Tunisia - Second Agriculture Sector Adjustment Loan Project

Document or The World Bank FOR OFFICIAL USE ONLY Report No. 15355 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISILA AGRICULTURE SECTOR ADJUSThMENT LOAN II (LOAN 3078-TUN) FEBRUARY 16, 1996 Natural Resoureces and Environment Division Maghreb and Iran Department Kiddle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents (July 1995) Currency Unit = Tunisian Dinar (DT) US$1.00 = DT 0.9 DT 1.00 = US$1.11 WEIGHTS AND MEASURES The metric system is used throughout this report GOVERNMENT OF TUNISIA FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS ARAPPI Agrarian Reforrn Agency for Public Irrigation Schemes Agence de la rijorme agraire dans les perimetres publics irrigues ASAL Agriculture Sector Adjustment Loan Pret a I'ajustement du secteur agricole ASIL Agricultural Sector Investment Loan Pret d'investissements au secteur agricole BNA National Agricultural Bank Banque nationale agricole CGC General Compensation Fund Caisse generale de compensation CRDA Regional Commissariat for Agricultural Development Commissariat regional au developpement agricole DGPDIA Department of Development Planning and Agricultural Investments Direction generale de la planification du developpement et des investissements agricoles FOSDA Agricultural Development Funds Fonds speciaux de developpement agricole ICR Implementation Completion Report Rapport d'achevement du projet IRESA National Institute of Agricultural Research and Higher Education L'Institut de la recherche et de 1'enseignement superieur agricoles KfW Kreditanstalt fur Wiederaufbau MOA Ministry of Agriculture Ministere de I'agriculture MTASAP Medium-Term Agricultural Sector Adjustment Program Programme d'ajustement du secteur agricole a moyen-terme OC Cereals Marketing Board Office des cereales ODESYPANO Northwest Rural Development Authority Office de Developpement Sylvo-pastoral du Nord-Ouest OEP Livestock and Pastures Board Office de l'elevage et des paturages ONH National Edible Oil Board Office national des huiles SAL Structural Adjustment Loan Pret a l'ajustement structurel USAID/APIP United States Agency for International Development/Agricultural Policy Implementation Project Agence des Etats-Unis pour le developpement international/Projet de mise en oeuvre de la politique agricole  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISIA AGRICULTURE SECTOR ADJUSTMENT LOAN II [LOAN 3078-TUN] Table of Contents Page Preface Evaluation summary ............. i Part 1: Project Implementation Assessment 1. Introduction .. A. Medium Term Economic Adjustment Program. I B. Bank Support for the Adjustment Program . C. Progress under the First Agricultural Sector Adjustment Loan .1 I1. Project Objectives.. 2 A. Original Objectives. 2 B. Main Loan Covenants and Agreements. 3 C. Evaluation of Objectives. 3 III. Implementation Experience and Results. .. 4 A. Achievements in Reaching Objectives and Sustainability . . 4 1. Price, Marketing and Parastatal Reform .4 2. Reorientation of Public Expenditure. 7 3. Strengthening Essential Government Support Services. 9 4. Improvement in Natural Resource Management .10 5. Strengthened Capacity for Sector Performance Monitoring and Impact Analysis ..................................... 11 B. Actual Costs, Financing Arrangements and Implementation Timetable .. 11 C. Key impacts on Reaching Objectives ..12 D. Overall Impact ..13 E. Assessment of Bank and Borrower Performance ..15 F. Overall Assessment of Project Outcome ..16 IV. Summary of Findings, Future Operations, and Key Lessons Learned . .16 A. Key Findings from Implementation Experience .16 B. Plans for Future Project Operations and Sustainability .17 C. Lessons for Future Projects in the Sector .17 Part II: Tables ..................................... 18 Appendixes: A. Mission's aide-memoire ................................. 34 B. Borrower contribution to the ICR ......... .................. 37 C. Matrix of Key Actions .................................. 44 This document has a restricted distibution and may be used by recipicnts on]y in the performance of their I official duties. Its contents may not otherwise be disclosed wiihout World Bank authorization.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF TUNISIA AGRICULTURE SECTOR ADJUSTMENT LOAN II [LOAN 3078-TUN] Preface This is the Implementation Completion Report (ICR) for the Second Agricultural Sector Adjustment Loan, for which loan 3078-TUN in the amount of US$84 million equivalent was approved on June 1, 1989 and made effective on August 27, 1990. The loan was closed on June 30, 1995, compared with the original closing date of December 31, 1994. The first tranche, released upon effectiveness, was fully disbursed by July 15, 1991; the second tranche was released on January 26, 1993, and the loan was closed with cancellation of a remaining balance of US$1.4 million. The ICR was prepared by Stephen Mink, Natural Resources and Environment Division of the Middle East and North Africa Region and reviewed by Mr. Mark D. Wilson, Division Chief, MN1NE, and Mr. Rene Costa, Project Adviser, MN1. Preparation of this ICR was conducted during the Bank's final supervision and completion missions which took place November 3-10 1994 and March 28-30 1995, respectively. The ICR is based on material in the project file. The borrower contributed to preparation of the ICR by commenting on the draft ICR and preparing its own evaluation of the project (Appendix B).   REPUBLIC OF TUNISIA AGRICULTURE SECTOR ADJUSTMENT LOAN II [LOAN 3078-TUN] Evaluation Sulmmary Introduction i. The Government's Medium-Term Agricultural Sector Adjustment Program (MTASAP) began in 1986 to help adjust the national economy to macroeconomic constraints. Within the overall macroeconomic objectives of sustained growth and internal and external balance, the main objective of the MTASAP was to promote greater efficiency and economy in the increased production of agricultural products and in the use of public resources in the sector, including enhancing the role of the private sector in the provision of commercially-viable sector support services. The MTASAP defined specific actions to address identified constraints over a seven-year period (1986-93). ii. The first phase of the MTASAP was supported by an Agricultural Sector Adjustmnent Loan (ASAL I, Loan 2754-TUN) from the Bank, the first adjustment loan to Tunisia and approved in September 1986. It preceded an industrial policy and trade adjustment loan (Loan 2781-TUN), a structural adjustment loan (SAL, Loan 2962-TUN) and also Tunisia's use of IMF Special Drawing Rights and Extended Funds Facility. Project Objectives iii. The Second Agricultural Sector Adjustment Loan (ASAL II) was a hybrid operation that supported implementation of the second phase of the MTASAP through both policy-based tranches and investment disbursements. The President's Report (PR) states that the principal objective of the sector adjustment program was to maintain the growth rate in agriculture in a time of reduced public resources. Changes in the institutional, agricultural pricing and incentives framework and public expenditure priorities were expected to make the sector a more efficient producer of import substitutes and export products. The Government undertook to implement policy reforms in support of the MTASAP in the following areas: - parastatal reforms: divestiture to the private sector of numerous activities of the Cereals Marketing Board (OC), the National Edible Oil Board (ONH) and the Livestock and Pastures Board (OEP), and enabling of greater competition by the private sector in the remaining activities; - pricing and marketing: adjustment of prices for cereals and milk to keep them more closely aligned with world prices, the introduction of more market driven prices for beef, the reduction of input subsidies, and the liberalization of meat and milk imports; - agricultural support services: reduction in input distribution by government agencies, withdrawal of government agencies from a number of activities which could be provided by the private sector, improvements in research and extension programs, and reduction in the amount of credit subsidized through government programs and in interest rate subsidies; and - land policv: a review of actions taken and future programs for the restructuring of agricultural land holdings.  - ii - iv. Legal covenants consisted of five actions for effectiveness and five as conditions for second tranche release (paras. 8-9). In addition, there were 29 key actions to be completed over the implementation period as described in an annex to the Government's Letter of Sector Policy (Appendix C). The five conditions for effectiveness covered opening domestic grain collection to private and cooperative entities, licensing private exporters of olive oil, permitting private imports of beef according to a specified pricing mechanism and adequate sanitary conditions, elimination of quantitative restrictions on milk powder imports, linking of milk producer prices to a world reference price mechanism, and authorizing tractor imports to increase competition with local manufacture. The second tranche conditions required agreeing on a second phase of cereal marketing reform to include regional transport pricing reform, further deregulating private traders and private access to storage, reducing input subsidies, improving irrigation cost recovery, reducing the volume of budget support for agricultural lending (FOSDA), and promulgating a law to regulate use of pesticides and herbicides. v. The main objective stated in the ASAL II President's Report was not strictly the same as that most vigorously pursued by the Bank during supervision, and this divergence explains much of the implementation shortcomings experienced. While the President's Report stated that the main objective was growth and efficient use of public resources, the outcome most strongly sought by the Bank was reducing the fiscal imbalance and increasing sector efficiency through pricing reform. The origin of this divergence between stated objective and implementation focus was an analysis prepared by the Bank before appraisal that made it clear that the fiscal balance and sector efficiency measures sought under the ASAL II would result in marginally negative sector growth and incomes for farmers. The President's Report did not present these results because of concern that doing so would weaken the support of the key constituency for the Loan, the Ministry of Agriculture (MOA), which was more concerned about growth than fiscal constraints. Rather, the Bank presented the more optimistic averaged results over the entire MTASAP period (ASALs I and II), and counted instead on support from the Ministry of National Economy for pushing through the policy reforms agenda. In hindsight, a more frank discussion of the model result implications, even at the risk of more difficult appraisal discussions with Government, would have established a sounder foundation for implementation. Implementation Experience and Results vi. The Loan achieved its fiscal objectives since budget costs of subsidies for inputs and credit were substantially reduced -- from 73 to 15 million DT for inputs financed through the General Compensation Fund, through a 40 percent real increase in irrigation tariffs, and a reduction by two- thirds of budget allocations to finance rural credit subsidies (paras. 26, 31 and 44). Parastatal reform was generally successful in disengaging the organizations from non-core activities, but much less so in achieving greater efficiency through increasing competition from the private sector on a more level playing field, particularly for domestic cereals collection and beef imports (paras. 13, 24). Even with olive oil marketing, where substantial liberalization has taken place, private participants are still unclear on whether the parastatal is a partner or competitor in market development (para. 18). It is hard to know whether Tunisia is in a transitional stage to further liberalization, or stuck in the ambiguity and market risk of parastatal-private competition. Meanwhile, although trade liberalization improved for animal feed and milk products, wheats continue to be overprotected by restrictive import policy. vii. The investment component was not defined in specifics until nearly a year after loan effectiveness. The investment sub-projects were completed at costs marginally below estimates  - iii - approved by supervision missions and included in Government budgets with the exception of one of the nine sub-projects which had a small cost overrun. There was no formal co-financing of the ASAL II, however, the KfW participated in the loan appraisal mission and made a loan for the equivalent of US$16 million to support import financing linked to the conditions of the ASAL II. Implementation experienced substantial delays, of nine months beyond planned effectiveness/first tranche release (para. 54), and twenty-five months beyond planned second tranche release (para. 56). The investment component also experienced delays in carrying out some of the contractual works, and despite the Loan closing being extended by six months to permit final payments on contracts approved and signed in 1992, several contracts that were part of original sub-project designs ultimately had to be financed from other sources. viii. Three factors that affected achievement of major objectives were the high level of Government ownership to the overall MTASAP, unanticipated decentralization of the MOA and highly variable weather (paras. 57-59). There was wide and full engagement by the Borrower in a policy dialogue with the Bank, which was characterized by openness and a willingness to devote considerable time to policy discussions during the supervision missions. Decentralization of the MOA included implementation of investment projects, which made centralized management of the ASAL II investment component more difficult. Finally, favorable weather facilitated carrying out policies of reducing input subsidies since good rains and harvests benefited farm incomes and reduced foreign exchange requirements for agricultural product imports. ix. Bank and Borrower performance is judged to be satisfactory (paras. 