Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15877 IMPLEMENTATION COMPLETION REPORT MEXICO SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT (LOAN 2658-ME) June 28, 1996 Nexico Country Department Latin America and the Caribbean Regional Office 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 EQUIVALENT Currency Unit Mexican Peso (Mex$) Currency exchange rates during implementation Year Mex$/USS 1986 575.4 1987 1353.7 1988 2282.0 1989 2464.0 199( 2821.0 1991 2950.0 1992 3050.0 1993 3.1 1994 3.5 1995 6.5 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES I meter (m) = 3.28 feet (ft) I kilometer (km) - 0.62 mile (mi) I hectare (ha) = 10,000 m2 = 2.47 acres I square kilometer (krn2) 0.38 square miles (mi2) = 100 ha I metric ton (m ton) 2,205 pounds ABBREVIATIONS AND ACRONYMS AGSAL Agricultural Sector Adjustment Loan ANAGSA National Insurance Company, S.A (Compaffia Nacional de Seguros) ATICOCH Chiapas Coast Integrated Technical Assistance (Asesoria Tecnica Integral de la Costa de Chiapas) BANRURAL National Rural Credit Bank (Banco Nacional de Credito Rural) CNA National Water Commission (Comisi6n Nacional del Agua) CPNH National Commissioni of Water Planning (Comisi6n de Plan Nacional Hidriu)ico) DDR Rural Development District (Distrito de Desarrollo Rural) DRD Decentralization and Regional Development Project (Proyecto de Descentralizaci6n y Desarrollo Regional) FAO Food and Agriculture Organization (Organizacion para Alinsentaci6n y Agricultura de Naciones Unidas) FIRA Agricultural Trust Fund (Fideicomisos Instituidos en Relaci6n con la Agricultura) GDTT Gerencia de Distrito de Temporal Tecnificado GOM Government of Mexico IMTA Mexican Institute of Water Technologv (Instituto Mexicano de Tecnologia del Agua) MNIFAP National Institute for Forestry, Agriculture and Livestock Research (Irnstituto Nacional de Investigaciones Forestales, y Agropecuarias) O&M Operation & Maintenance PROCATI Agriculture Training, Extension and Research Program (Programa de Capacitaci6n, Asistencia Tecnica e Investigaci6n) PRODERITH Program for Integral Development of Humid Tropics (Programa de Desarrollo Rural Integral para el Tr6pico Humedo) SAGARD Secretariat of Agriculture Livestock and Rural Development (Secretaria de Agricultura, Ganaderia y Desarrollo Rural) SAR Staff Appraisal Report SARH Secretariat of Agriculture and Hydraulic Resources (Secretaria de Agricultura y Recursos Hidriulicos) SCS Soil Conservation Service (Servicio de Conservaci6n de Suelos de Estados LUnidos) SEDESOL Secretariat of Social Development (Secretaria de Desarrollo Social) SEMARNAP Secretariat of Environment, Natural Resources and Fisheries (Secretaria de Medio Ambiente, Recursos Naturales y Pesca) RCRD Regional Centers for Rural Development (Centros Regionales de DesarTollo Rural) UCT Technical Coordination Unit (tJnidad de Coordinaci6n Tiemnca) FOR OFFICIAL USE ONLY MEXICO SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT (Loan 2658-ME) IMPLEMENTATION COMPLETION REPORT Table of Contents Page No. Preface .............................................. i Evaluation Summary .ii PART I PROJECT IMPLEMENTATION ASSESSMENT A. Background 1 B. Project Objectives. 3 C. Achievement of Project Objectives. 4 D. Major Factors Affecting the Project. 6 E. Project Sustainability. 8 F. Bank Performance. 9 G. Borrower Performance ......... ........................ 10 H. Assessment of Outcome ......... ........................ 11 I. Future Operations ............. .......................... 13 J. Key Lessons Learned ......... ........................ 14 PART II STATISTICAL ANNEXES PART mI APPENDICES: A. Mission's Aide-Memoire B. Borrower Contribution to the ICR C. Subprojects Technical Summaries D. Map E. List of main reports and documents used in the ICR F. Satellite Imagery Interpretation maps This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents mauy not otherwise be disclosed wiLhout World Bank authorization. i IMPLEMENTATION COMPLETION REPORT MEXICO SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT PRODERITH-IH Loan 2658-ME Preface This is the Implementation Completion Report (ICR) for the Second Tropical Agricultural Development Project - PRODERITH-II (Loan 2658-ME) in the amount of $109 million equivalent, which was approved on March 4, 1986 and made effective on July 8, 1986. The Loan was closed on December 31, 1995, compared to the original target closing date of December 31, 1993. Total disbursements amounted to about $88.3 million, $20.7 million was canceled in August 10, 1988 and the final disbursement of about $7.0 million was made on May 17, 1996. This Implementation Completion Report was prepared by Jose Simas assisted by John Bowlin of the Mexico Country Department of the Latin America and Caribbean Regional Office and Jorge Rinc6n and Juan Morelli from FAO-CP. The report was reviewed by Carl Dahlman, Acting Director (LAMXC), Michael Baxter, Acting Manager (LASLG), Carmen Hamann, Lead Operations Specialist (LAMXC), and Anna Sant'Anna, Sector Coordinator (LAMXC). Preparation of this ICR is based on the findings of field visits to the project areas, supervision mission reports, interviews with government officials, project beneficiaries, and other Bank staff, and a review of material in the project file. The Borrower has contributed to the ICR by commenting on the draft ICR, and by preparing its own ex-post evaluation of the Project. The Borrower's summary is included as appendix B to the ICR. ii Evaluation Summary SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT PRODERITH - II Loan 2658-ME MEXICO Introduction 1. The Second Tropical Agriculture Development Project, PRODERITH-II (Loan 2658- ME), was designed to consolidate and expand the achievements of the First Agriculture Development Project, PRODERITH-I (Loan 1553-ME). PRODERITH-I was approved in 1978 with the objective of contributing to the development the Mexican wet tropical lowlands by investing in drainage, flood control, roads, and agriculture research and extension. As a second phase project, PRODERITH-II extended the methods proved in the first phase to a wider area of the tropical lowlands, including a total of eight subprojects, five selected during preparation and three others selected during early implementation (Table 6A, Part II)'. 2. In addition to PRODERITH-I and II, the Bank made two other loans to improve the productivity of humid tropical agriculture in Mexico, namely: the Chiapas Agriculture Development Project (Loan 2526-ME, approved April 30, 1985 and closed December 31, 1993); and the Rainfed Areas Development Project (RFADP) now under implementation. The latter was designed to support improvements agricultural productivity in rainfed areas, through investments in ten poor maize-growing states in Central and Southern Mexico, including the tropical states of Chiapas, Oaxaca, Veracruz and Guerrero. The RFADP overlaps geographically with PRODERITH-II in Veracruz and Chiapas. 3. The concept of PRODERITH-II grew from the analysis of a diagnostic study of the Gulf and Southeastem regions and from the lessons learned from the pilot project -- PRODERITH-I. The analysis concluded that the regions had excellent agricultural potential, but were constrained by physical, technical and socio-economic restrictions which could be overcome through the project. Project Objectives 4. The objectives of PRODERITH-II, as stated in the Staff Appraisal Report (SAR), were to: (a) alleviate poverty; (b) expand the rational exploitation of Mexico's tropical low lands; (c) increase agricultural productivity and production; and (d) strengthen agricultural and farmers' institutions. To meet these objectives, the project design included the following components: Cross references refer to the text of Part I, unless otherwise noted. iii (a) infrastructure construction in the subproject and pilot areas, including: (i) about 1,500 km of farm service roads; (ii) about 700 km of primary, secondary, and tertiary drains; (iii) about 1,400 supporting structures, such as culverts, fords, and bridges; and (iv) general civil works for storage, maintenance, and offices; (b) on-farm land treatment: (i) about 36,000 ha of field drains, ditches, and land smoothing; (ii) about 47,500 ha of soil conservation systems; and (iii) about 60,000 ha of mechanical clearing and major land smoothing; (c) procurement of heavy equipment and vehicles for operation and maintenance of infrastructure, and for production and construction operations; (d) strengthening of agricultural extension, farmer organizations and agricultural research; (e) training of farmers in techniques of integrated rural development, rural communications, producer organization, self management schemes, and production systems-oriented methodology in crop, livestock, and forestry production; (f) special studies as follows: (i) complementary studies on the subproject areas; (ii) detailed studies on the five new pilot areas; and (iii) marketing studies for the new project products; and, (g) technical assistance, through international consultants, in soil conservation and mass media communications. These activities extended two effective ongoing programs (the USDA Soil Conservation Service (SCS) and the Food and Agriculture Organization (FAO)), established under PRODERITH-I. 5. The project addressed the poverty alleviation objective by focusing on improving the economic conditions of about 40,000 rural families through: (i) more efficient use of local resources; and (ii) provision of improved infrastructure services. The second objective, expansion of the rational use of tropical low lands, was addressed through the combined use of technical, administrative and organizational interventions successfully tested under PRODERITH-I. The third objective, increase production and productivity, was the expected outcome all project activities. Finally, the fourth major objective, strengthening of agricultural institutions and promotion of producers' involvement in operation and maintenance (O&M) of infrastructure, was pursued as a method to ensure the future sustainability of project infrastructure. 6. All four major project objectives were substantially achieved (paras. 13-21). The economic analysis carried out at the time of project completion shows an overall Economic Rate of Return (ERR) for the project of about 14.2 percent in the eight subproject areas. This outcome was very close to the SAR projection for the delayed alternative of three years in achieving project benefits (Table 9, Part I). iv Implementation Experience and Results 7. The project was successful in achieving its development objectives, project outcomes are expected to be sustainable, and implementation performance was satisfactory (paras. 