Liberia - Agricultural Development and Technical Assistance Project

RESTRICTED Report No. PA- 120a This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF AN AGRICULTURAL DEVELOPMENT AND TECHNICAL ASSISTANCE PROJECT LIBERIA March 7, 1972 Agriculture Projects Department  CURRENCY Currency Unit - United States dollar WEIGHTS AND MEASURES 1 acre (ac) - 0.405 (ha) 1 mile - 1.61 kilometer (km) 1 square mile - 640 acre - 259 ha I ton - 2,240 pound (lb) - 1,016 kilogram (kg) ABBREVIATIONS drc - dry rubber content LBIDI n Liberian Bank for Industrial Development and Investment LPNC - Liberia Produce Marketing Corporation INDP - United Nations Development Programme USAID - United States Agency for International Development RSS - Ribbed Smoked Sheet WARDA West African Rice Development Association FISCAL YEAR January 1 - December 31  LIBERIA APPRAISAL OF AN AGRICULTURAL DEVELOPMENT AND TECHNICAL ASSISTANCE PROJECT TABLE OF CONTENTS Page No. SUMMTARY AND CONCLUSIONS .................................i-i I. INTRODUCTION .1 II. BACKGROUND. 2 A. General. 2 B. Agricultural Sector ................................ 2 C. Agricultural Strategy. 5 III. THE PROJECT. 6 A. Description. 6 B. Detailed Features. 7 IV. COST ESTIMATES AND FINANCIAL ARRANGE MENTS .11 A. Project Costs .11 B. Proposed Financing .13 C. Procurement .13 D. Disburseent .14 E. Accounts and Audit .14 V. ORGAN4IZATION AND MANAGENENT ............................. 14 VI. BENEFITS AND JUSTIFICATION .17 VII. RECOMMENDATIONS .18 This report is based upon findings of an appraisal Mission composed of Messrs. A. Denness, M. Huas, and A. Cole.  -2- ANNEXES 1. Natural Rubber: Trends and Outlook 2. Investment Proposals for Integrated Agricultural Development Projects - Draft Terms of Reference for Consultants 3. Rubber Industry Survey and Investment Proposals - Draft Terms of Reference for Consultants 4. Rubber Pilot Scheme - Assumptions for Rehabilitation model 5. Rubber Pilot Scheme - Assumptions for Replanting model 6. Draft Terms of Reference for Rice Research Consultants 7. Draft Terms of Reference for Ministry of Agriculture Reorganization and Study 8. Project Costs 9. Credit Disbursements M4AP  LIBERIA APPRAISAL OF AN AGRICULTURAL DEVELOPMENT AND TECHNICAL ASSISTANCE PROJECT SUMMARY AND CONCLUSIONS i. This report appraises an agricultural project in Liberia for which an II)A Credit of US$1.2 million equivalent is proposed. It would be the Bank Group's first agricultural lending operation in Liberia. ii. Most economic activity in Liberia is of an enclave character and associated with the operations of foreign owned mining, rubber planta- tion, and timber companies. Little has been done by Government to provide the physical and institutional infrastructure needed to permit the advance- ment to a cash economy of the some 60% of the population living on subsistence farming. Government now recognizes that rural services and facilities must be improved and that this will require more effective Government planning and investment in the non-enclave sector. Consequently it is giving priority to planning rural development projects and has coordinated the work of Government and technical assistance agencies to concentrate on collecting the basic data required to prepare projects in subsistence farming areas. iii. In spite of the overall lack of development, some progress has been achieved by a few Liberian rubber farmers, of whom there are a total of about 5,000. The majority, however, are inefficient; and in the face of declining world prices for natural rubber, their operations cannot remain viable unless production and processing costs are reduced. Lack of accurate data on Liberian rubber farmers, however, has so far precluded sound planning of the industry. iv. The Government does not have sufficient experienced manpower to collect and analyze data on the rubber industry or to prepare sound invest- ment proposals for the agricultural sector and additional technical assistance is required for these purposes. The Ministry of Agriculture is very weak, due principally to poor planning and management capability, inadequate finance, and the generally low caliber of its staff. Government needs assistance to plan the reorganization of the Ministry so that it will be capable of planning and implementing development projects. v. The proposed project, whiich would be carried out over a three year period, would assist Government to implement its plans for agricultural dlevelopment in three ways. First, investment proposals would be prepared for two integrated rural development projects. These proposals would be based on data collected by Government and would provide for agricultural extension and credit services, agricultural inputs, marketing and processing facilities, crop extraction and feeder roads, water supplies, and social services. Secondly, a survey and study of the rubber industry, and a snall rubber pilot scheme would determine means of improving the Liberian owned  rubber industry. Thirdly, the Ministry of Agriculture's researcih services would be improved, and a study made of the Ministry to determine iLs staff and financial requirements, and the organizational structure nleeded to enable it to plan and implement future development projects. vi. Project costs are estimated at US$1.60( million. T'rhe proposed credit of US$1.2 wvould finance 75% of project costs, covering foreign Exchange costs estimated at US$0.88 million, and 44% of local currenicy costs. I'he balance of US$0.40 million would be met from Government budgetary aillo- cat-ions, Consultant services valued at US$0.6 million would be the largest single component of project costs and would be obtained in accordance with the 1-jorld Sank Group guidelines. Other goods and services, principally civil works valued at US$0.25 million, w7ould be obtained under local competitive bidding procedures as individual contracts would be too small to attract international bids. A sufficient number of construction and nanufacturing agents exists in Liberia to ensure adequate competitive bidding. vii. The project would be carried out by the Ministry of Agriculture, and an administrator would be appointed for the coordination of project activities. The cooperation of Government Ministries and agencies associate d with the project would ba effected through deputy Ministers or their equivalents. viii. The justification for the project is that the pre-investment activities are necessary to prepare sound rural development projects, wllich will enable subsistence farmers to increase their cash incomes througih the expanded production of food and export crops. Experience elsewhere in Africa has shown that rural development projects can be successful and the return from such investments satisfactory. ix. In the wake of declining world prices for natural rubber, the Liberian owned rubber industry - producing about 30% of Liberia's rubber - i! facing critical problems and the erosion of this key activity would have serious consequences for the economy. The rubber industry survey, study and pilot scheme would provide the basis for determining the most economic ways of ensuring a viable future for Liberian rubber farmers. Under the pilot rubber scheme the rate of return for rehabilitation would be greater than 100% and for replanting about 9%. x.. Although the project is unusual in that it is primarily limited to pre-investment activities, it represents the best course of action to develop a detailed agricultural strategy which can have a significant impact on Liberia's economy. Otherwise subsistence farming will continue to stagnate, and the contribution to the economy by rubber farmers may decrease in view of the serious problems facing the rubber industry. A project of this nature would normally qualify for UNDP financial assistance; however the pipeline of UNDP projects in Liberia already has exceeded the funds available under UNDP's Indicat;ive Planning Figure. xi.. The project is suitable for an IDA credit of US$1.2 million to the Government of Liberia.  