Senegal - Agricultural Services and Producer Organizations Project

Document of The World Bank Report No: 18554-SE PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF US$27.4 (SDR 20.2 MILLION EQUIVALENT) TO THE REPUBLIC OF SENEGAL FOR AN AGRICULTURAL SERVICES AND PRODUCER ORGANIZATIONS PROJECT IN SUPPORT OF THE FIRST PHASE OF THE AGRICULTURAL SERVICES AND PRODUCER ORGANIZATIONS PROGRAM April 8, 1999 Rural Development III Country Department 14 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 1998) Currency Unit = CFA franc (CFAF) US$1.00 = 550CFAfranc FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank Banque Africaine de Developpement AFD Agence Fran,aise de Developpement AGEP Agence d 'Execution des Projets Ag. SECAL Agricultural Sector Adjustment Credit ANCAR Agence Nationale de Conseil Agricole et Rural (National Agency for Agricultural and Rural Counsel) ANPCR Association Nationale des Presidents de Communaute's Rurales (National Association of the Presidents of Rural Communities) APL Adaptable Program Loan ASPRODEB Association Senegalaise pour la Promotion des Petits Projets de Developpement CAMES Conseil Africain et Mlalgache de I 'Enseignement Supirieur (African and Malagasy Council for Higher Education) CAS Country Assistance Strategy CFA Communaute Financiere Africaine CIDA Canadian International Development Agency CLCOP Cadre Local de Concertation des Organisations de Producteurs CRCOP Cadre Regional de Concertation des Organisations de Producteurs CNCR Conseil National de Concertation et de Cooperation des Ruraux (National Rural People Council for Consultation and Cooperation) CPSP Caisse de Pe'requation et de Stabilisation des Prix (Price Stabilization Agency) CSE Centre de Suivi Ecologique (Center for Environmental Monitoring) DDI Direction de la Dette et de I 'Investissement du Ministire de l 'Economie, des Finances et du Plan (Directorate of Debt and Investment of the Ministry of Economics, Finances and Planning) DDRSF Demand-Driven Rural Services Fund DDRIF Demand-Driven Rural Investment Fund EIMSV Ecole Inter-Etats de Medecine et de Sciences Veterinaire (Regional School for Veterinary Sciences and Medicine) ENSA Ecole Nationale des Sciences de / 'Agriculture (National School for Agricultural Sciences) EPST Etablissement Public az caractere Scientifique et Technique (Public Agency for Science and Technology) Vice President: Mr. Jean-Louis Sarbib Country Director: Mr. Mahmood Ayub Sector Manager: Mr. Jean-Paul Chausse Task Team Leader: Mrs. Marie-Helene Collion  FAO Food and Agricultural Organizationi of the United Nations Orgcinisation des Nations Unies pour' 1 alinentation et I/ 'agricultu-re FONGS Federation Nationale des Organisatiots non Goi/l'ernwtneL/aleS dle Sehnegal GOS Government of Senegal IAPSO Inter-Agency Procuremilenit Service IAS International Accounting Standaid ICB International Competitive Biddin,, IFAD International Fund for Agricultural Development ISRA Institut Senegalais de Recherches Agricole (Senegalese Agricultural Research Institute) ITA Inst it t de Technologie Alimentaire (Food Techinology Instittite) LPDI Lettre de Politique de DThveloppemnent Instituitiowniel (Letter of Institutional Development Policy) MA Ministry of Agriculture ML Ministry of Livestock NARS National Agriculture Research System NARF National Agricultural Research Fund NCB National Competitive Bidding NGO Non-Governmental Organization OCIR Opportunity Cost of Capital PNVA Projet National de Vulgarisation Agricole (National Extension Project) PO Producer Organizations QBCS Quality-Based and Cost Selection R&D Research and Development SAED Societe d 'Amenagement et d 'Exploitation des Terres du Delta du Fleuve Senegal et des Vallees du Fleuve Senegal et de la Faleene (Senegal River Valley Development Agency) SDRD Societes Regionales de Developpement Rural SODAGRI Societe' de Developpement Agricole et Industrielle du Seneigal SODEFITEX Societe pour le Developpement des Fibres Textiles (Cotton Development Company) SODEVA Societe de DIveloppement et de Vulgarisation Agricole (Extension Services Agency for the Peanut Bassin) SOE Statement of Expenditure SONACOS Societe Nationale de Commercialisation des Oleagineux (Groundnut Oil Company) STC Scientific and Technical Committee UE Union Europeenne (European Union) UNDP United Nations Development Project USAID United States Agency for International Development TEA Technical Executing Agency WARF West African Rural Foundation  Senegal Agricultural Services and Producer Organizations Program CONTENTS A: Program Purpose and Project Development Objective ..............................................................- 2 1. Program purpose and program phasing .................................................................. 2 2. Project development objectives ......................... ........................................3 3. Key Project performance indicators and triggers for the second phase .........................4 B: Strategic Context ..................................................................5 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project .......5 2. Main sector issues and Governmeit strategy ................................................................6 3. Sector issues to be addressed by the project and strategic choices ................................7 4. Program description and performance triggers for subsequienit loans .......................... 10 C: Project Description Summary .................................................................. 10 1. Project components ................................................................. 10 2. Key policy and institutional reforms supported by the Project ................................... 12 3. Benefits and target populationi ..................................................................13 4. Institutional and implementationi arrangemenits ........................................................... 14 5. Accounting. Auditinig and Reporting ................................................................. 15 D: Project Rationale ................................................................. 18 1. Project alternatives considered and reasons for rejection ............................................ 18 2. Major related projects financed by the Bank and/or other development agencies ...... 18 3. Lessons learned and reflected in the project design . ................................................... 19 4. Indications of borrower commitment and ownership .................................................. 19 5. Value added of Bank and IFAD support in this project .............................................. 20 E: Summary Project Analysis .................................................................. 1 1. Economic ................................................................. 21 2. Impact of recurrent costs on public finances ...............................................................2 1 3. Technical ................................................................. " 4. Institutional ................................................................. " 5. Social .................................................................. 