Burundi - Second Coffee Improvement Project

**E C CIRCULATING COPY FLEL COPUr o BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1708-BU REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO BURUNDI FOR THE SECOND COFFEE IMPROVEMENT PROJECT November 5, 1975 This 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 It may not be published, quoted or cited without Bank Group authorization.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 responsibility for the accuracy or completeness of the report.  Currency Unit Franc Burundi (FBu) US$ 1 FBu 78.35 FBu 100 US$ 1.28 FBu 1 million US$ 12,763 Fiscal Year: January 1 to December 31  D)OcU{lM[:NT OF t\T7-I J.A\! 1TIOXAi-AL 1 IlEELOP.Ml"li AS.S.oC!A TION\ NO-I FOR PUtBLICl USE IDA/SecM75-259 FROM: The Secretary November 10, 1975 BURUNDI: Second Coffee Improvement Project Corrigendum The following correctiornshould be made in the penultimate sentence of paragraph 65 of the President's Report and Recommendation distributed on November 6, 1975 (IDA/R75-96): For: "Farmers in the high potential coffee areas who combine coffee improvement with the use of selected seed and fertilizers for maize would increase the net value of their production by about $32, an increase of about 35 percent of their total average production (about $332)." Read: "Farmers in the high potential coffee areas, who combine coffee improvement with the use_of-selected-seedI ana fertilizers for maize, would increase the net value of their production by about $35, an increase of about 11 percent of their total average production (about $332)." The corrections are indicated above by underlining. Distribution: Executive Directors and Alternates President Senior Vice President, Operations Executive Vice President and Vice President, IFC President's Council Directors and Department Heads, Bank and IFC  INTERNATIONIAL DErELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF BURUNDI FOR A SECOND COFFEE IMPROVEMENT PROJECT 1. I submit the following report and recommendation on a proposed credit to the Republic of Burundi for the ecuivalent of US$5.2 million on standard IDA terms to help finance a Second Coffee Improvement Project. The Kuwait Fund for Arab Economic Development (Kuwait Fund) is expected to pro- vide parallel financing with a loan of US$1.2 million equivalent for a period of 25 years at an interest rate of 3 percent per annum. PART I - THE ECONOnY. 2. An economic report, entitled "Recent E.conomic Development and Prospects of Burundi" (504a-BU) dated January 14, 1974, was distributed to the Executive Directors on January 31, 1974. An economic mission visited Burundi in April 1975. Its report entitled "Economic Memorandum on Burundi" will be circulated to the Executive Directors soon. Country data are provided in Annex 1. 3. Burundi remains one of the poorest of the least developed countries, with a per capita income estimated at $94 in 1974. Over the past five years GDP grew by no more than 2 percent annually in real terms. Out of a popula- tion of 3.5 million only 115,000 are in wage employment; the remainder depend mainly on subsistence agriculture. The agriculture labor force is largely untrained, and the level of enrollment in formal education is one of the lowest in Africa. 4. The economy is dominated by the agricultural sector. Food crops account for over half of GDPI, and other crops, of which coffee remains by far the most important, account for a further 10 percent. In 1974 coffee production reached a record of about 28,000 tons, 35 percent higher than in the preceding year. The large harvest combined with a markedly higher pro- ducer price resulted in a 62 percent increase in farmer incomes derived from coffee, with consequent multiplier effects felt in both industry and services. 5. Burundi has become increasingly dependent on coffee for foreign exchange earnings; its share in total exports rose from 79 percent in 1965 to 84 percent in 1974. Owing to external marketing and transport delays, a quarter of the 1974 crop was exported only in early 1975. The value of imports on the other hand rose 36 percent in 1974, and, consequently, foreign exchange reserves fell sharply. The trend was reversed during the first four months of 1975 as delayed coffee payments were received, while at the same time imports fell to a level nearly 40 percent below that pertaining in the  second half of 1974. By March 1975 reserves stood at a level equivalent to six months of merchandise imports. Rising import prices, combined with increased internal demand, caused a record 23 percent jump in the cost of living index for low income urban families during the year ended March 1975. 6. The level of investment has remained consistently low, averaging o-ly 8 percent of GDP over tl-Le last five years. Domestic savings have amounted to only 5 percent of GDP over the same period, approximately equal to net capital inflows. Close to half of total gross capital formation was financed by external aid. 7. Due to high coffee prices, Government revenues in 1974 were 14 percent above the level attained in 1973, while current expenditures grew at only 9 percent. Thus in 1974 the Government was able to finance a 70 percent increase in its investment budget. 