Ghana - Agricultural Sector Adjustment Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16502 IMPLEMENTATION COMPLETION REP'ORZT RE'PUBLIC OF GHANA AGRICULTURAL SECTOR ADJUSTMENT CREI)IT (Credit 2345-GH) May 2, 1997 County Department 10 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 Annual 1991 1992 1993 1994 1995 1996 Averages (Jan-June) CedilUS$ 368 | 437 649 957 1200 1567 WEIGHTS AND MEASURES Metric System FISCAL YEAR OF BORROWER January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADB Agricultural Development Bank AgSAC Agricultural Sector Adjustment Credit AgSAP Agricultural Sector Adjustment Program APCC Agricultural Policy Coordinating Committee CMC Cocoa Marketing Company (COCOBOD subsidiary) COCOBOD Ghana Cocoa Board DFR Department of Feeder Roads EPA Environmental Protection Agency EPC Environmental Protection Council FASCOM Farmers Services Company GCC Ghana Cotton Company GDP Gross Domestic Product GNAFF Ghana National Association of Farmers and Fishermen GOG Government of Ghana GFDC Ghana Food Distribution Corporation IDA International Development Association KfW Kreditanstalt fir Wiederaufbau LBCs Local Buying Companies (for cocoa beans) MFEP Ministry of Finance and Economic Planning MLF Ministry of Lands and Forests MOFA Ministry of Food and Agriculture MTADS Medium-Term Agricultural Development Strategy NCCSGA National Cocoa, Coffee and Sheanut Growers Association PBC Produce Buying Company (COCOBOD subsidiary) SAC Structural Adjustment Credit VICE PRESIDENT - JEAN LOUIS SARBIB COUNTRY DIRECTOR - SERGE MICHAILOF TECHNICAL MANAGER - JEAN PAUL CHAUSSE TASK TEAM LEADER - GOTZ SCHREIBER  FOR OFFICIAL USE ONLY Table of Contents Page Preface ........ ................................................................. iii Evaluation Summary .........................................................................v Part I: PROGRAM IMPLEMENTATION ASSESSMENT ..............................................................1 A. STATEMENT/EVALUATION OF OBJECTIVES ..................................................................... 1 B. ACHIEVEMENT OF OBJECTIVES .............................. ............................................ 3 Overall Achievements ..........................................................................3 First Tranche Release ..........................................................................4 Second Tranche Release ..........................................................................4 Third Tranche Release ..........................................................................6 Other Monitorable Actions ..........................................................................7 C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT ..... 7 Implementation Record ..........................................................................7 Major Factors Affecting Program Implementatioi .................................................................. 7 D. PROJECT SUSTAINABILITY ..........................................................................8 E. BANK PERFORMANCE .........................................................................8 F. BORROWER PERFORMANCE .........................................................................9 G. ASSESSMENT OF OUTCOME ..........................................................................9 H. FUTURE OPERATIONS .......................................................................... 10 I. LESSONS LEARNED ......................................................................... 10 Part II: STATISTICAL INFORMATION 1. Summary of Assessments 2. Related Bank Loans/IDA Credits 3. Project Timetable 4. Loan/Credit Disbursements: Cumulative Estimated and Actual 5. Key Indicators for Project Implementation 6. Key Indicators for Project Operation 7. Studies Included in Project 8A. Project Costs 8B. Project Financing 9. Economic Costs and Benefits 10. Status of Legal Covenants 11. Compliance with Operational Manual Statements 12. Bank Resources: Staff Inputs 13. Bank Resources: Missions Appendices 1. ICR Mission's Aide Memoire 2. Map 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.   REPUBLIC OF GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT (Credit 2345-GH) Preface This is the Implernentation Completion Report (ICR) for the Agricultural Sector Adjustment Credit in Ghana for which Credit 2345-GH in the amount of SDR 57 million equivalent was approved on March 26, 1992 and became effective on June 3, 1992. The Credit was closed on December 31, 1995, with a delay of one year. The first tranche, released upon effectiveness, was fully disbursed by May 28, 1993. Subsequent tranches were released on April 12, 1994, and Septernber 7, 1995, respectively, and the Credit was fully disbursed by January 23, 1996. Two Supplemental Credits (Cr. 2345-1, effective April 11, 1994, and Cr. 2345-2, effective January 12, 1995), for SDR 4.13 million and SDR 3.6 million, respectively, were made available from IDA reflow resources. Grant cofinancing was provided by the Government of the Netherlands with a total arnount of DFI 30 million. The German Government provided parallel financing through a KtW credit of DM 25.7 million, bringing the total assistance package to about US$127.0 million as disbursed. The ICR was prepared by an FAO/World Bank Cooperative Program (FAO/CP) mission,' and was reviewed by G. Schreiber (Acting TM, AFTA3) and J. Chevallier (TM, AFTS3). The borrower and cofinanciers were provided with a draft of this document on January 29 and 31, 1997, respectively. To date, no fomial conunents have been received from the Borrower, while the cofinanciers have indicated that they have no comments. H. Trupke (mission leader) and G. Bodeker (economist/financial analyst).   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT (Credit 2345-GH) Evaluation Summary Introduction 1. Based on the positive experience gained under two IDA-financed Structural Adjustmnent Credits (Cr. 1777-GH, 1987, and Cr. 2005-GH, 1989), the Government of Ghana (GOG) developed, with substantial support from the Bank in 1988-89, a Medium-Term Agricultural Development Strategy (MTADS) which defined a program of policy and institutional reforms and a complementary set of investments needed to enhance agricultural growth. The strategy which emerged from this process formed the basis of the Agricultural Sector Adjustment Program (AgSAP). The implementation of a number of the policy and institutional reforms identified in this program was subsequently supported by the Agricultural Sector Adjustment Credit (AgSAC), the implementation experience of which is reviewed below. Project Objectives 2. The Credit was to support a program of liberalization of agricultural pricing, marketing and input supply, and the strengthening of agricultural sector coordination and management. The main objectives of the AgSAC were to eliminate the public sector role in input and produce price determination (except for cocoa), allow competitive trading for all agricultural inputs and outputs, remove external trade restrictions for all agricultural commodities except cocoa, and thereby create conditions for increased private investment in storage, input and output marketing, and processing. It was also to provide for a more efficient allocation of public resources and increase the focus of the public sector on poverty alleviation and natural resources management. The program objectives were clear, realistic and highly relevant to the country and the sector. Implementation Experience and Results 3. Overall, the AgSAC was successful in supporting actions to attain the broad objectives of the sectoral adjustment program, but private sector response to liberalization measures fell somewhat short of expectations. In respect of the liberalization of produce pricing and marketing, the focus was on foodgrains, cotton, palm oil and cocoa. By the time of Board presentation, GOG had already met the conditions regarding cotton lint and palm oil pricing and export liberalization and had partially fulfilled the requirements for public sector withdrawal from grain marketing, milling, and price fixing. The divestiture of five parastatal-owned rice mills was a condition to be fulfilled prior to the release of the second tranche. This, however, caused some problems as no buyers could be found. After protracted negotiations, the Bank accepted the sales advertisement as fulfillment in the spirit of the covenant. By now, two of these mills have been sold as scrap and the remaining ones have been closed down.  -vi- 4. Conditionalities concerning the cocoa subsector, such as ceasing input distribution to cocoa growers, divestiture of cocoa processing facilities and plantations as well as staff retrenchment and the abolishing of subsidies on inputs, were met prior to the release of the first tranche. The conditions for the second and third tranche release, including the opening up of the internal cocoa trade to the private sector, were also successfully met. However, against an appraisal forecast of 40 percent, at present only about 25 percent of internal cocoa marketing are in the hands of the private trade; the remaining 75 percent are still marketed by the Produce Buying Company (PBC), a COCOBOD subsidiary. The slower than expected growth of private sector participation can be explained by initial delays in screening and licensing of applicants, the substantial start-up capital requirements involved (trucks, warehouses, scales, bags, field staff, etc.), cumbersome procedures for obtaining credit for working capital, operating margins that proved inadequate in the face of rapid inflation, and long delays in obtaining payment for cocoa deliveries to the Cocoa Marketing Company (CMC), COCOBOD's marketing subsidiary. 