LIBERIA AGRICULTURAL DEVELOPMENT AND TECHNICAL ASSISTANCE PROJECT I. INTRODUCTION 1.01 In May 1970 the Liberian Government asked IDA for financial help to rehabilitate 24,000 acres of Liberian owned rubber. The project had been prepared for Government by the Commonwealth Development Corporation under contract to the Bank Group. An IDA mission appraised the project in June/July 1970, but was unable to recommend IDA support because of the low economic rate of return for replanting rubber. However, appraisal of the project was made very difficult by the lack of reliable information on the Liberian owned rubber industry, especially the extent and location of rubber suitable for rehabilitation and replanting, yield potentials, and production and processing costs; such information is a pre-requisite for the effective planning of measures to assist this important industry. 1.02 At discussions held in Washington with Government in July 1971, it was concluded that in order to develop Liberia's agricultural potential, additional work would be required to study and prepare agricultural develop- ment projects, and that Government agencies would need strengthening and help both for planning and implementing such projects when implemented. It was agreed, therefore, that IDA would examine the feasibility of assisting in financing a composite project with the purpose of meeting these requirements. Such a project was appraised in August 1971 and includes; (a) technical assistance to the Ministry of Agriculture to prepare investment proposals for two integrated rural development projects and for the Liberian owned rubber industry, to improve rice research, to plan the needed reorganization of the Ministry of Agriculture, and prepare a staff training program; and (b) a pilot rubber rehabilitation/replanting scheme which, together with the survey and study results, would provide the information required to determine means of improving the Liberian owned rubber industry. 1.03 A project of this type normally would qualify for UNDP financial assistance; however, the pipeline of UNDP projects in Liberia already has exceeded the funds available under UNDP's Indicative Planning Figure. 1.04 This report is based on the findings of an IDA appraisal mission composed of Messrs. A. Denness, M. Huas, and A. P. Cole. 1.05 The project would be the Bank Group's first agricultural lending operation in Liberia.  - 2 - II. BACKGROUND A. General 2.01 Liberia has an area of about 43,000 square miles and a population of about 1.5 million, which is growing at about 2.8% per annum. 1/ Estimated GDP in 1969 was US$395 million and GNP US$311 million or US$207 per capita. Mining is the most important sector accounting for about 30% of GDP, and of the other major sectors, agriculture accounts for 21%, manufacturing 5%, construction 5%, Government 10%, and trade and services 231. 2.02 The economy is dominated by foreign concessionaires engaged in rubber, timber and iron ore production for export, and accounting for about 40% of GDP. Interest and profit remittances abroad mostly by these con- cessionaires account for about 25% of GDP. Such remittances have contributed to the balance of payments deficits which have occurred in most years since 1965. 2.03 From available data the average income of workers employed in private industry and Government is about $1,100 or $290 per capita. However, the average income of subsistence farmers whose families make up about 60% of the population is estimated to be about $175 per family, equivalent to $40 per capita. This unequal income distribution restricts the earnings available for investment in subsistence areas for cash farming and rural trades, and despite urban migration could result in continuing rural under- employment. Although urban unemployment is not yet a serious problem, the higher urban incomes attract migrants from the rural areas and over time urban unemployment could increase. B. Agricultural Sector 2.04 Liberia has a gently rolling coastal topography, which becomes ncre rugged inland. The climate is tropical, and rainfall ranges from 165 inches/annum at the coast to 70 inches/annum inland. Most rain falls between April and November. Wetter area vegetation is evergreen forest, chlanging to deciduous and savannah forest in the drier areas. Most of Liberia is well suited ecologically for cultivating rubber, oil palm, cocoa and robusta coffee, but is unsuitable for the continuous cultivation of annual crops because high rainfall and temperatures cause rapid soil degradation. Consequently rice and other food crops are produced under a system of shifting cultivation. The valley bottoms and swamps are fertile, however, and with water control and fertilizers, can be used for continuous cultivation. Government is concentrating its efforts to increase rice pioduction on such areas. 1V The Current Economic Position and Prospects of Liberia, June 1, 1971. IBRD.  -3- Agricultural Production 2.05 Agricultural production is dominated by the rubber industry, which in 1969, produced 64,000 tons valued at about US$30.5 million, and accounted for about 36% of total Liberian agricultural production, and 2.3% of world natural rubber output. While rubber production on Liberian farms increased by 50% in 1965-1969, exports of coffee, cocoa and palm kernels, and the production of subsistence crops, especially rice, have remained almost un- changed. Annual domestic rice production of about 112,000 tons is used mostly for subsistence consumption; urban requirements of about 37,000 tons annually are imported at a cost of US$6-9 million. The Rubber Industry 2.06 Most of the rubber industry is owned by foreign concessionaires. In 1969, the latest complete year for which statistics are available, they produced 47,000 tons (72% of total rubber production) of rubber from about 94,000 acres of tapped rubber, and employed 24,000 workers; this is about 14% of the estimated national labor force in paid employment. The concessions also own about 40,000 acres of untapped rubber, most of which is high yielding material, planted during the past seven years and still immature. 