70-71). For the Bank, solid analytical work went into preparing the policy component, rigorous supervision kept the spotlight on making progress in the policy arena, and attention and flexibility permitted overcoming obstacles as they arose, albeit with delays. Notwithstanding this general assessment, several reservations remain. First, the impetus for choosing a hybrid loan for the Bank intervention was not clearly articulated at the outset, and implementation of the investment component was given short shrift throughout in most aspects. Second, staff input to preparation and supervision were very high (para. 70). Borrower implementation was successful. Several policies required coordinated action across several ministries, and this was effectively carried out by the planning unit within the MOA. On the investment side, the investment sub-projects selected for Loan support were generally carried out satisfactorily by decentralized units within the MOA. Overall monitoring of the investment component was somewhat deficient, as an effective oversight of procurement, disbursement, timetables and monitoring of investment impact was not established at the beginning, and was difficult to establish subsequently. x. The Loan outcome is satisfactory. It achieved most of its major policy objectives and has achieved satisfactory development results. The exceptions to this outcome are remaining overprotection of wheat production, insufficient disengagement of the Cereals Marketing Board from domestic grain marketing, and inadequate implementation of policies to encourage private participation in meat imports. Summary of Findinigs, Future Operations, and Keys Lessons Learned xi. Overall, the policy reform agenda supported by the Loan was effectively pursued. The policy dialogue was generally effective and advanced through focused supervisions. But the hybrid structure of the Loan -- with a quick disbursing policy component and an investment component that supported sub-projects in the MOA budget -- was not an effective instrument design (para. 80). The investment  - iv - component was weakly conceived from the beginning, was never adequately integrated into supervision mission objectives, did not rigorously apply economic analysis to the sub-projects financed, and at one point was substantially disrupted by a halt in disbursements due to delays in fulfilling linked but unrelated policy covenants for the second tranche release. The experience showed this to be an inappropriate design, as recognized in eventually when the two components were de-linked. xii. For the investment component of the Loan, future project operations raise several issues, none of them major concerns. Three-fourths of the investment portion was devoted to three of the nine components -- rural potable water, integrated rural development of North-West Region and groundwater studies and monitoring. The integrated rural development of North-West Region sub- project comprised bridge financing of core investment activities of a regional development agency (ODESYPANO) between the closing of an earlier Bank project and effectiveness in 1994 of a follow- on project. Management of the completed investments has either been devolved to user groups or remains under public operation under the continuing coordination of ODYSEPANO. The rural potable water program under the Loan created 86 small-scale and autonomous systems, each with a user group responsible for management and operational cost recovery. Most user groups are still in their infancy and not yet autonomous financially. But steady progress is being made in implementing the national strategy to promote such groups. The groundwater monitoring investments were part of an ongoing program to provide the MOA with adequate information to permit rational development and regulation of this resource. The latter two are soundly managed by Departments within the MOA. In addition, three small-scale irrigation perimeters were created and although the physical infrastructure is completed, monitoring of the start-up of operational phase, which is the responsibility of Regional Commissariats for Agricultural Development (CRDAs), has been weak. Two other sub-projects had uncompleted contracts at Loan closing. Alternative financing for both these contracts exists, and the integrity of the projects is not considered at risk, despite the delays; the regional CRDAs will be responsible for assisting the private farmer beneficiaries to use the infrastructure efficiently once the systems are put into operation. Sustainability of the investment component is expected to be enhanced by the subsequent Agricultural Sector Investment Loan (ASIL), which is continuing investment support for four annual tranches of projects and programs in many of the same areas. In addition, the ASIL is addressing sub-sector policy issues relevant to investment effectiveness and also institutional strengthening to improve implementation and monitoring of investment budget implementation at both central and CRDA levels. xiii. Regarding future operations in the sector, the ASAL II agenda is unfinished in two policy areas, reduction of protection of the wheat sub-sector, and clarification of the roles of a number of remaining parastatals involved in marketing of agricultural products. In terms of instrument design, release of the second tranche was substantially delayed because of a condition requiring passage of a law on pesticide transport and handling, as well as of its application decrees. Ironically, the Project Completion Report of the ASAL I, written before this ASAL II second tranche release, specifically recommended avoiding conditionality that requires passage of a law because it required an action over which the Administration had not control. The recommendation bears repeating.  REPUBLIC OF TUNISIA AGRICULTURE SECTOR ADJUSTMENT LOAN II [LOAN 3078-TUN] PART I: Project Implementation Assessment I. Introduction A. Medium Term Economic Adjustment Program 1. The Government's Medium-Term Agricultural Sector Adjustment Program (MTASAP) was developed to begin in 1986 as part of the effort to adjust the national economy to a more constrained macroeconomic situation. Consistent with the macroeconomic objective of achieving sustained growth in the framework of an internally and externally balanced economy, the main objective of the MTASAP was to promote greater efficiency and economy in the increased production of agricultural products and in the use of public resources in the sector, including enhancing the role of the private sector in the provision of commercially-viable sector support services. The MTASAP included specific actions to address identified constraints over a seven-year period (1986-93) and aimed to achieve its objectives through actions in the following areas: (i) reform the price, marketing and institutional framework; (ii) reorient the public investment program in the sector; (iii) strengthen agricultural support services and privatize economically viable ones; (iv) improve the management of natural resources; and (v) build up the institutional capacity for sector performance monitoring and impact analysis. B. Bank Support for the Adjustment Program 2. The first phase of the MTASAP was supported by an Agricultural Sector Adjustment Loan from the Bank, the first adjustment loan to Tunisia (ASAL I, Loan 2754-TUN) approved in September 1986. It preceded an industrial policy and trade adjustment loan (Loan 2781-TUN), a structural adjustment loan (SAL Loan 2962-TUN)), and also Tunisia's use of IMF Special Drawing Rights and Extended Fund Facility. As a result, ASAL I had some of the characteristics of a SAL. The second phase of the MTASAP, as described in the Government's Letter of Sector Policy, was continued with the support of the ASAL II. The MTASAP was also supported at the macroeconomic level during this second phase by the Economic and Financial Reforms Support Loan (Loan 3424- TUN) which included liberalization of external trade and prices and promulgation of an investment code across sectors. In addition, the Government successfully concluded an extended arrangement with the IMF in July 1992. C. Progress under the First ASAL 3. Implementation of policy reforms during the ASAL I was considered fully satisfactory.'' Most specified targets, both macro-economic and in the agricultural sector, were met or surpassed, despite two years of drought. There was some concern that by introducing a modest degree of protection for domestic cereals' production, the project may have decelerated a desirable shift within 1' See Performance Audit Report, Tunisia: Agricultural Sector Adjustment Loan. Report SecM93- 231, March 3, 1993  - 2 - agriculture to more labor-intensive and export-oriented crops where comparative advantage exists, and that difficult questions of reform to reduce the role of State monopolies in the agricultural sector were left to be addressed in the subsequent ASAL II. Regarding the loan itself, legal conditions and covenants were completely met with very minpr exceptions, and the disbursement period was only marginally longer than originally planned. II. Project Objectives A. Original Objectives and any modifications 4. The ASAL II supported implementation of the second phase of the MTASAP, but as a hybrid loan that included investment support, was not a straight-forward continuation of ASAL I. The President's Report states that the principal objective of the sector adjustment program was to maintain the growth rate in agriculture in a time of reduced public resources. Changes in the institutional, agricultural pricing and incentives framework and public expenditures priorities were expected to make the sector a more efficient producer of import substitutes and export products. At a stage of advanced preparation of the Loan, the Operations Committee expressed its conviction that structural adjustment alone in Tunisia would make inadequate progress on growth and equity in the sector, and that investment support should be incorporated into the Loan concept. Working with very tight time and resource constraints, this was hastily done by the Region during appraisal. 5. The foreign exchange provided by the loan was intended to finance: (a) a positive list of agricultural inputs needed to stimulate agricultural production, including animal feed, petroleum products, agricultural machinery and spare parts (US$50 million); and (b) part of the foreign exchange cost of agricultural projects and programs (US$34 million). 6. The Government undertook to implement a number of policy reforms in support of the MTASAP, most notably: - parastatal reforms: divestiture to the private sector of non-core activities of the Cereals Marketing Board (OC), the National Edible Oil Board (ONH) and the Livestock and Pastures Board (OEP), and enabling of greater competition by the private sector in the remaining activities; - pricing and marketing: adjustment of prices for cereals and milk to keep them more closely aligned with world prices, the introduction of more market driven prices for beef, the reduction of input subsidies, and the liberalization of meat and milk imports; - agricultural support services: reduction in input distribution by government agencies, withdrawal of government agencies from a number of activities which could be provided by the private sector, improvements in research and extension programs, and reductions in the arnount of credit subsidized through government programs and in interest rate subsidies; and - land policy: a review of actions taken and future programs for the restructuring of agricultural land holdings.  - 3 - B. Main Loan Covenants and Agreements 7. Legal covenants consisted of five actions for effectiveness and five as conditions for second tranche release. In addition, there were 29 key actions to be completed over the implementation period as described in an annex to the Government's Letter of Sector Policy (Staff Appraisal Report, Annex IV), consisting of specific steps for the Government to achieve the policy reforms described above. 8. The five conditions for effectiveness covered opening domestic grain collection to private and cooperative entities, licensing private exporters of olive oil, permitting private imports of beef according to a specified pricing mechanism and adequate sanitary conditions, elimination of quantitative restrictions on milk powder imports and linking to a world reference price mechanism, and authorization of tractor imports to increase competition with local manufacture. 9. The five conditions for second tranche release consisted of preparation, for Bank review, of recommendations on cereals marketing including transport subsidies and further deregulation of domestic grain transport pricing and storage, unit input subsidy reduction of 30 percent (fertilizers, animal feeds, improved cereals seeds, seed potatoes and herbicide 24-D), and for irrigation water at a rate to be agreed upon the analysis of a study to be completed, reduction of budget subsidization of the FOSDA agricultural credit program by 15 percent in volume, and promulgation of new legislation regulating use of pesticides and herbicides. C. Evaluation of objectives 10. The main objective of the ASAL II stated in the President's Report was to support sector growth and more efficient use of public resources. While this stated objective was shared by Government stakeholders and the Bank, the outcome most strongly sought by the Bank was reducing the fiscal imbalance and increasing sector efficiency through pricing reform. This divergence in stated and unstated objectives originated in results of a multi-market model (see para. 62) prepared by the Bank immnediately before appraisal that made it clear that the fiscal balance and sector efficiency measures sought by the Bank during the ASAL II could result in the short-run in marginally negative sector growth and incomes for farmers. Out of concern for weakening support for the Loan at this late stage of preparation from key stakeholders within the Government, particularly from the MOA which was more concerned with adequate rural growth than redressing fiscal imbalances, Bank staff did not discuss these model results that were specific to the ASAL II period, but rather combined them in the President's Report presentation with the more favorable ASAL I period results already achieved, which thereby allowed presenting a more optimistic outcome for the MTASAP period (ASALs I and II) as a whole with regards to sector growth. Beginning implementation of the ASAL I with this divergence in perception of objectives between the Bank and the MOA subsequently contributed to implementation difficulties. The MOA became reluctant to carry out specific measures which the Bank viewed as necessary to achieve the fiscal objective but which potentially had an immediate, and politically sensitive, negative impact on rural incomes. In hindsight, a more frank discussion of the model result implications, even at the risk of more difficult appraisal discussions with Government, would have established a sounder foundation for implementation. 11. In addition, the objectives of the investment component of the hybrid Loan were not adequately developed. The component was added late at the request of the Operations Committee and the Region's response, within the very tight time and resources constraints available, was insufficient  to properly integrate the component into the Loan concept and Bank dialogue with the MOA, and its objectives remained unclear. III. Implementation Experience and Results A. Achievements in Reaching Objectives and Sustainability 1. Price, Marketing and Parastatal Reform 12. Cereals. The principal objective in this sub-sector was to stimulate the private and cooperative sectors to play a larger role in domestic cereal collection and feedgrain imports. Three main actions were foreseen by the President's Report towards this end. First, domestic grain collection was to be opened to non parastatal market participants, the parastatal (OC) was to withdraw collection activities in selected zones, and move to full cost recovery where its collection operations were to continue. Second, the parastatal was to disengage from extension activities, and investment in other sub-sectors. Third, OC was to address price issues by revisiting transport margin controls, adjusting cereals support prices to track world price trends, and exploring the promotion of private storage through the simulation of seasonal price movements. 13. In formal steps, the Government has opened domestic cereals collection to greater competition. A decree was issued permitting the private and cooperative sectors to collect and store cereals. Twenty of 157 OC collection centers were closed in zones with sufficient private activity of because the OC facilities were sub-standard. In addition, the OC was instructed to submit dossiers to the Commission for the Rehabilitation and Restructuring of Public Enterprises (CAREPP) for the transfer of a portion of its collection centers to the private sector. But in practice very little progress is evident in transferring cereals collection to the private sector. Only three new private participants in cereals collection have emerged, and their activities have remained limited. Risks remain large as long as the OC retains both its role a direct competitor in grain collection and also regulator of the effort to promote private collection. Transfer of OC facilities to the private sector has proved to be unsuccessful because of the lack of interest linked to a condition in the cahier de charges requiring that all existing personnel be maintained by new management. The OC subsequently discussed with the Bank an alternative approach to privatization through CAREPP but no progress has been made in transferring collection centers. 