India - Cashewnut Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9021 PROJECT COMPLETION REPORT INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) SEPTEMBER 28, 1990 Agriculture Operations Division India Department Asia Regional Office 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.  INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) CURRENCY EQUIVALENTS At appraisal 1980 US$1 = Rs8.40 For the following years, average rates in Rupees per US dollar have been used: 1980/81 : 7.90 1981/82 8.93 1982/83 : 9.63 1983/84 10.31 1984/85 : 11.89 1985/86 12.24 1986/87 : 12.79 1987/88 : 12.97 At PCR mission US$1 = Rsl6.80 Source: IMF, International Financial Statistics, IFS. YEARS The Indian fiscal year runs from April 1 through March 31 ABBREVIATIONS AP - h1dhra Pradesh APFDC - Andhra Pradesh Forest Development Corporation ARDC - Agricultural Refinance and Development Corporation. renamed NABARD CNSL - Cashewnut Shell Liquid ERR - Economic Rate of Return GOI - Government of India IDA - International Development Agency IRR - Internal Rate of Return KCDC - Karnataka Cashew Development Corporation NABARD - National Bank for Agriculture and Rural Development OED - Operations Evaluation Department OSCDC - Orissa State Cashew Development Corporation PCK - Plantation Corporation of Kerala PCR - Project Completion Report SAR - Staff Appraisal Report SC - State Corporation SH - Smallholder VP - Vegetative Propagation  FOR OFFICILU USE ONLY THE WORLD BANK Washington, DC 20433 U$SA Olfa. iL DIfCtCW.C~fh Ope.atmns LvaIuatHm September 28, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on India Cashewnut Proiect (Credit 1012-IN) Attached, for information, is a copy of a report entitled "Project Completion Report on India - Cashewnut Project (Credit 1012-IN)" prepared by the Asia Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by recipients only in the performnanr.e of their official duties. Its contents may not othe;zvise be disclosed without World Bank authorization.  FOR OFFICIL USE ONLY INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) PROJECT COMPLETION REPORT Table of Contents Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Eveluation Sunmary .................. .-----iii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . Project Identity . . . . . . . . . . . . . . . . . . . . . . 1 Background . .......... .. 1 Project Objectives and Description . . . . . . . . . . . . . 2 Project Design and Organization . . . . . . . . . . . . . . . 3 Project Implementation . . . . . . . . . . . . . . . . . . . 4 Project Results .... . . . . . . . . . . . . ... . 6 Project Sustainability .... . . . . . . . . . ... . 8 Bank Performance .... . . . . . . . . . . . ... . 8 Borrower Performance .... . . . . . . . . . . ....9. . 9 Project Relationship .... . . . . . . . . . . .... . . 10 Consulting Services .... . . . . . . . . . . ..... . 10 Project Documentation and Data . . . . . . . . . . . . . . 10 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . Adequacy and Accuracy of Factual Information in Part III . . 11 Evaluation of Bank's Performance and Lessons Learned . . . . 11 Evaluation of Borrower's Own Performance and Lessons Learned ..... . . . . . . . . . . . . . ... . 12 PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . Table 1: Related Bank Loans and/or Credits . . . . . . . . 13 Table 2: Project Timetable . . . . . . . . . . . . . . . . 13 Table 3: Credit Disbursements . . . . . . . . . . . . . . 14 Table 4: Project Implementation . . . . . . . . . . . . . 14 Table 5: Project Costs and Financing (A and B) . . . . . . 15 Table 6: Project Results (A, B and C) . . . . . . . . . . . 17 Table 7: Status of Covenants . . . . . . . . . . . . . . . 21 Table 8: Use of Bank Resources (A and B) . . . . . . . . . 22 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.  Table of Contents (contd) Page No. Table 9: Production Costs: Plantations Established Under the Project ... . . . . . . . . ...... . 24 Table 10: Projected Smnallholder Income from New Plantations 26 Table 11: Variances in Projected Smallholder Income from New Plantations - Karnataka . . . . . . . . . . . . 27 Table 12: Variances in Projected Smallholder Income from New Plantations - Orissa . . . . . . . . . . . . . . 28 Table 13: Variances in Projected Smallholder Income from Neu Plantations - Kerala . . . . . . . . . . . . . . 29 Table 14: Projected State Corporations Income from New Plantations ... . . . . . . . . ...... . 30 Table 15: Variances in Projected Corporation Income from New Plantations - Karnataka . . . . . . . . . . . . 31 Table 16: Variances in Projected Corporation Income from New Plantations - Orissa . . . . . . . . . . . . . . 32 Table 17: Variances in Projected Corporation Income from New Plantations - Kerala . . . . . . . . . . . . . . 33 Table 18: Economic Prices for Fertilizers . . . . . . . . . . . 34 Table 19: Price Summary for Economic Analysis . . . . . . . . . 35 Table 20: Economic Rate of Return to the Project . . . . . . . . 36 Table 21: Economic Rate of Return to Smallholder Component . . . 37 Table 22: Economic Rate of Return to Corporate on Component . . 38 Table 23: Selected Cashew Production and Price Statistics . . . 39  INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) PROJECT COMPLETION REPORT PREFACE This is the Project Completior Report (PCR) for the Cashewnut Project in India, for which Credit 1012-IN in the amount of US$22.0 million was approved on April 29, 1980. The credit was closed on September 30, 1987. The final disbursement was made on May 24, 1988 and $6.65 million was can- celled. Parts I and III of the PCR was prepared by the Agriculture Opera- tions Division of the Asia Regional Office (Preface, Evaluation Summary, Parts I and III). Part II was based on the "old style" PCR prepared by the Direc- torate of Cashewnut Development of Kerala's Ministry of Agriculture. Preparation of this PCR was started during the Bank's final super- vision mission of the project in September 1987, and is based, inter alia, on the Staff Appraisal Report, the legal documents, supervisi-)n reports, correspondence between the Bank and the Borrower, internal Bank memoranda, and the "old style" PCR prepared by the Directorate of Cashewnut Development of Kerala's Ministry of Agriculture.  - iii - INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) PROJECT COMPLETION REPORT EVALUATION SUMMARY Obiectives The objective of the project was to increase the local production of raw cashewnuts for processing in India so that the cashew industry can improve its export position; to increase the income of smallholders and corporations in the cashew sector; to allow cashewnut processors greater throughputs; and to provide employment and income for the poorer segments in the cashewnut producing states. At the same time, the project aimed to improve the production base of the cashew sector through research on high-yielding varieties and more efficient methods of producing cl.ial material for vegetative propagation. Implementation Experience Project implementation was somewhat slower than anticipated at appraisal due to: (a) the inability of the State Governments of Kerala, Karnataka and Orissa to release the required land for corporations; and (b) inadequate staff to deal with the smallholder component. The production programme included both new plantings and improvements to existing plantings. In the case of the smallholder component, the major variance was the very poor response to the improvement programme, whereas ;n the corporate sector the major variances was the inability of the Plantation Corporation of Kerala to meet its planting target due to land availability constraints. Following reallocation of improvement targets to new plantings, the project was able to achieve its revised planting targets at the end of a two-year extension period. At completion, actual disbursements under the credit reached a total of US$15.35 million, leaving a balance of US$6.65 million, which was cancelled. This was mainly due to the devaluation of the Rupee which substantially reduced the local costs in dollar terms. Results The project was able to achieve its main quantitative objectives in spite of the land availability problems. However, these problems are reflected in the high proportion of poor and unsuitable soils that have been used for new plantings, which in turn are reflected in the low yields of cashewnuts currently being obtained. Yields are much lower than expected (about 40Z of appraisal estimates) and are due not only to the poor soil  - iv - conditions but to the 13w levels of inputs being used for maintenance o; the trees. Overall economic and financial rates cf return estimated at project completion are lower than appraisal estimates. The economic rate of return is re-estimated at 13?, about half of the appraisal ebtimate of 25Z. Although 132 is still a reasonable figure, it has been strongly supported by a 250: price increase for raw nuts since appraisal. For smallholders the financial rate of return before financing is estimated at 24? as against a range of 242 to 40? at appraisal, whereas for the corporations it is estimated at 6? as opposed to 152 tc 18? at appraisal. The large variances are due to the substantially lower yields coupled with much higher labor costs, offset