Cameroon - Second Oil Palm Project

Report No. 1364-CM FILE COPY Appraisal of Second SOCAPALM Project Cameroon March 16, 1977 Western Africa Projects Department FOR OFFICIAL USE ONLY M 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 Worid Bank authorization.  CURRENCY EQUIVALENTS US$1 = CFAF 245 CFAF U = US$0.0041 CFAF 1,000,000 = US$4081.63 WEIGHTS AND MEASURES (Metric System) I hectare (ha) = 2.47 acres 1 kilometer m 0.624 miles 1 kilogram = 2.204 pounds 1 metric ton = 2,204.6 pounds I liter - 1.057 U.S. quart ABBREVIATIONS CAMDEV - Cameroon Development Corporation CEC = Coastal Etates Company FONADER = Fonds National de Developpement Rural IIEVECAM = Societe Hevea - Cameroun PAMOL = Societe Pamol Cameroun (Unilever Group) SAFACAM - Societe Africaine Forestiere et Agricole - Cameroun SOCAPALM = Societe Camerounaise de Palmeraies FISCAL YEAR July 1 to June 30  FOR OFFICIAL USE ONLY CAMEROON SECOND SOCAPALM PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-vi I. INTRODUCTION .......................................... 1 II. BACKGROUND ............................................ 2 A. General .......................................... 2 B. The Agricultural Sector .......................... 2 C. The First-Stage Project .......................... 5 III. THE PROJECT ................................... . 6 A. The Project Areas ................................ 6 B. Summary Project Description ...................... 8 C. Detailed Features ................................ 8 D. Organization and Management ...................... il IV. PROJECT COSTS AND FINANCIAL ARRANGEMENTS .... .......... 14 A. Project Costs .................................... 14 B. Financial Arrangements ........................... 16 C. Procurement and Disbursement ..................... 18 D. Accounts and Audit Arrangements .... .............. 19 V. YIELDS AND OUTPUT, MARKETS AND PRICES .... ............. 20 A. Yields and Output ................................ 20 B. Markets and Prices ............................... 20 VI. FINANCIAL RESULTS ................ .. ................... 22 A. Outgrower Benefits ............................... 22 B. Financial Results for SOCAPALM ................... 22 C. Financial Impact on Government and Participating Public Agencies .................... 23 VII. ECONOMIC BENEFITS AND JUSTIFICATION ................... 23 VIII. AGREEMENTS REACHED AND RECOMMENDATION ...... . ......... 25 This document has a restrictcd distribution ad may be usod by recipients only in the performance of their official duties. lIa contents may flot oth.rwist be discloeed without World Bank authoritution.  TABLE OF CONTENTS (Cont'd) ANNEXES 1. Project Entities SOCAPALM FONADER COASTAL ESTATES CENTER Table 1 SOCAPALM Balance Sheet: June 31, 1976 Table 2 First Project's Economic Rate of Return Table 3 Costs to Complete Dibombari Table 4: Resources and Outlays of FONADER 2. Technical Features Development of the Southwest Region Techniques Table 1: Planting Schedule Table 2: Timetable for Estates Establishment Table 3: Yields - Oilpalm Outgrowers Table 4: Yields - Estates Table 5: Personnel Requirements for Kienke Estate 3. The Outgrowers Program Organization and Management Credit Agreements Table 1: Cost of Credit Table 2: Recommended Producer Price Table 3: Illustrative Cash Flow - 1 ha Table 4: Outgrower Credit: Cash Flow of FONADER Table 5: Outgrower Credit: Cash Flow and Rate of Return to Government 4. Project Costs Table 1: Project Costs Summary Table 2: Kienke Estate - Field Establishment Table 3: Kienke Estate - Vehicles, Plant, and Equipment Table 4: Kienke Estate - Construction Table 5: Kienke Estate - Oil Mill Investment Table 6: Kienke Estate - General and Administrative Overheads Table 7: Outgrowers - Field Establishment Table 8: Outgrowers - Extension Service Costs Table 9: Outgrowers - Supervision Costs Table 10: M'Bongo and Eseka Estates - Completion Costs Table 11: M'Bongo Estate - Extension Costs Table 12: Douala Complex  TABLE OF CONTENTS (Cont'd) ANNEXES 5. Proposed Financing Plan 6. SOCAPALM Cash Flows Table 1: Project and Consolidated Cash Flow Table 2: Cash Flow Without Project Table 3: Projected Income Statement- Kienke, M'Bongo Extension and Outgrowers Table 4: Forecast of Operating Results- Existing Plantations 7. Estimated Schedule of Disbursements 8. Market Outlook and Prices Table 1: Prices for Selected Fats and Oils Table 2: World Production of Selected Oilseeds, Fats and Oils Table 3: Total Country Actual and Projected Palm Oil Production by Source Table 4: Total Country Production, Consumption and Export Projections of Palm Oil 9. Economic Rates of Return Table 1: Economic Rate of Return - Kienke Estate Table 2: Economic Rate of Return - Outgrower Program Table 3: Economic Rate of Return - M4'Bongo Extension Table 4: Economic Value of Palm Oil Table 5: Economic Value of Kernel MAPS IBRD 12428 - Cameroon IBRD 12429 - Southwest Project Area CHART IBRD 17055 SOCAPALM's Organizational Structure   CAMEROON SECOND SOCAPALM PROJECT SUMMARY AND CONCLUSIONS Background i. The Government of Cameroon has asked the Bank to help finance a project which forms part of a continuing program of development of the southern parts of the country based on estate/smallholder tree crops. The project was prepared mainly by SOCAPALM, a state-owned oil palm development agency. This report is based on the findings of an appraisal mission, com- posed of Messrs. G. Losson, A. Osei and T. Winston, which visited Cameroon in June 