Peru - Alto Mayo Rural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10810 PROJECT COMPLETION REPORT PERU ALTO MAYO RURAL DEVELOPMENT PROJECT (LOAN 2219-PE) JUNE 30, 1992 Agricultural Jperations Division Country Department I Latin American and the Caribbean 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. CURRENCY EQUIVALFNTS Currency Units Up to 12/1985: Peruvian Soles (5/.) From 01/86 to 12/90: Intis i1/. 1.00 = SI. 1,000.00) From 01/1991: Nuevos Soles (NS/. 1.00 = 1/. 2.0 million) Exchange rate at appraisal US$1.00 = S/. 550 S/. 1,000 = US$1.82 Exchange Rates during Implementation (yearly averages): Year Intis US$* 1983 1.629 1984 3.467 1985 10.980 1986 13.950 1987 16.840 1988 128.830 1989 2,666.190 1990 187,885.630 (*) Inti equivalents per US dollar (official market). GLOSSARY OF ACRONYMS BAP Peruvian Agricultural Bank CIPA Agricu..tural and Livestock Research and Extension Center DCCN Directorate of Farmers and Native Communities DS Directorate of Services DWE Directorate of Works and Equipment ECASA National Rice Marketing Enterprise ED Executive Directorate of the Project ENCI National Enterprise for Input Marketing ERR Economic Rate of Return FAO Food and Agricultural Organization of the United Nations GOP Government of Peru HCBM Huallaga Central-Bajo Mayo Project IBRD International Bank for Reconstruction and Development IFAD International Fund for Agricultural Development INAF National Institute for Expansion of Agricultural Development INFOR National Forestry Institute INIPA National Institute for Agricultural Research and Extension MAG Ministry of Agriculture ME Ministry of Education MS Ministry of Health MTC Ministry of Transport and Communications OAAM Alto Mayo Aguaruna Organization OGCAR General Office of Cadastral and Rural Affairs (MAG) ONERN Office for Evaluation of Natural Resources PCR Project Completion Report PEAM Alto Mayo Rural Development Project SAR Staff Appraisal Report SENAMA National Agricultural Machinery Service (INIPA) SMS Subject Matter Specialist in Extension Service (INIPA) TD Technical Directorate of the Project TORs Terms of Reference FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 30, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on PERU Alto Mayo Rural Development Project (Loan 2219-PE) Attached, for information, is a copy of a report entitled "Project Completion Report on PERU - Alto Mayo Rural Development Project (Loan 2219- PE)" prepared by the Latin America and the Caribbean Regional Office. Attachment 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. FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT PERU ALTO MAYO RURAL DE"ELOPMENT PROJECT (Loaa 2219-PE, TABLE OF CONTENTS Page PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i EVALUATION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . .iii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . . . . . 1 Project Identity . . . . . . . . . . . . . . . . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Project Objectives and Description . . . . . . . . . . . . . . . 1 Project Design and Organization . . . . . . . . . . . . . . . . 3 Project Implementation . . . . . . . . . . . . . . . . . . . . . 4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Project Sustainability . . . . . . . . . . . . . . . . . . . . . 9 Bank Performance . . . . . . . . . . . . . . . . . . . . . . . 10 Borrower Performance . . . . . . . . . . . . . . . . . . . . . 10 Project Relationship . . . . . . . . . . . . . . . . . . . . . 10 Consulting Services . . . . . . . . . . . . . . . . . . . . . 11 Project Documentation and Data . . . . . . . . . . . . . . . . 11 Findings and Lessons Learned . . . . . . . . . . . . . . . . . 11 PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE.... . . . . . 13 P.1xT III: STATISTICAL INFORMATION................ . . . 19 Table 1: Related Bank Loans . . . . . . . . . . . . . . . . . 19 Table 2: Project Timetable . . . . . . . . . . . . . . .... 20 Table 3: Loan Disbursements . . . . . . . . . . . . . . . . . 21 Table 4: Project Implementation . . . . . . . . . . . . . .. 22 Table 5: Project Costs and Financing . . . . . . . . . . . . . 23 Table 6: Project Results . . . . . . . . . . . . . . . . . .. 26 Table 7: Status of Covenants . . . . . . . . . . . . . . . . . 28 Table 8: Use of Bank Resources . . . . . . . . . . . . . . . . 30 APPENDIX 1 - Notes on Economic Analysis.................... . . . . . 31 MAP - IBRD 16496 This document has a restricted distribution and may be used by recipients only in the performance of their oflicial duties. Its contents may not otherwise be disclosed w:thout World Bank authorization PROJECT comPLETION REPORT PERU ALTO MAYO RURAL DEVELOPMENT PROJECT (Loan 2219-PE. PREFACE This is the Project Completion Report (PCR) for the Alto Mayo Rural Development Project supported by Bank Loan 2219-PE of US$30 million which was approved on December 14, 1982 and which became effective on June 7, 1983. The Project was cofinanced by the International Fund for Agri. -ultural Development (IFAD) with Loan 116-PE amounting to SDR 17.9 million, approved on Decem- ber 10, 1982. The Bank loan was suspended on May 12, 1987, and closed on December 31, 1988. Final disbursement from the Bank Loan was on December 3, 1987. Some US$22.7 million was disbursed, and US$7.3 million was cancelled. The closing date for the IFAD loan was extended for a third time to December 1992. About SDR 3.5 million equivalent of the IFAD loan remains to be disbursed. The PCR was prepared by the FAO/IBRD Cooperative Program on behalf of the Agricultural operations Division, Latin America Country Department I (Parts I and III) and by the Borrower (PART II). It is based on review of the Staff Appraisal Report, the Bank and IFAD Loan Agreements, the President's Report, supervision reports, correspondence between the Bank and the Borrower, internal Bank memoranda, the project's financial statements and audit reports, IFAD progress reports &and financial statements, and progress reports prepared by the Borrower. For security reasons, PCR mission field visits were limited to the main project area and excluded native communities and forest reserves. - iii - PROJECT COMPLETION REPORT PERU ALTO MAYO RURAL DEVELOPMENT PROJECT (Loan 2219-PE) EVALUATION SUMMARY Objectives 1. The Alto Mayo Rural Development Project (PEAM) was the first World Bank assisted rural development project in the Peruvian Ceja de Selva region. The project was cofinanced by the International Fund for Agricultural Development (IFAD), and aimed to consolidate rural settlement, increase agricultural production and improve farm incomes and social services in the Alto Mayo valley. It was also expected to help protEct the environment, safeguard native communities in the area and to assist in their integration into the national economy. The project included the construction and maintenance of roads, schools and health service infrastructure; expansion of existing irrig- ation infrastructure; construction of storage facilities; provision of exten- sion, research and farm mechanization services; long- and short-term credit; national and local mapping, other specific studies, and the pror.sion of land titles; and the setting up of forestry development services and a forest police unit. Implementation Experience 2. The circumstances under which the project had to be implemented were extremely adverse. Beside the counterpart funding difficulties common to many projects in Latin America, the PEAM was seriously affected by Peru's rapidly deteriorating macroeconomic situation, the suspension of Bank loan disburse- ments, security problems, natural disasters, and lately by the Peruvian cholera epidemic. 3. Project implementation was characterized by a good overall performance up to May 1987, when disbursements were suspended for all Bank loans to Peru (due to payment arrears), but declined thereafter. Counterpart funding problems, although frequent, were not a constraining factor during the initial phase, but seriously affected project implementation after the suspension of Bank loan disbursements. However, since at loan suspension Bank loan dis- bursement iad reached about 80 percent, most of the planned investments had already been implerrented, or were about to be completed. Subsequently, in spite of the above difficulties, the project management was able to continue, although at a reduced scale, a number of project activities. The IFAD loan, whicn was basically for rural credit, had a much slower disbursement pace and is expected to be fully disbursed by the end of 1992. - iv, - 4. The Staff Appraisal Report (SAR) estimated project total cost at US$84 million, of which the Bank loan was to finance 35.7 percent, IFAD 22.6 percent, the Government (GOP) 37.6 percent, and the farmers 4.1 percent, over a 'e-year period. Fank loan disbursements were suspended three and a half years after start-un and final disbursement was on December 3, 1987. At closing on December 31, 1988, the Bank had disbursed US$22.7 million and US$7.3 million was cancelled. The closing date of the IFAD loan has been extended on three occ;asions to the end of 1992. IFAD's disbursement on February 29, 1992 was equivalent to SDR 14.4 million, and SDR 3.5 million equivalent remains undisbursed. T(:al actual project cost is estimated at US$60.5 million. 5. The SAR did not foresee the accelerated immigration following the construction of the Carretera Marginal de la Selva (the Amazon forest ring road). The area's population doubled from 75,000 to 150,000 in the 1980s, causing uncontrolled deforestation and damage to the environment, and exerted ccasiderable pressure on the infrastructure established by the project. The project's production development strategy was defective in relying essentially on the expansion of irrigated rice production and on favorable rice price projections. Contrary to expectations, border prices declined steadily and when the Government eliminated its marketing support and the subsi!.ice it had temporarily introduced to compensate for declining international prices, the project's production base weakened considerably. 6. With minor exceptions, all the social and economic infrastructure, including 184 km of roads, 44 schools, 15 health units, 3,000 m3 of storage capacity, the completion of the irrigation infrastructure comprising 1,500 ha of public schemes and 9,500 ha of expanded private schemes, reached or surpassed appraisal estimates. The potable water systems, however, were only partially constructed. Schools and health units were transferred to the pertinent Ministries and were successfully mainta.ined, and the warehouses were economically used by the marketing parastatals. Contrary to the SAR expec- tations, road maintenance was not carried out by the local b-tanch of the Ministry of Transport and Communications (MTC) but directly by the project, due mainly to the inadequate operational capacity of the former. Similarly, maintenance of irrigation infrastructure has not been fully satisfactory, in part due to inadequate water charges. 