8. Burundi faces a formidable set of disadvantages, being excessively dependent on a single export, coffee, for foreign exchange, having long and inefficient transport links for external trade and possessing a rudimentary infrastructure and a largely untrained labor force. In the past, civil strife has disrupted development and diverted resources. Further, the terms of trade have deteriorated 40 percent since 1970. There are, however, some encouraging indications. Internal order has been restored and a new planning organization created. Improvements are being made in financial administration, and a number of promising agricultural projects are under preparation. Substantial nickel deposits have been found and may be brought into production over the next ten years. 9. At present the Government lacks a coherent overall development strategy. To make the new planning organization more effective, a substantial strengthening of its staffing is required. A strong planning capability would enable the Government to take the lead in initiating new projects and in coordinating external aid within the context of a well-defined development plan. As a first step in addressing this problem, the Government has trans- ferred responsibility for national planning to a new "Bureau Technique d'Etudes" (BTE), under the direction of a Secretary General of Ministerial rank. The BTE is currently recruiting qualified staff and seeking technical assistance. 10. The short term prospects for the economy are not very favorable. Coffee production in 1975 is expected to be down considerably from the record level achieved in 1974; however prices have risen sharply due to frost damage to the Brazilian crop. Wnile the country accumulated foreign exchange reserves during the past few months, this Lrend has probably already been reversed and stricter controls on imports may soon be required. In the longer term, if the Government focuses on develonv.ent and screngthens its administration, it may achieve slow growth instead of stagnation. However, if nickel mining proves feasible, the prospects over the next ten years would be transformed. Although such a development appears technically possible, the commercial viability of nickel mining nas yet to be proved.  - 3 - 11. Disbursements of official development assistance amounted to $24.8 million in 1974. Belgium contributed about 26 percent, and UN agen- cies, IDA and the European Development Fund another 42 percent. Technical assistance accounted for about $12 million, while the aid contribution to public sector projects reached about $10.8 million in addition to program aid of some $2.0 million. In the 1970-74 period, total foreign capital inflows amounted to about $109 million, of which $105 million were in grant form. On December 31, 1974, Burundits external medium and long-term debt amounted to about $8.0 million excluding undisbursed amounts. Of this the Bank and IDA together hold 57 percent. Debt service averaged 2.9 percent of export earnings during 1972/74, with the Bank Group receiving 41 percent of service payments. By 1980 the Bank Group will continue to hold a high proportion of debt and debt service, largely due to the fact that most other aid is given on grant terms. Notwithstanding the low debt service ratio, the country is not able to finance any borrowing on commercial terms, as its absolute capacity to service external debt is limited by the size and fluctuations (due to dependence on coffee) of its export earnings. External aid should finance a high proportion of total project costs, including local expenditure, and should be on grant or near grant terms. PART II - BANK GROUP LENDING OPERATIONS IN BURUNDI 12. In 1957, the Bank lent $4.8 million to the Belgian Trust Territory of Ruanda-Urundi for the improvement of the Bujumbura-Muramvya road and the expansion of the lake port of Bujumbura. The loan, guaranteed by Belgium, was fully disbursed at independence in 1962 and is being repaid by Burundi with Belgian assistance. The last payment is due in 1977. 13. Since independence, four credits have been made to Burundi, total- ing $8.28 million. In March 1966, the first credit, of $1.1 million, was made for the rehabilitation and extension of Bujumbura's water supply system. A second credit of $1.8 million was made in April, 1969 for the improvement of coffee production by smallholders. A third credit of $380,000 made in June 1970, helped finance the detailed engineering of the Bujumbura-Nyanza Lac road and a highway maintenance study. This study led to the fourth credit, of $5 million, for a highway maintenance project signed in March 1974. No Bank loans have been made since independence. 