Cameroon - Food Security Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-5392-CM MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$23.0 MILLION TO THE REPUBLIC OF CAMEROON FOR A FOOD SECURITY PROJECT MAY 1, 1991 This document has a restricted distribution and may be used by recipients only in the performance of their official dutles. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = CFA FRANC (CFAF) US$1 - CFAF 260 a/ WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS APCU - Aerial Pest Control Unit CFC - Credit Foncier du Cameroun FAO - Food and Agriculture Organization of the U.N. MINAGRI - Ministry of Agriculture MINASCOF - Ministry of Social Affairs and Feminine Condition NGO - Non-Governmental Organization OC - Office Cerealier FISCAL YEAR July 1 - June 30 a/ Exchange rate at end December, 1990. The exchange rate of the CFA Franc is fixed at 50:1 with the French Franc, which is a floating currency.  FOR OFFICIAL USE ONLY UPUILIC OF CANROON FOOM SRCTY PROJC LOAN AND PROJECT SMMIAY Borrowers Republic of Cameroon Beneficiariess Ministry of Agriculture (MINAGRI) Aerial Post Control Unit (APCU) Credit Foncier du Cameroun (CPC) Kinistry of Health (MINSA ?E) Amounts US$23.0 million equivalent Termes Standard IBRD terms, vith 20 years maturity including a five-year grace period Onlending Ter.m: Aerial Pest Control Unit (APCU). For the aerial locust control program in the North and Extreme North Provinces, an amount of US$2.2 million equivalent would be passed on to APCU by the Government in the form of a grant to replace obsolete equipment and provide training. Cr6dit Foncier du Cameroon (CFC). For the market infrastructure component, part of the proceeds (US$4.1 million equivalent) would be on-lent from Government to CFC at a fixed interest rate equal to the Bank rate plus 1.252 to cover for the foreign exchange risk covered by the Government with 20 years maturity, including a five-year grace period, and from CFC to municipalities, at an interest rate of at least 132, providing CFC with an adequate margin for its intermediation role. Loans to municipalities would be repayable over a maximum of 10 years, including a two-year grace period. An amount of US$0.5 million equivalent would be passed on to CFC in the form of a grant for consultant services. Micro-Projects Financing Scheme (FIMAC). For the micro- projects component, part of the proceeds (US$8.5 million equivalent) would be on-lent from Government to beneficiary groups for (i) commercial investments, at an interest rate not less than 15?, with a maximum repayment period of 4 years, and (ii) social-type and infrastructure investments, at no interest, with a maximum repayment period of 4 and 10 years respectively. This document has a restricted distribution and may be used by recipients only in the perfort.ance of their official duties. Its contents may not otherwise be disclosed without World Bank authoa i7atiet'.  Goveruent Us$1.8 mllion Beneficiaries 3.6 million APCU 1.4 million municipalities 1.7 mllion IBRD 23.0 million Japan 3.8 million World Food Program 11 Total US$35.3 million 1/ UPP would contribu, food for trainers, food for work ud ogrin as working capltal fo VIlloge satorage constrtion under componen (a) o project. Economic Rate of Returns Productive components: 152 11 Staff Appraisal Report: 9048-CM Maps IBRD No. 22073 e ERR reprsent. the minimu ylold for eligible micro-inveatmenta undr the FIMAC component, and market conetrueCion proj3ec to be fin- -9d by the lIno of credit. The economic enalyGi. of micro-investment mode owe that the minwm * eligibility criteria of 1X can be eaclly attained. Markot project. have a financial rate of return of 15%, ba e on verage a co M o se module end currnt mrket uor fee.  MORUI DIU AND RECOMHENDATION OF THE PRESIDENT OF TEE INTERNATIONAL BINK FOR RECONSTRUUCTION AND DEVELOPNENT TO TEH EXECUTIVE DIRECTORS 0N A PROPOSID LOAN TO THE REPUBLIC OF CANEROON FOR A POOD SECURITY PROJECT 1. The following memorandum and recommendation for a proposed loan to the Republic of Cameroon for US$23.0 million equivalent is submitted for approval. The proposed loan will be on standard IBRD terms with 20 years maturity. including a 5-year grace period, at the standard variable interest rate, and will help finance a food security project. Funds will be on-lent from the Government to Cr6dit Poncier du Cameroun (CFC) for market infrastructure with 20 years maturity including a S year grace period, at a fixed interest rate equal to the current Bank rate, plus a 1.252 margin for the foreign exchange risk assumed by the Government, while funds for training will be passed on in the form of a grant. CFC will charge an interest rate of at least equal to 132, providing adequate margin for its intermediation role. CFC loans will be repayable over a maximum of 10 years including two years of grace. For the aerial locust control program in the North and Extreme North Provinces, funds will be passed on to the Aerial Pest Control Unit (APCU) by the Government in the form of a grant to undertake locust control activities in the two Northern Provinces. Under the micro-projects component (FIVAC scheme), funds will be on-lent to beneficiaries at the market interest rate (not less than 152 p.a.), with a maximum repayment period of 4 years, for comercial projects, and at no interest, with a maximum repayment period of 4 and 10 years for social-type and infrastructure projects, respectively. The project will be cofinanced by the Japanese Government. Background 2. The Economy. After a period of robust growth from 1980 