Tanzania - Cashew and Coconut Treecrops Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-5027-TA MEMOYANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 19.4 MILLION TO THE UNITED REPUBLIC OF TANZANIA FOR A CASHEW AND COCONUT TREECROPS PROJECT JUNE 5, 1989 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Tanzania Shilling(TSh) US$1.00 - TSh. 120 1/ TShl. 00a US$0.0083 WEIGHTS AND MEASURES Metric System Government Fiscal Year July 1 - June 30 Abbreviations CIP - Cashew Improvement Program CRDB - Cooperative Rural Development Bank ERP - Economic Recovery Program FRG - Federal Republic of Germany GOT - Government of Tanzania IDA - International Development Association IFAD - International Fund for Agricultural Development MALD - Ministry of Agriculture and Livestock Development NCDP - National Coconut Development Program ODA - British Overseas Development Administration 1/ The exchange rate by May 1, 1989 was US$1.00 = TSh 138. However, an analysis shows no substantial change in total project costs resulting therefrom.  FOR OFFICIAL USE ONLY TANZANIA CASHEW AND COCONUJT %REECROPS PROJECT CREDIT AND PROJECT SUMMMARY Borrowert The United Republic of Tanzania Beneficiariess Ministry of Agriculture and Livestock Development (MALD) and Cooperative Rural Development Bank (CRDB) Amount: SDR 19.4 million (US$25.1 million) =erms: Standard, with 40 years maturity Onlending Terms: Of the US$25.1 million grant to MALD, US$3.3 million would be on-lent to CRDB: US$1.1 million -.or input supply support and US$2.2 million for a Pilot Credit Scheme at a fixed interest rate of 8.4Z with a 10 year maturity including 4 year grace period. Foreign exchange risk would be borne by CRDB. Financins Plan: Government US$ 5.3 million ODA US$ 6.3 million FRO US$ 5.7 million IDA USS25.1 million TOTAL US$42.4 million Economic Raie of Return: Not Applicable Staff Appraisal Report: Report No. 7681-TA MAPS: IBRD Nos. 20926 and 21494 This document has a restr't,d distribution and may be used by recipients only in the nerformance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A CASHEW AND COCONUT TREECROPS PROJECT 1. The following memorandum and recommendation on a proposed development credit to the United Republic of Tanzania for SDR 19.4 miUlijn (US$25.1 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and would help financ- the 2nd phase of a long-term program to rehabilitate the cashew and cocunu. adustries in Tanzania. The project would be financed in parallel by the British Overseas Development Administration (ODA) for US$6.3 million equivalent and by the Federal Republic of Germany (FRG) for US$5.7 million equivalent. 2. Background. Development of the agricultural sector, which accounts for 40-50 percent of GNP, about 80 percent of exports, and over 80 percent of employment, is critical to the economy. However, for more than a decade up to the mid-1980s, agriculture was neglected in Tanzania as the Government favored urban industrial growth, based on extensive state ownership and regulation of the economy. As a consequence, agricultural output declined and the country was increasingly obliged to rely on imports. In addition, agricultural exports, the country's main source of foreign exchange earnings, fell steadily, contributing to the growing balance of payments difficulties. The economy overall stagnated, leading the Government to adopt an Economic Recovery Program (ERP) in June, 1986. Under the ERP, economic growth has resumed, particularly in the agricultural sector. 3. With assistance from IDA and other donors (including the Netherlands, United Kingdom, Federal Republic of Germany, Italy, Finland, Denmark, Sweden as well as the European Economic Community, the European Investment Bank, the Commonwealth Development Corporation, the International Fund for Agricultural Development, the African Development Bank, the African Development Fund, and the World Food Program), Tanzania is pursuing a realistic strategy in the agricultural sector. This strategy includes improvements in pricing and marketing policy, both for inputs and outputs, and in agricultural services, e.g., research and extension, marketing and distribution systems and credit. Emphasis is being placed on producer incentives to encourage production of basic staples (grains particularly) for domestic consumption and cash crops for export (tea, coffee, cashew) and the local market (coconuts). Institutional strengthening is in progress to improve the effectiveness of support services. Smallholders including women are receiving increased attention under the tevised strategy. IDA is assisting in the implementation of the above strategy with projects in the areas of export rehabilitation, marketing, credit, extension and research, and is helping the Government to mobilize and coordinate donor assistance in support of this strategy. 