to a large extent by the higher produce prices plus reduced expenditure for maintenance. However, for those smallholders receiving only 50? of crop value under the contract harvesting system, the financial rate of return falls to 11Z. The corporations in Kerala and Orissa are both making substantial losses due to the combined effect of low yields and low prices obtained from contract harvesters. Sustainability The somewhat low benefits from the cashew planted under the project are likely to be maintained. At the same time, there is considerable scope for improving the benefits. However, to attain this, a change of attitude towards the crop is required, i.e., away from that of a "crop of last resort" towards being regarded as a high value cash crop. But as the impetus of specialized cashew extension has been lost since the project closed, such a change in attitude is likely to be slow. Also, very little new planting of cashew has taken place since project completion, mainly due to the withdrawal of planting subsidies. This is unfortunate as the research efforts under the project have created the opportunity of upgrading the cashew production base with the exclusive use of high yielding clonal material. Findings and Lessons Learned Through the project, the Bank made a positive contribution to the physical and institutional development of the cashew sub-sector. The experience suggests a number of lessons to be learned. During preparation and appraisal, more recognition should have been given to the producers perceptions of the crop; the question of whether or not to use land for new plantings which did not meet the criteria laid down for suitability should have been resolved during the early supervision missions; and yield predictions at appraisal should have been firmly based on precedent.  CASHEWNUT PROJECT (CREDIT 1012-IN) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Proiect Identity Project Name Cashewnut Project Credit No. : 1012-IN RVP Unit : Asia Country India Sector Agriculture 2. Background 2.1 Agriculture is the dominant sector of the Indian economy. It provides 64Z of the country's employment, contributes about 33Z of the GOP (in 1987) and accounts for about 132 of India's exports. During the past two decades, the development objectives of the Government of India (GOI) have focused on agriculture and particular emphasis has been given to foodgrain production, with a view to reaching self-sufficiency in staple food commodities. GOI also accords importance to cash crops, including cashewnuts, which generate export earnings and create high employment. 2.2 India pioneered cashewnut processing - extraction of kernels and cashewnut shell liquid (CNSL) I/ from raw nuts - and dominated the world market up until mid-1970s when 902-95Z of the kernel trade was handled by India even though it produced only about 25X-30X of total world output of raw nuts. The balance of processing requirements was imported mostly from East African producing countries. As of early 1970s, other producing countries started building up their own processing facilities and India encountered serious procurement problems for raw nuts from its traditional suppliers in East Africa. Whereas raw nut imports amounted to an average of 160,000 tons per year during the decade 1965-1975, by 1978 only 20,000 tons of raw nuts were imported, causing kernel exports to fall to less than 30,000 tons in 1978 from an annual average of 55,000 tons per year for the period 1965-1975. This represented a loss of almost US$100 million in export revenue and about 10 million labor days in the processit.g industry. 2.3 In an effort to redress this situation, GOI, in coordination with the cashew growing states, embarked on a program to boost local cashew production with the objectives of regaining its former export position, ensuring employment for rural workers and enhancing the incomes of smallholders in the ca3hewnut producing areas. Measures taken initially concentrated on research and the provision of credit for new plantings. I/ CNSL is a phenol used mainly in manufacture of friction materials.  However, to speed up the expansion of local raw nut production and to ensure a better u.;e of existing pros-essing capacities in the country, GOI requested World Bank financing for a broader based cashewnut development project to: (a) expand substantially the area under cashewnut in both the corporate and the smallholder sectors; (b) support research on cashewnut so as to provide high yielding planting material to producers and to develop a technology for field dissemination of pest control measures and maintenance of plantings; ard (c) examine ways and means to improve the efficiency and competitiveness of the industry, interstate coordination of both production and processing, meeting the needs of the predominately smallholder plantation sector, and to improve cashew trade promotion. 3. Project ( Aectives and Description 3.1 Project Objectives. In accordance with the above GOI strategy for the agricultural sector, the objectives of the cashewnut project were: to increase the local production of raw cashewnuts for processing in che country, so that the cashew industry could improve its export position; to increase the income of smallholders and corporations in the sector; to allow cashewnut processors to work their facilities at higher capacities; and to provide employment income for the poorer members of society in the cashew growing states. At the same time, the project aimed to improve the production base of the cashew sector through research on high yielding varieties and more efficient methods of producing clonal material for vegetative propagation. 3.2 Project Description. The Cashewnut Project (Credit 1012-IN) provided for: (a) a cashew planting and improvement programme covering 61,275 ha, of which 35,000 ha were to be developed by private farmers and the balance of 26,275 ha by state cashew development, forest development or plantation corporations; (b) staff buildings, roads, vehicles, eqaipment for the corporations; (c) staff vehicles, equipment and operating costs of supporting services for the private farmers programme, and funds for training departmental and corporation staff; (d) a 500 ha pilot scheme to determine appropriate cashew plant:.ng practices on coastal dune land in Orissa: (e) strengthening cashew research by improving and expanding the central cashew research station and three regional substations, and by establishing a new regional substation; (f) a program to improve about 200 km feeder roads in Kerala; and  (g) a rtudy fer improving the organizational structure of the industry. 4. Project Design and Organization 4.1 The project was prepared by the four participating states (Kerala, Karnataka, Andhra Pradesh and Orissa) with guidance from GO! Ministry of Agriculture Project Preparation and Monitoring Cell and from staff of the World Bank New Delhi office, and was based on reports from each of the four states, completed in r)ctober 1978. 4.2 The conceptual framework of the project was basically sound and was supportive of the cashewnut developnient objectives mutually agreed between GOI and the Bank. 4.3 During preparation a number of issues were raised. These included: land availability for the corporations, i.e., the difficulty of identifying land for cashew development; the institutional arrangements and lending terms for disbursement of credit to smallholders; the provision of a 25Z subsidy for smallholder plantings; whether or not a research co,nponent should be included; and the organization of cashew extension. Resolving these issues took considerable time and resulted in about one year's delay in processing of the project. Perhaps the most contentious issue was that of land to be made available to the Plantation Corporation of Kerala (PCK) for development. In retrospect, it can be argued that the land allocation difficulties were unlikely to be resolved satisfactorily and that this component should have been withdrawn from the project. As it turned out, PCK planted only 545 ha of cashew on one contiguous block of highly unsuitable land. 4.4 The suitability of available land for cashew was discussed during pre-appraisal guidelines laid down and site visits made co verify land suitability. However, at and following appraisal it seems thlat the problems of land availability, per se, became dominant and little, if any, further effort was made to ensure that suitable land was used for cashew plantings. Although cashew is able to produce crops on poor soils, the decision not to plant on soils not falling into the specified grade should have been agreed upon during supervision. Particularly in Kerala and to a certain extent in Karnataka, a very high proportion of unsuitable land was used, i.e., "waste" land with very shallow rocky soils, totally unsuited for any crop other than cashew, which was planted as a crop of last resort. 