to 1985, the Cameroonian economy is in the midst of an economic crisis due to sharp deterioration in its terms of trade and falling oil production, exacerbated by economic mismanagement. Government intervention has been pervasive. Until recently, prices of both domestic and export crops were fixed and controlled, as were intermediary marketing costs and profit margins. Regulations were imposed on internal and external trade. The proliferation of parastatals, particularly in the agricultural sector, attests to the extent of public intervention. Between 1985 and 1988 per capita income fell by 22 percent. The emergence of domestic arrears and the decline in foreign assets created a liquidity crisis in the banking sector which exposed past imprudent lending practices, especially to public enterprises, inadequate supervision of financial institutions, and a rigid interest rate structure. External competitiveness was eroded by a domestic inflation rate higher than that of Cameroon's trading partners, and by the appreciation of the CFAF against the U.S. dollar. Together, these factors led to a 27 percent appreciation in the real effective exchange rate between 1985 and 1988. 3. Agricultural Performance. The agricultural sector grew at a respectable rate of 4.4 percent per annum in the 1965-85 period, and food production kept pace with population growth. Since 1986, however, the economy has deteriorated, and the agriculture sector has stagnated at best. Faced with the economic and financial crisis and limited short-term recovery prospects, the Government has adopted far-reaching macroeconomic and sectoral adjustment measure,. Cost  2 reduction, rationalization of public expenditures, and increasing productivity are central to the Government's adjustment program in all sectors. Agriculture. livestock, and forestry production are major potential sources of growth, given the favorable population land ratio (20 per hectare), below potential yields, and abundant natural resources. The recent declining trend in per capita food production should be reversed if agriculture is to grow at 3 to 4Z p.a. The food sub-sector's performance is critical to that of the entire sector as it accounts for more than 502 of total agricultural production and offers interesting export prospects to neighboring markets in Gabon and Nigeria. 4. Food Security Position. The Government of Cameroon defines food security as access to sufficient quantities of food to ensure a healthy and active life for its entire population, emphasizing availability of and accessibility to food as the main pillars of its Food Security Strategy. The country's historic food supply self-sufficiency tends to disguise structural and natural constraints which greatly affect the country's food security position. Low yields compared to potential, growing population, inadequate marketing outlets and post harvest infrastructure in storage, processing, and transportation discourage sustained expansion in food products. Poor infrastructure development and limited accessibility to agricultural areas in the South and East, and natural constraints, including recurrent droughts and endemic locust attacks in the North and limited land capacity in highly productive areas in the West imperil the country's food security position. Chronic food insecurity exists among the poor with low purchasing power and limited access to health and sanitary facilities. Malnutrition is found among children and pregnant women due to limited nutritional education, and overburdened mothers, lacking time to adequately feed young children. 5. Rapid urbanization during the last decade, and an aging rural population, places an increasing burden on the rural sector to expand food production. Prospects for increasing food production are favorable given Cameroon's wide range of agro-climatic resources, presently low yields compared to potential, and relatively free marketing system. However, inadequate marketing outlets and post-harvest facilities for storage, preservation, processing, and transportation discourage sustained expansion in food products. Preventive and curative health and nutrition programs have suffered severe budgetary cuts during the current financial crisis. Thus, the ability to assure access to a normal diet and a productive life to all members of households in Cameroon appears precarious in the medium term. Food imports, which have risen rapidly since 1980, are projected to increeie unless appropriate measures are taken to remove supply constraints, and to compensate local production for exchange rate distortions and dumping from food surplus countries. 6. Past and Recent Strategy. Past public investments were oriented towards increasing production through financing crop and development parastatals with limited development impact. Marketing interventions have been aimed at regulating food prices and supply, with very little result. Inadequate attention has been devoted to basic and maternal/child health care, and nutrition education has been largely neglected. Non-governmental programs to improve food security are concentrated mainly in rural areas, are ad hoc and respond to the needs of limited groups in certain areas. 