Morocco - Vegetable Production and Marketing Project

Dohxunnt of Tlhe World Bank FOR OMCIL USE ONLY Riout No. 7821 PROJECT COMPLETION REPORT KINGDOM OF MOROCCO VEGETABLE PRODUCTION AND MARKETING PROJECT (LOAN 1757-MOR) JUNE 16, 1989 Europe, Middle East and North Africa Region Country Department II Agriculture Operations Division This document has a restricted distribution ad may be used by repients only In the performance of their officia dutio Its contents may not otberwise be disclosed without World Bank authoriation.  CURRENCY EQUIVALENT Currency Unit : Dirham (DR) US$1.00 = 10.06 DU DH 1.00 - US$0.10 (Average Calendar Year 1985) WEIGHTS ANID NEASUtES The metric system is used throughout this report GLOSSARY OF ABREVIATIONS CNCA Caisse Nationale de Credit Agricole (National Agricultural Credit Bank) EEC European Economic Coumunity MARA Ministere de l'Agriculture et de la Reforme Agraire (Ministry of Agriculture and Agrarian Reform) OCE Office de Commercialisation et d'Exportation (National Export Marketing Organization) PCR Project Completion Report SASMA Societe Agricole de Services au Maroc FISCAL YEAR Government : January 1 - December 31 CNCA : September 1 - August 31  liol FMAUR ONY THE WORLD SANK OOfIALUEOL Wadington D.C. 2433 USA. June 16, 1989 TO THE mE IVE RECO AND THE PSIDENT SUBJECTs Project Completion Report on Morocco Vegetable Production and Marketing Project (Loan 1757-MOR) Attached, for information, is a copy of a report entitled Project Completion Report on Morocco - Vegetable Production and Marketing Project (Loan 1757-MOR)l prepared by the Europe, Middle East and North Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment T document hs asnsrced distibutn and may be used by ncpients ony in the perormnce of ther oficial duties Its contents may not otheww be diclosod without Word au _1 ti  FOR OMCIL USE ONLY KINGDOM OF MOROCCO PROJECT COMPLETION REPORT VEGETABLE PRODUCTION AND MARKETING PROJECT (Loan 1757-MOR) Table of Contents Page No. PREFACE .........***............ .........*.*....*e...........**.* i BASIC DATA SHEET .....*....................****e***c********** i EVALUATION SUMMARY ............ *...*.*.*... ...... ............ ..... iv .. INTRODUCTION ..... ...... a a a a a a a a a 1 II. PROJECT FORMUIATION . .2 Identification and Preparation ..................... 2 Project Appraisal ...............3 Project Objectives ....5 ............................ 5 Project Description ................. . ... ........ 5 III. PROJECT IMPLEMENTATION ....... .* ......... . 9 Effectiveness and Start-Up ......... . ......so. 9 Revisions 9.aa...... . ....... .............. 9 Implementation Schedule ................ ....... 10 Reporting and Auditing . ................. ... 13 Procurement ..14 Project Costs .................... 15 Disbursements 17***.................... ......... 17 Compliance with Covenants ..........'20 IV. PROJECT IMPACT ...................................... 21 Greenhouse Installation and Utilization ........... 21 Open Field Production Improvements ...... 22 Diversification and Expansion of Exports ........... 22 Diversification of Export Markets .................. 27 Employment Generation .............................. 27 Adaptation of OCE's Marketing Techniques ........... 28 Sustainability .................. ............. 28 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclsed without World Bank authoration.  Table of Contents (Cont'd.) Page No. V. ECONOMIC REEVALUATION . ..................... ......-. 28 VI. INSTITUTIONAL PERFORMANCE ................... . ..... 30 Project Implementation and Management .............. 30 Contractors and Suppliers ..................... . 31 Consultants . ............. 31 The Bank ..... ..31 VII. ISSUES AND LESSONS LEARNED .................. 33 The Interdependence of System Components 33 Technical Support for Technology Transfer .......... 33 The Phasing of Technical Assistance ................ 33 The Technical Composition of Supervision Teams ..... 34 Management and Marketing Assistance ................ 34 ANNEXES 1. Yields for Winter Tomatoes, Green Peppers, and Potatoes, 1978-9 to 1986-7; Yields for Other Winter Vegetables, 1981-82 to 1983-84 ........ 35 2. Principal Export Markets for Winter Vegetables. 1979-80 to 1983-84 .................. 36 3. Exports of Winter Vegetables to France as a Percentage of Total Winter Vegetable Exports, 1979-80 to 1983-84 ....... 37 4. Reestimation of Economic Rate of Return ......... 38 5. Producer Prices Received for Project Crops: Appraisal Estimates Compared to Actual Prices, 1979-80 to 1987-88 ................................. 42 MAP: IBRD 14279 - Vegetable Production and Marketing Project ... 43 *~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  PROJECT COMPLETION REPORT MOROCCO VEGETABLE PRODUCTION & MARKETING PROJECT (Loan 1757-MOR) PREFACE 1. This is the Project Completion Report (PCR) for the Morocco Vege- table Production and Marketing Project, for which Loan 1757-MOR in the amount of US$58.0 million was extended on November 15, 1979. The original loan Closing Date was June 30, 1984, but after two extensions the loan was officially closed on December 31, 1985. Subsequently the grace period for the closing of the loan accounts was extended several times. Final dis- bursement was made on April 2, 1987, three years after the initially anti- cipated date. In November 1984, US$14.0 million was cancelled and at the time of final disbursement the remaining balance of US$7.2 million wa can- celled; thus total amount disbursed under the project as US$36.8 million. 2. This PCR was prepared by the Europe, Middle East, and North Africa Regional Office based on a review of Bank records and selected interviews with Bank staff who were associated with the project. No Completion deport was received from the Borrower. 3. This PCR was read by the Operations Evaluation Department (OED). The draft PCR was sent to the Borrower on March 20, 1989, for coments by May 1, 1989, but none were received.  -ii- KINGDOM OF MOROCCO PROJECT COMPLETION REPORt Basic Data Sheet eotablo Produetion and Maketklag ProAt (Loan 17S7-MOR) A. Kev Prolect Data Actual or Actual as % of UNe Appraisal Estimated Appraisal Estlimate Actual Estimate Total Project Cost (US$ million) 129.6 70.9 (est.) 55 Loan Amount (USS million) 58.0 36.8 63 Amount Cancelled (USS million) 21.2 Economic Rate of Return (X) 46 12 (est.. overall project) 31 (greenhouse component) Institutional Perfo-'ance Good Fair Technical Performance Good Fair Employment Generation (jobs) 16.000 n.a Cost of Employment Generation USS 6.000 n.a (per job) Greenhouse Installation 1000 ha 1241 ha 124 B. Cumulative Disbursements Enn ffl EY8 2 M aE8 fMY f8 6 Z Appraisal Estimate (USS million) 3.0 13.0 28.0 49.0 58.0 Actual (USS million) 0.0 5.1 9.0 13.0 20.7 27.3 35.3 36.8/A Actual as % of Appraisal Esttmate 0 39 32 27 36 47 61 63 Date of Final Disbursement: April 2, 1987 /A US$21.2 million cancelled. C. . (staff weeks) fZ8 E9 Y8M FY81 E Y8 fe FY8 FY8 EE8 EFY8M Total Preappraisal 15.6 15.8 - - - - - - - - - 31.4 Appraisal - 14.4 - - - - - - - - - 14.4 Negotistion - - 10.0 - - - - - - - - 10.0 Supervision - - 5.6 6.8 11.2 6.7 19.1 11.7 0.4 - - 61.5 other __ - -= - -- --; -- -= _.. _LA~ _f.LI J..2 Total 15.6 30.2 15.6 6.6 11.;! 6.7 19.1 11.7 2.d 7.6 5.2 135.5 0. Priect ODates Original Plan Revision& Actual Actual Appraisal Report 08/16/79 Negotiations 07/16-25/79 Board Approval 09/11/79 Loan Agreeomnt 11/15/79 Loan Effectiveness 02/19/80 04/17/80 Loan Amendnent 04/15/83 Oate Physical Components 12/31/83 12/31/85 Completed Closing 06/30/84 06/30/85 /A 12/31/85 /a First of two revisions. 3712E/3  - 111 - E. Other Proiect Data Gorrower - Kingdom of Morocco Executing Agencies - Ministry of Agriculture and Agrarian Reform (IARA) - Office de Commercialisation et d'Exportation (OCE) - Caisse Nationale de Credit Agricole (CNCA) Fiscal Year - Government: January 1 - December 31 - CNCA . September 1 - August 31 F. Mission Data Staff Date No. of Days in Project Performance Final Report .issigr LuL/Yr) Persons Field Speciali7Atian /a Ralinu /1k DaI (Mo/Yri (Status/Trend/Problems) PreRaration 1 04-S/78 3 35 Ec.Eng.Hktg 05/78 2 06/78 4 43 Ec.Ec.Eng.Hktg 07/78 3 07-8/78 2 16 Econ,Eng 08/78 4 09/78 1 6 Econ 10/78 S 10/78 4 57 Econ.Fin.,ng.,ktg 11/78 Subtotal Preparation 157 = 31.4 staff weeks ADnraisal 01/79 4 72 Ag.Ec.Hort.Mktg 08/79 Subtotal Appraisal 72 = 14.4 staff weeks Suprision I 0S/80 4 28 Ag.Ec.Ec,Fin 1 - T 06/80 2 09/80 3 18 Ag.Ec.Eng 2 2 TN 10/80 3 06/81 2 16 Eng,Mktg 2 2 TOP 07/81 4 12/81 2 16 Eng.Hort 2 1 TOP 03/82 5 04-5/82 1 10 Eng 2 2 TOP 06/82 6 /C 06/82 2 12 Eng.Mktg - - - 07/82 7 03/83 1 7 Ec 2 1 TO 0&*93 8 10/83 2 18 Ec,Ec 2 2 TO 1t.. 9 /C 04/84 2 12 Ec.Mktg - - - 04/84 10 11/84 1 9 Ec 2 2 TO 12/84 11 /c 01/85 2 10 Ec,Mktg - - - 01/85 12 03/85 2 .20 Ec.Hort 2 1 TO 04/85 Subtotal Supereision 176 = 35.2 staff weeks Com1letign E.rand Total 405 = 81.0 staff weeks /a Ag = Agriculturalist: EC = Economist; Hort Horticulturist; Eng = Engineer; Mktg = Marketing Specialist; Fin = Financial Analyst /k Status: 1 = Problem-free; 2 = moderate problems; 3 = deteriorating Trend: I = improving; 2 = stationary; 3 a deteriorating Problems: F = financial; M = managerial; P = political; T = technical; 0 other /C Missions to oversee the planning and execution of studies; not full supervision missons. G. Country Exchange Rites Name of Currency : Dirham (OH) Exchange Rate: Appraisal Year Average: US$1.00 = 3.90 OH Intervening Years Average: US$1.00 = 6.21 OH Completion Year Average: US$1.00 =10.06 OH 3712/4  - iv - KINGDOM OF MOROCCO PROJECT COMPMETION REPORT VEGETABLE PRODUCTION AND MARKETING PROJECT (Loan 1757-MOR) EVALUATION SUMMARY During the 1960's and early 1970's Morocco was a principal supplier of vegetables to the European Economic Community (EEC). However in the mid-1970's intensified competition from other Mediterranean producers, increasing restrictions on EEC imports, and weaknesses in Morocco's vegetable production and marketing operations resulted in a serious decline in the country's vegetable exports. In order to reverse this decline and to reestablish Morocco's position in the EEC market, the Government issued a Development Plan for Winter Vegetables (1978-85), which aimed to modernize and expand vegetable production during the winter season, as well as to improve export marketing facilities. Bank assistance was requested for the !mplementation of the first four years of the Development Plan, which the Government considered of highest priority. Objectives The principal objectives of the project were to increase for 'gn exchange earnings and to generate employment at a relatively low investment cost. The specific project goals were: (i) to double winter vegetable exports during the four-year project period, 1979-83; (ii) to diversify the composition of these exports by reducing the heavy concentration on tomatoes and by expanding the production and export of other higher value crops; (iii) to diversify winter vegetable export markets by Aecreasing the dependence on the French market and expanding exports to other European countries. These objectives and goals were to be achieved through the installation of greenhouses on 1,000 ha, improvement of open field production on 8,000 ha, strengthening of horticultural research and extension institutions, expansion and modernization of marketing facilities (mainly storage/collection centers, packing stations, quality control centers, and port storage facilities), and reforms in the vegetable export marketing system. 