Mexico - Agricultural Extension Project

Document of The World Bank FOR OFCLAL USIE ONLY ReportNo. 13157 PROJECT COMPLETION REPORT MEXICO AGRICULTURAL EXTENSION PROJECT (LOAN 2859-ME) JUNE 15, 1994 Agriculture and Natural Resources Operations Division Country Department II Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Mexican Peso (Mex$) Currency Exchange rates during implementation Year Mex$/ US$ 1986 575.4 1987 1353.7 1988 2282.0 1989 2464.0 1990 2821.0 1991 2950.0 1992 3050.0 1993 3.1 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 hectare (ha) = 10,000 m2 = 2.47 acres 1 square kilometer (km2) = 0.38 square miles (mi2) = 100 ha 1 metric ton (m ton) = 2,205 pounds  FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS AGSAL Agricultural Sector Adjustment Loan ATP Agricultural Technology Project CP Post Graduate College (Colegio de Postgraduados) DDR Rural Development District (Distrito de Desarrollo Rural) FMDR Mexican Foundation for Rural Development (Fundacion Mexicana para el Desarrollo Rural) GOM Government of Mexico IICA Interamerican Institute for Cooperation in Agriculture (Instituto Interamericano para la Cooperacion en la Agricultura) IMF International Monetary Fund INIFAP National Institute for Forestry, Agriculture and Livestock Research (lnstituto Nacional de Investigaciones Forestales, y Agropecuarias) IPM Integrated Pest Management MIS Management Information System PACTO Economic Solidarity Pact PECE Economic Growth and Stabilization Pact (Programa Econ6mico de Crecimiento y Estabilizaci6n) PLANAT National Program for Assistance to Rainfed Areas (Programa Nacional de Apoyo a la Agricultura de Temporal) PROCATI Agriculture Training, Extension and Research Program (Programa de Capacitaci6n, Asistencia Tecnica e Investigaci6n) PRODERITH Program for Integral Development of the Humid Tropics (Programa de Desarrollo Rural Integral para el Tr6pico Hilmedo) SAR Staff Appraisal Report SARH Secretariat of Agriculture and Hydraulic Resources (Secretarfa de Agricultura y Recursos Hidrlulicos) T&V Training and Visit extension UAIM Unidad Agroindustrial de la Mujer (Women's Agroindustrial Units) 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.OFCAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 15, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Mexico - Agricultural Extension Project (Ln. 2859-ME) Attached is the Project Completion Report on Mexico - Agricultural Extension Project (Ln. 2859-ME) prepared by the Latin America and Caribbean Regional Office. Part II was contributed by the Borrower and is substantially in agreement with Parts I and m but puts more emphasis on procedural issues. This was a pilot project in 13 percent of the rural development districts in Mexico, which aimed to develop a workable system to improve national agricultural extension. The monitoring and evaluation (M&E) component was unable to provide concrete evidence of the benefits of the extension investments relative to extension in non-project areas. This was associated with the normal difficulties in reliably assessing extension impact, the limited time-frame of the project (delayed for 18 months after effectiveness due to budgetary problems), and some inadequacies in the M&E process. Although a series of institutional changes complicated implementation and some components were not fully implemented, the project outcome is rated as satisfactory. Some findings and lessons have been taken into account in formulating the larger Agricultural Technology Project (ATP-US$ 150 million) which became effective in September 1992. Institutional development was modest, but will be further developed in ATP which addresses extension, research and their linkages. Budgetary constraints not only affected counterpart funding in the pilot project but have also impacted on ATP, so that sustainability is uncertain. Although the Project Completion Report provides a broadly satisfactory summary of project outcomes, it does not assess critically key design issues which such a pioneer operation might have tested. The project may be audited in conjunction with the ongoing ATP when the latter is completed. Robert Picciotto by Hans-Eberhard Kopp 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 MEXICO AGRICULTURAL EXTENSION PROJECT, PROCATI (Loan 2859-ME) PROJECT COMPLETION REPORT Table of Contents Page Ni. Preface ............................................. i Evaluation Summary ..................................... iii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity .......... ........................ 1 2. Background . .................................... 1 3. Project Objectives and Description ...................... 5 4. Project Design and Organization ....................... 6 5. Project Implementation ............................. 8 6. Project Results .................................. 10 7. Project Sustainability .............................. 13 8. Bank Performance ................................ 13 9. Borrower Performance ............................. 14 10. Project Relationship ............................... 14 11. Consulting Services ................................ 14 12. Project Documentation and Data ........................ 16 13. Lessons Learned ................................. 16 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . 17 PART mI: SUMMARY OF STATISTICAL INFORMATION ... ....... 27 Table 1 Related Bank Loans ........................... 28 Table 2 Loan Data .......... ....................... 29 Table 3 Cumulative Estimated and Actual Loan Disbursements ... ... 31 Table 4 Project Implementation ......................... 32 Table 5 Project Costs and Financing ...................... 33 Table 6 Project Benefits .............................. 34 Table 7 Status of Loan Conditions ....................... 37 Table 8 Use of Staff Resources ......................... 38 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.   MEXICO AGRICULTURAL EXTENSION PROJECT, PROCATI (LOAN 2859-ME) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Agricultural Extension Project (PROCATI) in Mexico (Loan 2859-ME) in the amount of US$20.0 million equivalent, which was approved on June 25, 1987 and signed on July 31, 1987. The loan was closed on June 30, 1993, one year behind schedule, and fully disbursed on November 22, 1993. The PCR was jointly prepared by the Agriculture and Natural Resources Operations Division (LA2AG) of the Latin America and Caribbean Regional Office (Preface, Evaluation Summary, Parts I and III) and the Borrower (Part II). Preparation of this PCR has been based on the findings of a mission to Mexico by a Bank Consultant, interviews with government officials and Bank staff, and the review, inter alia, of the project Staff Appraisal Report (SAR), the President's Report, the Loan, Guarantee, and Implementation Agreements, supervision reports, correspondence between the Bank and the Borrower, internal Bank memoranda, and Borrower's reports received in the field.   -iii- MEXICO AGRICULTURAL EXTENSION PROJECT, PROCATI (LOAN 2859-ME) EVALUATION SUMMARY Loan Objectives 1. As a pilot designed to strengthen Mexican agricultural extension and adaptive research effort, an Agricultural Extension Project (PROCATI) was appraised in October 1986. Signed on July 31, 1987, the Loan became effective on August 28, 1987. 