Malawi - Agricultural Extension and Planning Support Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5453-MA STAFF APPRAISAL REPORT MALAWI AGRICULTURAL EXTENSION AND PLANNING SUPPORT PROJECT August 29, 1985 Eastern and Southern Africa Projects Southern Agriculture Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Malawian Kwacha (MK) US$ 1.00 = MK 1.80 -MK 1.00 = US$ 0.56 SDKR .00 - MK i.82 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (f) 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) = 0.39 square miles 1 hectare (ha) = 2.47 acres 1 metric ton (ton) = 2,204 lb GOVERUENT FISCAL YEAR April 1 - March 31  FOR OMCIAL USE ONLY PRINCIPAL ABBREVIATIONS AND ACRONYMS ACAD - Assistant Chief Agricultural Officer ADD - Agricultural Development Division ADMARC - Agricultural Development and Marketing Corporation ART - Adaptive Research Team BES - Block Extension System CAO - Chief Agricultural Officer (Extension) CAS - Controller of Agricultural Services CTO - Chief Technical Officer DAR - Department of Agricultural Research DCAO - Deputy Chief Agricultural Officer DOA - Department of Agriculture DTC - Day Training Center ACB - Agricultural Communications Branch EABSA - Regional Mission for Eastern and Southern Africa I:BRD) EPA - Extension Planning Areas FHA - Farm Home Assistant GOM - Government of Malawi MOA - Ministry of Agriculture NRC - Natural Resources College NRDP - National Rural Development Program NSCM - National Seed Company of Malawi ODA - Overseas Development Administration (UK) OPC - Office of the President and Cabinet PD - Planning Division P0 - Professional Officer PS - Principal Secretary PSC - Public Service Commission RDP - Rural Development Project RTC - Residential Training Center SAO - Senior Administrative Officer SAL - Structural Adjustment Loan SMS - Subject Matter Specialist STA - Senior Technical Assistant STO - Senior Technical Officer T&V - Training and Visit System TA - Technical Assistant TO - Technical Officer US.ID - United States Agency for International Development I This doCuMent has a festriced distribution and msy be usd by reipients only in the perfonance of their ofricial duties. lts contents nmy not othcrwise be discksed without World Bank authorization.  MAL&WI AGRICULTURAL EXTENSION AND PLANNING SUPPORT PROJECT TABLE OF CONTENTS Page No. Credit and Project Summary ...... ........................... iv I. BACKGROUND 1.......... .......... I A. Introduction and Economic Setting ............. 1 B. Agricultural Sector 2....2 C. Government Financing of Agriculture 5 D. Agricultural Development Strategy ............. 5 E. Experience with Past Development Lending ...... 5 II. THE MINISTRY OF AGRICULTURE ...................... 7 A. The Planning Division 7................ ...... 7 B. The Department of Agriculture ................. 9 III. THE PROJECT ............... ........ 12 A. Sectoral Strategy and Project Rationale ....... 12 B. Project Identification and Preparation ........ 13 C. Brief Description ............................. 13 D. Detailed Features ............. 14 E. Project Cost Estimates and Fiaencing .......... 20 F. Procurement ..................... .. 22 G. Disbursements 23 H. Accounts and Audit 23 I. Government Cash Flow 24 IV. PROJECT IMPLEMENTATION ............................ 25 A. Organization and Management .......00 ........ 25 B. Strengthening the Planning Division ...o ...... 26 C. National Extension System Development ......... 26 D. Technical Assistance ............. 27 E. Implementation Schedule ......... 27 F. Monitoring and Evaluation .......... 28 G. Environmental Impact ... .... 28  - 12. - V. PROJECT JUSTIFICATION BENEFITS AND RISKS ........... 28 A. Justification ............ ...................... 28 B. Benefits ........................................ 29 C. Methodology and General Assumptions .... ........ 30 D. Risks .......................................... 32 VI. AGREEMENTS REACHED AND RECOMMENDATIONS ............. 33 LIST OF TABLES IN THE MAIN REPORT Table 3.1 Project Cost Summary Table 3.2 Project Financing Plan ANNEXES I. Selected Charts and Tables C-1 - Present Structure of the Ministry of Agriculture C-2 - Proposed Structure of Planning Division C-3 - Proposed Structure of the Department of Agriculture C-4 - Project Implementation Schedule C-5 - Key Indicators of Implementation Table T-1 - Training Schedule for MOA's Planning Division and DOA's Extension Staff Table T-2 - Technical Assistance Schedule Table T-3 - Planning Division (Current Staff Establishment) Table T-4 - Department of Agriculture (Current Staff Establishment) II. Cost and Financial Tables Table T-5 - Project Components by Year Table T-6 - Project Components by Year (totals including contingencies) Table T-7 - Summary Accounts by Project Component Table T-8 - Summary Accounts Cost Summary Table T-8a - Summary Accounts by Year Table T-9 - Schedule of Disbursement Table T-9a - Government Cash Flow Projections III. Terms of Reference A - MOA - Planning Division, Planning and Management Advisor B - DOA - Extension Management and Planning Advisor C - DOA - Financial Advisor/Controller D - DOA - Seed Multiplication Specialist  - iii - IV. Mzuzu ADD - Summary Tables Table 11 - Cropping Pattern, Areas and Average Yields Table 12 - Incremental Yields, Area, and Production in Year Five Table 13 - Packages and Variable Costs Table 14 - Comparative Enterprise Costs and Returns V. Selected Documents Available in the Project File, DOC # 109.606 Project Preparation Documents + Proposal for the Strengthening and Restructuring of the Planning Division - Ministry of Agriculture + National Smallholder Agricultural Extension, Training and Technical Services (2 volumes) + Agricultural Extension Department of Agriculture: Observations and Recommerdations + Extension and Rural Development Project Proposals (6 volumes) + Smallholder Seasonal Credit Working Papers + Extension Staff Training + ADD Extension Support - Mzuzu ADD Agricultural Services MAP IBRD No. 18833  ACRClG&L IEXTENSION fA MII SC OR1T PtOJECT CREDIT AM PRJCT SUMARY Borrower: Republic of Malawi Amount: SDR 11.7 million (US$ 11.6 million) Terms: Standrd Project Description: Ihe proposed Project vold support an institutional d telopuet proess aimed at: i) improving ministry of Agriculture's mlytical _ad long-term planning capability; (ii) strgthenin the national extension system through development of more effective m-chanims for program priority setting, resource allocation and financial mnagemet; and (iii) upgrading tho _marial, administrative and technical skills of Department of Agriculture (DOA) and Planning Division (PD) staff. Main features of the Project include: Wi) strengtheig UDA's Planning Division through technical assistance, training and logistical support; * (ii) stregthbmiag ROA's capacity to plan, mplemnt and umitor the agricultural extension progrm by: (a) supporting a substantial training progr_ for eztesion staff and establishing a training unit in ML; tb) introducing a technical career stre an ad a promotion system fer professional and technical staff; (c) supporting and testing inovative approaches to agricultural extension and informtion tranfer in Nzuzu agricultural development division including provision of incremental credit to amallboldere in the Numm area to encourage adoption of improd teemil necmmendations; (d) strengthening the enistiag system of financial management; (e) supporting production of improved technical and training mterials; and (f) improving extension and reserch linkages. The Project, to be carried out over 5 years, provides funds for civil works; vehicles, furniture and equipment; training; technical assistance; and some operating costs. Benefits and Risks: Benefits under the proposed Project are epctad from: Ci) imprvod efficiencies in * Aew4ftr l seSOer pamiung and extension planning aud budgeting; aod (ii) increaes in agricultural production and productivity. PbYsible risks include  - v - ineffective management of the planning and extension programs, inadequate provision of budgetary resources and low acceptance rates by farmers. To minimize these risks, the Project provides for a new extension planning and budgeting system to achieve greater efficiency with existing resources, staff and infrastructure; substantial managerial and technical in-service training and consultancy services to supplement local expertise; a firm commitment from Government to provide adequate budgetary resources and the opportunity to test different approaches to information and technology transfer in the Mzuzu ADD before introducing them throughout the country.  - vi - Estimated Costs a/ Local Foreign Total --( US$ million) -- Planning Division 0.37 1.69 2.06 National Extension Program 1.09 4.54 5.63 Agricultural Communications Branch 0.03 1.58 1.61 Adaptive Research Program 0.02 0.15 0.17 Mzuzu ADD including incremental credit 1.50 3.22 4.72 Base Cost 3.01 11.18 14.19 Physical Contingencies 0.38 1.08 1.46 Price Contingencies 1.46 3.09 4.55 Total Project Costs 4.85 15.35 20.20 a/ Inclusive of taxes and duties which are negligible. Financing Plan: Local Foreign Total -(US$ million) -- Government 0.9 1.5 2.4 USAID 0.6 5.6 6.2 IDA 3.3 8.3 11.6 Total 4.8 15.4 20.2 Estimated Disbursements: IDA Fiscal Year 1986 1987 1988 1989 1990 1991 -- -(US$ million) Annual 0.7 2.6 3.9 2.1 1.5 0.8 Cumulative 0.7 3.3 7.2 9.3 10.8 11.6 Economic Rate of Return: Not applicable Staff Appraisal Report: Report No. 5453-MAI, dated August 29, 1985 Map: IBRD No. 18833  MALAWI AGRICULTURAL EXTENSION AND PLANNING SUPPORT PROJECT I. BACKGROUND A. Introduction and Economic Setting 1.01 Malawi, a land-locked country, has a total land area of approximately 94,300 km2 of which 36,200 km2 is generally defined as arable. Malawi has had one of the better economic performance records in the region; real GDP grew at an average rate of 5.5 percent per annum between 1967 and 1979, declining to 0.4 percent in 1980 and 0.8 percent in 1981, but recovering to 3.0 percent in 1982. The economy remains heavily dependent upon the export of three agricultural commodities (tobacco. sugar and tea). Malawi has, however, produced considerable surpluses of maize, its primary food crop, over the past two crop seasons (1982/83 and 1983/84). 1.02 Agriculture is the most important sector of the economy, providing 40 percent of the GDP (down from 50 percent in the early 1970s), 85 percent to 90 percent of foreign exchange earnings and employing about 85 percent of the labor force. In 1983, the smallholder sub-sector provided 78 percent of the agricultural GDP. Smallholder agriculture accounts for nearly 80 percent of total agricultural production. A wide range of crops are cultivated of which the most important are maize, groundnuts, fire-cured tobacco, cotton, beans, cassava, rice, sorghum, and millet. Over the past few years, smallholder agriculture has been characterized by a steady swing from a relatively diversified cropping pattern to maize monocropping. Recently, considerable maize surpluses above self-sufficiency requirements have enabled regional export. 1.03 Since 1978/79, the country's fiscal position has deteriorated. Government deficits, rarely exceeding 9 percent of GDP before then, now average over 15 percent of GDP. Increased borrowing has accompanied the deficits and inflationary pressures have mounted. 1.04 An improvement in the performance of the economy will be heavily dependent upon both the ability of the Government to restore traditional and develop alternative low cost transport routes to the sea and the capacity of the farming community to intensify and diversify its agricultural production. In many areas, little arable land remains uncultivated and thus, productivity of both food and cash crops will have to be greatly improved. Improvements in crop productivity will be based on further development and use of appropriate technology and timely availability and adequate supply of agricultural inputs.  - 2 - B. The Agricultural Sector 1.05 Structure. Agricultural production derives from two sub-sectors: smallholders farming on customary land and estates farming on leasehold land (principally under private management). Out of the country's total arable land area of about 36,000 km2, nearly 70Z is cultivated by smallholders and 5% by estates. The estate sub-sector has been the major earner of foreign exchange with exports of tobacco, sugar, tea, tung oil, coffee and macadamia nuts. 1.06 Climate, soils and land capability. Relatively fertile soils, generally reliable rainfall and a wide ranging relief permit a variety of food and cash crops to be grown. 1.07 Performance. Recent statistics indicate that annual real growth in smallholder and estate agriculture, measured in terms of agricultural GDP, averaged at least 4.3 percent and 2.9 percent respectively between 1980 and 1984. In the smallholder subsector, maize production exhibited the most rapid growth, reflecting relative price shifts largely at the expense of groundnuts, cotton, and fire and sun-air cured tobacco. Estate production of all the major commodities increased markedly between 1972 and 1982: annual growth rates for flue-cured tobacco, burley tobacco, tea and sugar were 10, 17, 6 and 18 percent respectively over the past decade. However, international price factors and high transport costs have had a depressing effect on the recent performance of the estate sector, which has, in addition, had some managerial problems. Productivity in the smallholder subsector is well below its potential. Better performance has been constrained by: (i) poor price incentives until recently; (ii) limited availability of appropriate technology for many smallholders; (iii) Government regulation preventing smallholder participation in the production of selected high value agricultural export crops; (iv) untimely and limited availability of fertilizer; and Cv) the limited availability of locality-specific extension messages. 1.08 Agricultural Services (See paras. 2.08-2.17 Eor Extension). (a) Agricultural Research is carried out by the Department of Agricultural Research (DAR) of MOA, the Faculty of Agriculture of the University of Malawi, the Tea Research Foundation and the Tobacco Research Authority. Research programs are organized on a crop basis and research teams are led by commodity coordinators. Programs are reviewed from time to time when objectives are redefined. However, in recent years, extension staff have had little involvement in this process. As a result, there has been a proliferation of commodity programs which often do not take into account the problems faced by smallholder farmers. Agricultural research in Malawi will be strengthened through the IDA/USAID assisted National Agricultural Research Project which aims to improve the focus and quality of Malawi's smallholder oriented agricultural research program, strengthen critical linkages particularly between the research and extension programs and improve the efficiency and economy of DAR's ongoing activities.  - 3 - 1.09 (b) Agricultural Marketing and Input Supply is provided largely through the Agricultural Development and Marketing Corporation (ADMARC), a statutory company established to purchase smallholder crops (food and non-food), sell food crops and sell and deliver crop production inputs (seed, fertilizer, agricultural chemicals and farm implements). ADMARC is a monopoly only with regard to sun-air and fire-cured smallholder tobacco and smallholder cotton. Until 1980, authorized prices permitted ADMARC to sustain a healthy financial position. In 1980/81, higher transport costs, poor crop handling, and higher ccsts of borrowing for large investments resulted in some financial deterioration; however, by 1981/82, ADMARC was again realizing profits on some of its crops (particularly non-food) and had further recovered by 1982/83. Efforts to improve ADMARC's performance have accompanied Malawi's Structural Adjustment Program. 1.10 Fertilizers for the estate sub-sector are principally procured by Optichem, a locally incorporated company, and other agro-chemicals are marketed by various commercial firms. Estate produce is marketed almost entirely through the private sector. The National Seed Company of Malawi produces a wide range of agricultural seeds for both smallholders and estates. 1.11 (c) Credit Services. The main financial institutions providing credit to commercial (estate) farmers are the two commercial banks, i.e. the Commercial Bank of Malawi, Limited (CBM) and the National Bank of Malawi, Limited (NBM). Although both are indirectly controlled by Press Holdings and by'GOM through shareholdings held by ADKARC and Malawi Development Corporation, each operates as an independent insti- tution. The commercial banks lend primarily to tobacco estates and, in recent years, the agricultural loan portfolio has ranged between 35 and 50 percent of their total lending. The Investment and Development Bank of Malawi Limited (INDEBANK) gives high investment priority to agriculture and agro-processing, particularly for the export sector. In 1983, INDEBANK's assistance to agriculture and agro-industries accounted for 40 percent of its portfolio. 