Chad - National Livestock Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6912-CD STAFF APPRAISAL REPORT CHAD NATIONAL LIVESTOCK PROJECT April 22, 1988 Africa Region Sahelian Department Agriculture Operations Division Thds document has a redtcted and may be usod by oly En the perforance of |thdr offlidl duies lbs contets may not odherw be disclosed Wodd B1k dnion.  CURRENCIES Currency Unit a CFA Franc (CFAF) US$1 a CFAF 277 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ADF African Development Fund BDEAC Banque de Developpement des Etats de l'Afrique Centrale BIEP Interministerial Bureau for Studies and Projects CCCE Caisse Centrale de Cooperation Economique (Economic Cooperation Fund France) DGIS Dirqetorate General for Internationtl Cooperation (The Netherlands) EDF European Development Fund EEC European Economic Community ENATE Ecole Nationale des Techniciens de l'Elevage FAC Fonds d'Aide et de Cooperation (France) GDS Groupements de Defense Sanitaire GTZ Society of Technical Cooperation (W. Germany) LOI Letter of Intent MAGAVET Magasin General d'Approvisionnement en Produits et Materiels Veterinaires MEHP Ministere de l'Elevage et de 1'Hydraulique Pastorale ONHPV Office National de l'Hydraulique Pastorale et Villageoise PARC Pan African Rinderpest Campaign PFP Policy Framework Paper PPAR Project Performance Audit Report PPF Project Preparation Facility SONAPA Societe Nationale de Production Animale SOTERA Soci&te Tchadienne d'Elevage et Ressources Animales TLU Tropical Livestock Unit FISCAL YEAR Government: January 1 - December 31  FO0 OFMCUL USE ONLY CHAD NATIONAL LIVESTOCK PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS DOCUMENTS CONTAINED IN THE PROJECT FILV .................... iv CREDIT AND PROJECT SUMMARY * ................................ v INTRODUCTION * ******@@00*0 000000000000000000*00000000000 **o* 1 I0 BACKGROUND * .......................................... 1 II. THE AGRICULTURE SECTOR .0000000000000 .................. 3 III. THE LIVESTOCK SECTOR . .............. ................... 3 A. Role in the Economy ............................... 3 B. The Production System * .............................. 4 C. Marketing ......................................... 5 D. The Institutional Framework ...... ................. 7 Ministry of Livestock and Pastoral Water Supply.. 7 Training Institutes ..... ........................ 8 General Distributor of Veterinary Pharmaceuticals 8................................ 8 The Water Bureau ...*.........* ................. 8 National Office for Village and Pastoral Water... 9 Farcha Slaughterhouse ....*...................... 9 Farcha Laboratory ...... ......................... 9 National Animal Production Enterprise ..... ...... 10 S. External Financing ................................ 10 1. Bilateral and Other Donors ................... 10 2. Previous IDA Involvement and Bank Strategy in Chad ........................... 11 F. Summary .......................................... 12 This report is based on the findings of an appraisal mission undertaken in July 1987 by a team consisting of Mr. C. de Haan (mission leader and senior livestock expert), Mr. M. Asseo (senior economist), Mr. S. Onwona (economlst), Mr. J.-M. Clanot (consultant sociologist), and Mr. R. Beck (consultant ecologist, representing also DGIS). The mission was further assisted in the field by Mr. R. van den Brink (economist) and accompanied by Messrs. Razafindrakoto and Ducroquet from ADF and Mr. P. Riches from FAC. The report was edited and typed by Mrs. F. Resa and checked by Ms. J. Masterson. This document has a resicted distribution and may be used by recipients Olly In the pefomace of their official duties. Its contents may not othewise be dischsed wihout World Bank autiaton  Table of Contents (continued) Pate No. IV. THE PROJECT .................... 12 A. Project Origin, Rationale and Objectives 12 B. Project Area ...13 C. Summary Project Description 13 D. Detailed Features 15 (1) Policy Component ......................... 15 (a) Cost Recovery for Veterinary Services ... 15 (b) Liberalization and Privatization of Input Supply ......................... 15 (c) Reform of Export Circuits 16 (d) Improved Use of Staff Resources 16 (e) Pastoral Land Use Policy 16 (2) Project Investments 17 (a) Introduction ....... .17 (b) Pastoral Associations 17 (c) Input Distribution and Private Animal Health Services and Meat Exports ...... 18 sd) Research .......000000**& 19 (e) MEHP Field Services 20 (f) MEHP Central Facilities 21 (g) Operating Costs 22 V. ORGANIZATION AND MANAGEMENT ........................... 23 Pey Staff Prpaaton............................... 23 Project Preparation ..23 VI. COST ESTIMATES AND FINANCIAL ARRANGEMENTS ............. A. Project Costs . ...... 24 B* Financing ..........5............................ 25 C* Procurement 26 D. Disbursements ..... 27 E. Production, Financial Implications, Benefits and Risks .... ..27 Incremental Production ......27 Financial Implications for Government 28 Benefits ......29 Equity Considerations .....30 Risks 30 Environmental Considerations 30 VII. AGREEMENTS REACHED AND RECOMMENDATIONS ................ 31  - iii - ANNEXES 1 The Sociological Context 2 Livestock and Feed Resources 3 Present Regulations Affecting Marketing and Export of Cattle 4 MEHP Organigram 5 MAGAVET Cashflow and Profitability 6 External Assistance to Livestock Sector 7 Letter of Intent on Livestock Development Policy 8 Experience with Pastoral Associations 9 Private Animal Health Care 10 Project Monitoring 11 Technical Assistance and Training 12 Implementation Schedule 13 Project Cost Summary 14 Financing Plan by Project Component 15 Disbursement Schedule 16 Economic Benefits 17 Government Cash Flow MAP IBRD No. 21015  CHAD NATIONAL LIVESTOCK PROJECT DOCUMENTS CONTAINED IN THE PROJECT FILE Ref. No. Document Date D02723 Rapport de Preparation, FAO/CP 2/20187 D06559 Commercialisation du 3etail Bovin et des viandes bovines au Tchad 12/76 D06560 L'evolution du cheptel tchadien et sa production 12183 D06561 Formation recyclage des cadres on methodologie d* planification - rapport de mission d'identification 4/20185 D06562 Journees nationales de reflexion our l'elevage au Tchad -- resolutions et recommandations 6/17/85 D06563 Personnel du Ministero do l'Elevage et do l'Hydraulique Pastorale et Villageoise 7/12/85 D06564 Coordination et suivi des activites du soctour agro-sylvo-pastoral -- note preliminaire sur la strategie de doveloppement du sectour 6/86 D06565 Programme dhydrauliquo villageoise et pastorale a Tchad -- ovaluation des moyens do l'ONHPV en personnel et materiel 9/86 D06566 FAO Preparation Report 2/3/87 D06567 Etude sur la commorcialisation du b6tail et des produits de l'ilevafe -- rapport prelmlinaire 8/87 D06568 Premi$re rounion d'evaluation do la campagne panafricaine 1986-1987 (rapport final) 6/3/87 D06569 Range Management Aspects -- R. Beck 9/87 D06570 Equipment needs of MEMP 1987 D06571 Economic Cost and Analysis 9/87 D06572 Cost Tables 9/87 D06573 Ministere do l'Elevage et do l'Hydraulique-Budget 1985 1985 D06574 ONHPV - bilan au 31 decembre 1985 1985 D06575 Magasin General d'Approvisionnement on Produits et Materiels Voterinaires (MAGAVET) -- bilan compte d'exploitation goneral et annexes -- exercice 1985 1985 D06576 MAGAVET - budget 1987 1987 BIR Sociological Aspects, J. C. Clanet 1987 /IR Water Resource, F. Authoserre  CHAD NATIONAL LIVESTOCK PROJECT CREDIT AND PROJECT SUMMARY Borrowers Republic of Chad Beneficiart: Ministry of Livestock and Rural Water Supply (MEHP) Amount: SDR 13.2 million (US$18.6 million equivalent) Terms: Standard IDA terms, with 40 years maturity Onlendina Terms: Part of the Credit (US$2 million) would be passed on to a commercial bank for on-lending to the private sector at interest rates based on the discount rates of the Bank of Central African States plus a maximum of 5% overhead charges and 6 months to 10 years repayment periods according to the type of subloan. Cofinancinas The African Development Fund (ADF), the French Cooperation Fund (FAC) and the Dutch Technical Cooperation Directorate (DGIS). Prolect Descriptions The proposed project would be the first five-year stage of a long-term program to strengthen Chad's livestock sector. The project's main objectives would be to increase national livestock production, producers' incomes and Government revenues on a sustainable basis. This would be achieved through a combination of policy reforms anu project activities. Policy reforms would include: (i) increased cost recovery for services rendered; (ii) liberalization and p_ivatization of the import and distribution of veterinary pharmaceuticals; (iii) reform of livestock export regulations and institutions; (iv) stabilization of staff levels of the Ministry of Livestock and Rural Water Supply (MEHP); and (v) introduction of appropriate land use policies aimed at long-term resource conservation. Proiect activities would include: (i) development of traditional groupings into pastoral associations, and rehabilitation of water points in the framework of these associations; (ii) strengthening of input supply systems; (iii) strengthening of rangeland and crop/livestock research; (iv) introduction of more efficient extension methods in MEHP's field services, and rehabilitation of their facilities; and (v) strengthening of MEHP capability for planning and coordination.  - vi - Estimated Costs (US$ million) a/ component Local Foreian Total Pastoral Associations 1.4 2.6 4.0 NAGAVET 1.3 3.8 5.1 Research 0.6 1.6 2.2 MEHP Field Services 4.1 8.5 12.6 MEMP Central Services 2.1 4.2 6.3 Total Baseline Costs 9.5 20.7 30.2 Physical Contingencies 0.9 1.7 2.6 Price Contingencies 1.7 2.7 4.4 Total Project Costs 12.1 25.1 37.2 a/ Inclusive of taxes and duties of US$3.7 million Financing Plan (US$ million) Source of Finance Local Foreian Total IDA 6.5 12.1 18.6 ADF 2.8 8.8 11.6 FAC 0.2 1.1 1.3 DGIS 0.2 1.6 1.8 MAGAVET 0.5 1.0 1.5 Goverrnent 1.0 - 1.0 Producers 0.9 0.5 1.4 12.1 25.1 37.2 ... Estimated IDA Disbursements (US$ million) IDA FT 1988 1989 1990 1991 1992 1993 1994 Annual 1.7 2.6 3.3 3.9 3.2 2.4 1.5 Cumulative 1.7 4.3 7.6 11.5 14.7 17.1 18.6 Benefits and Risks The project would improve the policy and institutional framework of the livestock sector in input delivery, extension, marketing and export. This would result In an increased production of meat and consequently  - vii - in increased Government and producer revenue, and in increased production of milk, leading to Improved nutrition. The accompanying efforts in resource conservation would provide essential elements of a long term strategy in this domain. Risks concern the efficiency of MEHP in implementing the project and the recurrence of drought. These risks would be mitigated by a well defined technical assistance component, a strong training component, the project's approach to work within existing Government and traditional structures snd the introduction of better resource management policies aimed at making the sector less vulnerable to drought. Economic Rate of Returns No rate of return is presented because of the paucity of data on the sector and the nstitution building nature of the project. An alternative type analysis, more compatible with the quality of Chadian data, demonstrates however that significant results can be achieved within a seven to nine year time fram.  CHAD NATIONAL LIVESTOCK PROJECT STAFF APPRAISAL REPORT INTRODUCTION 1. The Government of Chad has requested IDA's assistance to finance a National Livestock Project in support of its policy to increase livestock production, enhance the role of the private sector, especially through self-financing producer associations, and rationalize and improve the efficiency of the public sector. The project was prepared by the FAO/Cooperative Programme in November 1986 and was appraised in July 1987. Negotiations were held in Washington from January 12 to 15, 1988. The African Development Fund (ADF), the Fonds d'Aide et de Cooperation (FAC) of France and the Directorate General of International Cooperation of the Netherlands (DOIS) have confirmed their participation in cofinancing this project. I. BACKGROUND 2. Chad is a landlocked country of 1.3 million km2 in the heart of Africa, of which about half is suitable for farming and grazing. Four main climatic zones can be distinguished depending on rainfall: - a desert zone to the north of the 15th parallel (more than half the country's surface), where life is confined to the oases; - a semi-desert zone between the 15th parallel and the 300 mm isohyet (Lake Chad) with a short rainy season, which can support extensive livestock production; - the Sahelian zone between isohyets 300 mm and 800 mm with a four-month rainy season, which allows more intensive livestock grazing and cereal production; and - the Sudanian zone in the south of the country with a sub-humid climate and a rainfall of up to 1,200 mm over six months of the year, which has a good potential for annual food crops and cotton. 3. Chad's population is estimated at 4.9 million (1984), with a low average density of about four inhabitants per square kilometer. In recent years, population growth has averaged 2.21 p.a. About 85Z of the  - 2 - population is rural. The five most southern districts account for about 10% of the totql area but contain 452 of the population, with an average density of 20 inhabitants per km2. 4. With an estimated per capita income of about US$160 (1986), Chad is ranked among the very poorest countries in the world. Agriculture, including livestock, fisheries and forestry, is the mainstay of the economy and contributed close to half of GDP in 1985; manufacturing and construction contributed 20%; and services about one-third, as a result of high transportation costs and a large civil service. Chad's landlocked position, difficult internal transportation conditions, sparse population, quasi absence of banking services, limited domestic market and weak human resource base are severe constraints to the development of its economy and reduce its export competitiveness. 