2.07 Data on Liberian owned rubber farms are limited, and only a general picture can be drawn. Production increased from about 12,300 tons in 1965 to about 18,300 tons in 1969, valued at about US$8.5 million. On all but a few of the larger farms, field management is poor and yields are low, ranging from about 800 lb/acre on the best farms to 180 lb/acre on the worst. About 45% of Liberian owned rubber is estimated to be untapped at present; low yielding planting material, absentee landlords, poor farm maintenance, inadequate tapper wages and incentives, high transportation and processing costs, lack of capital to open up new farms, and declining world prices, have all contributed to this situation. The exact measures required to remedy this situation cannot be determined at this time because of the absence of accurate data on the industry. Subsistence Farming 2.08 About 200,000 farms are operated at near subsistence levels, producing rice and food crops for their own consumption under shifting cultivation, and coffee, cocoa and palm kernels for export. Subsistence farming areas suffer from an almost complete lack of infrastructure; roads are few and frequently unusable in the wet season; crop marketing and pro- cessing facilities are insufficient; and educational, medical, and other social services are poor. Farming methods are primitive; farm implements are rudimentary, fertilizer use is very low, and disease and pest control are virtually unknown.  -4 Agricultural Institutions 2.09 The Ministry of Agriculture is responsible for agricultural research, extension and the administration of technical assistance programs. Until 1969 its impact was insignificant, due principally to poor planning and management capability, the wide dispersal of limited funds - about US$1.3 million or 2.4% of total Government expenditure annually between 1965-70 - the low caliber of staff, many of whom are unqualified and were appointed for non-professional reasons, and lack of Government interest in developing agriculture. Government is now aware of the need to strengthen the Ministry. 2.10 Little useful agricultural research is carried out except for work onL rubber by Firestone Plantations Ltd. The results of this work are avail- able to Liberian rubber farmers, and provide a sound technical base for the industry. During the 1950s the United States Agency for International Devel- opment (USAID) developed the Ministry of Agriculture's rice and food crop research station at Suakoko (map). The quality of research improved in this period, but when USAID technical assistance was withdrawn, it degenerated because of lack of Government support and a shortage of qualified Liberian researclh workers. Consequently, there is little information concerning varieties, fertilizer use, and pest control for rice and food crop production, and additional adaptive research is required urgently if any rural develop- ment projects are to succeed. No research has been carried out on cocoa, coffee and oil palms, but the results of research carried out in other West African countries with similar ecological conditions can be applied. Some agronomic and economic research is carried out at the University of Liberia, but this is limited generally to the requirements of a teaching program, and has limited field application. 2.11 Adaptive research on rice and some food crops was renewed in 1970 at Suakoko as part of a four year United Nations Development Programme (UNDP) project for the development of rice cultivation. The facilities, however, are insufficient to support the project, and infrastructural improvements, mainly road surfacing, housing, fencing, electricity, buildings and equipment are required. In addition, better research direction is needed. 2.12 Exports of all agricultural products except rubber are handled by the Liberia Produce Marketing Corporation (LPMC), which was established in 1962 under a ten year agreement between Government and a Danish trading company. LPMC purchases export crops through five agents who operate through their own sub-agents. Buying prices are fixed monthly by LPMC, but no attempt is made to guarantee prices paid to farmers or to grade produce. Agents receive a comission equivalent to 5% of the LPMC purchase price and a payment of 10 cts per bag to cover handling costs. LPMC's purchase prices are generally higher than those paid by marketing boards in neighboring countries, mainly because it pays neither profit taxes nor export duties. If agricultural exports are to be expanded, produce quality must be improved, marketing costs and profit margins reduced, and adequate marketing facilities provided for farmers.  -5- 2.13 Training in agriculture is provided by the University of Liberia through agriculture and forestry courses, and short in-service courses for extension aides. Of the 29 agricultural graduates since 1962 only 6 are employed by the Ministry, the remainder are either teaching, or employed in commerce where they can get better salaries than in Government service. Only 16 extension aides have completed short courses. 2.14 Agricultural credit is extremely limited. The only sources of farm credit are commercial banks and the Liberian Bank for Industrial Development and Investment (LBIDI). LBIDI has made about 30 loans to large- scale rubber farms. Government is now considering ways of providing credit to small scale farmers. C. Agricultural Strategy 2.15 While past Governments have paid lip service to the importance of agriculture, effective development has been confined to the activities of the concessionaires. The present Government, however, is anxious to make a real effort to assist both subsistence and rubber farmers, but its ability to do so is restricted severely by the lack of well-designed plans and qualified personnel. Consequently Government's desire to help will remain only an expression of intention unless it obtains technical assistance to prepare and implement sound investment projects. 2.16 In the past Liberia has received substantial technical assistance for agriculture. This has come principally from USAID, UNDP, and China (Taiwan). The value of most of this has been vitiated because Government failed to develop viable projects to benefit from such aid. This failure appears to be recognized by Government, and during the last year it has encouraged Government agencies concerned with agriculture and rural develop- ment to concentrate their efforts on the collection of basic data, with the objective of preparing investment proposals for a series of development projects in subsistence farming areas. 2.17 Government has selected the north of Lofa County for its first rural development project (map), and is collecting basic physical and human resource data on the area through soil and hydrological surveys and socio-economic studies including labor availability, credit, marketing and transportation requirements, land tenure systems and land use and farming patterns. Such a project would provide (a) participating farmers with the package of services-extension, credit, input supply, processing and marketing- needed to permit increases in the production of rice and other food and cash crops; and (b) improvements to the physical and social infrastructure of the area. Lofa has been selected not only because of its agricultural potential, but also because a proposed iron ore mine in the Wologisi Mountains (map) would create a new urban population of 35,000, requiring large quantities of food that could be produced locally.  