7. Agricultural research and extension improved through project-financed infrastructure and staff attained a satisfactory performance level by 1987-88. However, due to the above-mentioned financing constraints, activities were gradually scaled down thereafter and practically phased out by 1990. Supply and marketing services were handled by the concerned parastatals, the National Enterprise for Input Marketing (ENCI) and the National Rice Marketing Enter- prise (ECASA), respectively. ECASA was closed in 1991, and ENCI's operations have been sharply curtailed. The services provided by a project-established tractor unit were a key factor for agricultural expansion. This highly subsi- dized scheme, however, had to be discontinued due to financial constraints. Planned cartography and other specific studies were accomplished. Land titling reached only 74 percent of SAR estimates. -v - 8. The IFAD financed credit component was an important aGricultural devel- c-,, nt factor, althougn its disbursement pace was significantly slower than k. .:ted. Its initially poor performancc was improved, at mid-term, through the expansion of the Peiuvian Agricultural Bank's (BAP) operational capacity, and later through the simplLfication of IFAD disbursement procedures, aimed at avoiding foraign exchange loses estimated at about 40 percent. However, due to the low interest rates a-Dplied by BAP in a period of hyperinflation, the rcvolving fund created by the IFAD loan is now reduced to a mere 5 percent of its original value, in real terms. Project Results 9. In spite of severe constraints, the project succeeded in implementing most of the planned roads and social infrastructure, and created the basis for increased agricultural production. Rice production increased from 35,000 tons in 1983 to about 100,000 tons in 1988, exceeding SAR targets by about 10 percent, while other crops surpassed SAR estimates by about 50 percent. The project's economic rate of return would have been about 17 percent (JAR estimate was 18 percent) had prices and production been maintained at 1987-88 levels. However, due mainly to diminishing prices and transport and input supply difficulties, production and yields have decreased considerably by 1989-90 (rice output dropped by 40 percent and plantain/cassava by over 50 percent), suggesting that a wider range of alternative crops should have been introduced than suggested at appraisal. 10. During implementation the internal and external constraints that limited the performance of rural credit operations were identified and cor- rected, although with some delay. At present the project-financed credit component is the only source for rural credit and har bacome an important, although limited, agricultural development factor in the area. The project was not able to integrate forestry activities with it6 agricultural develop- ment program, thus it failed to introduce a long-term, coordinated approach for safeguarding the environment. This shortcoming, as well as the project's limited success in maintaining project financial infrastructure facilities, is due in large part to the suupension of field supervision because of security factors. Sustainability 11. Project implementation experience has demonstrated that under the prevailing civil unrest and socio-economic environment most of the key project act .vities cannot be sustained. Due to the deteriorating world market prices for rice, production in Alto Mayo became essentially uneconomical and depended on large injection of subsidies to attract farmers. The financial burden, however, could not be sustained by GOP and subsidies had to be phased out which resulted in a plunge in production. Furthermore the project's failure to introduce adequate water charges did not allow sufficient generation of funds for maintenance and repair, making the irrigation systems unsustainable in the long run. The project also failed to create a sustainable agricultural extension and research system, tractor services nnd road maintenance. The IFAD provided credit fund, which should have been self-sustatning on a - V. . - revolving basis has dsteriorated to a mere 5 percent of its original value due mainly to inadequate management. However, the social services, mainly the health and education components, appear to be sustainable. Findings and Lessons Learned 12., The project experience shows that considerable care is neciseary in determining the economic parameters on which project design is based. The c.ver-optimisti.c assumptions on rice price development have led to improper investment decisions which could have been avoided. Also the emphasis on mono crop farming should have been avoided since remote areas may be extremely vulnerable to market and prices fluctuations. Instead, a diversified cropping pattern, preferably involving non-perishable high-value crops, should have been introduced. Too little attention was also paid to coordinate forestry activities with the agricultural development program, leading to indiscrimi- nate deforestation, especially in the zones surrounding the project area. The design of development projects, particularly iii tropical forest areas, should be based on sustainable models integrating agricultural production and forest conservation activities. Implementation experience has also demor.crated that a strong commitment by the Government and financial participation by benefi- ciaries is required to ensure the sustainability of services and infrastruc- ture. Therefore, at an early stage of the project, necessary financial commitments have to be obtained, costs realistically assessed and fee collec- tion systems established. Furthermore, it should have been realized that the existing institutions on which the project depended for implementation were still rather weak, and would have needed stronger support. Obviously the discontinuation of international funding combined with a reduction in local funds has further aggravated the situation. The implementatJon experience, however, has also shown that a strong and dedicated project management is capable of substantial achievements even with limited resources and under adverse conditions, underlining the need for the recruitment of well-qualified managerial staff. PROJECT COYPLETION kErCRT PERU ALTO MAYO IkURAL DEVELOPMENT PROJECT (Loan 2219-PE) PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity - Project Name: Alto Mayo Rural Development Project - Loan No.: 2219-PE - RVP Unit: Latin America and the Caribbean Region - Country: Peru - Sector: Agriculture 2. Background 2.1 The performance of the Peruvian agrictiltural sector in the 1970s was poor. While the population was increasing at 2.8 percent p.a. (4.1 percent in urban areas), agricultural production declined by 0.6 percent p.a. in real terms, food imports increased by over 20 percent, and agricultural GDP decreased from 15 percent in 1970 to 11 percent in 1980. This unsatisfactory performance was attributed to a sweeping land reform and considerabli Government intervention following the military takeover in 1968, compounded )y the effects of severe droughts in the late 1970s. 2.2 While the scope for production increases in the Costa and the Sierra was limited to intensification which was only attainable in the long run through capital-intensive technological improvements, the fertile Ceja de Selva (High Jungle) area, east; of the Andes, which recently integrated into the country's economy through the construction of a Trans-Andean Highway System and oil explo- ration, offered excellent possibilities for short- and medium-term agricultural development. The civilian Covernment, installed in 1980, introduced policy changes aimed at reducing state intervention in the economy, encouraging private enterprise participation in agrir. Itural development, improving agricultural support services, and promoting 4jvelopment in frontier areas and the Ceja de Selva. The project, located in the Ceja de Selva, therefore responded to one of Government's important development priorities and was part of the Huallaga Central-Bajo Mayo regional development project (HCBM), established in the mid- 1970s with USAID assistance. 3. Project Objectives and Description 3.1 The Project was the first Bank financed agricultural development project in the Peruvian Ceja de Selva. It was cofinanced by IFAD, and was to be implemented over a period of 5 years. IFAD's participation was due mainly to its flexibility in financing the project's credit component which the Bank was unable to do, as Peru's credit policy conflicted with the Bank's directives on the -2- subject. The project's central objectives were to develop the Ceja do Solva area and to increase the country's food production, while improving the incomes and living conditions for the 12,800 rural families through the expansion of agricul- tural production and the improvement of the region's physical and social infra- structuro. All families were to benefit from the infrastructure improvements in the area, while 8,700 families--including 200 families living in native Amer- indian communities--were to participate directly in the agricultural development components of the project. The project area consisted of 700,000 ha, but direct action was to concentrate on 120,000 ha. 3.2 The project's components included: (a) an agricultural credit program for about 3,900 farmers in the area, including US$23.0 million long-term and US$8.0 million short-term credit, to develop about 9,500 ha of small irrigation schemes and other activities; (b) construction and improvement of about 181 km access roads in the project area and support for ebtablishwent of a road maintenance program; (c) constr,iction of a small diversion structure and main canal, ta serve about 1,500 ha in the Yurongos irrigation scheme; (d) supply of land clearing equipment for rental; (e) establishment of applied research capability and a strengthened extension service in the area; (f) construction of 3,000 m3 storage for grains and fertilizers; (g) rEhabilitation and construction of fisheries facilities for the production of fingerlings; (h) strengthening of forestry administration to enforce protection, legislation, carry out forestry in ntories and monitor changes in these activities during project in) mentation; (i) construction/renovation of health and education infrastructure, including 15 '-alth centers/posts, 20 water supply schemes, 3,000 latrines, and 4 schools; (j) studies to monitor the project's impact on tribal groups, prepare a follow-up project, and monitor environmental changes; (k) training and short-term technical assistance in specialized fields; (1) local mapping and land titling of over 120,000 ha, and the preparation of a new map of the country based on satellite imagery. -3- 3.3 TotaL projent costs were estimated at US$83.7 million, of waich the Bank loan was to finance 35.7 percent, IFAD 22.6 percent, the Government (GOP) 37.6 percent, and the farmers 4.1 percent, over a five-years period. The project was to be administered by the Executive Directorate (ED) of the Huallaga Central- Bajo Mayo Project through a local Technical Directorate (TD)--both alrSady in place at appraisal. The credit component was to be manaEed by the Agrarian Bank (BAP), monitored by a credit committee composed of extension, research and farmers representatives, and linked to the project extension activities. While construction of civil works was the responsibility of the project, their opera- tion and maintenance was to be transferred to the respective agencies. 