13-38 and paras. 46-53). Most project activities were carried out closely in accordance to project design as appraised. The only significant design changes that took place during implementation were related to the Pujal Coy-II subproject and the procurement of machinery (paras. 8, 29 and 39). However, the success of the project was affected by several factors which, if addressed in a timely manner, would probably have resulted in highly satisfactory implementation performance. These were generally under the control of implementing agencies, and include: (i) frequent changes in project coordination during implementation; (ii) implementation delays; (iii) inadequate budget allocations and execution; (iv) insufficient training of farmers to close the gap on modem technology; (v) delays in selecting and purchasing machinery; and (vi) inaccurate cost estimates at appraisal, which partly explains the large discrepancy between actual and projected project cost (paras. 22-32). 8. Project cost in nominal terms was $115.4 million, compared to $217.5 million estimated at appraisal (Tables 8 - A and B, Part II). In real terms (1995 constant US Dollars) total project cost was $143.2 million, or about 60 percent below SAR estimates (Table 8C, Part II). This substantial cost underrun resulted in less Bank financing and consequently partial loan cancellation. The major causes of this cost underrun include: (i) inadequate preparation and implementation of the Pujal Coy-II subproject; in fact, the design of the Pujal Coy-II subproject, which was equivalent to 40 percent of total project cost at appraisal, was changed from agriculture to lifestock, resulting in substantial infrastructure cost savings (para. 44); (ii) availability of additional funds from external sources for infrastructure implementation, not anticipated at appraisal (para. 30); (iii) project savings due to efficient procurement of civil works and improved engineering; (iv) two major peso devaluations during 1986- 1987 and 1994-1995, leading to corresponding reductions in loan disbursements (para. 23); and (v) exclusion of machinery from Bank financing due to delays in selection and procurement (para. 34). 9. The two-year implementation delay2 experienced by the project was mainly a result of: (i) insufficient budget allocations on the part of the government and delays in releasing budget funds, particularly during project start-up period (1987-89); (ii) accelerated deterioration in the provision of complementary agriculture services, including extension, research, and credit, by the Regional Centers for Rural Development (RCRD), the National Institute for Forestry, Agriculture and Livestock Research (INIFAP), and the National Rural Credit Bank (BANRURAL); and (iii) frequent changes in project management (paras. 31-34). 10. Bank Performance. Over all, the Bank performance was satisfactory. Its main strengths were: (a) appropriate response to a shift in government sector policy 2, The SAR anticipated the risk of a three-year delay in project implementation that could affect the benefits stream (SAR para. 3.17). v towards investments in rainfed agriculture in the poor Southern states; (b) effective involvement and assistance in project preparation and redirection of one of the eight subprojects (Pujal-Coy); and (c) efficient use of the lessons learned from the successful results of the innovative pilot project. (paras. 39-41). 11. Borrower Performance. Although the Borrower was unable to maintain stable project management, its implementation performance was satisfactory. However, the two-year delay in project completion can be attributed, in part, to the institutional instability which permeated project implementation. The project executing agency was changed by three administrative reforms, from the National Commission of Water Planning (Comisi6n del Plan Nacional Hidrculico - CPNH) in 1986-87, to the Mexican Institute of Water Technology (Instituto Mexicano de Tecnologia del Agua - IMTA) in 1987-89, and later to the National Water Commission (Comisi6n Nacional delAgua - CNA) in 1990-95. Overall project responsibility was shifted from the Secretariat of Agriculture and Hydraulic Resources (Secretaria de Agriculturay Recursos Hidrdulicos - SARH) in 1986-94, to the Secretariat of Environment, Natural Resources and Fisheries (Secretaria de Medio Ambiente, Recursos Naturalesy Pesca - SEMARNAP) in 1994-95. In total, there were five changes in the management of the project unit. The main strength of the Borrower's performance was the solid construction expertise and implementation capacity of SARH and CNA, accumulated over their many years of experience with agricultural infrastructure projects. The implementation of the project was carried out economically and almost on schedule, except during the initial and final stages (1986-89 and 1995), when government- imposed investment restrictions delayed project implementation and completion. The best performance was during the period 1990-94. (paras. 42-45). Summary of Findings, Future Operations, and Key Lessons Learned 12. The project made substantial contributions to poverty alleviation by: (i) generating approximately 30,000 new direct jobs in its subprojects; (ii) increasing farmers income by over $50 million3 equivalent per year, through improved agriculture production; (iii) introducing small cottage industries and backyard fruit orchards and domestic animal production managed by women's groups in poor rural communities; and (iv) improving welfare in rural communities through better infrastructure, especially roads and drainage networks. Complementary project activities also contributed to poverty alleviation, such as organization of women's groups for productive projects, and urban improvements in the participating ejidos (including water supply, self-help home improvement, and street rehabilitation) (paras. 16 and 46). 13. By making land suitable for agricultural production and providing extension, training, and technology transfer services, the project contributed to expand the rational use of land, achieving substantial increase in tropical fruit production (notably bananas, citrus, and pineapples -- about 15,000 ha), as well as improved pastures (about 3 The project generated an estimated US$ 25 million in incremental earnings for family labor and US$25 million in increased net farm income. vi 300,000 ha) and livestock. Tropical soil conservation practices were introduced through extension, with a potential impact on over 85,000 ha (paras. 17 and 47). 14. Production increased substantially as a result of the project. Expansion of production area averaged 35 percent for all crops, reaching over 90 percent for some crops, such as beans, cotton, pineapple, citrus, and banana. Less than expected growth in production area was observed in the case of rice, soybeans, and mango, partly due to imperfect crop choice at the project design stage and the land use change in the Pujal-Coy subproject (Table 6C, Part II). As a result of the introduction of higher value crops, the value of production increased by approximately 93 percent in the project area, reaching over 100 percent for several crops. Significant productivity growth occurred only in the case of sugarcane and pineapple. Overall, productivity growth was modest, compared to appraisal targets, partly due to unsatisfactory provision of agriculture services which delayed technology transfer and the adverse impact of agriculture price policies (paras. 18-20 and 48, and Table 6B, Part II). 15. The strengthening of agriculture organizations was substantially achieved through the installation of INIFAP laboratories, capacity building at IMTA and at the states, and institutional development of CNA. The promotion of farmers' organizations to take over the O&M functions is still on-going, along with purchase of relevant machinery, which has been provided for in the 1996 CNA budget. (paras. 21 and 49- 53). 16. Future Operations. Two main issues must be addressed when considering future operations for development of tropical agriculture in Mexico. First, whether or not the Bank should have another operation to assist investments in tropical agriculture and rural development in the Southern states. Second, what should be the institutional framework used and which implementing agencies should be involved, given the recent major institutional changes in Mexico, and taking into account the PRODERITH-II experience. The answer to the first question, should be yes, considering two factors: (a) the positive economical and social results achieved under PRODERITH-I and II; and (b) the fact that much still needs to be done, especially in Southem states, where poverty alleviation in rural areas is a high priority, and where an estimated 10 million ha suitable for intensive rainfed agriculture remain underutilized. On the issue of appropriate institutional framework, the PRODERITH experience indicates that future operations should be centered at the state level, supported, throughout the project cycle, by timely interventions of the relevant technical agencies operating at federal and state levels (paras. 54-56). Key Lessons Learned 17. Rural development projects, such as PRODERITH, represent a viable model for the investment of federal resources in the poorer regions of the country. Two innovative factors contributed to the success of the model: (a) the active participation of local producers, and (b) the cumulative impact of investments made by the private and public sectors. This investment strategy is recommended for the Southern tropical vii states, such as Chiapas, where many other federal and state funds seem to be dissipated without significant productive results. 