Morocco - Meknes Agriculture Development Project

FILE COPY DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P - 1638-MOR REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF MOROCCO FOR THE MEKNES AGRICULTURAL DEVELOPMENT PROJECT May 23, 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 It may not be published, quoted or cited without Bank Group authorization.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 = Moroccan Dirham (DH) DE 1 - U4Z$.242 Ub$ 1 DI 4.114 E&change rate fluctuatea with weighted average of major currencies; rate used in appraisal Report is US$1 = DH L.14 Fiscal Year: January 1 to December 31  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE KINGDOM OF MOROCCO FOR THE MEKNES AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed de- velopment credit to the Kingdom of Morocco, for the equivalent of US$14 mil- lion on standard IDA terms, to help finance the Meknes Agricultural Develop- ment Project. PART I - THE ECONOMY 2. An economic report entitled "Current Economic Position and Prospects of Morocco" (R329 MOR, dated February 7, 1974) was distributed to the Executive Directors on March 6, 1974. The report and the following discussion of the economy are based on the findings of an economic mission which visited Morocco in September 1973. An updating economic mission visited Morocco in March and April 1'975, but has not yet completed its findings. Country data are attached as Annex I. Past Developments 3. The overall performance of the Moroccan economy improved during the Second Five-Year Plan (1968-72), despite difficult political circum5tances in 1971 and 1972. Aided by favorable weather conditions and good crops in 1968, 1971 and 1972, real GDP growth accelerated from an average annual rate of about 3 percent in 1960-67 (barely above the rate of population growth) to 5.6 percent in 1968-72, thus exceeding the modest Plan target of 4.3 percent, and permitting real gains in private per capita consumption of about 2 percent a year though in the rural sector the benefits accrued mainly to larger farm- ers. At the same time, the implementation of prudent fiscal and monetary policies contributed to a significant improvement in Morocco's domestic and external financial situation, despite shortfalls on planned capital inflows from official external sources. Government saving and investment exceeded slightly the modest Plan targets, while price stability was maintained. Fol- lowing a decade of recurring deficits, the balance of payments registered a surplus in 1969-72, mainly because of sharply rising receipts from merchandise exports, tourism and remittances by Moroccan workers in Europe. At the end of 1972, Morocco had accumulated net foreign assets of DH 1.3 billion, equiva- lent to 3.5 months' imports of goods and non-factor services at 1972 levels; these rose further to the equivalent of more than 5 months by the end of 1973. 4. Although the acceleration of GDP growth in 1968-72 was in part due to generally favorable weather conditions, it appears that the economy has moved onto a path of more rapid long-term growth. Agriculture, export in- dustries, tourism and sectors with derived demand (energy, transportation,  - 2 - communications and modern services) seem to have acquired a capacity for sus- tained growth. In agriculture, expansion of irrigation, increased use of key inputs in rainfed areas (improved seeds, fertilizers and timely ploughing) and a large number of trained extension personnel have generated faster growth of output. In the export sector, the phosphate company (OCP) has regained leadership in the world market as a result of internal reorganization and investment carried out during the Second Plan and the Export Trade Company (OCE), which has a monopoly over Morocco's exports of fresh and processed foodstuffs, hab acquired considerable dynamism in management and marketing. Further, a relatively broad range of industries, including some sub-contract- ing companies, have emerged with a good competitive position and sizeable sales on external markets. 5. These achievements should not detract attention, however, from the serious difficulties which Morocco still had to overcome at the end of the Second Plan period. There was a need to revive private investment, which had stagnated in 1971 and 1972 mainly because investors adopted a cautious atti- tude in the light of political developments and the expectation of new incen- tives and new regulations regarding the association of Moroccan and foreign capital in business ventures ("marocanisation" laws). There was also a need to increase private savings, which remained at an insufficient level, in part because of the relatively low returns on domestic financial assets. Finally, the Government would have to increase investment capacity in the public sector by appropriate changes in staffing and organization. 6. Difficult social problems also had to be tackled. Unemployment remained at a high level, averaging 9 percent of labor force nationwide and ranging between 12 and 16 percent in large urban centers. The proportion of urban population in substandard housing was large and rising. Wealth and income differences between cities and villages, among regions, and between rich and poor were widening, while about one third of the rural population in the less fertile agricultural areas were experiencing a slow decline in real consumption. Long-Term Development Prospects 7. Recognizing these difficulties and problems, the Government began in 1971 to revise its development policies, paying increasing attention to social objectives. Reflecting the changed orientations, the Third Five-Year Plan (1973-77) aims at: - achieving a real GDP growth of 7.5 percent per year between 1973 and 1977, mainly through a 10 percent a year rise in exports and a doubling of investment over the Plan period; and - improving distribution of growth benefits, mainly through