Zambia - Agricultural Sector Investment Program

Document of The World Bank Report No.13518-ZA STAFF APPRAISAL REPORT ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM MARCH 13, 1995 Southern Africa Department Agriculture and Environment Division  CURREN'CY EQUIVALENTS Currency tJnit: Zambiani Kwacha (ZK) ZK1LO = US$(0014 US$1.(( = ZK700 FISCAL YEAR January I - D)ecember 31 WEIGIITS AND MIEASURES Metric Svstemi ABB3REVIATIONS AND ACRONYNIS ADF - African Developimient Funid ADP - Animal Draft lPower AFB)B - African Developmiienit Bank ASIP - Agricultural Sector Investment Plrogram ASPA - Agricultural Sector l'erforimianice Analysis ASSC - Agricultural Sector Steering Comimlittee BOZ - Bank of Zambia C. l F. Cost, Insurance, an(d Freight CPPR - Countrv Portfolio Performance Review CSO - Central Statistical Oft'ice Ct.ISA - Credit UnJioni and Savings Association ElJ - European Unioni FINNIDA - Finnishl International Development Agency GART - Golden Valley Agricultuiral Research Trust GRZ - Goverinimlent of the Republic of' Zambia GTZ - Deutsche Geselilschaft fur 'I'echnische Zusammenarbeit GmbH IBRD - Interinational Bank for Reconstruction and Development ICB - International Competitive Biddinlg IDA - Interinationial Development Association IFAD - Internationial Fund for Agricultural Development INI)ECO - Industrial Development Cooperation JICA - Japaan International Cooperation Agency Kl`W - Kreditanstalt f'ir Wiederaufhau LCB - ILocal Competitive Bidding MAFF - Ministry of Agriculture, Food and Fisheries M& E - Monitoring and EIvaluation MOL - Ministry of Lands MMD - Movement for Multi-Party Democracy Nl'AI' - National E:nvironmnental Action Plan NGO - Nongovernmental Organizationl NORAD - Norwegian Agency for Development NRAP - National Research Action Plan PMEU - Program Monitoring and Evaluation Unit SA - Special Accounit SIDA - Swedish Internationial Development Agency SOF - Statement of Expeniditure SMS - Subject Matter Specialist T&V - Traininig anid Visit (extensioni maniagemiient system) UNDP - United Nations D)evelopment Programme USAID - U.S. Agency for International Development ZCCM - Zambiani Consolidated Copper Mines ZCF - Zambhian Cooperative Federation  ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Table of Contents CREDIT AND PROGRAM SUMMARY ................................. i 1. BACKGROUND ............................................. 1 A. Introduction ............................................ I B. Economywide context ...................................... 2 C. The potential for growth ..................................... 6 D. Development constraints and strategy ............................ 8 E. Donor assistance strategy .................................... 9 F. Program performance and lessons learned .......................... 9 II. THE AGRICULTURAL SECTOR INVESTMENT PROGRAM ................ 10 A. Concept ............................................... 10 B. Rationale and objectives ..................................... 11 C. Summary description ....................................... 11 D. Detailed description ....................................... 14 E. Costs estimates ............... 21 F. Financing ............... 24 G. Procurement ............... 27 H. Disbursement ............... 29 III. IMPLEMENTATION ................ ..................... 31 A. Management and organization ................................. 31 B. Monitoring, evaluation, and beneficiary assessment .................... 34 C. Accounting, auditing, and reporting requirements ..................... 35 D. Program supervision . ...................................... 37 IV. BENEFITS AND RISKS .................. .................... 37 A. Benefit ............................................... 37 B. Environmental sustainability .................................. 38 C. Risks ............................................... 39 V. ASSURANCES, CONDITIONS AND RECOMMENDATION ....... ......... 40 A. Assurances obtained at negotiation .............................. 40 B. Condition of effectiveness .................................... 41 C. Condition of disbursement . .................................. 41 D. Recommendation . ........................................ 41 This report is based on the findings of an appraisal mission that visited Zambia in June/July 1994. The mission comprised Messrs/Mmes. N. Okidegbe, Senior Financial Analyst (Mission Leader); C. Helman, Special Advisor on Sector Lending; S. Bunyasi, Sr. Agricultural Economist; M. Macklin, Sr. Agriculturalist; R. Ranasinghe, Financial Analyst; 1. Shuker, Economist; R. Noronha, Sr. Land Use Specialist; V. Scarborough, Agricultural Economist; S. Riddle, Planning & Budgeting Specialist; J. Makanda, Financial Mgt. Specialist; V. Bindlish, Economist; T. Venn, Disbursement Officer; A. Fields, Procurement Officer; H. Binswanger, Sr. Advisor (Lead Reviewer/Advisor); A. Spurling, Pr. Agriculturalist and A. Abramovich, Sr. Economist (Peer Reviewers); G. Nkojo, Resident Rep.; and I. Moreithi, Sr. Economist. Ms. P. Mehrdadi provided secretarial support in the preparation of the report. Mr. J. P. Chausse and Ms. K. Marshall are the managing Acting Division Chief and the Denarnrnent Director respectively for the operation.  ANNEXES 1. Letter of Agricultural Sector Development Policy ....................... 42 2. Detailed Cost Tables ......................................... 51 3. MAFF Organizational Chart . .................................... 55 4. Outline of Program Implementation Manual and Schedule .................. 56 5. Financial Management Unit ............ ......................... 58 6. Supervision Plan . ........................................... 65 7. Monitoring and Evaluation . .................................... 67 8. Disbursement Schedule ......................................... 70 9. Economic Analysis ........................................... 72 10. Capacity Building . .......................................... 79 11. Environmental Mitigation Statement ................................ 81 12. The Agricultural Sector ......................................... 83 Documents in program files Subsector financing proposals on: Extension and Information Agricultural Research Animal Production and Health Irrigation Farm Power and Mechanization Marketing and Trade Standards New Products Development Agricultural Training Fisheries Policy and Planning Marketing and Trade (Food Security Agency) Rural Investment Fund  ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM CREDIT AND PROGRAM SUMMARY Borrower: Government of the Republic of Zambia. Implementing agencies: Ministry of Agriculture, Food and Fisheries (MAFF) and Ministry of Lands (MOL). Beneficiaries: Bank of Zambia, commercial banks and financial institutions, private agribusiness enterprises, smallholder and commercial farmers. Poverty category: Program of targeted interventions. The research and extension subprograms of the ASIP would focus on improving food security and reducing poverty among rural households through the promotion of affordable production technologies. In addition, through increased crop production and diversification, the ASIP is expected to improve the incomes of women farmers, who are the main providers for their families. Amount: SDR 41.2 million (US$60.0 million equivalent). Terms: 40 years. Commitment fee: . 0.50% on undisbursed credit balances, beginning 60 days after signing, less any waiver. Net present value: Not applicable. Project design based on cost-effectiveness. SAR: 13518-ZA. Map: IBRD 26328.   ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM I. BACKGROUND A. Introduction 1.1 The Agricultural Sector Investment Program (ASIP) described in this report is among the first in a new generation of investment operations that follow what is sometimes called an integrated sector approach. This approach, which aims at improving the effectiveness of public expenditures, has the following main characteristics (see para 2.1): * It covers all or most of the sector. * It is prepared by local stakeholders (the government, the private sector, and nongovernmental organizations). * It is supported by all donors active in the sector. * It minimizes reliance on international long-term consultants. * It involves common implementation arrangements. 1.2 The ASIP was initiated in Zambia in response to the strong dissatisfaction of both the Government and donors with the country's low agricultural growth rates. The low growth has been attributed to several causes. Past government policies were biased against agriculture and led to capital and labor disinvestment in the sector. The parallel management structures established for donor-supported projects and the heavy use of foreign consultants have hindered domestic capacity building. Moreover, development projects have been largely driven by donors, with the Government taking a responding rather than an initiating role. Considerable private investment at the farm level to rehabilitate capital stocks is needed to stimulate productivity and income growth. And this private investment needs to be complemented by public investment in key support services and rural infrastructure to improve and sustain the sector's supply response in the long-run. These issues are beginning to be addressed. The Government is rectifying policy weaknesses, and donors have agreed to greater collaboration. Through the ASIP, they will continue to tackle these issues.  - 2 - Box I Why a sector approach in Zambia 's agriculture? Before preparation of the ASIP started in October 1992, there were about 180 donor- financed projects in Zambia's agricultural sector. Most had a separate, parallel management structure, involved little if any sense of local ownership, and relied extensively on expatriate consultants. The Government had only partial knowledge of these projects, their costs, and their accomplishments. The donor-financed salaries of project staff were higher than government salaries and created frictions. Moreover, the government had to dedicate much of its planning and management capacity to satisfying donors' varied requirements; that left its staff little time to develop their own initiatives or to improve efficiency. To remedy this situation, the Government urged a gradual phasing out of the existing project structures and encouraged closer collaboration among donors, to make aid more efficient. The Government took steps to increase Zambian ownership of development initiatives. In response, the Bank initiated consultations with donors that led to a consensus on the need for an integrated sector approach. As the first step toward adopting this approach, the Government appointed a Zambian task force, drawing from both the public and the private sectors, to prepare the ASIP. 1.3 With copper and other minerals accounting for more than 90 percent of its foreign exchange earnings, Zambia faces an urgent but daunting need to develop altemative exports to lessen its vulnerability to unfavorable changes in the copper market. Its agricultural sector has the potential to become a major source of foreign exchange eamings. Zambia's underutilized base of renewable natural resources is more than adequate to support rapid growth in agricultural production in the shortrun and to ensure the sustainability of agricultural income and exports in the longrun. About three-quarters of a million hectares of farnland in Zambia are underutilized or abandoned, and more than 90 percent of irrigable land is not irrigated. Agricultural sector characteristics and institutions are discussed in annex 12. B. Economywide context 1.4 The ASIP represents a major commitment by the World Bank and other participating donors in support of an initiative by the Government to comprehensively restructure the public sector's role in Zambian agriculture. Therefore, even though the ASIP is not a policy-based structural adjustment credit, it is important to analyze the economywide context of the program. This analysis below assesses: * Macroeconomic framework. * The role of agriculture in the economy. * Fiscal stability and the fiscal affordability of the program. * Private investment in agriculture. 1.5 Macroeconomic framework. Since Independence in 1964, Zambia relied very heavily upon planning and administrative controls to manage the economy. The public sector, especially parastatal enterprises, embarked on investments aimed at generating economic growth and employment while international borrowings were used to finance public sector investments  - 3 - (frequently unproductive) and to support unsustainable levels of consumption. The economy's performance was also adversely affected throughout this period by its heavy dependence on copper whose real prices and production were declining, the latter as a result of insufficient investment to increase productivity and output. By late 1991, Zambia was suffering from high external debt burden (over US$7 billion), an inefficient and highly protected parastatal sector that dominated the economy, rapid declines in per capita income, increases in poverty, and unwillingness on the part of Government to take and hold to the policy decisions necessary to change the course of the economy. The election of the opposition party, the Movement for Multiparty Democracy (MMD) in November 1991, was seen as an overwhelming endorsement of MMD's economic reform program whose objectives are to restore internal and external economic stability, change the way the economy is managed, get the Government and parastatals out of business activity, promote the private sector, and focus Government's efforts on the creation of a positive enabling environment for private-sector business and the provision of the necessary infrastructure and social services. 1.6 Since early 1992, Zambia's overall policy performance has been mixed, even though the implementation of the policy reform agenda has remained on course. The direction of policy has remained clear, and the progress has been steady. The pace of liberalization and decontrol has been good. In particular, Zambia's macroeconomic performance in terms of fiscal balance and money supply growth has been strong. As a result, inflation declined from an average annual rate of over 100 percent in the previous four years to an annual rate of 22 percent in the last half of 1994. Interest rates have also declined (from over 200 percent in April to about 25 percent in December 1994), and this has strengthened the Government's ability to maintain budget discipline and to control the deficit. The Government has decontrolled prices of all agricultural products and inputs, eliminated exchange rate restrictions, and liberalized export and import trade, and it completed several major privatizations in 1994. However, there are some policy fronts where progress has been less than satisfactory. The Government needs to do more in policy reforms related to parastatals, the financial sector, the civil service, the land market, and public sector investment. It also needs to accelerate the privatization program. The 1994-96 Policy Framework Paper (PFP), scheduled for Board consideration in April, spells out the Government's policy reform agenda. To complement the PFP, specific agricultural sector policy and institutional reforms that are required for further agricultural growth are contained in the Government's Letter of the Agricultural Sector Development Policy (see annex 1). The main areas of reform include additional market liberalization, privatization of agricultural parastatals, land use and tenure, and elimination of agricultural credit subsidies. 1.7 Despite significant progress on policy reform, the Zambian economy is still in a deep recession. Total GDP is estimated to have declined by 7.5 percent in 1994, partly because of a sharp drop in maize output, but also because of declines in copper output and manufacturing. In part, this is an inevitable result of the tight monetary policies required to fight inflation. In addition to these aggregate demand and financial sector problems, individual real sectors have had difficulties. Agricultural growth was impeded by poor rains. Manufacturing still suffers from transitional tax and tariff anomalies, and copper mining output has suffered from technical problems at the smelters. Continued strong fiscal performance and reduced inflationary expectations should permit increased liquidity in the financial sector in 1995. With this and the measures being taken to deal with tax and tariff anomalies, to attract private sector capital and management into copper mining, and to strengthen financial institutions, private investment should begin to recover in 1995, leading to a more vigorous supply response and economic growth.  - 4 - 1.8 Zambia's ability to generate economic growth and new jobs will depend on Government's continued progress on a broad policy front. This includes: controlling inflation on a sustained basis; reducing the crowding out effect on investment in the private sector by reducing public sector claims on available resources; adjusting the trade and tariff regime to encourage efficient production; privatizing the parastatal sector; restructuring - and in some instances privatizing - the institutions mobilizing and allocating term resources, such as insurance companies and pension funds; reforming mining sector policies and investment incentives; and privatizing ZCCM and removing barriers to private sector investment in copper mining. 1.9 The role of agriculture in the economy. Agriculture figures large in Zambia's economy and is expected to play a critical role in its growth and restructuring even though the agricultural growth rates averaged 2.2. percent a year between 1965 and 1991, less than the population growth rate of 3.2 percent a year. This was largely because of the inappropriate government policies of the past (see para 1.6 and annex 1). The high inflation rates and the associated interest rates discouraged investments in agriculture while price controls of agricultural outputs resulted in adverse terms of trade. With improved agriculture sector policies, Zambia could greatly expand agricultural production. Productivity in the smallholder subsector which is considerably below the production frontier and the genetic potential of the crop varieties could be increased by 94 percent for maize and 85 percent for soybean (see table 2). Although agriculture accounts for only 18 percent of gross domestic product (GDP), this small share belies the extent to which Zambia depends on the sector. About 60 percent of the population depends on agriculture for livelihood. Agriculture employs about 67 percent of the labor force and remains the main source of income and employment for rural women. The increase in income of rural women will result in poverty reduction of the rural population. Besides, it will continue to provide most new jobs for at least the next decade, even with higher industrial growth rates, because of the country's small industrial base and declining mineral resources. With the favorable environment and dwindling mineral resources, agriculture is expected to become an increasingly important source of foreign exchange. In 1993 agriculture was the second major earner of foreign exchange for Zambia's non-traditional export with total foreign exchange earning of US$33.7 million. Agricultural issues have also figured prominently in the country's fiscal problems: subsidies to the sector averaged about 3 percent of GDP during 1983-91. These subsidies have been significantly reduced, and are being gradually phased-out. 1.10 Fiscal stability and the fiscal affordability of the program. To succeed, an integrated sector program such as the ASIP must be implemented in a fiscally stable environment and it should be affordable within the government's budget. Zambia's macroeconomic stability depends primarily on the Government's ability to control inflation, since exchange and interest rates are market-determined and tend to closely follow the domestic inflation rate. In turn, controlling inflation will depend on controlling the money supply and hence on containing the fiscal deficit. The Government has had a good record on fiscal control in the past three years with the notable exception of the first half of 1993. More than 18 months of solid fiscal and monetary performance have led to sharp deceleration of inflation, from a triple-digit rate to less than 20 percent in the second half 1994. Despite the effective fiscal control, reducing inflation took time because expectations of continuing inflation made it more difficult to bring consumer prices and real interest rates under control. 1.11 The available data show that the ASIP is fiscally affordable. Estimated government spending under the ASIP in 1996-99 is relatively low in absolute terms and well within historical levels of support for agriculture (table 1). They are also a very small share of total government spending. In the past, the Government financed an average of about 30 percent of total public  expenditures in the agricultural sector, while the balance was financed by donors (major donors active in the agricultural sector are shown in table 3). Donor financing in the period between 1990 and 1993 amounted to US$469.3 million. The donor funds financed 100 percent of capital investments and about 90 percent of recurrent expenditures associated with donor-run projects. Since the future capital and recurrent expenditures of donor financed projects are usually preprogrammed, there is little uncertainty attached to their funding. However, the Government has experienced problems with meeting its counterpart funding obligations, due partly to the higher aggregate level of counterpart funding required to service the 180 donor-supported projects in the agricultural sector. Moreover, cost recovery of agriculture services has been low. During 1990-92 cost recovery of veterinary services was less than one percent of the cost of such services. This trend has changed partly because of the Government's decision to privatize those agricultural services that are better handled by the private sector and by increased enforcement of cost recovery measures. It is estimated that increased revenue collection from fees on veterinary services, land use services, agricultural training, and agricultural marketing and trade could finance up to 50 percent of government expenditures on the ASIP. Under the ASIP, the Government will increase its financing to about 40 percent of total agricultural expenditures, resulting in a steadily declining share for donors. This is because the ASIP would produce savings mainly by eliminating government subsidies for agricultural credit, and higher revenues from agricultural services through improved cost recovery measures. The elimination of duplication of donor support will also result in significant savings in government's counterpart funding. The combined effect of these savings will total $390 million over the period of 1995-99 (para 2.42). Table 1 Government expenditure in the agricultural sector, 1990-99 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1990 Kwacha 28.8 28.0 20.5 17.3 17.5 24.6 25.8 27.1 28.4 29.9 (billions) Share of total 3.0 2.5 2.2 2.9 5.0 4.0 3.5 3.6 3.6 3.9 spending (%) I_I_I I I I I I_ Source: Zambia Public Expenditure Review (in preparation). Note: 1990-92 are actual; 1993-94 are based on the budget estimates. 1995 estimates are preliminary. 1996-99 are ASIP estimates. ASIP estimates exclude donor contributions and credit subsidies for crop purchases. 1.12 The private sector in agriculture. Zambia's agricultural strategy before 1992 was interventionist with direct involvement in agricultural production. This strategy included nationalization of maize mills and large farms, establishment of parastatals and state controlled cooperatives, and extensive regulation and subsidization of agricultural production, marketing and processing. This intervention distorted agricultural production patterns and discouraged the private sector from active participation. Since 1992, the Government has vigorously embarked on policies aimed at promoting private sector development, including privatizing agricultural activities and removing regulatory constraints. The Government is fully committed to rolling back the extensive involvement of the public sector in agricultural activities. Already four enterprises have been privatized and another twenty-three are at advanced stages of the privatization process (see annex 1). It is expected that when the privatization process is completed, most of the  - 6 - services currently provided by the public sector, including veterinary services, will be carried out by the private sector. There are already signs that government measures have prompted increasing private investments in agriculture, particularly in high value export crops. Between 1992 and 1993, the export of roses increased by 84 percent from US$2.9 million to US$5.5 million. C. The potential for growth in agriculture 1.13 Zambia has the potential to greatly expand agricultural production. This potential resides primarily in the possibilities for increasing the utilization of available natural resources - particularly Zambia's abundant land and water resources - and the efficiency of their use. An analysis of Zambian agriculture in 1989 showed that, at market-determined exchange rates, the country has a strong comparative advantage in a range of food crops, industrial crops, and livestock products. This comparative advantage exists whether the sector continues to use present technology or invests in improved technology. For maize, cotton, sunflower, and tobacco, the estimated domestic resource cost ratios are less than 0.40 across the range of farm subsectors (smallholders, emergent farmers, and commercial farmers). This comparative advantage should enable Zambia to increase agricultural GDP and export earnings. Potential sources of growth 1.14 There are four main potential sources of agricultural growth: expansion of cultivated area, increases in yield, diversification, and improvements in livestock productivity. The potential for growth from these sources is strongest in the smallholder and emergent commercial farming subsectors. 1. 15 Expansion of cultivated area. Of Zambia's total cultivable land, only 14 percent is cropped each year. Expansion of cropped area has been the main source of agricultural growth in the past, and land would not be a binding constraint in the foreseeable future. Zambia's ability to achieve agricultural growth rates which are significantly higher than population growth rates would, however, require that the severe labor constraints in the traditional sector can be overcome through the introduction of new technology. Improvements in the production environment under the ASIP are expected to result in expansion of the area under cultivation by smallholders and emergent farmers as well as by commercial farmers. Key improvements will be in access to farm mechanization, particularly animal draft power, through the farm power and mechanization subprogram, and in extension and animal health services. 1.16 Increases in yields. Productivity in the traditional sector has remained stagnant over the past decade. It is considerably below the production frontier and the genetic potential of the crop varieties cultivated. Even modest increases in the productivity of smallholders, who produce most of the output, would have a significant impact on national agricultural growth. The favorable soil and rainfall conditions in much of Zambia offer considerable potential for improving yields using available technology (table 2).  - 7 - Table 2 Current and potential yields of smallholders production Current Potential Potential yields yields increase in Crop (tons per ha.) (tons per ha.) yield (%) Maize 1.8 3.5 94 Sunflower 0.8 1.4 75 Soybean 0.7 1.3 85 Cotton 0.8 1.2 50 Groundnuts 1.2 1.8 50 Tobacco (burley) 1.4 1.8 28 Tobacco (Virginia) 1.8 2.4 33 Source: ASIP preparation reports. 1.17 Diversification. Zambia's relatively large urban population and the export potential in Southern Africa should support diversification toward higher-value crops (such as sunflower, soybean and cotton), and livestock enterprises in peri-urban areas and along the Line-of-Rail and the major all-weather roads. Commercial farmers are expected to be the first to exploit this opportunity, but as small-scale irrigation develops, emergent commercial farmers will gradually increase production of high-value crops. The ASIP's irrigation and new products development subprograms would support the introduction of new technology and the identification of new crops and markets. 1.18 Improvement in livestock productivity. The potential for growth is high in the livestock subsector. In the traditional sector calving rates are 5 percent, compared with 13 percent in the commercial sector, takeoff is 6 percent (compared with 17 percent), and adult mortality rates are 9 percent (compared with 18 percent). Most of the difference in output can be explained by the poor animal husbandry practices of the traditional farmers. Given this slack capacity in the sector, productivity gains should be possible using existing technology. But achieving these gains will require public investment in farmer training and efficient delivery of improved animal health services. Demand for agricultural output 1.19 Growth in agricultural output will be driven by the expected increase in domestic demand for food. With estimated population growth of 3.2 percent per year and growth in the urban population from 50 percent to 60 percent of the total, food requirements are expected to increase sharply over the next decade. The income elasticity for food is about 0.90, and food accounts for 80 percent of expenditures by lower-income households. The effective demand for food is thus expected to remain high. And as the economy improves and per capita incomes increase, per capita consumption of higher-value food products is expected to grow. 1.20 Export demand also is expected to increase as a result of the removal of export restrictions on agricultural products and the introduction of a market-determined exchange rate. In 1993, with foreign exchange earnings of US$33.7 million, agriculture was the second major earner of foreign exchange for Zambia's non-traditional export. Soybean production in the commercial sector has increased dramatically over the past two years, to meet the excess demand in South Africa.  Demand for maize exports to Malawi and Zaire is expected to continue growing as a result of population increase in Malawi and continued political instability in Zaire. In the longer run Zambia could become a major agricultural supplier in southern Africa given its land reserves, its relatively low cost of production, and the greater reliability of its rainfall patterns compared with those of the region's other agricultural surplus countries (South Africa and Zimbabwe). Zambia can also be competitive in meeting the increasing demand for specialty crops, including organically grown crops, in European markets. Two areas that have shown promise are the export of roses, which has increased more than fourfold between 1990 and 1993 from US$1.2 million to US$5.5 million, and the production of high-value food colorants from marigolds and paprika, which is expected to expand rapidly over the next two years. 1.21 Increased efficiency in the agricultural marketing system resulting from market liberalization would provide an additional stimulus to the growth of the agricultural sector. It would reduce transaction costs in export and domestic markets, making Zambian exports more competitive and reducing domestic consumer costs, which in turn should increase both total demand and farm incomes. D. Development constraints and strategy 1.22 Exploiting the untapped potential among smallholder, emergent, and commercial farmers would enable agriculture to play a significant role in employment creation and income growth and to provide the initial supply response needed to revitalize the economy. But realizing that potential will require overcoming the weaknesses in the policy environment and in support services that have constrained agriculture. Past economic policies emphasized public intervention through regulatory and institutional controls (including administrative pricing) and reliance on government-dominated cooperatives. These policies discouraged the private sector and led to a distorted crop mix, use of suboptimal technologies, and disinvestment from agriculture. Critical constraints on expansion and diversification of agriculture include low on-farm and agribusiness investment due to the disintegration of the agricultural credit system and high real interest rates; problems in access to land, which discourage long-term private investment in land; and poor rural transport network, which significantly increases the marketing costs of both agricultural inputs and outputs. 1.23 Reversing the past trend of low private investment in agriculture requires a different set of priorities. The Government recognizes that it needs to avoid actions that crowd out the private sector and that involve direct interference in and control of economic activities. The focus should be on creating an enabling policy environment and providing the infrastructure needed to induce private sector participation and investment. The Government has therefore embarked on an ambitious reform program aimed at sustaining improvements in the incentive structure through appropriate exchange rate and monetary policies, eliminating restrictions on the export of food grains, and formulating a land use and tenure policy to encourage long-term on-farm investments and optimal use of land in large and small farms. 1.24 As experience in Zambia and other countries has shown, however, policy reforms alone are often insufficient to generate adequate volume of private sector activity, especially when, as in Zambia, it has been suppressed over a long period. To encourage the private sector to fully exploit the policy reforms described above, high-quality and relevant support services must be provided to farmers and other private sector actors. Government agricultural agencies need to be able to provide such services on a timely basis and without costly subsidization. That requires a decentralization of control so that decision-making, responsibility, and accountability reside at  - 9 - the lowest levels of contact with beneficiaries, with those directly responsible for providing services. 1.25 The Government's strategy for agriculture is to harness the growth and employment potential of the entire sector, including smallholders, emerging commercial farming, and commercial farming. This strategic vision would focus on (i) commercializing and privatizing the remaining agricultural parastatals, agribusinesses, and state farms (only 4 of the 42 agricultural parastatals have been privatized); (ii) stimulating private investment in agriculture by improving access to credit and foreign exchange, providing effective technical and advisory services, and promoting foreign investment; (iii) prioritizing and rationalizing public sector involvement in agriculture to achieve greater efficiency; and (iv) forging a shared vision with donors on priorities for the agricultural sector development. To achieve this strategic vision, the Government has resolved to operationalize its strategy through a comprehensive and coordinated agricultural sector program, which it has presented to donors for support. E. Donor assistance strategy 1.26 The goal of IDA and other donors' activities in Zambia is to assist the Government in achieving sustainable economic growth and in reducing poverty. The latest Country Assistance Strategy for Zambia was reviewed by the Board on March 10, 1994. The country strategy proposes to assist Zambia in three main areas, all related to the overall goal of poverty reduction: (i) stimulating growth by removing policy constraints and improving the enabling environment, including fiscal management; (ii) promoting private sector development and greater public sector efficiency; and (iii) supporting targeted interventions for the poor and vulnerable groups. The Agricultural Sector Investment Program forms a key component to the country strategy. Improving household food security and income is critical to meeting these objectives, and support for agriculture is thus a key element of the country strategy. The reforms supported by this program would improve the management of fiscal resources, substantially increase public sector efficiency, and provide necessary incentives needed to stimulate private investment in agriculture. In addition, the program would focus on smallholder farmers and thus would especially benefit the poor, particularly women, by raising their incomes through higher productivity and employment creation. F. Program performance and lessons learned 1.27 A country portfolio performance review undertaken in March 1994 highlighted a number of lessons for project implementation in Zambia. First, the proliferation of donor-assisted projects and over-reliance on foreign technical assistance undermine public sector management capacity and government commitment to implementing programs. Second, executing projects through overcentralized agencies does not work, and public sector decentralization is essential. Third, creating separate, or parallel, structures for implementing also is ineffective. Instead, the planning, disbursement, accounting, procurement, and monitoring and evaluation functions of the government line ministries must be upgraded, and donors must be encouraged to channel support through existing government agencies rather than introducing their own procedures. Fourth, subsidized credit undermines the viability of Zambia's three rural financial institutions. And fifth, the rigid designs of earlier projects prevented their adaptation to unforeseen changes during implementation. The ASIP is designed to address all these concerns. 1.28 To ensure that the program is implemented effectively and achieves the desired results, the ASIP will be implemented within the MAFF's institutional framework with minimum technical  - 10 - assistance. Indeed, the ASIP will be carried out with maximum involvement and "ownership" by the Government and the beneficiaries to ensure that the program's development impact is sustained. And to ensure the relevance of program interventions, the program includes annual beneficiary assessments (see box 6). 1.29 The concern that the proliferation of uncoordinated donor programs in several sectors is overloading the Government's implementation capacity has prompted the development of integrated sectoral approaches in agriculture, health, and, more recently, education. These integrated programs are based on a strategic investment plan prepared by the Government, which all donors (including IDA) support. Development of these programs has required substantial coordination and capacity building up front, but that work is expected to substantially enhance the benefits of the jointly agreed sector programs. II. THE AGRICULTURAL SECTOR INVESTMENT PROGRAM A. Concept 2.1 The proposed Agricultural Sector Investment Program (ASIP) is a departure from the traditional project approach. The ASIP is designed to achieve significantly greater project efficiency, ownership, capacity building, and sustainability. Seven features of the ASIP differentiate it from traditional projects. It covers the entire country's agricultural sector. It has been prepared by a Zambian task force with members drawn from both the public and the private sector. It will be implemented within the institutional framework of the Ministry of Agriculture, Food, and Fisheries (MAFF), without separate subprogram units. It will be financed by all donors active in the sector and the donors' procedures for procurement, reporting, accounting, and auditing would be standardized as much as possible. The use of long-term expatriate technical assistance would be kept to a minimum, and short-term technical assistance would be supplied on demand from the ASIP implementors. The ASIP has a built-in flexibility that is based on annual reviews and adjustments. And it is embedded in public sector reforms in the agricultural sector aimned at greater decentralization and beneficiary participation. These features should protect the ASIP from the risks of complex project design and overreliance on long-term technical assistance that have beset most projects and that often lead to failure. In addition, management by Zambians through normal governrent institutional channels would make the ASIP more likely than traditional projects to induce a strong sense of national ownership to build capacity, and to prove sustainable. Box 2 Ensuring local ownership The Government and donors agreed in November 1992 that the Government would "drive" the preparation process. Donors were to be kept informed ofprogress on a regular basis, but were not to influence the preparation. The task force used individual consultants but politely declined proposals by foreign consultant firms and other agencies to assist. Although the Bank coordinated the multidonor pre-appraisal and appraisal, it conducted them in close consultation with the Government and all donors, and major decisions were arrived at by consensus. The preparation documents were prepared by Zatnbians. Despite inevitable changes in the program after appraisal, the sense of local ownership has remained strong.  - 11 - 2.2 Collaboration between donors and the Government in the preparation of the ASIP was recognized as essential to ensure donor support. During the design and preparation of the ASIP, the task force used the donors as a sounding board for proposed concepts, elements, and design and solicited their views at critical stages. When the draft program preparation report was ready, the Government presented it to donors for critical evaluation in March 1994. The issues of concern to donors and the Government were then identified and addressed, including gender, accountability, vulnerable groups, counterpart funding, implementation arrangements, and harmonization of donors' procedures. As a result of the effective consultation and collaboration, all major donors in the agricultural sector are supporting and cofinancing the ASIP. To ensure successful implementation, the donors and the Government agreed to continue the constructive collaboration by meeting at least once a month to address implementation issues or any other donors concerns as they arise. In addition, each year the Government and donors will review and agree on the following year's public investments in the sector before the budget is finalized. B. Rationale and objectives 2.3 Rationale. Zambia's agricultural sector has great potential to respond rapidly to the economic reform program supported by the Bank and the IMF. It can play a central role in the Government's economic growth and poverty reduction strategy. It is also important in economic adjustment by providing the initial supply response needed to stimulate economic activity, and can support economic growth in the long-run by providing sustainable export earnings. But if the expected growth is to materialize, the private investments have to be promoted and public support must be made more efficient. In addition, donor support to Zambian agriculture should be better coordinated to ensure maximum impact (in agriculture alone there are more than 180 donor- funded projects) 2.4 The ASIP would involve a partnership between the Government and donors in formulating and implementing the agricultural sector program. The Government would identify and prepare priority programs in agriculture and would work with donors to improve the efficiency, capacity, and sustainability of these programs, but without sacrificing ownership. The coordinated policy reform and investment planning coupled with coordinated donor support would be much more difficult without the leadership and involvement of IDA. The proposed ASIP would also complement the ongoing donor-supported structural adjustment efforts as outlined in the Policy Framework Paper (PFP) for 1994-96 and is consistent with IDA Country Assistance Strategy for Zambia [para 1.26]. 2.5 Objectives. The ASIP would be the first in a series of successive four-year programs aimed at supporting the medium- and long-term goals outlined in the Government's Letter of Sectoral Development Policy. The Government's primary agricultural development objectives, as reflected in the ASIP, are improving household food security, promoting better use of natural resources, generating incomes and employment, and increasing export earnings and contributing to the balance of payments. C. Summary description 2.6 The ASIP would be implemented over a four year period and has four main components (for donor support by component, see table 3). The first, policy and institutional improvements, would focus on outstanding policy reforms in key areas of marketing (eliminating subsidies to marketing parastatals), trade and pricing, food security, and land use and land tenure. It would support institutional restructuring and strengthening, with an emphasis on improving the capacity  - 12 - of sectoral agencies to provide efficient services (that cannot be provided at present by the private sector) in the priority areas of agricultural research, extension, livestock, and rural finance. It is expected that in a broad program like the ASIP, the allocation of resources between the components shown in this report is just indicative, and will be revised annually in consultation between the Government and donors taking into account the previous year's result. 2.7 The second component would undertake public investment to complement and support the policy and institutional improvements. Investments would be made in the following priority areas: * Agricultural research to provide appropriate technologies for increased productivity. * Agricultural extension to accelerate dissemination of technologies, increase productivity, and promote resource conservation. * Livestock production and health to strengthen public support services to smallholders, improve disease prevention and control, and increase productivity. * Fisheries development for smallholders, especially resource-poor households * Rehabilitation of small-scale irrigation facilities for smallholders. * Agricultural training to strengthen human resources. * Farm power and mechanization to assist smallholders in increasing agricultural production. 2.8 The third component, private sector development, would help create an enabling environment and incentives for the private sector. This component would also support rural financial services for productive and agricultural marketing activities, multiplication and distribution of seeds for smallholders, and new product development (horticulture and diversification into new crops and the establishment of the Golden Valley Agricultural Research Trust). 2.9 The fourth component, pilot investment schemes, would establish a rural investment fund to support small-scale capital investments in rural communities on a matching grant basis and it would support the privatization of government farms. Broad dissemination of selected new technologies would follow from pilot and demonstration stages.  - 13 - Box 3 From project to program cycle Preparation of the ASIP was a massive, 18 - month effort by Zambian government officials and private sector participants. But it laid the foundation for long-term activities in the sector and involved substantial capacity building and should therefore be regarded as an important investment towardfuture such programs. Because the ASIP incorporates a process of continuous review and adjustment of the agriculture sector program, the preparation of similar operations in the future would require smallerfinancial investments (see box 6). If that progressed as planned, it should be possible to replenish the program every three to four years with only modest preparation effort. The reduced need for preparation is expected to result in major cost savings (especially if donors intensify collaboration and share costs) and to both simplify and reduce the vulnerability of the "pipeline' building process. And it will help free up the Bank and other donors to focus their efforts on implementation support and getting results in the field. Table 3 Donor support by component DUTCH Component IDA G7Z EU AFDB IFAD NORAD FINNIDA AID UNDP JICA SIDA Belgium USAID Policy and institutional x x x x x x Improvements Public invest. program Research x x x x x x x x x Extension x x x x x x x Livestock x x x x Fisheries x x x Irrgation x x Farm power and mechanization x Training x Private sector development program Seed multiplication x x Rural finance x x x x x New product development x Pilot investment schemes Rural investment fund x x x x x Privatization of farmland x x x  - 14 - D. Detailed description Policy and institutional improvements (US$28.4 million) 2.10 This component would support changes in key policy areas, institutions, and implementation processes that the Government considers essential to enhance producer incentives, improve resource allocation, raise productivity, and strengthen implementation capacity. Expenditures would cover mainly salaries and other recurrent expenditures and would be funded from the government recurrent budget (see table 4 for a breakdown of expenditures). The envisaged measures are contained in the Government's Letter of Sector Development Policy and summarized in the policy matrix (annex 1). A final Letter of Sector Development Policy has been submitted to IDA. Assurances were obtained at negotiations that the Government will diligently implement the reforms contained in the Letter of Sector Development Policy [para 5. I(i)]. 2.11 Marketing and standards. Under this subcomponent the Government would continue to remove all pricing distortions affecting agricultural inputs and outputs, review and update domestic marketing and trade legislation, remove export and import restrictions on agricultural commodities, and privatize public storage facilities. In addition, it would strengthen the capacity of the MAFF and the Cooperative and Marketing Agency (CMA) to perform essential monitoring, quality control, and public health functions in agricultural and food markets. And it would improve the grading and standards monitoring system in agriculture by financing diagnostic equipment and facilities. The MAFF will contract out some grading services of agricultural inputs to the private sector. 2.12 Food security. Poverty and malnutrition continue to be serious problems in Zambia, even by the African standards. Malnutrition is a leading cause of death among children. Many Zambians have insecure access to food and cannot obtain enough to sustain physical and mental growth. In rural areas food insecurity stems mainly from the low productivity of farms. The problem of urban food insecurity is less complex (mainly caused by low incomes), but no easier to solve. To deal with both emergency and chronic food insecurity, the Government is developing broad, comprehensive interministerial response mechanisms. Several response mechanisms already are in place, including the Early Warning System, the Food, Health, and Nutrition Information System (FHANIS), the Task Force for Disaster Relief, and NGOs such as the Program Against Malnutrition (PAM) and Project Urban Self-Help (PUSH). The Government proposes to deal with transitory food insecurity through a national food reserve of about I million bags (25,000 metric tons) of maize and to establish a fund to finance imports. And it will continue the ongoing programs to deal with chronic food insecurity through the Ministries of Health and Community Development and through NGOs under the coordination of the Office of the Vice President. In addition, the research and extension subprograms of the ASIP would focus on improving food security and reducing poverty among rural households, and the MAFF would continually monitor the effectiveness of the ASIP in addressing household food insecurity. 2.13 Rural finance policy and institutional reforms. The Government would take several measures aimed at improving smallholders' access to credit and other financial services and ensuring the sustainability of these services. It would encourage broad participation in the provision of financial services to the rural sector. It would eliminate commodity-specific credit targeting in donor-supported credit programs and end subsidies to farm inputs and produce marketing credit. It would support the formation and training of smallholder savings and credit groups and provide legal status to informal financial institutions and associations. It would implement an action plan for restructuring or possibly liquidating three specialized rural financial  - 15 - institutions. And it would encourage the development of collateral and collateral substitutes (for example, joint liability, group lending, and warehouse bonding). In addition, it will encourage smallholder farmers' access to credit through informal systems such as suppliers credit and outgrower arrangements. 2.14 Land use and tenure policy and institutional reforms. This subcomponent is aimed at increasing the efficiency of land use and enhancing institutional capacity for land administration and surveys. To achieve these goals, the Government would strengthen the administrative capacity for land management. It would encourage the development of a free land market by eliminating most requirements for obtaining consents to transactions, by permitting land subdivisions and subleases, and by introducing an improved land rental system and methods of collection (including retention of land rents by the communities that have paid the rent). It would enact legal reforms to achieve unified land laws across the country and extend the terms of leases to 99 years, to eliminate unnecessary procedural requirements, and, in the longterm, to allow land transactions without government interference. Finally, the Government would subdivide government and parastatal farms and transfer the land to individuals, ensuring that land is allocated to landless people in peri-urban areas. 2.15 Livestock policy and institutional reforms. Increased productivity and efficiency of the livestock sector would be sought through several steps. The Government would encourage private veterinary practice, introduce cost recovery for publicly provided veterinary services, and privatize veterinary drug distribution, dips, vaccinations, animal breeding, and artificial insemination. And it would unify responsibility for animal health and husbandry under one department in the MAFF and strengthen the meat inspection capacity. The department will provide technical support to and inspect private dip tank operators and drug distributors. 