4. Since the 19i0's, production cashews and coconuts has declined by 85Z due to technical problems, inappropriate pricing (averaging 30-40? of the export parity price), poor marketing policies and lack of inputs. Pilot research projects for both crops started towards the mid-1980's with support from IDA (under Credits 801-TA & 1070-TA), the Federal Republic of Germany and Italy. They succeeded in developing  - 2 - chemical control methods for cashew powdery mlldew disease, pest control methods, disease tolerant cashew planting materials and high yielding coconut hybrids. Cn the basis of these achievements, the Government, with IDA, ODA and FRG assistance, prepared the proposed Cashew and Coconut Treecrops Project. Policy measures dealing with pricing and marketing, designed to increase cashew and coconut prodaction and farm incomes, vere introduced as part of the ERP and will be further developed under the proposed project and the Agricultural Sector Adjustment Program, now under preparation. To overcome present input supply shortages, the project would encourage involvement of local traders/importers to procure cashsw production inputs, initially using credit from the Cooperative Rural Development Bank tCRDB). 5. Rationale for IDA Involvement. The project would fit into the core program agreed between the Government and IDA to improve farmers' services and rehabilitate major ezport crops. It would complement the ongoing dialogue on agricultural marketing policy reforms; the export rehabilitation, research and extension projects which are under implementation: and would build on the results of IDA-supported pilot projects for cashew and coconut development. Because of these investments and its intensive policy dialogue, IDA is well placed to help the Government implement the policy to carry out the neccessary institutional and technical reforms to stimulate the development of the coconut and cashewnut industries and to assist in mobilizing donor support for that purpose. 6. Proiect Obiect.ves. The objectives are to achieve long term growth by increasing the nationwide production of cashewnuts for export and the production of coconuts for the domestic vegetable oil market byl Ci) increasing institutional capacity in the Ministry of Agriculture and Livestock Development for treecrops research and development: (ii) supporting the propagation and dissemination of higher yielding, disease and drought-tolerant planting materialss and (iii) providing training to research and extension staff and to farmers in particular, on improved production practices: and (iv) providing credit to cashew traders and farmers. 7. Proiect Descriotion. The project would includes (i) expanded cashew and coconut research to develop higher yielding, more disease and drought-tolerant varieties/hybrids; (ii) the development and operation of seven cashew developmert centers and three coconut seedfarms for the propagation and dissemination of quality planting materials; (iii) the training of extension and research staff and the dissemination of cashew and coconut production packages; (iv) the management and coordination of the cashewnut improvement and coconut development programs; (v) credit for local traders and farmers to procure cashew production inputs; and (vi) a pilot credit operation to provide investments to farmers for coconut or cashewnut development. The total cost of the project is estimated at US$42.4 million equivalent, with a foreign exchange component of US$30.2 million (71Z). A breakdown of costs and the financing plan are shown in Schedule A. The amounts and methods of procurement and of disbursements and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Tanzania are given in Schedule C and D, respectively. Maps Nos. IBRD 20926 and 21494 showing the Project areas, and the Staff Appraisal Report No. 7681-TA, dated May 30, 1989 are attached.  