further land distribution to poor farmers and more emphasis on rainfed farming in agriculture, the association of Moroccan nationals with foreigners in services and several industrial  - 3 - sub-sectors, large increases in Government spending on social services and low-cost housing, a more progressive tax system, and appropriate changes in wages and in the prices of basic agricultural commodities. Departing from the previously strict financial orthodoxy, the Plan calls for an expansionary fiscal policy and a more liberal credit policy, accepting the risk of less price stability. It recognizes that, in spite of faster economic growth, increased public works and continued emigration, unemployment may rise in absolute, and perhaps also in relative, terms because the growth of the working-age population is accelerating (from 2 percent a year in the 1960's to 4 percent a year in the 1970's). 8. In accordance with its export-oriented strategy, the Plan gives priority to sectors contributing to exports; these include phosphate mining and processing by the state-owned phosphate company (OCP), as well as other mining, agriculture, fishing, food processing, subcontracting industries, tourism and transportation. This priority is reflected in the allocation of Government resources to investment in these sectors, and in the measures in- troduced in August 1973 to provide better incentives to industrial exports and private investment. Achievement of the Plan's export targets will depend on further expansion in some export sectors, which is being carried out, and on the strength of external demand. External demand for Moroccan phosphate rock has risen continuously in 1974, and the average price per ton received by Morocco increased from about $13 in 1973, to around $40 in the first half of 1974 and to more than $60 in the second half. However, due to the supply response of other producers, the price per ton may decline substantially over the period 1975-80. Demand for other Moroccan goods and services may also weaken over the next few years as a result of the economic slowdown in devel- oped countries. On balance, real export growth, which exceeded Plan expecta- tions in 1973, may probably be somewhat below Plan targets during most of 1974-77, while in current prices export receipts will exceed substantially the level envisaged in the Plan. 9. The Plan proposes significant changes in the investment strategy designed to increase labor intensity, and improve the situation of less favored groups of society and less developed areas of the country. Education, health and housing, together receive a significantly higher share of planned Government investment (23 percent) than during the Second Plan (11 percent). Among sectors, the main change concerns agriculture, for which the Plan re- duces emphasis on dam construction, and favors on-farm irrigation development, intensification of rainfed cropping, improvement of animal husbandry and implementation of land reform. New incentives for private investment are less biased in favor of imported equipment than the previous system and en- courage efficient operations and location in less developed areas. In view of the higher-than-planned level of export receipts (and domestic saving), the Government is carrying out an upward revision of investment targets, the de- tails of which are not yet available.  - 4 - 10. In changing its investment strategy, Morocco is breaking new ground, and significant shortfalls or, planned investment could well be experienced in new priority sectors as a result of staffing and organizational constraints, which can only be relieved gradually. Shortfalls will probably affect mainly rainfed cropping, livestock production, low-cost housing and tourism infra- structure. In addition, most of 1973 was lost for the revival of private investment, since the new incentives were introduced only in August, and the start of new public investment programs was delayed, since the Plan was is- sued only in July. However, indications are that investment picked up at a fast pace in 1974. 11. Despite the acceleration of investment and related import growth, financial resources are not expected to be a constraint in the medium term, provided increased inflows of official assistance are achieved. The strength- ening of the balance of payments since 1969 has continued in 1973, and the steep rise in the price of phosphate in 1974 has enabled the country to offset the increase in the import billl due to higher prices, in particular for petroleum. This favorable situation, however, may be eroded in later years, since the price of phosphate is likely to decline, while prices of imports and import requirements will keep rising. Nonetheless, until the end of the Plan period, phosphate and other exports, and worker's remittances, together with the expected increase in capital inflows, should provide enough foreign exchange to meet import requirements and maintain reserves at a sufficient level. On the domestic side, the phosphate company (OCP) will be able to make large, additional remittances to the Government, which should help fi- nance public investment in a non-inflationary manner. However, the Govern- ment will have to proceed with planned tax measures in order to make the tax system more responsive to economic growth and more equitable, and with planned improvements of the capital market to facilitate the mobilization of private saving and' the financing of private investment. 12. The financial situation may become more difficult beyond 1977, if the predicted trends in exports (with no further gains from phosphate prices) and import requirements continue. To prepare for this eventuality, Morocco needs to increase, as planned, the level of external borrowing on favorable terms from official sources, and this will require improved project prepara- tion. At the end of 1973, Morocco's external debt amounted to an estimated $977 million excluding undisbursed amounts. Service payments during 1973 re- presented only 8 percent of goods and non-factor services exports. Although long-term prospects are for more pressure on the balance of payments than at present and a considerable rise in the debt service ratio, to perhaps about 20 percent of exports by the mid-1980's, Morocco can service substantial ad- ditional debt.  - 5 - PART II - BANK GROUP OPERATIONS IN MOROCCO 13. Bank and IDA lending to Morocco has supported 22 projects with financing totalling $519 million (net of cancellations), of which $291 million has been lent since the beginning of FY 73. IDA credits, totalling $36.8 mil- lion, have been made available for four projects. IFC investments have amounted to $1.5 million. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of April 30, 1975, and notes on the execu- tion of ongoing IBRD/IDA projects. In some cases, delays have been caused by management or procurement difficulties, and recently the risk of cost overruns has increased due to the upsurge in investment activity in Morocco and the recent acceleration of inflation. However, performance in project execution has usually been good. 14. Past Bank Group lending has been concentrated in the industrial and agricultural sectors, which together have accounted for two thirds of total net commitments; the balance is accounted for by utilities (15 percent), roads (9 percent), tourism (5 percent) and education (4 percent). Apart from the transfer of resources to Morocco (Bank Group net commitments amounted to 9.5 percent of total fixed investment over the second Five Year Plan, 1968-72), the main objectives of lending were to foster and strengthen development institutions, provide technical assistance, particularly for project prepara- tion, and increase productive capacity, particularly in order to improve the balance of payments. 15. While these objectives remain, emphasis is now also being given to supporting the new orientation of the Government's development effort in the field of income distribution. Future Bank lending will reflect this orienta- tion. Increased shares of Bank Group lending will be devoted to agriculture, education and urbanization, mainly at the expense of industry. The overall volume of lending will continue to increase, although not so rapidly as in the past, in the light of Morocco's present improved external resource posi- tion arising from the sharp increase in phosphate prices. No further IDA lending is contemplated beyond the credit proposed in this report. 16. Past lending for agriculture has supported irrigation development and credit. While continued lending for irrigation is envisaged, greater emphasis will be given to supporting the improvement of rainfed farming and lending will in general be focussed on support to small farmers. A large project, to complete irrigation development which is possible using existing diversion structures on the Oum-er-R'bia river, is to be appraised shortly and Joint financing with the Arab Fund for Economic and Social Development is envisaged. Projects for livestock/rural development in a rainfed zone in northern Morocco and for agricultural credit are also being prepared. 17. Continued lending for industry and tourism through two DFC's (Banque Nationale pour le Developpement Economique and Credit Immobilier et Hotelier) will be proposed. A project for the construction of a large cement plant in the less developed northeast part of the country has been appraised, and Joint  - 6 - financing of this project with the Arab Fund is also envisaged. As Executing Agency for a UNDP-financed study, the Bank is helping to prepare a tourism infrastructure project which would alleviate the scarcity of improved land for hotel development in the Agadir region. Projects in these sectors help to raise foreign exchange earnings and help improve sectoral policies. 18. A first sites and service project, to be located in Casablanca, is being prepared. It will aim at making a major contribution to solving the problem of rapid growth of slum areas. A substantial social services com- ponent to the project is envisaged. The Bank is Executing Agency for project preparation being financed by UNDP; UNDP is also providing technical assist- ance for overall planning of the sector. A second water supply project is being prepared by the Government, to meet the needs of several urban and rural centers. A third highway project would induce further policy changes in the transport sector. A multipurpose development, mainly for power but also with substantial irrigation and industrial and potable water supply benefits, located in the Oum-er-Rbia river, is being prepared. 19. Education is a critical bottleneck in Morocco's development. Two IDA credits have been made to improve technical and vocational training. Fol- lowing a UNESCO project identification mission, in the framework of the Bank- UNESCO Cooperative Programme, which visited the country in September 1973, a third project has just been appraised. 20. A consultative group for Morocco was formed in April 1967 under the chairmanship of the Bank. It includes Belgium, Canada, France, Germany, Italy, Japan, Kuwait, Spain, the U.K., the U.S., IMF, UNDP, OECD/DAC, the African Development Bank and the European Investment Bank. The last meeting of the Group, on March 28 and 29, 1974, expressed satisfaction with the im- provement in Morocco's economic performance in recent years, and the emphasis in the Third Five-Year Plan (1973-77) on improving the distribution of growth benefits. The next meeting of the Group is scheduled to take place 4n 1976. The gross inflow of official loans and grants to Morocco rose from $129 mil- lion in 1966 to $159 million (of which $18 million in grants) in 1971, but temporarily fell to $138 million in 1972 and $115 million in 1973. The major sources of aid were France, the U.S., Germany and the Bank Group. 