4.5 Further, climatic differences between the states appear to have been discounted during preparation and this, together with optim sm regarding the use of suitable soils, led to one standard set of yield predictions for all four states for the "with project" situation in the SAR. As will be discussed later in the report, these yield predictions turned out to be unrealistic and highly optimistic. In Orissa, with lower rainfall than on the west coast, the SAR assumed that the use of vegetatively propagated (VP) plants, on part of the land, would compensate for the less favorable ecology. However, the position was misjudged at preparation and as very little planting actually took place with VP material in Orissa, this compensation did not materialize.  4.6 The timing of the project would appear to have been appropriate in terms of increaZing the cashew production base. However, it was unfortunate that the timing was sueh that only negligible quantities of VP planting material were arailable during the project period and thus the vast majority of plantings utilized only selected seed. 4.7 The institutional arrangements were extremely complex involving many organizations spread over a large geographic area. in consequence, project coordination was a problem until the later stages of the project, when the staffing positUon improved. The Directorate of Cashewnut Development, Ministry of Agriculture, based in Cochin, had overall responsibility for the project. In the corporate sector, implementatiun was carried out by the Plantation Corporation of Kerala (PCK), the Karnataka Cashew Development Corporation (KCDC), the Orissa State Cashew Development Corporation (OSCDC), and the Andhra Pradesh Forest Development Corporation (APFDC). For the smallholders, extension and cashew units were set up 4n each of tle four participating states under the various state departments of agriculture. 4.8 One of the most successful aspects of project design was the research component. Although it had a slow start, the dissemination of technical packages coupled with regular training courses for extension workers greatly assisted the project to gain momentum. Although certain aspects of the mechanism for dissemination of credit to smallholders can be criticized, there is no doubt that the meeting uf physical targets, although delayed, was the direct result of a basically workable credit system. 4.9 On the other hand, there was a failure to meet credit disoursement targets mainly because not all plantings were supported by bank loans and as a result of a fall-off in credit uptake in the subsequent years after planting. The latter was due primarily to the small amounts of credit made available to the farmer in the 4th and 5th years after planting and to the fact that no subsidy was paid in years 4 and 5. This farmer resistance to credit uptake after three years was, to a certain extent, conditioned by a common attitude not to regard cashew cultivation as a commercial enterprise ana in consequence to minimize maintenance costs. 4.10 Further, the mission gained the impression that a significant proportion of smallholder plantings were carried out by town-dwellers who eo not depend on their farming activities for their main source of income. This group appear to have taken advantage of the subsidies, minimized their borrowings, made early credit repayments and are neglecting maintenance of their cashew trees. 5. Project Implementation 5.1 Credit Number 1012-IN was :.igned on June 10, 1980 and became effective on September 3, 1980. The credit was originally scheduled to close on September 30, 1985. However, in early 1984 only about 62Z of the total smallholder target area had been planted. The main reasons for this shortfall were iiisufficient staff at headquarters and field level, and the lack of quality of field and supervisory staff, their mobility, and initial  constraints in banking. Similarly, the corporations had only achieved 64Z of their overall planting target in 1984. The main reason for this was the inability of the State Governments of Kerala, Karnataka and Orissa to release the required land. Due to the delays in implementation, and the unexplained failure to meet planting targets during 1984/85, two extensions, each of one year's duration, were agreed and the credit closed on September 30, 1987. 5.2 There were two critical variances between planned and actual implementation. Firstly, the production programme included improvements to existing plantings; smallholders 4,500 ha and corporations 3,000 ha. As the criteria 2/ adopted for selection of plots for improvement proved too rigid and the financial inducements offered inadequate, there was no appreciable response from smallholders to the improvement program. Tn consequence, it was agreed in 1983-84 to convert the smallholder improvement program to additional new plantings and these targets were revised according'y. Secondly, in the corporate sector an additional 1,400 ha for new plantings was targeted to KCDC and OSCDC during 1987, at a time when it was clear that PCK would not meet its planting target due to land availability constraints. For further details see Table 4 of Part III. 5.3 The estimated cost of the project at appraisal was about US$45.7 million, including contingencies. The final cost is about US$31.13 million as shown in Table 5A in Part III. Disbursements under the IDA credit reached a total of US$15.35 million, leaving an undisbursed balance of US$6.65 million, which was cancelled at the close of disbursements in September 1988. This credit savings was due to: (a) reduction in the numbers of vehicles and civil works for the State Corporations; (b) reduction in the credit component for the smallholders who opted to finance plantation maintenance from their own resources rather than from the project-financed credit; and (c) exchange rate fluctuations. 5.4 The SAR identified the major project risk as obtaining adequate smallholder participation in the project. Although this risk was eventually overcome, other associated risks were not adequately identified, particularly the factors affecting projected yield levels and returns to the producers. These included: - land availability and suitability, particularly in Kerala and Karnataka; - the poor response by smallholders to the programs for improvement of existing cashew plantations; - the use of fertilizer and insecticide inputs at lower than recomamended rates; and - the misconception of tachnical possibilities in Orissa where virtually no VP material was used for new plantings. 2/ Trees not more than 10 years old with reasonable spacing, suitable soils.  - the effect of the crop auctioning system in substantially redtucing the returns to producers. Because of labor shortages in the case of smallholders and intimidation of labor in the case of the corporations, particularly in Orissa, 3/ contractors are able to purchase whole crops at a fraction of their true market values. Although by purchasing crops at flowering stage, the contractors are clearly taking a risk, this risk appears to be more than offset by the low prices paid. Estimates of the percentage crop values paid by contractors to producers vary from 20 (Supervision Report dated April 1986) to about 50. However, it should be noted that these are very rough estimates, as contractors invariably do not disclose the weight of raw nuts harvested on any particular estate. 6. Project Results Physical Results 6.1 Planting and Improvement Program. The project achieved its main quantitative objective in terms of area planted following a two year extension of the credit, and can thus in physical terms be considered a success. In the smallholder sector, the overall new planting target, which was increased following the conversion of the improvement programme into new plantings, was slightly exceeded. All states met their targets with the exception of Kerala, which fell only marginally short of its revised target. In the corporate sector, the improvement target was achieved. However, for new plantings, although the appraisal target was exceeded, the revised target was not reached. The significant shortfall was in Kerala, where PCK was only able to plant about 24Z of its targeted area. 6.2 Kerala Feeder Road Improvement. The objective of improving about 200 km of feeder roads in Kerala was exceeded by about 10%. 6.3 Orissa Sand Dune Pilot Scheme. The objective was to plant 500 ha of cashew on the coastal strip of shifting sand dunes in order to find methods for converting these presently useless dune areas into commercially or economically viable cashew plantations. Only about 77 ha were planted between 1982-1984. Although the stand was substantially reduced by a cyclone in 1983, further plant deaths were subsequently shown to be the result of soil salinity and waterlogging. As very few plants survived, it was agreed to discontinue the pilot project. 6.4 Research. After a slow start, the research component progressed well and some impressive results have been achieved in developing improved planting material, and improving the productivity of cashew trees, through epicotyl grafting and top working. Of great significance has been the 3/ Although OSCDC planned to harvest their cashew with their own labor, they have been unable to do so because of intimidation, two laborers having allegedly been killed in this connection.  development of softwood grafting as a standard method of vegetative propagation and its commercial adoption. A further breakthrough has been the establishment of clonal orchards to be used as primary sources of VP material in the future. 