Plan agriculture was to receive 13% of the total expenditure. One of its major aims was to enlarge the Govern- ment's role in the economy, by changing the structure of the rural market- ing system for traditional agriculture through displacement of private enterprise. This has largely been achieved, but with very little net gain in output, and the difficulties which arose in the early stages have not yet all been overcome. These include problems of management of the organi- zations set up to put the Plan into effect. 9. Under the Second Plan (1965-69) 24% of the total expenditure has been allocated to agriculture. The main effort is towards diversifying production so as to lessen as far as possible the present dependence on groundnuts for most of Senegal's foreign exchange earnings. Diversifica- tion plans already under way cover both subsistence and cash crops, includ- ing rice, sugar, cotton, tobacco, and edible groundnuts. However, signifi- cant increases in production of these crops depend upon further research, experimentation and the development of irrigation, so that there are no short-term prospects of a useful impact on the econoiy from them. Crop diversification must, therefore, be considered as a longer-term measure. In the short-term, an expansion of agricultural production must largely depend upon increased production of groundnuts and subsistence crops, par- ticularly millet. The Casamance and certain parts of Senegal Oriental wouid appear to offer the best prospects for further expansion in the near future, and the basin of the Senegal River (which is contiguous with Miauritania and Mali) in the longer term. The Casamance and Oriental togeth- er produce at present about 15% of total groundnut crops, with yields equal to those in Sine Saloum and Thies, but with greater potential for develop- ment. Production Inprovement Program 10. Since 1965 EEC has been financing a five-year production improve- ment program through a grant from FED. The program's basic objectives are to minimize losses in foreign exchange earnings arising from the elimina- tion of the privileged market in France for groundnuts, and to minimize losses in income of the farmers due to the lowered buying price for ground- nuts necessitated by the loss of that privileged market. It was proposed to achieve this by increasing production of groundnuts by 25% by 1970/71, by increasing the output of millet and by diversifying production. The main effort has been concentrated in the groundnut basin, with the emphasis on providing an efficient and intensive extension service and on providing fertilizer on credit at subsidized prices, both to encourage its use and to familiarize the farmers with its potentialities in increasing yields. In practice the extension service has also continued to encourage the use of implements drawn by draft animals to replace the traditional hand meth- ods of farming. These have been provided on credit, although funds for this purpose were not included in the program. The program also covered  hNIC, X 1 Page 4 improvements to the processing facilities at village and district levels, and the Drovision of further storage facilities. Funds were also allocated for seed improvement, soil conservation, to the rural expansion centers (in the first two years of the program), and to centers for training draft oxen. The program has been reasonably successful in that there has been an increase in the use of fertilizer and implements as well as some improvement in farm- ing techniques, but it is unlikely that production in 1970/71 will reach the target of a 255% increase over 1965/66, which would amount to 1.46 million tons. It might, howzever, reach 1.20 million tons, which would be a 25% in- crease over the annual average production for the four years 1962/63 through 1965/66. 11. Funds allocated for the program total CFAF 4.9 billion (US$ 19.6 million) as follows: CF1111 rr:.L1,ion 1965 1966 1967 1963 1969 Total Extens%von serv1:ie 376 392 446 235 - 1.)49 Fertilizer subsidy 217 300 350 307 509 1,683 Processing facilities -- -- 7 945 -- 952 Stcrage facilities -- -- 67 69 _ 136 Seed improvemenaC 50 47 85 52 42 276 Sri ccistrvatIcn 14 4 5 70 129 RhUral expEasioi1 centers -- -- 200 -- -- 200 Training c.enters -- 12 36 10 20 78 Tcte, 603 751 1,205 1,663 601 4?-9O3 Finance for the extension service was due to finish at the end of October 1967, but was extende-. to Ju1ne 30, 1968 by using savi:?gs from other parts of tha -gmam. O1 'lle ;botal su-m provided, 29% is for the extmension service ai, 3751 for fertiH?'z-r subsi6y.  