2. The PROCATI project had seven principal objectives aimed at testing strategies to enhance the quality and cost effectiveness of agricultural extension services in 20 of the 192 rural development districts (DDRs) in Mexico. Those objectives were: (a) to better understand farmers' needs before implementing extension programs by involving farmers in design and evaluation of extension and research; (b) to improve the quality of extension staff through selection, training, and technical support; (c) to focus extension on priority areas, farmers' groups and women's organizations; (d) to stimulate greater sharing of extension costs by farmers and State Governments, and increase competition from private technical assistance groups; (e) to streamline the operations of the Secretariat of Agriculture and Water Resources (SARH) based on (i) the actual needs of farmers at the district level and (ii) cost effectiveness criteria; (f) to improve coordination among extension, farmers, research, input suppliers and credit agencies; (g) to focus adaptive research on validation and diffusion of technology by actively involving researchers and extension agents in demonstration plots in farmers' fields. Implementation Experience 3. Implementation of the US$ 73.8 million project was satisfactory after an initial and serious problem with implementation due to the lack of counterpart funds. Although the project became effective in August 1987, there was no project budget number until late in  -1v- 1988 and counterpart funds were not made available until 1989. Instead of the envisaged four and one-half years implementation period, the project was really implemented over 3 years (1989 through 1991), during which time the availability of funds was adequate. Although the original project completion date of December 1, 1991 was extended one year, until December 31, 1992, the final year was dedicated primarily to completion of civil works and in-service training to strengthen the central extension organization and had only a minor effect on the 25 DDRs eventually included in the project. The loan closing date was extended to June 30, 1993, twelve months behind the schedule at appraisal. The total of US$ 20 million was fully disbursed on November 22, 1993. 4. A second major implementation difficulty was that SARH, the implementing agency, underwent four reorganizations during the project life. The frequency of personnel changes broke the continuity of project management and made the project less sustainable. 5. A third major implementation difficulty was in the use of a unified system for project monitoring and evaluation. The system was never fully incorporated into the functioning of SARH, and evaluation of the project's impact is necessarily incomplete, therefore. 6. Subsequent operations, notably the Agricultural Technology Project (ATP, Loan 3465-ME) have incorporated lessons from this experience into their design, management, and Bank supervision (see Part I, paras. 5.01 through 5.07). Results 7. Considering the initial difficulties with implementation and budget, project results were satisfactory. Key Indicators show that component objectives were achieved at rates of 75.2% for research, 89.3% for technical assistance, 106.9% for organizational development, and 77.5% for training. The project envisaged technical assistance being provided to 20 districts. By the end of 1988, this number had been increased to a total of 25 districts. This increase was justified by the successful completion of acceptable feasibility studies in five additional districts and the depreciation of the peso with respect to the dollar. 8. Results from the training and technical assistance components in the forestry subsectors were consistently weaker than in crops and livestock; the ATP is doing more in the forestry subsector and sector work on forestry and natural resources is further identifying research and extension needs. While the technical assistance to women's agroindustrial units (UAIMs) far exceeded project goals, staff opinions of the component were unfavorable. 9. Three main indicators of project impact--producers' opinions, financial benefit-cost ratios for individual crops, and project economic benefits--were positive. PROCATI farmers were much more likely to practice only rainfed agriculture than irrigated, indicating project success in reaching the chief target population. PROCATI farmers used more improved maize and wheat seed than non-PROCATI farmers but the differences were not statistically significant; PROCATI farmers did use significantly more weed control. PROCATI  _v producers were significantly more likely to receive extension services than non-PROCATI producers. For producers receiving some form of extension, both PROCATI and non- PROCATI, there was no difference in the quality of extension services or in producers' knowledge of research results. 10. Average financial cost-benefit ratios for maize, beans, wheat, and sorghum calculated for six DDRs in 1990 and nine in 1991 did not give conclusive evidence about project impact. Ratios achieved by producers in PROCATI were higher than those achieved by non- PROCATI producers in four crops in 1990 and two in 1991. With respect to economic benefits to the project as a whole, 29 of the 31 economic benefit-cost ratios to extension were greater than one, i.e., extension had a positive economic impact in nearly all instances. Comparing the PROCATI program to the regular program, PROCATI has a higher cost- benefit ratio in 11 of 15 comparisons, though the mean differences between the PROCATI and regular programs were not significantly different in 1991, in 1992, or for the two years combined. The main conclusions are that extension had a nearly universal positive economic impact, but that the impact of PROCATI extension was not significantly different from that of the regular extension program. 11. As envisaged in the Staff Appraisal Report (SAR), some extension services have been transferred to the private sector. Although an institutional evaluation pointed out that this transfer ranked low in quality as a component, the Cajeme District in Sonora, which is an irrigated district with wealthier producers who can be expected to pay for extension, reported about 90% of the extension technical assistance salaries are now being paid by the private sector. 12. Consulting contracts were signed with the Colegio de Postgraduados (CP) to design and put into operation a system of project monitoring, with the Instituto Interamericano de Cooperacion para la Agricultura (ICA) to provide services in institutional strengthening, and with the Fundacion Mexicana para el Desarrollo Rural (FMDR) to provide technical assistance and training in two of the lesser-developed areas of Mexico. 13. Institutional strengthening became more of a source of short-term consultant resources than a program to develop the institutional capability of SARH. Reductions in staff at the central organization were compensated by employment of these and other staff paid from the IICA/SARH contract for institutional strengthening. As a result, the capability of SARH to continue as a strengthened organization was dependent upon the availability of funds from IICA to pay for operating costs. 14. A project monitoring system was designed by CP which was simple and featured the capability of being managed by relatively inexperienced personnel. Though training was given in theoretical and practical use of the system, project management failed to use the system completely. Monitoring was further hampered by technical problems and lack of trained personnel.  -vi- 15. FMDR's role in project implementation was small but effective and reached some of the poorest population of the project area. As a model of what could be done to assist in development, the FMDR contract was an excellent example of how bureaucratic processes could be reduced thus assisting in the effectiveness of a technical assistance program. As a result of FMDR's contribution, an increase in animal production is expected over the next ten years in the range of 25-50%. Project Sustainability 16. Project sustainability depends upon: (a) future extension funding to create adequate incentives to retain trained staff in the public extension service; (b) continuity of public extension; and (c) transfer of extension costs to wealthier private producers and the ultimate development of a private extension service to serve those producers. The project was to have solidified the funding base of public extension by concentrating it on poor farmers and by providing salary, working conditions, and training incentives for staff. By its pilot nature, the project could not achieve those objectives by itself. The only realistic expectation is that it could demonstrate the successful solution of some of the well-known problems of the extension service in the mid-1980s. A positive factor was that project objectives were constant throughout implementation. Findings and Lessons Learned 17. The main project lesson is that a timely and adequate project budget is necessary for successful implementation. While the project had a strong initial commitment from the government at negotiations, that commitment was not respected during 1988, which was the first full year of implementation. The same problem has occurred with other Bank projects with even stricter budget commitments. The budget issue can best be addressed at the institutional level, i.e., between the Bank and the Borrower in a dialogue that covers all projects. A second lesson is that institutional stability is crucial. Though one of the project objectives was to assist development of a unified national extension system, that objective was not successfully met because of several reorganizations of the project unit with SARH. A third is that effective project evaluation depends upon adoption of a unified monitoring system. Once agreed to, an organization should not abandon the system arbitrarily, nor should several evaluation systems be used in a single project such as the PROCATI project.  MEXICO AGRICULTURAL EXTENSION PROJECT, PROCATI (LOAN 2859-ME) PROJECT COMPLETION REPORT PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity Project Name: Agricultural Extension Project, PROCATI Loan No.: 2859-ME RVP Unit: Latin America and the Caribbean Country: Mexico Sector: Agriculture 2. Background 2.01. Mexico enjoyed more than three decades of high economic expansion after World II, with annual GDP growth averaging 6.5% from 1965-1980. An import substitution strategy was followed during this period. Central administrative controls were often used to guide economic resource allocation. By 1970, Mexico had exhausted the easier possibilities for import-substitution. The Government then attempted to stimulate the economy by expanding public sector expenditures and by encouraging even more import-substitution. The strategy of domestic stimulus failed and in 1976 Mexico experienced a serious financial and economic crisis. 2.02. The major oil discoveries in 1977 temporarily relieved the serious financial and economic problems of the mid-1970s. The oil boom led to a short-lived economic recovery, further stimulated by an expansion of foreign borrowing. The external borrowing lessened the urgency of major economic adjustments. Public external debt grew from US$40 billion in 1979 to US$78 billion in 1981. This rapid expansion was ended by rising world interest rates and the simultaneous decline of oil prices which forced the government of Mexico (GOM) to declare a moratorium on its external debt service in 1982. Associated with the govemment's growing indebtedness, inflation escalated from 29% in 1981 to 159% in 1987, real wages fell, and GDP growth averaged only 1 % in the 1980s. 'he Govermnent's Economic Stabilization and Reform Programs 2.03. The govemment that came to power at the end of 1982 began measures to redress the country's financial and economic deterioration. The International Monetary Fund (IMF)  - 2 - supported a stabilization program, launched in 1983, that stopped the deteriorating fiscal and payments trends briefly. External creditors accepted a comprehensive restructuring package. By 1985, however, inflation began to recur. The Government then adopted a deeper stabilization program designed to eliminate structural rigidities in the economy. The program comprised a move towards integration with the world economy and a disengagement of the state from the economy. Major trade reforms--notably joining the General Agreement on Tariffs and Trade (GATT) in 1986--were undertaken to open the economy and to encourage efficiency in export and import-substitution activities. Beginning in the second half of the 1980s, Mexico became one of the more open economies in the world. Trade liberalization lowered the coverage by import quotas of domestic (non-oil) tradeable production from 100% in 1984 to less than 15%. Non-oil merchandise exports, which were less than one third of total exports in 1984, have doubled their share. 2.04. In December 1987, the Government reached an Economic Solidarity Pact (PACTO) with labor and business to cut inflation which had then run into triple digits.' The PACTO included tightening of fiscal and monetary policy and renewed efforts to liberalize trade, de- regulate credit and divest public enterprises. These measures were supplemented by a temporary freeze of minimum wages and of public sector service prices and, initially, by a fixed nominal exchange rate against the US dollar. Performance under the PACTO has often exceeded expectations, even given the further decline in oil prices and the high real interest rates on foreign debt at the end of 1988. The fiscal deficit was brought in line with the PACTO's low inflation targets and the PACTO was extended at three months intervals through 1988. 2.05. In December 1988, the PACTO was renewed and refocussed to improve the budget situation and to consolidate price stability. Under this renewed PACTO--now called Economic Stabilization and Growth Pact (PECE) most prices have been decontrolled, while the levels of public sector prices and the minimum wage have been partially adjusted for inflation. The PECE has been extended several times and is still in force.2 The PACTO/PECE measures have helped reduce inflation from 159% in 1987 to 52% in 1988 and to 20% in 1989. Although inflation rose to 25% in 1990, it later fell to 19% in 1991 and to less than 10% in 1993. The Agricultural Sector 2.06. Mexican agriculture expanded at over 4% annually after World War II until the mid- 1960s, in excess of the population growth rate of about 3%. Output growth resulted largely from the expansion of cultivated area: irrigated area increased by 4.5% annually from 1947 to 1965 and total harvested area grew at more than 6.3%. Beginning in the mid-1960s, 1. Mexico's reforms included an international debt management strategy, which is described in the Project Completion Report of the Public Sector Enterprise Reform Project (Loan 3086-ME). 2. In the most recent renewal, in mid-October 1992, there was a move to a more flexible exchange rate system, with an explicit band where the ceiling is being raised by MexSO.4 per day.  - 3 - agricultural GDP growth fell to around 3.0% between 1965 and 1980 and to less than 1.0% during 1980s. The slippage in agriculture's growth was due to limits on suitable land for expansion, to the rising cost of irrigation development, and to the cumulative effects of the inefficient agricultural policies of the past three decades. 