Sri Lanka - Second Smallholder Rubber Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY 6-f'-1. Report No. 7055A-CE STAFF APPRAISAL REPORT SRI LANKA SECOND SMALLHOLDER RUBBER REHABILITATION PROJECT May 2, 1988 Agriculture Operations Division Country Department 1 Asia Region This document has a restridcted distribution and may be used by redpients only in the performance of their official duties. Its contents may not otherwise be disclosed without World D:ank authorization.  CURRENCY EQUIVALENTS AT APPRAISAL US$1 = Sri Lanka Rupees (Rs) 30.5 Rs 1 = US$0.03 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 metric ton (t) = 0.984 long tons - 2205 pounds 1 kilogram (kg) = 2.205 pounds (lb) 1 hectare (ha) = 2.471 acres (ac) 1 kg/ha = 0.89 lb/ha 1 meter (m) = 3.28 feet (ft) ABBREVIATIONS ASD - Advisory Services Department ARC - Adaptive Research Center CLSD - Corynespora Leaf Spot Disease CPD - Commodity Purchase Department DREO - District Rubber Extension Officer ERR - Economic Rate of Return GOSL - Government of Sri Lanka GPC - Group (rubber) Processing Center LCPC - Latex Collecting and Processing Center MPI - Ministry of Plantation Industries MTIP - Medium Term Investment Program NR - Natural Rubber PAD - Processing Advisory Division PCU - Project Coordinating Unit RCD - Rubber Control Department REO - Rubber Extension Officer RPA - Rubber Planting Aide RPPU - (smallholder) Rubber Policy Planning Unit RRB - Rubber Research Board RRDB - Regional Rural Development Bank RRF - Rubber Replanting Fund RRI - Rubber Research Institute of Sri Lanka RRS - Rubber Replanting Scheme RSS - Ribbed, Smoked Sheet SOE - Statement of Expenditure TSR - Technically Specified Rubber  POR OFFIIAL USE ONLY SRI LANKA SECOND SMALLHOLDER RUBBER REHABILITATION PROJECT Table of Contents Page No. CREDIT AND PROJECT SUMMARY ................ iv.*..................... 1v I. INTRODUCTION ................................................... 1 II* BACKGROUND* o o * o * * * o o *. o ....................................... A. The Agricultural Sector......o............................. 1 Ceneralooooooooe,oo*ooo*ooeoo....... ...................o 1 The Tree Crop Subsectoroo. ........ 2 The Role of Rubbero........ .. ................*........... 2 B. Agroclimatic Conditions................................... 3 Climate ............................. d*e& ... 0...... 3 Physical Characteristics0...... .. .... . . .... .. 4 C. Socioeconomic Aspects..... .. ........... .o...oe. . ..ooo 4 D. Institutional Environmentooo.o.o.......... e.. o............ 5 Rubber Control Departmentp a r t m e nt....o............... 5 Rubber Research 6............. .................... 6 Advisory Services Department ........................... 6 Rubber Research Institute ...... . . . . . . . e.................... 7 The Rubber Replanting Scheme............................ 7 E. Supporting Services..................... ..................oo 9 Rubber Processing ............................o........... 9 Rubber Marketing.......................................................... 1 Rural Credit............................................. 12 F. Bank Involvement ... 000.*o.oo.**Oee.*..................................... 12 Bank Role and Strategy in the Tree Crop Sector .......... 12 Bank Experience with the First Rubber Projecto........... 13 Project Formulation..........................o. .......... 14 III. THE PROJECT ....... .......o o..oo...... 14 A. Project Objectives, Rationale and Main Features........... 14 Objectiveso.o o s o o o oo oo o * o *e e *.o.o.........ooo.......................... 14 Rationale for IDA Involvement........................... 14 Main Featureso o o * * o e oo o .eo.....o....oooo..................oo.......oo.. 15 This report is based on the findings of an IDA appraisal mission which visited Sri Lanka in September, 1987. Mission members were: D. Meadows, Senior Tree Crop Specialist (Mission Leader), M. Brown, Senior Agricultural Economist, Ms. C. Suan Tan, Economist (IDA) and D. Wijesekera, Financial Analyst (Consultant). 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.  - ii - Page No. B. Detailed Features .*.*.......................... is Replanting.............................................. 16 New Planting............................................ 17 Nurseries..........................................*... 17 Corynespora Disease ........................... 18 Latex Collection and Processing ......................... 19 Institutional Developmento................... . 20 IV. PROJECT COSTS AND FINANCING...................................o 23 A. Project Costs..o........................................ . 23 B. Project Financingo ....................................... 24 Co Procurement ....................................o o o..... 25 D. Disbursements.ooo.o*. ... ............. ............... .. ... 26 E. Special Account.-.. .... ........oo.o.o.................. 28 F. Accounts and Auditso.......00 0000900099009.0.9.09.... 0.9 28 Vo ORGANIZATION AND MANAGEMENT ...... * ... .oo..o .........oooo.. 28 A. Project Implementation ... .................................o 28 B. Rubber Control Department.................. ......... ...... 29 C. Rubber Research Board..o-oo ........ ..**..o. ... ....... 30 D. Advisory Services Department ............................. 