21. At the end of 1973, the Bank Group's share in Morocco's external public debt was estimated at 13.4 percent on a disbursement basis. The share of the Bank Group in debt service was 11.2 percent in 1973. By the end of the 1970's the Bank Group's share in public debt and debt service is expected to rise to about 20 percent. PART III - AGRICULTURE IN MOROCCO 22. Agriculture is the most important economic activity in Morocco. An average of six million ha are presently cultivated each year, of which about 1/2 million ha are perennially irrigated. About 55 percent of the  - 7 - labour force is directly dependent upon agriculture for a livelihood. Until the recent rise in phosphate prices, the sector contributed about one third of GDP and accounted for over half of merchandise exports. Poor performance of the agricultural sector in the decade after Independence contributed to general economic stagnation, while in the years 1967-72 more rapid growth of agriculture - mainly because previous large investments in the modern sector began to bear fruit - was accompanied by overall expansion. Despite past development of irrigation, performance of the sector is very sensitive to the substantial variations in annual rainfall which affect much of the country. In 1972/3 and again in 1974/5, inadequate rainfall seriously affected crop production and, it is expected, overall growth performance, despite rapid expansion in mining and manufacturing. 23. The Government's intervention in the agricultural sector until recently concentrated on the expansion of irrigated farming. During the Second Five Year Plan, 26 percent of total Government development expenditure was devoted to dams and irrigated farming. Under the Third Five-Year Plan, this share is planned to decline to about 14 percent. Greater attention is being given to improvement of rainfed agriculture, livestock production, training, improvement of the extension service, credit to small farmers, research and marketing. Farmgate prices were sharply increased in December 1973, and again in November 1974, to encourage the production of cereals, sugar, edible oil seeds and dairy products. 24. In many parts of the country, the small size and fragmentation of holdings, and complex traditional tenure systems, frequently involving joint ownership, have been major obstacles to improving agricultural productivity. The Government has taken various measures to overcome these problems, and to encourage the adoption of modern cultivation methods, particularly on lands with high production potential. First, under legislation introduced in 1962, the Government has successfully started a program of land consolidation; during the Second Five Year Plan, 1968-72, 80,000 ha benefitted. Secondly, the Government has acquired land, previously held by foreigners, for distribu- tion to the rural poor, both small farmers and landless. Two hundred and twenty thousand ha were acquired between 1963 and 1965, and legislation passed in 1973 provided for the acquisition of at least a further 326,000 ha. Under a law of 1966 (amended in December 1972) the Government is distributing this and other state-owned land to Moroccan farmers meeting competence, poverty, age and character criteria. Recipients are obliged to renounce all other rights to land and to join a Government-sponsored cooperative. Some 180,000 ha were distributed by the end of 1972, and the Plan target is to distribute a further 395,000 ha by end 1977. Thirdly, the Agricultural Investment Code enacted in 1969 gave powers to the Government to organize agricultural development in irrigated areas. The Code provides for transforma- tion of some tribal land into individually held freehold plots, prevents excessive fragmentation of holdings, and obliges farmers to follow a cropping pattern in exchange for various subsidies. 25. The legislation as a whole has been carefully designed to ensure that changes in the tenure system, particularly the transfer of foreign-owned farms to small Moroccan farmers, do not lead to declines in productivity.  Implementation, however, is complex and slow due to the limits of the Govern- ment's administrative capacity. So far the land reform program has touched only a very small proportion of poor farmers (about 1 percent), and this proportion will rise to only about 5 percent with the implementation of the 1973-77 program. Moreover, its impact has been concentrated in the irrigated areas. 26. Government activity in the agricultural sector in Morocco is the primary responsibility of the Ministry of Agriculture and Agrarian Reform (MARA). The Ministry's activities are concentrated in the central Director- ates of Agricultural Development and of Equipment, in provincial services which serve rainfed areas, and in largely autonomous regional development offices (ORMVA's) for irrigated areas. There are also three public institu- tions with country wide responsibilities in the sector: The National Agri- cultural Credit Bank (CNCA), the Cereals and Pulses Office (OCICL) and the Export and Trade Company (OCE). Two state-owned companies are responsible for managing the land acquired by the Government from foreigners, prior to its eventual distribution under the land reform programme; the Farm Development Corporation (SODEA), established in 1972, is primarily responsible for managing plantations while Agricultural Land Management Corporation (SOGETA), established in 1973, is primarily responsible for managing the annual crop land acquired from foreign owners in March 1973. PART IV - THE PROJECT Background 27. The project is located in the Province of Meknes, in central Morocco. Because of limited water availability and generally undulating topography, the potential for increasing irrigated agriculture is not great in this region. However, the region contains some of the best rainfed agri- cultural land in Morocco, and winter rainfall, averaging about 500 mm per year, is adequate for winter crops and does not vary greatly from year to year. These factors have favoured the development of large-scale extensive rainfed agriculture, and ownership of much of the land in the area passed into foreign hands during the Protectorate period. 