Malawi - Second Karonga Rural Development Project

Report No. 1084-MAI FILE COPY Malawi: Appraisal of the Karonga Rural Development Project, Phase 11 May 20, 1976 East Africa Region-General Agricultural Division FOR OFFICIAL USE ONLY U Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Malawi Kwacha (MK) = 100 Tambala (t) US$1.00 = MK 0.90 MK1.00 = US$l.11 WEIGHTS AND MEASURES 1 lb = 0.453 kg 1 sh ton = 2,000 lb = 0.9072 m ton 1 ac = 0.405 ha 1 sq mile = 2.59 sq km 1 bag maize = 200 lb 1 bag fertilizer = 50 kg ABBREVIATIONS KRDP = = Karonga Rural Development Project LLDP = Lilongve Land Development Project SVADP = Shire Valley Agricultural Development Project CRLDP = Central Region Lakeshore Development Project NRDP = National Rural Development Program MANR = Ministry of Agriculture and Natural Resources MOW = Ministry of Works and Supplies MOH = Ministry of Health MOE = Ministry of Education ADMARC = Agricultural Development and Marketing Corporation NOIL = National Oil Industries Limited ADS = Agriculture Development Service (IBAD). Malawi Government and KRDP Fiscal Year April 1 to March 31  FOR OFFICIAL USE ONLY MALAWI KARONGA RURAL DEVELOPMENT PROJECT - PHASE II TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ......................... i-iii I. INTRODUCTION ............................................ ..* I II. BACKGROUND .* .......... ... . ..... ................. 3 A. General ........ ............................ 3 B. The Agricultural Sector 3................... 3 C. Agricultural Services ..... ........... 4 D. Karonga Rural Development Project - Phase I. 5 III. THE PROJECT AREA ................................ 7 IV. THE PROJECT ................... .............................. 9 A. General Description ........................ 9 B. Detailed Features ... ................ .. ...... . 10 C. Project Cost Estimates ..................... 16 D. Financing ............................................... 17 E. Procurement ................. .............. . * 17 F. Disbursement ...................... ........ . 18 G. Accounts and Audits ........................ 18 V. ORGANIZATION AND MANAGEMENT ................... .. 19 VI. PRODUCTION, MARKETING, FARMERS' BENEFITS AND EFFECTS ON GOVERNMENT BUDGET ............... ..... 21 A. Production ....................... , 21 B. Markets and Prices ..... .................... 22 C. Farmers' Benefits ..... ..................... 23 D. Effect on Government Budget .... ............ 24 VII. ECONOMIC BENEFITS AND JUSTIFICATION ............. 25 VIII. RECOMMENDATIONS . ............................... . 26 This report is based on the findings of an appraisal mission composed of Messrs. H. van Voorthuizen and K. Niemann (IBRD), P. Reid and G. Kerkhoven (Consultants), and A. Goala (ADB), which visited Malawi in October/November 1975; Messrs. K. Krishna and J. Russell (IBRD) assisted the mission during the field appraisal. The Lake Transport proposals were appraised by Messrs. D. Raymond, who visited Malawi in February 1976, and J-O. Fraisse (IBRD). This document has a restricted distribution and may be ued by recipients only in the performance of their official duties. Its contents may not otherwise be dischsed without World Bank authorization.  AJINEXFES 1. Agricultural Development Table 1 - Crop Development, Karonga Lake Shore Table 2 - Crop Development, Chitipa Plains Table 3 - Projected Seasonal Input Requirements Appendix 1 - Program of Trials for Karonga and Chitipa, 1975/76 Appendix 2 - Farm Scale Testing of Crop Husbandry Improvements Appendix 3 - Summary of Crop Input Packages Tivestock Development Table 1 - Cattle Numbers, Grovth Rate and Offtake, Karonga and Chitipa Districts 3. Agricultural Credit Table 1 - Estimated Seasonal Credit Requirements Table 2 - Medium-Term Credit Requirements Table 3 - Total Credit Cash Flow 4. Crop Marketing and Prices Table 1 - ADMARC Crop Purchases in Karonga and Chitipa, 1970-1974 Table 2 - ADMARC Prices for Selected Crops, 1971/72 - 1975/76 Table 3 - Budget for One Acre of Maize Table 4 - ADMARC Crop Trading Accounts, 1970/71 - 1974/75 Table 5 - Agricultural Development and Marketing Corporation - Crop Trading Account for the Year Ended 31st March, 1975 Table 6 - Agricultural Development and Marketing Corporation - Profit and Loss Account for the Year Ended 31st March, 1975 Table 7 - Agricultural Development and Marketing Corporation - Balance Sheet - 31st March, 1975 5. Health Facilities Appendix 1 - Job Description of Health Staff Appendix 2 - Health Unit Descriptions 6. Staff Training and Requirements Table 1 - Projection of Requirements and Availability of Technical Assistants Table 2 - Staff Establishment of the Department of Extension and Training 7. National Rural Development Program (NTRDP) Appendix 1 - Additional Positions to be Established for NRDP Preinvestment Phase  Annexes (Continuation) H,. Project Cost Estimates Table 1 - Summary of PrcQect Costs Table !(a) - NRDP - Preinvestment Phase - Summary Table 2 - Extension Table 3 - Land Husbandry Table 4 - Livestock Table h(a) - Lufita Agricultural Center Table 4(b) - Chisi v razfrg Scheme Table 4(c) - Karonga Livestock Center Table 5 - Construction Unit Table 6 - Research Table 7 - Hydrology Table 8 - Mechanical Maintenance Table 9 - Finance (Accounting Services) Table 10 - Evaluation Table 11 - Management Unit Table 12 - M4arkets and Input Stores (ADMARC) Table 13 - Health Table 14 - NEDF - Preinvestment Phase Central Services - Land Resources Survey Talle 15 - NRDP - Preinvestment Phase Central Services - Agro-Economic Survey Table 16 - NRDP - Preinvestment Phase Central Services - Crop Experiments Table 17 - NRDP - Preinvestment Phase Central Services - Evaluation Unit (Mzuzu) Table 18 - NRDP - Preirvestment Phase Central Services - Accounts, Road Construction and Consultancies Tasble 19 - ERDP - Preinvestment Phase Mzimba Sub-project Table 20 - NRDP - Preinvestment Phase Thiwi/Lifidzi Sub-project Table 21 - NRDP - Preinvestment Phase Kawinga Sub-project Table 22 - NRDP - Preinvestment Phase Markets and Input Stores (ADMARC) Table 23 - IEDP - Preinvestment Phase Health Appendix 1 - Summary of Phase I Related Recurrent Cost. Items to be born by Borrower Appendix 2 - Financing of Agricultural Staff in Karonga and Chitipa Districts Appendix 3 - Housing Construction Program Appendix 4 - Constructions Costs of Staff Housing 9. Estimated Schedule of Disbursements ID. iovernment Cash Flow for Phase II  -3- Annexes (Continuation) 11. Farm Budgets Table 1 - Crop Margins per Acre and per Man-Day, Karonga District Table 2 - Crop Margins per Acre and per Man-Day, Chitipa District Table 3 - Budget for a 4-Acre Karonga Rice Farm Table 4 - Budget for a 4-Acre Karonga Dryland Farm Table 5 - Budgets for a 4 and an 8 Acre Chitipa Farm 12. Economic Costs and Benefits Table 1 - Farm-gate Values Used in the Economic Evaluation Table 2 - Economic Benefits and Costs 13. Lake Transport Table 1 - Total One-way Capacity of the Lake Fleet Table 2 - Analysis of Lake Fleet Capacity Table 3 - Estimated Dry Cargo Traffic on Lake Service Table 4 - Initial Investment Required for a Lighterage Operation at Chipoka Table 5 - Cost-Benefit Analysis of Chipoka Port Improvements versus Lighterage Table 6 - Cost-Benefit Analysis of Lake Transportation versus Road Transportation Table 7 - Justification for Mpasa Conversion 14. Project Implementation Schedule 15. Key Indicators Chart 15653: KRDP Organization Chart Chart 15652: Organization of the Ministry of Agriculture and Natural Resources under the NRDP Preliminary Investment Phase Map 12040: Bank/IDA Supported