6. Environmental assessment ................................................................. 23 7. Participatory approach ................................................................. 23 F: Sustainability and Risks ................................................................. 24 G: Main Credit Conditions ................................................................. 25 Agreements to be reached and recommendations ............................................................. 25 Tasks to be completed for Board presentation ................................................................. 26 Tasks to be completed before credit effectiveness . .......................................................... 26 Tasks to be completed before component disbursement .................................................. 27 H: Readiness for Implementation ................................................................. 27 1: Compliance with Bank Policies ................................................................. 28  Annexes Annex 1. Project Design Summary .......................................... 29 Annex 11. Project Description .......................................... 47 Annex Ill. Estimated Project Costs .......................................... 59 Annex IV. Economic and Financial Analysis .......................................... 67 Annex V. Impact of Recurrent Project Costs on Public Finanices ....................................... 71 Annex VI. Procurement and Disbursemenit Arrangemilenits ............................................ 76 Table A. Project Costs by Procurement Arrangemenlts .................................. 78 Table B. Thresholds for Procurement Methods and Prior Review ................................ 79 Table C. Allocation of Loan Proceeds .......................................... 83 Annex VII. Project Processing Budget and Schedule .......................................... 84 Annex Vil. Documents in Project File .......................................... 85 Annex IX. Letter of Institutional Developmenit Policy .......................................... 94 Annex X Statement of Loans and Credits .......................................... 122 Annex Xi. Country at a Glance .......................................... 124 Map IBRD 29989  Senegal Agricultural Services and Producer Organizations Program Project Appraisal Document Africa Region Counitry Departiment 14 Date: April 8. 1999 ['ask 'l'car leader: Mlarie-llnlunc Collion Country Director: Mahmood A. Ayub Sector Nlager: Jean-Paul Chausse Project ID: SN-PA-2367 Sector: Rural Development Program Objective Catcgorv: lSD,'I.SI),'PR Lending Instrument: Adaptable Program Lending Program of' l'argeted Interveintioni: [XI Yes 11 No Program Financing Data Source Government Beneficiaries IFAD IDA Total Phase l 13.5 0.2 6.0 27.4 47.1 Phase 1i 11.5 0.7 4.2 21.3 37.7 Phase III 11.9 0.7 5.3 21.1 39.0 l'otal l'rogram Costs 36.9 1.6 15.5 69.8 123.8 IJSI) Project Financing Data [ I Loan [XI Credit I I Guarantee [I Other [Specify! Amount: SDR 20.2 million (US$27.4 million equivalent) Proposed terms: [xi Multicurrcncy [ j Single currency. specify Grace period (years): 10 [I Standard Variable F Fixed [I 1113OR-hased Years to maturitv: 40 Commitment fee: 0.5% Service charge: 0.75% Financing plan (LJS$ni): Source Taxes l.ocal Foreign T'otal Government 8.0 1.9 3.6 13.5 IIFA) 2.5 3.5 6.0 Beneficiarics 0.2 0).2 IDA 11.6 15.8 27.4 'I'otal 8. 0 16. 1 23.0 47.1 Borrower: Republic of Senegal Responsible agencies: Ministries of Agriculture and Livestock. National Agricultural Resciarcih Fund (NARF): Senegalese Agricultuiral Research Institute (ISRA): Food 'I'echnology Instituite ([IA): National Agency lor Agricultural and Rurai CoLinsel (ANCAAR): Association Senegalaise poutr la Promotion ties 1'etis l'ruoje's (It /)i;)t'eloppm'nut' (ASPRODE1B). . Estimated disbursements (Bank FY/US$M): 1999 2000 200)1 20)02 Annual 2.4 11.0 8.() 6.0) Cumulative 2.4 13.4 2.4 27.7 For Guarantees: [ Plartiail P artial risk credit Proposed coverage: Project sponsor: Nature of underlying financing: Terms of financing: Principal amount (US$) Final maturity Amortization profile Financing available without guarantee?: [ Yes I No If yes. estimated cost or maturity: Estimated financing cost or maturity with guarantee: Project implementation period: 3 years Expected effectiveness date: I)ecemher 3 1. 1999 Expected closing date: December 31, 2002  Page 2 A: Program Purpose and Project Development Objective 1. Program purpose and program phasing (see Annex 1) Poverty alleviation is at the core of the Program. To achieve this goal, the overall Program objective is the sustainable increase of smalliholder agricultural productivity, production. and incomiies through technological change, while at the same time protecting the environilmienit. Toward this end, the approach to supporting agricultural developmenit must change. For technologies to be relevant to producers' needs, agricultural services must be client-responisive and demanld-driveni. The strategy the Program will pursue to achieve the overall objective will be: (i) empowerilienit of producers and their organizationis, so that they have the technical and organizational capacity to formulate their demands and to apply leverage, particularly financial, to make their voices heard; (ii) public services institution accoulitability to producers, which implies increased auton1omily of these institutionis and major changes in their organization and managemenit to implemenit businiess-like management practices. Therefore, the long-term vision for rural institutions involved in agriculttiral development is the following: (a) Strong and effective producer organizationls at -nationial, regional and local levels, capable of: (i) having a say. technically and financially, in technology genierationi and transfer: and (ii) effectively providing services to their members to promote technology adoption. Producer organizations will be able to participate in the finanicinig of research and extensionl activities out of, inter alia, the existing levies on agricultural productioll, whiich will be co-maniaged withi the government in the fuIture. This proposed arrangemiienit will be subject to the results of on-goilng studies and negotiationis between the Govermiienit and the producers. (b) Extension services accountable to producers and responsive to producers' demilanid. Decision- makinig regarding extension programs and maniagemilenit will be in the hands of producer organizationis, who will bear a substantial share of the costs of these services, in part through existing levies co-managed with the government. (c) A separation of research funding from research executioll. All research activities will be financed out of a National Agricultural Research Fund (NARF) managed independently from the implementinig research institutes. Decisions regarding research allocations will be made by a scientific committee and a management committee with a majority