2.18 Government has selected a second location for a rural development project in Bong County (map). Studies and surveys of this area are expected to begin by the end of 1972, when investigations in the Lofa County have been completed. 2.19 Government wishes to increase the efficiency of rubber production on Liberian farms through a credit program for replanting and rellabilitation. So far, however, it has been unable to formulate sound investment proposals because of deficiencies in the information available on the location of rubber suitable for rehabilitation and replanting, yield potentials, pro- duletion and processing costs, and importantly the likely response of rubber growers to improvement programs. A further problem involves the processing aiid marketing of rubber produced on Liberian farms. The four foreign owned processing firms collectively establish common producer prices and processing and marketing charges. In 1970 these charges were about 7.0 cts/lb from factory gate to fob, compared with 3.2 cts/lb and 2.3 cts/lb respectively in Ivory Coast and Malaysia. These high charges and the falling world market prices for natural rubber (see Annex 1) have necessitated price support for LiLberian farmers under a loan scheme financed by the processors and guaranteed by Government. About US$350,000 was provided to farmers in 1971 under the scheme, but with continuing low rubber prices Government has discontinued t;IL scheme, and is examining alternative measures to assist rubber farmers inclulding the reduction of processing charges. 2.20 Government's strategy for the development of subsistence farmers through integrated rural development projects, and for the rehabilitation and replanting of rubber on Liberian farms, if this is shown to be viable, is sound. However, the ongoing studies and surveys for rural development will be wasted unless they are supported by well prepared investment pro- posals. Also plans to assist Liberian rubber farms will not come to fruition unless the basic problems of the industry can be identified and solved. As Liberia does not have the capacity to collect and analyze the necessary data and to prepare sound investment proposals, it will have to obtain external assistance for this purpose, and to strengthen the Government agencies responsible for project implementation. III. THE PROJECT A. Description 3.01 The project would assist Government to complete the surveys and studies needed to establish plans for the implementation of its agricul- tural strategy and, in addition, to prepare specific investment projects within the context of these plans. The project would also help to strengthen the administrative and research capacity of the Ministry of Agriculture to permit it to implement the projects so prepared. The project would be carried out over the three years 1972-1975 and would include:  (a) making feasibility studies and preparing detailed investment proposals for two integrated rural develop- ment projects; (b) carrying out a physical survey and detailed study of the Liberian owned rubber industry to determine future improvement programs; (c) carrying out a pilot rubber scheme to provide Liberian rubber farmers with credits for labor, fertilizers, tapping, materials and high yielding clones, to rehabilitate 2,000 acres of untapped or poorly tapped rubber, and grants to replant 500 acres of old, uneconomic rubber; (d) preparing, on the basis of (b) and (c) detailed proposals for any investments justified for improvement of the Liberian owned rubber industry; (e) improving rice research at the Suakoko central research station; (f) providing a specialist experienced in administration to plan the future structure and organization of the Ministry of Agriculture and to prepare a staff training program; and (g) providing training for Liberians in preparing investment projects, rice research, and in rubber farm management and tapping. B. Detailed Features Feasibility Studies for Integrated Rural Development Projects 3.02 Government has selected two locations one each in the Lofa and Bong Counties, to begin its rural development program (para. 2.17 and 2.18). Sufficient data on the Lofa area will be available by the end of 1972 to permit the preparation of an integrated rural development project, and sufficient data for similar proposals in Bong County will be available in 1973. Both sets of proposals would contain measures to increase the incomes of virtually subsistence farmers through the increased production of cash crops for domestic consumption and export. The measures would include the provision of agricultural extension and credit services, agricultural inputs, marketing and processing facilities, crop extraction and feeder roads, potable water supplies, and essential social services. 3.03 As Government does not have the staff to prepare such proposals, the project would finance experienced international consultants for this purpose. Draft terms of reference for the studies and the form of the investment proposals are given at Annex 2.  - 8 - Survey and Feasibility Study of the Liberian-owned Rubber Industry 3.04 Government would retain an experienced consultant firm to carry out a study of the rubber industry in Liberia. The study, in addition to a physical survey of Liberian-owned rubber farms and plantations, would include: (a) an inventory of Liberian-owned rubber to determine the present status of production through an examination of the agricultural, financial, economic and social conditions of Liberian rubber farmers; (b) an examination of existing transportation, processing, and marketing facilities; (c) an examination of existing institutional and organizational arrangements of the rubber industry; and (d) a review of the part played by the rubber industry in the Liberian economy. Pilot Rubber Scheme 3.05 The pilot rubber scheme would involve rehabilitating 2,000 acres of rubber capable of sustained and economic future yield levels, slaughter tapping and then replanting 500 acres of rubber close to the end of its productive life. Slaughter tapping involves the use of tapping and latex stimulation techniques designed to extract from the trees the maximum amount of rubber latex. While these techniques destroy the future productive capacity of the trees, they maximize returns, and are standard practice on rubber due for replanting on well managed rubber plantations. The pilot scheme would provide information, particularly on grower response the organization of credit and supervisory services, yields, and production costs, which would be used together with the results of the rubber study to determine the future development of the industry. 3.06 Rehabilitation. Untapped or badly tapped farms would be rehabilitated only if test tapping indicated a yield potential of not less than 700 lb/acre per annum and an economic life of not less than 10 years. Farmers carrying out rehabilitation would receive credits for tapping equipment and chemicals, construction of tappers quarters, and the labor required to open up untapped farms and for one month's subsequent tapping (para. 5.04 and Annex 4). 500 acres would be rehabi- litated in 1972/73 and 700 and 800 acres respectively in 1973/74 and 1974/75. 3.07 Replanting. Farms selected for replanting under the project would be required to show a potential yield of 900 lb/acre over a two year period of slaughter tapping. Farmers carrying out replanting would  - 9 - receive funds for opening up farms, tapping equipment, yield stimulants, land clearing, and rubber seedlings, produced on centralized scheme nurseries (para 5.04 and Annex 5). 3.08 The consultants engaged to carry out the survey and feasibility study would analyse the results of the study and experience gained under the pilot rubber scheme (para 3.05), and make recommendations on the feasibi- lity of expanding rubber production by Liberian farmers. Emphasis would be placed on the need for satisfactory farm incomes, and appropriate financing arrangements for rehabilitation and replanting existing rubber farms, and for new planting. Detailed investment proposals would be prepared only after the consultants' recommendations had been reviewed and accepted by both Government and IDA, and assurances to this effect were obtained during negotiations. 3.09 The investment proposals would pay particular attention to the need to provide for: (a) an organization to manager rubber development, especially the provision of credit and extension services; (b) rehabilitation of existing rubber, replanting among all categories of farmers, and new plantings on small farms; (c) a reduction in processing, marketing, and export costs; and (d) the introduction of an industry cess or other taxation to finance farmer support services and replanting. Draft terms of reference for the proposed study and the form of investment proposals are given in Annex 3. Rice Research 3.10 Rice research is being carried out at the Suakoko research station but it lacks permanent direction and adequate logistical support. Direction is now provided by a well qualified expatriate agronomist under the UNDP project described at para. 2.11. This arrangement however, does not provide for rice research to continue at the end of the project, and the time the agronomist can devote to rice research at Suakoko is restricted, as he Is responsible also for determining the improved rice cultivation techniques that will be employed in the proposed rural development projects. 3.11 At the present time, Liberia has neither the staff nor the resources to carry out the research required to support agricultural development, and Liberia's research needs would be served best by some form of research cooperation with other countries, where the limited resources could be pooled to common advantage. The West African Rice Development Association  - 10 - (WARDA), which held its first governing council meeting in Monrovia in September 1971 may coordinate research in future, but until a satisfactory cooperative research program is established, Liberia requires assistance to carry out adaptive research to support its plans for rice developinent. Thle project would finance consultants to plan and monitor a rice research program related to Liberia's needs, and an experienced rice agronomist to direct tile program and improvement of facilities at Suakoko. Since the program would consist mostly of adapting to Liberia's needs the results of researchi done elsewhere, the consultants' services would be provided by an international rice research institute. The International Rice Research Institute, Los Banos, Philippines, and the International Institute for Tropical Agriculture, Ibadan, Nigeria are examples of institutions suitable for this purpose. During negotiations, assurances were obtained that consultants and a rice agronomist, acceptable to IDA, would be employed for the above purposes under conditions of employment and witlh terms of reference satisfactory to IDA. Draft terms of reference for the consultants are at Annex 6. The improvement of facilities at Suakoko would include new and improved housing, paving about one mile of the present gravel main road which runs adjacent to the swamp rice experimental plots to prevent dust falling on the area during thie dry season, a new electricity generator, and fencing to prevent tampering withi researclh plots. 3.12 Reorganization of the Ministry of Agriculture. The Ministry of Agriculture is unable to plan and implement sound agricultural projects and requires additional manpower and financial inputs (para 2.09). Under the project, the Ministry's functions and organization would be reviewed and, if necessary, revised, and a five-year staffing, training and financing plan prepared. Consideration would be given also to amending existing legislation and creating new legislation should this be required. The reorganization plan and legislation would be prepared by an experienced administrator. During negotiations an assurance was obtained that Government would review his recommendations with IDA, and would formulate a program for their implementation mutually acceptable to Government and IDA. Draft terms of reference for the administrator are at Annex 7. 3.13 Training. In view of the shortage of experienced Liberians to prepare and implement an agricultural development program, tihe project would provide training for graduate economists, agronomists and rice research workers as well as for experienced rubber farm managers and for tappers. Thie consultants retained by Government to conduct the feasibility studies for the two proposed rural development projects and for the Liberian-owned rubber industry would train the agronomists and economists, nine of whom would be attached to the consultants during the study periods. Research fellowships would be provided for four Liberians to receive training and experience in rice research at international institutes prior to filling priority rice research posts. Farm managers would attend short courses at the rubber pilot scheme headquarters; and rubber tappers would receive training in the field which will be followed by intensive field supervision. The project would  - 11 - finance the capital cost of the training facilities. It is envisaged that an expanded training program would begin on completion of this project based on the staffing plan prepared for the Ministry of Agriculture by the administrator (para 3.12). IV. COST ESTIMATES AND FINANCIAL ARRANGEMENTS A. Project Costs 4.01 Estimated project costs total US$1.60 million, with a foreign exchange component of US$0.88 million or 55% of total costs. Costs are detailed in Annex 8 and summarized in the following table:  - 12 - Summary of Project Costs US$'000 Local Foreign Total Consultant Services Investment proposals for Integrated Rural Development Projects 97 196 293 Rubber Survey and Feasibility Study 78 161 239 Aerial Photography 22 44 66 Research Supervision 9 21 30 Subtotal 206 422 628 Rubber Pilot Scheme Staff 93 30 123 Equipment 27 53 80 Services 12 6 18 On-farm Costs 82 27 109 Subtotal 214 116 330 Research Staff 26 36 62 Equipment - 4 4 Infrastructure 74 81 155 Services 4 3 7 Subtotal 104 124 228 Reorganization Ministry of Agriculture Staff 41 50 91 Equipment 1 4 5 Services 11 4 15 Subtotal 53 58 111 Training Consultant Studies Counterpart Staff 43 - 43 Research Fellowships - 30 30 Subtotal 43 30 73 Contingencies Physical 19 16 35 Price 81 109 190 Subtotal 100 125 225 Total Project Cost 720 875 1?595 4.02 Project costs include a 5% physical contingency and a 5% per annum price contingency on pilot rubber scheme, Ministry of Agriculture reorgani- zation, rice research, and training costs; and a 20% price contingency on all  - 13 - consultants' services. Estimates are based on up-to-date building costs; recent quotations given by suppliers of vehicles and materials; farm input and labor costs provided by the Ministry of Agriculture and private rubber farmers; and consultants' charges for similar studies. Project costs do not include taxes on imported goods and during credit negotiations Govern- ment confirmed that payment of import taxes on goods imported under the project would not be required. B. Proposed Financing 4.03 Details of Project financing would be as follows: Government IDA Total US$'000 % US$'000 % US$'000 % Consultant Services 125.6 20 502.4 80 628.0 39 Farmers' Loans (rubber rehabi- litation) 11.2 20 44.8 80 56.0 4 Farmers' Grants (rubber replanting) 53.0 100 - - 53.0 3 Civil Works 35.0 20 140.0 80 175.0 11 Vehicles and Equipment 13.8 20 55.2 80 69.0 4 Salaries and Training Fellowships 70.0 20 179.6 80 349.6 22 Project Services 39.0 100 - - 39.0 3 Contingencies 47.4 21 178.0 79 225.4 14 Total Project Costs and Financial Requirement 395.0 25 1,200.0 75 1,595.0 100 4.04 A credit of US$1.2 million would be made to Government on stan- dard IDA terms to meet 75% of total project costs. US$0.88 million or 73% of the credit would cover project foreign exchange costs, and the balance of US$0.32 (27% of the credit) would finance 44% of local currency costs. The remaining 25% of project costs totalling US$0.40 million would be met from Government budgetary allocations. During credit negotiations assurances were obtained from Government that funds required for the project would be made available two months in advance, and in block form in a bank account to be used exclusively for all expenditures on goods and services required for the project, on the basis of monthly estimates approved by the administrator (para 5.07). C. Procurement 4.05 Project procurement for goods and civil works totalling about W)7)>no(l doiul(ld e administered by the administrator accord-ing to procedures agreed by Government and IDA during credit negotiations, which would ensure a satisfactory degree of completion. Procurement  - 14 - for goods and civil works would be by local competitive bidding since individual contracts would be too small to attract international bids. A sufficient number of construction companies and manufactures' agents exists in Liberia to ensure adequate competitive bidding. Consultant services totalling $628,000 would be obtained under the procedures described in the World Bank Group guidelines. If procurements were made without IDA's approval, corresponding sums in the credit account would be cancelled. During negotiations, detailed procurement procedures were agreed and assurances were obtained that subsequently these would be followed. D. Disbursement 4.06 Disbursement of the credit would be against 80% of the cost of consultant services totalling US$502,400; and of farmers loans, of civil works, of vehicles and equipment, and of salaries and training fellowships totalling US$519,600. An unallocated amount of US$178,000 would meet contin- gencies. Disbursement of the proposed IDA credit by categories is detailed in Annex 8, Table 1, and quarterly disbursements are shown in Table 2. Expend- itures would be evidenced by contracts and certified records of expenditure. Any savings would be subject to cancellation. E. Accounts and Audit 4.07 The administrator (paras 5.01 and 5.07) would be responsible for project accounts, which would be prepared by the accountant attached to the pilot rubber project. Individual loan accounts for all farmers receiving project credit and grants would be kept by the pilot rubber scheme management unit. All accounts would be kept in accordance with established accounting principles and with due regard to Government regulations. All accounts would be audited by an independent auditing firm mutually acceptable to Government and IDA. Such an audit would include a physical check of project assets, and audited accounts together with copies of the auditor's report would be submitted to IDA within four months of the closing of each financial year. During credit negotiations assurances to this effect were obtained from Government. V. ORGANIZATION AND MANAGEMENT 5.01 The project will be carried out by the Ministry of Agriculture as it is too small to merit establishing a separate organization. The administra- tor (para 5.07) would be responsible for coordinating all project activities within the Ministry of Agriculture. The Deputy Ministers or their equiva- lents in Government Ministries and agencies associated with the project would be responsible for effecting the cooperation of their Ministries and agencies in project implementation, and for reviewing and evaluating the  - 15 - consultants' studies financed under the project. During credit negotiations issur.uinces to this effect were obtained from GovernmenL. Investment Proposals for Two Integrated Rural Development Projects 5.02 The two rural development project feasibility studies would require a total of about 50 man months of professional services, including a team leader, agronomist, economist, civil engineer, and specialists in public health and education (details Annex 8, Table 2). The project for the Lofa County would be prepared first and would require six to nine months to complete. The preparation of investment proposals for the second area would not start until the report on the Lofa County had been completed to the. satisfaction of Government and IDA, and data from Government's human and physical resource surveys available (para 2.17). The consultants would submit their report to Government and IDA through the Ministry of Agricul- ture. During credit negotiations assurances to these effects were obtained from Government, and that the consultants, their terms of reference and conditions of employment would be mutually acceptable to Government and IDA. It would be a condition of disbursement against the two integrated rural development project studies component that consultants had been appointed. Rubber and Industry Survey and Feasibility Study 5.03 The rubber industry survey would require about 30 man months, and the preparation of investment proposals about 20 man months of pro- fessional services, which would include a team leader, aerial photography interpreter, surveyor, agronomist, accountant/financial analyst, economist and rubber processing engineer (details, Annex 8, table 3). The consul- tants retained by Government for the survey and feasibility study would submit their report to Government and IDA through the Ministry of Agricul- ture. During credit negotiations assurances were obtained from Government that the consultants, their terms of reference and conditions of employment would be mutually acceptable to Government and IDA. It would be a condition of disbursement against the rubber industry studies component that consultants had been appointed. Pilot Rubber Scheme 5.04 The scheme's headquarters would be at Suakoko and the management unit would be staffed with the following personnel: a manager, an assistant, an experienced accountant, and five field officers (sector heads). During credit negotiations assurances were obtained from Government that the manager, 1-iis terms of reference and conditions of employment would be mutually acceptable to Government and IDA, and it would be a condition of credit effectiveness that a unit manager had been appointed. Government already employs a rubber adviser qualified for this post. Project participants would cover the full range of Liberian rubber farmers, but emphasis would be placed on selecting smaller farmers; to qualify participants would either have to  - 16 - reside on their farms or have a satisfactory manager. Rehabilitation loans would be made for up to 100 acres for a maximum of $28.50/ac, made up of $10.0 for tapping labor and $18.50 for equipment and materials (Aniiex 4), anld would be repaid over 5 years and bear interest of 9%, the rate charged by LBIDI for similar loans. No assurances are required on the use of credit funds repaid by farmers as this is a pilot project and only $56,000 would be involved, and the funds would be returned to Government revenue. A total of $53,000 would be provided to farmers to replant rubber. Farmers would receive $101/ac, to finance opening for tapping $12, buildings $14, and replanting $75 (details Annex 5). Since only 500 ac would be replanted under the proj- ect and the term of loans for such activity would have to be of some 15 years, replanting of these 500 ac would be financed by grants. This does not pre- suppose that any full scale replanting program that might emerge from thie consultants studies would not be financed, at least in part, by long-term loans. 5.05 Under the terms of their loan agreements, credit recipients would undertake to sell rubber to a named processor, who would be authorized to deduct such repayments as requested by the unit manager from the proceeds of sales, and pay these deductions to the project management unit. Reci- pients of grants and loans would undertake to carry out all instructions given by project staff regarding the operation of their farms, and it would be a condition of effectiveness of the credit that Government had agreed with IDA the form of agreements for project loans and grants. Rice Research 5.06 Arrangements for the improvement of the physical infrastructure at the research station (para 3.11) would be made by the administrator in consultation with officials of the Ministry of AgriculLure, the rice research consultants and the rice agronomist. It would be a condition of disbursement against the research component of the project that consultants and the rice agronomist had been appointed. Reorganization of the Ministry of Agriculture 5.07 The Ministry of Agriculture's reorganization would be planned by an experienced administrator, who would be employed by Government for three years. He would report to the Minister of Agriculture or his deputy, and would be responsible also for project coordination (para 5.01). During credit negotiations an assurance was obtained from Government that the administrator, his terms of reference and conditions of employment would be mutually acceptable to Government and IDA, and it would be a condition of credit effectiveness that he had been appointed. 5.08 Training. The administrator would be responsible for arranging the selection and appointment of Liberian counterparts to the consultants' studies. Candidates would be either suitably qualified Government officials or recent graduates. The research consultants retained by Government would  - 17 - assist the selection, and would prepare and supervise the training programs of four research workers awarded rice research fellowships. Assurances were obtained from Government during credit negotiations that thle :ountAerparts and research fellows would be appointed to tie Mlnistrv of Agrlc,1 turf nfl the satisfactory completion of their traifing programs. Ttril- Ing I-or rubber farm managers and tappers would be carried olut by tile ,pilot rubber scheme manager. All managers of farms participating in the scheme would attend short courses at headquarters, and tappers would be closely supervised and given field instruction. VI. BENEFITS AND JUSTIFICATION 6.01 The project's pre-investment activities would permit the Government to develop detailed plans for the development of the subsistence farming sector, and for improving the efficiency of Liberian rubber farmers. Govern- ment agencies responsible for agriculture would be strengthened, through the provision of technical assistance, and plans would be prepared for their reorganization and staffing by qualified Liberians. 6.02 The project's pre-investment activities directed at the improvement of the subsistence sector would ultimately lead to increased agricultural production through the provision of a package of services and infrastructure improvements in areas of relatively higher rural population density. The increased production of cash crops would reduce the differences in incomes between rural and urban areas. Without such programs, the rural sector would be unable to benefit from developments in other sectors, such as the proposed Wologisi iron ore mine and the new market that this will create for farm produce. Existing mining operations, in particular the large Nimba mine in the northeast, have had no discernable impact on adjoining rural areasl as the food requirements for employees are mostly imported. 6.03 While rubber production on Liberian farms has almost doubled since 1965, the industry is now facing critical problems because of falling prices. Unless the efficiency of rubber farmers is improved and rubber processing and marketing costs reduced, many producers will be forced out of business, and exports and employment will be reduced. While natural rubber prices are expected to stabilize by 1972 at about 16.5 cents/lb cif New York, compared with about 19.0 cents/lb in 1971 (Annex 1), the application of advances in technology made in recent years can make rubber production viable even at this lower price. 6.04 The pilot rubber rehabilitation and replanting scheme would be an adjunct to the studies of the industry. Rates of return have been calculated separately for rehabilitation and replanting on the basis of the costs detailed in Annexes 4 and 5. Processing and marketing is costed at 4 cents/lb. This is based on the known costs in other rubber producing countries and is 3 cents/lb lower than the present rate charged by processors. In view of the limited yield data for Liberian farms, the rate of return  - 18 - has been calculated for a yield range of 700 lb/ac to 770 lb/ac for rehabi- litated rubber, and a yield of 1,200 lb/ac to 1,320 lb/ac in years of peak production for replanted rubber. On the basis of these costs, yields, and a cif New York price of 16.5 cents/lb, and using a shadow price for farm labor of 46 cents, (the estimated value of production of a man working in subsistance agriculture), which seems justified because of the prospect of unemployment (see para 6.03), the rate of return for replanting is 9%, and that for rehabilitation over 100%. If full labor costs are used the rates of return fall to 6% and 31% respectively. The rate of return for rubber rehabilitation is high because no value is attributed to the costs already sunk in trees to be rehabilitated; without the scheme they would not be brought into production. The return, however, is very sensitive to small changes in operating costs and benefits; for example, a 1% reduction in yield would reduce the rate of return by about 10 percentage points. The return for replanting is low and reflects the low yield estimate used. Yields of 2,000 lb/ac can be achieved in Liberia, and replanted rubber can be intercropped with food crops; a combination of these factors would result in substantially larger returns. The principal purpose of the rubber industry studies and the pilot scheme would be to determine whether Liberian growers could be induced to use effectively the advanced technology needed to make rubber growing a financially sound and economic enterprise. 6.05 Financial returns to farmers participating in the pilot scheme would be satisfactory. Annual net returns for rehabilitation are estimiated at $21/acre (Annex 4, Table 1), and would average $30/acre for replanted rubber (Annex 5, Table 2). These net returns would be similar to the present returns obtained by the best Liberian rubber farmers (about 5% of the total), and would be a source of new income to most scheme participants whose rubber would otherwise not be tapped. An analysis of the financial returns, based on the production costs detailed in Annexes 4 and 5 shows that rubber farming would not be viable at world market prices of 16.5 cents/lb, unless yields are at least 700 lb/acre for rehabilitated rubber and 1,200 lb/acre for replanted rubber. 6.06 The proposed project is primarily limited to pre-investment activities because this is the best way to develop a sound agricultural development strategy which can have a significant impact on Liberia's economy. In the absence of developing and carrying out such a strategy the subsistence farming sector will remain stagnant, and the contribution of rubber farmers to the economy will fall. The project does not pre- suppose that the Liberian-owned rubber industry can be placed on a firmer economic footing, since without the actions proposed under the project this cannot be determined. The importance of the industry is such, however, that this determination is of the highest priority. VII. RECOMMENDATIONS 7.01 During credit negotiations the following main assurances were olbtained:  - 19 - (a) detailed investment proposals for the Liberian owned rubber industry would be prepared only after the consultants' recommendations had been reviewed and accepted by Government and IDA (para 3.08); (b) the research consultants, the rice agronomist, their terms of reference and conditions of employment would be mutually acceptable to Government and IDA (para 3.11); (c) Government would review recommendations for the reorganiza- tion of the Ministry of Agriculture with IDA, and would for- mulate a program for their implementation mutually acceptable to Government and IDA (para 3.12); (d) funds required for the project would be made available two months in advance, and in block form in a bank account to be used exclusively for all expenditures on goods and services required for the project, on the basis of monthly estimates approved by the administrator (para 4.04); (e) detailed procurement procedures agreed with IDA would be followed (para 4.05); (f) project accounts would be audited by an independent auditing firm mutually acceptable to Government and IDA, and audited accounts together with copies of the auditor's report would be submitted to IDA within four months of the end of the financial year (para 4.07); (g) deputy ministers or their equivalents in Government Ministries and agencies associated with the project would be responsible for effecting the cooperation of their Ministries and agencies in carrying out the project, and for reviewing and evaluating the consultants' studies financed under the project (para 5.01); (h) the preparation of investment proposals for the second integrated rural development project would not start until the report on the Lofa County had been completed to the satisfaction of Government and IDA (para 5.02); (i) tthe consultants to prepare investments proposals for two integrated ruratl development projects, their terms of reference and conditions of employment would be mutually acceptable to Government and IDA (para 5.02); (j) the consultants for the rubber industry survey and study, their terms of reference and conditions of employment would be mutually acceptable to Government and IDA (para 5.03); (k) the pilot rubber scheme manager, his terms of reference and conditions of employment would be mutually acceptable to Government and IDA (para 5.04);  - 20 - (1) the administrator, his terms of reference and conditions of employment would be mutually acceptable to Government and IDA (para 5.07); and (m) the counterparts and research fellows would be appointed to the Ministry of Agriculture on the satisfactory completion of their training programs (para 5.08). 7.02 Conditions of credit effectiveness would be that: (a) the pilot rubber scheme unit manager had been appointed (para 5.04); (b) Government had agreed with IDA the form of the agreements for rubber rehabilitation loans and replanting grants (para 5.05); and (c) the administrator to plan the reorganization of the Ministry of Agriculture had been appointed (para 5.07). 7.03 Condition of disbursement would be: (a) against the twointegrated rural development project studies component that consultants had been appointed (para 5.02); (b) against the rubber industry studies component that consultants had been appointed (para 5.03); and (c) against the reserch component that the consultants and rice agronomist had been appointed (para 5.06). 7.04 The project is suitable for an IDA credit of US$1.2 million to the Government of Liberia. March 3, 1972  ANNEX 1 Page 1 LIBERIA AGRICULTURAL DEVELOPMENT AND TECHNICAL ASSISTANCE PROJECT Natural Rubber: Trends and Outlook 1. Production of natural rubber is highly concentrated in the South- east and South Asia regions, but nearly all natural rubber produced is consumed in nonproducing developed countries. More than 90% of all exports are shipped from four Asian countries - Malaysia, Indonesia, Thailand and Ceylon - and Malaysia alone accounts for 45% of world exports. The remainder is exported by a group of some 15 minor exporting countries. The two biggest producers, Malaysia and Indonesia, are heavily dependent on rubber as a source of income, employment and foreign exchange earnings. The share of rubber exports in foreign exchange earnings for these countries is aroun(d 35' ancd 45