5. Chad is a fragile nation which has faced three major crises since independence in 1960. In 1979, bitter internal conflicts evolved into a four-year civil war. Droughts occurred in the early 19709 and again in 1984-85 just as the civil war was subsiding. More recently, public and private revenues suffered from a sharp drop in the world price of cotton, Chad's major export crop, which previously provided 25% of government revenues. In 1987v the price of cotton has gone up again, but Chad's heavy dependence on this sole crop characterized by highly volatile world market prices, makes its economy very vulnerable. Positive factors, however, include an active trading and cottage industry sector, vast expanses of arable land and two almost unused perennial rivers. In addition, the country has considerable resources in livestock, oil deposits (under study for exploitation) and other mineral reserves yet to be evaluated. 6. Chad's economy is recovering from the emergency situation which prevailed in the aftermath of the civil war and the drought. Real GDP for 1987 is expected to exceed its 1977 peak, although per capita income will remain below its 1977 level due to population growth. Good rainfall in 1985 and 1986 allowed food production to nearly regain self-sufficiency, but pockets of food scarcity remain due to inefficiencies in distribution. 7. Government's attention is now shifting from ad hoc emergency operations to longer term development planning. Its immediate objectives are to (a) achieve national food security; (b) reduce dependence on cotton; (c) rehabilitate the road network; and (d) accelerate the development of human resources. Long-term objectives are to (i) combat desertification; (ii) diversify production; (iii) improve rural water supply; (iv) provide basic health care; (v) rehabilitate commercial and financial structures; and (vi) rebuild the industrial sector and exploit the country's petroleum resources. The Government has indicated in the March 1987 Policy Framework Paper (para 35) that it intends to reach these objectives through the promotion of private, mostly small-scale, self-financing and traditionally rooted initiatives, thus limiting public sector intervention and civil service growth.  II. THE AGRICULTURE SECTOR 8. Agriculture, including livestock, forestry and fisheries, provides the livelihood of 85X of the population. In 1985, 52% of the total value of agricultural production came from food crops, 91 from cotton, and 39% from livestock and fisheries. In the absence of other resources, agriculture should thus be the locomotive of Chadt's growth. However, immediste opportunities will have to be sought preferably outside the two main crops, cereals and cotton. Increase in cereal (millet and sorghum) production is constrained by limited domestic markets, unreliable export markets, periodic droughts and the absence of proven technologies; cotton production is constrained by fluctuating world market prices. 9. Increasing livestock production is one of the more attractive and immediate agricultural development options. A rapid expansion of the Irrigated areas is not feasible because of lack of implementing capacity in the country and the doubtful economic viability of irrigation (particularly for rice). Crop diversification requires still further research and development planning. Expansion of livestock production does not have these drawbacks because all the resources are available and remunerative markets exist. The Bank's agricultural strategy in Chad thus envisages immediate investments in the livestock sector, as well as studies and research on diversification and irrigation opportunities (under the Agricultural Rehabilitation Project, (Cr.1775-CD) (para 34)), followed by actual investments in these subsectors in the Agricultural Services Project (FY90). III. THE LIVESTOCK SECTOR A. The Role in the Economy 10. Livestock raising is a major economic activity involving 40% of the rural population. In 1985, livestock production was estlmated at 87,000 tons of meat and 100,000 tons of milk for a total value of US$180 million. Livestock on hoof normally accounts for 301 of the formal and informal merchandise exports, second only to cotton, and has a potential for further substantial growth. Growth of the sector was seriously disrupted by the civil war, a Rinderpest outbreak in 1983 and the drought of 1984. Most recent data (1985) from the Ministry of Livestock and Rural Water Supply (MEHP) suggest that there are around 3.7 million cattle, 4.5 million sheep and goats, and 0.9 million camels.  -4- B. The Production System 11. About 75% of Chadian livestock is raised by migratory pastoralists of various ethnic backgrounds but with similar traditional hierarchical structures. At the top of the lineage is a chieftain, often appointed by the Government and responsible for the collection of taxes. The intermediate level consists of pastoral clans, each with a different number of fractions. The bottom level is composed of families grouped around mobile encampments. The typical family has between six and 15 members, owning in the arid areas about 10 to 20 camels, and in the somewhat more humid areas 30 to 50 cattle and generally 20 to 30 sheep and goats. The family head is the key decision-maker on day-to-day herd management. The actual herding is mostly done by the younger family members, milking and sale of the dairy products by the women. 12. The pastoral clan traditionally built and managed water points and organized the movements of its members' herds between wet and dry season grazing areas. Grazing rights were clearly defined, and were directly controlled by the clan leaders (Sahelian Zone) or negotiated by them with cultivator groups (Sudanian Zone). In more recent times the importance of this traditional hierarchy has been eroded through the provision of free public water, increasing population pressure and attempts by the central administration to reduce the authority of the traditional leaders. Traditional hierarchy still remains, however, the most important decision-making structure in matters of watering and grazing. Further information on the sociology of the pastoral societies in Chad is provided in Annex 1 and the Project File. 13. Sedentary livestock production systems prevail in the Sudanian zone. Cultivators keep livestock for animal traction, and some previously migratory herders from the Sahel have settled with their livestock in these more humid areas. Stimulated by the cash from cotton sales, animal traction has developed strongly in southern Chad and currently uses 130,000 pairs of oxen. Traditional structures are weaker in these cultivator communities. Groups for the protection of animal health ('Groupements de Defense Sanitairel - GDS) have been successfully introduced in southern Chad under FAC-financed projects. Most of these GDSs withstood the turmoil of the civil war, but at present their effectiveness seems to be limited, mainly by the lack of veterinary inputs. The project would address this issue. 14. Almost all livestock are kept on communally-owned rangelands. About 75% of the cattle migrate between the Sahelian rangelands in the rainy season and the flood recession plains and natural grasslands of the Sudanian zone in the dry season. The high mobility of these transhumant herds is a definite advantage in periods of drought; during the last drought, the mortality rate in sedentary herds was three to four times higher than in Sahelian transhumant herds. In normal years, Chad has adequate feed resources in the Sahel and unexploited rangelands and crop by-products in the Sudanian zone. In drought years, fodder production in the Sahelian zone is inadequate but, because of the surplus in the Sudanian  zone, total available feed would still be enough for a somewhat expanded and more mobile herd. Development strategies should, therefore, aim at reinforcing the mobility of Sahelian herders and at increasing the exploitation of the Sudanian rangelands. More detailed information on Chad's feed resources is given in Annex 2 and the Project File. 15. Although the threat of irreversible destruction of the rangelands is less acute in Chad than in other Sahelian countries, localized degradation occurs, and the long-term danger of desertification is real. However, the present system of communal land ownership is not conducive to conservation, as individuals or groups interested in investing labor or financial resources in rangeland conservation would not have exclusive benefit from these investments. In order to mobilize the internal discipline of the traditional societies and achieve a more rational rangeland use, a gradual modification of the land tenure system would be pursued under the project. It would allow the grazing rights to a specific tract of land (or tracts of land in the wet and dry season areas with trek routes in between) to be allocated to specific groups (i.e., the herder associations created under the project). 16. Livestock diseases are the most important threat to the Chadian livestock producer. Mortality losses in all livestock species total about US$60 million per year or more than one-third of total annual production or 1.5 times total annual exports. Camel production is severely constrained by internal parasites and by trypanosomiasis, a blood parasite transmitted by the tsetse fly. The few regional epizootiological studies on camel mortality indicate that average young stock mortality is 35%, and average adult mortality, 7%. Cattle suffer also from internal and external parasitic diseases, and have been, in addition, seriously threatened by the highly contagious diseases, Rinderpest and Contagious Bovine Pleuro Pneumonia (CBPP). A Rinderpest outbreak in 1983 caused losses estimated at 20% of the total population, or 600,0000 animals. A European Development Fund (EDF) and FAC-financed campaign has now brought Rinderpest under control, although the annual vaccination campaigns need to be continued. Serious losses are further caused by the more localized theiluric diseases, anthrax, blackleg and pasteurellosis. As a result, overall calf mortality is about 30% and adult mortality is 2-4%. Small ruminant production is also impaired by internal parasites and additionally suffers from periodic epidemics of Small Ruminant Pest (SRP), a virus disease which can wipe out the sheep and goat population of an entire village. Young stock mortality in small ruminants is estimated at 40%, adult mortality at 10%. C. Marketing 17. Pastoralists sell their livestock to small private traders at local markets. These traders, in turn, bring the animals to six principal markets, where they sell them on to larger traders for export or domestic consumption. Total annual offtake is estimated at about 80,000 camels, 375,000 cattle and 800,000 sheep and goats. Of this total, about 125,000 cattle, 300,000 sheep and goats and almost all camels are consumed locally, the remaining 250,000 cattle and 500,000 small ruminants are exported. In  -6- 1986, when world cotton prices slumped, the total value of livestock exports of about CFAF 12 billion was only slightly below foreign exchange earnings from cotton (CFAF 14.5 billion). In years of better cotton prices, livestock exports generate about half the income from cotton. Practically all livestock movements are on hoof, exported almost exclusively to Nigeria, even though before the war Chad exported substantial quantities of meat (10 to 20,000 tons per year, equivalent to 70,000 to 140,000 Tropical Livestock Units 1/ ) to Brazzaville and Libreville. The bulk of these two markets have since been taken over by subsidized frozen meat from the European Economic Community (EEC). 18. A livestock marketing study, carried out in 1987 under the Agricultural Rehabilitation Project (para 34) showed good market prospects for ChadWan livestock. The Nigerian market presently Imports the equivalent of about 80,000 tons of meat, and this deficit is expected to rise to about 250,000 tons by the year 2000. Half of this lemand stems from northern Nigeria, where Chadian livestock can effectively compete with meat imports from overseas, even with the subsidized meat from the EEC (para 75). Furthermore, while the bulk of the meat markets of Brazxaville and Libreville probably cannot be regained in the imediate future, there are some limited opportunities for the export of high quality chilled meat by air. Chad should promote such exports of meat and other processed livestock products to increase the value added remaining in the country. The credit line for private traders (para 54) and the improvement of the Farcha slaughterhouse envisaged under parallel financing would support such promotional efforts (para 28). 19. Chad's complex livestock export regulations requiring about ten different permits, licences, certificates and fee payments (Annex 3) until recently seriously hampered exports. They are now being simplified as part of the policy reforms instituted by Government under the project (para 46). A second export constraint, the level of export taxation (20 to 40S of the animal's value) would receive further attention under the Financial Rehabilitation Credit (para 35). This high level not only puts Chadian livestock at a comparative disadvantage vis-a-vis cattle from other countries, but also leads to extensive exports outside the official channels, thus depriving the State of an important source of revenue. A tax reduction might, together with the ongoing simplification of export procedures, reduce the present level of tax evasion, and thus yield an overall increase of Government revenue. However, such a tax reduction can only be attempted gradually and in an experimental fashion, and is therefore better carried out in the wider context of a general fiscal reform as envisaged under the proposed Financial Rehabilitation Credit. lt Tropical Livestock Unit (TLU) - One animal of 250 kg, a standard used to aggregate different classes of livestock.  - 7 - 20. The livestock export policy reforms already initiated under the project include also a comprehensive modification of the role of the Chadian Company for Animal Resources (SOTERA). SOTERA is a mixed-economy enterprise, owned 511 by Government and 491 by 72 private shareholders, established in 1974 with a monopoly on the exports of meat, hide and skins. With the decline in meat exports, however, its functions had evolved almost exclusively to issuing and controlling export permits of livestock on hoof, for which SOTERA obtained a monopoly in 1977. These export permits were distributed to the private shareholders of SOTERA proportionally to the number of shares they held. However, the total number issued each year was less than half the total export requirements. The resulting scarcity: (i) enabled SOTERA shareholders to resell their export rights at many times the nominal fee they paid, thus providing the shareholders with a rent of up to CFAF 1 billion per year; (ii) deprived the State of tax revenues, as livestock which could not be exported within the quota of SOTERA export permits was forced to be exported through unofficial channels; and (Ili) forced those exporters not able to obtain a SOTERA permit to make considerable illicit payments both inside and outside the country because of the absence of legal export documents. As a result, Chadian livestock producers receive CFAF 30,000-50,000 (US$100-150 or 25-50% of its gross value) per head less than producers in neighboring countries. A substantial liberalisation of the export circuits is therefore introduced under the project (para 46). D. The Institutional Framework 21. The Ministry of Livestock and Rural Water Supply (MEHP) operates through a State Secretary, a Directorate General, two Directorates (Livestock and Veterinary Services, and Training and Research) and six parastatal enterprises (Annex 4). The Ministry's roll of 971 staff, including 79 professionals, 76 middle-level and 373 lower-level technicians is, in view of Chad's livestock population, slightly understaffed in the professional category, adequate in the middle level, but may be in excess of normal requirements in the lower-level technician category. MEHP's field services are organised around six livestock districts, 23 livestock sectors (an average of four per district) and 77 livestock posts (an average of three per sector). This narrow hierarchical pyramid is justified in view of Chad's poor commnmications. The technical capacity--especially of the lower-level technicians--is poor. Their training has been inadequate; no structured effort is being made to keep their skills up-to-date or to give them clear guidelines on the kind of messages to disseminate and how to communicate with producers. Staff retraining and upgrading and the introduction of an improved extension methodology have, therefore, high priority. 22. MEHP's 1987 budget amounted to US$1.3 million, of which US$1.2 million was for staff salaries and only US$130,000 for operating costs. These operating funds are barely adequate to finance the minimum logistical support of MEHP's central services and leave no resources whatsoever for the field services. As a result, field services have virtually ceased to operate, though salaries continue to be paid. No funds are available for  extension and field research. An exception is the three-monthly Rinderpest campaign, which is externally funded by FAC, EDF and FAO in the framework of a continent-wide Rinderpest control effort, the Pan African Rinderpest Campaign (PARC). FAC furthermore provides a technical advisor to MEHP. To better balance staff and operating resources and convert MEHP into a viable institution, a policy of maintaining total salary expenditure at its present level, while enhancing revenue through improved cost recovery, would be pursued under the project. 23. The Training Institutes. Technical training of livestock agents is provided in Chad by two institutes: MEHP's National School for Livestock Agents (ENATE), which produces approximately 30 lower level technicians per year, and the Education Ministry's University Institute for Livestock Technicians, which trains approximately 12 middle level technicians per year. The quality of education in these institutes is poor and heavily oriented towards veterinarian aspects. All veterinarians and higher level animal production specialists are trained outside the country, principally in Senegal or France. Graduates of both foreign and local institutions have an automatic right to a civil service position. 24. The General Distributor of Veterinary Pharmaceuticals (MAGAVE?) has a monopoly on the import and nationwide distribution of all veterinary drugs. It operates through ZEHP's field services, whose agents have the sole right to sell and administer veterinary drugs in their respective geographic areas. In 1986, MAGAVET's total income amounted to US$280,000, including US$70,000 from a levy on the export of cattle. Government contributed a further US$30,000 to the salaries of MAGAVET's management. Annex 5 provides an overview of the financial performance of MAGAVET over the last three years. Drug sales though MAGAVET amounted in 1986 to only US$0.07 per T.L.U, i.e., about 10% of the minimum requirements for adequate herd health maintenance. This low consumption is caused by inefficiencies in MAGAVET's distribution network and the sale and administration monopoly of MEHP's field service agents -- frequently located 200 km apart and without much incentive to sell drugs. The low consumption results in poor animal health and high production losses (para 16). A substantial improvement in the supply of veterinary pharmaceuticals would be a key element in improving animal health and production in Chad. 25. The Water Bureau, administered by an Interministerial Committee but organically under the Director General of MEHP, is responsible for the planning of pastoral and village water in Chad, but is at present almost non-functional. There are about eight donors involved in pastoral water development (and another 12 in village water development), mainly through the rehabilitation of existing Government water points, but frequently without due regard to the carrying capacity of the surrounding rangelands or to the prior existence of traditional clan-owned wells. This results in localized overgrazing and in the undermining of traditional resource management discipline. Under the project the Water Bureau would be strengthened so that better resource management strategies can be effectively planned and implemented.  - 9 - 26. The National Office for Villate and Pastoral Water (ONHVP), an autonomous parastatal under the responsibility of the Ministry of Livestock and Rural Water Supply, maintains, rehabilitates and constructs village and pastoral water points in the rural areas. Chad has about 2,500 Improved rural water points (concrete wells, tubewells or boreholes), only half of which are reported to be operational. Official government policy requires a beneficiary contribution for pastoral water from mechanized boreholes and for hand-pumped water for human consumption. However, the ensuing revenue is far below the total maintenance and operating costs of the water points. Pastoral water from concrete wells is still provided free of charge, on the argument that maintenance requirements of these wells are low and fee collection from migratory herders would be too difficult and costly to implement. ONHVP is strongly oriented towards the construction of new water points, and is less equipped to provide maintenance services. 27. Under the ongoing Agricultural Rehabilitation Project ONHVP's maintenance capabilities are being expanded. Furthermore, FAC provides Technical Assistance to ONHVP. The medium-term strategy would aim at devolving the responsibility for the operation and maintenance of pastoral water points to the pastoral associations and at transferring the technical maintenance work to private artisans or entrepreneurs. Such strategy would be in with the January 1987 Government guidelines for village water development, which stipulate that the users assume full responsibility for recurrent and maintenance costs and that local artisans carry out such maintenance on behalf of the villagers. 28. The Farcha Slaughterhouse, near N'Djamena, has a capacity of approximately 20,000 tons per year, but actually processes only 7,800 tons because of the slump in the Brazzaville and Libreville meat markets. Its dilapidated facilities are being brought up to domestic market standards under financing from the Agricultural Rehabilitation project (US$100,000 for structural work), the Economic Cooperation Fund of France (CCCE) (US$600,000 for equipment) and FAC (technical assistance). A further rehabilitation to bring it up to West African meat export market standards is envisaged under a second CCCE Credit (US$1.3 million) for further equipment, and under ADF financing in parallel to this project (US$2.5 million) for civil works. The slaughterhouse is presently covering its day-to-day operating expenditures. A fee increase, to be introduced shortly, should provide for maintenance and debt servicing. 29. The Farcha Laboratory has, from the fifties to the mid-seventies, through research and vaccine production, played a key role in disease control in Chad and neighboring countries. Its main departments are Virology, Bacteriology, Range Management and Vaccine production. It counts about 20 scientists; six of them are expatriates financed by FAC. EDF and FAC funding is provided for the rehabilitation of the Vaccine Production and Virology Departments, and IDA's Agricultural Rehabilitation Project finances additional equipment and operating expenditure for other veterinary work. FAC also finances studies on camel and cattle productivity. The latter is being completed under the IDA-financed Agricultural Rehabilitation Project. The animal health research needs  - 10 - further strengthening in the epidemiological aspects and in the economic evaluation of disease control strategies. Rangeland research remains weak, hampered by a dearth of trained Chadian range ecologists and livestock production scientists and by lack of equipment and funding for field research. There is no research aimed at fostering crop/livestock integration. 30. The National Animal Production Enterprise (SONAPA) produces livestock feed, has a milk collection and processing facility, and distrib- utes inputs to private poultry producers. It operates exclusively around N'Djamena and is being rehabilitated through a credit of US$1.5 million from the Development Bank for the Central African States (BDEAC). S. External Financina 1. Bilateral and Other Donors 31. The major sources of external financing and technical assistance for the Chadian livestock sector are EDF and FAC. Smaller contributions are provided by the West German Technical Cooperation Society (GTZ) and by the non-government organization OXFAM. A detailed list of externally financed livestock projects is given in Annex 6. Institutional support to MEHP, ONHVP, the Farcha Laboratory and slaughterhouse and SONAPA has been described earlier (paras 22, 27, 28, 29 and 30). FAC, EDP and FAO have jointly financed Rinderpest vaccination campaigns from 1983 to 1987. FAC supports animal health and supplementary feeding activities in an Integrated Rural Development Project in part of the Chari'-Baguirmi district and the formation of producer groups for input distribution and simple treatments for draft oxen in the cotton areas (para 13). FAC has indicated its interest in integrating these activities into the proposed project in 1988, at the end of their ongoing agreement. GTZ's support has just started in the Ouaddai district with the organization of a grassroot animal health system and the formation of herder associations. EDF finances the rehabilitation of Livestock Service buildings in the Sahelian zone, water development and the creation of two herder associations in part of the Kanem and Batha provinces. Finally, OXFAM has just started 50 herder associations in the eastern Batha district, each comprising a small number of herder families. 32. The large variety of donor agencies and weak coordination result in duplication, sometimes inconsistent policies, poor standardization and suboptimal use of resources. MEHP has no accurate information on the status and impact of the different projects. Also, the various donors sometimes follow different and conflicting policies, for example, with regards to the degree of Government involvement and the level of initial beneficiary participation in herder associations. New water points are implanted without regard to other donor activities or to other donor and Government efforts to introduce beneficiary participation in water point maintenance. Finally, lack of standardization of pumping equipment greatly complicates water point maintenance. In order to improve donor  - 11 - coordination, the project has involved the major donors in its preparation and appraisal and would aim tot (a) strengthen the central coordination agencies (MEHP's Project Monitoring and Evaluation Unit and the Water Bureau); (b) articulate clear livestock policies; and (c) organize regular donor consultations. 