14. The Water Supply Project (Credit 85-BU) was completed in March 1973. While the project did not meet all objectives, Bujumbura was pro- vided with an ample and safe water supply. Implementation of the Coffee Improvement Project (Credit 147-BU) was hampered by frequent delays in the delivery of construction materials, the civil disturbances in 1972 and manage- ment problems. The first coffee washing station started operating in 1973 and the remaining three only in 1975. The project is now completed. The closing date has been postponed until December 31, 1975 to allow sufficient time for preparation and processing of final requests for reimbursement. The  - 4 - Highway Maintenance Project (Credit 467-BU) has commenced satisfactorily. The project consultants took up their duties in Burundi in early 1975, orders have been placed for the maintenance equipment and a survey of training needs has been completed. Annex I:t contains a summary statement of IDA credits as of August 30, 1975 and notes on the execution of ongoing projects. 15. The future lending program will be aimed Drimarily at increasing agricultural productivity thereby improving the nutrition and living standards of the impoverished rural population. A project to support development of the traditional fisheries sec:tor is under preparation and is expected to be pzesented in the current fiscal year. We also intend to continue assistance for expanding and improving the road network, that is a prerequisite for rural development, and to provide assistance in education. Because Burundi lacks thqe administrative capacity to plan and carry out development projects, we intend to make a special effort to assist in improving planning, project pre- paration and project implementation. In this respect, a special economic mission visited Burundi in April of this year and identified specific needs for technical assistance, for which we plan to prepare a technical assistance project to be presented this fiscal year. Additionally, we shall continue to include financing for project management and technical expertise in project lending. PART III - THE AGRICULTUJRAL SECTOR IN BURUNDI 16. Burundi is essentially an agricultural economy relying on sub- sistence farming and one export crop, coffee. Over 90 percent of its people derive their livelihood directly from traditional agriculture. Per capita incomes are extremely low as are nutritional levels. In recent years produc- tion appears to have stagnated; with increasing pressure on land, living standards have been static or perhaps have decreased as increasing amounts of marginal land have been put to cultivation. 17. Agriculture has a potential for improvement. Due to relatively fertile land and favorable climate, Burundi can and does produce a wide variety of agricultural commodities. Unfortunately, Burundi's isolated location and related high cost: of transport for imports and exports, lack of investment and trained manpower, traditional technology, and fragmented land- holding patterns have thus far prevented the potential from being realized. To date, little progress has been made in coming to grips with the problems. 18. Food croos co-Itribute aDout half oL- JO? and occupy 90 percent of the cultivated land. Coffce iS 3y ' ar L`he tosz important export crop and accounts for a-ore than oG perce-.- or Burundi's exports. Production of tea, -itroduced recently as par: o. t..e policy co diversi y out of coffee, now accounts for about 2 percenv of exports. Catzle play an important role in rural sociezy, but p-roductivity is low.  - 5 - 19. Three fifths of the land area is used for extensive grazing or is not suitable for grazing or cultivation. Population pressure on cultivable land is high; average land holdings are small (less than 1 ha) and fragmented. A typical family holding measures from 0.75 to 1 hectare, and is usually composed of many sma'll plots. For example, it is estimated that the typical family in Ngozi Province cultivates up to 20 different plots of land. The size of agricultural holdings was traditionally directly related to the number of people engaged in cultivation. However, increases in population and limits on land availability have increasingly disrupted this relationship; one of the effects is that less land is fallowed, leading to soil depletion and erosion. 20. On such small plots, farming methods are labor intensive, tools are rudimentary and no animal power is used. Cropping is intensive; two or three, and sometimes as many as five different crops are interplanted. For example, beans are interplanted with cassava to be harvested before the cassava is high enough to shade out the beans. Other beans are planted to climb the corn as it matures. The types of crop combinations vary from plot to plot and depend on the experience of the farmer. It is estimated that only 10 to 15 percent of food crops are grown in pure stands. Generally, in the coffee areas, a farmer assigns no more than 10 percent of his land to coffee, and cultivates food crops on the remainder. 