Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3439-EC STAFF APPRAISAL REPORT ECUADOR ESMERALDAS RURAL DEVELOPMENT PROJECT (QUININDE, MALIMPIA NUEVA JERUSALEM) June 22, 1981 Projects Department Latin America and the Caribbean Regional Office Agriculture 4 Division 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 (at January 1981 exchange rate) US$ = Ecuadoran Sucres S/ 25.00 S/ 100 US$4.00 S/ 1 million = US$40,000.00 Weights and Measures 1 hectare (ha) = 10,000 m2 = 2.47 acres 1 kilometer (km) = 1,000 m = 0.62 miles 1 kilogram (kg) = 2.2 pounds I metric ton (m ton) = 1,000 kg = 2,200 pounds I quintal (q) = 100 pounds = 45.4 kg 1 liter (1) = 0.26 gallon Government of Ecuador Fiscal Year January 1 - December 31 FOR OFFICIAL USE ONLY ECUADOR ESMERALDAS RURAL DEVELOPMENT PROJECT (QUININDE, MALIMPIA, NUEVA JERUSALEM) Glossary of Abbreviations ASA Agencias de Servicios Agropecuarios (Agricultural Service Agencies) BNF Banco Nacional de Fomento (National Development Bankt CONADE Consejo Nacional de Desarrollo (National Development Council) CPE Consejo Provincial de Esmeraldas (Esmeraldas Provincial Council) DINACE Direccion Nacional de Construcciones Escolares del MEC (National Directorate of School Construction of MEC) FONADRI Fondo Nacional de Desarrollo Rural Integral (Integrated Rural Development Fund) IEOS Instituto Ecuatoriano de Obras Sanitarias (Ecuadoran Institute of Sanitary Works) IERAC In.stituto Ecuatoriano de Reforma Agraria y Colonizacion (Ecuadoran Land Reform and Land Settlement Institute) INIAP Instituto NTacional de Investigaciones Agropecuarias (National Agricultural Research Institute) MAG Ministerio de Agricultura y Ganaderia (Ministry of Agriculture and Livestock) MEC Ministerio de Educacion y Cultura (Ministry of Education and Culture) MOP Ministerio de Obras Publicas y Comunicaciones (Ministry of Public Works and Communications) MSP Ministerio de Salud Publica (Ministry of Public Health) OAS Organization of American States PIDAs Proyectos Integrados de Desarrollo Agropecuario (Integrated Agricultural Development Projects) I 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. Glossary of Abbreviations (Continued) SEDRI Secretaria de Desarrollo Rural Integral (Secretariat for Integrated Rural Development) SOE Statement of Expenditures UE Unidad Ejecutora del Proyecto (Project Executing Unit) ECUADOR ESMERALDAS RURAL DEVELOPMIENT PROJECT (QUININDE, MALIMPIA NUEVA JERUSALEM) TABLE OF CONTENTS Page No. I. THE AGRICULTURAL SECTOR .................................... 1 Sector Characteristics and Performance ........ ........... 1 The Rural Subsector .....1................................. 1 Resource Base .................. ........................... 2 Government Objectives and Strategy ....................... 2 Bank Involvement and Strategy for the Sector .... .......... 3 II. INSTITUTIONAL FRAMEWORK - PARTICIPATING AGENCIES ........ ... 4 The Integrated Rural Development Framework ................. 4 The Secretariat for Integrated Rural Development (SEDRI) ... 5 The Ministry of Agriculture and Livestock (MAG) ........... . 5 National Agricultural Research Institute (INIAP) ........... 6 Ecuadoran Land Reform and Land Settlement Institute (IERAC) 7 National Development Bank (BNF) ............................ 7 Ministry of Public Works and Communications (MOP) .......... 8 Ministry of Public Health (MSP) ..... ....................... 8 Ecuadoran Institute of Sanitary Works (IEOS) ............... 9 Ministry of Education and Culture (MEC) .............. ..... 9 III. THE PROJECT AREA .......... . .. . . .. . . .. . . . ..................s......... 9 Location and Access ....... ..................... ............ 9 Climate ................................... * ............................ 10 Land Resources .................... ........................ . 10 Land Use and Development ..... ... ............ ......... 10 Land Tenure and Land Titling ..... ......................... 11 Population, Employment and Farm Income ..................... 12 Agricultural Services ...... ....... ....... ................... 13 Agricultural Extension .... ..................... ....... ... 13 Agricultural Research .... ....... ........................ . 13 Agricultural Credit ...... .............................. . 13 Marketing ................................................ 14 Existing Infrastructure .................................... 14 Roads ................................................................ 14 Social Infrastructure .................... ................. 14 This report is based on the findings of an appraisal mission consisting of Messrs. J. Roman, E. Brook and S. Miquel (Bank) and Messrs. 0. Cordon and J. Saravia (consultants) that visited Ecuador in November 1980. Also contri- buting to the report was Dr. 0. Echeverri. TABLE OF CONTENTS (Continued) Page No. IV. THE PROJECT ................................................. 14 A. Project Identification and Preparation ...... .. ......... 14 B. Project Objectives and Brief Description ....... ........ 15 C. Detailed Features ................. .. ................... 16 Agricultural Development and Extension ...... .. ......... 16 Land Titling ....... ............ .. ...................... 17 Feeder Roads ..................... ...................... 18 Civil Works ...... ............ .. ..................... 18 Road Maintenance ................ .. .................. 18 Service Centers ...... ............ .. .................... 18 Health Care ....... ............. .. ...................... 19 Sanitation ...................... ....................... 19 Elementary Education ............... .. .................. 19 D. Project Costs ...... ............. .. ..................... 20 E. Financing ....................... ....................... 21 F. Procurement ....... ............. .. ...................... 22 G. Disbursements ...... ............. .. ..................... 22 V. ORGANIZATION, MANAGEMENT AND IMPLEMENTATION .... ............. 24 A. Organization ........... . ........ .. ...................... 24 Project Executing Unit .. 24 Consultants ...... ............ .. ..................... 25 B. Implementation ...... ............ .. ..................... 25 Agricultural Extension Service ......... .. ........... 25 Service Centers ................ .. ................... 26 Land Titling ...... ............ .. .................... 26 Feeder Roads ...... ............ .. .................... 27 Health Care ...... ............ .. ..................... 27 Sanitation ...... ............. .. ..................... 27 Elementary Education .............. .. ................ 28 Feasibility Study ............... .. .................. 28 Implementation Agreements ........... .. .............. 28 C. Project Funding ...... ............ .. .................... 28 D. Lending Terms and Conditions for Agricultural Credit ... 28 E. Accounts and Audit ................ .. ................... 30 F. Monitoring and Evaluation ............. .. ............... 30 VI. AGRICULTURAL PRODUCTION, MARKETING AND FARM BENEFITS ... ..... 31 Land Use and Cropping Pattern, Farm Models .... ............. 31 Crop Yields, Livestock Coefficients and Production ... ...... 32 Prices ..................................................... 34 Marketing .................................................. 34 Farm Benefits .............................................. 35 TABLE OF CONTENTS (Continued) Page No. VII. BENEFITS AND JUSTIFICATION ................................... 35 Economic Analysis ......................................... 36 Project Risks ............................................. 36 Environmental Impact ...................................... 37 Fiscal Impact ............................................. 37 VIII. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATION ............ 38 ANNEXES I. Supporting Tables 1. Ecuador, Volume and Value of Agricultural Production by Commodity, Indices of Total Agricultural and Food Production, Average 1961-1965, Annual 1969-1978 .41 2. Value of Agricultural Exports and Imports, 1967-1977 .42 3. Land Titling Program .43 4. Road Component, Existing Road Network and Proposed Future Action (in km) .44 5. Road Component, New Road Construction to be Included in the Basic Network (in km) .45 6. Road Component, Design Standards for Roads .46 7. Road Component, Tentative Equipment List (in CIF November 1980 Prices) .47 8. Project Costs .48 9. Schedule of Investments .49 lO.(a) Project Executing Unit, Investments and Operating Costs ..... 50 lO.(b) Project Executing Unit, Project Staff and Salaries .... ...... 51 ll.(a) Road Component, Cost ........................................ 52 ll.(b) Road Component, Construction Program ........................ 53 ll.(c) Road Component, Unit Costs per km at November 1980 Prices ... 54 12. Service Centers, Cost Estimates ............................. 55 13.(a) Health and Sanitation Component, Cost Estimates and Schedule of Investments ................................... 56 13.(b) Health and Sanitation Component, Investment Costs ... ....... 57 13.(c) Health and Sanitation Component, Operating Costs .... ....... 58 14. Elementary Education Cost Estimates ........................ 59 15. Project Financing .......................................... 60 16. Area Development, Cropping Pattern, Yields and Production 61 17. Gross Value of Production (Financial Prices) .... ..... 62 18.(a) 6.4 ha Farm Model, Expected Area Development and Cropping Pattern .................................................. 63 18.(b) 6.4 ha Farm Model, Cash Flow ............................... 64 18.(c) 6.4 ha Farm Model, Investment Program ...................... 65 18.(d) 6.4 ha Farm Model, Expected Gross Value, Cost and Net Value of Production .................................. 66 18.(e) 6.4 ha Farm Model, Investment Plan, Swine Development ...... 67 18.(f) 6.4 ha Farm Model, Benefits and Costs, Swine Development ... 68 - iv - TABLE OF CONTENTS (Continued) Page No. l9.(a) 27 ha Farm Model, Expected Farm Development and Production 69 19.(b) 27 ha Farm Model, Cash Flow ................................ 70 19.(c) 27 ha Farm Model, Investment Program ....................... 71 19.(d) 27 ha Farm Model, Expected Gross Income and Cost of Production 72 19.(e) 27 ha Farm Model, Investment Plan-Cattle Development ....... 73 19.(f) 27 ha Farm Model, Benefits and Operating Cost-Cattle Development 74 19.(g) 27 ha Farm Model, Herd Development-Dual Purpose Cattle ..... 75 20.(a) 47 ha Farm Model, Expected Farm Development and Cropping Pattern 76 20.(b) 47 ha Farm Model, Cash Flow ................................ 77 20.(c) 47 ha Farm Model, Investment Program ....................... 78 20.(d) 47-ha Farm Model, Expected Gross Value, Cost and Net Value Production ..................................... 79 20.(e) 47-ha Farm Model, Investment Plan-Cattle Development ....... 80 20.(f) 47-ha Farm Model, Benefits and Operating Costs-Cattle Development 81 20.(g) 47-ha Farm Model, Herd Development-Dual Purpose Cattle ..... 82 21.(a) Costs, Cacao Investment Cost Per Hectare .... ............... 83 21.(b) Costs, Coffee Investment Cost per Hectare .... .............. 84 21.(c) Costs, Bananas/Plantain-Investment Cost Per Hectare ........ 85 21.(d) Cost of Production per Hectare Without and With Project at Full Development .......................................... 86 22. Producer Prices at Farmgate Level .......................... 87 23.(a) Total Monthly Agricultural Labor Requirement ..... I .......... 88 23.(b) Monthly Agriculture Labor Requirement in a 6.4-ha Farm ..... 89 23.(c) Monthly Agriculture Labor Requirement in a 27-ha Farm ...... 90 23.(d) Monthly Agriculture Labor Requirement in a 47-ha Farm ...... 91 24.(a) Economic Rate of Return, Costs and Benefits Streams ........ 92 24.(b) Rate of Return, Sensitivity Analysis ....................... 93 24.(c) Sensitivity Analysis of Crops .............................. 94 25. Government Cash Flow from Project .95 II. Related Documents and Data Available in Project Files 96 CHART I. Implementation Schedule (22621) MAP IBRD 15619 -- Esmeraldas Rural Development Project. I. THE AGRICULTURAL SECTOR Sector Characteristics and Performance 1.01 Despite the rapid development of petroleum production and the steady growth of manufacturing during the 1970s, agriculture continues to be one of the important sectors of the Ecuadoran economy. The sector's contribution to GDP declined from 23% in 1972 to 14% in 1980, and its growth rate over this period was only 1.5% per annum. Subsector growth rates between 1972 and 1978 were 0.6% for crops, 3.9% for livestock, 9.6% for forestry and 7.4% for fisheries. Agriculture's relative contribution to total exports has also been displaced by petroleum. Agricultural exports decreased from 75% of total exports in 1970 to 26% in 1980. Nevertheless, the agricul- tural sector provides employment to nearly half the country's labor force, and the sector's potential contribution to national production remains high. Annex 1, Tables 1 and 2 present information on agricultural production and exports. 1.02 Since Ecuadoran agriculture is traditional and export-oriented, food production has stagnated and therefore is lagging behind the continuously increasing demand for food resulting from a high population growth (3.3%) and higher incomes in the urban areas. With food production lagging, overall growth demand for food has spilled over into imports and supply shortages have exerted an upward pressure on domestic food prices; main imports are vegetable oils, animal fats and dairy products, supplemented from time to time by rice and sugar. 