1.12 Credit to smallholders is provided by both institutional and non-institutional sources. Most smallholder credit is available from government and quasi-government sources such as: (i) National Rural Development Program (NRDP); (ii) Government Loans Board (GLM); (iii) United Nations Capital Development Fund (UNCDF); and (iv) Settlement Schemes Fund (SSF). The Ministry of Agriculture is solely responsible for administering these funds, and exercises some influence over the lending activities of the Government Loans Board, which are under the jurisdiction of the Ministry of Trade and Industry. Smallholder contact with the banking system is mainly through the Post Office Savings Bank for deposit of money and, to a lesser extent, through the mobile agents of the commercial banks. 1.13 There are two main types of credit available to smallholder farmers in Malawi: seasonal and medium term, and both are provided in kind. Although both types are available to individual farmers and to groups of farmers, in practice, seasonal credit is issued to groups and medium-term to individuals. Seasonal credit to individuals accounted for  84 percent of total credit in 1975/76, but dwindled to close to zero by 1984/85. The formation of farmers'clubs and credit groups has been encouraged in order to reduce the administrative costs of MOA's support services to farmers and to increase the effectiveness of the extension system. The use of the credit groups has also minimized defaults through the joint liability of group members for individual loans. Repayment rates of individual credit averaged about 70 percent, compared to 90 to 100 percent for farmers' clubs/groups. 1.14 About MK 12 million of seasonal credit for farm inputs is available in the form of "packages", containing the blanket recommendations made by the Department of Agricultural Research for nation-wide application. Since 1978, credit terms have gradually been standardized under the National Rural Development Program (NRDP). Interest, which generally is referred to as credit service charge, on seasonal credit is charged at a flat rate of 10 percent. At this level, and if the loan is held about 3/4 of a year before repayment, the effective interest rate is about 13.5 percent which is more than the current inflation rate of 12 percent. 1.15 Medium-term credit is available at an interest rate of 10 percent per annum with a repayment schedule of up to 7 years for production and capital investments (oxen, ox-carts, and other farm implements). However, at present, most of these items are procured through ADMARC (a relatively high cost source) and, as a result, uptake of credit funds has been limited. Medium-term credit is also available to farmers for the purchase of dairy animals and the construction of dairy facilities but is not available for the construction of other buildings or storage sheds. 1.16 (d) Pricing Policy. Official prices of crops produced by smallholders are currently set by the Government, based upon recommendations by the Price Committee, which includes representatives of MOA, Ministry of Finance (MOF), Economic Planning Division (EPD) and ADMARC. Consequently, private traders occasionally obtain the bulk of some items (such as beans) because they are prepared to offer higher prices. Except for maize and tobacco, the prices of major crops are set near the appropriate export or import parity price. Maize prices are set between import and export parity with the objective of long run self-sufficiency. Tobacco prices are set at levels which will provide returns to farm labor competitive with alternative crops. 1.17 The responsiveness of smallholders to price incentives is vividly demonstrated with maize. To ensure the maize self-sufficiency objective, the Government in 1982/83 increased the financial price of maize which,coupled with subsidized fertilizer prices, resulted in gross returns to labor higher than for other smallholder crops. This provided an incentive to farmers to produce maize as a cash crop and resulted in considerable surplus production. This imbalance has been corrected over the past two cropping seasons with price adjustments for groundnuts, cotton, tobacco and beans; significant increases in ADMARC purchases of these crops have been recorded.  - 5 - C. Government Financing of Asriculture 1.18 In 1984/85, the Governmeut budgeted MK 29.63 million, or about 12.7 percent of its total recurrent budget (excluding statutory expenditure) for the agricultural and natural resources sector. Agriculture received the second largest allocation in the recurrent budget after education (17 percent). Of the total amount budgeted on the revenue account for agriculture, agricultural extension, agricultural research, veterinary services, fisheries and forestry received 45.8 percent, 11.6 percent, 15.4 percent and 14.2 percent respectively. In the same year, Government budgeted K 46.10 m, or about 30 percent of its total development budget, for agriculture and natural resources. D. Agricultural Development Strategy 1.19 The Government is attempting to provide a growth climate for both smallholder and estate production in order to support its overall strategy of maintaining self-sufficiency in food staples with expansion of agricultural exports and improvement in rural incomes. Since the end of the 1970s, the Government's National Rural Development Program (NRDP) has provided a wide range of services to the mallholder subsector. By 1984, 80 percent of the smallholder subsector was under NRDP. NRDP has been designed to increase smallholder productivity through the provision of agricultural inputs and farm services and to increase the scope and efficiency of extension, marketing and credit services. Cultivation of new land has been discouraged in favour of increasing the productivity of areas already cultivated. Attention is given to soil conservation, watershed management and afforestation. The growth of village-run farm clubs throughout NRDP areas has facilitated the delivery of extension and training to farmers and has enabled the efficient issuance and recovery of farm credit. The importance of the role of women in agriculture in Malawi is receiving increasing attention. The Women's Programmes (WP) Section in the Department of Agriculture replaced the Home Economics Section in 1981 in response to the perceived need to emphasize rural womens' contribution to and involvement in agricultural production. E. Experience with Past IDA Lending 1.20 Agriculture has been a major focus of both IDA's Structural Adjustment Lending Operations in Malawi (SAL I, Loan 2026-MAI, and SAL II, Credit 1427-MAI). The major policy improvements under SAL I included introduction of better incentives for smallholders through increased producer prices and allocation of a larger share of available budgetary resources to the Ministry of Agriculture. Agreement was reached with GOM on the importance of price as an incentive for increasing smallholder production. A pricing methodology was formulated and applied which reversed the past real decline in prices for smallholder crops. In 1984, smallholder production of cotton and tobacco increased for the first time in nearly a decade. 1.21 Prior to the establishment of NRDP, IDA belped finance three of the four large integrated agricultural programs in Lilongwe Phase I, II and III, Karonga and the Shire Valley Phase I and II (Credits 113, 244 and 550-MAI, 282-MAI, 114-MAI and 363-MAI; with related PPARs 751, 1597,  3414, 2576, 895 and 2593 respectively). These rural development projects were multicomponent (involving agriculture, livestock, forestry, health, water supplies, roads and marketing), intensive in terms of staffing and levels of investment per benefitting farm family and, for a time, managed by a cadre of largely expatriate personnel. Implementation of these programs was generally good and the projects were popular with farmers although crop production increases were often lower than originally forecast. Since 1978, IDA has assisted the Government with the development of NRDP in the Lilongwe, Dedza, Thiwi-Lifidzi, Ntcheu, Mzuzu, Mzimba, Karonga and Chitipa areas (Credits 857-MAI, 1183-MAI and 1343-MAI). The production record of NRDP has been mixed as stated in the NRDP Review report of June 30, 1982. OED more recently did a study on the impact of the Shire Valley Project and an agriculture sector operations review on Malawi and Upper Volta. With few exceptions, appraisal targets have not been realized. In some cases yields have not been as high as projected, but more often it is the uptake rate of input packages (hectarage) that has fallen short of expectations. Where data are clear, certain patterns do emerge: when farmers adopted packages and extension recommendations, yields were as high as or exceeded appraisal estimates. Farmers did not take credit packages if they had relatively low returns from their particular crops or if they preferred planting subsistence food crops instead of cash crops, to ensure their family's food supply. This experience and the conclusions of the various related PPARs have highlighted the need to: (i) develop acceptable crop technical packages for subsistence crops; (ii) incorporate area-specific extension advice on crops in the farming system in each area; and (iii) ensure that this advice is both technically sound and financially attractive to farmers. 1.22 On infrastructure under NRDP, targets were usually met, sometimes exceeded, construction was completed in a timely manner often within cost estimates and was of a high standard. However, under Government policy, Malawian civil servants are eligible for -housing, and shortage of housing in some areas under NRDP has proven to be a major constraint in recruiting staff. Unit housing costs are high and there is scope for reducing housing construction costs without compromising standards. In this connection, GOM has entered into discussions with IDA on how to reduce its allocations to housing. IDA has financed the redesign of six prototypes,reducing housing unit costs by about 20Z,1argely through savings in plumbing location, electricals, and foundation material rather than through reductions in basic entitlements such as total floor space or number of bedrooms. 1.23 NRDP's record on the handover of infrastructure for operation and maintenance from the Ministry of Agriculture to parent ministries (roads, health, water supplies) has been less than satisfactory. In some cases, roads have reverted to tracks or bush, health facilities have been under-utilized and water supplies have not been maintained. As a consequence, several departments and ministries have now developed or are planning national programs for rural investment which would establish sectoral priorities with regard to staffing and available resources. In the forestry subsector, for example, IDA through its wood energy pro3.-ct (Credit 992-MAI) is supporting the first phase of  a national program to meet the demand for fuelwood and poles in high wood deficit areas. 1.24 On resources available to support NRDP, experience has shown that despite covenants in the credit agreement ensuring adequate funding of project recurrent costs in the post implementation phase, funds made available for maintaining and operating existing NRDP investments are increasingly in short supply. The implication of this "squeeze" on recurrent finance is that non-essential recurrent expenditures must be cut and measures introduced to facilitate smoother phasing of projects from the development to the revenue budget thus easing "shock" of the transition. GOM under SAL I and II is committed to reviewing on an ongoing basis the recurrent budget allocations to MOA to ensure that they are adequate. The Extension Planning and Agricultural Support Project embodies, as a major objective, introduction of improvements in overall programming and budgeting to achieve better resource utilization and cost effectiveness within the NRDP program. Similar objectives for agricultural research are being pursued under the recently approved research project (IDA Credit 1549-MAI). II. MINISTRY OF AGRICULTURE 2.01 The Ministry of Agriculture (MOA) is the central institution responsible for overall policy formulation, planning coordination and management ofthe smallholder agricultural sector. MOA is also charged with providing most of the agricultural services, as well as providing general direction to the parastatals and crop authorities involved in agricultural activities. MOA is headed by a Principal Secretary (PS), who is assisted by a Senior Deputy Principal Secretary (SDPS). MOA is divided into five organizational units: Department of Agricultural Research (DAR); Department of Agriculture (Extension); Department of Animal Health and Industry (DAHI); Planning Division (PD); and General Administration (GA). In 1978, in an effort to integrate the management of NRDP into the government structure, a fundamental change was introduced in the demarcation of extension planning areas (EPAs). The EPAs were aggregated at two levels, development areas (DAs) and agricultural development divisions (ADDs) with a delegation of powers from the ADDs to the DAs. There are eight ADDs which report to the Principal Secretary through the Controller of the Agricultural Services (CAS-NRDP) (Chart C-1). A. The Planning Division Organizational Structure and Function 2.02 The Planning Division, headed by a Chief Projects Officer, is responsible for: (i) the preparation of annual budget estimates for MOA; (ii) identification and preparation of project proposals; (iii) annual evaluation of ongoing projects; (iv) provision of advice on sectoral policies (including annual submission of smallholder crop price proposals); and (v) compilation and maintenance of agricultural statistics 2/. To perform these functions, PD is divided into five sections: price policy and marketing; project preparation; survey 2/ A detailed list of PD's terms of reference is given in Annex III (A).  - 8 - statistics and evaluation; planning and budgeting; and data pi.-ocessing. In addition, it has been proposed that an agricultural statistics unit be created under the Surveys Statistics and Evaluation S_ction with funding from the IDA National Rural Development fricJ-t Faronga-Chitipa (Credit 1183-MAI). Although the unit has not been formally established, a statistician seconded from the National Statistics Office (NSO) has begun work. 2.03 Under the present organizational structure, the Chief Projects Officer is assisted by a Principal Planning Economist and a Principal Evaluation Officer. The Principal Planning Economist is responsible for the project preparation, processing 3/ and marketing sections. The central evaluation and agro-economic surveys unit is under the Principal Evaluation Officer. This unit also supervises the Planning and Evaluation units in the eight ADDs. 2.04 The designated functions of the Planning Division appear to cover most of the essential aspects of agricultural planning and no major changes are proposed under the Project, but some modifications are required in its structure (Chart C-2). Over the past several years, PD's volume of work and complexity of assignments have increased significantly due to, inter alia, rapid expansion of projects, a growing number of external financing agencies requiring considerable project documentation, and more rigorous/systematic involvement in formulation of crop price policy proposals. The current authorized staff strength of 23 professionals (Annex I, Table T-4) is inadequate to handle the present workload. PD's staffing situation is a major constraint and has given rise to two main areas of concern described below. Staff Vacancies 2.05 At the time of Project appraisal, 14 of 23 established positions in the Planning Division were vacant including the Chief Projects Officer, Principal Planning Economist, Principal Evaluation Officer and Senior Economist Project Preparation.4/ These vacancies have been mainly caused by the availability of more attractive employment opportunities in the private sector and with the parastatals. Staff depletion has also resulted from the unplanned transfer of senior personnel belonging to the "economic common service" to other positions in the Government. Some vacancies have also resulted from the prolonged absence of incumbents who are on fellowships abroad. As a consequence, the remaining staff are unable to carry out their assigned functions efficiently and work is undertaken on an ad hoc and emergency basis. Management Constraints 2.06 The Chief Projects Officer and Principal Planning Economist positions became vacant in February and August 1984 respectively. Both positions have recently been filled. Lack of experienced staff, however, has had particularly adverse effects on PD's performance. As a result, 3/ This is a misnomer; sectoral planning and budgeting are the two main functions of this section. 4/ At the time of negotiations only three positions remained vacant.  - 9 - the Chief Projects Officer must contend with numerous routine but Clme-consuming administrative matters which lessen his effectiveness as a manager and allow for insufficient time to focus on long-range work programming for the Division or to provide adequate supervision/ guidance to junior staff. The PD is presently assisted by two internationally recruited professionals financed under the IDA/IFAD- funded Smallholder Fertilizer Project and the UNDP technical assistance pregram. Their contribution has been limited to conducting specific studies. 2.07 MOA has become increasingly aware of the urgent need to improve PD's performance. Recently, a series of actions have been taken/proposed by MOA which address some of the critical problems: (i) changes in PD's organizational structure (Chart C-2); (ii) filling the position of Chief Projects Officer 5/; (iii) upgrading PD's level to other departments within MOA and regrading the Division head's position from P5 to P4 level (in order to enhance the Division's status and authority viz-a-viz other departments in MOA) 61; (iv) establishment of additional positions to handle the increased workload; and (v) earnest efforts to recruit qualified persons to fill presently vacant positions. MOA is also in the process of recruiting internationally for an Evaluation Specialist and a Systems Analyst, to be financed by IDA under Credits 1183-MAl and 1428-MAI 7/ respectively. These persons would act as advisors to the Principal Survey, Statistics and Evaluation Economist, and the Data Processing Unit. B. The Department of Agriculture Organizational Structure, Staffing and Functions 2.08 Agricultural extension is carried out under the National Rural Development Program (NRDP) which was launched in 1978 with the main objective of consolidating the previous rural development efforts and spreading the benefits of rural development more rapidly and widely. The Ministry of Agriculture through its Department of Agriculture (DOA) is the lead agency in implementing this multi-component program. 2.09 DOA is headed by a Chief Agriculture Officer (CAO), and is supported by a Deputy Chief Agricultural Officer (DCAO). The Department has four technical branches: land husbandry, extension, crops, and agricultural communication, each headed by an Assistant Chief Agricultural Officer. DOA also has a finance and an administration unit headed by a senior executive of- ficer and a chief executive officer respectively. The national agricultural extension system is decentralized into 30 Rural Development Projects (RDPs) and 208 Extension Planning Areas (EPAs). The planning, administration and management of the extension program at the field level is carried out by the eight Agricultural Development Divisions (ADDs) each headed by a 5/ Final selection of the candidate was made after Project appraisal. 6/ Implementation of this proposal is subject to the approval of the Office of President and Cabinet. 7/ National Rural Development Program Phase III Karonga Chitipa (Credit 1183-MAI) and the Technical Assistance II Project (Credit 1428-MAI).  - 10 - Program Manager (PM). 2.10 Initially, NDRP was mainly an investment program to build up rural infrastructure (roads, housing, offices, training centers, marketing centers, health clinics, dip tanks, water supply, etc.) in the ecologically defined rural development project areas (RDPs). Agricultural and rural development staff were placed at all levels from the regional Program Managers at the Agricultural Development Division (ADD) level to the technical assistants at field level. As of July 1985, of a total establishment of about 3,324 professional and technical posts, DOA has about 205 (6 percent) vacancies. The establishment posts and number of vacancies are summarized in Annex I Table T-5. There are presently around 9,600 field extension staff and 500 subject matter specialists working in 8 ADDs. The number of extension staff has more than doubled between 1981 and 1984, mainly due to the large increase in the number of new rural development projects. 2.11 During this period of systems build-up, much of the infrastructure was put in place and most of the extension field staff positions were filled with an average farmer to extension worker ratio of 750 to 1. However, insufficient attention was paid, inter alia, to the quality of the extension content, the linkage between extension and research, adaptive research and training of farmers and DOA staff. These deficiencies were highlighted by the 1982 NRDP Review, which recommended that the RDPs focus on activities that directly support agricultural production, and that execution of non-agricultural activities (roads, forestry, health, etc.) become the responsibility of the respective sector ministries. 2.12 The Review also concluded that while a satisfactory institutional framework for the delivery of extension services was in place, the effectiveness of the extension service was increasingly hampered by: (i) the limited number of adequately trained and experienced managerial and technical staff; (ii) absence of structured career development opportunities or incentives for high achievement; (iii) inadequate formulation of technical packages for smallholder crops, (iv) inadequate extension planning and budgeting systems; and (v) poor preparation and unavailability of extension materials. Management Constraints 2.13 In MOA, the number of professional and technical positions in higher grades are relatively few and expcrienced staff often seek transfer to management positions in order to advance professionally. The frequency and timing of these transfers has had an adverse effect on the management of the extension service as fewer qualified staff are available to assume a management function. Senior staff are also lured into the private sector by more attractive salaries and benefit packages. Demand for managerial staff has increased dramatically with the rapid expansion of NRDP. Given present manpower constraints, these positions cannot be filled immediately by persons with management experience and instead have been filled by  - 11 - technicians who are expected to acquire management experience over time. This has contributed to the variable quality of management and other key staff within the extension system and highlights the need for a strengthened management training program. Staff Incentives and Career Development 2.14 DOA's staff promotion ladder is limited by: (i) the small number of grades assigned to each of its civil service ranks; and (ii) the absence of a technical career stream for Subject Matter Specialists (SMSs), which would allow them to advance in the civil service without requisite movement into supervisory or administrative positions. Promotion to the limited number of superscale posts is the only avenue available for rewarding staff for outstanding performance. Promotion opportunities for the TAs within their grades and to higher grades are even more limited. Dissemination of technical advice is done by extension TAs who make contact through farmers'groups. These field workers constitute the backbone of the extension service and it is important that they be adequately trained and motivated. A Civil Service Review Commission financed by the Overseas Development Agency (ODA) is now reviewing all aspects of the civil service structure,including the institution of scientific and technical career streams. GOM has undertaken to make no changes in the civil service policy pending the Commission's report due in September 1985. Extension Recommendations 2.15 The impact of the extension service has been hampered by the interactive effects of insufficient price incentives, limited credit, erratic input supplies and the low level of applied technology. In general, technical packages have focused on fertilized hybrid maize monocropping (not the preferred variety for home consumption) or cash crops, which until recently were largely unattractive to smallholders whose first priority has been adequate food supply. Insufficient attention has been given to subsistence crops (i.e. local maize, pulses, sorghuw, nillet and cassava) in adaptive trials on farmers'fields. Current extension messages are usually in the form of blanket recommendations with little reference to local climatic and/or soil conditions or farmer acceptability with regard to labor and agricultural inputs. Priority attention should be given to identifying farmers' key problems and developing recommendations regarding input use and husbandry practices tailored to local agronomic, social and economic conditions. This is one of the key objectives of the recently initiated national agricultural research project and also the proposed Project. Inadequate Extension Planning and Budgeting 2.16 Resource allocation in DOA would improve considerably with the introduction of a system for linking investment objectives and priorities with resource availability. Although annual work plans and budgets are routinely prepared by all ADDs, they are of uneven quality. Work plans, rather than being prepared parallel to the budget, are prepared 3 to 4 months  - 12 - later. Consequently, budget estimates are not based on careful evaluation of sectoral or extension priorities, but on Treasury prescribed guidelines on expenditures. Without a mechanism to ensure that scarce funds are rationed according to the relative priorities of contending programs, both essential and non-essential agricultural services have often been cut arbitrarily with adverse effects on productivity. Ineffective Communication Support 2.17 Extension advice is based on the "Guide to Agricultural Production" and "Agricultural Handbooks" which are technical manuals for food and cash crops. As there is a need for updated technical material (handbooks printed materials, radio programs, tapes, films, etc.), the Project, under USAID financing, would provide support for the Extension Aids Branch and the audio visual aids units at the ADDs to produce a wide range of training and teaching materials for use by extension staff and farmers. III. THE PROJECT A. Sectoral Strategy and Project Rationale 3.01 GOM has entered a period of relatively severe financial constraints and, as a consequence, the MOA budget and manpower levels will show only modest real increases over the medium-term. The need both to link investment objectives and priorities more closely with resource availability and to achieve greater efficiency with existing resources, staff and infrastructure is, therefore, pressing. Improvements in agricultural planning, research and extension in Malawi are all pivotal to expanding agricultural production, promoting crop diversification and increasing export earnings. 3.02 IDA's assistance strategy to Malawi's agricultural sector is one of long-term institutional development. The lending operation now proposed focuses on agricultural extension and planning and,together with the recently approved research operation, is part of a major long-term effort to develop Malawi's key agricultural institutions at the national level. The National Agricultural Research Project aims to improve the focus and quality of Malawi's agricultural research program and to reinforce critical linkages particularly between the research and extension systems. The proposed Agricultural Extension and Planning Support Project would strengthen agricultural planning within MOA and improve the efficiency of the extension service. Specifically, proposed assistance to MOA's Planning Division aims to develop a consensus on its functions and to strengthen its staffing so that it can provide continuing technical advice to policy-makers on agricultural investment priorities in light of Malawi's agronomic potential and comparative advantage. Strengthening of the extension system would assist the Department of Agriculture in improving the technical competence of its staff so that it is better able to disseminate appropriate advice on available improved technology to farmers. The improvements in the relevance and quality of agricultural research, extension and planning to be induced by the proposed Project and the investment in agricultural  - 13 - research are thus complementary and key to the attainment of the production potential in the smallholder sector. B. Project Identification and Preparation 3.03 The proposed Project was identified by an IDA mission in January 1983 and preparation began in June of the same year. The Ministry of Agriculture's Planning Division was responsible for preparing the Project proposal. Bank staff assisted Government in the preparation work and periodically reviewed progress. The Project proposals were submitted to IDA and USAID in June 1984 for co-financing. The proposals were reviewed and discussed with GOMIMOA by an IDA mission which visited Malawi in June/July 1984 and the Project was appraised in September/October 1984. Initially, the Project was being prepared along the lines of earlier area-specific NRDP projects, but during preparation it became clear that,given Government budgetary constraints, the more pressing need was to consolidate and better maintain existing agricultural investments. Although the basic framework for an effective extension service exists in Malawi, it could be considerably strengthened by improving the system's cost-effectiveness, extension planning and evaluation, technical capacity and linkages with the research system. The present Project focuses on consolidation and institutional improvements in the agricultural planning and extension systems. The Project preparation document was modified to reflect this change in emphasis. C. Brief Description 3.04 The Project would support an institutional development process aimed at: (i) improving MOA's analytical and long-term planning capability; (ii) strengthening the national extension system through development of more effective mechanisms for program priority setting, resource allocation and financial management; and (iii) upgrading the managerial, administrative and technical skills of DOA and PD staff. The Project would comprise the following main features to be carried out over five years: (i) Strengthening MOA's Planning Division so that it can formulate a comprehensive long-term development strategy for the agricuLtural sector and provide better technical advice on policy formulation and agricultural investment priorities. Specifically, the Project would provide funds for consultant services for technical, financial and management support to conduct studies and supplement local expertise in PD; support a program of specialized training for selected PD staff; provide salaries and operating costs for up to six economist trainees; and provide assistance for data processing, micro-computer facilities and other office equipment. (ii) Strengthening DOA's capacity to plan, implement and monitor the agricultural extension program. The Project would:  - 14 - (a) strengthen the existing system of extension planning and financial management and expenditure control; (b) support a substantial program of local and overseas training for extension staff to improve technical, financing and administrative skills and establish a training unit in MOA to implement the above; (c) introduce a technical career stream and promotion system for both professional and technical staff; (d) support production of improved technical and training materials to allow better dissemination and application of the results of agricultural research to farmers; (e) support innovative approaches to agricultural extension and information transfer in Mzuzu ADD; provide credit to smallholder farmers in the Mzuzu area for agricultural inputs to encourage their adoption of improved technical recommendations; Cf) improve extension and research linkages through extension staff participation in Adaptive Research Teams based at ADD level, in research-extension workshops, and in development and dissemination of locally-specific technical recommendations. D. Detailed Features Strengthening the Planning Division 3.05 An internationally recruited planning and management advisor satisfactory to IDA would be recruited for the first 30 months of the Project (see also para. 4.03). This individual would be the senior policy and planning advisor to the Chief Projects Officer and PD staff-on, inter alia, commodity pricing and the agricultural investment program including ranking of project proposals against identified sector priori- ties and available resources. The advisor would also, in collaboration with the Chief Projects Officer and other PD staff, formulate a five-year agricultural sector strategy. A review would be held by the Government and IDA not later than February 28, 1988 to determine whether there is a need to extend the advisor's contract. Since the duration of contract would depend on the requirements of PD's work program, funds would be provided under the Project for a 5-year term. In order to enable PD to carry out its expanded work-program, the Project would also provide finances for a systems AnAlyst to be employed by March 31, 1986 and a price policy specialist to be employed periodically throughout the Project implementation according to a work program mutually agreed upon by the Government and IDA. The Project would support up to 6 additional positions to create a pool of trained professionals  - 15 - to meet future exigencies likely to arise because of the countrywide shortage of trained staff. Tne Project would also provide funds for specialized training and about 12 person-months of short-term technical assistance to conduct studies for monitoring and evaluation and ongoing price policy analysis. National Extension System Development 3.06 The Project would build on the substantial experience Malawi now possesses in agricultural extension work. The block extension system (a modified T and V approach) has shown good promise in its early implementation but its effectiveness has been hampered by the range of management, planning and other constraints noted in paras. 