Morocco - Agricultural Sector Adjustment Loan

Docuent of The World Bank FOR OFICIAL USIE ONLY Rept No. 13511 PROJECT COMPLETION REPORT MOROCCO AGRICULTURAL SECTOR ADJUSThENT LOAN (LOAN 2885-MOR) SEPTEKBER 12, 1994 Agriculture Operations Division Country Department I Middle East and North Africa Regional Office This document bas a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otberwise be disclosed witbout World Bank authorization.  CURRENCY EQUIVALENTS Currencv Unit: Moroccan Dirham EXCHANGE RATE Appraisal year average (1986) US$1 = DH 9.1 Intervening years average (1987-1991) US$1 = DH 8.4 Completion year average (1992) US$1 = DH 8.5 FISCAL YEAR January - December WEIGHTS AND MEASURES Metric System  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Diurctor-General Operations Evmlustbon September 12, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Morocco - Agnicultural Sector Adjustment Loan (Loan 2885-MOR) Attached is the Project Completion Report on Morocco Agricultural Sector Adjustment Loan (Loan 2885-MOR). The Borrower prepared Part II. The loan was very ambitious. Including the conditions of negotiations, 56 legal conditions were to be met in 13 areas: cereals, sugar, milk, edible oils, seeds, irrigation, fertilizer, livestock support services, animal feed, public expenditures, forestry, agricultural research, and a food-security program. It foresaw eliminating import licensing and other administrative constraints on agricultural imports while moving crop pricing close to parity with world prices. In domestic marketing, it aimed to eliminate government monopolies and other constraints. It involved substantial parastatal reforms. Implementation was slow and difficult. Rather than 18 months it took 44. The PCR explains that some of "the subsector reforms tackled under ASAL-II" came up against strong resistance from groups both outside and within the Government. Protracted delays ensued as the Government worked to define sector deregulation plans acceptable to both the Bank and its own constituencies." Nevertheless, nearly all legal conditions of the loan were met. But certain follow-on measures transcended or reversed actions taken. For example, rather than continue to administer fertilizer prices but with lower subsidies, the Government stopped setting fertilizer prices. Treatment of luxury flour is a case of reversal: it was to be a fully liberalized commodity, but the Government introduced "moderation accords" with bakers and millers that in effect established ceiling prices. On balance, however, the agricultural economy was substantially liberalized, and its taxation-hitherto excessive-substantially reduced. Since loan appraisal, Morocco's agriculture has performed impressively. Over 1985-90 agricultural growth was 5 percent per annum, while private investment soared, and farm wages increased by about half in real terms. Presumably, Morocco's ongoing structural adjustment, including that fomented by the ASAL, underlies this extraordinary outcome. The PCR is more than adequate. It is unusually analytic in showing how the Borrower's national politics affected loan design and implementation. The project outcome is rated as satisfactory, institutional development as substantial and sustainability of the reforms as likely. An audit is planned. Robert Picciotto by H. Eberhard Kdpp 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.  t  ABBREVIATIONS ASAL Agricultural Sector Adjustment Loan ASIL Agricultural Sector Investment Loan C+F Cost plus freight CIF Cost, insurance, and freight CNCA National Agricultural Credit Bank (Caisse nationale de credit agricole) CMRP Cereals Market Reform Project (Projet de Reforme de la Commercialisation des Cereales) (PRCC) CPI Consumer price index CY Calendar year DH Dirham DPAE Economic Affairs and Planning Directorate (Direction de la Planification et des Affaires Economiques) DRC Domestic resource cost coefficient EEC European Economic Commnunity FAO Food and Agriculture Organization of the United Nations FDA Agricultural Development Fund (Fonds de developpement agricole) FERTIMA National Fertilizer Marketing Company (Fertilisants marocains) FOB Free-on-board GATIT General Agreement on Tariffs and Trade GDP Gross Domestic Product GNP Gross National Product GOM Government of Morocco IM Initiating Memorandum IMF International Monetary Fund INRA National Agricultural Research Institute (Institut national de la recherche agronomique) ITPA Industrial Trade Policy Adjustment Loan OED Operations Evaluations Department ONICL Office for Cereals and Leguminous Crops (Office national interprofessionnel des c6rales et des legumineuses) ORMVA Regional Office for Agricultural Development (Office regional de mise en valeur agricole) MARA Ministry if Agriculture and Agrarian Reform (Ministere de l'Agriculture et de la R6forme Agraire) MCI Ministry of Commerce and Industry (Ministere du Commerce et de l'Industrie) MTASAP Medium-Term Agricultural Sector Adjustment Program NPC Nominal protection coefficient PCR Project Completion Report PERL Public Enterprise Rationalization Loan PAR Performance Audit Report PR President's Report SAL Structural Adjustment Loan SONACOS National Seed Company (Societe nationale de commercialisation des semences) TOR Terms of reference USAID United States Agency for International Development   KINGDOM OF MOROCCO SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN (LOAN 2885-MOR) PROJECT COMPLETION REPORT TABLE OF CONTENTS Page No. PREFACE ......................................................................... i EVALUATION SUMMARY ............................................................. iii PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE .................................... 1 Economic Background ........................................................... 1 The Medium-Term Agricultural Sector Adjustment Program (MTASAP) ............................. 2 Bank Support for the MTASAP: ASAL-1 ............................................... 3 The Second Agricultural Sector Adjustment Loan (ASAL-2) .................................... 5 Preparation of ASAL-2: Economic and Sector Work ................................... 5 Implementation Record ..................................................... 6 Administration of ASAL-2 ......................................................... 11 Disbursements .......................................................... 11 Co-Financing ........................................................... I 1 Reporting Requirements ..................................................... 12 Follow-on Operations ...................................................... 12 Impact of ASAL-2 .............................................................. 12 General Agricultural Sector Growth Patterns ........................................ 13 Protection Patterns .............................................................. 13 Investments ............................................................ 14 Government Budget ....................................................... 14 Subsector Deregulation ..................................................... 15 Institutional Reforms ............................................................ 17 Conclusions .................................................................. 19 Economic Issues ......................................................... 19 Lessons Learned ......................................................... 21 PART 11: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ............... .................... 22 PART III: STATISTICAL INFORMATION ..... ...................... 