6.5 Study. The Cashew Industry Study was completed in 1985. As the study appears to be still under consideration by the Ministry of Agriculture and copies have not been distributed to interested parties within the cashew industry, it must be concluded that the study has had little impact. Rates of Return 6.6 The economic rate of return (ERR) for the whole project has been re-estimated at 13Z over a 40-year period, which 's about half of the SAR estimate of 25Z. For the smallholder component, the completion estimate of ERR is 162 and for the corporations component 112, which compare with the SAR estimates of 312 and 242, respectively. The SAR estimates were based on highly optimistic yield projections which both small farmers and corporations were unable to achieve. The lower than expected yields (about 402 of SAR estimates - see comments on Table 6A of Part III for more details) were mainly due to the poor soils on which new plantations were established and to the low level of inputs used by smallholders and corporations during the maintenance period. Notwithstanding the low yields, the ERR of 13Z is still reasonable and this can be attributed mainly to a 2502 increase in prices paid for raw nuts since appraisal (Rs 4.8/kg to Rs 12.0/kg). Present indications are that the current price paid for raw nuts will fall slightly in the medium term. (See Indonesia Cashew Study, FAO Investment Center, dated 18 December 1989). 6.7 Financial results of the project have been analyzed by computing a financial rate of return (IRR) for the new planting operations on a per hectare basis, before and after financing, for both smallholders and corporations. For smallholders, the IRR before financing is estimated at 242 as against a range of 242-402 at appraisal, and the return to farmer's equity is assessed at 402 as against 50%+ in the SAR. For the corporations, an IRR of 62 is calculated compared with 152 to 182 at appraisal. The large variances are again due to the substantially lower yields together with much higher labor costs, offset to a large extent by the much higher producer prices together with reduced expenditure for maintenance. However, for those smallholders receiving only 502 of crop value under the contract harvesting system, the IRR before financing falls to 112 and becomes negative if the price obtained is only 35Z of the free market price. A similar situation applies to the corporations, all of whom use contract harvesters, with PCK and OSCDC making substantial losses. For further details see comments on Table 6B of Part III. Project Impact 6.8 The project has already made a positive impact on cashewnut production in India. However, if farmers and corporations can be persuaded to increase their standards of management and maintenance, the impact of the project could still increase dramatically. The project has provided human resource development in so much as researchers, extension workers and farmers  - 8 - have received training in many aspects of cashew production. Although the sand dunes experiment was a failure, and development of unsuitable, steeply sloping land initially led to soil erosion, on the whole the project had a positive impact on the environment. Waste and marginal land was developed for productive use and protected against further degradation once the canopy of cashew trees had developed. The impact on the technological environment has been excellent with the selection of high yielding planting material and the establishment of a workable method of vegetative propagation. Given improved extension and an efficient system of distributing clonal material, there is no doubt that all future new plantings of cashew in India could be, and should be, with high yielding clonal material. The exclusive use of such material could greatly improve the profitability of cashew for the growers and improve India's competitiveness in the world market (for selected statistics on production and prices see Table 23). 6.9 The research component of the project was mainly responsible for the development of this potential. As far as che social environment is concerned, the project substantially increased the demand for daily paid labor. However, it did provide increased opportunities, particularly with the corporations, for the operations of apparently highly unscrupulous cashew harvesting contractors. The institutions involved in the project have gained a great deal of experience which could be built upon to improve the execution of a similar project, should one be undertaken in the future. 7. Project Sustainability 7.1 As the present level of benefits are somewhat low due to the producer's conservative attitudes towards maintenance of cashew, there is little doubt that the present benefits from the cashew planted under the project are likely to be maintained. On the other hand, there is ample scope for improving the benefits. However, any significant improvement will to a large extent depend on a change of attitude towards the crop, i.e., towards being regarded more as a high value commercial cash crop rather than as a crop of last resort or, as in Orissa, a crop purely for soil conservation purposes. Although there are signs that some farmers are now regarding the crop in a commercial context and are applying more intensive management practices, a general change of attitude is unlikely in the short term. It is unfortunate that following the close of the project and the subsequent integration of the staff of the cashew units into the general extension and soil conservation services, the impetus of specialized cashew extension has been lost. Further, very little post-project new planting has taken place, primarily due to the withdrawal of the subsidy for new cashew plantings. Farmers appear to be attracted more towards planting rubber or coconuts because of their current planting subsidies and the above world market prices paid for their products. This is a most unfortunate development particularly as the research efforts under the project have created the opportunity of upgrading the cashew production base with the exclusive use of high yielding clonal material. 8. Bank Performance 8.1 Through the project, the Bank made a positive contribution to the physical and institutional development of the cashewnut sub-sector. Although  - 9 - the Bank performance was satisfactory, a number of weaknesses are apparent. There seems to have been little involvement in the project of the Resident Mission in India after the preparation stage. This and the discontinuity of Bank staff involved in the project implementation probably led to the inadequate treatment and follow-up of issues and risks previously mentioned and the failure during supervision to anticipate the advent of lower yields and to suggest action to overcome the harvesting/marketing difficulties. 8.2 In retrospect, the main lessons that may be learned from the project are as follows: (a) During preparation and appraisal more recognition should have been given to the producers perceptions of the crop, to the overall smallholder economy into which the crop would be introduced and to the limited extent to which they would adopt intensive management practices. (b) The evolving problem of land availability during the early stages of project implementation was allowed to override the laid-down criteria for land selection. This issue merited attention and should have been raised and resolved during the early supervision period. (c) Yield predictions at appraisal should be firmly based on precedent and on realistic assessments of the availability (to farmers) of improved technologies and should take into consideration ecological differences between widely spaced geographic locations. Risks should be fully identified. (d) The local Resident Mission should have a higher degree of involvement in project supervision. (e) Marketing should have been more closely studied during preparation and appraisal. 9. Borrower Performance 9.1 In general, the overall performance of the implementing agencies was reasonably satisfactory, although coordination difficulties were experienced. 9.2 Project covenants were generally adhered to (see Table 7 of Part III), but with delays particularly in the submission of audited accounts. GOI support to the project was generally positive. 9.3 GOI played the lead role in project preparation but the close relationship between land availability and land suitability was not defined. After a slow start, the state cashew units performed well in stimulating smallholder farmers to accept credit to establish new cashew plantations. However, by concentrating on achieving planting targets, the field workers seem to have missed the opportunity to get over to the farmers the importance of improving cashew management and failed, on the whole, to influence farmers to adopt a more commercial attitude to the crop. A partial explanation could  - 10 - be that of staff quality and shortages: out of an approved staff complement of 425 only 384 were recruited. In the corporate sector, recruitment of staff was well below that expected, i.e, only 453 out of 1,061. The reasons given for this shortfall are overestimates of staff requirements at appraisal and, due to the restrictive labor laws regarding dismissal of staff, reluctance on the part of the corporations to hire labor unless considered absolutely essential. 