28. The advent of foreign settlers precipitated major changes in the traditional tribal structure of land use. The takeover by foreigners of land used or controlled by tribal groups as part of a largely collective pattern of migratory land use led to the introduction of settled cultiva- tion by the local population, and a breakdown of traditional tribal rela- tionships. As a result a dualistic agricultural structure has emerged: large-scale farms, usually on better soils and using modern agricultural practices, many of which were developed by foreigners but which have now passed into private Moroccan or Moroccan Government hands; and smallhold- ings and tribal land, cultivated using traditional methods by farmers who,  together with landless agricultural laborers, are amongst the poorest members of the local population. The main potential for increasing agricultural production in the region lies in extending modern agricultural practices to those areas now cultivated using traditional methods. 29. The potential for the development of the Meknes area was examined as part of the studies of the Sebou river basin undertaken jointly by the Moroccan Government and UNDP/FAO in 1963-68. The proposed project was sub- sequently identified and prepared by the FAO/IBRD Cooperative Programme in 1972-3, and was appraised in June 1974. At negotiations in Washington in April 1975, the Moroccan delegation was led by Mr. H. Belkora of the Prime Minister's Office. Project Purpose and Description 30. The project area is located southeast of Meknes and extends over about 170,000 ha comprising the districts of Dir, Sebaa Aioun, Ain Taoujdat and Tizguit. It is divided into two distinct topographical zones: an agri- culturally rich undulating plain to the northwest, and a poorer mountainous area ("causse") to the southeast, where the potential for increased agri- cultural production is limited (See Map). The objectives of the project are to increase agricultural production, particularly on land presently culti- vated by traditional methods, and to improve income distribution. Increases in production would be achieved through: (i) the creation of viable, well organized holdings and measures to limit future fragmentation, (ii) the strengthening of extension services and introduction of cooperative management to ensure that agricultural practices and inputs already developed are applied, and (iii) the provision of agricultural infrastructure. Better income distri- bution would be achieved by (i) distribution of land to the poorest members of the population, and (ii) higher incomes to poor farmers resulting from improved agricultural practices. 31. The project consists of: (a) aerial photography of about 200,000 ha to a scale of 1:12,500; (b) soil, topographic, cadastral, and socio-economic surveys on about 135,000 ha and preparation of maps to a scale of 1:5,000 followed by preparation of plans for and implementation of a land reform program; (c) destoning of about 5,000 ha of cultivable land; (d) construction of about 160 km of earth access roads; (e) construction of wells to provide potable water for new coop- eratives and installation of pumps, storage tanks and distribu- tion systems to stand pipes;  - 10 - (f) construction of stores for centers serving groups of four co- operatives where adequate storage buildings do not already exist; (g) rehabilitation of the existing irrigation and drainage system extending on about 3,500 ha in the Betit area and extension of the system to serve an additional 500 ha approximately; (h) construction of small irrigation systems to serve about 600 ha on newly established cooperatives to utilize surplus water available from wells constructed for potable water supply; (i) construction of offices needed for project administration, and staff housing for agricultural extension agents; (j) purchase of equipment and vehicles for project administration and agricultural services; (k) provision of adequate personnel to staff the project adminis- tration and the agricultural services and their in-service training; and (1) provision of consultants to assist in the surveys and prepara- tion of plans for land reform, for a study of the constraints limiting development of collective lands throughout Morocco, and for such other needs as may arise. Land Tenure 32. The present land tenure situation in the project area is estimated to be as follows: ha 2995 individual owners of private freehold holdings 47,870 775 owners of private freehold on cooperatives 9,340 4205 holders of rights to tribal land 37,300 Agricultural land held in trust for charitable use 2,650 Expropriated land held by the state 27,600 State land used by tribal groups for grazing 7,000 Other state land, mainly non-agricultural (including forests, military areas, public highways, etc.) 38,200 Total 169,970  - 11 - 33. About 19,000 ha of former foreign owned land in the project area, now held by the state, would be distributed to rightholders to tribal land, smallholders of freehold and landless laborers in accordance with the Agrarian Reform Legislation of 1972 (see paragraph 24). In addition, land ceded to the State by smallholders of freehold who benefit from land distribution, estimated to amount to 2,350 ha, would be redistributed. Land would be dis- tributed in holdings of a size estimated to be sufficient to generate a first year potential income of DH 6,000 (Section 3.05, draft Credit Agreement) and beneficiaries would be obliged to join Government-sponsored co-operatives. Fragmentation of land distributed under the Agrarian Reform Legislation will not be permitted. All remaining freehold land in the project area will be consolidated and future fragmentation would be subject to Government approval. Tribal land which is presently scattered throughout the Project Area will be consolidated into a few zones. Right holders to tribal land who benefit from land distribution will cede such rights and their former holdings on tribal land will be shared amongst the remaining right holders. In order to minimize movements of families resulting from these land tenure changes, land consolida- tion and distribution would take place in a combined operation. The Project Area would be declared an area of consolidation in accordance with the 1962 Consolidation Law. Land Consolidation and Land Reform Commissions would be established to supervise consolidation and distribution operations and arbitrate in any disputes. 