Tunisia - Agricultural sector survey (Vol. 1 of 2) : Volume 1

Report No. 3876-TUN Tunisia Agricultural Sector Survey (In Two Volumes) Volume I September 29, 1982 Europe, Middle East, North Africa Projects Department Agriculture II FOR OFFICIAL USE ONLY U Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of January 1, 1982) Currency Unit = Tunisian Dinar (D) D 0.40 = US$1 D I US$2.5 D 1,000 = US$2,500 US$1,000 = D 400 US$1,000,000 = D 400,000 WEIGHTS AND MEASURES Metric System British/US System 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 square kilometer (km2) 0.386 square mile (sq mil) 1 hectare (ha) = 2.47 acres 1 litre (1) = 0.2200 imperial gallons ( (I gal) 0.2642 US gallons (gal) 1 ton (t) = 1,000 kg/2,205 pounds (lb) 1 cubic meter (m3) = 35.315 cu ft REPUBLIC OF TUNISIA Fiscal Year January 1 - December 31  FOR OFFICIAL USE ONLY ABBREVIATIONS APHMAN = Small Farmer-Supervised Credit Project API Agence de Promotion Industrielle BNT = Banque Nationale de Tunisie (National Bank of Tunisia) CIMMYT Centre International pour l'Amelioration du MaYs et du Ble (International Center for Maize and Wheat Improvement) CNEA Centre National d'Etudes Agricoles CNEI = Centre National d'Etudes Industrielles CRDA = Commissariat Regional au Developpement Agricole (Regional Agricultural Development Commission) DPC = Direction des Ponts et Chaussees (Highways and Bridges Department) FAO = Food and Agricultural Organization FOSDA = Fonds Special de Developpement Agricole (Special Fund for Agricultural Development) GIAF = Groupement Interprofessionnel des Arbres Fruitiers GIL = Groupement Interprofessionnel des Legumes GID = Groupement Interprofessionnel des Dates INAT = Institut National Agronomique de Tunisie (National Agricultural Institute of Tunisia) INRAT = Institut National de la Recherche Agronomique de Tunisie (National Agricultural Research Institute of Tunisia) OTD = Office des Terres Domaniales (Office of State Lands) PPAR = Project Performance Audit Report SIDA = Swedish International Development Aid SONAM = Societe Nationale de Motoculture (National Company Providing Tractor and Harvesting Services) UCP = Cooperative de Production (Production Cooperative) UNDP = United Nations Development Program USAID = Agence Internationale de Developpement des US (United States Agency for International Development)   TUNISIA AGRICULTURAL SECTOR SURVEY GROWTH POTENTIAL AND ACTION PROGRAM Table of Contents Volume I: Main Text Page Selected Data on Agriculture (i) INTRODUCTION 1 I. SUMMARY 2 A. Government Objectives in Agriculture 2 B. Natural Constraints and Agricultural Performance 2 C. The Agricultural Investment Plan for 1982-86 4 D. Outlook 6 E. Major Constraints to Agricultural Development 8 F. Recommendations for Overcoming Major Constraints 12 Part A: ANALYSIS OF AGRICULTURAL PERFORMANCE AND CAUSES OF GROWTH 20 II. PLACE OF AGRICULTURE IN THE ECONOMY AND ITS PERFORMANCE 20 A. Place of Agriculture in the Economy 20 B. Agricultural Performance 21 C. Agricultural Income, Poverty, and Rural- Urban Migration 24 D. Performance Under the Fifth Plan 25 This Sector Survey was prepared jointly by IBRD staff and staff in Tunisia's Ministry of Agriculture. IBRD staff included Messrs. Cleaver (mission leader and Economist), Doolette (agriculturalist), Hall (livestock), Von Pischke (Credit), Hayer and Portieri (Consultants). The Tunisian team consisted of Messrs. Bedoui (team leader), Akrout, Hedri, Hichiri, and Sahnoun. Messrs. Merghoub (IBRD), Boujbel, Attalah, and Chagaal (Tunisia) provided guidance and assistance. Mr. J. P. Chausse provided assistance with the agricultural credit Chapter. This Sector Survey has been summarized for inclusion as a Chapter in the World Bank's Tunisia Sixth Development Plan Review Report.  III. LAND, WATER, AND HUMAN RESOURCES 26 A. Ecological Zones and Land Use 26 B. Land Ownership and Tenure 27 C. Human Resources 30 IV. INVESTMENT AND TECHNOLOGICAL CHANGE IN TUNISIAN AGRICULTURE 31 A. Historical Investment Allocation 31 B. Research, Extension and Farm Machinery Investment to Introduce the New Seed/ Chemical Input Technologies 34 C. Irrigation 38 D. Livestock Development 43 E. Soil Conservation and Forestry 45 F. Fruit Trees 47 G. Fishing 47 H. Rural Infrastructure 48 I. Agricultural Marketing and Processing 49 J. Agricultural Supply and Demand Projections, and Outlook for Tunisian Agriculture 49 Part B: DETAILED ANALYSIS OF SPECIFIC ISSUES 51 V. A PROGRAM FOR AGRICULTURAL PRICE REFORM 51 A. Objectives of Price and Marketing Policies 51 B. Issues of Price Policy 54 C. Recommendations 60 VI. MARKETING AND PROCESSING OF AGRICULTURAL COMMODITIES (Annex 2) 62 A. A Summary of the Issues 62 B. Cereals 64 C. Fruit and Vegetables 65 D. Olives 67 E. Wine 68 F. Sugar Beet 68 G. Meat 69 H. Milk 69 I. The Commodity Marketing and Processing Development Programs: The Institutional Framework 70  J. The Cereal Marketing and Processing Program 73 K. The Fruit and Vegetable Marketing and Processing Program 74 L. The Olive and Vegetable Oil Marketing and Processing Program 76 M. Wine Grape Marketing and Processing Program 77 N. The Sugar Marketing and Processing Program 77 0. Meat Marketing and Processing Program 77 P. Milk Marketing and Processing Program 78 Q. Issues 78 VII. DEVELOPMENT OF FARM INPUT SUPPLY 83 A. Farm Input Use 83 B. Fertilizer 83 C. High-Yielding Varieties 85 D. Farm Machinery 85 E. Fruit Tree Plants 87 F. Pesticides 87 G. Recommendations 87 VIII. REFORM OF THE AGRICULTURAL CREDIT SYSTEM 93 I. DESCRIPTION OF THE AGRICULTURAL CREDIT SYSTEM 93 A. Statistical Measures of Agricultural Credit Supply 93 B. Sources of Agricultural Credit in Tunisia 93 C. The Functions of the Central Bank of Tunisia 98 II. AGRICULTURAL CREDIT ISSUES 99 A. Introduction 99 B. The Role of Credit in an Unattractive Agricultural Investment Climate 99 C. The Cost of Farm Credit Provision 100 D. Distribution of, or Access to, Agricultural Credit 101 E. Externalities from Farm Credit Operations and Policies 102 F. The Great Variety of Credit Programs 102 G. The Institutional Form for Agricultural Credit Operations 102 H. Farm Size and Creditworthiness 102  III. RECOMMENDATIONS 103 A. Measures to Increase Loan Collections 103 B. Measures to Raise the Returns to Banks From Agricultural Lending 104 C. The Resulting Agricultural Credit System 104 D. Rural Resource Mobilization 105 E. Experiments and Innovations to Increase Access to Rural Financial Services 105 IX. AGRICULTURAL RESEARCH AND EXTENSION 106 A. Present Situation 106 B. Issues in Research and Extension in Tunisia 109 C. Technological Opportunities 111 D. National Plans 113 E. Major Investments 117 F. Implementing the Plans 118 G. Projects to be Financed 118 X. A STRATEGY FOR LIVESTOCK DEVELOPMENT 121 A. Description of the Fodder Production and Stock-raising Subsector 121 B. Problems Encountered by the Subsector 124 C. Recommendations 128 D. Comments on Projects Included in the Draft Plan 131 Sources of Information Statistical Tables Maps  Volume II: Annexes 1. Supply and Demand Projections 2.A. Project Brief for the Development of Marketing and Processing Activity 2.B. Price Reform 3. Development of Farm Input Supply: Program Brief and Terms of Reference for Preparation 4. Agricultural Credit: Analysis and Recommendations 5. Agricultural Research and Extension: Program Brief 6. Livestock Development Programs and Project Briefs 7. Soil Conservation and Forestry Program and Project Brief 8. The Technical Assistance Project and Terms of Reference of Project Preparation Team for Sixth Plan 9. Project Brief for National Irrigation Management, Operation and Maintenance Project 10. Project Brief for the Tunisia Northwest Rural Development Project, Phase II 11. Project Brief for the Southern Tunisia Range Management Project 12. Terms of Reference; Preparation (a) Research and Extension Program and (b) The Project for First Phase of Research, Extension, Farm Input Supply, Mechanization in Northern Tunisia   - (i) - TUNISIA AGRICULTURAL SECTOR SURVEY Selected Data on Agriculture Population Tunisia Total population (1980) (million) 6.6 Rural population (million) 3.1 Rural population as a percent of total (%) 47.0 Population growth rate per annum (1967-1975) (% p.a.) 2.5 Population below poverty threshold of US$200 per capita in 1980 (%) 14.0 Agriculture in the Economy Value added in agriculture in percent of GDP (1980) 16.0 Value added in irrigated areas in percent of value added in agriculture (1978) 20.0 Employment in agriculture in percent of total employment (1978) 35.0 Investment in agriculture in percent of total planned investment (Fifth Plan 1977- 1981 allocations) 13.0 Food imports in percent of total merchandise imports (1979) 12.0 Food exports in percent of total exports (1979) 15.0 Food exports as a percent of food exports (1975-1978) 75.0 Productivity Value added per worker in agriculture (US$ per worker in 1978) 1,145.0 Value added per worker in other sectors (US$ per worker in 1978) 3,060.0 Average Annual Crop Yields (1971/72 to 1978/79) Hard wheat (tons/ha) 0.7 Soft wheat (tons/ha) 1.0 Barley (tons/ha) 0.5  Land Tenure (1976) (Includes public and privately held land) Percent of farm families holding 0 to 10 ha (%) 64.2 Percent of farm land in holding 0 to 10 ha (%) 16.4 Percent of farm families holding 10 to 50 ha 31.2 Percent of farm land in holdings 10 to 50 ha 37.0 Percent of farm families holding 50 to 500 ha 4.2 Percent of farm land in holdings 50 to 500 ha 30.1 Percent of farm families holding more than 500 ha 0.4 Percent of farm land in holdings more than 500 ha 16.5  TUNISIA AGRICULTURAL SECTOR SURVEY INTRODUCTION (i) This sector survey is based upon: (a) an agricultural sector memorandum issued June 12, 1981, which identified major sector issues and provided preliminary recommendations for their resolution; (b) discussions