8. Agreed Actions. At Negotiations IDA reached agreements with GOT on the following matters as conditions for credit effectiveness: (a) establishment of cashew and coconut management units to iplement the Cashew Improvement Program (CIP) and the National joconut Development Program (NCDP) and the appointment of their Coordi ators; (b) establishment of separate cashew and coconut ProJect Accounts; (j) establishment of a joint cashew and coconut Technical Coordinating C4imittee; and (d) effectiveness of agreements with ODA and FRG to fitnance respectively the cashew and coconut research components under the project. IDA also reached agreements on: (e) the mid-term evaluation of project implementation and GOT's recommendations on the institutional arrangement for treecrops development; and (f) the announcement of an increased farmgate cashewnut price to at least 502 of FCB price and the provision of a phased action plan for the improvement of the marketing system for cashewnuts, acceptable to IDA, by November 30, 1989. And as conditions of divaursement: (g) against the input support component, the GOT will execute a subsidiary loan agreement with CRDB; and (h) for the pilot credit scheme, GOT will execute the subsidiary loan agreement with CRDB and cause it to nominate the credit coordinatsr. 9. Benefits. The project would benefit producers of cashewnuts and coconuts directly as well as the national economy in general, through increased cash income and increased vegetable oil production. Based on the farm models, manday returns would increase from Tsh 60/day to Tsh 100- 170/day for cashew and to Tsh 200-300/day for coconut. Overall production would be doubled in ten years time to 45,000 tons of cashew and one billion coconuts per year. The balance of payments would thereby be improved by higher cashewnut exports and lower edible oil imports. The project will help integrate women farmers into the market economy because of their direct involvement in the cashewnut and coconut industries. The development of private input trade in remote areas and improvement of cashewnut and coconut research and strengthening institutions will represent important additional benefits. 10. Risks. The main risks would be lower than expected adoption rates of improved cashew and coconut production packages and inadequate producer prices. To minimize these risks the project provides for technical assistance to facilitate attainment of research targets, and for intensive professional and management training to ensure development of the programs, by application of 'lessons learned' from the two pilot projects. In regard to producer prices, agreement was reached that the cashew farmgate price would be increased by November 30, 1989 to at least 502 of the export price. 11. I am satisfied that the proposed credit would comply with the Articles of Agreement of IDA and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. June 5, 1989  Cashew Research Production I Plantirg Ma Input Suppl: Support Management Sub-T Coconut Research Production Planting Ms Management Sub-l Pilot Credit S Total baseline Price Continge Total Project Financing Plu IDAL flG ODA GOT /1 Net of taxi  Schedule B page 1 of 2 TANZANIA CASHEW AND COCONUT TREECROPS PROJECT PR)CuREMENT METHOD AND DISBURSEMENT Procurement Method 2/ (US$ Million) Expenditure ICB LCB ILS NO OTHER 31 TOTAL Civil Works 4.0 1.0 5.0 (3.3) (3.3) Vehicles, Equip.& 7.4 0.8 2.4 10.6 Agric. Inputs (7.4) (0.8) (8.2) Technical Asst. & 6.0 5.9 11.9 Consultant Services (6.0) (6.0) Training 1.1 1.0 2.1 (1.1) (1.1) Pest & Disease 1.1 1.1 Control Inputs (1.1) (1.1) Recurrent Costs 7.8 1.7 9.5 (3.2) (3.2) Pilot Credit 2.2 2.2 Scheme (2.2) (2.2) TOTAL: 7.4 4.0 1.9 17.1 12.0 42.4 (7.4) (3.3) (1.9) (12.5) - (25.1) Estimated IDA Disbursement Schedule IDA FY 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 Annual 2.5 4.2 4.8 4.2 4.2 4.0 1.2 Cumulative 2.5 6.7 11.5 15.7 19.9 23.9 25.1 Percentage of Total Credit 10.0 26.7 46.0 62.8 79.6 95.6 100.0 2/ Figures in parenthesis represent IDA financing. 3/ To be carried out according to ODAIFRG procedures.  Schedule B page 2 of 2 IDA Disbursements Category Amount Percentage of Expenditure US$ Million Financed ti) Civil Works ^ashew 2.2 Sol Coconut 0.6 S00 (ii) Vehicles & Equipment Cashew 5.1 1OOS Coconut 1.7 100l (iii) Technical Assistance and Studies Cashew 3.2 1002 Coconut 2.2 100l (iv) Training Cashew 0.6 100l Coconut 0.4 1001 (v) Agricultural Inputs Cashew 0.2 100l Coconut 0.3 1l01 (vi) Agricultural Credit for Import of Chemicals and Equipment 1.1 1001 (vii) Project Recurrent 751 up to June 30, 1992t Expenditures 551 up to June 30, 1994; Cashew 0.9 201 thereafter. Coconut 1.8 (viii) Pilot Credit Scheme 1.9 851 (ix) Refund of PPF 0.6 Amount due (x) Unall,cated 2.3 TOTAL 25.1  Schedule C TANZANIA CASHEW AND COCONUT TREECROPS PROJECT V14etable of Key Proiect Processing Events 1. Time taken to prepares 20 months 2. Prepared by: Projest Preparation and Monitoring Bureau of MALD and National Coconut Development Program assisted by IDA, PnG and ODA. 3. First IDA Mission: Januarl - Febraary, 1988 4. Appraisal Mission Departures October 2, 1988 5. Negotiations: May 8-12, 1989 6. Planned Date of Effectiveness: November 1, 1989 7. List of Relevant PCRs and PPARs: PCR CR 801-TA and PCR CR 1070-TA under preparation, and PCR CR 987-TA  Schedule D pago ' of 2 STATUS OF BANK 8ROUP OPERATIONS IN TANZANIA SPNRO25 - SUMMARY STATEMENT OF L0ANS AND IDA CREDITS ILOA DATA AS OF 3130/89 - MIS DATA AS OF 04/18/89) Aount in US$ million fless cancellationsj Loan or Fiscal Undis- Closing Credit No. Year Borrower Purpose bank IDA tursed Date Credits 48 Credits(s) closed 642.41 COSOIO-TAN 1978 TANZANIA CASHEW NUTS 11 24.50 1.55 06130/89(R) C08610-TAN 1979 TANZANIA EDUCATION-VI 12.00 .76 06/30/i88R) C10150-TAN 1980 TANZANIA GRAIN STORAGE M fILL 43.00 31.05 06/30189(R) C10370-TAN 1980 TANZANIA SMALLUOLDER TEA 14.00 3.69 12/31/88(R) C10560-TAN 1981 TANZANIA EDUCATION VII 25.00 5.15 .2/31/89(R) C10600-TAN 1981 TANZANIA T.A.II 11.00 2.40 06130/881R) C10700-TAN 1981 TANZANIA COCONUT PILOT 6.80 .13 03/31/99(R) C12290-TAN 1982 TANZANIA FORESTRY 11 1k.00 4.65 12/31/89(R) C13120-TAN 1983 TANZANIA OAR SEWERASE 22.50 4.44 12131/18(R) C13700-TAN 1983 TANZANIA MUFINDI PULP&PAPER 18.00 5.22 12/31189 C13710-TAN 1983 TANZANIA COAL EN6.CREDIT 6.30 3.04 06130189IR) C14050-TAN 1984 TANZANIA PONER IV 35.00 6.61 06130/19 C15240-TAN 1985 TANZANIA TAS IV 10.00 1.25 06/30/89(R) C15360-TAN 1985 TANZANIA PORTS REMAO. 27.00 3.06 0630790 C16040-TAN 1985 TANZANIA PETRO.SECTOR.T.A 8.00 7.06 06130189 C16870-TAN 1986 TANZANIA POVEUR REHAM/ENERDY 40.00 24.41 12/31190 C16880-TAN 1986 TANZANIA SIXTH HWY. (REHAB) 50.00 45.39 06/30192 C18100-TAN 1987 TANZANIA TELEC.II 23.00 17.72 W030/91 C17411-TAN 1988 TANZANIA NULTI-SEC.RH 1 30.00 4.69 06/301891R) C18910-TAN 1988 TANZANIA A6R.EXPORTS REN. I 30.00 27.08 06/30/96 C19690-iAN 1989 TANZANIA IND.&TRADE ADJdS.CR. 135.00 86.86 12/31/90 C19691-TAN 1989 TANZANIA IND.&TRADE ADJUS.CR. 12.50 12.53 12131/90 t C19700-TAN 1989 TANZANIA A8R.REN.RESEARCH 8.30 7.75 03/31/97 C19940-TAN 1989 TANZANIA ABRIC. EXT. 18.40 17.70 03/31/97 TOTAL number Credits = 24 622.30 324.18 Loans 19 Loans(s) closed 313.06 All closed for "&'ZANIA TOTAL number Loans 0 O TOTALt U 313.06 1 264.71 of which repaid 143.13 27.10 TOTAI. held by Dank & IDA 169.93 1,237.61 Amount sold 6.29 of which repa.J .09 TOTAL undisbursed 324.18 NOTES: I Not yet effective tt Not yet signed t1U Total Approved, Repayments, and Outstanding balance represent both active and inactive Loans and Credits. (R) indicates formally revised Closing Date. The Net Approved and Bank Repayments are historical value. all others are market value. The Signinq, Effective, and Closing dates are based upon the Loan Departnent offical data and are not taken froa the Task Budget file.  Schedule 1D pap 2 of 2 Statumt of IFC Invntuntr as of Parch 31, 195t Invest Type of Number FY Oblior Duuinuus Ln Equity Total 00%w N.Hill io n 744-TA 1985 Asboni Lisited Seneral Hfq 5.6 5.6 410-TA 1978 Nighland Soap 9u,roal Ri 1.3 0.4 1.7 25-TA 1960/64 Kilombaro Sugar Food/Food Proc 4.0 0.7 4.7 460-TA I Jrtal Products Ltd )Ishold Utenils 1.3 0.2 1.5 Total ros Cmitmnts 1.2 1.3 13.5 Less: Cancedltions, terinations, uichaqo adjustmnts repymetb, writofis, and sal 7.9 1.1 9.0 Total cmitmnts hold by IFC 4.3 0.2 4.5 Total Undisbursd 0.1 0.0 0.1 Total Dilsorse 4.2 0.2 4.4  IBRD 20926 360 400 TANZANIA TREE CROPS PROJ ECT J ke KENYA Cashew Natron Im provement Program Project Area IKILMANJARO take ff >4<p N ungYaaA \ 60 - Project Area -6g manea<Cw {1t 7 \ Jf 6 National Capital Region Boundaries - J f i>TInternational Boundaries \ S s / TAN Zanzibar DAR ES SALAAM / O YL / 0 ~~~ >Is/and 81 9f ~ t . MLDAR ES /ReMseers~~~~~~~~ol 50 100 10 200DsA OZAMAMUj K~MTR _ 8