Agricultural Projects  MALAWI KARONGA RURAL DEVELOPMENT PROJECT - PHASE II SUMMARY AND CONCLUSIONS i. During the last eight years the Bank Group has made an important contribution to the development of Malawi's smallholder agriculture through a total of six IDA Credits for three major rural development programs. The first, the Lilongwe Land Development Program (LLDP) in the Central Region started in 1968/69 and is now in its third and final phase. The second is the Shire Valley Agricultural Development Project (SVADP) in the Southern Region which commenced in 1969/70 and is now in its second phase. The third is the Karonga Rural Development Project (KRDP) in the Northern Region which started in 1972/73 and is now completing its first phase. ii. All these programs are characterized by: (a) the provision of infrastructure, such as rural roads, input stores and produce markets, health facilities (both for people and cattle), boreholes and housing and office ac- commodation for project staff; (b) land improvements, comprising land consolidation (and in LLDP land registration), irrigation development and conservation works; (c) strengthening of extension, marketing, research and public health staffing; and (d) establishment of credit facilities for agricultural inputs such as fertilizer, seeds, insecticides, work-oxen and farm implements. These comprehensive programs are implemented in the more densily populated areas of the country and would, at their completion, cover about one million people, or one quarter of the total population. While they are making a sig- nificant contribution both to institution building and to an improved standard of living for large numbers of people, a change of emphasis is needed to pro- vide over a reasonable time period the remaining three quarters of Malawi's farm population with improved production opportunities. In 1973, a Bank agriculture sector mission therefore recommended, and the Government has decided to adopt, a strategy which would give priority to investments with an immediate impact on agricultural production (particularly in areas which have some infra- structure such as roads), while other investments, which either are relatively costly or have a lesser direct impact on production would be made in the more distant future. Good progress has now been made in designing a National Rural Development Program (NRDP) which would be implemented through some 40-50 sub- projects over a period of about 20 years. The Government is expected to seek the support of external financing agencies for future NRDP sub-projects.  - ii - iii. The new strategy for NRDP is already to some extent reflected in the design of the second phase of KRDP for which Government has now requested Bank assistance. The Project would make full use of infrastructure established under the first project and would over four years further improve and expand the extension, animal husbandry, land husbandry, agricultural research, crop marketing, credit and human health services in Karonga and Chitipa districts. This would involve recruitment of new staff and training of both existing and new staff, construction of some additional housing, offices, marketing and health facilities, and continued financial support for the Project's credit fund. The Project would also construct additional boreholes, rural roads, minor bridges, culverts and drifts in the two districts and the Project's evaluation section would continue to monitor and analyze the Project's progress. There would be no further irrigation development which characterized the first Karonga project. iv. Moreover the Project would over two years support the preparation of the National Rural Development Program through the strengthening of essen- tial services in the Ministry of Agriculture and Natural Resources (MANR), which would administer NRDP, and through preliminary investments, mainly in staff housing, in three selected NRDP development areas. Finally the Project would over two years improve and expand berthing and handling facilities at the port of Chipoka at the southern end of Lake Malawi, which were originally provided for in the first project but not implemented because of cost overruns in other parts nf the Lake Transport component. v. MANR would have overall responsibility for implementing the Project, except for the health component, which would be the responsibility of the Ministry of Health, the construction of crop markets and input stores, which would be the responsibility of the Agricultural Development and Marketing Corporation (ADMARC) and the Lake Transport component, which would be adminis- tered by the Ministry of Transportation and Communications through Malawi Railways Limited. The KRDP management unit established under the first project would have specific responsibility for agricultural development in Karonga and Chitipa districts and the 21inistry's Director of Extension and Training, assisted by a NRDP coordinator, would be responsible for the im- plementation of the NRDP preinvestment phase. ADMARC would continue to supply seasonal inputs and to purchase the farmers' crop produce. vi. Total project costs, including physical and price contingencies, are estimated at US$12.1 million. IBRD (Third Window) would finance 75% of the costs (US$9.2 million) or all foreign exchange costs (US$6.3 million) and about 48% of the local costs. ADMARC would finance the construction<qf the input stores and crop markets (US$0.8 million or 7% of Project costs) and Government the remaining 18% (US$2.1 million). No taxes on duties are levied except personal income tax on salaries which is insignificant. vii. Vehicles, machinery and equipment in orders exceeding US$50,000 would be procured by international competitive bidding in accordance with Bank guidelines. Farm inputs and drugs would be procured in accordance with normal Government procedures which are satisfactory to the Bank. The port facilities at Chipoka would be constructed under international competitive bidding. All  - iii - other civil works would be constructed by force account by MANR, KRDP, the Ministry of Works, or ADMARC. viii. The chief benefits of the Project would be the increased production of rice, maize, groundnuts and cotton in Karonga and Chitipa districts. At full development, to be reached in year 5 (1980/81) in Karonga and in year 9 (1984/85) in Chitipa, the total annual incremental production of the Phase I and II Projects would be about 6,000 sh ton paddy, 1,450 sh ton groundnuts (shelled), 10,400 sh ton maize and 1,300 sh ton cotton of which about two thirds would be generated by the Phase II project. In the livestock sector further increases in cattle production (beyond those caused by the first project) are likely but it is not possible to quantify these benefits because reliable data area lacking. Other non-quantifiable benefits would be generated by investments in research, health facilities and boreholes. The improvement to the port of Chipoka would increase its capacity, decrease ship turn around time, increase the productivity of cargo handling and reduce cargo damage. ix. The internal economic return on the second Phase investments in Karonga and Chitipa districts is estimated at 14%. The major risks facing the Project are that adoption rates of improved crop husbandry methods and the increases of crop yields would be lower than forecast; a 10% reduction of the benefits would reduce the rate of return to 8%. As a result of the Project a typical farmer cultivating 4 acres in Karonga's rainfed rice area would increase his