Sri Lanka - Second Agricultural Extension Project

Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 10236-CE Type: (SAR) SEREJSKI, / X81278 / E9 015/ SA3AG STAFF APPRAISAL REPORT SRI LANKA SECOND AGRICULTURAL EXTENSION PROJECT MAY 12, 1992 Agriculture Operations Division Country Department 111 South Asia Region 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 EOUIVALENTS (as of July 1991) Currency Unit - Sri Lanka Rupee (SL Rs) US$1.00 - SL Rs 42.20 MEASURES Hectare (ha) - 2.47 acres (ac) ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AEARP Agricultural Extension and Adaptive Research Project AEC Agricultural Extension Committee ARP Agricultural Research Project CARP Council of Agricultural Research Policy DAPH Department of Animal Production and Health DARP Diversified Agricultural Research Project DEA Department of Export Agriculture DOA Department of Agriculture DS/AGA Divisional Secretary/Additional Government Agent FAO/CP Food and Agricultural Organization/Cooperative Programme GOSL Government of Sri Lanka IDA International Development Association JICA Japan International Cooperation Agency KVS Krushikarma Vyaptha Sevaka, Village-level Extension Agents MADR Ministry of Agricultural Development and Research MCICD Ministry of Coconut Industries and Crop Diversification MPAPCHA Ministry of Public Administration, Provincial Councils and Home Affairs NAEWG National Agricultural Extension Working Group NGO Non Government Organization NTCC National Training Coordination Committee PCC Project Coordination Committee PMOA Provincial Ministry of Agriculture PNU Project Management Unit RTWG Regional Technical Working Group T&V Training and Visit USAID United States Agency for International Development GOVERNMENT FISCAL YEAR January 1 to December 31  FOR OmCIL USE ONLY Table of Contents zm CEIT AiD- PROJECT? BUIA.I.SI.Y . . . . . . . . ...... . . . . IILL A. Project Genesis . . . . . . ..................1, B. The Agricultural Se cto... ..... ..... 1. C. SUPPOrt Services for Agriculture ....3 D. Bank/1DA's Strategy in the Agricultural Sector' .10 11. PROJECT? 03J10'?IVr A DESCRXPTO. ............. . . . 11 A. Project Objectives ............ .11... ... . Project Components ...12 C. DetaLld F.eatures . . . . . . . . . . . . . . . . . . . . . . . 12 . PAECT -COSTS AND FINANC.n. . . . . . . . . . . . . . . . . . . . . .16 A. Project costs . . . . . . . . . . . . . . . . . . . . . . . . .16 B. Project Finanelng.16 . Agrlcult . . . . . . . . . . . . . . . 3 C. Procurement. . . . . .. .... . . . . . . . 17 D. DLTburses . . . . . . . . . . . . . . . . . . . .ir n . . . . 19 IV. PROJET -NbDEO... .Z .. . . . . . . . . . . . . . . . .19 A. Coordination . . . . . . . . . . . . . . . . . . . . . . . . 19 S. Division ofResponsibiltes . . . . . . . . . . . . . . . . . . 21 C. ImplemCentation ... .. ................ 21 D. Moitoring and Evaluation........ ... ........ 28 S. Project Supervision Plan . . . . . . . . . . . . . . 29 P. Te' hibcal Atance . . . . . . . . . . . . . . . . . . . . . 30 0. vromntal impact. . . . . . . . . . . . . . ..0 . . . This report La based on the findings of an appraisal mission whLch visited Sri LAnka In Jlun/July 1991. The mission consisted of Nessrs./Mm.s. I. serejsk., 3. GutLerrexC T. Abeysekera (IDA). and D. Crouch, 0. Reusche. 0. Allen and K. Roach. (consultants). The peer reviewers were Nessrs. c. .Amur (eztension component). J. Srivastava (seed component) end S. Chobanian (agro-enterpr.se development). Messrs. C. Antholt. D. Lister and Me. B. Lee contributed to the rePOrt. Ms. C. Anbiah and 't. Cohen (IDA) assisted with project processing and preparation of the appraisal report. This document has a stricted distributon and may be usd by recipients only In the performance of their official duties. Its contents may not otherwis be disclosed without World Bank authorization.  - Li - V. PROJECT JUSTIFICATION AND RISK ..................31 A. General ......... 31 B. Project Benefits . . . . . . . . . . . . . . . . . . . . . . . 31 C. Project. Risks . . . . . . . . . . . . . . . . . . . . . . . . . 31 VI. AGMMNTS TO BE REACHED AND BECODEUD I. . ..32 1. Organization Charts: 1 - Ministry of Agricultural Development and Research 2 - Agricultural Extension within the Province 3 - Department of Agriculture - Technology Transfer DivisLon 4 - Department of Export Agriculture 5 - Department of Animal Production and Health 6 - State Ministry of Coconut Industries and Crop Diversification 2. Staffing Plan for Extension 3. Farming System Approach to Extension 4. Human Resources Development 5. Cost Estimates 6. Financing and Disbursements 7. Implementation Schedule S. Pilot Extension Program - Terms of Reference 9. Related Documents in the Project Files MAPS IBRD 23349R IBRD 14076R2  - LiL - SRILANK SECOND AGRICULTURAL EXTENSION PROJECT Credit and Project Summary Borrower: Democratic Socialist Republic of Sri Lanka. Bon fLiLaME: The hinistry of Agricultural Development and Research (NADR). 