1.03 The domestic food supply problem now emerging, as evidenced by upward pressures on food prices and increasing imports, is partly a result of the chain of events set in motion by the petroleum-based economic expansion which began in the early 1970s, along with unfavorable weather conditions in 1977 and early 1978 and, in the case of sugar, poor labor-management relations. While in the past much of the growth in agriculture was achieved by settle- ment of new lands (mostly in the Costa) and was export-oriented, most of this was done by private initiative, with the Government helping through the provision of basic infrastructure (such as roads). The increase in food production now needed requires a basic shift, with more emphasis to be put on the transfer to farmers of new technology, more farm-level technical guidance, better methods of agricultural organization and more incentives to farmers in the field of pricing and marketing of agricultural produce. Although the Government is aware of these shortcomings, its public sector services in the field of agriculture will need a great deal of upgrading and policy guidance to address these issues effectively. The Rural Subsector 1.04 Although Ecuador has been subject to an accelerated urbanization process, 57% of its 7.8 million population still live in rural areas and about half of them, or 30% of the total, are Indians. About 2.9 million persons (65%) of the rural population, have per capita incomes below the US$315 absolute poverty income level. While rural poverty is a national problem, it is generally more serious in the highlands (Sierra) where the -2- Indian population lives and where there is a continuous migration to the Costa and Oriente regions. 1.05 Education, health and living conditions of the rural population are poor and social services are inadequate. Although statistics show a relatively high (74%) literacy rate, a high proportion of the rural population is function- ally illiterate; schools and education centers are usually located in large populated areas and villages, making it difficult for the widely dispersed rural population to use the facilities. Curricula are academically oriented and include very little vocational training; teachers are not adequately trained or paid and their living conditions are poor. Most of the rural population is affected by water-borne and fecally transmitted diseases; about 45% are anemic and 40% are undernourished. Despite Government efforts to extend health service coverage, a high proportion of the rural population still does not have access to primary health care. Besides, health programs are mainly curative and do not give enough emphasis to preventive medicine; also, cultural and economic barriers make the population reluctant to use the services. Finally, only 13% of the rural dwellings have access to public water supply and to sanitation facilities. Resource Base 1.06 Ecuador is divided into three ecological regions--the Costa, Sierra and Oriente. The Costa, covering about one-fourth of the country's 26.1 million ha, and about 50% of the 7.8 million population, comprises the low coastal, humid-tropical lands in the western part of the country; it is the region with the best agricultural potential and produces bananas, plantains, coffee, cacao, sugarcane, beef, hard corn, cassava, citrus and oil crops (annual and perennial). A major portion of the area is being exploited, but much land still remains to be brought under cultivation. Some areas, such as the Puerto Ila-Chone and Esmeraldas, to the north of the region, are still being settled. The Sierra accounts for another fourth of the country's area and about 47% of the population, and comprises the Andean highlands, with broken terrain, high valleys, and a variety of climatic conditions. This region produces temperate climate foodgrains and pulses, as well as potatoes, vegetables, deciduous fruits and dairy products. The Oriente region covers slightly more than half of the Ecuadoran territory at the east of the Andean mountains in the Amazon basin and accounts for only 3% of the population. This region suffers from having only limited access, but with construction of roads and the exploita- tion of oil, spontaneous settlements are taking place with some Government support. Although the Amazon basin has limited agricultural potential, some areas have good soil suitable for intensive cultivation of tree crops and natural and artificial pastures for livestock development. Government Objectives and Strategy 1.07 The Government's development objectives for the agricultural sector in general and for the rural poor in particular are stated in the recently published 1980-84 development plan. These objectives are to increase pro- duction and productivity in order to ensure self-sufficiency in food and to increase exports, thereby increasing income and living standards of the rural population. In conjunction with production objectives, the plan also -3- aims at strengthening farmers' organizations and participation in the decision- making process and at improving social services in the rural areas. The plan includes implementation of an integrated rural development program consisting of 17 projects, some of which are already being executed and many are in preparation. The on-going Tungurahua Project (Loan 1644-EC), the recently approved Puerto Ila-Chone and the proposed Esmeraldas projects are included in the program. Projected Government public investments amount to US$800 million over the five-year plan period. The success of this program, however, would depend on decisive efforts by the Government to improve public sector capabili- ties for preparing and implementing projects. Bank Involvement and Strategy for the Sector 1.08 IDA and the Bank have made nine agricultural credits and loans to Ecuador in the period 1967-79. Four of them, totalling US$30.7 million, were for livestock and general agricultural development credit--Livestock I (Loan 501-EC) for US$3.7 million in 1967, Livestock II (Credit 173-EC) for US$1.5 million in 1969, Livestock III (Credit 222-EC) for US$10 million in 1970, and Agriculture I (Loan 1459-EC) for US$15.5 million in 1977. Disburse- ments of Loan 501-EC were completed about six months ahead of schedule and Credit 173-EC was a small "bridge" operation. A Project Performance Audit Report (PPAR) (SecM75-735) covering both projects states that the projects re- sulted in a 6% increase in the Ecuadoran beef cattle herd and caused notable improvements on participating farms, but that, because the technology proposed was capital-intensive and participation limited to large producers only, the impact on income distribution was regressive. The Livestock III Project was completed two years behind schedule and its PPAR (SecM80-l0) states that, while the project made an impact on beef and milk production, mostly through increases in herd size, it was not of the magnitude expected. The PPAR also questions the need for the project on the grounds that production increases were, for the most part, due to price incentives established by the Government at the time of the project and that project benefits accrued only to middle and upper income pro- ducers., The on-going First Agricultural Credit Project took into account the lessons learned in the previous projects. It provides financing for all agricul- tural activities and agro-industry and includes a separate component for small- scale farmers. It had a slow start but it is now progressing satisfactorily; funds allocated to medium- and large-scale farmers have been fully committed, but the small-scale farmer and small-scale agroindustry components have moved slowly because of a lack of capacity for subproject identification and prepara- tion and technical assistance on the part of the Ministry of Agriculture and Livestock and participating banks. 1.09 The status of the remaining projects is as follows. The Fisheries Project (Loan 555-EC) of 1968 for US$5.0 million, later reduced to US$3.9 mil- lion was completed in 1980 and a completion report was submitted to OED in May 1981. On the Milagro Irrigation Project (Credit 425-EC) of 1973 for US$5.5 million, the main irrigation works were completed ahead of schedule. However, because of land tenure problems and lack of agricultural extension, construction of the distribution system was not completed, farm development was delayed and US$1.5 million was left undisbursed at the closing date. The Seeds Project (Loan 1229-EC) of 1976 for US$3.0 million was delayed earlier due to administrative and managerial problems and shortage of counterpart -4- funds; the closing date was extended for two years and, with new management, execution is now proceeding satisfactorily. The Technical Assistance Project (Loan 1230-EC) of 1976 for US$4.0 million has partially achieved its objectives but loan disbursements have been very slow because of the complicated procedures of the National Preinvestment Fund for making subloans and because use of funds was restricted to financing only the foreign exchange costs of consulting services; in September 1980, the loan closing date was extended two years and loan financing was expanded to partially cover local costs, which is expected to speed up implementation. The Tungurahua Rural Development Project I (Loan 1644-EC) of 1979 for US$18 million initially had problems in the processing and signing of operational agreements between the Central Bank and the executing agencies; however, the difficulties have been overcome and project investments are starting. A new loan for a second rural development project, Puerto Ila Chone, was approved by the Board on May 12, 1981. 1.10 In addition to the aforementioned projects, Highways Projects V (Loan 1429-EC of 1977) and VI (Loan 1882-EC of 1980) include substantial feeder road components, aimed at improving access and the transport of pro- duce in rural areas. 1.11 For the future, the Bank intends to pursue its efforts to foster agricultural and rural development in Ecuador. Priority will be given to assist the Government in the organization of the recently created Secretariat for Integrated Rural Development (SEDRI) and in the implementation of the three rural development projects to be financed by the Bank. Further opera- tions in agricultural credit, irrigation and rural development are under consideration. In all these projects, substantial efforts will be made to strengthen the managerial and implementation capabilities of the agricultural public sector which has been and still is the main bottleneck in the prepara- tion and execution of projects. II. INSTITUTIONAL FRAMEWORK - PARTICIPATING AGENCIES The Integrated Rural Development Framework 2.01 Until recently, the Ministry of Agriculture and Livestock (MAG) was responsible for rural development in Ecuador, but in October 1980, the Government established a new institutional framework to promote integrated rural development within the national system of public administration. Under this new scheme, the office of the President of the Republic formulates policy on rural development and approves the National Program of Rural Devel- opment Projects. The National Development Council (CONADE) proposes the national program to the President and is responsible for monitoring and evaluating it. SEDRI, created by the same decree, is responsible for pro- gramming, preparation and coordination of implementation and for channeling of funds to the 17 rural development projects included in the national plan. Project implementation is the responsibility of Executing Units (UEs) to be established for each project, with the participation of ministries and of -5- public and private specialized agencies. To finance implementation of the Rural Development Program, the Government also established the Integrated Rural Development Fund (FONADRI) in the Central Bank; through this fund, SEDRI will channel both local and external financing for the projects. This new administrative framework is expected to address the coordination and financial problems affecting rural development activities in Ecuador. The Secretariat for Integrated Rural Development (SEDRI) 2.02 SEDRI and its project executing units are to be the executive arm of the Rural Development Program. SEDRI is attached to the Office of the President of the Republic and its head, the Secretary, reports to the President through the general secretary for Public Administration. Its headquarters are in Quito. An advisory committee made up of one representative each of CONADE, the Ministries of Agriculture and of Social Welfare, the Provincial Councils, the private rural development organizations and the organizations of farmers and Indians, advise the secretary on general policy matters, but it does not have decision making authority. At the central level, SEDRI is organized in three General Directorates: Programing, Technical and Administrative. The technical directorate is the operating branch of SEDRI and consists of the departments of Projects and Farmers Organization and Training. SEDRI staff, at headquarters, consists of 25 technicians and 20 administrative and support personnel. The UEs are headed by a project director reporting to the secretary of SEDRI and are made up of technical staff seconded by the participating agencies and administrative staff belonging to SEDRI. Participation of the ministries and specialized agencies is ensured and spelled out by means of project specific agreements that SEDRI signs with each of them. It is expected that, because of its direct access to the president, SEDRI will enjoy a certain amount of political and bureaucratic influence and, therefore, it would be able to establish adequate coordination among Government agencies and speed up implementation of projects. For the purpose of the proposed project, SEDRI would establish the Executing Unit in Quininde. The Ministry of Agriculture and Livestock (MAG) 2.03 MAG is the ministry in charge of formulating and applying policy on agriculture research, production and marketing of agricultural products, agrarian reform, land settlement, irrigation and adequate use of renewable resources. Implementation of most of these policies is carried out by spe- cialized autonomous agencies, while the ministry itself undertakes production support and organization of farmers' activities through its local offices. 