in Tunisia on the issues and recommendations made in the sector memorandum, leading to preparation of detailed terms of reference for a sector survey; (c) a mission and subsequent study undertaken jointly with Government staff; (d) comments by both Government staff and a Bank panel reviewing a Yellow Cover draft, and comments by Government staff on a green cover draft. Research for the sector survey was undertaken during the period of preparation of Tunisia's Sixth Development Plan. A primary objective was to contribute to the preparation of the Plan. The Plan was issued in July 1982, after issuance of the Green Cover draft of the sector survey. The sector survey continues to provide the recommendations and findings of the joint Tunisian Government/ World Bank team which participated in its research. Some of the findings of this team are contained in the Sixth Development Plan. Similarities and differences between sector survey recommendations and the Plan are briefly summarized in the Summary Chapter (I), and throughout the text. (ii) The sector survey is action-oriented. It identifies a large number of long-term agricultural development programs, projects, and policy reforms, all of which require additional preparation. Substantial agreement was reached with the Ministry of Agriculture on the Programs and Projects to be prepared, and the type of policy reform needed. The sector survey contains (in Volume II) project briefs for the projects which may be appropriate for Bank financing. A larger number of Projects are identified than can be financed by the Bank in order to permit choice. Many of the Projects would be prepared under a Bank-financed technical assistance Project described in Annex 8. This Project has been appraised and expenditures would begin to be made in July 1982. (iii) The Plan of the sector survey is in Part A to analyze agricultural performance and the proposed investment program for the Sixth Development Plan. Part B analyzes specific issues as agreed upon with Government including prices, marketing, input supply, credit, research and extension, and livestock development.  I. SUMMARY A. Government Objectives in Agriculture 1.01. Objectives assigned by Government to the agricultural sector include the pursuit of food security to reduce dependence on food imports, increased rural incomes, greater food availability, employment generation, foreign exchange earnings and savings, and economic growth. These objectives are taken as a given in this survey, although the trade-off between them should be analyzed. For example, the pursuit of food self-sufficiency is not totally consistent with export promotion, nor with the maximization of agricultural incomes. Trade-offs could be quantified through modelling, which is beyond the scope of the survey. 1.02 All of these objectives are achieved by growth in agricultural production and by improved marketing and processing of agricultural products. Achievement of these objectives is constrained by natural resource endowment (arable land, population, irrigable area, climate, soil, topography, and human resources). Investment and technical change can overcome some of these constraints. Government policy influences the amount and kind of investment and technological change. Government either does this directly (public investment, input distribution, land-expanding investment, public services, land reform, community organization), or indirectly (tlhrough policy and programs involving prices, credit, extension, research, training, etc.). B. Natural Constraints and Agricultural Performance 1.03 Natural Constraints to Agricultural Development. Tunisia can be divided into three main ecological zones. The Northern 25% of Tunisia's land area is the most fertile, receiving considerable rainfall (400-1,000 mm). The Central 15% rezeives between 200 and 400 mm of rainfall and is used primarily for cereals, olive trees, and as pasture-land for grazing. The Southern 60% of Tunisia is a pre-desert zone where there is some grazing and some irrigated agriculture. Of a total land area equal to 16.4 million ha, land suitable for agriculture and grazing totals about 8.6 million ha. About 5 million ha are cultivated, mostly under cereals and fruit trees. Forage crops, pulses, vegetables and some industrial crops are also grown. Tunisia opened up 490,000 ha of land to cultivation between 1969/71 and 1978/80, mostly in semi-arid and hilly areas. Agricultural production did not increase much as a result, with increased cereal production partly offset by reduced livestock production due to a reduction in grazing land. 1.04 The important natural constraints to agricultural development in Tunisia are sparse and erratic rainfall over most of its area and the low land/man ratio (2 ha of cultivable land per rural person). Problems of soil erosion and desertification result from intense pressure on the land (over-grazing, abusive cultivation practices) related to high population density and a fragile environment. Tunisia's major agricultural asset has been the rapid educational and health improvement of its population leading to a more productive work force including that in agriculture. 1.05 Agricultural Performance. Tunisia's agricultural sector performed well in the 1970s compared to that of other middle-income countries, with the value of production growing at 4.4% p.a. in real terms. Average per capita income in agriculture has increased as a result, from US$173 in 1960/62 (measured in 1979 US dollars) to US$380 in 1979. Despite this growth, agriculture's share in Tunisia's GDP has been declining from 24% in 1960 to  -3- 16% in 1979. Similarly, agriculture's share in total employment has declined (from 56% in 1960 to 35% in 1979), as has its share of exports (51% in 1960 to 15% in 1979). The decline in the relative role of agriculture has been caused by the more rapid growth of other sectors, particularly petroleum, manufacturing and tourism. Tunisia's rapid GDP growth (7.5% p.a. in the 1970s) and population growth (2.1% p.a.) has caused demand for food to increase faster than supply, causing a rapid expansion in food imports (17% p.a. growth of imports in current prices during the 1970s). The combination of food production and food import increases has permitted an impressive increase in calorie intake per person per day, from 2,235 calories in 1966/68 to 2,698 calories in 1977/79. 1.06 There has been considerable variation in the growth performance of various commodities. Performance is determined largely by combinations of price and marketing policy, investment, export markets, and variations in weather. Vegetables, sugar-beet, fruit, and to some extent milk have developed most rapidly because of an expansion in irrigated area in which this production is concentrated. Expanded production of meat, fruit, and olives in the 1970s was stimulated by heavy investment in livestock and fruit trees. Production of cereals has grown more slowly due partly to poor weather. Production of grapes has declined as markets have disappeared and as production problems go unresolved. 1.07 Under the Fifth Development Plan (1977-1981), total investment in agriculture (private and public) amounted to D 584 million (current prices). This exceeded planned investment of D 500 million. The distribution of this investment between categories is shown in paragraph 1.10. Agricultural value added increased from D 342 million in 1976 to D 537 million in 1981 (in current prices). In constant 1972 prices the increase was at an annual rate of 2.9%. This was above the plan targest of 2.5% p.a. The investment to incremental output ratio of the period was about 3 (D 3 in investment per D 1 of incremental output generated) indicating relative efficiency. Production objectives and achievements are shown below. Production ('000 tons) Plan Actual Objective Actual 1976 1981 1981 Cereals 1,050 1,500 1,235 Vegetables 1,010 1,310 1,250 Pulses 81 144 73 Meat (liveweight) 162 226 112 Milk 247 364 265 Eggs (106 eggs) 376 671 777 Sugarbeet 83 310 62 Fish 49 88 66 Olives (for oil) 870 600 725 Citrus 163 200 220 Wine grapes 83 153 100 Source; Tunisia, Ministry of Agriculture: "Note de Synthese Relative au Veme Plan Agricole (1977/81), Sept. 1977; "La Production Agricole, 1977; and "Preparation du VIeme Plan de Developpement Economique et Social, 1982-1986, March 1982"  For most commodities objectives were too optimistic given the constraints on Tunisian Agriculture (discussed below). Objectives were therefore not met despite reasonably good increases in production. The reason that agricultural value added in constant prices grew faster than the FiEth Plan's projection despite shortfalls in achievement of commodity production objectives was that prices of agricultural products grew more rapidly during 1980 and 1981 than did both average price inflation in Tunisia and agricultural input costs. This caused an additional real increase in agriculturaL value added due to the relative price shift in favor of agriculture. 1.08 The fifth plan foresaw the creation of 8.8 million days of employment in agriculture and fisheries. Although data is poor, i.t appears that no employment was created. The impact of employment generating investment such as irrigation, livestock, and fruit trees was offset by employment-replacing investment in farm mechanization. The absence of employment creation in agriculture, the attraction of higher incomes outside of agriculture, and the attraction of a higher level of living in urban areas have caused a rapid rural-urban migration. Sixty-four percent of the population lived in rural areas in 1960. Thirty-eight percent lived in rural areas in 1980. The combination of growth of agricultural production, increased rural non-farm employment, and rural-urban migration has permitted a slow reduction in the percentage of the rural population living below the absolute poverty level to about 14%. 