7. Recognizing the above problems, the Government has revised its food security strategy, with Bank assistance. The Government's food security  3 strategy emphasizes agricultural growth as a basic ingredient for food security. Removal of supply constraints shall be achieved through agricultural intensification, which focusses on improving agricultural productivity of a significant number of farmers, particularly women, through improved national agricultural research and extension services. Food distribution shall be improved by reinforcing the existing liberal marketing onvironment for foodstuffs through better market information, removing infrastructure bottlenecks, upgrading marketing facilities, increasing on-farm and village-level storago, and promoting food transformation. The transitory food insecurity problem in the North will be partly addressed through the establishment of an early warning system for drougbts and other phenomena which adversely affect agriculture, contingency plass to be activated in time of drought, and a locust control program. 8. Removal of demand constzaints will be achieved by increasing purchasing power, particularly that of the poor, through income generating activities in rural areas. Improving the nutritional status of the population will be accomplished through nutritional education, reinforcing basic and maternalichild health care and increasing nutrition ingredient knowledge of local foods. Institutional food programs should be encouraged only when there is an ability to manage it and should be done by the private sector. A liberal food marketing environment shall be maintained, and food imports and exports liberalized over time. Domestic production of foodstuffs subject to international dumping and export subsidies will be protected through tariff-cum-subsidy schemes. 9. Implementation of Food Security Strategy. The Government has begun implementing the above strategy through various policy and investment decisions. Under the Structural Adjustment Program, the Government is in the process of liberalizing food imports except rice, sugar and palm oil. Quantitative restrictions on imports of these comnodities will be phased out in the longer term when the tariff-cum-subsidy schemes for such crops prove to be effective. The Government has decided to restructure the Office C4rdalier (0C) to permit it to play its role in regulating food supply and price, a mandate which OC has failed to achieve in the past. Moreover, these regulatory actions require massive subsidies which cannot be sustained during a period of severe financial constraint. Therefore, the Government will be requested to minimize public expenditure on OC, and to encourage private and village level initiatives in stabilizing price and food supply. 10. The Government is implementing programs with a view to improving agricultural productivity under the National Agricultural Research Project (FY87) and National Agricultural Extension and Training Project (FY90), with special emphasis on crop management and processing, much of which falls within the realm of women farmers. Improving the nutritional status of the population through better monitoring information, and reinforcing child and maternal health care centers are to be implemented under the Social Dimensions of Adjustment Project (FY90). The proposed project will complete implementation of the strategy by increasing food marketing efficiency and distribution, and supporting income generating, social and infrastructure micro-projects.  4 Rationale for 1)11D Involvement. 11. The Bank has been instrumental in helping the Government formulate and implement its food security strategy through various instruments mentioned above. The project will round out the Bank's involvement in food security forming an integral part of the structural adjustment strategy by cutting costs in the economy, alleviating the negative impact of adjustment measures on the population's accessibility to food, and fostering participation of the poor in the growth process. A number of donors are committed to supporting food security but have yet to make investments due to the lack of well-defined action programs. The Bank shall play a catalytic role in translating the Governmeat strategy into activities which would have a sustainable impact on the long term food security position of the country, and through the proposed project provide a vehicle for mobilizing donor support. Intervention under the proposed project will complement specific action programs carried out by BGos in their spheres of operation and will employ NGOs, where feasible, for training of staff and farmer groups, and disseminating new technology. 12. Project Objectives and Descrlption. The objective of the project is to improve access to and availability of food by creating opportunities for increasing employment and incomes of the poor, especially of omen's groups, addressing food marketing constraints, averting crop loss due to pest attacks, and improving feeding and dietary practices of children and women. This will be done through the following componentes (a) self-help micro-projects by rural com.rtnity groups for cash-generating commercial activities (e.g. retailing, manufacturing), non-cash generating social-type investments and infrastructure improvements (e.g. processing and transformation equipment, storage facilities, wells for water supply, rural tracks, and fish ponds); and provision of training for staff and commmnity groups in preparing and implementing micro-projects; financing of the social and infrastructure investments will be subject to capital reconstitution and cost recovery, while cash-generating investments will be financed through credits, subject to reimbursement of principal and interest; (b) an anti-locust program, focusing on the two Northern Provinces; (c) imaroving market facilities in secondar, cities and rural areas; (d) establishing