21. The inadequacy of transport facilities is another constraint to agricultural development. The higher cost of external transport renders bulky imports, such as fertilizers, very expensive, and limits exports to those commodities which have high value relative to weight. This constraint hampers diversification to a considerable extent. Internal transport is also difficult and costly, which prevents regional specialization according to comparative advantage. Coffee 22. Some 95 percent of Burundi's coffee is of the Arabica variety grown exclusively by smallholders. The remainder is Robusta produced on a few estates. The main smallholder coffee growing areas are Ngozi, Gitega, and Muyinga provinces (see map); Ngozi provides for over one third of total production. Mainly due to weather, total Burundi coffee production and exports have fluctuated greatly over the past five years; the 1969 produc- tion was a low 14,550 tons, whereas a record of about 28,000 tons was produced in 1974. The Arabica production has increased by some 3 percent annually, whereas Robusta output has grown a little over 11 percent per year in this period. The increased Arabica production reflects the slow acreage expansion, whereas the Robusta increase reflects the rehabilitation and expansion of commercial estates. 23. Smallholder Arabica coffee is grown in small stands, on average about 160 trees per farmer, covering about 0.10 ha, often in several plots. Although improved in the area of the first project, coffee husbandry is  - 6 - generally poor. Fertilizer is only applied in the areas of the first coffee project, but an annual countryr-wide insect control campaign is organized and financed by the Office des Culitures Industrielles du Burundi (OCIBU). Yields are low, in the region of 450--500 grams of parchment coffee per tree or 700-800 kg per ha, compared with 2000--3000 kg per ha on some estates in eastern Africa. 24. Traditionally, almost all Arabica coffee is processed by the farmers tnemselves. Abouz three quarters of the coffee cro-p is still pulped by hand on tne a-rms and most of the balance is pulped at some 325 handpulping centers, consisting of hand-driven disc pulpers and facilities to clean the beans at ieast partially. The pulping centers were established in the coffee growing areas prior to independence; they are now maintained by OCIBU, but because or frequant break-downs, the effectiveness of the centers is low. In general, coffee quality suffers from indifscriminate picking, poor processing and drying, and inadequate storage and hulling. 25. Producers' prices of oarchment coffee and coffee cherries are set in advance for the whole season by t1he Government in relation to the expected world market price, and the Government guarantees the purchase of all coffee presented for sale. The pricing policy as implemented over recent years has guaranteed a satisfactory minimum price to the farmer, and yrovided the Govern- ment with an important source of revenue after contributions to a reserve for the stabilization of coffee prices. In recent years, the Government has set the price at about 55 percent of the FOB price Dar-es-Saiaam. This resulted in farm gate prices of about FBu 32 per kg. In 1972, the Government in ex- pectation of high coffee prices raised the price to FBu 45 per kg. This together with increased production raised farmers' incomes by 62 percent. However, because the price of Burundi coffee steadily declined during that year, the Government's proportional share declined substantially. 26. Internal marketing of semi-washed smallholder parchment coffee is carried otut by private traders, who are licensed by OCIBU to buy at specified prices, on certain days. All transactions are in cash; there are no standard weight controls. Traders receive a fixed commission; they ship the parchment to Bujumbura for sale to private exporters. The exporters arrange for hulling, some in their own hulling mills. In addition to prices, trade and export commissions and hulling margins are fixed annually by the Government. OCIBU is responsible for the contacts with buyers, preparation of sa3mples, acceptance of offers and the issue of export permits. Over 60 percenr; of Burundi's semi-washed coffee is sold in the United States; the Republic of Gerinany is the next rnost important market, and in the last two years t;,e USSR has bought signif'icant amounrs. The small quantities of fully washed coffee produced so far hava beea sold in the European market. Ari.ult-Mrak Se.vi es 27. Tha >l- inistry or A'.iculxre and L-vestock is primarily respon- siDle for the orovi-s-on o0 servicest to the aS-IculLural. sector. ft operates th-rough zwo damartzents (A,r-culture and Livestoc,i), and through five para- statal ageacies. The paras.a.ais include senarace agencies for the three  export crops (cotfee, cotton and tea), an agricultural research institute, and agricultural schools. The Ministry employs some 2,350 people, excluding the staff of the parastatal organizations. The extension staff consists of about 800 extension workers and the ratio of extension workers to farmers is around 1:1,000. In 1973 expenditure by the Ministry was about $2 million, and represented 5 percent and 17 percent shares, respectively, of Government's current and capital expenditures. However, a number of agricultural services and projects, financed with foreign assistance, are not included in the Ministry's budget. 