4544e. sc  mplernentaion Experience The project appea:ed to have started well, with initial farmer demand for greenhouses during the first two years exceeding appraisal projections. The Government's export marketing board, Office de Commercialisation et d'Exportation (OCE),1' also initiated the anticipated reforms of its export marketing practices. However, problems which were to significantly affect projece outcome immediately became apparent. Farmers failed to conform to the expected cropping patterns; instead of diversifying their production, they increased their traditiontl reliance on tomatoes. Demand for greenhouses slowed cunsiderably due to the unusually adverse weather conditions which began during the first year of the project and continued through Year 4. OCE decided that further changes in its marketing practices were unnecessary, a position with which the Bank disagreed. There were serious delays in the expected improvements in the research/extension system and some of the anticipated improvements were never implemented. Winter vegetable exports fell to well below pre-project levels and value of the dirham depreciated substantially in relation to the US dotlar and European currencies, contributing to a reduction of Government budgets. As a result, utilization of loan funds was slowed and there were delays in the implementation of all project components. The project scope was changed in April 1983; several modifications were made, including the funding of a comprehensive study of Morocco's winter vegetable production and marketing it. hlems and prospects, as well as the extension of the loan closing date by me year, from June 1984 to June 1985. Subsequently the closing date was extended for an additional six months, to December 1985. Project costs totalled approximately US$70.9 million, 55S of the US$129.6 million expected at appraisal; in dirham terms, total project costs are estimated at 62% of appraisal projections. The most important components for which actual costs were significantly below appraisal estimates iuclude: (i) greenhouse construction (although the physical target was exceeded, about 15% of the farmers used non-project financing and some farmers installed models which were much less expensive than initially anticipated); (ii) installation of irrigation facilities for both greenhouse and open field production; (iii) short-term credit (many farmers were able to finance their own operating costs and the target for support of open f4eld production was not achieved); (iv) packing and quality control stations (it was decided not to undertake much of the expected construction and upgrading due to shortfalls in production and exports, as well as to the availability of private packing facilities); and (v) construction of seedling greenhouses. However there were also cost overruns for several project components. The most significant involved the construction and equipping of extension and storage/collection centers (it was agreed that the number of facilities financed be increased and the types of equipment be expanded) and the construction of the port storage facility. Results The project was highly successful in achieving one of its principal goals, the expansion of greenhouse production-greenhouse area financed by the project exceeded the target by 24X, although the rate of installation was 1/ Since the completion of the Project, The Government, as part of its marketing and trade regime liberalization program supported by the Bank, has eliminated OCE export marketing monopoly.  - vi - slower than envisaged due to the unfavorable weather conditions dur&.g the first four years of the project. However there was a considerable shortfall in the open field component-improvements were supported on onmy about 552 of the target area envisaged. There was limited success in the achievement of the other major project goals. During most years of the project winter vegetable exports remained below pre-project levels and by Year 7, the completion date of the extended project, only 442 of the appraisal export target for Year 4 had been attained. The export concentration on tomatoes increased slightly because the expected expansion in the production and export of the various other project crops failed to materialize, and the dependence on the French market increased. At this time, only limited changes were made in OCE's marketing practices partly because the organization disagreed with the need for further change and the study which was to resolve this disagreement was Lot finalized until well after project completion. The limited success in the achievement of the yield, and crop diversification goals may be attributed largely to weaknesses in the research and extension system due to the failure to immediately initiate the planned research and extension activities at the project's start and to implement this component as designed. This in turn had a negative impact on the achievement of the project's marketing objectives. At appraisal it was recognized that intense, regular supervision would be needed in both '.orticulture and marketing areas, but during implementation there were sume gaps in the supervision of both the horticulture and marketing components. Cost underruns in several major project components and the decision not to undertake several of the planned activities resulted in underutilization of the loan funds-actual disbursements were 632 of the anticipat(.i amount. During the course of the project the Government requested that US$14.0 million be cancelled and an additional US$7.2 million was cancelled at the time of final disbursement. The economic rste of return for the greenhouse component is reestimated at 312 which, despite production shortfalls, is close to appraisal expectations for this component due to the unexpectedly high prices received for project crops in both export and local markets. Because of data limitations, particularly on the impact of the open field improvements and on private sector investments in packing houses, the rate of return for the overall project can only be roughly estimated. Using conservative estimates for the incremental production resulting from open field improvements and omitting the packing perations (except for