5. Prior to Board presentation, GOG had already ceased to fix producer prices for cotton and had eliminated restraints on cotton lint exports. To further advance the liberalization process, the Government was to offer for sale all of its shares of the Ghana Cotton Company (GCC) to interested investors including cotton producers. An accounting firm was commissioned to manage the sale of 36,000 ordinary shares representing GOG's 30 percent shareholding in the company. After a first, unsuccessful, offer to the existing private GCC shareholders, the subsequent public offer (at higher prices) resulted in an over-subscription in which the Agricultural Development Bank (ADB) bought 50 percent of the shares offered. ADB being a parastatal agency, it became a point of discussion within the Bank whether this part of the sale satisfied the privatization objective. Finally, agreement was reached that the conditionality had been fulfilled as ADB's total share holding in GCC amounted to only 15 percent, considerably less than the 21 percent of the largest private shareholder (Juapong Textiles), and private shareholders now held 85 percent of GCC; moreover, ADB itself was already on the list of parastatals targeted for divestiture and is about to be privatized. The lengthy process, however, contributed to the delay in the release of the second tranche by almost half a year. 6. In the Upper and Volta Regions, marketing of agricultural inputs was dominated by the two parastatal Farmer Services Companies (FASCOMs), crowding out private sector commercial activities and contributing to price distortions. In adhering to conditionalities, GOG had already privatized seed production, decontrolled fertilizer prices and had issued invitations to consulting firms to prepare FASCOM divestiture prior to Board presentation. The divestiture process, however, proved to be difficult, mainly because the FASCOMs were highly indebted and inefficient. Even after GOG had agreed to write off all their debts to Government, no suitable buyers could be found to take them over in toto, as potential private input wholesalers/retailers either did not have sufficient capital to take over stocks and facilities or were not prepared to take the high business risk associated with prevailing bank lending rates of 30 percent and more and the seasonality of the, trade. Finally both FASCOMs were transferred to the non-governmental Ghana National Association of Farmers and Fishermen (GNAFF) on July 1, 1995. These rather difficult and politically sensitive procedures resulted in delays of complying with the conditionalities for the second and third tranche release. 7. Progress towards strengthening agricultural sector coordination and management has been satisfactory, particularly in streamlining the budget formulation and review process for the agricultural sector as a whole. The Agricultural Policy Coordinating Committee (APCC), serviced by a full-time technical secretariat in the Ministry of Finance and Economic Planning, has been empowered to coordinate sector-wide policies and to review and approve the budgets of all agricultural sector agencies. Budget allocations for all major public sector agencies operating in the agriculture sector (Ministry of Food and Agriculture, Ministry of Lands and Forestry, COCOBOD, Department of Feeder Roads, and  -vii- the Agricultural Research Institutes) are now reviewed together so as to rationalize sector-wide allocations~ of public financial resources and, in particular, to ensure appropriate balances in the allocation of resources across sub-sectors and agencies and between staff emoluments and other expenditures within agencies. 8. The budget's focus on poverty reducing programs has increased. The importance of environmental issues is highlighted in the new system of land resources management and the establishment of the Environmental Protection Agency with far-reaching authority. In addition, and in compliance with conditions for the third tranche release, Parliament is about to ratify an Act on the use of agro-chemicals. 9. Generally, both the Bank and the Borrower performed satisfactorily throughout the program cycle. Although second and third tranche releases were delayed, requiring an extension of the closing date (twice, by six months each time) to December 1995, the program outcome has to be rated as satisfactory as all major objectives have been achieved. 10. The Credit, in an original amount of SDR 57 million, became effective on June 3, 1992, and was to be disbursed in three tranches. Two supplemental IDA Credits of SDR 4.13 million and SDR 3.6 million, respectively, were made available from IDA reflow resources in FY94 and FY95, respectively, bringing total IDA funds to SDR 64.7 million (approx. US$93.9 million). The government of the Netherlands provided cofinancing grants totaling DFI 30 million (approx. US$17.1 million) which were administered by the Bank, and the German government provided parallel credit financing through the Kreditanstalt fur Wiederaufbau amounting to DM 25.7 million (approx. US$16 million), bringing the total assistance package to about US$127.0 million as disbursed. 11. The proceeds of the Credit were to be used to finance the foreign exchange cost of eligible imports through the foreign exchange auctions of the Bank of Ghana. Except for military equipment, luxury goods and environmentally hazardous products, any imports were eligible for financing. These rather broad definitions gave rise, on a number of occasions, to differing interpretations between GOG and the Bank as to what constituted luxury goods or environmentally hazardous products. Frequently, time consuming negotiations and exchange of documentation were required, delaying the disbursement process. Nevertheless, the Credit was fully disbursed by January 23, 1996. Summary of Findings, Future Operations, and Key Lessons Learned 12. The most important finding is that intensive Bank-Borrower collaboration in the development of a sectoral development strategy leads to agreements not only on sectoral investments but also on policy and institutional reforms needed, and such reforms tend to be implemented effectively and with a high degree of commitment. A second important finding is that programs which promote divestiture and liberalization in order to provide the enabling environment for more efficient agricultural production and marketing through increased competition should be accompanied from the beginning by measures to facilitate private sector entry. The response by the private sector to the opportunities created by government's withdrawal from farm input marketing and the abolition of the parastatal monopsony in domestic cocoa marketing has not been as vigorous as was anticipated at appraisal -- for several reasons: lack of capital, facilities and training/experience; marketing margins for private cocoa traders in the initial years of the program which proved to be inadequate in the face of high inflation; undue delays experienced by the LBCs in having their cocoa deliveries accepted and paid for by CMC; and remaining regulatory constraints on fertilizer imports and marketing. As a result, there is the risk  -viii- that government might come under pressure to step back in and satisfy unmet demand for marketing services. Finally, as the experience with GCC and the FASCOMs demonstrated, where major parastatals are to be privatized, it is highly advisable to explore well in advance whctlher there are likely private buyers and what might be the most appropriate modalities for divestiture. 13. From discussions with GOG it is evident that there is strong coinniitment to continue the liberalization process. COCOBOD is endeavoring to increase tlhe share of Licensed Buying Companies (LBCs) in internal cocoa marketing by improving payment procedures (which havc been an important factor in reducing the financial viability of existing LBCs). GCC is cxperimenting with new approaches to input distribution and sales to eventually pave the way for supply through the private input trade. The new directives on quality and environmenital standards for agricultural chemicals are now applicable to all importers and distributors and are, inter alia, expected to enhance services provided to farmers and to enhance environmental quality and public health. The process of strengthening inter-sectoral coordination and sectoral budget formulation is by now well integrated in the overall procedures, but will need further refinement in future. 14. The major lessons to be drawn from program implementation experiences are that: (a) the intensive Borrower-Bank collaboration in formulating a sectoral development strategy resulted in a high degree of consensus on policy and institutional reforms needed and was instrumental in ensuring that the agreed reforms were implemented effectively and with a high degree of conmmitment; (b) matching the divestiture of parastatals and market liberalization with measures in support of private sector entry would have accelerated the private sector's response to the imnproved enabling environment; (c) for the sale of Government assets to the private sector, clear guidelines have to be established and options defined and agrred upon in case no private buyer can be found; (d) lack of precision in project documents can lead to disagreements between the Bank and the Borrower concerning the interpretation of terms of conditionalities and to delays in implementation and tranche releases; (e) if eligible imports are defined through a "negative list," items not eligible for financing have to be clearly defined to avoid disputes over eligibility of claims resulting in time-consuming exclhanges of documnentation between the Borrower and the Bank.  