34. The cultivated holdings of tribal rightholders who remain on the tribal land would be enlarged, as a result of the cession of rights by right- holders who benefit from the land distribution described above. In addition, the productivity of these lands will be improved as a result of the destoning for more intensive cultivation of about 5,000 ha and provision of cooperative and agricultural infrastructure, which are included in the project. Under existing legislation, these enlarged holdings would be ascribed to each right- holder under a title giving him perpetual right of use to the holding, subject only to its efficient agricultural management. Under the same legislation, subdivision of these holdings would only be permitted on the death of a rightholder, and provided the holdings created by subdivision are large enough to provide the target income (see paragraph 33) adopted for land distribution. Tribal land not suitable for cultivation, amounting to about 18,000 ha, and located mainly on the "caussett, will remain as communal grazing land. Right- holders will be grouped, on a voluntary basis, into cooperatives similar to those to be established under the land distribution program. Success of the project on the tribal lands will depend on the extent to which those lands are decongested as a result of the land distribution program, and on the ex- tent that the remaining rightholders to tribal land can be grouped into co- operatives. 35. The cooperatives will be the main channel for providing extension services, credit and other inputs, and for ensuring the use of modern agri- cultural practices. Beneficiaries of land distribution who receive rainfed or irrigated land, other then orchards, and remaining tribal rightholders who wish to participate on a voluntary basis would become members of service cooperatives and would own or have use-rights to individual plots. About  - 12 - 4,300 ha of the former foreign land now held by the state is under orchards which, because of the need for effective management and control, are not suitable for distribution to beneficiaries as individual holdings. The orchards would be distributed as large viable holdings, each of which would be owned and operated jointly by groups of beneficiaries. Beneficiaries who receive a share of an orchard would become members of production or "mixed" (i.e. part production, part service) cooperatives, depending on whether or not they also receive an individual rainfed arable plot. 36. The proposed project tackles, for the first time in Morocco, the problems of developing tribal land under rainfed conditions. The experience gained under the project will assist the Government in formulating policies and projects for the development of tribal lands in other parts of the country. To this end, the project also includes a study of tribal lands throughout Morocco, whose primary purpose would be to inventory the characteristics and identify the development potential of these lands. The study would be carried out under the general direction of the Ministry of Interior in coordination with other Government agencies involved. Project Execution 37. Organization and Agricultural Extension. Implementation of the project would primarily be the responsibility of the Meknes Provincial Serv- ices (SP) of the Ministry of Agriculture. In order to ensure that the SP is able to execute the project effectively, as well as carry out its present responsibilities in other parts of the Province, its organization and staffing would be strengthened. A Deputy Chief of the SP has been appointed with re- sponsibility, under the general direction of the Chief of Provincial Services, for the project (Section 3.03(a), draft Credit Agreement). 38. To provide extension services, SP's Agricultural Production Office would be reorganized into Agricultural Extension and Cooperative services and staffed accordingly (Section 3.04, draft Credit Agreement). The Agriculture Extension Service would become fully responsible for extension services to farmers not participating in Government-sponsored cooperatives. It would operate in the Project Area through four district extension offices, consisting of the existing Development Center (CT) at El Hajeb serving Dir, the sub-CT's serving Ain Taoujdat and Sebaa Aioun, and a new office to serve Tizguit. The Cooperative Service would supervise the activities of about forty group centres in the Project Area, each responsible for about four cooperatives. The group centre would be the unit with primary responsibility for providing extension advice to farmers who are members of cooperatives, and would also be responsible for supervising the activities of the cooperatives, endorsing credit applica- tions by farmers and ensuring that recommended cropping patterns and practices are followed. Each centre would be staffed by an Agricultural Assistant and an Agricultural Agent, together responsible for extension work, and by a clerk, who would be responsible for the supply and bookkeeping activities of the centre, working closely with SP's Administration Office (Section 4.02(b), draft Credit Agreement). The Agricultural Extension and Cooperative Services  would both be served by a group of subject specialists who would provide specialized extension advice and training, as needed, through the district extension offices and the cooperative group centres. 