Turkey - Agricultural Reform Implementation Project : proposed amendment to the Loan Agreement

Republic of Turkey -Agricultural ReformImplementationProject (Loan 4631-TU) ProposedAmendmentof the LoanAgreement 1. This is to seek approval of the Board to amend the scope o f Agricultural Reform Implementation Project (ARIP)in Turkey, resulting from the need to provide Turkish farmers with a wider set of investment support activities inthe transition period after the introduction o f agricultural policy reforms in 2001-2002. To date the investment support activities offered farmers under the Farmers Transition component have been limited to tobacco and hazelnut farmers who choose to switch out o f these formerly supported crops. However, with weak uptake o f these ARIP-supported programs (for reasons described below), the Government o f Turkey (GOT) has requested that the Farmers Transition component be broadened to include activities aimed at supporting land consolidation o f highly fragmented farm holdings, village- based participatoryinvestments, greater capacity buildingfor farmers organizations, and farmers in environmentally fragile areas who wish to switch out of crops inoversupply. The proposed restructuring o f the ARIP also extends the scope o f the Agricultural Sales Cooperative Unions (ASCU) component to the participation by ASCUs in the emerging practice o f warehouse receipts-based financing. I.ARIPImplementationResultstoDate 2. Progress inthe area o f agricultural reforms supported by the ARIP has beensignificant as the reforms targeted under the ARP have gone forward solidly and been maintained over time. These reforms have generated large budgetary savings for Turkey and set the course for further future savings as privatization of state-owned agricultural enterprises progresses. At the same time, consumers have seen food costs come down significantly as the reforms have allowed agricultural prices to become more aligned with generally lower intemational agricultural prices. Farmers have clearly seen an erosion in agricultural income, but the impact o f this erosion has beencushioned by over halfby a Direct Income Support (DIS)Program available to all farmers. Compared to the earlier output and input subsidy programs, the DIS Program i s both a more efficient income transfer instrument as well as more accessible to Turkey's smaller and poorer farmers since the new program i s delinked from a farmer's output levels or volume o f input usage. Inaddition, growth o f agriculture in2002-2004 has brought agricultural value added back up to about 95% o fits pre-reform level. 3. By the end of 2003, the reform program reduced the fiscal outlays on agricultural subsidiesby about U S $5.4 billionto U S $0.7 billionannually. Roughly 70% of the subsidycuts were associated with measures aimed at reducing agricultural commodity price subsidies. The changes to agricultural output subsidization took the form o f greater market deregulation through the phasing out o f state-set prices and reduced intervention purchases financed by the budget. Reforms also imposed hard budget constraints on state marketingand processing enterprises and the quasi-state Agriculture Sales Cooperative Unions (ASCUs). The remaining 30 percent o f the cuts were aimed at reducing agricultural input subsidies, notably credit and fertilizer.  -2- 4. Most ASCUs have now beentransformed from parastatal organizations, controlledby the Ministry of Industry and Trade and supported financially by the Treasury, into financially autonomous and sustainable cooperatives that can compete with private traders while operating for the benefit o f the farmers who own them. The ARIP has assisted this process by financing over US $84 million in severance payments for the ASCUs and extending teclmcal assistance andtrainingto them duringtheir restructuringprocesses. The ASCUwhich was the most market distorting inthe past, the hazelnut ASCU - Fiskobirlik, has ceased supporting prices through the practice o f buying and holding the 20% o f the hazelnut crop which it typically procured in the 1990s and now operates in the market by buying and selling much like private firms. By promoting this change o f Fiskobirlik's business model, the GOT has eliminated the annual U S $200-400 million subsidy bill which it bore in the past. With regard to agricultural state economic enterprises, the Government has pursued the same path, particularly in the sugar and tobacco sectors by placing all state-owned sugar factories (SEKER) and the state tobacco company (TEKEL) under the scope o f the privatizationprogram. 5. Implementation o f the Direct Income Support (DIS) Program has proceeded in a satisfactory manner. During the first registration season in Summer-Fall 2001, 2.2 million farmers were registered for the DIS Program, ,representingalmost 60% o f Turkey's roughly 3.7 million' farmers. Payments under the 2001 Program were initiated in November 2001 and extended through June 2002, by which time all o f the registered beneficiaries were paid in full. Insuccessive years, the share of farming households registeredhas risen to almost 90% of the total, covering almost 80% o f Turkey's agricultural cropland. DIS payments now account for about 8% o f rural household income and replace over half o f the net income loss which farmers have experienced as a result o f the agricultural subsidy reforms. Though payments on the 2004 DIS Program are experiencing delays and the DIS program in future will be reduced to accommodate the funding o f agricultural investment support programs, the GOT'S draft Framework Agricultural Law maintains DIS as the predominant agricultural transfer instrument. 