1.09 The balance of payments objective of food self-sufficiency, with exports to equal imports, was not met. Agricultural exports including processed food were valued at D 69 million in 1981, while agricultural imports were valued at D 186 million (D 2.7 in imports per D 1 in exports). In 1972 the ratio of food imports to exports was 2.2. There was thus a deterioration in the trade balance. In retrospect, the employment creation and food self-sufficiency goals were too ambitious. Tunisia's rapid per capita income growth (5.5% p.a. between 1970 and 1980) combined with rapid population growth (2.1% p.a.) and the shift in tastes to processed foods due to urbanization created a growth in demand for food which even a moderately good agricultural performance such as Tunisia's could not meet. Imports of food therefore grew rapidly. On balance, the agricultural sector performed reasonably well given the constraints of Tunisia's environment and given the institutional problems which handicap it. These problems are discussed in the following. C. The Agricultural Investment Plan for 1982-86 1.10 The draft Plan foresees an increase in the allocation of total investment to agriculture, from 13% under the last Plan to 19%. Within agriculture the investment allocation is projected as follows: % of Investment in Agriculture Actual Preliminary 1977-81 1982-86 Irrigation 43.6 39.4 Livestock 12.0 13.5 Forestry and Soil Conservation 7.5 6.5 Fruit Trees 5.0 7.4 Farm Machinery 17.5 9.8 Fishing 7.0 8.3 Greenhouses 3.3 2.2 Cereal Storage - 2.6 Research, Extension, Studies 2.4 2.6 Other 1.7 7.7 TOTAL 100.0 100.0 TOTAL AMOUNT (Million Dinars) 584.0 1,550.0  1.11 A list of the major projects which the above synthesis represents is found at the end of this chapter. In the irrigation subsector, most investment will go to completion of an irrigation canal from Tunisia's major river (the Medjerda) to its most productive fruit-growing region (Cap Bon), the completion of two dams (Joumine and Sidi Saad), the start-up of two dams (Sedjenane and Siliana), equipment of new irrigable areas covering 56,000 ha, rehabilitation of 45,000 ha of existing irrigated areas, and provision of potable water to 1,000 rural communities. For fruit trees, the major project consists of fruit tree-plantations covering about 105,000 ha in Central and Southern Tunisia, along with rehabilitation of 47,000 ha of existing fruit tree plantations. In the livestock subsector major investments include the introduction of 50,000 pure-bred cows, investment in forage production, milk collection centers and poultry. Cereal storage capacity totalling 100,000 tons will be installed. Farm machinery investments mostly in tractors, harvestors, sprayers, etc., would continue to be made. Fishery investments include primarily the acquisition of fishing boats, and construction of fishing ports. About 50% of total agricultural investment would be undertaken by Government, 16% by public enterprises and 34% by the private sector. About 60% of private sector investment would be financed by Government-supported agricultural credit. This means that only about 14% of agricultural investment would come directly from the private farm sector. 1.12 Quantitative analysis of the productivity of each of these investment categories can only be rudimentary because of the complementarity between them in generating benefits. For example, extension and research help irrigation investments to be productive. A second problem is that investments are each introduced through different mechanisms including regional projects, private farmers, and direct Government investments. The productivity of each investment category is difficult to distinguish from the efficiency of the institutions and individuals making the investments. However, the analysis which is possible suggests that the order of productivity of these investment categories in the past has been: (a) livestock investments; (b) research, extension, farm machinery, and modern input supply; (c) fruit trees; (d) irrigation and greenhouses; (e) fishing; (f) forestry and soil conservation. 1.13 The marginal shifts in the distribution of investment proposed in the draft Sixth Plan are for the most part reasonable according to this analysis. More emphasis on livestock, fruit trees, extension and research, and less on irrigation and greenhouses, are appropriate. Research, extension, and input supply investments are the instruments through which several viable new technologies can be introduced including: (a) new high-yield crop varieties, fruit trees, chemical inputs and certain kinds of agricultural machinery; (b) better animal-powered implements;  - 6 - (c) use of animal manure and cultivation of nitrogen-fixing legumes as partial substitutes for chemical fertilizer; (d) biological pest and weed control measures; (e) more efficient cultivation, planting, weeding, and harvest methods. The reduction in the emphasis by Government on farm machinery reflects in part its negative employment impact, which offsets its positive impact on production. Continued investment in forestry and soil conservation despite the poor results of the past is justified due to the serious soil erosion, deforestation, and desertification problems of Tunisia, and because a more workable strategy has been developed (para. 1.29). Fishery investments obtain too much emphasis given the relatively poor p-erformance in the past. Problems include a limited fishery resource in the Mediterranean, inadequate facilities, management problems of the public institutions responsible for fishery development, and poor recovery rates on credit provided to fishermen. Unless these problems can be resolved, a reduction in fisheries investment may be desirable. This would permit re-alLocation of investments to areas with proven productivity such as agricultural research, farm input supply, livestock, and irrigation rehabilitation. D. Outlook 1.14 The outlook for Tunisian agriculture is good, assuming that the projects proposed in the ambitious investment program are prepared properly and quickly, and that the critical policy reforms summarized in the following paragraphs are undertaken. Agricultural comumodity demand and supply projections which assume the same rate of investment, policy reform and demand change as in the past ten years show growth in the value of production at 4% p.a. Agricultural value added and income would increase at about 1% p.a. more slowly than the value of production (i.e., at 3% p.a.). This would result in per capita income growth at 1.5% p.a. The projections for the major commodities are as follows with imports filling the gap between projected consumption and productio . /1 Source: See Annex 1. Growth rates are computed as regression coefficients representing actual long-term growth since the mid-1960s. Projected production growth rates are extrapolations of these past trends: thety do not represent the growth of production between end points T1980 and 1986) which would not be meaningful since production is subject to annual variations.  7 - Projection of Sixth Plan Growth Rate Actual Sector Survey Objective Historical Projected 1980 1986 1986 (% p.a.) ----- '000 tons ----- Cereal Production 1,165.0 1,346.0 1,500.0 1.1 1.1 Imports 903.0 660.0 660.0 5.6 5.6 Consumption 2,068.0 2,006.0 2,160.0 5.0 5.0 Vegetable Production 843.0 1,225.0 1,604.0 4.5 4.5 Imports 25.0 21.0 16.0 9.8 5.4 - Exports 8.0 24.0 25.0 -5.1 15.0 Consumption 860.0 1,223.0 1,595.0 4.7 5.6 Fruit Production 701.0 939.0 625.0 7.4 5.3 Imports 7.0 8.0 n.a. 10.3 4.1 - Processed Exports 7.0 7.0 n.a. -2.2 -2.2 - Fresh Exports 46.0 66.0 n.a. 2.0 8.0 Consumption 665.0 874.0 n.a. 7.8 5.0 Milk and Other Production 252.0 297.0 410.0 3.3 3.3 Dairy Imports 344.0 373.0 470.0 13.6 4.5 Consumption 596.0 670.0 880.0 8.4 8.4 Meat Production 110.2 116.0 158.0 6.6 6.6 (Beef, Imports 6.7 5.0 14.0 9.1 3.0 Sheep, Consumption 116.9 121.0 172.0 6.6 6.6 Goat, Poultry) The projection of the sector survey shows that the high expected growth rate of agricultural production will cause a decline in the imports of most agricultural commodities, but not all. Imports of dairy products, sugar, vegetable oil and pulses are expected to increase in quantity. Food self-sufficiency is unlikely to be reached. The Sixth Plan projects the value of agricultural production to grow at 5% p.a. from 1981 to 1986 (using a different system for measuring growth based on two end years rather than on a regression coefficient). Government's targets are ambitious. If the recommendations made in this report are implemented quickly, if project preparation is more rapid than expected, and if climatic conditions are good, performance might match Government's objectives, but this is an optimistic scenario. Such success would reduce the gap between consumption and production. A major constraint will be Tunisia's agricultural project implementation capacity. That capacity is good, but a very large increase in the number of Projects implied by Government targets will be difficult to implement. 1.15 Employment projections were not made, but the historical record is likely to be duplicated in the future, with stagnation of employment in agriculture. Government's goal of creating employment in agriculture equivalent to 78,000 permanent jobs is optimistic. Employment-creating investment such as that in irrigation, forestry, soil conservation, and livestock development is likely to be offset by labor-saving mechanical innovations. This is a serious problem, since Government estimates that about 100,000 additional jobs will be sought in the rural sector by 1986. The  - 8 - non-satisfaction of this demand for work will result in migration of surplus labor, and their families, to urban areas. A reduction in the rate of rural-urban migration will have to be sought from investment in non-farm rural industry rather than in agriculture. The more rapid growth of agriculture implied by Government objectives would accelerate the increase in agricultural incomes, and do more to reduce poverty in rural areas and improve the agricultural trade balance. It would probably not have a significant direct impact on employment. However, more rapid agricultural growth would stimulate agricultural input supply and marketing industries, indirectly creating employment opportunities. 