actual project investments in packing facilities), the rate of return for the overall project is reestimated at 122, compared to the appraisal estimate of 462. However it is probable that if data were available on the impact of project-sponsored open field improvements and on the packing operations (which showed an extremely high rate of return in the appraisal analysis), the rate of return for the overall project would be considerably higher. The prospects for sustainability of benefits from the project's main category of investment, the greenhouse component, appear very good if weaknesses in research and extension and in the marketing system can be 4S44e. se  - vii - corrected. A judgement about the sustainability of benefits from the other components is not possible because of the inadequate information in the project files about their performance. Findino and Lessons Despite the shortfall in winter vegetable production and exports, it is reasonable to assume that without the project, both production and exports would have declined. The greenhouses provided protection against the urfavorable weather conditions during the early project years and thus helped to prevent more serious losses than those which actually occurred. Further, the greenhouses enabled Moroccan producers to achieve much higher yields than in open field operationa, to adapt the timing of their production to the increasingly restrictive EEC import calendar during the summer months, and to achieve higher standards of product quality and homogeneity, thereby halting the decline in exports which had begun in the mid-1970's. However the failure to implement the research and extension component as designed and weaknesses in research and extension support prevented the project from achieving the degree of success which Bank horticultural specialists firmly believe could have been possible. The inadequate monitoring of this component by a norticultural specialist during supervision and the acceptance of major delays in the execution of key aspects of the planned research/extension program clearly contributed to limiting the ultimate success of the project. The impkementation of various important reforms in the domestic and export marketing system was delayed by the disagreement which developed over OCE's marketing practices at an earlier stage of project execution. The regular use, during supervision, of an experienced marketing specialist could have sped up these reforms. The Project, however, played indirectly an important catalytic role in shaping the marketing and export liberalization program of Government and in eliminating OCE monopoly. As a follow-up on lessons learnt in this project, the Bank has recently appraised a Research and Extension Project (FY89) to tackle existing weaknesses in research and extension in Morocco. Also, in 1988 a sector study examined the most recent development trends in the subsectors of greenhouse production, agro-processing, and fruit and vegetable export as part of the preparation of the National Agricultural Credit Project (FY89) through CNCA, which is already successfully encouraging the financing of investments in the expanding private sector in agriculture in Morocco. 45440. sc  KINGDOM OF MOROCCO PROJECT COMPLETION REPORT VEGETABLE PRODUCTION AND MARKETING PROJECT (Loan 1757-MOR) 1. INTRODUCTION 1.01 During the 1960's and early 1970's Morocco was a major supplier of winter and summer vegetables, particularly tomatoes and potatoes, to France and, to a lesser degree, to other EEC countries. Then in the mid-1970's Moroccan vegetable production and exports declined dramatically, due largely to a reduction of export produce quality and increasing competition from Spain, which led to lower producer prices and decreased farmer interest in vegetable production. The deteriorating situation was exacerbated in 1976 when the EEC, in order to protect its own expanding greenhouse production of vegetables, extended the annual period of restrictions on vegetable imports from May to October, thereby sharply reducing Morocco's export possibilities for the summer crop. The country's producers proved unable to adapt to this new export calendar, and vegetable exports declined even further (from 1976-79 the decline was approximately 30S). 1.02 In an effort to halt this decline in vegetable exports and to recapture its former share in the EEC market, in late 1977 the Moroccan national marketing board for agricultural exports, the Office de Commercialisation et d'Exportation (OCE), formulated a development plan for the winter vegetable subsector, /Plan Primeurs'. To be -implemented during 1978-85, the Plan aimed at doubling the value of vegetable exports through: (1) the provision of technical and financial support to horticulturalists, whose operations were characterized by low productivity and high export rejection rates resulting largely from poor cultural practices, infected soils, and poor selection of varieties; (2) the widespread introduction of greenhouse production, which until that time was restricted to limited areas largely devoted to research and demonstration; this technology would enable producers to intensify production during the winter (November-April) season; (3) the modernization of packing and grading infrastructure; and (4) the development of deep-freezing facilities, in order to provide a complement to exports of fresh produce. In early 1978 the Bank was approached for assistance in the execution of the Plan, which was considered of highest priority by the Moroccan Government. 1.03 The project was designed to support the first four years of the Plan Primeurs development program. It was the first Bank-supported project focussing on Morocco's horticultural sector, although in 1978 the Bank had financed a one-year veg :able research program in the southern region of the country under the Souss Irrigation Project (FY75). Bank staff had also identified an integrated vegetable production and marketing project for the Souss/Massa area in 1976, but this project was not developed further, apparently due to the Government's subsequent decision to develop a broader national prorSram for horticultural development. 