2.07. The main agricultural policy objective in the 1950s and 1960s had been to maintain low prices for consumers and high prices for producers. To implement those policies, Mexico had a tightly state-controlled agricultural policy with major interventions in production, credit, technology, inputs, storage, and processing. Principal policies were: (a) guaranteed prices of 12 major crops (maize, beans, wheat, barley, rice, sorghum, soybeans, safflower, cottonseed, copra, sunflower and sesame), implemented by government purchases of 15% to 50% of output, usually above world levels, thus distorting resource allocation; (b) parastatal intervention in the production, processing, and marketing of cotton, tobacco, coffee, feeds, tropical fruits, seeds, cocoa, and basic grains (maize, beans, wheat, sorghum, and soybean) that were inefficient and harmed incentives for private investment in those activities; (c) public investments in land clearing, that may have pushed agriculture onto marginal lands giving low economic return; (d) heavy subsidies through provision of below market costs of credit, fertilizer and pesticides, irrigation, machinery, and livestock development, induced allocative efficiency costs; and (e) fixed prices of basic foods, implying subsidies to consumers, covering more than half of agricultural production in 1987, a level only slightly less than previous years. 2.08. Other policies had indirect negative effects on agriculture. An overvalued exchange rate discriminated against the production of agricultural tradeables. Quantitative restrictions affected 100% of agricultural and industrial production, thus damaging the domestic terms of trade for agriculture. Input subsidy costs and the costs of maintaining subsidized agricultural parastatals added to the fiscal deficit. The net effect of indirect intervention was to suppress private initiatives in agriculture and to retard growth. 2.9. The economic crisis of 1982 eliminated some of the dual subsidies to producers and consumers as the budgetary crises also cut the government's ability to support farmers. The  -4 - GOM began major policy reforms of its agricultural sector in the mid-1980s. Its chief goals were to: (a) improve resource allocation efficiency by strengthening market mechanisms and cutting govemment intervention in markets; (b) increase productivity by raising public and private investment; and (c) reach the poorest consumers by increasing income transfers through targeted food subsidies. 2.10. The role of the Bank in assisting those reforms is described in the following section. The Role of the Bank 2.11. Prior to approving the PROCATI Loan, the Bank played an important role in Mexican agriculture between 1976 and 1986, when it loaned US$2,727 million for 20 projects. To deal with the financial and economic crisis beginning after 1982, there was an increasing need for the Bank to support structural adjustment loans. For political reasons, however, the GOM did not want structural adjustment loans, but preferred that long-term issues be addressed through sector adjustment loans.3 These sector adjustment operations formed a policy package to build the framework for the increase in private investment necessary to spur growth. The first such loan affecting agriculture was AGSAL I (Loan 2918-ME) approved in FY88 for US$500 million followed in 1991 by AGSAL II (Loan 3357-ME) for US$400 million. These loans were associated with a broad policy dialogue on agricultural prices, trade, and food consumption policies. 2.12. The Bank made several investment loans to help restore agricultural growth. Three operations helped to improve humid tropical agriculture. The first Integrated Development Project for the Humid Tropics (PRODERITH I, Loan 1553-ME, approved for US$55 million in April 1978) sought to exploit the potential of the wetter areas by investing in drainage, roads, and agricultural extension. It contributed to the conceptual foundation of PROCATI by showing that farmers could significantly increase their average yields of annual crops such as maize, sorghum and beans through better access to extension and through proper linkages between research and extension. This project completed successfully and led to a second phase (PRODERITH II, Loan 2658-ME, approved for US$109 million in March 1986) that began in 1986. The second project sought to extend the methods and results of PRODERITH I to a wider area of tropical Mexico. A third, Chiapas Rural Development (Loan 2526-ME, approved for US$90 million in April 1985) sought to better production in Chiapas state, one of the country's poorest. 2.13. The Bank supports several other major operations designed to focus government policy on public goods and to raise sectoral efficiency. It is financing an Irrigation and 3. Sce the Project Completion Report of the Agricultural Sector Adjustment Loan (Loan 2918-ME) (November 10, 1992) for a complcte list of sector adjustment loans (including hybrid operations) to Mexico.  - 5 - Drainage Sector Loan (IDSP; Loan 3419-ME, approved for US$400 million in December 1991) designed to make irrigated agriculture more efficient through rehabilitation of works, new investment, and sectoral policy changes. An Agricultural Technology Project (ATP; Loan 3465-ME, approved for US$150 million in May 1992) seeks to: assist in generatirg technology through applied and adaptive research with emphasis on products and regions where private research is weakest; validate technology using adaptive research in collaboration with the extension service; transfer technologies to producers via extension; improve the capacity of public institutions by strengthening their ability to identify problems, manage scientific problems, and use research results from extemal sources; and to establish a sustainable improvement in funding for agricultural research and extension including participation by the private sector. A Regional Decentralization and Development Project (Loan 3310-ME, approved for US$350 million in March 1991) is assisting the govemment'3 largest poverty program in the four poorest agricultural states. 3. Project Objectives and Description 3.01. Although improved technical packages had been available to Mexican producers since the mid-1970s, adoption of these technical packages was slow, partly due to inefficient extension. The Bank and the GOM prepared an Agriculture Extension Services Subsector Report (Report No. 5255, November 1984) to review sources of inefficiency in the extension service. The report noted several problems that Mexico's extension service had in common with other developing countries. They were: inadequate funding; lack of staff training; poor targeting of public services to small and poor farmers; and poor linkages between research and extension. 3.02. The report further identified five specific needs in Mexico: (a) an improvement in training at the level of local staff and farmers, as opposed to professional training; (b) technical support to field extensionists from experts at the central and district levels; (c) methods to improve extension salaries and to establish a career path to attract and retain qualified staff; (d) better response to producers' needs by an increase in farmer participation; and (e) a regularization of field activities by making adequate operating expenses available in a timely manner. 