9.4 The main lesson learnt by the borrower is clearly that although cashew cultivation can be viable under poor soil and management conditions, it is in fact a crop which can be highly profitable to the producer when grown under the right conditions. 10. Project Relationship 10.1 The success of this project in achieving its physical targets is a result of the good working relationships between the Bank and the Borrower and the various implementing agencies. 11. Consulting Services 11.1 Consultants played a minor role in the project, only the Cashew Industry Study was done by conisultants. The study was completed by local consultants at a substantially lower cost than anticipated. Although the study produced a wealth of useful background material, there was very little interpretation or analysis of the data, and the conclusions and recommendations were only general in nature and did not provide a useful framework for future developments in the cashew industry. 12. Proiect Documentation and Data 12.1 During project implementation, the SAR was generally perceived as a useful framework. As far as availability of relevant data to the PCR mission was concerned, the draft PCR, consolidated by the Directorate of Cashewnut Development, Ministry of Agriculture, proved tc be a useful reporting document, but with little critical analysis. 12.2 With regard to the project data base, this is dispersed throughout the four participating states and no centralized data base exists. More exchange of research results is needed between states, and there is a particular need to consolidate information on the availability of clonal planting material and the capacity of the various nursery sites to produce such material.  - 11 - PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 13. Adequacy and Accuracy of Factual Information in Part III 13.1 The overall achievement of the Cashewnut Project is highly encouraging. Even though it is a maiden attempt, the experience gives us enough scope towards increasing the production of raw cashewnut in the country. Against the physical target of 64,675 ha the reported achievement is 61,279 ha. By the end of 1994-95 the project is expected to yield 43,669 mt. 13.2 The project has helped to improve the economic status of small and marginal farmers of the participating States. The Project motivated 34,740 farmers who must supplement their farm income by casual labor, Participation in this project has helped them for a relatively greater securities of income and employment for their families. The project has generated about 6.7 million labor days during the project period. 13.3 The country data, defining the project profile at completion as presented in Part III, was prepared by GOI's Directorate of Cashewnut Development and discussed thoroughly in the field. 14. Evaluation of Bank's Performance and Lessons Learned 14.1 Bank personnel were recognized as professional in all respects. While mission members were always highly qualified in their respective fields, there were occasions when the composition of supervision missions was not appropriate to address the kinds of implementation problems occurring. There was little involvement in the project during supervision stage of the Resident Bank staff involved in the Project. Normal assigned supervision staff were changed frequently, and as a result, assistance to resolve issues was not readily forthcoming. The length of time between some missions during the mid implementing stage was not consistent. 14.2 The major lesson learned is that during the preparation and appraisal stages, the Bank should have reviewed needs of smallholders, particularly as to need for credit beyond the Znd year. The Bank at the preparation and appraisal stages also were overly optimistic as to land selection and acquisiticn. The Bank was also overly optimistic as to the availability of improved technological package of inputs, particularly high yielding varieties that were assessed in the different agro-climatic zones; as a result yield predictions at appraisal were over-estimated. Bank was also over-optimistic as to the ability of the research agencies to come up with improved varieties for different agro-climatic regions. Marketing should have been reviewed more thoroughly. Bank over-estimated personnel needed in the corporate sector. A final lesson learned is that good and consistent supervision assists the Government with technical assistance and direction.  - 12 - 15. Evaluation of Borrower's Own Performance and Lessons Learned 15.1 The performance of the participating institutions in overall project planning and implementation was good. The implementation of the project was slowed by a shortage of improved varieties of cashewnut and mobilization of each state's resources and manpower. 15.2 The major lessons learned were: (a) State's learned that cashew is not the crop of last resort; (b) cashew should not be planted in poor soils and that it should have good farm management practices, especially ample inputs; and (c) cashew is a highly attractive and profitable crop that can have a tremendous impact on small holdings especially in drought or dry areas of India.  -13 - PART III. STATISTICAL INFORMATION INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 1. RELATED BANK LOANS AND/OR CREDITS Loan/Credit Title PurpoSe Year of Status Comments Aooroval Kerala Agricultural Tree CroP 1977 Closed PCR (1989) Development Project Production Sept 30 suggests (Credit No. 680-IN) 1986 fairly successful project TABLE 2. PROJECT TIMETABLE Da-te Des iDate Planned Revised Actual Identification June 1977 Preparation Oct. 1978 1/ Appraisal Mission Z/ Oct. 1978 Post-Appraisal Mission March & Sept 1979 Credit Negotiations May 1919 Jan 1980 March 1980 Board Approval June 1979 May 1980 April 21. 1980 Credit Signature June 10, 1980 Credit Effectiveness Sept 3. 1980 Credit Closing Sept 30, 1985 Sept 30, 1986 Sept 30, 1987 Credit Completion May 24. 1988 Ij Project prepared by the four participating states with guidance from GOI Ministry of Agriculture and from staff of WB New Delhi office. 2/ Upgraded from pre-appraisal mission.  - 14- I INDIA CASHEWNUT PROJECTCRLDIT 1012-L;) TABLE 3. CREDIT DISBURSEv,ENT Cumulative Estimated and Actual Disbursements (US$ million) 12 H 1983 1984 16 5L 1986197 198 Appraisal Estimate 0.60 3.30 7.50 14.00 22.00 Actual 0.25 1.67 3.52 5.77 7.53 10.48 12.16 15.35 Actual as % of Estimate 42 51 47 41 34 48 55 70 Date of Final Disbursement: May 24, 1988 TABLE 4. PROJECT IMPLEMENTATION Indicators Appraisal Revised Actual Estimate (or PCR estimate) Corporations New Plantations (ha) 23,275 24,675 23,400 Improvement (ha) 3,000 3,000 5,013 Cost (RsO000) 68,700 - 99.525 Smallholdders New Plantations (ha) 30,500 37,000 37,879 Improvement (ha) 4.500 j/ 0 103 Cost (Rs'000) 95,700 - 95,620 Total Plantation (ha) 61,275 64,675 61,279 Total Improvement (ha) 7,500 3,000 5,116 Total Cost (Rs000) 164,400 - 195,145 Kerala Feeder Road (km) (no.) 258 (32) - 220 (31) Orissa Dune Pilot Scheme (ha) 500 77 2/ I/ Reallocated to new plantations. 2/ Abandoned.  - 15 - INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 5. PROJECT COSTS AND FINANCING A. Project Costs 1/ 21 Appraisal Estimate. . . . . . . Actual . . . . . Items (US$ million) (Rs million) (US$ million) (Rs million) - Plantations by 14.4 121.0 8.56 95.6 Small holders - Plantations by 10.4 86.9 8.92 99.6 State Corporations - Government Departments: 4.0 33.6 4.64 52.1 Salaries, Vehicles. Equipment, Operating Expenses - State Corporations: 12.3 103.6 6.30 70.8 Salaries. Civil Works, Vehicles. Equipment. Operating Expenses - Kerala Feeder Roads 2.8 23.9 1.'. 20.9 - Orissa Pilot Coastal 0.3 2.1 0.19 2.1 Dune Scheme - Research. Training 1.4 11.2 0.66 8.5 - Cashew Industry Study 0.1 1.3 0.003 0.3 Grand Total 45.7 i2.S- 3349.9 .j/ Exchange rate: US$1 = Rs8.40. Physical and price contingencies have been incorporated into cost estimates as per aDpraisal report. 2/ Actual expenditures as reported by GOI have been phased according to loan disbursement schedule and the corresponding US dollar value has been calculated by applying the estimated exchange rate during disbursement period (see Currency Equivalents).  - 16 - B. P-oject Financ,nQ -I)urce . . Planned . . . Final . . . Loan Agreement (US$ million) (%) (US$ million) (%) IDA Expenditure Categories 22.0 48 15.35 49 GOI and State Governments 12.7 28 15.78 Z/ 51 Banks and Growers 11.0 1 24 Total 3.3ia I/ Rounded downwards. 2/ Breakdown not available. Comments: Even though there were cost overruns in some categories, the total amount in US dollars spent was considerably less than estimated at appraisal (32%) due to changes in the exchange rate between US$ and Rs. The contribution in dollar terms of GOI. State Governments, banks and growers was 33% less than estimated at appraisal.  - 17 - INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 6. PROJECT RESULTS A. Economic Impact Appraisal. PCR Estimate Estimate Economic Rate of Return 1/ Overall Project 25% 13% Smaliholder Component 31% 16% Corporation Component 24% 11% Underlying Assumotions Yield at full development for smallholders 900 kg/ha 350 kg/ha 'iield at full development for corporations 900 kg/ha 375 kg/ha Irput use for maintenance according to reduced Z/ recommendation Incremental production at full d velopment 48,395 22,125 Price for raw nuts per ton Rs6,405 for 1985, Rs12,000 rising to Rs7,270 for 1990 and onwards 1/ For details see cash flow in Appendices 13-14. Z/ For details on recommended fertilizer and crop chemical use and actual use by smallholders and corporations see Appendix 1, Footnote 3. Comments: Yields and Benefits The principal direct e:onomic benefits of the project are the incremental production of raw cashewnuts from the 61,280 ha of new cashew plantations established under the smallholder and corporation components of the project. As yields for the two components were reassessed at levels considerably below SAR estimates, the incremental production per annum is estimated to amount to 22,125 tons at full development of the trees against the 48,395 tons projected at appraisal for the new plantings. The lower yields (about 40% of appraisal estimates) achieved by the smallholders and Uhe corporations are as a result of the lower than recommended use of  - 8- ilizer and crop chemicals oy both groups, the poor quality of soils on i plantations were established and, particularly in the case of Iholders, the attitude that cashew is a marginal crop of last resort. a reflect directly on the over&il ERR of the project being reassessed at 50% of appraisal estimates. All economic costs have been adjusted to reflect 1982 cant values and include capital and operating cost for the overall -ct. costs for research and training, the Cashew Industry Study. the ;a pilot coastal dunes scheme and the Kerala feeder roads. As detailed -mation on disbursement was not available from all states, costs have phased according to the credit disbursement schedule. Capital and 3ting costs for the smallholder and the corporation component have been ided in the amount of Rs8.0 million after the project implementation -d to allow for civil works and replacement of equipment. In view of the inued effort in cashew research, costs for this component have been idered at Rsl.O million per annum for the period after project wmentation. Prices for fertilizer and crop chemicals have been adjusted -eflect their economic value in constant 1982 prices. Cost for unskilled )r, which accounts for about 70% of the production cost, has been -ssed in 1982 constant value. All input costs have been adjusted by the Jard conversion factor of 0.8. currently applied in project analysis for i. Production as a result of the project has been calculated on the of PCR average yield estimates and valued by using the current raw nut :, adjusted to its 1982 constant value. A summary of economic prices is i In Appendix 11. B. Financial Imoact 5AR PCR With Contract icial Rates of Return (IRR) Esti .ate Estimates, Harvestinag / Iholder before financing 24% - 40% 24% 11% nallholder's equity 50% + 40% )rations before financing n.a. 22% 9% )rations rate of return 15% - 18% 6% iyment of 50% of crop value. Financial models for both smaliholders and corporation itions have been developed on the basis of field information !cted during the mission for the purpose of evaluation of the icial viability of the new plantings. Prices used in the analysis are - prevailing at the time of the mission's visit to India. It was not idered necessary to develop separate models for the various states as approach of smallholders and corporations to cashew establishment and lopment did not differ greatly in the three states visited. Details on of establishment and maintenance of plantations are given in idix 1.  - 19 - Financial Results Smallholders. Cash f w projections for smaliholder operations are given in Appendix 2. Financing has been based on a 20% equity contribution by the farmers for the first three years of the operation and a contribution of over 50% during the fourth year to compensate for the d'scontinuation of the subsidy paid to farmers during the first three years of establishment of the plantations and to avoid a higher bank loan. This reflects the behaviour of farmers interviewed who stated that the loan sanctioned by the banks (at an average of Rs2,560 in five different installments) was not sufficient to cover all costs, and a certain resistance to take a higher loan from the banks. The subsidy element paid by the Central and State Governments averaged out to be about Rs300 per ha per annum for a period of three years. In general, farmers stated that they were not interested in taking the loan for the full period envisaged (5 year) and preferred to repay as soon as they were able to do so. In fact, some farmers have already paid back the total loan even before their plantations reached the bearing stage. In other instances farmers indicated that the loan installments for maintenance in years 4 and 5 were not sufficient to cover actual cost and as a result they preferred not to take up these loans. This attitude is reflected in the repayment schedule used in the analysis: loan disbursements over the first five years and repayment commencing from year 6. The first installment in year 6 being accrued interest, followed by three equal installments of Rsl,00O in years 7 through 9 and a final repayment of Rs800 in year 10. With this repayment schedule, the annual net cash flow amounts to Rs2,635 as of year 11, giving an IRR to farmer's equity of 40% compared to the SAR estimate of over 50%. The lower IRR to equity is as a result of the higher contribution farmers had to make, as they found that the sanctioned loan did not cover the establishment cost of the plantations. The financial rate of return before financing has been calculated to be 24%, as opposed to a range of 24% to 40% estimated at appraisal. These results are based on the assumption that the average yield at full development to be achieved by smallholders amounts to 350 kg/ha of raw nuts, i.e. only about 39% of the appraisal estimate. However, field investigation suggests a certain range of possible yields in the various states and financial returns have been calculated taking these variances into consideration. Assumed yield ranges for the three states visited and their corresponding IRRs are given below: Yield Range iBR Raw Nuts kg/ha (%) Karnataka 300 - 600 21 - 37 (see Appendix 3) Orissa 300 - 450 21 - 30 (see Appendix 4) Kerala 150 - 350 5 - 24 (see Appendix 5)  - 20 - The differences in yields indicate that cashew is sensitive to proper riintenance operations, i.e. that the timely application of fertilizer and, in particular, the timely spraying of insecticides to control tea mosquito has a strong impact on production. The variances in yields experienced in the different states are a result of these factors and suggest that there is considerable scope for further improvement through better management practices and extension support. The above figures also suggest that in order to break even, smallholders have to realize a yield of just under 150 kg per ha of raw nuts. An important factor affecting financial results of smallholders is contract harvesting. The majority of farmers auction their crop at flowering stage to contractors against cash payment at this time. As a rule, information on actual quantities harvested is not communice-'ed to the farmer. It is estimated that the amount the farmer actually receives is about 35% - 50% of the value of raw nuts harvested by the contractor. On the assumption that the farmer obtains 50% of the value of the harvested crop, the IRR (before financing) is as low as 11% and becomes negative if the value obtained is as low as 35%. Cornorations. The financial results of the per ha model for the state corporations indicate an IRR of 22%. As an example, financial results for the Andhra Pradesh Forestry Corporation have been analysed in applying the reduced gross revenues (adjusted to 1979 constant prices) against SA2 projections. The internal rate of return obtained amounts to 6%, as compared to 18% as per appraisal estimate. However, the net cash flow remains negative as of year 9 which would suggest that additional financing is required which would render the operation non viable. The reports of the corporations do not provide sufficient elements to assess their overall financial situation. However, the analysis using the estimate that only about 50% or less of the potential revenues are being realized by the corporations, due to the auctioning system applied for harvesting, shows that the corporations are clearly not reaching the level of profits projected in SAR (Appendices 6-9). This problem is particularly acute for the Orissa State Cashew Development Corporation which faces a monopolistic market and its revenues, due to the auctioning system, are estimated to be less than 50% of the actual value of production, causing the corporation to incur large losses. The Plantation Corporation of Kerala is in even worse position, mainly due to the poor quality of land made available for the plantation from which the corporation obtained only very poor yields, i.e. 6 tons from 500 ha of 6-7 year old trees in 1988. The plantation, established under the project in Kerala, is clearly not viable and making considerable losses, notwithstanding economies in labour and inputs. C. Studies Studv Puroose as Defined Satu Impact of Study at Appraisal Cashew Industry A study for improving the Completed Still under Study organizational structure review by GOI. of the industry.  