1976. Project Concept ii. Cameroon has suffered from an overall deficiency in edible fats, despite a good potential for crops such as oil palm. Palm oil deriving from wild groves has long been a basic food staple for the peoples of southern Cameroon, an important source of edible oil in other parts of the country, and the basis for a small but growing soap and detergent industry. However, the traditional sector had never treated oil palm production as a cultivated crop, its production of palm oil had been haphazard, and it could therefore hardly be counted on to bring about the desired production increases rapidly. Therefore, in the 1960's the Government decided to develop industrial estates which could rapidly increase production but also serve as demonstration as well as provide nucleus infrastructure and services for sound smallholder oil palm development. iii. To carry out this strategy, Government created two state-owned corporations, CAMDEV and SOCAPALM. These two have developed some 32,000 ha on five estates/oil mill complexes, foreseen to become nuclei for smallholder plantations. All these estates are in the western and south-central parts of the country, close to the main population and industrial centers. There is also a good potential for tree crops in the sparsely-populated and relatively undeveloped southwestern region, and Government is elaborating a long-term development plan for rubber, coconut and oil palm. A state-owned company, HEVECAM, is developing a rubber estate partly financed by the Bank loan (574-CM). The proposed project would have three objectives: (i) help meet a rising domestic demand for palm oil; (ii) inaugurate a smallholder development program; and (ii) carry forward the recently begun development of the southwest region. iv. The Bank assisted the first stage of SOCAPALM's development with a US$7.9 million loan in 1969 and a supplemental loan of US$1.7 million in 1973. The original project was modified in 1972 when mechanical land clearing proved more expensive than expected and when one of the sites proved partly unsatisfactory. The revised project included i) the establishment of 6,000 ha of oil palms at M'Bongo and 2,500 ha at Eseka, to be concluded in the 1976 planting season and ii) construction of a palm oil mill for each estate and  - ii - relevant infrastructure investments. Slippage in project implementation from the nine to 13 years estimated at reappraisal has been caused by occasional lack of planting material, temporary labor shortages, and severe loss of young plants to rodents. The management of SOCAPALM has been strengthened, however, so that these problems are now under control. Although cost estimates are now some 29% over reappraisal estimates, increases occurred largely during the sudden increase in world inflation in the post-reappraisal period. A loan and credit to CAMDEV for a total of US$18 million, the first Bank Group operation in Cameroon, financed planting of oil palm, plus planting or replanting of rubber, tea and pepper on a total area of 10,500 ha. The objectives of the project have been largely attained and it can also be considered a success. Project Areas and Summary Project Description v. The new Kienke estate would be established in the southwest, north- west of the HEVECII rubber concession, and would form part of the long-term tree crop development program for that region (para iii). Other investments would be made on the M'Bongo and Eseka estates which are in the south-central parts of the country. The smallholder program would also be centered on these estates. vi. Over a five-year development period, the project would comprise: (a) clearing about 6,850 ha and planting 6,000 ha with high-yielding selected oil palm trees on Kienke estate and maintaining these plantings during the five-year project period; and providing infrastructure to create an estate complex, including the first phase of a processing factory; (b) establishing 2,000 ha of smallholder oil palm plantations under an outgrower program on land cleared by the farmers; and pro- viding credit, management and extension services; (c) clearing 1,000 ha and planting 1,330 ha (including 330 ha of land already cleared) of oil palm on M'Bongo estate; providing both M'Bongo and Eseka estates with harvesting equipment and staff housing; and expanding the processing mill at M'Bongo; (d) providing for management and administration of Kienke, and admin- istrative cost related to the immature areas at Eseka and M'Bongo estates; and (e) providing a headquarters service complex in Douala, including office space and facilities such as a vehicle park, garage, and warehousing, that would be jointly owned by several estate- owning companies. The project would only provide for maintenance of all the estate plantings during the five-year project period. Maintenance thereafter and necessary processing and collection equipment and certain infrastructural investments would be provided for under SOCAPALM's future investment program.  - iii - Project Execution vii. All project components, with the exception of the Douala complex, would be managed by SOCAPALM, which is owned by the Government - 58.5%, the public-owned Societe Nationale d'Investissements (SNI) -- 10.5%, and the cocoa and coffee stabilization boards -- 17% and 14% respectively. Although a publicly-owned company, SOCAPALM operates on commercial lines with a Director-General responsible to a Board of Directors consisting of representat