representation of research users. (d) At the local level, research and development (R&D) and extension activities will be identified and programmed jointly with producer organizations and be subject to contractual arrangements between producer organizations, on the one hand, and research and extension on the other. (e) The Ministries of Agriculture and Livestock will be focused on policy formulation, monitoring and evaluation, and regulatory functions, with corresponding services strengthened and relocated to the regions. Mandates between the Ministries and their agencies (Societs Regionales de Developpement Ruiral SRDR) and between the Ministries' agencies and the extension services will be clearly separated. The above is reflected in the Letter of Institutional Development Policy which was reviewed by the Association during negotiations and has been adopted by the Government. It is envisioned that achieving this long-term vision-which entails major institutional reforms and investment in social capital-requires long-term support. Therefore a 10-year Program has been designed in three phases. It will be implemented through an Adaptable Program Loan (APL).  Page 3 Program Phase Objectives Trigger Conditions First Phase (1999-2002). To set in place the institutional See detailed trigger conditions in Section A reforms to achieve autonomy and accountability of public 3. agencies and empower producer organizations. Second Phase (2003-2005). To consolidate the Institutional reforms achieved during the first achievements of the first phase, -in particular the phase have been consolidated. accountability and responsiveness of research and extension agencies, -and thus create an environment in The institutiolns involved functionl according which the beneficiaries are willing to assume an to their manual of procedures and remain increasing share of the cost of the services they receive. accountable to the users. Third Phase (2006-2009). To ensure the long-term sustainability of the system by completing the transfer of financial responsibility for operating costs to producers and other shareholders/clients of the research and extension agencies. 2. Project development objectives The overall objective of the first phase of the Program (the Project) is to set in place the institutionial reforms to achieve autonomy and accountability of public agencies and empower producer organizations. Specific objectives are as follows: (a) establish an effective national agriculture and agroprocessing research system capable of responding to users' needs and making an optimum use of the country's available resources, through the National Agricultural Research Fund; (b) improve the efficiency of Institut Senegalais de Recherches Agricole (ISRA) and of the Inslitil de Technologie Alimentaire (ITA), through improving their scientific and maniagerial capabilities: rehabilitating their infrastructure and upgrading their equipment; (c) establish extension services accountable to producers and responsive to their needs through contractual arrangements; (d) improve producer organizations' ability to provide services to their members to access inputs, credit and marketing and to make their voice heard in the decision-making processes; (e) focus the Ministries' services on their regulatory, policy-making and monitoring functions, strengthen their capabilities in these domains, and devolve the services to the regions.  Page 4 3. Key Project performance indicators and triggersfor tle second phase A joint Government/World Bank/IFAD evaluation will determine the extent to which the above objectives have been fulfilled. For each component, the key indicators for this first phase and trigger conditions for the second phase are as indicated in the following table: Project Development Key performance indicators and triggers for the second phase Objectives Establish an effective national - NARF is a legal entity governed by private law with terms of agriculture and agroprocessing reference satisfactory for the Association. research system - NARF functions satisfactorily according to agreed upOnI policies and procedures, certified by an independent management audit. - Two other donors contribute to NARF, for a minimum of 10%. Improve ISRA and ITA - ISRA and ITA are operating satisfactorily according to their various efficiency management and organizational manuals. -Financial management and accounting systems are functioning adequately as reflected in the annual audit reports, which are unqualified, except for minor qualifications. -At least 15 ISRA projects and 5 ITA projects have been approved by NARF. Four of these are joint ventures. Establish extension services -The government holds a maximum of 49% of ANCAR's share; accountable to producers and responsive to their needs -ANCAR successfully established a decentralized extension service, through contractual with contractual arrangements with producer organizations, over at arrangements least 142 rural communes; -Producer organizations contribute to ANCAR's operating costs (including salaries), either directly or through contractual arrangements at the local level; -An evaluation of staff performance has been carried out after a two- year probation period and for each staff, a decision has been made (contract renewal or redeployment to the civil service). -All ANCAR staff is contractual. -ANCAR operates according to satisfactory policies and procedures, in particular as far as the financial management and accounting system is concerned, as reflected in the audit reports.  Page 5 Project Development Key performance indicators and triggers for the second phase Objectives Improve producer Satisfactory functioning of the Demand-Driven Rural Services Fund, organizations' ability to with at least 142 local and 10 regional committees effectively provide services to their functioning and 5 subprojects approved per committee; members to access inputs, credit and marketing and to The National Rural People Coun1cil for Consultation and Cooperation make their voice heard in the (CNCR) contributes to the funding of its own operating costs decision-making processes; (excluding its public service functions) out of its own resources POs provide at least 75% of the services requested by their members All POs requests for technology are taken into account either in research proposals or extension programs Focus the Ministries' services The agreed upon redeployment of personnel is completed, including for on their regulatory, policy- the personnel currently seconded to projects and to the Societes making and monitoring Regionales de Developpenient Ruiral (SRDR). functions and strengthen their capabilities in these domains The extensioni mandate of the SRDRs and ANCAR has been redefined on the basis of an external evaluation including the cost-efficiency of each structure, beneficiaries satisfaction and relevance of extension services in order to decide on the institutional modalities for carrying out extension services. The Ministries focus only on their regulatory, policy-making and monitoring functions. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1). CAS docutment nurm7ber: 17269-SE. Date of latest CAS discussion: January 1998. In contrast with most African countries, the agricultural sector (including forestry, livestock and fisheries) accounts for only 20 percent of GDP. Agriculture is, however, the main occupation of 60 percent of the population. A large portion of foreign exchange earnings comes from the agricultural sector, with groundnut exports ranking third to fish exports and tourism. Despite the limited natural resource base and adverse agro-climatic conditions, the agricultural sector offers a substantial source of growth and employment creation, especially when considering all the backward- and forward-linkages associated with agricultural production. The potential for productivity increase in the rainfed sector, which occupies 95 percent of the total farming population, can be achieved at a relatively low cost: technologies exist that require limited amounts of modern, imported inputs. The core objective of the CAS is economic growth with social sustainability and targeted poverty reduction. Poverty is essentially a rural phenomenon: 45% of the rural households are poor, while 80 percent of poor households live in rural areas. Over the last two decades, rural poverty has deepened, as agricultural production stagnated, while rural population was increasing by more than 2 percent per annum. This resulted in an estimated reduction of agricultural production per capita of rural population of some 40 percent since the beginning of the 1970's. Poverty is not only the result of lack of economic  Page 6 opportunities but also of the lack of capacity of poor people to make their voices heard and to articulate their demand vis-a-vis the actors and service agencies that regulate rural production activities. Increasing the income and well being of the rural poor will be closely related to improvements in agricultural productivity and sustainable increases in agricultural production, both for home-consumption and marketing. The Agricultural Services and Producer Organizations Program will contribute to the CAS poverty alleviation objective in two ways: (i) by accelerating technological changes and generating sustained productivity increases through accountable and cost-effective agricultural services institutions, responsive to the needs of producers, especially the poorest producers, most of whom are women; and (ii) by empowering producers and strengthening the capacity of their organizations, so that they can effectively articulate their demands and ensure that public services respond to their needs. 2. Main sector issues and Government strategy. Recent trends. Although statistics are not reliable, there is little doubt that agricultural production has stagnated or even regressed since the beginning of the decade. The competitiveness of the sector improved since the parity change of the CFA in January 1994, but the supply response appears to have been more muted than in other countries of the CFA zone. While pockets of dynamism exist (horticultural crops), there has been little sign of increased production/intensification, neither for the main cash crops of cotton and groundnuts, nor in the best endowed regions in terms of rainfall (except for Sine Saloum). Irrigated rice production in the Senegal river basin, which has received extremely costly investments over the last three decades, is confronted withi serious structural constraints that need to be fully addressed if it is to ever compete with imports from Asia. Constraints. (a) Natural resources. Agriculture is predominantly rainfed and production is characterized by low input, low output technologies. Annual rainfall is low and irregular. Soils are generally of poor quality, lacking organic matter and important micro-nutrients, and prone to rapid degradation if inadequately managed. Water and biomass resources are limited and fragile. A crucial issue, which will affect future agricultural development, is the increasing degradation of natural resources (soil and rangeland degradation, loss of forest cover, decapitalization of marine resources and lowering of water table). The limited natural resource base and its degradation is one of the causes of agricultural stagnation or even decline in some areas which have been particularly over-exploited in the past. The Groundnut Basin is a particularly striking example of a region where the decline and degradation have been severe. The climatic risk is also a major factor in sustained production and productivity increase. The effect of a drought reverberates for many years by its negative impact on productive assets and on the behavior of farmers who select low risk/low productivity production systems. (b) Economic Reforms. Over the past decade, albeit slowly and with considerable internal resistance, the Government has reduced its omnipresence and support to private monopolies in input pricing and distribution, imports of agricultural products and inputs, and processing and marketing of agricultural products. However, the sector is not yet completely liberalized. The State is still involved in some sub-sectors. Public and private monopoly situations still exist, albeit through covert forms-for example in the fertilizer industry and imports-thereby reducing farmers' income and affecting their incentives and ability to invest. Exporters still face a multitude of regulatory hurdles that limit their ability to penetrate increasingly competitive export markets. (c) Institutional Reforms. It is now official policy that the State should focus on providing a policy environment supportive of private sector development and on the provision of public goods  Page 7 (basic social services and infrastructure, environmental protection). Progress has been made: producer organizations have recently emerged as credible interlocutors of the State and decentralization is gradually empowering local governments and rural communities to participate in the management of their resources and development.1 The 1995 Agricultural Development Policy Letter, as well as the more recent Agricultural Strategy Document (Docziiient d'Orientation Straligique), clearly state that tile responsibility for several functionis that were previously exclusively within the Ministry's mandate will now be shared with producers' associations. However, much remains to be done to restructure public agencies. Changinig their centralist and dirigiste culture towards a supportive role will further strengthen farmers organizations and provide a concrete contenit to the on-goinig decentralization process. Also, the institutionial framework for access to and managemenit of natural resources-such as lanid, water, and forests-needs to be revised to improve productivity and ensure conservation. (d) Weak producer orgaanizationis. Though producer organizations are organized up to the national level, they remaini by and large not as effective as they could be. Their weaknesses stem from managerial and organiizationial difficulties: they lack well