28. The three parastatals dealing with the export crops, coffee, cotton and tea, are basically supply and marketing organizations. The coffee orga- nization, OCIBU, is also executing agency for the First Coffee Improvement Project, financed by IDA, and will be responsible for the major part of the proposed project as well. OCIBU is governed by a Board of Directors, chaired by the Minister of Agriculture, and the day-to-day operations are overseen by the Director General. OCIBU has its own budget. Its main activities include maintenance of coffee quality standards; the organization of coffee pest con- trol campaigns; establishment and maintenance of communal hand pulping centers, and coffee nurseries; development of new export markets; and advising Govern- ment on general coffee matters, in particular producer prices. It also manages a coffee Price Stabilization Fund and a Coffee Promotion Fund. 29. Agricultural research is carried out by the Institut des Sciences Agronomiques du Burundi (ISABU) which is governed similarly to OCIBU. ISABU ope.rates four experimental stations and supervises and coordinates several pilot projects for tea production. Due to lack of staff and equipment ISABU has so far been unable to assign personnel exclusively to coffee research. 30. There are three agricultural schools and training institutes in Burundi. The Institut Technique Agricole du Burundi (ITAB) at Gitega has a 4 year course for agronomists. Between 10 and 15 students completed the course in each of the past three years. The capacity of the school has recently been expanded and the out-turn is expected to increase gradually to about 30 from 1978/79 onwards. Another school, the Ecole Professionnelle Agricole (EPA) at Karuzi trains field assistants (moniteurs); the two-year course has an average out-turn of 25 students per year. A one-year course for field assistants is provided at the Rutegama Vocational School; the out- turn is about 20 per year, and the entire out-turn is employed by the Ministry of Agriculture and Livestock. PART IV - THE PROJECT 31. A report entitled "Appraisal of a Second Coffee Improvement Project - Burundi" No. 708-BU is being circulated separately. A credit and project summary is provided in Annex III. A map of the project area is attached as Annex IV.  - 8 - 32. The project was appraised in October 1974 and reappraised in April 1975. Negotiations for the proposed IDA credit were held in Washington in September 1975. The Burundi delegation was led by H.E. Pierre Bigoyimpunzi, the MIinister of Agriculture and Livestock. Background 33. A first coffee improvement project was undertaken with IDA assis- tance in i969. Its components were (i) the execution of an agricultural extension program directed at the distribution of fertilizer, insecticides, other agricultural inputs, and extension advice for coffee cultivation, and (ii) the construction and operation of four coffee washing stations. Its objectives were to increase the production of coffee of about 44,000 smallholders farmers in a section of Ngozi Province, and to experiment with the improvement of coffee quality through the construction and operation of four coffee washing stations. Implementation of the project was however severely hampered by the civil strife of 1972, difficulties in recruiting expatriate technicians, and detlays in the delivery of construction materials. As a result, the closing date of the project had to be postponed from December 31, 1973 to December 31, 1975. 34. While there are some indications of increased production, the lack of adequate data collection activities during implementation has caused a number of questions concerning project results to remain unanswered. While better mulching, pruning and the use of fertilizers have visibly improved coffee stands, yields have not been monitored regularly in a reliable manner, and it is not possible to document the project's impact on production. Because of delays in the construction of the coffee washing stations, there is not yet sufficient experience to judge the effectiveness and economic justification of the processing program. 35. Despite these shortcomings, it remains obvious that there are opportunities to increase the productivity of smallholder coffee production through the distribution of inputs such as fertilizer, insecticides, and tools, and through the introduction of better methods of cultivation. Like- wise, as has been demonstrated in neighboring countries, there is an opportunity to improve the quality of Burundi coffee through improved coffee processing. Therefore, the Government has requested financing for a second project designed to increase the production of coffee and also of food crops through the intro- duction of modern inputs and better cultivation practices, and to further experiment with coffee processing methods. With regard to the implementation problem under the first project, we consider that the experience gained from it by the Government plus the strong technical assistance component included in this project will result in implementation under the proposed project that will be considerably improved in comparison with the first project. 