39. Execution of land consolidation and distribution under the project would be the responsibility of the Land Reform Section of SP's Equipment Office. Through the Office of the Provincial Governor, the Ministry of the Interior, which acts as trustee for tribal lands, would be responsible for executing the tenure changes on tribal land described in paragraph 34. The SP and the Office of the Provincial Governor would co-ordinate closely in these opera- tions. The Studies and Construction Sections of the Equipment Office would be responsible for the design and supervision of construction of the coopera- tive and agricultural infrastructure components of the project. In planning and developing the new wells for irrigation and potable water supply, these Sections will be assisted by the Water Resources Division (DRE) in the Ministry of Public Works and Communications. DRE would restrict future development of groundwater resources in the Project Area in a manner to protect existing groundwater supplies, as well as those to be provided under the project (Section 4.04, draft Credit Agreement). 40. Training. Personnel recruited as Agricultural Assistants and Agri- cultural Agents, both to manage newly formed cooperatives and to provide an agricultural extension service for farmers other than those in cooperatives, would have received formal training but generally would have had only limited practical experience. In-service training programs would be required under the project to provide instruction in the specific cropping practices applic- able to the area and, where relevant, in the role of Agricultural Assistants as managers of cooperatives. Similarly, newly appointed clerks for the co- operative group centres would require in-service training in their duties and particularly in the bookkeeping activities which they would undertake. The SP would therefore prepare training programmes for extension service staff by March 31, 1976, and start implementation of these programmes by December 31, 1976. (Section 4.02(a), draft Credit Agreement). 41. Credit. It has been agreed that project requirements for creclit in the project area would be met by the .National Agricultural Credit Bank (CNCA) in the case of co-operative members, and by CNCA's Local Agricultural Credit Bank, in the case of individual small farmers. Resources of these institu- tions are sufficient to meet project needs. Provision of credit would be conditional on farmers accepting extension advice concerning agricultural practices (Section 4.06, draft Credit Agreement). 42. Consultants. Incomes achieved by beneficiaries of earlier distri- butions of land under the Agrarian Reform Legislation have varied rather widely, due to large differences in the productive potential of the plots received. To ensure that all beneficiaries of land distribution receive plots which will enable them to achieve substantial increases in income, the proj- ect would provide for a consultant who would draw up proposals for an improved system of land capability classification. Consultants services would also be provided for execution of the study of tribal lands (paragraph 36) and for other short-term requirements which may arise (Section 3.02, draft Credit Agreement).  - 14 - 43. Project Accounts. Apart from the nationwide study of tribal lands, for which separate accounts will be maintained in the Ministry of Interior, the Ministry of Agriculture would create a separate accounting system for the project within the Meknes SP. The new system will include provision to separately record the amounts collected from individual cooperative members in payment for their land. The accounts would also show the amounts of charges collected as repayment of capital costs and for operation and mainte- nance of the Betit Irrigation Scheme (Section 4.01, draft Credit Agreement). 44. Monitoring. In order to identify possible problems at an early stage, progress in execution, particularly of the land reform component, will be closely monitored by the SP. Incomes of beneficiaries of land distribution and enlargement of tribal land holdings will be surveyed by the SP (Section 3.05(b), draft Credit Agreement). The monitoring system will be based on pre- paration of quarterly progress reports, which would identify problems and propose measures to overcome them, and which would be submitted to the Asso- ciation. Cost Estimates and Financing Plan 45. Cost estimates are shown in Annex III and are summarized below (in- cluding $6 million of import duties and local taxes); references are to the items listed in paragraph 31: Millions of US$ Local Foreign Total Land Reform (a,b) 2.4 3.0 5.4 Cooperative and Agricultural Infrastructure (c-j) 4.6 3.9 S.5 Administration and Consultants (k,l) 3.1 1.2 4.3 Contingencies 8.3 5.9 14.2 Total 18.4 14.0 32.4 46. The Association will finance the full foreign exchange cost of the project, amounting to $14 million or 53 percent of total project cost net of duties and local taxes of $6 million. The local costs of the project will be fully financed by the Government. Cost Recovery 47. Farmers who receive land under the land distribution programme in- cluded in the project would pay the fair market price of such land (Section 4.05(a), draft Credit Agreement). This price woul(d reflect the cost of land improvements (construction of cooperative access roads, and construction of small irrigation schemes covering 600 ha) provided for this land under the project. Farmers who receive annually cropped land under the project would  - 15 - pay for it in terms of a fixed amount of wheat, over 20 years, with reduced payments in the first three years, at 4 percent interest. For plantations, a shorter repayment schedule would be considered by Government if necessary. 