2.16 Refornming agricultural institutions. The Government has made significant progress in reforming the agricultural sector, particularly in marketing, pricing policy, rural finance, land tenure, and the regulatory framework. Under the ongoing Economic and Social Adjustment Credit (ESAC), the Government has also embarked on the privatization of agricultural enterprises. The ASIP would complement these efforts to accelerate the privatization of agricultural parastatals by financing the required pre-privatization activities. As part of the ASIP preparation, the MAFF has developed an action plan for privatizing and commercializing revenue- earning activities in the agricultural sector. (See annex 1 for the details of these reforms, including actions already taken or expected to be taken in the first phase of the ASIP.) In addition, under the ASIP the Government would comprehensively restructure the MAFF in support of its operational and financial decentralization. The Government has engaged a consulting firm to assist the MAFF in this endeavor. As part of the financial decentralization of the MAFF, a financial management unit would be established and maintained [para 5.1 (xiii)] within the ministry to coordinate the accounting, auditing, and financial reporting under the ASIP. This unit would oversee the progressive delegation, and eventual devolution, of responsibilities for budgeting, planning, execution, donor funding, procurement, and auditing to local levels, in line with the Government's policy of decentralization. 2.17 Capacity building fund. A fund would be established to finance technical assistance, on demand, to assist the MAFF in carrying out the policy and institutional reforms and to provide implementation support. This fund would finance all technical assistance needs under the ASIP, as identified by each subprogram during implementation. These technical assistance needs are expected to be short-term. (See annex 10 for a detailed description of the fund.)  - 16 - Public investment (US$182.7 million) 2.18 Public sector investments would be focused in areas in which government interventions have a comparative advantage and play a crucial role particularly in the provision of basic services to farmers. There are seven subprograms under this component. 2.19 Agricultural research (US$35.0 million). This subprogram would support the development of a high-quality, appropriate, and cost-efficient agricultural research service. Nine donor agencies (see table 3) would assist the Government in providing the operating costs for the agreed programs of research, in beginning the privatization of its research activities through the establishment of the Golden Valley Agricultural Research Trust, and in rehabilitating and reequipping its research stations. Research organized on the basis of agro-ecological zones has been prioritized, within the National Research Action Plan (NRAP), on the basis of farmer demands and national development priorities. Farming system research teams based in the provinces and supported by commodity research teams would provide useful and cost-efficient technology to farmers and agro-industry. The subprogram would include support for breeding and agronomic research to improve the productivity of priority food and cash crops and to develop drought-resistant varieties, to encourage soil management and resource conservation, to increase livestock productivity, and to improve crop processing and storage farming systems. The participating donors and the Government have agreed to provide adequate funding for the overhead and recurrent costs of both research management and specific programs. Provision is made under the ASIP to finance training, civil works rehabilitation, vehicles and equipment, limited technical assistance, staff salaries and operating costs, and limited construction of new buildings as necessary for the reorganization of the research system. 2.20 Agricultural extension and information (US$58.0 million). This subprogram would focus on improving the quality of extension services and expanding coverage nationwide of a Zambian agricultural extension and information framework designed to serve the smallholder sector. This national framework would incorporate elements of the training and visit (T&V) system, including regular training of field staff and strong technical support from qualified district specialists with direct links to research. Extension would offer farmers improved technology through regular group contacts and systematically seek their perceptions of priorities and constraints to guide extension and research managers in formulating programs. Regular field programs would be supplemented by greater use of on-farm demonstrations, visual aids, and mass media support. Extension would be based on farming systems that expand the cultivated area, conserve water and soil, train emergent commercial farmers in managerial skills, and promote technologies that increase farm productivity and returns to labor. There would be a unified extension service at the field level. Specialists from the Department of Animal Production and Health would provide technical and management techniques for livestock to field extension staff, who would ensure that smallholders receive multidisciplinary advice on farm management. 2.21 Within the national extension framework, extension strategies and plans would be developed for each district that take into account local circumstances and opportunities, identified through diagnostic appraisals of farming systems and farmers' perceptions of priorities. To promote the participation of beneficiaries, village extension groups would assist in setting priorities for extension and in developing the most appropriate mixes of communication methods for local use. All extension operations would actively encourage female membership in village extension groups and the formation of women's groups.  - 17 - 2.22 The national extension service would operate through the existing organization of 9 provinces, 62 districts, 327 blocks, and 1,241 extension camp units. It would provide, on average, one village-based extension worker for every 500 to 600 farm families. With financial support from IDA, the African Development Fund (ADF), and the Norwegian Agency for Development (NORAD), the national extension program was extended to 53 of the 62 districts by December 1994 and will cover the remaining nine districts by 1997. This rate of expanding coverage would be manageable with available resources. 2.23 To improve incentives and work environment for extension field staff, the subprogram would provide allowances, adequate operating funds, better technical support and in-service training, and improved mobility under a motorcycle and bicycle ownership scheme. It is also expected to provide a general salary increase. In addition, a proposed decentralization of extension management and financial powers to districts would allow more effective and timely support to field operations. 2.24 The costs of the subprogram are mainly for vehicles and equipment, rehabilitation of critical field housing, information centers, local and overseas training, modest short-term technical assistance, staff salaries and allowances, and extension operating and maintenance costs. Under the ASIP the average recurrent cost of extension per farm family is estimated at about US$10 a year. This cost is considered sustainable and compares favorably with costs in other developing countries. 2.25 Livestock production and health (US$48.3 million). This subprogram would support improvements in animal health field services and disease control (particularly trypanosomiasis and tick-borne diseases), in the enforcement of disease control regulations, and in animal disease investigation services, including those of the epidemiology units at headquarters and at the provincial levels. It would support efforts to upgrade and improve the effectiveness of all aspects of veterinary practice, including meat inspection and the network of animal quarantine stations. It would establish, by September 30, 1995, an interdisciplinary committee to coordinate emergency disease control measures [para 5. 1(i)]. Finally, it would support the provision of advice on animal husbandry and pasture management to front-line extension staff at the camp level. Supported by five donor agencies, the subprogram would finance staff training, operating costs, vehicles and equipment, and rehabilitation of infrastructure. 2.26 Fisheries development (US$16.6 million). This subprogram would support the strengthening of the regulatory and enforcement capability of the MAFF, improve the fisheries monitoring services and statistical base, strengthen extension services for fisheries and aquaculture, and upgrade fisheries training. It would also support the expansion and improvement of culture fisheries and promote fish-farming systems among small farmers by, among other things, establishing fish ponds for resource-poor households and stocking small bodies of water. The subprogram would finance logistical support, the rehabilitation of infrastructure, and the recurrent costs of vehicles and equipment. 2.27 Farm power and mechanization (US$3.1 million). This subprogram would support the Agricultural Engineering Section of the MAFF with the aim of increasing the productivity of smallholder labor through greater use of animal draft power and associated technologies; improving soil and water management and conservation through the development and adaptation of tillage equipment and systems for specific agro-ecological conditions; and testing and promoting improved rural transport, small-scale processing, and village storage technologies.  - 18 - 2.28 The subprogram comprises two parts. The first would strengthen the institutional capacity of the Engineering Section at MAFF headquarters through staff development and new equipment. This section would be responsible for developing policy, monitoring the development of farm power and mechanization throughout the country, performing liaison with private sector interests, and developing initiatives to promote private sector involvement in farm power and mechanization. The second part would provide continued support to the National Mechanization Center (Palabana), which provides technical and training support to the national agricultural extension service. While the center's main objective will continue to be promoting rapid adoption of animal draft power in the smallholder sector, its functions would be broadened to cover rural transport, small-scale processing equipment, village storage, and the development of ox-drawn equipment for use in minimum tillage cultivation systems. The center would work with the private sector in developing and manufacturing equipment and offer advisory and training services to private and government institutions on demand. A fee would be charged for these services to recover costs. Revenues from this and other sources are expected to eventually reduce the budgetary support needed from the MAFF. The subprogram would not require adding new staff and would provide support mainly for training, staff salaries, operating costs, and vehicles and equipment. 2.29 Irrigation (US$6.7 million). This subprogram would strengthen the institutional capacity of the MAFF's Irrigation Engineering Section through reorganization, staff training, new equipment, and improved office accommodations. No new staff would be recruited. The present central and nine provincial irrigation units would be reorganized into one central and four regional units. The regional units would provide technical and research support to district extension services and assistance in designing and implementing the irrigation elements of the proposed rural investment fund. The central Irrigation Engineering Section's responsibilities would include conducting policy analysis, monitoring irrigation development, monitoring surface and ground water extraction and quality with constant attention to environmental issues, developing national irrigation plans consistent with the National Water Master Plan, and formulating training plans for smallholders using irrigation. Support for the Irrigation Engineering Section would cover training, civil works, operating expenses, vehicles and equipment, and staff salaries and allowances. 2.30 The subprogram also would support the rehabilitation of about 3,000 hectares of dilapidated and incomplete government irrigation schemes for smallholders. The rehabilitation would benefit 1,800 farm families at a total estimated cost of US$1.8 million and an average cost of US$600 per hectares. Criteria for selecting schemes for rehabilitation would include financial viability, the presence of an established user group with a joint savings account, the group's agreement to contribute to rehabilitation costs, and a formal agreement with the beneficiaries on subsequent maintenance of the scheme. Beneficiaries would be required to contribute about 20 percent of the total cost of rehabilitation in the form of labor and local materials. On completion of the rehabilitation, the beneficiary groups would assure ownership of the scheme and responsibility for its maintenance. 2.31 Agricultural training (US$15.0 million). This subprogram would support the coordination of all agricultural training to ensure that curricula meet the needs of farmers and to improve the operational efficiency of training institutions. It would finance the acquisition of skills for improving agricultural services and consultant services to develop appropriate local teaching resources and improve the relevance of the curriculum. It would support rehabilitation of dilapidated infrastructure and the purchase of new field and laboratory equipment and vehicles for four agricultural training institutions: the Natural Resource Development College, Zambia  - 19 - College of Agriculture at Monze and Mpika; and the Zambia Institute of Animal Health. Finally, it would support the privatization of Popota Tobacco College, Kalulushi Farm College, and the Cooperative College. Private sector development (US$85.6 million) 2.32 The private sector development component consists of three subprograms: seed multiplication and distribution, rural finance, and new product development. 2.33 Seed multiplication and distribution (US$4.2 million). This subcomponent would establish a commercial seed multiplication and distribution system throughout Zambia for the traditional staple food crops (maize, sorghum, pearl and finger millet, paddy rice, cassava, and sweet potatoes) and legumes (groundnuts and cowpeas). These crops are particularly important for food-insecure households. Although a number of improved cultivars of these crops have been developed, the lack of an effective seed multiplication system in Zambia has prevented them from reaching many of the intended beneficiaries. And because the market for planting materials is small and scattered, ZAMSEED, the commercial seed company, is not interested in developing it. In the system to be developed under this subprogram, smallholder farmers, NGOs, and farmer training centers would produce the seeds, and small private businesses in the villages would market them. A small central coordination unit in MAFF headquarters, working through field extension staff in the provinces, would assist the program, and ZAMSEED would provide technical support and management advice. ASIP support would include vehicles, equipment, technical assistance, and the recurrent costs of the seed multiplication and distribution program, although much of the recurrent costs would be recovered through seed sales. 2.34 Rural fmance (US$75.4 million). This subprogram would support the rationalization or possible liquidation of three financial institutions (Lima Bank, the Credit Union and Savings Association, and the Zambian Cooperative Federation) that traditionally have provided financial services to the agricultural sector but that in recent years have become an unsustainable drain on the Government's budget. The Government is carrying out a diagnostic review of these institutions to identify ways of restructuring the potentially viable ones to improve their performance. The ASIP would support such restructuring. But the Government and donors agree that, if these institutions are to be sustainable in the long run, they need to establish their independence from the Government. The Government would therefore take all necessary steps by September 30, 1995 to include the Lima Bank in Zambia Privatization Agency's privatization program and initiate the process of privatization or liquidation [para 5. I(iii)]. In addition it has been agreed that, beginning September 30, 1995, the other two institutions, assuming that they are not liquidated, will operate on a commercial basis using their own resources and that the Government will provide no new injections of funds [para 5. 1(iv)]. 2.35 While the rural financial institutions are being strengthened, the ASIP would support prelending activities to improve the access of smallholders and small entrepreneurs to formal financial services. It would strengthen existing farmers groups (for example, primary cooperatives) and help form and train new groups and develop substitute collateral. These activities not only would make it easier for smallholders and small entrepreneurs to obtain formal credit for agricultural inputs (mainly seeds and fertilizers), but also would lower lenders' transaction costs. 2.36 In addition, the Government has set up a revolving credit fund of about US$25 million to support product and input marketing. Channelled through the commercial banks, these funds  - 20 - are meant to encourage increased commercial bank lending at market interest rates to emergent commercial farmers and agricultural traders, including cooperatives and smallholder groups. The Government plans to increase the revolving fund to about US$75.4 million using any additional funds recovered on outstanding government loans to the three traditional financial institutions, proceeds from the sale of government stocks of maize and fertilizer, and financing from donor- supported credit programs. After 1995/96, however, the Government would provide no additional resources for the operation of the fund and would require financial institutions to supplement it using their own funds. 2.37 New product development (US$6 million). This subprogram would support efforts by the private sector to diversify into nontraditional exports, particularly horticulture and agribusiness. It would support pilot schemes involving specialized technical services in extension, management assistance, adaptive research, quality improvements, and control measures. It would assist private entrepreneurs or associations in carrying out preinvestment studies, outreach programs, and training and market research and promotion activities. And it would provide financing for working capital and short-term investments. Pilot investment schemes (US$53.3 million) 2.38 Rural investment fund (US$27.0 million). This program would address the lack of rural credit through an interim rural investment fund. The fund would provide matching grants to smallholder farmers and other rural groups for small-scale capital investments. It would build on recent experience with similar donor-supported programs and attempt to consolidate these programs in an effort to reach all vulnerable groups in rural areas. Like those programs, the fund would require borrowers to make a counterpart contribution. A wide range of crop and livestock production activities and related support services would be eligible for support, including facilities and equipment for land preparation, irrigation schemes, control of crop and livestock diseases and pest management, soil fertility improvement and conservation, harvesting and postharvest handling, and storage, transport, and marketing. 2.39 The program would emphasize capacity building. It would work with groups of a manageable size, supporting training to help them become self-reliant and capable of operating successfully in a competitive market. This training should enable the groups to deal effectively with the commercial credit and savings institutions that are expected to develop the capacity to reach smallholder farmers during the project period. An implementation plan being developed for the ASIP will provide clearly defined procedures and guidelines for operating the fund. The guidelines are expected to include the following stipulations: that no member of an eligible group would have a farm exceeding 3 hectares; that groups would undertake to contribute (in cash or in kind, or both) a significant share of the investment cost and to cover all operating and maintenance costs; and that investments would be economically viable. These guidelines and procedures were agreed to at negotiations [para 5.1(v)]. The funds activities and implementation arrangements would be coordinated closely with those of the Social Recovery Fund, under IDA- supported Social Recovery Project, and other such programs financed by other donors. 2.40 Subdivision and privatization of state farms (US$26.3 million). This subprogram would support the privatization of state and parastatal farmland and the distribution, on a pilot basis, of about 10,000 hectares (in plots of about 4 hectares each) to landless urban dwellers. Most of this land would lie within 40 kilometers of Zambia's three major cities, Lusaka, Ndola, and Kitwe. The subprogram would also support the deletion of Sec. 35 of the Land and Registries Act of 1914, which prohibits the acquisition of title by adverse possession. NGOs  - 21 - would handle the selection of settlers, determine how the land would be allocated, and play a consultative and training role during implementation. The subprogram would support staff training and technical assistance for the Ministry of Lands and Survey and would finance the equipment, vehicles, and recurrent costs needed to carry out the proposed activities. 2.41 Assurances that the scope and timetable for privatizing state farms would be developed by September 30, 1995, were obtained at negotiations [para 5. 1(vi)]. In addition, an amendment to the land laws to facilitate the subdivision of land, and the implementation of policy measures to provide for the subdivision and sale of state farms, would be a condition of disbursement of this subprogram [para 5.3]. E. Costs estimates 2.42 As a part of the ASIP preparation, the Government carried out a public expenditure review of the agricultural sector. This review showed that Zambia's public expenditures in agriculture over the past five years have averaged US$187 million a year. Total expenditures under the ASIP, are estimated at US$350 million over four years, including provisions for physical and price contingencies, or an average US$87.5 million a year. If the ASIP was not implemented, and expenditures in the agricultural sector followed historical trends, they would reach about US$740 million over the next four years. Thus, the ASIP would result in efficiency gains of about US$390 million, or a 53 percent cost reduction (figure 1). The reduction in expenditures would be due in part to the savings from eliminating waste due to duplication of activities and from eliminating government subsidies for agricultural credit. As a result of these savings the level of effective investments in the sector is expected to increase. The foreign exchange component of ASIP costs would be about US$174 million, or 49.7 percent. Base costs have been estimated in U.S. dollars at mid-December 1994 prices, and the price contingencies are projected at 3 percent for 1995-1997, and 2.9 percent for 1998-1999 (see table 4 and annex 2 for summaries of estimated project costs). Physical contingencies are as follows: civil works, 10 percent; vehicles and office equipment, 5 percent; input supplies, 10 percent; and recurrent costs, 10 percent. 2.43 The ASIP cost estimates have been prepared using the COSTAB computer program. Because of the program's size, the Government plans to use computerized project management (CPM) to support its implementation. CPM is expected to help improve scheduling, monitoring, and reporting of implementation; allow greater precision in estimating the disbursement profile; improve coordination between donor and Government actions through a unified schedule; and allow close synchronization between ASIP cost estimates and the MAFF budgeting system.  Figure 1 Projected savings due to the ASIP 1995-99 Millions of U.S. dollars 200 A B 160 u 180 sA ~~~US$117.0 SS2. 140 120 100 80 c 20 0 1995 1996 1997 1998 1999 * Prjcted ASIP Exp.US$350.0 I] Projct Savinv US$390.0 Note: AB represents the projected MAFF expenditures without the ASIP, estimated on the basis of historical data. AC represents the projected expenditures agreed to under the ASIP.  - 23 - Table 4 Estimated costs of the ASIP, by component (millions of U. S. dollars) Local Foreign Total Policy and institutional improvements MAFF headquarters 9.5 1.0 10.5 Policy and planning 5.4 6.2 11.6 Financial management unit 0.6 1.0 1.6 Standards 2.7 2.0 4.7 Subtotal 18.2 10.2 28.4 Public investment Extension 37.0 21.0 58.0 Research 16.0 19.0 35.0 Live production and health 22.3 26.0 48.3 Fisheries 7.6 9.0 16.6 Farm power and mechanization 1.3 1.8 3.1 Irrigation 3.5 3.2 6.7 Training 7.8 7.2 15.0 Subtotal 95.5 87.2 182.7 Private sector development Seed multiplication and distribution 2.8 1.4 4.2 New products development 3.0 3.0 6.0 Rural finance: Agricultural inputs 20.0 36.0 56.0 Marketing and trade 8.2 11.2 19.4 Subtotal 34.0 51.6 85.6 Pilot investment schemes Rural investment fund 17.0 10.0 27.0 Subdivision and privatization of state farms 11.3 15.0 26.3 Subtotal 28.3 25.0 53.3 Total program cost 176.0 174.0 350.0 Note: The figures in this table are indicative and will be revised annually in consultation between the Government and donors, taling into account the previous year's result. The total program cost includes contingencies.  - 24 - Box 4 Combining techniques for better project management The sector approach provides an opportunity to combine these techniques - public expenditure review, estimating project costs using COSTAB, and computerized project management (CPM) - that together should reduce costs to both the Government and donors and provide a capability for superior project monitoring. Public expenditure review is an essential part of preparing the ASIP and similar programs. Planners need to ensure that adopting such a program would not lead to higher expenditures in the sector than would prevail ifthe program were not adopted. COSTAB cost estimate/budget software developed in the Bank, helped in handling the frequent changes in numbers that are inevitable during the cost estimating process and later, during implementation. And the CPM appears to be a promising tool for scheduling, monitoring, coordinating activities in large, complex projects. But the ASIP represents the first time that CPM will be used in Zambia, and it may require considerable adaptation to make it user-friendly under Zambian conditions. F. Financing 2.44 Financing plan. Of the total estimated cost for the ASIP of US$350 million about US$140 million would be financed by the Government and the program's beneficiaries. Total external financing would be about US$210 million, of which US$60 million would come from ongoing donor-supported projects. Donors would provide US$150 million in new resources, of which IDA would provide about US$60 million (see tables 4 and 5). Table 5 Estimated flnancing plan (millions of U.S. dollars) Source of financing Local Foreign Total IDA 20.0 40.0 60.0 Other donors 40.0 50.0 90.0 Ongoing donor-supported 26.0 34.0 60.0 projects' Government 70.0 50.0 120.0 Beneficiaries 20.0 - 20.0 Total 176.0 174.0 350.0 a. Includes US$20 million from ongoing IDA projects. 