Uganda - Southwest Region Agricultural Rehabilitation Project

INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMNT c-iZ a665-uar DOCUMENT OF INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT Report No. 6961-UG STAFF APPRAISAL REPORT THE REPUBLIC OF UGANDA SOUTHWEST REGION AGRICULTURAL REHABILITATION PROJECT December 11, 1987 Appraised on Behalf of the International Fund for Agricultural Development by the World Bank Agriculture Operations Eastern Africa Department Africa Region 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 the authorization of the International Fund for AQgricultural Development (IFAD).  CURRENCY EQUIVALENTS Exchange Rate : US$ 1.00 - Uganda Shtllings (USh) 60.00 1/ : USh 1.00 = US$ 0.0167 : SDR 1.00 = US$ 1.32109 2/ : US$ 1.00 n SDR 0.75695 1/ After currency reform and exchlange rate adjustment of May 15, 1987 2/ As of 3ctober 31, 1987 WEIGHTS AND MEASURES Metric System CALENKAR Fiscal Year: July ' - June 30 Calendar Year: January 1 - December 31 Cropping Season: February - May August - December  FOR OFFICIAL USE ONLY ABBREVIATICNS AND ACRONY'S AD} - Agricultural Development Project (Credit 1539-UG) ARP - Agricultural Rehabilitation Project (Credit 1328-UG) CIAT - International Center for Tropical Agriculture DAO - District Agricultural Officer DFI - District Farm Institute DOA - Department of Agriculture EEC - European Economic Community ERP - Economic Recovery Program ERR - Economic Rate of Return GOU - Government of uganda ICB - International Competitive Bidding ICC - Interministerial Coordinating Committee IFAD - International Fund for Agricultural Development ILO - International Labor Organization of the United Nations IMF - International Monetary Fund LCB - Local Competitive Bidding MCM - Ministry of Cooperatives & Marketing M & E - Monitoring and Evaluation Unit MOA - Ministry of Agriculture MOLG - Ministry of Local Government PMB - Produce Marketing Board PMU - Project Management Unit RAO - Regional Agricultural Officer RCC - Regional Coordination Committee SIDA - Swedish International Development Agency SOF - Special Operations Facility UCB - Uganda Commercial Bank UNCDF - United Nations Capital Development Fund UNDP - United Nations Development Programme UNICEF - United Nations International Children's Emergency Fund USAID - United States Agency for International Development VTC - Variety Testing Center 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 the authorization of the International Fund for Agricultural Development (IFAD).  Li/At D~~~~> ?  UGANDA SOUTHWEST REGION AGRICULTURAL REHABILITATION PROJECT TABLE OF CONTENTS Page No. CREDIT AND PROJECT SUMMARY I ii I. PROJECT BACKGROUND AND THE AGRICULTURAL SECTOR A. Pr...ject Background ........... ... .. 1 B. Agriculture in the Sconomy..o ..................... 1 C. The National Economic Recovery Progrm ............ 2 D. Agricultural Institutions and Support Services..o. 5 S. IFAD and Bank Group Support....................... 8 II. PROJECT AREA AND BENEFICIARIES A. Area, Population and Living Standards ........................ 10 B Infrstructure .............................. ............. ... .... 12 C. Agriculture..o ..................... ............... 13 '. Agricultural Credit ...............,,.,.. . .... .... 14 S. Marketing .......... 16 F. Other Regional Devvlopment Activities............. 16 III. THE PROJECT A. Project Rationale...... ..................... ... 17 B. Project Objectives and Descriptiono..0.00..0. ..o.. 18 C. Detailed Features.0.0000....0..*0....*............ .. 19 Adaptive Research and Extension................ 19 Agricultural Inputs Supply..................... 20 Rehabilitation of Rural Access Roads........... 21 Project Management, MonitorinS and Evaluation.. 21 This report is based on the findings of an appraisal mission in May/June 1987, comprising J. Stemp and J. Coates (World Bank), and N. Chapman, I. Guest, P. Harrison and I. Walton (Consultants). The mission was &ssisted by R. Williams (IFAD). V. Ashworth contributee to the drafting of the report.  Page No. D. Project Costs .................................. . 22 E. Start-up Activities ......... .............. . 23 F. Financing .............................. 24 G. Procurement..........**.... o .......... . . .*........., 25 H. Disbursements.... ...................... 27 I. Accounts and Audits ......................... * ... 28 J. Women's Role ... ........... < 29 K. Environmental Impct............*...4444444444.44444444.29 IV. PROJECT IMPLEMENTATION A. Organization and Management........................ 30 B. Executing Agencies .................... 30 C. Training and TechnicalAssistance................. 