an operational early warning system and a nationwide pricing and marketin& information system; and (e) developing and implementing a pilot nutrition education program through research, testing and dissemination of nutrition messages in high risk population groups as a basis of formulating a national nutrition education strategy. A breakdown of costs and the financing plan are presented in Schedule A. Procurement methods and disbursements are provided in Schedule B. Details on various aspects of Project are available in Staff Appraisal Report No. 9048-CM. 13. Risks. The main risk lies in the complexity in project implementation and supervision due to the multisectoral nature of the project. Concentrating the implementation of most of the components under one single ministry and involving qualified NGOs at the field level will facilitate project implementation and supervision. Other risks are associated with the capacity of the financial intermediary to manage the line of credit to municipalities, and the latter's ability to direct market construction projects and repay loans. The Government has recently approved changes in municiptlities' budgetary procedures providing for loan repayment guarantees. Implicating a viable financial Intermediary, the Credit Foncier du Cameroun. in the management of the credit line and provision for training of CFC and councils' staff will reduce the risk  S attached to this component. narmers' respect for project management guidelines and reconstituting funds is another risk under the project. Use of peer pressure among groups as veil as famers' collective assets will provide a guarantee for recovery of funde. Recovery of funds wil1 be administered at the local level by sponsoring agencies, including NGOs, who will be supervising several groups at a time, rotating funds among groups and using group pressure to reconstitute capital. Group leaders' training in mngement will mitigate the risk of associating farmers in the implementation of the micro-projects scheme. Although the proposed project does not finance pesticides, their use by APCU under the locust-control program poses a potential environmental hazard. Adoption of Bank guidelines for the sofe use of pesticides wos agreed to during negotiations. 14. Benefits. The project ill improve food distribution and hence reduce the cost of food to consumers, increase producers' income be averting loss from locust attacks, provide incentives to increased production and consumption of food produced domestically, create employment opportunities and increase incomes of the poor. By supporting marketing, processing, and transformation activities, the project will also help reduce the time devoted by women to these tasks, enabling them to dedicate more time to family nutrition and child care. Most importantly, the project will encourage self-help initiatives and respond to community needs. The demand-driven character of the micro-projects component is expected to be a major factor in ensuring project success. The EU for sub- projects (micro-projects, market infrastructure projects) is 15X. 15. Actions Agreed. Agreements which have been reached with the Government during negotiations are: (a) annual work plans and budgets; (b) final operating procedures for rural micro-projects; (c) establishing criteria for market rehabilitation and construction; and (d) adoption of Bank guidelines for use of pesticides. Prior to loan effectiveness the following actions will be takens (a) the trade regime will be amended to provide for removal of prior authorization for exports of animals, animl products and fishery products, and simplification of requirements for registration of exporters of food products with MINDIC; (b) execution of a work agreement satisfactory to the Bank between MINSANTE and the selected NCO in charge of assisting in the implementation of the nutrition component; Ic) execution of a subsidiary loan agreement between the Government and CFC; (d) execution of a grant agreement between the Government and APCU; le) appointment of qualified DEAPA staff for the coordination unit of the Early Warning and Market Information System; appointment of a qualified national coordinator for MINSANTE for the nutrition component; and appointment of key administrative staff at the central level for the micro-project. Disbursements after October 1 of each year under the micro-project component will be subject to Bank's satisfaction with progress of activities and audits of accounts during the previous year and approval of the detailed work program for the following year. A mid-term evaluation of the micro-project component will be undertaken. 16. avwiromental Impact. To mitigate the potential for health andlor environmental damage from pesticide applications, the following safeguards would be includeds (a) only those pesticides approved by FAO will be used; (b) Bank procurement and application guidelines for safe use of pesticides will be followed; and (c) the ongoing FAO training program in safe handling, which in the past has coincided with the anti-locust campaign, will continue. Other project activities are environmentally benipn.  6 1?. i ------ iatiam. I em satisfied that the proposed loan vould comply with the Articles of Agrement of the Intornational Bank for Reconstruction and Development and recommend that the BIecutive Directors approve the proposed loan. barber 3. ConAble President Attachments Vashington, D.C. Nay 1, 1991  Schedule A 1WLIC OP CANROON POOD 8SC TY PROJCT ZST1ATSD COST AND FIM4NCINO PLAN 1stimated Prolect Costs PRO