36. Wnereas the emphasis of extension under the first project was directed to the application of fertilizer, increases in fertilizer prices have created a situation where fertilizer application offers more limited  - 9 benefits than previously. Under these circumstances the emphasis of the extension program will be on a total package under which fertilizer will be recommended under more controlled conditions than previously. 37. Both the Government and the Association are aware of the dangers of the economy's heavy dependence on coffee. However, given Burundi's remote location, and the fact that its smallholders are knowledgeable in coffee culti- vation techniques as well as dependent on coffee for their cash incomes, there presently appears to be no alternative to coffee. Therefore, the Goverrment has adopted a strategy of increasing productivity per hectare through improved technology and improving quality through improved processing. This approach would allow increased production and higher prices without the commitment of additional land to coffee cultivation. Since Burundi's total coffee produc- tion is less than one percent of total world production, it is anticipated that Burundi will have no problems in marketing additional output, and like- wise would be in a favorable position to receive an increased quota from the International Coffee Organization if and when a new coffee agreement is approved. Project Area 38. The project area comprises the entire province of Ngozi which is the center of Burundi's coffee growing region and which currently produces about 35 percent of the nation's coffee crop. The province is located on a hilly plateau (1,500 m to 2,000 m) with good soils and climate, but with variations in rainfall that have a significant impact on crop production. The province has an estimated population of about 700,000 persons, or 270 per km2. An average family comprises 4.7 persons and the number of families is estimated at about 150,000. Some 97 percent of these, or 145,000 families are engaged in agriculture, of which some 110,000 reside in the coffee growing areas. 39. A typical family holding measures 0.75 to 1.0 hectare on average, and is made up of as many as 20 small plots. Land close to the farmer's residence is permanently cultivated. More distant plots are cultivated for two or three years and then fallowed, but fallow periods are now being re- duced as a result of population pressure. There are three growing seasons: two on the hills during the rainy seasons and one in the marshy valley bottoms during the main dry season. 40. Food crops are grown on about 0.75 hectares and the other 0.10 hectares are cultivated with coffee. In addition to coffee, bananas are also an important source of cash income for the farmers. One third of all farmers own cattle, which are grazed on communal land unsuited for field crops; most of the farmers have small livestock such as goats, sheep, chickens, pigs and rabbits.  Project Description 41. The basic element of the project will be to provide the approxi- mately 110,000 smallholder farmers of Ngozi province who cultivate coffee, with instruction in better cultivation practices and with inputs such as fertilizers, insecticides, and tools. The program will be a continuation and exDar.sion of the co-ffee extension work initiated under the first project, plus the initiation. of exte-asion work directed at food crops. This component of the project will be supported by the reorganization and improvement of the extension services in Ngozi Province. 42. In addition to the extension program, the project will include: (1) an experimlented rural development program, (2) the establishment of a resident project managemer.t teanm supported by short-term consultant services, (3) a coffee research program, (4) reconstruction and repair of small bridges, culverts, and water supply sources, and (5) a coffee processing component which will include the construction of four coffee washing stations. The expected Kuwait Fund loan would finance items (3) and (4), and the construction of the four washing stations under item (5), all on a parallel basis. Detailed Features i) Extension Programs 43. The extension service wil,l provide the following types of inputs and services: For coffee production: (a) Instruction in husbandry practices such as pruning, mulching, and stumping: (b) Distribution of seedlings to replace old and dis- eased coffee trees and to assist new farmers in establishing coffee plantings: and (c) Distribution of :.ertilizer, insecticides, and simple pruning tools. For food crop production, in view of the limited local experience, only an indication descri?tion of the type of activities can be given. Based on successful experience in neighboring Rwanda, emphasis will be ;ilaced on -m.aize, beans, sweet potatoes, cassaca, and soybeans. Extensi:o; activities concentrate on: ,a) -s:tC-ct-oa ifl be.ne, cu1r]Lvation and conservation practices; (b) .'