1.16 On the basis of the 4% p.a.growth rate for production projected in this study, food imports would amount to US$425 million, in 1986 (in 1981 prices), or 12% of projected Tunisian exports in 198612.. Government projects in the Sixth Plan a commercial imbalance in which agricultural imports exceed exports by D 112 million by 1986, compared to D 109 million in 1981 (in current prices). Government's projection is ambitious, but feasible at the high Government target growth rate of 5%. Of course, abnormally poor weather could compromise all of these projections. E. Major Constraints tc, Agricultural Development 1.17 Irrigation. Irrigation has contributed significantly to rapid growth of Tunisian agriculture. However, there are constraints to exploitation of existing irrigation systems to their fall potential. Firstly, water provided in the large-scale irrigation perimeters is under-utilized (at 77% of capacity according to the Sixth Plan). This reduces the benefit from irrigation. Causes are poor management of the public irrigation perimeters, the unwillingness of some farmers to use irrigation water fully because of land ownership disputes, absenteeism, difficulty in finding labor, and frequent problems with irrigation equipment and water availability. The budgets of the Irrigation "Offices" are not sufficient to permit proper operation and - maintenance. Also contributing to poor operation and maintenance is the diversion of the "Offices'" staff resources to other activities. These include the distribution of credit, farm inputs, crop marketing, research and extension. Some of the planned large-scale irrigation projects are not viable economically. Several viable projects have not yet been fully exploited such as investments needed to utilize groundwater. Finally, irrigation water charges are so low as to not cover operation and maintenance costs in public irrigation perimeters. This provides a subsidy to farmers in irrigated areas which is not justified since such farmers are well-off compared to farmers in non-irrigated areas. 1.18 Livestock. Constraints to li.vestock development include: (a) inadequate feed quality and quantitWy, (b) a frequent lack of water, (c) local breeds of livestock which, though hardy and able to survive under harsh conditions, are poor meat and milk producers, (d) frequent incidence of poor livestock shelters, poor sanitary conditions, inadequate livestock health facilities, (e) general absence of milk marketing outlets. To address these issues, Government has (a) increased feed availability by providing subsidized feed concentrate which is largely imported and by promoting forage production in irrigated and in high rainfall dry-.arming areas, (b) financed water points (wells, reservoirs, etc.), (c) distributed credit for livestock shelters, (d) provided animal health facilities and advice on sanitation through extension services, (e) established mi:Lk collection centers, and (f) based on /1 Projected in the Plan at US$3,410 million equivalent in constant 1981 prices.  - 9 - the above improvements, introduced higher-yielding livestock bred from cows imported from Europe and North America. This strategy has succeeded in increasing milk and meat yields per head of cattle, and has also stimulated an increase in the number of cattle. The package has worked best in irrigated or high rainfall areas where forage is available, on farms which are able to implement relatively modern livestock management techniques, and in areas where Government support services are concentrated. 1.19 Livestock performance has not been optimized, however, because of (a) an inadequate extension system and poorly developed extension messages with respect to livestock investment and maintenance, (b) official beef prices which do not provide an adequate incentive for production, (c) subsidies on manufactured animal feed which have encouraged its use and discouraged the use of natural pasture and cultivated forage which is available to more farmers, (d) greater Government emphasis on the introduction of high-yielding pure-bred cows than on cross-breeding which produces an animal more adapted to Tunisian conditions, (e) the high cost of much of the Government strategy including the specialized dairy units relying on imported cattle, mechanized installations, skilled personnel and subsidized feed, and (f) the lack of effort to improve sheep and goat production. 1.20 Problems of soil erosion, deforestation and desertification are causing a reduction in arable and grazing land, accelerating the sedimentation of reservoirs, and reducing forestry and livestock production. The major cause is over-grazing and abusive cultivation techniques in areas susceptible to soil erosion and desertification. Abusive cultivation techniques include cultivation of semi-arid areas and the plowing of hillsides from top to bottom rather than in contours. Both practices leave soil susceptible to water and wind erosion. Destruction of forests for use as fuelwood by the rural population is also a problem. Soil conservation and reforestation efforts have not been successful, relying too heavily on policing of local populations. An alternative which may prove more successful is to collaborate with these populations in reducing environmental destruction partly by offering other means of livelihood to them. 1.21 Tunisia's land tenure system constrains the development of agriculture. Land distribution is inequitable. Most farms are extremely small (68% have less than 10 ha), and fragmented (70% have 2 or more separated parcels). Much of the farm land is owned by absentee landlords and cooperatives both of which often exploit the land poorly. There are large tracts of collectively owned land which are poorly managed, overgrazed by livestock, and on which topsoil is eroding as a result. Few farmers have land titles. There is no legal protection for tenant farmers which discourages them from investing in the land. Many cooperative farms are inefficient. Reform has been discussed for many years, but little action has taken place. Most action has been confined to the public irrigation perimeters where land consolidation has begun. 1.22 Agricultural Marketing and Input Supply. A major source of agricultural growth in a rapidly growing middle-income country like Tunisia is increased demand for food. Consumers demand more high-value foodstuff and processed food. Growth in farm income occurs when production is expanded in response to increases and changes in the composition of demand for food. For this to happen, marketing enterprises must be efficient in communicating changes in demand to farmers and in procuring the required products from farmers. Similarly, input supply enterprises must act in an entrepreneurial fashion to seek out new inputs and investment goods which farmers can use to  - 10 - respond to changing demand and increased production opportunities. Prices must permit farmers, input suppliers, marketing enterprises, and processors to reap sufficient profit to encourage their further expansion and innovation. 1.23 In Tunisia, public marketing and input supplyr enterprises exist for cereals, pulses, olives, wine, meat, fertilizer, seed, and farm machinery. Several Government development authorities ("Offices") participate in the collection of milk, fruit and vegetables. All of these institutions require improvements in their efficiency. They are slow to respond to market signals and to introduce cost-cutting efficiencies or consumer-satisfying innovations. Farm inputs are usually not available in the quantities required at the time required. These problems are partly caused by the lack of an incentive to be efficient (losses are financed by Government), and partly by Government price policy which does not permit public marketing and input supply enterprises to generate financial surpluses. Without such surpluses, these enterprises must solicit Government budget transfers to finance investment. This is a slow process. Infrastructure and maintenance needs are often not met as a result, reducing the efficiency of operations. This situation results in part from the several conflicting objectives given to public marketing and input supply enterprises by Government. These include the application of Government price policy to subsidize consumption of basic foodstuff and of farm inputs, assure the supply of food to consumers and to foreign markets, assure the collection of crops from farmers, assure farm input supply, all on the minimum possible budget. These objectives conflict with one another, and their simultaneous pursuit has caused an expansion in cost of operations, staff, infrastructure, and a reduction in efficiency of most public enterprises. 