4. Project Design and Organization 4.1 The concept of the project was consistent with the Government poli- cies and priorities, and with the potential and needs of the project area at the time of appraisal. It was formulated based on a constructive dialogue between the authorities concerned, the local preparation team (later engaged in project management), the Bank and the FAO/CP missions. The SAR's concern about the project's impact on the environment and on the local Amezindian communities can be considered innovative. The scope and scale of the project -ere appropriate to its objectives which would probably have been fully attained had external factors, such aq an unprecedented economic crisis, international rice price fluctuation and the suspension of Bank disbursements and supervision, not disrupted project implementation. These factors and their impact on project performance could hardly have been foreseen at appraisal. Generally, the project rationale was sound and the satisfactory implementation pace of most investments and services up to 1987 are indicative of its realistic phasing. 4.2 The development strategy of the SAR was, among other factors, based on product price and population parameters, which did not materialize. In fact, unrealistic rice price projections led to the formulation of a faulty production strategy founded essentially on the expansion of irrigated rice production. Contrary to SAR assumptions border prices declined steadily during the imple- mentation period, thus constraining the project's production expectations. The SAR also failed to take full account of the intensification of migration in the area attracted mainly by the completion of the Carretera Marginal and tha access roads constructed under the project. As it developed, the local population doubled from about 75,000 in 1980 to about 150,000 in 1989, resulting in heavier than expected pressure on the natural resources, services provided by the project, and social infrastructure which soon became inadequate. The SAR also did not provide a mechanism linking and coordinating forestry activities/manage- ment with agricultural development in the area, and thir --ntributed to lax control over deforestation in the project area and surrounding zones and, together with increased migration, contributed to environmental degradation. 4.3 The organizational arrangements, linking local management to the HCBM authority and committing implementation responsibilities to appropriate local institutions proved to be a functional solution. However, the limited operational capacity of its local unit, as well as implementation problems of thf Natioanl Institute for Agricultural Research and Extension (INIPA), the Agrarian -4- Region and the National Forestry Institute (INFOR) indicate that this subject was insufficiently examined by the SAR. While the involvement of the concerned inititutions was essential to ensure sustainability, it appears that in new areas where the institutional framework had not yet been consolidated, more institu- tional strengthening would have baen required to allow the increased responsi- bilities generated by the project to be efficiently absorbed by local agencies. 5. Project implementation 5.1 The macroeconomic e..ironment had a determinant impact on project implementation. The implementation period was characterized by a deteriorating national economy, increased inflation and socirl unrest. Accumulated external debt, the international recession, overvalued exchange rates, and floods in the North and droughts in the South caused the GDP to plunge and inflation to rise in the early 1980s. The Government's heterodox economic program launched in 1985 in order to prompt a quick recovery, immediately resulted in an extraordinary output axpansion in 1986, with GDP grcwing by 9.5 percent and inflation decreasing from almost 300 percent to about 60 percent. However, this policy was not sustainrble due to a lack of investments, growing exchange losses and deteriorating public finances. Follow-up measures included the establishment of a price control system, import restrictions, nationalization of the banking system, suspension of the parallel foreign exchange market, and the suspension of the payments of the external debt service already in arrears. This brought about a reciprocal suspension of all World Bank loans to Peru in May 1987. As a result, economic activity slowed down, inflation speeded up and the spread between the official and parallel exchange market increased significantly, generating uncontrollable imbalances in the economy. In parallel, guerrilla terrorism and narcotrafficking expanded, bringing insecurity to both the urban and rural sectors. 5.2 In spite of the already difficult economic framework at inception, the project had a satisfactory start-up and a good performance up to Project Year 4. This was followed by a period of uncertainties resulting from financial cons- traints and the deteriorating general situation as described above. The project was able, however, to implement most of the planned investments and in the short term, exceed SAR agricultural production targets. During this initial period nevertheless, tuo little attention was given to overcoming the initial slow start in farm credit disbursements, the deforestation problem, and the project's inability to ensure sustainability for agricultural production, rural credit, agricultural services and road maintenance. 5.3 Bank loan disbursements were suspended three and a half years after start-up and the final disbursement was on December 3, 1987. The loan was closed on December 31, 1988. A total of US$22.7 million were disbursed and US$7.3 million were cancelled on July 31, 1990. The IFAD loan was due to be closed on December 31, 1991, after two one-year extensions but is currently being discussed for an additional one-year extension. IFAD's disbursement on February 29, 1992 was SDR 14.3 million equivalent, and SDR 3.5 million ec'uivalent remains to be disbursed. Total actual (mid-1991) project cost were estimated at US$60.5 million. - 5 - 5.4 In spite of frequent counterpart funding constraints experienced from the beginning of the project and a lower than expected disbursement rate of the IFAD financed credit component, PEAM's Bank loan disbursement rate was significantly higher than Latin America's average (75.7 percent against 50.9 percent), and at loan suspension most of the foreseen investments had been implemented, or were completed shortly thereafter. They included: construction of 89 km of new access roads (103 percent of appraisal estimates) and improvement of 95 km of existing roads (100 percent); construction of 44 schools (110 percent) and 15 health units (100 percent); construction of new irrigation infrastructure covering 1,500 ha (100 percent) and improvement of 9,544 ha of existing schemes (100 percent); land clearing 6,190 ha (109 percent); construc- tion and equipping of che project headquarters (100 percent), 4 extension offices (100 percent), 2 agricultural research stations and 2 fisheries stations (100 percent); one forestry district office (33 percent), 2 forest control points (100 percent); 6 storage units (100 percent); the carrying out of local and national cartography (100 percent); land demarcation (123 percent); and distribution of land titles (74 percent). 5.5 The suspension of Bank loan disbursement in the middle of a profound economic crisis seriously affected overall project performance after 1987-88. GOP funds were insufficient to compensate not only for the lacking external funds, but also to cover expected counterpart contribution. As a result, some investments, such as potable water supply, could not be completed, (only 2 out of a planned total of 20 systems were installed) maintenance of equipment and infrastructure was neglected, and important activities such as forest police, agricultural research and extension were phased out or drastically reduced. 5.6 Agricultural development was centered on the production of irrigated rice mainly for the supply of the coastal markets. This strategy was based on the area's technical potential for this crop, the encouraging yields obtained by the settlers over the previous decade, the Government's import-substitution policy, and on favorable price projections. It was promoted through the expan- sion and improvement of existing irrigation infrastructure, introduction of improved varieties, crop mechanization and credit. Rainfed crops and livestock development for local consumption were also promoted. Inputs supply and produce marketing were provided by ENCI and ECASA, respectively. ECASA was phased out in 1991, and ENCI's operations have been drastically reduced. In the absence of any alternative marketing system in place, this, together with unattractive prices for rice resulted in a substantial drop in the profitability and produc- tion of rice. 5.7 Agricultural research, carried out by INIPA in the two experimental stations established by the project, was effective and helped to raise yields of major crops, mainly through the introduction of new varieties and better crop management practices. The initial weakness of the local INIPA extension service was eventually improved by the project's direct selection and hiring of senior and field agents and introduction of economic incentives. The project success- fully established one zonal and 3 local extension offices and hired 32 incre- mental senior and field extensionists; however, the introduced T&V system was never really adopted, due to the heterogeneity of the agricultural investment - 6 - activities and lack of a sound referential T&V model. The extension service assisted the bulk of the credit beneficiaries, with mixed results. It deta- riorated after 1988 due to the project's financial difficulties and it was, together with the research component, progressively scaled down and practically phased out in 1991. Research and extension represented only 5.3 percent of actual project expenditures, against an SAR estimate of 9.3 percent. 5.8 The services provided by the project-established tractor unit were a key factor for agricultural development. Its main achievements were the clearing of 6,200 ha of land and the levelling of a large part of the 11,000 ha for irrigation purposes. However, the highly subsidized operation failed to generate sufficient funds for a continuing operation and replacement of equip- ment. The tractor unit was therefore discontinued and private services moved out, discouraged by the high local operating costs which farmers were not prepared to pay. 5.9 Another important production factor introduced by the project was the provision of farm credit. This IFAD-financed component represented about 40 percent of the total external loan and was implemented by BAP. The use of the credit was initially modest, as there were, besides national funds, other sources for credit (including Bank Loan 2302-PE and an IDB Loan) and because of the limited operational capacity of the local BAP agency. In PY 3, the project financed unforeseen equipment and incremental staff for two additional BAP agencies, which led to an expansion of credit operations by over five times in the following year. This had an impressive impact on production and yields in 1987 and 1988. However, due to counterpart funding constraints and foreign exchange losses (estimated at 40-50 percent) from IFAD Loan disbursements, credit operations declined again thereafter. The establishment (by end-1990) of a local dollar-account simplified the IFAD Loan disbursement procedures, enabled the project to disburse in adrance over IFAD funds, thus avoiding the exchange losses. However, while having contributed to develop the production base of the project area, the credit component failed to establish a sustainable revolving fund for future operations. As a result of traditional credit policies, erosion by subsidized interest rates that were outmatched by hyperinflation, extended grace periods and repayment difficulties, the revolving fund has been reduced to only about 5 percent of its real value. 