_: Jut~o @ o O -,-aple zools, improved seeds, and er.ii-zers;7 arL !  - 11 - (c) Distribution of setaria grass for planting against erosion. ii) Development of the Extension Service: 44. The two extension services now operating in the province, one embracing coffee and the other cultivation of food crop and animal hus- bandry, will be consolidated into a single organization. Additional staff will be recruited, and existing and new staff will be trained. 45. Vehicles, equipment and necessary housing and storage facilities will be provided, and other facilities such as seed multiplication farms and coffee nurseries will be established. The inputs necessary to support an extension program, i.e, fertilizer, insecticides, tools and other inputs, will be procured. iii) Experimental Rural Development Program 46. This program will include pilot activities such as demonstration and extension work for the improvement of livestock such as goats, rabbits, and poultry; the construction of pilot grain mills powered by perennial streams; training and distribution of work oxen; and the organization of cooperatives. These activities are currently being formulated by the Govern- ment. A condition precedent to disbursement for this component will be Association approval of an implementation plan for these activities (para- graph 4(b) of Schedule 1 to the draft Credit Agreement). iv) Resident Management Team 47. Burundi staff assigned to the project will be supplemented by a project manager, two agronomists, a coffee processing officer, a construction officer and a financial officer, all recruited internationally (Section 3.03(a) of the draft Credit Agreement). In addition a team of visiting advisors will be contracted to provide periodic assistance in the preparation of annual work programs and technical advice for solving project problems (Section 3.02 of the draft Credit Agreement). v) Coffee Research 48. An agronomist and an entomologist (5 man-years each) will assist Burundi staff in implementing a coffee research program with focus on insect and disease problems and husbandry techniques applicable to small- holders, including further trials with chemical fertilizers. Materials, supplies, scientific equipment, library materials, vehicles and staff housing would be provided in support of the research effort.  - 12 - vi) Bridges, Culverts and Wfater Supplies 49. Communal labor utilizing equipment and supplies financed under the project will reconstruct between 300 and 400 small bridges and culverts. In addition, there will be a Drogram to repair old and construct new con- crete linings to protect about: 300 natural springs in the project area. vii) Pilot Coffee Processing Activities 50. This component will include: (1) technical assistance for the con- tinued operation of the four coffee washing stations constructed under the first project, (2) the construction of four additional coffee washing stations and (3) the assessment of alternative methods of coffee processing. Project Execution 51. The Office des Cultures Industrielles du Burundi (OCIBU) which was the executing agency for the First Coffee Improvement Project, will have overall responsibility for implementing the project, except for the coffee research component which will be administered by the Institut des Sciences Agronomiques du Burundi (ISABU). OCIBU will exercise its respon- sibility through its Project Department which was established to administer the First Coffee Improvement Project. 52. Overall project management will be under the direction of the expatriate project manager and his Burundi deputy both already in place under the first project. To assist in developing work programs, evaluating project activities and develop-ing solutions to the basic problems relevant to increasing production of cof-fee and food crops, a team of about three internationally recruited advisors will be established to visit Burundi for two to three weeks once or twice a year. Additionally, project management would be provided with a group of enumerators who will carry out sample surveys and other data collection activities especially on crop yields. 53. The components of the project will be administered through four divisions of the Project Department covering agricultural extension ser- vices, coffee processing, construction and technical services, and admin- istrative and accounting services. An internationally recruited construction officer already in place wil'l direct the construction and technical services divisio- in the construction by force account of the project infrastructure (e.g., washing stations, housing, warehousing, repair facilities). 54. The ex--ens-ion services d.vision nas an exnerienced Burundi chief who directed extension activities nde-; tile first project. Fe will be assisted by zwv.o inzer:iazionally r-.cru_ted agrcnoriists, one for coffee and one for food crops) who wil assist in the developrn-ent and ;;rainin- of the extension sta-ff and the directicn of ..,e extension programs. AL present, there are 1 agricul-.ra_l o-fcc_r to dArect the activities of the present  - 13 - staff of 109 extension workers. Over the course of the project the number of agricultural officers will be increased to 19 and the number of extension workers would be increased to 180. 