14. OC extension activities were transferred to an extension agency that was created as part of a separate reform effort, but disengagement from investments advanced slowly. Preparations were made to present identified subsidiaries for privatization, and though consistently behind schedule, the OC eventually divested its animal feed, bakery and infant cereals preparations units. 15. Administered producer prices for soft and hard wheat remained high compared with the agreed formula, while barley producer prices have tracked the formula more closely. While the administered prices for wheat conformed in strict terms with the agreement with the Bank, which had a safeguard clause that permitted maintenance of prices in real terms, supervision missions considered this to be a violation of the spirit of the agreements. 16. On other price issues, the Government carried out the actions foreseen. It eliminated the subsidy for transport cost equalization for cereals, and regarding storage, the Government tested, then implemnented an approach for private storage, with the introduction of monthly payments for private  storage intended-to simulate average seasonal price movements. In conjunction with investment incentives, the promotion of private storage of cereals has proven successful, with new projects realized or underway surpassing the initial objectives. 17. Edible Oils. Actions foreseen in this sub-sector were improvements in the efficiency of importing and processing of cooking oils (vegetable oil imports and olive oil exports) in order to reduce the domestic consumption subsidy costs through the Caisse General de Compensation (CGC), publication of acceptable conditions under which exports of olive oil could take place, and authorization of such export activities, and disengagement of the ONH from investments outside the edible oil sub-sector. 18. These reforms in the sub-sector have been carried out satisfactorily. The conditions under which private olive oil exports began to be authorized in 1990 were, even after revisions to make them less constraining, reluctantly approved by Bank staff, although initially there was little private sector response. However, spurred by the financial burden of the ONH's large stock overhangs, new legislation was passed in 1994 that brought much more extensive liberalization to olive oil exports. The private sector's olive oil exports jumped in the first year of operation under the new legislation, and although still a very modest share of total exports, the evident interest of the 13 exporters approved in 1994 suggests that their role will continue to grow in importance. Nevertheless, the exporters remain concerned about the ambiguous position of the ONH's which mixes elements of partnership, through provision of services and private sector support, and competition, largely through the ONH's own exports to the European market, in this transitional phase of market development. 19. Milk. In the milk sub-sector, the objective was to improve the efficiency of production and iarketing by liberalizing the domestic milk and milk products market and linking prices to world market prices. This was to be achieved by shifting producer support prices from a costs of production to a world-price linked basis, and by allowing private processors of milk and milk products the same access to powdered milk as the parastatal sector. Specifically, a condition of effectiveness was elimination of quantitative restrictions on imports of powdered milk and imposition of a variable levy necessary to provide 15% nominal protection according to an agreed moving average formula. As key actions, producer support prices would be adjusted according to the same formula, once before effectiveness and again for second tranche release. 20. Quantitative restrictions on milk powder imports were eliminated as required. The variable levy was implemented in 1990, and subsequently revised in 1991 and 1993. No adjustments have occurred in the variable levy, or in producer support prices, since 1993. But the protection provided by the variable levy, based on 1994 world prices and domestic producer prices was roughly 14% for skim milk powder, which is the principal import, and hence in line with the intended policy. As intended by the policy reforms, imports of milk powder have declined, with growth in supply and processing of locally-produced liquid milk more than making up the gap. 21. Beef. Beef production was targeted by the loan because it remained hampered by restrictions on consumer prices and imports. All other meat production sub-sectors were already completely liberalized. The objectives were to eliminate the price controls and fixed retail margins for beef, as well as the rudimentary grading classification then in use, and, as a condition for effectiveness, to replace quantitative import restrictions with freely importable beef to which a variable levy would be applied with reference to a moving average of world prices. As a key action, the Government was  - 6 - also to ensure that the parastatal slaughterhouse and meat import company (El Louhoum), sold beef at its breakeven price. 22. Although the condition of effectiveness was fulfilled in 1990, although restricted to chilled/frozen beef carcass imports, the reform effort in this sub-sector has been mixed and results limited. The number of private importers active under the guidelines and their share of total beef imports had grown steadily to thirteen and 36% respectively by 1994. 23. This growth is despite El Louhoum's continuing to be active in the sector with the benefit of special privileges that remain to be addressed. El Louhoum still accounts for about half of beef imports. It has also remained very active in slaughtering of local livestock, particularly during the 1993-94 drought when herds were being reduced. In 1994 it was obliged to purchase all live cattle presented to it at a fixed price. El Louhoum continues to benefit from subsidies, does not pay the variable levy on meat imports that the private sector is obliged to pay, and sells its products into its own retail structure with prices that are administratively fixed. 24. The guidelines under which the private sector was permitted to import beef carcass freely were withdrawn in August 1994 due to administrative concern over growing market and public health impacts of imports of other beef products under inadequate regulatory oversight. The intention is to reissue the guidelines to include all beef product imports, but as of April 1995, the Ministry of Commerce had yet to approve the new draft guidelines. While awaiting the issuance of the revised guidelines, all private imports have retumed to a regime requiring authorization and licensing of each shipment. There is a perception among private market participants that the delay in issuing the new guidelines, and the protracted procedure of licensing in the interim, was motivated by pressure to reduce imports. Lower imports would make it easier for El Louhoum to market the increased local production resulting from the drought reduction of domestic herds. 25. Thus despite the initial pursuit of the polices as defined by the ASAL II, the sub-sector is currently in a state of disorder, with El Louhoum still playing a substantial competitor under unequal rules, private importers subjected to licensing of shipments, and the Administration intervening in price setting with respect to the El Louhoum marketing network. 26. Input Subsidies. The main objective was to decrease input subsidy costs with a target of 30% reduction in unit subsidy costs, half as a key action by end-1989 (planned effectiveness) and achievement of the full 30% as a condition for second tranche release. The inputs involved were fertilizers, animal feeds, improved cereals seeds, seed potatoes and the herbicide 2-4-D. This objective was fully met, with subsidies either substantially reduced or eliminated. The CGC is the financing mechanism for these subsidies, which peaked at DT 73 million in the drought of 1989 but fell below DT 15 million by 1993. 27. Subsidies for three of the four principal types of fertilizer used in Tunisia have been eliminated. Subsidy reduction began with freeing distribution margins with the 1987/88 campaign, and since 1991 by removal of remaining product subsidies (1991 for Super 16, 1992 for Ammonitre 33, and 1993 for DAP). Only Super 45, which accounts for roughly one-quarter of the total quantities of fertilizer applied, still benefits from a (declining) subsidy. The gross amount of the subsidy for fertilizers peaked in 1989 at 20 million dinars (current prices), but had reduced to only 3 million dinars by 1993. For the 1986-92 period, the increase in real prices of fertilizers averaged 6% annually.  28. Animal feed subsidies involved barley, corn and soybean meal. Animal feed subsidies provided by the state have, similar to fertilizers, been financed through the CGC. Barley is used to compensate pastoralists for grazing land that is taken out of use during rehabilitation programs, and also small livestock farmers during drought years with the intention of maintaining herd sizes and stabilizing incomes. Corn and soybean meal benefit poultry raisers and also dairy operations, mostly on larger scale farms. Overall subsidies for animal feed peaked in the drought of 1989 at 49 million dinar (current prices) before falling to 4 million dinars in 1992-93. This consisted almost entirely of subsidies on barley, as subsidies on corn were eliminated in 1992 and those on soybean meal in 1993. 29. Regarding cereals seed and 2-4-D herbicide, subsidies have been eliminated. 30. Reduction of subsidies to irrigation water charges was treated differently under the Loan. Under an earlier Bank irrigation loan that remained under implementation, the Government had agreed to irrigation charge increases of 9 percent in real terms annually. Continuation or modification of this policy under the ASAL II was to be decided on the basis of an analysis whose recommendations were discussed in June 1991. The study resulted in agreement that (i) each Regional Commissariat for Agricultural Development (CRDA) would increase irrigation charges by 9% annually in real terms, except in extenuating circumstances, in which case it would average 9% over the period 1991-1995; (ii) the study would be updated in 1992; (iii) a decree would be published by mid-1992 stating conditions under which irrigation water was to be sold, including the option for introducing a binomial tariff; and (iv) CRDAs would put in place a parallel commercial cost accounting system. 31. These agreements were in large measure carried out. Regarding CRDA irrigation tariffs, increases fell short of the target through 1990, but have recovered to exceed the target since 1991 and did not violate the condition. The average annual increase during 1991-93 was 12 percent in real terms, but increases in 1994, a drought year, only reached about 7 percent in real terms, the same as the average for the period 1988-93 as a whole. On the basis of the updating of the study on tariffs, it became clear that some CRDAs were much closer to others in reaching the tariff target of covering 100% of operations and maintenance costs. The tariffs vary by Region, but averaged 41 millimes /m3 in 1993. This is about 75 percent of the costs of operations and maintenance in the old MOA definition, which does not yet include amortisation and provisioning for repair of civil works and equipment within the perimeter, and about 63 percent of operations and maintenance costs which include these latter components. The decree was passed and a binomial tariff allowed for, but actual implementation of this has yet to occur. Implementation by CRDAs of a commercial accounting system for irrigation activities in parallel to the administrative accounting system which they are required to apply was reconsidered by the Bank and Government during appraisal of a subsequent loan, the ASIL, and is not being required at this time. The Government is solidly committed to annual real increases in irrigation tariffs until such point as full recovery of operations and maintenance costs is achieved. Future policy regarding recovery of some portion of investment costs is being analyzed but no policy orientation has yet been defined. 2. Reorientation of Public Expenditure 32. The objective of this component was to monitor public expenditure to ensure the best possible economic and social return on the public investment resources devoted to agriculture. Agricultural projects and programs spanning the last two years of the 7th Plan (1990-91) and the first two years of the 8th Plan (1992-93) were also to be financed, thus making the ASAL II a hybrid operation.  33. In fact, there was no focus or concern stated in the President's Report on either the level or composition of public investment in agriculture, and recurrent expenditure received no attention at all. In essence, based on an earlier public expenditure review of sectoral strategy and investment projects in the 7th Plan (1986-91), there was broad agreement on public investment plans and sub-sectoral strategies. The main focus for the ASAL II was thus on reinforcing established criteria for inclusion of investment projects, which went beyond specification of a rate of return threshold (10%) to include consideration of favorable impact on the agricultural trade balance, cost effective employment creation and low Government contribution to investment and operation costs. 34. The investment component consisted of annual agreements on projects to receive Loan financing over the 1990-93 period. A preliminary screening was initially done only during appraisal, resulting in an initial list of potential projects and programs, but this was substantially modified in actual implementation of the annual agreements. Of the President's Report fifteen original projects and programs, only four were ultimately financed by the ASAL 11, with six additional projects reviewed and accepted subsequent to Board Presentation (Annex Table 8). The list which fully committed the Loan funds for the investment component was finally established during the June, 1991 supervision mission. 35. The investment financing provided by the Loan was more important for providing the MOA with flexible project financing than for its impact on the level or composition of public investment in agriculture. Loan commitments were under five percent of the public investment budget over 1990- 93. But by being responsive to Borrower proposals for financing sub-projects that had not been foreseen at the time of appraisal, the Loan assisted the Borrower to undertake investments that satisfied agreed selection criteria, but which faced financing constraints. For instance, financing of the high priority rural potable water program ultimately accounted for one-third of the Loan's commitments, much higher than originally envisioned, because financing from another donor failed to emerge. 