30 Eo Rubber Research Inst i t u te..o....o..oo.oooo.oo..... o..... 31 F. Extension/Research Linkages ............................. 32 G. Project Coordinating Unit .................................. 32 H. Smallholder Rubber Policy Planning Unit.....o....o...... 32 I. Monitoring Committee* ........... 32 VI. PRODUCTION, MARKETING AND FINANCIAL ANALYSIS ..................g 33 A. Technical Aspects ... 9999..99......99999999999999999999999 33 B. Yield and Production .................. ........... oo......... 33 C. Marketingce o.... oooo..oooo.oooo9o.o.o .................. 34 D. Prices .... *.** .... o .... osooo-oo.o.o.oo.o.o- 34 E. Producer Marginso.o....o..oo......o. oo....o........... 34 P. Financial Analysis..o..o..... ..................... 35 Go Cost Recovery..............9 ..... ......... 9..999..999 35 VII. BENEFITS, COSTS AND ECONOMIC JUSTIFICATION ...............o ..... 35 A. Benefitso ..o.,*o.o...*.*...... ... ooooo..o 35 B. Environmental Effects .....o.o.o........................... 36 C. Impact on Women...0...... ... *...* ... 9*...9 *9*.9* 36 D. Economic Analysis.oooo ... ............................. o. 36 E. Project Risko.0..000.....0.0.00............. ............0 38 VIII. AGREEMENTS AND RECOMMENDATION........ o .... .................. 39  - iii - Page No. Annex 1. Rubber Replanting Fund-Projected Cash Flow--Smallholders and State Sector ..................................... 41 Annex 2. Project Costs and Disbursements Table 1. Summary Accounts Cr:st Summary................................ 43 2. Sutmmary Account By Project Component......................... 44 3. Suninary Accounts by Year....... ...................... ........ 45 4. Project Components by Year ....................................... 46 5. Summary Accounts by Year..................................... 47 6. Project Components by Year................................ 48 7. Field Development - Detailed Cost Tible...................... 49 8. Advisory Services Department - Detailed Cost Table ........... 50 9. Rubber Control Department - Detailed Cost Table .............. 51 10. Rubber Research Institute - Detailed Cost Table ............... 52 11. Monitoring & Evaluation - Detailed Cost Table ................ 53 12. Processing - Detailed Cost Table............................. 54 13. Project Coordinating Unit - Detailed Cost Table ............... 55 14. Schedule of Credit - Disbursements........................... 56 15. Incremental Staff Posts............. 57 Annex 3 Areas and Production Table 1. Replanting and New Planting Program.*,,...................... 59 2. Rubber Yields and Tapping Systems............................ 60 3. Estimated Rubber Production ............... .61 Annex 4 Financial and Economic Analysis Table 1. Smallholder Producer Margins ......................... 63 2. Financial Price of Rubber..... ........ ...... o...... ..... 64 3. Financial Analysis of One Hectare Rubber Holding with Family Labor ... ............ o 655 4. Financial Analysis of One Hectare Rubber Holding with Hired Laboro................................... 66 5. Economic Price of Rubber.. .... ......................... ... 67 6. Conversion Factors... ....... ....... ....* 68 7. Replanting Costs and Financing Arrangements .................. 69 8. Economic Analysis.... .... ................ ...........o..... ..... 70 Annex 5. Guidelines for Testing Advanced Clones of Proven High Yield ......... o......... oo...................................o .... 73 Annex 6. Implementation Schedule ..................................... . 75 Annex 7. Documents in Project File ....... ............................. 77 Figures 1. Ministry of Plantation Industries - Organization Chart....... 79 2. Advisory Services Department - Organization Chart............ 80 MAP IBRD 19987  - iv - SRI LANKA SECOND SMALLHOLDER RUBBER REHABILITATION PROJECT Credit and Project Susmary Borrower: Democratic Socialist Republic of Sri Lanka Beneficiaries: Smallholders, RCD, ASD. RRI. Amount: SDR 17.0 million (US$23.5 million). Terms: Standard Project Description: The proposed project would be the Association's second operation in the specific subsector and the fifth in the tree crops sector. It would assure and increase the income of rubber-growing smallholders and increase Sri Lanka's export earnings by improving che quantity and relative value of smallholder rubber. This would be achieved by replanting 35,550 ha of overaged trees and planting an additional 3,200 ha of rubber on un- productive land. The efficiency of institutional sup- port available to smallholders would be enhanced through the rationalization and strengthening of the Covernment agencies directly involved. The negative effect of a recent disease outbreak would be minimized by providing compensation for the removal of suscep- tible trees. Benefits and Risks: The principal benefits would be incremental production and revenues from the production of rubber and improved farm incomes and employment for some 35,000 households including a large number of small farmers previously earning under the poverty level. There are no significant implementation risks. Corynespora Leaf Spot Disease could pose a threat to the industry, but the project would support eradication of susceptible trees.  Estimated Cost: Local Foreign Total