18. The main lessons learned from PRODERITH-II that are relevant to the preparation of future projects, include (para. 57): * project design based on a successful pilot experiment leads to better choice and design of subprojects, and fosters well targeted government-financed investments, which in turn can represent a valuable contribution to an overall poverty reduction strategy; * project flow of funds and Bank disbursements can be improved through priority scheduling of project investments and by the delegation of greater authority over the management of project funds to the project executing agencies; * the organization of local producers, established as a priority from the very beginning of the project, creates a sustainable basis for O&M of project infrastructure and contributes to overall project success and sustainability; n promotion and involvement of private sector investments in tropical agriculture is especially desirable in the case of fruits and perishable products, given their specific technology, delicate handling, packing, marketing, and high costs for industrial processing; the effort to promote private investment should be part of project design from the outset; e working more closely with state authorities, mitigates the adverse effects caused by excessive federal government centralization and constant changes in project management. State involvement in project design and implementation can be enhanced by: (a) seeking state commitment to the project at the design stage; and (b) leaving a fair amount of decision-making to the states, throughout the project cycle, * the inclusion of livestock (double purpose cattle, goats, and sheep) and the improvement of pastures, proves to be an important and complementary activity to agriculture in tropical areas, and may contribute significantly to farm income growth; * there is need to pay closer attention to the O&M of infrastructure, by promoting appropriate local organization to respond for it, through the provision of training, strengthened administrative capacity, appropriate machinery mix, and appropriate instruments to collect fees to ensure self- sufficient O&M; to this end, it is more effective to rely on producer's organizations for O&M than to use outside contractors; * project management instability at the federal level negatively affects project implementation performance, and should be minimized through viii decentralization of most implementation functions to the state level and closer project supervision; and, * the availability of credit accelerates on-farm investments, specially for poor farmers, such as the majority of the farmers settled in the ejidos of the Southem states covered by PRODERITH-II. Project design did not include a line of credit to farmers, because it assumed that credit from other sources would be available. This proved not to be the case, and project outcomes suggest that production growth could have been much higher and occurred earlier in the project cycle, if credit was available. 1 PART I - PROJECT IMPLEMENTATION ASSESSMENT A. BACKGROUND AND SUMMARY OF IMPLEMENTATION HISTORY 1. The Second Tropical Agriculture Development Project, PRODERITH-IH (Loan 2658-ME), was designed to consolidate and expand the achievements of the First Agriculture Development Project, PRODERITH-I (Loan 1553-ME). PRODERITH-I was approved in 1978 with the objective of contributing to the development the Mexican wet tropical lowlands by investing in drainage, flood control, roads, and agriculture research and extension. As a second phase project, PRODERITH-II extended the methods proved in the first phase to a wider area of the tropical lowlands, including a total of eight subprojects, five selected during preparation and three others selected during early implementation (Table 6A, Part II). 2. In addition to PRODERITH-I and II, the Bank made two other loans to improve the productivity of humid tropical agriculture in Mexico, namely: the Chiapas Agriculture Development Project (Loan 2526-ME, approved April 30, 1985 and closed December 31, 1993); and the Rainfed Areas Development Project (RFADP) now under implementation. The latter was designed to support improvements agricultural productivity in rainfed areas, through investments in ten poor maize growing states in Central and Southem Mexico, including the tropical states of Chiapas, Oaxaca, Veracruz and Guerrero. The RFADP overlaps geographically with PRODERITH-II in Veracruz and Chiapas. 3. During the last decade, the Bank supported five other agricultural projects designed to raise sector efficiency through public investments. These are: (i) Agricultural Extension Project (PROCATI), designed as a pilot project to strengthen public agricultural extension and adaptive research, for which Loan 2859-ME of $20 million was approved June 1987; (ii) Irrigation and Drainage Sector Project, designed to transfer irrigation districts to user associations, rehabilitate infrastructure, and promote new investment and sector policy changes, for which Loan 3419-ME of $400 million was approved December 1991; (iii) Agricultural Technology Project (ATP), aimed at strengthening the generation and transfer of agriculture technology, building upon on the pilot experience of the PROCATI, for which Loan 3465-ME of $150 million was approved May 1992; (iv) two Decentralization and Regional Development Projects (DRD), designed to implement the largest public poverty reduction program established by the government for the poorest states, were partly financed by Loan 3310-ME of $350 million, approved in March 1991 (DRD-I), and by Loan 3790-ME of $500 million, approved in September 1994 (DRD-II); the focus of these two project is on investments in the states of Chiapas, Guerrero, Hidalgo, Oaxaca, Michoacan, Puebla, Veracruz, and Zacatecas; and (v) On-Farm and Minor Irrigation Networks Improvement Project, designed to improve the efficiency and self-reliance of the irrigation subsector through shared investments by beneficiaries and the government, for which Loan 3704-ME for $200 million was approved in February 1994 (Table 2, Part II). 2 Summary of Implementation History 4. The implementation of PRODERITH-I can be divided into three major periods: (i) project start-up, 1986-89; (ii) accelerated implementation, 1990-94; and (iii) project decline and completion, 1995. 5. The project start-up period (1986-89) was marred by several institutional changes and a major economic crisis in Mexico, when prices declined and investment projects throughout the country were adversely affected. As a result, the start-up of project implementation was much slower than originally anticipated. One of the most important institutional changes during this period was the dissolution of the previous River Basin Executive Commissions, initiated and developed under the pilot PRODERITH-I and originally responsible for PRODERITH-II. As a consequence of this event, project implementation and coordination functions were transferred to the National Water Plan Commission (Comisi6n del Plan Nacional Hidraulico -- CPNH), which also completed PRODERITH- I. Subsequently, with the creation of the Mexican Institute of Water Technology (Insfituto Mexicano de Tecnologia del Agua -- IMTA), the IMTA assumed the functions of the CPNH and took over the responsibility for PRODERITH-II. In early 1989, the National Water Commission (Comisi6n Nacional del Agua -- CNA) was created and incorporated IMTA as one of its dependent agencies. 6. During the 1990-94 period, the project entered into an accelerated pace of implementation. Although project budgets were still lower than planned, disbursements were timely and well distributed among subprojects. In March, 1991, IMTA functions were redefined to focus on technical assistance, training and institutional development, while CNA's became exclusively responsible for infrastructure. At the subproject level, technical coordination units (Unidades de Coordinaci6n Tecnica -- UCTs) were created to manage field activities involving assistance to farmers in the areas of production techniques, training, and organization. The UCTs effectively acted as Non-Government Organizations (NGOs), with IMTA funding and supervision. Access to appropriate technological information was assured by IMTA through technical cooperation agreements with FAO and the SCS. 7. This period was characterized by intensive diversification and extension of agriculture production in the project area. An additional 55,000 ha were put under production, equivalent to 3 5 percent growth compared to pre-project production records. The most important increases were observed in tropical fruits, improved pastures, and permanent crops, notably cotton. The private sector accompanied the growth in production by increasing investments in the areas of fruit packing, marketing and agroindustries. The impact of these private investments was significant, particularly in the case of agroindustries established in the Centro de Veracruz and Zanapa-Tonali subprojects, and private fruit packing houses installed in the Sierra de Tabasco, El Bejuco, and Tizimin subprojects. Supporting this process, the UCTs established a rural communications network program, with assistance from FAO, and targeted its activities to farmer's self- sufficiency and sustainability. Special attention was given to the promotion of women's productive projects, which resulted in more than 300 small projects such as: cottage industries, small groceries stores, small orchards, vegetables gardens, dairy cattle, and small animals. At the same time, several ejidos in the project area were improved through small 3 infrastructure and productive investments, including water supply systems, small brick manufacturing plants for self-help housing construction, and earth moving and gravel lining of the main streets. The project closing date was extended by two years, from December 31, 1993 to December 31, 1994, and subsequently to December 31, 1995. 8. In 1995, the project completion phase was negatively affected by uncertainties associated with a new national administration, major institutional changes introduced at the sector level, and by recession since December 1994. Climatic adversities also had a negative impact in the final year of project implementation. An administrative reorganization, which took place at the federal level in late 1994, changed the organization and functions of the CNA, by transferring the responsibilities of the SARH to two new Secretariats: the Secretariat of Agriculture, Livestock and Rural Development (Secretaria de Agricultura;, Ganaderia y Desarrollo Rural - SAGARD) and SEMARNAP. In this context, CNA became a dependent agency of SEMARNAP. The CNA administration had difficulties adapting to its new role and institutional setting. These institutional changes combined with the economic recession, led to budget cuts and reallocations which further limited the already small CNA project budget for 1995. As a result, most project activities programmed for 1995, especially the continuation of UCTs and the procurement of machinery, were not carried out and had been reprogrammed for 1996. B. PROJECT OBJECTIVES 9. The concept of PRODERITH-II grew from the analysis of a diagnostic study of the Gulf and Southeastern regions and from the lessons learned from the pilot project -- PRODERITH-I. The analysis concluded that the regions studied had excellent agricultural potential, albeit constrained by physical, technical and socio-economic restrictions. The physical constrains were: (a) lack of communications, (b) no protection against flooding, (c) lack of macro- and on-farm drainage, (d) unmitigated effects of seasonal droughts, (e) inadequate soil conservation practices, (f) lack of improved pastures, and (g) inappropriate indigenous foliage clearing practices. The technical-productive problems facing the area farmers were mainly linked to poor agricultural technology. The socio-economic problems facing the region comprised: (i) conflicts over land ownership, (ii) very skewed distribution of income, (iii) lack of investment capital, and (iv) community resistance to technological innovations and government-sponsored programs. 