2.04 In November 1980, the organizational structure of MAG was changed. Under the new organization, the ministry will operate at four levels: Executive (Minister and General Undersecretary); Advisory (Agrarian Superior Council, National Planning, Legal, Security for Development and Internal Auditing); Auxiliary (Administration and Finance, International Affairs and Public Relations); and Operational (Technical Undersecretariat). 2.05 The Technical Undersecretariat is headed by an Undersecretary and consists of four departments--Programing and Evaluation, Technical Norms, Campesino Development and Extension--and 14 national commodity-oriented semiautonomous programs--banana, rice, cacao, coffee, cotton and oilseeds, -6- corn, cereals, livestock, forestry, control of plant diseases, animal health, soil conservation, agricultural mechanization, and seeds. The Departments of Campesino Development and Extension would participate in the project in the organization and training of farmers and in extension work, and the cacao, coffee and livestock programs would assist in production matters. 2.06 Regional operations of MAG are carried out by 10 Agricultural Pro- vincial Directorates (DPAs), one for each province, in cooperation with the national programs and under the supervision of the general directorates. The DPAs carry out field work through the Agricultural Service Agencies (ASAs) and the Integrated Agricultural Development Projects (PIDAs). The ASAs operate at the subregional level and generally are responsible for extension and other agricultural services to farmers. The PIDAs operate in areas where the Ministry implements a multi-sectoral project, directed mainly toward small-scale farmers and including, not only agriculture, but also other development programs such as feeder roads and social infrastructure. While the national programs have a single commodity approach, oriented mainly toward assisting commercial farmers, the ASAs and PIDAs take an integrated approach, aiming at overall development of small- and medium-sized farms. Although the regional offices have their own budgets and are independent of the central offices in Quito, their authority is limited, mainly when it comes to hiring staff and procuring goods and services. The project area falls into the jurisdiction of the Esmeraldas DPA and of the Quininde PIDA. 2.07 MAG suffers from the general structural and operational problems which affect the entire Ecuadoran public sector. Professionals, especially medium-level technicians, are in short supply and low salaries make it difficult for MAG to attract and hold qualified staff, particularly at the field level where living conditions are usually poor. Cumbersome administra- tive procedures (which often lead to overlapping of authority among agencies), expanded operations not properly funded and untimely allocation of resources seriously hamper MAG's effectiveness: thus, only a few DPAs and, through them, ASAs and PIDAs operate effectively in the field. Moreover, frequent reorganizations and management changes have created uncertainty and affected staff morale and have led to a lack of policy guidance in agriculture; as a result, MAG's reputation is not that of an efficiently run organization. National Agricultural Research Institute (INIAP) 2.08 INIAP, responsible for crop and livestock research, works through a head office in Quito and six experimental stations: one in the Sierra region, one in the Oriente region and four in the Costa. The Pichilingue and the Santo Domingo stations in the Costa would support the project. INIAP has enjoyed the support of the Government and external donors, which made it possible for it to assemble a highly qualified staff and establish a fine research program. INIAP has made significant contributions in devel- oping and adapting improved varieties and production techniques for cacao, oil palm, coffee, cassava, potatoes, wheat and corn as well as for swine production. However, the lack of adequate extension and other production support services has hampered the dissemination of agricultural technology to medium- and small-scale farmers. INIAP is a participating agency in three agricultural projects currently being financed by the Bank, and its performance, although limited in scope, has been good. Ecuadoran Land Reform and Land Settlement Institute (IERAC) 2.09 IERAC is responsible for the expropriation and redistribution of land, the management and settlement of national lands, and the granting of titles. It has 10 regional offices, among which the Quininde office has jurisdiction over the project area. Unfortunately, IERAC has been handicapped by lack of Government support, inadequate financial resources, a high rate of management turnover, and complicated and lengthy titling procedures. Conse- quently, the impact of the agrarian reform program on improving income distri- bution has been very limited. The Government carried out a study on the impact of agrarian reform in Ecuador, but it has not been made public and therefore there is no comprehensive information on the matter. IERAC claims that, since 1964, it expropriated and redistributed some 580,000 ha to 66,000 families and has settled and granted provisory or firm land titles to about 100,000 families, involving 2.2 million ha of land. In relative terms, IERAC has been more successful in land settlement than in land distribution. Although it has not been able to control spontaneous settlement, which is understandable, it has been able to achieve at least a relatively uniform dis- tribution of land in the new settlement areas in which it has intervened. This has been the case in Santo Domingo de los Colorados, to the south of the project area, the project area itself and the Napo Province in Oriente. However, lack of adequate follow-up action and a long processing period for land titles has led to illegal ownership transfers, resulting in abnormal conditions of land tenure in the early settled areas. National Development Bank (BNF) 2.10 BNF, a Government-owned bank which was created in 1928, is the largest bank and the most important source of agricultural credit in Ecuador. BNF has 2,900 employees, with a network of 65 branches and 10 agencies covering the entire country. BNF's main sources of funds are its equity, rediscounts from the Central Bank--trust funds and development bonds--and external loans. BNF has received no direct loans from the Bank, but it has been the main financial institution participating in Bank-financed livestock and agricultural credit projects in Ecuador. BNF is also in charge of the execution of the agricultural credit component in the Puerto Ila Chone Rural Development Project. 2.11 In 1979, BNF's agricultural lending was S/3.1 billion (US$125.2 million), amounting to about 76% of its total lending operations and to 53% of total lending to agriculture in the country. At the end of that year, its total agricultural loan portfolio was S/10.8 billion (US$432.0 million). BNF's lending operations can be divided into two categories: (a) credito de capacitacion - loans to small-scale farmers, defined as those with total net assets of less than S/750,000 (US$30,000), including land, but excluding houses, and whose main source of income is the land for which the subloan is made; and (b) credito bancario - loans to all other beneficiaries, at interest rates between 9% and 12% plus commissions, depending on the repayment period. Regarding repayment terms, about 70% of the annual loans are short- term and the remaining 30%, medium and long term. 2.12 BNF has made a valuable contribution to agricultural development in Ecuador. However, in the 1970s with the oil boom, it received large amounts of Government resources and had to carry out credit operations initiated by - 8 - MAC and directed to producers who often were not creditworthy. Moreover, BNF did not have sufficient qualified technical staff for credit evaluation, supervision and technical assistance, and it was, therefore, not prepared to manage this sudden increase in operations. As a result, by the end of 1976, the quality of BNF's portfolio had deteriorated considerably. After writing off 5% of the delinquent loans and rescheduling 38% of the outstanding debt, overdues still were 19%. In 1978 the Government made another substantial capital contribution which, as the previous ones, has enabled BNF to maintain a constant level of lending in real terms and to cover its operating expenses. 2.13 In 1979, a new management was appointed by the Government and it committed itself to making BNF an efficient banking institution. To support this commitment, a three-year UNDP/FAO technical assistance project has been underway since mid-1980. It provides for 102 man-months of expatriate specialists to assist BNF in improving its managerial, technical and operating capabilities. Furthermore, in compliance with commitments made under Bank and IDB loans, BNF has retained a well-known international firm of auditors to audit its financial statements and to revise its accounting procedures. The firm has already completed the auditing of 1978 accounts and has presented detailed proposals for changes in accounting practices to correctly reflect the financial situation of BNF. The proposals are in the course of implementation and the auditors are proceeding with the auditing of 1979 and 1980 accounts, which are expected to be completed by mid-1981. The joint effort by BNF's new management, the UNDP/FAO and the auditors will undoubtedly result in significant changes in BNF operations. Ministry of Public Works and Communications (MOP) 2.14 MOP is primarily responsible for overall planning, construction and maintenance of the main highways system of the country and for coordinating construction of secondary and feeder roads. Feeder roads in Ecuador are cur- rently constructed by the provincial governments and by other Government institutions for their own specialized purposes. MOP has implemented four Bank-financed highway projects (Loans 94-EC, 176-EC, and 379-EC and Credit 51-EC) and has three more under implementation (Loan 1231-EC, 1429-EC and 1882-EC). Thus far, Bank experience with MOP has been good and it may be considered one of the best agencies the Bank is dealing with in Ecuador. Ministry of Public Health (MSP) 2.15 MSP was created in 1967, but it was only in 1977 that it took over responsibility for rural health. MSP's functions are handled by two under- secretaries: Public Health and Environmental Health. The former consists of a Directorate General, three administrative and five operational depart- ments and four specialized institutes and services. The National Rural Development Department is responsible for staffing and supervising rural health facilities and for promoting community participation. At the pro- vincial level, MSP has the Provincial Health Departments reporting directly to the Directorate General. MSP is developing a regionalized health system consisting of health promoters, health posts, subcenters and centers at the local level, base hospitals at the provincial level, and specialized and university hospitals in major cities. Patients are to be referred from the health promoters upwards. However, because of transportation and other -9- operational constraints, this is not always possible. Health facilities are unevenly distributed and sometimes underutilized, because of lack of staff or medicines and other inputs, and because they often do not enjoy the confidence of the population. About 25% of the population, mainly those living in isolated areas, do not have access to health services and instead seek help from traditional healers and midwives. An additional 40% do not use available health services because of cultural and economic constraints. Ecuadoran Institute of Sanitary Works (IEOS) 2.16 IEOS is a semi-autonomous agency reporting to the Undersecretariat of Environmental Health of MSP. It is responsible for: (a) design and construc- tion of health facilities; and (b) planning, design and construction of water supply and sewerage works in the country, except for Quito and Guayaquil. IEOS has extensive experience in constructing sanitary works and has carried out several national plans with IDB financing. It is now in a transitional period of reorganization, which has caused operations to slow down, but it is expected that once this period is over, IEOS will resume its normal working pace. Ministry of Education and Culture (MEC) 2.17 MEC is responsible for the overall administration of the educational system in Ecuador, below university level. Under the direction of the minister and a vice-minister, MEC operates through five national directorates; among them are the Directorates of Planning (DNP) and School Construction (DINACE) and the