trained human resources; their capacity to commllun.icate with their members and to keep informationi flowing in both directions is weak: and they lack finanicial leverage. In the case of producer organizations which have been goverinmenit- or donor-indticed, their leaders' legitimacy is often in doubt. (e) Access to basic services. Farmers' adoption of improved technologies has been limited. The research system-lacking efficiency and responsiveness to farmers' concerns-has been slow to develop techinologies appropriate to farmers' socio-economic and agroecological conditions. A largely unlresponisive public extensioni service ineffectively disseminates available technologies. While a large percentage of farmers are women, agricultuiral services are not readily available for them. Farmers, especially women, have difficulties accessing credit and agricultural inputs. Rtural populations' access to basic education and health services and to clean water is very low, and will need to be greatly improved if Senegalese farmers are to become more productive and open to technological innovations and market opportunities. (f) Access to markets. Because of the poor network of rural/feeder roads, large tracts of rural areas are not adequately linked to markets, thus hindering farmers from fully exploiting the new opportunities offered by increased urban demand and export possibilities. 3. Sector issues to be a(ldressed by thle project and strategic chtoices. In agreement with the government, the focus of Bank assistance under the proposed Program will be on: (i) institutional reforms, including the restructuring of the Ministries of Agriculture and Livestock, to make agricultural services accountable, more demand-driven and cost-efficient and to transfer or share with the private sector and civil society a number of functions; (ii) generation and transfer of technologies to improve agricultural productivity in a sustainable way, diversify, and conserve the natural resource base; (iii) empowerment and capacity-building of producer organizations. To date, implementation of these policies has resulted in the liberalization of rice imports in October 1995, the privatization of the rice mills previously operated by Societe d'Amenagement et d'Exploitation des Terres du Delta du Fleuve (SAED), and the liquidation of the Price Stabilization Agency (CPSP) in February 1996. The Goundnut Oil Company (SONACOS) was offered for sale (unsuccessfully) in December 1995 and the groundnut price stabilization fund was restructured during the same period. With respect to the cotton subsector, Cotton Development Company (SODEFITEX) is being reorganized to separate its public service activities from its agro-industrial activities and to bring the agency under common law status. In the medium term, the objective is that SODEFITEX should retain only the agro- industrial activities strictly related to cotton, which will allow for privatization.  Page 8 A continuation of previous research and extension projects? The operation was first intended to be a continuation and a merging of the Agricultural Extension and Agricultural Research 1I Projects. The mid-term reviews and implementation completion reports for these projects had identified one of the problems as being the lack of accountability of the research and extension institutionis to producers and lack of responsiveness to their needs. Failure to involve the maii users in the technology generationi and dissemination process had led to several inefficiencies, among them: (i) the generation and extension of technologies that do not correspond to the diversity of socio-economic and agroecological constrainits and fail to take into account an important source of informationi, farmers' indigenous knowledge; and (ii) delays in technology dissemination and adoption. A three-pronged approach to agricultural services with a "support to producer organizations" component. To address the above issue, the Program was designed from the start to bring together technology users and suppliers, ulider a three-pronged approacih to agricultural services, based on collaboration of producer organizations, research, and extensioni. Producer organizationis have a crucial role to play in defining the research and extensioni agenda and priorities, in accelerating the diffusion of information and in providing services to producers to facilitate technology adoption. Therefore, they can bring about more demand- driven and accoulitable agricultural services. However, producer organizationis will need support to build up their capacity before they can play an effective role in the tecihnology developmenit and diffusion process, whilch is why a support-to-producer organiizationis component was introdIuced. Support to producer organizationis: Unit withini the extension services or social fund? To implement the support to producer organizationis program (PO), the idea of having a unit within the extension services that will provide technical support to PO's was considered and rejected. As part of capacity-building, it is essential to empower producers to ma;ke their own decisions as to the type of support they need and whiich supplier will provide this support to themil. Hence the decision to finance the support to PO's tilrougih a social fund mechanism: the Demand-Driven Rural Services Fund (DDRSF), with an indepenidenit private agency (NGO or other supplier of services) as a facilitator (See Annex 2). Extensioni Services. Lessons learned from the previous project lead to the conclusion that the present institutional set up (i.e. many agencies involved in extension, with extension being for most of them a secondary activity) had lead to the suboptimal performances observed. Hence, the decision was made to create one single umbrella institution for extension services. The next question was the legal status of the umbrella institution. Making the institutions accountable to the beneficiaries was a major consideration that lead to rejecting two options for the legal status. One option was the creation of a Directorate for extension services within the Ministry of Agriculture (MA), the other was to create the National Agency for Agricultural and Rural Counsel (ANCAR) as a public agency. Both options meant that the extension services will remain under the public service, albeit with more autonomy from the ministry with the second option. The status finally chosen, that of a societe a participation publique majoritaire, allows for the participation of stakeholders in ANCAR's capital (up to 49%), in its governing bodies and in the financing of its recurrent costs. This should not only ensure accountability but also the sustainable funding of the Agency, provided beneficiaries are satisfied. It also allows the beneficiaries to progressively take over the control of the agency through the buying of capital shares. Hence it is envisioned that ANCAR will evolve to become a sociefe ai participation publique minoritaire at the end of the first phase of the Program. This status was also adopted to give ANCAR the maximum degree of autonomy, which it will not have had under the other options. ANCAR will have the flexibility to adopt business-like management practices, including hiring staff under contractual arrangements and a system of personnel incentives and promotion that will reward best performance and ensure accountability to users.  