ANNE: 1 Table 1 (A) GROUNDNUT PRODUCTION Area Production Yield Marie ted Year ('000 ha) (2000 tons) (ke/ha) ('000 tona) (%) (1) 1947 - 1951 (Av) 672 561 835 414s 74 1951 - 1955 (Av) 687 552 804 458 83 1955 - 1959 (Av) 815 759 931 675 89 1959 - 1963 (Av) 981 908 926 787 87 1963/64 1,084) 952) 878) 782 82 1964/65 1,055)1,088(Av) 1,019)l,022(Av) 966)940 (Av) 839 82 1965/66 1,114) 1,168) 1,048 984 84 1966/67 1,100) 950) 864 760 80 1967/68 (2) 1,150 1,060 953 870 82 (1): Percent of total production narketed (2): Estimated and provisiosl. Source: IBRD and Ministry of Rural Development (B) GROUNDNUT PRODUCTION BY AI2NISTRATIVE REGIONS 1965/66 Area Production Yield Marie tad Region ('000 ha) ('000 tons) (kg/ha) ('000 tons) (%) (2) Sine Saloum (1) 499 555 1,112 467 47 Thies (1) 146 150 1,027 128 13 Diourbel (1) 285 277 972 242 25 Subtotal 930 982 1,056 837 85 River 27 16 589 4 - Oriental 35 36 1,051 34 4 Casamance 118 132 1,116 108 11 Cap-Vert 4 2 500 1 - Total 1,114 1,168 1,048 984 100 (1): Areas in which the extension service covers 00,000 ha approximately (2): Percent of total nnrketed Sources: BCUO and Ministry a Rural Development (C) MLIN AGRICULTURAL CROPS (other than groundnuta) 1963/64 1964/65 1965/66 1966/67 (i) Production ('000 tons) Millst 478 532 554 423 Rice (piLddy) 106 110 122 125 Cowpeas 14 17 14 16 Cassava 152 156 150 241 Maize 27 37 40 40 Market gardening 31 32 32 32 Total 808 884 912 877 (ii) Cultivated area ('000 ha) Millet 959 1,010 1,069 - Rice (paddy) 75 86 82 - Cowpeas 51 56 53 - Cassava 34 33 38 - Maize 33 47 54 - Marie t gardening 3 3 3 - Total 1,155 1,235 1,299 - (iii ) Yielda (kg/ha) millet 490 530 520 - Rice (paddy) 1,410 1,280 1,490 - Covweas 270 300 260 - Cassava 4,4701 4,730 3,950 - Maize 820 790 740 - Source: IBRD and Ministry of Rural Development  ANNEX 2 EXTENSION SERVICES A. Background 1. The provision of extension services is nominally the responsibil- ity of the Ministry of Rural Development, but the only effective services are those provided until recently by SATEC in the groundnut basin, and by CFDT in Senegal Oriental on a very small scale for cotton producers. The "Centers of Rural Expansion" operated by Government, which nominally pro- vide extension services in agriculture, medicine, veterinary and other rural social work are relatively ineffective. In 1963, when investigating the introduction of the production improvement program, Government considered that nothing effective could be done without the provision of an extension service capable of meeting the needs of the rural population in the ground- nut basin. This required the building up of an effective organization in the shortest possible time, and SATEC was entrusted with this work. As from July 1968, a new Senegalese organization, Societe de Developpement et de Vulgarisation Agricole (SODEVA), has taken over responsibility from SATEC for this service in the groundnut basin (para 10 below). B. SATEC Constitution and Organization 2. The Societe d'Aide Technique et de Cooperation (SATEC) was formed in France in 1956 as a state organization responsible to the French Minis- tries of Finance and of Overseas Departments and Territories. Its objec- tives are to give assistance (both in France and overseas) for the develop- ment of production, in particular for the small-scale farmers and fishermen and for small-scale industries. Assistance is generally in the form of technical aid, particularly by supporting specialist organizations such as cooperative societies formed for the production and marketing of agricul- tural produce. It is also empowered to make social and economic studies. SATEC was set up with a capital of 12 million French francs (US$ 2.4 mil- lion). Its head office is in Paris. It is required to conform to the French laws for private enterprises. It is administered by an Administra- tive Council of 22 members, representing the various ministries and organi- zations concerned with home and overseas development. Most of the duties of the Council have been delegated to two executive committees of nine members each, one responsible for activities within France and the other for activities overseas. 3. In the field of agriculture SATEC has three projects in France, has projects in five territories outside Africa, and is also working in Senegal and five other African countries. Projects include rural land re- form, improvement of smallholder groundnuts, bananas, sugar beet and rice, and a number of agricultural studies. In the industrial field it is working in five overseas countries. Its total permanent staff is about 4OO, of which about three-fifths are overseas. Local staff overseas number over  A10EX 2 Page 2 1,600, of which about one-sixth are expatriates under contract. Total ex- penditure by SATEC in 1967 was of the order of 46 million French francs (US' 9.3 million), of which a little over half came from public funds in France, one-quarter from FED, alnost 5,% from national budgets in the coun- tries in which it operates, and the balance from other sources. Senegal Agreement 4. The terms and conditions under which SATEC has been operating in Senegal were covered by an agreem,ent between it and the Government dated September 1964, under which SATEC agreed to provide an extension service with the following objectives: (a) to increase the production of groundnuts in the areas in which it operates by 25% over a three-year period; (b) to help diversify production, particularly by promoting increased production of millet; (c) to promote more intensive cultivation by the introduction of more modern methods and by integration of livestock with agriculture where possible; and (d) to form, outside of the existing public service, an extension service capable of continuing the work after it leaves. 