5.10 The implementation of the forestry component was the responsibility of the Forestry District of the Regi6n Agraria XIII-San Martin and the local INFOR Forest District office. The project has established 60 percent of the planned infrastructure, including a central office, two forest police posts, and hired incremental technical staff. However, besides the reforestation of about 100 ha of degraded soils and the carrying out of a forest inventory, very little was achieved. Structurally dissociated from agricultural production and lacking the broad approach towards sustainable development, the Forestry District was apparently more interested in immediate economic results deriving from forest exploitation than in sustainable forest management. It therefore indulged in indiscriminate timber extraction and deforestation of protected slopes, and thus affected about 45 percent of the forest reserves in the area of influence of the - 7 - project area and led to squattering by subsistence farmers and coca planters. This had a negative impact on soil and water conservation, as well as on the fauna and flora in general, and affected the survival of the local tribal communities and the sustainability of agricultural development of the Alto Mayo valley in general, even though the forests within the actual project area were apparently well managed. The two planned fisheries stations were constructed, but only 50 percent of the 160,000 fingerlings estimated at appraisal were distributed, and the component's impact on the farming systems was modest. The forestry and fisheries components were the first ones to be phased out due to the financial constraints. 5.11 The targets of the education component were fully achieved. The project constructed and equipped 163 class rooms in 18 new schools and 26 existing ones, for a total capacity of 6,520 pupils. This infrastructure was transferred to the Ministry of Education and has been satisfactorily adminis- tered. Under the health component, 4 health centers and 11 ambulatories were constructed and equipped, and successfully transferred to the Ministry of Health. Also 3,000 latrines were constructed but only 2 of the 20 planned potable water systems became operational, and another 11 remained incomplete. The lack of potable water contributed to the spread of cholera which at present is a critical problem in the project area. Although adequately dimensioned for the demand of the early 1980s, the social infrastructure has now become largely insufficient and needs urgent expansion. 5.12 The construction/rehabilitation of 184 km of access roads was one of the project's most important achievements. Studies and construction were implemented by contractors, but maintenance was carried out directly by the project, diverging from what was established in the Loan Agreement. The machines and vehicles purchased by the project for this purpose were not transferred to the MTC as planned, because the local MTC unit lacked the necessary operational capacity. The project management also feared that, if handed over to the MTC unit, as happened in the context of other projects, the machines could be diverted to other purposes which would be detrimental to the project. Although agreeing with this arrangement as a temporary solution, the Bank exhorted the project management to find a more appropriate solution for the future which, howevar, was not done. 5.13 P.anned cartography and other specific studies were satisfactorily accomplished. National cartography for planning purposes included: (a) partial maps of Peru comprising 95 sheets of a 1:250,000 scale map; and (b) an overall 1:1,000,000 scale national map comprising 4 sheets. Local cartography for cadastral purposes covered 150,000 ha at the 1:15,000 scale and 88,000 ha at 1:10,000, and allowed cadastration and demarcation of 10,182 holdings (23 percent of the appraisal target) and the titling of 4,833 holdings (74 percent of the appraisal target). Other studies, carried out with the participation of the concerned agencies, comprised: (a) a forest and fauna resources inventory, covering 90,000 ha in the project area; (b) a semi-detailed soil survey, covering 60,000 ha; (c) a river flow control study, (d) two socio-economic studies on the Alto Mayo native communities; and (e) a Project Phase II feasibility study aimed at developing the left bank of the Mayo river. Except for the river flow study - 8 - which was helpful in the planning of small irrigation schemes, the other studies have had little practical use so far. 5.14 While not treated as a separate component, assistance to the nine tribal communities in the project area was included as part of the relevant project components. As planned, the project constructed primary schools in each of the nine indian villages, three health posts, as well as an urban marketing center. Bilingual extension support, construction of household water supplies and vaccination programs were also provided by the project. A:.though partially integrated and having adopted some of the project supported agricultural devel- opment initiatives, the tribal communities still depend to a large extent on the native forest resources for survival. They were, therefore, seriously affected by the land squattering and deforestation which the project was unable to prevent. 5.15 The prolect management unit was efficient. Procurement and disburse- nent procedures were respected, activities were carried out in a timely manner and monitoring was satisfactory, while technical and auditing reports were deli- vered within reasonable time limits. This was due to the competent leadership both of the Executive Director (responsible for the HCBM project as a whole) and the local Technical Director, who were both kept in place by the Government during three changes in administration. The project management generally judged and corrected emergent problems properly; however, some decisions'were merely adopted to resolve contingent situations during the implementation period, while failing to propose more durable solutions. 6. Results 6.1 In spite of severe conatraints, the project succeeded in implement- ing the investment programs for roads and social infrastructure, and created the basis for increased agricultural production, which in most aspects, had largely exceeded appraisal targets by 1988. The project supported the expansion of the irrigated area, comprising 1,500 ha of public irrigation benefitting 200 families and about 10,000 ha of farmer managed small-scale schemes, through the supply of credit to the participants. Under the project, the total irrigated area (includ- ing non-assisted farmers) was expanded from 6,800 ha to 23,000 ha (compared to an appraisal target of 11,000 ha). The area under rainfed crops remained around 13,000 ha instead of expanding to 29,000 ha as planned, and the area of improved pastures expanded to only about one-third of the appraisal target. Forest clearing in the project area was only about 13,000 ha compared to the appraisal estimate of 17,000 ha, while the area under fallow expanded by 1,200 ha instead of decreasing by 8,600 ha as planned. 6.2 Rice production increased from 35,000 tons in 1983 to about 100,000 tons in 1988, surpassing appraisal targets by about 10 percent. However, due to depressed prices and increased transport costs caused by the poor maintenance of the highway leading to the coast, rice production plunged by 40 percent in 1989- 90. Production targets of rainfed crops, mainly maize and beans for local consumption, were surpassed, and are still rising, while plantain and cassava production receded to pre-project levels, after having exceeded the appraisal -9- estimates by over 50 percent in 1988. Coffee and cocoa were promoted with promising results. Bb..jf production targets were attained, while milk production fell significantly short of expectations, due to breed and management cons- traints. Average yield increases, as a result of the project research/extension activities, were 20 to 28 percent for irrigated rice, 18 percent for maize, 200 percent for beans, 85 percent for cassava, and 42 percent for plantain. 6.3 Through the local Irrigation District, the project established over- all water management and control of the irrigation infrastructure, maintenance of main canals, and control of the rivers' waterflows and hydropower. The project also promoted the organization of water users in two irrigation boards, nine irrigation commissions and 56 users' committees, who were responsible for water distribution and maintenance of lateral canals. Unfortunately, no adequate system of water charges was established, and this had serious consequences on the sustainability of the irrigation schemes' operation and maintenance. 6.4 As project funding was drastically reduced one-and-a-half year before the expected closing date, and due to distortions tesulting from soaring inflation, dual exchange rates and to the general situation of the Peruvian economy, reliable trends estimates are unavailable and a realistic economic analysis of the project is not possible. However, based on a 20-year scenario assuming constant benefits at 1988 levels, the economic rate of return was re- estimated at 16.6 percent, compared to an appraisal estimate of 18 percent (see Appendix 1 for clarification of this theoretical exercise). 7. Project Sustainability 7.1 The project did not succeed in establishing a sustainable production model and was not able to prevent indiscriminate deforestation in the forest reserves around the project area, to the detriment of sustainable development. Also, the arrangements contemplated for the continuation of basic services, such as agricultural research and extension, the tractor scheme, and maintenance of roads and irrigation structures, proved ineffective. The revolving credit fund could not be sustained due to an inappropriate credit policy and interest rate structure. Part of this failure can be attributed to the discontinuation of funding and supervision, as the operational capacity of the local institutions concerned was still limited and would have needed external support for some time before being able to cope with the considerably increased tasks generated by the project investments. Other important contributing factors were the deterioration in the national economy and public service institutions in the late 1980s and the project's dependence on an economic policy and institutional structure which could not be sustained. 8. Bank Performance 8.1 In spite of the fact that, at appraisal, migration to the project area was already high and rising, causing increased pressure on the land, expanded deforestation risks were underestimated, while design and institutional arrangements for the implementation of effective forest management were inade- quate. Unrealistic price projections by the Bank led the appraisal team to - 10 - propose an inappropriate production strategy, based largely on irrigated rice monocropping, with high physical, price and market risks. 