6. Despite the ARP's successful support o f reform process through the DIS and ASCU components and the release o f the two U S $100 million tranches o f structural adjustment support, the ARIP has been less successful in promoting the adjustment o f farmers out o f previously supported crops as targeted under the Farmers Transition (FT) component. In the tobacco sub-sector, Turkish farmers responded to tobacco price reforms by switching almost 60,000 hectares out o f tobacco in the areas targeted by the ARIP. However, this took place in 2000-2001 just prior to the support offered under the ARIP's FT component becoming available. As a result, farmers switching out of only about 3,000 hectares of tobacco into other crops have benefitedunder the FT component, whereas the ARIP was designed to fund farmers switching out o f 36,000 hectares of tobacco. 7. Inthe area ofhazelnut, farmers have uprooted only 475 hectares of the 100,000 hectares targeted under the FT component. Unliketobacco, there has beenno hazelnut uprooting outside o f the ARIP component. Since hazelnut i s a perennial crop, farmers hesitated in 2001-2003 to switch out o f hazelnut as they waited to see the introduction o f the reform o f Fiskobirlik (which occurred in 2002-2003) and the impact on prices. Over 2001-2003, hazelnut prices did indeed fall by almost 40%, but severe frost in 2004 reduced the crop significantly and prices have risen to above the level supported by Fiskobirlik prior to its change o fbusiness model. 3.698 million farmer households were identified inthe 2001 Census of Village Heads, down from 4.092 million in 1991.  -3- 8. For these reasons the proposed restructuring o f the FT component foresees significantly reduced participationinthe tobacco and hazelnut uprootingprograms (9000 and 15,000 hectares, respectively) over the period 2005-2007. Consequently, the expected usage o f loan funds under the original scope o f the FT component would fall by roughly U S $105 million. Rather than canceling these funds, the GOT has prepared additional sub-components under the FT component to hrther assist farmers inmeetingthe objective o f increasing productivity. II.Objective 9. The objective o f the ARIP remains, to support the implementation of the GOT's agricultural reform program, and specifically to reduce artificial incentives and govemment subsidies, with an appropriate social and economic safety net, and to implement a new agricultural support system that will increase productivity inthe agricultural sector. Inpursuing this objective further, the Bank and the GOT agreed on an Agricultural Policy Paper in April 2004. The principles and specific agricultural policies agreed in this Agricultural Policy Paper have recently been incorporated into the GOT's draft Framework Agricultural Law which mandates their implementation through a refined set o f agricultural policy instruments and investments over the period 2006-2010. The restructuring of the ARIP's components directly supports the implementation o f a number o f the agricultural policy instruments and investments laid out inthe FrameworkAgricultural Law. III.ComponentRestructuring 10. ExpansionofLandRegistrationActivities Under Part A of the Project The existing sub-component for Support to the General Directorate o f Land Registration and Cadastre (TKGM), under ARIP Component A for Direct Income Support, is proposed to be expanded to enable T K G M to supply to the Ministry o f Agriculture and Rural Affairs (MARA) up-to-date digitized cadastral maps (for both previously surveyed and un-surveyed areas), parcel information and land ownership details for rural land parcels in 20 selected provinces. This will allow MARA to improve its national registry o f farmers but also to secure property rights o f landowners within the most unsurveyed rural areas o f Turkey (mainly in the more remote sections o f Anatolia). 11, The expansion o f this sub-component covers the purchase o f survey equipment, computer equipment and software, and high resolution satellite images, and technical services for establishment o f permanent GPS stations, geodetic network densification, base mapping, execution o f field survey and cadastral mapping in unsurveyed areas ("first cadastre works"), data entry and cadastral map digitization, and integration o f cadastre and landregistry databases. Executiono f cadastreworks inunsurveyedvillages will be mainly carried out by contracted field survey specialists with the support o f TKGM teams in its district offices. The result o f the cadastral surveying process will be the production o f cadastral maps and issuance of titles to the documented owners. Computer systems are also to be established to keep the cadastral records electronically. The cadastral data will be integrated with the National Registry o f Farmers (NRF) to provide more comprehensive documentation for and smoother functioning o f the DISprogram administered by MARA through the NRF.  -4- 12. Implementation arrangements. Technical implementation responsibility will rest with TKGM, with additional support as neededto beprovidedbythe ARIP Project CoordinationUnit (PCU). TKGM will sign a protocol with MARA delineating the rights and obligations o f TKGM and MARA inthe implementation o f the sub-component. TKGM has set up a small Component ImplementationUnit (CIU) which will support TKGM by carrying out implementation activities (component and technical planning, budget mobilization and accounting, preparation o f technical specifications, procurement, training, quality control, monitoring and evaluation fimctions) in coordination with the ARIP PCU. Expected Item Unit Number Unit (US $) Expenditure Explanation/SpecificUse (US $1 Firstcadastreworks Parcels 3,300,000 10.2 33,595,000 villa Establishment o f cadastre in es Geodetic densification o f 340,000base Positioning and scaling for new network points 2,000 170.0 ma in GPS stations Station 150 8,500 For making use of differential real 1,2759000 time GPSoperations IBasemapping Isq km I 30,000 I 42.51 1,275,0001In the requiredareas I Highresolution satellite Highresolutionsatellite imagery images sq km 28,571 30 850'000as a primary spatial data Fieldsurvey equipment Office 67 25,400 1,700,000 For selected TKGM offices Computer equipment and Purchasing software, computers, software Office 500 2,720 ,360,000 printers, office equipment Data entry of landregistry Parcel 1,900,000 1.7 3,230,000 Computerization of records Cadastral map digitization Parcel 2,950,000 1.7 5,015,000maComputerization o f cadastral Database Parcel Databasecreation, integration of 1'360'0001and registry info. Project Management and CIUExpenses 632,000 Operating costs, training and TA Total Cost 50,632,000 13. New Sub-ComDonents under Part B of the Project Under ARIP Component B for Farmers Transition (FT), new sub-components are to be funded using just over half o f the savings from the reduced size o f the hazelnut uprooting activities. Sub-components are proposed to be introduced for land consolidation o f highly fragmented farm holdings, village-based participatory investments, expanded capacity building for farmers' organization; and farmers in environmentally fragile areas who wish to switch out o f crops in oversupply. All these sub- components are pilot in nature, given Turkey's size, but it i s anticipated that as success or otherwise definitive experience i s gained, they will be scaled up nationwide. A Rural Development Central Execution Unit (CEU) has been set up in MARA to coordinate the preparation and implementation o f the sub-components for land consolidation, village-based participatory investments, and institutional reinforcement for farmers' organizations. The existing FT CTU has coordinated the preparation o f the sub-component for support to farmers in environmentally fragile areas, and it will continue to handle the implementation o f the original (tobacco and hazelnut) activities.  -5- 14. Land Consolidation Sub-Component. Turkey's agricultural lands are characterized by a highlyfragmented parcel structure resultingfrom the division o fland amongheirs over anumber o f generations2. The current distribution o f parcels limits the efficiency o f agricultural production significantly for a number o f reasons: excessive movement o f labor and agricultural equipment across plots, reduced accessibility to roads, inefficient use o f agricultural machinery and irrigation infrastructure, and limited crop rotations and technology choice given the constraining factor of many neighboring plots. Thus, this sub-component aims to improve agricultural productivity by enabling farmers to have fewer, larger and better-shaped parcels. Consolidation o f land i s planned via a demand driven approach in selected villages o f seven provinces. (Other provinces could later be includedbyjoint decision o fMARA and the Bank.) 15. The Land Consolidation (LC) sub-component would target the creation o f reformed parcels for land owners and the construction o f new inter-farm roads within the redesigned layout o f parcels. There will be no actual physical relocation o f residences o f farmers, nor will other built assets o f farmers be removed. All L C activities supported by ARIP will be implementedaccording to the principle of obtaining consent from no less than two-thirds of the population who own more than 51% o f the land to be consolidated, as per existing Turkish law. The ARIP supported project activities as enumerated in the table below would be initiated in early 2005. Feasibility studies are underway, following the applications which have been made byvillages basedon the demand o ftheir farmers. I I I I GDRS 1 24,040 I 4161 1O,OOO,OOO( In4 provinces Roads and Other Construction 1391 3,341,000 736 km. o f inter-farmroads Technical Services for L C Process and RedesignedParcel Layout 277 6,659,000 Project area o f 24,040 ha GDAR 27,650 362 10,000,000 In3 provinces Roads and Other Construction 121 3,346,000 611km.o f inter-farm roads T e c h c a l Services for L C Process and RedesignedParcel Layout 241 6,664,000 Project area of 27,650 ha Total 52,640 20,000,000 16. Implementation o f the L C sub-component will be handled by the existing two agencies (or their successors in the MARA reorganization process) which currently execute land consolidation investments, the General Directorate o f Agricultural Reform (GDAR) and the General Directorate o f Rural Services (GDRS), both o f which operate under the Ministry o f Agricultural and Rural Affairs The CEU will assist both GDAR and GDRS in arranging the procurement process for the L C activities supported under ARIP. The 1991 Agricultural Census showed that 57% of farming families cultivated more than four plots, and inpracticemany of these are further sub-dividedunofficially for separatecultivation amongheirs. Fragmentationhas continued inthe past fifteen years: arecent field survey ineight sets of villages in Thrace, CentralAnatolia andthe Black Searegions indicatedthat the averagenumber of plots cultivated per farmer rangedfrom 8-30. GDAR carriesout the LC processinareas that are declaredbythe Cabinet of Ministers as "Agricultural Reform ImplementationAreas", whereas GDRS operates in other agricultural areas inthe country.  -6- 17. As a matter o f due diligence, an in-depth Social Assessment was commissioned in 12 villages to understandthe participatorynature of the consultation and implementationprocedures used in the past and ongoing L C process, the perceived and real impacts on the different categories o f farmers, the risks o f marginalization o f vulnerable groups, approaches to reconciling competing claims o f stakeholder interests, and rules for determining valuation and allocation o fproperty. The full report i s available inofficial files. 18. The study has concluded that a sound consultative process i s followed by GDAR and GDRS to ensure landowners participation in the L C process. Technical criteria including soil, location, fertility, and sometimes market price indices are used in the valuation o f land by a committee that includes local representatives, and the resulting land grading equivalency table i s displayed publicly for review and comment. Objections are considered and an iterative process follows. Conflicts and competing requests are resolved through the consideration o f several key issues included in determining new plot locations: an equivalency principle4, direct access to roads, kinship and adversarial relationships, etc. The study revealed near unanimous agreement that small-scale farmers, who are most likely to cultivate fragmented pieces o f land, benefit the most from the L C process. Transparency and social accountability mechanisms, including an appeals and grievance redress mechanism with GDAR and GDRS, are inplace. 19. Findingsfrom the study have beenincorporated into the project design. Inparticular, the study has thrown light on the approach to participationinland consolidation and identifiedissues and information that will need to be made available through the communications campaign which the government agencies execute throughout the L C process. The study also highlighted the need to earmark increased budget for the communications campaign exercises and underscored the need to build the skills and capacity o f concerned staff in the implementing agencies in public communication and information dissemination, enlisting participation o f beneficiaries, improved social surveying, and basic monitoring and evaluation. These are includedinthe set o f technical services to be fundedunder the sub-component. 20. Village Based Participatory Investments Sub-component The objective o f the Village Based Participatory Investments (VBPI) Sub-component i s to support community-based demand-driven activities in small-scale agricultural processing, marketing and other off-farm businesses as well as the rehabilitation o f infrastructure used in the provision o f public services in remote rural areas. The sub-component also aims to strengthen capacity at provincial and community levels in executing the design, implementation, and impact monitoring o f demand driven investment programs in anticipation o f the future wider availability of funds for such programs from the European Unionduringthe pre-accession period inTurkey. 21. The sub-component is dividedinto bothprivate and public sector programs and would be implemented in 16 provinces that have been selected according to a set o f criteria prepared jointly by the Government o f Turkey and the World Bank. Under the private sector focused program, individual farmers and other rural private individuals engaged in small rural businesses would be eligible to participate, as well as groups o f farmers, cooperatives, and other farmers' organizations. The first round o f the private sector program (to be initiated in early 2005) would be limitedto investment proposals inpre-identifiedstrategic investments in maize drying, fruit and vegetable packaging, milk cooling, and greenhouses making use o f alternative local energy All land owners participating in the LC process will receive replacement agricultural land of equivalent productivepotential.  -7- sources (e.g. hot springs). Later rounds would be open to a wider set o f activities (e.g., in crop production, grazing land improvement, animal husbandry, aquaculture products, forestry, handicrafts and other off-farm rural SMEs). A 50 % grant element for private sector investment proposals has been set. The maximum project size as a basis for the loan financing would be US$35,000 for individuals and US$250,000 for private enterprises, groups o f farmers, and non- profit organizations. 22. Investments by the public sector would focus on rehabilitation of existing public infrastructure related to the provision o f public services. This part o f the sub-component would start duringthe second round o f calls for proposals (mid-2005), and the grant element would not exceed 75 %. Public beneficiaries o f the project would be the district administrations and the unions for village services supply5. Their applications will have been based on consultations regarding co-financing with the provincial administration. The maximum project size o f public sector investments as a basis o f loan financing would be US$ 300,000. The capacities o f local organizations that will take responsibility for project preparation, management and implementationwould be strengthenedthrough training and technical assistance. Number of Max. Expected Item to Public Organizations er project) 1 Expected Project SizeExpenditure Explanation/Specific Use Projects (US $) (US $) 200 1 300,0001 16,000,000 For infrastructure projects Grants to Private Sector & 200 Individual 35'000 NGOs (per project) 110Group 250,000 14,000,000 For selected investment projects Training/ Workshop For farmers organizations, local 350'000NGOs, private businesses ITotal I I I 30,350,0001 I 23. Implementation arrangements. In each o f the 16 provinces which have been selected for participation in the sub-component, a Provincial Evaluation Council (PEC) will be