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT (Credit 2345-GH) PART I: PROGRAM IMPLEMENTATION ASSESSMENT A. STATEMENT/EVALUATION OF OBJECTIVES 1. The Bank has been closely involved for a number of years in supporting the development of Ghana's agricultural sector. Already under two Structural Adjustment Credits (Cr. 1777-GH, 1987, and Cr. 2005-GH, 1989), the Government of Ghana (GOG) had initiated important measures to improve the efficiency of the cocoa subsector by abolishing subsidies on cocoa production inputs and phasing out the marketing of inputs by the Ghana Cocoa Board (COCOBOD), adjusting producer prices upwards and establishing a methodology for future producer price setting, and reducing the operating cost of the Ghana Cocoa Board (COCOBOD) through a drastic reduction in staffing. Furthermore, COCOBOD had divested about half of its plantations, rationalized its cocoa processing and insecticide formulation plants, and withdrawn entirely from coffee and sheanut marketing. 2. In 1988-89, the Bank provided extensive support to GOG as it developed its Medium-Term Agricultural Development Strategy (MTADS), which was the first coherent statement of objectives, policy and investment programs for the sector as a whole. Following the completion and discussion of that work, GOG requested the Bank to support the policy reforms contained in the MTADS through an Agricultural Sector Adjustment Credit (AgSAC). This was agreed to by the Bank, and preparatory work started in April '990. 3. At appraisal the goals of the AgSAC Program were listed as: (a) liberalization of agricultural pricing, produce marketing and input supply; and (b) strengthening of agricultural sector coordination and management, including poverty alleviation and environment. The means to achieve the first of these objectives included eliminating the public sector's role in price determination, allowing competitive trading for all agricultural inputs and outputs (except cocoa), and removing external trade restrictions for all agricultural commodities except cocoa so as to create favorable conditions for increased private investment in storage, input supply and processing. The second objective was to be pursued by strengthening agricultural sector coordination and management, so as to ensure a more efficient allocation of public resources, reduce waste, and improve the focus of the public sector on poverty alleviation and environrnental concerns. The program was designed to address policy and regulatory impediments in the sector so overall growth could be enhanced. 4. To achieve these goals, AgSAC supported a program of actions to: (a) rationalize the operations and reduce the operating costs of COCOBOD; (b) abolish the monopsony of the Produce Buying Company (PBC), a COCOBOD subsidiary, in the purchase of cocoa from farmers and implement a program for private sector entry into domestic cocoa marketing;  -2- (c) improve the transparency of the determination of prices, fees and taxes applicable in the cocoa sector, and gradually increase the share of the export price received by cocoa growers; (d) restructure the Ghana Cotton Company (GCC) and divest the government's holdings in GCC; (e) streamline the activities of the Ghana Food Distribution Corporation (GFDC) by divesting its processing and cold storage facilities, eliminating its price support functions, and freezing its storage capacity at the then prevailing level; (f) establish a coordinating mechanism for managing emergency food imports to avoid disruption to the private marketing system; (g) withdraw from producer price determination for all crops (except cocoa), and lift restrictions on exports of cotton lint and palm oil; (h) eliminate government control of fertilizer marketing margins, phase out public sector commercial participation in farm input marketing, and divest the two Farmers Services Companies (FASCOMs); (i) establish and enforce quality and environmental standards for agro-chemicals; (j) empower the Agricultural Policy Coordinating Committee (APCC) to review budget proposals for the Ministry of Food and Agriculture, the Ministry of Lands and Forests, COCOBOD, the Department of Feeder Roads, and the agricultural research institutes, and to advise the Government on sector-wide priorities; and (k) improve internal mechanisms for program and budget formulation for the agriculture sector. 5. The Credit, for an original amount of SDR 57 million (US$80 million equivalent at the time of appraisal) became effective on June 3, 1992, and was to be released for disbursement in three tranches: US$30 million equivalent upon effectiveness, US$30 million equivalent in June 1993, and US$20 million equivalent in June 1994. Release of the second and third tranches was to be conditional on performance reviews to be held before June 1993 and June 1994, respectively. Two supplemental IDA Credits of SDR 4.13 million and SDR 3.6 million, respectively, were subsequently made available from IDA reflow resources, bringing total IDA funds in support of the program to SDR 64.7 million (approx. US$93.9 million). 6. The government of the Netherlands provided grant cofinancing, initially DFI 20 million, augmented in December 1994 to DFI 30 million (approx. US$17.1 million), which was administered by the Bank. The German government provided parallel credit financing through the Kreditanstalt fur Wiederaufbau amounting to DM 25.7 million (approx. US$16 million), bringing the total assistance package to about US$127.0 million. The Dutch contributions were to be released along with the first and second tranches of the IDA Credit; the KfW credit was to be released in three tranches in parallel with the IDA Credit.  -3.- 7. The program objectives were clear, realistic and highly relevant to the country and sector. It would have been advantageous, however, to have in place arrangements in support of private sector entry into the market once the divestiture program came on stream (see paras. 33-34).' The AgSAC conditionality requiring the withdrawal of the public sector from the marketing of inputs for cocoa production represented somewhat of a reversal of the Bank's previous approach to supporting COCOBOD under the then still ongoing Cocoa Rehabilitation Project (Cr. 1854-GH, FY88) and led to some confusion and difficulties for the Borrower.2 B. ACHIEVEMENT OF OBJECTIVES Overall Achievement 8. Liberalization of Agricultural Pricing, Marketing and Input Supply. This objective was largely achieved with government withdrawal from price deterrnination and price support operations in the agriculture sector (except in the case of cocoa), removal of restrictions on exports of all crops, GFDC ceasing to. expand its storage capacity for price support purchases and food distribution, GCC and both FASCOMs being divested, and COCOBOD relinquishing its role in the marketing of production inputs. In the cocoa subsector, the COCOBOD monopsony for internal cocoa bean purchases from producers was eliminated, and about 25 percent of the annual crop is now handled by private buyers registered with COCOBOD. The appraisal target of 40 percent of the crop being handled by private buyers has not yet been achieved, and few of the private buyers have been able to operate profitably so far, because they occurred high start-up costs and because the margin between the minimum producer price and the price which CMC, the COCOBOD subsidiary and monopoly exporter, paid to the domestic buyers was not adequate in the first few years in the face of rapid inflation. The anticipated growth in private input marketing has not yet fully materialized -- due to lack of capital and facilities, some remaining regulatory constraints on fertilizer marketing, slow growth of effective demand, and poor rural transport infrastructure in most parts of the country. The objective of increasing efficiency in marketing through increased competition has, thus, not yet been fully achieved. 9. Strengthening of Agricultural Sector Coordination and Management. This objective was substantially achieved with the empowerment of APCC to coordinate policy for the sector as a whole and to review and approve the budgets for all key ministries and agencies in the agriculture sector, thereby minimizing imbalances in resource allocations, rationalizing programs and expenditures, and emphasizing poverty alleviation and environmental concerns in sectoral development. The 1994 and 1995 budgets were characterized by significantly reduced subventions for parastatals and increased funding for developmental activities. Budget provisions for the Environmental Protection Council (EPC), restructured and reconstituted at the end of 1994 into the Environmental Protection Agency (EPA), were increased very substantially,3 and legislation on quality and environmental safety standards for agricultural chemicals are awaiting parliamentary approval. I The Bank addressed this lacuna with several operations that vere approved in FY93 and thereafter (Enterprise Development, Cr. 2502-GH, FY93; Private Sector Development, Cr. 2665-GH, FY95; Private Sector Adjustment, Cr. 2718-GH, FY95). 2 The withdrawal of COCOBOD from marketing of farm production inputs was specified to take effect once COCOBOD had sold all inputs procured under ongoing donor-supported projects. 3 From Cedi 53 million in 1993 to Cedi 750 million in 1995 and Cedi 2,300 million in 1996.  -4- First Tranche Release 10. The conditions for credit effectiveness included downscaling the role and functions of the COCOBOD, measures to lower COCOBOD's operating cost, issuing regulations governing the entry of private firms into domestic cocoa marketing, and modifications in cocoa producer price determination. GOG was to cease fixing guaranteed minimum prices for maize and rice, and the Ghana Food Distribution Corporation (GFDC) was to close down its uneconomic rice mills, sell or lease its cold storage facilities and withdraw from retail trading and non-grain operations. GOG was to withdraw from fixing of producer prices for cotton, eliminate restraints on cotton lint exports, and liberalize palm oil pricing and export marketing. A start was also to be made to reduce Government's role in agricultural input marketing by privatizing seed production and decontrolling fertilizer prices as well as by inviting local accounting firms to submit bids to prepare the divestiture of the FASCOMs. 11. With regard to sector coordination and management, GOG was to revise the terms-of-reference for the APCC to upgrade representation and to give it authority to review the sector-wide budget. The Ministry of Food and Agriculture (MOFA) was to establish a permanent high-level internal budget committee to evaluate projects in the agricultural public investment program. All actions to be taken by Govemrnent were closely monitored by the Bank during the two-year gestation period. Since GOG had fulfilled all these conditions, the first tranche of the Credit, amounting to SDR 21.4 million, was released with effectiveness, on June 3, 1992, together with the original Dutch grant of DFI 20 million. At the same time, KfW released the first tranche of DM 10 million of its credit. Second Tranche Release 12. Release of the second tranche was originally planned to take place in June 1993, one year after the release of the first tranche, conditional on a performance review to be carried out prior to that date. With regard to produce pricing and marketing, the monitorable actions to be undertaken by Government prior to tranche release included the opening of domestic cocoa marketing to the private trade and the completion of satisfactory cocoa producer and take-over price negotiations for the 1993 cocoa marketing season, divestiture of the GFDC rice mills at Tamale, Yendi and Bolgatanga, and the offer for sale or lease of the GFDC rice mills at Afife and Astuare, as well as the finalization of adequate arrangements for restructuring GCC. The process of liberalizing the marketing of agricultural inputs was to be further advanced by launching the divestiture of FASCOMs and by selling all remaining public sector stocks of fertilizers, fishing gear and cocoa production inputs. In addition, a directive concerning quality and environmental standards for agro-chemicals to guide all importers was to be prepared. Regarding sector coordination and management, GOG was to reach agreement with the Bank on the agricultural sector budget for 1993 and to design and implement a sectoral monitoring system. 13. During the one-year period following Credit effectiveness, GOG made a considerable effort to meet most of the conditions. It abolished the monopsony of COCOBOD and established a secretariat which prepared selection and performance criteria and regulations for firms wishing to enter domestic cocoa marketing (Licensed Buying Companies, LBCs). Cocoa producer prices were raised by 19.4 percent, increasing the growers' share of the fob price to about 40 percent, and the combined share of the export tax and COCOBOD's non-marketing costs was reduced from 44 to 30 percent of the projected fob price. A mechanism was put in place to compensate cocoa growers at the end of each crop year for significant changes in key parameters such as production costs, exchange rate and export prices, and  -5- farmers have benefited from this arrangement.4 The divestiture of the rice mills was virtually completed (one was sold as scrap, three were closed down, and a local farmers' association negotiated to lease the mill at Afife). All remaining stocks of fertilizers, fishing gear and cocoa inputs were sold. COCOBOD, however, continued to import some inputs for cocoa producers which had been contracted for under other aid-funded projects. To avoid conflicts across Bank-aided projects, funding provided for inputs under the Cocoa Rehabilitation Project was used to finance the purchase of marketing (rather than production) inputs such as jute bags and weighing scales which were then sold to the private LBCs. GOG also established guidelines for the quality and environmental standards of agricultural chemicals. 14. With regard to agricultural sector management and coordination, implementation of the agreed program was timely and satisfactory. For the first time, all the budgets of public sector agencies in the agricultural sector (MOFA, MLF, COCOBOD, DFR, and the agricultural research institutes) were reviewed as one whole by the APCC. This provided an opportunity to rationalize sector-wide allocations of resources and to help redress the imbalances in the allocation of resources among sub-sectors and in the emoluments versus other allocations within subsectors. This review function by the APCC provided and still provides a powerful instrument to Government for sector-wide coordination. 15. In July 1993, IDA considered that generally good progress had been made and that in particular the implementation of the cocoa sector reforms, though slower than had been expected, was advancing steadily. However, to trigger release of the second tranche, GOG still needed to take additional actions regarding GCC, the FASCOMs and the remaining GFDC rice mill: (i) GOG was to provide a signed framework agreement between the Government and GCC confirming the 30:70 split in the company's ownership between GOG and the other shareholders; (ii) in view of the failure of private interests to take over the FASCOMs, the Bank agreed to GOG's proposal to liquidate both, and GOG was to confirm the appointment of a liquidator and a timetable of steps the liquidator proposed to follow in the liquidation; and (iii) GOG was to confirm the offer for lease or purchase by the private sector of the GFDC rice mill at Afife. Furthermore, release of the second tranche was to depend upon satisfactory macro-economic performance, to be assessed in consultation with the IMF. 16. Confirmation of the sale of the rice mill at Afife was a mere formality, but the agreed actions concerning GCC and the FA.;COMs proved difficult to implement Following further discussions between GOG and the Bank, it was agreed to restructure GCC, with the offer of GOG's shares in GCC for sale to the public remaining a condition for release of the third tranche. An auditor was to be appointed to value the assets of the company, but this process took more than half a year to accomplish. Similarly, the process leading to the agreement to liquidate the FASCOMs and appoint liquidators was long drawn out, causing a delay in the release of the second tranche until April 15, 1994. The release of the second tranche of the IDA credit of SDR 21.3 million was accompanied by the release of the First Supplemental Credit of SDR 4.13 million from IDA reflow sources. KfW had released the DM 10 million second tranche of DM 10 million of its parallel credit on December 17, 1993, after consultation with the Bank. As disbursed, total funding for the second tranche from all sources amounted to US$35.8 million. 4 For 1994/95, this compensation was provided in the form of shares to the National Cocoa, Coffee and Sheanut Growers Association (NCCSGA) in the privatised Ashanti Goldfields Company and funding to NCCSGA for the procurement of agrochemicals; for 1995/96, farmers received additional cash payments for their cocoa.  -6- Third Tranche Release 17. The main conditions for release of the third tranche concerned the final divestiture of the two FASCOMs and of GOG's holdings in GCC. In addition, GOG was to further advance the program of liberalizing domestic cocoa marketing, adjust cocoa producer prices, and complete its withdrawal from marketing of cocoa production inputs. GOG was also to provide adequate budgetary allocations and funding for the agricultural sector in 1994 and provide satisfactory evidence concerning the enforcement of quality and environmental guidelines for agro-chemicals. 18. Most of these conditions were fulfilled by the Borrower in a timely manner. To provide better incentives for growers and private traders, cocoa producer prices were raised to 51 percent of the anticipated fob price, and trade margins for the LBCs were increased from 5.4 percent to 8.5 percent of the expected fob price. Environmental concerns were given further emphasis by creating the Environmental Protection Agency (EPA) with far-reaching responsibilities and by redrafting the directive for quality and environmental standards as state laws tightening the rules and increasing penalties.5 The budgeting process and budgetary provisions for the agriculture sector were satisfactory. 19. Difficulties were encountered, however, with respect to the final divestiture of the FASCOMs and GCC, and these caused a considerable delay in the release of the third tranche. Responding to demands from farmer representatives, GOG had decided against liquidating the FASCOMs and, having obtained the Bank's agreement to revert to the initial course of action of divestiture, contracted private auditors to prepare the modalities for and manage the process of their divestiture. This process, however, proved to be very difficult, mainly because the FASCOMs were highly indebted and inefficient. Even after GOG agreed to write off all their debts owed to GOG, it was difficult to find buyers willing and capable to acquire them in toto (see para. 34), while piecemeal disposal of individual assets was not considered to be an acceptable solution by some stakeholders in Ghana. Finally, the FASCOMs were transferred for a nominal purchase price to the Ghana National Association of Farmers and Fishermen (GNAFF) on July 1, 1995, a move which was accepted by the Bank as fulfillment of the condition. 