55. An expatriate coffee processing officer and his Burundi deputy, both already in place, will be responsible for the operation of the coffee washing stations and experiments with alternative processing methods. 56. Two internationally recruited scientists, an agronomist, and an entomologist will be contracted by ISABU to direct and work with Burundi staff in carrying out a coffee research program. 57. Coordination and evaluation of all project activities will be under the direction of a committee composed of the Minister of Agriculture and Livestock, the Minister of Finance, the Minister of Planning, the Director Generals of OCIBU and ISABU, the President of the Central Bank or of their representatives, the Governor of Ngozi Province, and the Project Manager (Section 3.04 of the Credit Agreement). Cost Estimates 58. Total project cost including contingencies is estimated at $7.5 million equivalent net of taxes and duties. The proposed IDA credit of $5.2 million will finance the foreign exchange cost of $3.2 million and local costs of $2.0 million, about 69 percent of total project costs. The Kuwait Fund financing of $1.2 million equivalent will finance the remainder of the foreign exchange costs, and a portion of local costs which together equal about 16 percent of total project costs. Kuwait Fund financing is expected to be for 25 years at 3 percent interest. The Government will finance the remaining 15 percent of project costs. Parallel Financing Arrangements 59. The Kuwait Fund has stated its intention to provide parallel finan- cing for the project, subject to satisfactory appraisal and negotiations, which are expected to be completed before the end of the year. Because of this condition, the effectiveness of the IDA Credit Agreement will be conditioned on the effectiveness of the Kuwait Fund Agreement (Section 6.01 of the draft Credit Agreement). While financing will be on a parallel basis, we intend to cooperate closely with the Kuwait Fund on project supervision as we do on other projects. To this end, we intend to exchange a Letter of Understanding with the Kuwait Fund covering exchange of information, coordination and consultation. As is customary under parallel financing arrangements, the draft Credit Agreement provides (Section 5.01 (c) that suspension, cancellation, termination or acceleration Df taturity of the Kuwait Fund Loan is an event of suspension of the proposed Credit. Procurement 60. Fertilizers and insecticides (US$0.6 million) would be procured by international competitive bidding in accordance with Bank/IDA guidelines. Vehicles, farm tools, livestock, and miscellaneous equipment and materials  (US$0.5 million) would be procured locally in accordance with normal Govern- ment procedures which are satisfactory (Part A.3 of Schedule 3 to the draft Credit Agreement); essential service and satisfactory competition is avail- able from local representatives of foreign suppliers. As the construction of civil works in scattered locations throughout the remote project area is unlikely to attract foreign bids and local private construction capacity is very limited, the construction otf staff housing, offLice and stores (US$0.5 million) would be undertaken by force account (Part C of Schedule 3 to the draft Credit Agreement); building ,materials would be procured locally in accordance with nornal Goverrnment trocedures. 61. Retroactive financing in the amount of US$0.5 million is recormmended to cover project expenditures incurred since January 1, 1975. This amount is required to finance costs incurred since the commitment of all proceeds from the first credit plus certain start-up costs for new activities under the proposed project which were not eligible for financing under the first credit. (Paragraph 4(a) of Schedule 1 to the draft Credit Agreement). Disbursement 62. Disbursement of funds from the credit account would be on the following basis with disbursements being rully documented: (a) 100 percent of cif and 70 percent of local cost of machinery, equipment, vehicles and farm inputs, including fertilizer and insecticides; (b) 70 percent of total cost of civil works for houses, offices, and stores; (c) 100 percent of cif and 70 percent of local costs of construction materials, fixtures and furniture for civil works; (d) 100 percent of foreign excihange costs and 70 percent of total costs OL salaries and wages of staff and operating costs of units employed or created under the Project. 63. In respect of imported goods, no local expenditures except those for transportation to th,e place oL installation of such goods will be financed from the proceeds of the proycsed credit (paragraph 4(c) of Schedule 1 to the draft Credit Agreemenz). Shoud_ cost savings materialize, such savings would be reallocated amoag thae project ca.z-oponents o-r aczivities. Sale of 1.erzilizer 64. he