10. To overcome these constraints and realize the agriculture potential of the regions, the objectives of PRODERITH-II, as stated in the SAR, were to: (a) alleviate poverty; (b) expand the rational exploitation of the tropical low lands; (c) increase agricultural productivity and production; and (d) strengthen agricultural and farmers' institutions. 11. The project addressed the poverty alleviation objective by focusing on improving the economic conditions of about 40,000 rural families through: (i) more efficient use of local resources; and (ii) provision of improved infrastructure services. The second objective, expansion of the rational use of tropical low lands, was addressed through the combined use of technical, administrative and organizational interventions successfully tested under PRODERITH-I. The third objective, increase production and productivity, was the 4 expected outcome all project activities. Finally, the fourth major objective, strengthening of agricultural institutions and promotion of producers' involvement in O&M of infrastructure, was pursued as a method to ensure the future sustainability of project infrastructure. 12. These objectives were realistic, important to the Mexican tropical agriculture sector, and consistent with Bank's Country Assistance Strategy (CAS). Consequently, the objectives were not modified during the implementation period (1986-1995). C. ACHIIEVEMENT OF PROJECT OBJECTIVES 13. The project substantially achieved all the major objectives stated in the SAR. Project design was appropriate for achieving these objectives, although the criteria for judging their achievement was not clearly quantified in the SAR. During a supervision mission carried out in November, 1994, the Bank and the government agreed on a set of key indicators to monitor the achievement of the original project development objectives and to measure progress in the implementation of physical targets. This set of indicators were monitored for the project as a whole and for each subproject, as recommended in the SAR and confirmed in the project mid-term review of 1992 (Tables SA, SB, and SC, Part II). 14. Economic Rate of Return (ERR), and Net Present Value (NPV). At appraisal, the ERR for the project was estimated at 23.3 percent, based on the incremental value of crop and livestock production over a 20-year period. Increased production was the expected outcome of infrastructure improvements and dissemination of appropriate technology. Secondary benefits from drains and roads were excluded in this ex-ante economic analysis, even though these investments were expected to have considerable impact beyond the immediate project beneficiaries. The original economic analysis accounted for the costs of three proposed pilot projects (Isla Rodriguez Clara, Sierra de Tabasco and Bejuco) but not for their expected benefits. Sensitivity analysis, carried out at appraisal, indicated that a 20 percent increase in project costs would reduce the ERR to 19 percent, while a 20 percent decrease in project benefits would reduce the ERR to approximately 18 percent. The combined effects of these higher costs and lower benefits, would result in an ERR of 14.5 percent, and a 3-year delay in achieving project benefits would also reduce the ERR to 14.5 percent. 15. The economic analysis carried out at the time of project completion shows an overall ERR for the project of about 14.2 percent in the eight subproject areas, excluding the area of Chiapas which was incorporated into the project only in 1994. This outcome was very close to the 14.5 SAR projection for the delayed alternative of three years in achieving project benefits (Table 9, Part II). At the subproject level, the economic analysis shows wide variations in the ERR, as follows: Centro de Veracruz (21.5%) and El Bejuco (19.1%) appear as the best performers, and Pujal-Coy (11.5%), Isla Rodriguez Clara (11.4%) and Oriente de Yucatan (9.8%) as less successful ones. The NPV for the project, estimated at a 10 percent discount rate, is $23.7 million. This value is considered satisfactory although the two individual subprojects (Oriente de Yucatan and Isla Rodriguez Clara) performed marginally (Table 9, Part II). 5 16. Poverty Alleviation. The project had a very substantial favorable impact on poverty alleviation. An estimated 52,100 poor families benefited from the project, or 12,100 more families than anticipated at appraisal. About 30,000 new direct jobs (6.5 million person days of employment) were generated in the eight subproject areas. This represents a 16 percent increase over the 25,800 full time jobs targeted at appraisal. The income of rural families grew by $1,220 per year, or approximately 37 percent in constant US Dollars of 1995, increasing from about $ 3,320 p.a. in 1986 to $4,540 p.a.in 19954 (Table 5A, Part II). These data were obtained through the analysis of representative farm models combined with the actual land use maps prepared by IMTA from satellite imagery interpretation (Appendix F). Substantial community benefits were also achieved through the organization of women's groups for productive projects, and urban improvements at participating ejidos, which included water supply, gravel lined streets, and self-help housing improvements (para. 46). 17. Expansion in the Rational Use of Tropical Low Lands. The project achieved positive results in promoting more rational use of tropical low lands through the introduction of: (i) sustainable soil and water conservation practices, covering 85,000 ha; (ii) the expansion of tropical fruit cultivation by 15,000 ha; and (iii) improved pastures on about 300,000 ha. These results can be considered satisfactory compared to SAR projections (Table 6A, 6C, Part II and Appendix F). 18. Production and Productivity Growth. The SAR assumed that the project would remove constraints to agricultural development in the selected areas, through drainage and road development, and by encouraging the adoption of improved production practices. The area under rainfed cropping (mainly staple grains) was to increase by about 216,000 ha, primarily by substituting agricultural production for extensive livestock. At completion, total cropped area in the eight subprojects increased by 55,000 ha, a 35 percent increase over pre-project production levels, but substantially lower than the SAR estimates. Less than expected growth in production area was observed in the case of rice, soybeans, and mango, partly due to inappropriate crop choice at the project design stage and the land use change in the Pujal-Coy subproject, where the growth in cropped area was much smaller than anticipated (para. 29 and Table 6C, Part II). Significant productivity growth occurred only in the case of sugarcane and pineapple. Productivity grew less than expected at appraisal in the case of staple grains like maize, benas, sorghum, and rice (Table 6B, Part II). Yield growth was much smaller than anticipated, due to the continuous declining performance of the SARH extension services during project implementation and the adverse impact of agricultural price policies (Table 6B, Part II). 19. As a result of the introduction of higher value crops, the value of production increased by approximately 94 percent in the project area. The value of production increased from $121 million in 1986 to $235 million in 1995 (Table 6D, Part II). Fruit production accounts for 4. These estimates include the value of production for self-consumption (maize, beans, etc.), as well as the value of the family labor involved in production. Farm models were prepared in FARMOD. For each new direct job generated on-farm, an estimation of two additional jobs are to be generated off-farm level. This ratio is typical of tropical agriculture production for fruits and vegetables. 6 $49 million of the $114 million net increase in production value in the project area, reflecting land use changes towards higher value crops (tropical fruits, sugarcane, and vegetables) and small incremental growth in cropped areas (Tables 6C and 6D, Part II). 20. For most crops contemplated in the SAR (cotton, bananas, tomato, pineapple, citrus, melons, watermelons, sugarcane, and milk), the value of production grew by over 100 percent (Table 6D, Part II). However, the value of production for maize, beans and meat grew only moderately, ranging from 21 to 83 percent, and there was little or no increment in the case of mango, papaya, sorghum, rice, chile, soybeans, safflower, and tobacco. The poor outcome observed in the case of these crops, can be explained by the combined effect of the following factors: (i) smaller incremental cropped area; (ii) poor productivity gains due to failures in the extension services; (iii) the climatic variations in rainfall patterns, which is a natural condition of rainfed projects; and (iv) lack of incentives associated with agricultural price policies that prevailed during project implementation. 21. The Strengthening of Agriculture and Farmer's Organizations which resulted from the project was substantial (Table 5C, Part II). The main achievements in this area were: (i) capacity building in IMTA and CNA; (ii) a significant increase in assisted or created farmer's organizations; (iii) farmers' training, primarily during the 1992-94 period; and (iv) successful organization of women's groups for productive projects. D. MAJOR FACTORS AFFECTING THE PROJECT 22. The project was successful in achieving its development objectives, project outcomes are expected to be sustainable, and implementation performance was satisfactory. However, the success of the project was affected by several factors which, if addressed in a timely manner, would probably have resulted in highly satisfactory implementation perfornance. These factors are described below. Factors Not Subject to Government Control 23. Two major financial crisis substantially affected project implementation, during its start-up (1986-1989) and during its completion (1995). Both crisis affected project budget allocations and, as a result, the implementation of the project was delayed by two years. The hurricanes Gilbert and Cristian in 1988 and hurricanes Roxane and Opal in 1995 also affected the project areas in the States of Tamaulipas, Chiapas, Yucatan, Tabasco, and Veracruz, requiring emergency actions which resulted inexpected demands on government funds resources that otherwise would have been allocated to the project. In addition, several other economic factors created an unfavorable environment for private investments in the agricultural sector by farmers and entrepreneurs. The most important of these factors were the down-trend in international prices of agriculture commodities, and an almost permanent crisis in the Mexican financial sector. 