TABLE 7. STATUS OF COVENANTS AG6T Section Description of Covenant Compliance AROC 2.08 AROC to establish criteria for selecting cashew plantations for improvement. Complied with. 4.02 AROC accounts audit/report due to IDA not later than 4 months after end of each FY. Complied with. 4.03 ARDC to ensure audit of participating Banks; statement to IDA 4 months after end FY. Complied with. CRED 3.03 Study for improvement of original structure of 09/30Ot8 Complied with, but cashew industry to be undertaken; copy to IDA. study not awarded until September 1984. 3.05 Borrower furnish proposals to IOA for carrying 09/30/80 Complied with. out cashew research (Part C. 1). 3.06 Borrower to establish project coordination 09/30/80 Complied with, but committee in its Ministry of Agriculture. committee meetings delayed. PROJ 2.05 Each project state to provide subsidy to Complied with. farmers at amount specified (Part A. 1). 2.06A Each project state to establish state project 09/30/80 Complied with. coordination committee. 2.068 Each project state to appoint a project 09/30/80 Complied with, but director at the state level (SPCC). frequent staff changes were counterproductive. 3.02 Audited accounts/reports due to IDA not Eventually complied with. later than 9 months after end of each FY. following considerable - AGEN of AP (Proj. Acc) delays. - AGEN of Karnataka (Proj. Acc) - AGEN of Kerala (Proj. Acc) - AGEN of Orissa (Proj. Acc) - AROC (now Nabard) (Overall) - Participating Banks (Sep Loan Acc) 3.03 Project states to drati up their staff Complied with. training programmes for Part B. 2; programmes to IOA. 3.05 Orissa to prepare plans for implementing 12/31/80 Complied with, but a oune reclamation pilot scheme (Part B. 3). implementation of the plan was devastated by a cyclone. 3.06 Kerala to furnish to IDA each June 30 an Complied with. annual road construction programme (Part B. 4). 3.07 Karnataka Cashew Development Corporation Ltd. to 12/31/80 Complied with. employ finance officer to Institute management accountinq system.  - 22 - INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 8. USE OF BANK RESOURCES A. Staff Inputs Stage of Project Cycle Planned Revised ... Final. (Staff Weeks) Through Appraisal - - 68.7 Appraisal through - - 59.7 Board Approval Board Approval through - - 3.2 Effectiveness Supervision - - 120.2 Project Completion Report - - 0.8 Total 252.6 1/ Not final figure.  S. mission Perforwance Rat1no 3/ mission nth/Year eo. t Persons Days in Field Speclal izatlon Status Trend TIo. of Al Iearesented _/ Probei Identification June 1978 Preparation October 1978 Appraisal October 1978 Post Appraisal - I March 1979 Post Appraisal - 2 September 1979 Supervision October 1980 2 17 A.B 2 1 t December 1980 FebMar 1981 1 14 A 2 t N March 1982 4 23 0,C.0 2 2 1.F.R June 1982 1 5 E - - - Nar/Apr 1983 3 29 B.C 2 2 ti.F,R February 1984 2 20 C 2 2 H,F,R,C March 1984 3 30 8,C,F 2 2 1,F.R.C September 1984 2 20 C 2 2 N,F.R.C Sept/Oct 1985 2 '0 jj B.C 2 2 M,FF.C April 1986 2 13 I/ 8.C 2 2 H.F.C Septe,ber 1987 1 7 I1 C 2 2 M.F.C, J1/ EstImate. Missions combined supervision/appraisal of two or more projects. 1 A = Financial Analyst, B = Agricultural Economist, C = Agriculturist, 0 = Loan Officer, E Road Engineer. f = Finance & Management. J/ Status 2 - Moderate Problems, Trend I i Improving. Trend 2 = Stationary. l/ N = Managerial, F = Financial. A = Reporting, C - Completion date.  INDIA CASHEWNUT PROJECT (CREOIT 1012-IN) TABLE 9. Production Costs: Plantations Established Under the Protect (1 Ha Model) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 + Small- State Small- State Small- State Small- State Small- State Small- State Small- State Small- State Small- State Small- State holder COrp holder Corp. holder Corp. holder Cori. holder Corp. holder Corp. holder Corp. holder Corp. holder Corp. holder Corp. Labour (Id) Land clearance & development 20 30 - - - - - - - - - - - - - - - - - - Planting & gap filling 5 5 I I - - - - - - - - - - - - - - - - Fertilizer application 4 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 Plant protection 2 2 2 2 2 2 3 3 5 7 5 7 5 8 5 8 5 8 5 8 Weeding, mulching 10 10 1S 15 IS 15 15 IS 15 15 15 IS 15 15 15 15 15 15 15 15 Harvesting J/ - - - - - - 1 1 3 3 7 7 9 10 11 12 12 13 14 IS Miscellaneous 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 Total Labour Days 45 55 25 26 24 25 26 27 30 33 34 37 36 41 38 43 39 44 41 46 1 Wage Rate (Rs/ld) ZI 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 Labour Cost (Rs) 1.125 1.375 625 650 600 625 650 675 750 825 850 925 900 1,025 950 1,075 975 1,100 1,025 1,150 Materials (Rs) Plant material 100 100 20 20 - - - - - - - - - - - - - - - - Fertilizer 31 130 130 230 230 420 420 250 380 250 380 250 380 250 380 250 380 250 380 250 380 Crop chemicals 4/ 30 40 40 60 40 60 70 90 70 90 100 130 100 130 130 170 130 170 160 210 Miscellaneous 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 Materials cost 290 300 310 340 490 510 350 500 350 500 380 540 380 540 410 580 410 580 540 620 Total Cost of Production 1.415 1.675 935 990 1,090 1.135 1.000 1,175 1,100 1,325 1,230 1,465 1,280 1,565 1,360 1,655 1,385 1,680 1,565 1.770 Labour as X of Total Cost 80 82 67 67 55 55 65 57 68 62 69 63 70 66 70 65 70 65 66 65  Footnotes for Appendix I - Production Costs .t/ Based on average yields in the three states visited, namely Kerala 300 kg/ha, Orissa 375 kg/ha and Karnataka 450 kg/ha. ./ Average daily wage rate for unskilled farm labour which ranges from Rsl2/day in Orissa to Rs45/day in Kerala. J/ Assuming application as per recommendation during initial three years and 3/4 of recommended rate for corporations and 1/2 of recomnended rate for smallholders as of Year 4. Recommended rates are as follows: 'fear Urea SSP HP Total (kglha - 150 trees per ha) (kg/ha) 1 30 60 - 90 2 60 60 15 135 3 120 90 30 240 4* 150 90 30 270 4/ Assuming 1 1/2 rounds of spraying for corporations and I round of spraying for smallholders. Recowmendation for spraying: 3 rounds, 0.05X Endosulfan - 1.5 ml per litre of water. Use about 6 litres of solution to 10 year old tree, i.e. 6 x 1.5 x 150 ml/ha or 4 1 Endosultan for 3 rounds of spraying. ui  INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE lOProlected Smallhoider Income from New Plantations (Rs) .1/ Production Costs Yield Revenue Net Benefit Financino Net Benefit Year Labour Materials Total (kg/ha) before Farmer Subsidy Loan (Debt Total after Financin Equity Servicel Financing 1 1.125 290 1,415 - - (1,415) 280 300 835 1,415 - 2 625 310 935 - - (935) 180 300 455 935 - 3 600 490 1.090 - - (1,090) 220 300 570 1,090 - 4 650 350 1.000 20 240 (760) 410 - 350 760 - 5 750 350 1.100 60 720 (380) 30 - 350 380 - 6 850 380 1.230 160 1,920 690 - - 1640) (640) SO 7 900 380 1.280 235 2,820 1,540 - - (1.000) (1,000) 540 8 950 410 1.360 270 3.240 1.880 - - (1.000) (1.000) B80 9 975 410 1.385 310 3.720 2.335 - - (1,000) (1,000) 1.335 10 1.025 540 1.565 350 4.200 2.635 - - (800) (800) 1.835 11-40 1.025 540 1.565 350 4.200 2.635 - - - - 2.635 IRR = 24X IRR on farmer s equity 401 It For details see Appendix 1.  INlA CASHEEWUT PROJECT {CREDIT 1012-IN) TABLE 11. Variances In Proiected Smaliholder Income from New Plantations - Karnataka (Rs) Year Lw I Hioih Costs I/ Low Yield Hioh Yield OW Hjia Low Met High met Production ...... ... (kg/ha) .... Revenue Revenue Benefit Benefit 1 1,415 1,415 - (1.415) (1.415) 2 935 935 - - - - (935) (935) 3 1,090 1,090 - - - - (1,090) (1.090) 4 1.000 1,025 17 34 204 408 (796) (617) 5 1,100 1,150 52 103 624 1,236 (476) 86 6 1.205 1,355 138 274 1.656 3,288 451 1.933 7 1.255 1,430 202 402 2.424 4.824 1,169 3.394 8 1,310 1,560 232 462 2,784 5,544 1,474 3,984 9 1.335 1,535 267 530 3,204 6,360 1,869 4,825 10-40 1,515 1,815 300 600 3,600 7,200 2,085 5,385 IRR a 21X IRR = 37X /f Inputs are assumed to remain constant, variance in production costs as a result of lowerlhigher labour input for harvesting.  CASNEWNUT PROJECT (CREOIT 1012-IN) TABLE 12. Variances in Prolected Smaliholder Income from New Plantations - Orissa Low Production 1/ Nleh Costs LI Low Yield Hiqh Yield Low Revenue High Revenue Low Net Benefit High Net Benefit (Rs) (Rs) (kg/ha) (kg/ha) (Rs) (Is) (Rs) (as) 1 1.415 1,415 - - - - (1.415) (1.415) 2 93S 935 - - - - (935) (935) 3 1.090 1,090 - - - - (1,090) (1,090) 4 1,000 1,000 17 26 204 312 (796) (688) S 1,100 1.125 52 77 624 924 (476) (201) 6 1,205 1,280 138 206 1.656 2,472 451 1.192 7 1,255 1,355 202 303 2.424 3,636 1,169 2,281 8 1.310 1,435 232 348 2,784 4.176 1,474 2.741 9 1.335 1,485 267 400 3,204 4.800 1,969 3,315 OD 10-40 1.515 1,665 300 450 3,600 5,400 2.085 3,735 IRR - 21X IRR = 301 LI Inputs are assumed to remain constant, variance in production costs as a result of lower/higher labour inputs for harvesting.  1 OLA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 13. Variances In Proiected Smal1holder Income from New Plantations - Kerala rar Low Production 1/ High Costs 1/ Low Yield High Yield Low Revenue High Revenue Net Beneit Net Benefit (Rs) IRs) (kg/ha) (kg/ha) (Rs) (Rs) (Rs) (Rs) 1 1,415 1,415 - - - - (1,415) (1.415) 2 935 935 - - - - (935) (935) 3 1.090 1.090 - - - - (1l090) (1,090) 4 988 1.000 9 20 108 240 (880) (760) 5 1,075 1,100 26 60 312 720 (763) (380) 6 1,130 1.230 67 160 804 1,920 (326) 690 '0 7 1,155 1,280 101 235 1,212 2.820 57 1,540 8 1.210 1.360 116 270 1,392 3,240 182 1,880 9 1.210 1.385 133 310 1,596 3,720 386 2,335 10-40 1,365 1,565 150 350 1,800 4,200 435 2,635 [RR 5 SS IRR - 24S 1/ Inputs are assumed to remain constant, variance In production costs due to lower/higher labour Inputs for harvesting.  