25   KINGDOM OF MOROCCO SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN (LOAN 2885-MOR) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Second Agricultural Sector Adjustment Loan in Morocco, for which loan 2885-MOR in the amount of US $225 million was approved on November 24, 1987. The Moroccan Govermnent obtained parallel financing in the form of a loan from the African Development Bank of US $150 million. The loan's effectiveness date was extended twice, for a total of four-and-a-half months beyond the loan's anticipated start-up, and closed two years behind schedule, on April 1, 1992. Parts I and Im of this PCR were prepared by the Agriculture Operations Division of the Middle East and North Africa Region of the Bank; the Borrower contributed Part II. Preparation of this PCR is based, inter alia, on the Initiating Memorandum, the President's Report (P-5637-MOR), the loan agreement, minutes from negotiations, supervision reports, correspondence between the Bank and the Borrower, and internal Bank documents.   - iii - KINGDOM OF MOROCCO SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN (LOAN 2885-MOR) PROJECT COMPLETION REPORT EVALUATION SUMMARY Objectives 1. After being buoyed by a sharp rise in international commodity prices, when revaluation of its large phosphate reserves led to dramatic improvement in its terms of trade, Morocco suddenly found itself in balance-of-payments crisis by the end of the 1970s when commodity prices collapsed. Ambitious public spending programs launched in the early 1970s proved unsustainable ten years later. Thus, Morocco began a dialogue with the international financial community over its economic future, including important policy adjustments in its industrial and agricultural sectors (with World Bank support), as well as in stabilizing its macroeconomy (in tandem with the International Monetary Fund). 2. In agriculture, a Medium-Term Agricultural Sector Adjustment Program was defined by the Government. The World Bank and other multi- and bilateral donors funded this program, beginning in 1985, with the first Agricultural Sector Adjustment Loan (Ln. 2590-MOR). Under this first operation, the focus was on reducing public expenditures in the agricultural sector (including fertilizer, animal support services, and input subsidies), building interministerial consensus regarding agricultural sector policy reforms and investment priorities, and strengthening the economic analysis capability of the Ministry of Agriculture and Agrarian Reform. The record of the follow-on operation, the Second Agricultural Sector Adjustment Loan, is the focus of this report. Its overall objectives included: 1) liberalization of the agricultural and food pricing, marketing and trade regime; 2) promotion of agro-industrial exports; and 3) design of medium-term public investment strategies for both irrigated and rainfed agriculture. Implementation Experience 3. Implementation of ASAL-2 was difficult, although the Bank was probably overly-optimistic about the speed at which the reform program could be implemented. All conditions of the loan were ultimately met according to the letter of the loan agreement. However, the subsector reforms tackled under the ASAL-2 were some of the most politically sensitive (cereals, sugar, oilseeds), and the unexpected force with which agricultural and agro-industrial interests lobbied the Government as it worked to define sector deregulation plans acceptable to both the Bank and its own constituencies led to protracted delays in implementation. This resulted in a loan period of forty-four months, rather than the eighteen months which had originally been anticipated. Even after the closing of the ASAL-2 operation, major sections of the deregulation plans have yet to be implemented. 4. The loan agreement specifically lists 56 conditions to be met in fourteen different substantive areas (agricultural trade, cereals, sugar, edible oils, milk, targeted compensatory programs, fertilizer, seeds, irrigation water, livestock support services, animal feed, public expenditures, forestry, and agricultural research).  - iv - 5. Fertilizer distribution has been liberalized and subsidies eliminated, and certified seed distribution and many livestock support services have been privatized. Recovery of irrigation water charges has improved signing country. The Economic Affairs and Planning Directorate of the Ministry of Agriculture has been strengthened noticeably by a ten-year institutional support and training project financed by USAID. Agricultural imports have been liberalized, although the implementation texts for the new Foreign Trade Law (passed in December 1992) are still being finalized. Delays in publication of these texts have held up implementation of new formulae for defining domestic producer prices for agricultural commodities. The subsidy on a limited amount of low-quality wheat flour continues, despite much attention paid to the targeting of compensatory programs to ameliorate the effect of its expected elimination on Morocco's most vulnerable populations. The persistence of the subsidy has, in turn, prevented complete deregulation of marketing and international trade in bread wheat. Progress in reforming the sugar and edible oils sectors has been slow. Agreements by the Government under the Second Structural Adjustment Loan - SAL 2 (Ln. 3463-MOR) with regard to imports, import pricing and other internal deregulation measures for these commodities, however, should ultimately bring the necessary pressures to bear on these two sectors. Impact 6. The usual caveats pertaining to an impact assessment of a sector adjustment operation apply to ASAL- 2: it is difficult to separate the influences of actions under the Loan from other forces occurring at the same time. Nonetheless, certain observations are in order. 7. Pricing policy. The biggest single impact of ASAL-2 has been the reversal of the Government's sectoral pricing policy. Economic and sector work undertaken by the Government at the beginning of ASAL- 1 indicated that domestic price policy taxed agricultural producers prior to the MTASAP (except for sugar producers, who were strongly protected) and protected producers in other sectors (e.g., industry). Actions taken by the Government since the introduction of the MTASAP have led to the nominal and effective protection of all agricultural producers which has obviously caused distortions within the agricultural sector, but resulted in more of a balance in protection rates across sectors. Protection of agriculture has been formalized through 1) the safeguard clause for cereals (under the ASAL-2), 2) the reference price formulae for sugar and oil seeds (SAL-2), and 3) tarification of current quantitative restrictions for meat and milk imports (also SAL-2). 8. Government investments. The MTASAP did not succeed at assuring target investment allocations expressed as a percentage of the total Government budget, at reordering MARA's priorities away from large- scale irrigation. The latter, however, is not surprising given the prevalence of droughts in recent years. Sustainability 9. ASAL-2 represented the second and last phase of what was envisioned as a five-year ("medium-term") reform process. However, unfinished reform business argues in favor of an on-going adjustment presence in Morocco. After ASAL-2, the Bank has focused on strengthening MARA's investment portfolio by financing a tranche of the investment budget with an Agricultural Sector Investment Loan (Ln. 3403-MOR). A second ASIL is currently under preparation, and will include a policy reform component. Other Bank operations (such as the SAL-2, already mentioned above) have continued the dialogue with regard to reforms in Morocco's agricultural sector and the proposed Private Sector Development lending program, particularly the agro-industries component, should carry on with deregulation for sugar and oil seeds.  