Page 9 Research. Financing only research on agricultural production under ISRA, as it had been done under the first two projects was considered unsatisfactory. In Senegal, the opportunities for added-value and growth in agroprocessing may be relatively important compared with productivity gains in production. Thus, the Implementation Completion report of the Agricultural Research 11 Project recommended to invest simultaneously in postharvest and production research. Hence, the inclusion of the Food Technology Institute (ITA) under the Program. Perhaps the most important institutional reforms introduced was to step away from the national research institutes (ISRA and ITA) as the exclusive buLilding blocks for inproving research capacity and performance. The challenge for Senegal is to determine how to exploit the complementarities between the various actors involved in researchr-mainly the University, agricultural schools and NGOs-so as to allow additional scientific skills and resources to be tapped and therefore develop a well-articulated research system. Toward this end, the Program will separate the function of research funding from that of execution, through the creation of the NARF. A separate funding body has a number of advantages over the direct funding of an executing institute: (i) it allows for effective involvement of research users and stakeholders in priority setting and resource allocation; thus it interests themil in funding research and provides an enablinig environiienit for sustailiable fuLidinig; (ii) it allows other research suppliers (other than ISRA and ITA) to have access to funding, tihus it ensures an optimal utilization of scarce human and physical resources, provides the financial tool for building a national agricultural research system; and promotes collaboration among all entities involved; (iii) it improves the scientific quality and relevance of research activities through scientific rigor in proposal selection and implementation through external control and reviews, void of conflicts of interests; (iv) it ensures that funding is effectively allocated to the team of researchers whose proposal has been approved; (v) it enforces researchers' accountability for results. Restructuring of the Ministry of Agriculture. The restructuring of the Ministry was not part of the Project design at first. During the course of project preparation, it appeared that it could not be left aside for several reasons. The creation of ANCAR introduced a new institution within the complex Senegalese institutional arrangement. Other parastal agencies such as the Extension Services Agency for the Peanut Basin (SODEVA), SAED and SODEFITEX also have a mandate for supplying extension services in their geographic area. SODEVA was expected to close down as a result of the creation of ANCAR, the mandates of SAED and SODEFITEX were expected to be revised, not only as a result of ANCAR's creation, but also because of the Ministry redefining its public service function, and transferring or sharing many functions to civil society and the private sector. In addition to redefining the institutional context, there were additional considerations for adding this component. Since the overall objective of the Program is to improve the performances and responsive- ness of agricultural services as a whole, supporting the Ministry's effort to strengthen its public services functions and to transfer its other functions, appeared as an essential complement to the other components. Finally, under the restructuring, the Ministry was expected to relocate its services to the regions, in line with the recently adopted laws on decentralization. The Bank should be supporting these efforts.  Page 10 4. Program description and performance triggers for s ubsequent loans The Program will support the following components: (a) Research funiding, through the NARF. NARF will finanice priority research themes on a selective basis and Linder contractual arrangemenit. Research proposals will come mainly from ISRA, with a research mandate in agricultural production, and ITA with a research mandate in post-harvest and agroprocessing, but also from the Universities, NGO's, or other instittites, or from two or more of these instittitions presentinig a joinlt proposal. (b) Research instituite development (ISRA and ITA). The Program will support ISRA and ITA instittitionial development and investments (civil engineerinig, traininig and consultant services, equipmiient purchase). (d) Agricultiural Extensionl . The Program will invest in extension activities through ANCAR. (e) Support to producer organizationis (POs), implemented by ASPRODEB. The Program will strengthen producer organiizationis throughi trainig, communication and supporting access to basic services. (f) Strengthening public service functions of the Ministries of Agriculture and Livestock. IDA will commit to the second credit only when the GOL will have achieved the agreed key milestones. (See section A. 3). For the third credit, the key indicators will be that the institutional reforms achieved duiring the first phase have been consolidated during the second phase and that the institutions involved fuLictioni according to their manual of procedures. Since APLs are intended to be flexible, adjustments to the milestonles, loan amounts and timing are likely to change as the Program unfolds. Before committing subsequenit credits, however, there will be a joint Government/lFAD/IDA appraisal to determine whether agreed key performance indicators are satisfied and sector priorities remain valid. C: Project Description Summary 1. Project contponents (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown). The proposed operation (the project) will be the first phase of the long-term Program (10 years). The project will support the same components as the 10-year Program, with the specific first phase activities as described below. (a) National research funding. The Project will help establish a National Agricultural Research Fund (NARF) and begin research proposal funding. (b) Research institute development. The Project will support ISRA and ITA institutional development and sustainability through: (i) improving ISRA's and ITA's management of financial resources to ensure timely delivery of funds to research teams;  Page 1 1 (ii) streamlining research infrastructure to reduce recurrent costs through consolidation and closing down of non essential substations and laboratories, improving infrastructure and equipment maintenance, and upgrading laboratory and station equipment; (iii) improving personnel qualifications, through higher education degree training, as well as short-term training. Toward this objective, for both ISRA and ITA, the Project will finance rehabilitation