35 D. Reporting, Monitoring and Evaluation... ......*.... 35 E. Implementation Schedules.......................... 37 V. PRODUCTION, MARKETS AND FINANCIAL ANALYSIS A. smallholder Prdcin...........................37 B. Marketin& of Project Output....................... 38 C. Financial Viability of Smallholder Production..... 39 VI. BENEFITS, JUSTIFICATION AND RISKS A. Benefits andJustification........................ 40 B. Economic Analysis.. ..... ................. 41 C. Risks .................................. 43 VII. AGREEMENTS REACHED .......................... 44 List of Tables Annexes Annex 1: Estimated Schedule of Disbursements Annex 2: Inflation and Exchange Rate Assumptions Annex 3s Project Cost Tables Annex 4: Cost-Benefit Analysis Annex 5: Project Area Data Annex 6: List of Documents Available in the Project File Annex 7: Implementation Schedule Annex 8: Project Area Map IBRD Map No. 20814  UOMID SOUTHWEST REGION AGRICULTURAL REHABILITATION PROJECT Credit and Proiect Summarv Borrower: The Republic of Uganda Amount: SDR 7.6 million (US$ 10.0 million equivalent) Terms: Standard IDA Terms with 40 year maturity Project Project objectives are to increase food production, incomes and Descrip- living standards of small farmers in the four districts of Southwest tion: Uganda. Project costs of US$ 27.4 include: (a) Adaptive Research and Extension: US$ 3.9 million for: (i) rehabilitation of two District Farm Institutes and imp:ovement of facilities at a research substation and a research farm; and (ii) strengthening of MOA's adaptive research and extension activities through provision of vehicles, equipment, technical assistance, training and incremental operating costs; (b) Agricultural Input Supplys US$ 8.1 million for (i) the procurement and sale of small, high volume inputs (hand tools, seeds, bicycles); (ii) vehicles, materials or equipment needed to strengthen marketing infrastructure; (iii) establishment of staff and warebouse at Mbarara for reception and distribution of goods; (c) Rural Access Roads: US$ 13.3 million for (i) a program of rehabilitation and spot repairs on 2,000 km of rural access roads; and (ii) provision of plant, equipment, and incremental operating costs including in-service training to MO'G to maintain the access road network; and (d) Proiect Management, Monitoring and Evaluation 1US$ 2.1 million) to enable MOA's Project Management Unit to coordinate implementation and administer a community development fund. Benefits and 7iska: The project will increase production of food by smallholders, resulting in increased incomes and nutrition. Reductions in transport costs from improvements in rural access roads will reduce the costs of inputs and consumption goods in the area, and increase producer prices through improved access and competition in the food market. The viability of this project depends on the maintenance of a supportive macroeconomic environment, which includes an appropriate exchange rate, adequate production izicentives and producer prices, the liberalization of food crop marketing policies and a reduction in the inflation rate. These have been agreed in the Economic Recovery Program. Project related risks which include: (i) consumer resistance to higher priced project inputs; (ii) delays in implementation; and (iii) lack of motivation amongst Government staff charged with project implementation, have been taken into consideration, and minimized, in the design of project implementation mechanisms.  - ii - Local tFrein Total ---(US$ million)------ Estimated Component Costs Rural Access Rds Rehabilitation 4.3 6.9 11.2 Agricultural Inputs 2.3 4.6 6.9 Adaptive Research and Extension 1.3 2.1 24 Monitoring and Evaluation 0.2 0.4 0.6 Management Support 0.3 0.8 1.1 Baseline Cost 8.4 14.8 23.2 Physical Contingencies 1.0 1.7 2.7 Price Contingencies 0.5 1.0 1.5 Total Project Cost 9.9 17.5 27.4 1/ Financing Plan IDA 3.6 6.4 10.0 IFAD 4.4 7.6 12.0 SOF 21 0.1 0.2 0.3 Government of Uganda 1.8 3.3 5.1 Total Financing 9.9 17.5 27.4 Estimated Disbursements from IDA Credit (US$ million) IDA Fiscal Year 88 89 90 91 92- 93 94 Annual O.1 0.9 2.0 2.5 2.4 1.6 0.5 Cumulative 0.1 1.0 3.0 5.5 7.9 9.5 10.0 ----------------------------------------------------------------- Economic Rate of Returns 152 Staff Appraisal Report No. 6961-UG IBRD Map No. 20814 11 Includes US$ 3.0 million in taxes and duties. 2/ IFAD's Special Operations Facility would finance project startup activities.  