3.03. Based on the report, SARH, with assistance from IICA, prepared a project aimed toward revitalization of agricultural extension as part of the program of economic recovery. The project was designed to be consistent with the government's move away from an agricultural policy based on subsidies toward one based on productivity-based growth. It was to be an important part of the investment counterpart to the Bank's strategy to promote policy reform (see para. 2.11). Broadly, PROCATI recognized the need to: improve productivity on cultivated areas as opportunities for area expansion disappeared; assist SARH in  improving extension and research services; alleviate poverty among project beneficiaries; and streamline SARH. 3.04. PROCATI was a pilot project aimed toward testing strategies to enhance the quality and cost effectiveness of agricultural extension services in 204 of the 192 Rural Development Districts (DDRs) in Mexico. Farm incomes would increase through transfer of profitable production techniques to a greater number of farmers. Its detailed objectives were: (a) to develop a better understanding of farmers' needs prior to implementing extension programs; (b) to improve the quality of extension staff; (c) to focus extension on priority areas, farmer groups and women's organizations; (d) to stimulate greater sharing of extension costs by farmers and State Governments, and increase competition from private technical assistance groups already operating in certain areas; (e) to strcamline SARH's operations based on (1) the actual needs of farmers at the district level and (2) cost effectiveness criteria; (f) to improve coordination between extension, farmers, research, input suppliers and credit agencies; and (g) to focus adaptive research on validation and diffusion of technology. 4. Project Design and Organization 4.01. The project had five components designed to respond to the specific problems identified in the sector work, to support the government policy reforms intended to raise productivity, and to meet project objectives (see para. 3.04). They were: (a) Extension; (b) Institutional and Manpower Development; (c) Research; (d) Monitoring and Evaluation; and (e) Technical Assistance and Studies. 4.02. Extension. The project was envisaged to implement the Training and Visit (T&V) system. Experiences gained and successes achieved through other operations dealing with extension (PRODERITH I and PLANAT (Loan 1945-ME)) were integrated into the conceptual framework. Improved extension methods were to be targeted toward priority farmers, notably the poor and women. 4.03. Institutional and Manpower Development. Institutional development was to take place at three levels. At the central level, the project was to assist with the streamlining of SARH's operations and with preparation of general job description and skill-gap profiles. At the state and district levels, it was to assist with decentralization of extension to the DDRs, which would receive logistical support from the center to strengthen the effectiveness of their 4. By January 1989, the number of districts under the project had been increased from 20 to a total of 25.  - 7 - field extension staff. Field staff, individual farmers, and producers' organizations would also receive training to reduce skill-gaps related to technology transfer. 4.04. Research. Background work for the project recognized that closer collaboration between research and extension (see para. 3.04) and more adaptive research to fit farmers' needs was required. Accordingly, an adaptive research component was designed, to be implemented by the National Institute for Research on Crops, Livestock, and Forestry (INIFAP) in collaboration with extension agents. It was to develop results more for farming systems and less for single commodities; work more on forestry and livestock in marginal areas; develop profitable technical packages; and work on integrated pest-management (IPM), including biological pest control methods as an alternative to chemical control. An additional problem identified in the sector work affecting the research system was lack of operating costs. Under the project, that problem was to have been resolved by having all of INIFAP's incremental costs related to the project reimbursable under the loan. 4.05. Monitoring and Evaluation. Close monitoring and early evaluation of the project were imperative because of its pilot nature. Each DDR project unit was to monitor the project in a manner consistent with the goal of decentralizing extension activities to the state and district levels. In addition, the CP was contracted to evaluate the impact of the technical packages promoted under the project. 4.06. Technical Assistance and Studies. The project further provided for technical assistance and studies to support institutional and manpower development, preparation of DDR feasibility studies, administration and personnel policy, agricultural legislation and its impact on extension, evaluation of cost-recovery, a study of extension methods, and other short-term consultancies. 4.07. Although the project was designed chiefly to assist poorer farmers, some features affected the use of public extension by richer growers. Those were the goals of: (a) increasing cost sharing from richer producers; (b) promoting more direct technology transfer from research to farmer groups; and (c) stimulating private extension services to richer farmers by gradually withdrawing subsidized public extension from the better areas. 4.08. The overall design of the project was sound. Project design was accepted by the executing agencies at the federal level; the design was successfully communicated to government authorities at the state and district levels through preparation of the district feasibility studies (see para. 5.01) at which time those authorities participated in the design of the project. It was well prepared in that the timing was appropriate in that it was consistent with the macroeconomic reforms undertaken by the GOM during the mid-1980s. One of its major features--the effort to reduce and decentralize the SARH bureaucracy and to target public extension toward poorer farmers--was well accepted by participants as being consistent with policies at the time of preparation and during implementation. It was based on a careful identification of defects in the extension service, notably the lack of a sustainable staff development program. The project was appropriately targeted to two of the  - 8 - major agricultural regions in which stronger extension and adaptive research could reasonably be expected to produce a positive economic return. 5. Project Implementation 5.01. The project was appraised on the basis of two DDRs--Cajeme in Sonora state, chosen to represent the highly productive irrigated agriculture of northwest Mexico, and Huamantla in Tlaxcala state, chosen to represent the less productive rainfed agriculture of semiarid central Mexico.5 At appraisal, it was intended that 18 additional districts would enter the project in 1988 and 1989 based on feasibility studies to be done in candidate districts. Those feasibility studies were successfully done for 23 additional districts; 11 districts entered the project in January 1988 and 12 entered in February 1989 (see para. 5.11). 5.02. The loan became effective in August 1987. There were immediate difficulties with implementation, due to the uncertainty within the government about the impending elections of 1988 and the resulting change of government in December of 1988. Funding was not available in the 1987 budget--despite assurances at negotiations that it would be--or in 1988. Project commencement was therefore effectively delayed until 1989. In recognition of slow implementation with respect to appraisal targets, and the addition of 5 more districts, the project completion date was eventually extended from December 31, 1991 to December 31, 1992. Although the project was to have been implemented over 4.5 years, the lack of funding in 1987 and 1988 meant that implementation took place only from 1989 through 1991, with only minor activities in 1992. There were no major problems with audit or most procurement, including contracting of consultants. The chief procurement problem concerned vehicles (see para. 12.04, 1). 