annual income from crops from 14K 166 (US$184) to MK 214 (US$238); a 4 acre dryland crop farmer in Karonga would increase his income from MK 64 (US$71) to MK 115 (US$128) and a 4 acre farmer in Chitipa would increase his annual income from crops from M4K 72 (US$80) to MK 99 (US$110). Farmers in Chitipa who would use work oxen for land preparation are expected to double the cultivated area and to increase their annual income from crops to MK 188 (US$209). Ultimately a total of about 14,400 farm households would increase their income from crops as a result of the Phase I and II Karonga Projects. The internal rate of return of the Lake Transport component is 18%. No economic rate of return can yet be calculated on the pre-investments under the NRDP component during the first two Project years. Appropriate proportions of these pre-investments would be included in the economic evaluation of the first full-fledged NRDP project which is scheduled to be appraised in late 1977. The aggregate internal rate of return of the whole Project is estimated at 16%. x. Since 1964 Malawi has received thirteen IDA Credits totalling US$96.8 million. Apart from the six Credits for rural development projects Credits have been extended for road development and engineering, power, educa- tion and for transport engineering and services connected with a wood and pulp project. Project implementation has generally been satisfactory although cost overruns have occurred in the last two years. The first Karonga project had a slow start, because of initial staffing problems, and some of the original targets, particularly for irrigation development, were reduced. The project is now progressing satisfactorily but because of cost overruns, mainly in the construction sector, the project period was reduced from five to four years. xi. The Project is suitable for an IBRD (Third Window) loan of US$9.2 million.   MALAWI KARONGA RURAL DEVELOPMENT PROJECT - PHASE II I. INTRODUCTION 1.01 The Karonga Rural Development Project (KRDP), which commenced in 1972/73 in the Northern Region and is now completing its first phase, forms part of the third agricultural development program financed by IDA in Malawi. KRDP was preceded by two similar programs which were designed to assist the country's small farmers. The Lilongwe Land Develoment Program (LLDP) in the Central Region was the first (1968/69) and is now in its third and final phase. The Shire Valley Agricultural Development Project (SVADP) in the Southern Region which followed in 1969/70 is now in its second phase. A fourth major project, the Central Region Lakeshore Development Project (CRLDP) was assisted by the Federal Republic of Germany. 1.02 All these programs are characterized by: (a) the provision of infrastructure, such as rural roads, input stores and produce markets, health facilities (both for people and cattle), boreholes and housing and office ac- commodation for project staff; (b) land improvements, comprising land consolidation (and in LLDP land registration), irrigation development and conservation works; (c) strengthening of extension, marketing, research and public health staffing; and (d) establishment of credit facilities for agricultural inputs such as fertilizer, seeds insecticides, work-oxen and farm implements. These comprehensive programs are implemented in the more densily populated areas of the country and would, at their completion, cover about one million people, or one quarter of the total population. While they are making a significant contribution both to institution building and to an improved standards of living for large numbers of people, a change of emphasis is needed to provide over a reasonable time period the remaining three quarters of Malawi's farm population with improved production opportunities. In 1973, a Bank agriculture sector mission therefore recommended, and the Govern- ment has decided to adopt, a strategy which would give priority to investments with an immediate impact on agricultural production (particularly in areas which have some infrastructure such as roads) while other investments, which either are relatively costly or have a lesser direct impact on production would be made in the more distant future. Good progress has now been made in designing a National Rural Development Program (NRDP) which would be implemen- ted through some 40-50 sub-projects over a period of about 20 years. The Government is expected to seek the support of external financing agencies for future NRDP sub-projects.  1.03 The new strategy is already to some extent reflected in the design of the second phase of KRDP, which would be enlarged to include the sparsely populated Chitipa district, and for which Government has now requested Bank assistance. The main emphasis would be given to strengthening of extension and farmer services, including agricultural credit. The Project would make full use of existing infrastructure, and investments in additional infrastruc- ture, mainly in Chitipa district, would be restricted to the necessary minimum. There would be a significant reduction in the emphasis on land consolidation and there would be no further irrigation development which characterized the first Karonga project. The Government also requested financing of a preli- minary investment phase of NRDP to prepare the ground for a full-fledged NRDP project scheduled to commence in 1978. A third component of the Project is the improvement and expansion of berthing and handling facilities at the port of Chipoka at the southern end of Lake Malawi, originally provided for in the first phase of KRDP but not implemented because of cost overruns in other parts of the Lake Transport component. 1.04 Some of Government's original proposals were modified in the course of the appraisal. No convincing evidence could be found to justify major investments for the improvement of Malawi's smallholder coffee as was re- quested and it was agreed instead to include a provision for a special study to determine the potential for future coffee development. The Government withdrew a request for fishery investigations in the northern part of Lake Malawi when it became clear thbat this component could be included in a UNDP financed fisheries project. The scope of the proposed NRDP preliminary investment phase was reduced in order to allow more time to establish the necessary institutional framework and to collect and analyze essential data on which specific development proposals are to be based. 1.05 Since 1964 Malawi has received thirteen IDA credits totalling US$96.8 million. Apart from six credits for rural development projects - three for Lilongwe, two for the Lower Shire and one for Karonga - other credits have been extended for road development and engineering, power, educa- tion and for transport engineering and services connected with a wood and pulp project. Project implementation has generally been satisfactory, although cost overruns have occurred in the last two years. Owing to initial staffing problems, the first phase of KRDP had a slow start but is now progressing satisfactorily. Some of the original targets of the project, particularly with regard to irrigation development, have been reduced. Because of cost overruns, mainly in the construction sector, the project period was reduced from five to four years. These and other aspects are discussed in Chapter II. 1.06 The proposed Project was prepared by the Government with assistance from the IBRD Regional Mission in Eastern Africa. This report is based on the findings of an appraisal mission composed of 'Messrs. H. van Voorthuizen and K. Niemann (IBRD), P. Reid and G. Kerkhoven (Consultants), and A. Goala (ADB), which visited Malawi in October/November 1975; Mlessrs. K. Krishna and J. Russell (IBRD) assisted the mission during the field appraisal. The Lake Transport proposals were appraised by MIessrs. D. Raymond, who visited Malawi Ln February 1976, and J-0 Fraisse (IBRD).  