36. A problem arose in disbursing the Loan resources reserved for the investment component that had its origin in the Loan design that included the investment component resources in the tranches. Discussion with Bank staff involved in appraisal indicates that this was a design oversight rather than express intention. As a result, the investment component confronted a serious constraint by early 1992 as a consequence of delays in releasing the second tranche of the Loan. Policy implementation delays having little relation to the investment programs blocked second tranche replenishment of the Special Account, and as a result, a number of small contractors faced delays in payments on contracts. To solve this problem, the Board agreed in April 1992 to an amendment to the Legal Agreement delinking the investment component from tranche conditionality. This delinked the investment component (approximately US$29.5 million) from the quick disbursing component, leaving approximately US$12.5 million of quick disbursing funds subject to the second tranche conditionality. Regarding disbursements, it should also be noted that at the time of issuance of this report, there is still an unrecovered balance of US$88,893 from the Special Account, such that the Loan is not technically closed. 37. Public investment, consisting of investment by both the administration and public enterprises in the sector, has undergone a significant compositional adjustment since 1990. The share of total public investment accounted for by public enterprises, maintained at about 35 percent in the middle 1980s, has fallen to under 15 percent, a decline of almost two-thirds in real terms. A strategic shift in public strategy in the sector accounts for a much of this decline, as fewer budgetary resources are  - 9 - being made available to a range of public enterprise investments in water, fisheries, livestock and cereals storage, in order to promote private investment. 38. Total public administration investment in the agricultural sector during the first two years of the 8th Plan (1992-93) involved a substantial real increase over levels achieved during the preceding Plan, with several important shifts in emphasis. Water sub-sector investments, which accounted for two-thirds of 7th Plan public investment, have declined. While public investment in natural resource management is undergoing a large increase in budgetary outlays, primarily in forestry and soil and water conservation. Fisheries investments are also declined following completion of construction of a chain of commercial fish ports in the late 1980s. 39. The Tunisian authorities consider the current level of total public investment in the agricultural sector to be roughly appropriate. A greater concern in recent years has been how to more effectively leverage this investment and other sector policies to achieve higher levels of private investment as the main vehicle for future growth. Results over the past decade have fallen short of targets, with real growth of private investment averaging 1.5 percent annually, but remaining at less than 45 percent of total sectoral investment during the last Plan. With completion of the Unified Investment Code, which accords significant private investment incentives to the agricultural sector as did previous Investment Codes, the key measures to improve on past performance will be to: (i) strengthen rural credit; (ii) further liberalize markets; and (iii) improve technology transfer through promotion of foreign investment, partnerships and strengthened adaptive research and extension. 40. The MOA clearly perceives the role of public investment as facilitating private investment and providing public goods, a substantial shift from earlier decades when it was actively involved in direct production activities. 3. Strengthening Essential Government Support Services 41. The objective of the Loan in this component was to improve input and service delivery by strengthening those that were to remain in a public sector responsibility, and to make markets more competitive for the others, in part by reducing the predominance of parastatals. Conditions and key actions encompassed withdrawal of public agencies from input marketing, withdrawal of the OEP from most of its directly productive livestock units, promulgation of legislation on pesticide and herbicide use and handling, authorization of tractor imports of models competitive with local manufacture, and reduction of budget subsidization of the FOSDA credit. 42. These actions were carried out. With the reorganization of the MOA in 1990 and creation of decentralized, regional administrative units, the CRDA's marketing for many of the inputs that had previously been the responsibility of the CRDAs' antecedent institutions was eliminated from their functions. OEP successfully withdrew from the agreed proportion of its production units, and tractor imports were completely liberalized, with the Government going further than the ASAL II expectation by closing the local, high-cost tractor manufacturing plant. 43. Regarding agricultural credit, the ASAL II objective was promotion of private as opposed to public investment in the sector growth strategy, through greater commercial bank participation in investment financing, reduced direct budgetary cost of cheap credit provision, and less undercutting from special funds in the form of low interest loans with low repayment performance, managed by the agricultural development bank, BNA.  - 10- 44. Two specific measures were foreseen. First, reduction of the budget allocations for the FOSDA credit programs by 30% was to be achieved in two steps, with a 15% cut by end-1989 specified as a key action, and a further 15% by end- 1990 as a condition of second tranche release. Second, a reduction in the differential between market rates and (lower) preferential agricultural rates by 1-2 percentage points. The first reduction in the FOSDA budget allocation was more than required, but only 4% for the second reduction. This entailed a non-compliance with second tranche release conditions that was inaccurately reported to the Board at the time that the investment component was de-linked from the second tranche due to a mis-communication among Bank staff. In any event, while there was no possible way to meet this dated condition strictly once 1990 had passed, the spirit of the condition was fulfilled through subsequent FOSDA reductions, which averaged 22% annually over 1989-1992. The second measure of reducing interest rate differentials was carried out as specified; increases to 10% were made in the main regulated interest rate in the agricultural sector, while the money market rate has fallen and remained below this level since late- 1993. 45. The pesticide legislation was eventually promulgated, but only after a prolonged delay that forced postponement of the second tranche release. There were no substantive disagreements between the Bank and Borrower over the legislative text. The delay was due in part to the time needed to get the submitted draft law considered by the Chamber of Deputies. But the Bank also insisted on an interpretation that the Loan Agreement required both the law and its implementation decrees to be published in the Government's official journal before the Loan condition, that the Borrower take all necessary measures satisfactory to the Bank to regulate the use of pesticides, was considered fulfilled. Inter-ministerial debate on the content of the application decrees took considerably longer than expected and involved an additional two months. 46. Actual strengthening of services which were identified as legitimately remaining a public sector role involved research and extension. In these two areas, a Bank project had been appraised prior to negotiation of the ASAL II, but key actions relating to the institutional framework were reinforced by building them into the ASAL II. For research, the objectives were to establish an umbrella agency (IRESA) to coordinate overall agricultural research strategy, and application of a methodology for programming and budgeting by objectives. For extension, the objective was to combine the plethora of agencies' extension activities under a coordinated program at the local and regional levels, with consideration to be given to the organization need for coordination at the central level. 47. The primary vehicle for implementation of these institutional arrangements has been the Research and Extension Project which became effective in May 1991. This project has made satisfactory progress overall in its objectives, although institutional strengthening has persisted as the most problematic component. The umbrella agency, IRESA, was created but was slow to hire researchers to strengthen key programs and has not adequately strengthened high level staff at the center. The MOA has yet to designate heads of extension at the CRDA level and to adopt a statute for extension personnel. 4. Improvement in Natural Resource Management 48. This was an inadequately developed component of the loan in the President's Report that accomplished little in reorienting or advancing Government strategy. The two resources focused upon were land and fisheries. For land, the Government identified several actions as under consideration  - 11 - in its Letter of Sectoral Adjustment Policy: (i) extension of the Agrarian Reform Agency for Public Irrigation Schemes' (ARAPPI) land consolidation activities to rainfed areas; (ii) establishment of a land bank to facilitate parcel consolidation; (iii) reforms in the legal framework to address traditional inheritance practices that lead to farm fragmentation. Formally, a key action obliged the Government to carry out a joint review with the Bank of actions taken on land issues and future programs for the restructuring of agricultural holdings, and this did occur during the February 1992 supervision mission, but none of the actions has since been realized. The only area in which good progress continues to be made is on the transfer of state-owned land to private entities through long- term leases. Regarding fisheries, the SAR foresaw general support for two domestic fish marketing pilot projects targeting interior markets, and the establishment of incentives to encourage a shift in fishing effort from the Central to the North coast. There is no further mention of the pilot projects in Loan documentation. The incentives have been put in place, but have not achieved the desired results. Separately, the Government has restructured its involvement in fisheries, pulling out of direct activities in fishing, processing and marketing, and focussing on monitoring, strategy, policy issues, and investment in port facilities. But the Government continues to struggle with problems of overfishing, particularly along the Central coast. 49. Investments foreseen in the SAR to support improved natural resource management were only partially carried out. Investment in groundwater prospecting and performance have resulted in a better understanding of the comportment of aquifers, but other identified investments in soil studies, low cost erosion control, land ownership studies, land consolidation, and fisheries patrol boats and port maintenance did not receive support from the ASAL II. 5. Strengthened Capacity for Sector Performance Monitoring and Impact Analysis 50. This component targeted the Planning Unit (DGPDIA) of the Ministry of Agriculture, which had played a key role in policy definition and analysis since the beginning of the first ASAL, and was soon to begin coordination of the Ministry's preparation of the sector strategy for the 8th Plan. No specific actions were foreseen as part of the ASAL II, but it was anticipated that the DGPDIA would continue to make use of the analytical tools employed during appraisal for policy planning and impact assessment. Three such tools had been used: a multi-market model, representative farm budgeting, and comparative advantage analysis of different production systems. 51. Although a considerable amount of time was spent with personnel of the DGPDIA during preparation of the ASAL II in developing and using these analytical tools, there has not been much subsequent use of them for impact monitoring or further analytical use. Some monitoring of trends in farm income for several typical farm types has been carried out using farm budgets, but no use is being made of the multi-market model or comparative advantage analysis, and none is anticipated in preparing the 9th Plan. B. Actual costs, financing arrangements, implementation timetable, compared with estimates 52. Actual costs. Comparison of actual costs of the investment component with cost estimates at appraisal is not relevant since the component was not concretely defined until nearly a year after loan effectiveness. It is possible to compare actual payments on contracts with the project cost estimates which were entered into the annual Tunisian budgets. On this basis, all the investment components were carried out at marginally below budget estimates with the exception of the Degache-El Hamma project, which experienced a cost overrun of about nine percent.  - 12 - 53. Financing arrangements. There was paralled co-financing of the ASAL 11 by the KfW, which participated in the loan appraisal mission. Based on indications that it would make a loan for the equivalent if US$16 million to support import financing linked to the conditions and action plan of the Bank loan, the ASAL 11 amount was reduced by the equivalent amount to US$84 million. The KfW approved its loan in May, 1990. 54. Implementation timetable. Loan implementation experienced a nine month delay beyond planned effectiveness/first tranche release, which contributed to the twenty-five month delay beyond planned second tranche release. The investment component also experienced delays in carrying out contractual works, and the Loan closing was extended by six months to permit final payments on contracts approved and signed in 1992. 55. A supervision mission scheduled prior to the originally planned effectiveness date concluded that because several key questions still awaited Ministerial approval and a substantial amount of official documentation was still required, the scheduled effectiveness would likely need postponement by four-to-six weeks. Five extensions of the effectiveness date were eventually required, principally to permit the issuance of texts and publication in the official journal of legislation as required by the effectiveness conditions. 56. The second tranche release was delayed eight months beyond satisfaction of all other special conditions because of difficulties in passing of legislation and application decrees relating to the handling, storage, application, labelling and disposal of agricultural chemicals (see para. 45). C. Key Impacts on Reaching Loan Objectives 57. Ministry of Agriculture Decentralization. The MOA carried out a reorganization and decentralization as the ASAL II was getting underway. The reorganization substituted 23 regional administrative offices (CRDAs) for a less comprehensive, but more autonomous set of regional agricultural development agencies. The CRDAs were to gain greater responsibility for developing and implementing investment projects, but had a much reduced role in input supply, direct production activities and marketing. The most immediate impact was on the investment component of the ASAL II, since the CRDAs, whose involvement had not been foreseen at appraisal, came subsequently to be responsible for 60 percent of the investment program under the Loan. Transferring responsibilities to these new administrative units, and making them operational, took some time that contributed to procurement delays that slowed disbursements and later resulted in postponement of the closing date for the loan. The reorganization also affected the DGPDIA, which, while maintaining a strong planning function at the central level, was also absorbed with carrying out a decentralization to the CRDA level of sector monitoring activities and maintenance of agricultural survey information. 