set up. The PECs are to chaired by the Deputy Governor o f the province, and include a representative from the Provincial Directorate o f Agriculture, a representative o f the Provincial Directorate o f Public Works, a representative o f the Special Provincial Administration, and a representative o f the composite unions which participate in the National Union o f Agricultural Cooperatives (or another non-governmental organization in cases when the PECs are considering public sector infrastructure rehabilitation proposals). The MARA CEU will review the evaluation reports which each o f the PECs will produce to summarize the selections made from among the proposals received from the applicants in the province. The purpose o f this review will be to ascertain whether eligibility criteria are adhered to andconfirm the availability o f co-financing to be provided by the project beneficiaries. Once the CEU review has been concluded, the CEU will convey authorization,to provincial governors for conclusion o f grant agreements with the beneficiaries whose applications have been approved. 24. Under these grant agreements, Project Technical Assistance Teams (PTATs) formed within the Provincial Directorates o f Agriculture shall be responsible for monitoring the achievements realized during the project implementation phase o f each o f the supported KoylereHizmetGoturmeBirlikleri  ,-8- investments. Each investment under the sub-component would be expected to be completed in less than 12 months following the signature o f the grant agreement. The PTATs shall also serve to coordinate the participation o f project beneficiaries inthe technical assistance available under the sub-component which will be organized and contracted out bythe MAR4CEU. 25. InstitutionalReinforcement o f Farmers' Organizations (IRFO) The original design o f the FT component made provisions for institutional reinforcement training and technical assistance for farmers participating in the Alternative Crops sub-component. Owing to lack o f demand for the investment activities under the Alternative Crops sub-component, these funds for training and technical assistance have understandably been accessed to a low degree. As a result, the Institutional Reinforcement sub-component has been reoriented to focus on the objective o f supporting the development o f independent and efficient farmers' organizations (FOs) mainly through working with the existing agricultural development cooperatives, farmers unions, livestock associations, water user associations, etc. Stronger FOs are needed throughout Turkey at all levels (village, regional and national) to provide the services to farmers and the rural populationat large inareas from which state agencieshave withdrawn or are not active. The aim o f the ARIP activities for Institutional Reinforcement o f Farmers' Organizations (IRFO) i s to provide a conducive environment for the development o f FOs through much expanded training andtechnical assistance. 26. The subcomponent will provide comprehensive management and organizational support to about 400 o f the FOs operating in Turkey in different sub-sectors and training and education services to members, elected officials, managers and staff o f another 2,100 village-based FOs. In addition, IRFO activities will support capacity building at selected regional and national service and apex organizations. This capacity buildingis keyto sustainabilityo f IRFO activities since, at the endo f support providedby ARIP, these secondary and tertiary FOs will have to continue and expand support services for village-based FOs. 27. Implementation Arrangements. Services for IRFO will be provided through the newly established National Union o f Agricultural Cooperatives (NUAC) andor selected regional cooperative unions, including subcontracting o f a substantial part o f these services to existing Turkish training institutions or consultancy companies. W A C i s an independent organization with its board composed exclusively of farmers' representatives elected by member FOs. The recruitment o f IRFO specialists and subcontractors, as well as the procurement o f office and training equipment, etc. will be managed by the MARA CEU but then placed at the disposal o f W A C for the implementation o f IRFO.  -9- 28. EnvironmentallyBased Amicultural LandUtilization Sub - Component The objective o f the Environmentally Based Agricultural LandUtilization sub-component (known as CATAK in Turkish) is to protect sensitive regions of Turkey in terms of water, soil, landscape and bio- diversity by setting aside agricultural areas formerly planted to crops in excess production or subject to severe erosion and replacing harmful agricultural techniques with more environmentally friendly practices. To achieve this, farmers and farmer unions will be supported through transition grants and also with a variety o f extension activities. 