SOJTRWS? REGION AORICULTUML R=UB0LITQL=OE PROJEC I. PROJECT BACKGROUND AND THE AGRICULTURAL SECTOR A. Prolect Background 1.01 The Government of Uganda (GOU) has requested the International Fund for Agricultural Development (IFAD) and the International Development Association (IDA) to help finance the Southwest Region Agricultural Rehabilitation Project. The project, which includes the rehabilitation of access roads, improvements in agricultural extension and research, and the provision of agricultural inputs, would form part of a program to revitalize agriculture in Uganda, and assist small farmers to improve their income levels and living standards. 1.02 Project preparation was done by the Food and Agriculture Organization Investment Centre in 1985 following an IFAD mission in 1984. Project processing was delayed due to political changes which started in late 1985 and continued into mid-1986. The project was preappraised in November 1986, at which time the project scope was reduced -- rural water supply, seeds and livestock components were not included after GOU had obtained alternative donor assistance (paras 2.20-2.21). The preappraisal mission also identified a number of critical economic policy issues which needed to be resolved before appraisal could proceed. The Governamnt made major policy changes in May 1987, which addressed the pre-appraisal mission's concerns, and the project was appraised in May/June 1987. B. Agriculture in the Economy 1.03 Uganda is a landlicked country of 237,000 sq km with a population of about 15.5 million, over 90% of whom live in rural areas. The country's economy depends on agriculture for about 65% of GDP, 99% of exports (mostly coffee) and 93% of employment. Agricultural potential is good. Except for a few areas in the northeast, the country has fertile soils and receives adequate rainfall for successful crop production. Until 1970 Uganda had one of the strongest agricultural economies in Africa, but political instability over much of the past 15 years has seriously disrupted the agricultural sector and the economy. Output of all major commodities in 1980-85 was less than in 1966-70, in some cases substantially so. Agricultural export volumes, with the exception of coffee, are well below the level of 1966-70. Per capita food production is believed to have declined.  - 2 - 1.04 Land under cultivation is estimated at 5.5 million hectares. Average farm size varies considerably, ranging from 1.5 ha in the more populated fertile areas of the southwest, to 8 or 9 ha in northern Uganda. Most farmers have permanent user rights to the land they cultivate, although ownership usually rests with the tribal group. Grazing land and water sources are communally owned. In addition to food crops and livestock, cash crops such as coffee, cotton, sugar, tea and tobacco were important in the 1960s but, except for coffee, production declined sharply during the 1970s, and continues at a low level. Food crops such as finger millet, sorghum, maize, bananas/plantains, cassava, sweet potatoes, beans and groundnuts, always dominant in the farming pattern, have become even more so as cash crops have been neglected, the economy has contracted, and the transport and marketing system has deteriorated. 1.05 The livestock population has declined since 1978 and is now estimated at 3.5 million cattle, 3.5 million goats, 1.8 million sheep and 0.3 million pigs. Permanent grasslands (especially in Mbarara, Bushenyi, Moroto and Kotido), seasonal swamps, fallow areas and agricultural crop stubbles provide grazing land. The decline In livestock numbers and production was largely due to a breakdown of the disease control program. This has also resulted in tsetse fly reinf-station of previously cleared areas. 1.06 Given the near collapse of the economy and society, agricultural production at present involves low levels of capital outlay and input use by small and widely scattered farmers. With the limited technologies and inputs currently available, and the largely destroyed transport and marketing system, most farmers have moved towards a subsistence mode of production and, except for coffee, do not produce significant surpluses either for the domestic or export markets. C. The National Economic Recovery Program 1.07 In May 1987, GOU introduced a National Economic Recovery Program for the years 1987-19901/. The objectives of the Program are to: (i) restore price stability and a sustainable balance of payments position; (ii) substantially improve apacity utilization in industrial and agro-processing units; (iii) rehabilitate existing infrastructure and installed capacity; (iv) restore producer incentives through appropriate price policies and the use of markets; (v) restore discipline, accountability and efficiency in the public sector; and (vi) improve public sector resource mobilization and 1/ The Program is supported by and incorporated in IDA Credit 1844-UG (US$65 million), the African Facility Credit A-34-UG (US$24 million) and Special Joint Financing (ODA, UK) of US$16.0 million.  