58. High level of ownership. As already evident during ASAL I implementation, progress on policy reforms benefited from the Borrower's good commitment to significant reforms along the lines defined for loan support. There was wide and full engagement by the Borrower in a policy dialogue with the Bank, which was characterized by openness and a willingness to devote considerable time to policy discussions during the supervision missions. 59. Drought. Two consecutive years of severe drought just prior to the ASAL II becoming effective, subsequently followed by two excellent harvests in 1991-92 had opposite effects on policy reform implementation. The drought led the Government to delay implementing several of the price  - 13 - reforms, particularly irrigation tariff increases, due to concerns about the impact on already depressed farm incomes and a desire not to discourage irrigated crop production. The subsequent good weather and harvests gave the Government manoeuvering room, and eased the potential political costs of input subsidy reductions that otherwise might have proven difficult to implement (see following Part D). The sustainability of these subsidy reductions does not seem in doubt: there was no backtracking on the reductions during the subsequent droughts in 1994 and 1995. D. Overall Impact of the Loan 60. Monitoring requirements were inconsistently specified in the President's Report and Loan Agreement, and not in any case fulfilled. According to the President's Report, monitoring of sector performiance and the implementation of the MTASAP was supposed to have taken place through annual reports provided to the Bank. Supplemental Letter No. 7 of the Loan Agreement states that semestrial reports were to be provided by the Borrower, to include monitoring data based on a very lengthy appendix to the Letter. Although all Borrower monitoring reports were received according to Bank staff, only one is available in project files, and it includes only about a third of the requested monitoring data. It is evident that such monitoring was of low priority to both supervision missions and the Borrower. 61. It is difficult analytically to identify what portion of the good performance of the agricultural sector during 1989-93 can be attributed to the ASAL II implementation. First, the policy measures carried out might well have been implemented without the Bank loan, since they were consistent with policy directions that were clearly articulated and ascribed to by Government. Second, the economic response to the policy changes in terms of the variables of key interest -- sector growth, income impact, budget and trade response, private sector investment -- is difficult to isolate, particularly in the context of the major impact of weather on the sector. However, some evidence can be brought to bear on the issue that suggests that the policies carried out with loan support had a positive impact, and can be judged satisfactory. 62. For this report, the multi-market prediction model that was used during appraisal was updated on the basis of price policies actually carried out.Z' This permits comparing the updated model results with the appraisal results, and also with the actual economic outcome: - Value added: aggregate growth in the commodities analyzed (roughly half of the agriculture sector output) increased by 24 percent, or 5.5 percent per annum over the four year period of policy implementation. The increase was primarily due to factors other than price changes, specifically changes in weather conditions (the realized price policy changes alone would have decreased value added by 1.3 percent) and was driven by large production increases in durum wheat, milk and beef; 2/ The original multi-market simulation model contained supply/demand and elasticity relationships for the major crops and livestock outputs, and permitted studying substitutions and responses to price changes. The updating of the model is reported in Tan, Alexandra (1995), "Updated Multimarket Model Analysis on the Impact of the Medium Term Agricultural Sector Adjustment Program on Tunisian Agriculture," March.  - 14 - - Government revenues: the actual change in government net revenues associated with the crops covered by the model was a decline of about DT 13.4 million per annum, largely due to increased durum production associated with good weather, and the consumer subsidies and continued producer price protection of durum wheat farmers related to these elevated volumes. The original projection was closer to this result than the updated model estimate. - Foreign exchange: the policies implemented had a relatively small impact on foreign exchange earnings in both the original and updated model estimates but actual period results were a large increase in net earnings due to good weather; - Incomes: the updated income impact as estimated by the model -- by region and for three income groupings -- gives mixed and modest results: there was a small decline, under 1 percent per annum, in real incomes, with the exception of the low income group in the north and center of the country, for whom incomes increased. In general, the poor income group did better in the updated model results than predicted in analytical work done for Loan appraisal. Unfortunately, lack of data on actual incomes prevents contrasting these with model predictions. Some evidence on farm income trends, based on typical farm budgets, is presented below. 63. Additional evidence on price policy impacts on farm incomes can be gleaned from analysis of representative farm budgets. The DGPDIA has analyzed income trends for four typical farm types ranging from 5 to 80 hectares during the adjustment period. The farm types are all rainfed and involve both crops and livestock activities. Net incomes derived from the models are stagnant at best for the smaller farm types, and decline for the largest representative farm from 1989 levels. 64. In order to focus on the impact of price policies on poor farmers, two cropping patterns were analyzed, one representing the higher rainfall northwest, and the other the lower rainfall center-west regions of Tunisia. The center-west model consists of a two hectare farm on which barley and a forage crop occupy a fifth of the land, with the rest of the land devoted to olive and almond trees, and livestock consisting of five head of sheep. Chemical fertilizer use is limited, and restricted to the annual crops, with the main other purchased input being mechanized land preparation services. The north-west model is also for a two-hectare farm, with a crop mix that gives greater emphasis to annual crops, including wheat and legumes, and has marginally higher yields because of better rainfall. 65. The analysis of farm budgets indicates that the direct impact of price policies on incomes of poor rural farmers was positive over the period of the ASAL II's main policy reforms (1989 - 1993) averaging the equivalent of 3 percent real growth annually. However, this improvement only barely overcame the sharp drop in farm incomes in 1987 and barely enabled a return to income levels that prevailed at the start of the MTASAP in 1986. Moreover, the severe cut in olive oil producer prices in late 1993, although not directly related to policy reforms specified in the ASAL II, had a significant negative impact on farm incomes. 66. These farm budget analyses are partial, taking into account the direct impacts of price trends on revenues, but neither the subsequent behavioral adjustments in input use and activity focus, nor the weather impact on yields. Unfortunately, there is little available information on shifts in the structure  - 15 - of farm activities by households.3' Anecdotal evidence is that poor farm households in some areas are improving their agricultural incomes through intensification of livestock activities and better management of tree crops. 67. No monitoring of price policy impacts on irrigated farming has taken place. Evidence is scarce regarding the impacts on water use of the substantial changes in the real cost of irrigation water described in para. 31. There is some evidence that the irrigation intensification, measured by the ratio of irrigated crop to irrigable area, stagnated over the Loan period, indicating a greater reluctance by farmers to irrigate during the rainy season. The MOA has also expressed concern that irrigated farm incomes are suffering, and are undertaking a tariff study under the ASIL that explores this issue. There is little evidence available to evaluate the extent to which on-farm water use efficiency is improving in response to increasing real costs. 68. Private investment was expected to respond to both price and non-price actions undertaken as part of the loan program. Annual investment in agriculture increased by nearly six percent annually in real terms between 1989 and 1993. Growth occurred in both public and private investment, with the latter growing faster so as to account for 52 percent of the total in 1993 compared with 44 percent in 1989. The areas of most rapid growth of private investment are livestock, tree crops and farm equipment. The Governrment's efforts to promote private investment in agriculture are expected to be advanced further through implementation of the unified investment code that was enacted in late-1993. 69. The impact of the investment financing component is thought to be considerable, although weak impact monitoring makes it difficult to quantify the impact on beneficiaries beyond installation of physical infrastructure. Clearly documented is the improved access by the rural population to potable water, with the loan contributing to the overall increase from 59 to 71 percent of the rural population having access over the 1989-94 period. In addition, a total of 244 hectares of irrigation was created in three small perimeters, 224 test boreholes were drilled nationwide permitting identification of 3,818 liter/second groundwater resources for irrigation and rural potable water, the ODESYPANO program carried out rural road maintenance on, soil conservation measures, pasture improvement and dairy cattle improvement in Northwest Tunisia, intensification of irrigation in two perimeters in the Tozeur region, and installation of irrigation permitting plantation of about 4,500 hectares of private orchards in Gafsa region. E. Assessment of Bank and Borrower performance 70. Bank performance is judged to be satisfactory. Solid analytical work went into preparing the policy component, rigorous supervision kept the spotlight on making progress in the policy arena, and attention and flexibility permitted overcoming obstacles as they arose. Notwithstanding this general assessment, several reservations remain. First, the impetus for choosing a hybrid loan for the Bank intervention was not clearly articulated at the outset, and implementation of the investment component was given short shrift throughout in most aspects. Second, staff input were very high (see Table 10). Two hundred staffweeks were used through appraisal, despite the operation being the second phase of an adjustment program. Supervision costs were high due to two factors. Intensive 3' Data to address this issue are collected by the MOA annually through the Enqu&e Agricole de Base. Unfortunately, the computerized data are only maintained by the 23 CRDAs for their own regions, thus would need to be centralized to enable analysis of such issues.  - 16 - dialogue continued to be necessary during implementation to keep policy reforms on track as the MOA was reluctant to carry out measures that met the efficiency and fiscal objectives of the Loan, but at the cost of farmer incomes in the short run (see para. 10). The complexity of monitoring 29 key actions (see para. 7) may have proven unworkable under other circumstances, but in this instance, with flexible and consistent supervision, it enriched the substance of and provided concrete focus to the policy dialogue carried out during supervision missions. Procurement processing for the investment component required a lot of attention, in part because more efficient procedures that might have been defined in advance had received inadequate attention during appraisal. 71. Borrower implementation was mostly successful and indicative of the high level of commitment to the policy reform agenda. Several policies required coordinated action across several ministries, and this was effectively carried out by the planning unit within the MOA. On the investment side, the investment sub-projects selected for Loan support were generally carried out satisfactorily by decentralized units within the Ministry. Overall monitoring of the investment component was somewhat deficient, as an effective oversight of procurement, disbursement, timetables and monitoring of investment impact was not established at the beginning, and difficult to establish subsequently. F. Overall assessment of project outcome 72. The Loan outcome is satisfactory. It achieved most of its major policy objectives and has achieved satisfactory development results. The exceptions to this outcome are remaining overprotection of wheat production, insufficient disengagement of the National Cereals Authority from domestic grain marketing, and inadequate implementation of policies to allow for private participation in meat imports. IV. Summary of Findings, Future Operations, and Key Lessons Learned A. Key findings from implementation experience 73. Overall, the policy reform agenda supported by the Loan was adequately pursued. The policy dialogue was generally effective and advanced through focused supervisions. 74. Good weather was important in buffering the negative impacts of the policy agenda. Favorable rainfall resulted in exceptional production, increased farm incomes, and reduced foreign exchange needs for food imports, which made it politically easier to pursue input subsidy reductions. 75. The hybrid structure of the Loan -- with a quick disbursing policy component and an investment component that supported sub-projects in the MOA budget -- was not an effective instrument design. The investment component was weakly conceived from the beginning and was never adequately integrated into supervision mission objectives. Further, the coupling of disbursement on investment components with policy requirements for the second tranche release proved to be an inappropriate design, as recognized in eventually de-linking the two components. In fact, the problem arose due to delay in passage of a draft law through the National Assembly, as required for second tranche release. Finally, there were no monitoring indicators established for the investment component, which resulted in some slippage in execution of works, and weak capacity to evaluate the early phase operations of sub-project components.  - 17 - B. Plans for future project operations and sustainability 76. For the investment component of the Loan, future project operations raise several issues, none of them major concerns. The three largest sub-projects in monetary tenrs were the rural potable water, integrated rural development of North-West Region and groundwater studies and monitoring, each of which has different operational and sustainability characteristics. The rural potable water program under the Loan created 86 small-scale and autonomous systems, each with its own user group which is responsible for management and operational cost recovery. The national strategy of promoting user groups was detailed and put in place only in 1992, and in practice, most user groups are still in their infancy and not yet autonomous financially. Nevertheless, steady progress is being made in implementing the national strategy and strengthening individual user groups through a bilateral assistance program and the Bank's ongoing ASIL. The integrated rural development of North-West Region sub-project comprised bridge financing of core investment activities of a regional development agency (ODESYPANO) between the closing of an earlier Bank project and effectiveness in 1994 of a follow-on project. Management of the completed investments has either been devolved to user groups (e.g. potable water supply and improved pastures) or remains under public operation under the continuing coordination of ODESYPANO (e.g. rural roads, classrooms). The groundwater monitoring investments were part of an ongoing program to provide the MOA with adequate information to permit rational development and regulation of this resource. The program continues with support from the ASIL, and is soundly managed by a Department within the MOA. 77. Three small-scale irrigation perimeters were created through the Kef hill dam (30 ha), Chograne (64 ha) and Sidi M'haddeb (150 ha) projects. The physical infrastructure is completed, but monitoring of the operational phase, which is the responsibility of regional CRDAs, has been weak. 78. Two sub-projects had uncompleted contracts at Loan closing. The Degache El Hamma irrigation intensification had completed work on tubewells but only proceeded to procurement preparation for establishment of the irrigation distribution infrastructure in 1995. The Tozeur oasis renovation has one component still underway, treatment of waterways to reduce losses. Alternative financing of both these contracts exists, and the integrity of the projects is not considered at risk, despite the delays; the regional CRDAs will be responsible for assisting the private farmer beneficiaries to use the infrastructure efficiently once the systems are put into operation. 79. Sustainability of the investment component is expected to be enhanced by the subsequent ASIL, which is continuing investment support for four annual tranches of projects and programs in many of the same areas. In addition, the ASIL is addressing sub-sector policy issues relevant to investment effectiveness and also institutional strengthening to improve implementation and monitoring of investment budget implementation at both central and CRDA levels. C. Lessons for future projects in the sector 80. There is an unfinished agenda in two policy areas as discussed in Section III A, reduction of protection of the wheat sub-sector, and disengagement of a number of remaining parastatals involved in marketing of agricultural products. 81. Release of the second tranche was substantially delayed because of a condition requiring passage of a law on pesticide transport and handling, as well as of its application decrees. Ironically, the Project Completion Report of the ASAL I, written before this episode, specifically recommended avoiding conditionality that requires passage of a law because it required an action over which the Administration had not control. The recommendation bears repeating.  - 18 - PART II: Tables Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation and Operations Table 6: Studies Included in Project Table 7: Project Costs and Financing Table 8: Economic Costs and benefits Table 9: Status of Legal Covenants Table 10: Bank Resources: Staff Inputs Table 11: Bank Resources: Missions  - 19 - Table 1: Summary of Assessments A. Achievement of obiectives Substantial Partial Negligible Not apvlicable Macro policies X Sector policies X Financial objectives X Institutional Development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environmental objectives X Public Sector management X Private sector development X other (specify) B. Proiect sustainabilitv | _Li_ Unlikely Uncertain C. Bank merformance Highly Satisfactory Deficient satisfactorv Identification X Preparation assistance X Appraisal X Supervision X D. Borrower performance Highlv Satisfactory Deficient satisfactorv Preparation x Implementation x Covenant compliance x Operation (if applicable) I 1 T _ _ E. Assessment of outcome Highly Satisfactorv Unsatis- Hi2hlv l ____________________________________I satisfactory factorv unsatisfactory 11 1. 1 I T 1x  - 20 - Table 2: Related Bank Loans/Credits1' Loan/credit title Purpose Year of Status approval l Preceding operations l 1. ASAL I The first adjustment loan in 1986 Completed Tunisia and consisting of macro and sectoral components. The sectoral component promoted greater efficiency and economy in the production of agricultural commodities and in the use of public resources allocated to the sector. 2. Economic and Support continued 1991 Completed Financial Sector implementation of economic Reforms Support reforms to improve Loan macroeconomic stability and the balance of payments through liberalization of external trade and prices, promulgation of an investment code across sectors that embodies coherent incentives, and other measures not directly relevant to the ASAL II. Following operations 1. Research and Reorganization and 1990 Supervision Extension Project strengthening of the national research and extension systems. 2. Agricultural Sector Promotion of sectoral growth 1993 Supervision Investment Loan through improved management of public resources, sub-sector policy reforms and support of the public investment budget. 3 Northwest Reduce poverty, diminish 1993 Supervision Mountainous Areas natural resources degradation Development Project and improve the population's well-being by providing for some basic needs in NW Tunisia 1' Includes projects in the same sector/subsector as this project and adjustment operations with related objectives. A limit of 10 years is observed when listing preceding operations.  - 21 - Table 3: Project Timetable Steps in project cycle Date planned' Date actual/ latest estimate Identification (Executive Project Summary) l First Preparation Mission 28 September, 1987 Second Preparation Mission 2 December, 1987 Appraisal v' 17 October, 1988 17 October, 1988 Negotiations 2t 6 February, 1989 27 March, 1989 Letter of development policy (if applicable) 28 April, 1989 Board presentation 2t 28 March, 1989 1 June, 1989 Signing 30 June, 1989 Effectiveness/First tranche release 31 December, 1989 27 August, 1990 Second tranche release 31 December, 1990 26 January, 1993 Project completion Loan closing 31 December, 1994 30 June, 1995 As provided, for example, in the Staff Appraisal Report (SAR). 2' As given in the Initiating Memorandum circulated to the Operations Committee 20 September, 1988.  - 22 - Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ millions) FY90 FY91 FY92 FY93 FY94 FY95 FY961' Appraisal estimate 18.6 60.2 67.4 77.4 84.0 84.0 84.0 Actual 0 40.0 51.7 74.0 79.4 81.5 82.5 Actual as % of estimate 0 66.5 76.7 95.6 94.5 97.0 98.3 Date of final disbursement 10/95 The Project officially closed 6/30/95, but the account left open to enable final payments until 10/31/95, at which time US$1.4 million of undisbursed balance was cancelled.  - 23 - Table 5: Key Indicators for Project Implementation and Operation I. Key implementation indicators Estimated Actual A In SAR/ President's Report No indicators identified n.a. n.a. B. Other indicators1' 1. Sector value added, annual trends 2. Production prices, annual trends 3. Sector investment, by agent and year 4. Agricultural trade balance, annual 5. Investment components, physical and financial progress IL Key Operation Indicators A. In SAR/President's Reportt No indicators identified n.a. n.a. B. Other indicators (investment component) 1. Irrigation projects - production - farm budgets - water use - user group administration 2. Rural potable water - user group administration 3. Groundwater monitoring - physical and Il--if bio-chemical It Indicators presented in the Borrower's semestrial progress reports.  - 24 - Table 6: Studies Included in Project Study Purpose as defined Status Impact of study at appraisal/redefined Transport Cost Analyze the pros Completed 9/90 Subsidy was Equalization Scheme and cons to eliminated in for Cereals eliminating the 1992. subsidization of domestic cereals transport. 2. Impact of Removal Define a pilot Completed Liberalization of of Feed Grain programme for 11/90 maize (1992) and Subsidies and Import private imports of soybean meal Liberalization feed products. (1993) imports. 3. Study of Irrigation Define steps in Completed 2/91 Agreement to Tariff Structure and addition to the pre- continue the same Levels effectiveness 9% level of real real tariff increase increases in tariffs, to further improve inclusion of cost recovery. binomial tarification among payment options in contracts with irrigants, and future implementation by CRDAs of commercial accounting for irrigation activities. 4. Seasonal Pricing and Analysis of policy Completed 5/91 Government Institutional Reform issues affecting adoption in 1993 Options for Tunisia's cereals and proposal of a monthly Grain Marketing of recommendations payment scheme System for future reform. that has helped promote private storage.  - 25 - Study Purpose as defined Status Impact of study at appraisal/redefined 5. Master Plan for Design reforms Completed 3/92 Directly supported Edible Oil Marketing covering the role of Government's in Tunisia, Second processors and substantive Phase middlemen, reforms in alleviation of marketing of regulatory edible oils. constraints, and Prepared ground further privatization for later overhaul of domestic and liberalization marketing. of olive oil collection and marketing. 6. Irrigation Tariffs for Update of a similar Completed 7/92 Reinforcement of Complete Recovery study conducted the the previously of O&M costs year previously. agreed strategy. 7. The Red Meat Sector Define a strategy for Draft completed Document's in Tunisia and the El Louhoum 8/92 recommendations Restructuring of El restructuring. were discussed Louhoum with Government; little restructuring apart from staff reductions.  - 26 - Table 7: Project Costs and Financing' Appraisal estimate (US$M) Actual/latest estimate (US$M) l Item Local Foreign Local Foreign costs costs Total costse costs, Total 1. Groundwater studies and 15.5 5.8 5.8 11.6 monitoringi 2. Integrated agricultural 0.5 1.1 1.6 development of Sidi M'haddeb 3. Agricultural development of 10.0 1.4 1.9 3.3 Gafsa (27 wells) l 4. Hlill dam-n 0.3 0.5 0.8 5. Integrated rural 9.8 5.4 7.3 12.7 development of North-West Region . 6. Rural potable water 8.2 10.8 19.0 7. Irrigation intensification of 1.2 1.4 2.6 Degache-El Hamma b 8. Development ot Tozeur 2.6 2.8 5.4 Oasis C 9. Chograne irrigation 0.1 0.3 0.4 perimetelr 10. Others d 49.7 0.0 0.0 0.0 TOTAL 51.0 34.0 85.0 25.6 31.9 57.5 Costs shown are of the investment component of the loan. b Contacts for water distribution and greenhouse components included in the original project concept, estimated at $1.3 million, were delayed beyond project closing. ' Contracts for waterway lining investment included in the original project concept, estimated at $0.7 million, were delayed beyond project closing. d The appraisal report indicated 11 other investment projects that were never financed by the Loan. "Local costs" are payments from the Government budget and "foreign costs" are Loan disbursements.  - 27 - Table 8: Economic Costs and Benefits No ex post estimation of economic costs and benefits was undertaken on the nine investment sub- projects for the following reasons: a) two sub-projects, Sidi M'hadded integrated development and NW Region integrated development, consisted of partial support (temporally and financially) of larger programs. It is not possible to allocate benefits specifically to the ASAL II financing; b) five irrigation sub-projects, Chograne, Degache - El Hamma, Tozeur, Gafsa and the hill dam, have just entered or have yet to enter into production, so benefits remain hypothetical; c) one sub-project, groundwater monitoring, provides critical information on the resource, but no measurable benefits; and d) one sub-project, rural potable water, provides benefits such as improved health and reduced collection time, but baseline and impact data needed to evaluate these are absent.  - 28 - Table 9: Status of Legal Covenants Overall Project Status: S Agreement Cov. Original Revised Section Type Status Date Date Description of Covenants Loan 5.01(a) 12 C 12/31/89 08/31/90 The Government shall open grain collection to the private sector. 5.01(b) 12 C 12/31/89 08/31/90 The Government shall establish criteria for licensing private exporters of olive oil and authorize those meeting such criteria to export. 5.01(c) 12 C 12/31/89 08/31/90 The Government shall transfer beef to the list of freely importable products, impose a variable tariff to provide for 15% nominal protection and ensure appropriate sanitary norms. 5.01(d) 12 C 12/31/89 08/31/90 The Government shall eliminate all quantitative restrictions on imports of powdered milk and impose a variable levy to provide 15% nominal protection. 5.01(e) 12 C 12/31/89 08/31/90 The Government shall authorize imports of tractors of the same horsepower manufactured in Tunisia, subject to a maximum tariff of 35% and a temporary surcharge of up to 30%. Sched. 1 5 C 12/31/89 The Government shall make satisfactory Para. C 12/31/90 10/31/91 progress in carrying out the overall 5(a) program. Sched. 5 C 12/31/90 The Government shall prepare and 4(1) furnish to the Bank the recommendations of the Second Phase of the Cereal Marketing Master Plan.  - 29 - Agreement 1 Cov. Original Revised Section Type Status Date Date Description of Covenants Sched. 12 C 12/31/90 06/30/91 The Government shall adjust the prices of 4(2' subsidized fertilizers, animal feed, improved cereal seeds, seed potatoes and herbicide 2-4-D to eliminate 30% of unit subsidies. Sched. 12 C 12/31/90 06/30/91 The Government shall reduce FOSDA's 4(3) agricultural credit lending volume by 1 ____ _____15% in 1990 compared to 1989. Sched. 12 C 12/31/90 06/30/91 The Government shall improve cost 4(4) recovery for irrigation water based on review in Section 3.05. Sched. 5 C 12/31/90 10/31/91 The Government shall take necessary 4(5) measures to satisfactorily regulate the use of pesticides and herbicides. 3.03(a) 5 C The Coordinating Committee shall be maintained. 3.03(b) 9 C The DGPIA and the Coordinating Committee will monitor implementation of loan. 3.01 9 C 12/90 06/30/91 The DGPIA and the Coordinating Committee will furnish a report on the progress of program implementation. 3.04(a) 5 C 10/31 The DGPIA will select Agricultural every Programs and Projects for appraisal based year on specified criteria. 3.04(b) 5 C 10/31/89 The DGPIA will submit a list of proposed Agricultural Programs and Projects to the Bank by October 31 each year for execution the following year.  - 30 - Agreement 1 Cov. 1 Original 1 Revised Section Type Status Date Date Description of Covenants 3.05 5 C By 01/31/91 The Governnent will carry out a review 10/31/90 by October 31, 1990 of the level and structure of irrigation water charges. 3.06 5 C By 10/31/91 The Government will carry out a study to 03/31/90 design a pilot program permitting the private sector to import animal feed, furnish this report to the Bank for review, and take satisfactory measures to implement recommendations. 3.07(a) 1 C Ongoing The Government shall maintain adequate records and accounts for the operations and expenditures of the loan.  - 31 - Agreement 1 Cov. 1 Original | Revised Section Type Status Date Date Description of Covenants 3.07(b) I C 9/30 The Government shall have accounts every described in 3.07(a) for each fiscal year year audited, provide copy to the Bank within nine months of fiscal year, and provide any other information requested by the Bank about these accounts. 