8.2 Bank supervision missions detected early the main political, techni- cal and financial issues and problems, and rated the project accordingly. For security reasons and due to the suspension of loan disbursements, the Bank ceased to supervise the project, and after 1988 relied on IFAD which for lack of a proper project supervision structure, carried out only one supervision there- after. While appropriate provisions were included in the Loan Agreement and relevant warnings were raised by the supervision missions, the Bank did not sufficiently insist, at the early stages, on the cost recovery issues which resulted in serious sustainability problems for the tractor unit, the revolving rural credit fund and the irrigation infrastructure. 9. Borrower Performance 9.1 The Borrower's performance, at project management level, in spite of adverse conditions, was satisfactory. The Borrower's unilateral decision to interrupt debt service payments which lead the Bank to suspending loan disburse- ments, seriously jeopardized project implementation. Changes of national strate- gies and priorities, resulting in reduced funding and deteriorated transport conditions, were equally detrimental to project performance. 9.2 The lack of adequate support to the Agrarian Region XIII-San Martin and the Regional Forest District to enforce the forest law in the zones surround- ing the project area, resulted in indiscriminate deforestation with negative consequences to sustainable agricultural development in the Alto Mayo valley. TLie Borrower also failed to establish effective cost recovery mechanisms for rural credit, tractor services, and irrigation infrastructure. The Borrower, however, succeeded in implementing most investment programs planned and in optimizing the use of the scarce resources available after loan suspension. 10. Project Relationship 10.1 Generally the relationship between the Borrower and the Bank was good until the suspension of all Bank loans to the country in 1987. The rela- tionship between the Borrower and IFAD whicl' provided funding for short and long term farm development loans was also good, notwithstanding the unsatisfactory performance of the credit fund as far as recovery rates and interest rate policy are concerned. 11. Consulting Services 11.1 Consulting services were ma.nly financed under the technical assis- tance training and studies component. Actual total cost of the component amounted to US$0.9 million (versus the appraisal estimate of US$1.3 million), of which about US$0.6 million was financed by the Bank and about US$0.3 million by the Government, while IFAD financed only US$20,000 against an appraisal estimate of US$200.000. Most of these funds were used for carrying out planned studies-- all of them satisfactorily accomplished--and for organizing thle farm machinery -11 - unit and the training of operators on land clearing. Consulting services were also contracted, and satisfactorily accomplished, under the National and Local Cartography component, for aerophotographic surveys and the preparation of thematic maps. Total expenditures for this component, which included also the preparation of a technical cadastre and the distribution of land titles, amounted to US$1.8 million (against an appraisal estimate of US$3.7 million). Available data, however, do not identify the cost fraction corresponding solely to consulting services. 12. Project Documentation and Data 12.1 Project covenants were clearly stipulated for effective implementa- tion. However, adjustments concerning the IFAD disbursement mechanism had to be introduced to improve the performance of the credit component. The project and its SAR were based on satisfactory baseline data, but suffered from design problems, due mainly to over-optimistic price assumptions, underestimated migra- tion figures and impact assessment as well as inadequate institutional support measures. Nevertheless the SAR provided an adequate guidance and yardstick for the implementation and monitoring of all key activities. Although monitoring and data collection were carried out in a satisfactory manner, no attempt was made to carry out a conventional re-evaluation of the ERR because of the reasons outlined in para. 6.4. 13. Findings and Lessons Learned 13.1 The main lessons that can be derived from the PEAM implementation experience which are of relevance to both the Borrower and/or the lending institutions, are summarized below: (a) considerable care must be taken in determining economic parameters on which project design is based. International agricultural commodity price forecasts have to be carefully evaluated and local production cost in both financial and economic terms assessed to avoid erroneous investment decisions; (b) remote areas are particularly vulnerable to changes in market conditions, and are most seriously affected because of deficiencies in transport and communication systems by cost increases and changes in government policies. Multi-cropping farming systems preferably involving non-several perishable high value crops should be promoted as a priority, thus avoiding excessive reliance on high risk single cash crop approach; (c) the opening up of new frontier lands through road and social infrastructure development generally results in high migratory inflows into the areaq of immediate influence and spill-over effects into surrounding zones. Appropriate control measures have to be put in place to avoid environmental degradation and overburdening of services and infrastructure; - 12 - (d) the design cf development projects in pioneering areas such as the Ceja de Selva should attempt to integrate fores. exploitation and management with agricultural production activities, aimed at achieving a sustainable development. This would require coordinated &ation of all intervening agencies, should be within the framework of a comprehensive development plan, and should be based on studies on the potential and constraints of the natural resources, before project appraisal or at an early implementation stage; (e) centrally organized, subsidized tractor schemes have proven world- wide to be unsustainable and subject to misuse. Initial land clearing and levelling by the project should have been followed by support to private (group) ownership of tractors by settlers; (f) to ensure the provision of key services in new areas on a sustained basis, a political commitment involving national and local authorities should be secured prior to appraisal and the concerned entities should be involved from the start; (g) infrastructure which depends on the financial input of beneficiaries such as irrigation systems can only be sustained if effective cost recovery is instituted at start up and adequately enforced throughout project life; (h) to ensure the maintenance of revolving credit funds at current values and appropriate credit disbursement, an appropriate recovery and interest rate policy has to be in place. Under conditions of hyperinflation fund managers have to ensure that interest rates are compatible with inflation rates and that they include an adequate margin to avoid rapid erosion of values and depletion of funds; (i) a strong and dedicated project management is, even under a scenario of limited financial resources and deteriorating socio-economic conditions, able to have a decisive impact on project implementation, underlining the need for the recruitment of well qualified managerial staff at an early stage. - 13 - PART II. PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE I/ 1. Project Design 1.1 In general terms the Alto Mayo Rural Development Project was well designed, reflecting the circumstances prevailing at the time of appraisal. Its concept was based on the creation of the basic infrastructure for agricultural production, provision of agricultural credit, and technical assistance to farm- era, and supplying health and education infrastructure to consolidate existing rural settlements in the Alto Mayo Valley. Hovever, in retrospect, the following observations have to be made: (a) It was taken for granted that the Valley's main agricultural products, rice and maize, would have a secure market, when in reality this was not the case. When the state marketing monopolies - ECASA and ENCI - which were in clarge of rice and maize marketing, entered into crisis, the entire production and marketing system for these products entered into crisis as well. No sensitivity analysis was made of the income from rice and maize production, taking account of the transportation of these products to coastal markets, or a comparative analysis of sales prices in the coastal area, which would have determined the economic competitiveness of rice and maize produced in the Alto Mayo Valley. (b) The project design lacked a clear orientation for a diversified agricultural production system, which would have avoided the near- exclusive monocropping of rice and maize and the ignoring of other equally important products. (c) The production scheme was based on the food import substitution model, without considering efforts to develop agro-industrial export production. (d) The project design also did not give due importance to the design of an adequate and effective agricultural product marketing system. (e) The design also lacked a sufficiently agile and effective environmental mpeagement component which would have avoided environmental deterioration resulting from deforestation by peasants from the Sierra region. 1/ Unofficial translation of the "Borrower's Perspective" prepared by the Executive Directorate for the Special Project Alto Mayo of the Borrower's National Development Institute (INADE). - 14 - 2. Project Implementation 2.1 During the 1982/1983-1991 project implementation period, two dis- tinct performance levels in carrying out project works and actions are clearly observable: (a) Works and actions carried out directly by the project were characterized by efficient and effective management which brought about concrete results that were clearly visible, verifiable and of immediate beneficial effect on production and the beneficisry population. (b) With the exception of the agreement with the Banco Agrario del Pero (BAP) for granting of agricultural credit to farmers, measures carried out indirectly through agreements with other Government organizations, such as the agreements with CIPA X (now INIAA and the Ministry of Agriculture CDR) for agricultural and livestock research and for te.hnical assistance to farmers, and the agreemeit with the Alto Mayo Worestry District for control of indiscriminate forest exploitation, have not been completely satisfactory. In general terms and on an overall level, the project achieved 80 percint of its objectives with 74 percent of financial resources disbursed by all financing sources, which indicates the project's level of efficiency. 3. Project Results 3.1 The many, varied beneficial effects generated in the project area as well as in adjacent areas as a result of the implementation of the Alto Mayo Rural Development Project, are unquestionable. This has been translated into increased agricultural production and productivity, greater employment, more schools, medical posts and health centers, and improved living and health conditions through the provision of rural drinking water services. All of the above have generated a very strong vitality in the economy of the Alto Mayo zone and attracted ever-increasing migration while at the same time contributing to pacifying the area by halting the encroachment of drug trafficking and subver- sion. However, the level of development achieved would have been greater if the measures and actions indicated in paras. 