2. Previous IDA Involvement and Bank Stratezy in Chad 33. IDA lending for the subsector has been limited to the First Livestock Project (Credit 309-CD, US$2.2 million approved in February 1972), and consisted mainly of studies and well construction and repair. The Project Performance Audit Report (PPAR) concludes that the project succeeded in achieving its objectives, but because of the civil war its impact was smaller than initially planned. Due to the civil wfar, the Second Livestock Project (Credit 783-CD, US$11.5 million, approved in March 1978), with a more comprehensive approach including delineation of pastoral units, animal health activities, credit and Livestock Service staff training, was cancelled before becoming effective. The PPAR concluded that the project was well designed and appraised and that its main elements are still considered essential for successful pastoral development. IDA's post-war agricultural lending program has so far addressed the emergency situation in the cotton subsector (Credit 1716-CD) and the urgent need for planning and aid coordination (Agricultural Rehabilitation Project, para 34). In line with Goverment, the Bank's strategy is now shifting to a longer term perspective, allocating high priority to investments which (a) give early returns through increased production; (b) do not significantly increase Government recurrent charges; and (c) if possible, contribute to increase Government revenues. 34. The Agricultural Rehabilitation Project (Credit 1775-CD) aims, in the livestock sector, specifically to la) assist MEHP in defining an overall development policy through the provision of technical assistance in livestock production economics (2 man-years); (b) assist the Inter- ministerial Office for Studies and Projects (BIEP) and HEHP in carrying out studies on livestock marketing (para 18) and completing a livestock census and productivity survey started under FAC financing; and (c) provide an initial funding for urgent structural rehabilitation work at the Farcha slaughterhouse and for the equipment and rehabilitation of the Farcha veterinary laboratory and support services. In view of the delays in starting the Agricultural Rehabilitation Project, the policy formulation tasks would aim at monitoring and fine-tuning the reforms to be undertaken under this project. Under the Economic and Financial Management Project (FY89S), Government plans to carry out management studies and audits on six key parastatal companies including the Farcha slaughterhouse and SONAPA. 35. The Policy Framework Paper (PFP), formulated in March 1987 in close cooperation between Government, IDA and IMF, fully supports the analyses and proposed strategies in this project. It specifically acknowledges the important role livestock could play in Chad's economic development and expresses Government intentions to (a) rationalize and simplify the livestock export regulations; (b) increase private sector  - 12 - involvement in the provision of inputs and services; and (c) restrict SOTERA's dominance in livestock marketing. The Financial Rehabilitation Credit (FY88), presently under preparation, would further underpin the policy changes in the sector by improving public investment prograiming, increasing the level of operating expenditure (other than personnel expenditures) and improving tax administration, especially addressing the issue of the high level of livestock export taxation. F. Summary 36. The proceeding paragraphs highlight the potential of the livestock sector to contribute to Chad's economic recovery. This potential would to be strengthened through: (a) the development of alternative channels for the provision of veterinary and other inputs, technical advice and management of water points and improved resource management using the traditional social groupings of the herders; (b) a gradual privatisation of drug sales and imports accompanied by an increase in drug prices to ensure the financial sustainability of the trade; (c) improvements in livestock export marketing by (i) abolishing the aystem of export quotas; (ii) cancelling SOTERA's monopoly and controls; (iii) simplifying export formalities; and (iv) simplifying, and possibly reducing, export taxation; Cd) improvements in the organization and technical level of the MEHP staff; (e) improvements in the operational capability of MRHP by instituting a better balance between salaries and other operating costs by limiting staff recruitment and improving cost recovery; and (f) improvements in the aid coordination and policy planning capabilities of MEHP. IV. THE PROJECT A. Project Origin, Rationale and Objectives 37. Oriain. The project was identified in June 1986 by an FAO/CP mission and ws initially conceived as a component of a larger Agricultural Sector Project. However, in view of the need for further studies in the crop sector, compared with the more immediate opportunities in the livestock sector, it was decided to accelerate the preparation of the livestock component and develop this component as a free-standing project.  - 13 - The project was prepared by an FAOICP mission in October/November 1986 and appraised in July 1987 by a Joint World Bank, ADF, FAC and DGIS mission. 38. Rationale. The project would be fully consistent with the development strategy agreed upon between the Government of Chad and IDA and would complement the mainly regional activities of other donors. IDA's involvement would be essential in having the Government focus on these policy and coordination efforts. Furthermore, the project would be an important element in IDA's overall lending program for Chad, as it would complement the planned adjustments envisaged under the Financial Rehabilitation Credit, implementing appropriate policies in the areas of livestock parastatals, public finance and fiscal administration. The project would also complement the IDA Cotton Emergency operations in its search for alternatives to cotton farming, would be an important precursor to the proposed Agricultural Services Project through its group formation and extension activities, and would be a follow-up on the policy formulation and research efforts started under the Agricultural Rehabilitation Project. 39. Objectives. The proposed project would represent the first five-year stage of a long-term program to strengthen Chad's livestock sector. The project's main objectives would be to increase national livestock production, producer income and Government revenue on a sustainable basis. This would be achieved through a combination of policy reforms and investments leading initially to improved access by producers to livestock health services and extension inputs and by merchants to export markets. A subsequent objective would lead to improved rangeland utilization and resource management. The project would strengthen the private and public sectors in the areas of their respective comparative advantages, i.e., the private sector in input supply and the provision of services to individual herders and the public sector in extension and sanitary control. The project would further institute policy changes aimed at export promotion and improved cost recovery. B. Prolect Area 40. The project's institution building components would be national in scope. However, the organization of pastoral associations would initially be undertaken inside a 20,000 km2 area located in the districts of Kanem, Chari-Baguirmi, Batha and Guera (see Map). All migratory production systems prevailing in Chad are represented in this area, thus making it well-suited for pilot operations envisaged for subsequent extension to the rest of the country. C. Summary Proiect Description 41. The project would combine essential policy reforms with investment and institution building activities. The policy reforms, which in part already have been implemented, aim to:  - 14 - (a) increase the degree of cost recovery for preventive and curative animal health services rendered by the public sector; (b) liberalize and privatize the import and distribution of livestock inputs and most veterinary services; (c) reform the livestock export circuits and liberalize marketing and export of livestock on hoof, by abolishing the export quota system and SOTERA's control and monopoly functions, and by simplifying the fiscal and administrative regulations affecting livestock marketing; (d) stabilize staff recruitment by the Ministry of Livestock and Rural Water and improve staff efficiency; and (e) define appropriate land tenure and pastoral water management policies to achieve long-term resource conservation. 42. These policy reforms would be underpinned with projlect activities to strengthen the sectoral institutions and improve their infrastructure. The project would provide funds for office construction and rehabilitation, equipment and vehicles, training and technical assistance and, on a declining scale, operating costs to: (a) create and strengthen livestock producer groups to play an expanded role in basic animal health care, water and resource management and the rehabilitation of approximately 100 water points; (b) improve input distribution and meat export by (i) strengthening MAGAVET's wholesale functions, increasing its working capital and expanding its regional network; and (ii) creating a line of credit to assist about 40 veterinarians andlor livestock technicians in taking up private retail distribution and clinical animal health services, and private traders in exporting meat or meat by-products; (c) strengthen the Farcha Laboratory to carry out producer-oriented research on rangeland conservation, integration of livestock into the farming system and the economics of disease control methods; (d) introduce efficient extension methods in the Livestock Service and retrain its staff, rehabilitate MEHP field facilities and provide them with basic veterinary and extension equipment and appropriate transportation; and (e) strengthen MEHP's planning, coordination, project monitoring and water development capability, and build and equip an additional office for MEHP in N'Djamena.  - 15 - D. Detailed Features 1. Policy Component 43. In line with Government's policies stated in the PFP (para 35), a comprehensive set of reforms would be introduced in the livestock sector. Government has formally committed itself to the principles of these policy reforms in a letter of intent (LOI) on livestock development policy; most reforms have been implemented before Board presentation of this project. In those areas where further studies or consultations are necessary, i.e., land tenure and land use policies, agreements on the broad principles have been reached at negotiations, but actual promulgation of the corresponding legislation would be at mid-term, i.e., before December 31, 1990. A policy matrix and a copy of the LO! are given in Annex 7 and detailed below. (a) Cost Recovery for Veterinary Services 44. The private sector would be encouraged to supply and distribute veterinary products (presently under MAGAVET monopoly) and provide veterinary services (now exclusively provided by the Livestock Services). To create a favorable environment for private institutions to develop and at the same time to Improve the operating efficiency of the Livestock Service on a sustainable basis, producers would pay for (a) the full real cost of non-compulsory vaccinations, curative treatments and clinical interventions; and (b) starting May 31, 1990, (at the end of the PARC) the marginal cost of compulsory vaccinations. Following agreement at negotiations, a fee of CFAF 50 after non-compulsory vaccination and CFAF 300 per clinical intervention has been promulgated; these amounts would be adjusted each year on the basis of more precise cost calculations by MEHP's Project Monitoring and Evaluation Unit (para 84(a)). Furthermore, Government agreed at negotiations that the revenue from these charges would be deposited in a Special Account in a commercial bank in Chad, and would only be used to pay non-salary recurrent costs of MEHP (para 84(b)). (b) Liberalization and Privatization of Input Supply 45. Increasing the supply of pharmaceuticals and other inputs would be the key action to generate an increase in livestock production. To achieve this, a significant liberalization and privatization of the import, distribution and administration of veterinary drugs is being introduced. To this effect, Government intends to transform MAGAVET into a mixed- economy company open to national and foreign partners, and has agreed at negotiations that the prices of all veterinary products sold by MAGAVET would be kept in line with their real costs and that as of July 31, 1988, all direct and indirect subsidies to MAGAVET would be suspended (para 84(c)). Publication of MAGAVET's revised statutes is a condition of Credit effectiveness (para 85 (a)). An audit and management review has been carried out, and an invitation for private investors to participate in MAGAVET has been published (Annex 7, appendix 2). Furthermore, Government has promulgated regulations authorizing all merchants to sell freely non-prescription veterinary products and all qualified private  - 16 - veterinarians and livestock agents to provide veterinary services and sell prescription and non-prescription veterinary drugs. Government has further agreed to abolish MAGAVET's drug import monopoly before January 1, 1991 (parm 84(d)). Preserving MAGAVET's monopoly until January 1, 1991, would be necessary to reorganize and strengthen MAGAVET and set up the necessary quality control capabilities in MEHP. The eligibility criteria for private companies to import and distribute veterinary products afterwards, to be estabiished in consultation with IDA, would be published before January 1, 1991 (para 84(d)). (c) Reform of Export Circuits 46. To market future incremental production and increase Government revenue from the sector, export circuits need to be substantially improved. This would be achieved by abolishing SOTERP's export monopoly and the system of export quotas and by simplifying the administrative and fiscal regulations. To this effect, Government has promulgated legislation pertaining to the abolition of all livestock export quotas (except reproductive females, needed to maintain the national herd) and SOTERA's export monopoly. Under this legislation, the number of Government agencies controlling livestock export is reduced to threes (i) the Ministry of Finance, which issues the livestock export licence, the validity of which has been increased to one year -- this livestock export licence is available to all interested persons and companies; (il) the Livestock Service, which issues the international health certificate, and is responsible for export statistics -- the livestock exporter is to pay for these services at their real cost; and (iii) the Customs Service, which levies a single export tax incorporating the previously levied export, business and debt amortization taxes. The feasibility of modifying the actual tax rate would be studied under the fiscal reform program to be initiated under the Financial Rehabilitation Credit (para 19). (d) Improved Use of Staff Resources 47. Staff resources of MERP are inefficiently utilized because of a combination of low budgetary resources and an automatic admission policy for all graduates applying for the Civil Service. Government has therefore agreed to maintain the staff of MEHP for the first five years of the project at the level of January 1, 1988 (para 84(e)). This staff freeze, combined with improved cost recovery procedures and temporary funding of non-salary recurrent costs by the project, would considerably improve the balance of non-salary to salary costs, thus allowing more efficient use of available staff. (e) Pastoral Land Use Policy 48. In order to promote a system of sustainable land use, Government would prepare, in close consultation with IDA, a national Pastoral Land Use Policy. Key elements of this policy would be (a) the transfer of hitherto public pastoral water points to pastoral associations; (b) the involvement of pastoral associations in the financing, management and maintenance of  - 17 - these points; and (c) the prior agreement of the Water Bureau, the Pastoral Organization Unit, traditional leaders and herder associations on the creation of new water points. The Land Use Policy would also include elements of territorial organization, the adjudication of exclusive grazing rights to pastoral associations and the granting of user rights of specific transhumance trek routes to those pastoral associations. Assurances were obtained at negotiations that Government would promulgate a land use policy based on these principles by December 31, 1990 (para 84(f)). 2. Proisct Investments (a) Introduction 49. Project investments would aim at strengthening sectoral institutions and providing them with the necessary infrastructure and operating expenditure. Institution building would be geared towards a realignment of responsibilities within the sector. Thuw, the responsibility for clinical and most preventive animal health services would be transferred to the private sector, I.e., to herder associations for the nomadic producers and to private livestock agents for the sedentary producers. This private animal health care system would be supported by the privatization of input distribution. Herder associations would also become increasingly involved in water point and resource management. MEHP would concentrate on the public sector tasks of extension and sanitary control, and remain responsible for the yearly vaccination campaign against Rinderpest and CBPP, because of their requirements for complex equipment and centralized management. In areas without private animal health practitioners, the Government would continue to dispense health services, but at full cost to avoid further constraining MEHP's budget and unfair competition with any emerging private initiative. (b) Pastoral Associations 50. Following the promising model developed in other countries (Annex 8), associations would be formed initially around the supply of veterinary drugs and simple veterinary care, because of the high priority pastoralists attach to these services. Training of selected association members (auxiliaries) in the use and management of drugs and pharmacies would therefore be the initial project thrust. The management of water points and the attribution of grazing rights would be added gradually. The associations would be based on traditional structures and hierarchies, but in a framework recognized by the Central Administration. The basic unit to evolve into a herder association would therefore be the clan (para 12). The clan would have the optimum size (50-200 families) for water point and resource management; for animal health care, it would be the umbrella organization through which the training of auxiliaries and the supply of drugs would be channelled to the smaller compounds (5-20 families) of the clan. Because of easier logistics and stronger social cohesion of the prevailing tribes in North-west Kanem, the organization of pastoral associations would be initiated in that part of the pilot area (para 40)  - 18 - and gradually extend East and South. The western part of the area has less acute water problems and, therefore, transhumance movements of smaller magnitude. The eastern part requires deeper wells (50 to 60 meters). Migrations in the eastern part are longer in time and distance covered and are concentrated along treks where water is available. 51. The project would support a Pastoral Organization Unit at MEHP headquarters to provide technical and organizational assistance to set up the associations and coordinate inputs of other agencies, such as MAGAVET and the field services of MEHP. Furthermore, it would be responsible for the initial training of the auxiliaries and coordinate the follow-up training to be provided by MEHP staff. The Unit would be staffed by a local sociologist, a veterinarian, an agrostologist and a statistician. Government has already established the Unit. Funds are being provided under PPF to train Chadian staff in the particular techniques of pastoral organization. The services of a specialist in pastoral organization (2 man-years) and short-term consultancies of a sociologist and a specialist in land tenure problems to assist the Government in the formulation of the Pastoral Land Use Policy (para 48) would be internationally procured. The project would also provide three vehicles and operating expenditure and carry out an aerial survey. Through the fellowship program and in close cooperation with the University of N'Djamena, the project would endeavor to establish a core of Chadian sociological and pastoral organization expertise, which could expand project activities to a national scale in a subsequent phase. Furthermore, funds would be provided under this component to rehabilitate aboat 100 water points in the pastoral organization zone, so that points can be allocated to individual associations as the pivotal point of a future land use policy. (c) Input Distribution, Private Animal Health Services and Meat Exports 52. Improving the availability of veterinary and other supplies would be the key factor in increasing livestock productivity and producer confidence. The project would therefore increase MAGAVET's stock of supplies, improve its distribution network and strengthen its management. Thus, the project would finance 75% of the necessary increase of MAGAVET stock (the other 25% would come from the sales margin), to a level capable of meeting six month's demand. Six distribution vehicles and two provincial distribution centers would be financed to facilitate the establishments of regular sales routes. These routes would reach pastoral associations, MEHP field posts, private technicians (prescription and non-prescription drugs) and private traders and markets (non-prescription drugs only). MEHP has already published the lists of permitted non-prescription and prescription drugs; updates would be published every three years. A sales manager would be recruited for three years to assist the Director General of MAGAVET in the organization and supervision of this crucial network. One-week training programs would be organized as required by MAGAVET in cooperation with ENATE, for private traders involved in the sale of non-prescription drugs.  - 19 - 13. To further assist in the privatization of animal health services in the field, a line of credit would be established under the project to finance the investments and initial operating costs of MEHP veterinarians and technicians who wish to start private veterinary practice and pharmacies. A total of up to forty loans, averaging $20,000 each, starting in PY2 would be envisaged. Government would encourage its livestock technicians to start these private veterinarian clinics and pharmacies. Thus, at negotiations it was agreed that Government would allow MEHP technicians to take up to two years of leave of absence without pay to test the feasibility of a private veterinary practice, and that it would open the possibility of involving these private technicians, on a contractual basis, in the obligatory Rinderpest/CBPP campaign (para 84(g)). An analysis of the profitability of these subloans is provided in Annex 9. 54. To open meat export markets for private traders, an additional line of credit of US$400,000 would be established under the project. With an expected turnaround time of 6 months, this amount would finance the export of up to 1000 tons of meat per year, and therefore be an important catalyst in re-establishing Chadian meat in foreign markets. Over the first three years of the project, the project would finance a special incentive of CFAF 100 per kg of meat exported to defray the high transport cost from N'Djamena to the coastal urban centers, because of prevailing airline monopolies. This incentive would make the meat competitive with other high quality meat imported in the coastal markets from Europe and Southern Africa as shown by the Livestock Marketing Study (para 18 and Project File). 55. These lines of credit would be managed by a commercial bank in Chad and supervised by a committee comprising the Director General of MEHP, the Project Coordinator and representatives of the Planning and Finance Ministries, the Presidency and the technicians themselves, when organized. Credit conditions for private technicians and meat exporters would include market level interest rates; the private technicians would be granted a three-year grace period and repayment over ten years; the meat exporters would have no grace period and repay over 6 months. The interest rate would be fixed at the level of the basic interest rate permitted by the Bank of the Central African States (BEAC) as the indicator for the market rate plus the onlending overhead costs. Total rates of 10.8% for the investments and 14.4% for the operating costs would result, applying the present basic rates. Further details would be elaborated by the Financial Controller, being recruited under PPF financing, and would be forwarded to IDA for approval. (d) Research 56. Producer-oriented research aimed at defining technically and socially acceptable techniques for rangeland conservation and crop/livestock integration is important for the long term sustainability of the sector. In rangeland research, initial work would concentrate on Improving available information on feed resources and their use. It would combine remote sensing techniques with field observations on the behavior  _ 20 - and performance of migratory and sedentary herds. After the initial two years and upon completion of the resource assessment, research would shift to the identification of range improvement and fodder production techniques. This research would be carried out within the framework of the pastoral associations and focus on simple grazing management and reseeding techniques. In the more humid areas, it would concentrate on the possibility of introducing higher quality forage in the production system with simple techniques like fodder banks and alley farming. Details of these techniques are in Annex 2. To enable the implementation of this research, the project would finance, starting under PPF financing, the training of five Chadian scientists in range ecology and animal production. The project would finance satellite data analysis services, a microcomputer, other research equipment and expenditures and the purchase and maintenance of three vehicles. Finally, the Chadian range scientists would be assisted by an internationally recruited rangeland ecologist (3 man-years) and by short term consultants in satellite data analysis, range management and forage production. 57. Although most veterinary research and vaccine production is already adequately financed (para 29), epizootiological research to identify the most important small ruminant and camel diseases, their seasonal and geographical variations and the economics of eventual control measures is still weak. The project would therefore provide funds to train two Chadian veterinarians in epizootiology and carry out surveys, especially on disease incidence in camels and small ruminants. This survey would rely on the Livestock District and Farcha laboratory facilities for their diagnostic work and would therefore not require additional equipment. (e) MEHP Field Services 58. The realignment of MEHP tasks would be accompanied by a more efficient organization of MEHP field services according to those principles of the Training and Visit system applicable to the prevailing production systems. This would include a specific and regular program of closely supervised field visits for each agent, continuous training of staff around specific themes and messages, and a closer involvemert of research scientists in staff training. Contact with producers would be mostly through pastoral associations and GDS. In areas where those groups have not been established, the livostock agent would work through individual producers. Control functions would be normally separated from the extension tasks, except in one-agent posts, where they would have to be combined with extension tasks. In order not to overstretch MEHP's implementing capabilities, the system would be introduced gradually, starting in PY1 in only two of the six regions and adding the remaining four regions over PY2 and 3. 