3.07(c) 1 C Ongoing The Government shall maintain adequate records and accounts for withdrawals from the loan account, ensure that such accounts are included in the audit report and permit Bank examination of accounts. C = covenant complied with CD = complied with after delay CP = complied with partially NC = not complied with  - 32 - Table 10: Bank Resources: Staff Inputs" Stage of Planned2' Revisedv Actual project cycle Weeks US$ Weeks US$ Weeks US$ ('000) Preparation to 163.8 598.5 appraisal l Appraisal 35.9 131.2 Negotiations through Board Approval 4.7 17.2 Supervision 79.1 289.0 Completion 1.1 4.0 | TOTAL 284.6 1,039.9 " Also includes Bank-financed and trust fund consultants. 21 Planned and revised figures on staff inputs are not available in the Project files.  - 33 - Table 11: Bank Resources: Missions Stage of Month/ Number Days Specialized staff skills Performance ratingY Types of project cycle year of in represented!' Implementation Development problems- persons field status objectives Through appraisal 1st preparation 9-10/87 8 12 2nd preparation 12/87 10 15 Appraisal through Board approval Appraisal 10-11/88 8 18 Supervision Pre-effectiveness 9-10/89 3 21 eco/irrig/chief Effectiveness 12/89 7 8 eco/irrig/disb/ 1st 12/89 7 9 Econ/Irrig/trade&tariff 1 1 /credit/disburs./livest. 2nd 10-11/90 1 22 agr. eco 2 1 3rd 5-6/91 1 11 agr. eco 1 1 - 11/91 1 1 Irrig. Eng 4th 2/92 2 8 eco/agr.eco 1 1 5th 3/93 1 9 eco 1 1 6th 11/94 1 6 eco S S Completion 3/95 1 3 eco Key to specialized staff skills. Key to status as shown in Supervision Form 590 (in revision). Key to problems as shown in Supervision Form 590 (in revision).  - 34 - APPENDIX A Page 1 of 3 REPUBLIQUE TUNISIENNE DEUXIEME PRET A L'AJUSTEMENT DANS LE SECTEUR AGRICOLE (PRET 3078-TUN) Aide-memoire de la mission de concertation de la Banque mondiale (3-10 novembre 1994) INTRODUCTION 1. Une mission repr6sent6e par M. Mink de la Banque mondiale s'est occupee du suivi du PASA II, du 3 au 10 novembre dernier. Cette mission a tenu des reunions avec les responsables de la DG/FE et de la DG/PDIA, au Ministere de l'agriculture, et, A la fin, avec le Ministere de la cooperation internationale et de l'investissement exterieur. Les conclusions et recomnimandations de la mission sont les suivantes: 2. Audit de l'exercice 1993. La date limite de 1'envoi dudit audit - fin-septembre 1994 - etant d6passee sans que la Banque n'en ait eu reception, la mission a discute avec les responsables du MOIC l'etat de preparation du rapport et a et informee que l'equipe avait demarr6 son travail debut novembre. La Banque vient d'&re informee que le rapport serait disponible fin-janvier 1995 au plus tard. 3. Prorogation de la date de cl6ture. Sur la base des informations fournies par la DG/FE, la mission a conununique son avis qu'une prorogation de la date de cl6ture - 31 decembre 1994 - de six mois etait souhaitable. Ceci permettrait les dernieres imputations de deux composantes: Developpement des oasis de Tozeur et Intensification de l'irrigation a Degache-EI Hamma, qui sont inscrites pour financement depuis le programme de 1992. La Banque vient de recevoir la requete officielle de prorogation de la part du MOIC. 4. La mission a demande A la DG/FE de mettre A jour le tableau "Situation des Depenses sur PASA II", modifie pour refleter les montants des paiements r6alises et ceux encore a effectuer, par composante, ainsi que l'implication sur le solde du pret (en dinars et en dollars). Ce tableau serait envoye a la Banque dans les meilleurs delais. 5. Rapport d'achevement du proiet. La mission a collabore avec la DG/PDIA A la mise en place des arrangements necessaires au rapport d'ach6vement du Pret. Les directives de la Banque, qui decrivent les responsabilit6s de la Banque et du Ministere ont et revisees. Le calendrier prevoit que la Banque envoie a la DG/PDIA, pour fin-mars 1995, une version preliminaire du document, ce qui lui permettrait de reporter sa propre evaluation et la remise de ses commentaires A fin-avril 1995. 6. La mission a discute deux etudes preparatoires pour le rapport d'achevement, qui ont demarre. La premiere est une analyse de la realisation et de l'impact des reformes reglementaires visant la liberalisation des marches. La mission a sollicite l'assistance du MOIC pour faciliter le travail du bureau d'etude engage, en lui demandant de faire circuler aupres des personnes - privees comme publiques - interessees par ces reformes, une lettre ou circulaire d'introduction officielle pour cette tiche. Pour I'autre etude, une analyse ex posteriori des politiques de prix sur la base d'une actualisation du modele multi-sectoriel, la DG/PDIA a collabore en fournissant des donnees de base. La realisation des deux etudes est programmee pour fin-fevrier 1995.  -35 - APPENDIX A Page 2 of 3 7. Un dernier 6l6ment de la preparation du rapport d'achevement serait des fiches d'evaluation des neufs projets/programmes d'investissement finances par le pr6t. Un modele de ces fiches serait envoy6 par la Banque a la DG/FE, pour fin 1994, et celle-ci coordonnerait la preparation de ces fiches par les agences d'exkcutionF'. Fait a Washington le 6 decembre Stephen Mink Charge de projets Banque mondiale 5 These evaluation forms were completed by the DG/FE. The information available, and provided on these forms, was not adequate to permit estimating actual economic rates of return.  -36 - APPENDIX A Page 3 of 3 Deuxieme Pret d'Ajustement du Secteur Agricole - PASA II (TUN-3078) Mission de Concertation, 28 Mars - 14 Avril Plan d'Actions .. . .... . .. .. .. .. .. . . . . . . ... .. .. ... ?,,; - ftXt} .. .XWtWtf --;- A..0.j T} f...... ..f ..... ..i; ...:.;. . ;. : .... . . ...tX;'i: ;DTEf T:t;0} ?0f:-?ffffX}. Addiit RpMblt PawuConenar Remboursement du DG/FE, BCT fin-mai, 1995 Compte Speciale de I'avance, marche resile Calcule de sur- DG/FE, BCT fin-mai, 1995 decaissement du Compte Spciale, et remboursement Envoi A BIRD des DG/FE fin-juin, 1995 Fiches seront fait par fiches d'evaluation des agence d'execution sub-projets d'6valuation ClOture de pret DG/FE, BIRD 30 juin, 1995 Envoi de Partie 1, BIRD fin-juillet, 1995 Rapport d'Achevement du Pret Envoi de Partie II, DG/PDIA, DG/FE fin-septembre, 1995 Rapport d'Achevement du Pret Envoi a BIRD de Min. Coop. Intern. fin-septembre, 1995 DG/FE a contacter le I'audit, exercice 1994 Min. Fin. pour programmer l'audit Fait A Tunis Stephen Mink le 14 avril 1995  - 37 - APPENDIX B Borrower contribution to the ICR REPUBLIC OF TUNISIA DEPARTMENT OF AGRICULTURE IMPLEMENTATION OF THE AGRICULTURAL SECTOR ADJUSTMENT PROGRAM 1. PRESENTATION: In 1987, Tunisia embarked on an economic reform program which aims at laying the groundwork for higher medium- and long-term growth. This program is based on a reduction of the budget deficit, a consistent price policy and a real exchange rate. In addition, one important component of this structural adjustment effort is the Agricultural Sector Adjustment Program, which has been undertaken in view of the importance of this sector to the economy of the country. II. GOALS OF THE MEDIUM TERM AGRICULTURAL SECTOR ADJUSTMENT PROGRAM (MT ASAP): The objective of the Medium Term ASAP program is the strengthening of the contribution of agriculture to overall economic growth, the balancing of the budget and of the balance of payments and the creation of jobs. To obtain these goals, the government initiated a policy mainly based on: a. A consistent price and subsidy policy. This policy consists in liberalizing and adjusting production prices and gradually eliminating subsidies in order to create an environment which is conducive to private sector participation and the liberalization of activities. b. Streamlining of government intervention, including a gradual withdrawal from business activities which can be adequately discharged by the private sector and the strengthening of its regulatory function. c. Higher efficiency in expenditure and public investment policies, in accordance with the objectives of development and the priorities of agricultural policy. d. Streamlining of the use of natural resources, land, water, forests and fishing resources. e. Strengthening of the Ministry's capacity for analyzing and monitoring the sector's performance.  - 38 - III. IMPLEMENTATION OF THE ASAP: In implementing this program, the govermment attaches paramount importance to the optimum use of resources. It therefore puts a priority on measures aimed at improving productivity, at strengthening the effectiveness of the production incentives and at optimizing government intervention. 3.1 In the area of prices and subsidies: Producer prices of cereals for the 1989-1990 crop year rose to 24.5 D/Q for durum wheat, 20.9 D/Q for soft wheat and 15 D/Q for barley, compared with, respectively, 22.5, 19.9 and 14.5 D/Q for the crop year 1988-1989. These prices were set for the crop year 1991-1992 at 26 D/Q for durum wheat, 22.5 D/Q for soft wheat and 15 D/Q for barley. Since that year, these prices have remained unchanged until 1994-1995, when they reached, respectively, 27.5, 24 and 15 D/Q. It should be noted that, as far as barley is concemed, this posted price is only an intervention price, the marketing of this product being free. These prices were established using a computing methodology which aims at bringing them nearer to the unsubsidized world prices and takes into account the changes in production costs. It is also noteworthy that the price rises during the last few years have been consistent with the general trend in world prices and with the objectives of domestic price policy. - The increase in producer prices was extended to milk, whose price rose from 290 mil/It in 1989-1990 to 330 mil/It in 1994-1995. - At the input level, the price increases which accompanied the reduction in subsidies concerned ammonitrate, single super phosphate and triple super phosphate. Fertilizers are thus no longer compensated and are no longer financed by the General Compensation Fund, as of 1992 for Super 16 and ammonitrate, 1993 for DAP and 1994 for triple super phosphate. Price reform has been extended to cattle feed, seeds and 2.4-D. These items are no longer subsidized by the General Compensation Fund. Importation of beef has been liberalized since 1990, contingent, however, on a 15% levy aimed at ensuring a reasonable protection for domestic production. Technical specifications consistent with intemational health standards have been drafted in order to assure the sanitary protection of the country. This liberalization has allowed the private sector to play a larger role in importation activities these last few years, its share reaching up to 40% of imported tonnage. It should also be noted that the decrease in total imports over the last few years did not result from specific policies to this effect, but is largely due to the drought that plagued the country the last two years and which prompted the cattle raisers to slaughter an important portion of their herds. 3.2 In the area of public expenditures and agricultural investments:  - 39 - During the VIIth Plan (1987-1991), the legal and institutional framework was considerably enlarged thanks to the revision of the Code on Agricultural and Fishing Investment. This enhancement results from the introduction of a greater flexibility in the management of the Societies for Agricultural Improvement and Development (SMVDA), the extension of Code benefits to service activities and the incentives for technicians and young farmers to join the agriculture and fishing sectors. These measures have been strengthened, during the VIIth Plan (1992-1997), by the enactment and implementation of a new Code of Investment Incentives (Single Code), which not only confirmed the benefits already granted to the agricultural sector, but extended them to the activities of primary processing of agricultural and fishing products. These encouragements and incentives triggered the increased willingness of the private sector to invest in agriculture and fishing. As a result, the share of private investments in this sector during 1992- 95 topped 47%, compared to only 40% during the VIIth Plan. This tendency could have been more in evidence without the delays in implementation of the new Code and the slowing down of investment in the crop years 1993-1994 and 1994-1995, which were plagued by a drought. Along with this effort, a certain substitution has been noticed in the assumption by the private sector of some activities which used to be performed by public agencies. This concerned particularly cereals, milk and oils, in addition to development of state-owned lands. 3.3 Improvement in the institutional framework of agriculture: The Government is fostering the divestiture by public enterprises of some competitive business activities and strengthening its regulatory function. The Government intends to make sure that human and financial resources will be used at optimal efficiency by delineating more clearly the respective roles of Government and economic units. i. In the cereal sector, the following actions have been taken: - Enabling private operators to collect cereals under the same conditions as the central cooperatives and the Cereal Board. Under this provision, three new collectors have been approved and their capacity exceeds 100,000 quintals. Their activities, however, have been limited due to the modicity of the harvest in 1994 and 1995. - Offering incentives to private agents for building up cereal storage facilities. To this effect, a national program of storage capacity extension, up to a level of 1.2 million tons by 1996, instead of the current 0.63 million tons, has been devised. It includes three main components: silos in the production areas, silos in the consumption areas and silos in the harbors. This program should be entirely implemented by the private sector. To date, a new capacity of 250,000 tons has been established, the total program foreseeing 570,000 tons. - The withdrawal of the Cereal Board (CB) from activities not directly linked to the sector. In this regard, the CB has launched a program for terminating its involvement in the relevant enterprises by means of a Commission for Rehabilitation and Restructuring of the enterprises in which the public  - 40 - sector owns equity (CAREPP). As a result, the CB has already transferred to the private sector activities such as bread baking (SOTEBI), children's foods (SAHA), milling (STIM) and livestock feed production. ii. In the oil sector: the Governnent already took action for streamlining this sector by phasing out subsidies to vegetable oil. In addition, a press release of May 1990 authorized the traders to export olive oil to foreign markets. So, until 1994, 27 traders have been licensed by the National Commission for Licensing Olive Oil Exporters. As of May 1994, under a new regulation establishing conditions for the marketing of cooking oil, including the abolition of the National Oil Board's monopoly and the formulation of licensing requirements for olive oil exporters, 18 additional traders have been cleared for export. During the crop year 1994-95, the level of olive oil collection by private traders exceeded 6,000 tons (mainly for export), which represents over 60% of total collection, during a period of low production. In addition, some 50,000 tons of olive oil have been marketed domestically, exclusively by private traders. 3.4 Improvement of supporting services: 3.4.1- Research: In order to endow agriculture with a research system which would be better suited to the demands of development as well as the real needs of the farmners, the Ministry of Agriculture has drafted a Master Plan of Agricultural Research and, in 1990, created an institution for Agricultural Research and Higher Education. This agency has been entrusted with the planning and coordination of agricultural research activities. Regarding these programs, there has been a listing of priorities by decreasing urgency and 11 priority programs have already been decided and are under steam. Likewise and in view of a better streamlining of the work, seven regional poles will be created, having as their main tasks coordinating research activities in their regions and facilitating the spread of acquired knowledge to the farmers, in close cooperation with the extension services and the professionals. There are currently four poles in action; they operate in the Northeast, the Northwest, the semi-arid Northeast and the East Central. 