Peru - Agricultural Research and Extension Project

Report No. PID7364 Project Name Peru-Agricultural Research and (@+) ... Extension Region Latin America and Caribbean Region Sector Agricultural Extension; Research Project ID PEPE47690 Date PID Prepared October 7, 1999 Projected Appraisal Date June 20, 1999 Projected Board Date October 14, 1999 1. Country and Sector Background In the 1990s, following several decades of economic mismanagement, widespread terrorism, and economic stagnation, the Government of Peru instituted fundamental reforms that stabilized the economy, restored public order, and reintegrated the country into the global economy. The Government of Peru is pursuing a comprehensive strategy directed towards economic growth and poverty alleviation. Macro-economic reforms initiated in 1990 are central to this and include: reduction of the public deficit, elimination of price controls, tariff reduction, elimination or reduction of subsidies, and privatization of state-owned assets. The Government has also introduced a broad range of programs for poverty alleviation and improvement of living conditions. The social integration of Peru is a major Government theme with emphasis on improved access for the poor in remote areas to education, health, property rights, and infrastructure services. Continued commitment to an open economy, private sector-led growth, and sound economic management have led to substantial growth in agricultural GDP and some reduction of rural poverty from its peak in 1992. Continued growth in the agricultural sector is constrained by the following issues [Poverty and Social Development in Peru: 1994-97 (World Bank, 1999); Peru: Agricultural Policies for Economic Efficiency (World Bank 1992); Peru: Agricultural Development Strategy--Draft (World Bank 1998)1: Rural poverty levels remain very high. In 1997, 64.7 percent of rural households were in poverty and 24.5 percent were in severe poverty. In comparison, 40.4 percent of urban households were in poverty and 9.3 percent were in extreme poverty. This widespread poverty forces government attention to the issue, but presents a difficult environment for sector growth. Lack of technological innovation restricts farmers' ability to increase productivity and improve post-harvest processing and marketing functions. Current public investment in agricultural research is minimal, reaching only 0.2 W of AgGDP. Natural resource degradation is a threat to sustainability for some agricultural production systems. Mismanagement of irrigation water leads to salinization and soil erosion on the Coast; poor cultivation practices cause erosion on susceptible soils in the Selva and Sierra; over-grazing is a problem in the Sierra. Deforestation and poor management of forest resources is a widespread problem and over-use of pesticides threatens water and food supplies. Plant and animal health services are constrained by an outdated legal and regulatory system, limited capacity, and limited funding. This inhibits Peru's ability to access international markets, restricts farmer access to  improved planting materials, and exposes the country to introduction of pests and diseases. An IDB project is addressing these problems, but would benefit from enhanced in-country research support. Rural financial services are limited and are expanding only slowly following closure of the Banco Agrario del Peru, reduction of subsidized rural credit, and widespread rural terrorism. Only three percent of rural credit is from formal sources, but 30 percent of rural families have access to credit (Alvaredo and Ugay 1998). Growth of an effective rural financial system is necessary to support a vigorous rural economy. Agricultural market development has improved with the dismantling of government monopolies and price controls, though the government continues to intervene in several small programs that adversely impact on market development. Improved market information systems and a new wholesale market in Lima remain priorities. The World Bank Country Study on poverty and social development in Peru found that substantial recent improvements in social welfare have not been shared equitably and that rural areas (especially in the highlands) have lagged in economic growth. The indigenous population has fallen further behind. The study concludes that greater impact on poverty reduction could be achieved with available resources if central coordination of investment were based on sound analysis and linked with decentralized execution of programs at the local level under public-private-voluntary partnerships. A major task in achieving reduction in poverty rates will be to increase productivity and real incomes. The Study concludes that poverty would be more effectively reduced in the short term if economic growth is concentrated in agriculture, construction, and commerce and in rural areas. Simulation of a three percent growth rate over five years indicates that growth in agriculture and construction would reduce severe poverty by twice as much (49.2 percent) as would growth in the services sector (24.3 percent). Rural growth would reduce severe poverty by twice as much (47.0 percent) as would growth in Lima (22.3 percent). With macro-economic reforms and a poverty alleviation safety net in place, the Government is implementing agricultural sector reforms, including the following: land titling and registration reforms and an IDB-financed land titling and registry project, continuing study and pilot activities directed towards introducing tradable water rights and greater irrigation cost recovery from water users, an extensive program (PRONAMACHCS) for reforestation, soil conservation, forest mapping, and assignment of forest concessions based on sustainable forest management plans, an IDB-financed project to strengthen plant and animal health services, and an alternative development program to introduce economically-viable alternatives to coca production. 2. Objectives The Project Development Objective is to establish a private sector-led and decentralized agricultural technology innovation system. The system would permit farmers and farmer organizations to collaborate with research institutions in carrying out adaptive research work and to access technical advisory services for a range of needs from production to management and - 2 -  marketing. This would lead to increased farmer adoption of environmentally sound technology. The Government would provide cofinancing, and policy guidance for the system. Research institutions would develop strategic plans to increase their capacity to meet the long term technology needs of the sector. Information and training institutions would develop plans for rural information services and extension training programs to complement decentralized, demand-driven extension services. The Project would: (a) improve management of public investment in agricultural technology; (b) involve producers in planning and financing adaptive research and extension services; and (c) develop plans for increasing capacity for strategic research and extension support services. 3. Rationale for Bank's Involvement The Bank is a major financier for strengthening agricultural research and extension systems worldwide and has strong commitment to this important instrument to stimulate economic growth and alleviate rural poverty (Vision to Action Plan; October, 1997). The Bank has extensive experience in Latin American in design and implementation of competitive funding systems for agricultural research and decentralization of extension systems, i.e., Chile, Colombia, Brazil, Bolivia, Ecuador, and Venezuela. The Bank has provided support for development of an agricultural sector strategy, financed rural development, and supported improvement of Peru's irrigation sector. 4. Description The APL projects would finance the following three components: A Program and Policy Coordination Component would finance a Program Implementation Unit (PIU) to manage the development of the technology system, coordinate public sector support for agricultural research and extension, and facilitate institutional reforms. An Agricultural Technology Fund (ATF) would cofinance adaptive research and extension projects on a competitive basis, which would be submitted and selected on regional basis. Farmers and research and extension institutions (NGOs, universities, private sector firms, government technical institutions, etc.) would cofinance and execute projects implemented at the regional and community level. The Institutional Strengthening Component would build capacity in selected programs of strategic significance in the national technology system. It would finance institutional analyses and planning for selected programs of applied and strategic research and extension training and information systems and would finance strategic program development projects on a competitive basis. A. Program and Policy Coordination B. Agricultural Technology Fund 1.) Extension Grants 2.) Adaptive Research Grants C. Institutional Strengthening 1.) Strategic Planning 2.) Strategic Program Development Grants -3-  5. Financing Total ( US$m) Government 4.22 IBRD 9.6 IDA Total Project Cost 13.82 6. Implementation APL Implementation Period: 01/01/2000-12/31/2011 First Phase: 01/01/2000-12/31/2002 Second Phase: 01/01/2003-12/31/2006 Third Phase: 01/01/2007-12/31/2011 Implementing Agencies : Implementation would involve a wide range of institutions. The Ministry of Agriculture would be the implementing agency. Co-implementing agencies would include: farmer organizations and various research and extension services providers, including INIA, universities, NGOs, and private companies. Project Coordination: A Program Implementation Unit (PIU), with a Board of Directors appointed by the Ministry of Agriculture, would have overall responsibility for coordinating all activities with the Bank and for implementing the Project. The naming of the Board of Directors would be a Condition for Negotiations and it's establishment by Ministerial Resolution would be a condition of effectiveness. The establishment of the PIU and naming of core staff satisfactory to the Bank would be a condition of effectiveness. An Operational Manual (OM) will be the working document for the Project describing all administrative procedures, including how to plan, prepare, select, contract, finance, and supervise all activities to be financed under the Project. A draft of the OM would be presesented to the Bank prior to negotiations. A condition of Loan Effectiveness would be the issuance of a Ministerial Resolution adopting the OM and requiring that the Project be implemented in accordance with the OM and that the Government send any proposed changes to the Bank for approval. Implementation: Policy and Program Coordination: The PIU would be responsible for the Bank Project implementation and for coordination of public sector support to the agricultural technology system. It would be guided by a Board of Directors composed of stakeholders representing farmers, agribusiness, research and extension services providers, environmental interests, and government agencies. The PIU would evolve into a permanent Agricultural Technology Unit as a condition for the third phase of the Program. It would provide strategic leadership in the technology subsector and cofinance technology programs in the sector. Agricultural Technology Fund: The PIU would establish a fund for competitive grants to cofinance adaptive research and extension projects. The PIU would administer the Fund through regionally-based Coordinators, responsible for promotion and administration of the Project at the regional level. These coordinators would be supported by regional Agricultural Technology Fora, comprised of representatives from farmer organizations, agribusiness, financial institutions, NGOs, and research and extension service providers. These Fora would provide for a discussion of technology issues for the region, set priorities and provide guidance for review and approval of projects financed by the ATF. The PIU would contract services for program promotion, proposal review, extension agent training and technical backstopping, and program monitoring and evaluation. -4 -  The PIU would contract extension advisory services and adaptive research services for producer organizations in three regions. Project proposals would be developed in collaboration between farmers groups and service providers based on farmer needs. Proposals would be submitted to a competitive selection process based on regional technical evaluation panels managed by the PIU. The numerous existing producer organizations in Peru (including 5716 registered indigenous community groups and other commodity associations, irrigation groups, cooperatives, and women's groups) would be eligible to submit proposals and new groups might also form to develop proposals. A promotional program and a registry of service providers would help interested farmer organizations to develop proposals. Extension services providers would include NGOs, commercial consulting firms, agribusinesses, universities, and others. There are currently over 400 registered NGOs working in agricultural programs, employing over 5,000 agricultural specialists. The PIU would contract adaptive research projects with a range of institutions, including government research and technical agencies, NGOs, universities, private firms, and others. Institutional Development: During the first phase Project, the PIU would undertake the analysis and planning of programs to be strengthened in areas of strategic research and extension support. Possible research programs for support are: genetic resources conservation and utilization, biotechnology, post-harvest handling and processing, water resources management, forest management, land and soil management, agricultural economics, and integrated pest management. Extension support programs would include agricultural information services and agricultural training programs. The PIU would contract consultants to assess the current status of priority technology programs, identify priorities for future program development, and develop plans for future program support. A complementary competitive grants program would finance a limited number of competitively selected proposals for strategic program development in these areas. Procurement Arrangements : The PIU would be responsible for and would follow standard Bank procedures for all Project procurement. Procurement plans would be included in the Project Implementation Plan and Annual Project Implementation Plans. Procedures for procurement would be incorporated into the OM. Procurement would include: consultant services, goods and equipment, training, minor civil works, and research and extension project grants. Contracts for execution of research and extension grants would stipulate that the executing agencies would follow Bank Guidelines for all procurement under the contracts. The PIU would carry out spot checks of procurement under grants and would audit them for compliance with Bank Guidelines. Up to US$ 250,000 would be authorized for retroactive financing of expenditures incurred after August 31, 1999. Accounting, Financial Reporting, and Auditing Arrangements: The financial administration of the Project would be the responsibility of the Program Implementation Unit (PIU), which would contract adequate qualified staff to provide control and support of the operation and would be comprised of not less than an administrator, an accountant and a treasury or disbursement officer. The PIU would establish a Project specific general ledger in sufficient detail and of a design adequate to record transactions and report both for internal and external purposes by cost category and component and sub-component in the manner detailed in Annex 6. The PIU would open a Special Account in a commercial bank for Project financing from the Bank loan and would maintain a separate account for Government of Peru financing. Initial replenishments would be on the basis of - 5 -  Statements of Expenditures, but within 18 months from Board Approval Date, the Project would move to Project Management Report-based disbursements. Before negotiations can occur the status of the financial management of the Project would be certified by the Bank and an action plan approved to bring the Project financial systems to a level acceptable under Bank procedures. External audits in accordance with terms of reference acceptable to the Bank would be engaged annually and audit opinions with related statements presented to the Bank within six months of the fiscal year end. (details in Annex 6). Monitoring and Evaluation: Monitoring and evaluation would be critical to the Project, both to support the implementation of the Agricultural Technology Fund and to meet the requirements of the APL for design of the second and third phases of the Program (see Annex 13). As a condition of Loan Negotiations, the Government would present a detailed monitoring and evaluation plan, which would be derived from the logframe (Annex 1). The PIU would establish a Planning, Monitoring and Evaluation Unit (PMEU) comprised of specialists in economics, environment, social sciences, and information systems. This Unit would manage all Project and technology system monitoring and evaluation activities. The PIU would establish a program management information system and contract any additional services necessary for monitoring activities funded by the Agricultural Technology Fund (ATF) and the Institutional Strengthening Component. During the first phase Project, the PIU would evaluate ATF grant projects through case studies with baseline studies and in-depth surveys and monitoring of a sample of projects. These would help to understand the process of technology adoption and the impacts of technological innovation under the ATF projects. Baseline studies would also measure agricultural productivity and farmers' income and would provide a reference point for future impact evaluation. For the Policy and Program Coordination Component and the Institutional Strengthening Component, the PIU would undertake continuous review and evaluation of work and analyses completed. In later phases of the APL, routine monitoring of strategic national programs would be complemented by external peer reviews. These peer reviews would assess program progress and provide guidance for future program direction. Program Performance Reviews would assess overall Program operations. A special External Review would be conducted after two and a half years of Project implementation and would use external specialists in research and extension management, and institutional development to assess Project management systems and the accomplishments of different Project components and activities in quantitative and qualitative terms. This Review would provide the basis for a decision on whether to proceed with the Phase II project and would provide specific guidance for any phase two design modifications. 7. Sustainability The Project carries two risks affecting sustainability. These vary in severity as follow: Financial sustainability is a major issue for research and extension systems throughout the world. The Project will incorporate strategies as described above to address this risk and to enhance financial sustainability of the Project. Institutional sustainability is a moderate risk due the participation of a - 6 -  large number of institutions and the need for these to relate in new ways, i.e., public-private partnerships for research and extension. 8. Lessons learned from past operations in the country/sector Bank experience, as documented by OED evaluations, indicates that the following elements are important for success of agricultural research and extension projects: Strong government commitment is an essential condition for development of sustainable and efficient research and extension programs. Both public and private sector services should be considered in extension system design and both traditional mass-media and new communications technologies may be appropriate in extension programs. Accommodating needs of women, indigenous and vulnerable groups can be accomplished by: involving these groups in setting research agendas and evaluating extension services; sensitizing extension workers to roles of these groups in the farming community; and developing methodologies to effectively reach these farmers. Needs-based extension staff training should focus on training extension workers to encourage farmer organization participation in extension in addition to providing technical information. Monitoring and evaluation systems for extension programs need to assess program impacts resulting from usable technologies adopted by farmers. Extension systems must be adaptable to respond to rapidly changing economic, trade, and sectoral conditions. Investment in country-wide extension systems may be inappropriate when there is lack of resources or technology to support such systems. Considering technology generation, acquisition, and adoption as elements of a single system promotes synergies between scientists, educators, extension agents, farmers, and industry stakeholders. Rationalizing existing resources and limiting expansion of facilities is important to developing financially sustainable research systems. Policy and regulatory regimes should be favorable to private sector research and technology spill-ins. Research planning and priority setting are important, but need to be carried out in ways that ensure local ownership and good quality of such exercises. Developing socioeconomic capabilities and monitoring and evaluation systems deserve greater attention in Bank research projects. Attention to excellence in research quality needs to be enhanced through: needs-based training; competitively awarding research grants based on explicit economic, social and technical criteria; external review of research programs; involvement of universities and a range of other research providers; and linkages with international, regional and national research centers of excellence. Effective institutional linkages with research system clients requires farmer involvement in determining research agendas and consideration of gender effects in research planning and execution. 9. Program of Targeted Intervention (PTI) No 10. Environment Aspects (including any public consultation) Issues : The Program would have positive overall impacts on the environment and natural resources. An environmental analysis (Malpartida and Loli 1999) found that Peru's agricultural resource base is under considerable pressure from population growth and poor management of natural resources. The APL Program would address some of the critical problems identified in the -7 -  environmental assessment by focusing research on natural resource management, integrated pest management, and genetic resources conservation. Targeted training and technical assistance would sensitize Project staff, extension agents, and farmers to environmental issues and would encourage activities that address environmental problems. Training and information program development would introduce activities and capacities for programs enhancing environmental awareness among extension agents and agricultural producers. Representation from an environmental agency would be included on the Board or Directors and an environmental specialist would be employed by the PIU to review all Project activities for negative environmental impacts. The Project Operational Manual would include a list of environmental criteria for screening Project activities, including use of any proscribed pesticide, increase in deforestation, pollution of groundwater, negative impact on endangered species, or increase in pesticide in food. All proposals for competitive grants projects would include an assessment of environmental impacts, including a negative checklist for proposal eligibility. Projects would be screened for impacts on: water use, water contamination, air contamination, erosion, deforestation, land clearing, overgrazing, use of pesticides, wildlife, biodiversity, parks and protected areas, or cultural heritage sites. No project would be financed that involves use of pesticides that: (a) are not registered with SENASA per Supreme Decree No. 15-95-AG and Ministerial Resolution No. 0268-96-AG or (b) are categorized as "Persistent Organic Pollutants" by the UN. Project proposals would be classified as to potential environmental impacts and, as appropriate, would require environmental analyses or inclusion of appropriate mitigation measures. Technical review panels would assess environmental impacts of proposals and the PIU environmental specialist would review all proposals prior to funding. The Environmental Specialist would coordinate monitoring of project compliance with environmental mitigation measures and reporting on environmental impacts of all projects. 11. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone: (202)458 5454 Fax: (202) 522 1500 Task Manager Matthew A. Mcmahon The World Bank 1818 H Street, NW Washington D.C. 20433 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending October 8, 1999. - 8 -