II. BACKGROUtID A. General 2.01 Malawi, a landlocked country in southeast Africa, is bordered on the south by Mozambique, on the northwest by Zambia and on the northeast by Tanza- nia. It has a total land area of about 36,000 square miles, and the current population, estimated at 4.8 million, is increasing at about 2.6% per annum. About 90% of the population lives in rural areas, but the urban population is now estimated to be increasing at twice the rate of the rural popu- lation. 2.02 Between 1965 and 1975 Malawi's gross domestic product (GDP) grew, in real terms, by an average of 7.3% per year to reach an estimated MK 668 mil- lion (US$775 million), at current prices, in 1975. Per capita income was US$110 in 1973 (1975 World Bank Atlas). Whereas the Government has received external support for its recurrent budget for many years, it has since 1972/73 financed recurrent expenditures entirely out of domestic revenues. Develop- ment expenditures, however, are expected to be heavily dependent on foreign sources of finance. B. The Agricultural Sector 2.03 Agriculture remains the most important sector of the Malawi economy and employs about 90% of the population. Other sectors have, however, been growing fast in the last few years and agriculture's contribution to GDP declined from about 50% in 1971-72 to about 45% in 1974/75. The real annual growth of the agricultural sector ranged between 2 and 4% during the three year period 1972/73-1974/75. In 1974 agriculture accounted for 92% of the total domestic export earnings. The main export crop is tobacco (43% of total 1974 domestic export earnings), while tea (19%), sugar (10%), groundnuts (6%), and other crops (14%), accounted for the balance. Smallholder agricultural production had a 35% share in the total domestic export earnings and estates 57%. The export value in current terms of smallholder crops (mainly ground- nuts, rice, fire-cured tobacco, cotton, pulses and maize) has grown from MK 12.2 million in 1964 to MK 31.5 million in 1974 though with considerable annual fluctuations. 2.04 Farm holdings are generally small (averaging about 3.5 acres), and their size is dictated in part by the scarcity of additional cultivable land and by the size of the family. Average population density is 138 per square mile but is two times as high in the most productive areas of the Central and Southern Regions. Over the past decade increased food requirements have been met mostly through an expansion of cultivated area. This in turn has meant that land more susceptible to erosion has been cropped, and fallow periods have been reduced. In view of the current need to maintain soil fertility and to reduce pressure on land, the emphasis of agricultural policy is now on increased productivity.  - 4 - 2.05 Maize is by far the most important smallholder crop, and is grown on 80% of all cultivated land; other important food crops are pulses, groundnuts and cassava, and, to a lesser extent, rice, sorghum and wheat. The sharp fertilizer price increase during the last two years was a serious setback for the ongoing efforts to increase agricultural production. 2.06 Only about 10% of rural families own cattle. The total number within Malawi is estimated at about 600,000 head in 1974, of which about 180,000 are in the Northern Region. The offtake rate is about 9%. The Department of Ani- mal Health in the Ministry of Agriculture aims to expand livestock production through the introduction of more productive cattle breeds, through artificial insemination and selective breeding to upgrade the local Zebu cattle, and through a disease control program aimed at the eradication of Foot and Mouth Disease, East Coast Fever and Tuberculosis. C. Agricultural Services 2.07 The Ministry of Agriculture and Natural Resources (MANR) is prima- rily responsible for the provision of services to the agricultural sector. It operates through five departments: Extension and Training, Animal Health, Fisheries, Research, and Technical Services. The Mlinistry is also responsible for the four major agricultural development projects. Almost all organized smallholder credit in Malawi is provided through these projects. 2.08 The Agricultural Development and Marketing Corporation (ARMARC) is the most important institution involved in the marketing of smallholder produce. ADMARC buys, stores, processes and markets (both locally and abroad) all market- able cotton and tobacco grown in Mlalawi and is also empowered to purchase all produce grown on customary land; for the latter ADMARC views itself only as a residual buyer, purchasing only that output which farmers choose to market through it. Significant amounts of smallholder produce are either sold to private traders or bartered among the farmers themselves. In addition ADMARC supplies inputs, such as fertilizer, seed, and agricultural equipment to small- holders. Produce prices for most crops are announced each year before the start of the planting season by ADMARC with the approval of the Mfinister of Agriculture. In the recent years ADMARC has accumulated substantial crop marketing surpluses particularly from trading in tobacco, cotton and ground- nuts and these have been applied to a variety of development projects. ADMIARC also devotes part of its surplus to a price-equalization reserve to stabilize producer prices, and maintains a small food reserve stock. ADMIARC is the majority shareholder of, and effectively controls, the National Oil Industries Limited (NOIL) which owns and operates five rice mills and an oil expression plant for cotton seed (Annex 4). 2.09 Most of MIANR's technical and field staff receives its formal agri- cultural training either at Bunda Agricultural College,which is part of the University of Malawi, or at Colby College of Agriculture, which is under MANIR. Bunda offers a three year course leading to a Diploma in Agriculture and a four year course which leads to a Bachelor of Science in Agriculture degree. USAID has recently agreed to finance an expansion of Bunda's facilities.  - 5 - Colby College offers a two-year course, which leads to a certificate in agriculture. Other institutions involved in training agricultural staff include the M'ikolongwe School and Livestock Improvement Center which offers a two year course for veterinary assistants, the Thuchila Farm Institute, the main training center for women which has a one-year course for Farm Home Instructresses, and also schools for fisheries and forestry assistants. MANR would like to concentrate the various courses for field level workers in one location and for some years has been contemplating the establishment of a Natural Resources College at the site of the present Colby College near Lilongwe. The proposals are now finalized for submission to potential finan- cing agencies. The Ministry also organizes in-service training programs for extension staff and conducts farmer training courses in about 20 residential and 70 day centers (Annex 6). D. Karonga Rural Development Project, Phase I 2.10 KRDP, Phase I, was appraised in April 1971 and consisted of a first five-year agricultural development program in the Karonga area, including im- provement to health services