allocation. As an important first step towards achieving these goals, the Program includeds a major devaluation of the currency; currency reform and a currency conversion tax; substantial increases in official producer prices for cash crops (coffee, seed cotton, tobacco and tea), ELnd for exportable food crops (beans, maize, simsim, groundnuts, soyabeans'; an increase in the price of petroleum products; and a substantial increase in civil service salaries. These specific actions are supported by additional measures including the establishment of an Open General Licensing system for foreign exchange allocations and of a credit facility for local cover for imports, as well as the pursuance of fiscal and monetary policies consistent with the objective of stabilization. Agricultural Sector Strategies 1.08 The Economic Recovery Program (ERP) recognizes that restoring the Ugandan economy depends largely on rehabilitating the previously successful agricultural sector. In addition to political problems and economic mismanagement, agricultural development has been adversely affected by inefficient parastatal crop processing and marketing, by a lack of inputs and by delays in crop payments to producers. Further disincentives arose from low producer prices (particularly for cash crops) and an overvalued c-urrency, reinforced by weakened agricultural support services (research, extension), inadequate supplies of inputs and a severely deteriorated infrastructure. 1.09 Government's agricultural development policy focusses on smallholder production which is responsible for around 94% of output. The polic, aims to increase food production for self-sufficiency, and to increase and diversify agricultural exports. Agricultural development objectives include: (i) ensuring food security and adequate nutritional levels; (ii) increasing and diversifying the production of agricultural export commodities; (iii) producing adequate agricult,tral raw materials fo- domestic, agro-based industries; and (iv) increasing employment opporturities in the agricultural sector. As part of the program for achieving these objectives, it is intended to increase the production of the traditional cash crops and to promote the production of non-traditional export crops (para 1.07). 1.10 Increasing the supply of agricultural inputs, and restoring adequate price incentives for cash and food crop, will provide the major stimulus for increased production. The ERP commits GOU to the maintenance of realistic producer prices with periodic revisions to take account of trends in world prices, movements in the exchange rate and in domestic prices, as well as changes in productivity and taxation. Projects such as this regional rehabilitation effort will enable the productive response from the ERP to attain its full potential. GOU will further promote agricultural production through the provision of inputs and the rehabilitation of the processing industry. Cooperative Unions are being strengthened and crop  - 4 - financing will be improved through the direct provision of bank credit to cooperatives. The operation of parastatals will also be reviewed and action taken to improve the efficiency of operation and management of cash crop marketing. Multichannel marketing of food crops involving private, cooperative and public trade will be encouraged. The rehabilitation of the transport network will play a crucial role in increasing marketable supplies throughout the country. In the longer term, the Government is committed to the improvement of agricultural services such as research and extension. 1.11 Agricultural production in Uganda is relatively free of Government intervention and control. Its large subsistence and small scale sectors operate freely, and helped avoid economic catasts-ophe during the years of upheaval. The controls which are in effect are mostly concerned with the marketing of key export crops through marketing boards, and in the setting of producer prices. Prices of a few basic necessities which are in scarce supply, namely sugar, salt and soap, are also regulated pending an easing in the supply situation. 1.12 To provide a sound basis for the formulation of appropriate policies, the Government, with World Bank support, organized a number of Agricultural Task Forces which concluded their work in April 1987. Their recommendations cover a wide range of topics including marketing, agricultural inputs, agricultural creditt manpow