20. In order to complete the restructuring of GCC, GOG was to offer for sale all its remaining shares in the company (see para. 17). An accounting firm was commissioned to manage the sale of 36,000 ordinary shares, representing GOG's 30 percent shareholding in the company. After a first, unsuccessful offer to the existing private shareholders of GCC, the subsequent public offer (at higher prices) resulted in an over-subscription in which the Agricultural Development Bank (ADB) bought half of the shares offered. ADB being a parastatal agency, it became a point of discussion within the Bank whether this part of the sale satisfied the privatization objective. Finally, agreement was reached that the conditionality had been fulfilled, as ADB's holdings in GCC amounted to only 15 percent, considerably less than the 21 percent of the largest private shareholder (Juapong Textiles), and private shareholders now held 85 percent of GCC; moreover, ADB itself was already on the list of parastatals targeted for divestiture and is about to be privatized. 21. The last IDA tranche release of SDR 14.3 million, originally planned for June 1994, took place on September 7, 1995 (i.e., 17 months after the second tranche, instead of twelve months as anticipated at appraisal), together with SDR 3.6 million of the second supplemental IDA credit, and KfW at that time released its final tranche of DM 5.7 million. As disbursed, total funds released under the third tranche amounted to US$43.6 million, and overall disbursement for AgSAC from IDA, the Netherlands and KfW 5 The draft Act is expected to be approved by parliament during its next session in early 1997.  -7- totaled US$127.0 million (see Table 8). The Credit, including both supplemental Credits, was fully disbursed on January 23, 1996. Other Monitorable Actions 22. Monitorable actions not linked to tranche releases included the need for GOG to identify and fund poverty reducing programs in its 1992 and 1993 budgets and to carry out a study on poverty in the rural sector and on the impact of agricultural policy on poverty as well as to complete an action program for Land Resource Management (LRM). In compliance with this action program, GOG started in 1992 to increase the focus of public sector spending on poverty alleviation. In 1994, GOG initiated, in collaboration with the Bank and other funding partners, a detailed study into the spatial distribution of poverty, and it is at present formulating a poverty reduction strategy. An outcome of that work is a series of studies profiling the incidence of poverty in the rural sector. GOG is currently formulating a strategic framework for the revitalization of the agricultural sector's contribution to economic growth. With assistance from FAO and other technical assistance and/or funding agencies, a number of LRM issues have been addressed, and work, especially on the prevention of further land degradation, is now in progress. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THIE PROJECT Implementation Record 23. Project preparation started in April 1990, and appraisal commenced in February 1991. The Credit was approved by the Board in March 1992 and was signed in April 1992. The process was lengthy, as the Borrower had to fulfill a number of conditions prior to negotiations. Additional conditions had to be satisfied prior to Credit effectiveness (June 1992), which was to lead directly to the release of the first tranche for disbursement. (see paras. 10 and 11). 24. The proceeds of the Credit were to be used to finance the foreign exchange cost of eligible imports through the foreign exchange auction of the Bank of Ghana. Except for military equipment, luxury goods and environmentally hazardous products, any imports were eligible for financing. However, these definitions were rather broad and some items which were considered by GOG not to fall in the categories of luxury goods (such as television sets) or environmentally hazardous products were rejected by the Bank. Frequently, time consuming negotiations and exchange of documentation was required, delaying the disbursement process. Major Factors Affecting Program Implementation 25. Factors Subject to Government Control. Responsibility for implementation of this sector adjustment operation lay primarily with GOG. The Government adhered to all conditions of the Development Credit Agreement and its amendments as well as those of the cofinanciers. GOG was slow, however, in initiating actions required to facilitate the restructuring and divestiture of GCC and the divestiture of the two FASCOMs -- and this, combined with some difficulties in reaching agreement on the interpretation of legal terms between the Borrower and the Bank, led to delays in satisfying the respective conditions for the release of the second and third tranches. 26. Factors Generally Subject to Implementing Agency Control. While overall responsibility for program implementation lay with GOG, the restructuring and divestiture process affected several parastatal agencies and in particular the two FASCOMs, GFDC and the partly government-owned GCC.  -8- Generally, these agencies were cooperative in advancing the process of public sector withdrawal from commercial activities. COCOBOD and the other agencies represented on the Producer Price Review Committee (which determines cocoa producer prices and the price domestic traders receive for cocoa delivered to CMC could have been more supportive of the private LBCs by allowing them higher trade margins when the domestic cocoa trade was first opened to private operators, and CMC could and should have been more supportive of the policy to promote private cocoa marketing by expediting the unloading of LBC trucks and payment to LBCs for cocoa deliveries. COCOBOD also took an inordinately long time to license private traders to market its remaining stock of cocoa production inputs. D. PROJECT SUSTAINABILITY 27. As indicated, the project has achieved its objectives. The program of public sector withdrawal from commercial activities has progressed to the expected stage, and agricultural sector coordination and management have considerably improved. However, the opportunities created by the liberalization of cocoa marketing and public sector withdrawal from input marketing have not yet been taken up by the private sector to the full extent envisaged at appraisal (see paras. 18 and 33-34) -- partly due to lack of capital, facilities, logistics and training/experience, partly due to remaining regulatory constraints,6 and partly due to slow growth of effective demand and poor rural transport infrastructure in most parts of the country. Unless supporting programs and measures are taken to facilitate and support private sector entry, there is the risk that the government might come under pressure to step back in and satisfy unmet demand for marketing services. To a certain degree this problem is being addressed through a number of private sector support operations which were subsequently launched with Bank-assistance (see para. 7, footnote 2) but have not, so far, have had any significant impact on input trade. With regard to cocoa marketing, the risk appears smaller; during the most recent season at least three of the ten active LBCs managed to break even, and the situation can be expected to improve further as permissible trade margins have been enhanced. Therefore, the objective of increasing efficiency in marketing through increased competition has not yet been fully achieved. E. BANK PERFORMANCE 28. Four missions visited Ghana to prepare and appraise the Credit and advance it towards effectiveness. Between effectiveness and credit closing, the Bank fielded three full supervision missions from Washington (see Table 13), mostly between effectiveness (i.e., first tranche release) and the release of the second tranche. Thereafter, supervisory work was carried out primarily by staff from the Resident Mission in Accra which followed program implementation very closely throughout. 29. Bank performance can be rated between highly satisfactory and satisfactory (see Table 1). In the design of the program some minor inconsistencies between the objectives of AgSAC and the then already effective Cocoa Rehabilitation Project regarding the financing of facilities and inputs (see paras. 7 and 13) can be observed; more attention might also have been given to the restrictive implications of existing lists of agronomically "approved" fertilizers which have hampered the growth of private involvement in the import and marketing of fertilizers and other agro-inputs. The Borrower felt that in some cases the Bank was too rigid in its interpretation of covenants and sometimes slow in responding to Government's requests. The Borrower furthermore indicated that repeated changes of management and 6 The major imnpediment concerns regulations on "approved fertilizers" that can be imported and marketed in Ghana; this has constrained the development of private fertilizer importing and marketing and (since fertilizer is the most important and profitable agricultural input) the development of a private network of agricultural input providers. This issue has been reviewed and is now being addressed by Government.  -9- staff both at Bank Headquarters and the Resident Mission had at times affected understanding, especially on issues which were subject to interpretation (see para. 24). Overall, however, it is felt by the Borrower that the Credit was well administered by the Bank. The fact that eligible imports were defined through a negative list facilitated the use of the Credit, but left some room for interpretation and occasional disagreement over the nature of goods imported, leading to delays in disbursements. F. BORROWER PERFORMANCE 30. The performance of the Borrower was generally good throughout implementation. Although some conditions for the second and third tranche releases were not met in a timely manner (see paras. 16 and 19-20), GOG's efforts to resolve the issues involved have to be recognized. Overall, the Borrower demonstrated adherence to conditionalities and the political will to meet the letter and the spirit of the Credit Agreement. G. ASSESSMENT OF OUTCOME 31. The major expected outcomes/benefits of the program supported by the Credit were to be a revitalization of the agricultural sector through the removal of regulatory restrictions on production and marketing and greater efficiency of public sector resource allocation and utilization. These results were to be achieved mainly by deregulating the pricing and marketing of foodgrains, palm oil, cotton, cocoa and agricultural inputs and by improving agricultural sector coordination and management. In addition, the program was to have a positive impact on poverty reduction, especially in rural areas, and on the enviromnent, mainly on land resource management and environmental standards for agricultural chemicals. 32. Considerable progress has been made in achieving pricing and marketing liberalization for produce and inputs. More efficient sector coordination and management mechanisms are now in place, streamlining the budget formulation and review process and rationalizing sector-wide allocations of public financial resources, including action programs for poverty reduction. Furthermore, GOG has established the Environmental Protection Agency (EPA) with far-ranging authority, and an Act of Parliament on the use of agro-chemicals is about to be ratified. 33. It was, however, also an expected outcome of the program that the private sector would vigorously respond to the substantially improved enabling environment, taking over those functions which had previously been carried out by Government and parastatal enterprises. In the cases of domestic cocoa marketing and farm input marketing, the outcome to date has fallen somewhat short of expectations. By the time of credit closing, about 40 percent of internal cocoa marketing was expected to be handled by the private sector, but so far only about 25 percent of the cocoa crop is purchased by LBCs, while 75 percent are still marketed by the Produce Buying Company (PBC), a COCOBOD subsidiary. This unexpectedly slow growth in private cocoa marketing is explained partly by the fairly significant up-front investments required to enter into this business and the still limited capacity and facilities of most LBCs (trained staff, trucks, storage facilities, scales, bags) and the high cost of capital and cumbersome credit procedures, partly by the very tight marketing margins allowed for LBCs in the initial years following the abolition of PBC's cocoa purchasing monopsony which proved to be inadequate in the face of high inflation, and partly by undue delays experienced by the LBCs in having their cocoa deliveries unloaded and paid for by CMC. 34. It was also expected that once the input trade was liberalized and the undue advantages of the FASCOMs and COCOBOD eliminated, the private trade would eagerly take up the opportunity to  -10- engage in input wholesaling and retailing. This, however, did not take place. In fact, the Government faced considerable difficulties in its attempt to dispose of the FASCOMs, even after writing off all their debts to Government. From the analysis undertaken, it appears that potentially interested traders lacked the capital to take over FASCOM stocks and facilities and were not prepared to take the high business risks associated with prevailing bank lending rates of about 30-40 percent and the pronounced seasonality of the trade. Furthermore, existing trade houses were and still are reluctant to invest in the establishment of distribution networks out of concern that international aid projects might again provide free or subsidized inputs, thus undermining the price structure and making advance planning of imports and up-country distribution close to impossible. Firm actions in support of private sector entry in both cocoa and input marketing are required to achieve the goal of increased competition in these fields. 35. In light of the above, the outcome of the project has to be considered satisfactory. Although the project has basically achieved all the objectives listed in the President's Report, it cannot be classified as highly satisfactory, as the private sector has not yet responded to the liberalization at the anticipated level due to the constraints mentioned above. H. FUTURE OPERATIONS 36. From discussions with GOG it is clear that there is a strong commitment to continue the liberalization process and further improve intra-sectoral coordination among ministries and agencies. In- depth assessments of remaining regulatory impediments to the growth of private input marketing (seeds, fertilizers, agro-chemicals, livestock pharmaceuticals, etc.) have been carried out, and recommendations to address these issues, developed at a recent national workshop, are now under review by MOFA and other concerned ministries. COCOBOD has been placed under the supervision of the Ministry of Finance and Economic Planning. Its farm extension service is about to be merged with that of MOFA, and its cocoa processing facilities have been privatized. Government is endeavoring to decrease the share of PBC in domestic cocoa marketing to 50 percent by the year 2000 and to increase the farmers' share in the fob price to at least 60 percent within a year or two (which would bring cocoa growers' revenues closer to the levels of 80 percent and more currently obtained by growers in Nigeria, Cameroon and South Asian cocoa producing countries).7 Discussions are ongoing with the Bank concerning possible reforms in cocoa export marketing. Direct support for implementing specific measures in these areas will, if needed, be provided by the Bank in the context of future policy-based and/or sector investmnent lending operations; ongoing collaborative work on developing a medium-term agricultural and rural development strategy for Ghana will be instrumental in identifying actions needed and support required -- including support for stimulating more vigorous private sector involvement in marketing, processing, exporting and agro-industrial ventures. The critical problem of expanding, upgrading and maintaining rural transport and marketing infrastructure is receiving increased attention, including under the ongoing Agriculture Sector Investment Project (Cr. 2555-GH, FY93) and the recently negotiated Village Infrastructure Project (FY97). L LESSONS LEARNED 37. Among the major lessons to be drawn from the implementation and outcome of this operation are the following: At present, only Cote d'Ivoire pays lower producer prices to cocoa far.ners than Ghana.  -1 1- (a) The intensive collaboration between the Borrower and the Bank in formulating a medium- term sectoral development strategy, which preceded the preparation of this sectoral adjustmetnt operation, resulted in a high degree of consensus on sectoral policy and institutionial reforms needed; this was instrumental in ensuring that the reforms specified in the adjustment program were implemented effectively and with a high degree of commitment. (b) Programs which involve divestiture of paraslatals and market liberalization in order to provide the enabling environment for more efficient farm production and marketing through increased competition need to be accompanied from the beginning by measures that actively support private sector entry; otherwise, there is thle risk that the government might come under pressure to step back in and satisfy unmet demand for marketing services, thus reverting to the original status. (c) When the sale of Government assets to the private sector is a conditionality, clear guidelines for these sales have to be established and options defined in case no suitable private buyer can be found. (d) Lack of precision in project documents can lead to disagreements between the Bank and the Borrower concerning the interpretation of terms of conditionalities and to delays in implementation and tranche releases. (e) If eligible imports are defined thirough a "negative list," items not eligible for financing have to be clearly defined to avoid subsequent disputes over eligibility of claims that result in time-consuming exchanges of documentation between the Borrower and the Bank.  PART H: STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievement of Objectives Substantia Partial Negligible Not apicable (/) (e' (e) (e) Macro Policies E E Ol Sector Policies i: El El Financial Objectives El E El Institutional Development [I E El Physical Objectives E E El Poverty Reduction E E El Gender Issues El E El Other Social Objectives [ E El Enviromnental Objectives E E El Public Sector Management E E El Private Sector Development [ El I] Other (specify) C E E E B. Project Sustainability Unlikely Uncertain (/) (/) (1)  -13- (Continued) C. Bank erformance satisfactory Satisfactoy Deficient (/) (/) (/) Identification Ia Preparation Assistance [) Appraisal a 0 Supervision i 03 D. Borrower Performance satisfact Sisfactry DefLcie (e) (e) (/) Preparation a Ea Implementation I 0 E Covenant Compliance Ea 0 E3 Operation (if applicable) El a I Higlhly Higy E. Assessment Qf Outcome satisf Sats Unsatisfacto unsatisfacto E (e (E) (e (  -14- Table 2: Related Bank Loans/lDA Credits Loan/Credit Table Purpose Year of Approval Status Preceeding Operations I . 