7 Factors Generally Subject to Government Control 24. The institutional and administrative arrangements for project implementation were unstable and subject to frequent change. There was weak inter-institutional coordination between the main implementing agency and other institutions such as INIFAP, BANRURAL, ANAGSA, and RCRD, whose performance was declining at an accelerated rate. These facts substantially affected the achievement of the third project objective of increasing production and productivity, considering that project outcomes could have been much better under more stable and effective institutional arrangements. 25. Project implementation was negatively affected by four changes in the main coordinating agency: (i) CPNH, 1986-1987; (ii) IMTA, 1987-1991; and (iii) CNA, 1991-1995. In late 1994, responsibility over the project was shifted from SARH to SEMARNAP. The latest change, affected CNA policy towards agriculture and led to implementation delays in 1995. 26. During the last decade, the agricultural sector was adversely affected by national monetary, exchange rate, and agriculture price policies, the latter clearly reflected in wide variations in input and output prices. These factors impacted on project performance as disincentives to agriculture production, driving farmers to use low technology (low cost/ha) production systems, which in turn led to lower productivity. Factors Generally Subject to the Control of Implementing Agency (CPNH, IMTA, CNA) 27. Among the factors which negatively affected the project implementation and were generally under the control of implementing agencies, the main ones are: (i) frequent changes in project coordination during implementation; (ii) implementation delays; (iii) inadequate budget allocations and execution; (iv) insufficient training of farmers to close the gap on modern technology; (v) delays in selecting and purchasing machinery; and (vi) inaccurate cost estimates at appraisal, which partly explains the large discrepancy between actual and projected project cost. 28. Constant changes in the management of the project coordination unit is one of the most important factors that affected the project. During nine years of implementation, the project manager was changed five times. 29. Project cost in nominal terms was $115.4 million, compared to $217.5 million estimated at appraisal (Tables 8 - A and B, Part II). In real terms (1995 constant US Doliars) total project cost was $143.2 million, or about 60 percent below SAR estimates (Table 8C, Part II). This substantial cost underrun resulted in less Bank financing and consequently partial loan cancellation. The major causes of this cost underrun are: (i) inadequate preparation and implementation of Pujal Coy-II subproject; in fact, the design of the Pujal Coy-Il subproject, equivalent to 40 percent of total project cost at appraisal, was changed from agriculture to lifestock, resulting in substantial infrastructure cost savings; (ii) availability of additional funds from external sources for infrastructure implementation, not anticipated at appraisal; (iii) project savings due to efficient procurement of civil works and improved engineering (para. 28); (iv) two major Peso devaluations during 1986-1987 and 1994-1995, 8 leading to corresponding reductions in loan disbursements; and (v) exclusion of machinery from Bank financing due to delays in selection and procurement. 30. The infusion of additional funds from external sources was particularly evident in the case of roads, where funds from PEMEX and state governments were used to execute a substantial part of the major roads program, resulting in significant savings in the project budget. These savings perrmitted the inclusion in the project of the Costa de Chiapas and Margaritas-Comitan subprojects in Chiapas, in 1994. In addition, the two major Peso devaluations during 1986-1987 and 1994-1995, resulted in substantial reductions in disbursements due to the loss in value of the Peso. 31. The two-year implementation delay5 experienced by the project was mainly a result of: (i) insufficient budget allocations on the part of the government, and delays in releasing budget funds particularly during project start-up period (1987-1989); (ii) accelerated deterioration in the provision of complementary agriculture services, including extension, research, and credit, by RCRD, INIFAP, and BANRURAL; and (iii) frequent changes in project management. 32. Low budget allocation and the slow release of budget to the decentralized units in the field affected the project implementation. This condition was particularly pronounced in the year 1995. 33. The farmers' training program was unevenly carried out. During the project start-up period (1986-90), training was limited due to the accelerated deterioration of the RCRD. The project's best implementation phase was during the 1991-94 period, with the creation and valuable contributions from the UCTs. Unfortunately, in 1995, the benefits from the UCTs ceased, due to institutional changes which affected the CNA. 34. The selection and purchasing machinery was another weak point in PRODERITH-IH. In this context, two groups of machinery should be highlighted: (i) soil conservation and drainage machinery (terracing plows, "de-rocking", and open ditch trenchers); and (ii) infrastructure maintenance equipment (for roads, drains, and levees). During the last four Bank supervision missions, this problem was constantly brought to the attention of CNA. However, unwillingness to provide equipment for producer groups was an old bias in SARH carried over to CNA, since both agencies tend to rely excessively on contractors to perform minor on-farm and maintenance works, rather than creating a sustainable capacity among beneficiaries to do the maintenance under a self-sustainable basis. E. PROJECT SUSTAINABILlTY 35. It is likely that the four main objectives achieved by the project will be sustainable, in view of the following developments: (i) improved institutional conditions; (ii) strong 5. The SAR anticipated the risk of a three-year delay in project implementation that could affect the benefits stream (SAR para. 3.17). 9 commitment on the part of project beneficiaries and local authorities; and (iii) substantial private investment in the project areas. 36. CNA is a now stable institution, with competent, well trained, and relatively well paid staff. CNA has maitained its lasting commitment to the project by transforming the project unit into a permanent organization for the Management of Rainfed Development (Gerencia de Distrito de Temporal Tecnificado - GDTT), as part of the Subdirectorate General of Operations. CNA intends to continue to support the project in the areas of policy, management, and technical assistance, with its own funds, and will procure project machinery under its 1996 budget. 37. Project beneficiaries perceive the social and economic impact of the project to be substantial. Similar appreciation is expressed by state and municipal governments, particularly in the states of Yucatan, Tabasco, Veracruz, San Luis Potosi, Tamaulipas and Nayarit. This represents a strong local base for the activities established by the project, which is likely to ensure that the project objectives will continue to be sustained over time. 38. Private investments in the subproject areas, from both entrepreneurs and ejidos, demonstrate a strong commitment to sustainable production in the future. Most notably, these investments were made in the states of Tabasco, Veracruz, Nayarit, and Tamaulipas in the development of tropical fruit orchards (citrus, bananas, pineapples), permanent crops (i.e. sugar cane), and increases in livestock and aquaculture. Based on satellite imagery analyzed together with cost data from farm models, total private on-farm investment in the project area was estimated at over $ 200 million. The value of private off-farm investment was not calculated, but is also significant, particularly in packing, processing and marketing fruits and perishable produce and other agroindustry activities. In both cases, public financed infrastructure provision proved a major incentive for private investment. F. BANK PERFORMANCE 39. Over all, the Bank performance was satisfactory. Its main strengths were: (a) appropriate response to a shift in government sector policy towards investments in rainfed agriculture in the poor Southern states; (b) effective involvement and assistance in project preparation and redirection of one of the eight subprojects (Pujal-Coy) from agriculture to livestock production; and (c) efficient use of the lessons learned from the successful results of the innovative pilot project. 40. Identification, Preparation, and Appraisal Performance were satisfactory. All three stages benefited substantially from the experience of PRODERITH-I, especially with respect to design improvements and faster project processing. The Bank was responsive in providing the best assistance and expertise on all relevant aspects (technical, financial, economical, commercial, institutional, environmental, and social). The two weak areas in Bank performance during project preparation and appraisal were: (i) not agreeing with the Borrower upon a clear set of indicators to monitor the project development objectives; and (ii) failing to include in project design a specific line of credit targeted to small farmers. In the absence of such component, small farmers in the project area did not have access to 10 rural credit for on-farm investments, leading to lower production growth rates. The first problem was corrected at a late stage of project implementation, in 1994, when the new task manager began to plan the prepartion of the ICR. At that time, the Bank agreed with CNA on specific monitoring indicators that were applied as of the 1993 project progress report (Tables 5A, 5B, and 5C, Part II). 41. Supervision performance by the Bank was satisfactory. Project implementation basically followed the SAR, without deviations from Bank policies and procedures. Implementation progress reporting was adequate. Supervision staff was appropriate in terms of quantity and quality, and the skill-mix was satisfactory (Tables 11 and 12, Part II). Nevertheless, there were shortcomings in Bank supervision during the two start-up years of the project, when Mexico was into a deep economical crisis and the project implementation was very slow. During that time, project supervision should have been more intesive. After 1990, when implementation began to accelerate, the supervision missions were fully appropriate. During the mid-term review of 1992, the Bank and the Borrower agreed upon minor adjustments to project design, primarily related to quantities of infrastructure (roads, drains, levees, and related structures), required in view of CNA agreements with the states and PEMEX for infrastructure financing. G. BORROWER PERFORMANCE 42. Although the Borrower was unable to maintain stable project management, its implementation performance was satisfactory. However, the two-year delay in project completion can be attributed, in part, to the institutional instability which permeated project implementation. The project executing agency was changed by three administrative reforms, from the CPNH in 1986-87, to the IMTA in 1987-89, and later to the CNA in 1990-95. Overall project responsibility was shifted from the SARH in 1986-94 to the SEMARNAP in 1994-95. In total, there were five changes in the management of the project unit. The main strength of the Borrower's performance was the solid construction expertise and implementation capacity of SARH and CNA, accumulated over their many years of experience with agricultural infrastructure projects. The implementation of the project was carried out economically and almost on schedule, except during the initial and final stages (1986-89 and 1995), when government-imposed investment restrictions delayed project implementation and completion. The best performance was during the period 1990-94. 43. Project management responsible for implementing the infrastructure component was effective. However, it was less effective in the organization of the farmers' and beneficiaries' into associations to take over O&M functions, carry out procurement of machinery to support these functions in timely manner, and renewing of UCTs contracts in 1995, with the most significant procurement not taking place until nearing project completion. The resistance to purchasing machinery is an old bias in SARH and CNA, as they prefer to rely mostly on contractors for O&M rather than create the necessary capacity among the beneficiaries to perform these functions (para. 32). This was a main issue at the time of subprojects completion, when beneficiaries had to handle O&M with their own means. 11 44. Projects' preparation by the Borrower was less than satisfactory in one of the eight subprojects, Pujal-Coy II. The original subproject design contemplated a full agriculture development where the prevailing natural conditions (semi-arid zone with scattered pattern of rain fall distribution), complicated ownership, and socio-economic characteristics, lent themselves more to livestock (beef and dairy cattle, goats and sheep). Low-cost adjustments to the design of the subproject were made after a three-year delay, with Bank assistance. However, this design error led to the maintenance of very small livestock units (of 10 ha each, on average) for an extended period of time and resulted in much lower project investment in Pujal-Coy II (about 20% less) than originally anticipated at appraisal (Table 8C, Part II and para. 29). 45. As in most of Bank operations in Mexico, timely availability of budgeted funds was also a problem during the entire project implementation period, resulting in delays in implementation schedules and so in benefits. This risk was anticipated at appraisal (SAR para. 3.22). H. ASSESSMENT OF OUTCOME 46. The project made substantial contributions to poverty alleviation by: (i) generating approximately 30,000 new direct jobs in its subprojects;6 (ii) increasing farmers income by over $50 million7 equivalent per year, through improved agriculture production; (iii) introducing small cottage industries and backyard fruit orchards and domestic animal production managed by women's groups in poor rural communities; and (iv) improving welfare in rural communities through better infrastructure, especially roads and drainage networks. Complementary project activities also contributed to poverty alleviation, such as organization of women's groups for productive projects, and urban improvements in the participating ejidos (including water supply, self-help home improvement, and street rehabilitation). 47. By making land suitable for agricultural production and providing extension, training, and technology transfer services, the project contributed to expand the rational use of land, achieving substantial increase in tropical fruit production (notably bananas, citrus, and pineapples -- about 15,000 ha), as well as improved pastures (about 300,000 ha) and livestock. Tropical soil conservation practices were introduced through extension, with a potential impact on over 85,000 ha. 48. Production increased substantially as a result of the project. Expansion of production area averaged 35 percent for all crops, reaching over 90 percent for some crops, such as beans, cotton, pineapple, citrus, and banana. Less than expected growth in production area was observed in the case of rice, soybeans, and mango, partly due to imperfect crop choice 6 The total number of jobs generated by the project is estimated at 54,400, of which some 30,000 represent direct incremental jobs created by the project. 7 The project genertated an estimated $25 million in incremental earnings for family labor and $25 million in increased net farm income. 12 at the project design stage and the land use change in the Pujal-Coy subproject (Table 6C, Part II). As a result of the introduction of higher value crops, the value of production increased by approximately 93 percent in the project area, reaching over 100 percent for several crops. Significant productivity growth occurred only in the case of sugarcane and pineapple. Overall, productivity growth was modest, compared to appraisal targets, partly due to unsatisfactory provision of agriculture services which delayed techmology transfer and the adverse impact of agriculture price policies. 49. The strengthening of agriculture organizations was substantially achieved through the installation of INIFAP laboratories, capacity building at IMTA and at the states, and institutional development of CNA. The promotion of farmers' organizations to take over the O&M functions is still on-going, along with purchase of relevant machinery, which has been provided for in the 1996 CNA budget. 50. Project social and economic impacts at municipal level was significant, benefitting a substantial part of the rural population. In this respect, the most favorable outcomes were: (i) a substantial growth in rural employment (Table 5F, Part II); (ii) a reduction in migration flows away for the project area; and (iii) a significant increase in rural family income (Table 9A). Social impact at the state level are smaller, given the relatively small size of the subproject areas compared to the total state area and population. However, since the typical 1/2 ratio of on-farm to off-farm jobs for tropical agriculture is applicable to the project, it is reasonable to state that the project generated substantial benefits also at the state and national levels. More impoitantly, the successful project experience suggests that the subproject models that were implemented could be replicated and expanded in the Southern Mexican states, which have an estimated underutilized area of over 10 million hectares. 5 1. The project had many positive results in its areas of influence, as well as outside the subproject perimeters. For example, the construction of all-weather gravel road network, complemented with bridges, culverts, and "wet-crossings" (dutch fords), had very positive effects on the commercial as well as social conditions of the beneficiaries. The roads facilitated the transport of agriculture products from the subproject areas to market places, and enabled the necessary inputs to be brought to the farms, making transportation reliable and cost effective. The roads also enabled the growth and improvement of welfare of the poor rural communities, by facilitating the provision of education, medical, and reliable transportation services to the rural population. The ecological environment has also improved with the project. Drainage systems and flood protection facilities alleviated settlement flooding, minimizing standing water in the fields, swampy conditions, and water logging. These improvements resulted in a reduction of water-related diseases, which have plaged the population for many years. 52. Interviews with project beneficiaries indicate their very positive appreciation for the project outcomes, which are viewed as having improved substantially their income and welfare conditions. It is remarkable to note the contrast between the current situation in the subproject areas with that of the neighboring areas with respect to family stability, which was enhanced in the project areas due to reduced out-migration. This was achieved primarily because a large number of new sustainable jobs have been generated by the 13 project, absorbing a substantial part of the economical active population (Table 5F, Part II). 53. The project also generated substantial private investments in the relevant subproject areas. The investments were both in on-farm (establishing tropical fruit orchards, planting fruit trees, constructing aquaculture facilities and improving pastures) and off-farm (developing agroindustries and tropical fruit packing houses). Private entrepreneurs, small farmers, and ejidatarios invested an estimated $200 million in on-farm activities during the 1990-95 period. This is an outstanding achievement, considering the adverse financial environment during the project implementation period and the lack of a credit line in the project. I. FUTURE OPERATIONS 54. Two main issues must be addressed when considering future operations for development of tropical agriculture in Mexico. First, whether or not the Bank should have another operation to assist investments in tropical agriculture and rural development in the Southern states; and, second, what should be the institutional framework and which implementing agencies should be involved, given the recent major institutional changes in Mexico, and taking into account the PRODERITH-II experience. The answer to the first question, should be yes, considering two factors: (a) the positive economical and social results achieved under PRODERITH-I and II; and (b) the fact that much still needs to be done, especially in Southern states, where poverty alleviation in rural areas is a high priority, and where an estimated 10 million ha suitable for intensive rainfed agriculture remain underutilized. On the issue of appropriate institutional framework, the PRODERITH experience indicates that future operations should be centered at the state level, supported by timely interventions of the relevant technical agencies operating at federal and state levels, throughout the project cycle. 55. Given the recent SARH fragmentation, which occurred in late 1994, into SAGARD and SEMARNAP, and the reduced involvement of CNA in agriculture, an appropriate institutional framework for future operations should probably involve a "multi-agency" implementing body, centered at the state level. This framework would have to include: the CNA, in case major hydraulic infrastructure is contemplated; the Fideicomiso de Riesgo Compartido (FIRCO) or another federal government agency for coordination, and the relevant states as major actors in the implementing work. Another possibility would be to assign the coordination function to an appropriate federal agency operating within SAGARD, providing great flexibility to other implementing agencies at federal, state, and municipal levels together with farmers' organizations and qualified NGO's. Under both options, project planning and implementing should involve substantial participation at local level. Rural credit for on-farm investments should also be provided through a targeted line of credit or other appropriate mechanism. The above operational considerations relate to all agriculture and rural development projects in Mexico, and in particular the ones located in the poor Southern states. The above operational considerations relate to all agriculture and rural development projects in Mexico, and in particular the ones located in the poor Southern states. These operational considerations are relevant to all agriculture and rural 14 development projects in Mexico and, in particular, to those located in the poor Southern states. 56. Another important operational issue related to the channeling Bank funds. The current procedures mandates that foreign exchange disbursed by the Bank for specific projects, flows from NAFIN to the Finance Ministry (Secretaria de Hacienday Credito P0blico - SHCP) without any link to project implementing agencies. Under these procedures, there is almost no incentive for the implementing agencies to carry-out Bank financed projects. On the contrary, a disincentive is created, since the implementing agencies have to comply with what they perceive as cumbersome Bank procedures and agreed-upon implementation standards and conditionalities, without receiving any additional funds that they can manage directly. Therefore, three main problems remain unsolved: (i) chronic underbudgeting for Bank projects by implementing agencies; (ii) delays in the original implementation schedules due to lack of funds; and (iii) failure of counterpart agencies to comply with agreed project conditionalities. If instead, Bank loans would represent incremental funds for implementing agencies, there would be sufficient incentives for rapid execution and disbursements. Provision of funds from the Special Accounts set up in connection with Bank loand, directly to the relevant implementing agencies, would help achieve similar objectives. This is even more relevant considering the new GOM policy of substantially increasing the participation of the states in the implementation of development projects. J. KEY LESSONS LEARNED 57. The main lessons learned from PRODERITH-I1 that are relevant to the preparation of future projects, include: * project design based on a successful pilot experiment leads to better choice and design of subprojects, and fosters well targeted government-financed investments, which in turn can represent a valuable contribution to an overall poverty reduction strategy; * project flow of funds and Bank disbursements can be improved through priority scheduling of project investments and by the delegation of greater authority over the management of project funds to the project executing agencies; * the organization of local producers, established as a priority from the very beginning of the project, creates a sustainable basis for O&M of project infrastructure and contributes to overall project success and sustainability; * promotion and involvement of private sector investments in tropical agriculture is especially desirable in the case of fruits and perishable products, given their specific technology, delicate handling, packing, marketing, and high costs for industrial processing; the effort to promote private investment should be part of project design from the outset; 15 * working more closely with state authorities, mitigates the adverse effects caused by excessive federal govermment centralization and constant changes in project management. State involvement in project design and implementation can be enhanced by: (a) seeking state commitment to the project at the design stage; and (b) leaving a fair amount of decision-making to the states, throughout the project cycle; * the inclusion of livestock (double purpose cattle, goats, and sheep) and the improvement of pastures, proves to be an important and complementary activity to agriculture in tropical areas, and may contribute significantly to farm income growth; * there is need to pay closer attention to the O&M of infrastructure, by promoting appropriate local organization to respond for it, through the provision of training, strengthened administrative capacity, appropriate machinery mix, and appropriate instruments to collect fees to ensure self sufficient O&M; to this end, it is more effective to rely on producer's organizations for O&M than to use outside contractors; * project management instability at the federal level negatively affects project implementation performance, and should be minimized through decentralization of most implementation functions to the state level and closer project supervision; and, * the availability of credit accelerates on-farm investments, specially for poor farmers, such as the majority of the farmers settled in the ejidos of the Southem states covered by PRODERITH-II. Project design did not include a line of credit to farmers, because it assumed that credit from other sources would be available. This proved not to be the case, and project outcomes suggest that production growth could have been much higher and occurred earlier in the project cycle, if credit was available. MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH-i (LOAN 2658-ME) 16 MEXICO SECOND TROPICAL AGRICULTURAL DEVELOPMENT PROJECT (Loan 2658-ME) PART II: STATISTICAL ANNEXES MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH-i (LOAN 2658-ME) 17 II. STATISTICAL ANNEXES Tables 1. Summary of Assesments ................ 18 2. Related Bank Loans ............ 19 3. Project Timetable and Loan Data / Project Schedule ..... ........... 20 4. Cumulative Estimated and Actual Loan Disbursements .... ...... 21 5. A. Project Development Objectives ......... ................... 22 B. Project Physical Implementation Targets ...... ................ 23 C. Project Physical Implementation Targets ....... ............... 24 D. Physical Construction Targets ......... ................... 25 E. Subproject Area Extension Coverage at Full Development .... 26 F. Project Impact Over Rural Job Generation ..... ........... 27 6. Al. Physical Area by Subproject, Without Project ...... .......... 28 A2. Land Use Changes .................................. 28 B. Project Benefits - Project Impact on Crop Yields ..... ........... 29 C. Project Benefits - Project Impact on Production Areas .... ...... 30 D. Project Benefits - Project Impact on Crop Production .... ...... 31 7. Studies Included in the Project ......... ................... 32 8. A. Project Cost ........................................ 33 B. Project Financing ........................................ 33 C. Total Project Cost Summary ......... ................... 34 9. Financial and Economic Analysis ......... ................... 35 10. Status of Legal Covenants . .................................. 36 11. Compliance with Operational Manual Statements ..... ........... 38 12. Bank Resources: Staff Inputs .................................. 39 13. Bank Resources: Missions .................................. 40 MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH-II (LOAN 2658-ME) 18 TABLE 1: SUMMARY OF ASSESSMENTS Substantial Partial Negliible Not applicable A. Achbievement of objecftves Macroeconomic policies Sector policies Financial objectives Institutional development Physical objectives Poverty reduction Oender concems Other social objectives Environmental objectives Public sector management Private sector development Other (specify) Likely UniIkely Uncertain B. Project sustainablllty i Highly Satisfbetory Deficient satisfactory C. Bank performance Identificationl Prepmtrion assistance Appraisal Supervision__ D. Borrower performance Prepastion _ Implementation Covenant compliance Operation (if applicable) Highly Satisfactory Unsatsfactory Higbly satisfactory _untisactory E. Amessment of outcomne MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH-II (LOAN 2658-ME) 19 TABLE 2: RELATED BANK LOANS Year of Approval/ Loan Title/No. Purpose Amount Status Comments PRECEDING Tropical agricultural 1978, Closed in 1984 Successful project with follow up OPERATIONS: development $56 M (PRODERITH II). PCR issued in PRODERITH I December, 1985 1553-ME Chiapas Agricultural Tropical agricultural 1985, Closed in 1993 Successful project on 64% of area; 36% of Development development $90 M the loan amount canceled in 1988 due to 2526-ME weak management and lack of counterpart funds. PCR issued in December, 1994 Chiapas Rural roads 1985, Closed in 1991 95% of loan amount canceled in 1988 Rural Roads $2Mdue to changed goverrnment priorities for 2525-ME $22 M the sctor PROCATI Agriculture 1986, Closed in 1993 PCR issued in June, 1994 2859-ME development and $20 M extension FOLLOWING Agricultural credit 1987, Closed in 1991 PCR issued in December, 1994 OPERATIONS: $400 M Ninth Agricultural 2837-ME First Agricultural Sector Agricultural policy 1988, Closed in 1990 Operation completed successfully; PCR Adjustment reforms $300 M issued in March, 1993 2918-ME Decentralization and Regional Poverty alleviation 1991, Closed in 1995 No major problems; follow up project Development program in 4 of the $350 M under implementation. ICR under 3310-ME poorest states preparation Second Agricultural Sector Continuing 1991, Closed in 1993 Successfully completed. ICR issued in Adjustment agricultural policy $400 M June, 1995 3357-ME reforms Irrigation and Drainage Sector Irrigation and drainage 1991, Under Budgetary difficulties but no other major 3419-ME $400 M implementation problem. Agricultural Technology Agricultural research 1992, Under Significant budgetary and institutional 3465-ME and extension $150 M implementation problems. On Farm and Minor Irrigation Irrigation 1994, Under Budgetary difficulties but no other major Networks Improvement infrastructure $200 M implementation problem. 