29. The CATAK sub-component would be implemented in four pilot provinces totaling approximately five thousand hectares: Kirsehir - Seyfe Lake area, Isparta - Kovada Lake area, Konya - Eregli marshes area, and Kayseri - Sultan marshes area. Farmers in these areas would be offered participation inthree types o f activities with annual transition payments o f U S $400- 900 per hectare. The first type o f activity would compensate farmers for ceasing cultivation o f annual crops andplanting perennial grasses and other perennial crops which form buffer zones to prevent water pollution and which allow reduced usage o f irrigation water. The second type o f activity would involve compensation to farmers for switching to environmentally sustainable agricultural techniques (contour tillage, reduced flow irrigation, organic agriculture, etc.). The third activity would involve those switching from intensive grazing to production o f fodder and adoption o fpasture rehabilitation measures. Province Vicinity Target Category 1 Category 2 Category 3 Total Area, Set Aside Adjusted Meadow-Pasture Payments H a (at annual rate of Cultivation Rehabilitation U S $400/ha ) Practices (at annual (at annual rate of rate of U S $900/ha) U S $400/ha) HA 1 I Total, HA I Total, HA 1 Total, Total U S $ I us$ I U S $ I us$ 30. The activities supported by the sub-component are designed under the Framework Agricultural Law to last five to ten years, with the first three years funded by the ARIP loan funds and the remaining years financed by the state budget for agricultural transfers. Fieldwork for 2005 and identification o f field implementationpersonnel commenced inlate 2004. 31. Implementation Arrangements. The MARA FT CIU will manage the sub-component through provincial implementationteams to be set up at the Provincial Directorateo f Agriculture ineachofthe four provinces which havebeenselected for participation. These provincial teams will coordinate with the Provincial Directorate of Environment and Forestry and farmers organizations involved inbiodiversity activities (e.g., inthe Sultan marshes area). The CATAK provincial teams will also coordinate with the PTATs for the VBPI sub-component inprovinces (e.g. Konya) where the VBPI sub-component is expected to support investments in grazing land improvement, animal husbandry, and micro-watershed rehabilitation.  -10- 32. Each CATAK provincial implementationteam will include representatives o f the districts covered, and these district representatives will serve as local coordinators o f the "lead farmer representatives" in each o f the villages from which farmers participate. These lead farmer representatives will carry out the training and advocacy works as well as monitoring o f the activities o f the farmers participating in CATAK. They will also be responsible for data collection and compilation o f summary reports on their villages CATAK activities. These lead farmer representatives will be hired on contract using public information campaign funds available under Part D o f the ARIP. Producers that benefit from the CATAK compensation payments will not be able to benefit from other agricultural support payments, includingDIS. 33. New Sub-component under Part C of the Proiect The restructuringo f ARIP extends to AFUP Component C for Agricultural Sales Cooperative Unions (ASCUs), under which most of the remaining loan funds available for severance payments to retrenched ASCU employees are to be reallocated to supporting the participation by ASCUs in the emerging practice o f licensed warehouse receipts-based financing. The new Warehouse Receipts Sub-component would focus on enabling ASCUs, as well as the Turkish Grain Board (TMO), to set up licensed warehouses to store products o f their member farmers or third parties and issue product receipts, These receipts will be used by farmers to sell products without physical exchange, for trade in the commodity markets, and to obtain loans from financial intermediaries. As a result, the sub- component would help both development o f commodity markets and also development o f financial intermediationinthe countryside, 34. The subcomponent consists o f purchasing information and communication technology (ICT) systems that will enable electronic information transfer between licensed warehouses and their laboratories which assess product quality attributes and commodity exchange markets. It would also cover the purchase o f laboratory equipment, warehouse modernization and expansion, and training services for the selected ASCUs that operate viably in marketing o f cotton, raisin, olive, olive oil, sunflower, hazelnut and dried apricot, as well as 18 TMO enterprises handlinggrains. ASCUs will contribute at least 50% o f the value o f each investment. The elaboration o f businesses plans is currently underway, and their consideration and approval would proceed in2005 as notedbelow. Warehouse Estimated Total Modernization& Laboratory Equipment ICT Equipment Expenditure Enterprise Expansion(US $) (US $) (US $) (US $1 Taris Cotton 9,944,659 620,321 57,434 10,622,4 15 Taris Raisin 3,939,205 109,226 57,434 4,105,865 Taris Olive Oil 4,181,398 57,434 4,238,832 Cukobirlik Cotton 5,200,499 473,553 78,655 5,752,707 Fiskobirlik Hazelnut 1,779,269 65,912 57,434 1,902,616 Trakyabirlik Sunflower Seed 2,680,265 195,599 80,039 2,955,903 Marmarabirlik Olive 2,965,747 111,022 68,737 3,145,506 Kayisibirlik DriedApricot 2,130,489 88,233 57,434 2,276,157 ASCU Total 35,000,000 TMO Total 2,516,000 1,484,000 4,000,000 Training (ASCU andTMO) 1,200,000 Warehouse Receipt CIU 160,000 Total 40,360,000  -11- 35, Implementation Arrangements. Approval o f specific investments under the Warehouse Receipts sub-component will not take place before the passage o f the draft Law on Licensed Warehouses for Agricultural Products, which specifies the legal arrangements for the issuance and use o f warehouse receipts. This draft Law i s currently under consideration in the Turkish Parliament. After passage o f the Law, each o f the participating ASCUs will present detailed financial plans, and the evaluation o f these proposals' validity and their conformance with the ASCUs' overall restructuring plan will be made by the ASCU Restructuring Board's Executive Unit. The Restructuring Board would then take decisions on the approval of specific investments under the sub-component. The C l U which coordinated the implementation o f the recent Commodity Markets Development Project has been reactivated at the Ministryo f Industry and Trade. This C I U will accompany the preparation o f the financial plans and monitor the tendering and implementation o f the contracts. The Restructuring Board's Executive Unit will monitor the impact o f the warehouse receipts investments. I K Financial management, accounts, and audit arrangements 36. The current financial management arrangements for the ARIP include a centralized structure where all budgeting, payments, recording and reporting are done by the Undersecretariat o f Treasury, General Directorate o f State Economic Entities (SEE) through the P C U established there. 