8DR 10.5 million (US$14.34 million equivalent). Tarms: Standard IDA terms with a maturity of 40 years. Project Objectives: To increase farmers' income and agricultural production by improving farm productivity through, inter alLa, promotion of innovative technology. To achieve this objective, the project would: (a) strengthen agricultural extension services (except for tree crops), and (b) develop a national seed policy. Desgr1grtion: The proposed nationwide six-year project (1993-98) would consist of: (a) a multifaceted program to improve agricultural extension services, including closer integration of existing extension services, improved use of mass media, strengthened plant protection, quarantine and pest control, safer and more effective use of pesticides, training, and a private sector pilot extension program; (b) improved seed policy; and (c) establishment of a project management unit. Beneflts and Risks: The project would help to sustain and improve farmers' income and to develop a more streamlined, less costly client-oriented extension service. The project would also help the central government explore the possibilities of gradually divesting itself of es-ension activities through a private sector pilot etenasion program. The project would advance privatization of the seed industry through the establishment of national seed policy that would facilitate farmers' access to a complete range of imported improved crop varieties. The project would also help reduce pesticide misuse and overuse which result in environmental damage, reduced effectiveness, heavy residues In harvested crops, resistance problems, and poisoning accidents--by strengthening pesticide legislation and enforcement and by educating growers and dealers about the optimal and safe use of pesticides.  - iv - The project faces two main risks. First, with the rapid devolution of authority to the provinces, coortination of physical, financial, and human resources in agricultural extension services may be weakened. Pragmatic organizational arrangements have been built in as safeguards. These arrangements include establishment of an Agricultural ExtetsiLon Committee (ARC) and Project Coordination Committee (PCC), and strengthening of the National Agricultural Extension Working Group (NAEWI). Second, there may be some delay in getting all the provinces adequately staffed to undertake all project-related tasks assigned to them. To minimize this risk, the level of provincial support would be reviewed each year by the project management unit (P1U) and IDA, and steps would be taken to bring support up to the appropriate level. Local ForeLgn Total Estimated Prolect Cost ---------(US$ million)------- Extension Services 7.41 8.18 15.59 Seed Policy - 0.03 0.03 Project Management Unit 0.24 0.06 0.30 Total Baseline Costs 7.65 8.27 15.92 Physical Contingencies 0.26 0.38 0.64 Price Contingencies 0.96 0.80 1.76 Total Cbst 8.87 9.45 18.32 (Including taxes and duties of U'S$2.5) Financing Plan: Government 3.71 0.08 3.79 Farmers 0.14 0.05 0.19 IDA 5.02 9.32 14.34 Total 8.87 9.45 18.32 ggtimated Disbursements of IDA Credit: Annual 0.4 1.0 2.3 2.3 2.3 2.3 2.3 1.4 Cumulative 0.4 1.4 3.7 6.0 8.3 10.6 12.9 14.3 Economic Rate of Return: Not applicable MAPS: IBID 23349R IBRD 14076R2  SRI LAMR SECOND AGRICULTURAL EXTENSION PROJECT I. BmgRU A. Project Genesis 1.1 The Government of Sri Lanka and IDA have been discussing a follow- up project to the IDA-financed Agricultural Extension and Adaptive Research Project (AEARP) for the last five years. A mission from the Food and Agriculture Organization/Cooperative Programme (FA('/CP) visited Sri Lanka in late 1989 and in November 1990 to prepare the proposed project. This task was completed in February 1991. At about the same time (January-July 1991). the Asian Development Bank (ADB) conducted a review of agricultural extension in Sri Lanka under a technical assistance grant of US$350,000. The study findings were taken into account in the design of the proposed project, which was appraised by IDA in June/July 1991. B. The Agricultural Sector Structure 1.2 Sri Lanka is a small island economy with 17 million people and a per capita income of about US$470 a year. Agriculture plays an important role In the economy, accounting for about 24X of gross domestic product, 36X of merchandise exports, and 45X of the active labor force (2.2 million persons). It is also an important source of income for nearly 701 of the country's population who live in rural areas. 1.3 The agricultural sector has three main subsectors: (a) tree crops -- tea, rubber, and coconut -- accounting for about 5X of GDP, 341 of merchandise exports, and 16X of employment; (b) paddy, accounting for 21X of GDP, and 30X of employment; and (c) alternative crops, mainly subsidiary food crops and minor export crops, accounting for a negligible share of GDP, exports, and employment. Subsidiary food crops include pulses (green gram, black gram, cowpea), oilseed (gingerly, groundnut, and soybean), condiments (chilies, onion, ginger, and turmeric), roots and tubers (potato, sweet potato and manioc), and vegetables. Minor export crops cover cinnamon, cardamom, cocoa, coffee, chinchona, citronella, cloves, ginger and pepper. There is also a limited production of high-value crops for export -- largely fresh fruits, vegetables, foliage plants, and flowers that are in high demand in more affluent economies. About 731 of all cultivated land is