4544e.*C  - 2 - 1.04 At the time of the issuance of Plan Primeurs, Morocco-s vegetable producing areas totalled approximately 142,000 ha of land, of which 120,000 ha were cultivated during the summer season, and 22,000 ha, during the winter season. Vegetable producers were generally small (under 10 ha) traditional farmers who owned their own farms. While the majority of the area in vegetables was devoted to tomatoes and potatoes, a variety of other crops was also produced, including green peppers, zucchini, green beans, strawberries, eggplant, artichokes, asparagus, cucumbers, melons, onions, and hot peppers. IL PROJECT FORMULATION Identification and Preparation 2.01 identification and preparatic ,ere performed by the FAO/Coope -Iie Program, which conducted five missions to Morocco during 1978. Bansc a.aff participat.d in part of three of these missions, and several other unrel-ted Bank missions reviewed the progress of project formulation and reported back to the Bank on the principal issues and problems needing resolution. Two of the Moroccan government agencies which were expected to participate in the project, the Ministry of Agriculture (MARA) and OCE, assisted in project preparation by executing a survey of horticultural farming operations and an assessment of the country's problems in the production, packing, and marketing of horticultural crops. 2.02 It was decided early in the preparation process that the project would include only the zones producing winter vegetables; these zones were located mainly in the coastal areas between Kenitra (north of Rabat) and Safi, and in the areas south and east of Agadir, in southern Morocco (see Map). Of the 22,000 ha under winter vegetables, 9,000 ha were to be included under the project. 2.03 During the preparation process several issues were raised which proved to be problematic during project implementation or of considerable importance to the ultimate outcome of the project. These include the following: (1) proiect target for greenhouse installation. Initially the Government strongly advocated that the project support the installation of 3,000 ha of greenhouses; however Bank staff and the preparation teams argued that this would be an overly ambitious target. Ultimately it was agreed that the target for greenhouse installation be set at 1,000 ha and that the improvements for open field areas would cover an additional 8,000 ha. (2) the need for an in-depth study of export marketing requirements and prospects for winter vegetables, particularly in view of the increasing competition from Spain and several other Mediterranean countries. Although Bank staff members and the FAO/CP teams repeatedly stressed the need for such a study throughout 1978, the idea was dropped during project appraisal because the Bank was planning to undertake a comprehensive study of fruit and vegetable export marketing covering various Middle Eastern and North African countries, including Morocco. In the appraisal analysis, the Bank recommended fundamental changes in OCE's marketing techniques; although OCE initially agreed to these 4S44e. sc  -3- changes, later the organization decided that they were unnecessary. During the early years of the project vegetable exports continued to decline, and the disagreement persisted between the Bank and OCE. In order to resolve this dispute, as well as to identify other problems in Morocco's vegetable production and marketin8 system, in 1983 the Bank and the Government agreed that an in-depth study focussing only on the problems and prospects of Morocco's vegetable sector would indeed be necessary; the study was included in the revised project and executed during 1984-87. (3) OCE skepticism concerning projected yield increases. Although the preparation teams believed their yield projections to be conservative, OCE felt that, based on the organization's past experience with local farmers, the projections were overly optimistic. (The projected yield increases averaged about 50% for all project crops over the four-year project period). However the Bank persuaded OCE that the projections were reasonable because of the improvements expected with the utilization of the new greenhousa and open field technologies, as well as the strong technical support to be provided to participating farmers. (4) competition between OCE and MARA for leadership of the proiect. This conflict was apparently resolved just before appraisal by a Government decision that OCE and its affiliate SASMA would be responsible for the greenhouse component, including extension to greenhouse operators, while MARA would direct the open field component; the national agricultural credit agency, CNCA, would be responsible for the credit operations. 2.04 The preparation teams calculated that the economic rate of return of the project would be 22% over ten years and 261 over twenty years. Proiect Appraos 2.05 The project was appraised in January, 1979 by a team consisting of two Bank staff members, a marketing consultant, and a consultant agronomist. There were three principal issues raised and apparently resolved during appraisal team's mission; these issues are described below. 2.06 First, the mission and the Government agreed on the need to modify OCE's system for marketing vegetables in France; instead of continuing to rely on dockside auction sale- at the French ports of entry, the principal market outlets for less perishable citrus, it was agreed that for vegetables OCE should gradually shift to pre-arranged contract sales with panels of major French importer/distributors. The mission emphasized that this more rigorous system of pre-programming destinations and the quantity and quality of deliveries had become the predominant marketing mechanism for vegetables in France. It believed that by adapting to this system, higher produce prices could be obtained, partly because the system could assure faster produce delivery through the distribution network, thereby reducing quality losses for the more perishable vegetables. 