37. Within the scope o f restructuring o f the ARIP, through discussions with the implementing agencies it has been agreed that they will be responsible for all management and implementation functions o f their related components. Hence the budget allocations for their activities are to be included in the annual government budgets o f the implementing agencies starting from January 1, 2005. 38. However, in order to ensure that financial controls are still centralized at the Undersecretariat o f Treasury - General Directorate o f SEE through the PCU, the current structure o f one Special Account (SA) will be retained. The General Directorate o f SEE will continue to be responsible for withdrawing funds from the Bank either through the S A or from the Loan Account. However for withdrawals from the S A at the Central Bank o f Turkey four sub- accounts will be opened under the main SA, one for each implementing entity. The authorized signatories o f these sub-accounts will be submitted to the Central Bank by the Undersecretariat o f Treasury - General Directorate o f Foreign Economic Relations. The details o f the sub- accounts are as follows: 1) MARAfor Parts A.1, B.l,B.3, B.4. andB.5 o fthe Project; 2) TKGM for Part A.2 o f the Project; 3) MARA-General Directorate o f Agricultural Reform for Part B.2 o f the Project; and, 4) MARA-General Directorate o f Rural Services for its activities under Part B.2 o f the Project. 39. The General Directorate o f SEE shall still be the authorized body to make disbursements from S A and the Loan Account for the Parts C and D o f the Project. 40. The implementing agencies will send the payment orders to the Central Bank with the letter o f the PCU certifying that the expenditure is within the scope o f the project and complies  -12- with the related project documentation. The implementing agency will seek this certification through submitting all documentation to the PCUbefore it authorizes the payment from the sub- account. The Central Bank will release payment only with the presence o f the accompanying certification letter by the PCU and will send a copy o f all payment documents and SA statements to the PCU. As set forth above, the sub-accounts will be used only for individual transactions related to the expenditures o f different implementing agencies, and no additional funds will be retained insuch sub-accounts inadditionto the main SA. 41. Following the payments from the SA as detailed above, documentation, recording, accounting and reporting for the project will be done by the PCU. The PCU will continue to be responsible for compliance with the World Bank procedures. The implementing entities will provide the requiredsupport to the PCU for ensuring this. 42. These procedures will be detailed and sample documentation will be included in the revisedProject ImplementationPlan. V. Environmental and Social Aspects 43. The addition of sub-components for land consolidation, village-based participatory investments, expanded capacity building for farmers organization, set-aside payments for farmers in environmentally fragile areas, and introduction o f warehouse receipts by ASCUSand TMO have not changed the Environmental Category "B" rating o f ARIP. The environmental management plan prepared by the Borrower for the original scope o f ARIP will be updated (by the end o f May 2005) to cover the repositioning of inter-farm roads under the Land Consolidation component, the review o f the small scale investments for income generation and rehabilitation o f public service infrastructure under the Village Based Participatory Investments sub-component, andthe expansion o fwarehouses under the Warehouse Receipts sub-component. The activities supported under the Institutional Reinforcement sub-component do not pose any environmental risks, while those activities supported under the CATAK sub-component are designed to generate localizedenvironmental benefits. 44. Consideration was made o f the application o f the social safeguard policy on Resettlement (0.P 4.12) to the L C sub-component, but the supplemental Social Assessment demonstrated that this policy is not triggered since the LC process does not involve any land taking, and entails only transferring the location o fpeoples' holdings. All land owners invillages participating inthe land consolidation process will receive replacement agricultural land of equivalent productive potential. There will be no physical displacement o f people, physical relocation o f residences or other permanent assets o f those affected by the sub-component. Further, the L C process, while clarifying the rights o f use and access and identifying current encroachments, would not adversely impact the livelihoods o f marginal and vulnerable sections o f the population as Treasury lands would be allocated for a nominal charge for persons deemed eligible by national legislation. VI.Disbursement and Procurement 45. Summary tables for the reallocationo f funds across the full set o f existing and new sub- components and for the projected disbursement o f funds through the proposed extended Loan Closing Date o f December 31, 2007 are attached in Annexes 2 and 3. The Borrower's revised  -13- procurement plan has been reviewed and approved by the Bank project team's procurement staff. Disbursements under the Warehouse Receipts sub-component will be subject to passage o f the draft Law on Warehouses for Agricultural Products.   -14- Annex 1 Reallocation of Loan Proceedsof IBRD Loan Category Original Proposed Allocation Allocation Change Goods (a) under the ProjectexcludingPart C.3(a) of the Project 21,440,001 15,500,OO (5,940,OOC (b) underPartC.3(a) ofthe Project 3,500,OO 3,5 00,OO Grants (a) CashGrantsunder PartsB.1andB.5 of the Project 143,660,001 71,000,OO (72,600,OOC (b) GrantsunderPartB.3ofthe Project 30,000,OO 30,000,OO (c) Grants under Part C.3(b) o f the Project 35,000,OO 35,000,OO Works andTechnical Services (a) under the ProjectexcludingPart C.3(a) ofthe Project 15,260,00( 77,000,OO 61,740,OO (b) underPartC.3(a) ofthe Project 500,OO 500,OO Consultants' Services, includingauditing services andtraining (a) under the Projectexcluding Part C.3(a) o f the Project 55,930,00( 40,500,OO (15,430,OOC (b) underPart C.3(a) ofthe Project 500,OO 500,OO Incremental OperatingCosts 12,460,00( 5,000,OO (7,460,OOC Job Loss CompensationPayments under PartC o f the Project: (a) Severance Payments .00,330,00( 86,000,OO (14,330,OOC (b) Notice Payments 19,820,00( 12,000,00 (7,820,OOC Portion of the Loaninsupport of the Program, referredto in Section2.03 (a) ofthis Agreement (a) Tranche I 00,000,00( 1oo,ooo,oo (b) Tranche I1 00,000,00( 100,000,00 Fee 6,O00,O 0( 6,000,OO Unallocated 25,100,00( 17,500,OO (7,600,000 OTAL i00,000,00( 600,000,OO  -15- Procurement Theprocurement arrangementswould be amendedas follows: 1. The scope o f National Competitive Bidding is increased by including the Technical Services contracts for the preparation o f cadastral and consolidation maps, land consolidation activities and data entry works for the project activities. Aggregate ceilings for NCB Goods and Works contracts are removed. The threshold for each NCB Works contract is increased to $3,000,000 from $2,000,000, and the threshold for each Technical Services contract is set as $3,000,000. 2. Intemational Shopping & National Shopping - aggregate ceilings for International Shopping andNational Shopping contracts are`removed. 3. Procurement o f Small Works - the threshold for each Small Works contract i s increased to $100,000 from $75,000, and the aggregate ceilingi s removed. 4. Procurement by Commercial Practices i s introduced for the following grants to be provided underthe Loan: (a) For the private sector grants under the Part B.3 o f the Project up to $250,000. (b) For the ASCU Warehouse Receipts grants under the Part C.3 (b) of the Project up to $3,000,000 for works and $3,000,000 for goods. 5. Review by the Bank o f Procurement Decisions. The Prior Review limit for ICB contracts i s increased to contracts estimated to cost more than $3,000,000 for goods and works. Prior review i s also specified for the first two contracts for works procured in accordance with the procedures referred to in Part C.l o f Section I,and for the first contract for goods, works and technical services procured in accordance with procedures referred to inPart C.l-C6 o f Section I. 6. Employment o f Consultants. The May 2002 revisioni s incorporated to the Guidelines for Selection and Employment o f Consultants by World Bank Borrowers" publishedby the Bank in January 1997 and revised inSeptember 1997 and January 1999. 7. Employment o f Individual Consultants, previously limited to tasks under Part D of the Project, i s extended to all Parts o fthe Project. 8. The Prior Review process is simplified, and prior review thresholds are set as $200,000 and $50,000 for consultant firms and individual consultant contracts, respectively.   -17- gR Annex 3- Disbursement of Loan Funds Over The ProjectPeriod JOO5-2007) Total 2005 2006 2007 -(Million USD) Component A - DirectIncome Support 35.07 31.5; 2.86 69.45 National Registry of Farmers 3.95 12.1: 2.74 18.82 Development of National Registry of Fanners System 3.25 4.1' 2.74 10.10 Orthophoto Production in Pilot Areas 7.01 7.00 Technical Assistance for TOGEM 0.05 0.0: 0.10 MARA-IT Department Needs 0.40 0.5C 0.90 Project Management Support and CIU Expenses (UNDP) 0.25 0.47 0.72 Support to TKGM cadastral Works 31.12 19.3: 0.12 50.63 30.89 19.11 50.00 Project Management Support and CIU Expenses (UNDP) 0.22 0.2: 0.12 0.63 Component B - Farmer Transition 17.56 63.71 54.52 135.86 Alternative Crops Sub-component (Bl) 0.73 31.54 31.54 63.81 Hazelnut Farmers 27.74 27.74 55.48 Tobacco Fanners 0.47 3.3E 3.36 7.20 Alternative Crops Other Activities 0.2c 0.20 0.40 MARA ClUlFT Project Management Support and CIU Expenses (UNDP) - 0.26 0.24 0.24 0.73 Land Consolidation Subcomponent (B2) 6.69 7.9E 5.32 20.00 GDRS 3.35 3.9s 2.66 10.00 GDAR 3.35 3.9s 2.66 10.00 Village Based Participatory Investments Subcomponent (B3) 7.60 13.44 8.96 30.00 Grants to Public Organizations 2.95 7.83 5.22 16.00 Grants to Private Sector & NGOs 4.66 5.61 3.74 14.00 Institutional Reinforcement Subcomponent (B4) 0.42 6.35 4.23 11-00 MARA CEU Project Management Support and CIU Expenses (UNDP) - 0.71 0.67 0.67 2.05 CATAK Grants (B5) 1.41 3.79 3.79 9.00 Component C - ASCU Restructuring 20.69 27.52 19.71 67.92 Cooperative Development (CI) 0.37 2.86 2.86 6.10 Job loss compensation payments (C2) 8.97 4.03 13.00 0.69 2.66 2.66 6.00 0.06 0.02 0.02 0.10 10.40 17.00 13.22 40.62 1.66 2.34 4.00 8.56 13.22 13.22 35.00 0.19 1.43 1.62 0.20 0.95 0.95 2.10 2.67 1.52 1.52 5.71 0.49 0.16 0.16 0.81 0.87 0.66 0.66 2.19 0.56 0.56 0.75 0.70 0.70 2.15 75.99 124.34 78.61 278.93