1.1 and 2.1 had been followed. 4. Opinion on Part I of the PCR 4.1 Many of the conclusions reached in Part I of the Project Completion Report (PCR) are correct. However, we disagree mainly with the following: (a) It is stated that the Project's economic strategy was deficient in having concentrated on monocropping of irrigated rice and maize, which determined a respective economic collapse. We consider that the project nevertheless achieved its main objectives of increasing agricultural production and providing essential services to the - 15 - population, under the food import substitution model in which it was conceived and designed, and that the failure cannot be blamed on rice and maize marketing (the Valley's main crops), which was the responsibility of the state enterprises ECASA and ENCI. In any case, if the economic results differed from those expected, it was due to factors beyond the project's administration and control. They reflect mainly the failure of the state marketing policy and the lack of repair and maintenance of the Carretera Marginal linking the valley to the coast, thus raising transport costs and product prices and removing them from the nationai market in the face of increased coastal production and imports. Project implementation strictly followed the clear and precise descriptions in the World Bank and IFAD loan contracts. (b) It is stated that the project was not capable of integrating forestry activities into its agricultural development program and failed in implementing a sustained long-term development model, which caused uncontrollable, environmentally damaging deforestation and seriously affected native communities due to expropriation of their lands and deforestation, which the project was incapable of preventing. Regarding this matter, it should be emphasized that, despite (a) the lack of an environmental management component under which it would have been possible to integrate forestry and agricultural activities, and (b) a gradual and significant deterioration of the environment as a consequence of the exploitation of forests situated on hillsides, it is not correct that uncontrolled deforestation or irreparable ecological damage occurred. At the most, four critical hydrographic sub-catchments and microcatchments have been affected and it is indeed necessary to take effective and immediate measures to recover the ecological balance in these catchment areas. It is also not true that native communities have suffered expropriation of their lands and deforestation; on the contrary, these lands are the best protected since the communities themaselves jealously protect them, and thus avoid de facto expropriations and deforestation; nor do these communities run the risk of extinction since they are gradually becoming integrated into the lifestyle of the rest of the rural population. (c) The project is blamed for the failure to propose lasting solutions to the problem of development in Alto Mayo, and also for failing to implement agricultural research and extension service , agricultural mechanization services, and maintenance o& irrigation infrastructure. On this matter, it should be pointed out that the goals set for these components were fully met and in some cases surpassed, despite the suspension of World Bank loan disbursements in May 1987, a year and half ahead of the original loan closing. The lack of continuity - 16 - of said services was due to the non-implementation on the part of state agencies to which the responsibility for providing such services was transferred as foreseen in the project document (INIPA, CIPA, Ministry of Agriculture, INLA, Forestry District, Irrigation District, etc.), except for the agricultural mechanization services which remained a project activity but became an unsustainable system because of Government tariff policy and hyperinflation. With regard to road maintenance, it should be indicated that the project assumed a responsibility unforeseen in the 'roject document because of the failure of the Ministry of Transportation to carry out the road maintenance. It should also be pointed out that the maintenance of the irrigation infrastructure and collection of water users' fees are carried out by Irrigators' Commissions. (d) It is sugge9ted that accelerated immigration to Alto Mayo was due to the construction of access roads in colonization areas. This was not the case, because even without the construction of access roads in the Valley, strong immigration would have occurred due to the attraction, advantages and real possibilities for progress that the project offered farmers, in comparison with those existing in other parts of the country; it may be said unequivocally that the major attraction was agricultural credit. (ei It is stated that the reduction in real value of the Rotating Fund under the Credic Component to approximately 5 percent currently, was due to the low interest rate charged by BAP. Instead it should be said that this was due to the fact that the Government's failure to implement a mechanism for adjusting the sub- loan principals, which would have solved the problem of capital erosion by hyperinflation. 5. Opinion on Part III of the PCR 5.1 The data, figures and information contained in the tables and annexes of Part III of the Project Completion Report for the Alto Mayo Rural Development Project are adequate and correct. Most of them were provided by project personnel. 6. Opinion on the World Bank's Performance 6.1 We zonsider that the World Bank's performance war excellent and of decisive importance for project implementation; it supported the project with financial resources which were adequate and necessary to carry out various works and actions, with project corrections and suitable recommendations by the various project supervision missions carried out by World Bank staff. 6.2 Relations between the World Bank and the Borrower were also very good, especially during the 1983-1987 period. - 17 - 7. Opinion on IFAD's Performance 7.1 We consider that IFAD's performance was also excellent and of deci- sive importance for tho implementation of the project's agricultural credit component; its importance was especially noted after suspension of World Bank loan disbursements at a time when the project was experiencing an acute shortage of financial resources, since Government funds were too scarce and insufficient to partially offset the svspended funds. IFAD's support still continues and it is hoped that it will be extended so that the US$4,000,000 balance of IFAD Loan 116-PE mey be used during 1992. 8. Opinion on the Borrower's Performance 8.1 The project executing unit's performance in managing project imple- mentation was appropriate; this was possible due to continuity in pr.3ject manage- ment under the technical administration from the time of the feasibility study in 1981 until 1991, and the hiring of highly qualified personnel, all of which helped the project to overcome truly difficult periods and crisis situations caused by economic policy changes which occurred as a consequence of changes in Government. 9. Lessons Learned (a) The design of rural development projects should emphasize diversified agricultural production with high market value, instead of concentrating on monocropping. (b) Special emphasis should be given to export agro-industries based cn agricultural production with comparative advantages over other regions in the country and in other countries. (c) The implementation of some of the project components through other government agencies did show marginal results if these agencies were weak and did not receive Goverr-ent support; in these cases, the signing of implementation agreements with Non-Government Organizations is recommended. (d) An analysis of production costs and conscientious market studies should precede, and be decisive for, making investment decisions regarding rural devalopment projects. (e) It is necessary to include an environmental management component integrating forestry activities with the agricultural development program, in order to avoid environmental problems. (f) Agricultural credit to farmers is a decisive tool in stimulating agricultural production and can be intelligently geared toward determined products inaccordance with project objectives and goals. - 18 - (g) In periods of hyperinflation, it is necessary to apply a financial adjustment mechanism so that amounts lent to farmers can maintain their real value and a reasonable interest rate can be charged on these adjusted principals. (h) The banking inetitution that channels credits to farmers must be adequately staffed with professionals, specialists and technicians, and must have the offices, office equipment and supplies needed to meet its responsibilities. (i) It is also important and necessary to provide supervised credits to avoid the use of loans for purposes other than those planned and to provide technical assistance to guarantee production success and hence repayment of loans. - 19 - PART M, STATISTICAL INFORMATION Table 1: IBRD LOANS RELEVANT TO THE PROJECT Loan/ Title Purpose Year of Status Comments Appro- val Ln.2150-PE Rehabilitate 1982 Closed March Bank support sus- Agric.Research and research and 1988. PCR pended in 1987. Extension Project extension under prepara- Project performance services tion. hindered by funding and institutional constraints. Objec- tives partially achieved Ln.2302-PE Sixth Long-term 1983 Closed 1988 As above Agric. Credit Project loans at na- tional level Ln. 1812-PE Puno Increase in- 1980 Closed 1987 As above Rural Dev.Project come of (2 years be- 17,000 rural hind schedule) families Ln. 177 1-PE Lower Develop/rehabi 1979 Closed 1987 As above Piura Irrigation litate coastal (3 years be- Rehabilitation Pro- irrig. areas hind schedule) ject II Ln.2091-PE: Eighth Road improve- 1982 Closing date As above Highway Project ment for re- being decided. gional devel- PCR under opment preparation - 20 - Table 2: PLANNED, REVISED AND ACTUAL DATES OF PROJECT TIMETABLE Item Date Date Actual Planned Revised Date Identification 06/1979 Preparation (02/1982) (1) (02/1982) (1) 09/1981 Appraisal Mission 03/1982 03/1982 03/1982 Loan Negotiations 10/1982 11/1982 11/1982 Board Approval: Bank 12/1982 12/1982 12/14/82 Board Approval: IFAD - - 12/10/82 Loan Signature: Bank - - 03/28/83 Loan Signature: IFAD - - 03/02/83 Loan Effectiveness: Bank - - 06/07/83 Loan Effectiveness: IFAD - - 06/06/83 Loan Closing: Bank 12/31/88 - 12/31/88 Loan Closing: IFAD 12/31/88 12/31/91 (2) Loan Completion: Bank 06/30/88 - 07/31/90 Loan Completion: IFAD 06/30/88 12/31/91 (2) (1) In brackets, date of report (2) New extension to 12/31/92 expected Comments: Two issues were flagged by the SAR: (a) the adverse effect on environment from frontier development and (b) frictions between the settler population and native communities. Specific components and organizational arrangements foreseen in the project, particularly the strengthening of the local Forestry District, the establishment of a Forest Police and the setting up of an extension service for tribal communities were intended to minimize these problems. - 21 - Table 3: CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENT (US$ million) Calendar Year 1983 1984 1985 1986 1987 1988 1989 1990 1991 A. IBDR/IDA Appraisal Esti- 4.2 12.2 19.1 23.2 27.0 30.0 - - - mate Actual 1/ 3.2 9.3 15.1 18.1 22.7 22.7 - - - Actual as % of 76.2 76.2 79.1 78.0 84.1 75.7 - - - Estimate B. IFAD Appraisal Esti- 2.1 5.6 9.7 14.0 19.0 19.0 19.0 19.0 19.0 mate 2/ Actual 2/ 0.2 0.8 2.1 5.6 10.1 11.3 12.9 13.7 15.7 Actual as % of 9.5 14.3 21.6 40.0 53.2 58.9 67.9 72.1 83.3 Estimate 1/ on 12/03/1987. 