Directorate of National Education (DNE), responsible for staffing and operation through provincial directorates. Although properly structured to cover all aspects of education, MEC's effectiveness is weakened by frequent managerial changes, excessive paper work and shortage of qualified personnel and equipment. DNP is very weak and therefore DINACE prepares practically all construction plans on its own and carries them out independently. III. THE PROJECT AREA Location and Access 3.01 The project area is located in the northwestern part of the country, in the Costa, within the jurisdiction of the Quininde canton, Esmeraldas province (IBRD Map 15619). It comprises about 94,200 ha of recent settlement, with good soils, sufficient and well distributed rainfall and therefore sub- stantial potential for crop and livestock development. A paved highway borders the west end of the area connecting it with the port of Esmeraldas, 92 km to the north; Santo Domingo de los Colorados, 83 km to the south; and Quito, 208 km to the southwest. Three large rivers, the Guayllabamba, the Blanco and the Canande, cross the area from the east-southwest. These rivers are natural access ways to the area but are also barriers for internal road communication. - 10 - Climate 3.02 The climate in the project area is humid-tropical. Average annual rainfall ranges between 2,500 and 3,500 mm. Rains occur every month of the year, but the wettest period is between December and July. Average annual 0 0 0 temperature is about 25 C, with maximum and minimum at about 35 C and 13 C, respectively. Relative humidity is about 89% all year round. Average annual evapotranspiration is estimated at 1,442 mm. Land Resources 3.03 The project area is located at altitudes ranging between 200 and 400 meters above sea level. Topography is generally flat, with moderately undulating slopes in areas surrounding the river banks. The area is rather well drained by the rivers crossing it and by numerous streams. Surface water is abundant and ground water is available at depths of 10 to 20 meters and, in many places, is as shallow as 3 meters. 3.04 A reconnaissance soil survey of the project area was carried out by OAS-INERHI in 1975 (para 4.01). In most of the area, the soils, consisting of recent alluvial and volcanic ash deposits, are fairly deep and friable and therefore susceptible to erosion when left uncovered. Fertility is moderate to high with low nitrogen and phosphorus content and moderate to high potassium content. With adequate management to protect against erosion and with correct fertilizer mixtures, these soils have good potential for tree crops and pasture development. Land Use and Development 3.05 As the project area is one of recent settlement, land use and development very much reflect the usual pattern of spontaneous settlement in the humid tropics. The natural vegetation of the area is tropical rain forest. The species most commonly found are Chanul (Hurnaceae sp.), Sande (Horaceae sp.), Cuangare (Mirysticeae sp.), Anime (Burceraceae sp.) and Jigua (Laureaceae sp.). Settlers are exploiting the valuable trees by selling them to timber operators well established in the project area. The remaining forest is usually slashed and burned; and the cleared land is sown with corn for one or two seasons as pioneer crops and for consumption purposes. When financing and labor are available, the land is simultaneously intermixed planted to cacao, coffee, banana and plantain or sown to pasture, mainly panicum maximum. When left uncultivated, the cleared land is invaded by natural grasses and weeds and by secondary forest. 3.06 Out of the total 94,178-ha project area, about 23,100 ha (25%) are in crops (of which about 8,100 ha are coffee, 6,100 ha cacao, 6,100 ha banana and plantain, 1,700 ha oil palm 1/ and 1,100 ha in annuals and others); another 11,500 ha (12%) are in pasture, 54,700 ha (58%) are forest and the remaining 4,878 ha (5%) are riverbeds, roads, and such. Livestock consists of some 9,350 1/ Corresponds to an industrial plantation. - 11 - head of cattle and some 4,650 swine, mostly in farms larger than 10 ha. Land use systems are related to farm size: small-scale or recent settlers have most of their farms in crops, with reduced pasture lands and some heads of live- stock; larger farmers are, in contrast, involved in ranching, mainly because of their better access to credit. In general, land development is constrained due to lack of adequate access and agriculture technical assistance and credit. 3.07 Overall crop production and productivity are low. Cropped areas consist of rather young intermixed plantations of coffee, cacao and plantain, rudimentarily established and maintained. Planting is usually done using self-sown seedlings, with little use of nursery seedlings or selected planting materials. Cultural practices are limited to weeding and few farmers use fertilizers or disease and insect control measures. Consequently, average yields are low: cacao 0.11 m ton/ha of dry beans; coffee 0.93 m ton/ha of cherry beans, banana and plantain 5.1 m tons/ha. Pasture lands are in good condition but generally understocked. The predominant cattle type is Criollo by Zebu breeding, raised mainly to produce steers to be sold at any time upon family's money needs. Cattle management practices are limited to herding to and from the paddocks, morning milking, and minimal pasture maintenance and fencing; castration, vaccination, deworming and dips are rarely carried out. Although disease and parasites are not yet a problem because of the low population intensity, they may become so with the introduction of additional livestock. Swine fattening is extensive; pigs run freely over the farm and are fed with banana and plantain residues, and cassava and human residues; health practices are nil. Land Tenure and Land Titling 3.08 Land tenure in the project area reflects the settlement pattern of the population. Before the 1960s, the area was almost empty except for small population groups of Caribbean descent settled on the Esmeraldas river banks covering an area of about 3,000 ha, and a Cayapa Indian community living on some 5,000 ha north of the Canande River. Since the 1960s, with the construction of the road to Esmeraldas, spontaneous settlers have come to the area in a steady flow. To comply with the Agrarian Reform Law and thereby have the right to land titles, the newcomers have settled in continguous parcels of 20 to 50 ha along access paths and have organized into cooperatives through which IERAC has been granting provisional land titles. As of today, practically the whole project area has been settled and is being developed. However, about 12,000 ha are part of a forestry concession that, according to Government officials, has not been adequately exploited and has been occupied by settlers. There are some 2,567 farm units in the project area, including the land parcels in the occupied forestry concession and the Cayapa reservation. The distribu- tion by size of these farms is as follows: Average Size Farms Area Size No. % Ha % ha Less than 10 ha 456 18 2,921 3 6.4 Between 10 and 30 ha 969 38 26,215 28 27.0 Between 30 and 50 ha 997 39 47,300 50 47.0 More than 50 ha 145 5 17,742 19 122.0 Total 2,567 100 94,178 100 36.7 - 12 - 3.09 With regard to land titling, the situation in this project is different from that in Puerto Ila Chone. Because land settlement is relatively recent, only few informal transactions of land have taken place, since pro- visional titles were granted, mainly to consolidate property in farms larger than 50 ha. Therefore, there are no major problems of illegal possession of land. Also, the IERAC regional office is working in the area delimiting land parcels and granting provisory titles. However, this office needs strengthening to handle the increasing demand for land titles and the likely subdivisions of land that may take place as a result of increasing population. Improvements are needed especially in recording land titling applications and in their subsequent administrative legal processing in Quininde and Quito. According to the feasibility study, the land titling situation among farms up to 50 ha is as follows: about 132 (5%) of the farmers in the project area have farm titles; 988 (41%) have provisory titles or are in the process of obtaining them; 906 (37%) need to start the process of obtaining titles; 230 (10%), are in the forestry concession and have an undefined legal status; and 166 (7%), in the Cayapa reservation have legal titles. The feasibility study does not provide information on land titles on farms over 50 ha, but it is presumed that a majority of them have firm titles. The farmers with firm and provisory titles and those in the Cayapa reservation have access to medium- and long-term investment credit. Under the project, IERAC would speed up and complete land surveys as well as granting of land titles (para 4.09). Also, the project would address itself to solving the problems of settlers occupying the forestry concession (para 4.10). Population, Employment and Farm Income 3.10 In 1980, there were an estimated 28,000 persons, or about 5,100 families in the project area. The region has been subject to a high immigra- tion flow. Population has been growing at about a 9% annual rate and is expected to reach about 43,000 persons, or 7,800 families in 1985. The only urban center is the town of Quininde (8,000 inhabitants). The remaining population live scattered in the area on their farms and in small population clusters. About 80% of the population (4,100 families) have their main source of income in agriculture. Of them about 2,600 families own land and the remaining 1,500 are relatives of landholders or transient workers. The employment situation of the project is characteristic of newly settled areas. Although available family labor is not fully used, people tend to stay on the farm because of seasonally uneven labor requirements and because means of transportation are limited, making access to other areas difficult. The few larger farms, including the existing oil palm plantation, that require hired labor, normally provide food and lodging as well as salaries, and hired laborers tend to live in the immediate vicinity of those estates. Year-round unemployment is therefore not a problem. Expected increased demand for labor as a result of the project would provide employment to the increasing population of the area. Although farm sizes are relatively large, incomes are still low, because farms have not yet been fully developed. Annual average per capita income among farmers with land-holdings up to 50 ha range from about US$173 to US$377 and it is estimated to be about US$230 among landless workers. The current estimated absolute poverty level for Ecuador is US$315. - 13 - 3.11 Basic education, health and general standard of living of the population leave much to be desired. A reported 44% of the adult population have not had any formal instruction, and a good number among the remaining 56% are functionally illiterate. Also about 30% of the people under age 15 are illiterate and do not attend primary school regularly. General and infant mortality rates are above the national averages. Gastro-intestinal infections, worm infections, tetanus in mothers and newborns, pneumonia and other respiratory disorders are endemic. Most of the population suffer from protein and calorie deficiency and malnutrition, especially children. Housing conditions are rather poor and there are no sanitary facilities whatsoever. Only the town of Quininde has a rather inefficient water supply and sewer system. 3.12 Farmers' organizations are weak. There are six cooperatives which were established with the purpose of obtaining land titles from IERAC. There are also a number of transitory associations aiming at the attainment of basic services such as roads and schools. Agricultural Services 3.13 Agricultural Extension. The project falls within the jurisdic- tion of the MAG's PIDA Quininde, which has overall responsibility for agri- culture extension in the area. Also, the MAG's national programs of animal health, cacao, coffee and banana operate in the area. However, the PIDA and the national programs are inadequately staffed and ill equipped and lack funds to operate. Hence, work with farmers, mainly with spontaneous settlers, is very limited. 3.14 Agricultural Research. The project area is well supported by agricultural research work carried out by INIAP in the Pichilingue and Santo Domingo (La Concordia) stations. For coffee and cacao, INIAP has developed improved cultural practices and simple inexpensive techniques and equipment for processing beans and for propagating high yielding cacao and coffee clones. INIAP has developed high production grazing systems with sown grass-legume mixed pastures for dual-purpose beef and milk production. For swine production, INIAP has been working on a semi-intensive fattening operation with crop residues of oil palm, banana, plantain and roots. All these production packages have been documented and published in a number of bulletins and pamphlets and would be the basis for the extension program under the proposed project (Annex 2). 