3704-ME improvements through cost-sharing Second Decentralization and Continue poverty 1994, Under No major problem. Regional Development alleviation program in $500 M implementation 3790-ME 8 poor states Rainfed Areas Development Improve agriculture 1994, Under Budgetary difficulties but no other major 3778-ME productivity $85 M implementation problem. MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH-II (LOAN 2658-ME) 20 TABLE 3: PROJECT TIMETABLE AND LOAN DATA Steps in project Date planned Date actual Comments cycle A feasibility study, prepared by GOM in1984, built upon the success 1984 1984 of pilot PRODERTH I Preparation April, 1985 April, 1985 Appraisal June, 1985 June, 1985 Negotiations January, 1986 January, 1986 Board presentation March, 1986 March 4, 1986 Signing April, 1986 April 9, 1986 Effectiveness June, 1986 July 8, 1986 Project completion December 31, 1993 December 31, 1995 Implementation delays due to budget constraints Loan closing December 31, 1993 December 31, 1995 July 7,93 - Ist Amendm: 31/12/94 Oct. 28,94 - 2nd Amendm.:31/12/95 Project Schedule 1 Quarter ILIILL ~L [ L L341~34ILL Year 1984 1985 1986 87-93 1994 1995 1996 Identification Preparation Appraisal Mission Negotiations Board Approval Signature Date Date of Effectiveness Completion Date >>>>>>>>>>>>>g Closing Date l>>>>>>>>>>>1 Year 1984 1985 1986 87/93 1994 1995 1996 QuarterI 131414 2 11 2|3|4 1|2|3|4 1|2|3|4 1|2|3|4 In 1993, at the time of the first extension of the closing date, the Bank advised the government that since more time would be required to complete the project, a second closing date extension would be contemplated, taking into account progress made during the first year's extension. CNA complied with the agreed implementation plan for 1994 and made the appropriate budget allocation for 1995, therefore justifying the second closing date extension. MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH-II (LOAN 2658-ME) 21 Scheduled: Slippage: >>>> Actual: * TABLE 4: CUMULATIVE ESTIMATED AND ACTUAL LOAN DISBURSEMENTS (US$ million) Bank FY 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 19961 (i) Appraisal estimate 1.0 9.0 22.0 38.0 57.0 76.0 92.0 104.0 109.0 109.0 109.0 (ii) Appraisal estimate minus cancellations 1.0 9.0 22.0 22.0 36.0 50.0 64.0 80.2 88.3 88.3 88.3 (iii) Actual 0.0 9.9 15.1 17.2 19.6 23.4 29.0 41.5 52.6 78.3 n8.3 (iv) Actual ass%/of(i) 0 110 69 45 34 31 32 40 48 72 81 (v) Actual as % of (ii) 0 110 69 78 54 47 45 52 60 89 100 1/ $20.7 million were canceled from the loan on August 10, 1988. 2/ The final disbursement was made on May 17, 1996. MEXCO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH I (Loan 2658-ME) 22 TABLE 5A PROJECT DEVELOPMENT OBJECTIVES In*wrwgs .. - ..................... = ..... Development Plans Communities 64 73 114 PO,,T ......... ,., .E ' ":" " ". ssisted Families No. 40,000 40,000 52,100 130 130 -BLV~AIION . ... .B.-' " ddibional Employment Man-Days 6 700 000 6,700,000 6,500,000 97 97 fraestructure Improvement Coverage (a) Ha. 147,000 332,000 482,300 328 145 tersectorialMovilization of Services No. of communities NA 963 i amers' Income Increase US$ NA 1,2201 gnc..... ultural Use T1000 H-a. 278 305 209 75 69 AN1 0N~~kA1 .ONAL Pasture Use 1000 Ha. 517 538 679 131 126 ,,..NuVegetation 1000 Ha. NA NA 369 erUses I _________000_Ha. NA NA 144 ... B .r - ' B B, B B B ................. B Meat ... Tons 25,316 26,348 28,482 113 108 ik 1000 Liters 57,042 57,042 19,397 34 34 n.. i Fruit 1000 Tons 217 539 574 265 106 ,,w, ;^aPf rr y^Bag lBB5B aaffa Vegetables 1000 Tons 20 120 62 310 52 ns 1000 Tons 423 473 250 59 53 ~II~QVI~ICTII~tTYAND Suar (b) 1 000 Tons 7259 183 255 311 . . 1 cCaacssava 1000 Tons 104 1 1 ..*.*.*.*.*.*.*.*.*.*.*.* Cacao lOOO~~~1000Tons 3 1.1 42 * .... . .*****..... a B {afaBfi2 f ff,f a a oney 1000 Tons NA 3 NAand MTA (training) Man-Hours NA 64,000 54,220 85 AP laboratory improvements USD 1000 NA oduces'Organizations: NA *Organizations Assisted NO. NA 5 78 1560 _ Produces Training Man-Hours NA 167,000 203,652 122 f armer Comunicat. Organizat. Established o. NA 248 109 44 Social Organization (Health, Education, NA _ Women, etc)Established) o. NA 104 1801 173 (a) Additional funds from other sources were made avaflable to the project for infrastructure investments, thus significantly reducing Bank financing for infrastructure. (b) 83 Kg. of sugar per ton of cane. MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH 1I (Loan 2658-ME) 23 TABLE1SB PROJECr PHYSICAL IMPLEMENTATION TARGETS Roads Km 1,500 1,048 1,393 93 133 Drins Km. 700 844 489 70 58 bfracatucture Structures No. 1,400 921 699 50 76 Construction 1/ Input Storage 1000 Tons 109 137 35 32 26 Other Storage Unit NA 16 12 75 O&M Facilities N 8 3 0 0 .Office Complexes N. 2 2 0 0 OnFamDrinage I1000 Ha. 36 ~ 33 7'8j 22 ~ 241 _ On-Farm Land Soil Conservation 1000 Ha. 4735 53.2 8501 1792 1601 _IgilI~C Treatment 2/ d Clearing 1000 Ha. NA Smoothing 1000 Ha. 60 54 12.6 21 23 _Road O&M No. 120 1 1 achinery 3/ Drain O&M No. NA On-Farm Drains No. NA _......... Soil Consrvation No. NA Agricultural Module o NA 24 30 125 Livestock Module No. NA 20 85 425 Pigs Module No. NA 22 3 14 erlnfraestructure / Foods Blending Plant Plant NA 1 1 100 _Ifrestructurc I/ Molasses Center No. NA 13 3 23 _ MolassesTank No. NA 1 1 100 Trench Silos N. NA 20 4 20 pingPlant o. NA 12 3 25 ScuacultureU Unit NA I 1 100 1/ Infrastructure quantites were adjusted from SAR estmates during implementabon on the basis of the final designs. Therefore, comparison between SAR and actual figures are not very useful. 2/ Completion of On-farm drainage is still pending to be done by the users; land smoothing was not required to the same extent as estimated at appraisal. 3/ Machinery is under biddng in 1996. MEXCO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH n (Loan 2658-ME) 24 TABLE SC PROJECT PHYSICAL IMPLEMENTATION TARGETS I/ Extension Support Man-Years 85 85 85 100 100 Strengthening Farmer Organization Assisted No. NA 170 170 NA 100 Agncuut ltral, Farmer Extention Vehicles (vehicles)) No. 360 360 42 12 12 and Research Research Support Man-Years 195 195 105 54 54 .Organizations Vehicles/Research 2/ No. 0 Laboratories Equipment US Dollars 1,100 2,500 227 Mass Media Support No. NA NA NA NA NA COVI:RAoZ ~Formal Man-months 489 489 414 85 85 C(DON~W~ Training SIn-Service Man-months 480 480 480 100 100 New Staff Man-months 600 600 200 33 33 .For Producers Man-months 1,500 1,500 1,500 100 100 Subprojects (Gen) No. 4 4 100 100 Studies etNew Pilot Areas No 5 100 100 .Marketing Studies No. 3 31 3 100 100 Expatriate Local USDA/Soil Conserv. Service Man-Years8 8 17.5 219 2191 aAssistance FAO TMan-Years 5.5 5.5 5.5 100 Technical AssistanceTFA m Local Expatr. Consul. I-Y J. 1.5 100[ IO 1/ Even though the total incremental area under cultivation is smaller than anticipated at appraisal, the total incremental value of production and the number of jobs generated, is substantially higher. This outcome reflects a shift to higher value crops (e.g. vegetables and tropical fruits), from grains. In other words, the inventory of crops planned at appraisal was significantly changed during implementation, with beneficial results. 21 Not Bank financed. MEXCO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH r 1 (Loan 2658-ME) 25 TABLE 5D PHYSICAL CONSTRUCTION TARGETS _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~..... .. .... ... - I jal Coy n 216 379 20,000 30,000 52,030 entro de Veracruz 108 25 3,000 5,000 500 Tesechoac6in 27 47 3,000 2,500 0 Zanapa-Tonala 254 89 5,000 10,000 10,000 ente de Yucatan 170 0 0 5,453 0 ejuco 103 106 2,000 2,500 1I,500 Sierra 44 123 2,546 7,700 3,637 Ia Rodnguez Clara 97 75 0 5,700 0 Total Prodenth 1019 844 35546 68853 67667 d .X-1gWI ACffJE__ED ?N?t,~_$ 21gSz PujalCoyll 105 56 18,000 0 42,494 6,819 49 15 21 0 142 13 Centro de Veracruz 189 51 12,000 3,190 8,951 1,095 175 204 100 106 179 219 Tesechoacin 84 86 0 900 3828 0 311 183 0 30 153 Zanapa-Tonala 104 148 0 1,200 9156 150 41 166 24 92 2 Oriente de Yucatan 188 0 5,000 0 5496 880 111 100 101 Bejuco 104 40 0 0 1130 0 101 38 0 0 45 0 LA Sierra 67 118 0 2,546 7,730 3,637 152 96 100 100 100 Isla Rodriguez Clara 40 0 0 0 0 0 41 0 0 0 Total Proderith 881 499 35,000 7,836 78,785 12,581 86 59 26 22 114 19| 1/ In addition to the Proderith subprojects, infiastructure works were caried out in Chiapas that were not contemplated at appraisal these comprise 70 km of roads and 74 km of drains in Tapachula and Margaritas. 2/ Inrasructure quantities were adjusted friom SAR estimates during implementation on the basis of the final designs. Therefore, comparison between SAR and actual figures are not very useful. MEXICO SECOND AGRICULTURAL DEVELOPMENT PROJECT PRODERITH n (Loa 2658-ME) 26 TABLESE SUBPROJECT AREA EXTENSION COVERAGE AT FULL DEVELOPMENT WX g ffi.-. ' ~~~~~~a ra.,r .. ...- ...-. -. PujalCoyll 276.5 240.4 13500 6529 64 12 21 33 4320 7285 211 198 Centro Veracnrz 70.2 63.9 5500 11400 25 6 8 14 2808 4564 220 814 Tesechoacan 16.4 15.9 900 2520 11 3 7 10 1491 1590 82 252 pa-Tonali 96.0 94.8 2600 5570 23 12 7 19 4174 4989 113 293 Oriente Yucatan (c) 335.3 420.6 14340 21100 41 7 9 16 8178 26288 350 1319 Subtotal 794.4 8356 368401 47119 1641 401 52r 92 4844 9083 225 512 El Bejuco 24.2 23.8 3600 7 8 15 1587 240 Sierra 24.1 28.3 1391 7 5 12 2358 116 Isla Rodriguez Clara 13.5 13.5 - Subtotal 61.81 65.6 OT 4991
Groupe de la Banque mondiale · Implementation Completion and Results Report
Mexico - Second Tropical Agricultural Development Project
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Groupe de la Banque mondiale
Type de document
Implementation Completion and Results Report
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Mexique
Source
Banque mondiale