and transportation. In its original request Gov- ernment attached much importance to the construction of irrigated rice schemes following the establishment of two irrigation schemes at Hara and Wovwe in the southern part of the Karonga Lake shore. Because of inadequate hydrological data the Government's target of developing 9,000 acres irrigated rice was re- duced during appraisal to 1,500 acres in two schemes at Lufira and Wovwe and the development of 6,000 acres of rainfed rice schemes was provided for instead. During the project's implementation, which because of initial staffing problems started only in the second half of 1972, it became clear that the soil perme- ability in the 1,000 acre scheme at Lufira was much higher than anticipated and concrete lining of the main canals became necessary. The scheme is expected to be completed in the course of 1976, two years behind schedule. Because of the resulting heavy cost overruns at Lufira the development of the 500 acre irrigation scheme at Wovwe has been omitted from the project and no further irrigation develoment is comtemplated at this time. 2.11 The improvement of rainfed rice cultivation is progressing satisfac- torily. Simple water control bunds, demarcated by the project's land husban- dry section and constructed by the farmers themselves, would be completed on about 5,000 acres by the end of the revised four year project. This is about 1,000 acres short of the original target, mainly because of the late project start. Some 2,500 farmers growing rainfed rice received 215 m ton fertilizer and 150 sh ton improved seeds on credit in 1975; the number of farmers is about one-third above, and the amount of fertilizer some 20% below the ap- praisal estimates. 2.12 An estimated 8,000 acres of dryland crop land are expected to be demarcated and consolidated by 1976 which compares with 7,800 acres estimated at the appraisal of the first project. Actual improvements of cultivation techniques of maize, cotton and groundnuts are, however, lagging behind appraisal estimates. Fertilizers, improved seeds and insecticides for about 2,200 acres were distributed on credit in 1975 to about 1,500 dryland crop  -6- farmers, whereas the appraisal estimate provided for 5,400 acres by 1,200 farmers. It was erroneously assumed that land consolidation would be fol- lowed immediately by improved cultivation techniques on the entire con- solidated area and that no improvements would be introduced on non-con- solidated land. In fact, however, adoption of improved techniques went much slower, partly because of the high fertilizer costs, while on the other hand many farmers outside the consolidated schemes also started using small amounts of inputs. In contrast with the original appraisal estimate it is now expected that farmers will continue to cultivate about one quarter of the land with cassava and that improved husbandry of maize, cotton and groundnuts will increase over two years, following demarcation, to about 75% of the land (Annex 1). 2.13 The main objective of the livestock develoment program of the first project was to improve cattle health through the construction of dipping tanks and the provision of vaccines and drugs. This has been carried out satisfactorily and only two additional tanks need to be built under this Project. The first project also provided for four new cattle markets (two in Karonga and two in Chitipa) but only the market built in southern Chitipa turned out to be successful. The other three cattle markets attracted little interest as farmers preferred to sell their cattle locally or across the border to Zambia or Tanzania (Annnex 2). 2.14 The construction of staff housing, office accommodation, roads and health facilities has been proceeding satisfactorily and targets will be reached by the end of the project. The project also provided for the construction or improvement of two terminals comprising berthing facilities and associated structures and for a self-propelled vessel for the Lake Trans- port Service. Because of heavy cost overruns during the construction of the Chilumba terminal in Karonga district no funds were left for the improvement of facilities at Chipoka on the southern end of Lake Malawi. Since this terminal is of great importance for all Lake traffic to and from the north, including Karonga, its construction has now been included in this Project. The self-propelled vessel is assembled and is undergoing sea trials at Monkey Bay (Annex 13). 2.15 Despite the late start and the setbacks during implementation the first project is now performing satisfactorily. Most physical targets will be met by the end of the project and farmers participation is better than anticipated. A first survey of crop yields, conducted by the project's eva- luation unit during the 1974/75 season, suggests substantial production in- creases as a result of the project activities (details are at Annex 1). The experiences gained so far have led to a better understanding of-the feasibi- lity and timing of various project activities and the lessons drawn from these experiences have been taken into account in the design of the proposed second Project.  III. THE PROJECT AREA Karonga and Chitipa Districts (Annex 1) 3.01 Land and crop development under the first Phase of KRDP were limited to the Lake shore area in Karonga district while the livestock develop- ment program was implemented in both the Karonga and Chitipa administrative districts. Under the proposed Project agricultural and other developments would also be extended to the parts of Karonga and Chitipa districts which were not covered by the first project. The two districts are located in the extreme north of Malawi and are bordered by Zambia to the west, Tanzania to the north and Lake Malawi to the east (World Bank Map 12040). The area involved covers about 2,950 square miles but physical conditions vary widely. 3.02 Communications. Communications with other parts of Malawi are difficult because of the remote location of the Project area. The construc- tion of the Chilumba-Chiweta road, which connects Karonga town with the south of Malawi and upgrading of the Chitipa-Chisenga-Nthalire road, which connects Chitipa with Rumphi, has improved the situation somewhat. The first 15 miles of the Karonga-Chitipa road continue to pose problems during the wet season; upgrading of this road to all-weather conditions has been considered but found too costly because of the very instable black-cotton soil. During the dry season there are no problems and transport of heavy goods, such as con- struction materials, fertilizers and crop produce should be carefully planned to avoid wet season disruptures. The construction under the first project of the Chilumba terminal in south Karonga in addition to the existing port at Kambwe, near Karonga town, has improved the efficiency of the Lake Malawi Service for Karonga district. 