Malawi - Second Shire Valley Agricultural Development Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 33a-MAI APPRAISAL OF THE SHIRE VALLEY AGRICULTURAL DEVELOPMENT PROJECT-PHASE II MALAWI February 15, 1973 Agriculture Projects Department Lastern Africa Regional Office FThis report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsbility for the accuracy or completeness of the report.  CURRENCY QUIVAIENTS Currency Unit Nalawi Kvacha = 100 Tambala (t) MK:L.0 = US$1.2 US$1.O =4K 0.83j WEIGHTS AND MEASUIR 1 acre (ac) = 0.405 hectare (ha) 1 nile (mi) = 1.61 kilometers (Ian) 1 square mile (sq mi) = 639.5 acre = 259 ha 1 pound (lb) = 0.455 kilogram (kg) 1 long ton (lg ton) = 2,2140 ln 1,016 kg 1 short ton (sh ton) = 2,OOO lb =908 kg 1 bag = 200 lb = 91.1 kg 1 hundredweight (cwt) = 112 lb = 51.02 kg 1 inch (in) = 25.64 millimeters (mm) 1 liter (1) = 0.264 gallons (U.S.) ABBREVIATIONS ADMARC = Agricultural Development and Marketing Corporation MAR = Ministry of Agriculture and Natural Resources NOIL = National Oil Industry Ltd. FISCAL YEAR April 1 - March 31  MALAWI SHIRE VALLEY AGRICULTURAL DEVELOPMENT PROJECT - PHASE II TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-is I. INTRODUCTION...... . ........ 1 II. BACKGROUND ... ..1 A. General .......... ................ 1 B. Agricultural Sector .. 2 III. THE PROJECT AREA ...................................... 3 A. General.. ............ ..3 IV. THE PROJECT...................... ........ 6 A. General Description.. 6 B. Detailed Features .. .............6......., ........ 6 V. COST ESTIMATES AND FINANCING .. . 10 A. Pro4ect Costs ......... .. ....... ....... , ...... 10 B. Proposed Financing ....................... 12 C. Procurement . ....................... 13 D. Disbursement ...................... ...... 13 E. Accounts and Audit ........ . .. ......14 VI. ORGANIZATION AND MANAGEMENT . . ............ G.... 14 A. Project Administration. ..... 14 B. Credit Administration and Recording 15 VII. PRODUCTION, MARKETING, PRICES, FARMERS' AND GOVER`NT 'S BENEFITS . ................................ 16 A. Production .. .................. 16 B. Marketing and Prices. . . ....... 17 C. Benefits to Farmers/Fishermen . 18 D. Costs to Government... .............. 18 VIII. ECONOMIC BFNEFITS AND JUSTIFICATION . . .19 IX. RECOMNDATIONS ............... ,. 20   ANNEXES 1. General Agricultural Background 2. Crop Improvement Program, Cropping Patterns and Farm Budgets. 3. Livestock Development 4. Fisheries Development 5. Credit 6. The Agricultural Development and Marketing Corporation 7. Development of Communications 8. Development of Water Supplies 9. Development of Health Services 10. Wildlife Conservation 11. Agricultural and Fisheries Research 12. Project Costs 13. Project Cash Flow 14. Schedule of Disbursements 15. Marketing, Processing and Price Projections. 16. Impact of Project on Government Budgetary Position 17. Rate of Return Calculation. CHARTS Organization Chart MAPS General Project Area Communications   MALAWI SHIRE VALLEY AGRICULTURAL DtVELOP1TENT PROJECT - PHASE II SUMMARY AND CONCLUSIONS i. This report appraises a second-phase Project for agricultural development of the Lower Shire Valley in the Southern Region of Malawi. It follows the pattern of Government strategy of developing agriculture through broad-based integrated regional development programs. This would be the fifth IDA credit for such development in Malawi. The other projects are Credit 113-MAI (1968) for US$6 million for Lilongwe Agricultural Devel- opment; Credit 114-MAI (1968) for US$3.7 million for Shire Valley Develop- ment Phase I; Credit 244-MAI (May 1971) for US$7.25 million for the second phase of Lilongwe Agricultural Development; and Credit 282-NAI for US$6.6 million for Karonga Rural Development, which was declared effective on August 14, 1972. Progress on the existing agricultural projects has been satisfactory and development in the Lower Shire Development Project - Phase I will be completed on schedule with reduced costs and greater benefits than projected at appraisal. ii. The Shire Valley Agricultural Development Project - Phase II would comprise agricultural and fisheries development, accompanied by improvements to health services, communications, and game conservation. The agricultural component wqould provide improved extension services, seasonal and medium-term credit and market facilities aimed at assisting 16,300 farmers not benefitting under Phase I. The area of improved crops would be about 131,000 acres, in- cluding 49,000 acres of cotton, 52,000 acres of maize, 19,000 acres of sorghum, 7,000 acres of rice, 4,000 acres of groundnuts, and 200 acres of cocoa. Beef cattle production would be increased by around 1,800 head per annum and 1,000 fishermen would increase annual production by the equivalent of 1,400 tons of smoke/dried fish. Staff housing, offices, workshops, and 108 miles of feeder roads would be constructed and a railway bridge over the Shire River converted for road as well as rail use. 82 miles of main and secondary roads would also be improved. Rural water supply improvements involve drilling 140 boreholes. Health services would be increased by conversion and construction of 4 primary health centers, 11 subcenters, and 16 health posts, together with improvement of the service center at Chikwawa Hospital. Research into irrigated and rainfed crops, pastures, and fish-farming would be instituted. iii. The Project would continue to be managed by the Project Mlanager appointed for the Phase I project under the general direction of the Min- istry of Agriculture and Natural Resources. A liaison committee would be established to ensure coordination between the Project and other ministries concerned.  - ii - iv. Total Project costs are estimated at US$13.5 million, to be spread over five years. The proposed IDA credit of US$10.5 million would finance 78% of Project costs, covering foreign exchange costs of US$6.8 million, and US$3.9 million of local currency costs. The balance of US$3.0 million local costs would be provided partly by Government in the amount of US$1.7 million (12% of Project costs), and partly from the Agricultural Development and Marketing Corporation in the amount of US$1.3 million (10% of Proiect costs). v. Goods and services to be procured by international competitive bidding in accordance with Bank/IDA guidelines would have a total value of US$3.7 million. Housing and building contracts amounting to US$2.3 million would be subject to local competitive bidding, since construction sites would be widespread. Remaining civil works would be undertaken by force account because of their dispersed nature. vi. At full development, the annual value of increased production of crops, livestock, and fish would be around US$4.7 million. Based on the Bank's Economics Department's price forecasts for the crops involved and local prices for fish and livestock, the economic rate of return is estimated to be 22%. A 10% increase in costs accompanied by a 10% reduction in revenues gives a rate of return of 14%. vii. Average annual net cash incomes of participating farm families would increase from about US$11 to between US$95 and US$120 per annum. On a per capita basis it is estimated that the income of Proiect beneficiaries including cash income and the value of subsistence production, would more than double from US$15 to US$34 at full development. Since Malawi's per capita GDP in 1971 was estimated at about US$84, and its per capita rural income at about US$50, it would appear that the Project would benefit pri- marily the poorer part of Malawi's population. viii. With appropriate assurances, the Project would be suitable for an IDA credit of US$10.5 million.  MALAWI SH1IRE VALLEY AGRICULTURAL DEVELOPMENT PROJECT - PHASE II I. INTRODUCTION 1.01 The Government of l4alawi has requested IDA assistance in continu- ing agricultural development of the Shire Valley. Government's original request for US$16.7 million comprising a production oriented rural develop- ment project included among other important items an agro-industry and a substantial road development program. During appraisal it was agreed with Government that because of limited financial resources and because the agro-industry component and much of the roads were not at this stage an in- tegral part of the Shire Valley development, the Project would accordingly be revised. 1.02 To date, IDA has financed four agricultural projects in Malawi: the Lilongwe Agricultural Development Project (US$6 million in 1968); and a further US$7.25 million in 1971 for the second phase of that project; and Shire Valley Development Project - Phase I (US$3.7 million in 1968); and US$6.6 million for the Karonga Rural Development Project, which became effective on August 14, 1972. Progress on existing agricultural projects has been satisfactory and development in the Lower Shire Development Project - Phase I will be completed on schedule (paras. 3.04 and 3.05). 1.03 This report is based on the findings of an appraisal mission to Malawi in June 1972, consisting of Messrs. A. Storrar, J. Bevan, H. Cooke, S. Hayden and D. Lomax (IDA); and G. Gerhardsen and R. Henderson (consultants). II. BACKGROUND A. General 2.01 Malawi is a land-locked country of about 46,000 sq mi - including lakes - with a land area of approximately 36,000 sq mi. Its population is estimated at 4.6 million and is growing at about 2.5% per year: average population density is 128 per sq mi. Agriculture accounts for just over 50% of GDP (at factor cost), which has grown at a rate of 5.9% annually during the period 1964-71. Per capita GDP in 1971 was estimated at K 70 (US$84).  - 2 - B. Agricultural Sector 2.02 It is estimated that approximately 750,000 farmers and their dependents derive their income from smnall-scale agriculture. Agriculture accounts for over 90% of total exports3, which in 1971 amounted to K 49 million (UJS$59 million). During the period 1964-71, the value of exports from small farmers increased from K 12 million (US$14.4 million) to K 23.5 million (US$28.2 million); exports from estates over the same period in- creased from K 10 million (US$12 million) to K 22.4 million (US$26.9 mil- lion). For details see Annex 1. Farming Background of Malawi 2.03 Only a small proportion of the land in Malawi is held in freehold or leasehold tenure and this is almost all in the hands of tea, tobacco, or sugar estate owners; the balance is held in customary tenure and is allocated traditionally. Individual rights to cultivate are granted under customary laws, which remain undisturbed while cultivation continues; failure to cul- tivate any part of a holding results in the land being reallocated. Security of tenure is, however, government policy and appropriate legislation for the granting of land titles has been enacted. The land registration process has commenced on the IDA-financed Lilongwe Project. 2.04 Land is cultivated mainly by hand and an average family can farm between four and eight acres. In the Central and Northern Regions, however, holdings are larger and oxen are increasingly used for power. The staple foods are maize, rice, and cassava and the country is self-supporting in cereals. 