59. The implementation of this program would be supported by project funding for the construction of two new livestock sector buildings, the rehabilitation of 60 field offices not yet covered by EDF and FAC financing, and the acquisition of cold chain equipment for vaccination campaigns, small veterinary supplies, extension material and office  - 21 - furnishings. In addition, the project would provide one vehicle per district and sector and, on average, two motorcycles per post to ensure adequate mobility and supervision of field staff. The six district offices would be equipped with simple diagnostic equipment (microscope and centrifuge) for basic veterinary diagnostics and the preparation of samples for reference to the Farcha Laboratory. 60. Field service staff would be trained in 3-week courses organized through the local training institute, ENATE. These refresher courses would be repeated each year and would focus on different themes. Emphasis would be on upgrading animal production, range management and further technical skills. Improvement of the ability of field staff to communicate with the herders would be a central objective. The project would finance the international recruitment of one Training Specialist with experience in livestock training (3 man-years) to assist the ENATE Director in the organization of the refresher courses. Overseas training for the teaching staff, a bus, and some equipment and operating cost would also be financed under the project. 61. Field staff training would be followed up with monthly workshops at central, district and sector levels. These workshops would focus on the recommendations to be passed on to the producers. The Farcha research staff have agreed to participate in the training of district staff. Two subject matter specialists would be appointed in each district and sector, one in animal health and one in animal production and range management. To assist the Director General of MEHP in implementing this new organization, a veterinarian with experience in extension systems, who would act at the same time as Project Coordinator (para 67), would be internationally recruited for the duration of the project (5 man-years). (f) MEHP Central Facilities 62. Prolect Honitorina and Evaluation Unit. MEHP's Project Monitoring and Evaluation Unit would be strengthened to improve policy formulation and coordination and monitoring of the scattered development activities. The monitoring and evaluation (M&E) system would cover physical implementation and impact of all ongoing livestock projects. Impact would be assessed through a combination of routine data collection on a number of herds and flocks and in-depth studies on specific topics to be undertaken in consultation with IDA. These studies would be carried out in close coordination with other Chadian institutes, such as BIEP for general Impact studies, the Farcha Laboratory for epizootiological studies and the University of N'Djamena for socioeconomic studies. BIEP would also participate in the design of the routine data collection system and would be provided with all results to use in their comparative impact evaluations of all agricultural projects. Further technical details on the M&E system to be introduced are provided in Annex 10. The results of these evaluations would be reviewed in biannual meetings to which all external donors would be invited. The Monitoring and Evaluation Unit would further establish an informal system of donor coordination through the organization of quarterly meetings of key project personnel involved in the sector,  - 22 - under the chairmanship of the Director General of MEHP, to discuss and arrive at common policies. 63. To carry out this program, NEHP's Project Monitoring and Evaluation Unit would be strengthened with local staff redeployed from other MEHP units and provided with adequate transport and operating funds for specific studies. The project would finance the international recruitment of a zootechnician-economist to assist in M&E beyond the policy formulation tasks funded under the Agricultural Rehabilitation Project. Financing under the National Livestock Project would therefore start only in PY3 and continue for two years. 64. Water Bureau. To improve MEHP's capacity to plan and coordinate rural water programs, the project would strengthen the Water Bureau and develop it into an effective department, which, together with Farcha's Rangeland Research Department and the Pastoral Organization Unit, would develop a resource planning system to achieve a better balance between carrying capacity and livestock water supply. To assist the Director of the Water Bureau, the project would finance an internationally recruited hydrogeologist (3 man-years) and short-term consultants in resource management and administration of rural water. Funding would also be provided for two vehicles, some equipment and the Bureau's project related operating costs. Present facilities would be expanded with 90 m2 of additional office space to centralize the now-scattered archives and offices. 65. MEHP Directorate of Administration and Finance. To assist MEHP's Directorate of Administration in handling the larger volume of expenditures expected under the project, a financial controller and two experienced accountant assistants would be recruited locally on a contractual basis. An additional financial controller would be recruited internationally for six months under the Project Preparation Facility (PPF) and extended for another six months in PY1 to assist the Director of Administration and Finance of MEHP in setting up procurement and financial procedures according to IDA requirements. This input would be followed by backstopping missions of two months each year over the PY2 to PY5 period. The project would also finance the construction of a 500 m2 building in N'Djamena for the General Directorate of MEHP, the Project Monitoring and Evaluation Unit and the Pastoral Organization Unit. (g) Operating Costs 66. The project would supplement MEHP's non-salary operating budget up to the minimum required for an efficient use of its human resources. This would include incremental costs for transport, field allowances (according to the Government scale and regulations for up to 150 field days per year), supplies for diagnostic work and material for demonstration purposes. The project's contribution to field allowances and vehicle operating costs would be staggered to coincide with the introduction of better extension methods. IDA's contribution to the operating costs would be: (a) made dependent on Government maintaining its own contribution at  - 23 - least at the present level (CFAF 40 million or US$144,000), Government assurances were obtained to that effect (para 84(h)); and (b) gradually reduced in parallel with an increase in revenues from cost recovery measures. V. ORGANIZATION AND MANAGEMENT 67. Key Staff. The project would be implemented by MEHP's existing central and field services and with existing MEHP staff. Except for one high level financial controller and two accountant assistants (para 65), no local recruitment for long term positions would be envisaged. The project would be carried out under the responsibility of the State Secretary of MEMP with regards to the annual and long term planification, preparation of the corresponding budget, and evaluation. The implementation of these budgets and plans would be the responsibility of the Director General of MEHP as National Project Director assisted by an internationally recruited Project Coordinator (veterinarian/extension specialist). The Project Coordinator would work in close cooperation with and complement the FAC-financed advisor to the Minister (para 22), whose functions concern mainly the veterinary aspects of livestock production. Agreement was reached at negotiations that the posts of National Project Director, Director of MAGAVET and the Chief of the Pastoral Organization Unit would at all times be filled by staff with experience and qualifications acceptable to IDA (para 84(i)). The Director General of MEHP would supervise the execution of project activities by the central and field services and the Pastoral Organization Unit. He would coordinate the activities carried out at MAGAYET and the Farcha Laboratory. Project management would be further strengthened by the international recruitment of a financial controller for six months under the Project Preparation Facility, plus another six months in PY1 and two months per year from PY2 to PY5 to assist in setting up financial procedures according to IDA requirements. The technical assistance and training requirements are summarized in Annex 11. Assurances were obtained at negotiations that the qualifications and experience, terms of reference and conditions of employment of all internationally recruited staff and of all consultants financed by the IDA Credit would be acceptable to IDA (para 84(j)). The recruitment of the Project Coordinator would be a condition of Credit effectiveness (para 85(b)). An implementation schedule is provided in Annex 12. 68. Prolect Preparation. To accelerate initial project implementation, IDA has granted US$700,000 as advance financing under the PPF. This is being used to (a) start preparation work for the creation of herder associations; (b) draft statutes and prepare reorganization plans for MAGAVET and SOTERA and carry out an audit and management study of MAGAVET; (c) prepare the documentation for the civil works components, and (d) start the training program for Chadian sociologists and agrostologists for the Pastoral Organization Unit and the Farcha Laboratory and for accountants for the Directorate of Administration and Finance. Initial  - 24 - project implementation would be facilitated by the Livestock Economist financed under the Agricultural Rehabilitation Project (para 34), who assists Government in further fine-tuning of a livestock development policy and collects basic productivity data, thus improving future policy decisions and institution-building. VI. COST ESTIMATES AND FINANCIAL ARRANGEMENTS A. Prolect Costs 69. Total project costs are estimated at CFAF 10.292 million (US$37.2 million). The cost estimates are based on mid-1987 average costs for staffing, construction and inputs in Chad and for international supplier quotations for vehicles, equipment, satellite data analysis services and technical assistance. Costs are exclusive of identifiable taxes and duties from which the project would be exempt, except for import duties on fuel and lubricants and on locally purchased items totalling US$3.7 million. Physical contingencies have been estimated at 10% and calculated on all costs, apart from technical assistance, whose specifications are clearly established. PROJECT COST SUMMARY Estimated Costs a/ Local Foreign Total % of Foreign Exchange Pastoral Associations 1.4 2.6 4.0 65 NAGAVET 1.3 3.8 5.1 74 Research 0.6 1.6 2.2 72 MEHP Field Services 4.1 8.5 12.6 68 MEHP Central Services 2.1 4.2 6.3 67 Base Cost 9.5 20.7 30.2 69 Physical Contingencies 0.9 1.7 2.6 65 Price Contingencies 1.7 2.7 4.4 61 Total Project Costs 12.1 25.1 37.2 a/ Inclusive of taxes and duties of US$3.7 million. Price contingencies have been calculated assuming a 5% annual increase for local expenditures and 3.5% for foreign expenditures.  - 25 - 70. Thirty-one percent of total project cost would be used to develop the private sector (172 for MAGAVET and 14% for herder associations). The remaining 69S would be allocated to the central (20Z), field (42%) and research services (7%) of MEHP. More detailed cost information is provided in Annexes 13 and 14. B. Financing 71. Financing Plan. The total extetnal financing requirement would be US$33.3 million. US$1.0 million (mostly local salaries) would be borne by Government, and US$1.4 million would be expected from beneficiary contributions in vaccination and treatment fees. MAGAVET's share (25%) of the cost of increased drug stocks plus its operating costs comes to about US$1.5 million. The French (FAC) and Dutch (DGIS) bilateral aid authorities have confirmed their participation in the financing of part of the training and technical assistance for MEHP, and in the research components of the project. FAC financing, which would cover mainly technical assistance to MEHP, would be about US$1.3 million in a grant form, while financing of the research component by DGIS would be US$1.8 million, also as a grant. The African Development Fund has also confirmed its intention to cofinance the civil works, vehicles, material and equipment for MEHP's field services. ADF's contribution would amount to US$11.6 million. IDA would expect to finance the remaining US$18.6 million. The Credit effectiveness of the ADF Credit, and the formal agreement of FAC to finance the technical assistance for the Water Bureau and the Training Component would be conditions of IDA Credit effectiveness (para 85(c) and (d)). 72. Accounts and Auditing. At Credit effectiveness and upon request from the Government, IDA would transfer CFAF 150 million ($540,000) or six months working capital to a Special Account opened by MEHP. In addition, Government has opened a special account for the revenue of MEHP field service fees, to be used for non-salary operating costs of MEP (para 44). These two accounts would be operated jointly by the Director General of MEHP and the Project Coordinator, or their delegates. An independent auditor has carried out the first audit of MAGAVET's current accounts just before the Board presentation of this project. At negotiations, assurances were obtained that (a) MEHP and MAGAVET would submit to IDA, within six months of the close of each financial year, an annual audit report of all project related accounts, including the two Special Accounts, lines of credit and the Statements of Expenditure, prepared by independent auditors acceptable to the Bank, including an assessment as to whether (i) goods and services have been procured from member countries of the Bank, Switzerland or Taiwan; (ii) goods have been received or work performed; and (iii) payment has been made; and (b) MMHP would produce quarterly and annual progress reports for submission to all donors, including IDA, showing actual against budgeted expenditures, physical progress achieved, and objectives for the next period by project component, and prepare the Project Completion Report (PCR)(para 84(k)).  - 26 - C. Procurement 73. Given the small size, wide geographic distribution and phasing over time of the operation, foreign firms are not likely to bid for civil works contracts (estimated costs US$3.7 million) or for the rehabilitation of wells (estimated costs US$2.0 million). Contracts for civil works would therefore be procured following existing local ccmpetitive bidding (LCB) procedures which operate under the ongoing projects and are acceptable to IDA. Drugs would be procured on the basis of long term contracts with producing companies to ensure brand continuity, essential under a more liberal drug administration regime. These contracts would be awarded according to Bank guidelines for ICB. Contracts of US$150,000 or more for Imported vehicles and equipment (US$8.7 million) would also be awarded through ICB. Contracts between US$50,000 and US$150,000 equivalent would be procured through existing LCB procedures. For contracts under US$50,000 each, mainly involving small equipment, direct procurement on the basis of at least three quotations would be allowed. The services of the internationally recruited technical assistance personnel (US$5.4 million) would be obtained according to IDA or cofinancier guidelines, based on the source of financing. The following table summarizes the procurement arrangements. Prolect Element Procurement Method 1/ ICB LCB Other N.A Total Cost ---------------US$ million------------------ Civil Works - 5.7 - - 5.7 - (0.1) _ - (0.1) Vehicles and Equipment 8.0 0.5 0.2 21 - 8.7 (1.8) (0.2) - - (2.0) Technical Assistance - - 5.4 21 - 5.4 - - (3.2) (3.2) Training and Studies - - 2.7 2.7 - - (2.5) - (2.5) Drugs 3.9 - - - 3.9 (2.6) - - - (2.6) Operating Costs - - 0.2 2/ 7.9 21 8.1 (5.5) (5.5) Subloans - - - 2.0 2.0 (2.0) (2.0) PPF - - - 0.7 0.7 - - - (0.7) (0.7) TOTAL 11.9 6.2 8.5 10.6 37.2 (4.4) (0.3) (5.7) (8.2) (18.6) 1/ Amounts in brackets concern IDA financing. 2/ Includes amounts for items financed by other donors under their own procedures.  - 27 - D. Disbursements 74. All disbursements from the IDA Credit would be fully documented, except for contracts valued at less than US$5,000 equivalent, for which disbursement would be made against certified Statements of Expenditure and the documentation would be retained for review by Bank supervision missions and project auditors. The IDA Credit (US$18.6 million) would be disbursed over a seven-year period (Annex 15). The rate of disbursement is assumed to follow that of the Bank standard disbursement profile for area development projects in the West African region, since it more accurately reflects the project inputs than the profile for livestock projects in the region, which are heavily ranch-oriented. Below is a sumiary for the disbursement schedule by major categories: Disbursement of IDA Credit Amount Percentage MgS million) Financed bv IDA Civil Works 0.1 100 Vehicles and Equipment 2.0 100 Technical Assistance 2.6 100 Training 1.6 100 Studies 0.5 100 Drugs 2.3 100 Operating Costs 5.0 On a declining scale 1/ Subloans 1.8 100 PPF Refund 0.7 Amount due Unallocated 2.0 Total 18.6 1/ Operating costs would be financed at 100% for the first 2.0 million. In line with expected increases in revenues from cost recovery, it would then decline to 90X for the subsequent US$1.6 million and and 80% for the final US$1.4 million. E. Production, Financial Implications. Benefits and Risks 75. Incremental Production. Incremental production resulting from project activities and policy conditions is very tentatively estimated in PY7 at 2,000 tons of meat and 1,000 tons of milk valued at about US$3 million, and at 20,000 tons of meat and 40,000 tons of milk in PY20 at a value of US$50 million. The national herd would increase from 3.7 million to 4.2 million in PY20 as against 3.9 million without project. This incremental production is brought about by a decrease in the mortality rate and an increase in the fertility rate resulting from the project's animal health activities. The m3jority of the incremental meat production is expected to be exported to Nigeria, where market prospects are good (Annex  - 28 - 16). Present world market prices are US$2.50 per kg and, according to the latest Bank projections, are expected to be at the same level by 1995 in constant 1985 prices, which compares very favorably with the prevailing price of US$1.20 per kg used In the economic analysis. 76. Financial Implications for the Government. The project would reduce overall government financing needs of MEHP recurrent expenditures by US$120,000, at the same time greatly enhancing MEHP's operational capability, as shown in the following table: MEHP Recurrent Expenditure Budget as a Result of Proiect Interventions (US$ '000) Year 1988 1994 Without With Proiect Proiect Salaries 1,100 1,900 2l / 1,400 1/ Pluss Recurrent Costs 140 180 1 940 31 Minus: Income from Cost Recovery 20 30 l 410 Net Requirement from Government 1,220 2,050 1,930 i/ At 5X inflation rate. 21 Assuming staff increase of 20 graduates per year. 3! See Annex 17 for details. As a result, the ratio between salary and non-salary operating costs, presently at 90:10 would change to about 60:40, thus providing existing staff with greatly Improved means to operate. This would include resources to maintain activities started under the project and correct the present severe underfunding of non-salary operating costs for other activities. Under this scenario net reoquirements from Government would increase over the 6 year period by 7.52 yearly. If Government would not contribute the required increase in non-salary operating cost and increase its contribution at the inflation rate, the ratio would still be an acceptable 75:25. In investments, an average of US$0.6 million per year would be necessary, especially to replace vehicles and equipment regularly. This could partly be financed out of the above mentioned savings, but could also be the object of continued external financing. More information on the project's impact on Government revenue and expenditure is provided in Annex 17. 77. Furthermore, the proposed export tax simplification would most likely increase future revenues. At the present average tariff rate of 14% on the FOB value, the theoretical gross revenue from fees, taxes and export duties on live animals is about US$12 million per year. Actual revenue over the 1982-1986 period amounts to only US$1 million per year, or less  - 29 - than 10 of the theoretical yield, thus leaving considerable scope for improvement. While the project would not be involved directly in improving the recovery rate, the proposed tax simplification and possible reduction in tax per head would greatly facilitate such an increase in recovery. 78. Benefits. The principal benefit of the project would be a more appropriate policy and institutional framework for input delivery, extension and marketing for the Chadian livestock sector. This would translate into the incremental production and government revenue estimated above. The project would benefit a large part of the pastoral and mixed farmer population through its animal health improvement actions, which in other countries have yielded early and good returns. Better resource management through the organization of pastoral associations and the definition of better land tenure policies would improve the survival of livestock during future droughts. Other not readily quantifiable project benefits would include improved MEHP capabilities for its planning and extension tasks and enhanced responsibility of private producers in the management of the sector. 79. Prospects for satisfactory returns are good. Projects in the Central African Republic (Cr.894-CA), Senegal (Cr.633-SE) and Zaire (Credit 697-ZR) with similar interventions in animal health and pastoral organization resulted in increased meat production, yielded ex-post economic rates of return (ERR) between 13% and 30X, and successfully built alternative input delivery systems (Annex 8). Due to the paucity of reliable data on livestock production coefficients in Chad, a conventional economic analysis leading to the ERR would not be trustworthy. The technical, climatological and logistic factors affecting the project are such that key development parameters like fertility and mortality rates, to which the project level of profitability is highly sensitive, can only be estimated with a large degree of uncertainty. For example, a tentative estimate showed that a one point variation of the calving rate (which has a standard error of five points) from 60 to 61X, caused a five point variation in a roughly estimated ERR (from 191 to 241) other assumptions remaining unchanged. Reliance on the ERR approach would therefore provide false confidence in justifying the project. 80. The project is therefore justified on the basis of an alternative target-type analysis in which the feasibility of attaining a specified level of incremental production during the project life is studied. Since incremental costs are known with relative certainty, the approach followed attempts to estimate implied production levels without prior knowledge of detailed production parameters. An assumption is made on the incremental capital-output ratio (ICOR) for the project under two scenarios of 'drought occurrence". Under each scenario, an ICOR of 3 (very good), 4 (good), and 5 (satisfactory) is examined on its implied increase in cattle offtake, and the feasibility of attaining this offtake. The following indicates that a 5X increase in offtake would be sufficient to obtain a satisfactory performance. Based on the herd model, the implied production level would  - 30 - be attained by PY7 if there is no drought and with a two-year lag if a drought were to occur. ICOR Implied Incremental Production Target Reached by year TLU/sear (wlo drought) (with drought) No. X Satisfactory (5) 29,000 5 7 9 Good (4) 34,000 6 8 10 Very Good (3) 44,000 8 10 12 An ICOR of 3 demands an 82 incremental offtake (or 44,000 TLU per annum). This level should be reached by PYIO (or PY12 with droughts, assumed to occur every seven years). Therefore the offtakes associated with the satisfactory and good performance are estimated achievable within a reasonable time-horizon, considering the time usually needed to achieve substantial changes in herd composition and yields, with further improvements thereafter. 81. Equity Considerations. The project is expected to have a positive impact on the poorer strata and the women producers. The improvement of animal health has shown in Bank and other projects to benefit directly the poorer strata, sometimes even proportionally more than the wealthier strata. Furthermore, the creation of herder associations and the producer training component would lead to greater participation of all producers and not only the wealthiest in the development of their sector. The project would also increase milk production, which benefits especially the women who depend on the income from dairy products for their own expenses. 82. Risks. The main risks are a lack of motivation of MEHP field staff and an early or frequent recurrence of drought. These risks are mitigated by a well-defined technical assistance input in key posts and a sizeable training component. The heavy emphasis on producer groups and the national coverage of the project, which would foster interaction between the dry north and the humid south and would render the subsector less vulnerable to drought. Failure to achieve adequate donor coordination might constitute another risk, which would be allayed through specific donor coordination activities and through a strengthening of Government's coordinating capabilities. 83. Environmental Considerations. The project would be expected in the longer term to make a positive contribution to stop or reverse resource degradation. The policy and herder associations components would attempt to introduce a more rational rangeland use through improved land tenure regulations and the strengthening of traditional internal discipline in resource conservation. The water development component would attempt to improve the planning of new water points, with special regard to the carrying capacity of the land.  - 31 - VII. AGREEMENTS REACHED AND RECOMMENDATIONS. 84. At negotiations, agreement was reached with Governmesn; that: (a) HEHP would, on the basis of more precise cost calculations by the Project Monitoring and Evaluation Unit, yearly adjust the charges for non-compulsory vaccinations and clinical interventions, reflecting the full costs of these interventions (para 44); (b) the revenue from the charges for services rendered by MEHP would be deposited in a Special Account, to be used thereafter only against non-salary operating costs of MEHP (par. 44); (c) not later than July 31, 1988, Government would reorganize MAGAVET and all veterinary products would be sold by MAGAVET at their real prices (para 45); (d) MAGAVET's import monopoly for veterinary pharmaceuticals would be abolished by January 1, 1991 and the eligibility criteria for companies authorized to import veterinary pharmaceuticals published by that date (para 45); (e) Government would maintain during the first five years of the project, the number of MEHP's staff at the level of January 1, 1988 (para 47); (f) Government would prepare, in close consultation with IDA, a Psotoral Land Use Policy aimed at long term resource conservation, and promulgate such policy by December 31, 1990 (para 48); (g) Government would open the possibility for qualified MEHP -gents to take leave without pay and participate in the vaccinat. n campaign on a contractual basis (par. 53); (h) Government would maintain its budgetary contribution to MEHP's operating expenditures at the present level of CPAP 40 million per year (para 66); (i) the posts of National Project Director, Director of MAGAVET and Chief of the Pastoral Organization Unit would be always filled with personnel with qualifications and experience acceptable to IDA (par. 67); (j) Government would fill all Technical Assistance posts with personnel with experience and qualifications acceptable to IDA (para 67); and  - 32 - (k) MI3HP and MAGAVET would submit to IDA, within six months of the close to the fiscal year, an annual audit report of all project related accounts and statements of expenditure prepared by independent auditors acceptable to IDA, and MEHP would prepare trlmestral and annual progress reports on the project and a Project Completion Report of a format and level of detail acceptable to IDA (para 72). 