3.15 Agricultural Credit. The BNF branch of Quininde, established in 1976, is the only source of agricultural and other credit for the project and surrounding areas. About 70% of its loans have been for livestock operations and only 25% have been made to farmers in the project area. The operational capabilities of this branch satisfy the volume of operations it now handles (about US$1.1 million equivalent per year). But it would have to be strengthened to manage the agricultural credit program to be carried out under the project, especially considering that it would be directed mainly to settlers with little credit experience. - 14 - 3.16 Marketing. Marketing of forest and agriculture products is carried out through private millers and middlemen operating in the area. The millers buy standing trees from the settlers and saw and market the wood. Farmers sell green cacao and coffee beans to small-scale traders in Quininde. The traders dry and process the beans and market them in the export ports of Guayaquil and Manta. Cattle are usually bought on the farm by small-scale traders, mainly for local consumption. Existing Infrastructure 3.17 Roads. The three large rivers crossing the project area divide it into four geographical zones. These rivers, while providing natural access also are barriers for road communication among the zones. Road access to the project is provided by the Santo Domingo-Esmeraldas highway bordering the western end of the project. A bridge over the Blanco river at Quininde and a number of gravel and dirt roads give access to Zone I, the largest, located between the Blanco and Guayllabamba rivers; the Cupa Malimpia gravel road, and three low standard penetration roads provide access to Zone II, located between the Blanco river and the highway. Zone III between the Guayllabamba and Canande rivers and Zone IV to the north of the latter can be reached by boat only. Altogether, there are some 114 km of gravel roads in the area, and some 40 km of timber tracks. Road engineering and construction work are very poor, and, except for those roads built by an oil palm company operating in the area, roads have irregular alignments, no drainage structures or side ditches, and irregular surfaces because of poor grading of gravel material. These shortcomings make most of the road network passable only during the dry season. 3.18 Social Infrastructure. Health facilities consist of one hospital and two subcenters, but the scattered population has little access to primary health care and except for Quininde's limited services, there are no water supply and sanitary facilities. There are 56 primary schools and four high schools. The schools are, in general, adequately staffed but some classrooms need to be repaired and additional ones have to be built to cope with the demand of increasing population. Since the project area is in the process of being settled, small villages are springing up requiring minimal physical infrastructure for basic services. IV. THE PROJECT A. Project Identification and Preparation 4.01 A Bank mission exploring the possibilities for rural development in Ecuador made a preliminary identification of a project to be located in the Esmeraldas province in 1975. Based upon a four-year INERHI-OAS study of the Esmeraldas river basin, the Government proposed to the Bank, among five projects identified within the basin, the development of the so-called "Zona Cuadrangular" north of Santo Domingo de los Colorados and east of Quininde, covering an area of about 150,000 ha, within which the proposed project is located. Future development stages would include additional - 15 - areas within the same general region. Project preparation was carried out by an interinstitutional group directed by MAG, with the participation of OAS staff and assisted by the IBRD-FAO Cooperative Program. The feasibility study was completed and submitted to the Bank in July 1980. Complementary aerial photography and mapping of the area are in the process of contracting and execution under Loan 1230-EC. A Bank mission appraised the project in November 1980. B. Project Objectives and Brief Description 4.02 The project would use an integrated approach to the solution of production problems and the provision of social services to the population living in the area. Implementation of an agriculture development program reinforcement and further construction of basic infrastructure and provision of basic education and health services are expected to increase agriculture production and productivity and raise the health and education status and the standard of living of about 5,100 families in the project area. This approach is justified for this project, considering the pioneer stage of development of the area and the weakness of Government services in the zone. 4.03 The proposed project's main components would be: (a) the execution of an agricultural development program to be carried out by an extension service and designed to (i) support agriculture production and marketing pri- marily among farmers with landholdings up to 50 ha; and (ii) encourage and promote farmer organizations and farmer training; (b) completion of land titling procedures for about 900 farms and execution of land surveys over about 31,000 ha and provision of land titles to some 1,150 farmers; (c) provision of medium- to long-term investment credit and short-term production credit to about 1,210 farmers, mainly for rehabilitation of coffee and cacao and livestock development; (d) upgrading of 128 km of existing roads and construction of 102 km of new ones; construction of a 100-m bridge over the Guayllabamba river and a 40-m bridge over the Cupa river; and implementation of a road maintenance program, including purchase of maintenance equipment; (e) construction of service centers, including an administrative center, four marketing facilities and eight community centers; (f) establishment of a primary health care program, including training of auxiliary and professional health workers, con- struction and equipment of health facilities, and construction of water supply systems for small villages; - 16 - (g) strengthening of elementary education in the project area, including construction and equipment of school facilities and provision of additional teachers; and (h) execution of feasibility study for a new rural development project in the Esmeraldas Province. The project would be implemented over a period of six years (see Chart 22621) under the responsibility of SEDRI, which has established a Project Executing Unit (UE). C. Detailed Features Agricultural Development and Extension 4.04 The proposed project would support agricultural development of the area by promoting adequate soil use, expanding production and increasing productivity. Agriculture development would basically consist of (a) re- habilitation and renovation of coffee, cacao and plantain/banana plantations and improvement of production and processing practices for these and annual crops; (b) improvement and expansion of pasture lands, increasing stocking rates and enhancing cattle management among farmers with 10 to 50 ha; (c) support of hog fattening operations among farmers with less than 10 ha; and (d) promotion of soil conservation and forestry practices. These would be achieved mainly through the execution of an agricultural extension program and through provision of agricultural credit. The extension program would work two ways: (i) replacing traditional agricultural practices (para 3.07) by introducing and disseminating agriculture production techniques already developed by INIAP in the nearby Pichilingue and Santo Domingo and other research stations in the country (para 3.14), and (ii) encouraging and pro- moting organizations of farmers and training them in agriculture and social matters. Details of agriculture production techniques are presented in the relevant working papers and INIAP's publications listed in Annex 2. 4.05 The rehabilitation of coffee, cacao, bananas and other perennials would include opening or closing the canopy, pruning, spraying for disease and pest control, and fertilizing and hand pollination (for cacao). Renova- tion would involve replacing the very poor cacao and coffee tree shrubs with high yielding clones or selected seedlings available at the Pichilingue research station. Farmers would be taught how to properly depulp and dry coffee beans, as well as how to properly ferment and cure cacao beans on the farms. This would greatly improve the product quality and facilitate marketing. Also, for coffee as well as for cacao, farmers would be advised to improve and construct drying and processing facilities on the farm. 4.06 With regard to cattle, farmers would be assisted in developing semi- intensive dual-purpose meat and milk operations. Existing pasture lands would be improved. Cleared lands would be sown to guinea grass (Panicum maximum), which is well adapted to the area. Construction of fences, corrals and other farm structures to facilitate cattle management would be encouraged. Stocking of existing and new pasture lands would be done with pregnant cross-bred heifers (Zebu-European) available in the surroundings of the project area. Management practices would mainly consist of rotational grazing, use of mineral supplements, and parasite and disease control. Also, in livestock, - 17- the extension program would support semi-intensive hog fattening operations, mainly among farmers with less than 10 ha. Hogs would be fed mainly with locally produced plantain and banana residues, supplemented with high protein and mineral feeds. To improve health and management practices, financing would be available for construction of simple fattening facilities with inexpensive local materials, establishment of improved pasture areas, and purchase of piglets and supplementary feed and medicines. Piglets would be provided by the nearby INIAP research station of La Concordia and by MAG's Santo Domingo swine breeding center, which is being rehabilitated and provided with fresh breeding stock under the Bank-financed Puerto Ila Chone Project. Additional information on this matter is presented in working paper No. 1. 4.07 Regarding conservation, the extension program would see that ongoing settlement and agricultural development cause minimal detrimental impact to the environment. In the clearing process, farmers would be induced to exploit all commercially useable wood and to avoid burning the left- overs. Young valuable trees would be maintained to provide shade and for future utilization. Besides, farmers would be recommended to maintain part of their farms in forest, to protect river banks and steep land and to ensure permanent supply of posts and firewood. On a pilot basis, the exten- sion program would try to develop forest management practices. This would include selective exploitation of softwood, maintaining young valuable trees and planting small plots of fast-growing exotic species. Seedlings for these plantings would be made available by MAG's forestry nurseries of Santo Domingo (being improved under the Puerto Ila Chone Project) and of Quininde. 4.08 With respect to social promotion, training and organization of farmers, the extension program would include seminars and courses for farmers on community development, farm management, record keeping and other relevant subjects. Existing informal organizations of farmers would be strengthened and encouraged to play a more active role in decision-making and marketing and processing of agricultural produce. Special emphasis would be given to promote participation of women in the project. They would be helped to organize and to obtain financing for income-generating activities such as cheese production. Land Titling 4.09 The project would seek to provide firm land titles to all farmers in the area. About 1,000 farmers who have already received provisory titles would be assisted to complete the process to obtain firm titles. Topographic surveys would be carried out and land titles would be granted over some additional 1,100 farms covering about 31,000 ha, including those within the area of the forestry concession (para 3.08). IERAC would also monitor closely changes in land tenure and would prevent, within its legal authority, the subdivision of land parcels into uneconomic units. Annex 1, Table 3 shows details of the land titling program. 4.10 While the forestry concession contract referred to in paragraph 3.08 is in effect, land titling would not be accessible to settlers living in the concession area. The Government is in the process of rescinding this contract, an action which is expected to take about one year. However, until the process - 18 - 6s completed, the concession area would be excluded from the project for all purposes. Assurances in this matter were obtained at negotiations. Feeder Roads 4.11 Civil Works. An improvement of the existing road network is nec- essary to provide permanent access to the zones into which the project is divided. Basically, the improved network would consist of two main roads parallel to the rivers, complemented with lateral roads providing access to the settlement areas. Under the project, 128 km of existing feeder roads and dirt tracks would be improved and an additional 102 km would be built to provide for a basic all-weather network of 230 km, exclusive of private roads. Also to be built would be a 100-m bridge over the Guayllabamba river and a 40-m bridge over the Cupa river. The roads would be built or improved to MOP's design standards developed under the Fifth Highways Project. Improvement works would consist of meeting the minimum requirements for permanent access, including road widening and graveling, and construction of drains, culverts and bridges as well as of road embankments in low-lying terrain. Engineering designs of about 60 km of road improvement for the first construction year are under execution; the remaining 170 km of engineering designs would be carried out during implementation. Information on design criteria and on the roads included in the network is presented in Annex 1, Tables 4, 5 and 6. Additional information is presented in working paper No. 2. During negotiations, assurances were obtained that the feeder roads included in the project would be improved and constructed in accordance with engineering design standards as shown in Annex 1, Table 6. 4.12 Road Maintenance. In addition to construction, the project would support the organization and establishment of a road maintenance system in the project area, including purchase of the necessary equipment (para 5.08). A tentative list of this equipment is presented in Annex 1, Table 7. Service Centers 4.13 The project would provide for the construction of buildings for Project headquarters, four marketing facilities and eight community centers. Project headquarters would be located at Quininde and would consist of about 240 m2 of office space and about 800 m2 of living quarters for staff, as well as internal roads, electricity, water supply and other services. One of the marketing centers, also located in Quininde, would be for marketing and processing of coffee and cacao. It would consist of civil works buildings and equipment for depulping coffee and cherries and for drying coffee and cacao beans. There would also be a storage warehouse with 110 m tons capacity. The other three would be public markets, each consisting of a central building for offices and storage and open space for merchants. These centers would be located in Quininde, Malimpia and Renovacion. The community centers would provide space for operation of basic services. The facilities to be included in each community center would basically consist of a meeting hall and office space for :-he local authority, the agriculture extension service and the cooperative. Also, as the case may be, the health posts to be established under the project (para 4.14) would be integrated into the centers. Designs - 19 - of all centers are at the preliminary stage; final designs are currently being prepared and would be ready by December 1981. Construction would be done, making the best possible use of locally available materials and with the beneficiaries providing unskilled labor. Health Care 4.14 The project would support Government's efforts to establish in the area a regional health service in line with the national health regionalization system (para 2.15). Emphasis would be on increasing and improving primary health care services through training and deployment of rural health promoters and active participation of the community, mainly women and children, in primary health and nutritional education. The Quininde hospital would be rehabilitated and equipped and two new health subcenters and seven health posts would be built and equipped. To the extent possible, the health posts would be made part of the community centers to be constructed under the project (para 4.13). On-the-job and external training courses would be given to medical and paramedical staff, and administration and management of the service would be strengthened. Besides health care, the project would provide for the implementation of a survey on the nutritional value of locally produced foods and their place in the local diet and of the nutritional status of preschool children. This would be the basis for a nutrition program, also to be implemented under the project, which would include promoting better use of locally produced foods and executing a family garden subprogram. Sanitation 4.15 Sanitary conditions of the population would be improved by constructing water supply facilities and sanitary units for villages and for the scattered rural households. Two water supply systems with household connections would be established in villages with projected population higher than 500 inhabitants. About 15 "water units" would be built in population clusters, generally in the same places where community centers would be established. One or more units would be erected in each cluster according to its population. The units would be water-fed from shallow wells equipped with hand pumps and would include lavatories, showers and laundries. For the scattered rural population, some 21 wells operated with hand pumps would be built, each well serving an average of 10 families. On a pilot basis, the project would also support construction of about 945 household sanitary units of the latrine-pit and latrine-with-running-water types. Water and sewage units would be built in accordance with IEOS's typical designs, which are adequate. Elementary Education 4.16 Under the proposed project, the primary education system of the area would be strengthened and provided with necessary facilities and staff to satisfy the needs of the increasing population. During the implementation period, school attendance rates would be raised from 91% to 95%, while attaining a 1:35 teacher-to-pupil ratio and an average 40 pupils per schoolroom. This would be achieved by creating 12 new teacher positions, rehabilitating 21 of the existing 105 schoolrooms, constructing 55 new schoolrooms, providing equipment and teaching materials for existing and new schoolrooms, constructing 55 living quarters for teachers, and constructing 55 sanitary units. Buildings and sanitary units would be constructed in accordance with MEC and IEOS architectural and engineering standard designs, which are adequate. - 20 - D. Project Costs 4.17 Total project costs amount to US$49.0 million, including a foreign exchange component of US$13.6 million, or 28%. Base cost, calculated at December 1980 prices, is estimated at US$28.9 million, physical contingencies at US$3.3 million, and price contingencies at US$16.8 million. Cost of feeder roads and other civil works are based upon feasibility study and participating agencies estimates, adjusted by the appraisal mission. Main- tenance cost for feeder roads is based on unit prices developed under the on-going technical assistance program included in the Fourth Highways Project. Costs of road maintenance equipment, vehicles and other imported goods are estimated CIF Ecuadoran port. Average fees for consultants are estimated at US$10,000 per man-month, including salaries, travel and living expenses. Project costs include identifiable taxes, estimated at US$0.4 million, but exclude import duties. Physical contingencies are estimated at 15% for all civil works and 10% for equipment, salaries and operating costs. Price contingencies were estimated: for foreign exchange costs at 9% for 1981, 8.5% for 1982, 7.5% for 1983 through 1985, and 6% for 1986 onward and for local costs at 18% for 1981, 15% for 1982 through 1984, and 12% for 1985 onward. Total project costs and schedule of investments are presented in Annex 1, Tables 8 through 14, and summarized below: % of Foreign Base Local Foreign Total Local Foreign Total Exchange Cost --------- SI. 000 ------- ------ US$000 ------- % Project Executing Unit -/89,994 31,827 121,821 3,599 1,273 4,873 26 16.9 Farm Development (Credit) 228,798 98,065 326,863 9,152 3,922 13,074 30 45.2 Feaeder Roads 89,910 78,790 168,700 3,596 3,152 6,748 47 23.2 S,ervice Centers 11,148 8,872 20,020 446 355 801 44 2.8 Health Care 34,626 7,506 42,132 1,385 300 1,685 18 6.0 Sanitary Works 5,369 3,806 9,175 215 152 367 41 1.2 Elementary Education 22,730 11,534 34,264 909 461 1,370 34 4.7 Total Base Cost 482,587 240,338 722,975 19,302 9,616 28,918 34 100 Physical Contingencies 54,400 28,175 82,575 2,176 1,127 3,303 34 11.4 Price Contingencies 13,927 2,852 16,779 17 58.4 Total Cost 35,405 13,595 49,000 28 169.4 1/ Includes agricultural extension service, consultants, land titling and administration. - 21 - E. Financing 4.18 The Bank loan of US$17.0 million would finance 35% of total project cost, covering US$13.6 million in foreign exchange, plus US$3.4 million local costs; financing of local costs is justified on project grounds, because of the low foreign exchange. The Government, through regular budgetary alloca- tions to FONADRI would finance US$26.1 million, or 53% of total project costs, and the beneficiaries would finance US$5.9 million, or about 12%. The loan would be made to the Government of Ecuador for 17 years, including four years of grace. The proposed financing plan is detailed in Annex 1, Table 15 and summarized below. Government Beneficiaries World Bank Total US$'000 % US$'000 % US$'000 % Project Executing Unit 1/ 3,690 79 - - 1,183 24 4,873 Farm Development (Credit) 4,722 36 3,419 26 4,933 38 13,074 Feeder Roads 3,654 54 - - 3,094 46 6,748 Service Centers 413 52 - - 388 48 801 Health Care 1,340 80 - - 345 20 1,685 Sanitary Works 178 48 43 12 146 40 367 Elementry Education 867 63 - - 503 37 1,370 Total Base Cost 14,864 51 3,462 12 10,592 37 28,918 Physical Contingencies 1,786 54 361 11 1,156 35 3,303 Price Contingencies 9,427 56 2,100 13 5,252 31 16,679 Total Cost 26,077 53 5,923 12 17,000 35 49,000 1/ Includes agricultural extension services, land titling, administration and consultants. - 22 - F. Procurement 4.19 Civil works amount to US$6.7 million, comprising feeder roads (US$4.6 million), buildings for service centers, (US$0.7 million), health subcenters and posts (US$0.4 million), water supply systems (US$0.2 million) and schools (US$0.8 million). Because of their relatively low cost and scattered location, contracts are expected to be of low size and unlikely to be attractive to foreign contractors; local contractors' building capacity, moreover, is adequate for the needs of the project. However, to encourage competition and to facilitate Bank supervision, assurances were obtained during negotiations that the following procedures would be followed: (a) contracts for construction and improvement of feeder roads and bridges would be awarded following LCB procedures currently being applied in the ongoing Sixth Highways Project; the roads would be grouped in lots with an estimated cost of not less than US$500,000 each in accordance with availability of engineering designs and geographic location; (b) for works other than feeder roads, contracts costing in excess of US$150,000 equivalent would be procured under LCB procedures acceptable to the Bank and would be reviewed by the Bank before award; and (c) other works costing less than US$150,000 equivalent and in the aggregate not more than US$1,000,000 could be carried out by force account or contracts awarded following local procedures and in accordance with annual construction and procurement plans satisfactory to the Bank. 4.20 Goods purchased under the project would amount to US$1.6 million and comprise vehicles (US$200,000); topographical, medical, and office equipment (US$610,000); and road maintenance equipment (US$790,000). Assurances were obtained during negotiations that procurement procedures would be as follows: (a) all operation and maintenance equipment, vehicles and other goods costing US$150,000 equivalent or more would be purchased following ICB procedures; and (b) goods costing US$150,000 or less but more than US$50,000 and in the aggregate not more than US$400,000 would be purchased following local procedures, provided that no less than three quotations are obtained; and (c) goods costing US$50,000 or less and in the aggregate not more than US$200,000 could be purchased through negotiated contracts from established and reliable suppliers. G. Disbursements Amount of Disbursements (US$ '000) 4.21 The proposed loan would be disbursed as follows: Category I 45% of total expenditures for engineering and construction of civil works and buildings for: (a) feeder roads; (b) service centers; (c) health subcenters and posts; (d) water supply systems; and (e) schools. (i) under contracts awarded through competitive bidding; and 4,000 - 23 - (ii) under force account or negotiated contracts 700 Category II 100% of foreign exchange, or 80% of local currency expenditures, for: (a) purchase of vehicles and equipment for the UE, the extension service, the land titling program, maintenance of feeder roads, health subcenters and posts and schools; and (b) materials for the agricultural extension and medical care training programs and for the nutrition program. 2,100 Category III 100% of foreign exchange, or 45% of local currency expenditures, for: (a) training courses for project staff and farmers under the agricultural extension and medical care programs; and (b) consultants' fees, travel and living allowances. 1,200 Category IV 55% of medium- and long-term subloans disbursed by BNF to finance on-farm investments, household improvements, and materials for sanitary units. 7,400 Category V Unallocated. 