1.24 Private marketing and input supply enterprises are not permitted to legally compete with public enterprises for certain commodities (the marketing of cereal and olive oil, and the distribution of high-yield cereal seed and fertilizer). There is a tolerated parallel private market for these commodities on which small scale trading operations occur. Official price margins between purchase and resale of fertilizers ancd cereal seed are so narrow as to prevent private distributors from entering this activity. Medium- and large-scale efficient enterprises trading these commodities have therefore not been developped. For most other commodities, private marketing and input supply enterprises are closely regulated, and receive no technical assistance, nor credit. The exceptions to these problems are the private sector enterprises which export fruit. These are highly developed profitable enterprises which are not submitted to significant Government control. Outside of the export sector, private marketing and input supply enterprises have not developed to fulfill the function described in para. 1.22. 1.25 Prices and Subsidies. Agricultural prices for most of the important products and farm input prices are fixed by Government: from the farm-gate to retail levels. Over time, the system of fixed prices has become significantly distorted. In many cases farm-gate prices have been fixed artificially low (compared to world prices), discouraging production of food despite input subsidies. This has occurred for cereals, some industrial crops, olives, and wine grapes. This situation has been exacerbated in the past by the modest overvaluation of the Tunisian dinar (10-20%). OvervaLuation causes prices of agricultural imports which compete with Tunisian production to be cheaper in dinars than would be the case with no overvaluation. Overvaluation also reduces the dinar income from agricultural exports. Agricultural production of import substitutes and export crops have been discouraged as a result. Farm input subsidies benefit only a minority of farmers and have generally  amounted to only a small percentage of farm input costs. The exceptions are irrigated crops (most fruit and vegetables) which are subsidized because input costs are subsidized, particularly irrigation water, while output prices are set by the market and are high (except for industrial crops). The results of the system are that income from most non-irrigated farming has been artificially low. The average size cereal farm earned about 20% of the average Tunisian family's expenditure in 1980. In a poor crop year the farmer will earn much less. Eighty percent of Tunisian farmers have farms smaller than the average size, and they therefore earn even less. This contributes to rural-urban migration. In addition, those farmers obtaining lower income as a result of low prices generate less of an investible surplus, and invest less. This reduces agricultural growth. Subsidies tend to be provided for the most modern inputs (pure-bred cows rather than cross-bred, feed concentrate rather than other types of livestock feed, irrigation water, fertilizer, pesticides, etc.). This causes some waste (particularly irrigation water whose price is far inferior to the cost of its supply) and excessive use of certain inputs by those farmers fortunate enough to obtain the subsidies. In the last two years Government has recognized some of these problems, and has raised some agricultural producer prices more rapidly than input costs and average price inflation. Terms of trade have thus been moving in favor of agriculture, reducing discrimination against it. 1.26 Credit. Government has decided to create a new agricultural credit bank. It is recommended that this institution, and other institutions providing agricultural credit, avoid the shortcomings of the existing system in which (a) loan recoveries are low (30 to 60% depending on the source of the credit), (b) there are several separate lending programs with different appraisal criteria, lending terms, and lending procedures, (c) a small minority of farmers receive credit (about 15%), (d) financial markets are not developed, (e) the cost of credit provision is high, and (f) credit is often inefficiently used due to lack of credit discipline and low interest rates (6% on medium- and long-term loans). Lack of credit discipline is caused primarily by inadequate legal remedies available to the existing bank providing agricultural credit ("Banque Nationale de Tunisie") in dealing with loan defaulters. Lending rates lower than price inflation make the acquisition of a loan profitable even if the borrower has no investment to be financed. Lack of credit discipline and low interest rates encourage the use of credit for non-productive purposes, including consumption, since there is no penalty for a sub-optimal use of funds. 1.27 Research and Extension. Government's agricultural extension and research services do not function well. The cause for this is that numerous projects and institutions have introduced autonomous or semi-autonomous research, extension (and credit) systems in Tunisia for individual crops or regions. Most agricultural projects provide these services. Services tend to disappear at the end of project periods. Agricultural research has introduced several important technologies into Tunisian agriculture. However, it has generally not been directed to providing solutions to practical farm problems, has had little contact with extension services, and has been undertaken by a large number of autonomous institutions which duplicate research and are therefore wasteful. Most deal with a single crop or farm input, ignoring the need for crop and livestock integration into an overall farm system. Research results are often not applied as a result. Some of the numerous extension systems have introduced profitable new farm technologies. However, most lack appropriate extension messages, provide contradictory advice to farmers, have no rigourous management systems, and have therefore had little impact. Some extension themes may be uneconomic (such as the expansion of sugar beet  - 12 - production). Extension agents tend not to be trained in communications. There is no single institution exercising real authority over extension in Tunisia. Finally, the budget providecl for research and extension has been inadequate. Few projects have contributed to building viable national institutions to provide these services. National institutions would, in principle, accumulate lessons learned from each project. F. Recommendations for Overcoming Major Constraints 1.28 Irrigation. The agricultural development of existing irrigation perimeters is of the highest priority. The most important actions to be taken are to introduce improved management systems for the public irrigation perimeters, improve maintenance programs, apply existing land reform legislation, increase water charges to more nearly cover operation and maintenance costs, and reduce the activities of the irrigation "Offices" which are not directly related to the supply and use of irrigation water as the private and cooperative sectors are developed to undertake this activity. The most important investments are in surface wells to exploit groundwater, maintenance equipment, rehabilitation of existing irrigation perimeters, and rural water supply. More stringent economic criteria should be used in evaluating irrigation investments in order to exclude those that are not viable. It is recommended that a national program of management reform and maintenance of irrigation perimeters be prepared. In addition, it is recommended that a national project to rehabilitate, create, and equip wells for irrigation be prepared. The Sixth Development Plan includes all of these recommendations except that the Irrigation "Offices" are not foreseen to phase out their non-irrigation activity during the Plan period, and there is need for more economic analysis of the new dams. 1.29 Livestock. A livestock development strategy is recommended which incorporates most of Government's present actions indicated in para. 1.18. However, more emphasis should be given to expanded livestock production through the provision of adequate price incentives (reform of price policy), investment in marketing (milk collection, meat distribution) and input supply facilities, better research and extension, establishment of animal health facilities which emphasize preventive health care and avoid heavy administrative expenses, increased investment in cross-bred cows and less in pure-bred cows, and management by Government institutions of pasture-land to propogate productive permanent pasture and to reduce overgrazing. These actions would be undertaken by the appropriate line agencies on a nationwide basis, and not by autonomous project authorities. Projects were identified for (a) meat storage, and (b) development of livestock production and silage technologies in the high rainfall areas 'of Northern Tunisia. Livestock components are included in many of the projects to be undertaken during the Plan period such as agricultural credit, research and extension, soil conservation, and regional development. The existing institutions responsible for livestock development require strengthening of their management systems and better coordination to avoid duplicative services. Contracts between livestock producers and the milk and meat industry are recommended in which technical assistance and credit is provided to producers, who contract to sell specified amounts of milk and meat to the contracting enterprises. The Sixth Plan moves in the direction of the recommendations above, although it puts more emphasis on introduction of pure-bred livestock than on cross-breeding compared to the recommendations above. In addition, projects which would implement these recommendations remain to be prepared.  - 13 - 1.30 Soil Conservation and Forestry. Government is preparing a program to invest in soil conservation and reforestation throughout Tunisia. A new strategy is recommended in which incentives are provided to affected populations to modify their grazing, land use and tree-cutting practices. The strategy should increase livestock and agricultural production using agricultural techniques which conserve the soil, reduce water run-off and reduce erosion. This can be done by introducing cropping patterns which assure permanent vegetative cover, better use of agricultural machinery (plowing in contours), better range management practices, etc. This would be combined with soil conservation works, reforestation, introduction of permanent pasture, etc. Such a strategy involves actions by the forestry service, extension service, credit bank, and institutions responsible for rural infrastructure. An anti-desertification/range management program was identified for Southern Tunisia. Soil conservation and reforestation programs for Northern and Central Tunisia are presently under preparation. These recommendations are reflected in the Sixth Plan, although the forestry service is likely to continue its traditional soil conservation and reforestation activities as well. 1.31 Rural Infrastructure Development (roads, health facilities, schools, water points) should be continued at the present pace. However, once constructed, more community involvement in management of these facilities would be desirable. Community organizations require promotion. It is recommended that this be done both by the Ministry of Agriculture and local Government. The Sixth Plan foresees an adequate expansion in rural infrastructure, and begins to decentralize decisions over infrastructure investment and maintenance to the Governorate and delegation (sub-division of a Governorate) levels. 1.32 Land Tenure. The Ministry of Agriculture has proposed measures to improve the land tenure situation, and has been taking some action such as land consolidation in the irrigation perimeters, distribution to farmers of land titles and certificates of possession (though slowly), and distribution of collective land either to private farmers or to grazing land managed by the State. These measures must be accelerated, a land consolidation program developed for non-irrigated areas, land reform legislation more seriously applied in the irrigation perimeters, and security of tenure increased for tenant farmers. Measures to increase the efficiency of production cooperatives including a new incentive structure for management and labor are required. Alternatively, the cooperative farms which are not viable should be broken up and sold to private farms. An action program is being prepared to implement many of these recommendations under the Sixth Plan. Implementation will be slow and difficult. 1.33 Marketing and Processing. A program for the development of agricultural commodity marketing and processing is proposed in this survey. The Program would include cereals, pulses, fruit, vegetables, olives, wine grapes, sugar, meat, and milk. Each program could be prepared and financed separately. The Planning Department of the Ministry of Agriculture, the Ministry of National Economy and the various existing institutions now operating in the marketing and processing sector would execute the feasibility studies and subsequently the programs. Objectives of the Program include promotion of investments by the private sector, investment in and increased efficiency of Government-owned marketing and processing enterprises, and development of cooperatives. Regional Project authorities would intervene only where private, cooperative and existing public enterprises are not interested. The major instruments to be used in achieving these objectives  - 14 - are (a) development of action programs of management reform for public enterprises including plan-contracts bletween Government and each enterprise specifying the rights and obligations of each, (b) investments in marketing and processing (a large number were identified), (c) reform of regulations affecting private marketing and processing enterprises including deregulation of many prices and of private marketing activity, (d) promotion of investment ideas, (e) providing technical assistance and credit for the private sector, (f) Government assistance in the creation of cooperatives, and (g) promotion of contracts between growers and processors where output is marketed in exchange for input supply, credit, etc. Other specific measures are foreseen for each commodity including deregulation of the urban fruit and vegetable markets, introduction of standardized product-grading systems, creation of price margins adequate to encourage private investment in cereal storage facilities, and promotion of private competition in olive oil, wine, and cereal marketing currently monopolized by public enterprises. The Program will be prepared during the Sixth Plan. Many of the investments identified have been included in the Sixth Plan, as have some of the institutional and policy reforms (particularly the deregulation of many prices, reduced regulation of private enterprise, cooperative development, and promotion of private investment). 1.34 Promotion of Investment in Marketing, Processing, and Input Supply. It is recommended that investment in farm input supply, marketing and processing be promoted by an Agriculture Promotion Agency to be established by the Planning Department of the Ministry of Agriculture. This Agency would be modelled on the Industrial Promotion Agency (API) serving industry. It would identify viable marketing and processing investments; identify promoters; help prepare feasibility studies; provide technical assistance to private and public enterprises in agricultural input supply, marketing, and processing; help arrange financing, draft legislation in these areas; help entrepreneurs understand Government regulations; and make recommendations with respect to price policy. Legislation which legally establishes this institution is now being reviewed in Tunisia. Expertise required to physically establish the institution must be found in the areas of investment promotion, agricultural marketing, agro-industry, and small enterprise assistance. The Sixth Plan foresees the creation of such an institution, and legal documents creating it have been submitted by the Tunisian administration to Parliament for review and passage. The institution (APIA: "Agence de Promotion des Investissements Agricoles") would not at first have all of the prerogatives set out above, but would slowly acquire them as it develops. 1.35 Farm Input Supply. It is recommended that medium-term national programs for chemical input supply, supply of cereal seed, and farm mechanization be prepared. Institutions responsible would be the "Office des Cer4ales," the National Fertilizer Importer and Wholesaler (STEC), the National Agricultural Research Institute (INRAT), the Department of Crop Production (DPV) which presently establishes annual input supply plans, the public enterprise which provides machinery services (SONAM), and the "Groupements" which have private and Government representation and promote production of fruit, vegetables and dates. The private sector should be permitted an increased role in input supply. This could be encouraged firstly by allowing sufficient profit margins to private input: distributors to induce them to re-enter the farm input supply business. Secondly, the Agricultural Promotion Agency (APIA) could identify possible investments in farm input supply, approach investors, and provide assistance in start-up. Credit would have to be provided. Public enterprises require management reform which would be included in the program. Autonomous project authorities such as the irrigation "Offices" would divest themselves of their input supply functions,  - 15 - as private and cooperative investors enter these areas. The concept is to build public management systems and to stimulate private investment in input supply. The national plan for farm mechanization would result in a program to reform the existing subsidy and tax structure affecting farm machinery, revise criteria used by credit institutions to evaluate applications for farm machinery credit, establish extension service messages to be communicated to farmers with respect to farm machinery, and prepare a project to improve the services of the public farm machinery enterprise (SONAM). The Sixth Plan foresees preparation of these programs, although the specific recommendations suggested above may or may not be included. More emphasis is likely to be put during Plan execution on improvements to public input supply facilities than to promoting private sector investment in this activity, except for farm mechanization where privately owned farm machinery operators are to be promoted. Private investors may also be induced to re-enter fertilizer distribution activity through an increase in the profit margin permitted by Government. In the longer term, APIA is likely to have a positive impact on the promotion of private input supply activity. 1.36 Price Policies. Producer prices should not be fixed for most crops except in contracts mutually agreed by marketing or processing enterprises and farmers (as is done for sugar beet and tobacco). Floor prices should be announced for cereals, as is now done for pulses, prior to planting. Announced prices should be maintained at world levels adjusted to take into account price distorsions negatively affecting agriculture. There are several ways of addressing the issue, one of which would be to set agricultural producer prices at world levels, plus an amount equal to the average tariff level on all Tunisian imports, which is a proxy for the degree of currency overvaluation. Tariffs should be established on food imports (cereal, meat, milk, sugar, vegetable oil) equal to the degree of currency overvaluation to protect Tunisian producers from artificially cheapened imports. If producer prices were free in such a situation, they would quickly approximate the world price plus the tariff. Exported products (olive oil, wine grapes, exported fruits and vegetables) should receive an export subsidy equal to the average tariff on Tunisian imports to offset the effect of overvaluation. This is relatively simple for olives and wine grapes since subsidies can be provided through Government marketing agencies. For other fruits and vegetables, subsidies might be provided through marketing cooperatives, which would also aid in establishing such cooperatives. Prices for fruits and vegetables sold on the local market should continue to be free. As tariff levels on manufactured goods fall, and Tunisia's average price level comes closer to international prices, export subsidies and import tariffs should be reduced. Another way of dealing with price distortions affecting agriculture would be to establish separate exchange rates for agricultural imports and exports. 