1777-GI- Structural Adjustment 1 1987 Completed 2. 1801-GH Agricultural Services Rehabilitation 1987 Completed 3. 1854-GH Cocoa Rehabilitation 1988 Completed 4. 1976-GH Forest Resource Management 1989 Ongoing 5. 1996-GH Private SME Development 1989 Completed 6. 2005-GH Structural Adjustmeit 11 1989 Completed 7. 2040-GH Rural Finance 1989 Completed 8. 2180-GH Agricultural Diversification 1991 Ongoing 9. 2236-GH Private Investment Promotion 1991 Completed 10. 2247-GH National Agricultural Research 1991 Ongoing 11. 2319-GH National Feeder Roads 1991 Ongoing Following Operations 1. 2346-GH National Agricultural Extension 1992 Ongoing 2. 2426-GH Environmental Resource 1993 Ongoing Management 3. 2441-GH National Livestock Services 1993 Ongoing 4. 2502-GH Enterprise Development 1993 Ongoing 5. 2555-GH Agricultural Sector Investment 1994 Ongoing 6. 2665-GH Private Sector Development 1995 Ongoing 7. 2713-GH Fisheries Subsector Capacity 1995 Ongoing Building 8. 2718-GH Private Sector Adjustment 1995 Ongoing Table 3: Project Timetable Steps in Project Cycle Date Planned Date ActuallLatest Estimate Identification (Executive Project Summary) April 1990 Preparation April 1990-Nov. 1991 Appraisal January 1991 February 1991 Negotiations April 1991 February 1992 Board Presentation May 1991 March 26, 1992 Signing April 22, 1992 Effectiveness April 1992 June 3, 1992 First tranche release April 1992 June 3, 1992 Second tranche release June 1993 April 15, 1994 Third tranche release June 1994 September 7, 1995 Project Completion Dec. 31, 1994 Dec. 31, 1995 Loan Closing Dec. 31, 1995 January 12, 1996  -15- Table 4: Credit Disbursements: Cumulative Estimated and Actual (US$ thousands) FY92 FY93 FY94 FY95 FY96 Appraisal Estimate la -- 30.0 60.0 80.0 80.0 Actual 14.9 30.7 60.8 67.1 93.9 Actual a % of Estimate 102.3% 101.3% 83.9% 117.4% Date of Final Disbursement January 23, 1996 La IDA Credit 2345-GH only. L Including Supplemental IDA Credits 2345 I-GH (disbursed in FY95) and 23452-GH (disbursed in FY96). Table 5: Key Indicators for Project Implementation The President's Report listed no indicators for implementation beyond indicating that the credit would be disbursed in three tranches (US$30 million equivalent upon effectiveness, US$30 million equivalent in June 1993, and US$20 million equivalent in June 1994). Table 6: Key Indicators for Project Operation Not Applicable Table 7: Studies Included in Project Purpose as Defined Study at Appraisal/Redefined Status Impact of Study 1. Profile and incidence Basis for Action Plan. Under of poverty in rural Implementation sector 2. Impact of agricultural Ways of incorporating the poverty Under policy on poverty dimension in the planning process at Implementation the national, regional and district levels.  -16- Table 8A: Project Costs Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) Local Foreign Local Foreign Item Costs Costs Total Costs Costs Total Foreign Exchange Costs - 108.8 108.8 - 127.0 127.0 TOTAL COST - 108.8 108.8 - 127.0 127.01 Table 8B: Project Financing Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) Local Foreign Total Local Foreign Total Source Costs Costs Costs Costs IDA - 80.0 80.0 93.9 93.92 Netherlands - 10.8 10.8 - 17.1 17.13 Kreditanstalt fir - 18.0 18.0 - 16.0 16.04 Wiederaufbau (KfW) Domestic Contributions - - - - - TOTAL - 108.8 108.8 - 127.0 127.0 Table 9: Economic Costs and Benefits Not Applicable 1 Increases due mainly to the provision of SDR 7.7 million from IDA reflow resources and an additional grant of DFI 10 million from the Dutch govemment. 2 Includes additional SDR 7.7 million from IDA reflow resources. 3 Includes additional DFI 10 million grant. 4 Reduction due to depreciation of the DM against the US$.  -17- Table 10: Status of Legal Covenants Covenant Present Description of Agreement Section type status covenant Comments Credit 2345 GH 3.01 (a) 11 C Agricultural sector budget Agreement reached allocation 1993 3.01 (b) 12 C New regulations goveming the Fulfilled domestic cocoa marketing 3.01 (c) 12 C Minimum producer price for cocoa Fulfilled 3.01 (d) 12 CP Divestiture of rice mills Two mills sold as scrap, remaining three shut down 3.01 (e) 12 CD Restructuring of Ghana Cotton Fulfilled Company 3.01 (f) 12 CD Divestiture of FASCOMs Fulfilled 3.01 (g) 12 C End of govemment's commercial Fulfilled involvement in the provision of inputs and sale of assets 3.01 (h) 12 C Setting environmental and quality Fulfilled guidelines of agricultural chemicals 3.02 (a) 11 C Agricultural sector budget Fulfilled allocation 1994 3.02 (b) 12 C Apply regulations of3.01 (b) Fulfilled 3.02 (c) 12 CD Offer shares of Ghana Cotton Fulfilled Company for sale 3.02 (d) 12 CD Complete divestiture of FASCOMs Fulfilled 3.02 (e) 12 C Enforce regulations of 3.01 (h) Fulfilled Covenant Class I Accounts/audit 2 Financial performance/generate revenue from beneficiaries 3 Flow and utilization of Project funds 4 Counterpart funding 5 Management aspects of the Project or of its executing agency 6 Environmental covenants 7 Involuntary resettlement 8 Indigenous people 9 Monitoring, review and reporting 10 Implementation 11 Sectoral or cross-sectoral budgetary or other resource allocation 12 Sectoral or cross-sectoral regulatory/institutional action 13 Other C Complied with CD Compliance after delay NC Not complied with SOON Compliance expected in reasonably short time CP Complied with partially NYD Not yet due  -18- Table 11: Compliance with Operational Manual Statements No Case of Non-Compliance Observed Table 12: Bank Resources: Staff Inputs Stage of Actual Project Cycle A Weeks US$ Through Appraisal 99.5 269.5 Appraisal 54.2 159.6 Negotiations through 7.6 23.0 Board Approval l Supervision 49.1 167.2 Completion La 3.0 10.5 TOTAL 213.4 629.8 /a = Not including FAO/CP. Table 13: Bank Resources: Missions Perfornance Rating Numnber Specialized Stage of MontlV of Days in Staff SkIlls Implementation Development Types of Project Cycle Year Persons Field Represented Status Objectives Problems Through 3/90 2 7 AE,E E _ Appraisal Appraisal 6/90 4 18 AE, E, FA through Board Approval 11/90 4 17 FA, E, AE _ _ _ Board Approval 3/91 7 21 AE, FA, E, SS, | through FE, IS Effectiveness Supervision 1/92 1 5 AE I 1 6/92 4 22 AE, FA, O 2 1 Legal Cove. 7/93 1 11 AE 2 1 _ Completion 5/96 2 13 AE, FA _ . . AE = Agricultural Economist, E = Economist, FA = Financial Analyst, SS = Social Scientist, FE = Fiscal Economist, IS = Institutional Specialist, 0 = Operations Officer.  APPENDIX 1 GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT FAO/CP Implementation Completion Mission Aide Memoire CONTENTS A. INTRODUCTION ........................................................ 20 B. THE PROJECT ........................................................ 20 Background ........................................................ 20 Program Objectives ........................................................ 20 Implementation Experience and Results . ....................................................... 21 Summary of Findings, Future Operations and Key Lessons Learned ............. ............... 22 C. FOLLOW UP ........................................................ 23   GHANA AGRICULTURAL SECTOR ADJUSTMENT CREDIT FAO/CP Implementation Completion Mission Aide Memoire A. INTRODUCTION 1. This is the Aide Memoire of a FAO/World Bank Cooperative Program (FAO/CP) mission which visited Ghana from 13 to 23 May 1996 to assist with the preparation of the Implementation Completion Report (ICR) for the above project. The mission's findings are based on the review of documents provided by the Bank and the Borrower, and discussions with management and staff of both parties as well as representatives from the private sector. The mission is most grateful to the Ministry of Finance for the assistance provided in arranging the program of meetings. B. THE PROJECT Background 2. In 1990, the Government has developed, in collaboration with the Bank, a Medium Term Agricultural Development Strategy (MTADS) which defined a program of policy and institutional reforms, and complementary set of investments needed to enhance the agricultural growth rate. The strategy which emerged from this process formed the basis of the Agricultural Sector Adjustment Program (AGSAP). The underlying policy reforms were subsequently supported by the Agricultural Sector Adjustment Credit (AGSAC) of which the implementation experience is reviewed below. Program Objectives 3. The credit was to support a program of liberalization of agricultural pricing, marketing and input supply, and the strengthening of agricultural sector coordination and management. The AGSAC was to virtually eliminate the public sector role in input and produce price determination; allow competitive trading for all agricultural inputs and outputs; remove external trade restrictions for all agricultural commodities except cocoa; and thereby create conditions for increased private investment in storage, input and output marketing, and processing. It was also to provide for a more efficient allocation of public resources and increase the focus of the public sector on poverty alleviation and natural resources management. 