3.4.2. Extension services: As in the case of research, the Ministry of Agriculture has thought deeply about the extension services over the next ten years, reserving an important place for the profession, especially through the chambers of agriculture. In order to avoid duplications and an overcrowding of the field, in 1990 the Ministry created an Agricultural Extension and Training Agency for coordinating all extension activities. For supporting these two programs, research and extension, a project for developing research and extension is being implemented, with co-financing by the World Bank. Moreover, with the reorganization of the regional services of the Ministry, in particular the abolition of the Boards for improvement of irrigated tracts, and the creation of IRESA and AVFA, it has been understood that there should be some bridge structure, capable of establishing functional links between those institutions themselves and between them and the farmers. It was therefore decided to set up specialized technical centers for the main agricultural branches. They will be mainly entrusted with projects of applied research, with making their results known to the farmers and to guide the latter in  - 41 - technical and economic matters. It should be noted that such centers will engage exclusively in technical activities. A Technical Center for Potato Cultivation is currently being established. 3.4.3 Marketing of inputs: Since the regional services of the Ministry of Agriculture were reorganized, by merging the Development Offices with the CRDA, the marketing of inputs, which used to be an activity essentially conducted by the regional OMVs, is now entirely entrusted to the private sector. Many individuals and agricultural technicians have already settled in the production areas and have created agricultural services enterprises, taking advantage of the encouragement and incentives which the various investment Codes provide. 3.4.4 Management of water-related infrastructures: In the framework of the withdrawal of the Government from services and activities which can be provided by the private sector, efforts have been made for revising the regulations regarding the AICs in order to allow them more flexibility for taking over the management of the water-related infrastructure, as well as for strengthening their extension efforts and their training. As a result, the incentives and encouragements provided by the Ministry's new Investment Code and the extension efforts of its technical units have resulted in a steady increase in the number of Abcs over the years. There are currently over 1,400 Abcs for safe water and over 450 for the management of the irrigated tracts. 3.4.5 Reorganization of the profession: The VIlIth Plan has been particularly concerned with the reorganization of the profession in view of the improvement and strengthening of its intervention capacity in the farming community. An assessment has also been undertaken of the activities of the three Chambers of Agriculture set up since 1988 and a package of measures is being implemented to improve their level of performance. In addition, during the period 1993-1994, the regulations concerning the interprofessional groups has been revised, in order to provide them with a larger autonomy in their decision taking, in the management of the resources available to them as in the discharge of the missions entrusted to them. As to the agricultural services cooperatives, efforts undertaken in matters of assistance, extension and mobilization, combined with the incentives from which they benefit, have revitalized them and gained them the trust of the producers. As a result, the 166 CSAs have a combined membership of 35,000. 3.4.6 Agricultural Credit: In order to achieve a real cost of agricultural credit and a streamlining of its use, interest rates have been raised to 10% as of July 1992 compared with 9% in January 1991 for the season credits. Moreover, in the framework of the new Code for Incentives to Investment, deepgoing reforms have affected agricultural credit, in particular, the raising of the interest rate to the level of the market rate and the elimination of the discounts formerly granted to the agricultural sector. In addition, in the framework of the reform of the agricultural credit system, the Government withdrew from granting loans to farmers save in exceptional circumstances in which farmers of highly disadvantaged areas, such as the areas of Integrated Rural Development Programs (PDRI), may find themselves. As a result, the resources of the Special Agricultural Development Fund (FOSDA) are almost exclusively used for covering the incentives granted by the Government in the form of capital grants. 3.5 Streamlining of the Use of Natural Resources:  - 42 - In the field of land ownership and use structures, reforms have been introduced since 1987, especially the acceleration of the settlement of collective land claims and the organization of land lease for increased tenure security of the farmers. During the VIlIth Plan (1992-1996), a new program of structural land reforms has been implemented with the following objectives: - accelerating the updating of frozen ownership titles and eliminating the causes of the current situation of many non-current titles; - limiting farm fragmentation below minimum size levels in order to ensure the economic conditions of production and viability of the individual farms; - fostering the economic use of the land and fighting absenteeism and low-productivity use; For this purpose, a comprehensive legal package, which will remove the current land ownership and use constraints, is being prepared and is nearing completion. For Government-owned land, a comprehensive strategy has been devised with an eye to improving the level of effective use of the existing potential and ensuring the required efficiency of this management. An ambitious program was launched during the 1980s and revised in the early 1990s. This program is centered on the consolidation and strengthening of the production units which yield satisfactory results and the creation of agricultural improvement and development societies (SMVDA), as well as the settling of technicians and young developers within the units which experience management problems and which require an additional effort in matters of financing and leadership. The said program calls for the creation of SMVDAs and the settlement of technicians and young developers on about 220,000 hectares. By 1995, about 100 SMVDAs had been constituted. Regarding water and soil conservation, the Agriculture Ministry has implemented a strategy for accelerating the protection of the soil and improving the rate of water use. To this end, a protection program has been adopted, covering one million hectares through the year 2000, requiring the mobilization of 200 million dinars. Achievements up to 1994 include development of some 300,000 hectares of watersheds, maintenance of earlier works on more than 110,000 hectares, development of 35,000 hectares of sloping land for cereal crops and construction of 307 farm ponds. With regard to forests, the objective is a rational management of this natural resource, which includes an improved logging system, protection of the forests and a forestry system based on development and reforestation. A strategy has been devised to this effect. It entails mainly the reforestation of 220,000 hectares and rangeland development on 2.2 million hectares. The two forestry projects cofinanced by the World Bank illustrate this new approach. It should also be noted that new forestry and water and soil conservation codes have been enacted the last few years. They aim at better management and rational use of these resources and imply a greater responsibility for the beneficiaries. These codes provide various incentives and encouragements to organization of the beneficiaries and their participation in the management and exploitation of the resources.  - 43 - Concurrently, a comprehensive and integrated study is being undertaken in view of the formulation of long-tern development strategy for natural resources. The fishing sector has shown some weakening in the early 1990s. In order to strengthen its position, an incentive system has been set up in order to encourage fishing in the North instead of in the overfished South. The new code of investment incentives includes also a set of incentives for fostering fishing in the northern regions. In addition, new legislation enacted in 1995 regulates fishing operations. It aims in particular at streamlining the use of the country's maritime resources. It introduces specific authorization for the various fishing areas, determination of minimum sizes for the various species of fishes, prohibition of fishing in certain areas and fixation of a time frame for authorized fishing of some endangered species. CONCLUSION: The political and institutional reforms, some of which are fundamnental, applied in the framework of the agricultural sector adjustment program, have in the aggregate reached their stated goals. The many single actions taken dealt with several aspects of agricultural development: - elimination of all forms of subsidization at production level; - liberalization of prices and both domestic and foreign trade for the bulk of agricultural products; - reorganization of administrative services and parastatal agricultural support units; - reform of the agriculture sector financing policy; and - reform of the land tenure system and improvement of natural resources management. All these measures, even though they contributed to improving the general environment of the sector, can, however, not fully explain the results that were achieved since the inception of the ASAP, in either production or in investment and the agricultural and foodstuffs trade balance. These three aspects have, indeed, performed quite unevenly over the last three years due, in particular, to weather conditions which fluctuated between very favorable and extremely adverse. It would therefore be difficult to assess the real medium term impact of the implementation of the ASAP. An assessment could be made over a longer period, the more so since the agricultural sector is concurrently going through profound changes as a result of the implementation of the OMC agreements on agriculture and the partnership agreement with the European Union.  -44 - TUNISIA SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN Timetable of Key Actions Actions to be taken by Actions to be taken by Actions to be taken by June 30, 1989 December 31, 1989 December 31, 1990 PARASTATAL REFORM l Office des Cereales (OC) 1. Submission to Bank of an action 1. Initial actions acceptable to the 1. Follow-up actions acceptable to plan to disengage OC from Bank to implement action plan (e.g. the Bank to implement action plan investments and activities not withdrawal from extension and directly related to the cereals from investments outside the subsector and to strengthen its subsector) regulatory role Office National des Huiles (ONH) 2. Submission to the Bank of the 2. Submission to the Bank of an 2. Initial implementation of action first phase of the Edible Oil action plan based on the first phase plan based on the first phase of the Marketing Master Plan, including of the Edible Oil Marketing Master Edible Oil Marketing Master Plan, specific measures to improve the Plan and submnission to the Bank of an efficiency of importing and local action plan based on the second processing of edible oils in order to phase of the Master Plan reduce subsidies form the Caisse Generale de Compensation (CGC) l 3. Submission to the Bank of an action plan to disengage the ONH in a manner consistent with the national policy of disengagement l___________________ of parastatal enterprises PRICING AND MARKETING l Cereals 4. Presentation to the Bank of a 4. Adjustment of support prices 4. Second adjustment of support detailed methodology to be used according to new formula prices according to new formula annually to determine the support prices of durum wheat, bread wheat and barley (4-year moving average of international reference prices plus transport and handling m m costs and the 15% minimum tariff) o x ox>  - 45 - TUNISIA SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN Timetable of Key Actions Actions to be taken by Actions to be taken by Actions to be taken by June 30, 1989 December 31, 1989 December 31, 1990 5. Preparation of a study to 5. Joint evaluation with the Bank introduce a seasonal price system of the study and eventual adoption of the recommendations Beef 6. El Louhoum to sell at its breakeven price Milk 7. Presentation to the Bank of a 7. Adjustment of support prices 7. Second adjustment of support detailed methodology to be used according to formula prices according to formula annually to determine the support price of milk (4-year moving average of GATT International Milk Council prices plus transport and handling costa and the 15% minimum tariff) _ PRICING AND MARKETING Input Subsidies 8. Increase in prices of subsidized inputs (i.e. fertilizers, animal feed, improved cereal seed, seed potatoes and 2-4-D herbicide) so as to eliminate 15% of unit subsidies and increase of irrigation water charges .__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ by 9% in real terms SUPPORT SERVICES _ Input marketing 9. Presentation to the Bank of 9. Selection of "d6l6gations' from 9. Effective withdrawal of public criteria for withdrawal of public which public sector agencies could sector agencies from 80% of sector agencies from 'd6l6gations withdraw consistent with criteria selected Wddlfgations* where the private and/or and effective withdrawal from 20% cooperative sector is providing of those "d6l6gations' I'd ._______________________________ adequate service . | o >x  - 46 - TUNISIA SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN Timetable of Key Actions Actions to be taken by Actions to be taken by Actions to be taken by June 30, 1989 December 31, 1989 December 31, 1990 Livestock Services 10. Withdrawal of the Livestock 10. Withdrawal of OEP from and Pasture Office (OEP) from 70% of its remaining directly 20% of its remaining directly productive units l _________________________________ productive units Research and Extension 11. Issuance of necessary 11. Adoption of the methodology directives acceptable to the Bank for programming and budgeting of defining the role and operating research programs by the single procedures for programming and agricultural research institute being budgeting of I to 3 priority created by combining INRAT, the programs of agricultural research Institut de l'Olivier, the Institut des regions Arides CRGR and INRF 12. Submission to the Bank of an organizational chart for extension of the regional and local levels with descriptions of the responsibilities at each level and proposals for their coordination at the central level Credit 13. In 1989, reduction of the credit part of FOSDA by 15% compared to 1988 14. Increase interest rates so as to 14. Increase interest rates so as to reduce the differential between reduce the differential between market rates and preferential market rates and preferential agricultural rates by 0.5 to 1.0 agricultural rates by a further to point 0.5 to 1.0 point NATURAL RESOURCES Land Policy 15.Joint review of actions taken and future programs for the 3 restructuring of agricultural land o x holdings F-h     i 1MAt NC 4 N; i eport No: 15355 Type: ICE