1,600 4.22 Disbursements would be made against normal documentation except for works carried out by force account, medium- and long-term subloans made by BNF and local training courses for project staff and beneficiaries, which would be made against statements of expenditure (SOEs). Disbursement applica- tions based on SOEs would be signed by an appropriate representative of the executing agencies concerned and be accompanied by an annex showing a sum- marized breakdown of payments for: (a) civil works by force account; (b) cost of training courses including fees, travel expenses, materials and per diem; and (c) detail of subloans under the credit component. Documents showing evidence of payment would not be submitted to the Bank but would be maintained by the executing agencies or the UE for further review by Bank staff during supervision missions. SOEs would be audited as indicated in paragraph 5.17. - 24 - 4.23 The loan is expected to be disbursed over a period of seven years according to the following schedule of disbursements: World Bank Disbursement Fiscal Year Period Ending at the end of the Period 1983 December 31, 1982 200 June 30, 1983 500 1984 December 31, 1983 1,000 June 30, 1984 2,200 1985 December 31, 1984 4,000 June 30, 1985 5,700 1986 December 31, 1985 7,400 June 30, 1986 9,100 1987 December 31, 1986 10,800 June 30, 1987 12,400 1988 December 31, 1987 14,000 June 30, 1988 15,500 1989 December 31, 1988 17,000 V. ORGANIZATION, MANAGEMENT AND IMPLEMENTATION A. Organization Project Executing Unit 5.01 Overall responsibility for project implementation would rest with SEDRI, which would enter into implementation agreements (para 5.12) for each component with the related ministries and Government participating agencies. By presidential decree, a Project Executing Unit (UE) has been established within SEDRI, with adequate operational, financial, and administrative autonomy to execute the project. The UE has its headquarters at Quininde, and it would be fully staffed and operational no later than March 1, 1982. It would be headed by a Project Director, a senior professional recruited with qualifica- tions and under terms of employment acceptable to the Bank and who would report directly to the secretary of rural development. An Advisory Committee made up of representatives of the provincial and local authorities and of the participating agencies would advise the Director in general project planning and implementation matters. The committee would meet at least once every six months in Quininde. It would not have decision making authority. - 25 - 5.02 In implementing the project, the Director would be supported by several staff and line offices. Attached to the office of the Director would be a Planning and Monitoring, an Internal Auditing and a Legal section. The Departments of Production, Campesino Development and Engineering would be responsible for operations. The Department of Production would be responsible for implementing the agriculture extension program (para 5.04) and for super- vising the credit (para 5.15) and land titling (para 5.07) programs. The Campesino Development Department would be responsible for the organization of farmers' part of the extension service, promoting and establishing the organiza- tion of the service centers and supervising the health and education programs The Engineering Department would be responsible for contracting and supervising construction of the service centers and for coordinating implementation of the infrastructure aspects of the project. An Administrative and Service Depart- ment would complete the organizational structure of the UE. Details on staffing and operating costs and of the organization structure of the UE are presented in Annex 1, Tables 10(a) and 10(b). Suitable assurances on the operation of the UE were obtained at negotiations. Consultants 5.03 Project implementation would be supported by internationally recruited specialists. One specialist would assist the Project Director in the organiza- tion and management of the UE for 24 months. Another specialist would assist the UE for 24 months in agricultural marketing aspects, including the organiza- tion of a Farmers Marketing Union and the establishment of the marketing centers and processing facilities for coffee, cacao and milk. Also, 24 man- months of short-term specialists would be used to assist the UE for initial and follow-up assistance in project-related matters such as monitoring and evaluation (para 5.18), establishment of project accounts and farm planning and management. Besides, other specialists contracted under the Puerto Ila Chone project, would support the UE in the establishment of the agriculture extension services and the development of technological packages for coffee, cacao and livestock. All experts would be internationally recruited and contracted under terms of reference and conditions of employment acceptable to the Bank. The two first mentioned experts would be employed not later than September 30, 1982. Assurances in these matters were obtained at negotiations. Finally SEDRI would utilize about 36 man-months of specialists to assist in the preparation of the feasibility study for a new rural development project (para 5.11). B. Implementation Agriculture Extension Service 5.04 To implement the agricultural extension and farmers' organization program, an extension service would be established in the UE. The service would be staffed by personnel seconded by MAG and INIAP and would be operated by the UE's Departments of Production and Organization of Farmers. It would be headed by a senior agriculturist and staffed by six subject matter specialists in livestock, coffee, cacao, forestry, social communications and marketing, and 16 extension agents and six social promoters. The extension staff would implement the extension program by: (a) working directly with - 26 - individual farmers and groups of farmers; (b) holding demonstrations at selected sites in the project area and at the nearby research station; (c) conducting training courses for farmers in matters related to organization, farm management and other relevant subjects; and (d) in cooperation with BNF, assisting farmers in the preparation of farm development plans and corresponding credit applications (para 5.16). Each extension agent would be working with a group of about 150 farmers. Training courses for extension agents, credit supervisors and inspectors and farmers would be carried out by INIAP. The courses would take place mainly in the Santo Domingo and Pichilingue Research Station under curricula prepared by INIAP and MAG staff and consultants. Lecturers would be INIAP staff and subject matter specialists, externally recruited and financed by the project. Extension staff would also be sent abroad to universities and other institutions to receive on-the-job and academic training on selected subjects. During negotia- tions, assurances were obtained that the extension service would be established and that the head of the service, the subject matter specialists and no less than 10 extension agents would be employed no later than March 31, 1982. Service Centers 5.05 Implementation of this component would also be the responsibility of the UE. Construction of the centers would be carried out through contracts supervised by the UE's engineering department. Marketing facilities for coffee and cacao would be operated by the Farmers Marketing Central to be established under the project (para 6.05). The Public Markets would be operated by the local authorities and the community centers by each community concerned. During negotiations, assurances were obtained that, before start- ing construction of each of the marketing and community centers, the organization responsible for operating and maintaining the respective center had been estab- lished and was satisfactory to the Bank. Land Titling 5.06 IERAC would carry out the land titling program through its Quininde zonal office. For this purpose IERAC would, no later than January 31, 1982: (a) reinforce its field staff working in the project area, where it is made up of at least, a coordinator, one lawyer, four promoters, four land surveyors, two draftsmen, and auxiliary staff; and (b) establish within the Quininde zonal office a department responsible for recording and following up land titling. Assurances on these matters were obtained during negotiations. - 27 - Feeder Roads 5.07 MOP and the Esmeraldas Provincial Council (CPE) would be charged with the responsibility for the feeder roads program. MOP would prepare bridges and feeder roads engineering designs through consultants, and would contract and supervise construction of the long-span bridges. CPE would contract and supervise construction of roads, assisted by MOP's Feeder Roads Coordination Unit established under the Bank-financed Sixth Highways Project. Execution of the feeder roads maintenance program would be modeled along the same lines established for other provinces under the Sixth Highways Project; CPE would be responsible for implementing the program, assisted by and in accordance with MOP standards; and maintenance equipment provided under the project (para 4.12) would be purchased and owned by MOP, but operated and maintained by CPE. Assurances on this were obtained during negotiations. Health Care 5.08 MSP would be responsible for planning and operating the health program. MSP would declare the project area a pilot area for testing the national health regionalization program and, no later than June 30, 1982 appoint an area coordinator reporting to the Esmeraldas Province Health Service to supervise implementation of the program. The Quininde hospital would be the referral center for secondary care and would provide technical support to the health subcenters and posts. To ensure adequate field coverage and operation of the existing and new facilities, MSP would contract at least two additional doctors, 10 auxiliary nurses and 12 health promoters, as needed during implementation. The chief nurse would schedule and supervise the work of auxiliaries and rural health promoters. She would also coordinate implementation of the school health program ("ants operation") with school directors. All health staff would be given on-the-job and external training in community organization, primary health care, health statistics, epidemiology and health administration. A simple but efficient information system would be established to monitor progress and evaluate impact of the program on the beneficiaries. During negotiations, assurances were obtained on the afore- mentioned organization and staffing of the health program. Sanitation 5.09 IEOS would construct health subcenters and posts and water supply facilities and would assist farmers in the construction of sanitary units. Health centers and posts would be constructed through contracts. Water facili- ties would be built mainly by force account, with the communities contributing in kind, labor or cash no less than 20% of the cost of construction. Operation of each water system would be the responsibility of the respective beneficiaries, who, before starting construction, would establish an administrative committee and would commit themselves to pay for all operation and maintenance costs. Assurances on these matters were obtained at negotiations. Construction of the household sanitary units would be carried out by the beneficiaries assisted by IEOS. Financing of materials and equipment for these units would be made avail- able by BNF under the long-term agricultural credit program. - 28 - Elementary Education. 5.10 MEC would be responsible for the elementary education program. Construction of schoolrooms and other facilities would be carried out under contract with the CPE. As required during implementation, MEC would appoint 12 additional teachers to satisfy the needs of increased coverage. Feasibility Study 5.11 SEDRI would prepare assisted by consultants recruited under the project, a feasibility study for a new rural development project in the Esmeraldas Province. The study would include, inter alia, collection and analysis of socioeconomic and base resource data, formulation of an agri- cultural development plan, and planning and design of engineering and architectural infrastructure works. Terms of reference for the study and for the consultants would be prepared and submitted to the Bank for approval no later than December 31, 1983. Assurances in this respect were obtained during negotiations. Implementation Agreements 5.12 To ensure participation, SEDRI would, under its charter, enter into five implementation agreements (Convenios) with the participating agencies, except BNF, as follows: with MAG and INIAP for agricultural extension, with IERAC for land titling, with MOP and CPE for feeder roads, with MEP and IEOS for health and sanitation and with MEC and CPE for elementary education. Each agreement would inter alia spell out: (a) scope, cost and schedule of investments of the relevant project component; (b) financial arrangements, defining which parts of the investment and project costs would be financed by SEDRI and which by the agencies with their own resources; (c) procedures for transferring local and Bank funds to the agencies; and (d) responsibili- ties of the agencies with regard to participation in the UE preparation of annual investment plans, provision of required staff and services, procurement, reporting, and accounts and auditing. The signing of each agreement under terms and conditions acceptable to the Bank would-be a condition of disbursement under the relevant project component. C. Project Funding 5.13 Project funds would be channeled through FONADRI (para 2.01), in which SEDRI would establish a special project account. To ensure timely availability of resources, the Government would transfer an amount of US$500,000 equivalent to establish a revolving fund in the special project account. The funds would be at the disposition of the Project Director, who, in accordance with implementation plans, would transfer funds to the participating agencies. As the revolving fund is expended, it would be replenished on a quarterly basis with Bank loan disbursements and Government counterpart funds in accordance with budgetary allocations for the project. SEDRI would directly request loan disbursements from the Bank. Assurances on this matter were obtained during negotiations. Establishment and Government's first funding of the project special account would be a condition of loan effectiveness. - 29 - D. Lending Terms and Conditions for Agricultural Credit 5.14 Agricultural credit would be made available through BNF to finance investments and production. Medium- to long-term credit would finance rehabili- tation and renovation of cacao, coffee, plantain/banana and tree crops; pasture development; breeding cattle; construction of on-farm facilities for livestock and processing of cacao and coffee beans; and house improvement and materials for household sanitary facilities. Short-term credit would finance farm operation and maintenance costs, production of annual crops and pig fattening operations. It is expected that about 1,210 farmers with land holdings up to 75 ha would obtain credit during the project implementation period. Farm investments are estimated at US$12.4 million, of which about US$9.0 million, or 73%, would be covered by medium- and long-term credit and the remaining portion by the beneficiaries. Short-term production credit requirements are estimated at US$0.6 million. 