2.05 Relatively few people own cattle and numbers are small in propor- tion to the population. Progress is now being made, however, in developing farmers' interest in the productive potential of livestock as a regular source of cash income. For the people living in the river and lake areas, fishing is becoming an increasingly important source of food and income. Agricultural Strategy '2.06 The development strategy in Malawi aims at encouraging the small farmer to work more efficiently and productively. To this end Government intends to provide: (a) a fair and efficient marketing service for all crops; (b) inputs at the lowest possible prices within easy reach of the farm; (c) credit for the farmer so that he can purchase seasonal and medium-term inputs; and  -3- (d) a well-trained extension service, giving practical and economically sound advice based on the latest research findings. Over the next five to ten years, Government intends to increase the produc- tion of cash crops, particularly tobacco, cotton, and groundnuts, and thus raise farmers' cash incomes, which are among the lowest in Africa. III. THE PROJECT AREA A. General Location 3.01 The Project covers some 2,000 sq mi of the southern portion of the Shire Valley. The Valley is virtually an isolated geographic unit and is located in the southwestern corner of Malawi, about 200 ft above sea level. It is bounded by escarpments to the east and west and is bisected by the Shire River, which originates in Lake Malawi about 100 miles to the northeast (see maps). Climate, Soils, and Water Suply- 3.02 The Valley has marked wet and dry seasons of about six months each, and the annual rainfall averages 28 inches (Annex 1). Temperatures are highest in October/November prior to the onset of the rains and lowest during the period June/July. The soils on the escarpments are generally poor and unsuitable for crops but those in the valley, predominantly crack- ing clays and alluvials, can support sustained cropping both under rainfed and irrigated conditions. There is ample surface water and, throughout the valley, there is a good supply of subsurface water. Population and Land Tenure 3.03 The 300,000 people living in the Shire Valley represent 6% of Malawi's population, and which gives an overall populatior density of about 120 persons per sq mi, but as the majority of people live on the valley bottom the density is 400 per sq mi; each family having available about 9 acres of agricultural land. The land is now held under customary tenure and inheritance is patrilineal. Phase I Development 3.04 The development of the Shire Valley has been neglected primarily for climatic and health reasons. It has suffered from a marked absence of basic infrastructure. Government recognizing this has, since the mid-1960's, given the Valley and its problems developmental priority. In 1968 an ap- plication was submitted to IDA which led to assistance in the financing of  -4. a US$4.6 million project aimed at increasing crop production on about 130,000 ac of farmland in the Shire Valley, and which also provided the essential infrastructure needed for this development. The five-year proj- ect included agricultural extension, provision of credit to farmers, con- scruction of 156 boreholes, 7 markets, 160 miles of crop extraction roads and improvement to 24 miles of existing road. The principal aim of the project was to increase production of cotton by improved cultural methods from 4,000 to 17,000 sh ton by 1973 and the number of growers using improved methods from 200 to 4,000 over the same period. Progress to date is sum- marized below. No. of improved Improved cotton Total cotton Year growers Acreage Production (sh tons) 1967 185 855 4,069 1968,i 145 5,682 3,451 1969- 853 2,681 7,541 1970 1819 5,867 10,551 / t 1971 2994 10,543 12,285/2 1972 5370 17,289 12,371 /1 First year of project action. The low acreage caused by poor marketing in previous years. /2 Yield severely reduced by drought, initial estimate 13,500 tons. 3.05 Physical execution is ahead of schedule and development costs lower than estimated. With the approval of IDA, surplus funds have been used for improvement of health services within the Shire Valley. The project has been well managed. However, the development has been confined to the immediate neighbourhood of Ngabu (see map) and the impact elsewhere in the Valley has been minimal. It is also apparent that the scope of future development should be expanded to include other infrastructure. On the completion of Phase I development, sufficient staff and facilities would be retained to continue at the level already established. Phase I participants would also benefit to a limited extent from some of the facilities being provided under Phase II. The present position is discussed below. Commun cations 3.06 Communications in the Valley are difficult. It is accessible from the north by two tortuous and poorly surfaced roads that descend into the valley. All roads in the valley are affected by floods and are frequently closed during the rains. The main Malawi Railway outlet to Beira in Mozambique, Rhodesia, and South Africa passes through the lower part of the valley and provides the most reliable means of transporting produce to and from the project area; the railway also connects in the north with the newly completed Blantyre/Nacala Railway line (the northern Mozambique Indian Ocean port).  There is one road bridge across the Shire River in the north and a ferry close to the rail bridge in the center; during high floods, however, the ferry service is liable to