5.03. The following sections discuss the principal implementation difficulties with the operation and the lessons learned from them. 5.04. Project budget. Although GOM gave assurances that funds would be made available in 1987, a specific budget commitment should have been a condition of effectiveness, especially as project budget availability had been noted as a project risk in the SAR. Subsequent Bank operations in Mexican agriculture have established more explicit budget commitments (e.g., the Irrigation and Drainage Sector Project and the Agricultural Technology Project). It has to be recognized, however, that even stricter commitments have been difficult to respect in light of the GOM's tighter macroeconomic objectives in the early 1990s. 5. The humid tropics of Mexico were excluded from thc project area because they were covered by the PRODERITH I and 11 projects, and by the Chiapas Rural Development operation. The arid areas without irrigation were excluded because their productive potential was deemed too low.  - 9 - 5.05. SARH reorganizations. A further implementation problem was caused by the four SARH reorganizations during the project implementation period. Though the roles of the institutions involved in project implementation were clearly identified, each change in SARH administration brought new personnel into the project and disrupted continuity. Unfamiliarity with the project delayed support from the central headquarters until routines could once again be established. A permanent project coordinating unit would have maintained continuity throughout the reorganizations. In the ATP, the Bank and the GOM have agreed on setting up a project unit for better continuity in project management. 5.06. The SAR recognized that the extension service was technically strong but imperfectly managed (see para. 4.03). Management was weakened further by changes in leadership during the project, instead of being strengthened through training and technical assistance as intended under the project. Another management difficulty was the failure to develop a close working relationship between research and extension within SARH and INIFAP (see para. 4.04), though working links between research and extension at the district and state levels were much closer. The project unit in the ATP is making an effort to improve collaboration between the research and extension components of that project; early indications are that the effort is successful.6 5.07. Project monitoring. In October 1988, an agreement was signed between the CP and SARH for monitoring the project DDRs. The CP trained 46 persons, including 17 from the rural development districts, in use of the system. Much of the DDR data was collected and interpreted with varying methods because the project monitoring system was never fully adopted. This has made results of the project evaluation less reliable and less useful for the subsequent ATP. Reasons for failure to use the system fully were: (i) changes in PROCATI personnel on four occasions during implementation; (ii) failure on the part of the PROCATI central headquarters to officially instruct the DDRs to use the system as designed; (iii) resignation of 14 persons trained in the operation of the system; (iv) failure of 3 DDRs to employ personnel to operate the system; and (v) diversion of computer time to other uses. 5.08. The design of the monitoring and evaluation effort was too ambitious and lacked initial input from the DDRs. Repeated changes in project management impeded its development and effective use. The ATP is now developing a management information system (MIS) for INIFAP. The MIS seeks to avoid the errors of PROCATI by being limited to a single component (research), by being developed with careful consultation and testing at all levels of INIFAP to ensure its relevance, and by having supervision of a single consultant by the ATP project unit. 5.09. Information dissemination. Producers complained that technology was not disseminated in a timely fashion. Extension publications are of poor quality due to the lack of proper equipment in the DDRs. Wider use of nationwide radio and television, as planned 6. The extension system used was basically extension to groups of farmers using demonstrations and discussions, supported by mass media and some formal courses at training centers.  - 10- at appraisal, would have assisted in disseminating information to a wide audience in reduced time. The ATP has funding to improve the information dissemination services of the extension service. 5.10. Extension staff training. An improved quality of extension staff through better training was one of the main objectives of the project. Though the revised targets for numbers of extension technicians to be trained were not achieved under the project, extension staff receiving training were satisfied with the quality and coverage of the training. The failure to achieve the targets was due to lack of resources, but the training component, as reviewed during Bank supervisions and in the CP evaluation, was considered to be a highly successful one. 5.11. Increase in number of DDRs. The project originally envisaged 20 DDRs. The number grew to 25 by February, 1989. Given the funding shortfalls in the initial years, it might have been more prudent to have held the number of districts at 20 in light of the possible difficulties with counterpart funding over the longer-term. The request was made by the Government based on the acceptable feasibility studies in the additional 5 districts and the real depreciation of the peso. 5.12. Alternate income sources. Falling world prices for commodities harm farmers who depend on one or few products. The extension service was historically too inflexible to provide new information to allow producers to diversify or to make reliable recommendations about alternative income sources. One objective of PROCATI was to make extension more responsive to producers' needs, and this did succeed (see para. 6.01). The GOM's efforts to move some public extension activities to the private sector, as supported by the Irrigation and Drainage Sector Loan and by the proposed Rainfed Areas Development operation, are improving this situation. 6. Project Results 6.01. Overall objectives. Some of the broad objectives of the operation (see paras. 3.04.(a), 3.04.(c), and 3.04.(e)) were to better understanding of farmers' objectives, to focus extension on priority areas, and to streamline SARH's operations. The chief instrument to develop a better understanding of farmers' needs was the successful preparation of the district feasibility studies (see para. 5.08.). These studies served as the basis of project implementation in each district and project supervision showed extension staff were aware of and responsive to producers' needs. The objective of focussing on priority areas and poor farmers' groups was sometimes met in that the choice of rainfed DDRs is a good selection mechanism to reach poorer farmers; the subsequent ATP has extended this to put even greater emphasis on poorer rainfed areas. The objective of streamlining SARH's operations based on cost-effectiveness criteria was not met as the executing agencies did not undertake cost analyses of extension work done under the project or under other auspices.  - 11 - 6.02. Improving staff quality. The project sought to improve the quality of staff through institutional and manpower development (see para. 3.04.(b). A major effort was made to train extensionists and farmers in the crop, livestock, and forestry subsectors (Part III, Table 4). The actual levels of training provided to both producers and technicians were far below appraisal estimates in those sectors, indicating that the latter had been unrealistically high. The unrealistically high estimates were apparently caused by an over-projection of the prospects for training under the project based on the initial feasibility studies of only two DDRs. 6.03. Results were similar for training of forest producers, but not for training of forestry staff, where less than 50% of the target staff were trained. This indicates an incapacity to marshal the higher-level expertise needed to train forest extensionists; this issue was raised during project supervision and is being dealt with in the ATP. Training of technicians in project management, monitoring, and evaluation provided by ICA (Part III, Table 6.G) was largely successful; because of high staff turnover, however, the training has less sustainable impact than it should have, especially with respect to the computerized monitoring and evaluation system of the project (see para. 5.07). The institutional development aspect of the project was less successful because of the frequent turnover in central project management (see para. 7.01). 6.04. Private technical assistance. One project objective was to stimulate greater sharing of extension costs by farmers and state governments, and to increase competition from private firms already operating (see para. 3.04.(d)). Some extension services have been transferred to the private sector, though this was occurring before PROCATI. The transfer continued largely independently of the project, though the latter may have had some limited effect on it. Although an institutional evaluation pointed out that this transfer ranked low in quality as a component, the Cajeme District in Sonora, which is an irrigated district with wealthier producers who can be expected to pay for extension, reported about 90% of the extension technical assistance salaries are now being paid by the private sector. 6.05. Adaptive research. The revised quantitative targets of this component were not fully met (Part III, Table 5). They were only achieved at a rate of 61 % in livestock, 76% in forestry, and 83% in crops, because of the shortened effective implementation period of the project. Despite the shortfall in meeting some targets, this subcomponent was a useful means of validating new technologies, of demonstrating them to producers and to extension staff in collaboration with researchers, and of providing information from producers and extensionists to researchers outside experimental stations. The adaptive research component contributed effectively to the objective of improving coordination among extension, farmers, and research (see para. 3.04.(g)). 6.06. Productivity results. The final index of project results is its impact on agricultural productivity. The CP evaluated the project's impact based on a sample survey of 6 DDRs in 1990/91 and 1991/92 (Part III, Table 6A through Table 6H). Three main indicators of impact were selected: (i) producers' opinions about farming practices, as an indicator of  - 12 - technical change; (ii) financial benefit-cost ratios for individual crops, as indicators of the financial profitability of the main crops as affected by the project; and (iii) project economic benefits, as a very partial indicator of the project's effect on economic growth--were generally positive about extension services in general, but showed no consistently and statistically significant difference between PROCATI and non-PROCATI extension. No global analysis of the impact of the project was carried out.7 6.07. With respect to farming practices, PROCATI farmers were much more likely to practice only rainfed agriculture than irrigated, indicating project success in reaching the chief target population of rainfed producers. PROCATI farmers used more improved maize and wheat seed than non-PROCATI farmers but the differences were not statistically significant; PROCATI farmers did use significantly more weed control. PROCATI producers were significantly more likely to receive extension services than non-PROCATI producers. For producers receiving some form of extension, both PROCATI and non- PROCATI, there was no difference in the perceived quality of extension services or in producers' knowledge of research results. 6.08. Project impact on crop yields was measured in the two districts--Cajeme, Sonora for the irrigated areas and Huamantla, Tlaxcala for the rainfed areas (see para. 5.01)--used to appraise the project.8 In the rainfed district, the evidence about project impact on yields was mixed (Part III, Table 6B); wheat yields were above targets in all three years, but below the targets for maize in two of three years. There was no consistent positive impact in faba or beans. In the irrigated district, (Part III, Table 6A), actual maize, soybean and cotton yields were below the targets in 1989 through 1991; actual wheat yields were below target yield in two of the three years. The failure to observe a positive effect of extension on crop yields may have been related to the elimination of fertilizer subsidies during the years of project implementation. 6.09. Average financial cost-benefit ratios were calculated for maize, beans, wheat, and sorghum grown by PROCATI and non-PROCATI producers in six DDRs in 1990 and nine in 1991. The calculated ratios varied from 1.11 to 2.21 in 1990 and 1.17 to 1.88 in 1991 (Part III, Table 6F). PROCATI ratios were greater in four crops in 1990 and two in 1991, but there was no significant difference between PROCATI and non-PROCATI farmers. No conclusion can be drawn from this result about PROCATI extension in particular. 6.10. With respect to economic benefits to the project as a whole, 29 of the 31 economic benefit-cost ratios to extension were greater than one, i.e., extension had a positive economic impact in nearly all instances. Comparing the PROCATI program to the regular program, PROCATI has a higher cost-benefit ratio in 11 of 15 comparisons, though the mean 7. A non-PROCATI producer is one who is in a DDR in which PROCATI is active, but who does not participate in the project. 8. Analogous estimates of productivity gains in livestock and forestry were not made at appraisal for lack of proven extension packages for the major commodities in those subsectors.  - 13 - differences between the PROCATI and regular programs were not significantly different in 1991, in 1992, or for the two years combined. The main conclusions are that extension had a nearly universal positive economic impact, but that the impact of PROCATI extension was not significantly different from that of the regular extension program. 7. Project Sustainability 7.01. The project was a pilot designed to test new approaches to bettering public extension. The long term sustainability of those approaches depends upon: (a) continued funding to maintain trained and motivated staff in public extension; (b) continued mandate and structure of public extension; and (c) transfer of extension costs to wealthier private producers and the ultimate development of private extension to serve those producers. The project was to have solidified the funding base of public extension by concentrating it on poor farmers and by providing additional salary, working conditions, and training incentives for staff. By its pilot nature, the project could not achieve those objectives by itself. Given the government's weak initial budget commitment to the operation (and to the follow-up ATP) and the many organizational changes during the project, PROCATI did not succeed in promoting a sustainable mandate or funding. The transfer of extension services from the public to the private sectors is proceeding slowly and PROCATI had some limited positive effect on the transfer. 8. Bank Performance 8.01. Bank performance in project preparation was good. PROCATI was supported by adequate sector work and was designed adequately in collaboration with the relevant government agencies, with one major exception. The project was part of a consistent Bank strategy to support the agricultural policy reforms. While the sectoral adjustment operations were important to advance reforms, they needed complementary investment operations, such as PROCATI. 8.02. The project had good staff continuity and regular supervision missions during the implementation period. Only two Task Managers were in charge of the project throughout implementation. Supervision missions were timed at 6 months or less during the project and had good contact with the various project components, agencies, and DDRs. Bank staff were in regular contact with project management during missions for other operations, and for sector work on agricultural technology (Report 9297-ME of August, 1992), and by other means. Extensive field visits were made during supervision missions to check progress in the districts, at associated INIFAP research sites, and in project headquarters. Given the relatively small size and brief duration of the project, the supervision plan, which did not include an annual or mid-term review, proved adequate.  - 14 - 8.03. There were important shortcomings in the Bank's performance during implementation,9 nonetheless. A major shortcoming was the failure to seek additional supervision resources for the livestock, forestry and women's activities in the project and in the failure to meet project targets in forestry activities (Part III, Table 10). 9. Borrower Performance 9.01. Borrower performance in project preparation, notably in absorbing results of the initial sector work, identifying candidate project districts, and carrying out feasibility studies in them (see para. 3.01), was timely and of adequate quality to meet project objectives. There were several weaknesses in the Borrower's performance during implementation, however, due to the constant reorganizations of the executing agency (see paras. 5.05 through 5.09) and to the overall funding problems for the project. These weaknesses were seen in the monitoring and evaluation component and supervision of consultants, especially in that SARH lacked capacity to analyze technical and economic problems arising from project implementation and to take actions to resolve them. Another major weakness was the lack of contact between project management and the other branches of SARH, especially the General Directorates of Technical Assistance of Crops, Livestock, and Forestry. The ATP has been designed to correct that problem by establishing explicit institutional links between the research and extension services in a single project management unit; it also supports thorough studies of the impact of research and extension on agricultural productivity to establish the basis for policy actions. 10. Project Relationship 10.01. The Bank-Borrower relationship during this project was good. The project led to broader dialogue on extension and research, as seen in a Grey Cover Report on the Agricultural Technology Sector (Report 9297-ME, August 20, 1992) and to a much larger follow-up ATP, based in part on the lessons learned from PROCATI. Insights developed during PROCATI were used also in preparation of the Irrigation and Drainage Sector Loan. 11. Consulting Services 11.01. CP was contracted to monitor and evaluate PROCATI. In 1989, CP prepared a benchmark study of the 25 project DDRs. During the first semester of 1991, an intermediate evaluation of the project was done in six Districts. Beginning in the second semester and continuing until the first quarter of 1992, CP prepared a fuller evaluation from 19 of the remaining Districts. Of these 19 Districts, 9 were used for an economic and financial 9. One was the loss of the project preparation files during the 1987 reorganization, but this did not appear to have a measurable impact on implementation.  - 15 - evaluation (see para. 6.06). Noticeably missing from the CP final project evaluation were evaluation data pertaining to livestock and forestry. 11.02. Presentation of evaluation data. The final evaluation of the PROCATI project as presented by CP contains data which are presented in less than clear and understandable format. In August 1992, this evaluation was rejected by the Bank in that it failed to give the basis for a sound economic analysis of project impact. Even now, this evaluation cannot be used to draw conclusions regarding the full impact of the project or to design future projects with complete confidence. Project impact is being measured in the subsequent ATP through a more detailed study of the impact of agricultural research and extension on productivity. 11.03. HICA provided services in institutional strengthening, training, and special studies. Due to reductions in staffing of PROCATI at national headquarters and restrictions on hiring additional personnel, as a part of institutional strengthening, IICA contracted and paid for 739 person/months of salaries. In addition, the IICA contract paid for computers, office supplies, maintenance of vehicles, and other expenses as institutional strengthening. In effect the IICA contract served as a means of project management under contract. Sustainability will probably depend, to a large degree, on the amount of financial assistance which can be directed toward salaries and operating expenses of the organization, thereby reducing Government's responsibility for operational costs. 11.04. Training and Technical Assistance. IICA provided effective technical assistance for operational support to project management, including contracting consultants, procuring communications and computing equipment, and preparing the ATP. IICA also provided effective training to project technicians (Part III, Table 12). Both the technical assistance and training were much less effective than they may have been because of the frequent changes in project management and the associated departure of many trained technicians. 11.05. The Fundacion Mexicana para el Desarrollo Rural (FMDR) signed a one- year contract with SARH in June 1991 to provide technical assistance and training to two DDRs in two poor areas. FMDR began in San Luis Potosi and in Oaxaca states in August 1991. In San Lufs Potosf, projects included marketing, genetic improvement of stock, animal health, and pasture improvement. As a result of FMDR's efforts, animal production is expected to increase 25-50% in two years. In Oaxaca, 16 groups were selected comprised of 209 members. Projects included forage conservation, water use, animal health and nutrition, maintenance of records, and use of herbicides and fertilizers. Special assistance was given toward legalization of producer's groups to enable them to receive credit to expand herds and to make other necessary investments.'