3.03 Land and Population. The Lake shore area in Karonga district is about 80 miles long and 10 - 20 miles wide and has a population of about 90,000 persons. The altitude gradually increases from about 1,500 to about 2,000 feet. Annual rainfall ranges from an average of about 100 inches in the north to 30 inches in the center and 60 inches in the south, most of it falling between November and May. In the wet northern part soils consist mainly of heavy clay; rainfed rice predominates on mostly impermeable clays and some subsistence maize and cassava are grown on better drained fields. In the dryer central and southern parts soils are lighter and the main crops are cassava, groundnuts, cotton and maize. The Lake shore area is cut across by the beds of numerous wet season rivers flowing down from the escarpment. Dry season river flow is limited to the wet north and the most southern part of the Lake shore but there is little opportunity for economic storage of the wildly fluctuating river flows. Besides, the streams carry large amounts of silt which is further aggravated by denudation of the catchment areas. The pros- pects for irrigation development are therefore not so good as they were thought to be a few years ago. 3.04 The remaining part of Karonga consists of a steep escarpment which stretches along the entire western border of the district. Rainfall averages  -8- up to 60 inches and the natural vegetation is mainly Brachystegia woodland. A small number of about 5,000 persons make their living on the escarpment, mainly by practicing slash and burn techniques which reduce the amount of natural vegetation. 3.05 Towards the northwest the escarpment extends into the Misuku hills in Chitipa district where altitudes reach more than 6,000 feet. Some 16,500 persons live in this area; they grow maize, millet, cassava, beans, peas and sweet potatoes for subsistence, and about one third of them grow some arabica coffee for cash. The annual rainfall varies between 40 and 60 inches and permanent cropping is more commonly practiced than in the Karonga part of the escarpment. 3.06 The largest part of Chitipa district consists of a sandy plateau along the Zambian border and large marshy clay valleys (locally called dambos) between the plateau and the hills in the northeast and south. Only about 56,000 persons were living in the Chitipa plains in 1974 and there exists considerable room for expansion. The annual rainfall averages 45 inches, fairly evenly spread over the period December to April, and reaches up to 60 inches in the most northern part of the district. The main crops are maize, groundnuts, beans, cassava, sorghum, sweet potatoes and millet, which are mostly grown for subsistence. 3.07 Cattle. In 1975, the cattle populations were estimated at 32,000 for Chitipa and 38,000 for Karonga, a total of 70,000 head. It is believed that productivity has improved recently following the animal health facili- ties provided by the first project but it it is very difficult to make a precise assessment because of continuous cattle movements between Malawi, Zambia and Tanzania. The official statistics indicate a zero growth rate bet- ween 1965 and 1973 and an annual offtake of about 11.5% for the two districts. National Rural Development Program (Annex 7) 3.08 The Project would provide for preliminary investments for NRDP in three development areas in different parts of Malawi. Criteria for the selec- tion of the three NRDP sub-project areas include amongst others: high, but largely undeveloped agricultural potential; considerable initiative by the local farming community; ready accessibility of the area and some existing infrastructure; and maintaining an even balance in providing development assistance to all Regions. The selected areas are North-West Mzimba in the Northern Region, Thiwi-Lifidzi in the Central Region and Kawinga in the Southern Region. 3.09 The N.W. Mzimba sub-project is located west of the mainroad Mzimba- Rumphi and has a gross area of 670 square miles with an estimated population of 51,180 or 75 persons per square mile. Maize is the staple food crop and other food crops include sorghum, groundnuts, beans and cowpeas. About 40% of the farmers also grow tobacco. The second sub-project, Thiwi-Lifidzi, is located between the Mozambique border and the Lilongwe Land Development Pro- gram area. The gross area is 380 square miles with a population of about 130,000 or 340 per square mile, about twice the national average. As a result the area is more intensively cultivated than the other two proposed  sub-projects and all arable land is thought to be under cultivation. Major crops include maize, groundnuts, beans and tobacco. The third NRDP sub- proiect, Kawinga, is located north of Lake Chilwa on Malawi's eastern bor- der with Mtozambique. The gross area is 740 square miles and its population is estimated at about 100,000 persons or 140 per square mile. It comprises two ecologically different areas: a low rainfall maize, groundnut, cotton, tobacco economy in the north and a wetter area in the south around Lake Chilwa where rice, cassava and cattle raising are the main activities. 3.10 All three development areas have a good potential for increased production, mainly through more intensive cultivation methods and in some parts also through opening up of unused land (N. W. Mzimba, southern Kawinga). In all areas there has been a favorable response by the farmers towards pilot development activities - especially in Mzimba and Thiwi-Lifidzi. Additional survey work and farm-scale testing of possible improvements is needed to prepare sound crop and livestock development plans. IV. THE PROJECT A. General Description 4.01. The Project would, over four years (1976/77 - 1979/80), continue to support the development of the agricultural production potential of Karonga and Chitipa districts mainly through further strengthening of extension ser- vices and the distribution of farm inputs on credit, and would also make some further improvements to the social infrastructure of the two districts. The Project would also, over two years, support the preparation of the National Rural Development Program through strengthening of essential services in MANR and through preliminary investments, mainly in staff housing, in three select- ed development areas. Finally the Project would improve the facilities of the 'lalawi Lake Service through the rehabilitation of the Chipoka terminal. The Project would specifically provide for: Karonga and Chitipa Districts (a) continuation and expansion of extension, animal husbandry and land husbandry services, and construction of housing for new staff and training and office facilities; (b) continuation and expansion of seasonal and medium term credit for farm inputs; (c) continuation and expansion of agricultural and hydro- logical research; (d) construction of additional boreholes and construction or improvement of rural roads, minor bridges, culverts and drifts;  - 10 - (e) construction of additional markets, input stores and small input sheds; (f) expansion and improvement of health facilities; (g) continued Project evaluation; National Rural Development Program (h) strengthening of MANR's land husbandry, agro-economic survey, research, evaluation and accounting services and establish- ment of a road construction unit; (i) construction of staff housing, office facilities and stores and other necessary infrastructure, followed by the recruit- ment of additional extension, land husbandry and research staff in the development areas N.W. Mzimba, Thiwi-Lifidzi and Kawinga; and Lake Transport (j) repair and expansion of berthing and associated facilities at the Chipoka Lake terminal. In Karonga and Chitipa districts the Project would be implemented by the existing KRDP management unit under the general direction of MANR. The Director of Extension and Training in MANR would be responsible for the NRDP component, the Ministry of Health for the health component, ADMARC for the construction of crop markets and input stores, and Malawi Railways Limited, which owns and operates the Lake Service, would carry out the im- provements to the Chipoka Lake terminal. B. Detailed Features Karonga and Chitipa Districts 4.02 Crop