48. There would be no direct recovery of (i) the cost of executing land tenure changes, including consolidation, (ii) the capital cost of co-operative and agricultural infrastructure other than improvements to land to be dis- tributed under the land distribution programme or (iii) the capital costs relating to project administration. The operating costs relating to the extension services would be borne by the Government, while the cooperatives would bear the cost of the operation and maintenance of services provided in common to cooperative members (potable water supply, cooperative stores, access roads and the small irrigation schemes covering 600 ha). For the irrigation network in the Betit area, charges would be levied to cover full operating and maintenance costs and the beneficiaries of the extension to the network would repay a reasonable share of capital costs (Section 4.05(b), draft Credit Agreement). Procurement 49. Air photography; contract services for the surveys, mapping, prepa- ration of plans, and implementation of the land reform program; the rehabili- tation and extension of the Betit irrigation system; and equipment and vehicles would be procured by international competitive bidding in accordance with the Bank Group's "Guidelines for Procurement". Other construction works under the project comprising access roads, wells, potable water supply systems, small irrigation distribution systems, and storage buildings for new coopera- tives, as well as administrative offices and other buildings and the deston- ing of about 5,000 ha would be too scattered and on too small a scale to attract foreign competition. Contracts would therefore be awarded on the basis of local competitive bidding. Adequate local civil works contracting organizations exist in Morocco with the experience and equipment necessary to undertake the work. Prior to issuing invitations to tender, the Associa- tion would approve draft documents and specifications and the evaluation of bids and recommendations for award of contracts would be sent to the Associa- tion for approval before contract award. Disbursements 50. The proceeds of the proposed credit would finance the foreign ex- change cost of the project and would be disbursed over a period of five years, 1976-80, as follows: - 47 percent of the cost of civil works - 100 percent of the cif cost of equipment and vehicles, or 70 percent of their ex-factory cost if purchased locally, and - 100 percent of foreign expenditures or 80 percent of total expenditures for consultants.  - 16 - Benefits and Justification 51. The main economic benefit from the project would be the increase in agricultural production arising from increases in yields and cropping intensity. Wheat production would increase by 20,000 tons a year and vegetable production by 44,200 tons a year by full development in 1985. By that time, the value of net incremental production as a result of the project would amount to $6.8 million, and net annual foreign exchange savings would amount to $2.3 million. The economic rate of return, calculated including the recurrent cost of extension services over the project life, is estimated at 24 percent, and remains very attractive for a range of adverse assumptions. 52. The main beneficiaries of the project would be about 8,500 families of smallholders, landless labourers and rightholders to tribal land who participate in the land distribution programme or have their holdings en- larged. Other small and medium farmers would benefit from the improved extension service, and from land consolidation. Eighty-five percent of the main beneficiaries at present receive per capita incomes of less than one third the national average. Increases in farm incomes would vary widely de- pending on the beneficiaries' level of income without the project and on the degree of their participation in the land reform program. Members of land reform cooperatives would see their incomes increase from 160 to 1,200%, whereas rightholders to tribal land who would only benefit from decongestion would see their incomes increase from 70 to 340%. The project would prevent future fragmentation of existing viable holdings. It will also provide the Government with valuable experience, for the first time on rainfed lands, in the improvement of productivity of tribal lands and the development of an intensive extension service. The project presents no significant ecological or health risks. PART V - LEGAL INSTRUMENTS AND AUTHORITY 53. The draft Credit Agreement between the Kin-dom of wIorocco and the Association, the Report of the Committee provided for ir Article V, Section 1(d) of the Articles of Agreement and the text of a draft resolution approv- ing the proposed Credit are being distributed to the Executive Directors separately. 54. Features of the Agreement of special interest are described in paragrapths 33, 37-44, 47 and 48 of this report. 55. Declaration of the Project Area as a Consolidation Zone and estab- lishment of the Consolidation and Land Reform Commissions (paragraph 33) would be additional conditions of effectiveness of the Credit. 56. I am satis'ied that the proposed Development Credit would comply with the Articles of Agreement of the Association.  - 1 7 - PART VI - RECOMMENDATION 57. I recommend that the Executive Directors approve the proposed Development Credit. Robert S. NIcNaTnara President Attachments   ANEX1 Page I of 3 PaPes CU%2I7Y DATA-SONOCC bi is.eanuDoc (eid-1972) ~~~260 Per btof arable land SOCIAL IDqDCATORS Rfece outisa Mo...cco PhlIlno rine Trkey Frances* YOV i= am~~~27 1970 1970. GP fnR CAPITA U3$ (ATLS RASIS) /1 200 lb 270 / 220 /c 370 /c 3,620 Ic DEMIGRAP8IC T-UM 65th rate (per thousand) .7 /d 50 4' 45 d 38 16.4A/ Crude death rat. (p-r thmousad) 19 7: