Rwanda - Cinchona Project

FILE COPY Report No. 1047a-RW Rwanda: Appraisal of the Cinchona Project June 30, 1976 General Agriculture Division Eastern Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$ 1.00 = RwF 92.84 RwF 100 = US$ 1.08 ABBREVIATION OCIR - Office des Cultures Industrielles du Rwanda ISAR - Institut des Sciences AMronomiaues du RwandA UNIDO - United Nations Industrial Development Organization TITLES Agronome = Agronomist Vulgarisateur = Extension Supervisor Moniteur = Extension Worker WEIGHTS AND MEASURES 1 square kilometer (km2) = 100 ha 1 hectare (ha) = 100 ar - 10,000 m2 1 metric ton (t) = 1,000 kg FISCAL YEAR January 1 - December 31  FOR OFFICLA USE ONLY RWANDA CINCHONA PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ... ...... ....... ...... . . . . i - ii I. INTRODUCTION .........................***.***........ 1 II. BACKGROUND 2...............* , ............. 2 A. General 2...... ....... 2 B. The Agricultural Sector ...................... 2 C. Agricultural Services ........................ 3 D. Project Area ..... ............. ....*.. 5 Ill. THE PROJECT. ........ 6 A. General Description .......... ... ..... ... . .. 6 Bo Detailed Features ......... 6 C. Project Costs so* 7 D, Financing 000. ... ....... . .. 9 E. Procurement . ... 9 F. Disbursement ..... *- .. ^t .-.*.......... 10 G. Accounts and Audit .............. ............ 11 H. Ecological and External Effects ............. 11. IV. ORGANIZATION AND MANAGEMENT ................... 11 V. PRODUCTION, MARKETING, BUDGETARY EFFECTS AND FARMER BENEFITS ......................... ,....w.. 12 VI. ECONOMIC BENEFITS AND JUSTIFICATION .............. 15 VII. AGREEMENTS REACHED AND RECOMMENDATIONS ............ 16 This report is based on the findings of an appraisal mission which visited Rwanda in October 1974. The mission, which also appraised several components not included in this Project, was composed of Messrs. E. Zimmer-Vorhaus, G. R. Henderson, P. Peperzak, F. Stubenitsky, Mrs. P. Soltani (IDA), and R. Crofts and A. Elcock (Consultants). A follow-up mission was undertaken in May, 1975, consisting of Messrs. E. Zimmer-Vorhaus and H. van Voorthuizen. Mr. G. Ablasser prepared this report. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discosed without World Bank authorization.  TABLE OF CONTENTS (Cont'd) ANNEXES 1. Production and Marketing of Cinchona 2. Consultancy Services 3. Office des Cultures Industrielles du Rwanda (OCIR) 4. Project Costs 5. Government Budget. 6. Foreign Exchange Inflows and Outflows 7. Farmer Benefits 8. Economic Analysis 9. Schedule of Estimated Disbursements of IDA Funds CHART World Bank - 16198 OCIR Cafe - Organizational Chart MAP IBRD 111745 Cinchona Project  SUMI'IARY AND CONCLIJSIONS i. Rwanda is one of the poorest countries in Africa. This situation is largely the result of its high population density and a steadily declining land/farm family ratio, which have in turn led to deteriorating soil fertility in many areas and an associated decline in crop yields. Farm incomes are low and stagnant. The country's terms of trade have been deteriorating, thus affecting adversely its balance of payments situation. The proposed Project would generate export earnings and enhance the income of participating farmers. ii. The Project, over a 5-year period, would provide inputs, and exten- sion, marketing and other services to smallholders to assist in the expansion of cinchona production for export. It would be administered by the Office des Cultures Industrielles du Rwanda (OCIR) which, with additional staff, would provide all the necessary setvices and operate tree nurseries to produce seedlings for distribution to farmers. Plantings of cinchona would be about 900 ha, or approximately as much again as the existing cinchona area, in three locations in Kibuye, Gikongoro, and Cyangugu prefectures. Consultancy services would be provided to augment Government's limited capabilities in the agricul- tural sector. The Ministry of Agriculture atid Animal Husbandry would have overall Project responsibility. iii. An IDA credit of US$1.8 million is proposed which would cover the foreign exchange costs (US$1.2 million) and 78% of local costs over the five- year Project period. This would represent 90% of the total Project costs of US$2.0 million, net of taxes and duties. Project costs inclusive of taxes and duties would total IJS$2.1 million. Farm inputs (USS260,000) in orders exceeding USS30,00O would be procured under international competitive bidding in accordance with IDA guidelines. Vehicles and equipment (US$270,000) would be procured following advertising in the local press and in adjacent countries. Civil works for staff houses, stores and an office (IJS$120,000) would be carried out by local contractors followin, local competitive bidding or by the Ministry of Public Works by force account. Consultants would be recruited internationally in agreement with IDA. iv. The Project's incremental production of cinchona bark woul_. increase from 30 tons in Year 6 to 450 tons in Year 11. At full production, the in- cremental export value in constant 1976 prices would be about US$1 million per year. After debarking, cinchona trees would be used as firewood which is in short supply in many areas. v. The internal economic rate of return of the Project would be 15%. Inputs and services would be provided to farmers for a nominal fee and Project costs recovered through levies and taxes on cinchona exports. With the assump- tions underlying the Project's analysis, individtual farmers would receive about US$118 in additional net cash revenues per year during the years of full produc- tion, i.e. Years 6-10; the annual average increase throughout the production cycle (12 years) would be IJS$57, or 25% above present levels. Some 3,600 farm families and 150 persons employed by OCIR would directly benefit from the Project.  - ii - vi. This would be the Bank Group's second lending for agricultural development in Rwanda. The first credit for the Agricultural Development Project (CR 439-RW) concentrated on livestock development in the Mutara area of northeastern Rwanda, and provided for settlement, the establishment of group ranches, and other related agricultural services. The project became effective in September 1974 after delays in forming the project authority and in selecting consultants. Progress to date has not been satisfactory and the project is being revised. vii. The Project is suitable for an IDA Credit of TJSS1.8 million on standard terms to the Government of Rwanda.  I. INTRODIJCTION 1.01 Rwanda is one of the poorest countries in the world, and a root cause of its poverty is the high population density in the rural areas and a steadily declining land/farm family ratio as population increases and as few suitable areas available for settlement remain available. This in turn has led to de- teriorating soil fertility in many areas and an associated decline in crop yields. In the past, the country has concentrated its efforts on increasing production of cash crops, mainly coffee, with increasing emphasis on diversi- fication to provide export earnings. Recently, however, more attention has been given to food crop production in an endeavor to reduce dependence on im- ports which have become a significant and serious factor in the last few years. 1.02 The basic need in Rwanda is thus to increase farm production. In addition to increasing its output of food crops, Rwanda also needs to expand its production of exportable Products in order to improve its balance of pay- ments. As elsewhere in Africa, this task presents problems requiring proven technical innovations and a soundly based system of farmers' services for inputs, extension and marketing. In Rwanda, the situation is made particu- larly difficult because of its weak extension and distribultive systems which in themselves are a reflection of the country's poverty. The proposed Project would assist in the expansion of cinchona plantings for export, and provide technical assistance to Government. 1.03 This would be the Bank Group's second lending for agricultural development in Rwanda. The first is concentrating on livestock development in the Muttara area of northeastern Rwanda and provides for settlement, the establishment of group ranches, and related services. It became effective in September 1974 after delays in forming the project authority and in select- ing consultants. Spontaneous and unorganized settlement in the area and manage- ment difficulties have made a revision of the project necessary which is being discuissed withl Government. 1.04 This Project was prepared by Government with assistance fsm the World Bank Regional Mission in East Africa (RMFA) as part of a larger project entitled "Commercial Crops Project" which, in addition to cinchona, comprised general agriculttural and coffee development, and improvement of lake landing points. Government, after reviewing the project, expressed reservations about the justification and high cost of these components and requested that the Project he confined to cinchona development. An appraisal mission which visited Rwanda in October 1974 comprised Messrs. E. Zimmer-Vorhaus, G.R. Henderson, P. Peperzak, F. Stubenitsky, Mrs. P. Soltani (IDA), and R. Crofts and A. Elcock (Consultants). A follow-up) mission was tmdertaken in May, 1975, consisting of Messrs. E. Zimmer-Vorhaus and H1. van Voortlhuizen. Mr. Gottfried Ahlasser, assisted by Mr. Noel Brouard, prepared this report.  -2- II. BACKGROUND A. General 2.01 Rwanda, 1,600 km inland from the Indian Ocean, is one of the smallest (26,400 km2) as well as one of the most densely populated (160 persons/km2) countries in Africa. The total population was estimated at 4.2 million in 1975, and is growing at a rate of about 2.7% per annum; less than 4% of the total population is urban. Rwanda is also one of the poorest countries in the world: total GDP was estimated at US$309 million in 1974, with a per capita income of US$74, as compared with about US$55 in rural areas. GDP is now growing at a rate of around 4% annually. Agriculture accounted for 65% of GDP in 1974, and about 5% of GDP represented cash crops. Coffee is the main cash crop, accounting for well over 50% of all exports, and generating about 20% of all Government revenues. Other significant export crops include tea and pyrethrum; cinchona accounted for 1.2% of total exports. During the period 1967-1974, merchandise imports consistently exceeded exports, with the trade deficit averaging RwF 896 million (US$9.7 million) per year and reaching RwF 1.9 billion (US$20.8 million) in 1974. B. The Agricultural Sector 2.02 About one half of the country's land area is suitable for agricul- ture; of this about 37% is actually cropped and the remainder represents natural pastures. The population density on these cultivated areas is extremely high--about 300 persons/km2--and the average holding is about 1 ha. As a result, about 90% of the cultivated land is used for the production of subsistence food crops such as bananas, beans, sorghum, maize and sweet potatoes. Approximately one half of these farms grow some cash crops, usually coffee. Most arable land is on slopes, and consequently all cultivation and harvesting is done by hand. Due to population pressure marginal forest soils have increasingly been brought under cultivation; this, combined with in- sufficient fertilization, has contributed to a deterioration of fertility in these soils. 2.03 Most agricultural land is farmed on a usufruct basis, and Government claims all unused land. Nevertheless, nearly all farmers have secure tenure and there are no landlord/tenant problems. Total food crop production still -falls short of the country's basic requirements, and Rwanda now spends about 30% of its agricultural export revenues (18% of all export revenues) on imports of foodstuffs. In an effort to stimulate agricultural production Government has undertaken a settlement program in different parts of the country uri-er which farmers are allocated 1-1.8 ha plots and are provided with basic irnfra- structure and some extension services. By 1974 Government had located abuut 41,000 families in these settlements ("paysannats"), and had made land available for the planting of cash crops such as tea, coffee and pyrethrum; prospects for further settlement are limited, however.  - 3 - 2.04 Coffee. There are approximately 46 million coffee trees in Rwanda. These are cultivated by some 400,000 farmers (about 50% of the total), with an average of about 115 trees per farmer. Total production stagnated between 1959 and 1967, but has since shown an upward trend, rising from 11,000 tons in 1967 to around 18,000 tons in 1975. Yield levels have declined, however, and the production increases have come entirely from new plantings. Coffee is almost all of the Arabica type and, with the exception of minimal amounts consumed locally, is entirely exported. Over the last decade Rwanda's share of the world coffee market has remained at about 0.4%. 2.05 Cinchona. The cinchona tree is valued commercially for the alkaloids (principally quinine), which can be extracted from its dried bark; these are used in the production of anti-malarial and other drugs, as well as in the soft drink industry. Cinchona is grown mostly on plantations, but it is also well suited for smallholder production. Expatriate companies now maintain about 600 ha of plantations, and state-owned plantations account for an additional 68 ha. The Office des Cultures Industrielle du Rwanda (OCIR) is responsible for the promotion of smallholder production and marketing (para. 2.08); small- holder production now totals some 200 ha. Total production from all sources increased by about 50% between 1968 and 1974 and totaled about 315 tons in 1974; yields vary from 230 kg/ha on state-owned plantations to over 750 kg/ha on commercial estates. Rwanda's share of world exports was about 5.3% in 1975. The dried bark is exported mainly to seven European pharmaceutical companies which dominate the world market. Government, advised bv UNIDO, is now negotiating with an expatriate firm for the establishment of a cinchona processing plant within Rwanda. C. Agricultural Services 2.06 The Ministry of Agricttlture and Animal Husbandry has overall respon- sibility for the provision of various aoricultural services in Rwanda. The Agricultural Department is responsible for extension services, seed production, soil conservation and settlement (paysannats). The Department's resp-nsibil- ities now again include extension services for coffee grovers which for a brief period in 1974/75 were entrusted to OCIR. The extension service now employs about 1,100 officers of all grades; it is however under-staffed and suffers from a lack of technical expertise. Training of agronomists (grade A2) is being carried otut by the School of Agricultuire and Animal Husbandry (Ecole d'Agriculture) in Buitare, which onerates four-vear courses, and that of exten- sion supervisors (A3) by the Ecole des Vulgarisateurs in Kibuye in two year courses. In addition to local training, 75 students are now undertaking graduate agricultural and veterinary training abroad. The extension service is supported by the Selected Seed Service which is in charge of production and distribution of seedlings and seed of coffee, tea, fruit trees and food crops (grains, legumes and root crops). The service operates six seed multiplication farms, and manages tea nuirseries and demonstration fields. During the two crop seasons of 1972 and 1973 the service sold 30 tons of grain and legumes and 26 tons of potatoes at subsidized prices. Government intends to expand its activities in the future to include countrywide demonstrations  - 4 - of improved production methods and soil conservation practices. Agricultural research in Rwanda is carried out by the Institut des Sciences Agronomiques du Rwanda (ISAR), which is well staffed under financing provided mainly by Belgian aid. ISAR is carrying out extensive research into the agronomy, processing and economics of Rwanda's main crops. In addition to its coffee research, ISAR also operates an experimental coffee washing station. No research is currently being done on cinchona, but the country cooperates in this field with a nearby research station in Mulungu, Zaire. 2.07 The Ministry of Agriculture and Animal Husbandry also provides a number of animal health and other livestock support services through its Animal Health and Animal Production Divisions within the Department of Animal Hus- bandry. The animal health service is under-staffed, and there are on average less than 2 veterinarians per prefecture. The animal production staff have had considerable success with the establishment of bull centers, as the use of crossbred bulls was readily accepted by the farmers. Stall feeding for collection of manure and the planting of fodder crops has also been introduced in a few areas (mainly in settlements). Office des Cultures Industrielle du Rwanda (OCIR) (Annex 3) 2.08 OCIR was established in 1964 as a parastatal organization with overall responsibility for the production, processing and marketing of Rwanda's cash crops. In 1974 the organization was divided into two separate departments: OCIR CafA with responsibility for coffee and cinchona, and OCIR ThA with responsibility for tea. Each department has its own specialized staff and its own accounts; however, both are under the same Board of Directors which com- prises mainly Government officials. Thus OCIR resembles more a Government department with limited financial autonomy rather than a producer's organiza- tion. 2.09 OCIR Cafe has six divisions: Administration and Personnel, Account- ing, Coffee, Cinchona, Purchasing and Marketing, and Licensing and Grading. These carry out OCIR's extensive crop-related activities including quality control, pricing, marketing and export services. It also maintains about 500 hand coffee pulping facilities, and through its subsidiary, Rwandex, controls the country's two main coffee hulling factories in Kigali and Gisenyi. At the present time, only one agronomist and one vulgarisateur advise smallholders on cinchona husbandry and harvesting. OCIR Cafe also produces cinchona planting material in its own nurseries which it distributes to smallholders at nominal rates. 2.10 Extension, Marketing and Pricing of Cinchona. The Cinchona Division has been set up recently within OCIR Cafe with authority over: (a) cinchona nurseries, (b) a specialized extension service, and (c) two buying and storage centers. Seed for the nurseries is imported from the Muluagu  -5- Research Station in Zaire which has been a reliable source of quality seed for a nurmber of years. OCIR controls the marketing of cinchona and advises Government on pricing policy. In 1974 OCIR introduced a producer pricing system based on grading of cinchona bark according to estimates of the quinine anhydrous alkaloids (QAA) content. OCIR is now the sole marketing agent for smallholder production while private estate production continues to be exported under licenses granted by OCIR. 2.11 OCIR's Financial Position. OCIR main sources of funds are export levies on commercial crops. In 1975 three different levies were collected on coffee exports: (a) a fixed operational levy (RwF 5.00/kg green coffee) to cover OCIR Cafe's operating costs including input supply services; (b) a variable levy (depending on the actual export price) for the price stabiliza- tion fund, administered by OCIR to guarantee suitable growers' prices; (c) a small fixed levy (RwF 0.30/kg green coffee) for the coffee propaganda fund, also administered by OCIR to promote coffee sales. OCIR also collects a fixed operational levy on cinchona exports (RwF 18/kg dried bark). The finan- cial position of OCIR Cafe as well as that of the coffee price stabilization and propaganda funds is sound but an improved accounting system reflecting more accurately OCIR's various operations is needed to enable OCIR to evaluate its efficiency more adequately. Currently OCIR is receiving technical assist- ance for this purpose from bilateral sources. D. Project Area 2.12 The Project would be implemented in Kibuye, Gikongoro and Cyangugu prefectures, in Southwestern Rwanda (Map IBRD 11745). These areas are located at altitudes of between 1,400 and 3,000 m and have a rainfall of 1,100 to 1,500 mm per annum; there is a three month (June-August) dry season. The topography is rugged, with numerous hills and swampy valleys, and most of the cultivable areas are located on fairly steep slopes. The soils, when ade- quately protected against erosion and poor husbandry, are generally fertile. However, in the deforested highlands with significant erosion and leaching, the residual soils Are very acldic, depleted of clay minerals and of little agricultural value unless rehabilitated by farm manure or lime and mineral fertilizers. To prevent erosion on steep slopes, cinchona trees are planted in hedge rows. 2.13 About 1 million people, or 25% of the country's total population, live in the three prefectures in which the Project activities would be con- centrated; the average population density is 165 persons/km2, as compared with a national average of 160/km2. In the three prefectures very little employ- ment outside the agricultural sector exists. All of the country's cinchona bark is presently produced in Cyangugu prefecture. Land travel and communica- tions are hindered by mountainous terrain, and much of the region's commerce is transported over Lake Kivu.  - 6 - III. THE PROJECT A. General Description 3.01 The Project wotuld, over a five-year period (1976/77 to 1980/81) provide extension, inputs, marketing and other services to assist smallholder production of cinchona. Specifically, the Project would provide: (a) farm inputs, and extension and marketing services to facilitate smallholder cinchona production; (b) additional staff for OCIR and staff training; and (c) consultancy services to reinforce Government's limited capability in the agricultural sector. Overall responsibility for the Project would be vested in the Ministry of Agriculture and Animal Husbandry, and for physical implementation in OCIR. B. Detailed Features Farm Inputs, Extension and Marketing (Annex 1) 3.02 The Project would provide the nurseries, farm inputs and extension services required to enable smallholder producers to plant and maintain 900 ha of cinchona in the Cyangugu, Gikongoro and Kibuye prefectures. The Project nurseries would produce up to 4 million plants annually from seed produced at Mulungu Research Station in Zaire. Seed would also be available from Indonesia, India and other cinchona producing countries if required. The extension service would operate the nurseries and distribuite the seedlings to farmers, along with fertilizers and other inputs; it would also advise farmers on the maintenance of their plantings and organize pest control. Farmers would be charged only nominal prices for seedlings and fertilizers and costs would be recovered through crop levies (para. 5.05). In order to encourage as many farmers as possible to take up cultivation the area planted under the Project would be restricted to 0.25 ha per farmer. Assurances to this effect were obtained during negotiations. Thus, with total Project plantings of 900 ha, at least 3,600 farmers would be able to produce cinchona. Farmers would plant part of their cinchona either on slopes not under cultiva- tion or in boundary rows, and avoid, wlherever possible, planting in the area devoted to other crops. Government would also make available some land on wlhich farmers could grow cinchona in blocks while retaining ownership of the trees. OCIR would establish and operate four cinchona collecting centers as the exclusive buyers in the cinchona producing communes, in addition to the two existing centers. Each center iwould be staffed withl a clerk and a store- man.  -7- Additional Staff, Staff Training and Project Evaluation 3.03 OCIR's technical staff would be strengthened through one inter- nationally recruited Cinchona Development Officer and two locally recruited cinchona agronomists (para. 4.02). The cinchona extension staff would be supplemented by three extension supervisors (vulgarisateurs) and 12 extension workers (moniteurs). Offices, stores, transport and staff housing would also be included. Training would be provided in Rwanda and in neighboring countries. Project monitoring and evaluation would be among the responsibilities of the Cinchona Development Officer. The principal monitoring indices during the first five years would be the number of participating farmers, the area of cinchona planted on new and previously cultivated land, and the survival rate of planted seedlings; yields and production would be added to these indices after harvesting commences in Year 6. Consultancy Services (Annex 2) 3.04 Agricultural development in Rwanda is hampered by the lack of tech- nical knowledge, and technical support is needed to redluce this bottleneck. The Project would provide consultancy services over a 5-year period to advise Government and OCIR, as required, on immediate problems related to the Project, including OCIR's accounting procedures. The services could also be used more widely as required to advise on future pre-investment activities, development projects and sector policies. The type of consultants required and their terms of reference and conditions of employment would be determined during Project implementation in agreement with IDA. Such assurances were obtained during negotiations. C. Project Costs (Annex 4) 3.05 Total Project cost, based on March, 1976 prices, is estimated at RwF 197 million (US$2.1 million), of which about RwF 113 million (US01.20 mil- lion) would represent foreign exchange expenditures. Total Project costs are detailed below:  -8- Foreign Local Foreign Total Local Forei_n Total Exchange -----RwF '000