2/ expressed in US$ at SDR/US$ of December 1991. - 22 - Table 4: PROJECT IMPLEMENTATION INDICATORS Indicators Unit Appraisal PCR Estimate 1/ Estimate A. CREDIT Long-term: beneficiaries Number 5,000 2,953 Amount USSM 18.1 13.2 Short-term: beneficiaries Number 5,000 618 Amount USSM 6.2 3.0 B. IRRIGATION New scheme ha 1,500 1,500 Improvement of existing schemes ha 9,500 9,544 C. LAND CLEARING Area cleared ha 5,700 6,190 Beneficiaries Number . 1,300 D. ACCESS ROADS New roads km 86 89 Improvement of existing roads km 95 95 E. EXTENSION 2/ Offices constructed unit 4 4 Incremental field agents number 32 32 F. RESEARCH 2/ Research stations established unit 2 2 Incremental researchers number 9 3 G. STORAGE Units constructed unit 6 6 Capacity ton 3,000 3,000 H. FISHERIES Stations constructed unit 2 2 Fingerlings produced unit 160,000 80,000 1. FORESTRY District Offices constructed unit 3 1 Forest control points constructed unit 2 2 J. HEALTH Health centers unit 4 4 constructed/equipped Health posts constructed/equ. unit 11 11 Water supply systems constr. unit 20 2 Latrines unit 3,000 3,000 L. EDUCATION Schools constructed/equipped unit 40 44 Students number . 6,520 M. PROJECT MANAGEMENT Incremental staff: professionals number 21 21 technicians number 25 21 support number 20 30 Vehicles unit 13 10 Motorcycles unit 7 5 N. MAPPING AND TITLING National mapping: 1:250,000 unit 1 1 National mapping: 1:1,000,000 unit 1 1 Titling unit 6,000 4,833 0. STUDIES Forest inventory ha 90,000 90,000 Soil survey ha 60,000 60,000 Fauna and Flora ha . 58,000 Feasibility: Project Phase 2 unit 1 1 P. MONITORING/EVALUATION Monitoring/sup4rvision system unit 1 1 1/ 31 Dec. 1991. 2/ Extension and Rezearch have been closed on 31 Dec. 1991 for lack of funds. - 23 - Table 5: PROJECT COSTS AND FINANCING A. Project Cost by Component (US$ million) Component Appraisal Estimate Actual L F T L F T Credit: Long Term 8.6 9.5 18.1 5.5 13.9 19.4 Short Term 4.3 1.9 6.2 1.3 0.8 2.1 Sub-total Credit 12.9 11.4 24.3 6.8 14.7 21.5 Irrigation 1.0 0.6 1.6 1.7 1.7 3.4 Land Clearing Equipment 0.2 1.6 1.8 0.8 1.7 2.5 Access Roads 9.1 6.6 15.7 4.0 11.7 15.7 Extension and Research 3.6 2.2 5.8 2.4 1.1 3.5 Storage 0.2 0.1 0.3 0.1 0.1 0.2 Fisheries and Forestry 0.8 0.7 1.5 0.5 0.2 0.7 Health and Education 2.2 2.4 4.6 2.1 3.5 5.6 Project Organization 2.1 0.8 2.9 3.6 0.3 3.9 Technical Assistance, Training 0.3 1.0 1.3 0.3 0.6 0.9 and Studies Local Mapping and Titling 1.7 0.5 2.2 0.7 0.1 0.8 National Mapping 0.1 0.5 1.5 0.1 0.8 0.9 Total Baseline Costs 34.1 28.5 62.6 23.1 36.5 59.6 Physical Contingencies 3.3 2.5 5.8 - - - Price Contingencies 8.5 6.6 15.1 - - - Total Project Costs 45.9 37.6 83.5 23.1 36.5 59.6 Front End Fee - 0.4 0.4 - 0.4 0.4 Refunding of PPF - 0.4 0.4 - 0.3 0.3 Initial Deposit - - - 0.2 - 0.2 Total Financing Required 45.9 40.0 83.9 23.3 37.2 60.5 Key: L = Local currency; F = Foreign Exchange Component; T = Total; - 24 - B. Project Cost by Category (US$ million) Categories Appraisal Estimate Actual 1. Investments L F T L F */ T Civil Works 14.6 9.7 24.3 13.7 9.1 22.8 Goods 2.0 16.5 18.5 0.5 4.5 5.0 Cartography 0.1 1.1 1.2 0.2 1.6 1.8 Consultants, Training, 1.4 2.4 3.8 0.3 0.6 0.9 Studies Credit: Long Term 12.0 13.3 25.3 5.5 13.9 19.4 Credit: Short Term 6.2 2.7 8.9 1.3 0.8 2.1 Total Investments 29.3 32.5 61.8 21.5 30.5 52.0 2. Recurrent Costs Incremental Staff 8.1 0.2 8.3 4.7 - 4.7 Maintenance & Repairs 7.8 5.3 13.1 1.7 1.2 2.9 Total Recurrent Costs 15.9 5.5 21.4 6.4 1.2 7.6 Total Project Costs 45.2 38.0 83.2 27.9 31.7 59.6 Front Fee - 0.4 0.4 - 0.4 0.4 Refunding of PPF - 0.4 0.4 - 0.3 0.3 Initial Deposit - - - 0.2 0 0.2 Total Financing 45.2 38.8 84.0 28.1 32.4 60.5 % of SAR Estimates - - - 62.2 83.5 72.0 Key: L = Local; F = Foreign Exchange Component; T = Total. */ For lack of information, FE component for actual expenditures was calculated using SAR FE rates, except for Credit, where Government information was kept. - 25 - C. Project Financing Sourcei Planned Revised Final Categories M M M IEBRD 30.0 35.7 30.0 35.7 22.7 37.5 Civil Works: Roads 14.5 17.3 13.7 16.3 10.6 17.5 Civil Works: Other 4.1 4.9 4.1 4.9 6.0 9.9 Goods 4.8 5.7 4.6 5.5 3.8 6.3 Cartography 1.2 1.4 1.2 1.4 0.9 1.5 Consultants, Training, Studies 1.5 1.8 1.5 1.8 0.7 1.1 Front Fee 0.4 0.5 0.4 0.5 0.4 0.7 Refunding of PPF 0.5 0.6 0.5 0.5 0.3 0.5 Initial Deposit 1.0 1.2 2.0 2.4 - - Unallocated 2.0 2.4 2.0 2.4 - - IFAD 19.0 22.6 19.0 22.6 14.7 24.3 Credit: Long Term 16.3 19.4 16.3 19.4 13.9 23.0 Credit: Short Term 2.3 2.7 1.1 1.3 0.8 1.3 Civil Works: Roads - - 0.1 0.1 - - Civil Works: Other - - 0.7 0.8 Goods - - 0.2 0.2 Consultants - - 0.2 0.2 Monitoring and Evaluation 0.4 0.5 0.4 0.5 GOVERNMENT 31.6 37.6 31.6 37.6 20.2 33.3 Civil Works: Roads - - - - 3.7 6.1 Civil Works: Other 6.8 8.1 6.0 7.1 2.5 4.1 Goods n.a. n.a. n.a. n.a. 1.2 2.0 Cartography n.a. n.a. n.a. n.a. 0.9 1.5 Consultants, Training, and Studies n.a. n.a. n.a. n.a. 0.2 0.3 Initial Deposit n.a. n.a. n.a. n.a. 0.2 0.3 Credit: Long Term 6.6 7.9 n.a n.a. 2.6 4.3 Credit: Short Term 5.6 6.7 n.a. n.a. 1.3 2.1 Incremental Staff 8.0 9.5 n.a. n.a. 4.7 7.8 Maintenance and Repairs 7.2 8.6 n.a. n.a. 2.9 4.8 Farmers (*)3.4 4.1 n.a. n.a. 2.9 4.8 Total 84.0 100.0 84.0 100.0 60.5 100.0 () Farmers' contribution assumed to be 20% of agricultural credit operations following SAR estimates Key: ( -) = negligible values (below US$50,000) - 26 - Table 6: PROJECT RESULTS A. Direct Benefits Indicators Pre- Incremental Project Situation Appraisal Actual Actual Estimate 1988 1990 1. Areas Harvested -----------------------------(ha )--------------- Irrigated Rice (Total) 6,800 +4,200 +16,200 +9,000 - of which leveled 3,850 +7,150 +19,150 +11,950 Rainfed Crops (Total) 13,200 +15,700 +2,470 -103 - Rice 5,800 +11,200 -4,050 -4,325 - Maize/Beans 4,619 +2,900 +2,370 +2,546 - Groundnuts 140 - +160 -61 - Cassava/Plantain 2,178 +3,900 +2,513 -600 - Coffee and Cocoa 463 - +1,477 +2,337 Pastures (Total) 6,000 +5,800 -850 -180 - of which improved 1,400 +7,300 +1,100 +2,200 Fallow 12,600 -8,600 -5,120 +1,200 Forest and Other 81,400 -17,100 -12,700 -9,917 2. Production ----------------------------(tons )---------------------- Rice 35,000 +55,000 +63,800 +33,400 Maize and Beans 6,500 +3,900 +4,500 +6,700 Cassava and Plantain 23,700 +10,900 +28,800 -5,800 Coffee - +500 +1,400 Cocoa - +200 +200 Beef 100 +500 +500 +400 Milk 1,300 +7,600 -1,100 -1,100 ---------------------(US$ million, 1982 prices) ----------- 3. Value of Production 4.1 6.2 7.5 4.2 ----------------------------( kg/ ha )--------------------- 4. Yields Irrigated Rice 3,500 +700 +700 +700 Rainfed Rice 1,700 +800 +200 +200 Maize 1,700 +400 0 +300 Beans (in association) 200 +300 +600 +500 Cassava 6,000 +2,000 +4,300 +5,100 Plantain 8,000 +4,000 +4,100 +3,600 Livestock (head/ ha) 0.8 +1.1 n.a. n.a. Milk (liters/ lactation) 840 +910 n.a. n.a. Key: (-) = not considered by SAR; n.a. = information unavailable - 27 - B. Economic Impact Appraisal Estimate Actual Economic Rate of Return 18% 1 6.6% Underlying Assumptions Prices remain constant at Project benefits remain 1982 levels. constant at 1989 levels. Comments: Present situation does not permit realistic projections, as agricultural production in the last 3 years was affected by high inflation, political insecurity and frequent drastic macro-economic policy changes. To minimize distortions, the actual rate of return estimate was based on a scenario that considers all benefits constant at 1988 levels. (See Appendix 1.) C. Studies Studies Purpose as Defined at Status Impact of Study Appraisal Forestry and fauna Define sustained man- Completed. Application by MA initiated, inventory. agement of 90,000 ha but discontinued for lack of of forests for commer- resources. cial forestry. Soil survey Soil survey and classifi- Completed Basis for: (a) research and cation of 60,000 ha. 120,000 ha agric. development in project (200%). area; and (b) Alto Mayo (Left Bank) Project Phase 2 feasibili- ty study (concluded). River flows moni- Determining final design Completed. (a) Irrig.scheme concluded; (b) toring study of Yurongos irrig. implementation of hydrometric scheme. registers in most important Mayo tributaries. Acid soils reclama- Determine reclamation Completed. (a) demonstrated acidity reduc- tion study technique for 25,000 ha tion through irrigation; (b) of acid soils. basis for reclamation program of 150 ha in Phase 2. Socio-economic Development of native Completed. Study delivered to DGC. No studies communities. consequence. Project Phase 2 Development of Mayo Completed. No follow-up Feasibility study left bank - 28 - Table 7: COMPLIANCE WITH LOAN COVENANTS Covenants Subject Deadline for Status Comments Compliance 4.01/d Establish Credit Commit- Six months Completed Satisfactory tee after first 10/83 IFAD disb. 4.01/e Establish Revolving Fund 7/31/83 Completed Delay has not in Banco de la Naci6n 01/84 affected opera- tions 4.03/a Contractual arrangements 6/30/85 Completed Satisfactory with INIPA and ONERN 82/83 4.04/a Employ consultants in Undated Incomplete Satisfactory various fields 4.04/a Hire consultant to assist Before begin- Completed Satisfactory in operating forest clear- ning opera- 11/83 ing equipment tions 4.05 Economic analysis of 06/83 Completed Satisfactory unstudied roads 82/83 4.06 Prepare study on 09/30/84 Completed/ Satisfactory Yurongos scheme for approved Bank review 08/84 4.07 Consultation with Bank Before con- Completed Satisfactory on site selection for crop tracting 08/83 research station 4.08 Prepare TORs for M&E Before carry- Completed Satisfactory studies and program for ing out ditto 08/83. IFAD IFAD and Bank review studies cons. assis- tance provid- ed in 01/84. Basic data for studies sub- mitted to Bank 03/85 4.1 0/b Establish Monitoring and 09/23/83 Completed Satisfactory Evaluation Unit 09/83 4.10/d Prepare Project Comple- Within six Not accom- tion Report months after plished closing date 4.11 Acquire land for construc- Undated Completed Satisfactory tion of facilities 04/84 - 29 - Covenants Subject Deadline for Status Comments Compliance 4.12 Transfer of project estab- Upon comple- Not complet- Policy is to lished facilities to respec- tion of aitto ed legalize trans- ti%e jurisdictions facilities fers immediate- ly after project completion 5.02 Maintain records and Audits six Yearly audit Reasonable accounts and submit months after reports re- audits to the Bank end of year ceived with 3- 4 months delay 5.03 Ditto for Special Account As above Report includ- in Banco de la Naci6n ed in 1984, 85 and 86 reports 5.04/a and b Establish system of water Undated Preliminary Implementation charges for operating proposal in unsatisfactory schemes 11/82. Updat- ed system in 06/87 5.06/c Furnish Bank program to 06/30/85 Not accom- Concerned transfer roads mainte- plished local authorities nance to appropriate do not have authorities; capacity to 01/1986 take over Make transfer effective maint. opera- tions. 