Tanzania - Flue-cured Tobacco Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.2786 %LE 0 GaP PROJECT PERFORMANCE AUDIT REPORT TANZANIA FLUE-CURED TOBACCO PROJECT (Credit 217--TA) December 27, 1979 Operations Evaluation Department 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.  WEIGHTS AND MEASURES 1 meter (m) = 3.28 (ft.) 1 kilometer (km) = 0.62 miles 1 sq. meter (m 2 ) = 10.76 sq. ft 1 hectare (ha) = 10,000 m2 = 2.47 acres 1 kilogram (kg) = 2.204 pounds (lb.) 1 metric ton (m. ton) 1,000 kg = 2,204 lb GLOSSARY OF ABBREVIATIONS ADS - Agricultural Development Service AFO - Assistant Field Officer BAT - British-American Tobacco CIDA - Canadian International Development Agency COMWORKS - Ministry of Communications and Works ERR - Economic Rate of Return FA - Field Assistant FO - Field Officer GOT - Government of Tanzania ICB - International Competitive Bidding KILIMO - Ministry of Agriculture MAJI - Ministry of Water Development and Power MLS - Ministry of Lands and Settlement NDC - National Development Corporation NDCA - National Developoment Credit Agency PMO - Prime Minister's Office RDD - Regional Development Director TAC - Tanzania Agricultural Corporation TANU - Tanganyika African National Union, mainland Tanzania's former sole political party TAT - Tobacco Authority of Tanzania TPO - Tobacco Project Officer TRDB - Tanzania Rural Development Bank TTB - Tanzania Tobacco Board TTPC - Tanzania Tobacco Processsing Company VSD - Village Settlement Department  FOR OFFICIAL USE ONLY Project Performance Audit Report TANZANIA FLUE-CURED TOBACCO PROJECT (Credit 217-TA) TABLE OF CONTENTS Page Preface i Basic Data Sheet ii Disbursements iii Highlights iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. Project Summary I II. Main Issues 3 A. Viability of Tobacco Subsector 3 B. Availability of Fuelwood 6 C. Planning 7 D. Research and Training 8 PROJECT COMPLETION REPORT I. Background 10 II. Project Formulation and Appraisal 12 III. Project Implementation 21 IV. Institutional Performance 39 V. Agricultural Impact 42 VI. Economic Analysis 48 VII. Special Issues 50 VIII. Successor Projects 52 IX. Bank Performance 54 X. Conclusions 57 Annex 59 Map I Th document hu a ustricted ditribution and may be used by recipients only in the performance of their offieal dutis. Its contents may not otherwise be disclod without World Bank authorization.  Project Performance Audit Report TANZANIA FLUE-CURED TOBACCO PROJECT (Credit 217-TA) PREFACE This is a performance audit of the Tanzania Flue-Cured Tobacco Project for which Credit 217-TA was approved in October 1970 in the sum of US$9.0 million and fully disbursed on March 19, 1978. The audit report consists of an audit memorandum prepared by the Operations Evaluation Department, and a Project Completion Report (PCR), dated March 30, 1979. The PCR was prepared by the Eastern Africa Regional Office on the basis of a country visit in March 1978. The audit memorandum is based on a review of the President's Report No. PA-42 dated September 24, 1970, the Appraisal Report No. PA-42a of September 16, 1970, the Credit and Project Agreements dated October 9, 1970 and the PCR; correspondence with the Borrower and internal Bank memoranda on the project issues as contained in the Bank files have also been consuLted and Bank staff associated with the project have been interviewed. An OED mission visited Tanzania in August 1979. The mission held discussions with officials of the Ministry of Agriculture (Kilimo), the Tobacco Authority of Tanzania (TAT), the Tanzania Rural Development Bank (TRDB), the Ministry of Communication and Works (Comworks), and regional authorities in Mbeya. A field trip was made to visit project sites and par- ticipating farmers. The information obtained during that mission was used to test the validity of the conclusions of the PCR and permitted discussions of subsector viability, deforestation aspects and settlement planning. The draft report was sent to the Borrower on November 8, 1979, for comments; however, none were received. The audit finds the PCR an excellent document, thorough and criti- cal with respect to the project's principal achievements and shortcomings. The points discusssed by the audit have been selected because of their rele- vance to this and other projects in Tanzania. The valuable assistance provided by the Government of Tanzania, particularly the Tobacco Authority of Tanzania and the Ministry of Agri- culture's Project Preparation and Monitoring Bureau, is gratefully acknow- ledged.  - ii - Project Performance Audit Report TANZANIA FLUE-CURED TOBACCO PROJECT (Credit 217-TA) BASIC DATA SHEET KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 14.7 19.01/ Overrun (S) 0 312/ Credit Amount (US$ million) 9.000 9.000 Foreign Exchange Adjuotment 0 0.072 Disbursed 9.000 9.072 Cancelled 0 0 Repaid 0 0 Outatanding 9.000 9.072 Date Physical Components Completed 6/30/75 6/30/803/ Proportion Completed by Above Date (X) 100 60 Proportion of Tine Overrun (Z) 0 100 Economic Rate of Return (2) 30 144/ OTHER PROJECT DATA Original Actual or Item Plan Revisions Est. Actual First Mention in Bank File. - - 07/67 COvernment's Application - - 09/69 Negotiations 03/70 - 04/70 Board Approval - - 10/06/70 Credit Agreement Date - - 10/09/70 Effectiveness Data 01/15/71 - 02/01/70 Closing Data 09/30/76 12/31/77 03/19/78 Borrower United Republic of Taneania Executing Agency Tobacco Authority of Tannania Fiscal Year of Borrower July 1 - June 30 Fiacal Year of Ezecoting Agency March 1 - February 28 Follow-on Projects 5/ (i) Name Tobacco Proce.aing Project Credit Number 658-TA Amount (U5 million) 8.0 Credit Agreement Date October 1976 (ii) Name Tobacco Handling Project Credit Number 802-TA Amount (U5 million) 14.0 Credit Agreement Date June 1978 MISSION DATA Number of Number of Date of Misaions MonthMear weeka of Persons Manweeka Report Appraisal HQ 10/11/69 4 4 16 04/70 Pollow-up HQ 03/70 0.5 2 1 - Total 17 Supervision I HQ 09/70 1.0 1 1.0 09/25/70 Superviaion 2 HQ 01/71 1.0 2 2.0 01/27/71 Supervinion 3 HQ 05/71 1.0 1 1.0 06/08/71 Superviaion 4 HQ 07-08/71 2.0 4 8.0 09/08/71 Supeevision 5 HQ 01/72 2.0 3 6.0 02/07/72 Supervision 6 BMEA 07/72 1.0 1 1.0 07/25/72 Supervision 76/ HQ 09-10/72 1.5 4 6.0 10/19/72 Superviaion 8 BMEA 01/73 0.5 1 0.5 01/31/73 Supervision 9 RMEA 03/73 1.5 1 1.5 04/26/73 Superviaion 10 RMEA 09/73 1.5 2 3.0 09/28/73 Supervision 11 RMEA 02/74 1.0 2 2.0 03/18/74 Supervision 12 RMEA 10/74 1.0 2 2.0 11/05/74 Supervision 13 RMEA 03/75 1.0 2 2.0 05/29/75 Supervinion 14 RMEA 09/75 1.5 1 1.5 11/10/75 Supervision 15 BHEA 03/76 1.0 2 3.0 04/30/76 Supervision 16 RMEA 09/76 0.5 2 1.0 01/27/77 Supervision 17 BaEA 02/77 1.0 2 2.0 03/31/77 Supervision 18 RMEA 11/77 1.0 3 3.0 01/05/78 Total 46.5 Completion HQ 03/78 2.0 1 2.0 03/31/79 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Tanzanian Shilling (Tah) Appraisal Year Average (1970) Exchange Rate: US$1 - Tah 7.14 Intervening Yearn Average (1971-1975) US$I - Tah 7.14 Completion Year Average (1976-1977) US$I - Tab 8.30 Project period average7/ US1 - Tah 7.40 1/ Up to 12/31/77. Expenditure of a further USS2.1 million is required to provide water aupplien to all project complexes and to complete conatruction of unfinished complex buildingsa. 2/ On basis of costs to date; on basia of costs to complete all infrastructure and water aupplies, the overrun is 442. 3/ Physical development of complexes and villages can be completed only if the Tanzania Government allocates funds in ita Development Budget. No funda were included for 1978/79. A/ See Chapter 6 for explanation of differences in methodology between the appraisal calculation and the revised calculation. 5/ In addition to thene two projects, the Tabora Rural Developmant Project (Cr. 703-TA) includes provision for planting fuel wood lota in tobacco growing villages in Tabora Region, and provides further assistance to Tumbi Renearch Station. 6/ Raview Mission. 7/ Weighted by diabursements in each year.  - iii - Project Performance Audit Report TANZANIA FLUE-CURED TOBACCO PROJECT (Credit 217-TA) DISBURSEMENTS IDA Fiscal Year Appraisal Actual as % and Semester Estimate Actual of Appraisal ---------US$M ---------- 1971 June 30 950 20 2 December 31 1,730 97 6 1972 June 30 2,410 108 4 December 31 3,490 543 16 1973 June 30 4,190 543 13 December 31 5,500 1,300 24 1974 June 30 6,360 1,300 20 December 31 7,570 1,300 17 1975 June 30 7,950 3,900 49 December 31 8,910 7,200 81 1976 June 30 9,000 7,974 89 December 31 8,621 96 1977 June 30 8,798 98 December 31 8,820 98 1978 June 30 9,0721/ 101 Final Disbursement Date: March 19, 1978. 1/ Including US$71,688 exchange adjustment.  - iv - Project Performance Audit Report TANZANIA FLUE-CURED TOBACCO PROJECT (Credit 217-TA) HIGHLIGHTS The project was to increase flue-cured tobacco production through settlement of about 15,000 farmers, each cultivating 0.8 ha of tobacco, in 150 villages; establishment of cooperatives; construction of roads, water supplies and baling centers; assisting the extension service and tobacco research; and carrying out a tobacco marketing study and an aerial survey of parts of the project area. Project cost, over the six year disbursement period, were estimated at US$14.7 million. Achievements fell short of targets. Area planted to tobacco was only one quarter of the appraisal estimate and tobacco export earnings reached only nine percent of the assumption. A total of 12,000 families has been set- tled, but only 7,000 were growing tobacco in 1978. The shortfall in tobacco earnings was partly compensated for by large volumes of maize produced and marketed by the project villages, which made it possile for the re-estimated economic rate of return to reach 14 percent, compared with 30% at appraisal. The following points may be of special interest: - appraisal mission over-estimated area of tobacco that could be handled by each farmer (PCR para. 5.03); - settlement planning was inadequate (PPAM paras. 23 - 25; PCR paras. 3.10, 3.12 and 3.17); - collective farming was not conducive to speedy settlement (PCR paras. 3.25 and 7.03); - lack of reforestation depleted forest reserves and caused organi- zational problems in farm work for farmers tied to living in vil- lages (PPAM paras. 17 - 22); - stagnating production in absence of price incentives, and heavy investment in recent years in tobacco subsector cause concern (PPAM paras. 10 - 16); and - projects of this kind demand in-depth supervision and readiness to adjust to changes in circumstances (PCR para. 10.04).  Project Performance Audit Memorandum TANZANIA FLUE-CURED TOBACCO PROJECT (Credit 217-TA) I. PROJECT SUMMARY Project Preparation and Appraisal 1. Preparation of the Flue-cured Tobacco Project was started by the Government of Tanzania (GOT) in 1967. GOT's objectives were to raise farm incomes and take advantage of favorable export markets by promoting flue-cured tobacco production on small farms in areas of Tanzania which were suited to tobacco cultivation and which lacked alternative crop possi- bilities. The Bank assisted GOT with project identification and preparation, and the project was ready for appraisal by September 1969. 2. The project was appraised in October 1969. During appraisal, the Iringa and Ruvuma regions were excluded from the project due to lack of suit- able land, and the proposal to expand and strengthen existing tobacco schemes was rejected, because of the extremely poor performance of these schemes. The project thus focussed on the settlement of 15,000 farmers in 15 new tobacco schemes in the Tabora and Mbeya regions. Provision was made to study the need for the expansion of tobacco storage and processing facilities and the estab- lishment of an auction system for tobacco sales. Funds were included for these facilities; their eventual use, however, was made contingent on the outcome of the study. As appraised, the project was estimated to cost Tsh 105 million (US$ 14.7 million). An IDA credit of USS$ 9.0 million was approved by the Board in October 1970, and the credit became effective in February 1971. Prolect Implementation 3. Project progress in the early years was slower than anticipated. One of the reasons was that several reorganizations of the Tanzanian admini- strative system took place after project start up. In May 1971, the National Development Credit Agency was superseded by the Tanzania Rural Development Bank (TRDB), which took over responsibility for credit administration under the project. In May 1972, as had been recommended earlier by the appraisal mission, the Tobacco Authority of Tanzania (TAT) was formed to replace the Tanzanian Tobacco Board, and to assume responsibilities for project admini- stration, as well as tobacco extension, research and marketing. A far greater impact on project implementation occured in 1972, when a major decentraliza- tion of Government authority was introduced and certain responsibilities transferred from central ministries to regional administrations, which did not always allocate the same priorities as the central ministries. This affected project performance in two ways. First, responsibility for the implementation of the roads and water supply components was transfered to the understaffed and poorly equipped regional departments. Second, the regional administra- tions in Tabora and Mbeya stressed the need for communal (ujamaa) cultivation of tobacco, and this impeded settler recruitment. As a result of poor per- formance, a full review of the project was carried out in September 1972. The review recommended rephasing of physical developments by extending the development period, and reallocating Credit proceeds to cover increased water supply and credit costs. The original Credit closing date, however, (Septem- ber 30, 1976) was left unchanged. Although there was some improvement in project progress after this review, the project continued to be a problem project until mid 1976. 4. The Credit closing date was eventually extended to December 31, 1977, to allow for additional work on project infrastructure to be carried out. By the end of 1977, project progress was still lagging behind revised estimates. Although 15 new schemes had been established as envisaged, only 114 villages had been completed, against a revised target of 150. Only 30 km of crop extraction roads and 495 km of internal access tracks had been con- structed, against revised targets of 360 km and 1200 km respectively. Only on seven schemes were village water supply systems completed. At another four schemes, only minor work remained to be done to complete the systems, while for the remaining four, only preliminary design and survey work had been carried out. A total of 12,000 families had been settled, as against the target of 15,000, and only 7,000 of these were growing tobacco. Project costs to the end of 1977 are estimated at Tsh 142 million (US$19.2 million), and, if project infrastructure such as water supplies, etc., will be completed, proj- ect costs would total Tsh 160 million (US$21.6 million), 47 percent above appraisal estimates. 5. Institutional performance during project implementation was in many aspects weak, a consequence of the difficulties in Tanzania to find skilled staff, and also due to the institutional changes that took place during the period (PCR, paras. 4.01 - 4.05). In general, compliance with the various covenants of the legal agreements was satisfactory, although prevailing staff shortages meant that covenants relating to staffing and auditing requirements were not fully met. Prolect Impact 6. The incremental production of tobacco generated under the project fell short of appraisal estimates. In 1977/78, the area planted to tobacco was 2,946 ha, as against the 1972 revised estimates of 11,180 ha. This short- fall in planted area is a result of the smaller than anticipated number of settlers, exacerbated by the fact that not all settlers are growing tobacco, and a smaller area of tobacco is grown per family. While tobacco yields and export prices were relatively close to appraisal estimates, the low tobacco acreage resulted in a reduced production of only 1,525 m tons (15 percent of appraisal estimate of 9,910 m tons) in 1976/77 and total incremental export earnings of Tsh 26 million (US$3 million), corresponding to only nine percent of the appraisal estimate. 7. This shortfall in tobacco production was in part compensated by a large volume of maize produced and marketed by the project schemes. Although it had been assumed at appraisal that maize would be grown only for subsistence, maize became an attractive cash crop as a result of rising domestic prices. The project was able to support maize production by pro- viding inputs and technical advice through the tobacco extension agents. By 1976/77, maize production of the project schemes reached 25,000 m tons, with a total farm-gate value of almost twice that of tobacco (Tsh 23 million, US$2.8 million equivalent). Economic Analysis 8. The project's economic rate of return (ERR) was calculated at 30 percent at appraisal. This figure was revised downwards to 17 percent at the time of the 1972 review. The PCR's recalculation of the ERR (paras. 6.03 - 6.05) indicates a further reduction to 14 percent. While this is substantially lower than the appraisal estimate (largely a result of the much lower than anticipated tobacco production) it is nonetheless an acceptable return. It is estimated that, at 1976/77 prices, net family income on a project scheme averaged Tsh 2,100 (US$256). While this is less than half the appraisal estimate, it still represents an income considerably above those obtained by non-project farmers in the Tabora and Mbeya regions. Bank Performance 9. The Bank played a major role in assisting GOT in project identi- fication and preparation. Changes in project design introduced by the appraisal mission were soundly conceived. With the benefit of hindsight, however, it can be said that the appraisal design had three major weaknesses. First, there was a need for a more detailed review of the available water resources in the project areas prior to the siting of the project complexes. This would have facilitated the identification of settlement sites with relatively cheap access to reliable water supplies, and would have reduced the costs of the water supply component. Second, the target area of tobacco per family was too large to be handled by family labor. This excessive area estimate resulted in an over-optimistic assessment of the project's likely incremental tobacco production. Third, the absence of any systematic moni- toring and evaluation, in what was a complex and risky project, involving integrated development activities in 15 widely scattered locations, hampered the adjustment of the project to changing conditions. II. MAIN ISSUES A. Viability of Tobacco Subsector 10. Flue-cured tobacco production increased at a slow rate during the 1972 - 1977 period and has remained stagnant during the last three years.  - 4 - TAT Tobacco Purchases (tons wet leaf) 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 10,558 10,784 15,277 11,930 14,548 14,667 14,450 11. A recent study prepared by the Tanzania Ministry of Agriculture's Marketing Development Bureau states: "In recent years several production projections have been made which now appear grossly optimistic. For example, in March 1975 TAT forecast total tobacco production for the crop year 1978/79 at 42,600 tonnes of which 34,900 tonnes were to have been flue-cured tobacco. In the event this forecast exceeded actual production by 149%. The Bank pro- duced a more cautious set of projectionslf in 1976 which included an esti- mate of flue-cured production for the 1978/79 crop year of 17,220 tonnes. Even this was some 2,770 tonnes or 19% in excess of actual production. The Bank projections included an average annual rate of growth of 7.8% for flue- cured production in the late 1970's when in fact output stagnated. Production was then projected to increase at an accelerated rate of about 12% per annum between 1978/79 and 1979/80." Actual production during 1978/79 was at the bottom end of the range of production estimates presented in the appraisal report for the Tobacco Processing Project. While the Bank undertook a review of the project in 1972, no analysis was carried out of the tobacco industry's economic and financial viability2/ 12. In the appraisal report (dated 04/70) it is stated that "the project would be situated in woodland areas of western Tanzania where alternative development possibilities are presently negligible"3/. This assumption was disproved by the events. Maize has become a more important cash crop in the project area than tobacco. There are several reasons for this de- velopment: (i) Due to poor harvests, urbanization etc. demand for maize increased rapidly and so did official prices, from Tsh 0.26/kg in 1972/73 to Tsh 0.85/kg in 1978/79, an increase of 226%, with free market prices sometimes reaching Tsh 2.0/kg; while flue-cured tobacco prices went from Tsh 5.85 to Tsh 7.40, representing an increase of only 26%4/; (ii) Costs of inputs also favor maize production. "Unimproved" maize production by small- holders requires about Tsh 26/ha for seeds and cultivation implements (basis 1978/79) as compared to Tsh 2,653/ha for flue-cured tobaccoA/; (iii) Tobacco production is labor intensive. Due to the rapid increase in producer prices of maize the return per man day worked stands now at Tsh 6.5 for both crops at the official price,A/ compared to Tshs 5.4 for flue-cured tobacco and 1/ Tobacco processing project (Cr. 658-TA), appraisal report. 2/ The Region states that the Bank at that time found no reason to believe that tobacco production was other than economically and financially viable. Subsequent financial results indicate that such a belief was entirely reasonable: through the period FY74-78, TAT made net surpluses totaling Tshs 104 M from tobacco trading and processing, in addition to paying a total of Tshs 125 M in sales tax. The total of TAT surpluses plus GOT sales tax revenues is about 40 percent of total TAT payments to farmers over the period. 3/ Appraisal report, para. iv. 4/ Source, Tanzania Marketing Development Bureau.  - 5 - Tshs 2.1 for maize, at appraisal; considering free market prices for maize, this crop now offers better returns on labor input at comparatively less risk; (iv) Payment for maize is received at the time the farmer disposes of the crop; receipts for tobacco sales may take several weeks before reaching the farmer. 13. Although the difficulty of making proper production forecasts can be deduced from what has been said above factors adversely influencing tobacco production are not of recent origin. The increasing tobacco-maize competition has been evident for many years. Producer prices for flue- cured tobacco have steadily declined in real terms by 43% over the period 1972 to 1979. Other cash crops in Tanzania have suffered from similar lack of price incentives and their production has, in many cases (cashew-nuts, pyrethrum) actually declined in recent years. From files it is evident that the Bank tried to convince government of the need to provide price incentives but only with limited success. Without sufficient incentives tobacco production has remained stagnant for several years. 14. Although the incentive problem had remained unresolved, the Bank, at Tanzanian request, agreed to finance (Tobacco Processing Project, Credit 658-TA of 1976) the expansion of the Morogoro tobacco factory, bringing its capacity to 41,000 tons of cured leaf, up from an annual processing capacity of 18,500 tons, a capacity which until now has never been fully utilized (para. 10). Additional handling and storage capacity was provided under another project (Tobacco Handling Project, Credit 803-TA of 1978). Both projects, also entailing an increase in the number of TAT staff, were ulti- mately designed to raise TAT's efficiency. TAT is now equipped to handle a crop almost three times as large as the ones recently obtained. In comparison to the low volume of tobacco handled by TAT, its administrative costs are high. The Bank is now, however, aware that TAT's performance must improve as a prerequisite to TAT becoming a more costconscious and efficient organization. 15. According to the appraisal report of the Tobacco Processing Project, TAT needs to meet its financial obligations "...with some changes in the charges -- sales taxes or the fertilizer subsidy -- that TAT is required to meet, or in the prices paid to farmers for tobacco..."l/ The farmers' share in the selling price of processed tobacco was 66% in 1965/66, but has since declined to 37% in 1977/78 as a consequence of introducing export taxes and of government policies aiming at equalizing average returns on all crops on a labor input basis. During appraisal of the Tobacco Handling Project the Bank agreed with the government that the costs of TAT's extension activities would be met from the government budget because earlier on the government had not paid local contributions for the Flue-cured Tobacco Project and had insisted on payment by TAT of fertilizer and maize subsidies. This was expected to permit TAT to meet its debt service and even generate surpluses in the mid eighties, while maintaining producer prices in real terms. Recently, however, in May 1979, Kilimo's Marketing Development Bureau estimated that for TAT's processing operations to break even, a minimum flue-cured tobacco production of 25,000 tons is necessary, against 14,500 tons achieved during each of the past three years. Given the present pricing structure for tobacco, however, the required increase in production appears unlikely to materialize. 1/ Appraisal Report, page 15, para. 3.15.  - 6 - 16. With the stagnating tobacco production and the high investment cost (for settlement), the project has reached an acceptable 14% economic rate of return, but only because of the dramatically increased maize production. The project is no longer a tobacco but mainly a maize development project. Meanwhile, continued low tobacco production, in the absence of sufficient price incentives, compared with the large recent and ongoing investments made in the tobacco subsector, give reason for concern about the economic and financial viability of the subsector and of TAT. B. Availability of Fuelwood 17. As a result of the smaller than projected tobacco area, the fuelwood supply within easy reach of each complex will be sufficient for at least 30 years of tobacco production according to the PCR (paragraph 5.15). This assessment of the wood supply situation in the tobacco growing areas is correct, but it does not elaborate on the impact of deforestation at farm level, or on its long term effect on the vegetation, and hence the micro- climate, in large areas of the country. 18. One of the problems at farm level is that with annual treefell- ings (TAT advises not to cut all trees to provide for adequate soil conser- vation of forestland) the distance between curing barns and tree stands becomes farther every year, this leading to increases in time and effort spent on wood hauling, reducing the time available for cultivation. To counter this unproductive development there are few alternatives; farmers need to (i) find means of faster transportation rather than the human head, (ii) move the barns closer to the forest, or (iii) switch to other fuels which are costlier and may not be available at all times. TAT is currently con- templating to assist farmers who intend to build permanent barns near their homesteads in hauling wood by oxen or tractors and trailers to overcome this problem, and also as a means to permit closer supervision of treefellings. So far, however, the most frequently adopted solution by farmers has been to demolish their existing curing barns, and to move them to the forests where they spend two to three months a year curing tobacco. . If farmers had a choice many of them would move their homesteads as well to continue tobacco growing near timber stands, but this would upset the national villagization program and to some extent deprive farmers of its benefits. 19. The problem on a regional and national level is that the tobacco industry is one of the main exploiters of national forests. Depletion of forest reserves has been most advanced in the traditional tobacco areas (where farmers now have to haul firewood over long distances), and is already a problem in some project areas (Tabora). Tobacco cultivation is concentrated in regions where the typical vegetation consists of open miombo woodlands, which, after clearing, take about 30 to 50 years to regenerate. Clear fell- ings, exposing the soils to torrential rains and insolation (rapid oxidization of organic matter) would lead to destruction of soil texture and consequently erosion if no counter measures are taken. 20. The appraisal report assumed that, despite the inefficient wood firing techniques applied for curing, there would be sufficient fuelwood for 15 years. It expected, however, that within five years of experimentation to be financed under the project, improvements in barn design and curing tech- niques that would reduce wood consumption, would become available. Other research activities would lead to the establishment of small blocks of high- yielding fuelwood plantations within the same time. During project implemen- tation some experimentation and research was undertaken, showing that coal firing (used in Iringa on a small scale together with fuelwood) as an alter- native is not effective; and, that instead of waiting for the natural regene- ration of miombo woodland it would be better to plant Eucalyptus trees, which take only eight years to mature. But these trees must be looked after and do not survive the frequent bush fires. Establishment of high-yielding fuelwood plantations has not materialized under this projectl- and neither has an improved, fuel conserving curing technique. 21. TAT recognizes the deforestation as a serious problem but could do little to remedy the situation. Although stipulated in the Credit Agreement, it never had a forester on its staff, relying instead on regional forest departments for implementing afforestation programs. Those departments, how- ever, are short of skilled manpower to carry out such a program. Also, it is difficult to advise farmers to plant trees after felling because they are used to the natural regeneration of forests. One solution might have been to include a reforestation component in the project. 22. There is no evidence that the Bank paid adequate attention to the problem of improved curing techniques during supervision. There was never an expert assigned to any mission to advise the Tanzanians on more efficient curing techniques and improved barn construction which would lead to more efficient fuel utilization. Improved construction would also have been impor- tant in the light of substantial tobacco losses, due to the high incidence of fires in the barns. C. Planning 23. Planning of Water Supplies. The appraisal assumption that shal- low wells would be feasible in most areas, and provide sufficient water to farmers, was not borne out by developments: in many cases shallow wells dried up towards the end of the dry season. Siting of these shallow wells was based on an aerial survey carried out in June and July of 1970, at the end of the rainy season. Due to the still falling rains the survey showed 1/ Under the Tabora Rur'al Development Project (Cr. 703-TA) a pilot fuel- wood program has been established; it is yet too early to arrive at a judgement on the success of the program, though early indications are favorable. sufficient water availability in most areas. The proper time to carry out such a survey would, however, have been September or October, at the end of the dry season. The distorted results of the aerial survey misled the senior planning officer of the Tobacco Project Group and also Bank super- vision missions to approve unsuitable sites for villages. Inappropriate timing of a survey thus became partly responsible for the need to invest heavily in costly water supply systems, i.e. deep drilling, pipelines, etc. 24. Farm Planning. Land planning was still underway when the first settlers arrived at the project sites. Land demarcation did not receive priority initially because settler recruitment was much below expectations. When during the villagization campaign in 1974/75, the larger influx of settlers started, farmers were housed in primitive shelters with little protection against rains because they were not allowed to settle perma- nently on plots not yet demarcated. Farmers decided on tlearing the land anyway, with demarcation still not completed until now. Concrete bench- marks were not always available, yet, farmers know their plots and the village extension agent usually has a map showing boundaries. Since there was no shortage of land and only two crops (tobacco and maize) to be grown, the need for farm planning and the emphasis given to it by the Bank is questionable. 25. Consumer Goods. Settlers in the tobacco schemes complained that there was no opportunity in the settlements to spend the money earned from cultivating tobacco because there were no consumer goods available. They remit large parts of their income to their home area where often part of the faraily had stayed behind and where they plan to return eventually. Coopera- tive shops have failed, individually owned shops have not been allowed, and transport of goods, bought in towns, is costly due to the remoteness of the tobacco settlement areas. This non-availability of consumer goods works as a disincentive. Better planning of the settlement infrastructure versus farm development mentioned above, would have been called for. D. Research and Training 26. The PCR (paragraphs 3.35 - 3.38) suggests that the research and training program at Tumbi Research Station has been satisfactory since Kilimo took over in July 1977. TAT had serious reservations on this state- ment, however. Tumbi was taken over by Kilimo at TAT's request, because TAT had difficulties in properly staffing the station. Kilimo operated Tumbi as a multi-crop station, with an intended bias towards tobacco. The staffing situation for training and research did indeed improve thereafter, but only in regard to crops and livestock in general, while tobacco, according to TAT, is treated only as one of the less important crops. No specific training or research is done for tobacco. During supervision the Bank did emphasize the need to carry out the tobacco research program but with little success. The Bank approved substantial reallocations of funds for extensions of the station without prior consideration of scope and feasibility of research programs. Hardly anything was known on the curriculum of eventual training courses. After costing TSh 17.6 million, a 1300% increase over the appraisal estimate (mainly due to lack of proper building supervision by early Bank supervision missions and by the project implementation agencies), the Tumbi Research Station, as it is presently being used, is of little use to TAT and the Tanzania tobacco industry.  - 9 - TANZANIA Flue-Cured Tobacco Project, Cr. 217-TA Project Completion Report March 30, 1979 Southern Agriculture Division Eastern Africa Projects Department  - 10 - I. BACKGROUND 1.01 The economy of Tanzania depends mainly on agriculture. In the late 1960's, when the Flue-cured Tobacco Project (the Project) was prepared and appraised, agriculture accounted for about 50 percent of GDP, generated about 80 percent of exports, and provided a livelihood for about 90 percent of the population. Over the period 1964-1969, the growth rate of agricultural production averaged 3.3 percent per annum, with production in the monetized sub-sector growing at an average annual rate of 3.8 percent. However, this growth was uneven, in terms of both commodities and geographical location. Tanzanian strategy for the development of the sector involved the concentration of scarce resources, such as skilled manpower, into crops of high potential, and the encouragement of the rural population to live in villages, as an efficient means of providing social and technical services and developing the mobilization of resources on a cooperative self-help basis. The Project was designed to be fully consonant with this strategy. 1.02 The cultivation of flue-cured tobacco in Tanzania was started in the 1930's by expatriate farmers and, until about 1960, production was concentrated on large farms around Iringa, although tobacco was also grown on smal.holdings in the Tabora and Mbeya Regions, on schemes under the supervision of the Tanzania Agricultural Corporation (TAC) and the British-American Tobacco Company (BAT). From 1954 to 1961 total Tanzanian production of flue-cured tobacco was stable at around 1.6 million kg per annum, most of which was absorbed by the East African Tobacco Company for the manufacture of cigarettes for local consumption. After 1961, production of tobacco increased rapidly, reaching 8 million kg in the 1968/69 seasou, due to a large increase (to about 13,000 in 1968/69) in the numbers of Tanzanian smallholders producing tobacco, largely on schemes operated by the Village Settlement Department (VSD) of the Ministry of Lands and Settlement (MLS). 1.03 The Project had the primary objective of further developing the production of flue-cured tobacco by smallholder farmers, through the settling of an additional 15,000 small-scale tobacco farmers in the Tabora and Mbeya Regions of Tanzania. The locations of the areas of Project investment are shown in Map IBRD-13672. An IDA Credit (217-TA) of US$ 9.0 million for the Project was approved by the Board in September 1970. The Project was the third Bank Group investment for agricultural development in Tanzania; the first (Credit 80-TA made in 1966) was for the provision of agricultural credit, and the second (Credit 132-TA made in 1968) was for ranch development. Credit 217-TA was thus the first direct investment by the Bank Group in the improvement of  - 11 - crop agriculture in Tanzania, and was also one of the early attempts by the Bank to develop smallholder agriculture. A second Credit v65*-TA of US$ 8.0 illion) to the tobacco sector in Tanzania was approved in September 1976, for the improvement of flue-cured tobacco processing and storage facilities, and a further credit of US$ 14.0 million for the improvement of post-curing tobacco handling was approved in May 1978. 1/ In addition, the Tabora Rural Develop- ment Project (Cr 703-TA) has a pilot component to develop fuelwood lots in tobacco growing village, and makes provision for further strengthening of Tumbi Research Station by financing research staff and equipment. 1.04 The Project was implemented at a time of rapid and far-reaching institutional changes in Tanzania. The Government of Tanzania (GOT) decentralized considerable authority to Regional Administrrations in 1972. The Tanzania Rural Development Bank (T1DB) was formed in 1971, to supercede the National Development Credit Agency (NDCA), and the Tobacco Authority of Tanzania (TAT) replaced the Tanzania Tobacco Board (TTB) in 1972, and both of these institutions came to play a major role in Project implementation. A mass campaign to resettle smallholder farmers into villages was carried out in 1974. Cooperative Marketing Unions were abolished in 1976. In addition, Tanzania suffered a major drought in 1973 and 1974 (leading to a sharp decline in agricultural production), and was affected by the sharp rise in oil prices of 1973/74 (and the consequent increase in fertilizer prices). All of these changes have had important effects on Project implementation. 1/ Further details of these two Credits is contained in Chapter VIII of this report.  - 12 - II. PROJECT FORMULATION AND APPRAISAL Identification and Preparation 2.01 In deciding to proceed with the preparation and implementation of the Project, the Government of Tanzania (GOT) was influenced by the following considerations: (a) flue-cured tobacco appeared to be a crop that could be grown well under the physical and climatic conditions which prevailed over a large part of the country, and which are suitable for a very limited number of alternative crops; (b) flue-cured tobacco was a crop that could be grown well by small farmers, as previous Tanzanian experience had shown; (c) flue-cured tobacco appeared to have good export prospects, 1/ which had been enhanced by the embargo on Rhodesian tobacco exports. 