Development Targets (Annex 1, Tables 1 and 2). Under the Project improved crop husbandry techniques, including the use of fertilizer, improved seeds and insecticides, are expected to be practiced in the following areas at subsequent stages of development (acres):  - 11 - Before Start of End of Phase II At Full Development Phase II Project Project (Year 0) (Year 4) Year Acres Karonga Rainfed Rice 5,000 11,000 4 11,000 Dryland Crops 3,375 9,375 5 10,500 Chitipa Handcultivated Crops 900 6,300 9 16,200 Oxen-cultivated Crops 700 2,800 9 6,400 4.03 Extension and Training (Annexes 1 and 6). Over the next 20 years the Government intends to increase the number of extension workers in the country as a whole to the level of one field assistant for about 500 farmers. The Project would provide for a gradual increase in Karonga and Chitipa from the present level of one field assistant for every 850 farmers to one for about every 575-600 farmers by the end of the Project. The number of develop- ment assistants, working as demonstrators in cotton and rice (Karonga), coffee (Chitipa) and for the training of work-oxen (both districts), would also be increased. The following summarizes the existing and future staffing: Karonga Chitipa Prior to End of End of Phase I 1975 Phase II 1975 Phase II Farm Families 19,500 21,000 22,750 17,000 18,500 Senior Extension Staff 7 14 18 4 13 Field Assistants 15 25 38 20 32 Development Assistants 20 30 40 9 13 Ratio Farm Families/ Field Assistants 1,200/1 850/1 600/1 850/1 575/1 Overall performance of existing extension staff in Karonga and Chitipa is generally good. Two existing rural day training centers for farmers in Chitipa would be upgraded to residential training centers and one new day training center would be built. Karonga already has one residential training center and two day centers and does not need additional facilities. Besides pro- viding farmer training courses--for both men and women--the centers would also be used for in-service courses for staff. An additional extension aid van would also be acquired and operated by the Project.  - 12 - 4.04 Animal Husbandry and Veterinarv Services (Annex 2). Various activities started under the first project will continue and be expanded. Two nore dip tanks would be built in addition to the 19 old ones and the 22 constructed under Phase I. The Project would make full use of the existing livestock center in Karonga and the new center, presently under construction in Chitipa under the first project, to demonstrate the advantages of improved breeding stock and better animal nutrition. Before the start of the first phase project there were 25 animal husbandry and veterinary assistants in the two districts and an additional 12 posts were created during the first project; no further increases are provided for under this Project. 4.05 Land Husbandry Services (Annex 1). The land husbandry section would continue to assist the farmers with the layout or realignment of water control bunds in Karonga's rainfed rice areas and with the layout of farms based on catchments, both in Karonga and Chitipa. The section would also mark road alignments for people wishing to construct feeder roads on a self-help basis. During the last two years of the Project the staff of the land husbandry section would be transferred to the extension services which would continue to provide routine land husbandry services where needed. 4.06 Credit (Annex 3). The Project would provide for an expansion of the operations of the credit fund which started in 1972/73 in Karonga and in 1975/76 in Chitipa. The incremental volumes of seasonal farm inputs to be supplied on credit under this Project are estimated at 1,225 m ton fertilizer, 155 sh ton maize, groundnut and rice seeds and insecticides for 2,000 acres of cotton. Medium-term credit would be provided for about 425 pairs of work-oxen, 340 ox-carts, 750 ploughs and chains, 265 ridgers and 600 cotton sprayers. Depending on the conclusions and recommendations of the proposed coffee study (paragraph 4.13 and Annex 1) inputs may also be made available on credit for the improvement of coffee growing in Chitipa district. The organizational aspects of credit are discussed in Chapter V. 4.07 Research (Annex 1). The Project would provide for the continuation of crop research at the existing station near Karonga town and at the new station presently under construction at Lufita in Chitipa. Research programs would be determined in consultation with other field sections of the Project and more emphasis would be given to Project specific research subjects. In close colaboration with the extension services a program of farm scale tests of possible improvements for each of the main crops would be initiated in all extension sectors. The hydrology section would continue to collect relevant data on rainfall, streamflows, evapo-transpiration, and sub-surface water flows, which would be helpful in solving short-term problems such as design changes for bridges and culverts, sowing dates for crops, and the climatic suitability of an area for a new crop. Information, thus acquired, is also necessary for a better understanding of the irrigation potential of the Karonga Lake shore plain. 4.08 Boreholes. Village water supplies would be improved in areas where adequate sources are lacking, by drilling 40 boreholes in each district, so increasing the number of boreholes in Karonga from 94 to 134 and in Chitipa from 27 to 67. Some of the boreholes in Chitipa would be drilled in areas *which, although fertile, are at present not cultivated due to water shortage.  - 13 - 4.09 Staff Houses, Offices and Roads. The Project would provide for the construction of a total of 74 houses for new staff, of which 15 would be in Karonga (in addition to the 110 houses built under the first project) and 59 in Chitipa. Office accommodation would also be built. The standards of construction adopted for the first project were higher than necessary and experience in the Lilongwe Land Development Program (LLDP) has shown that adequate housing can be provided by adopting simpler designs. At negotiations it was agreed that the Government would ensure that the design standards would be satisfactory to the Bank. The Project would also provide for upgrading of about 90 miles of feeder roads, of which 80 miles in Chitipa. Other essential roads would be improved so as to provide all weather access to the input stores. Some 70 bridges, 20 culverts and two drifts would also be constructed or repaired. 4.10 Crop Markets and Input Stores. ADMARC would construct and operate six crop produce market complexes in Karonga, in addition to the three existing ones, and three in Chitipa where at present only one such facility exists. Each complex would consist of a 280-ton input store, a market build- ing and staff housing. ADMARC would also construct eight small input sheds in isolated areas of Chitipa district. 4.11 Health Facilities (Annex 5). The Project would provide for some further essential improvements to the health services in Karonga and Chitipa. These include the construction of three new maternity wards in Karonga, two maternity wards and seven health posts in Chitipa, staff houses and some boreholes in areas where fresh water is lacking. The Project would also finance the operating costs of the new facilities, which include personal emoluments, drugs and transport. 