2.07 Second, the mission initially opposed the Government's recommendation that farmers be provided 1001 credit financing for the greenhouses (70% from 4S44*. sc  - 4 - CNCA loans, 201 from Treasury advances, and 10% from OCE loans). Government officials felt thaL the rate of introduction of greenhouse technologies would be severely restricted with less than 1001 financing, since previous attempts to encourage greenhouse construction had revealed that many farmers, particularly small holders, were unwilling or unable to self-finance part of the construction costs because they viewed the technology as extremely costly and risky. The appraisal team felt that farmers should be required to contribute 10% of the required financing; subsequently this position was strongly supported in discussions concerning the project within the Bank. It was ultimately agreed that the 100% financing formula would be provided only to selected cooperatives. 2.08 Third, the preparation and appraisal missions had determined that the locally-constructed greenhouses which OCE had previously used displayed certain technical deficiencies; considerable effort was made by the preparation teams to select more effective design specifications for the project-financed greenhouses. Although the SAR and the loan documents provided that greenhouses were to have been procured under ICB, on the basis of mission design specifications in order to facilitate project start-up, during the first year the Bank accepted to finance greenhouses procured on the basis of local competitive bidding. 2.09 During the subsequent discussions within the Bank, several Edditional issues were raised. First. the project's market assumptions were characterized particularly that Morocco would increase its share of the EEC early season vegetable market from 25% to 351 during the project as /unduly optimistic' in light of increasing EEC protectionism and Spanish competition. The need for more detailed and realistic project risk analysis was also emphasized. Second, some concern arose over the apparently regressive impact of the project, since the horticulturalists to be supported by the project were already significantly wealthier than the average Moroccan farmer or the Bank's stated /target group' for its agricultural projects. Third, the need for more elaborate analysis of the main technical problems limiting vegetable production was stressed, and the ability of the extension component to aid the more progressive, experienced farmers was questioned. Finally, the estimates of employment generation by the project, which at first was calculated at 26,000 jobs (at a cost of $3,600 per job) but later was reduced to 16,000 (at $6,000 each), were both described as overly optimistic. Through a series of internal memos and discussions it was attempted to persuade the project designers to consider these views. Although the Bank felt that ultimately certain of its concerns were sufficiently addressed, a staff member wrote in a September 1979 memo to the files that after the /particularly long and involved review process' their concerns about the marketing and equity aspects, /the key, most troublesome features' of the project, were not adequately addressed in the final project design. 2.10 An attempt was made to more adequately address the equity issue during negotiations, when it was agreed that the Treasury advances to cover 20% of greenhouse construction costs would be restricted to /smaller' farmers (those with 2 ha or less of greenhouses); thus the larger farmers would receive only the CNCA credits to cover 701 of construction costs. Further, 60% of the Treasury funds would be allocated to farmers with under 0.5 ha of greenhouses. However some staff still questioned whether these measures were 4S44e .sc  - 5 - sufficient, since in their view, it was doubtful that a farmer with 2 ha of greenhouses could be considered /small'. 2.11 During their review of the project before Board presentation, several Executive Directors expressed satisfaction with the low-cost employment generation effect of the project, which was viewed by one Executive Director as /the redeeming feature of the project'. The project's high rate of return, by this time projected at 462, was also considered a highly attractive feature. However, another Director expressed concern about the /optimistic' marketing projections, particularly the assumption that in the face of increased competition from Spain and Israel, Morocco could Legain its previous market share during the four years of the project. The project was approved by the Board on September 11, 1979. Project Objectives 2.12 The overall objective of the project was to increase the value of foreign exchange earnings rrom agriculture by approximately 26X (US$85 million) in order to contribute to the reduction of Morocco's balance of payments deficit. A secondary objective was the generation of employment at a relatively low investment cost. 2.13 There were three principal goals of the project: (i) to double the export of Morocco's winter vegetables during the project period, 1979-83; (ii) to diversify the composition of these exports; the concentration on tomatoes was to be reduced from 95X of the total volume to 86% (excluding potatoes). while the export of various other higher value crops, including peppers, squash, strawberries, green beans, eggplants, and melons, was to increase from about 62 of the total volume to 142 (an increase of 2262) 1/; and (iii) to diversify Morocco's vegetable export markets-the project aimed to initiate efforts to reduce the heavy concentration on the French market by expanding sales to other European countries. 2.14 The project objectives and goals were to be achieved through three principal actions, which include: (i) the modernization of the horticultural sector through the widespread introduction of greenhouse production and the improvement of open field cultivation through the use of high-yielding hybrid varieties, the improvement of irrigation facilities and cultural practices, and the strengthening of horticultural research and extension support; (ii) the upgrading and expansion of marketing infrastructure; and (iii) the adaptation of Morocco's export marketing techniques to the changing circumstances and demands of the European market; the most essential reform was expected to be the elimination of dockside auction sales for vegetables and the shift to pre-programmed contract sales to panels of European importers/distributors. Project Description 2.15 The project included eight major components: (i) medium- and long-term credit for the construction of greenhouses on 1,000 ha and the installation of drip irrigation systems in 500 ha of the greenhouses, as well as for the provision of irrigation and other equipment for 8,000 ha of open field vegetable areas; (ii) short-term working capital credit for both greenhouse and open field producers; (iii) construction and staffing of five 1/ Export targets were calculated in terms of volume rather than value.  - 6 - 0"4 ' t extension centers and three research/training centers, as well as improvement of seven existing extension centers; (iv) construction of 10 ha of greenhouse nurseries for the production of seedlings by OCE and the cooperatives; (v) construction of ten cooperative storage centers, twelve cooperative and OCE packing stations, twelve OCE quality control centers, and a storage facility at the port of Agadir, as well as upgrading of thirty cooperative packing stations; (vi) construction and upgrading of 250 km of feeder roads; (vii) long-term technical assistance (74 months) to support horticultural research and extension training and short-term assistance (12 months) in marketing, monitoring, and evaluation; and (viii) a survey of water resources in the project area, as well as continuous water salinity monitoring. 2.16 Through the expansion of production under greenhouses, it was expected that producers would achieve not only significantly higher yields (twice the yields of open field produc5rs), but also consistently higher produce quality and greater control over the timing of production. It was anticipated that about half of the greenhouses would be installed in the southern region near Agadir, about a third between Safi and Casablanca, and the remainder, north of Casablanca. The cropping pattern under greenhouses was expected to include 45% tomatoes, 351 green peppers, and on the remaining 201, eggplants, melons, and green beans. 2.17 The component concerning the construction and upgrading of packing stations was included because it was felt that the existing system of stations, which was composed largely of small, outdated units belonging to the cooperatives, was inefficient. Under the project, 25 of these stations were to be closed, another 30 were to be enlarged and equipped to process a minimum of 2,500 tons/year, and 10 new stations with a 2,500 ton capacity were to be built. In addition, OCE planned to construct two stations with a 5,000 ton capacity each. 2.18 The objective of adapting OCE's marketing techniques to the changing conditions in the European market was to be achieved largely through highly intensive project supervision by a marketing specialist who was expected to participate in each supervision mission. In addition, it was anticipated that a portion of the short-term consultant assistance provided for the project might be utilized to assist OCE in defining new markets and executing strategies to capture these markets. 2.19 Total project costs were estimated at US$129.6 million, of which US$58.0 million (451) was to be financed by a Bank loan, and the remainder (US$71.6 million), by CNCA (202), the fa.rmers (171), the Government (131), and OCE (51). The Bank loan was to cover 861 of the project's foreign exchange costs; most of these funds were to be on-lent by CNCA for on-farm investments in greenhouses and equipment, and the remaining funds were to contribute to the cost of the technical assistance activities, short-term farm production credit, and the construction of research, extension, &nd marketing facilities. The project's expected local and foreign exchange costs by component are presented in Table 1. 2.20 Project works were expected to be implemented over a four year period (September 1979-August 1983) and Bank funds were to be disbursed over a four and one-half year period, with the anticipated closing date in June 1984. 4544e.se  Table 1 Proiect Components and Estimated Costs Local Foreign Total US$ Million 1. On farm Investments (medium- and long- term CNCA credit) a. Greenhouse production Construction of greenhouses (1000 ha) 10.5 24.5 35.0 Drip irrigation (500 ha) 1.6 1.5 3.1 Other medium-term investments 0.7 0.5 1.2 b. Openfield production (8000 ha) Irrigation improvements 1.2 1.8 3.0 Equipment 0.8 0.9 1.7 Other medium-term investments 2.2 3.2 5.4 Subtotal 17.0 32.4 49.4 2. Incremental Production Costs (short-term CNCA credit) a. Greenhouse production 02.5 02.1 04.6 b. Openfield production 12.5 10.2 22.7 Subtotal 15.0 12.3 27.2 3. Agricultural Support Services a. Construction of strengthening 12 agricul- tural extension centers, with staffing 3.4 0.7 4.1 b. Construction of 3 research/training/ demonstration centers, with staffing 2.0 0.6 2.6 c. OCE and cooperative seedling production (incl. 10 ha greenhouse) 0.3 1.0 1.3 Subtotal 5.8 2.3 8.1 4. Marketing Facilities a. Cooperative storage/collecti3n centers (10) 1.7 0.5 2.2 b. Cooperative and OCE packing stations (42) 2.3 1.5 3.8 c. OCE