2.02 Preliminary work on Project formulation was carried out in 1967 by a working group which included representatives of the Ministries of Finance, Development Planning, Agriculture (Kilimo) and Lands, Settlement and Water Development (MLS), and of the Tanganyika Tobacco Board (TTB) and the National Development Credit Agency (NDCA). Agreement was reached that the Project should aim to raise flue-cured tobacco production from about 5 million kg in 1967/68 to 17 million kg in 1971/72, through the expansion of existing small- holder schemes and the establishment of new schemes. The net cost of the Project (after repayment of credit, and payment of crop cesses by participating farmers) was put at US$ 4 million, and the working group proposed that GOT approach the Bank for finance. This proposed strategy was endorsed by the Tanzanian Cabinet in April 1969. 2.03 The Bank reviewed the progress of project formulation in August 1968, and Bank staff and staff of the Agricultural Development Service (ADS) assisted GOT to identify a specific project in September of the same year. An analysis of existing smallholder tobacco schemes revealed low average yields and tobacco quality, and hence low farmer incomes. The reasons for this were identified as the shortage of qualified and experienced tobacco extension staff; a tendency by farmers to grow more tobacco than they could manage properly; the GOT policy of encouraging the recruitment of larger numbers of farmers than the scheme management could handle; and the shortage and poor quality of rural infrastructure, particularly roads and water. In the light of this analysis, it was agreed that the Project would include components for soil and land surveys; scheme planning; water supply development; construction of feeder roads; storage facilities; improved staffing and staff training; and a strengthening of tobacco research. 1/ This view was supported by World Bank report of 1967 entitled 'Prospects for Economic Development in East Africa', which stated that 'Tanzania has an excellent chance of establishing itself in the world market, but success will depend on well-trained farmers, good marketing organization and effective sales promotion'.  - 13 - 2.04 A draft preparation report was produced by the Village Settlement Department (VSD), and was reviewed by a Bank mission in December 1968. The mission voiced concern that the production targets put forward in the report (which planned for smallholder tobacco production to rise to 27 Million kg by 1973/74) were unrealistically high. The mission felt that existing staff and the number of staff that could be recruited and trained in the early years of the Project would not be able to cope with the increase in grower numbers anticipated over the first five years of the Project. The mission also believed that the proposal to allow growers to grow as much as 1.2 hectares of tobacco each (as opposed to the limit of 0.8 hectares on existing schemes) would, besides requiring the permanent hiring of labor in contravention of stated government policy, result in a poor level of husbandry and thus of tobacco quality. The mission urged the Govern4ent to adopt a much slower rate of expansion, particularly over the first two years of the Project, in order to allow time for recruitment and training of staff and to permit a concentration on improving yields and quality of tobacco produced by existing growers. GOT agreed to accept the mission's views, while still expressing the view that the original targets were feasible. 2.05 The report was revised by VSD in January 1969. The Project objectives were defined to be: (a) to increase tobacco production by smallholders, and hence to raise cash earnings; (b) to provide for resettlement of people from over-populated areas such as Tukuyu and Chagga, and from sisal estates; 1/ Cc) to develop the underused 'miombo' 2/ woodlands of Tanzania; (d) to diversify Tanzania's agricultural production and exports. 2.06 As proposed, the Project would, over a five-year disbursement period, increase the production of flue-cured tobacco by smallholders, particularly in Tabora and Mbeya Regions, but also in Iringa Region, through: (a) settleeent of about 12,000 new tobacco growers, organized around baling centers, each catering for 100 farmers, with 10 baling centers comprising a 'tobacco scheme'. Farmers would also grow food crops, particularly maize, primarily for home consumption. Maize would be planted in the ratio of 1:1 to tobacco. Each settlement would be provided with feeder roads, internal scheme roads, water supply, tractors and trailers and a lorry. Provision would be made for the establishment of woodlots; 1/ As a result of an unfavorable market situation, the production of sisal was being reduced at this time; 2/ Open woodland characterized by Brachystegia and Julbernardia tree species.  - 14 - (b) the provision of extension services to new schemes, and of additional field staff to existing schemes; (c) the provision of seasonal credit, and medium-term credit for the construction of on-farm tobacco storage facilities; (d) the re-establishment of the Tobacco Research Station at Tumbi (which had formerly been operated by BAT). 2.07 VSD would be responsible for development of new schemes selection, administration of growers, provision of extension services to growers, and for the proper and realistic development of sound marketing cooperatives. TTB would be responsible for crop purchase and marketing, and for technical supervision of tobacco growing and harvesting. NDCA would administer credit under the Project. Kilimo would be responsible for training of extension staff, and the operation of Tumbi Research Station. Existing schemps that were under BAT would continue to be the responsibility of BAT, but now under the overall supervision of VSD. Project implementation would be coordinated by a Project Committee, which would be chaired by the Com-issioner of Settlement (or by the Assistant Commissioner in charge of tobacco), would have as secretary the General Manager of TTB, and would include representatives of the Ministries of Finance and Agriculture and of NDCA. Total Project cost was estimated at Tsh 65 million (US$ 9.1 million), of which the Bank was requested to provide Tsh 40 million (62 percent). 2.08 In deciding on the pattern of farming development to be encouraged under the Project, VSD had considered two alternative possibilities, which were both represented by existing schemPs. More than half of the existing tobacco schemes were based on individual growers, with planned farms of as much as 40 ha containing 10-20 ha of arable land. These schemes were perceived as having the advantages of easy access to water supplies for seedbeds, of the close proximity of fuel supplies, of minimization of hail damage (because of the dispersal of fields) and of the incentive given by individual proprietor- ship to farm development by settlers. On the debit side, the scattered farms rendered difficult the supply of extension services and social infrastructure, and led to high transport costs for input and leaf marketing. The remainder of existing tobacco schemes were village schemes, based on a group of 100 farmers surrounding a baling center, each farmer cultivating 0.4 to 0.8 ha of tobacco within demarcated cultivation blocks, and with access to communal woodlots. The major advantages of these schemes were seen as the ease of provision of extension services and social infrastructure, and the minimization of roads requirements and transport costs. Disadvantages were the need for expensive central water supplies, the difficulty of controlling fuel supplies, the long distances from fields to seedbeds, the concentration of hail damage, and the possibility of good farmers suffering because of poor practices adopted by their neighbors. VSD came down firmly in favor of the village scheme approach, as making maximum use of scarce resources of manpower and finance, and as being in full accordance with the GOT strategy of grouping farmers into villages. Accordingly, the Project proposals provided  - 15 - for each group of 100 farmers to have access to at least 1600 ha of land, of which at least 400 ha would be suitable for arable farmin- with the remainder being woodland to be used for fuel for tobacco curing. It was anticipated that each farmer would crop 0.8 ha of tobacco and 0.8 ha of maize each season, following a five-year rotation within blocks of cultivated land, with maize following tobacco to take advantage of the residual effects of the tobacco fertilizer. 2.09 In April 1969, a government reorganization in Tanzania resulted in the abolition of the Ministry of Lands and Settlements, and the transfer of responsibility for development of smallholder tobacco to Kilimo. The Project preparation report was amended, with assistance from ADS staff, to reflect this change. At the same time, certain other changes were made. Tunduru District in Ruvuma Region was added to the Project<area, the disbursement period was increased from 5 to 6 years, and the sum requested from the Bank was raised from US$ 5.S million to US$ 8.3 million. When the preparation report was reviewed by Bank staff, several shortcomings were noted. No information was included on the foreign exchange component of Project costs, on the economic rate of return of the Project, or on the propomed Government contribution to Project costs. Project costs and staffing needs were not clearly related to the proposed phasing of farmer recruitment, and there was inadequate data on existing schemes and on the financial position of tobacco cooperatives. In order to assemble the supplementary data required, a member of the appraisal team went to Tanzania one week prior to the start of appraisal. 2.10 One serious shortcoming in Project design was not noted, either during preparation or appraisal. No detailed analysis had been carried out on the farm labor requirements of the proposed cropping pattern, to see whether the average farm family would be able to handle 0.8 ha of tobacco and 0.8 ha of improved maize. It is apparent that data collected by Collinson (a Kilimo employee) in 1965 1/ was not available to the mission. Collinson's analysis clearly iudicated that the average family would need to hire labor even for the cultivation of 0.6 ha of tobacco with a relatively low yield of 600 kg per ha. As a result of ignorance of this data source, the Project was based on an over- optimistic estimate of the area of tobacco which could be cultivated by each family, and this led to a serious over-estimate of the incremental production to be expected from the Project and of the Project's expected economic rate of return. Appraisal 2.11 The Project was appraised in October/November 1969. The appraisal mission recommended mA financing for the Project, with the following major changes: (a) the mission rejected the financing of tobacco in iringa Region, because of the lack of suitable land for additional development and the unsuitable nature of most of the ongoing schemes. The Government withdraw the application for financing development in Tumduru District before the mission had appraised it. / Discussed in greater detail in para. 5.04.  - 16 - (b) the proposals to expand existing schemes was dropped, since the mission felt that the problems of these schemes were so serious that their inclusion in the Project would have occupied such a large proportion of Project management time as to jeopardize implementation of the rest of the Project. The Project was thus focussed on the establishment of 15 new schemes, each with 1000 settlers; (c) the Government made a request for financing for an expansion of tobacco storage, processing and redrying facilities, and the construction of an auction floor. The mission agreed that some expansion would be required, but, since these needs were not quantified, and since the implications of an auction system had not been thought through fully, the mission recommended, and Government agreed, that a full study of these aspects would need to be carried out before financing any of these investments. Provision was made for this study to be financed under the Project. The mission prepared draft terms of reference for such a study while in the field. In order that the need for this study should not delay the processing of the Project, it was proposed to negotiate the credlt on the. basis that the existing marketing arrangements would continue until satisfactory arrangements for the change-over to the auction system had been made, and that disbursements from the credit for storage, processing and redrying facilities and for the auction floor would be contingent on a favorable outcome of the study; (d) the mission felt that the proposed organizational arrangements were inadequate for successful Project implementation, and recommended the establishment of a Tobacco Authority, which would combine the functions of both TTB and the Tanzania Tobacco Processing Company (TTPC), and which would in addition carry out all planning and extension work for the development of smallholder tobacco. This proposal was not acceptable to GOT, since it was in conflict with the proposed establishment of a new Agricultural Marketing Organization to handle all crops, including flue-cured tobacco, which was then under consideration by GOT. The mission therefore proposed, as a second-best solution, the appointment of a Tobacco Commissioner within Kilimo, who would be responsible to the Principal Secretary of Kilimo, and who would also be the General Manager of TTB. The Project Manager would be responsible for the field development under the Project, and would report to the Tobacco Commissioner. TTB would be strengthened under the Project by the appointment of a Chief Marketing Officer. The mission recommended retro-active financing, not exceeding US$ 300,000, for aerial photography of parts of the Project area, for initial land planning and for the study of an auction sales system. 2.12 In the course of Project processing, GOT raised objections to the mission's proposals for Project organization, since under the Tanzanian administrative system it was not possible for one person to be simultaneously a civil servant (as Tobacco Commissioner in Kilimo) and an employee of a  - 17 - parastatal (ds General Manager of TTB). GOT proposed, as an alternative, the appointment of a Senior Agricultural Office (Tobacco) within Kilimo, to whom would report the Tobacco Project Officer (TPO) who would be in charge of a 'Project Group' responsible for the planning of schemes, the recruitment of settlers, the coordination of production activities (including extension) and the provision of infrastructure. The Project Group would have technical expertise in land-use planning, agronomy, forestry, water supply, roads and cooperatives. Assistant Tobacco Project Officers would be responsible to the TPO for development in each of the regions in which the Project would operate (Tabora and Mbeya). The Tumbi Research Station, which would be strengthened under the Project, would be under the control of a Senior Research Officer who would report to the Director 6f Research, Training and Farmers Education in Kilimo. The Project would also provide for the strengthening of TTB by the appointment of a Chief Executive Officer, Chief Marketing Officer and Chief Accountant. Coordination of Project implementation would be facilitated by the appointment of a Tobacco Coordinating Committee with members from TTB, Kilimo, NDCA and the Ministry of Regional Administration and Rural Development, and Regional Tobacco Coordinating Committees in Tabora and Mbeya, which would include the Regional Commissioner, the Regional Chairman of TANU, 1/ and the Regional Director of Agriculture. IDA accepted these Government Proposals. Negotiations 2.13 Negotiations for an IDA credit of US$ 9.0 million to help finance the Project were held in April 1970. The major issues discussed were: (a) the poor financial position of NDCA, largely as a result of bad debts inherited or incurred under Government loan schemes. It was agreed that the uncollectible portion of these debts would be written off prior to Board presentation; (b) control of TTPC. TTPC was owned on a 50-50 basis by TIB and the National Development Corporation (NDC). It was made a condition of Board presentation that either TTB or NDC get full control; (c) interest rates. The Project documents fixed the on-lending rate for Project funds by 'DCA at 8.5 percent per annum. IDA successfully opposed a suggestion by GOT that interest rates under the Project should be subsidized. During negotiations, the Government delegation indicated that GOT was considering the replacement of ',DCA by a Rural Development Bank. The documents agreed during negotiations provided that any such change would be made only with the concurrence of IDA. 1/ The Tanganyika African National Union, mainland Tanzania's only political party.  - 18 - Board Approval 2.14 Prior to Board presentation, one of the Bank's Executive Directors raised some questions on the market prospects for Tanzanian tobacco, in view of estimated large world surpluses of tobacco, and the possibility of Rhodesian re-entry into the world market. Bank staff pointed out that current surpluses appeared no larger than in the past, and that a clear distinction should be made between Tanzania's lower grade tobaccos and the high grades produced by other major suppliers such as Rhodesia and the U.S. The staff stated that the pricing assumption used were considered conservative, and that, even with prices only 60 percent of those projected, tobacco would still remain a profitable cash crop under Tanzanian conditions. Thus, ,any major change in the world market situation resulting in lower prices would affect Tanzania less than other, higher cost, producers. 2.15 A request for approval of an IDA credit of US$ 9.0 million was presented to the Board on October 6th 1970. The presentation stressed that the Project represented a sound program for the expansion of a commodity with favorable market prospects, and that the Project was in keeping with Government's endeavors to modernize agriculture and rural society through building on the traditional Tanzanian values of communal living and joint effort, rather than by relying on scheme requiring heavy mechanization, as in the past. The discussion that followed emphasized the innovative nature of the Project, and the resultant need for careful monitoring of Project implementation, and noted the relatively high risks involved. It was pointed out that the success of the Project depends ou good coordination between various government agencies, and on the recruitment of large numbers of well-qualified personnel. Attention was drawn by a Board member to the lack of formal selection procedures for the recruitment of settlers. IDA staff stated that the most important attributes required would be that the settlers showed initiative and determination, which the willingness to join a tobacco scheme would to some extent indicate, and that existing informal selection procedures were judged to be satisfactory. The Board approved the credit (Credit 217-TA), and the credit documents were signed on October 9, 1970. Prolect Description 2.16 As approved, the Project formed part of the Government of Tanzania's flue-cured tobacco development program, and would cover the settlement of farmers during a six-year period 1/ from 1970/71 to 1975/76 and the provision of market- ing and processing facilities. Specifically, the Project would involve: (a) the settlement of about 15000 farmers in about 150 Ujamaa 2/ villages, arranged in complexes of about 10 villages each, with each farmer cultivating 0.4 ha of tobacco in his first year and 0.8 ha thereafter; 1/ The full development of the settlements was to take place over the nine-year period from 1970/71 to 1978/79. 2/ 'UJamaa' is a Swahili word which can be translated as 'familyhood'.  - 19 - (b) establishment of cooperatives, at the rate of about one for each complex, to supervise the baling of cured tobacco and to handle the distribution of credit for on-farm seasonal inputs, curing barns and grading sheds; Cc) construction of communal infrastructure, including some 1560 km of crop extraction roads' and access tracks, village water supplies and baling centers; td) establishment of a 'Tobacco Project Group' within Kilimo, to plan and manage the Project; provision of extension services for farmers and cooperatives; staff, infrastructure, vehicles and equipment for the Tumbi Research Station; a Chief Marketing Officer for TTB; a Financial Analyst for NDCA; and related infrastructure, housing, vehicles and equipment; Ce) carrying out a tobacco marketing and handling study and construction of auction floors, additional storage and processing facilities; (f) aerial survey of parts of the Project area. In addition, Project farmers would build their own houses, would establish subsistence gardens, and would engage communally in the building of dispensa- ries and schools. Kilimo would have overall responsibility for the Project and would execute its field aspects (as detailed in para. 2.12). NDCA would provide credit through. the cooperative movement. Processing would be carried out by TTPC under the control of TTB, which would handle all marketing. 2.17 Total Project costs were estimated, over the six-year credit disbursement period, at Tsh 105.2 million (US$ 14.7 million) with a foreign exchange component of Tsh 53 million CUS$ 7.4 million), 50 percent of Project costs. These costs included a 10 percent allowance for price and physical contingencies. The IDA contribution of US$ 9.0 million would cover all the foreagn exchange costs and 22 percent of local costs, or 60 percent of total costs. Tn addition, the Project would give rise to additional costs of Tsh 11.5 i4l14on CUS$ 1.6 million) over the three years following credit disburse- ment, mainly for incr-emental credit and supervision. Procurement of on-farm inputs and vehicles (value US$ 3.9 million) would be by international competitive bidding (ICB). Buildings and water supplies (value US$ 1.3 million) would be procured by Kilimo following local competitive bidding, since the Amnunts involved would be too small to attract foreign firms. TTPC would procure the machinery required to expand its processing facilities (value US$ 0.5 million) through. negotiated contracts. CICB was judged inappropriate since TTPC planned to expand its facilities by increasing the capacity of the units in the present processing line.) For civil works involved in the construction of the auction floors and storage facilities, and for procuring machinery and constructing  - 20 - further extensions of TTPC's facilities, (value US$ 3.1 million) ICB would be used, unless IDA agreed otherwise once the precise nature of these extensions became known. 2.18 It was estimated that the Project would result in yields of tobacco by Project growers which would average 620 kg per ha in the first year's crop, rising to 730 kg per ha in the second year and to 840 kg per ha in the third and subsequent years. These yield projections were considered conservative in the light of the services that would be provided to growers, and in view of the provision of grading sheds. Export prices over the Project period for the tobacco produced under the Project were expected to be Tsh 9.20 per kg (dry-weight basis for Dar-es-Salaam) in constant 1969/70 prices. This was about equal to the price obtained in 1967/68 and 1968/69, and about 5% lower than the prices expected in 1969/70. The producer price was expected to be Tsh 5.10 per kg (wet-leaf basis) over the Project period. Analysis of farm budgets indicated that Project farmers could expect net incomes which would rise to Tsh 2,200 (US$ 300) per annum, in addition to subsistence crops. This income was expected to be substantially better than anything else available in the Project area and equal to or better than that available from most other smallholder cash crops. 2.19 The Project's primary benefits would be increased production of flue-cured tobacco all of which would be exported, and consequently provision of an improved livelihood for some 15000 farm families. Incremental export revenues would reach Tsh 82 million (US$ 11.5 million) in the eighth year of the Project and subsequent years. The economic rate of return (ERR) on the Project was estimated to be about 30 percent, assuming an opportunity cost for family labor of Tsh 2.50 per man-day. The rate of return would be highly sensitive to changes in this assumption on labor costs. If family labor is not costed, the ERR would rise to 55 percent, and, if family labor is costed at official minimum wage rates, the ERR would fall to 2 percent. 2.20 In addition to the direct benefits taken into account in the above calculations, the Project would have the secondary benefits of creating communities where basic social services could be supplied more efficiently than to isolated farm holdings. It would also have the socio-political benefit of providing economic utilization of large areas of hitherto unproductive miombo woodland; of relieving heavy population pressure in other parts of Tanzania, particularly the Tukuyu and Kilmanjaro areas; and of providing employment for displaced sisal estate workers. These benefits were not quantified. 2.21 The Project was expected to make a significant contribution to total Tanzanian production of flue-cured tobacco. By the end of the period of credit disbursement, Project production was expected to reach 8 million kgs, and comprise 45 percent of total national production of flue-cured tobacco.  - 21 - III. PROJECT ILEMMNTATION Credit Effectiveness 3.01 There were five conditions of effectivenass included in the Development Credit Agreement for the Project: (a) the execution and delivery of the Project Agreement on behalf of NDCA, TTB and TTPC shall have been ratified; Cb) the Subsidiary Loan Agreement shall have been executed and become effective; Cc) the Tobacco Project Officer and Senior Planning Officer (both with qualifications and experience satisfactory to IDA) shall have been employed; td) NDCA shall have employed a Financial Analyst with qualifications and experience satisfactory to =DA; (e) TTB shall have employed a Chief Marketing Officer with qualifications and experience satisfactory to IDA. January 15, 1971 was set as the terminal date for Credit effectiveness. All of the above conditions were met by January 15, 1971. However, IDA approval of the candidate for the post of Senior Planning Officer was, in view of the relative inexperience of the candidate, made contingent on his work being supervised by an ADS staff member (at MDA expense) for the first two years of Project implementation. 3.02 Notwithstanding the fact that these conditions were met by January 15, 1971, the credit was not declared effective until February 1971, as a result of chaages made by the Government in the marketing arrangements for flue-cured tobacco. The first IDA supervision mission for the Project, in September 1970, had been informed that TTB had opened negotiations with its export sales agency for amendments to the export sales agreement. The Govern- ment and TTB were informed of IDA's concern that the changes proposed (which involved the reduction or elimination of the export sales commission) would have adverse effects on the marketing of the crop from the 1970/71 season, were asked to keep IDA informed of the progress of negotiations, and in turn assured the supervision mission that it was not intended to introduce major changes Into the export marketing system. However, at the end of December 1970, IDA was informed by the marketing agent that its contract. had been terminated by Government, resulting in a withdrawal of the agent's classifiers and factory personnel. This was confirmed by Government, which stated that TTB intended to employ the necessary personnel, at both factory and field level, to carry on processing and export marketing.  - 22 - 3.03 In view of the importance of efficient export marketing for the success of Project, and since the Development Credit Agreement (DCA) provided for the Government to continue existing marketing arrangements until agreement was reached with IDA on an acceptable alternative, the terminal effectiveness date was postponed to March 1971, to permit an IDA supervision mission to evaluate the effects of the changes made by Government. This mission reported that satisfactory arrangements had been made by TTB to employ qualified classifiers and technical personnel for the processing factory, and the credit was therefore declared effective on February 1, 1971. Revisions 3.04 As had been foreshadowed during negotiations (para. 2.13), Government moved, in November 1970, to replace NDCA by the Tanzania Rural Development Bank (TRDB). A draft bill to establish TRDB was submitted for IDA review in November 1970, was found to be satisfactory, and was passed by the Tanzanian Parliament in January 1971. Subsequently, agreement was reached between IDA and Government representatives on the actions to be taken prior to the transfer of responsibilities under both Credit 80-TA and Credit 217-TA from NDCA to TRDB. An amendment to the Development Credit Agreement was approved by the Board on April 28, 1971, and TRDB took over from NDCA on May 1, 1971. 3.05 In October 1971, the Government informed IDA that it proposed to set up a Tanzania Tobacco Authority (TAT), as had originally been proposed by the appraisal mission in October 1969 (para. 2.11). In January 1972, an IDA supervision mission, which included a lawyer, reviewed the draft legisla- tion setting up TAT. It was agreed that the Project Group should become part of TAT (with the Credit proceeds and other funds earmarked for the Project Group being passed to TAT), and that the responsibility for research at Tumbi should be transferred from Kilimo to TAT. Agreement was also reached with Government on the steps to be followed prior to the transfer of Project responsibilities from TTB and Kilimo to TAT. The Tobacco Industry Act (1972) was passed in May 1972. An amendment to the Development Credit Agreement was approved by the Board in November 1972. 3.06 Early in 1972, it became apparent that the Project was not progressing as described in the legal documents or envisaged at appraisal (para. 3.25). In addition, Government requested additional funds to meet increased credit requirements and piped water supplies. A full review of Project phasing, costs and benefits was therefore undertaken in September/ October 1972. The review resulted in the rephasing of Project development, and the extension of the settlement period by four years. The Credit closing date would remain at September 30, 1976. In effect, the Credit would finance about 85 percent of what was envisaged at appraisal. The effect of the rephasing, after taking into account increased costs since appraisal,would be to reduce the economic rate of return of the Project to 17 percent. As a result of this review, changes were made in the schedule of allocation of proceeds of the credit. However, even after this review, the Project continued to be considered as a 'Problem Project' by the Bank, up until May 1976.  - 23 - 3.07 In September 1976, IDA agreed to extend the clc:ing date of the Credit from September 30, 1976 to December 31, 1977, to allow for the completion of outstanding payments to contractors for water supplies in villages and at the Tumbi Research Station, for the purchase of vehicles for extension staff and for the completion of baling sheds and stores. Progress with Physical Infrastructure 3.08 Complex and village establishment. At appraisal, it was envisaged that 15 complexes would be developed during the Credit disbursement period, of which 10 would be in Tabora Region and 5 in Mbeya Region. 15 complexes were, in fact, developed, but the pattern of location was different. The complexes developed were Cwith the establishment date in brackets): Tabora Region: Tabora District -Hibono (1971) -Kitunda (1971) Urambo District -Ig-gala (1971) -Uyowa (1973) Mpanda District 1/ -Inyonga (1971) -Nsimbo (1971) -Ugalla (1973) Mbeya Region: Chunya District -4tanila (1971) -Mafyeko (1971) -Gua (1971) -Mamba (1972) -Kapalala (1972) Shinyanga Region: Kahama District -Ushetu (1973) -Bulungwa (1974) Singida Region: Manyoni District -Mgandu (1973) Thus, 7 complexes were developed in what was Tabora Region during appraisal, 5 were established in Mbeya Region, and 3 (2 in Shinyanga Region and 1 in Singida Region) were established on good soils just outside the boundaries of Tabora Region, in order to take advantage of areas with good potential for settler recruitment. The Project description was formally amended in November 1973 to regularize the fact that development under the Project was taking place outside the Project area as defined in the credit documentation (Tabora and Mbeya Regions only). The locations of the complexes established under the Project are shown in Map IBRD-13672. 1/ Mpanda District was part of Tabora Region during appraisal, but was subsequently established as part of Rukwa Region.  - 24 - 3.09 Establishment of complexes and villages was slower than envisaged during appraisal and the number of villages established by 1975/76 (114) failed to reach the appraisal target of 150. No further villages were developed after 1975/76, since by that date most of the Tanzanian rural population were living in villages as a result of the mass villagization compaign carried out by the Government and TANU in 1973 and 1974. Table 3.1 - Targets and Achievements in Complexes and Village Establishment Crop Season 1970/71 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 Total Complex Establishment Appraisal estimates 3 6 4 2 - - - 15 1972 review est. - 8 2 4 1 - - 15 Actual - 8 2 4 1 - - 15 Village Establishment Appraisal estimates 18 33 33 33 33 - - 150 1972 review est. - 29 24 36 39 19 3 150 Actual - 18 14 24 41 17 - 114 3.10 The major reason for the slower-than-anticipated rate of development in the early years of the Project was the lack of planning capacity in the Project Group. In view of the inexperience of the Tanzanian appointed as Senior Planning Officer, an ADS member spent 5 man-week in Tanzania on four separate occasions between October 1970 and January 1972 offering technical assistance and support for land planning. He found that, while the criteria adopted for selection of complex sites (proximity to settlers, good communications, access to roads and water supplies 1/ and the existence of good tobacco soils and wood-fuel) were sound and well-applied, the siting and planning of villages was being carried out on an ad-hoc basis. The Senior Planning Officer was introduced to the use of photo-mosaics for village siting, and there was a resultant considerable improvement in the standard of planning. 3.11 The Project provided for the construction of offices and stores in each complex headquarters, baling sheds in each village and staff housing. Progress in this construction program was slower than envisaged, as a result of shortages of building materials (particularly cement), difficulties in transporting materials and shortage of capacity in the building industry. In addition, building costs increased sharply over the Project period, as a result of increases in the price of building equipment and materials, and increases in wages rates. As a result, when Credit disbursements ended, the building program was only partially completed: 1/ However, it is clear from paragraph 3.18 that the judgement that the proximity of complexes to water supplies was satisfactory was in fact incorrect.  - 25 - Extension Complex Complex Baling Officers' Stores Offices Centers Houses Appraisal estimate 15 15 150 not specified Completed 12 13 48 111 In addition to the structures completed, a further 1 store, 11 baling centers and 13 houses were partially completed. 3.12 Land Planning. Largely as a result of inexperience, progress on land planning was less than envisaged during appraisal Table 3.2 - Progress in Land Planning Appraisal % Activity Estimate Achievement Achievement Homestead demarcation (No.) 15,000 14,796 99 Soil classification (ha) 72,000 40,800 57 Demarcation of cultivation (ha) 72,000 27,600 38 Trace cutting of boundaries (km) 1,948 1,344 69 However, in view of the small number of settlers than envisaged (para. 3.24) and the smaller area of cultivation than envisaged, these shortfalls in land- planning achievements did not hamper the development of production under the Project. 3.13 Road construction. Overall Project performance in road construction was poor. At appraisal, it was envisaged that 360 km of crop extraction roads and 1200 km of internal access tracks would be constructed under the Project. In fact, only about 30 km of extraction roads and 495 km of access tracks were constructed. In the case of the access tracks, detailed planning for each complex Indicated that a total of about 765 km of access tracks would be sufficient, but even this was not achieved. 3.14 In part, this poor performance, particularly in the early years of the Project, resulted from delays in the procurement of the necessary equipment. Earthmoving equipment was not ordered until early in 1972, and was not delivered until mid 1973, by which time only about 46 km of internal tracks had been constructed, using equipment borrowed from the Ministry of Co-in.ication and Works (Comworks). After the arrival of this equipment, (a caterpillar tractor and a motor grader) it became clear that the one earth-moving unit provided for at appraisal would not be adequate in view of the widely-scattered location of the Project complexes and the difficulty of moving equipment between complexes. In January 1974, IDA approved the procurement of equipment to establish a second earth moving unit in Chunya District and, after the arrival of this equipment in mid 1975, the rate of access track construction improved.  - 26 - 3.15 In the case of crop extraction roads, a further reason for poor performance was that the Project had to rely on Comworks for assistance in engineering and construction and, until mid 1973, for the use of equipment. Comworks in both Mbeya and Tabora regions accorded low priority to meeting the needs of the Project complexes. Accordingly, by mid 1974, only 30 km of extraction road had been constructed. In October 1974, responsibility for construction of crop extraction roads was given to Comworks by Government, and IDA raised no objection to this decision. Little improvement appears to have resulted from this change. 3.16 This poor performance in the construction of crop access roads has had some adverse effects on Project performance. The difficulty of access to Project complexes raises the costs of input delivery and crop marketing, and makes more difficult the effective supervision of extension staff particularly during the tobacco growing season. However, TAT's assessment, which seems reasonable, is that the impact of these adverse effects was limited l/ and should not be over-emphasized. 3.17 Water supplies. At appraisal, it was envisaged that each Project village would be provided with a water supply for domestic and seedbed needs. Depending on location, it was expected that the water supply would come from a shallow well, borehole or small dam, with shallow wells (the cheapest source) being used whenever possible since they could be constructed and maintained largely by self-help means. It was anticipated that shallow wells would be feasible in the most majority of cases. This judgement, wbich was fully supported by technical specialists within the Tanzanian Government, was based on an extrapolation from the fact that shallow wells were providing adequate water for individuals or small groups living in the Project area. However, no detailed hydrological studies were made to test the hypothesis that shallow wells could provide adequate water year-round to meet the needs of one hundred fnmilies for both domestic usage and watering of tobacco seedbeds planted at the end of the dry season. 