5.15 Lending terms and grace periods would be as set forth in the technical and financial farm plans and are expected to vary between three and 12 years, including grace periods of one to three years. Subloans to small-scale farmers would finance up to 90% of investment costs exclusive of family labor, with the remainder contributed by the small-scale farmer in cash or labor. For the purpose of the project, small-scale farmers are defined as those with land holdings of up to 40 ha and with total net assets of less than S/750,000 (US$30,000), including land but excluding houses and whose principal source of income is the farm for which the sub-loan is made. Sub- loans for beneficiaries with land holdings up to 75 ha, would finance up to 80% toward investment costs. Not less than 50% of the total amount of subloans would go to small-scale farmers. The minimum annual interest rates (including charged commissions allowed by the Monetary Board regulations) would be 12% for small-scale farmers and 15% for other beneficiaries. Inflation between 1977 and 1979 averaged 11% and rose to 13% in 1980; for 1981 inflation is expected to be in the 15% to 20% range because of drastic increases in the price of gasoline, and it is expected to remain around 15% from 1982 onwards. The country's maximum legal interest rate for all sectors is currently 12% for short-term lending and 15% for medium- and long-term operations, with commissions of 1% to 2% allowed. Bank-financed projects (Agriculture Credit and Tungurahua Rural Developments) provide for 11% interest rate for subloans to small-scale farmers and 14% for others. Thus, the interest rates proposed for this and the recently negotiated Puerto Ila Chone project represent a further step in closing the gap between general interest rates and the slightly higher inflation most recently experienced by Ecuador. Furthermore, the Government, in consultation with the Bank, would review not later than one year after loan signature and at least once a year thereafter the interest rates and other charges on subloans and if necessary revise them in line with relevant changes in the rate of inflation. Bank loan and local counterpart funds for medium- and long-term credit would be made available to BNF by the Government on the same repayment terms as the Bank loan; however, Bank funds would be made available in Sucres and would bear interest at the same rate as the Bank loan, while counterpart funds would be interest-free. The resulting blend of funds would permit BNF to relend at a margin of at least 6%, which is adequate to cover administrative costs and financial risks. BNF would finance short-term credit with its own resources and through rediscounts from the Central Bank. - 30 - courses in preparation of farm development plans and credit operations (para 5.04). For these courses, advantage would be taken of the experience and material developed by the UE of the Agriculture Credit Project, Loan 1459-EC. The Government and BNF would enter into a Subsidiary Agreement making Bank and local counterpart funds for agricultural credit available to BNF, and spelling out the lending terms and conditions of subloans as described before. Signature of this subsidiary agreement, under terms and conditions acceptable to the Bank would be a condition of loan effectiveness. In addition a condition of disbursement under this component would be that BNF had established guidelines acceptable to the Bank, for preparing farm development plans and credit appli- cations in coordination with the extension service. E. Accounts and Audit 5.17 Separate project accounts, with appropriate subsidiary accounts for each project component, would be maintained by the UE and each partici- pating agency, respectively. These accounts, maintained according to sound accounting principles consistently applied, would reflect receipts and expen- ditures undertaken in relation to the project and clearly identify the goods and services procured and works performed. These accounts would be audited annually by independent auditors acceptable to the Bank and said audit reports, together with certified copies of the audited accounts and auditor's observation thereon, would be submitted to the Bank within five months of the close of the fiscal year. Each audit report would include, as applicable, a separate opinion as to whether the procedures relating to the use of statements of expenditure (para 4.22) were complied with. Assurances on these account- ing and auditing procedures were obtained during negotiations. F. Monitoring and Evaluation 5.18 The UE would consistently monitor and evaluate project progress and its impact through its Office of Planning and Monitoring (OPM). With Bank and consultant assistance and in collaboration with the participating agencies, OPM would establish and manage an information system for monitoring physical progress of project components, evaluating the impact of these components and identifying problems in implementation. Project monitoring would give particular attention to determining: (a) the performance and effectiveness of the extension service in reaching farmers and bringing about increases in agricultural production and productivity; (b) the impact of the agricultural credit program in bringing about farm improvements and increasing production; (c) the effectiveness of IERAC in carrying out field work and in processing legal documents in the land titling program; (d) the impact of the feeder road network on improving access of agricultural produce to markets; (e) the impact of medical care, nutrition, sanitation and education programs on improving health and education status and the standard of living of the project beneficiaries; and (f) the impact of the project on women. No later than September 30, 1982 SEDRI would, with consultant assistance, prepare and submit to the Bank a proposal for operation of the monitoring system. Assurances on this were obtained at negotiations. - 31 - 5.19 OPM would prepare and submit to the Bank through the Project Director semi-annual project progress reports which would: (a) present in a descriptive and tabular manner the advance of the different project components; (b) point out problems detected in the monitoring process and their proposed solution; and (c) present the status of project investments and financing. Also, at the end of the investment period, OPM would prepare a project completion report according to Bank guidelines, and submit it to the Government and the Bank within six months of the loan closing date. To undertake these tasks, OPM would be staffed with at least two professionals and support staff with relevant experience in the subject. Assurances on these matters were obtained at negotiations. VI AGRICULTURAL PRODUCTION, MARKETING AND FARM BENEFITS Land Use and Cropping Pattern, Farm Models 6.01 No significant increase in cropped area is expected as a result of implementation of the project, but pasture lands would be substantially increased. Based on current trends in the project and surrounding areas, it is projected that most of the newly developed land would be devoted to pasture and ranching. Soil use of the estimated 76,400 ha in farms under 50 ha would develop as follows: the area in perennial crops (coffee, cacao and plantain/ banana) would increase from 15,200 ha to 16,500 ha; annual crops (mainly corn and soybeans) would remain about constant at 700 ha cultivated on a rotational basis; pasture lands would increase from 5,800 ha to 39,000 ha; and forest lands would decrease from 54,800 to 19,500 ha. Farm development was analyzed with three farm models. One model is representative of older farms smaller than 10 ha, located in the surroundings of Quininde and Malimpia and along the main highway and river banks. Land use of these farms is and would continue to be mainly in coffee, cacao and plantain/banana, which would be improved; also, small-scale fattening operations would be developed in these farms, by using plantain residues supplemented with high protein and mineral feeds and by establishing about 0.2 ha of pasture land and handling facilities for the animals; existing forest areas would be maintained. The other two models of 27 and 47 ha, respectively, are representative of farms between 10 and 50 ha located in the more recently settled areas. In both types of farms, existing areas in coffee, cacao and plantain/banana, as well as in food crops, would remain substantially unchanged but productivity would be improved. Existing pasture lands covering between 2.4 ha and 10.6 ha would also be improved, and an additional 12 ha to 22 ha of pasture would be established in newly cleared lands. Annex 1, Tables 16 through 19 present projected land use and cropping pattern for the whole project area and the proposed farm models. - 32 - Crop Yields, Livestock Coefficients and Production 6.02 Although climatic and soil conditions in the project area are favor- able (para 3.04), current crop yields are rather low. Perennial and annual crops are intermixed and planted in a disorderly way, making their management difficult; improved varieties and selected planting materials and seeds are not used; few farmers use fertilizers and fungicides or are acquainted with adequate cultural harvesting and processing practices. The extension program would direct its efforts toward removal of these constraints (para 4.05) and, therefore, it is expected that yields would increase substantially. These practices are already being followed by progressive farmers in the area, and such increases in yields have been projected conservatively to take place gradually over a period of eight years up to average levels already being attained. With rehabilitation and renovation and with the use of fertilizers and pest and disease control practices it, is projected that: coffee yields would increase from an average of 0.93 m ton/ha, to 3.4 m ton/ha (cherry beans), cacao from 0.11 m ton/ha to 0.64 m ton/ha (dry beans), and banana from 5.11 m tons/ha to 23.6 m tons/ha. Likewise, improved management and increased stocking rates would permit the achievement of good levels of productivity on pasture lands; technical cattle coefficients are expected to change as follows in a period of 5 to 12 years: stocking rates, from 1.3 to 1.9 au/ha; calving rates, from 50% to 70%; adult mortality, from 16% to 3%; calf mortality, from 10% to 6%; lactation periods, from 150 to 200 days; milk production per cow per day, from 1.5 liters to 3.5 liters; and liveweight (LVWT) gains for cattle, from 71 to 209 kg. Regarding pig fattening, it is expected that each farmer would fatten two groups of 10 pigs each per year, from about 23 kg liveweight (three months old) to about 90 kg liveweight (7.5 months old); daily liveweight gains are projected at 500 g per day. 6.03 As a result of the above changes, annual agricultural production in the area would increase by 10,737 m tons of coffee, 1,068 m tons of cacao, 54,400 m ton of banana/plantain, 21.7 million liters of milk, 7,827 m tons of beef (LVWT), and 828 m tons of pork (LVWT). The aggregated value of this incremental production would be about US$27.9 million by the 20th year of the project. Estimated production costs, yield development and volume and value of costs of production are presented in Annex 1, Tables 16 through 21 and are summarized in the table of page 33. Prices 6.04 Financial prices for inputs, crops and livestock products to be produced under the project are those which prevailed in the area in December 1980. There is in Ecuador a complex system of price controls and price referencing designed to protect consumers without discouraging production. However, the system is weak and the Government does not have the mechanism to enforce it. Therefore, with the exception of milk, prices of agricultural products, and specifically those produced in the project area are determined by market conditions. Prices of coffee and cacao are determined by the international market. There is a 25% export tax on FOB value of cocoa exports but such a tax is expected to be reduced to 20% in 1981 to promote production and to reduce the impact of lower international prices. Coffee beans are subject to a 35% export value tax which growers are requesting the Government to reduce, but no decision has yet been taken. Cropging Pattern, Yields and Annual Production 4/ ------ Before Project-------- -------- With Project
Группа Всемирного банка · Staff Appraisal Report
Ecuador - Esmeraldas Rural Development (Quininde, Malimpia Nueva Jerusalem) Project
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