5. The three main regions in which SATEC has been operating are Thies, Diourbel and Kaolak. The precise demarcation of this area is shown in Map 2 as the project area. In order to provide the extension service SATEC agreed that, in collaboration with the existing government services, it would re- cruit the necessary cadre of Senegalese extension officers, support the work of the Centers of Rural Expansion, and give technical assistance to the cooperatives, particularly by determining their production needs and prepar- ing their annual agricultural program. In accordance with the agreement SATEC opened a head office in Dakar working under the direction of the Ministry of Rural Development in liaison with the Ministry of Planning and Industry, and a regional office in each of the three regions, working under the authority of the regional governor. Government provided furnished quarters for six officers in Dakar, and for two in each of the regions, and provided offices for the regional engineers. 6. Under the agreement SATEC was responsible for all the financial operations of its organization, including payment of staff and the trans- portation of expatriates. Government nominally paid all expenses of SATEC, by agreeing an annual program and its financing prior to the beginning of each year. SATEC received 45, of the total when the program was agreed, 25% on July 1, 25% on October 1, and the balance (5%) on December 1. Since the funds for SATW-C were provided from FED and French Government sources, the method of payment was regulated by an agreement between them and the Senegal Government. SATEC was required to submit an annual report to the latter. 7. Its work has been supervised at national level by a Working Commit- tee consisting of the Minister of Rural Development as Chairman, and nine members representing Government departments and organizations, together with the SATEC representative in Dakar. The current agreement was valid to  A11\HEX 2 Page 3 October 31, 1967, and was later extended to June 30, 1968. SATEC is also responsible for technical assistance for an irrigated rice project of about 6,000 ha in the delta of the Senegal River, under a separate agreement with the Government. Staff 8. SATEC was started in a small way in April 1964, and during the 1965/66 season its service was extended to cover the whole of the non- marginal area of the groundnut basin. As at the end of 1967 total technical staff was as follows: Expatriate Senegalese Total Head Office 7 1 8 Regional Engineers 3 -- 3 Assistant Regional Engineers 3 2 5 Regional Extension Techni- cians 8 h 12 Technical Assistants 15 42 57 Extension Workers -- 700 700 Total 36 749 785 At the start of the program the expatriate staff numbered over 50 and most of the reduction since has been at Technical Assistant level. A small office staff is maintained at the Head Office and the three regional offices. Annual cost of the wihole of the SATEC operation in 1967/68 was about CFAF 60o million. C. SODEVA Constitution 9. SODEVA was set up in 1968. Its main object is to provide, within the framework of the national development plan, technical assistance to increase agricultural productivity, in particular by popularizing techniques for the development of agriculture, with special emphasis on the improvement of production technioues, land improvement, and the combination of agricul- ture with livestock. It can enter into agreements with Government to provide extension services in specific areas, similar to those entered into in the past between SATEC and the Government. Its fixed capital is CFAF 10 million, with the Govermnent as principal shareholder, and SATEC holding some shares. It is governed by a Board of between three and twelve members. 10. SODEVA has entered into an agreement with Government to provide extension and cooperative services in the project area on very similar terms to those between SATEC and the Government, and outlined in paras 4 to 7 above.  ANEX 2 Page 4 lianagement 11. On the formation of SODEVA, all the Senegalese staff of SATEC were transferred to SODEVA, on the same terms and conditions of employment. At the same time SODEVA entered into an agreement with SATEC under which the latter will provide management services and expatriate personnel to SODEVA during the first three years of its existence. The agreement provides for the appointment of the SATEC mission chief to act as Director General of SODEVA for the first year ending June 30, 1969, after which a Senegalese Director General would be appointed. The number of expatriates would be reduced from h2 in the first year to eight in the last year, as follows: Year 1968 1969 1970 1971 Semester 2 1 2 1 2 1 Senior Cadres 19 19 14 13 8 8 Regional Extension Technicians 11 11 8 8 - - Technical Assistants 12 12 8 8 - - Total 42 42 30 29 8 8 Cost 12. The combined cost of the project extension service through SATEC/ SODEVA is estimated to be as follows for the three years (July 1 to June 30): CFA,F million 1968/69 1969/70 1970/71 Total Expatriates 280 233 115 628 Senegalese l4j. 152 160 456 Buildings and staff services 61 59 55 175 Counterpart training LI9 7i. 90 213 Total 534 213 420 1,472 Of the above cost, half i2 ^d culated t; be due to services rendered by the extension service on behaif cl tie (cooperatives (para 13), after deducting the cost of counterpart tra