3.18 In the event, this judgement was proved wrong in many Project complexes. Shallow wells often failed towards the end of the dry season. The-sandy soils most suitable for tobacco growing were often unsuitable for the construction of dams large enough to meet the needs of a village. As a result, TAT had in several instances to undertake the delivery of water by bowser, and had to make provision for the installation of more sophisticated water supplies than anticipated at appraisal. These were usually based on boreholes but, in the case of the complexes in Mbeya Region (Table 3.5) the only feasible solution was the piping of water to complexes from a lake which is about 30 kms from the furthest complex. 3.19 The Government was relatively unconcerned at this cost escalation, since the more sophisticated water supplies were in line with the standards for village water supply adopted by the Government, and since it was felt that, in order to attract settlers, it would be desirable to have water supplies in Project complexes that were better than those in the settler's previous environment. At the Project review in September 1972, IDA accepted the need for more sophisticated water supplies. The estimated cost of water supplies was raised from the appraisal figure of Tsh 3 million to Tsh 20 million, and the Credit allocation was also raised from US$ 100,000 to US$ 1.9 million. 1/ 'Ra.-axP nf limited area development, and also because villagers them-  - 27 - 3.20 Throughout the period of Credit disbursement, progress on the construction of water supplies was extremely slow. There were many reasons for this. Particularly in 1973, a shortage of Government counterpart funds was a major constraint. Th.ere were recurrent shortages of cement, pipes and fittings. The overriding reason, however, was the inability of the Regional Water Departments concerned to handle the greatly expanded water supply component Cpara 3.18). Provision was made at appraisal only for the construction of simple water sources. Once a large numbez of boreholes and piped water supplies were required, the Regional Water Departments did not have sufficient skilled staff or reliable equipment to design and implement the program. It is a weakmess of the 1972 Project review that this was not recognlzed so that provision could have been made under the Project for finAncing additional staff and equipment. 3.21 As a result, at the end of 1977, only 7 complexes (Igagala, Uyowa, Mafyeko, Kapalala, Gua, Ugalla, Nsimbo) had water supplies that were complete. Vork on another 4 (Qibono, Ushetu, Mamba and Mtanila) was virtually complete, while for the remaining 4 complexes (Kitunda, Mgandu, Bulungwa and Inyonga) only preliminary survey and design work had been completed. 3.22 Other infrastructure. In addition to the directly productive physical infrastructure financed under the Project, the appraisal mission envisaged that social infrastructure would be constructed in Project complexes, largely through self-help efforts by the settlers, with assistance from regional authorities. This was in fact the case. By the end of 1977, there were 17 schools, 10 dispensaries, and 1 health center in Proj ect complexes. 10 complexes had, with the assistance of regional development funds, installed grain mills, and there were 10 cooperative shops in Project complexes. Progress in Settlement 3.23 Settler numbers. The Project called for the settlement of 15000 famiites over the five-year period 1970/71 to 1974/75. This figure was revised to 1972 to provide for the settlement of 7780 families by the end of 1974/75, and 14010 families by the end of 1976/77, with the full complement of 15000 families not being reached until the end of 1978/79. In the event, the pattern of settler recruitment was:  - 28 - Table 3.3 - Progress in Settler Recruitment 1970/71 71/72 72/73 73/74 74/75 75/76 76/77 77/78 Actual families settled - 1,006 1,943 2,877 7,957 10,635 11,460 12,045 Appraisal estimates 1,800 5,100 8,400 11,700 15,000 15,000 15,000 15,000 Achievement (percentage of appraisal estimates) 0% 20% 23% 25% 53% 71% 76% 80% Revised estimates - 535 1,950 4,180 7,780 11,455 14,010 14,900 Achievement (percentage of revised estimates) - 188% 100% 69% 102% 93% 82% 81% 3.24 By the end of 1976/77, a total of 11460 families had been settled in the fifteen project complexes. There are difficulties in increasing this number through further settlement, since the vast majority of the Tanzanian rural population is now living in registered villages. However, particularly in Mbeya Region, TAT is actively pursuing the possibility of recruiting additional settlers to villages where a particularly low proportion of the population is involved in tobacco cultivation.l/ 3.25 The slow growth of settler numbers in the early years of the Project resulted in part from the slow development of infrastructure, particularly water supplies. A much more important factor, however, was the initial insistence by Regional Administrations that collective farming should be adopted in the Project villages, with tobacco being grown in communal plots and cured in communal barns, and the net proceeds from the sale of the crop being distributed in accordance with the work input from each family. While collective farming was considered by Government to be the ultimate goal of Ujamaa villages, it was envisaged at appraisal that in the early stages of the Project most production would involve individual tobacco production and curing. Beginning in August 1971, supervision missions pointed out that this development was, in effect, a move to tobacco production on a large scale, (80 ha per village at full development), which would bring problems of management and risks of losses during curing. This policy was a great disincentive to settlement, and between September 1971 and February 1972, 280 farmers left the Project villages. This issue was raised with Government in March 1972. Government indicated that the adoption of this policy was the result of over-enthusiasm by Regional officials following decen- tralization, and did not have the blessing of central Government. Government therefore instructed regional authorities that they should not try to enforce collective farming. The result in Tabora region was an immediate improvement in the rate of settler recruitment. In Mbeya region, however, regional officials continued to discourage individual production, and it was not until 1974/75, when a new Regional Commissioner was appointed, that the recruitment rate improved. 3.26 The rapid expansion of settler recruitment in 1974/75 and 1975/76 resulted in part from the more relaxed attitude to individual farming in Mbeya Region. More important, however, was the fact that, in 1974 Government began a campaign to villagize the rural population. This resulted in many families opting to settle in Project villages, since these already had some infrastructure established. 1/ Although farmers were recruited from the Kilimanjaro and Tukuyu areas, the majority of them came from within the Tabora, Mbeya and Rukwa regions.  - 29 - 3.27 Numbers of tobacco growers. No provision was made under the Project for formal selection procedures to be followed in choosing settlers. There was a pre-sum?osition that a family which was prepared to move into Project villages would be interested in growing tobacco. Accordingly, it was assumed during appraisal that 100 percent of settled families would be growing tobacco. In the early years of the Project, the percentage of settled families growing tobacco was less than 100 percent, because settlement was often too close to the start of the season to enable families to plant seed beds as well as building homes and establishing subsistence plots. The percentage of families growing tobacco reach 71 percent in 1973/74, and it appeared that the over- whalming majority of families were cultivating tobacco by the time of their second year of settlement. With the start of the villagization campaign, however, the situation changed. Many families moved into villages to take advantage of the infrastructure provided, without any commitment to tobacco growing. Particularly in iMbeya and Rukwa Regions, many families continued their previous occupations of fishing, hunting, livestock herding and honey gathering. As a result, the percentage of families growing tobacco fell to about 50 percent. There are signs that this percentage is increasing slowly, as TAT improves the efficiency of its extension services, and as non-tobacco growing farmers see the relatively high incomes that result from tobacco cultivation. In detail, the number of farmers settled and growing tobacco was: Table 3.4 - Provortion of Settlers Cultivating Tobacco 1971/72 72/73 73/74 74/75 75/76 76/77 77/78 Families settled 1,006 1,943 2,877 7,957 10,635 11,460 12,045 Families growing tobacco 513 1,126 2,057 4,052 5,095 5,889 6,913 Percentage of settled families growing tobacco 51 58 71 51 48 51 57 3.28 Current status of settlements. There are considerable variations in the current status of Project complexes with respect to population and the proportion of farmers growing tobacco:  - 30 - Table 3.5 - Current Status of Complexes Population Families growing tobacco, 1977/78 Region Complex (families) Number Percent of Population Tabora Mibono 1,006 445 44 Kitunda 1,074 797 74 Igagala 1,538 1,132 74 Uyowa 988 625 64 Regional average 1,152 750 65 Rukwa Inyonga 1,382 510 37 Nsimbo 1,223 374 30 Ugalla 338 35 10 Regional average 981 306 31 Mbeya Kapalala 255 106 42 Mtanila 413 325 79 Mafyeko 424 306 72 Mamba 543 352 65 Gua 575 235 41 Regional average 442 265 60 Shinyanga Ushetu 883 765 87 Bulungwa 522 232 44 Singida Mgandu 881 674 77 Overall average 803 461 57 3.-29 In Tabora Region, where tobacco cultivation was well established prior to the start of the Project, the average population of a complex is above the appraisal estimate. In Mbeya, on the other hand, the average complex population is less than half of the appraisal estimate, partly as a result of the initial insistence on commercial tobacco cultivation, but probably partly also as a result of the fact that tobacco is a new crop in the area. The low proportion of settlers growing tobacco in two of the complexes in Mbeya (Gua and Kapalala) results from the location of these complexes close to a lake, where fishing is an attractive alternative occupation. The lowest proportion of settlers cultivating tobacco is found in Rukwa Region, where again tobacco is a new crop, and where difficulties of physical access have led to problems with input deliveries, and with the completion of physical infrastructure in the complexes.  - 31 - 3.29 The pe entage of settlers in Project complexes cultivating tobacco (57%) compakes very favorably with the overall national percentage of farmers living in tobacco growing villages who actually grow tobacco (28%). Marketing and Processing 3.30 Consultants study. The study of the storage, auction and processing facilities required for efficient handling of the Tanzanian flue-cured tobacco crop was carried out in 1971 by a team from the Canadian International Develop- ment Agency (CIDA). The main findings of the study were that the introduction of an auction system would be feasible in the medium-term. However, it was stressed that, prior to the move to an auction system, an intensive extension effort would be required to improve the standard of grading and baling carried out by individuals and cooperatives. TTB amended the proposals by providing that farmers would forward rough-baled tobacco to regional TTB grading centers, where TTB would grade condition and bale all tobacco in a form suitable for sale over the auction floor. mIA accepted TTB's proposals, and it was planned to start auction operations in 1974. 3.31 In the event there was considerable delay in the design of the proposed regional grading centers and auction floors, partly as a result of management changes in TAT during the period 1972-75. It became clear in 1974/75 that the cost of these facilities would be much higher than anticipated. TAT then reviewed the situation, and decided, in view of the small size of the crop and the continuing problems of tobacco quality, to continue with the system of selling classified tobacco on a contract basis. This was a reasonable decision, with which mIA agreed. As.a result, neither the auction floors-nor regional grading centers were constructed. 3.32 Storage and factory improvements. The Project provided for the expansion of processing and storage facilities at the Morogoro factory, and for the construction of an office block for TTB. These itemn were completed by February 1972, roughly on schedule. Following the CIDA study, it was agreed that additional tobacco storage would be required at Tabora and Morogoro. Construction at Tabora was started in 1973 and at Morogoro in 1974, and both stores were completed in 1976. In the design and supervision of construction, TAT employed the services of a firm of consultant architect and engineers. However, despite this, ther, were structural problems with both stores. At Tabora, the flooring, drainage installation and gutter insulation were defective. The contractors have rectified these defects at no cost to TAT. At Morogoro, the concrete portal frame was erected incorrectly, and as a result the atructural stability of the building has been reduced to the point at which further use is dangerous. The contractor has proposed remedial measures that are unacceptable to TAT since they would reduce the utility of the building. Resolution of this issue may require lengthy arbitration procedures. Research 3.33 Tumbi Research Station. The Project provided for the development of a tobacco research station at Tumbi, to be staffed by five research officers. It was anticipated that the research station would be completed by the 1972/73 season. The research program of the station would be concerned  - 32 - primarily with practical investigations including husbandry techniques, rotations, pest control, varieties (low nicotine varieties in particular), barn design and curing techniques, fuelwood species trials and the testing of other cash and food crops for introduction into tobacco growing areas. 3.34 At appraisal, a sum of Tsh 1.26 million (US$ 180,000) including physical contingencies, was budgetted for the construction of the research station. There was, however, no detailed description of the buildings envisaged. TAT employed a firm of architectural and engineering consultants 1/ of inter. national repute to design and supervise construction of the research station. Designs were finalized in 1972, and cost estimates were revised upwards to Tsh 9.2 million. The contract was not, however, awarded until early 1974 and by the time the site was handed over (at the end of February 1974), estimated costs had risen to Tsh 15 million. The station was substantially completed in late 1976. However, station design was over-elaborate, and the quality of site survey, workmanship and materials leaves much to be desired. Most seriously, the lack of reliable water supply at Tumbi remains a severe handicap. Several alternatives have been explored, including boreholes, shallow wells, and a catchment dam but it is now planned to connect Tumbi to the Tabora town water supply, probably in 1979 or 1980. In the interim, a water supply involving shallow wells is being constructed. 3.35 Research program. In September 1970 a Tanzanian with a PhD was appointed, with approval from IDA, to be head of Tumbi Research Station, and an outline research plan was approved by IDA. However, TTB and TAT were unable to recruit any other research staff. This failure stemmed in part from a lack of drive by the head of the station, in part from the late completion of the research. facilities Cfor which the station Head also bears some responsibility), and also from the decision to give TAT responsibility for tobacco research, thus cutting Tumbi off from the national research system and its career structure. Some trials were carried out by junior research personnel, but not satisfactorily, and little of substance has been achieved to date. 3.36 In July 1977, control of Tumbi Research Station passed from TAT to the Director of Research in Kilimo. Tumbi is now being operated as a regional research. station, with, an emphasis on tobacco. As a result, the staffing situation has greatly improved, despite the continuing absence of a reliable water supply. Tumbi currently has a staff of seven research officers. 1/ The same firm that was responsible for the Morogoro and Tabora godowns (para. 3.32).  - 33 - Training 3.37 Training of tobacco extension staff started at Tumbi in 1971, initially in temporary accommodation, and proceeded well throughout the Project period. Up to the beginning of 1978, Tumbi graduated a total of 202 students, of which 7 came from Sudan and the Yemen. Over the same period, a total of 31 students were expelled or failed the final exam-nations. The qualification for entry into Tumbi is completion of Form IV with passes in science subjects. Up until 1976, students received training for two years, mainly concentrating on tobacco production but also covering agricultural economics and extension, agro- mechanics, animal husbandry, land-use planning and general crop production techniques for a wide variety of crops. All graduates from Tumbi (except the 7 foreign students) have been employed by TAT as Assistant Tobacco Officers, responsible for extension in a tobacco-producing village. "' 3.38 In 1977, Kilimo took over operation of the training center at Tumbi. Students currently enrolled are being trained as 'agro-vets' with a two year syllabus which is roughly equally divided between crop and animal husbandry. The training courses are still biased towards tobacco. Procurement 3.39 In the early stages of Project implementation, problems were encountered in the procurement of equipment and construction services. These problems included failure to clear advertisements, tender documents and contracts with IDA, and the adoption of unsatisfactory procedures in the evaluation of bids. These problems stemmed largely from the inexperience of Kilimo, TAT and TR=B with MA procurement requirements. To address this problem, which affected other Bank and IDA projects in Tanzania, Bank Group staff held a workshop to explain procurement and disbursement procedures to the relevant Tanzanian officials. Thereafter, procurement performance under the Project improved. 3.40 In mid 1973, following a request from the Government, IDA agreed to allow for local competitive bidding for contracts of US$ 20,000 or less. This replaced the previous provision for IC3 on all contracts, which was found to be extremely time-consuming. 3.41 Two trucks purchased in 1972 with Project funds were diverted to other uses before delivery to Project authorities. Several supervision missions took up this problem and one truck was delivered to the Project in 1975, after extensive use. There is no record of the other truck having been delivered to the Project, or of any compensation for the use of the first truck, and there was no cancellation of funds used for these items.  - 34 - Construction 3.42 Serious problems were encountered by TAT in dealing with engineering consultants and with contractors under the Project. These problems were particularly severe for the Tabora (para. 3.29) and Morogoro (para. 3.29) storage warehouses, where the standard of supervision of construction was admitted by the consultants to have been inadequate and to have resulted in serious structural defects in the completed buildings. In the case of the Tumbi Research Station (para. 3.34), the initial site survey and planning were inadequate, resulting in, the need for subsequent relocation of houses and workshops. In many respects, the buildings were unnecessarily elaborate, and available expenditures were incurred. Cost control was very weak, and this contributed to the escalation in costs (para. 3.46). 