85. Conditions of Credit effectiveness would bet (a) the publication of MAGAVET's revised statutes (para 45); (b) the recruitment of the Project Coordinator (para 67); (c) the ADF Credit effectiveness (para 71) and; (d) the FAC agreement to recruit the Hydrogeologist and the Training Specialist (para 71). 86. RECOMMENDATION. With the above agreements the project is suitable for an IDA Credit of US$18.6 million.  - 33 - Annex 1 Page 1 of 2 CHAD NATIONAL LIVESTOCK PROJECT The Sociolotical Context The Family Pastoral livestock production in Chad is practiced almost exclusively by three ethnic groups, the Toubous in the north and west, the Arabs in the center and east, and the Fulani in the south and southeastern part of the country. Family size varies according to the group. The Toubous and Fulani have small families (6-7 persons) with 30-50 head of cattle and 10-20 sheep and goats. The Arabs usually have bigger families (10-12 persons) but smaller herds of 10 to 30 heads of cattle or camels and some small ruminants. The monetary budget of a family varies from CFAF 30,000 to CFAF 350,000 per year. Actual income and wealth varies greatly over time. Younger pastoralists, recently separated with their share of cattle from the family herd, own only a few animals and build their herds as their families grow. Such herd increment can be completely disrupted by periodic droughts when, especially for the sedentary herds, losses of up to 90% can occur. Movements Seasonal movements are dictated principally by water availability. From mid-July to mid-September, the northern Sahelian areas with high quality pasture and abundant surface water are used. At the end of the rainy season, when surface water and grass dries up, the herders are forced to migrate south, initially still in areas with low population density but, increasingly into denser populated areas. Especially the Fulani proceed even farther, passing through the populated areas at the southern fringe of the Sahel or to the almost empty southwestern part of the country. Normally, the same trek routes and grazing areas are frequented each year, and user rights on wells and surrounding areas have evolved for particular groups. During a drought, all movements recoil 200-300 km to the South and general turmoil develops as new water points and dry season grazing areas have to be identified. Losses occur in such situations, frequently not only directly from lack of feed, but also indirectly because of the unfamiliarity of the herders with the grazing availability in such new areas. After a drought, normal (predrought) transhumant patterns are rapidly reestablished. Social Structures The social structures, practically identical in the three ethnic groups, are well adapted to the mobility and periodic dispersion of the group members. The tribal hierarchy consists of three levels. At the highest level there are approximately 50 so-called cantons (tribes) with their traditional chieftains. This chieftain is in Chad still frequently appointed by the central Government and efficiently used afterwards for tax collection. A canton consists of 10-50 smaller fractions (clans) led by a  - 34 - Annex 1 Page 2 of 2 fraction chief. The fraction, though registered by the Government, is not directly associated by the pastoralists with Government interference or tax collection, and would therefore be well-suited to be the key grouping to develop into pastoral associations under the project. A fraction generally consists of 1-10 compounds; these compounds are the basic migratory unit, and through their size (5-20 families) and herd size (500-2000 animals) would be well suited as the nucleus to involve in animal health care. More information on the sociological context are presented in the Project File.  Annex 2 Page 1 of 2 CHAD NATIONAL LIVESTOCK PROJECT Livestock and Feed Resources Chad's approximately 3.7 million TLU have about 70 million ha grazing land and 40,000 tons of agricultural by-products at their disposal. The zonal distribution of these feed resources is given below: Zone Pasture Area Dry Matter Actual Actual (million ha) (Tonlha) Total Stocking Rate OOO'TLU ha/TLU Saharan 50 0.0-0.5 60 830 Sahelian 32 0.5-4.0 1700 19 Sahelo-Sudanian 23 0.6-6.0 1400 16 Sudanian 15 1.0-8.0 630 34 The carrying capacity for each of the zones is estimated in the following table: Zone Carrying Capacity Potential Population Normal Yr. Drought Yr. Normal Yr Drourht Yr haITLU ha/TLU 000 TLU 000 TLU Saharan 200 1000 250 50 Sahelian 20 50 2600 640 Sahelo-Sudanian Zone 8 15 2900 1500 Sudanian Zone 4 6 3750 2500 Total 8500 4690 Compared with the present situation, this results in the following zonal imbalances: Zone Normal Year Drought Year 000 TLU 000 TLU Saharan +290 -10 Sahelian -100 -1060 Sahelo-Sudanian +1500 +100 Sudanian +3120 +1970 +4710 +1000 This quantitative assessment showing a relative underutilization, especially of the Sudanian zone, differs considerably from the situation in other Sahelian countries and is confirmed by the following qualitative observations: (a) the Sahelian and Sahelo-Sudanian zones visited by the appraisal mission did not show any sign of deterioration; to the contrary,  - 36 - Annex 2 Page 2 of 2 a 10-15Z under exploitation was estimated; the observed vegetation changes were due to the effect of the recent droughts (tree mortality especially) independent of any livestock pressure; (b) in the Chadian Sahelo-Sudanian zone there is a relative abundance of gazelles and elephants, indicating the availability of adequate feed for other graziers; (c) the massive shift of Arab pastoralists to the Southwest following the 1983 drought did not cause any major land conflict with other groups, indicating even in that period a relatively low pressure on the resources; and (d) all pastoralists met during the appraisal mission recognized scarce feed resources as a problem only during drought but denied that quality or quantity was a problem during normal or slightly rain deficient years. Crop/Livestock Integration Because of the relatively low livestock and human population pressure, there is less symbiosis between the two activities than in other Sahelian countries. This is shown in the low (+0.2) correlation coefficient between cropping density and livestock density (1985 data per province); indeed, some of the provinces with the highest livestock density (Batha, Salamat) show the lowest cropping intensities. Individual areas of crop/livestock integration do exist, however. For example, just south of the 130 Lat. a band of intensive permanent cropping exists, with livestock extensively used for providing natural fertilizer. Future Development Although there is little permanent overgrazing in Chad, future policies should already aim at developing resource conservation programs. This would mean modifying the existing land tenure policy, giving exclusive user rights (and therefore an interest in conservation for a rangeland area) to a particular group and the development of better range management techniques, like, for example, (i) the centripetal method, where grazing at the beginning is started far away from the well, grazing closer to the well being reserved for the hotter dry season when animals are weaker; (ii) the reseeding of rangelands with species which have disappeared; (iii) some degree of fire and bush cutting control; and (iv) deferred grazing of a certain area in the wet season to permit better setting of seed. The project would aim for a closer integration of crops and livestock, especially through a better use of crop residues, and the introduction of agroforestry. In the more humid areas project research would focus on: (a) fodder banks, a low input system to grow on a 1-4 ha plot highly nutritive leguminous forages for the dry season to increase animal production and soil fertility for subsequent crop yields; and (b) alley farming where the leaves of trees planted in rows are used on a rotational basis as a source of natural fertilizer for crops or as a source of highly nutritional feed for livestock.  - 37 - Annex 3 Page 1 of 3 CHAD NATIONAL LIVESTOCK PROJECT Rezulations Affectint Marketing and Export of Cattle .The following regulations were identified: 1. Livestock Traders Licence According to the Finance Law 1985, art.74, all livestock traders are classified as Class A and have to pay a licence fee according to the following subclasses. Export Traders Herds of Cattle per Year Subclass Over 800 A3 400-800 A4 Less than 400 AS National Traders AS The licence fee is as follows: Licence Fee for Traders (CFAP) Subclass Fixed Fee Variable Fees Total Outside Chamber Social NDIamena a/ NDTamens Commerce Security MRPP k/ FIR gI AS 117,6W - 8,180 11,706 86,16 480 172,470 - 106,6W 7,3W 16,606 81,50 4W0 164,830 A4 81,86 - 5,783 8,180 24,570 480 120,878 - 70,200 4,914 7,020 21,060 480 108,674 AS 52,860 - 8,580 5,265 16,796 480 7,878 - 86,1W 2,4S7 8,610 10,686 480 62,077 Not.: Export Traders must also be registered at the Ministry of Justice and pay a fee. a) Otficially also in force in 15 other communities, but practically only In N'Djamena. b) Income Tax. c) Rural Interventions Fund. 2. SOTERA Export Licence SOTERA issues the administrative clearance to authorize the Ministry of Commerce and Industry to provide the export permit. SOTERA asks a payment of CFAF 1,000 per cattle, CFAF 2,000 per camel and CFAF 300  -38 - Annex 3 Page 2 of 3 per sheep or goat for the service to issue this authorization. This authorization has only been issued to SOTERA shareholders (CFAP 5000-12,500), and other traders have to buy these rights from the shareholders. More reeently they can buy the licence officially from SOTERA at CFAF 1,250, but this measure does not seem to be implemented. *3. Export Permit The export permit then issued by the Ministry of Commerce costs CFAF 5,000 for a 6-month period. 4. Market Tax According to the Law of Licence of 1984, market taxes are levied on all transactions in the livestock market (export included). The District Commissioner collects this tax, which goes directly into the Treasury. The following levels are imposed since January 1984: CPAF Steers 2,000 Heifers and Cows 1,000 Camels 3,000 Horses 3,000 Goats and Sheep 200 Pigs 1,000 Donkeys 300 Other costs at the market include: (a) a sum to guarantee the animal's origin; (b) the cost of the intermediary; and (e) a tax for the local village government of CFAF 200-300 per animal. 5. National Health Certificate This certificate is issued by the Livestock Service for cattle for the domestic market against a fee of CFAF 2,500 per herd plus CFAF 100 per animal. 6. International Health Certificate According to Decree 21 (Jan. 31, 1985, signed by MEHP and MINFIN) this certificate is issued against a payment of CFAF 10,000 per herd and CFAF 350 per animal. Additionally, the export trader has to pay SOTERA a vaccination fee of CFAF 1,500 (real cost approximately CFAF 300), and MAGAVET a Trypanosomiasis treatment of CPA? 350 (real cost CFAF 150) per animal. 7. Export Tax The amount of export tax is determined on the basis of an official average value fixed by the Minister of Finance and the Minister of Economy. (Article 27 of the Customs Law). Present values date from March 13, 1984 (Decree No. 22).  39 - Annex 3 Page 3 of 3 Value per Export Business Animal Tax a/ Tax bi Total Oxon and Bulls 35,000 2,800 1,134 3,934 Cows 30,000 2,400 972 3,376 Sheep 5,000 400 162 562 Goats 3,500 280 113 393 Dried Meat per kilo 300 - 9 9 a/ 8% of official value of animal bI 3S of official value of animal and tax. 8. Debt Reiasment Tax An additional 101 export tax on the official average value is levied to repay the external debt through the Amortization Fund. 9. Yellow Earmarks Yellow earmarks are provided by SOTERA for all animals having complied with the above regulation. While officially free, high prices are paid for these earmarks by illegal export traders.  CHAD NATIONAL LIVESTOCK PROJECT Ministry of Livestock & Water Development (MEHP) Organigram Miniter State Secretary BIEP~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ rDirector| G3eneral DEPARTMENT Director of Director of Livestock Lvestock Administration Training.& Production & Department SUB-DEPARTMENT National Aimal Amal Project ii Tse-tse 1 School ~~Health Production Moritoring & urtCntro UnitI for Livestock Service Service Evaluation Unit Persomuel. (ENATE) LIVESTOCK PARASTATAL ORGANIZATION Key StEP bIteermb toreal Chad Society National Office for StuArimaleGeneral &Poam Society for Production Veneraly Research Ref rigerated for Developing Offies for ,Not OetInlHides & Skins Society DitbOr Laboratory Abattol Animnal Water Processing* (SONAPA) (MAGAfET) Farcha Resources Development (SOTERA) ONHPV ksr/w41457a  41 Annex 5 Page 1 of 3 CHAD NATIONAL LIVESTOCK PROJECT NAGNVET A. TUAL CASH FLOIW (CFAF) 1985 199 1997 1. OPERAtING COSTS 1. Salaries 9759453 940406 10424706 2. Social Security 938877 1155451 1200000 3. Office Supplies 437230 8812qO 981390 4. Water/Electricity 0 250132 618972 5. Publicity 1691363 1991853 1998763 6. Postal Charges 494745 580125 680925 7. Taxes 181300 1845224 1687384 8. Interest 446415 395018 494617 9. Operating costst vehicules 2995517 5846505 6799115 10. hi