under smallholdings, and average farm size is diminishing. Performan_e_ 1.4 Performance in the agricultural sector was mixed in the 1980s: 41 annual growth between 1978-86, followed by two years of negatlve growth in 1987 and 1989. Production in the tree crops subsector grew by only 1.81 of GDP a year, even with record-breaking production in 1990. At the same time,  - 2 - the country's competitors experienced more robust, sustained growth in tree crops production and quality improvements, leading to erosion of Sri Lanka's market share. The poor performa6ace of the two state plantation corporations (the Janatha Estates Development Board and the Srl Lanka State Plantations Corporation), which account for almost half the area under tea and rubber, had much to do with this mediocre performance. Vlrtually all the increase ln tea production during 1983-89 came from private estates and smallholders. 1.5 Paddy production has increased markedly over the past three decades, rising from an average of 0.62 million metric tons in 1960-62 to 2.2 million metric tons in 1980-82 and 2.4 million metric tons in 1988-90, peaking at 2.7 million metric tons in 1985. The rapid production increases of the early 1980s were followed by slower and highly variable annual growth in the later 1980s. Output declined, reaching a low of 2.1 million metric tons in 1989, as civil conflict and bad weather reduced the area under cultivation and yields leveled off. Growth Potential 1.6 While opportunities for rapid growth in the tree crops and paddy subsectors are limited, the potential is good for expansion of subsidiary food crops for domestic consumption, and of minor export crops and nontraditional, high-value export crops especially to the Middle and Far Eastern markets. In these markets, the current Sri Lankan share is small (3X of the Middle Eastern market and 0.04X of the Far Eastern market) and the country is well positioned geographically to increase its market share by three and tenfold in the Middle Eastern and Far Eastern markets, respectively. Growth of these crops has been mized, however, despite their high returns relative to paddy. There has been little development of nontraditional agricultural exports except cut flowers and foliage plants and moderate success in growing gherkins. The largest subgroup of the minor export crops, the spice family, fared badly during 1982- 89 (cinnamon was an exception). Constraints 1.7 The technology exists or is being developed under the IDA-supported Agricultural Research Project (ARP) (Cr. 1776-CE) for farmers to grow subsidiary food crops and minor export crops, and some of the never high-value export crops. Local market prices for subsidiary food crops and minor export crops are adequate and often attractive relative to the prices of alternatlve crops, but prices fluctuate widely, reflecting easy saturation of the local market. The prices of traded goods among these crops also reflect the often destabilizing effects of discretlonary import and export interventions by the Government. There are also weaknesses in the financial sector and in land policy. These issues are being addressed in macroeconomic and sector dialogue. Most production (90-95%) is marketed by private traders, and exchange rate and international trade policies have been evolving favorably. A major constraint is farmers' inability to respond to the signals of an increasingly free market because their access to the available technology is severely hampered by the present state of the extenslon servLce. 1.8 When the costs of operating the extension service became prohibitively high in the mid-1980s, the Government made drastic cuts in operating expenditures and later In staff. In 1987, the extension service was  -3- disrupted again by the devolution of authority to the provinces. In 1988-89, some 2,400 village level extension agents (Krushikarma Viyaptha Sevaka or KVS) were transferred to the Janasaviya (poverty alleviation) Program. In addition, the extension service never really adapted its "single crop" (paddy) focus to the "whole farm" approach needed to address other crops, especially after paddy yields leveled off. As presently constituted, the extension service is unable to promote the development of alternative crops at a cost that can be sustained by the Government budget. Furthermore, there is no enabling seed policy for greater participation of the private sector in seed production and marketing activities, and plant protection and pesticide management are veak. Sectoral Development Strategy 1.9 The centerpiece of the Government's agricultural development strategy is the diversification of agriculture through the promotion of subsidiary food crops, minor export crops, and high-value export crops. To effectively develop these crops, however, will require a leaner, more officient and less costly extension service capable of responding to the needs of farmers with fewer, but better trained extension agents, backed up by subject matter specialists and a more responsive research system. With the assistance of the IDA-supported AEARP (Credit 931-CE), implemented in 1979-86, the Government introduced a training and visit (T&V)Y approach to improve extension services. This system now needs to adapt to the requirements of a multicrop agricultural system and a smaller recurrent budget. This shift can only be accomplished by switching from a staff-intensive contact farmer approach to a farmer group approach supplemented by technology transfer through mass media communication. 