3.43 In some measure, these problems resulted from weak administration within TAT, which did not have on its staff a buildings engineer. As a result, difficulties were encountered in the selection of consultants and in the drawing- up of their terms of reference, in negotiating agreements for professional services, in specifying requirements for site selection and survey, sub-surface investigation, master planning, bid documents, drawings, specifications, bid analyses and award of contracts, and in supervision of construction. Early supervision missions assumed an acceptable standard of advice and control from the consultants. However, later missions (with engineering expertise) were in a position to point out to TAT the technical and supervisory short- comings of the consultants, and to assist TAT to achieve cost reductions. Later tobacco projects took steps to strengthen these aspects of TAT's operations (para. 8.03). Prolect Costs 3.44 Up to December 31, 1977, a total of Tsh 142 million had been expended on the Project. In addition, it is estimated that a further Tsh 0.8 million is required to complete unfinished buildings (para. 3.11) and Tsh 17.1 million to complete complex water supply systems (para. 3.20). Thus, total costs to date plus the costs of completing work in progress amount to Tsh 160 million. At appraisal, Project costs, including contingencies, were put at Tsh 105.2 million. Costs have thus been Tsh 54 million (51 percent in terms of Tanzanian shillings) higher than appraisal estimates.l/ 1/ It should also be noted that the auction floors provided at appraisal were not constructed.  - 35 - 3.45 The breakdown of appraisal estimates, revised estimates and actual costs, by component, is given below: Table 3.6 - Project Costs Expenditures to Component Appraisal Revised End 1977 Comoletion Tsh -------------- --- Milliono-- Credit 27.2 15.0 15.5 15.5 MYarketing study 0.5 0.2 0.03 0.03 Vehicles 2.7 4.9 7.9 7.9 Aerial survey 0.5 0.3 0.2 0.2 Expatriate staff and training 4.0 3.0 1.4 1.4 Operation of earthmoving equipment 2.5 1.7 3.2 3.2 Complex buildings 5.2 4.7 7.4 8.2 Tumbi 1.5 9.2 17.6 17.6 Staff and extension services 31.1 23.1 53.6 53.6 Water supplies 2.6 22.6 20.2 37.3 Storage and processing facilities 27.4 19.0 15.1 15.1 Total 105.2 103.7 142.1 160.0 3.46 It can be seen that the major cost overruns occurred in water supply construction (where more elaborate facilities than envisaged were constructed, para. 3.18); in the costs of construction of Tumbi Research Station, which was constructed on a more elaborate scale than envisaged, and with loose cost control (para. 3.34); and in the cost of operation of the Project extension services, where salaries rose during implementation, and operating costs were higher than expected. In part also, the cost overruns on construction arose as a result of rapid inflation in Tanzania in the years following the oil price rises of 1973/74. The appraisal report provided only 10 percent for price and physical contingencies (25 percent for auction and storage facilities). These contingencies were clearly inadequate, particularly in view of the slow rate of physical development of Project investments and the sharp inflation in 1974 and succeeding years. 1/ Prolect Financing 3.47 The shares of IDA and the Tanzanian Government/TAT in financing of Project costs incurred before December 31, 1977 were: 1/ It is interesting to note that Project costs deflated to 1970 prices total Tsh 109 million, very close to the appraisal estimates.  - 36 - Table 3.8 - Disbursements from the Credit IDA Fiscal Year Cumulative Disbursements (US$ '000) and Semester Actual Appraisal Estimate Revised Estimate 1971 I - - - II 20 950 20 1972 I 97 1,730 97 II 108 2,410 108 1973 I 543 3,490 477 II 543 4,190 1,625 1974 I 1,300 5,500 2,700 II 1,300 6,360 3,670 1975 I 1,300 7,570 4,800 II 3,900 7,950 5,940 1976 I 7,200 8,910 7,100 II 7,974 9,000 7,765 1977 I 8,521 9,000 8,600 II 8,798 9,000 9,000 1978 I 8,820 9,000 9,000 II 9,000 9,000 9,000 1/ Fulfilment of Covenants 3.50 The Project's legal agreements contain a relatively large number of particular covenants. The Development Credit Agreement devotes fourteen paragraphs to these, and there are sixteen relevant paragraphs in the Project Agreement. This is a reflection of the complexity and innovative nature of the Project, with six Government agencies (TTB, TTPC, NDCA, Kilimo, Ministry of Works and Ministry of Water) involved in Project implementation. A review of these covenants indicates that, in the light of Project implementation, their inclusion at appraisal was reasonable and relevant. However, as is pointed out in para. 3.52, changing circumstances during implementation reduced the utility of some of these covenants. 3.51 From an overall viewpoint, it seems fair to say that the Borrower and its agencies made a sincere attempt to implement the Project according to the legal agreements and to fulfill the covenants, and compliance was generally satisfactory. For example, where required, opportunity was given for IDA approval of, or prior consultation on, appointment of key staff (e.g., to the Tabora Project Group and NDCA). The consultants appointed to carry out the marketing study were satisfactory to IDA, and their recommendations were thoroughly discussed with IDA. No non-Project tobacco development, other than completion of existing schemes, was carried out in the Project area. 1/ Not including exchange adjustments of US$ 71,688.  - 37 - Table 3.7 - Financing of Project Costs % Financed by IDA Com,,nent IDA Local Total Actual Aporaisal -US$ '000-- Farm credit - seasonal 1,713 470 1/ 2,183 78 100 - medium-term 267 - 267 100 100 Feasibility study -0- -0- -0- 2/ -- 100 Vehicles 1,111 -0- 1,111 100 100 Aerial survey 3 25 28 11 100 Expatriate staff & training 192 5 197 97 100 Earthmoving costs 134 316 450 30 30 Buildings (including Tumbi) 1,230 2,404 3,634 34 30 Extension service costs 1,686 5,864 7,550 22 30 Storage/processing & water supplies 2,664 4,716 7,380 36 60 Total 9,000 13,800 22,800 39 61 3.48 The proceeds of the Credit financed only 39 percent of Project costs up to end 1977, rather than the 61 percent anticipated at appraisal. The high level of local contribution to Project costs, and the fact that at no stage did the Tanzanian Government request a reduction in Project size, is an indication of the high priority accorded to the Project by Tanzania. Disbursements 3.49 Owing to the slow progress.made with Project implementation, disbursement was slower than anticipated at appraisal or when the Project was revised in 1972. The original closing date of the Credit was June 30, 1976, and by this date 89 percent of the Credit had been disbursed. The Credit closing date was postponed until December 31, 1977, and the final disbursement from the Credit was made in March 1978. The pattern of disbursements was as follows: 1/ The Credit needs of the last four complexes were met from TRDB's own resources. 2/ The study was carried out by CIDA at no cost to Government.  - 38 - 3.52 Some of the covenants did not become applicable during implementation. For example, since TAT decided not to switch to an auction system, those covenants relating to interim arrangements during the switch to tobacco auctions, and those dealing with the conduct of tobacco, did not come. into play. In view of the slower than anticipated recruitment of settlers under the Project, and the smaller than expected acreage grown by farmers, the restrictions on settlement by the Borrower of more farmers in any year than appraisal estimates and on the Borrower's permitting farmers to grow more than two acres of tobacco did not come into effect. 3.53. There were two major areas of non-compliance with Project covenants. The first related to the provision of staff. The Development Credit Agrement, Section 4.02(b), stipulates that a Forest Officer, a Water Engineer and a Roads Engineer be designated by name and be available on a part-time basis for the Project as a first priority. The staff were never designated by name. The situation was complicated by the Government decentralization of 1972, after which Project implementation would have required the designation of such staff in each Region of the Project area, which was not done. Undoubtedly, Project implementation of the water supply and roads components suffered as a result. In addition, the complexes and villages were not staffed as required, and the effects of this is discussed in more detail in paras. 4.08 and 4.09. 3.54 The second area of major non-compliance relates to the provisions of the Development Credit Agreement regarding accounting and auditing. Except for TRDB, all of the entities involved in Project implementation experienced severe difficulties in keeping accounting and auditing up to date. The reasons for this are discussed in para. 4.05.  - 39 - TV. INSTITUTIONAL PERFORMANCE Institutional design and growth 4.01 At appraisal, the key role in Project implementation was to be played by a Tobacco Project Group under Kilimo, which was to have overall responsibility for the planning and development of Project complexes. There was also to be a Senior Agricultural Officer (Tobacco) within Kilimo headquarters, with responsibility for Project staffing, procurement of vehicles and equipment and coordination with other key government agencies in Project implementation, such as NDCA, Comworks and MAJI. 4.02 Crucial to the success of Project implementation were close linkages that the Project Group had to develop with other Government agencies operating in the Project areas. A Forest Officer, a Water Engineer and a Roads Engineer were to be designated by name by, respectively, the M4inistry of Natural Resources, MAJI and Comworks, and to be made available to the Project as a first priority. These linkages were never successfully established, and, as a result, progress was slow on these aspects of the Project. 4.03 Many of the organizational problem during the early years of Project stemmed from the decentralizaation of Government authority which was taking place in 1971 and 1972. Regional staff of ministries such as Kilimo, Maji and Comworks became responsible to the Regional Development Director (RDD) rather than to their ministerial headquarters. Often, the priorities and wishes of the Regional administration did not coincide with those of the central ministries. For example, Regional authorities felt very strongly that collective farming should be adopted in Project villages, a desire not fully shared by KilImo. The morale of Project field staff, particularly the Project Group, suffered as a result of what was perceived as regional interference. 4.04 The various coordinating committees (para. 2.12) which were to have been formed at both central mi-nstry and regional levels, and which were expected to resolve many of these problems, do not appear to have met at all, and certainly exercised no influence on Project development. Partly as a result of these difficulties, the Tobacco Authority of Tanzania was established to take overall responsibility for the development of the tobacco sub-sector, including the Project. TAT thus absorbed the Project Group. The Tobacco Project Officer became TAT Leaf Manager, and the Senior Research Officer became TAT Production Manager. Shortage of staff in TAT resulted in some staff in the early years undertaking more than one function. For example, the General Manager was also Marketing Manager and Export Manager, while the Production Manager remained as Read of Tumbi Research Station and Principal of Tumbi Training Institute. The functions of the Senior Agricultural Officer (Tobacco) were also absorbed by TAT.  - 40 - 4.05 The performance of TAT was, in many aspects, weak during the Project period. This might be expected from a newly-established organization that was suffering, particularly during its early years, from an acute shortage of staff, and there has been an improvement particularly over the last two years, since the appointment of the present General Manager. These weaknesses were particularly apparent with regard to accounting and record keeping. Although assurances were obtained during negotiations that the major Project entities would maintain separate accounts for Project expendi- tures and receipts and that accounts of these entities would be submitted to IDA within four months of the end of their fiscal years (six months in the case of NDCA), TAT failed to meet these conditions. Currently, the last set of audited TAT accounts is for the period 1974/75. This problem with account- ing and auditing is prevalent in Tanzania (although TRDB has managed to keep both accounts and audit up to date), and stems from an acute shortage of qualified accounting and auditing staff, and consequent severe competition between Government, parastatals and the private sector. TAT has, over the past 18 months, taken steps to improve the situation, and has used the services of a consulting firm to update its accounts, has engaged consultants to advise on the design and implementation of improved accounting systems, and has recruited expatriate accounting staff. 4.06 Expatriate staff played only a minor role during Project implemen- tation. It was expected at appraisal that the Chief Marketing Officer and Chief Accountant of TTB, and two of the three key posts in the Project Group (Tobacco Project Officer, Senior Planning Officer and Senior Accountant) would be expatriate. In fact, the only post filled by an expatriate was that of TAT Financial Controller, during the period 1974-76. 4.07 After an initial period of about one year, during which no quarterly reports were received, such reports have been received regularly (although often late) and have generally been adequate in regard to physical progress and staffing, but weak with respect to cost data. Supporting services 4.08 Extension services. The Project provided for each complex to have a resident Field Officer (FO) who would be a diplomate, and who would be supported by an Assistant Field Officer (AFO) (who would be the holder of a certificate from Tumbi Training Institute) and two Assistant Foresters. Each of the Project villages would have a resident AFO, assisted during the first year of settlement by an additional AFO, who would usually be newly-qualified. This rate of staffing was designed to provide a ratio of one AFO to 50 farmers during initial settlement and one AFO to 100 farmers on a permanent basis. 4.09 The proposed levels and qualities of staffing were not entirely met. No Assistant Foresters have ever been appointed to Project villages. Because of a shortage of AFO's (who had Form IV level secondary education), TAT was forced to  - 41 - keeps systematic records of what remains in store in the village, it is impossible to obtain a clear picture of credit recovery. Thus, although TAT reports credit recovery rates of over 90% for seasonal credit in 1976/77, TRDB's figure shows overall recovery of only about 70%. TAT and TRDB are currently revising ordering and credit deduction procedures, with a view to avoiding this over-ordering. 4.12 Cooperative formation. Under the Project, cooperative societies were to be formed in each of the complexes. Each society would have about 1000 members producing, it was estimated, about 600,000 kg of tobacco, which would be sufficient to allow an economic operation. It was recognized that some villages or complexes might wish to join an already existing cooperative society, and provision was made for this to be permitted, but subject to IDA's prior approval in view of the poor performance of some of the existing societies. Each new society would have a full-time officer posted from the Cooperative Division of the Prime Minister's Office (PMO) for a minimum period of five years. A total of 13 cooperative societies were registered in Project complexes - 1 in 1970, 6 in 1971, 2 in 1973, 2 in 1974 and 2 in 1975. Two of the Project complexes elected to join existing societies. 4.13 The performance of these cooperatives was extremely weak. The secretaries provided by PMO were ill-trained and inefficient, and, as a result, the societies were poorly managed, especially with regard to accounting and record keeping. There were, in many cases, lengthy delays in payment of farmers, and this was undoubtedly a disincentive to society members. TAT's offer, made in 1973, to supply trained staff to act as secretaries, was rejected by PMO, on the narrowly bureaucratic grounds that cooperative development was the preserve of PMO. Successive supervision missions, from September 1973 onwards, raised this issue with Government, but it was aot resolved. In 1976, all cooperative societies in Project complexes were disbanded as part of Government's reorganization of the entire cooperative system, and the newly- registered villages each became a multi-purpose cooperative society, with all residents automatically being members. The bookkeeping and accounting functions for these Projects is now performed by TAT staff. As a result, record keeping has improved, and farmers are paid more rapidly.  - 42 - V. AGRICULTURAI IMPACT Area cultivated 5.01 Tobacco Area. The area planted to tobacco has, throughout the Project period to date, fallen far short of both appraisal and revised estimates: Table 5.1 - Area Planted to Tobacco 1971/72 72/73 73/74 74/75 75/76 76/77 77/78 Actual area (ha) 113 298 688 1,460 1,908 2,394 2,946 Appraisal estimate (ha) 720 2,760 5,400 8,040 10,680 12,000 12,000 Actual as % of estimate 16 11 13 18 18 20 25 Revised estimate 217 897 2,193 4,379 7,051 9,561 11,180 Actual as % of estimate 52 33 31 33 27 25 26 5.02 It can be seen that, even now, actual tobacco area is only about 25 percent of the appraisal estimates. In part, this is a result of the lagging rate of settlement, and the fact that only about half of settled families are growing tobacco. In addition, however, this poor performance stems from an over-optimistlc estimate during appraisal of the area of tobacco that would be planted by each tobacco-growing family: 1971/72 72/73 73/74 74/75 75/76 76/77 77/78 Actual area per tobacco producer (ha) 0.22 0.26 0.33 0.36 0.37 0.41 0.43 Appraisal estimate 0.40 0.55 0.65 0.69 0.71 0.80 0.80 5.03 It was assumed at appraisal that tobacco farmers would grow 0.4 ha in their first year, and 0.8 ha in succeeding years. The 1972 review mission amended this to provide for growing of 0.2 ha in the first year, 0.4 ha in the second year, 0.6 ha in the third year and 0.8 ha only in the fourth year. In fact, families are growing only between 0.4 ha and 0.6 ha, even after many years of experience of tobacco growing, and this experience is repeated in other tobacco growing areas outside of the Project areas 1/. The reason for this discrepancy between estimated and actual areas per family is revealed by an analysis of the labor recuirements for tobacco cultivation. and the cultivation of subsistence crops. The seasonal pattern of labor use on a farm growing 0.8 ha of flue-cured tobacco (at the full development yield of 850 kgs, assumed in the appraisal report) and subsistence crops (about 0.8 ha of maize and other crops such as beans) has been estimated 2/, in man-days, as shown in the table below: 1/ In 1976/77, the national average area of tobacco cultivated per tobacco- producing family was 0.54 ha. 2/ M. P. Collinson, 'A Report on the Comparative Economics of Virginia and Aromatic Tobaccos on Family Farms in Tabora District.' Kilimo, 1965.  - 43 - Table 5.2 - Labor Requirements for Tobacco Cultivation Sept. Oct. Nov. Dec. Jan. Feb. Mar. April May Total Operation Seedbed 20 12 - - - - -- 32 Watering 10 14 4 - -- -- -- 28 Barn building 14 16 16 16 14 -- -- 76 Grass-cutting 4 4 - - -- -- -- 8 Firewood collection 2 6 6 6 6 -- - - - 26 Planting out - 16 44 44 16 -- -- -- -- 120 Weeding - -- 4 14 14 -- -- - -- 36 Top/Sucker - -- 6 10 2 -- -- 18 Picking -- 17 37 37 17 -- 108 Curing - - -- 9 20 20 20 9 78 Grading/baling --_ -- -- 28 42 56 8 134 Total tobacco 50 68 74 80 82 99 101 93 17 664 Food crops - - 7 26 26 13 10 12 6 100 Total 50 , =_ 68 81 t==s 106 =~ 108 112 111 =51__S_ ===-Mu= 105 5zWJ 23 ==== 764 =-= 5.04 It can be seen that the peak labor requirements occur between December and April, when over 100 man-days per month are required. Assuming a labor supply of 25 man-days per month from each adult-equivalent, the cropping pattern requires about 4.5 adult equivalents during February, the peak month. The average family size in the Project area is about 6 persons, equivalent to a maximum of 3 adult-equivalents. The hiring of labor is discouraged by Government and TANU, and it therefore seems clear that, at best, a farm family can cultivate only about 0.5-0.6 ha of flue-cured tobacco, rather than the 0.8 ha expected at appraisal. 