4. The Credit, with an original amount of SDR 57 million became effective on 3 June 1992 and was to be disbursed in three tranches. Supplemental IDA credits of SDR 4.13 million and SDR 3.6 million were made available from reflow resources bringing total IDA funds to SDR 64.3 million (approx. US$ 93 million). The Dutch government provided co-financing grants totalling DFL 30 million (approx. US$ 17.5 million) which were administered by the Bank, and the German government provided parallel financing through the Kreditanstalt fur Wiederaufbau amounting to DM 25.6 million (approx. US$ 16.5 million) bringing the total assistance package to about USM 127 million as disbursed. H. Trupke (Mission Leader) and G. Bodeker (EconomistlFinancial Analyst)  Implementation Experience and Results 5. Overall, the program has been successful in underpinning the overall objectives of the AGSAP, but private sector response to liberalization measures fell somewhat short of expectations. In respect of pricing and marketing liberalization for produce, the main focus was on cocoa, grain, cotton and palm oil. By the time of Board presentation, GOG had already met the conditions regarding palm oil and had partially fulfilled the requirements for the divestiture from grain marketing. The sale of five state or para- statal owned rice mills was a conditionality to be fulfilled prior to the release of the second tranche. This, however, caused some problems as no suitable buyer could be found. After protracted negotiations, the Bank accepted the sales advertisement as fulfilment in the spirit of the covenant. By now, two of these mills have been sold as scrap and the remaining once are standing idle. 6. Conditionalities such as divestiture of input distribution to cocoa growers, of cocoa processing facilities and plantations as well as staff retrenchment and the abolishing of subsidies on inputs, were already met prior to the release of the first tranche. Also, the conditions for the second and third tranche release including the opening up of the internal cocoa trade to the private sector, were successfully met. However, by now only 25% of internal cocoa marketing are in the hands of the private trade against an appraised estimate of 40%. The remaining 75% are still marketed by the Produce Buying Company (PBC) a COCOBOD subsidiary. The reason for this limited private sector participation can be explained by its lack of facilities (trucks, scales, bags) due to high cost of capital and cumbersome credit procedures. 7. Prior to Board presentation, GOG has already withdrawn from the fixing of producer prices for cotton and has eliminated restraints on cotton lint exports. To further advance the liberalization process the Government was to offer for sale all of its shares of the Ghana Cotton Company (GCC) to interested investors including cotton producers. A firm was commissioned to manage the sale of 36,000 ordinary shares representing the remaining 30% shareholding of GOB in the company. After a first, rather unsuccessful internal offer, the subsequent public offer (at higher prices) resulted in an over- subscription in which the Agricultural Development Bank (ADB) bought 50% of the shares. It became a point of discussion with the Bank lawyers, whether this part of the sale constituted a privatization or not since ADB is considered a parastatal organization. Finally, consensus was reached that the conditionality had been fulfilled as ADB's total share holding amounted to only 15%, considerably less than the largest private shareholder (Juapon Textiles). The long drawn out process, however, contributed to the delay in the release of the second tranche by over half a year. 8. The marketing of agricultural inputs was dominated by the then existing Farmer Services Companies (FASCOMs) in the Upper and Volta Regions, crowding out private sector commercial activities and contributing to price distortions. In adhering to conditionalities, GOB had already privatized seed production, decontrolled fertilizer prices and has issued invitations to consulting firms to prepare FASCOM divestiture prior to Board presentation. The divestiture process, however, proved to be extremely difficult as the FASCOMs were highly indebted and inefficient. Even after GOG had agreed to write off all debts, no suitable buyer could be found as potential private input wholesalers/retailers did either not have the required capital to take over stocks and facilities or were not prepared to take the high business risk associated with prevailing bank lending rates of about 30% and the seasonality of the trade. Finally the FASCOMs were transferred to the Ghana National Association of Fishermen and Farmers (GNAFF) on I July 1995. These rather difficult and politically sensitive procedures resulted in delays of complying with the conditionalities for the second and third tranche release.  9. Also, progress towards strengthening agricultural sector coordination and management has been satisfactory, particularly in streamlining the budget formulation and review process for the agricultural sector as a whole. The Agricultural Policy Coordinating Committee (APCC), serviced by a full-time technical secretariat in the Ministry of Finance and Economic Planning, has been empowered to coordinate sector-wide policies and to review and approve the budgets of all agricultural sector agencies. Budget allocations for all major public sector agencies operating in the agriculture sector (the Ministry of Food and Agriculture, the Ministry of Lands and Forestry, COCOBOD, the Department of Feeder Roads, the Agricultural Research Institutes) are now reviewed together so as to rationalize sector-wide allocations of public financial resources and, in particular, to redress imbalances in the allocation of resources across sub-sectors and agencies and between staff emoluments and other expenditures within agencies. 10. The budget's focus on poverty reducing programs has increased. The importance of environmental issues is highlighted in the new system of land resources management and the establishment of the Environmental Protection Agency with far reaching authority. In addition and in compliance with conditions for the third tranche release G.O.G. is in the process to ratify an Act of Parliament on the use of agro-chemicals. 11. Generally, both the Bank and the Borrower performed satisfactory throughout the program cycle. Although second and third tranche releases suffered from delays requiring an extension of the closing date twice by six month to December 1995, the program outcome has to be rated as satisfactory as all major objectives have been achieved. 12. The proceeds of the credit were to be used to finance the foreign exchange cost of eligible imports through the foreign exchange auction of the Bank of Ghana. Except for military equipment, luxury goods and environmentally hazardous products, any imports were eligible for financing. However, these definitions were rather broad and items which were considered by GOG not to fall in the luxury goods category (such as television set) or environmentally hazardous products, were rejected by the Bank. Frequently, time consuming negotiations and exchange of documentation was required, delaying the disbursement process. Nevertheless, the credit was fully disbursed by January 23, 1996. Summary of Findings, Future Operations and Key Lessons Learned 13. The most important finding is that programs which promote divestiture and liberalization in order to provide the enabling enviromnent for more efficient farm production and marketing through increased competition, would need to be accompanied by measures in support of private sector entry. The opportunities created by government's withdrawal from the domestic cocoa marketing as well as input marketing were not or not sufficiently taken up by the private sector due to lack of capital, facilities, logistics and training/experience. As a result, there is the risk that government would have to step in to fill the vacuum thus reverting the entire process to its original status. 14. From discussions with GOG it becomes clear that there is a strong commitment to continue the liberalization process. COCOBOD is endeavoring to increase the share of Licensed Buying Agents (LBAs) in intemal cocoa marketing by improving payment procedures. GCC is experimenting with new approaches to input distribution and sales to eventually pave the way for supply through the private input trade. The new directives for quality and environmental standards for agricultural chemicals are to be used by all importers and distributors and are inter alia expected to enhance services provided to the farmer. The process of strengthening intra-sectoral coordination and sectoral budget formulation is by now well integrated in the overall procedures but will need further refinement in future.  15. The major lessons to be drawn from program implementation experiences are that: (a) lack of consensus between the Bank and the Borrower on the interpretation of the legal terms pertaining to some conditionalities let to delays and would have required more precise definitions in the legal documents; (b) in case of "negative lists" items not eligible for financing have to be clearly defined to avoid disputes over eligibility of claims resulting in time consuming exchanges of documentation between the Borrower and the Bank; (c) where the sales of assets to the private sector are a conditionality, clear guidelines for these sales have to be established and options defined in case no suitable private buyer can be found. C. FOLLOW UP 16. Upon return to Rome, the mission will prepare the ICR including the required statistical tables for submission to the Bank and the Borrowers by early June. 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