2.12-2.17. Utilizing the technical packages available and linking closely to the parallel, recently initiated research project, the proposed Project would focus on providing a much strengthened overall planning and management system. The detailed component descriptions which follow, therefore, focus on these system reinforcements and do not attempt to describe in detail field level work or agronomic features. The Project would support the establishment of an extension program planning capacity within DOA to assist DOA and ADD management in: (i) formulating a five year extension strategy; (ii) developing extension program and supporting budget proposals for annual submission to MOA and Treasury; (iii) analyzing annual work plans and budgets prepared by ADDs to ensure that objectives, targets and resource allocations are adequate and tie with priorities set for the extension program; (iv) ensuring timely physical implementation of the extension program and monitoring program performance; and (v) conducting- specific ad hoc studies as needed to improve the quality of the extension program. The Project would also provide support for a financial advisor/controller to develop an extension programming and budgeting system which would provide the framework for: (i) estimating, on an annual basis, the minimum budget requirements for DOA and the ADD's programs; (ii) setting operational guidelines for the elimination of low-priority recurrent expenditures; (iii) evaluating the efficiency of the existing investments in DOA and the ADDs; (iv) identifying potential areas for cost savings; and (v) establishing a system for achieving better resource utilization and cost effectiveness within DOA and the ADDs. 3.07 Responsibility for extension program planning and related functions described above would be assigned to the new position of a Deputy Chief Agricultural Officer (DCAO) established under the Project. The DCAO would be assisted by an Economist at P8 level from PD. The DCAO would report to the CAO and would liaise closely with the MOA's Planning and other departments. An extension management and planning advisor reporting to the CAO would be recruited internationally for a period of 30 months to act as a senior extension and management advisor and to assist DOA in carrying-out its expanded work program. Durine ne o- tiations; agreement was reached that the extension management and planning advisor would be in post by March 1, 1986. The Project would finance staff training and operating costs required to design, implement and monitor the performance of the improved extension system for both DOA and the ADDs. In addition, the Project would finance vehicles and office equipment.  - 16 - 3.08 To facilitate the introduction of the proposed changes in the extension system, DOA would introduce annual workshops for ADD program managers. These workshops would enable managers to assess annually the results of their respective extension programs and to make modifications in program targets and design in light of experience gained during the year. The workshops would also be used to ensure that feedback from ADD managers is taken into account in the formulation of extension strategy at both the regional and national level. The cost of these workshops would be borne by the Project. Workshops would also be held at the ADD level with RDP and EPA managers to monitor extension program performance, identify problem areas and propose practical solutions. The annual workshops would be conducted in May/June each year to enable managers to incorporate workshop recommendations prior to finalizing the forthcoming year's plans. 3.09 DOA and ADD Structure and Services Review. The DOA structure would be reviewed by the Civil Service Comnission and its recommendations would be implemented during the first year of Project implementation. It is expected that the DOA would continue to be headed by a Chief Agricultural Officer (CAO) and supported by two Deputy Chief Agricultural Officers (DCAOs) with responsibility for planning and implementing the extension program. The Chief Executive Officer position would be upgraded to Senior Administrative Officer (SAO) and this individual would have responsibility for supervising the administration, finance, and personnel sections. This arrangement would transfer most of the routine administrative functions from the CAO and DCAOs to the SAO allowing them to concentrate more directly on the overall management planning and implementation of the national extension program. Each technical branch would be headed by an Assistant Chief Agricultural Officer (ACAO) who would have managerial responsibilities and would report to the DCAO. The ACAOs would be responsible for managing and supervising the SMSs' work plans. Since most of the ACAOs would also function as SMSs themselves, the Project would provide both technical and managerial training (see below) to enable them to perform their functions more competently. The Project would finance training and vehicles for SMSs, office equipment and extension materials. 3.10 No major changes are expected to be made in the existing ADD organizational structure, as it underwent a comprehensive review during the NRDP Review of 1982 and was deemed to be satisfactory. Strengthening of DOA's Technical Capacity and Introduction of a Career Development Stream 3.11 Job Description. The GOM and IDA agreed to use proceeds from the National Rural Development Program Phase I (Credit 857-MAI) to conduct a training needs analysis in April/May 1985 for all categories of DOA staff (Annex I, Table T-3). This review would assist DOA in planning a long-term training program. The job functions would be periodically reviewed and updated by DOA and ADD managers with the assistance of a training advisor in order to identify new training needs stemming from staff turnover or additional work requirements resulting from changes in the extensior. program.  - 17 - 3.12 Staff Incentives and Career Development. Under the Project, GOM would establish a professional career stream for extension SMSs which would permit them to advance on the civil service ladder without moving into the administrative/supervisory stream. In this way, extension SMSs would have similar career development opportunities as same grade staff in other departments of Government. This improvement in career advancement prospects for DOA's most experienced SMSs should help attract and retain qualified staff. There is, in addition, a need to review advancement opportunities and incentives for TAs whose field-work is of high quality. Assurances were obtained during negotiations that by March 31, 1987 the MOA, in consultation with IDA, would propose the establishment and implementation of a career stream for SMSs and a promotion system for extension professional and technical staff. 3.13 In-Service Training. To strengthen the technical and managerial capability of DOA staff, the Project would support establishment of a training unit in MOA which would be responsible for consolidating the ongoing training activities and organizing and implementing a long-term training program. This long-term program would be comprised of degree and non-degree training and would consist of the following: (i) Twenty fellowships for postgraduate training at M.Sc. level and 34 fellowships at diploma or specialization level for selected managers and SMSs providing them with the skills and expertise needed to improve the overall performance of the extension program; (ii) Short-term fellowships in non-degree programs for selected senior staff in their field of competence. (iii) In-country courses and workshops for managers and technical staff designed to: (a) improve management skills in planning, budgeting and administration of extension programs; the Project would provide a total of 1,291 person-weeks of training for DOA, ADD program and assistant managers, project and development officers and 320 person/weeks of training for ADD financial controllers and their assistants; (b) provide field extension staff and SMSs with specialized technical knowledge and job specific skills needed to disseminate technical recommendations to enable farmers to adopt new and improved technologies. A total of 2,118 person-weeks of technical training in general crops, horticulture, livestock, land husbandry, and agro-forestry would be provided for SMSs and adaptive research teams and a total of 7,800 persons/weeks of technical training in specific matters to field extension workers (Annex 1, Table T-2);  - 18 - (c) upgrade the ability of training officers and selected extension staff to plan, design, conduct and evaluate training activities for both extension staff and farmers by providing a total of 1,328 person/weeks of training. 