5.05 Area planted to maize. It was envisaged at appraisal that only subsistence food crops would be planted by settlers in Project complexes. In fact, a substantial quantity of maize has been produced as a cash crop. Data on grain production is less reliable than that for tobacco, since much of the maize is sold through unofficial marketing channels, but the area planted to maize appears to have been as follows: 1971/72 72/73 73/74 74/75 75/76 76/77 77/78 Maize area Cha) 370 1,132 1,913 6,534 9,836 11,199 11,774 Ratio-maize:tobacco 3.3 3.8 2.8 4.5 5.2 4.7 4.0 During appraisal, it was assumed that the ratio of tobacco to maize would be 1:1, with maize planted on a plot which had grown tobacco in the previous year, to take advantage of the residual effects of the tobacco fertilizer. In reality, the area planted to maize has been, throughout the Project period to date, been much higher, and the maize/tobacco ratio reached a peak of 5.2 in 1975/76, just after the large influx of settlers which resulted from villagization.  - 44 - 5.06 There are several reasons to explain why the settlers grow more maize than anticipated. Tobacco is a labor-intensive crop which is technically dmAnding to grow, whereas maize cultivation is well-known. Since the drought and grain shortage of 1973 and 1974, both Government and TANU have been exhorting increased food production. Since 1974, the relative price of maize and tobacco has tilted in favor of maize. In addition, although analysis indicates that the returns per man-day from maize and tobacco are comparable, tobacco producers are given a distorted picture of the relative returns to tobacco and maize, since the credit advanced for maize inputs is deducted from the proceeds of the tobacco sales, whereas maize is sold largely for cash through unofficial marketing channels. 1/ Production 5.07 The quantity and farm-gate value of the tobacco produced in Project complexes has been much smaller than envisaged during appraisal: Table 5.3 - Quantity and Values of Tobacco Produced in Project Complexes 71/72 72/73 73/74 74/75 75/76 76/77 Actual quantity (tons) 54 167 435 683 1,244 1,525 Appraisal estimate (tons) 400 1,910 4,000 6,273 8,500 9,910 Actual as % of appraisal estimate 14 9 11 11 15 15 Farm-gate value: Current prices (Tsh '000) 397 893 2,865 5,211 11,112 12,283 Constant 1970 prices (Tsh '000) 2/ 364 732 1,976 3,139 5,823 5,558 Appraisal estimate (constant 1970 prices) (Tsh '000) 2,024 9,665 20,240 31,741 43,010 50,144 Actual as % of appraisal estimate 18 8 10 10 14 11 5.08 However, production of maize has been on a scale not envisaged at appraisal. The best estimates of maize production in Project complexes are: 3/ Table 5.4 - Quantity and Values of Maize Produced in Prolect Complexes 71/72 72/73 73/74 74/75 75/76 76/77 Quantity produced (tons) 500 1,834 2,583 9,997 22,131 25,198 Farm-gate value of maize production: Current prices (Tsh '000) 130 642 1,292 7,498 17,705 22,678 Constant 1970 prices (Tsh '000) 119 526 891 4,517 9,270 10,262 1/ It is interesting to note that the same problem has arisen in the Family Farming Project (Ln. 882-ZA) in Zambia. 2/ Here, and elsewhere in this report unless otherwise stated, the implicit GDP deflator has been used in the conversion of current financial values to constant terms. . It should be noted that these estimates of maize production are much less reliable than those for tobacco.  - 45 - It can be seen that, in 1975/76 and 1976/77, the value of maize production in Project complexes exceeded that of tobacco. However, the combined farm- gate value of maize and tobacco production in 1976/77 was only about 30 percent of the appraisal estimates of the incremental farm-gate value of Project tobacco production. Yields 5.09 The average tobacco yields achieved over the Project period are tabulated below, and compared with appraisal estimates: Table 5.5 - Actual and Estimated Tobacco Yields 71/72 72/73 73/74 74/75 75/76 76/77 Actual yields (kg/ha) 478 560 494 467 780 731 Appraisal estimate (kg/ha) 556 692 741 780 796 826 Actual as X of appraisal 86 81 67 60 98 88 It can be seen that appraisal estimates were over-optimistic with regard to yield projections. This can in part be attributed to a shortage of curing barn capacity. An estimate made by TAT in 1976 indicated that the actual number of curing barns available in the Project complexes was only about 65 percent of the minimum number required. In addition, the general standard of construction of curing barns is low. As a result of these deficiencies, considerable losses are incurred after harvest. Export earnings 5.10 The export prices obtained by TAT for Tanzanian tobacco exports are tabulated below, in current and real terms, and the real price obtained and the real value of incremental exports are compared with appraisal estimates: Table 5.6 - Actual and Estimated Tobacco Export Prices and Earnings 71/72 72/73 73/74 74/75 75/76 76/77 Export price (Tsh/kg, wet leaf) Actual-current prices 9.50 11.31 13.85 14.04 14.96 16.70 -constant 1970 prices 8.72 9.27 9.55 8.46 7.83 7.56 Appraisal-constant 1970 prices 7.99 7.99 7.99 7.99 7.99 7.99 Actual as % of appraisal 109 116 120 106 98 95 Export earnings (Tsh millions) Actual-current prices 0.5 1.9 6.0 9.6 18.6 25.5 -constant 1970 prices 0.5 1.6 4.1 5.8 9.7 11.5 Appraisal-constant 1970 prices 3.2 15.3 31.2 50.1 67.9 121.8 Actual as % of appraisal 16 10 13 12 14 9 The appraisal estimate of average export value of tobacco produced by the Project was good. However, the incremental export earnings from the Project were only 9-16% of those projected during appraisal, reflecting the much lower production actually achieved.  - 46 - Prices 5.11 The average farm-gate prices for tobacco produced under the Project are tabulated below in both current price and constant price terms, and the constant price figures are compared with the values given in the appraisal report: Table 5.7 - Actual and Estimated Tobacco Farm-gate Prices 71/72 72/73 73/74 74/75 75/76 76/77 Farm-gate Drices (Tsh/kg) Actual-current prices 7.35 5.35 6.59 7.63 8.93 8.05 -constant 1970 prices 6.74 4.39 4.54 4.60 4.68 3.64 Appraisal-constant 1970 prices 5.06 5.06 5.06 5.06 5.06 5.06 Actual as % of appraisal 133 87 90 91 92 72 It can be seen that the appraisal report figures were somewhat optimistic. 5.12 The divergence between the export prices (which approximated the appraisal estimates) and the farm-gate prices (which fell short of appraisal estimates) is accounted for, at least in part, by the introduction of a tobacco sales tax in 1973. This tax, which is levied on all TAT sales of processed tobacco, both domestic and foreign, was at a rate of 7.5 percent in 1973 and 1974, 10 percent in 1975 and 12.5 percent in 1976 and succeeding years. The effective rates of taxation on farm-gate prices were about twice these rates. 1/ Farm income 5.13 It is difficult to determine accurately the net incomes of the farmers settled under the Project, since no data is available relating to costs of production of tobacco grown on Project complexes. In 1976/77, gross income per family from tobacco production amounted to about Tsh 1,800. Cash costs of production per family in the same year are estimated at about Tsh 900, so that net farm income from tobacco production amounts to about Tsh 900. To this should be added the net returns from about 2 hectares of maize, estimated at Tsh 600 per hectare, giving a total farm income of about Tsh 2,100 CMS$ 256), in 1976/77 prices. In constant 1970 prices, this family income would amount to about Tsh 950 (US$ 133) which is only about 43 percent of the appraisal estimate of Tsh 2,200 (US$ 308). Farming patterns 5.14 At appraisal, it was anticipated that most Project villages would choose to farm in 'block farms,' i.e., to cultivate tobacco in a single large block, but with each farmer retaining responsibility for cultivation of his own plot, and for curing his own tobacco. The blocks would be cultivated 1/ Since the farm-gate tobacco price is approximately 50 percent of TAT's selling price.  - 47 - in a five-year rotation, tobacco - maize - fallow - fallow - fallow. In fact, there were considerable departures from this pattern. In the early years of the Project, farmers were forced to cultivate collectively, and curing was also done collectively, in large central barns. As it became clear that the insistence on collective farming was having a severe dis- incentive effect on recruitment, farmers were allowed to move to block farming. In some cases however, settlers felt that even this system had major disadvantages. If curing barns were located centrally near to farmer's homestead, many farmers had long distances to transport tobacco leaves and fuel-wood. If, on the other hand, curing barns were built near to fields, farmers were forced to build new barns each year as the tobacco area was rotated, and, as a consequence, built only low-grade, temporary barns. In addition, the location of curing barns close to fields meant long absences from the homestead during the tobacco curing season, when barns need day and night attention. In response to these problems, several villages, particularly in Mbeya Region, have moved to what is in effect an individual farming system. Each farm family has allocated to it a block of arable land large enough to accomodate a five-year crop rotation, and is also allocated an adjacent block of uncleared bush. The farmer builds permanent curing barns there, and also a temporary house for use during curing. The family retains a permanent home in the village's homestead area. By this means, transportation of fuel and green tobacco leaves is minimized. However, the family does lose some of the advantage of villagization during the curing season, and delivery of inputs and extension services to the farm sites is made more difficult. Usage of fuelwood 5.15 Each complex was sited and demarcated so as to allow 12 hectares of mature woodland for each prospective settler, which would allow sufficient wood fuel for tobacco curing during the first fifteen years of tobacco culti- vation at the projected rates. However, as a result of the lower than envisaged rate of settler recruitment, the lower than expected proportion of settlers cultivating tobacco and the smaller than projected area of tobacco being culti- vated by each family, the wood fuel supply in each complex will be sufficient for at least thirty years of tobacco production. 1/ 1/ The Tabora Rural Development Project includes a pilot program to encourage the establishment of fuel-wood plantations in tobacco growing villages.  - 48 - VI. ECON'tOMIC ANALYSIS Appraisal Estimate 6.01 The primary benefits of the Project were envisaged, at appraisal, to be the increased production of flue-cured tobacco at Project complexes. In the economic analysis, it was assumed that there was a negligible opportunity cost of land; that the economic life for each settlement and its tobacco farms was 15 years; and that the opportunity cost for farm labor was roughly equal to the price being paid in the Project area for casual agricultural labor (or about 50 percent of the official minimum rural wage level). All Project costs were included in the calculation, except for the costs of research. 6.02 On these assumptions, the economic rate of return on Project investments was estimated to be about 30 percent. This figure was parti- cularly sensitive to the valuation of labor costs. With family labor valued at zero, the rate of return rose to 55 percent; valuing family labor at the official rural minimum wage rate reduced the rate of return to 2 percent. Present Estimate 6.03 The economic rate of return has been estimated using the following assumptions: (a) there will be no further resettlement of families in the Project complexes. However, the total number of families within the complexes will grow at a rate of 2 percent per annum, as a result of formation of new family units by marriage; (b) the percentage of families growing tobacco will rise from its current level of 57 percent to a figure of 65 percent by 1983/84, and will remain at this level thereafter; (c) the area of tobacco grown by each family will rise from its present level of 0.43 ha., to a level of 0.5 ha. by 1984/85, and will remain at this level thereafter; (d) the area of maize cultivated by each family will remain at its present level; (e) yields of tobacco and maize will remain at current levels; (f) the level of supervision in Project complexes will remain at its present level through 1982/83, after which the intensity of supervision within Project complexes will be reduced to the same level as in non-Project tobacco villages;  - 49 - (g) in view of the fact that firewood stocks within the complexes are being depleted at a slower rate than was anticipated during appraisal (para 5.15), the economic rate of return is calculated over a twenty-year period, rather than over 15 years, as at appraisal. 6.04 In calculating the economic rate of return, incremental tobacco production has been valued at f.o.b. Dar-es-Salaam prices (actual until 1977/78, estimated thereafter in accordance with the Bank projections of April 1978), less processing and marketing costs. For maize, the situation is somewhat more complicated. For the years up to and including 1976/77, maize has been valued on an import parity basis, since Tanzania needed to import,during this period. For the years 1977/78 and after, the maize produced has been valued on an export parity basis, since Tanzania appears to have achieved rough supply-demand balance. Incremental family labor has been costed at 50 percent of minimum wage rates. All Project costs have been included in the economic analysis with the exception of the costs of the research component. Allowance has been made for the costs of vehicle replacement, and for maintenance of water supplies, ware- houses and the infrastructure in the complexes. Approximately 90 percent of all Project costs have therefore been included. In the calculation of all economic costs and benefits, foreign exchange has been valued at 50 percent more than its official rate, in order to reflect the fact that the economic value of foreign exchange in the Tanzanian economy diverges from the official rate, primarily as a result of quantitative restrictions. 1/ Details of Project costs and benefits, all in constant 1977 prices, are shown in Annex I. 6.05 On the basis of the assumptions outlined above, the economic rate of return (ERR) has been calculated at about 14 percent This figure represents an under-estimate of Project benefits, since no allowance is made for the unquantifiable consumer benefits which derive from the water supply systems financed under the Project (which are considerably more elaborate and more convenient to the users than the simple wells and dams which were envisaged at appraisal.) 6.06 It is apparent that the Project has an attractive rate of return, and has thus been beneficial to the Tanzanian economy, despite its failure to reach appraisal targets. It has resulted in increased foreign exchange earnings through tobacco exports, and in foreign exchange saving through the import-substituting production of maize (which was particularly valuable during the drought years of.1973 and 1974). The actual rate of return is, however, substantially less than that estimated at appraisal as a result of the lower production of tobacco, and the higher Project costs, particularly for the water supplies. 1/ It should be noted that, at the time of appraisal, the shadow price of foreign exchange was estimated to be equal to the official rate.  - 50 - VII. SPECIAL ISSUES Replicability 7.01 The Project has, in many ways, provided a viable model for further development of the tobacco sub-sector in Tanzania. There are still in Western Tanzania large areas of underutilized land, with similar characteristics to the land settled under the Project. On these areas, flue-cured virginia tobacco should prove to be an attractive cash crop to smallholders, and its production should be beneficial to the Tanzanian economy. At the present time, under the Tabora Rural Development Project. (supported by IDA Credit 703-TA) studies are being made of land-use potential in the Tabora region. One outcome of these studies will be the identification of areas of land in Tabora and Urambo Districts where settlement of smallholder tobacco producers could be envisaged, as a means to relieving population pressures in the overcrowded districts of Nzega and Igunga. 7.02 One obstacle to possible replication of the Project approach is the costliness of the Project. While these costs (about US$ 1200 per settled family) are relatively low by comparison with settlement projects in other countries, I/ they nevertheless, given the Tanzanian Government's resources, present a severe constraint to the multiplication of schemes of this type. In particular, the provision of water supplies under this Project (with an average capital cost of one US$ 250 per family) has been expensive. In part, this was a result of siting of villages without adequate regard to water availability, and the situation is being improved by the preparation (also under the Tabora Rural Development Project) of a water master plan, which will map the water resources of the Region and so enable the siting of future complexes in areas where water can be supplied more cheaply. Nevertheless, if the approach of this Project is to be replicated, it would appear essential to develop ways of mobilizing resources from the settlers to meet, for example, at least some portion of the capital and recurrent costs of water supply. At present, the only element of cost recovery under the Project is indirect, through the levying of a sales tax on TAT's tobacco sales (para. 5.12). Payments by Project parti- cipants through this mechanism have to date been small relative to Project costs (amounting only to Tsh 10 million by the end of 1978) and are anyway levied on all tobacco producers, not just Project participants. Cosmunal Farming 7.03 Experience during Project implementation cast considerable light on the preference of smallholder tobacco farmers in Tanzania for individual field production and curing over communal farming. Neither the collective farms established early in the Project nor the attempts made after their failure to introduce collective curing of individually-grown tobacco, were successful. In fact, the insistence of regional authorities in Xbeya on collective production gave a severe setback to the Project in this region (para. 3.25). In large part the reluctance of farmers to adopt communal practices in tobacco cultivation stems from the fact that flue-cured virginia tobacco is a crop in which careful attention by growers to cultivation, 1/ Settlers themselves were responsible for land clearing, house construction and curing barn construction.  - 51 - harvesting and curing results in high quality tobacco and in turn, in high returns. Largely as a result of experience in Project complexes, TAT is no longer encouraging the adoption of communal cultivation or curing. Changing Patterns of Smallholder Production 7.04 Experience under the Project demonstrated, once again, the ability of smallholder farmers to respond rapidly to changing market conditions. In this case, the maize tobacco price ratio tilted decisively in favor of maize. For example, the ratio between the farm gate prices of tobacco and maize in 1972/73 was 15:1. By 1974/75 this ratio had fallen to 10:1 and by 1976/77 to 9:1. As a result, maize production from Project complexes developed to the point at which, by 1974/75, tfie value of maize production exceeded that of tobacco production. Changing relative prices (which were not foreseen at appraisal) must be responsible, at least in part, for the slower-than-envisaged growth of tobacco production, but their effect was lessened by three factors. Firstly, tobacco remained a competi- tive crop, in terms of returns per man-day of labor. Secondly, as can be seen from Table 5.3, tobacco and maize have labor peaks that are complemen- tary rather than competitive, and tobacco provides work during slack periods in maize cultivation so that the inclusion of tobacco in the farming pattern increases total farm income. Thirdly, the Project design allowed for the distribution of maize inputs as well as tobacco inputs, and for using the tobacco extension agents to give advice on maize and other crops as well as tobacco.  - 52 - VIII. SUCCESSOR PROJECTS 8.01 To date, there have been no further projects to directly increase the production of tobacco by smallholders. However, there have been two further IDA projects in the tobacco sector: Tobacco Processing Project, Cr. 658-TA 8.02 In view of the rapid expansion of smallholder tobacco production over the previous decade (as a result of which Tanzania's existing tobacco processing capacity was being used virtually to capacity), IDA approved, in August 1976, a Tobacco Processing Project. This project -aimed to double the existing flue-cured tobacco processing capacity. In addition, the project provided for technical assistance and training to improve processing plant productivity and quality control; for improved storage of tobacco at the processing factory site and at the port of export (Dar-es-Salaam). Project implementation is proceeding satisfactorily. It is particularly worth noting that steps were taken under this Project to improve TAT's ability to supervise civil works construction through the employment of a Clerk of Works, and that TAT's accounting and auditing performance is improving. In addition, the Project is providing for a review of TAT's financial and management accounting systems by internationally-recruited consultants, leading to the introduction of improved systems. Tobacco Handling Project, Cr. 802-TA 8.03 The experience of the Flue-cured Tobacco Project and in non- Project villages has shown that Tanzanian smallholders are able to produce tobacco of good quality. There is, however, a marked deterioration in the quality of smallholder tobacco from the time it leaves the curing barn until it is processed. It is estimated that perhaps 25 percent of the value of smallholder production is lost in this way. These losses stem from lack of adequate grading, storage and marketing facilities, at all points of the marketing chain from curing barn to processing factory. The Tobacco Handling Project, which was approved by the Board in May, 1978, aims, over a four-year period, to reduce these losses. Measures to achieve this include the supply of polythene bulking bags to farmers; the construction, in village producing substantial quantities of tobacco, of village grading/baling centers; the construction by TAT of additional permanent marketing centers; and the cons- truction of storage warehouses at strategic points. In addition, the project provides for ancillary investments to improve existing TAT facilities and services, including the provision of transport, transport maintenance facili- ties and technical assistance, and for further improvement of TAT's accounting performance by the funding of five internationally-recruited regional accoun- tants and a financial systems development accountant, also internationally- recruited. In order to improve TAT's ability to carry out-the construction program under the Project, it was made a condition of Credit effectiveness that TAT appoint to its staff a qualified and experienced Building Engineer. (This was a direct result of the shortcomings in construction under this Project).  - 53 - 8.04 It should also be noted that two components under the Tabora Rural Development Project (supported by IDA Credit 703-TA signed in May 1977) are of direct relevance to the tobacco sub-sector: Ca) a pilot re-afforestation program in Tabora and Urambo districts, which aims to establish 3,750 ha of fuel-wood plantation in 15 tobacco-growing villages over a five-year period; (b) provision of research staff and additional research equipment to Tumbi Research Station, which although it is now a multi- crop research station, remains the primary tobacco research station in Tanzania.  - 54 - TX. BANK PERFORMANCE Prevaration and Appraisal 9.01 The Bank played a major role in Project preparation by assisting the Government with the identification of the Project, and in reviewing the preparation reports at various stages. During this stage, the Bank was, quite correctly, urging the Government to be more conservative in its targets for expansion of smallholder tobacco production, in view of staff shortages and lack of organizational capacity. With the benefit of hindsight, it now appears that it would have been beneficial if the detailed siting and surveying of tobacco complexes had been carried out during preparation, rather than as a part of project implementation. In particular, if the water resources of the potential sites had been surveyed thoroughly, it would have.come to light that some of the chosen sites had no adequate and cheap water sou±rce, and alternative sites could have been chosen. As it was, by the time this problem had been discovered, the complexes had already been substantially developed. 9.02 The changes in Project design suggested by the appraisal mission were sensible. In particular, the mission's proposal to establish a Tobacco Authority, to oversee the development of the tobacco industry, was sound. Although not accepted by the Government at the time, a Tobacco Authority was in fact established about two years after appraisal. While the Tobacco Authority of Tanzania suffered (and still suffers) from staffing weaknesses, particularly in the area of financial control and accounting, it has developed into one of the stronger parastatals in Tanzania, and its establishment considerably improved Project organization and coordination, replacing as it did a rather complex system of coordinating committees which appear to have exercised no influence on Project development. 9.03 As pointed out previously, the appraisal mission considerably over estimated the area of tobacco which could cultivated by the average family (para. 5.03). Although several supervision missions pointed out that the on-farm work load appeared to be the reason for lagging tobacco production, it was never fully realized during supervision that the full development target of 0.8 ha per family adopted at appraisal and retained by the review mission was unrealistic. 9.04 A further weakaess of the Project as appraised, which is apparent in the light of experience gained both under this Project and in others in the field of smallholder agriculture, is the lack of a systematic monitoring and evaluation element. Monitoring and evaluation appear particularly necessary in this Project, in view of the relative complexity and riskiness of the Project (which were highlighted during appraisal), with integrated settlement activities taking place in fifteen widely scattered locations and the likely requirement for adjustments in Project design, in the light of experience gained during implementation. It is desirable, particularly in the case of settlement projects, that the evaluation exercise also encompass non-agricultural aspects such as nutrition and non-farm employment. However, it must be noted that this Project was a very early rural development project, and was appraised at a time when the importance of monitoring and evaluation had not been fully realized within the Bank.  - 55 - Supervision 9.05 In all, a total of eighteen supervision missions were mounted by the Bank between August 1970 and November 1977, an average of 2.5 missions per year. On average, each mission had two staff, and was in Tanzania for about eight days. In all, a total of 46.5 man-weeks was spent in Tanzania by supervision missions, an average of 2.6 man-weeks per mission. This represents an above-average level of supervision input. A total of seventeen staff participated in the eighteen missions. Of these staff, one participated in five supervision missions (including the review mission); another (who had also been a member of the appraisal team) took part in four missions; three staff took part in three missions each, and a further four staff each participated in two supervision missions. In sptte of the relatively large number of Bank staff who were involved in supervision at one time or another, continuity of supervision was generally adequate. This was particularly true in the early years of the Project, up until the end of 1973. During this period, there were nine supervision missions; a member of the appraisal team participated in the first four missions, and another staff member then took part in the next five missions. 9.06 In general, the quality of supervision was good. Nevertheless, as a result of the Project's complexity and the ongoing changes in the rural sector, and despite the above-average input of supervision effort, some aspects of the Project (roads, water supplies and credit, in particular), received a lesser degree of coverage in supervision reports than seems warranted. In many instances, supervision missions were able to highlight the major issues and obstacles to Project implementation, to alert Government officials to these problems and to suggest appropriate corrective measures. An example particu- larly worth noting is the identification by an early supervision of the major problems that were being posed to the Project by the insistence of regional authorities on collective production of tobacco (para. 3.25). This lent weight to the views of pragmatic elements within the Government, who were attempting to pursue goals of increasing output and economic efficiency. Partly as a result, pressure was brought to bear by the central ministries on regional authorities, and this in turn led to a relaxation of pressure towards communal farming and a subsequent improvement in Project performance. 9.07 The review of Project implementation in Chapter III indicates that additional technical assistance might well have improved Project performance, particularly with respect to the roads and water supply components. This need for technical assistance became particularly important after decentralization, which resulted in responsibility for the implementation of the road and water supply components passing to understaffed and underequipped regional departments. It could be argued that this need for technical assistance could have been met through the medium of appropriately staffed Bank supervision missions. It is possible that, given the right caliber of staff, the benefits from increased  - 56 - supervision might have outweighed the additional costs. Towever, in this case, thaer was a real danger that too heavyljan emphasis on supervision, although improving short-run progress, might have been detrimental to the long-term institution building which was an important objective of the Project. A better solution in this case, (as noted in para. 3.20 with respect to the water supply component) would have been the redesign of the Project so as to provide for additional long-term technical assistance funded from the Credit. 9.08 One aspect of supervision worthy of coment was the arrangement made to have the Tanzanian Planning Officer Cwho had less experience that ideally required) supervised by an ADS staff member during the first two years of the Project Cpara. 3.01). This procedure worked well, and resulted in a significant improvement in the standard of planning, as well as providing excellent training for the Planning Officer.  - 57 - X. CONCLUSIONS 10.01 The status of the tobacco complexes established under the Project appears to be sufficiently stable and predictable to enable an estimation and evaluation of the economic impact of the Project to be made with some degree of confidence. On balance, the Project is perhaps best described as a qualified success. On the one hand, it failed (and failed badly) to meet the appraisal targets for increased tobacco production (para. 5.07); only 7000 families have to date adopted the cultivation of tobacco, as against the 15000 envisaged at appraisal (para. 3.27); and Project costs have been considerably higher than estimated (para. 3.45). On the other hand, the failure of the Project to meet appraisal targets for incremental production stemmed not from inadequacies in the technical packages, which in fact produced yields of around 90 percent of appraisal estimates (para. 5.09), but in part from over-optimistic appraisal forecasts (para. 5.03) in part from an influx into Project complexes of settlers with no real commitment to tobacco production (para. 3.26) and in part from a preference of many settlers (not foreseen at appraisal) to produce maize for market in response to sharply increased maize prices; and 12000 families (about 75000 persons) have been settled in planned villages with a basic infrastructure and with a securely- based production potential. Perhaps most importantly, in economic terms the Project has been of benefit to Tanzania and, as shown in Chapter VI, has an acceptable internal economic rate of return. 10.02 It is more difficult to form a definitive judgement of the success of the Project in broader social terms, largely as a result of the lack of an evaluation component within the Project. Broadly, the average income of a tobacco growing family appears to be about Tsh 2,100 (US$ 280) per annum (in 1977 prices), or about Tsh 350 (US$ 47) per caput. The absolute poverty level for rural Tanzania is put at around US$ 70 (in 1977 prices), so that incomes generated under the Project are still below the poverty line. From the viewpoint of equity, therefore, the Project has had a desirable impact. However, it is not possible to comment, as is desirable, on aspects such as the effects of the Project on the nutritional status and health of the participants. 10.03 While the costs per family of settlement under the Project have been modest by comparison with settlement schemes elsewhere, these costs have nevertheless been too high to allow the Project model to be replicated on a larger scale (para. 7.02). There are two conclusions which should be drawn from this Project prior to embarking on future settlement schemes in Tanzania. Firstly, greater attention needs to be paid during project design to the question of cost recovery from Project participants, whether by repayment in cash of some of the costs of settlement or by the mobilization of settler resources for construction of infrastructure to reduce project costs. Secondly, more careful attention must be paid during Project design to locating settlements in areas where the necessary infrastructure (particularly water supplies) can be obtained at low cost.  - 58 - 10.04 There is perhaps a lesson that the Bank can draw from this Project in terms of manpower allocations. Involvement in complex and relatively risky projects in the rural sector of countries in which radical and far-reaching changes are taking place demands a flexible approach and a high level of manpower commitment. In particular, the allocation of analytical resources to supervision 1/ needs to be increased, to allow the scope of project supervision to inclutde adequate provision for data collection, analysis and interpretation. In some cases, it may be that these additional resources can, in effect, be shifted from project preparation and appraisal to supervision. In the majority of cases, however, this will not be a viable option, and the Bank must accept that involvement in smallholder agriculture and rural development projects demands from the Bank a higher than normal level of manpower commitment. 1/ Or, in some cases, to issue-oriented economic and sector work, which can to some extent substitute for supervision activities of the type under discussion.  TANZANIA Vlud-Cured Tobacco ProJect. Credit 217-TA Calculatlon of Rlet eCo..omic of 6eturn 1/ Protect Costs li...ilts LapsIrsat. OprsIatlo. of Srora. a ad Comp exa value of Value of d ... Ftact.-Novl-n Watet r 'roccaa1a Infractruc- Crop FVrm Labor "slue Tobacco !YIElelu- 71 2/ T,. 1' Io x x paukoto 3/ StaffJatx 41 Supplies 5/ Vschlitioc 5/ t.r. 5/ jopuro 4/ 2,p.1c.r 7/ oats Cols 1roduccfon 8/ production 9/ Total Man.fo ----------------------------.----------------------------------- ---------------------- Tb '000 -------------------------------------------------------------------------------------------- I970/71 --- --- 1.992 --- --- --- --- --- .992 --- 19?1/72 3.6617 205 1.636 5.529 --- --- 2.164 384 861 14.454 641 1.U13 1,054 1972/7l 3,386 197 1.567 6.944 --- --- 2,001 1.067 2.396 17.558 3.782 3.75S 7.541 1973/74 2.016 1b4 1,105 10,088 11,225 9.429 1 946 2.268 4,970 43,291 6.295 11.203 17.49n 1974/75 5,187 101 1.620 16,139 15.175 12,248 1,668 6.614 12.627 71.379 20,072 15.369 35.441 1975/16 1,910 714 1.040 17.866 6,061 5,092 1,441 9,402 17,409 60.935 35.941 26.493 62.434 1976/17 1t;6 617 61 18.334 244 190 1.256 11.323 20,929 53,140 34,545 32.468 67.013 1977/ya 2,722 537 --- 16,674 2.715 2.261 1,168 13,289 24,149 6).535 20,008 44,472 64,4S1. 1917/19 2,175 --- 16.674 21,625 --- 960 13,97S 25,374 80,783 20,533 49.469 70U00.2 1979/10 2,175 --- __. 16.674 1,875 420 600 14,484 26,284 62,512 21.343 53.319 14,667 1980/83 2.175 --- --- 16.674 1,875 420 600 15,005 27.214 63,963 21,171 57.371 7B.54! 19di/82 2,175 --- --- 16.674 1,875 420 600 15.260 28,169 65.173 24.014 61.689 85,s70 19112/b3 2.175 --- --- 16,674 1,875 420 600 I6.089 29.149 22.873 66,982 66,206 89,07|i 1911)/84 2,175 --- --- 13,500 1,875 420 600 16,652 30,154 65.376 22,751 70.945 9),69' 39841/i 2.175 --- --- 11,250 1,875 420 600 17.055 30,874 64,249 21,646 74,879 98,52. 19in/66 2.175 *-- --- 8,438 1.875 420 600 17,296 31,304 62.108 23,560 77.906 10141o.. 1986/157 2,175 __ --- 8.438 1.875 420 600 17.539 31.739 62,782 23,490 81,056 104,54'. S1917/dd 2,175 --- __ 8,438 1,875 420 600 17.791 32,189 63,488 24,441 84,341 108,7a! 1916/019 2,375 --- --- 8.438 1.675 420 600 18.046 32.644 64,198 24,424 87,744 112.16o. 3989/90 2.175 --- --- 8,438 1.875 420 600 18,306 33,109 64,923 25.397 91,320 116,701 1- W/ co,,ctskm I977 pe Ic.. i.t.9r t coacs a,d I.nu flLa for th,. poriod 1970/1976 have been coDvorted to 1977 value., uasng Ltbo tmpileiL CDP' deflator. 21 Ianrei,a a.-d replccu,.t cots of extenslon Lramaport, akd purchase of hoevy road equljpant. 1/ oporsIl1u, of h.*nwy cqulp.t for road covetrukLooa nd for the conatructlon of Osme smIll dmis. 41 All lul3 1 .stt cuwte. 1,,clud.ine ucte,selon statting 4nd the costs of operation of extension transport. I 5/ Eo-,tru.L*. cO.ta SW mfiUnt ,Cu costs. 6/ I--p.L cosLs for tobacc. .,d *lc. 7/ tstIMAL.d at 83u -. clsy. p.r hoter. tur tob.cco (pare. 5.03) and 130 ma.ddys per hectare for malze (sourcI. Market Yc.lopmmelt 8. rUae. of KlImo, 1977). 6/ V.1-u. utt crr.,l pr-.kwctlo,. valued Lt import p.rity to 1976/77 and export parity prices thlereafter. 9/ V1-l- ut f-ar-.,al tob o r, _culocal hsndling, store and procesing costs. les Mcr.b 79. 1919  b)RD 13072 j U GAN D A g > Ji-1, t uo; _ _ _ _ _ _ _ _ _ < -t 1 roNaLsSf 'loN_pLD UCAANDA \ k October 1978 U RGUAN B DA > co=saon 5r 8 /< FLUE-CURED yx g / ) KENYA i>S? TOBA s ~s4^\ RWAN DA / via 0 rrrni R~non cE;iI . fl \ 2 A f 4 se < 4 R<. h j u; -S4 otdeAs ,TANZNIA E, A MLR lR r 5 ;> EAST PARK q X< \ \ AIRE Z5 /' - X~~ - ' ~~~~~ XN MAR NYA ct 4 n# u AR S-i is -> / TANZANIA - NtOgO ooa'. ~ 'faQ~~~~~~~~~~~AlMOiBASA \~~~~~~~NdOci N\JS, NNI _J 9^ t Gi.O 5 o FLUE-CURED m p TOBACCO e PROJECT 'N LOCATION OF PROJECT COMPLEXES zX < 0\ . i v t t W g < i;t fiRlsSAtAA | 8Ra M8 TANZAJNI5L~~~~N i KrOG IGAS ADALA I ~~rafn8OG' IA ~~~~~~~2" ~~~ARA D----Raiwy -- 5-- d-ysers + SchedUld -rice airports ____Reg-ono bo..odJr,es Lake o Z.ainane.a.oicLaraO totarnatisANral .-- -. bosnO 6 d.-Is a2NSMo Project coplete s /) 0 \ -~~~~~~~~F 4 ! 4 <AS N <ti_gL@eo/u~~~~~~~~~~S V MANGA W aii I \l NAS i) VU "COAST~~~~~~~TCOTI 1.LL.10o 'C A0 T2 n o01 ~~r ~ ola n 5 A.ILA~~~~~~~~~~ 20 40 ~~~~~~~~~~~~~~~~~~~ 8 nO 20 H IO ~ 0 Al R E PAlA,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i rak ueotag 0 OarOoecA, ~~ ~ ~ ~ ~ ~ ~ ~ ~ N tU rst,soka 5~~~ E c Y Ato20 ag,0