1.10 Two other important elements of the sectoral development strategy are restructuring the tree crop subsector and continuing efforts to establish a more level playing field for other subsectors of the agricultural economy, mainly by reducing the support given to paddy production. 1.11 The Bank supports this strategy, as do the other major donors (ADB and the United States Agency for International Development (USAID)), and is providing assistance in the restructuring of state plantations, irrigation rehabilitation, agricultural research, and forestry. The Bank is also supporting reform of the overall macroeconomic and sectoral policy environment with a view to relieve the constraints to private-sector led, export-oriented development. C. Support Services for Agriculture 1.12 The MinLstry of AgrLcultural Development and Research (MADRI (Annex 1, Chart 1). The NADR has major responsibility for providing iI T&V is a hierarchically organized and time-bound method of managing extension, designed to deliver selected and timely technology to farmers with strict regularity. The system encourages links with agricultural research institutions, emphasizes a professional approach to extension, and requires exclusive devotion to extension work.  - 4 - agricultural support services to smallholders. The ministry deals with nearly all crops other than tea, rubber, coconut, and cashew, and with livestock. Four departments provide agricultural support services. The Department of Agriculture (DOA) is responsible for developing and disseminating technology related to rice and subsidiary food crops, the Department of Export Agriculture (DEA) (Annex 1, Chart 4) does the same for export crops, and the Department of Animal Production and Health (DAPH) (Annex 1, Chart 5) is responsible for livestock. The Department of Agrarian Services is responsible for providing farmers vith all their production requirements. Direct services to smallholders growing tea and rubber are the responsibility of the Ministry of Plantation Industries. Coconut growers are served by the Ministry of Coconut Industries and Crop Diversification (MCICD) (Annex 1, Chart 6), while cashew growers are served by the Cashew Corporation. 1.13 Private Sector. Private companies actively engaged in support services are restricted mainly to export horticulture and tobacco. Most private companies play only a minor advisory role, but the Ceylon Tobacco Company offers an effective profit-oriented extension program as part of a package of support services. Such integrated systems can boost productivity and crop quality, but with their strong commercial focus, they tend to provide extension advice and inputs only to a narrow range of farmers. Also, they ignore the traditional food crops that provide sustenance to small farmers, often directing their efforts toward a single large commercial crop. As agriculture becomes more commercialized, the scope for profit-oriented extension for high-value crops broadens. Meanwhile, a public service extensior that is responsive to the problems and opportunities facing farm families has a critical role to play in the development of the Sri Lankan agriculture. Extension and Research 1.14 Government involvement in agricultural extension in Sri Lanka began on a limited scale long before independence. After independence in 1948, rice production was accorded an increasing importance, moving the Government to establish research facilities, and seed production and demonstrations sites in the major settlement schemes. Agricultural instructors began to function as field extension staff. 1.15 In 1963, two important changes took place. The Division of Agricultural Extension was established within the DOA, and the extension system, which had long emphasized only rice, began to include other crops. In 1991, the Division of Agricultural Extension became the Technology Transfer Division, embracing education, training, and communication. An informal National Agricultural Extension Working Group (NAEWG) was also established, but its functions are ill-defined (para 4.2 (b)). 1.16 The Bank's Involvement. At the time of the preparation of the AEARP in 1977, management of agriculture extension was diverse and uncoordinated. Extension quality and delivery systems varied by crop, and the delivery of messages to small farmers was inefficient. The AEARP was meant to address these problems, following the design of earlier statewide T&V extension and adaptive research projects in India. T&V extension was first introduced on a pilot scale, as a component of the Tank Irrigation and Modernization Project (Cr. 666-CE) financed by IDA in 1976. Positive results on irrigated agriculture led to replication in rainfed areas.  1.17 The objective of the AEARP was to assist Srl Lanka ln applying the T&V system of extensLon to the entlre country, to strengthen adaptlve research, and to Improve and ezpand the trsininj of extensLon staff. The project provlded infrastructure, equlpment, training, and funds for salarLes and allowances for 1,789 additional staff to achLeve stafflng patterns in accordance with agreed norms. At full development, the itaff-intenslve extension system was ezpected to benefit all operati4.'.l holdings, or about 1.6 million people in 1986. AEARP was Implemented - 1979 to 1986. 1.18 On the positlve side, AEARP helped establish a more focussed extension system for fleld crops. The strength of T&V extenslon during 1979-84 was lts ability to focus on a few sample messages that were important at the time. Despite belng weak, the project initlated research-extensLon linkages at the reglonal level by establishlng of Regional Technical Working Groups (RTWGs) (para 4.2 (c)) at each Regional Research Center (Map IBRD 23349R), diagnostlc teams, and monthly research-extensLon dlalogue meetLngs. Training provlded through the project was useful. Overall, the project is considered to have had a positlve impact on the agrlcultural sector, helped Government agencies become more aware of the need for a cost-effective extenaLon system deslgned to meet the real needs of the sector, and provided valuable lessons for redesigning of the system. 1.19 On the negative side, the shortage of operating funds for the extension system was a crltlcal problem, and a unlfled extension servLce was never established. Other agricultural activities such as horticulture, minor export crops, and coconut productlon dld not receive enough attention, and animal husbandry was excluded. The contact farmer's role as the main agent of technology transfer was quite limited, while the RTWG's effectiveness in providlng research-extensLon llnkages was weakened because of inappropriate deployment of subject matter specLalLsts. The specialists, who were to have directed the fortnLghtly training sessions, instead, provided training only in residential courses, which extension agents could attend once a year. Subject matter officers, who are not graduates, directed the foitnLghtly tralning. The proposed project would address this issue (para 4.20). The Project Completion Report (No. 7684, March 31, 1989) and the draft Audlt Report, (December 23, 1991) lnclude a detalled revLew of the problems and achlevements of the AEARP. 1.20 Recent Develor e,&ts. The extension system did not adapt to new extension challenges after 1985. Paddy yields leveled off, and new problems arose when the extension system attempted to diversify to other crops. The simple technical messages assoclated wLth the slngle-crop (paddy) approach of the past was no longer adequate, but the system was unable to adapt to the more complex demands of a multicrop system, whlch required a whole-farm approach. Sustainability became a critlcal lssue by the end of project implementation. The costs of operatlng the extensLon system became prohibitively high for the Government, especially ln vlew of the stagnating benefits. Expenditures for operating the system were drastically cut. In 1988, two years after the end of project implementation, agriculture extension was costing the Government almost 1 percent of agrlcultural GDP. Staff salaries alone accounted for about 85-90X of operating costs. The cutback in other resources meant a drastic reduction in the offectiveness of the extension system, which was set up by the project to rely heavily on staff mobllity. It was becoming clear that the current staff-intensive, face-to-face system was not cost effectlve. As support for this relatively expensive  extension system weakened, its sustainability became seriously jeopardiLed. The Government transferred 2,400 village-level extension agents (KVS) to Lts Poverty Alleviation Program, maklng the sustainability of AZARP doubtful. 1.21 The recent devolution of authority from the center to the provinces under this 13th Amendment of the Constitution (November 14, 1987) and the transfer of the village-level extension agents are changes of paramount Importance to agricultural extension. The structure of devolved powera comprises three levels: center, province and division. To place this In perspective, Sri Lanka has 9 provinces divlded into 24 districts and 289 divisions. Below the division is the range, which is the level at which the extension agent/ normally operates. The Central Government (MADR) is responsible for overall policy and inter-provincial coordlnation. The Provincial Ministry of Agriculture (PMOA) is responsible for formulating grovincial policies and strategLes and for coordlnating and monitoring activlties. The divisLon is the focal polnt for implementation of the entlre provincial administration. The Divlslonal Secretary/Additional Government Agent (DS/AGA) of the Ninistry of Publlc Administration, Provincial Councils and Home Affairs (MPAPCHA) is responsible for implementing the development programs in the administrative division. 1.22 The PMOA now has complete operational responsibility for agrlcultural and livestock extension. The heads of the provincial Departments of Agrlculture and Livestock exercise technical, adminLstratlve and fLnancial control over the lower tler of official