3.14 All management training will be financed by IDA and most of the technical agricultural training will be financed by USAID. While indicative figures have been developed both for the number of trainees and the corresponding costs, in practice, these estimates and the distribution of costs between IDA and USAID will be determined on the basis of the annual training plans, mutually agreed upon by the Government, IDA and USAID using the agreed shares and areas of emphasis. Extension Materials Development 3.15 Agricultural Communications Branch. The project would provide support, under USAID financing,for the Agricultural Communications Branch (ACB) and the Audio-Visual Sections in the ADDs to produce a wide range of training and teaching materials for use by extension staff. It would also support production of radio programs and film materials suitable for presentation to groups of farmers. The extension staff would be supplied with updated Agricultural Handbooks prepared by the Commodity Research Teams (CRTs) of DAR in collaboration with the extension SMSs which would be produced by EAB. The EAB would also be expected to produce teaching manuals and audio-visual materials to assist the extension staff in disseminating technical recommendations generated by agricultural research. It would, in addition, hold periodic workshops for SMSs and TAs on how to use these materials. Extension field staff would be supplied, as needed, with technical circulars prepared by SMSs or CRTs on special topics of relevance which would enhance their technical competence and improve work performance. 3.16 Technical material containing area-specific recommendations would be prepared jointly by the SMSs and the Adaptive Research Teams (ARTs) at the ADD level and would be updated periodically. The Audio-Visual Aid Units would also prepare specific audio-visual materials to be used by ADD staff and would coordinate the work of mobile units for presentation of films, slides and puppet shows to groups of farmers. Under USAID financing, the Project would support long and short-term technical assistance, training of staff, production and acquisition of films and slides, printing material, equipment and spare parts and vehicles for both ACB and Audio-Visual Aid Units at the ADDs. Strengthening Extension Services in Mzuzu ADD 3.17 Extension Service. Since the Project would involve significant improvement in the present agricultural extension system with potentially far-reaching implications for ADDs, it would be reasonable to phase implementation to minimize abrupt changes and unnecessary disruptions in the current system. The Mzuzu ADD, as the second largest ADD and representative of most of the country's agricultural areas, has been  - 19 - selected as first phase of a national program to improve the extension service. Different types of mass media and approaches to information aad technology transfer would be tested under the Project. 3.18 Specifically, the Project would support a pilot mass communication scheme to identify more cost effective methods of dessiminating technical information to greaternumbers of men and women farmers. The high rate of illiteracy among adults in Malawi (estimated to be 47Z for those 15 years and older, but varying considerably between districts and between men and women) means that visual presentation is key to reaching the rural population. The Project would cover the costs directly attributable to this pilot scheme. Under USAID, the Project will also provide funds for an internationally recruited agricultural communication specialist who would provide guidance in designing, implementing and evaluating the mass communication scheme. Assurances were obtained at negotiations that DOA would introduce a mass communication scheme in the Mzuzu ADD not later than October 31, 1986 and furnish IDA with annual reports on progress made in its implementation. Such a scheme would be tested over a three year period to allow DOA to evaluate the results over several planting seasons before extending it to other ADDs. Under the Project, the "Block Extension System" would be improved and would expand its outreach,particularly to women. Farm home assistants (given their small number) would be provided with motor-scooters to allow them to cover a wider area and in this way, increase their contacts with women farmers. The Project would also finance staff houses, some offices, office furniture, marketing sheds, equipment, vehicles, the establishment and operating costs of selected demonstrations (and seeds multiplication by farmers' clubs 8/), and staff training. 3.19 Credit. Credit is increasingly important as the cost of inputs escalates and more advanced farming methods require larger cash outlays. The credit financed under the Project is limited to areas in the Mzuzu ADD where the Bank has previously financed infrastructure and where credit is needed to realize the full benefits of this investment and to new areas in the Mzuzu ADD where credit is needed to enable farmers to adopt new or improved technology. 3.20 Seasonal credit for purchased inputs would be provided to those farmers who are members of credit groups/clubs in the Kzuzu ADD, and who are judged by extension and credit staff to have performed well in the past, and who are interested in adopting improved farming practices and have good potential for increased production of groundnuts, beans, 8/ As the quality and quantity of confectionary nuts (an important crop in the Project area with good export prospects), has declined over the last decade, due,inter alia,to poor husbandry standards and a general decline in seed quality, the Project would initiate a small seed multiplication scheme in the Mzuzu ADD under the direction of a seed multiplication specialist (TOR, Annex III [DI) to introduce higher yielding improved varieties.  - 20 - tobacco, maize and cotton. Loans would be provided for the purchase of seasonal inputs, i.e. fertilizer seeds and other chemicals. The total funding requirements for incremental seasonal credit over the Project period are estimated at US$ 3.1 million. Funds for seasonal credit are relatively modest, since it is intended that credit to farmers would be in the nature of a pilot project. In the event that planned improvements in the present agricultural extension system in Nzuzu are substantially realized, additional funds (by way of physical contingency) are provided to supplement resources specifically allocated to credit. The current annual effective interest rate is about 13.5 percent. However, during Project implementation and subsequent to the study (para 3.21), the interest rate structure would be reviewed and adjusted to reflect cost of credit administration and cost of funds. 3.21 Agreement was reached at negotiations that the Government would carry out a study of the smallholder credit systems, including the adequacy of present interest rate structure and credit administration. Terms of reference for the study would be agreed upon between the Government and IDA by September 30, 1985. Results of the study would be submitted to IDA for review and comment not later than March 31, 1986. By January 1, 1987, GOM would implement the new lending structure throughout the ADDs including appropriate terms and conditions of the sub-loans to farmers. Extension - Research Linkages 3.22 Improvement of extension and research linkages would be fostered through the implementation of the National Agricultural Research Project (NARP) and the proposed investment. Adaptive Research Teams (ARTs) would be established under the NARP in all ADDs and would combine research and extension staff in a program of farming systems research and problem- solving, on-farm trials and demonstrations. The intended result of the program would be the generation of locally-specific production recommenda- tions to be used by the ADD extension services. These would include, inter alia, development of more suitable recommendations for women farmers, many of whom are heads of rural households. The Commodity Research Teams (CRTs) and the extension SMSs would play a critical support function to ADD staff with regard to both the local research program and technical recommendations to farmers. USAID would finance establishment of the eight ARTs in the ADDs. IDA would provide funds for vehicles for those ARTs established during Project implementation. E. Project Cost Estimates and Financing 3.23 The total costs of the proposed Project including all capital and recurrent costs and contingencies is estimated at MK 36.4 m (US$ 20.2 m equivalent) of which MK 27.6 m (US$ 15.3 m) or 76% is foreign  - 21 - exchange. Taxes and duties are negligible. A Project cost snmary appears in Table 3.1 below: *TZK EUU M NM= mr MXT mar or ur (RUM S) IKi WSO Z Tot - -- SI Fotim kw LCIIE FO,uig Tota Loca VOrui* TOWa Eidiui CotSU For i mm m - T & fl.Imo z.i .* 30.3 3,539.J 31.1 1.d3. 2,05.2 57 14 3. InTI BIlI SSTER anEL.1ff 311Wi..