5.06/d Maintain road equipment Undated Workshops Project used and establish workshops not completed workshop of land clearing equipment. Maintenance was satisfacto- ry. 5.07/a Furnish annual mainte- 7/31/83 and 1983, 84, 85, Satisfactory nance report and budget each year 86 and 87 on roads completed after reports re- ceived. 5.07/b Furnish budget for expen- Undated Completed in Satisfactory ditures for roads 10/31/87 - 30 - Table 8: Use of Bank Resources A. Staff Inputs (Staff Weeks) FY FY FY FY FY FY FY FY FY FY Total 198 1982 198 198 198 198 198 1988 198 199 1 3 4 5 8 7 9 0 Through Ap- 75.7 111.3 - - - - - - 187.0 praisal Appraisal - 39.4 15.6 - - - - - - - 55.0 through Board Approval Board - - - - - - - - Approval through Effecti- veness Supervision - - 4.9 21.7 9.4 18.9 13.9 9.1 5.5 - 83.4 Total 75. 150. 20.5 21. 9.4 18. 13. 9.1 6.5 - 325.5 7 7 7 9 9 B. Missions Mission Type Month/ Number of Days In the Special. Perform. Types of Year Persons Field Repre- Rating Problems 1/ sented 2/ 3/ 4/ Preparation 1 04/81 n.e. n.a. n.s. - Preparation 2 07/81 n.a. n.a. n.a. - Preparation FAO/CP 02/82 5 28 Irr,A,0, - Hwy,E Appraisal 03/82 5 19 A,Irr,Hwy,E - Supervision 1 02/83 1 4 A 1 F Supervision 2 08/83 1 9 A 1 n.a. Supervision 3 09/83 1 10 A 1 F Supervision 4 10/83 1 19 FM 1 n.a Supervision 5 01/84 1 9 A 2 F Supervision 6 03/84 1 1 Hwy 1 n.a. Supervision 7 07/84 1 10 A 2 F Supervision 8 09/84 1 15 RP n.a. n.e. Supervision 9 04/85 1 12 A 2 F Supervision 10 04/86 2 24 Hwy,E 2 F Supervision 11 05/86 1 9 Hes n.a. n.e. Supervision 12 06/86 2 10 Edc,Irr n.a. n.a. Supervision 13 07/86 1 12 Edc n.a. n.a. Supervision 14 10/86 1 10 Ant n.a. n.a. Supervision 15 11/86 3 17 Irr, E 2 F Supervision 16 06/87 1 5 Irr 2 F Supervision 17 10/87 2 17 A, Irr 2 F Sgervision 18 12/87 3 15 A, E, Irr 2 F Supervision 19 (IFAD) 04/88 1 5 A n.a. n.a. 1/ Date of Return to Headquarters 2/ A = Agriculturalist; Ant = Anthropologist; E u Economist; FM = Farm machinery specialist; Hea Health and Nutrition; Hwy = Roads specialist; Irr = Irrigation engineer; RP x Resource planning specialist; 0 = Organization specialist. 3/ 1 = Problem free or minor problem; 2= Moderate Problem; 3 w Major problem 4/ F = Financial; M = Managerial; T = Technical - 31 - APPENDIX 1 NOTES ON ECONOMIC ANALYSIS 1. At appraisal The economic rate of return (ERR) has been estimated at about 18% and was based only on quantifiable benefits from crop and livestock production, using four farm models (10 ha irrigated; 20 ha irrigated: 20 ha rainfed and 40 ha dual purpose livestock) for the analysis. Other secondary benefits were not included. Benefits were calculated on about 89% of project cost items, excluding components with intangible benefits such as health, education, studies on a second phase of the project and national mapping. The period of analysis was 20 years and the exchange rate used was Soles 550 = US$1.0 (renamed Intis in 1986). 2. In spite of the availability of general data on production, cost and prices no precise conventional ex-post economic evaluation can be carried out as: (a) available agricultural production data for the Alto Mayo area do not differentiate between benefits attributable to project activities and those which accrued for extraneous reasons such as accelerated population inflow, illegal land clearing, activities from other projects, etc.; (b) no break down of the production area according to the four different farm models is available. Yields and production cost vary considerably between the various models and arbitrary allocation of areas to models could result in gross distortion; (c) soaring inflation, dual exchange rates and other administratively induced market distortions do not allow a realistic conversion o! financial cost/benefits into economic cost/benefits (e.g. in 198' about 16 Intis were equivalent to US$1 as compared to 187,885 Intis in 1990 at the official conversion rate, whilst parallel rates were higher by a margin of 80 to over 200% and fluctuating from month to month; (d) the general deterioration of the economy, infrastructure and internal security does not allow proper forecasting of project impact over the 20-year analysis period. For instance, rice production was to increase by 55,000 tons in Year 10 (1993) instead it had reached already 69,000 tons in 1988 but gradually fell off to 38,000 tons in 1990. Contrarily, an incremental cassava and plantain production of nearly 11,000 tons was anticipated whilst actual production gradually decreased by 35,000 tons between 1988 and 1990. The reasons for the decline could inter alia be: discontinuation of project support, shift in demand pattern and declining prices. Estimates on future trends however are almost impossible to make since over the same periods incremental maize and bean production increased from 3,000 tons to 5,000 tons. - 32 - 3. However, in a theoretical exercise, assuming a scenario unCer which production results would be maintained at 1988 levels throughout the project life, the economic rate of return has been estimated at 16.6 S. This scenario reflects the hYvothetical case in which. besides Bank loan suspension all external disrupting factors such as the economic crisis. hyperinflation. querrilla insecurity and drug menaces would have been averted and proiect implementation would have been concluded in 1988 and properly operated and maintained thereafter. Basic data and assumptions underlying ERR calculations are: (a) Data on cultivated area, yields and volume of production of the main crops (rice, maize, coffee,plantain and cassava) are those collected for the Alto Mayo area by the MA Moyobamba district. (b) Border prices for rice, maize and coffee have been estimated based on international prices in constant 1985 US$. Freight,insurance and internal transport cost as well as prices for non tradeable products (cassava and plantain) were adjusted using SAR price assumptions. (c) Project benefits were estimated on the basis of the economic value of production by applying benefit/production ratios ( percentage of the margin per hectare to the value of production) calculated from crop budgets prepared by the project unit. No adjustments were introduced to estimate the economic value of labor and inputs. (d) Total project costs have been estimated in US$ dollars at the official exchange rate, on the basis of the Bank and IFAD disbursements for all components, the GOP counterpart funds and farmers contributions. The latter were estimated at 20% of the total value of investments made with long term credit. Total costs in nominal terms were then adjusted by the MUV index to 1985 constant values. Alto Mayo Rural Development Project Internal Rate of Return 1982 1983 1984 1985 1986 1987 1988 1989-2000 ('000 1985 US$) Incremental net benefits -1933.67 3277.34 5749.52 5743.58 6653.54 7633.04 7633.04 Investment costs IBRD loan 0.00 3200.00 6100.00 5800.00 3000.00 4600.00 0.00 0.00 IFAD loan 0.00 200.00 600.00 1300.00 3500.00 4500.00 1200.00 1600.00 GOP counterpait funds 0.00 1908.00 1984.00 1295.00 3867.00 5655.00 2396.00 848.00 Farmes contribution 1/ 0.00 70.00 222.50 325.25 1389.50 540.00 471.50 244.00 Total costs at curent US$ 5378.00 8906.50 8720.25 11756.50 15295.00 4067.50 2692.00 Total costs at 1985 USS 0.00 5308.98 8978.33 8720.25 9971.59 11801.70 2928.37 1952.14 Incremental balance 0.00 -7242.65 -5700.99 -2970.73 -4228.00 -5148.16 4704.67 5680.90 Intemal rate of return Assuming benefits remain at 1989 level 16.64% 11 Estimated at 20% of investments finaced through long term credit. - 34 - Alto Mayo Rural Develogment Project 25-lOct-91 Dalos Basico5 de¡ Ancaias Econom,co 1982 1983 1984 1985 1986 1987 1988 199-200C 1987+1988/2 Area d Produccion (Haj arroz regado 5803 DO 6800 DO 1500000 1628000 15225 00 1819000 2300 00 20580 00 arroz secano 5059 00 580000 4000 6230 O 260400 293200 175000 2341 00 maz 381700 4C0000 3922DO 429500 493500 5801DC0 60ODO 590050 piat ano 3060 DO 160OO 1900 DO 29000 234000 2398 00 2398 00 239800 yur a 2020 00 72900 10300 2900 00 2030 00 2293 00 50200 1397.50 cate 482 DO 710 DO 815 00 950 00 109600 138900 1450 00 141950 2022100 19910 00 27437 00 31755 00 28230.00 3297300 3511 00 34036 50 Rendimentos (Torla) arroz regado 380 350 3130 409 460 480 4.10 445 arroz secano 1 90 1.70 1.80 1 80 1.80 1 80 1.90 1 85 maz 2.C- 1.70 180 200 200 230 170 200 platano 1050 8.= 1000 1000 1100 1200 1030 11.15 yuca 1150 600 7 00 8 00 1400 1500 1200 1350 cate 050 0.20 040 050 050 0.70 0.70 0 70 Produccion C0000tor arroz regado 22D5 2310 5700 65 12 7004 87.17 9430 9158 arroz secano 9.61 9.86 8.28 1121 489 528 3.33 433 maz 7.3 6.80 7 0o 8 59 987 1334 1020 11,0 ptalano 32.13 1210 1800 200 25.74 28.78 2470 26.74 yuca 2343 4.20 9 10 1600 28.42 3440 8.02 187 cate 023 0.14 033 048 0.55 0.97 1.02 099 Precios al productor ( USS/Ton) arroz regado 343 00 335 DO 315 DO 277 00 23900 238 00 27800 292 00 arroz ucano 34300 335,00 31500 277 00 239 00 238 00 278 0 292 DO maz 14800 17800 1D0 00 155,00 11700 101 00 120 00 124 DO platano 5800 580 50 5800 5 8 5800 5800 5800 yuca 7900 7900 7900 7900 7900 7900 7900 7900 cate 1485 0o 143500 160000 105 00 181500 965 00 10900 895 00 Valor bruto de la production (CO0 US3) arroz regado 7563,3 797300 1795500 103824 1673837 20745.98 2621540 2674165 arroz secano 329995 3303.10 290820 310628 112024 1256D7 92435 126451 maz 112913 1210.40 1270.73 133145 1154.79 114757 122400 146332 pllano 186354 742.40 104400 116000 149292 166901 143257 155079 yuca 1851.13 33180 71890 126400 2245.18 271721 47590 1490.43 cate 343 D4 203 77 521.60 762 .38 994 62 938.27 110635 88932 1048.12 13764.47 24118.43 25662.34 23746.12 28874 11 31378 56 33400.12 Relacion Costo de OperacionNalor Produccion arroz regado 0,77 0.77 0.70 0 65 0.62 068 078 070 arroz scano 0.88 0.88 064 0.49 053 061 028 0.57 maz 0.85 0.85 0.57 042 052 049 030 053 platano 0.50 0.50 040 040 050 0.30 050 043 yuca 0.09 09 020 020 010 0.20 0 i 0.14 cate 0.29 0,30 020 D.io 020 0.30 030 130 Beneficios rutos (00OUSS) arroz regado 1739,3 1833.79 538650 631338 636058 6638.71 6291 70 811153 arroz mcano 39583 398.37 93895 158420 52851 48937 66553 541.67 maíz 1e 47 181 56 546 41 77224 55430 58726 85610 69508 platano 931.77 371.20 626 40 696 00 74846 116831 71628 878 78 yuca 168453 30194 575.12 101120 2020,6 2173.76 461.62 1216.74 cate 240.12 14254 365 12 533.66 69923 656.79 77445 62252 5161.11 3227.50 8438 51 10910.69 10904 75 11814 70 976637 12136.43 Precio internacional (1985US$) arroz 282DO 27400 25400 21600 17800 17700 21700 231.00 maz 10500 13500 13700 11200 7400 5800 7700 8100 cate 297000 2870 00 3200 00 321000 3630 00 193000 218000 1790 DO Border pnce 1485 00 1435 00 1600 00 160500 1815.00 965 00 190 00 895DO arroz regado 343 00 33600 315 DO 27700 2290 238 00 278.00 292 DO arroz ucano 343 00 335 DO 31500 277 00 239 00 238,00 278 00 292 O maz 148 00 178 00 180 00 155 00 117 00 101.00 120 00 124,b0 platano 5800 5800 5800 5800 5800 5800 5800 yuca 7900 7900 7900 79DO 7900 7900 7900 7900 cate (cf-5) 148500 143500 1900DO 160500 181500 965DO 19000 89500 Precio* irítirnos al productor (us$/Ton) arroz regado 329 DO 207 D0 227 DO 203 00 255 DO 345 00 16300 254 00 arroz ecano 329 00 207,00 227 00 203 00 255 DO 34500 183.00 25400 maíz 224 00 14400 222 D 168 00 219 00 27200 16400 21800 patano 1000 141.29 151.00 131.O 267 D0 244 00 222,00 23300 yuca 21200 21000 101.00 8800 17900 18300 1490 15600 cafe 71600 52400 1209 DO 131 00 204 00 102000 83400 927DO IBRD 6496 414ý,,9 PE RU 9o ALTO MAYO RURAL DEVELOPMENT PROJECT j No ?AMT 77c IN &o,A - 0 ----AN------ N-~e C-~ RiyJA NIp 1 -- N rn- ----- S ~ R-dea E| wdr-.Hb& NaveCd-r'u-e