1.37 Because producer prices would generally increase if the above recommendations are implemented, input subsidies could be progressively reduced. The impact of this price policy change would be to increase farm income except that dependent on subsidized commodities such as irrigated fruit and vegetables, poultry production, or industrial milk production dependent on the use of subsidized concentrate. For the latter, incomes would decline toward the levels represented by the value of production in world prices. The net effect will be greater equity within agriculture, and between agriculture and other sectors. Crops and livestock systems previously discriminated against will tend to occupy more of the land, and receive greater investment and input intensification. Generally, a greater investible surplus would be generated in agriculture, probably leading to greater growth. However, either Government subsidies to consumers would increase or retail food prices will  - 16 - have to increase to finance higher agricultural producer prices. These issues are discussed in the Sixth Plan, and policy changes are foreseen which closely follow the above recommendations during the Plan period. Reform will proceed slowly in order to minimize economic and social dislocation. 1.38 Credit. Recommendations would apply to any agricultural credit institution, including the "Banque Nationale de Tunisie" or the new agricultural credit bank to be established. Loan recovery should be increased by denying further credit to borrowers in arrears, imposing penalty charges on loan accounts in arrears, realizing security for loan default, and providing incentives to personnel to collect loan arrears. Interest rates should be high enough to provide banks with a financial incentive to lend (i.e., an adequate margin over costs), and to induce farmers to use credit for investments which are viable (interest rates which are negative in real terms induce borrowing for purposes of consumption). This suggests increasing lending rates from the present level of 6% to at least: 9%, depending on the interest rate structure in other sectors. Interest rates on agricultural credit should not be higher than those applying to other sectors. Funds from the various publicly supported credit schemes should be merged into one standardized credit system, with the same interest rate, the same subproject appraisal criteria, and decentralized approval procedures. Processing of credit applications must be accelerated. Greater numbers of farmers must be served by credit. This could be achieved through a loosening of the minimum farm size criteria for distributing credit, by increasing the number of credit appraisal staff, increasing credit outlets and reducing the paper work required to obtain credit. Innovative rural financiaL services should be attempted including contract-growing arrangements in which farmers contract with a marketing or processing enteprise to produce a commodity, and receive inputs, credit, and technical assistance. Equipment-Leasing should be introduced to compete with the sale of equipment on credit. Input distributors should be permitted, and encouraged, to provide credit to finance farm inputs. Until the agricultural credit system is reformed, credit can be distributed through supervised-credit operations, in which each farmer receiving credit is appraised and supervised. These issues are discussed in the Sixth Plan, but comprehensive actions to resolve them have not yet been agreed upon. However, the Sixth Plan proposes the creation of a new agricultural credit bank with the objective of resolving some of these issues. 1.39 Research and Extension. A national program ifor research and extension is recommended which would develop appropriate research themes and extension messages, organize research stations and extension centers, provide for staffing and management systems, and provide an investment and operating budget. The Project would borrow extension techniques from successful projects undertaken in other countries, particularly the training and visit system successfully established in India. The institutional issues would be overcome by consolidating authority for research and extension under one institution having a research department and an extension department. Research would be organized around "support" stations where applied research would be undertaken, and contact with extension agents maintained. Work centers would house extension agents who would be supported by more specialized subject matter specialists operating out of the "support" stations. Subject matter specialists would participate in support station research. The linkage between research and extension would be maintained by these subject matter specialists. This research and extension program would be prepared under the Sixth Plan, although the content: of it remains to be determined. The Sixth Plan contains numerous extension messages for various  - 1 7 - crops and livestock which can be included in the Program. However, given the time needed for preparation (2 years), implementation would begin only toward the end of the Plan period. Many of the extension messages will therefore be transmitted, often imperfectly, by existing extension systems. 1.40 Project Preparation. As suggested by the above, it was found that agricultural project preparation for the Sixth Plan has been inadequate. Less than 30% of the projects identified in the Plan (including those identified by the sector survey mission, most of which have been incorporated in the Plan) are prepared. The average preparation period from identification to execution of an agricultural project is two to three years. Therefore, many of the new projects included in the Plan will not begin until the end of the Plan period, unless measures are taken to accelerate preparation. The Government has requested that the Bank finance a technical assistance Project whose objectives are: (a) to rapidly prepare the critical policy reforms and projects identified in the agricultural sector survey for implementation under the Sixth and Seventh Plans, (b) strengthen Tunisian project identification and preparation capabilities through the provision of specialized staff and training, (c) develop several Tunisian institutions so that they are able to undertake feasibility and subsector studies of a higher quality (particularly by Tunisia's public institution responsible for agricultural studies and project preparation: CNEA), and to manage project preparation (Planning Department and other technical departments of the Ministry of Agriculture). The design of this Project was an output of the sector survey. It consists of the tasks shown in Annex 8. The Bank's lending program may finance up to one-half of the Projects prepared under the technical assistance Project. The following table lists the major projects and programs to be implemented during the Sixth Plan period. The first ten are to be prepared under the Bank financed technical assistance project. TUNISIA Major Agricultural Projects to be Implemented Under the Sixth Plan /a Projects Administration in Charge 1. National Research and Extension (a) Planning Department Program /b (b) Crop and Animal Production Departments (c) National Research Inst. (d) Dept. of Training, Extension and Research (e) Governorate Agricultural Services (CRDA) 2. National Plan for farm input (a) Cereals Office distribution (chemical inputs, (b) Crop Production Department plants, and seed) /c (c) SIAPE and STEC /a These Projects include both new and on-going projects. In some cases they combine several related Projects under one heading. Some include only investments, others include operation and maintenance. /b This Program includes numerous projects identified by the various agricultural commissions involving extension activities by the Irrigation Offices, Marketing and Input Supply Offices, project authorities, CRDA, Groupements, DPV, DPA, INRAT and others. /c This Program includes numerous input supply projects.  - 18 - Projects Administration in Charge 3. National Plan for farm mechanization (a) Rural Works Department (b) Crop Production Department 4. First tranche of research, extension (a) Planning Department input supply and mechanization (b) Crop and Animal Production programs in Northern Tunisia Departments 5. National Agricultural marketing (a) Planning Department and processing program including (b) Ministry of National Economy projects for (a) fruits, (b) (c) Offices (Cereals, Olives, Wine, vegetables, (c) cereals, (d) Irrigation, Livestock) dairy, (e) meat, fish, and eggs (d) Groupements (f) industrial crops, (g) olives (e) Public enterprises 6. Creation of an Agricultural Planning Department Promotion Agency (APIA) 7. Action program for land reform (a) Department of Land Tenure (b) Agency for land tenure affairs in irrigated areas (ARAPPI) 8. National project for improvement Department of Coordination of of operation and maintenance of Irrigation Offices, irrigation perimeters All Irrigation Offices 9. National program of well Department of Rural Works rehabilitation, creation All Irrigation Offices and equipment 10. Anti-desertification/range Department of Forestry and management project in South- Soil Conservation central and Southern Tunisia 11. Phases I and II of North-West Office du Nord Ouest Tunisia Rural Development and Office d'Elevage (including the Sedjenane Project) 12. National Soil Conservation and Department of Forestry Reforestation Program (including several projects: Siliana, Nebhana, and others as well as National reforestation and soil conservation program) 13. Beef fattening and livestock develop- Office d'Elevage ment Project in Northern Tunisia 14. National frozen meat distribution Societe Ellouhoum project 15. Creation of a new Agricultural Ministry of Plan and Finance, Credit Bank and continued BNT, new credit bank, offices distribution of agricultural credit under the various existing systems  - 19 - Projects Administration in Charge 16. National Rural Water Supply Project Department of Rural Works 17. Cooperative Development Project Department for Associations of Small and Medium Farms 18. Rural Development Project for the Office d'Elevage, Forestry region of Oued Fessi Tataouine Department 19. Bou Heurtma II Irrigation Project Irrigation Department (EGTH) 20. Ghardimaou Irrigation Project Irrigation Department (EGTH) 21. Sidi Salem Irrigation Project Irrigation Department (EGTH) 22. Southern Irrigation Project Irrigation Department (EGTH) 23. Equipment of the Medjez Testour Irrigation Project Irrigation Department (EGTH) 24. Cap Bon Irrigation Perimeter Irrigation Department (EGTH) 25. Rehabilitation de la Basse Vallee Irrigation Department (EGTH) 26. Project to Utilize Purified Water Irrigation Department (EGTH) for Irrigation 27. Drainage Projects (Pont du Fahs, Department of Rural Works Goubellet, Rehia, Tabarka, Zouarine, and others) 28. Irrigation Project: Raf-Raf Ras-Djebel Irrigation Department 29. Numerous smaller irrigation projects Irrigation Department (Nebhana, Oued Chiba, Lacs Collinaires, Oued Masri, Oued Meliane) 30. Tunisian/Canadian Project for the Office d'Elevage Development of Poultry Production 31. Central Tunisia Rural Development Office of Central Tunisia Project 32. Integrated rural development piojects Project authorities (a) IFAD Project in Northern Tunisia and the CRDA (b) APHMANE Project in Northern Tunisia (c) Rural Roads-Project in Northern Tunisia 33. Agricultural Schools (equipment, Direction for Training, expansion, creation) Research, and Extension 34. Fisheries (schools, extension, Direction for Fisheries training) 35. Livestock Services Program (health, Direction for Animal Production performance monitoring, contract production)  - 20 - Part A: ANALYSIS OF AGRICULTURAL PERFORMANCE AND CAUSES OF GROWTH II. PLACE OF AGRICULTURE IN THE ECONOMY AND ITS PERFORMANCE A. Place of Agriculture in the Economy 2.01 Tunisia's most important raw materials are phosphates, petroleum, and natural gas. However, the known exploitable reserves of oil and gas are small, anc phosphate deposits are of relatively low quality. There is considerable tou-ism potential, and efforts have been made to develop it rapidly over the last decade. Since independence in 1956, Tunisia has undertaken a massive effort to develop its human resources, paying special attention to education and health care as basic prerequisites for modernization. As a result, the adult literacy rate has increased from under 16% in 1960 to 55% by 1980. During the same period, the infant mortality rate declined by half, from 30 to 15 per thousand, and average calorie supply per capita improved from about 80 to 112% of requirements. 2.02 Tunisia's GDP increased at 7.5% p.a. in real terms from 1969/71 to 1978/80. GDP per capita reached US$1,330 in 1980. This increase is partly due to Government policy to stimulate production through projects and credit directed mostly to the private sector, incentives provided to private manufacturers, an export-oriented industrial investment strategy, and promotion of tourism. Tunisia has also benefitted from increased oil prices for its petroleum which has financed an increase in Government investment. Petroleum and phosphate exports provide 32% of export earnings, while manufacturing provides 26%. The balance of payments situation is good with the debt service ratio (now 11.1% of exports of goods and services) improving during the 1970s. Major economic issues include: (a) the projected decline in oil production beginning in 1981 which will cause Tunisia to become a net petroleum importer by 1990. This is likely to make the high level of Government subsidy payments (16% of current budget outlays) unsustainable in the long term. Subsidies will need to be concentrated only on the needy rather than distributed to all income groups; (b) the high level of un- and under-employment (20-25% of the labor force) and hence the need to promote labor-intensive investments (mainly in agriculture, small and medium enterprises); (c) the need to use interest rate and fiscal policies more effectively to restrain final consumption and to stimulate savings as petroleum production declines; (d) the need to maintain wage policies which keep labor cost increases in line with productivity increases in order to maintain competitiveness in international markets for manufactured goods; (e) the need to alleviate poverty in certain poverty pockets such as Northwest and Central Tunisia. About 14% of Tunisia's population lives at or below the absolute poverty level of US$2OO per capita. Poverty alleviation could be undertaken by a combination of productive projects directed to poverty groups (particularly in agriculture where many of the poor are found), vocational training, preventive medecine, and nutrition interventions directed to the poor.  - 21 - 2.03 The place of agriculture can be represented by the following data shown with that of other middle-income countries for comparison: All Middle- Income Tunisia Algeria Morocco Countries 1960 1979 1960 1979 1960 1979 1960 1979 Agricultural Value Added in GDP /a (%) 24 16 21 7 23 19 22 14 Agricultural Employment in Employment /a (%) 56 35 67 32 63 53 53 43 Agricultural Exports in Exports /b (%) 51 15 35 2 54 25 n.a. n.a. Agricultural Imports in Imports /a (%) 20 12 26 17 27 20 15 12 n.a.: not available. /a Source: IBRD World Development Indicators (1981). /b Sources: Morocco: No. 27, 33; Tunisia: No. 7, 12, 39 (exports for 1965 rather than 1960); Algeria: No. 34, 36 (exports for 1965 rather than 1960). Numbered sources are identified at the end of Volume I (p. 134) under "Sources of Information." 2.04 The data show a decline in the role of agriculture in the Tunisian economy at about the typical rate for a middle-income country. Compared to other Maghreb countries, agriculture's role is declining less rapidly in Tunisia than in Algeria, but, more rapidly than in Morocco. The cause of the decline is the more rapid expansion of mining, petroleum, industry, and services than of agriculture. B. Agricultural Performance 2.05 Contribution of Agriculture to Growth in GDP. The following shows the contribution of agricultural growth in Tunisia to economic growth. The average contribution of middle-income countries is shown for comparison: Growth (% per annum) Tunisia Middle Income 1960-70 1970-79 1960-70 1970-79 Real Rate of Growth of GDP /a 4.7 7.6 6.1 5.5 Real Rate of Growth of Agriculture /b 1.6 4.4 3.6 3.0 Percent of GDP Growth Caused by Agricultural Growth /c 8.1 9.2 13.0 8.0 Sources: /a IBRD World Development Indicators. /b FAO Production Yearbook for Tunisia; World Development Indicators for Middle-Income Countries. Data on agricultural growth is-unreliable. Weighted average agricultural growth rates were calculated from another data source resulting in 1.0% p.a. for 1960/62-1969/71; and 4.2% for 1969/71 to 1978/80. /c Computed as (rate of growth of agriculture) x (percent of GDP contributed by agriculture) divided by rate of growth of GDP.  - 22 - GDP growth has been rapid in Tunisia. Agricultural growth was slow during the 1960-1970 period, but was rapid in the 1970-79 period. Agriculture contributed about 8% of GDP growth in the 1960s, and 9% in the 1970s. Tunisia's agriculture performed relatively poorly during the 1960s compared to other middle-income countries, but better than average in the 1970s. 2.06 Production. The following data show the annual increase in quantities produced of various commodities. Causes for the relative performance of each of these commodities are described throughout this survey, and relate to combinations of price and marketing policy, investment, export markets, and variations in weather. Vegetables, sugar beet, fruit, and to some extent milk have developed most rapidly in the irrigated areas. Expansion in irrigated area is the principal reason for the rapid growth in production of these commodities. Wine grapes were introduced by the French. The Government has, until recently, encouraged a shift out of its production due to difficult export market conditions and a limited domestic market. Pulses, olives, cereals, and meat production are most vulnerable to variations in the weather. Growth in Production (Quantity) 1960/62- 1969/71- 1969/71 1978/80 (% p.a.) 1. Vegetables 1.5 4.5 2. Sugar Beet -1.7 6.3 3. Fruit 1.4 6.9 4. Milk n.a. 3.9 5. Meat -0.6 4.2 6. Wine Grapes -7.3 -5.8 7. Pulses 5.6 7.8 8. Olives 0.0 6.0 9. Cereals 4.7 2.5 Sources: No. 10, 22, 39, and tables 6-8. 2.07 Structure of Production. As a result of the large variation in performance between commodities, the structure of production has changed as shown in the following: Percent Contribution to Total Agricultural Value Added 1962 1980 _______. %