Lessons Learnd 10. Certain clear lessons have emerged from the ASAL-2 experience. First the overall loan package, including the President's Report, the Loan Agreement the minutes of negotiation etc., needs to be coherent and consistent. Lack of consistency leads to mixed messages and difficulties in implementation. Second, the process of reform is a long one, one which can not easily be scheduled into a two-, four-, or even eight-year operation. The more broadly defined MTASAP, of course, is predicated on this notion. In retrospect, however, even a medium-term (i.e. five-year) operation may be overly short-sighted. Consideration should be given from the beginning, therefore, to a much longer period of Bank support for adjustment. Finally, intersectoral operations need to have clear owners and constituents or they will not achieve their objectives.   KINGDOM OF MOROCCO SECOND AGRICULTURAL SECTOR ADJUSTMENT LOAN (LOAN 2885-MOR) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE Economic Background 1. The Kingdom of Morocco embarked on sectoral and structural adjustment in advance of most other World Bank clients. This is due to several factors: 1) as a resource-rich country, it had relatively easy access to international commercial capital in the 1970s and by the 1980s, the servicing of the ensuing debt burden was pressing hard on Morocco's balance of payments which had become strained by plummeting terms of trade and drought; and 2) pressures on the Government budget were mounting due to a host of complex Government interventions in the economy. Despite its "head start" or perhaps because of it, the road to sectoral and structural adjustment in Morocco was not an easy one, as the Government had to contend with potentially volatile public reactions to some of its economic reforms.' 2. Morocco's agricultural policies over the last twenty years have been affected by a number of exogenous developments, inter alia a rapid rise in energy prices, the rapid expansion and subsequent dramatic contraction of the international phosphate market in the 1970s (Morocco controls at least 60% of the world's phosphate reserves), a tightening of Morocco's traditional export markets, and recurring droughts. Under the influence of its relatively easy access to capital resources, the Government embarked on an ambitious public spending program. This included the introduction of subsidies, both on agricultural inputs and on basic foodstuffs, to maintain living standards, combat inflation, control profit margins, and encourage production or the adoption of certain technologies. These developments, coupled with the fiscal burden of military expenditures incurred since 1975 with the recovery of the Saharan provinces, led to a drastic degradation of the country's fundamental economic accounts by the late 1970s. 3. Following the usual trends for middle-income countries, the structure of the Moroccan economy has shifted increasingly towards manufacturing while the relative share of agriculture in value-added and trade over the last twenty years has fallen. This was due as much to a deceleration of growth in the agricultural sector as to the expansion of other sectors. Of concern to Moroccan policy makers was the widening of the food gap and its consequences for the agricultural trade balance. Food production in the late 1970s and early 1980s did not keep pace with demand, increasing due to rapid population growth, income growth, urbanization, and declining real food prices. This necessitated substantial increases in food imports. As public sector finances grew increasingly strained, mounting cross-indebtedness among the parastatals and Government agencies responsible for implementation of agricultural price policy threatened to strangle the public sector- dominated commodity markets and render the official pricing system ineffective. I Food riots erupted several dmes in tde early 1980s in Moroccan cities in response to the government's announced intention to rise prices on surategic consumer goods (wbeat flour, vegetable oil, sugar, petroleum).  - 2 - 4. In 1980, the Government initiated economic policy reform discussions with both the International Monetary Fund and the Bank. However, partly in response to food riots in 1980, the Government suspended discussion on a structural adjustment loan which was then under preparation. 5. Nonetheless, over the period of the 1980s, Morocco nade substantial progress in the reform of its macroeconomy. The official exchange rate between the Dirham and the U.S. Dollar went from 3.94 DH/US$ in 1980 to 8.5 DH/US$ (1989), while the real effective exchange rate index fell from 134.1 (1980, 1985=100) to 90.8 (1989), thereby reducing the penalization of exports and the favoring of imports. The current account balance, in deficit by as much as 12.7% of GDP in 1982, reverted to surplus during 1987 and 1988 before returning to a slight deficit again in the 1990s. Inflation, which measured more than 12% in 1981, was brought under control (averaging 2.7% from 1987 to 1989, albeit rising to 6.7% in 1990). These improvements have set the macroeconomic stage for a revitalization of the agricultural sector through the Medium-Term Agricultural Sector Adjustment Program (MTASAP). The Medium-Term Agricultural Sector Adiustment Program (MTASAP) 6. Given the aborted attempt at a SAL, a decision was made in the Bank to proceed more cautiously, on a sectoral, rather than macroeconomic, level. Two sector studies were undertaken, examining the patterns of protection and comparative advantage in industry and agriculture. These studies were useful for the breadth and depth of sector information they revealed as well as for the dialogue they inaugurated. Each of them fed directly into comprehensive sectoral reform programs. The first study, lasting three years (1980-83) and carried out jointly by the Bank and the Moroccan Ministry of Comnerce and Industry, provided the underpinnings for two Industrial Trade and Policy Adjustment (ITPA) Loans (Loan No. 2377-MOR, 1983-85 and Loan No. 2604-MOR, 1985-86).2 The second study, carried out in the then Ministry of Agriculture and Agrarian Reform (MARA)3 from 1984-85, was launched in tandem with implementation of the first phase of the Government's agricultural sector reform program.4 7. In response to the intensifying economic contradictions and mounting fiscal pressures of the late 1970s and early 1980s, the Kingdom of Morocco launched a broad, medium-term (five years) The final product of the study was World Bank, Morocco: Industrial Incentives and Export Promotion, Report No. 4893-MOR, January 1984. The MA loans, I and I, are reviewed in a combined project completion report dated May 5, 1988. See also Brendan Horton, Morocco: Analysis and Reform of Economic Policy, EDI Development Policy Case Series, Number 4 (Washington, DC: Economic Development Institute of The World Bank, 1990). 'MARA was renamed the Ministry of Agriculture and Agricultural Development in October 1993 but will be referred to as MARA throughout this report because that was its name during the implementation period of the loan. 4 ASAL-1 was prepared largely on the basis of 1) already existing sectoral analysis done under the aegis of preparation of the ill-fated 1980 SAL and 2) Bank examination of the fertilizer subsector. On the former, see World Bank, Memorandum on Morocco's Agricultural Sector: Identification of Issues and Bank Strate v, Repon No. 2667a-MOR, May 2, 1980. On the latter, see World Bank, Morocco: Memorandum on Fertilizer Demand and Pricint, Report No. 4526-MOR, June 30, 1983. The prices and incentives study produced a final document, Ministry of Agriculture and Agrarian Reform and Associates for International Resources and Development, La Politicue de orix et d'incitations dans Ie secteur atricole, Rapport final. Janvier 1986, which was subsequently incorporated into World Bank, Kingdom of Morocco: Airncultural Prices and Incentives Study, Report No. 6045-MOR, May 1986.  program in 1985 for the adjustment of its agricultural sector.5 Four broad areas of reform were identified: 1) restructuring of the public investment program, 2) realignment of the agricultural price and incentives framework to promote economic efficiency and resource mobilization, 3) strengthening of public sector services and inputs delivery, including partial privatization and improved cost recovery, and 4) development of an institutional capacity for analysis, implementation and monitoring of agricultural policy and resource use planning. 8. Within these broad areas, the MTASAP touched on virtually every aspect of agricultural sector operations and development in the key subsectors of the Moroccan agricultural economy. The overall level of MARA's investment budget and the process of investment planning were examined, along with broad inter-subsectoral (rainfed versus irrigated agriculture) and individual subsectoral priorities. Patterns of agricultural sector comparative advantage and concordant or discordant protection policies (nominal and effective) were reviewed for cereals, pulses, citrus, vegetables, dairy, meat, oilseeds, and sugar crops, as was the evolution of agricultural sector terms of trade vis-a-vis those for industry. The effect of untargeted consumer subsidies on agricultural production patterns was explored, and alternative targeted subsidies were proposed in a spirit of cost-reduction and efficiency improvement. The efficiency of Government support services (agricultural extension, research, livestock services including animal health care and breeding services, fertilizer marketing, seed production and marketing, cereals marketing, milk marketing, agricultural export marketing, institutional credit delivery, and irrigation management) was assessed and action plans proposed. The need to strengthen policy planning and analysis capabilities in MARA was underscored. Finally, Morocco's land tenure and natural resource conservation and management systems were evaluated and proposals made for their modernization. 9. Detailed action programs were defined for a subset of the above-mentioned subsectors, including irrigation, livestock, research and extension, inputs marketing, forestry, cereals, and land tenure. These programs provided the basis for the definition of policy reform conditionalities under the original Agricultural Sector Adjustment Loan (hereafter, ASAL-1). Bank Support for the MTASAP: ASAL-1 10. Implementation of the MTASAP was designed to take place in several phases, the first of which was carried out under the ASAL-1 to Morocco, which ran from 1985 to 1987.6 ASAL-1 is recognized as having been an exceptionally well-prepared operation, the specific accomplishments of which, when considered as a stand-alone operation, were considered "marginal" by OED.' However, ASAL-1 was not a stand-alone operation. It generated an analytic framework for the agricultural sector which supported a follow-on operation (ASAL-2) and provided important on-the- ground experience in "process" issues along the way. OED goes on to state that "the impact of the ' Presented in the government's letter of development policy in preparation of the First Agricultural Sector Adjustment Loan. See the World Bank President's Report (PR) on ASAL-1, Report No. P-4032-MOR, Annex IV, May 28, 1985. See also pp. 14-38 which summarize a complete presentation of the prgram in a Technical Support Volume to the PR. I ASAL-1 disbursed S100 million from 1985 through 1987. See the World Bank's President's Report on ASAL-1. May 28, 1985 (Report No. P-4032-MOR); 'ASAL (2590-MOR) Project Completion Report,' June 22, 1988; and World Bank, Operations Evaluation Department, 'Program Performance Audit Report: Morocco - ASAL (Loan 2590-MOR),' June 26, 1989. OED audit, p. 15.  - 4 - specific conditions [of ASAL-11 ... is significant..." and that the overall program has been worthwhile. 11. Hallmarks of ASAL-1 include 1) its contribution to fiscal savings for MARA by reducing or eliminating public sector intervention in livestock sector support services, animal feed price regulation, fertilizer distribution, irrigation cost subsidies, etc., 2) its insistence on the establishment of an interministerial coordination committee to facilitate the building of consensus across ministries with regard to agricultural sector policy reforms and investment priorities, and 3) the support it gave to the Agricultural Prices and Incentives study underway, thereby legitimizing the role of economic analysis in the policy reform dialogue and helping to assure the prominence of such analysis in the future work plan of the Direction of Economic Affairs and Planning within MARA.8 12. ASAL-1 has been criticized, however, for its bias in favor of fiscal savings and its lack of progress in areas of sectoral reform and investment which would have cost the Government money or led to restructuring of monopoly market situations.9 Other sector reforms, however, were an order of magnitude more complicated and more politically sensitive, and the Bank held off on them until it had better ammunition in the form of a completed sector analysis.'" Publication of the Agricultural Prices and Incentives Study led directly into the initiating memorandum (IM) for ASAL-2, released in June 1986. ASAL-1 also proved unable, despite its interministerial coordinating committee, to resolve the inevitable tensions which crop up between technical ministries, with their own sectoral interests to defend, and financial and planning ministries, which defend and control access to Governmental budget resources. Even more distressing, the perception by MARA of excessive fiscal cost reduction bias in ASAL-1 introduced an element of tension into what had been an unusually productive, cooperative working relationship between Bank staff and MARA leadership. A separate, long-term technical assistance project. Planning, Economics, and Statistics for Agnculture, also funded by USAID (1983- 93), assigned four expatriate advisors (two economists and two statisticians), beginning in 1985, to the DPAE for the purpose inter alia of on-site training in economics and quantitative analysis, reform of sample survey and cost of production survey methodology, and modernization of MARA's computer capacity. The project has umned 28 M.A. and Ph.D. degree students from DPAE at U.S. universities in economics, statistics, and computer sciences. ' See the PAR, pp. 17-18, as wel as the PCR, pp. 51-52. The Government's perspective on this issue is reflected in a public address made by a high-placed MARA official: 'The assessment drawn from three years of executing the adjustment program has permitted us to reach the folowing conclusions: measures that constrain the agricultural sector or increase the cost of production, have been generally implemented, while those which have a compensatory aspect were not executed ... In fact, the structural adjustment program has been executed only partially, and, due to this fact, it has resulted in a significant reduction of governmental budget transfers to the agriculturl sector, which risks increasing the costs of production and a consequent reduction in farmer revenues. Furthermore, this incomplete program execution could accentuate the under-protection of the sector and deteriomte much more the terms of tmde between agriculture and the rest of the economy.' See Mokhtar Naanani, 'Moroccan Experience in Stiuctural Adjustment for the Agricultural Sector,' discourse delivered at FAO/Rome, October 1988, pp. 5-7. 0 To do otherwise meant risking the future of an increasingly respectful collaboration between MARA and the Bank. The Bank had incurred the wrath of MARA at one point in early 1985 when, as international sugar prices were at their nadir, it was recommended that Morocco reduce support for its sugar sector, given its lack of economic viability (on average) when measured at those low prices. The issue was smoothed over by the Bank's resorting to both a longer-term and a more disaggregated perspective on the sugar sector, calculating DRCs on the basis of 1981-1984 international pnce averages and for each individual sugar mill.  The Second Agricultural Sector Adiustment Loan (ASAL-2) Preparation of ASAL-2: Economic and Sector Work 13. While ASAL-1 may have been prepared in somewhat of a knowledge vacuum, ASAL-2 operated under no such constraint. Beginning in early 1984, economists worked in residence with a high-level working group of MARA division leaders for 19 months, elaborating price and non-price measures which affected producer incentives."' In the process, Government officials gained a much sharper understanding both of their own agricultural sector and of a discrete number of analytic tools used to measure incentive structures. Bank staff supervised the study quite closely, albeit on an informal basis. Also, two separate Bank exercises examined interactions among cereals in a dynamic model of the grain subsector and targeted food subsidy programs which could replace the general consumer subsidies in effect at the time.'2 14. The prices and incentives study underscored several contradictions in patterns of protection and comparative advantage. First, farmers in irrigated areas benefitted to a far greater degree than their rainfed counterparts from indirect protection via subsidies on inputs (irrigation water, fertilizers, seeds, agro-industrial by-products used for livestock feeds in the intensive dairying subsector, etc.) and from higher rates of nominal protection on sugar crops (cane and beet), a large percentage of which are grown under irrigated conditions. Second, nominal protection rates contradicted Morocco's agricultural comparative advantage (sugar crops, for which DRCs were well above 1.00 or even negative due to negative economic value-added, were particularly highly protected, while traditional export crops such as citrus, in which Morocco had strong comparative advantage, were taxed). Third, consumer subsidies on bread wheat flour and vegetable oil resulted in a shift in domestic demand away from commodities in which Morocco had a traditional comparative advantage (durum wheat, used in couscous and bread production, and olive oil) and in favor of imported goods. 15. The study also went on to identify a host of constraints which impeded efficient subsector operation. Government policy determined not only producer prices for major commodities (cereals, sugar crops, oilseeds, cotton, citrus, export vegetables, meats, milk), consumer prices for many of the processed products derived therefrom (two grades of wheat flour, granulated and loaf sugar, vegetable oils, and milk), and prices of significant agricultural inputs (inter alia fertilizers and other agro- chemicals, irrigation water, machinery rental rates, seeds, credit, veterinary services, animal feeds), it also fixed marketing, processing, and transport margins, and regulated international trade in these products via quantitative restriction and licenses. 16. It was expected in the IM that negotiations for ASAL-2 would occur in February 1987, for effectiveness conditions to have an impact on the 1987/88 agricultural campaign. Timing of various stages of ASAL-2 p-eparation was to be made contingent on 1) fulfillment of second tranche release conditions for ASAL-1 (ASAL-2 appraisal), 2) agreement between the GOM and the IMF on a stabilization package (ASAL-2 negotiations), and 3) resolution of the issues which held up second " Technical assistance for this study was provided under USAID's Planning, Economics, and Statistics for Agriculture Project. "2 World Bank, KinRdom of Morocco: Agricultural Prices and Incentives Study, Annex V: Simnulation of the Moroccan Grains Markets: An Econometric Dynamic Model, and World Bank. Compensatory Programs for Reducing Food Subsidies, Report No. 6172-MOR, April 1986.  -6- tranche release of ITPA-II (ASAL-2 Board presentation). Conditions for ASAL-2 tranche releases were designed to fit the timing of the agricultural season(s). 17. As with ASAL-1, ASAL-2 financed a positive list of essential agricultural imports'3 at a level which corresponded to estimated needs of a two-to three-year period. The IM originally proposed a loan of $100 million (ceiling of $150 million), to be released in two tranches over eighteen months. In fact, ASAL-2 became a $225 million loan, released in three tranches over forty- four months." Reasons for the protracted schedule of the operation are discussed in paras. 18-30 below. Implementation Record'5 18. In fact, ASAL-2 was not negotiated in February as anticipated, but rather in September 1987. The delay in negotiation foreshadowed the protracted implementation of ASAL-2. It seems that the confidence gained by Bank staff as a result of its careful preparatory sector work in 1984 through 1986 may have led to overconfidence in their own ability to supervise adequately such a complicated, politically sensitive reform package.'6 While many of the linkages between policy and economic effect were well understood by 1986, Bank staff underestimated both the ability of key Moroccan pressure groups, especially in agro-industrial subsectors, to organize against reforms perceived not to be in their interests and the ability of Moroccan policy makers to leam the analytic tools being taught them well enough to negotiate strategic compromises from the Bank. 19. The delay in ASAL-2 negotiations was due in part to the Bank's own internal preoccupations (1987 reorganization). However, of greater importance was mounting donor concern with Morocco's macroeconomic instability in mid-1986. Public consumption had risen dramatically, without any increase in public revenues, which led Morocco to resort to open market operations and an increase in public sector payment arrears. Credit issued by the Central Bank was necessary to cover the Government's budget deficit. Thus, the IMF's stand-by for 1986 became inoperative, the Bank's release of ASAL-l's second tranche was upheld, and the appraisal of ASAL-2, scheduled for June 1986, was canceled. For its part, the Government had specific concerns relating to fertilizer price increases required by ASAL-1'7 and the estimated fiscal burden of any new targeted compensatory ' Herbicides and pesticides (subject to Bank approval overall and with regard to usage and storage regulations), seed, veterinary medicine, spare parts for agncultural and agro-industrial machinery and irrigation equipment, animal feed, and fuel imports for agriculture (not to exceed 25 % of the total loan amount). For an actual breakdown of tde loan amount, see para. 31. " By the time the loan was negotiated, it was apparent that two to three years' worth of agricultural input imports amounted to a much larger overall figure. Also, there had been a gap in such financing between the end of ASAL-I and the projected start of ASAL-2. Finally, there was some desire on tde part of the Bank to reward' the Goverment of Morocco for the fact that all eight pre-negotiations conditions as weU as three effectiveness conditions had already been meL Thus, the total amount requested was $225 million, to be disbursed in three tranches in order that the conditions, now designed to span two agricultural seasons, might be timed properly. Aside from including the import of purebred breeding cattle and excluding coverage for ferilizer imports (see para. 32), there was no change in the positive list of imports authorized under ASAL-1. " This is examined here in some detail as the process of agricultural sector reform was such a central point of the ASAL-2 operaion. ' Recognizing this, an internal memorndum written immediately after negotiations argues for the need to enlist and coordinate technical support of ASAL-2 from other operational divisions. 17 The Govermment argued that due to a 35% decrease in averge world fertilizer prices, the effect on the GOM budget of the fertilizer subsidy was defacto much less, thus mitigating in favor of something less than a 20% increase per ASAL-l 's conditions.  program."8 MARA was also concerned that the Ministry of Finance would not uphold its obligation to commit a minimum of 15 % of the overall budget to MARA's investment budget, a condition of ASAL-2 negotiations. As discussed in para. 42, this condition in fact was not met, which led some in MARA to feel the Bank had let them down (see para. 27). 20. By appraisal, the Government agreed to faster liberalization of the agricultural import program (shifting commodities from a list of goods whose importation was banned (List C) or of goods for which import licenses were required (List B), to a list of goods which could be freely imported, subject to import tariffs (List A)'9). The Government also promised to reduce consumer subsidies more quickly than had originally been anticipated; for example, the vegetable oil packaging subsidy had already been lifted, thereby increasing slightly the consumer prices of edible oils. The Government also agreed to the notion of creating an "inferior good" in the cereals subsector in order to better target the flour subsidy.' 21. By negotiations, the timing of tranche release had to be reformulated to take account of the seven-month delay. Three tranches were designed, rather than two, to allow for conformity with the agricultural calendar.2' The minutes of the negotiations indicate that several concessions were made by both the Bank and the Moroccans at that time since it was perceived that, without them, negotiations would have completely broken down. Neither side wanted to call it quits as each felt there had been enough delays already. The concessions by the Moroccan delegation, if they been implemented as intended, would have strengthened the overall loan package (e.g., for sugar, see para. 23). The concessions made by the Bank (paras. 22-24) would later haunt staff supervising the operation. 22. The first concession by the Bank was the agreement to change language regarding deregulation of the edible oils subsector. Originally, it was intended that complete deregulation of the subsector would occur by the final tranche. During negotiations it was agreed that consultants would be hired by second tranche to prepare an action plan, and implementation of the plan would start by third tranche. Part of the problem was the lack of high ranking participation from the Ministry of Comnerce and Industry at negotiations. There was no one with whom the Bank could seriously discuss the program on edible oils (or sugar for that matter). The reluctance on the part of the GOM ' At the time, USAID was considering pulling its food aid out of tde Entraide Nationale program, after a long record of suppor In addition, limitations of U.S. Government food aid policy regarding monetization of food aid were of concern. Though die World Food Program was quite interested in expanding its program in Morocco, the Government of Morocco was concerned that the direct effect of any new compensatory program might aggravate overall budget pressures. 2 " In fact, the Government finessed this condition slightly, by creating a new list (List A*) of goods, the importation of whicb still required government approval. Official Bank files never noted this new distinction. > The Government agreed to increase the milling ratio for subsidized bread wheat flour, from 77% (originalfarne ordJnaire) to 80%. This higher proportion of wheat bran in the flour, it was believed, would create the effect of a 'dirtier flour," and one which consequently would be less attractive to higher income consumers. Ironically, in developed countries 'whole wheat flour," a higher extraction flour, is perhaps more highly prized by consumers of higher income. Nonetheless, LSMS data show that, in fact, lower income groups purchase relatively more of the bread made from this higher extraction rate flour than do higher income groups. '' A complete list of conditions to be met prior to loan negotiations, loan effectiveness, and the release of the second and third trmnches of the loan are included in part m of this PCR, and discussed below. ASAL-l's experience with dated covenants having been less than positive, ASAL-2 included none. Only tranche release conditions were required to be met by the Borrower.  - 8 - team to accept anything further at negotiations was, in retrospect, indicative of overall resistance to this component of ASAL-2. 23. A second concession by the Bank was the modification of the Bank's position regarding the sugar subsector. A second phase of a sugar industry study was to have started by negotiations; it did not. In addition, real producer price decreases agreed upon for sugar crops were less than anticipated. The Bank had originally asked for a 5% real decrease, while the GOM would only agree to 3 %. The latter did, according to the minutes, agree to begin the sugar sector deregulation program as of July 1, 1988, ten months later, although this did not become a formal condition because it was not a precise, monitorable action from a legal standpoint. No mention was made in the minutes or the loan agreement of an obligation by the Government to share terms of reference for the second phase of a sugar study with the Bank. A condition for release of the second tranche was the development of an action plan to ensure complete sugar sector deregulation by June 30, 1993, implementation of which was to have begun by third tranche release. This condition was added belatedly at negotiations to compensate for a lack of progress on the sugar study prior to that time. 24. The last concession by the Bank, considered a relatively minor change at the time, has lent the weight of Bank approval to a considerable reversal in Government agricultural producer pricing policy and, in retrospect, created significant new distortions in the agricultural pricing policy framework, at least when considering short-to-medium run international commodity prices. In order to wean the Government off its reliance on domestic cost-plus pricing for agricultural commodities, a formula based on a five-year moving average of international reference prices was proposed by the Government and accepted by the Bank to calculate domestic producer prices for the four major cereals and the major oilseeds commodities.' According to minutes from negotiations, it was agreed between the Bank and the Government that, pending stabilization of international grain markets,' Morocco would not be obliged to decrease in real terms its domestic producer price for cereals. In other words, if the theoretical official price (calculated as explained in footnote 22) were less than the previous year's domestic price, is adjusted for inflation and a "domestic preference premium", then the latter would apply.' Moroccan policy makers have not exploited the safeguard clause fully, i.e., they have not always maintained the domestic price at the previous year's real value. Nominal prices, however, have never fallen. Thus, by virtue of this safeguard clause, Morocco has gone from being a net taxer to a net protector of both cereals and oilseeds (see analysis of evolving protection patterns, paras. 39-41 below), relative to actual world prices during the ASAL- 2 period. This safeguard clause was accepted very reluctantly by the Bank and only because of persuasive arguments by the Ministry of Agriculture that it was temporary pending an agreement with GATT and domestic cereals market deregulation. Nonetheless, it remains in existence and has allowed policy makers to essentially continue setting cereals prices administratively. ' For example, in the case of bread wheat, the reference price is equal to a five-year moving average of the (nominal) FOB price, U.S. Gulf, of hard red winter wheat #2 plus freight to Casablanca, converted into Dirhams at the official exchange rate at the time of the calculation. To this price, a 25 % protection factor is added as well as the costs of moving the wheat from port to the mill, and from this the official storage margin is subtracted. This results in a 'theoretical official price' (Moroccan parlance). The difference between the acntal CIF price and the domestic price thereby calculated is then levied at the border. D In 1987, the Kingdom of Morocco joined the GATT and became an active participant in the LDC block at the Uruguay Round negotiations. 2 The consumer price index is used for adjustment. The domestic preference premium is an additional protection factor of 10%.  25. ASAL-2's effectiveness date was extended twice, from March 4, 1988 to May 4 and then to August 4, 1988, due to lack of GOM progress on defining the scope of the deregulation plans for the bread wheat, sugar, and edible oils sectors. While completely finalized programs were not conditions of effectiveness, but rather of second tranche release, certain elements thereof were (fixing domestic cereals prices according to international prices, authorizing the milling of high-extraction flour, decreasing the real producer prices of sugar beet and cane, and freezing the special premia paid to certain sugar crop producers). In addition, it was presumably feared that lack of progress would delay second tranche release, for which defined programs were required. 26. A condition which was required for effectiveness was the condition that the Government prepare and furnish a plan to ensure adequate nutrition to Morocco's poorest populations (the so- called targeted compensatory program). During the first half of 1988, the Government tackled this issue quite seriously. Having already decided in favor of an inferior good concept, the Government then had to determine an overall production quota for the subsidized, inferior good' and specific allocations of that quota across the 70-plus bread wheat flour mills in Morocco, made according to demographics. With these details in place, the loan became effective July 26, 1988. 27. Given the full year of progress lost to these debates, it is not surprising that "disillusionment on the part of some people [in the GOM] regarding the Bank" is noted in the first ASAL-2 supervision report. So much energy and good will had already been expended that it should not have been too hard to anticipate that the next two tranche releases would be even more contentious, given that the conditions they set forth included the politically most difficult issues to resolve, i.e., not just tinkering at the margins but total deregulation of the three most important agricultural subsectors in Morocco. In part, the difficulties encountered stemmed from the fact that while ASAL-2 was negotiated with the entire Government, its primary client was perceived to be MARA. Yet many of the actors involved, particularly in sugar and edible oils, were clients themselves of the Ministry of Commnerce and Industry, which, despite the Bank's best efforts to engage it, did not see itself as directly involved in ASAL-2. 28. The Bank recognized this to some extent, and began to pursue sugar sector reform not only under the aegis of ASAL-2 but also via the Public Enterprise Rationalization Loan - PERL (LN 2820- MOR), especially PERL-2, then under preparation. While the existence of multiple layers of responsibility for sugar sector reform comes through in reading the ASAL-2 files, there is never any formal acknowledgment therein that PERL-2 would "take over" on sugar issues, as indicated in the PAR for PERL-1L.' Th)ugh that was, at one point, the intention (including closure of uneconomic sugar mills and privatization of the remaining units), PERL-2 was dropped in December 1991 in part as a result of the Bank's impatience with Morocco over sugar sector protection issues. The Moroccans were happy to drop the Loan because the SAL-2 and the second Large-scale Irrigation Improvement Project (Loan 3587-MOR) were subsequently increased in compensation. Bank management wanted to drop it in order to bring the era of adjustment lending to close in Morocco with the SAL-2, and the importance of the PERL-2 for the subsectors it covered was perhaps not recognized. Receipt of an acceptable plan for reform of the sugar sector held up release of the I It was decided to limit the production of subsidized ordinary, high-extraction rate flour to 10 million quintals, which represented a contraction of 40 % from its height in 1984. In addition, it was decided to elinmate the subsidy on luxury flour, which totaled 1.6 million quintals in 1984. 2' OED, 'Draft Performance Audit Report: Morocco - Public Enterpnse Rationalization Loan ', Febniary 10, 1993, p. 20.  - 10 - second tranche of ASAL-2 until the end of 1989 (long after the agreed upon July 1988 deadline for beginning implementation of said plan). In addition, the action plan for reform of the edible oils sector, not required as a second tranche release condition, but promised according to the minutes of negotiations before December 1988, had also not yet been submitted, although terms of reference for the newly hired consultants had been agreed upon. The tranche was not released until January 1990.27 29. As was the case for effectiveness, the closing date for ASAL-2 had to be extended several times in order to accommodate on-going intra-Governmental debate over reforms necessary for third tranche release. Originally set for March 31, 1990, it was extended to April 1, 1991 and then April 1, 1992. Unanticipated legal issues also arose, further complicating implementation of conditions. For example, the agricultural import liberalization plan called for use of a variable levy to tax strategic agricultural commodities (cereals, sugar, edible oils, milk, meat, and their derivatives), yet Moroccan trade laws theretofore did not permit the use of such a tool.' Thus, a new foreign trade law had to be drafted, debated, passed by Parliament, promulgated into law, along with implementation legislation.29 30. Approval of third tranche release came no more easily than that of the two previous tranches. Although much progress had been made in reform of the various subsectors, as described in a September 10, 1990 communication from the Minister of Economic Affairs to the Bank's Regional Director,' approval for release of the tranche was still held up for lack of a viable oil sector plan, lack of an approved cereals market law (which blocked cereals sector deregulation), lack of a new foreign trade law (which compromised progress on agricultural import liberalization), and delay in deregulation of the sugar sector.3' In June 1991, the Department considered a waiver of the original conditions, on the grounds that fourteen out of seventeen of the original conditions had been met and the Government's expressed intention to continue reforms of bread wheat, sugar, and edible oils. Later this idea was dropped.32 By the fall of 1991, however, pressure from the Government was successful in bringing about a compromise resolution. A plan for the deregulation of the edible oils sector was drafted that satisfied all parties concerned, and the third tranche of ASAL-2 was made 2 According to the files, the Government wished to use the second tranche for debt reduction purposes. Variable levies were applied only to cereals in the past because this was permitted under the law governing ONICL. Bank and Govermment naivete regarding the magnitude of this task is reflected in the following March 1989 supervision report statement: 'MARA's position is that revising the legal texts is a matter of weeks...' Whie a draft foreign trade law was available for Bank inspection by mid-1989, this process, as of end 1993, is still not complete: Implementation legislation was finalized during the summer of 1993, but much of it has not yet taken effect. X Progress was made in continued liberalizanon of agricultural imports, complete liberalization of fertilizer pricing and distribution as of July 1990, parti liberalization in the edible oils sector (elimination of subsidy on oils packaging, freeze on oilseed producer prices, beginning of elimnation of governmental arrears in the edible oils sector), elimination of virtually all arrears in the cereals sector, a draft cereals market law before government, and partial liberalization in the sugar sector (introduction of a unique refining margin, progress in reducing arrears, limited increases in producer pnces, continued discussion regarding reference pnces and deregulation). S' supervision report of November 6, 1990. a An internal memorandum states: 'At present. [justification for the waiver is weak]. If we believe these reforms were and remain important (and those three subsectors clearly are important), then we should obtain, for the tanche release, something more substantial than what is proposed." June 6, 1991.  - 11 - available to the Government on November 27, 1991. Disbursements were accelerated in order for the loan to close by the April 1, 1992 closure date. Administration of ASAL-2 Disbursements 31. Disbursements under the loan began late, because of the above-mentioned delays in negotiations and effectiveness. A special dollar account was set up by the Borrower to accommodate deposits and payments related to the operation. As the table below shows, the loan was used to fund the importation of agricultural inputs, especially machinery for production and petroleum products. The total value was thought to meet the need for such imports over a period of two or three years. Up to $25 million of the loan was made available retroactively for purchases made prior to the loan agreement, provided they were made after January 1, 1987. Disbursements (US$ Million) Original Actual Actual Disburs.l Limits Disbursements Original Limits Agricultural Machinery 100.00 91.10 91.1% Seeds and Seedlings 25.00 34.90 139.6% Agricultural Chemicals 20.00 21.00 105.0% Feeds & Vet. Medicines 23.75 21.70 91.4% Petroleum Products 56.25 56.25 100.0% TOTAL 225.00 225.00 100.0% 32. Contracts were to be awarded through competitive bidding, except for contracts valued at less than $2 million, in which case the contract could be awarded to the best of at least three price quotations. If the purchaser was a non-public entity, all contracts expected to equal less than $5 million could be determined by existing procedures. Furthermore, it was agreed that the GOM could follow existing contracting procedures for petroleum and machinery purchases, even though these procedures did not involve competitive bidding.33 However, the loan did not allow for the importation of fertilizers, precisely because the GOM did not agree to international competitive bidding procedures, an issue that arose during ASAL-1. The loan agreement specified that the total value of petroleum imports could not exceed $56.25 million, or 25% of the total value of the loan. Co-Financing 33. The African Development Bank, which had also participated in ASAL-1, contributed an additional $150 million to the GOM in tandem with ASAL-2. " Memorandum dated December 17, 1987 acknowledges that, although common practice, accepting existing govemmenml importing procedures is less than ideal.  - 12 - Reporting Requirements 34. According to covenants listed in the loan agreement,4 the Borrower was required to furnish the Bank with a number of regular reports. From time to time, the Borrower and the Bank were to exchange views on the progress achieved in carrying out the Program (including compliance with conditionality actions). Prior to each such exchange of views, the Borrower was required to furnish to the Bank for its review and comment a report on the progress achieved in carrying out the Prograrn. Two such reports were prepared and submitted.35 The Borrower was also required to maintain records and accounts consistent with sound accounting practices, with audit reports to be furnished to the Bank. The first audit report, covering disbursements during the 1990 calendar year, was received in July 1991. Subsequent reports have still not been received despite numerous reminders by the Bank, although delays in the receipt of audit reports are not a rare occurrence for the Bank in Morocco. Follow-on Operations 35. The follow-on operation to the ASAL-2 was an Agricultural Sector Investment Loan (Loan No. 3403-MOR). Under the ASIL, $50 million were approved in direct support of MARA's investment activities. The ASIL is not an adjustment operation and focus primarily on reforms related to execution of the investment budget. Its successor, the ASIL-2 (which is currently under preparation), will provide additional support for MARA's investment programn but will also support an action program to further the subsector reform process begun under the ASALs. IMpact of ASAL-2 36. The impact of any single Bank operation is clearly hard to disentangle from those of other operations, within the agricultural sector and without. Attributing aspects of agricultural sector evolution to ASAL-2 in the absence of a testable counterfactual is also problematic. Furthermore, even disengaging the effects of more hospitable climatic conditions evidenced at the end of the 1980s compared with more drought-prone conditions at the beginning of the decade from policy effects is a task which has proven difficult for cereals supply function modelers in Morocco. Finally, many of the most significant reforms prepared by ASAL-2 have yet to go into effect, let alone have a chance to affect the Moroccan economy, i.e., elimination of the consumer subsidy on bread wheat flour and concomitant complete deregulation of the cereals sector, deregulation of the sugar subsector, and deregulation of the edible oils sector. Border pricing policies for sugar, oils, meat, and milk were just negotiated last year under SAL-2, to be implemented for the first time by June 1994 (paras. 65- 66). Thus, an assessment of the efficiency of these sectors' operations post-ASAL-2 is still premature. These caveats aside, however, some general observations about the evolution of Morocco's agricultural sector during the ASAL-2 period are presented, along with some specific features which are more directly attributable to ASAL-2. 37. The potential effects of agricultural sector liberalization are many. As a sector moves from a phase during which all aspects of production, marketing, and processing are managed to a ' See Aricle III of the Loan Agreement (Loan No. 2885-MOR) between the Kingdom of Morocco and the Bank, December 4, 1987. " MARA, 'Rapport d'ex6cution n