4.12 Evaluation. Continued support would be provided for the evaluation unit established under the first project and which carried out a first program of field surveys during the 1974/75 season. The unit would collect data partly through field surveys, particularly on crop acreages and production, and partly from other sections of the Project, for example on inputs issued to the farmers and marketing of crops. The Government has recently established a position for an evaluation officer in the economic planning section of MANR who would coordinate the activities of the evaluation units operating in the various agricultural development projects to ensure that similar methodologies are adopted throughout the country. National Rural Development Program (Annex 7) 4.13 Central Services of MANR. In order to increase the Mlinistry's capacity to prepare and implement future investment phases of NRDP this Project would over two years provide for an expansion of the central services listed below. (i) The land husbandry section would be responsible for land resource inventories in proposed NRDP sub-projects. The unit would be strengthened by three additional staff with supporting facilities including housing, and the Project would also  - 14 - finance the costs of another three staff, initially provided for a period of one year under the third phase of LLDP. (ii) The agro-economic survey unit would collect demographic, economic and agricultural baseline data in the proposed sub- projects and would be strengthened by three additional staff and supporting facilities. The Project would continue to finance another four staff initially provided under the third phase of LLDP. (iii) Six new agricultural research staff would be provided to conduct crop experiments in six future NRDP sub-projects in order to determine optimum input packages. (iv) A new evaluation unit, comprising 15 staff with supporting facilities, would initially be established in MANR's existing Regional headquarters at Mzuzu in the Northern Region. The unit would be responsible for monitoring progress under the Mzimba NRDP sub-project and would probably merge with the existing KRDP unit at a later stage. (v) The accounting services of MANR's headquarters would be strengthened by 16 new staff of which nine would eventually be transferred to the N4RDP sub-projects following training at headquarters. The Project would also provide for continued financing of a financial controller, presently an ADS staff member whose costs are till now shared by the three IDA financed agricultural projects (LLDP, SVADP and KRDP), and for a systems analyst/programmer to computerize farm credit accounts. (vi) In the absence of a rural road construction unit in the Ministry of Works, MANR would also establish and operate a road construction unit similar to the units established in the major ongoing projects. The unit would be responsible for the construction and upgrading of rural roads in NRDP sub- projects. The Project would provide for the initial equipment and for a specialist to manage the unit. (vii) Finally, funds would be provided for ad hoc consultancies on special subjects which are relevant for the implementation of the Project. This would include a study of the develop- ment potential of Malawi's smallholder coffee industry by a coffee agronomist and an economist, and may also include specialist advice on the organization of a credit institution, manpower planning and the preparation of detailed NRDP sub- projects. At negotiations it was agreed that the Government would employ consultants whose qualifications, experience and terms and conditions of employment would be satisfactory to the Bank. 4.14 NRDP Sub-projects. The Project would over two years provide for preliminary investments in throe development areas which the Government lhas selected as .he first NRDP sub-projects. In North-Wiest Mzimba (Northern  - 15 - Region) and in Thiwi-Lifidzi (Central Region) respectively 19 and 33 houses for additional extension, land husbandry and agricultural research staff would be constructed. During the first year the Project would provide for a technical officer for each area, who would be responsible for Project implementation, while other staff would be recruited in the second Project year. The Project would further provide for the construction of office accomodation, rural training centers (one in Mzimba, two in Thiwi-Lifidzi), boreholes (20 in Itzimba, 16 in Thiwi-Lifidzi), input stores (three in Mzimba, two in Thiwi-Lifidzi), two bridges and some additional health facilities in lizimba, and about 50 miles of roads in Thiwi-Lifidzi. The distribution of farm inputs on credit, such as fertilizer, seeds and tools, would commence on a small scale during the second Project year. Developments in a third area, Kawinga (Southern Region), would follow the same pattern but commence a year later than in the other two areas. The Project would provide for the construc- tion of 28 staff houses, office accommodation, two training centers, ten boreholes, and three input stores, and for the recruitment of a chief tech- nical officer during the second Project year. Simultaneously land resource and agro-economic surveys would be completed or updated in each of the three dev- elopment areas and it was agreed during negotiations that detailed development plans would be submitted to the Bank before September 30, 1977. 4.15 Since the level of staffing for the NRDP preliminary investment phase, provided for under this Project, is essential for a successful pre- paration and implementation of NRDP, Government agreed at negotiations that no significant variations of staff positions would be made without consulting the Bank. No disbursements against the NRDP component would be made before the additional staff positions, as specified in Annex 7, Appendix 1, are established. 4.16 Lake Transport (Annex 13). The rehabilitation and expansion of the Malawi Lake Service is necessary for the accommodation of the increased traffic resulting from this Project and, in addition, other existing traffic demands. Under the first project, a jetty and associated structures were constructed at Chilumba in Karonga district but similar facilities at the existing southern terminal, Chipoka, which were also included in the earlier project, could not be constructed with the funds available. The need for the improvements to the Chipoka terminal is now more pressing than four years ago and the Project would therefore provide for the construction of berthing facilities and associated structures, including cargo handling equipment, at Chipoka. The Project also provides for the refitting of the motor vessel Mpasa to increase its bulk petroleum carrying capacity. The failure of the Lake Service to meet its operating costs, even excluding depreciation, suggests that tariffs are too low. To avoid a cross-subsidiza- tion of the Lake Service by the Railways, it was agreed at negotiations that the Government would establish Lake Service tariffs which would generate sufficient revenue to cover operating costs plus depreciation or debt service, whichever is greater. 4.17 Environmental Effect. The Project would have no adverse impact on the environment in the areas concerned. It would improve living conditions through the construction of potable water sources and the construction and operation of additional public health facilities.  - 16 - C. Project Cost Estimates (Annex 8) 4.18 Total Project cost including contingencies is estimated at MK 10.9 million (US$12.1 million) and the foreign exchange component is estimated at 52%. Detailed cost estimates are as follows: ----- 1M '000 -------- ----- US$ '000 ------ Foreign Exchange Local Foreign Total Local Foreign Total