INDIA CASHEWNUT PROJECT (CREDIT 1012-lN) TABLE 14. Proiected State Corporations Income from New Plantations (Rs) ~11 Year Production Costs Yield Revenue Net Benefit Total Cost Revenue Reduceo Net Labour Materials Total (kg/ha) Before Financing Without Harvesting by 50 Due to Benefit Auctioning 1 1.375 300 1,675 - - (1,675) 1,675 (1.675) 2 650 340 990 - - (990) 990 (990) 3 625 510 1.135 - - (1,135) 1,135 - (1.135) 4 675 500 1.175 20 240 (935) 1,150 120 (1,030) 5 825 500 1,325 65 780 (545) 1,250 390 (860) 0 6 925 540 1,465 170 2,040 575 1,290 1,020 (270) 7 1,025 540 1.565 250 3,000 1,435 1,315 1,500 185 8 1.075 580 1.655 290 3,480 1.825 1,355 1,740 385 9 1.100 580 1,680 335 4,020 2,340 1,355 2,010 655 10-40 1.150 620 1,770 375 4,500 2,730 1.395 2,250 855 IRR = 22X IRR = 9X J/ For details see Appendix 1.  tIHIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 15. Variances in Proiected Corporation Income from New Plantations - Karnataka Year Low Production IJ High Costs 1/ Low Yield High Yield Low Revenue High Revenue Low Net Benefit High Net Benefit (Rs) (Rs) (kg/ha) (kglha) (Rs) (Rs) (Rs) (Rs) 1 1.675 1,675 ^ - - - (1,675) (1,675) 2 990 900 - - - - (990) (990) 3 1,135 1.135 - - - - (1,135) (1.135) 4 1,175 1,225 16 32 192 384 (983) (841) 5 1,300 1,375 52 104 624 1,248 (676) (127) 6 1.440 1,565 136 272 1,632 3,264 192 1.699 7 1,515 1,715 200 400 2,400 4,800 885 3,085 8 1,605 1.830 232 464 2,784 5,568 1,179 3,738 9 1.605 1,880 268 536 3.216 6,432 1.611 4,552 10-40 1,695 1,995 300 600 3.600 7,200 1,905 5.205 IRR = 17X IRR = 331 t( Inputs are assumed to remain constant, variance in production costs as a result of lowerthigher labour inputs for harvesting.  CASHEWUWT PROJECT (CREDIT 1012-IN) TABLE 16. Variances in Protected Corporation Income from New Plantations - Orissa Year: Low Production 1/ Hiah Costs IJ Low Yield High Yield Low Revenue Hiah Revenue Low Net Benefit Hiah Net Benefit (Rs) (Rs) (kg/ha) (kg/ha) (Rs) (Rs) IRs) (Rs) 1 1.675 1,675 - - - - 11.675) 11.675) 2 990 900 - - - - (990) (990) 3 1.135 1.135 - - - - (1.135) (1,135) 4 1,175 1.175 16 24 192 288 (983) (887) 5 1,300 1.350 52 78 624 936 (676) (414) 6 1,440 1.490 136 204 1.632 2.448 192 958 7 1,515 1.615 200 300 2.400 3.600 885 1.985 8 1,605 1.705 232 348 2,784 4.176 1.179 2.471 9 1.605 1.755 268 402 3.216 4,824 1.611 3.069 10-40 1,695 1.845 300 450 3,600 5.400 1.905 3.555 IRR = 17X IRR = 272 1,/ Inputs are assumed to remain constant, variance in production costs due to lower/higher labour inputs for harvesting.  INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 17. Variances in Projected Corporation Income from New Plantations - Kerala Year Low Production I/ High Costs I/ Low Yield High Yield Low Revenue High Revenue Low Net Benefit High Net Benefit (Rs) (Rs) (kg/ha) (kg/ha) (Rs) (Rs) (Rs) (Rs) 1 1,675 1,675 - - (1.675) (1.675) 2 990 990 - - - - (990) (990) 3 1,135 1,t35 - - - - (1.135) (1,135) 4 1.165 1.175 8 19 96 228 (1,069) (947) 5 1,275 1.325 26 60 312 720 (963) (605) 6 1,365 1,465 68 158 816 1.896 (549) 431 7 1.415 1,540 100 233 1,200 2,796 (215) 1,256 8 1.480 1.630 116 270 1,392 3,240 (88) 1.610 9 1.480 1.745 134 312 1,608 3.744 128 1.999 10-40 1,545 1.745 150 350 1,800 4,200 255 2.455 IRR = 0.73X IRR = 21X I/ Inputs are assumed to remain constant, variance in production costs as a result of lower/higher labour inputs for harvesting.  -34 - CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 18. Economic Prices for Fertilizers 1/ Urea (any origin) bagged, FOB N.W. Europe 141 + Freight and insurance 38 CIF Bombay 179 1,725 2/ + Port handling and storage 100 + Transport and wholesale margin 3J/ 228 * Transport and retail margin 4/ 179 Import parity price 2,232 2,230 (rounded) Single super phosphate 5/ FOB, US Gulf 55 + Freight and insurance 41 CIF Bombay 96 924 V/ + Port handling and storage 100 + Transport and wholesale margin a/ 148 + Transport and retail margin 4/ 113 Import parity price 1,285 Muriate of Potash 87 + Freight and insurance 41 CIF Bombay 128 1,232 Z/ + Port handling and storage 100 + Transport and wholesale margin i/ 179 + Transport and retail margin 4/ 1R Import parity price 1,649 1,650 (rounded) 1/ Expressed in 1982 constant prices. 2/ Converted at exchange rate USS1 = Rs = 9.628. i/ Assumed 400 km transport by rail and 10% wholesale margin. 4/ 50 km transport and 7.5% retail margin. .5/ Price derived from price for TSP.  - 35 - CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 19. Price Summary for Economic Analysis 1/ Economic 98? Raw Nuts (Rs/t) All States 7,215 Fertilizer (Rs/t) Urea 2,230 SSP 1,285 M/P 1,650 Pesticide (Rs/1) Farmgate 71 Farm Labour (Rs/labour davy 15 I/ Economic prices for traded commodities (cashew and fertilizer) have been deflated to 1982 constant values and an estimated standard conversion factor for India of 0.8 has been applied. / Financial price to Endosulfan, adjusted by local taxes (10%) to arrive at economic price.  IMA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 20. Economic Rate of Return to the Proiect (Rs million) Year Production Costs Capital and Operating Costs Research, Study Orissa Pilot Proiect b Total Value of Net SM4 SC 5 SC and Training Kerala Feeder Roads Costs Production Benefits 1 2.2 2.3 0.6 0.9 0.1 0.3 6.4 - (6.4) 2 6.8 8.1 3.6 4.8 0.6 1.5 25.4 - (25.4) 3 11.2 10.8 4.9 6.3 0.8 1.9 35 9 - (35.9) 4 15.7 12.9 5.7 7.7 1.0 2.3 45.3 0.6 (44.7) 5 19.9 16.4 4.5 6 0 0.8 1.8 49.4 3.7 (45.7) 6 24.6 20.0 7.5 10.0 1.3 3 1 66.5 12.0 (54.5) 7 27.8 21.3 4.3 5.7 0.7 1.7 61.5 27.4 (34.1) 8 30.8 24.0 8.1 10.8 1.4 3.3 78.4 46.3 (32.1) 9 31.2 24.8 6.0 8.0 1.0 - 71.0 66.5 (4.5) 10 32.9 26.2 6.0 8.0 1.0 - 74.1 88.6 14.5 11 33.9 27.2 6.0 8.0 1.0 - 76.1 111.0 34.9 12 35.3 28.2 6.0 8.0 1.0 - 78.5 128.5 50.0 13 36.2 28.6 6.0 8.0 1.0 - 79.8 141.7 61.9 14 36.9 28.9 6.0 8.0 1.0 - 80.8 150.6 69.8 1S 37.4 29.2 6.0 8.0 1.0 - 81.6 155.8 74.2 16 37.7 29.2 6.0 8.0 1.0 - 81.9 158 4 76.5 17 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5 18 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5 19 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5 20-40 37.8 29.3 6.0 8.0 1.0 - 82.1 159.6 77.5 ERR: 13%  INDIA CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 21. Economic Rate of Return to Smaliholder Component (Rs million) Year Production Costs Capital and Operating Costs Total Production Value of Production Net Benefits (t) 1 2.2 0.6 2.8 - (2.8) 2 6.8 3.6 10.4 - - (10.4) 3 11.2 4.9 16.1 - - (16.1) 4 15.7 5.7 21.4 48 0.3 (21.1) 5 19.9 4.5 24.4 255 1.8 (22.6) 6 24.6 7.5 32.1 832 6.0 (26.1) 7 27.8 4.3 32.1 1,917 13.8 (18.3) 8 30.8 8.1 38.9 3.345 24.1 (14.8) 9 31.2 6.0 37.2 4,991 36.0 (1.2) 10 32.9 6.0 38.9 6,823 49.2 10.3 11 33.9 6.0 39.9 8,701 62.8 22.9 12 35.3 6.0 41.3 10.297 74.3 33.0 13 36.2 6.0 42.2 11,550 83.3 41.1 14 36.9 6.0 42.9 12.371 89.3 46.4 15 37.4 6.0 43.4 12.861 92.8 49.4 16 37.7 6.0 43.7 13,136 94.8 51.1 17 37.8 6.0 43.8 13.258 95.7 51.9 18 37.8 6.0 43.8 13,258 95.7 51.9 19 37.8 6.0 43.8 13,258 95.7 51.9 20-40 37.8 6.0 43.8 13,258 95.7 51.9 ERR = 16X  INDIA CASHEWNUT PROJECT (CREDIT 1012-lN) TABLE 22. Economic Rate of Return to Corporation Component (Rs million) Year Production Costs Capital and Operating Costs Total Production Value of Production Net Benefits (t) l 2.3 0.9 3.2 - - (3.2) 2 8.1 4.8 12.9 - - (12.9) 3 10.8 6.3 17.1 - - (17.1) 4 12.9 7.7 20.6 42 0.3 (20.3) 5 16.4 6.0 22.4 259 1.9 (20.5) 6 20.0 10.0 30.0 838 6.0 (24.0) 7 21.3 5.7 27.0 1.882 13.6 (13.4) 8 24.0 10.8 34.8 3,074 22.2 (12.6) 9 24.8 8.0 32.8 4,228 30.5 (2.3) 10 26.2 8.0 34.2 5,466 39.4 5.2 11 27.2 8.0 35.2 6,681 48.2 13.0 12 28.2 8.0 36.2 7.513 54.2 18.0 13 28.6 8.0 36.6 8,091 58.4 21.8 14 28.9 8.0 36.9 8,504 61.4 24.5 15 29.2 8.0 37.2 8,728 63.0 25.8 16 29.2 8.0 37.2 8,818 63.6 26.4 17 29.3 8.0 37.3 8.865 64.0 26.7 18 29.3 8.0 37.3 8,865 64.0 26.7 19 29.3 8.0 37.3 8,865 64.0 26.7 20-40 29.3 8.0 37.3 8,865 64.0 26.7 ERR - 11l  CASHEWNUT PROJECT (CREDIT 1012-IN) TABLE 23. Selected cashew Production and Price Statistics 9i61-9i70 1971-1980 1984/1985 1985/1906 198611987 1987/1988 Area under cashew ('000 ha) 245 380 S10 510 576 637 Production of raw nuts ('000 t) 147 162 222 222 246 260 Average yield per ha (kg) 600 426 435 435 427 408 Export of kernels ('000 t) 52 51 t31 +33 39 32 Price of kernels exported from India (Rs/kg) 6.44 19.45 n.a. n.a. 88.16 80.66 Import of raw nuts ('000 t) 156 117 28 44 46 26 Average price of imported raw nuts .J (Rs/kg) 1.1 2.35 11.45 15.10 16.00 13.82 Local producer price (Rs/kg) n.a. n.a. n.a. n.a. 13.70 12.00 Average world market price for kernel I/ (USSIkg) 1.17 3.00 7.90 8.25 7.00 6.85 Source: Agricultural Situation in India, Directorate of Economics and Statistics, Department of Agriculture and Cooperation, "OA. Directorate of Cashew Development, ROA. Cashew Study. Indonesia, FAO/IC Report 169/89 IF - INS 68. Mission Estimates. .L/ Quotations for 1984/85 and 1985/86 based on information of raw nut exports from Tanzania. / Based on price quotations of W450 grade for 1961-78 and W320 grade from 1978 onwards.