quality control centers (12) 3.2 0.8 4.0 d. Agadir port storage facility (6000m3) 0.7 0.2 0.9 Subtotal 7.9 3.0 10.9 3712Z/1  8 Local Foreign Total -Us$ Million. -- 5. Feeder Roads Rehabilitation of 125 Km and Construction of 125 Km 2.3 1.0 3.3 6. Technical Assistance Long-term (74 months) 0.2 0.4 0.6 Short-term (12 months) - 0.1 0.1 Subtotal 0.2 0.5 0.7 7. Hydrogeological Study 0.3 0.3 0.6 Total Base Cost 48.3 51.8 100.1 Physical Contingencies 2.0 2.3 4.3 Price Contingencies 11.9 13.3 25.2 Grand Total 62.2 67.4 129.6  - 9 - UL PROJECT MPLEMENTATION Effectiveness and Start-Up 3.01 The loan documents were signed on November 15, 1979, two months after Board approval. Although there were no special conditions for effectiveness of the loan, a subsequent delay in satisfying the stano*rd conditions resulted in a postponement of loan effectiveness until April 1' *980, two months later than initially anticipated. 3.02 Despite this delay, by the date of project effectiveness there were several indications that project start-up was proceeding well, although there were also some immediate signs of problems. Most notably, OCE had already begun to modify its marketing practices, having replaced some of the dockside auction sales with a panel of French importers/distributors to whom deliveries were pre-programmed; however OCE was described by some of these distributors as being /defensively secret about market information' and not fully responsive to the fundamental changes rapidly occurring in the Frencb market. In addition, farmers appeared unwilling to conform to the diversified cropping targets established by the project; the first year acreage targets for peppers, green beans, and other vegetables were not achieved, and the target for tomatoes, traditionally the principal crop of most Moroccan horticulturalists, was significantly exceeded. However, when an unusual frost in the south resulted in the loss of much of the tomato crop during 1979-80, the Bank and the Government believed that in the future farmers would realize the importance of diversifying their cropping patterns in order reduce the potential impact of unexpected climatic variation. (This belief ultimately proved to be ill-founded). Revisions 3.03 Project implementation was severely delayed because of four consecutive years of unusually adverse weather conditions (1979-83) which inhibited farmer demand for greenhouse credits and adversely affected production, causing exports of winter vegetables to fall below pre-project levels. The decline of exports was also attributed to increasing Spanish competition in the European markets ana, in the view of the Bank, to OCE's resistance to further modifications of its marketing practices. The situation was exacerbated by the depreciation of the dirham in relation to the US dollar and European currencies and by reduced Government budgets, both of which resulted in extremely low utilization of loan funds and slow progress in the construction components. 3.04 In response to Government requests during 1982-3 to modify several aspects of the project design, the loan agreement was amended in April 1983. The principal changes included: (i) an increase in the loan disbursement percentages to cover the full estimated foreign exchange component of the project; (ii) new and increased expenditures for various support activities and for farmer inputs, equipment, and credits; (iii) funding for several agricultural and agro-industrial studies, including the in-depth analysis of Morocco's winter vegetable production and marketing problems and prospects; (iv) agreement that short-term credit could be used for the production of potatoes, which had not been included in the appraisal design because of 4S44..sc  _ 10 - apparently poor market prospects at that time; and (v) an extension of the closing date by one year, to June 1985, although it was expected that a second year's extension might subsequently be necessary. 3.05 In February 1985 the closing date was extended for an additional six months, to December 31, 1985, to permit the financing of a seventh year of greenhouse construction and the completion of the vegetable production and marketing study. Sbchdule of bmPlementationof Prineipd CnMponents 3.06 Greenhouse Construction. The project objective was to achieve 1,000 ha of new greenhouse construction by Project Year 4 (1982-3). During the first year farmer demand for greenhouses was almost at the projected level (107 ha versus 120 ha projected, or 89%); preliminary demand for the second year was actually double the projected level (300 ba ver&js 200 ha projected). Then, largely due to the extremely adverse weather conditions during the first year, requests for greenhouse credits for the second year dropped dramatically, to 109 ha. When the unfavorable weather conditions continued during the second year and it became clear to some farmers that the greenhouses were successful in protecting their crops against such conditions, farmer demand began to accelerate. However the rate of acceleration was not as great as originally projected, most likely due to many farmers' continuing fears of undertaking significant new investments during extended periods of adverse weather conditions. By the end of 1983, the project's original completion date, 521 ha of greenhouses had been constructed, 521 of the appraisal target. When the project was extended and weather conditions normalized, farmer demand intensified considerably; by the end of 1985, the revised completion date. grefnhouse area reached 1460 ha. Since it is roughly estimated that 15% of these greenhouses were constructed with non-project funds, the greenhouse area financed by the project totalled approximately 1241 ha, or 124% of the original project target. 3.07 A comparison of planned versus actual construction of greenhouse area from 1979-86 is presented in Table 2. Tal 2 Comnarison of Plaed versus Actual tate of Greenhogts C