of infrastructure to complement and consolidate the infrastructure developmenit of the predecessor project. The Project will provide field equipmenit for stations, scientific equipment for laboratories, computer equipment, vehicles, and funids for training. (c) Agricultural Extension. The Project will help create the ANCAR, a semi-public agency co- managed by the government and producer organizations with mechanisms to guarantee accountability to producers. The Project will support part of the operating costs of extension activities and all investments in humani resources (training and capacity-building, both on techinical aspects as well as communication and extension methods) and physical infrastructure, mainly rehabilitation of buildinigs, computer equipment and vehicles. (d) Support to producer organizations (PO's). The Project, implemented by ASPRODEB, will provide traininig, means of communication, techiical and organizational support to POs to assist them in providing services to their members and strengthien their capabilities to organize, manage and negotiate. The objective of the support is that producer organizations acquire more professional capabilities and financial strength, to make them better able to: (i) provide services to producers, to help them access inputs, credit or marketing; (ii) participate in adaptive research; (iii) disseminiate information on technologies on production and marketing; and (iv) be effective partners in the agricultural technology and transfer system through their capacity to diagnose, aggregate, prioritize, and articulate their members' needs and constraints. The Project will do so through a Demand-Driven Rural Services Fund (DDRSF), available to producer organizations at the local level on a matching grant basis. In addition to training and organizationial support, the DDRSF will help producer organizations to: (i) have access to techinical and management advice to assist them in the implementation of economic activities (for example, specialized agricultural technical skills; preparation of the documentation to access credit; micro-enterprise management); and (ii) undertake R&D activities jointly with researchers and extension agents and have access to seed money to facilitate the adoption of innovations on a matching grant basis. (e) Strengthening public service functions of the Ministries of Agriculture and Livestock. The project will assist the Ministries of Agriculture and Livestock to: (i) devolve services to regional directorates; (ii) strengthen policy formulation and monitoring and evaluation functions by providing support to the Directorate of Policy Analysis of the Ministry of Agriculture and to the Policy Unit of the Ministry of Livestock; (iii) provide support to the technical Directorates of the Ministries to perform their regulatory functions; and (iv) provide support to further privatize both veterinarian and pest control functions, as well as to help organize a network of certified seed production based upon specialized producer organizations.  Page 12 First Phase Project Costs (in US$ millions) Components Indicative IDA Percent IFAD Percent Costs finanicing IDA Financingu IFAD financed financed I. NARF 4.5 3.7 82 0.7 16 2. ISRA 6.4 3.2 47 1.2 14 3. ITA 2.3 0.9 39 0.2 11 4. ANCAR 11.0 7.5 69 1.2 12 5. Producer Organizationis 4.9 3.5 73 0.9 18 6. Ministry of Agriculture 9.3 3.3 35 1.0 11 7. Ministry of Livestock 6.0 2.8 47 0.7 12 8. DDI 0.7 0.5 72 0.1 18 PPF 2.0 2.0 100 Total 47.1 27.4 58 6.0 13 2. Key policy and institutional reforms suepportedl by the Project (a) Research autonomy and accouLntability throuLgl separation of funding from implementation. The Project will help the Govermiienit of Senegal (GOS) set up an autollomllous NARF which will be managed independently from the implementinig institutes. The NARF will become a foundation or any other legal entity governed by private law by the end of year 2001. This is a trigger conditioni for the second phase of the Project. (see above, B3. strategic choices). (b) Privatization of the extension services through the creation of ANCAR. ANCAR's legal status is that of a sociLj e; parlicipalion publiquie 1n7aoritaire (a public/private agency with the State holdinig a majority in the capital). Durinig the first plhase, the composition of the capital will be the following: Government of Senegal: 51 percent; producer organizations: 28 percent; rural communies: 7 percent; private companies: 14 percent. ANCAR Board will have four government representatives, thlree representatives from producer organizations, three from the private sector, and two from the collectivites locales. It is expected that the government will become a minority sharelholder and that producer organizations, the private sector and civil society will take over the ownerslhip of ANCAR at the end of the first three years of its implementation. The Agency will theni become a societe a participation publique minoritaire. The evaluation at the end of the first phase will determine the trigger condition for the second phase of the Program. After an initial two-year period, all ANCAR staff will be contractual. Initially, staff will be recruited for a fixed probation period of two years. As the majority of ANCAR's personnel will probably be civil servants, they will be seconded from the public service during the first two years. At the end of the two-year period, staff performance will be evaluated, before the decision be made to recruit them. At that time, civil servants may decide to either join ANCAR definitively, in that case they will have to resign from the civil service, or else return to their Ministry of origin. The contractualisation of ANCAR staff at the end of the initial phase is a trigger condition for the second phase. Extension activities will be undertaken on the basis of annual or multiannual contracts between ANCAR, on the one hand, and the producer organizations and/or the rural communes on the other. The contract will specify the content of the extension activities, the expected results, the operating budget and the contribution of the producer organizations or rural commune to financing.  Page 13 (c) Reorganization, transferring or sharing of the Ministries' functions. SODEVA is in the process of being closed down. The share of responsibilities between the various parastal agencies (SODEFITEX, SAED and Societe de Developpement Agricole et Industrielle du Senegal (SODAGRI)), the Ministries and the newly created ANCAR will be redefined by the end of the first phase. By that time, the parastal agencies and the Ministries will have retained only those functions which cannot be transferred or shared with the private sector or the civil society. Hence, the cotton-production related activities of SODEFITEX will have been privatized. Some of SAED irrigated perimeter and equipment maintenance functionls will have been privatized or transferred to producer organizations. By the end of the first phase, if ANCAR performs successfully, all of SAED and SODEFITEX extension activities will have been transferred to ANCAR. The Ministry of Agriculture will have privatized the part of the pest control services which can be privatized. The privatization of veterinary medicine of the Ministry of Livestock will be completed. The Project will provide training for staff of the Ministries wanting to set up their owIn private services, as well as the finanlcial and technical support to help them get established. All these refonns are expected to take place during the first plhase of the Program and are trigger conditions for the second phase. (d) Producer organizations' empowerment. In addition to the fact that producer organizations will become the main shareholders of ANCAR after the first phase, the main instrument for producer organizations empowerment will be the DDRSF, a financing mechanism similar to the Demand- Driven Rural Investment Fund. This Fund will be accessible to regional or local level producer organiizations on the basis of the presentation of a capacity-building project. The project will be reviewed by a local or regional level committee made up of producer organization representatives. The Committee will make the decision to fund the proposal, on a matching grant basis. It is envisioned that this mechanism will support capacity-building, while leaving the decision-makinlg with regard to the content and the providers of the services to the beneficiaries themselves. The process, from the design of the proposal to the selection by the committee, will be facilitated by a NGO. (e) Decentralization. The Project will help the ministries devolve their services to regional directorates. In addition, ANCAR will be a fully decentralized agency, operating out of 10 regional directorates with the appropriate financial and administrative autonomy. The main functions of the headquarters will be to provide support to the regional directorates in the following areas: (i) R&D methodology, (ii) training (communication extension methods, and agricultural technologies), (iii) ex-post financial management and accounting control, (iv) human resources management procedures for personnel annual evaluation and career development, (v) establishment of a referential data bank on agricultural technology and results of on-farm research, and (vi) overall extension program monitoring and evaluation. Decision-making regarding the content of the extension activities will be made at the rural community levels, so that the extension activities can be tailored to the specific needs and capacities of farmers and their communities. 3. Benefits and target population. Rural poverty alleviation With 45% of the rural population being below the poverty line, earning most of their revenues from farming, the Program will contribute to broad-based poverty alleviation in the country. It will do so by supporting technological change and innovation in crop, livestock, fishery and forestry production and in agroprocessing, thereby improving returns to all production factors, including land and labor. Strengthened producer organizations will be able to provide better services to their members to facilitate  Page 14 technology adoption, by improving access to inputs and facilitating marketing. The participatory approach and fine-tuning of technical recommendations will help address the needs of the poorest farmers, many of them are women. Indeed, rural women who make up over 60% of the farming population and are often the major providers of their families will particularly benefit. Increased incomes for women will improve household food-security and well-being, as women spend most on their earnings on their families, especially on their children. Capacity building Through its producer organizations component, the Program will invest in social capital, strengthening grassroot organizations capacity to negotiate with actors and institutions that regulate: (i) access to services, (ii) the functioning of input and output markets; and (iii) social access to means of production. Strengthening local civil society capacity will help influence the processes through which value derived from rural production activities is distributed and used, as well as the extent to which it is retained in local communities. Empowering grassroot organizations is a social instrument for rural people to draw themselves out of poverty. Improved governance Strong grassroot associations suclh as producer organizations improve governance: they foster more effective and transparent public services at all levels. User's participation in the decision-making and resource allocation of research and extension institutions will improve the transparency in priority setting and resource use. 4. Institutional and implementation arrangements. Three technical ministries (Ministries of Agriculture, Livestock, and Scientific Research) as well as iSRA, ITA, NARF, ANCAR, ASPRODEB and the Directorate of Debt and Investment (DDI) of the Ministry of Economy, Finance and Planning are concerned with the Program. General guidance for the implementation of the Program and for monitoring its results will come under a National Coordination and Monitoring Committee integrated with representatives of these institutions. The terms of reference and composition of the National Coordination and Monitoring Committee will be adopted through an arrete. Committees with similar composition will also be established at the regional levels. These Committees will provide the framework for research, extension, producers organizations and the Ministry services to come together to program, review and take stock of their joint activities. Annually, in addition to reviewing implementation and coordination issues, the National Coordination and Monitoring Committee will review each agency's work program, before they are presented to IDA, the other donors involved, and the respective governing bodies of each agency. Executing agencies Seven executing agencies are involved, each one of them implementing a separate component: (i) NARF (Research funding); (ii) ISRA (Research institute development); (iii) ITA (Research institute development); (iv) ANCAR (Extension); (v) ASPRODEB (Support to producer organizations); (vi) Ministry of Agriculture and (vii) Ministry of Livestock (Strengthening key ministerial functions). Each of the executing agencies has a well-defined program and budget, corresponding to one component. Therefore, component implementation is completely delineated to ensure maximum flexibility. In addition, the DDI will ensure adequate financial implementation of the Project. Annex 2 presents the organizational details of each of these agencies and the activities they will carry out under the Project.  Page 15 Research Funding through NARF. NARF was established under the Ministry of Agriculture but will be privately managed. It is expected that NARF will become an entity governed by private law during the course of the first phase. Research Institute Developnient.. The Institutes concerned are iinplemnenting the Instituites concerned. ISRA and ITA are public agencies with the legal status of etablissemnent public c; caracti