2.45 The proposed IDA credit of US$60 million (17.1 percent of ASIP costs) would finance mainly parts of the research, extension, training, institution support, and land subprograms and investment activities under the rural investment fund in the pilot schemes component (see annex 8). As lender of last resort, IDA yielded first priority to other donors, but would still fund significant proportions of those subprograms. About US$90 million of new resources would be provided as parallel financing by other donors. Differences in donor countries' programming  - 25 - dates have meant that some donors are unable to make firm commitments for the entire four years of the ASIP, but the indications are that the program would be fully funded. 2.46 Local funding. The Government would finance 100 percent of staff salaries and emoluments and an increasing share of the incremental recurrent expenditures. In year 1 of the ASIP the Government is expected to finance 23 percent of incremental recurrent expenditures; by year 4 its funding of such expenditures will have increased to about 45 percent (figure 2). IDA would finance US$4.1 million (6.5 percent) of the incremental recurrent expenditures under the ASIP on a decreasing basis (see table 7). The Government's total estimated contribution over the four years of the ASIP would be about US$120 million; beneficiaries are expected to contribute US$20 million.  Figue 2 Government share of nonaary recrrent eentures Millions of U.S. dollars 18 16 US$1623 US$16.1 14 US$15.4 US$14.7 12 10 6 4 2 1996 1997 1998 1999 | Recurrent costs *Government share  - 27 - G. Procurement 2.47 Since a Country Procurement Assessment Review is not available for Zambia, the Government is now conducting a diagnostic review of the public procurement system. This review will be followed by reforms under IDA-supported Financial and Legal Management Upgrading Project (FILMUP). Responsibility for this effort has been delegated to the Zambia National Tender Board (ZNTB). Until the review and adjustment of the procurement regulations are completed, the Government would ensure that goods and services financed under the ASIP would be procured in accordance with procedures acceptable to IDA and other donors. In addition, the Government would make procurement planning and monitoring an integral part of the implementation of the ASIP. As part the of annual work plans (para 3.9), the Government would prepare procurement programs that identify contract packages, value, procurement method, and a time-bound schedule of procurement activities by contract. The Government and the donors would review and adjust annual procurement plans as necessary. 2.48 During preparation of the ASIP, donors in Zambia met to review strategies that the Government might use to harmonize procurement procedures where feasible. They provided documentation related to their procurement policies, procedures, and forms. Initial results from a review of this information indicate that many donors follow similar procurement procedures. Using the results of this analysis, the Government would meet with donors to identify reasons for the differences in their procurement procedures and ways to foster a common procurement framework. Under the ASIP, the Government would explore the possibility of developing a computerized system for preparing procurement documents that would automatically modify documents to meet the relevant donor's specifications, including with regard to method of procurement and eligibility clauses, without changing the base document. 2.49 IDA would fund civil works for rehabilitation of research stations, agricultural training colleges, laboratories, and office buildings. These projects are small and geographically dispersed and would not attract international bidders. The average contract value is expected to be less than US$200,000, and the domestic construction industry is capable of executing the contracts. Civil works costing less than US$500,000 per contract, aggregating to about US$7 million, may be procured using Local Competitive Bidding (LCB) in accordance with practices acceptable to IDA (table 6). Force account may be used for civil works (mainly for staff houses and rehabilitation of office buildings), for which each contract is estimated not to exceed US$10,000 and thus expected not to be attractive to private firms. These contracts would total US$800,000. 2.50 Goods to be financed by IDA under this Credit would include vehicles, spare parts, lab equipment, motorbikes, office furniture, computers, and supplies. Items that are similar would be bulked into an individual procurement when feasible. Procurements equal to or greater than US$100,000 would be made using International Competitive Bidding (ICB) procedures in accordance with the Bank's Guidelines for Procurement under IBRD Loans and IDA Credits issued in May 1992. When ICB is used, a domestic preference of 15 percent or the applicable customs duty, whichever is less, on the c.i.f. price would be used for evaluation purposes only, in accordance with the Bank's guidelines. Procurements ranging in value from US$30,000 to US$100,000, and up to an aggregate value of US$1,000,000, would be procured under LCB using procedures acceptable to IDA. Procurements valued at less than US$30,000 and up to an aggregate value of US$700,000 would be procured using shopping procedures with quotations from at least three eligible suppliers. Direct contracting may be used for proprietary spares and equipment up to an aggregate value of US$500,000.  - 28 - 2.51 About US$10 million of IDA financing for the rural investment fund would be used to provide funds on a grant basis to mainly smallholder farmers groups to assist them in procuring agricultural inputs and meeting their capital investment and operating needs. The matching grant would be very small (averaging US$1,000 per group) and thus competitive bidding procedures would be impractical. Procurement from the rural investment fund therefore would be carried out through normal commercial channels available to the eligible groups. The guidelines for operating the fund are detailed in the implementation plan. 2.52 Consultant services, mainly short-term, and training would be financed to support ASIP implementation. Consultants would be selected and appointed in accordance with the Bank's Guidelines for Use of Consultants issued in August 1981. It is estimated that IDA would finance consultant and training services for a total of US$6.6 million and US$10.4 million respectively. 2.53 All imports procured under ICB would be subject to preshipment inspection for quality and quantity, and all other imports valued at US$5,000 or more would be subject to such inspection for quality, quantity, and competitive pricing. The Government would monitor the preshipment inspection reports to verify that there have been no unauthorized or ineligible exceptions. 2.54 All IDA-funded procurements for goods and civil works with an estimated value of US$100,000 and US$150,000 respectively or more would be subject to prior review by IDA. Such procurements would account for about 75 percent of the value of IDA-financed contracts for goods and civil works. For consulting services, prior review of documentation would be required for (i) contracts with consulting firms with an estimated value of US$100,000 or more; (ii) contracts with individuals for US$50,000 or more; (iii) all single-source selections of consulting firms; (iv) terms of reference for all contracts regardless of value; (v) critical assignments; and (vi) amendments to contracts with consulting firms and individuals that result in revised contract values greater than US$100,000 and US$50,000. 2.55 IDA's standard bidding documents will be used for all ICB financed by IDA Credit. When there are no relevant standard bidding documents, documents based on accepted international standard forms will be used. For LCB procurement, the Government would prepare, and agree on with IDA standard bidding documents based on IDA's standard documents and consistent with similar documents being prepared under the Health Sector Project.  - 29 - Table 6 Procurement by category and method (millions of U.S. dollars) Category ICB LCB Other NBF TOTAL Civil works (rehabilitation) 7.0 0.8 22.2 30.0 (6.8) (0.7) (7.5) Goods (vehicles and equipment) 19.5 1.0 1.2 24.2 45.9 (19.5) (0.9) (1.0) (21.4) Credit 66.5 66.5 Rural investment fund 10.0 17.0 27.0 (10.0) (10.0) Technical assistance (mainly short-term) 6.6 25.4 32.0 (6.6) (6.6) Training 10.4 26.6 37.0 (10.4) (10.4) Recurrent costsa 49.1 49.1 Incremental recurrent costsb 5.1 57.4 62.5 (4.1) (4.1) Total 19.5 8.0 34.1 288.4 350.0 (19.5) (7.7) (32.8) (60.0) Note. Figures in parentheses are the amounts financed by IDA. ICB is International Competitive Bidding; LCB is Local Competitive Bidding; Other is procurement not covered under ICB or LCB such as forced account, shopping procedures and direct contracting; NBF is non-Bank financed. a. Includes staff salaries, and staff allowances and expenses. b. Includes travel and subsistence, operating and maintenance costs, and other miscellaneous operating costs. H. Disbursement 2.56 In the past, Zambia's disbursement profile for externally funded projects has been slow. At the root of the problem are the centralized arrangements for channeling funds to the implementing agency or unit. Under the ASIP the Government would streamline and decentralize its disbursement procedures to delegate responsibility and accountability for funds to the lowest level of implementation. Funds would be advanced to the provincial or district levels on a quarterly basis in accord with the annual work program and funding requirement, which would  - 30 - indicate the activities to be undertaken each year, their location (province, district, and so on), and appropriate measurable yardsticks of their progress. To ensure that the advanced funds are used only for the intended purposes, the Government would put in place comprehensive monitoring and evaluation arrangements after consultations with donors. 2.57 The proceeds of the Credit would be disbursed over a period of about four years. The expected closing date of the Credit is December 31, 1999. The estimated disbursement profile takes into account the historical profile for agricultural projects in Zambia and the technical assistance provided for improving procurement and accountability in the program. 2.58 Table 7 shows that disbursement of the Credit by category: Table 7 Disbursement of IDA Credit, by category Category Amount Share of financing (millions of U.S. dollars) Civil works, including rehabilitation 7.5 100% of foreign expenditures and 90% of local expenditures Goods and agricultural inputs 21.4 100% of foreign expenditures and 90% of local expenditures Rural investment fund 10.0 100% Consultant services and training 17.0 100% Operating costs of IDA-financed sub- 4.1 90% in years 1 and 2 and programs 75% thereafter 2.59 Financing and disbursement arrangements under the ASIP would be determined each year in accordance with the annual work program and funding requirement, prepared by the MAFF and agreed on with all the donors. Each donor would set up a special account as part of a central special account opened by the MAFF through its financial management unit (see para 3.6). The MAFF would open the account at the Bank of Zambia or at a commercial bank acceptable to IDA and the other donors. The account, whose size would be based on the annual work program and funding requirement, would be segregated to identify each donor's financing share. IDA would provide an initial deposit of US$5 million to IDA special account to cover four months of expenditures on IDA-supported subprograms. The central Financial Management Unit (FMU) will advance funds from the Bank's and other donor's special accounts to the bank account established by each regional/provincial/district level FMU based on their funding needs identified in the annual work program and funding requirement. Therefore, while each donor's funds will be held in a separate special account by the central FMU, the funds advanced from these accounts will be maintained by each decentralized FMU in a common project bank account for all donor and government funds, in order to keep the accounting and administrative workload at the decentralized level to a minimum. The Government would also open a local currency account for its counterpart funds for the ASIP. The establishment of this account would be a condition of effectiveness [para 5.2].  - 31 - 2.60 Each provincial- and district-level implementing unit would open a separate bank account into which an advance annual work program and funding requirement not exceeding US$20,000 equivalent could be transferred from the central special account. The Financial Management Unit would be responsible for submitting regular replenishment applications with appropriate supporting documents for expenditures. Such applications must be submitted monthly but no later than every three months. All applications to withdraw proceeds from the credit will be fully documented, except for (a) expenditures of contracts with an estimated value of US$150,000 or less for civil works, and (b) US$100,000 or less for goods, consulting firms, training and operating costs, and (c) US$50,000 or less for individual consultants which reimbursement may be made against certified statements of expenditure (SOE). SOE forms (included in the disbursement letter) will provide, at a minimum, the summary/total of category wise expenditures collected from the various decentralized locations as well as from records of expenditures made by the central FMU. The central FMU will follow up regularly with each decentralized FMU and ensure that proper accounting has been submitted within the three-month period. No further advances will be made from the central special account to delinquent FMU's until proper accounting of outstanding funds is submitted to the central FMU. All SOE supporting documents will be retained at the decentralized locations and made available for review by the central FMU staff, the project/government internal audit staff, Bank/Donor supervision missions, and the independent auditors as necessary. III. IMPLEMENTATION A. Management and organization 3.1 Overall responsibility for implementing the ASIP would rest with the MAFF, and no parallel administrative project units would be created. The implementation arrangements are outlined in the implementation manual. Many of the ASIP activities would take place at the district level, and as capacity is built at that level, provincial-level structures would be gradually phased out. Meanwhile, MAFF staff at the provincial level would be delegated increasing responsibility and accountability for programming, procuring requisite goods and services, and auditing ASIP financial transactions. The proposed financial management unit (see para 3.6) would monitor the flow of funds from the center to the implementing agencies or units. Assurances were obtained at negotiation that the Government would maintain an implementation arrangement satisfactory to IDA and other donors [para 5. 1 (vii)]. 3.2 Private sector agencies would handle the program's private sector development component. Each agency would prepare annual plans and budgets and execute and monitor its component. These agencies would also prepare progress reports, which would be consolidated by the Policy and Planning Division of MAFF. The participating banks would handle the rural finance credit subprogram, operating under the same rules and regulations governing their regular operations. The banks would prepare quarterly projections of disbursements; these projections would provide the basis for the initial deposits and replenishments of their special accounts with the Bank of Zambia. 3.3 Coordination of the ASIP. An agricultural sector steering committee (ASSC) has been established to assume overall responsibility for formulating sector policies and coordinating the implementation of all ASIP programs. The Minister of the MAFF would serve as the honorary chairman, and the vice chairman would be elected by the members of the committee. The ASSC would comprise senior officials drawn from the Ministry of Finance, the National Commission  - 32 - Box 5 Transition to the ASIP The Government plans to abolish parallel management structures for agricultural projects and to merge these projects' activities into the ASIP, which will be the regular government program. Donors will still be able to direct funds to areas and programs they consider priorities, and will obtain regular reports on the use of thosefunds. The transition is expected to occur gradually, as ongoing projects are modified, in a Zambian led process, to fit into the ASIP framework. IDA and the Government have already begun adjusting IDA-supported projects. The scope of the Agricultural Research and Extension Project has been expanded and its coverage increasedfrom three to all nine provinces of Zambia. The Coffee II Project will now provide loans for all industrial and export crops, not just coffee. The Agricultural Marketing and Infrastructure Development Project will finance all agricultural outputs and inputs. The on-going IDA-supported projects will initiate pre-ASIP activities, especially pilot operations, to ensure a quick takeoff of the Program. for Development and Planning, the Bank of Zambia, and the Ministries of Agriculture and Land and Environment and three representatives of the private sector. Assurances were obtained at negotiations that the Government would maintain ASSC during the ASIP implementation [para 5.1 (xiii)]. 3.4 The Policy and Planning Division of the MAFF would provide secretariat support to the ASSC and perform liaison with each line agency of the MAFF responsible for implementing ASIP programs and with donors on implementation issues. In addition, the division would consolidate the annual work program, prepare sector budgets for ASSC approval, handle procurement and disbursement matters through the financial management unit, and organize an annual review of the ASIP. 3.5 Financial management arrangements. Implementation of the ASIP would follow the Government's financial procedures for planning, budgeting, accounting, internal control, and financial management. Donors have, however, expressed concerns about weaknesses in the Government's current financial management and accounting system. In particular, there are delays in the flow of funds from the provincial level to the districts because of the Ministry of Finance's failure to disburse the full amounts budgeted in the Yellow Book (annual budget). This leads to arbitrary allocation decisions by the Provincial Accounting Unit, with little correspondence between plan objectives and budgetary allocations. In addition, the districts lack autonomy in their expenditures. The most critical consequences for the implementation of the ASIP is the lack of effective accountability in the current financial management system. 3.6 In response to the donors' concerns, the MAFF has engaged the consulting firm Price Waterhouse to design an accounting system that rectifies the current weaknesses and meets the donors' reporting requirements. Price Waterhouse completed its first draft report in September 1994, but the new system is not expected to be fully operational before effectiveness of the ASIP. The MAFF has therefore decided to put in place a transitional arrangement with sufficient internal controls, transparency, and financial reporting mechanisms to meet the information needs of the Government and donors and to ensure that funds reach the intended beneficiaries. This transitional arrangement includes three key components. First, the financial management unit in the MAFF, staffed by professionally qualified accounting personnel, would deal with all issues of accountability, disbursement, procurement, and financial reporting under the ASIP. Second,  - 33 - a donor funds division within the financial management unit would be responsible for accounting for funds from donors participating in the transitional arrangement and for all other external funding currently excluded from the national budgeting process. Third, a system of direct disbursement to the districts would facilitate program implementation in the field through easier access to funds. The proposed system would include several key control elements: an internal audit section that would check all expenditure summaries from the districts, quarterly and annual financial reports to IDA and other donors, and a biennial external audit of the special account and statement of expenditure withdrawals. (See annex 5 for details of the proposed transitional financial management arrangements.) 3.7 Critical to the success of the proposed decentralized accounting system is human resource capacity at the district levels. The MAFF will develop a time-bound program to improve capacity at the district level so that fiscal control can be fully decentralized to districts. The proposed transitional arrangements, including setting up and staffing the Financial Management Unit, are being implemented by the Government. 3.8 Implementation plans and perfornance indicators. Each implementing agency or department would prepare a report on the implementation arrangements for its subcomponent detailing activities, organization and management, cost estimates, and performance indicators. The sector key performance indicators are in table 8. These reports would be consolidated into an ASIP implementation manual. The program implementation manual has been finalized. Table 8 Sector key performance indicators Indicators Actual Estimated ASIP (Projected) 199) 1992 1993 1994 1995 1996 1997 1998 1999 Agricultural GDP (1977 constant zk 406 272 411 398 395 407 423 444 466 million) Total Value of agricultural export 29.5 42.7 63 50 55 66 82 107 140 (US$ rnillion) Food production index 1981 = 100 133.3 116.8 153.4 140.0 130 140 148 158 170 Land productivity (yield per ha of 1.3 0.6 1.8 1.7 1.6 1.8 1.9 2.1 2.2 major food crops) (tons) Net agricultural income per farm 71 47 85 70 70 78 82 88 95 household (1977 constant zk) Index of real producer prices (1985 = 500 1200 1000 900 900 925 950 980 1020 100) 90 kg. bag of maize Fertilizer Use (Kg/ha) 12 14 14 13 14 15 16 18 13 3.9 Annual work plans and budget. Coordinated by the Policy and Planning Division, the MAFF implementing departments would be responsible for updating the annual work plans and budgets for the ASIP in accordance with the implementation plan. The ASIP work plan and budgets have been designed to provide the inputs needed in the MAFF's annual budgeting exercise and would generate the data needed for the agriculture sector public investment reviews. The  - 34 - work plans would detail the activities planned, the budgetary and human resources required, performance indicators, and the procurement program, including the contract package and estimated costs. During implementation the MAFF would begin to use the ASIP budget structure to account for annual expenditures. At the end of each year the MAFF would review the expenditures, make necessary adjustments, and prepare a revised ASIP (MAFF) budget for the following year. Maintaining the ASIP format for monitoring actual MAFF expenditures would provide a more structured data base for public expenditures in the agricultural sector. Three months before the start of the fiscal year the MAFF would prepare a draft annual work plan and supporting budget estimates for each subprogram and submit them to the ASSC for approval and to donors for discussion during the annual ASIP review. The Government would undertake to have no other public investments in the agricultural sector outside the ASIP framework. Each year the Government and donors would reach agreement on the following year's public investments in the sector. Assurances to these effects were obtained at negotiations [para 5. Il(viii)]. B. Monitoring, evaluation, and beneficiary assessment 3.10 The monitoring and evaluation system under the ASIP would have three components: management information systems (MIS), impact evaluations and beneficiary assessments and feedback, and agricultural sector performance analyses. The Policy and Planning Division would have primary responsibility for recommending corrective actions based on the findings of the monitoring and evaluation system. Assurances were obtained at negotiation that the Government would maintain a monitoring and evaluation system agreed on with IDA and other donors, and incorporate the findings of that system in regular progress reports [para 5. 1(ix)]. 3.11 Management information systems (MIS). The MIS would be established within each subprogram. Overall responsibility for the MIS would rest with the monitoring and evaluation unit of the MAFF's Policy and Planning Division (PMEU). The MIS would contain data on each subprogram's financial, physical, and personnel inputs and its outputs, which would be evaluated against predefined performance indicators. The PMEU would prepare regular MIS reports, disseminate them to the ASSC and participating donors, and interpret their results for decisionmakers. The PMEU would also be responsible for identifying necessary corrective actions and ensuring sub-program managers take those actions. 3.12 Impact evaluations and beneficiary feedback. The impact of subprograms on the intended beneficiaries would be assessed annually through sample surveys and the systematic client consultation (SCC). The main source of information would be an improved version of an ongoing random sample survey of about 5,000 farm households. This survey, which covers all districts, is conducted annually by the Central Statistical Office (CSO) to collect input and output data and would serve as the main source of data for the quantitative evaluations (see annex 9). Additional questions would be added to the survey's questionnaire to elicit mostly qualitative feedback from farmers on their satisfaction with ASIP services and on the constraints that they face. The data collected will be analyzed by gender and income categories. The SCC impact evaluation surveys will be conducted by experienced investigators to verify and supplement the quantitative evaluations. The in-depth analysis of the quantitative survey and the impact evaluation would be conducted by an independent Zambian institution. Results of both the quantitative and the qualitative evaluations would be used to identify improvements to increase the impact of ASIP activities.  - 35 - Box 6 Systematic client consultation Systematic client consultation is one of the ASIP's distinguishing features: it was a key element during preparation and will continue to be essential during implementation. The systematic consultations with the stakeholders - smallholder farmers - will serve two functions: as an integral planning and implementation toolfor extension and research staff, and as a means to obtain independent client feedback that will allow rapid adjustments to program management. Both are consistent with greater decentralization of program management to the district level. The first function requires that extension workers and researcher be trained in participatory planning and implementation techniques so that they can work systematically with the farmers toward meeting their priorities. The second function would support qualitative assessments of the MAFF's response to priorities and its delivery of services, and offarmers' responses to program initiatives and their perceptions of the changing policy environment. And it would provide qualitative explanations of the quantitative data being gathered for the sector performance indicators. Mechanisms for consulting with other stakeholders affected by the sector approach also are being developed. The results of the consultations would be continually analyzed as part of the review of the ASIP's implementation. The exercise would also serve a broader purpose: the proposed assessments would be integrated into Zambia's ongoing efforts to develop a poverty monitoring system. The ASIP would draw on the group of Zambian professionals who already have the ability to perform qualitative assessments, engaging local institutions to carry out the assessments and to provide the necessary staff training. 3.13 Sector performance analysis. Because the ASIP encompasses the entire agricultural sector, its impact would be best evaluated through an analysis of the sector's overall performance. Thus, a sector performance analysis would be undertaken annually by the independent institution that would also analyze the surveys. This analysis would attempt to explain the reasons for both satisfactory and less than satisfactory results, and consider - in addition to the effects of conventional inputs and weather variables - the impact on the sector of such factors as policy reforms, international trade, and inflation. It would also assess the relative contributions of subprograms to the sector's overall performance. The PMEU would be responsible for ensuring that the methodologies of the surveys and the sector performance analysis conform to the highest international standards. C. Accounting, auditing, and reporting requirements 3.14 Accounting. The MAFF would maintain an accounting and control system capable of reliably recording and reporting all financial transactions. Each participating agency would maintain adequate accounting records to allow accurate and timely recording of its operations and would prepare annual financial statements in accordance with generally accepted accounting principles. These annual financial statements would be consolidated by the financial management unit in the MAFF. Annual financial statements prepared for audit would consist of an income and expenditure account for the year, cumulative accounts since Credit effectiveness, a summary of the central special account, a summary of reimbursements and replenishments claimed under the statement of expenditure (SOE) procedures, and statements of investment credits for private sector development with participating banks.  - 36 - Box 7 The possibilities of independent sector analysis The Government has decided to engage an independent Zambian institution to conduct an annual agricultural sector performance analysis. The methodology of the analysis is expected to meet the highest international standards, and the resulting sector report, to be mnade available to all donors and other interested parties, should be of high quality. The analysis is expected to have important efficiency effects. It should enable the Government to take timely corrective actions with respect to both policy and administration. And, because of its high quality, it would make separate, donor-driven sector reviews unnecessary and thus save donors the considerable costs they have incurred in the pastfor such reviews. Moreover, as an exercise carried out by Zambians, the analysis is expected not only to lead to obvious capacity building benefits, but also to produce proposals for policy and other reforms that are more readily acceptable to the stakeholders and reinforce commitment to the ASIP. 3.15 Auditing. Annual financial statements of IDA-financed components would be prepared and audited in accordance with recognized auditing standards by suitably qualified independent auditors. By September 30 of each year, the MAFF would submit to IDA audited financial statements of investment credits for the preceding financial year, audited by private independent auditors acceptable to the donors. In addition to separate audit opinions on the Credit accounts, the auditor's report would include: (i) the statement of expenditure, (ii) the central special account, and (iii) a long-form report or management letter commenting on the adequacy of the accounting system and internal controls. 3.16 In addition, the financial management unit would contract external auditors to audit the special account, the statement of expenditure, and the withdrawal applications every six months and to assist the districts in improving their accounting practices. In particular, the auditors would confirm that: * Procurement rules have been followed. * Fund withdrawals have taken place in accordance with ASIP procedures. * The ASIP funds have not been used to provide funds to parties other than program beneficiaries. * Subprograms have not been financed twice through other donor funds. * Withdrawal applications fully document expenditures and include only eligible expenditures. * Counterpart funds have been advanced in accordance with the agreed on work program. 3.17 During negotiations assurances were obtained that the ASIP audit would be contracted to private auditors acceptable to IDA [para 5. 1(x)].  - 37 - 3.18 Reporting. On the basis of information gathered from the implementing agencies and units, the Policy and Planning Division of the MAFF would prepare semiannual and annual reports on progress, problems, and issues covering every program component. Copies of the reports would be submitted to IDA and other donors within two months after the end of the reporting period [para 5. 1(xi)]. D. Program supervision 3.19 Ongoing supervision. The ASIP would require careful donor coordination for the review of implementation performance. To facilitate donor collaboration, a donor supervision team would undertake periodic performance reviews. The first donor mission would include a program launch workshop to provide orientation and training for key staff in the implementing institutions on the project cycle, procurement and disbursement procedures, accounting and auditing requirements, and progress reporting requirements. Donors' subsequent review missions would include an appropriate mix of skills for effective supervision of program components. In consultation with donors, the Government would organize semiannual reviews to evaluate implementation and, if necessary, to suggest changes needed to ensure that the program meets its development objectives. In addition, there will be joint annual reviews of MAFF's budget (see para 3.9). The MAFF would be responsible for coordinating joint donors' supervision missions, and the Policy and Planning Division would be responsible for providing information required by the missions. All beneficiaries would be required to supply information and reports as specified by the Policy and Planning Division. For all such donor missions, the Government would provide counterpart staff to participate in the missions' review processes. The annex 6 describes the supervision plan while monitoring and evaluation is in annex 7. The supervision arrangements, including the semiannual reviews, were agreed on at negotiations. 3.20 Nfidterm review. Donors and the Government would carry out a mid-term review by the end of the second year following Credit effectiveness. The findings of the review would serve as a basis for the preparation of the second phase (replenishment) of the ASIP. To prepare for the review, the Policy and Planning Division, assisted by the program supervision team of government and donor representatives, would prepare a detailed progress report covering the entire period since program commencement. The report would include a thorough analysis of implementation issues and results in the field, based on the findings of the monitoring and evaluation studies and other sources of information. The report would also highlight the progress made in achieving performance indicators. The midterm review arrangements were agreed to at negotiations [para 5. 1(xii)]. IV. BENEFITS AND RISKS A. Benefits 4.1 The ASIP would benefit Zambia's economy in several ways. First, it would foster an enabling economic environment for private sector development by continuing to remove regulatory and statutory restraints on competition, rationalizing the public sector's roles in the economy so as to minimize the distortions created by government intervention, improving the effectiveness of essential agricultural services to farmers, and increasing investments in rural infrastructure. 4.2 Second, the ASIP would provide a cohesive framework and combined resources for Zambia's public agricultural sector investment program and all agricultural support services. The public expenditure program would reflect not only sectoral priorities, but also the shared vision  - 38 - of the Government and donors. The ASIP would therefore considerably increase the chances that adequate funding would be provided. And the resultant resource allocation would be more closely aligned with sectoral priorities and would result in more efficient utilization of public sector resources. 4.3 Third, the ASIP would enhance the effectiveness of public sector management by replacing more than 180 separate projects in the agricultural public expenditure program with a single operation. Rather than having to oversee a large number of projects, which tends to dissipate the public sector's limited management capacity, the MAFF could direct its limited managerial capacity to one coherent set of priority programs. The ASIP would also provide a set of priorities in which donors would be requested to invest. In addition, the coordination of donor activities under the ASIP and the proposed reduction in public investments and subsidies in agriculture, particularly for inputs, marketing, and credit, would result in cost savings of about US$390 million, or 53 percent, in agricultural expenditures. 4.4 Fourth, ASIP services focus on small farmers, a group with substantial untapped growth potential. Although these farmers are expected to benefit from the economic liberalization achieved under the structural adjustment program, their limited technology and poor access to markets impose severe constraints on their ability to expand their market share. By targeting research and extension services to benefit smallholders the ASIP would help these farmers improve their productivity. That in turn would lead to the production of marketable surpluses that not only would increase small farmers' incomes, but also would encourage private sector marketing. Thus, focusing on smallholders, the ASIP would be likely to raise the incomes of a large proportion of the rural poor through its effects on productivity and employment creation. 4.5 The holistic nature of the ASIP and the difficulty of measuring the benefits from specific subsectoral investments make it impossible to quantify its expected rates of return. Instead, a break-even analysis of the investments is used to assess whether the benefits required to justify the program are feasible. This analysis shows that at the discounted cost stream of 12 percent, the program would need to result in an annual growth rate in agricultural GDP of 0.84 percent. (This growth would need to be directly attributable to the ASIP and exclude the results from increases in other inputs.) If the cost of the ASIP increased by 10 percent, the minimum incremental growth in agricultural GDP directly attributable to the ASIP would have to be 0.93 percent. If the benefits lag by one year, the minimum growth rate would need to be 0.94, and if by two years 1.05 percent. (See annex 9 for the details of this quantitative analysis.) Under all reasonable risk scenarios, and given historical growth rates and the large gap between current levels of output and the production frontier, such increases in agricultural growth are achievable. The agricultural sector achieved an average growth rate of 3.3 percent between 1980 and 1992 under extremely adverse macroeconomic conditions. In addition, smallholders, currently producing about a third as much per hectare as commercial farmers, offer a considerable margin for improvement. B. Environmental sustainability 4.6 The ASIP would have positive environmental effects through its support for improved farming and conservation practices. Its investments would be focused on such efforts as minimum tillage, research on sustainable farming systems, and promotion of insitu soil and water conservation. As a land-surplus country, Zambia has the potential for the sustainable expansion of cultivated area on which the projections of its agricultural growth are in part based. In addition, the National Environmental Action Plan to be implemented concurrently with the ASIP,  - 39 - will restrict cultivation in environmentally sensitive areas. An Environmental Support Program under preparation in the Ministry of Environment and Natural Resources will also improve environment-related institutional capacity in the country and address specific environmental issues. Under the ASIP the purchase of agricultural inputs and chemicals deemed environmentally unacceptable would not be permitted, and an environmental mitigation plan has been developed to address any adverse environmental impact (see annex 11). C. Risks 4.7 The ASIP could face many challenges during implementation. These challenges might include inadequate funding of the Government's share of local costs, failure to decentralize decisionmaking to local levels, failure by the donors to dovetail their projects into the program, and derailment of the macroeconomic reform program. 4.8 Inadequate funding of local capital and recurrent costs due to unforeseen shortfalls in government revenue or failure to integrate annual ASIP expenditures into the budget process could lead to an erratic flow of funds and would greatly diminish implementation capacity. But shifting from a project to a program approach would (a) minimize the duplication of activities, thus releasing some resources to fund priority activities, and (b) permit the Government to anticipate revenues and overall budget envelopes, thereby permitting more rational prioritizing and programming of funds for the coming year. This holistic approach to sector management would also improve the ability to forecast resource requirements and thus make it easier for the Treasury to provide adequate resources. And the proposed annual review of the ASIP would help to integrate annual programs into the budget process. 4.9 The success of programs such as the ASIP depends on decentralizing decision making on development priorities and expenditure allocations so that beneficiaries participate in the process. Failure to decentralize perpetuates the inertia of bureaucratic practices and risks the continuation of "business as usual." The Government is fully aware of this risk and proposes a decentralized implementation structure for the ASIP. It also proposes to establish a systematic process for obtaining beneficiaries' views of the program. These actions should help to maintain the ASIP's focus. 4.10 Donors and the Government agree that managing a portfolio of more than 180 projects places an unsustainable demand on the MAFF's limited managerial capacity. Most donors have expressed interest in restructuring their projects to fit into the ASIP framework, and there is broad agreement that this should be done over a transition period of two to three years. Failure to merge these projects into the ASIP would greatly undermine its potential benefits. The Government is preparing a time-bound program for this restructuring. 4.11 The success of ASIP depends above all on the continuation of the economic and institutional reforms being implemented under the country's structural adjustment program, and of the macroeconomic policy, which supports increased reliance on the private sector and fiscal discipline to provide the resources for development. Although the Government of Zambia has maintained its commitment to reform under difficult circumstances and there are no obvious reasons that it might want to change course, the level of government commitment could nevertheless change as a result of the national elections expected near the end of 1996. IDA will maintain a close and continuing dialogue with all major actors on the economic and political scene in Zambia so as to be able to anticipate major shifts in policy and take corrective action.  - 40 - 4.12 Despite considerable progress in the macroeconomic environment, some uncertainties persist. The most important uncertainty is political. In anticipation of local elections this year and national elections in 1996, the cabinet might authorize spending in excess of revenues. But the Government's exemplary record of fiscal discipline suggests that this risk is small. Even the unlikely event of change in government is not expected to derail the reform agenda because there is broad public recognition that a return to high inflation would be disastrous. Another risk is that the recurrent droughts in Zambia in recent years could lead to the reintroduction of agricultural subsidies, particularly credit subsidies to vulnerable groups. But the Government recognizes that credit subsidies are not an effective way to help vulnerable groups. Moreover, donors, which have provided support in overcoming the adverse budgetary impacts of the recent drought, are likely to continue to provide drought relief as long as the Government maintains prudent macroeconomic policy. V. ASSURANCES, CONDITIONS AND RECOMMENDATION A. Assurances obtained at negotiation 5.1 Assurances were obtained at negotiations that the Government would: (i) Implement the sectoral and policy reforms according to the Letter of Sector Development Policy (para 2.10). (ii) Establish, by September 30, 1995, an interdisciplinary committee to coordinate emergency disease control measures (para 2.25). (iii) Take all necessary steps by September 30, 1995, for privatizing or liquidating Lima Bank (para 2.34). (iv) Cease budgetary allocations for agricultural credit by September 30, 1995 (para 2.34). (v) Develop selection criteria for investments under the rural investment fund (para 2.39). (vi) Develop, by September 30, 1995, the scope and timetable for the state farm privatization scheme (para 2.41). (vii) Maintain implementation arrangements under the ASIP that are satisfactory to IDA and other donors (para 3.1). (viii) Provide, by September 1 of each year, a draft annual work program and supporting budget estimates to IDA and other donors for comments, and permit no additional public investments in the agricultural sector outside the ASIP framework, as adjusted from time to time in agreement with IDA and other donors (para 3.9). (ix) Engage an independent institution to carry out the annual ASIP impact evaluations, beneficiary consultations, and sector performance analyses and incorporate the findings in progress reports available to IDA and other donors (para 3.10).  - 41 - (x) Appoint private auditors acceptable to IDA to audit the ASIP each year (para 3.17). (xi) Submit semiannual and annual progress reports to IDA and other donors (para 3.18). (xii) Establish mutually acceptable guidelines for the midterm review (para 3.20). (xiii) Maintain the agricultural sector steering committee (ASSC) and the financial management unit (paras 2.16 and 3.3). B. Condition of effectiveness 5.2 The Government would establish a local currency account for ASIP counterpart funds (para 2.59). C. Condition of disbursement 5.3 Amendment to the Land Laws to facilitate the subdivision of land and implementation of policy measures to provide for the subdivision and sale of state farms would be a condition of disbursement for the land subprogram (para 2.41). D. Recommendation 5.4 On the basis of the above assurances and conditions, the proposed ASIP would be suitable for an IDA Credit of SDR 41.2 million (US$60 million equivalent).  - 42 - ANNEX - 1 Page 1 of 9 Mr. Lewis Preston President The World Bank 1818 H Street N.W. Dear Sir, RE: ZAMBIA-AGRICULTURAL SECTOR LETTER OF DEVELOPMENT POLICY 1.0 Introduction Zambia has great potential and opportunities for increasing agricultural production given its abundant natural resources (land and water). As such the government accords significant importance to the agricultural sector's potential contribution to GDP and export earnings, as well as employment creation and income generation. The importance of the sector also lies in the fact that a large segment of the population is dependent on the sector with about 50 percent of the population depending on agriculture for their livelihood and 67 percent of the labor force employed in the sector. The purpose of this letter is to brief you on the major constraints to realization of the sector's full potential and current government policies, strategies and programs to address these problems. 2.0 Past and Present Policy Developments Zambia's past economic policies were too restrictive and constraining as there was too much control and interference on the part of government. This together with inadequate provision of essential public services resulted in unrealized potential for the sector. This was especially serious in agriculture because of the controls on crop and input prices, high level of parastatal activity in both marketing and input supply, and high maize and fertilizer subsidies. The past strategy for developing small-scale farmers relied on subsidized credit for inputs and marketing. These policies and strategies were obviously not sustainable; and some of the discernible side effects include the following: a poorly developed agricultural sector dominated by a single crop maize; huge Government expenditure on subsidies which contributed to inflationary budget deficits; insolvent public marketing and farm financing agents; very low farm productivity and incomes among small scale farmers; absence of private sector participation in the areas of farm input supply, agricultural marketing and food processing; and eroded household food security. Clearly, this scenario had to be reversed and corrected. Though attempts towards market liberalization began as far back as the early 1980s, it was not until November, 1991 when the MMD came into office that implementation of Structural Adjustment Program (SAP) gained momentum. Since then, the Government of Zambia has adopted a vastly different approach to economic policies from that which prevailed in the past decades. In the main, Zambia has undergone radical changes in the macro economic environment following the implementation of SAP which primarily attempts to transform the Zambian economy from a highly regulated one to one which is diversified and essentially driven by market forces. The economic policy and institutional reforms embodied in the program are intended to enhance more efficient resource allocation and improve the growth prospects in the economy. The Government has made substantial progress in achieving and restoring financial and monetary stability.  - 43 - ANSEX-I Page 2 of 9 This has mainly involved decontrol of interest rates and prices, deregulation of exchange rates, introduction of open treasury bill sales, government cash budget and generally tightening of money supply growth in the economy, and a good revenue collection system. These measures, however, have created new dynamics which are changing the conditions for conducting economic activities , but have also resulted in a difficult economic and political transition, one characterized by a very tight monetary and fiscal policy, coupled with high unemployment. However, the Government is strongly committed to, and believes that the successful implementation of economic reforms combined with increased transparency and accountability are essential ingredients in improving returns to investment, general economic efficiency, growth and well-being of the Zambian people. Clearly, with macro-economic stability the foundation has been created for positive real growth in the economy. In line with SAP implementation, the agricultural sector is also undergoing liberalization with emphasis on input supply and crop marketing (both domestic and international), agricultural pricing, withdrawal of Government subsidies and privatization of agricultural parastatals. Government has laid its goals and objectives in the "Framework for Agricultural Policies to the year 2000 and Beyond", and later the "Statement of Agricultural Policies". The agricultural sector is expected to meet five broad goals, namely, national and household food security, income and employment generation, maintenance and improvement of the existing agricultural resource base, contribution to sustainable industrial development, and expanded contribution to national balance of payments by expanding agricultural exports. Despite these efforts, the agricultural supply response has not been robust. Recent performance has been characterized by fluctuations in production and uncertainty in the marketing in both produce and inputs as a result of radical changes that have occurred in the macro-economic and sector specific policies. However, this situation is expected to be temporary because in the medium to long term, farmers and traders should adjust to new economic conditions. Other factors besides economic policy shocks have also contributed to the unsatisfactory performance of the sector in recent years. These include a poor agricultural credit system and recurrent droughts. The agricultural lending institutions have been unable to meet the high demand for credit and have also performed poorly in terms of loan recoveries. The government has recently completed a study of the agricultural credit system which recommended phasing out general credit subsidies, rationalizing institutional roles and restructuring Lima Bank - the main government owned agricultural credit bank. The challenges are to ensure that the majority of our small scale farmers have access to financial services needed to finance agricultural activities and that a more viable and sustainable agricultural credit system is put in place. Drought effects have adversely affected the growth of the sector in recent years. During 1991/92 Zambia suffered severe drought which left farmers with little or no crops to sell and immensely depleted livestock levels. As a result, the sector's contribution to GDP fell by as much as 5 percent during the 1991/92 drought and by 1 percent during the 1993/94 drought.  - 44 - ANNE 1- Page 3 of 9 3.0 Strategies and Actions The government intends to intensify its reliance on the private sector and free markets as the engines of growth. Government and the private sector will play specific but complimentary roles. Already, many former government functions are now being privatized and Government intends to restructure public activities to support and complement the efforts of the private sector. It is recognized that like everywhere else in the world, the full development of the agricultural sector depends upon both public and private sector effort and involvement. In order to achieve the goals outlined above, the main policy thrusts will include: liberalizing agricultural markets; privatizing and supporting private sector development; agricultural diversification; placing emphasis on services to smallholders; implementing special actions to support food security; helping to revitalize rural financial services; and making better use of available farming land (see attached Policy Matrix). Liberalization of Agricultural Markets: Positive steps have already been taken in this direction and it is an on-going process. The policy of Government is to reinforce this process of liberalization by among other things, relying increasingly on market based prices for all crops; lifting restrictions/ constraints to domestic and international trade; reviewing and where necessary changing the relevant pieces of legislation; and privatizing agricultural parastatals. Increasing the Role of the Private Sector: The government is fully committed to rolling back the extensive involvement of the public sector in economic activities. A number of enterprises have been privatized including; Poultry Processing Company, Zambia Maltings Ltd, Nanga Farms Limited and Agricultural Farming Equipment Limited (AFE). Several others are at an advanced stage of the privatization process. These include; Zambia Agricultural Development Ltd. Farms i.e. Chilongolo, Chainda, Hartley, Simmenthal and Holding farms and the Zambia Sugar Company Ltd. The Zambia Privatization Agency (ZPA) continues to prepare eligible public enterprises for sale. When completed, all the marketing and processing will be handled by the private sector. There are also a number of services provided by the public sector including for instance, veterinary services for which the government will seek increased cost recovery and outright privatization where the conditions are appropriate. Agricultural Diversification: In view of difficulties in growing and marketing crops such as maize in some regions, Government is encouraging farmers to expand their crop portfolio so as to improve their income base by growing high value crops which can easily be marketed and require less external inputs and takes into account agro-ecological considerations. Some of the main economic activities include growing of crops such as groundnuts, sunflower, soyabeans, tobacco and cotton. Other economic activities include fish farming, poultry, piggeries, horticultural and flower growing in the peri-urban areas. The diversity in outputs will help reduce risk by broadening income sources and thus enhancing household food security. Improving Services to Smallholders: Taken as a group, Zambia's smallholders constitute a large under-utilized resource in the economy. However, the quality of publicly funded agricultural support services require significant improvement. In the areas of research, extension services, marketing, credit and land tenure the Government will make special efforts to ensure that smallholders have full opportunity  - 45 - ANNEX-1 Page 4 of 9 to share in the economic growth and development that is emerging under the new policy environment. Some of the measures include making available appropriate and affordable yield enhancing technologies; and availability of, and access to key inputs especially improved seeds, fertilizer and finance as well as enhancing institutional capacities for land administration and surveys. Government is also putting a special emphasis on ecologically sound farming practices to minimize unsustainable exploitation of the natural resource base. This will be achieved by among other measures, technical messages on appropriate crop rotation and diversification, and on integrating agro-forestry into farming systems. Furthermore, improved management of available water and moisture can make a major contribution to improving productivity of smallhaolder farmers and can help contribute to higher incomes and improved food security. Wherever technically and economically feasible, small scale irrigation will be developed to help increase cropping intensity and increase farm incomes. Improving the Economic Status of Women: Women constitute nearly two-thirds of the rural population in Zambia and account for over three-quarters of the agricultural labor supply. They also supply about 80 percent of the labor required for household food processing and haulage of farm produce, water and fuelwood within households. However, women farmers have benefitted little from government supported agricultural services such as extension and credit. In order to change this situation, agricultural research, extension, credit, and land tenure policies will be structured so as to enhance the economic status of women in the sector. Making Better Use of Available Natural Resources: Zambia is a land surplus country and most communities have easy access to traditional land. The main obstacles in these areas is the lack of transport infrastructure. Many of these areas will become dynamic sources of growth as they become more accessible. Access to land in areas close to the major transport corridors and in peri-urban areas is slow and cumbersome. Land registration in areas where title deeds are available is very slow and the law did not allow land subdivision for those who had surplus land to sell. Furthermore, recent surveys show that at least (a third) of the land on large commercial farms is unutilized. The government has therefore drafted legal reforms to the land tenure systems, and it is hoped that once enacted it would improve land administration, allow subdivision and attract increased investment. Food Security: Poverty and malnutrition are still major problems in Zambia. Furthermore, a large number of Zambians are food insecure.To tackle these problems, government is developing broad and comprehensive inter-ministerial response mechanisms to deal with emergency and chronic food insecurity. Government will deal with transitory food insecurity through a national food reserve of one million bags and a financial mechanism to finance imports. Rural Finance: Government will improve smallholders access to credit and other financial services as well as their sustainability by encouraging pluralism in the provision of financial services to the rural sector, support the formation of smallholder savings and credit groups, provide the necessary legal framework, and support sustainable private sector driven mechanisms for the provision of rural financial services Agricultural Sector Investment Program The objective of ASIP is to achieve the five stated goals that government has set out for the sector. It will be the tool that government intends to use to provide the complementarity between policy and institutional  - 46 - ANNEX- I Page 5 of 9 reforms on the one hand and public expenditure on the other. In so doing, ASIP seeks to make much more effective use of all public funds from both donors and the Government. ASIP will for instance reduce the proliferation of projects currently numbering over one hundred and eighty. It is a bold attempt by government to harness its limited implementation capacity and to minimize overlapping and frequently conflicting donor preferences. Government hopes that by so doing it will greatly contribute to the effectiveness of development assistance. It represents a dramatic departure from the traditional project approach and has the potential for significant improvements on efficiency, ownership, capacity building and sustainability. The seven main features that differentiate it from traditional projects are: (i) it covers the entire agricultural sector; (ii) it has been prepared by our own specialists drawn from both the public and private sectors; (iii) it would be implemented within the MAFF institutional framework; (iv) we aim to standardize donors' implementation procedures, reporting, accounting and auditing requirements; (v) the use of the long-term expatriate technical assistance would be kept to a minimum and short-term technical assistance would be supplied on demand; (vi) it has a built in flexibility that allows for annual reviews and adjustments; and (vii) it is imbedded in individual public sector reforms in the agricultural sector aimed at greater decentralization and beneficiary participation. It is likely to be less susceptible to the traditional risks of complex project design and over-reliance on long-term technical assistance that beset most projects and lead to failure. In addition, it is more likely to be sustainable and to build capacity, since it would be managed by Zambians through normal government institutional channels with a strong sense of national ownership. Finally, we see this initiative as a complement to the ongoing-donor supported structural adjustment efforts. Government fully realizes that none of the proposed actions under ASIP can succeed without changing the implementation culture in Zambia. We intend to use all the available resources more fully, where they are needed the most. The Government is therefore moving rapidly to decentralize implementation to the District. The major aim of decentralization is to achieve efficiency in the management of public affairs particularly the utilization of manpower and capital resources. The Government plans to use independent Zambian institutions to carry out annual sector performance analysis including an assessment of the impact on beneficiaries and on growth. We expect this independent annual sector performance analysis to be a model for other sectors. Of particular importance to Zambia has been the broad consultation and debate among stakeholders, different Government Ministries and agencies and donors. The ASIP process has been instrumental in developing a clearer understanding of the tradeoffs within agricultural subsectors and indeed across other sectors. There is more awareness of the utility of thinking in holistic way. It is anticipated that this approach will facilitate ongoing and timely examination of constraints to development while providing a framework that will soon be tested through ASIP, for overcoming such constraints. Indeed, it is my government's hope that the ASIP framework whose overall coordination and management will fall within the Ministry of Agriculture, Food and Fisheries will lead to a more vigorous sector performance that is so essential in the battle against poverty and hunger and ultimately, the welfare of Zambian people. Yours sincerely, R. D. S. Penza, M.P. MINSTER OF FINANCE Cc. Hon. S. Zukas, M.P Minister of Agriculture, Food and Fisheries.  ZAMBIA AGRICULTURE SECTOR INVESTMENT PROGRAM Draft Policy Action Matrix Policy Objective Current Status Proposed Action Responsibility and Timing I. Marketing, Trade and Pricing Policy (i) Develop an efficient and Reforms under the structural adjustment * Lease all the excess storage MAFF - During each annual effective agricultural program have removed most controls on capacity on a continual basis. review of ASIP marketing and processing input and output marketing and trade. The system; (ii) Develop a more share of the private sector is growing only efficient input supply system; gradually because of a tight fiscal and and (iii) Build a viable monetary policy. Public storage is nearly all agricultural export trade. leased, but most of the leases are short term because of the seasonality of the demand. II. Privatization and Private Sector Development To enhance private sector The Government has placed major parastatals * Monitor status of ZPA divestiture MAFF - During each annual participation in agricultural on the divestiture program of the Zambia program. review of ASIP development. Privatization Agency. The following enterprises have been privatized: Poultry Processing Company Limited; Agricultural Farm Equipment Company; Nanga Farms Limited; and Zambia Naltings. A further 23 companies will be privatized in tranche 2, 14 will be privatized in tranche 3, and 1 will be privatized in tranche 4. These companies include agricultural holdings such as farms, fisheries and agro-industries such as milling, brewing companies, and oil processing companies. The pace of privatization is constrained by the limited capacity of the X private sector to buy out these firms. Government is also seeking immediate * Implement cost recovery measures MAFF - 6/95 increases in cost recovery in the provision of for agricultural services. agricultural services.  Eolcy Obhjective Current Status Proposd Action Rl i m. Food Security (i) Ensure adequate The Government has an early warning * Carry out a review of all public Food and Nutrition Commission household and national food system and a nutrition status monitoring sector funded chronic food insecurity Completion date: 9/95. security; and (ii) Ensure system. There is good functional integration programs, assess adequacy of funding, special access to food by with NGOs. There is a multiplicity of propose ways of strengthening vulnerable groups. institutions dealing with chronic food coordination. insecurity. The current arrangements suffer from poor interministerial coordination. Government has passed new legislation that will establish a food reserve and a financial mechanism to deal with transitory food insecurity. IV. Rural Finance 00 To develop a sustainable Substantial budgetary allocations for credit * Cease government credit financing MAFF/ Ministry of Finance system of rural financial with very poor collection; inadequate support of farm input and produce marketing. Provide evidence by 9/30/95 intermediation and to for informal credit; the main public sector showing no budgetary allocation progressively eliminate financial institution (Lima Bank) is insolvent. * Restructure or liquidate Lima Bank to rural credit. unsustainable public sector The Government has decided on an and divest Government from the credit programs. immediate elimination of all commodity Zambia Cooperative Finance Ltd. and MAFF/Ministry of Finance specific donor-funded credit programs. The CUSA. Initiate steps to restructure or Government is preparing a financial sector liquidate Lima Bank by September reform program that will address macro- * Initiate pilot activities aimed at 30, 1995 financial issues comprehensively. providing credit to smallholders on a sustainable basis. -'w Xo _q  Current Status Proposed Action Responsibility and Timing Policy (bjective V. Regulatory Framework To modernize the laws to There is a large body of agricultural * Review agricultural legislation. MAFF - 6/95 support current development legislation that is outdated. An inventory of The 3 main acts: Credit Act of 1962 in requirements. all agricultural legislation has been done. order to improve credit services to Priority reforms will include easing entry and smallholder farmers; the Cooperative enhancing competition. Amendment Act to facilitate take-over of government operations by cooperatives and the Food Security Reserve Agency Act to provide mechanisms for combating transitory food insecurity. * Prepare a timetable to review the VI. Public Expenditure remaining 30 or so Acts. Analysis To strengthen the link The multiplicity of donors and programs * Carry-out an annual review of MAFF between development inhibited effective overview and monitoring. public expenditures as a part of the objectives and budgeting, and The shift to a sectoral approach has provided annual ASIP workprogram. to ensure a timely analysis of a framework for the coordination and budget objectives against rationalization of public expenditure. actual expenditures. Vo_  Poli Objective CurrentStas Propod Action Rb s VII. Land Use and Tenure Policy To enhance the efficiency of The Government consent to land transactions * All legislative issues are being Ministry of Lands the land market and is slow. Land subdivisions are prohibited handled under ESAC and have the strengthen land management and leases are short. There is active following objectives: to extend land capacity for survey and discussion on land reform aimed at leases from 14 to 99 years; to registrations. improving tenure arrangements including facilitate registration and titling of registration, titling and leasing. No traditional lands; and to allow consensus has been reached yet on how to subdivision and sale of state farms to proceed with traditional lands because of groups including provisions for uncertainty over social and gender equity allocations to landless people in peri- issues. Proposed legislation has been drafted urban areas. and agreement on the reforms therein is a condition of tranche release under ESAC. * Establish criteria for land MOL - 6/95 VIII. Monitoring and allocation. Evaluation To assess the impact of ASIP The Central Statistical Office collects a large * Establish an MIS. MAFF and its public expenditure amount of data but it does not analyze it. components on rural No current information exists on the impact * Adjust the CSO questionnaire to MAFF development. of public expenditures on target groups. include beneficiary feedback and impact assessment. * Contract out the preparation of an MAFF First review by 12/95. annual performance review of the agricultural sector. om  ZAMBIA AGRICULTURE SECTOR INVESTMENT PROGRAM/SR994 proj.ct Cost suary % * Total (KWACHA '000) (US$ '000) Foreign Base Local Foreign Total Local Foreign Total Exchange Costs 1. MAFF HQ 6,036,800 649,600.0 6,686,400 8,624.0 928.0 9,552.0 10 3 2. POLICY & PLANNING 2,819,212 4,644,889 7,464,100 4,027.4 6,635.6 10,663.0 62 3 3. FINANCIAL MGMT.UNIT 552,104.0 547,386.0 1,099,490 788.7 782.0 1,570.7 50 - 4. STANDARDS 1,607,088 1,428,042 3,035,130 2,295.8 2,040.1 4,335.9 47 1 5. AGRIC.EXT.& INFO. 24,436,895 13,585,355 38,022,250 34,909.9 19,407.7 54,317.5 36 16 6. AGRIC.RESEARCH 10,428,292 11,956,378 22,384,670 14,897.6 17,080.5 31,978.1 53 10 7. ANIMAL PROD.& HEALTH 14,790,899 16,351,752 31,142,650 21,129.9 23,359.6 44,489.5 53 13 8. FISHERIES 4,780,605 5,916,026 10,696,630 6,829.4 8,451.5 15,280.9 55 5 9. FARM POWER.& MECH. 731,181.5 1,248,419 1,979,600 1,044.5 1,783.5 2,828.0 63 1 10. IRRIGATION 2,060,534 2,226,056 4,286,590 2,943.6 3,180.1 6,123.7 52 2 11. AGRIC.TRAINING 5,065,001 4,619,150 9,684,150 7,235.7 6,598.8 13,834.5 48 4 12. SEED MULTIP.&DISTR. 1,715,665 1,040,585 2,756,250 2,451.0 1,486.6 3,937.5 38 1 13. NEW PROD.DEV. 2,009,000 2,261,000 4,270,000 2,870.0 3,230.0 6,100.0 53 2 14. AGRIC.CREDIT 19,600,000 19,600,000 39,200,000 28,000.0 28,000.0 56,000.0 50 17 15. MARKETING & TRADE 5,671,379 7,042,301 12,713,680 8,102.0 10,060.4 18,162.4 55 6 16. RURAL INVESTMENT FUND 9,261,000 9,261,000 18,522,000 13,230.0 13,230.0 26,460.0 50 8 17. PRIVATZN.OF STATE LANDS 8,139,845 8,856,715 16,996,560 11,628.4 12,652.5 24,280.8 52 7 Total BASKLINI COSTS 119,705,499 111,234,652 230,940,150 171,007.9 158,906.6 329,914.5 48 100 Physical Contingencies 3,239,649 3,560,249 6,799,898 4,628.1 5,086.1 9,714.1 52 3 Price Contingencies - 7,351,714 7,351,714 - 10,502.4 10,502.4 100 3 Total PRJECT COSTS 122,945,148 122,146,614 245,091,762 175,635.9 174,495.2 350,131.1 50 106  ZAMBIA ARICULTURE SECTOR INVESTMENT PROGRAM/SR994 ,z. 0t Ceot 8zay * * Total (KNACHA '000) (USS '000) Foreign Baae Local Foreign Total Local Foreign Total Exchange Costs X. Invst at Coots A. CIVIL WORKS 11,213,496 7,475,664 18,689,160 16,019.3 10,679.5 26,698.8 40 8 B. VEHICLES - 15,338,400 15,338,400 - 21,912.0 21,912.0 100 7 C. FARM EQUIP. 326,326.0 1,305,304 1,631,630 466.2 1,864.7 2,330.9 80 1 D. FIELD EQUIP. 647,192.0 2,588,768 3,235,960 924.6 3,698.2 4,622.8 80 1 E. LABORATORY EQUIP. - 2,834,020 2,834,020 - 4,048.6 4,048.6 100 1 F. OFFICE EQUIP. 873,908.0 3,495,632 4,369,540 1,248.4 4,993.8 6,242.2 80 2 G. WORKSHOP EQUIP. - 203,000.0 203,000.0 - 290.0 290.0 100 - H. OFFICE FURNTR. 603,365.0 603,365.0 1,206,730 862.0 862.0 1,723.9 50 1 I. OVERSEAS TRAIN. 1,845,375 10,457,125 12,302,500 2,636.3 14,938.8 17,575.0 85 5 J. LOCAL TRAINING&WORKS. 12,462,240 - 12,462,240 17,803.2 - 17,803.2 - 5 K. TECHNICAL ASSIST. 4,178,734 16,714,936 20,893,670 5,969.6 23,878.5 29,848.1 80 9 M. RURAL INVESTMENT FUND 9,261,000 9,261,000 18,522,000 13,230.0 13,230.0 26,460.0 50 8 Total Inves nt Costs 41,411,636 70,277,214 111,688,850 59,159.5 100,396.0 159,555.5 63 48 II. Rocurrent Costa A. CREDIT 23,275,000 23,275,000 46,550,000 33,250.0 33,250.0 66,500.0 50 20 B. STAFF SALARIES 18,354,280 - 18,354,280 26,220.4 - 26,220.4 - 8 C. STAFF ALLOW&EXP 16,075,150 - 16,075,150 22,964.5 - 22,964.5 - 7 E. OVERSEAS TRAVEL 483,504.0 2,739,856 3,223,360 690.7 3,914.1 4,604.8 85 1 F. LOCAL TRAVEL 148,330.0 - 148,330.0 211.9 - 211.9 - - G. CIVIL WORKS O&M 877,765.0 877,765.0 1,755,530 1,254.0 1,254.0 2,507.9 50 1 H. VEHICLES O&M 3,294,393 9,883,178 13,177,570 4,706.3 14,118.8 18,825.1 75 6 I. EQUIP. O&M 1,833,685 1,833,685 3,667,370 2,619.6 2,619.6 5,239.1 50 2 J. OFFICE CONSUMAB. 1,794,016 448,504.0 2,242,520 2,562.9 640.7 3,203.6 20 1 L. SUPPLIES&MATRLS. 7,597,800 1,899,450 9,497,250 10,854.0 2,713.5 13,567.5 20 4 M. SERVICES /a 4,559,940 - 4,559,940 6,514.2 - 6,514.2 - 2 Total Recurrent Costs 78,293,863 40,957,438 119,251,300 111,848.4 58,510.6 170,359.0 34 52 Total BASXLrNZ COSTS 119,705,499 111,234,652 230,940,150 171,007.9 158,906.6 329,914.5 48 100 Physical Contingencies 3,239,649 3,560,249 6,799,898 4,628.1 5,086.1 9,714.1 52 3 Price Contingencies - 7,351,714 7,351,714 - 10,502.4 10,502.4 100 3 Total PROJzCT COSTS 122,945,148 122,146,614 245,091,762 175,635.9 174,495.2 350,131.1 50 106 \a Includes costs for water, electricity, telephones and postage. i  ZAMBIA AGRICULTURE SECTOR INVESTMENT PROGRAM/SR994 Pro3.at Campnta by Tear (USS '000) Totals Including Contingencies 1996 1997 1998 1999 Total 1. MAFF HQ 2,597.9 2,611.0 2,624.7 2,639.1 10,472.6 2. POLICY & PLANNING 3,463.7 2,502.9 2,270.9 3,321.6 11,559.2 3. FINANCIAL MGMT.UNIT 742.6 605.5 143.7 147.3 1,639.2 4. STANDARDS 1,609.8 1,019.0 878.5 1,149.0 4,656.2 5. AGRIC.EXT.4 INFO. 17,417.6 13,038.8 12,108.7 15,393.1 57,958.2 6. AGRIC.RESEARCH 12,685.3 9,759.9 6,855.6 5,722.0 35,022.8 7. ANIMAL PROD.& HEALTH 15,937.3 12,198.6 10,830.8 9,347.3 48,313.9 8. FISHERIES 7,436.8 3,931.9 2,806.9 2,445.4 16,621.1 9. FARM POWER.& MECH. 1,249.0 648.6 698.1 507.1 3,102.8 10. IRRIGATION 2,936.0 1,658.4 1,141.9 962.3 6,698.6 11. AGRIC.TRAINING 6,864.0 3,445.5 2,542.7 2,169.3 15,021.5 12. SEED MULTIP.&DISTR. 3,925.5 131.6 79.5 82.7 4,219.3 tn 13. NEW PROD.DEV. 6,112.0 - - - 6,112.0 14. AGRIC.CREDIT 9,000.0 10,000.0 19,000.0 18,000.0 56,000.0 15. MARKETING & TRADE 5,916.8 4,431.8 4,040.4 4,999.8 19,388.8 16. RURAL INVESTMENT FUND 17,951.6 9,062.8 - - 27,014.5 17. PRIVATZN.OF STATE LANDS 7,279.6 7,084.8 6,136.3 5,829.7 26,330.4 Total PFOJ3CT COSTS 123,125.5 82,131.1 72,158.7 72,715.8 350,131.1 ii|  ZAMBIA AGRICULTURE SECTOR INVESTMENT PROGRAM/SR994 lxpenditure Accounts by Years (USS '0001 Totals Including Contingencies 1996 1997 1998 1999 Total I. Invnstment Costs A. CIVIL WORKS 17,387.7 9,198.9 2,654.7 755.6 29,996.8 B. VEHICLES 13,841.3 2,349.4 1,668.8 6,934.5 24,794.0 C. FARM EQUIP. 1,791.5 286.8 265.0 207.8 2,551.0 D. FIELD EQUIP. 1,548.9 2,241.7 814.4 557.4 5,162.3 E. LABORATORY EQUIP. 3,255.8 906.9 122.8 146.4 4,431.8 F. OFFICE EQUIP. 4,333.4 948.7 579.5 1,019.2 6,880.8 G. WORKSHOP EQUIP. 288.8 16.4 8.5 - 313.7 H. OFFICE FURNTR. 1,281.7 481.6 29.2 57.9 1,850.3 I. OVERSEAS TRAIN. 4,182.9 4,723.4 4,679.2 5,595.7 19,181.3 J. LOCAL TRAINING&WORKS. 3,298.6 3,529.3 5,204.2 5,771.1 17,803.2 K. TECHNICAL ASSIST. 10,630.3 9,837.5 7,616.2 3,741.9 31,825.9 M. RURAL INVESTMENT FUND 17,951.6 9,062.8 - - 27,014.5 4 Total Investment Costs 79,792.5 43,583.3 23,642.5 24,787.4 171,805.6 II. Recurrent Costs A. CREDIT 15,750.0 11,250.0 20,250.0 19,250.0 66,500.0 B. STAFF SALARIES 6,734.0 6,495.5 6,495.5 6,495.4 26,220.4 C. STAFF ALLOW&EXP 6,220.7 5,580.6 5,580.6 5,582.6 22,964.5 E. OVERSEAS TRAVEL 1,586.6 923.2 1,074.1 1,410.0 4,993.9 F. LOCAL TRAVEL 55.3 52.2 52.2 52.2 211.9 G. CIVIL WORKS O&M 372.0 742.4 880.4 928.8 2,923.6 H. VEHICLES O&M 3,956.5 5,535.6 6,350.5 6,613.5 22,456.1 I. EQUIP. O&M 971.2 1,687.4 1,731.2 1,697.7 6,087.5 J. OFFICE CONSUMAB. 882.2 897.7 907.2 910.6 3,597.6 L. SUPPLIES&MATRLS. 5,014.3 3,593.1 3,403.2 3,193.8 15,204.3 M. SERVICES /a 1,790.3 1,790.3 1,791.4 1,793.8 7,165.6 Total Recurrent Costs 43,333.0 38,547.8 48,516.2 47,928.4 178,325.4 Total PROJECT COSTS 123,125.5 82,131.1 72,158.7 72,715.8 350,131.1 \a Includes costs for water, electricity, telephones and postage.  ZAIBIA AGRICULTURAL SECTOR INVESTMNT PROGRAM MlIMSTRY OF AGRICULTURE, FOfOD AND nI8ERRIES b( ag m EFrYmnn_9(1 OcrTWICT10 A. qW1 PTUM DM lltf VZrAIV T C<ZDA ADl COIIT. SIV. IZ#4ZITC l ll . CONI 1g1 '. T. AB. -TCZ. INPLSW OVAODDUNrS~~II ll _{ Di IILVA ADU MANpI I t If I 11 Ad I s_ 11 ^ffh I~~~~L C 0 I I EQ21 1 _i I Udob*1 (2 LA" | a^ "_. 1 1 a I X I I = I~~~~~~~~~-pr&L(2 I D" I lPak I I _ I I o0 I I o I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ | ~~ , r; , | , r | 1 ,, 1 1 ,t,,..*, I a~~~~~~~~~SL I r Z I ^_ I I _ _ I | D.aw I I aw I I o I I a ; I a" I I aW s W I I P_ I 1 9iE_ I I bia I r s~~~Oftf _sX~~~~~~N _ o .w wII wI|a  - 56 - ANNEX - Page 1 of 2 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Outline of Program Implementation Manual and Schedule 1. Organization and Management of ASIP a. Organizational Structure b. Functions and Responsibilities 2. Project Implementation and Impact Indicators 3. Training and Technical Assistance Schedule 4. Annual Operating Plan (by sub-program) 5. Monitoring and Reporting 6. Financial Management and Auditing - General Guidelines and Procedures' 7. Supervision Plan 8. Procurement2 a. Guidelines b. Procurement Planning matrix (How, What, When and How much) c. Procedures (i) works (ii) goods (iii) technical assistant Once the consultancy on this subject is completed, this section of the Project Manual would have to be adjusted accordingly. 2 Guidelines (i.e., procurement methods and thresholds) agreed with the Donor agencies and sumnnarized in the final version of the Project Manual.  - 57 - ANNEX - 4 Page 2 of 2 9. Disbursements3 a. ASIP's Internal Procedures (i) project accounts (ii) flow of funds (iii) authorized signatures (iv) supporting documentation. b. Procedures (checklist) for Replenishment of Funds (at the District Level) c. Sample Disbursement Application for Replenishment of Funds at the District Level d. Disbursements Follow-Up Matrix (included in 8. c. above) 10. Scope, Selection Criteria and Procedures for the Agricultural Investment Fund 11. General Guidelines for Environrmental Assessment Reports4 a. Environmental Screening Procedures (i) Rural Roads (ii) Small Irrigation and Drainage (I&D) Schemes (iii) Livestock and Rangeland Management (iv) Agroindustry b. Sample TORs 12. Gender Issues - General Guidelines5 13. Content of the Annual and Mid-term Reviews 14. Covenants Matrix6 3 This section is intended to summarize local disbursement procedures. 4 It is recommended that a checklist summarizing the main environmental issues agreed during appraisal be incorporated in the final version of the Project Manual. 5 Gender issues identified during appraisal could be summarized in this section of the Project Manual. 6 Completed after Negotiations.  - 58 - ANNEX-5 Page 1 of 6 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Financial Management Unit As the Agriculture Sector Investment Program (ASIP) is a government program, it will be implemented using the government procedures of planning, budgeting, accounting, internal control and financial management. The weaknesses of these systems is a source of concern to the donors who believe the current system would not ensure full accountability of their funds. The government system has a number of critical problems. First, there is little relationship between plan objectives and budgetary allocations. Secondly, the provincial level commonly forms a bottleneck in the flow of funds to the districts. The current system where funds are disbursed from the Ministry of Finance through the office of the Provincial Permanent Secretary to the Provincial Agricultural Officer and the Provincial Accounting Officer and then to the district level has many levels for leakage of funds. Due to the failure of the Ministry of Finance to disburse the funds budgeted in the annual budget (Yellow Book), the Provincial Accounting Units (PACU) may not allocate these funds fairly between departments. Finally, funds allocated to the Provincial Agricultural Office may be absorbed at the provincial rather than field level. These problems are exacerbated by the complex financial regulations which focus is on control rather than accountability. All funds are kept at the provincial level except for small cash imprests held by the district. Districts face considerable bureaucratic hurdles to have funds released and generally have little autonomy over their own expenditures. Often districts do not know how much their annual budget allocation is or how much of it is spent. The objective under ASIP is to ensure that there is full accountability for both government and donor funds. Accountability would enable both the Government and donors to assess the effectiveness and efficiency of the programs, ensure funds are used for the purpose for which intended, and that they reach the intended beneficiaries. Such accountability demands a different system of relationships from those noted above. The most significant one is the need to make the district level more accountable. Accountability implies the power to control events, which the districts do not have. With power to control their own expenses, the districts can be held accountable for their financial performance. The question of decentralization and devolution of fiscal controls to district levels is critical to the success of ASIP, and the Government is urged to complete the restructuring of the Ministry of Agriculture Food and Fisheries (MAFF) and provide interim guidelines for decentralization pending completion of the reform. The MAFF has appointed the accounting firm Price Waterhouse to design a financial management and accounting system which would also meet the information and accountability requirements of different donors. The consultants' first report is expected at the end of October 1994. If MAFF adopts the report's recommendations, implementation of the new system could start on a pilot basis before the year-end. Until a system acceptable to the donors is in place and has been tried and tested, the donors have agreed to maintain their respective financial management and accounting arrangements for the ongoing projects. Transitional arrangements need to be in place for the transactions under ASIP.  -59- ANNEX-5 Page 2 of 6 TRANSITIONAL ARRANGEMENTS MAFF has proposed setting up an ASIP Financial Management Unit (FMU) until the new system is fully operational. This unit would be in charge of all issues of accountability, disbursement, procurement and financial reporting under ASIP covering both donor and governments funds. The FMU would have three divisions: Donor Funds, Budget Analysis, and Government Accounts. The donor funds unit would be responsible for all donor coordination and accounting, maintaining separate books for each donor, and submitting financial reports as required. Reporting Levels The organization chart for the proposed unit is attached, and comprises of headquarters, the provincial and district accounting units. The FMU would operate from headquarters in Lusaka, and from nine provincial offices. The nine provincial offices would provide support to the district offices in terms of cash management, completing financial returns, and any other accounting matters. The size of the provincial office would depend on the capacity of the district accounting units under its control. Staffing The proposed FMU would be staffed by well qualified personnel with a broad range of skills. The senior officer would be an experienced, fully qualified accountant. Under him/her would be three division heads, each with its own staff as follows: Donor Funds Division Principal Accountant 2 Assistant Accountants 5 Accountants Typist Budget Analysis Division Chief Planner 3 Budget/Financial Analysts Government Accounts Division Principal Accountant 2 Senior Accountants 2 Assistant Accountants 5 Accounts Assistants Typist Staffing at the provincial and district levels would be as follows, although the numbers would vary depending on the level of activity in the district and the human resource capacity of the district managers. Provincial Accounting Unit Assistant Accountant Accounts Assistant  - 60 - ANNEX-5 Page 3 of 6 Accounts Clerk District Accounting Unit Accountant/Assistant Accountant Accounts Assistant 2 Accounts Clerks Functions The FMU and its subsidiary offices at provincial and district level would function as service units providing accounting, financial and cash management services to program and sub- program managers at the different levels. Spending decisions would rest with the line managers at the lowest implementation level. The financial and accounting units would: (i) keep an up to date record on availability of funds for disbursement to sub-programs; (ii) ensure that the funds are disbursed according to the budget; (iii) check for compliance with procedures such as the authorization of expenditure by the program manager; and (iv) provide periodic financial information on program financial performance. The description of activities which follows is limited to the functions of the Donor Funds Division within the FMU. Headquarters The Donor Funds division would be in charge of: (i) maintenance of the ASIP special account to ensure it is utilized in accordance with the donor terms; (ii) receiving funds from donors and disbursing them to the provinces and districts depending on the sub-program implementation level; (iii) liaising with the program managers on program budgeting, and level of donor contributions; (iv) monitoring counterpart funding to the sub-programs and re-prioritizing when necessary; (v) serving as an information center for various donor procedures; (vi) monitoring returns from the provinces and districts and consolidating them to provide monthly financial information to the Government and donors; (vii) preparing withdrawal applications for replenishment of funds from the donors, and (viii) preparing quarterly and annual financial statements for the donors. Separate cash books and ledgers would be kept for each donor at headquarters and bank reconciliations would be prepared monthly. The Provincial Level The provincial level would provide operational support to the district accounting units. The objective of this level is to ensure that the districts have support in particular upon the implementation of the new system. Support would cover cash book maintenance, stock management, compliance to procurement procedures and the preparation of monthly accounts. The amount of support provided will depend on the level of skills at the district level. Initially, the FMU would introduce tight controls on matters such as procurement where procurement limits for the districts would be low. The provincial unit would assist the district in processing and recording procurement, and would assess over time the ability of the district to perform all accounting functions independently, in which case more responsibility would be passed to the district accounting unit.  - 61 - ANNEX -5 Page 4 of 6 District Levels The following functions would be performed at district level: (i) receiving funds from the FMU; (ii) disbursing funds to the different programs; (iii) checking compliance with procedures before disbursement of funds; (iv) maintenance of bank account and cash book; (v) maintaining of imprests; (vi) accounting for imprests; (vii) preparation of monthly expenditure summaries for submission to the FMU; (viii) maintenance of a fixed asset and stock control systems; and (ix) maintenance of separate ledgers for each donor. On a monthly basis, the units would provide information to sub-program managers on transactions for the various sub-programs which the managers can use to assess their programs, and reconcile with their own information. The System The objective of the proposed system is to ensure that funds reach the intended beneficiaries, and that different donors can monitor their contributions. Funds would be disbursed from the Donor Funds division at headquarters direct to either the program or the district accounting unit, with a detailed breakdown of the allocation to the various programs based on the program budgets and donor contributions. A copy of the allocation would be sent directly to the manager of a sub-program to ensure that the program management is aware of the funds allocated to it. The accounting units would maintain cashbooks to record all donor cash movements under ASIP and open subsidiary ledgers for each program. All payments would be made by the accounting unit upon receipt of proper authorization by the program managers and district and/or provincial agricultural officers as appropriate. At the end of each month, the accountants would prepare an expenditure summary by program from the cash book and the ledgers. The monitoring function for unretired imprests would be at the district level. No new funds would be disbursed before retirement of all imprests and the receipt by the FMU of the expenditure summary. The expenditure summaries prepared by the district accountants would be forwarded to program managers and the Donor Funds division at the FMU, showing the comparisons between the budgeted and actual expenditures and the cash balances available for the sub-programs. The FlMU would check the validity of the expenses, compare them to budgets, and use the summaries as a basis for the preparation of withdrawal applications. The summaries would be sent to the FMIU together vvith supporting documentation and copy invoices where applicable. Where therc are dilfterent donors in the same district, separate books would have to be maintainied for each donor. Staffing would be adjusted accordingly. To put the proposed systern in place, it is critical that a financial controller be appointed to: set up the accounting and finiancial reporting system at the FMU; acquire computer hardware and softw'are: designi appropriate reporting forimis; write up the accounting manuials, design the coding structure to take account of the different donors and the sub-programs; institute internal controls at provincial and district levels, appoint district and provincial accounting staff, and design training courses for them.  -62- ANNEX-5 Page 5 of 6 For activities such as research whose activities cannot be coordinated at district level, the stations would maintain books which have been suggested for the district level, and perform the same functions as noted for the district accounting unit. Support to these stations would be provided by the provincial accounting unit and the accounting unit at Mount Makulu. The Role of the Internal Audit Department The Internal Audit Department would play an important role in the system to ensure that funds reach the intended beneficiaries and are used for purposes for which intended. An internal audit unit based within MAFF, and dedicated to ASIP, would carry out periodic checks of the system and transactions, and report directly to MAFF and the donors. Checks would be made both at district and provincial levels. The department would check expenditure summaries prepared by the districts and trace some items through the system; and also check the supporting documentation for withdrawal applications submitted to the donors for replenishment of funds. External Audit In addition to the annual audit, external auditors would be requested to carry out six monthly audits of the Special Account and SOE withdrawal applications. REPORTING Reporting under the system would include: (i) expenditure summaries from the district and program stations to the FMU, (ii) expenditure summaries to program managers; (iii) monthly reports prepared by the FMU summarizing the monthly financial transactions; and (iv) quarterly and annual financial statements from the FMU to the donors. The financial statements would be detailed to show funds received from each donor and expenditure by category by donor, and the consolidated statement for the project. ADVANTAGES OF PROPOSED SYSTEM The advantages of the proposed system include the following: * Funds would reach the intended beneficiaries, overcoming the bottlenecks in the government system where funds do not reach the field level . * Funds for each donor would be separately accounted for and could be traced to the district level. * There would be a communication link between the districts and the center, enabling better monitoring of utilization of funds at the district level by the center. * There would be a built-in mechanism to allow donors to trace funds to intended beneficiaries. * Accountability would be transferred to the district level. * Tight control would be maintained at the central level which would make release of new funds conditional upon receipt of satisfactory withdrawal applications.  -63- ANNEX-5 Page 6 of 6 Support would be provided to those districts and programs with weak human resource capacity through the FMU provincial accounting unit. The long term objective of MAFF is the setting up of a fully decentralized accounting system, with sufficient internal controls, transparency, and financial reporting mechanisms to meet the information needs of both the Government and the different donors and ensure funds reach the intended beneficiaries. The final consultants' report will be the basis for this financial management and accounting system. The MAFF and the consultants will work closely with the donors to ensure the proposed system meets the information needs of both the government and donors, and avoid the duplication in accounting systems which would be necessitated by different donor and government information requirements. COSTS The costs associated with the implementation of the system are: Personnel costs US$850,000 Equipment US$250,000 Training US$500,000 Total US$1,600,000  ZAMBIA AGRICULTURE SECTOR INVESTMENT PROGRAM Financial Management Unit | eadquarters l Provincial Provincial Provincial Accounting Unit Accounting Unit Accounting Unit / / /\// 7/\ District District District District District District Accounting Accounting Accounting Accounting Accounting Accounting Accounting Unit Unit Unit Unit Unit Unit Unit  - 65 - ANNEX - Page 1 of 1 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Supervision Plan 1. A Donors' supervision team would review ASIP implementation perfornance by: (a) keeping IDA/donors informed on progress and issues affecting implementation; (b) analyzing relevant macroeconomic and sectoral policies and occurrences influencing implementation; (c) examining the status of and supporting ASIP components that are falling behind implementation schedules; (d) participating in donors' supervision missions; and (e) following up on MAFF compliance of IDA/donors' supervision mission recommendations. The Bank's input into key supervision activities is given in Appendix 1. 2. The first donors' mission would include a Program Launch workshop to provide orientation and training for key staff in the implementing institutions on: the project cycle; procurement and disbursement procedures; accounting and auditing requirements; progress report requirements; special account operations, and so on. The GRZ will, with the team's assistance, organize semi-annual and annual reviews with donors to evaluate the progress and status of implementation and, if necessary, amend ASIP to ensure that its development objectives will be achieved. The annual review, held in September/October each year, will coincide with a meeting of the Agricultural Sector Steering Committee for reviewing MAFF and other ASIP implementing institutions' budgets for the coming year. 3. Mid-Term Review. A mid-term review will be carried out by the GRZ and IDA/donors by the end of the second year following Credit Effectiveness, and Government will undertake to implement its findings. On these findings will be based the preparation of ASIP second phase. The supervision team will assist the GRZ in the preparation of a detailed progress report for the mid-term review, covering the period from project conmmencement and including a thorough analysis of implementation issues and progress made in achieving key ASIP performance indicators. An evaluation of the Supervision Team's effectiveness will be made during the annual supervisions and a detailed evaluation will be included in the mid-term review.  - 66 - ANNEX - 6 Appendix 1 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Supervision Plan: Bank Supervision Input into Key Activities Approximate Dates Expected Skill Staff Input (month/year) Activity Requirements (Staffweeks) 03/95 Board approval 05195 Pre-effectiveness Mission: Supervision* 10 Team Check progress on conditions of effectiveness Key activities, by component: Finalize Funds Flow Arrangements 07/95 Program launch workshop - project cycle - procurement 20 - disbursement 09/95 First Full Review Supervision* Team 20 Focus on technical issues - disbursements, procurement, reporting - commercial bank participation - farmers clubs, capacity building FY97 Supervision Missions (2 per year) Supervision* - budgeting/funds flow Team 30 - quality of reporting - capacity building FY98 Supervision Mission: focus on commitment of funds Supervision - achievement of development objectives Team 30 - review of project implementation - review of legal covenants (esp. audit and reporting requirements) Mid-term Review Supervision* - achievement of development objectives Team 20 - design elements for Phase 11 FY99 Supervision Missions (2): Supervision* 30 - achievement of development objectives Team - review of project implementation FY2000 Supervision Mission Supervision* 30 - achievement of development objectives Team - prepare for PCR * A basic supervision team led by the Task Manager, comprising a Financial Analyst and Agricultural Specialist will be supplemented by environment/procurement/disbursement specialist or persons with other required skills.  - 67 - ANNEX - 7 Page 1 of 4 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Monitoring and Evaluation Monitoring and Evaluation 1. The progress and impact of individual ASIP sub-programs will need to be monitored and evaluated regularly so that timely adjustments can be made. Also, insofar as ASIP covers the entire agricultural sector, decision-makers will want to know periodically about the overall performance of the agricultural sector and the contributions of individual sub-sectors (sub- programs) to that performance. A single M&E system will be established to meet these various needs generated by ASIP. This system will in addition serve any "special" donor-supported initiatives that may emerge, and no other parallel M&E systems will be created. 2. ASIP's M&E will have three components: (i) management information systems (MIS), (ii) impact evaluations of individual sub-programs and beneficiary assessments and feedback, and (iii) sector performance analysis. MIS 3. A study is being commissioned to work out the details of the MIS which will be established in each sub-program. Since the MIS is a management tool, the design of each sub- program will take account of the organizational structure of the Ministry of Agriculture, Food and Fisheries (MAFF) and the corresponding functional responsibilities. In the context of the planned decentralization, particular attention will be paid to the reporting system and to ensure the smooth flow of information on the implementation of various sub-programs to managers at different levels (the Ministry, provinces, districts, camps). As the information requirements in terms of coverage and detail will vary from one level to the next, emphasis will be on determining precisely what information different decision-makers need and providing this information so as not to overwhelm them with extraneous detail. For instance, a manager at a lower level where implementation occurs will require detailed information on individual activities, as it is at this level that any corrective action which may be needed will have to be taken. On the other hand, a department director at the Ministry responsible for an entire sub-sector is less likely to be concerned with the operational details underlying individual activities, and more with the aggregate contributions of individual activities to the performance of the sub-sector. Also, a feedback mechanism will be instituted in conjunction with the MIS to ensure that managers utilize the information supplied to them. The MIS will provide information on physical, personnel and financial inputs as well as outputs; the performance indicators defined in the ASIP sub-program preparation reports will be used to monitor sub-program outputs. Impact Evaluations/Beneficiary Assessments 4. The impact of individual sub-programs will be evaluated annually. The evaluations will have two components. One will utilize quantitative data to measure the impact of the services and  - 68- ANNEX - 7 Page 2 of 3 inputs associated with individual ASIP sub-programs on production and incomes. The other component, systematic client consultation, will comprise feedback from the intended beneficiaries on the effectiveness of these sub-programs in terms of their design features. Besides providing a check on the results of the quantitative evaluations, this will help to identify required improvements to increase the impact of sub-programs on the intended beneficiaries. 5. The impact evaluations will be entrusted to a Zambian institution outside the central government so that objectivity can be maintained. A decision on the institution will be taken by June 1995, prior to the ASIP effectiveness. The selected institution will be provided with terms of reference and enter into a formal contract with MAFF, which will determine the remuneration, as well as obligations in terms of producing work of an internationally acceptable standard in a timely manner. It may be provided some assistance under ASIP (equipment, training) to develop its capacity. 6. A major source of the data for the impact evaluations will be the farm surveys conducted annually by the Central Statistical Office (CSO). The CSO data will be supplemented, as needed, by climatological data, other economic data and special studies. Each year, the CSO collects data -- on crop production and areas, crop sales, livestock inventories and sales, fish production, fruit and vegetable production and sales, the availability of farm machinery and draft power, and input use (seed, fertilizer, and family and hired labor) -- from a random sample of 5,000 small- and medium-scale farmers, as well as all large commercial farmers in the country. This random sample appears to be widely representative insofar as it includes farners from all districts. The CSO enumerators administer three surveys, on separate visits, to the sample farmers. The first survey is administered in December as the agricultural season is beginning; the second is administered in March, and the third in October when the harvesting has been completed. Additional questionnaires will be appended to the existing surveys to obtain farmers' assessments of ASIP sub-programs. Any additional input or output data required for ASIP will be similarly obtained. 7. While the detailed analysis will be the responsibility of the external institution entrusted with the impact evaluations, the CSO will be expected to undertake some elementary statistical analysis of its farm data. Using simple statistics (such as means, ratios and percentages), this analysis will organize the data by geographical areas (provinces, districts, etc.), as well as by "target" groups (female-headed households, emergent commercial farmers, food-insecure lhouseholds, etc.) which are being defined for ASIP. Sector Performance Analysis 8. The agricultural sector performance analysis is likely to be entrusted to the same institution as the impact evaluations. In addition, the CSO surveys will again serve as the main source of data. The sector performance analysis will determine not only the relationship between production and conventional inputs (including weather variables), but also the relative impact on sector performance of such factors as changes in government policies, exchange rates, interest rates, inflation, and the availability of credit. A particular emphasis of the analysis will also seek to ascertain the relative contributions of individual ASIP sub-programs to the overall performance of the agricultural sector.  - 69 - ANNEX - 7 Page 3 of 3 Role of MAFF's Policy and Planning Division 9. The Policy and Planning Division's M&E unit will play a central part in the management of the M&E system. It will have the primary responsibility for the MIS, and co-ordinate the roles of the CSO and the external institution selected to undertake the impact evaluations and the sector performance analysis. It will be responsible for concluding the contractual arrangements with the CSO and this institution (on behalf of MAFF) and enforcing these arrangements, especially to secure the timely delivery of data and analytical reports. It will also be expected to arrange reviews for these reports to ensure that they meet internationally acceptable standards. 10. The M&E unit will have an important interpretive role to play as well. It will be responsible for interpreting the results of the M&E studies for managers and policy-makers, and providing them with summaries. It will also identify the follow-up actions indicated by these studies, and ascertain that these actions are taken. The unit will be responsible for providing the M&E reports to all participating donors. Steering Committee 11. A steering committee -- to be chaired possibly by the Director of MAFF's Policy and Planning Division and including representatives from the CSO, the external institution and the Policy and Planning Division's M&E unit -- will be established to oversee the M&E operation. An important function of this committee will be to affirm the quality and timely completion of the various tasks involved in the M&E. Special Studies 12. Provision is being made for special M&E studies for which need may arise during the course of implementation. In as much as these studies may require special data collection efforts such as rapid rural surveys, they can be undertaken in the intervening periods between October, December and March when the CSO enumerators are relatively free.  - 70 - ANNEX - 8 Page 1 of 2 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM IDA Estimated Disbursement Schedule (US$ Million) Quarter Quarterly Comnulative Ending Disbursement Disbursement FY 1996 September 30, 1995 1.5 1.5 December 31, 1995 2.0 3.5 March 31, 1996 2.5 6.0 June 30, 1996 2.5 8.5 FY 1997 September 30, 1996 3.0 11.5 December 31, 1996 3.0 14.5 March 31, 1997 3.0 17.5 June 30, 1997 3.5 21.0 FY 1998 September 30, 1997 3.5 24.5 December 31, 1997 3.5 28.0 March 31, 1998 4.5 32.5 June 30, 1998 4.5 37.0 FY 1999 September 30, 1998 4.5 41.5 December 31, 1998 4.5 46.0 March 31, 1999 4.0 50.0 June 30, 1999 4.0 54.0 FY 2000 September 30, 1999 3.0 57.0 December 31, 1999 3.0 60.0  - 71- ANNEX - 78 Page 2 of 2 ESTIMATED IDA FUNDING FOR ASIP SUB-PROGRAMS SUB-PROGRAMS SUB-PROG.COSTS IDA FUNDING (USSMillion) (US$Million) INSTITUTION BUILDING MAFF IIQ $10.5 $0.0 Policy & Planning, M & E $11.6 $8.0 FMU $1.6 $1.0 Standards $4.7 $2.5 Sub-total $28.4 $11.5 PUBLIC INVESTMENT Agri. Extension&nformation $58.0 $21.5 Agrk. Research $35.0 $4.0 Animal Production&Health $48.3 $0.0 Fisheries $16.6 $0.0 Farm Power&Mechanization $3.1 $0.0 Irrigation $6.7 $0.0 Agric. Training $15.0 $8.5 Sub-total $182.7 $34.0 PRIVATE SECTOR DEV. Seed Multiplication&Distr. $4.2 $0.0 New Products Development $6.0 $0.0 Rural Finance Credit Agric. Inputs $56.0 $0.0 Marketing&Trade $19.4 $0.0 Sub-total $85.6 $0.0 PUBLIC INVEST. SCHEMES Rural Investment Fund $27.0 $10.0 Privatization of State Farms $26.3 $4.5 Sub-total $53.3 $14.5 TOTAL $350.0 $60.0  -72 - ANNEX - 9 Page 1 of 7 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Economic Analysis Introduction 1. Normal Bank practice is to derive economic rates of return for agricultural projects and programs using farm models. Estimates are made of the frequency of adoption of each of the farm models over the life of the project and the net income gain from adopting each model to calculate the aggregate net benefit stream. The benefit stream is then compared to the project cost stream to derive the ex-ante rate of return. At the end of the project the ex-ante rate of return is recalculated based on M & E data on project imiplementation and adoption rates of the models, changes in prices and changes in project costs. Years later an impact evaluation may be done where actual on farm performance is measured via farm surveys, a step not done in the recalculated returns. 2. For ASIP another procedure is proposed. Given the sector-wide coverage and the large number of sub-programs involved, determining an economic return using this approach would entail the calculation of dozens of model farms, with insurmountable quality control problems. On the other hand, the sector wide M&E program opens up the possibility to advance the evaluation by years, since it is based on an annual survey of farms carried out by the Central Statistics Office of the Government of Zambia. These surveys can be used to evaluate the impact of the program with only a one or two year lag. A project completion report should therefore be able to compute an actual rate of return of the program, based for example on what happened by the third year and projections based on them for the fourth and subsequent years. 3. The economic analysis of the program is therefore proposed in two steps. The ex-ante analysis will be performed using a break even analysis of the incremental cost and benefit streams at the national level. The ex-post analysis will be based on an econometric estimation of actual rates of return to rural households from ASIP investments using data from the M&E surveys and the projections based on them. The Model 4. The economic returns to ASIP will be measured as the change in producer surplus approximated as the change in aggregate net farm income attributable to public investments in ASIP. This requires netting out the changes in net farm income caused by other factors such as increased levels of private investment in agricultural inputs, changes in prices or changes in exogenous variables.  - 73- ANNEX - 9 Page 2 of 7 5. Conceptually this can be done by defining the following aggregate net farm income function. Y = f(ASIP, X, W,P) where Y national aggregate net farm income. ASIP = a vector of ASIP subprograms. X = a vector of private investments in agriculture. W a vector of control variables for exogenous factors. P = a vector of input and output prices. 6. The vector ASIP includes sub-programs in agricultural research, agricultural extension, animal production and health, irrigation, farm power and mechanization, marketing and trade, standards, new product development, agricultural training, fisheries, policy and planning, food reserve agency and agricultural credit. For the purpose of the ex-ante analysis, the cost of these programs is used as a measure of input. The vector X includes land, labor, capital and purchased inputs. The vector W includes variables for weather, outbreaks of disease, etc. that cause changes in aggregate net farm income. 7. In both the ex-post and the ex-ante analysis the objective is to measure the partial effect of the public investment in ASIP, 6Y/8ASIP. Ex-post this can be done by estimating the function econometrically and then deriving the partial effect of each input in the function, including ASIP. Since the coefficients of the net farm income function are not available for the ex-ante analysis, a break even analysis is used to calculate the min(6Y/6ASIP) such that the net present value of the ASIP investment is greater or equal to zero. The Ex-ante Analysis 8. The purpose of the ex-ante economic analysis of ASIP is to investigate whether the overall investment program and its individual sub-programs are economically viable in the current economic and production environment in Zambia. Given the holistic nature of this program and the difficulty of measuring the benefits from specific subsectoral investments ex-ante, a break even analysis of the investments is used to determine the minimum growth in net farm income required to justify the proposed cost stream, holding other inputs and conditioning factors constant. Since the incremental change in net farm income is equal to the incremental change in agricultural GDP under these assumptions, the minimum growth rate will be calculated in terms of agricultural GDP. This is in line with the Bank's standard practice, however it should be noted that the program is likely to have additional benefits in the form of rural poverty reduction, better environmental management, food price reductions in the urban areas for non-tradables and semi- tradable agricultural commodities which are not taken into consideration because they are difficult to quantify.  - 74 - ANNEX - 9 Page 3 of 7 9. The minimum growth in agricultural GDP, r,1, as a result of the four year incremental investment in ASIP is calculated as follows. rmin = is a vector of minimum annual growth rates = min(r,) t = 0,l....oo such that PV(ASIPCO,) < PV(GDP, - GDPO) for all t = 0,1. where PV = present value ASIPc, = a vector of ASIP costs GDPt = agricultural GDP in year t = (l+r) GDP,-, for all t = 1,....oo GDPo = Agricultural GDP in year zero r, = constant for all t = 0,1,2 .... 8 and 0 for all t = 9,10.oo 10. In carrying out this analysis, the following assumptions are made. i) The incremental cost of the ASIP program is calculated as the difference between the total cost of ASIP and the minimum level of public expenditure in agriculture that could maintain agricultural GDP at existing levels. In this case, the minimum maintenance level is assumed to be the current level of Government expenditure in the agricultural sector. ii) All non-ASIP inputs and other exogenous factors are held constant, facilitating the calculation of minimum GDP growth rate required from public expenditures. iii) The benefit stream from ASIP investments would produce a constant GDP growth for a period of 8 years after which GDP levels resulting from this investment would remain constant, i.e. the elevated GDP level in year 8 would be maintained in perpetuity. This does not presume that overall growth in agricultural GDP would be zero after year 8 since new investments after the four year ASIP investment period would induce further growth. iv) The current level of GDP is the baseline against which any increased output as a result of ASIP is measured. v) A discount rate of 12 percent is used to calculate the present values for costs and benefits. vi) A farm income - non-farm income multiplier of 1.3 is used to account for the increase in non-farm income to rural households as a result of increases in agricultural income (Hagblade, et al, 1991). 11. The minimum levels of GDP growth required to justify the proposed stream of ASIP investments are presented in Annex Table 9.1 together with the results of a sensitivity analysis examining the effect of a 10 percent increase in cost and the effect of a one year lag in the benefit  - 75 - ANNEX - 9 Page 4 of 7 stream. Since all prices and the levels of non-ASIP inputs are assumed to be constant, these levels of GDP growth are equivalent to the total factor productivity (TFP) measure typically used in ex-post analyses of agricultural growth. A comparison of the minimum levels of GDP growth required to justify the incremental investment in ASIP with TFP levels achieved by other countries in the region shows that historical TFP levels are typically higher than those required, supporting the argument that these minimum growth levels are achievable (Annex Table 9.2). Adjustments are needed when comparing these minimum required growth rates to historical agricultural GDP growth rates since historical rates include both total factor productivity increases and increases due to increased input use. Historical growth rates are useful in that they provide an indication of the upper bound of historical total factor productivity increases. The growth in total agricultural GDP between 1980 and 1992 was 3.3 percent and was achieved under extremely adverse economic conditions. If agricultural GDP continues to grow at this rate, the total factor productivity would make up 25 percent of the total increase in output. This is considered to be easily achievable since total factor productivities typically make up 60 percent of the total increase in output. Therefore, given the conservative assumptions made in this analysis, it is entirely feasible that the public sector investment under ASIP could induce the minimum growth rate required to justify the proposed overall level of expenditure. 12. The feasibility of achieving this level of total productivity growth is further supported by examining the current level of productivity. Small farmers in Zambia, who are the primary focus of the ASIP program, have historically operated at a level significantly below the technological frontier. This provides considerable potential for a rapid growth through increases in factor productivity. In the crop subsector, the average maize yield in the small-holder sector is estimated to be 2.3 ton/ha compared to 3.5 ton/ha achievable under optimal husbandry practices using local maize seed and no chemical fertilizers. In the livestock subsector, the takeoff rate for small holder farmers is 6 percent compared to 18 percent for commercial farmers and calving rates are 50 percent compared to 65-70 in the commercial sector. Fish ponds in the small-holder sector have an average yield of 0.3 ton/ha compared to commercial farms which have yields as high as 10 tons/ha. Most of these differences are attributable to poor crop and animal husbandry practices in the small-holder sector, providing an opportunity for large increases in productivity from public development and dissemination of improved technologies and improved management (World Bank, 1991). 13. In addition to the feasibility of achieving these growth rates, there is strong empirical support from other countries that the levels of return to public investments in agricultural research, extension and animal production and health are high. In most ex-post evaluations of research compieted to date, covering a wide range of crops and countries, rates of return to research have been shown to exceed 10 percent, with a majority of them showing rates of return in excess of 30 percent (Echeverria, 1990). Public investments in agricultural extension have shown similar rates of return. Studies examining aggregate rates of return to research for Brazil, India, Paraguay and USA have shown rates of return ranging from 14 percent to over 100 percent (Feder, 1989). Ex-post Analysis 14. The purpose of the ex-post economic analysis of ASIP is to provide continuous monitoring of its performance and improve allocation of resources in subsequent phases of the program. On the basis of this analysis, sub-programs that are underperforming can be redesigned to ensure that  - 76 - ANNEX - 9 Page 5 of 7 they yield at least the minimum level of returns required. The performance of ASIP investments will estimated using the following model. Yt = f(Sjt, Xkt,Wlt,Pxt,Pyt,D) where Yt = Net Farm Income per household in period t Sjt = public service from ASIP subprogram j in period t Xkt = agricultural input k for rural household i in period t Wit = control variables for exogenous factor I faced by rural household such as weather, policy shifts, outbreaks of disease, road density etc. in period t Pxt = Price of Inputs X in period t Pyt = Price of Output Y in period t D = Dummy variables for gender, mode of cultivation, or system of agriculture. 15. For the variables used to represent public service flows to farmers from ASIP, Sjt service indicators will be used for each sub-program of ASIP. For example, in the case of the extension sub-program, the number of visits by an extension officer per farmer per year may serve as a proxy. In the case of the research sub-program it may be the availability of new varieties and in the case of livestock it may be the number of veterinary officers per district. 16. Observations used to estimate this model will be based on a sample of 5000 households collected on an annual basis by the Central Statistics Office. However, since the same households will not be interviewed each year and there are unlikely to be large differences in ASIP services within districts, the average within each district for each variable will be used as an observation in estimating the coefficients of the model. Since there are 63 districts in Zambia and the variables are calculated as first differences this would provide 63 observations in the second year of the program and 63 observations in each year thereafter. In the early stages of the ASIP program. there is likely to be a lag in supplying ASIP services to some districts providing sufficient variation between districts to estimate the impact of these services. Using this approach will provide the first rough estimate of the returns to ASIP services after the second year of the program with improved reliability after the third year as the number of observations increase. A list of the data items available for this analysis are presented in Annex 7. 17. By financing and supporting monitoring and evaluation under the project, data required for this analysis will be collected on a timely basis. This will allow preliminary estimates of the program's economic performance after the second year followed by more thorough analysis in subsequent years. It will also permit the estimation of the actual economic rate of return for the project for the Implementation Completion Report, rather than relying on a recalculation of the appraisal report rate of return.  -77 - ANNEX - 9 Page 6 of 7 Annex Table 9.1 Mininum Agricultural GDP Growth Required to Justify ASIP Subprogram Expenditure Basic Program Ten Percent Program Cost Income in Benefits Lagged Baseline by One Year Program Costs (Percent) Overall Program 0.84 0.93 0.94 Agricultural Extension 0.09 0.10 0.10 Agricultural Research 0.10 0.11 0.11 Animal Production & Health 0.14 0.16 0.16 Irrigation 0.02 0.02 0.02 Farm Power 0.01 0.01 0.01 Marketing and Trade 0.05 0.06 0.06 Standards 0.01 0.01 0.01 New Product Development 0.03 0.03 0.03 Agricultural Training 0.03 0.03 0.03 Fisheries 0.03 0.03 0.03 Policy & Planning 0.03 0.04 0.03 Food Reserve Agency 0.01 0.01 0.01 Agricultural Credit 0.24 0.26 0.29 Land Use 0.07 0.08 0.08 Seed Multiplication 0.01 0.01 0.01 MAFF Headquarters 0.00 0.00 0.00  - 78 - ANNEX - 9 Page 7 of 7 Annex Table 9.2 Total Factor Productivity Levels for Selected Countries Zimbabwe South Africa United Kingdom India (1980-1989) (1981-191) (1985-1990) (1973-1983) 3.98 2.88 1.66 1.07 Source Thurtle et al. (1993); World Bank (1990); Thurtle and Bottomley (1992)  - 79 - ANNEX - 10 Page 1 of 1 ZAMBIA AGRICULTURAL SECTOR INVESTMENT PROGRAM Capacity Building 1. Given the high level of commitment of the Government to implement the program within the existing institutions, the requirement of Technical Assistance (TA) for ASIP is not expected to be significant. However, since ASIP implementation entails a transition of program control from several donor supported units to MAFF and the adoption of a coordinated sector approach, initially at least, there will be the need to supplement MAFFs capacity for implementation with outside expertise. The Government expects to make the full use of local expertise where possible by seeking the assistance of local consultants and institutions, including universities. Special technical skills which are not available in country may, however, be required for program implementation from time to time. Therefore, a capacity Development Fund has been established in MAFF to engage short-term Technical Assistance personnel during the ASIP implementation. Since technical assistance services will be demand driven, it is not reliable to determine apriori what the total cost of TA is likely to be. 2. Assistance in the selection and use of TA under this Fund will be provided on Goverrnment's request by the UNDP's Capacity Building Unit and also by the Bank's Resident mission which is staffed with procurement personnel familiar with local conditions. 3. Based on lessons of previous experience of using TA, the Government is aware that in order to properly benefit from its use TA resources have to be well managed. The preparation of Terms of Reference with clear objectives, counterpart training requirements and other monitorable outputs to assess performance will be crucial. The relative roles of advisers and local staff will also have to be well defined, and procedures to replace the former by the latter clearly agreed. In the next page (Appendix 1) this Annex provides general guidelines for the preparation of TORs for consultants, preparing basic tender documents to engage TA services and an outline of progress reports to be prepared by consultants. General Guidelines for the Preparation of Terms of Reference 4. In general TOR drafters must be familiar with the working conditions/location (preferably staff at the district level) in which the consulting contract would be carried out (i.e., institutional set-up, target population, local capacity in the area of interest, prevailing transportation and communication infrastructure, office technology available, cultural patterns, prior experiences, and possible sources of additional information). It is advisable that management/staff at the field level be assigned responsibility for preparing TORs and other documentation for the procurement of consultants as the former identify possible technical and/or organizational gaps during implementation of their sub-programs. Based on past experience, achieving the expected institution building objectives depends to a large extent on the level of involvement of the target group (the program's administration) in the identification and selection of their consultants.  ANNEX- 10 - X() - Appendix 1 Proposed Format a) Background: This heading should concisely describe the general background of the proposed assignment (i.e. technical assistance in a specific area, road design, environmental assessment, etc.) allowing the reader to understand WHY is the task undertaken. Although not exclusive, some of the information that this section would include: (i) for whom is the assignment intended; (ii) how does it fit within ASIP; (iii) location; (iv) issues to be resolved; and (v) source of financing. b) Objectives: This heading should clearly define WHAT are the expected results from the proposed assignment. For example, on a TA assignment the expected result could be to improve local project implementation and monitoring capacity. In general terms, objectives could be: (i) problem-solving (i.e., identifying current problems and means of solving them); (ii) change-oriented (i.e., organizational changes required to improve overall project management); (iii) innovative (i.e., simple new methods to adapt existing minimum or non-tillage technologies); and (iv) strategic (i.e., policy actions required to improve public resource allocation). c) Scope of Work: This heading should describe HOW the proposed objectives may be achieved. Usually this section provides a description of the tasks, their phasing, and proposed methodology (the latter can be presented under a separate heading). Items to be considered in this section could include: (i) historical records, secondary data, lessons from prior experience; (ii) language requirements; (iii) level of detail required; (iv) projections; (v) units of measurement to be used; (vi) level of computer-based analysis required; (vii) inputs required; (viii) sensitivity analysis; (ix) possible transfer of skills to local counterpart (on-the-job training); (x) possible or expected interviews (no. of persons); and (xi) location where the assignment would be carried out. The use of bar charts to summarize assignment's phasing is recommended. d) Reporting: Under this heading the time schedule (for tasks described in the above section), type and number of reports, and review/approval procedure are specified. For short- term assignments (about 4 to 6 months) a mid-term progress report (see outline below) is usually recommended prior to the final report. It is advisable to include in the TORs the number of copies required, and language in which the report should be presented. Specific reference should be made to the person/s (not names but title) to whom the reports should be sent. e) Expected Output: The TORs should clearly state the expected results. In this section the client (GRZ) can specify its contractual obligations. General Outline of Progress Report to be Prepared by Consultants 1. Introduction 2. Progress (in comparison to initial bar chart attached to contract) 3. Findings and recommendations. 4. Training provided during consultancy 5. Conclusions  - 81 - ANNEX - II ZAMBIA Page I of 2 AGRICULTURE SECTOR INVESTMENT PROGRAM Environmental Mitigation Statement I. The Agriculture Sector Investment Program is a sector wide programn encompassing all aspects of agricultural production in Zambia. The primary objective of the program is to enable the Ministry of Agriculture Food and Fisheries to rationalize the use of both its own and donor resources in the development of the agricultural sector. Through this rationalization the Ministry will reduce expenditures on food and agricultural input subsidies, and increase its provision of public services such as agricultural research, agricultural extension, animal health and land administration. This refocusing of responsibilities by the Ministry will greatly enhance its ability to promote and enforce environmentally sound agricultural practices. 2. Land use. The program will fund the development and implementation of a National Land Use Plan. The Plan will be designed to ensure the protection of environmentally sensitive areas, giving particular attention to biodiversity protection and watershed management. While implementation of the plan is not expected until the third or fourth year of the project, it is not anticipated that there will be any major expansion of cropping onto new lands during the period of the project since it is estimated that approximately 50 percent of existing crop land on commercial farms is underutilized (World Bank, 1992). It is not anticipated that any new land clearing for commercial agriculture will be required before 2000. 3. Agricultural Practices. Through the increased allocation of resources to agricultural extension and agricultural research the Government will promote the following: a) Appropriate Use of Agricultural Chemicals (Pesticides and Herbicides). In instances where it is necessary to use agricultural chemicals, the research and extension system will develop recommendations that minimize ecological damage from the use of these chemicals, and educate farmers to use safe application practices. b) Fertilizer Use. Farmers will be encouraged, through both price incentives (removal of fertilizer subsidies) and extension messages to make more efficient use of chemical fertilizers, thus reducing the pollution from this source. Organic fertilizers and the use of composting will be promoted as an alternative and more sustainable source of soil nutrients. c) Soil Erosion. While soil erosion hazards on Zambia are generally low, the Ministry has an active program of erosion control through the construction of physical structures and a pilot program to promote the use of Vetiver grass. d) Minimum- or No-Tillage Cultivation. The Ministry will be developing a program to develop and encourage minimum or no-tillage practices that are appropriate for Zambia. 4. Irrigation. No new large scale irrigation schemes are planned under this project. However, there are plans to rehabilitate existing smallholder schemes. In the process of rehabilitation, the Ministry will be expected to meet the Banks environmental standards, thus upgrading many of the countries existing systems.  - 82 - ANNEX - 11 Page 2 of 2 5. Livestock and Wildlife Management. This program will tocus on improving animal health and disease control. The animal production unit within the Department of Animal Production and Health will be transferred to the Extension and Research Department which will ensure greater coverage through a more disciplined approach to intformation dissemination. Within the commercial farming sector there has been a rapid increase in the farming of indigenous livestock, primarily antelope. In the long run, an increase in this type of farming together with the integrated wildlife management programs in the Game Management Areas surrounding national parks will greatly increase the biodiversity in the country. 6. Fisheries. Under the proposed fisheries program there will be increased promotion of small scale fish farming that is environmentally benign. There will also be an increase in the monitoring of large fisheries such as the Lake Kariba, Lake Bangweulu, and the Kafue Flats to ensure long run sustainability of these fisheries. 7. Roads and Infrastructure. The program does not include any plans for the development of new roads or any other major civil works. As a result there is no risk from this type of activity. References: World Bank and Government of Zambia. 1992. Assessment of Potential Land for Expanding Agricultural Production in Zambia. On File AF6AE.  - 83 - ANNEX - 12 Page 1 of 3 ZAMBIA AGRICULTURE SECTOR INVESTMENT PROGRAM The Agricultural Sector A. Physical Characteristics of the Sector 1. Zambia's agriculture is predominantly rain-fed and rainfall is one of the major determinants of sector performance in any given year. Despite abundant, unused high potential soil and abundant water resources, sectoral growth is sluggish and rural poverty pervasive. Zambian farmers have not been able to take advantage of the available natural resources. 2. Zambia has an estimated 9 million ha, or 12 percent of its total land area, suitable for cultivation and 16 million ha suitable for rangeland grazing. However, only about 1.3 million ha (or 14 percent of the available arable area) is presently cultivated. The irrigable potential is conservatively estimated at 430,000 ha, of which no more than 50,000 ha is developed, mostly on commercial farms for sugar, wheat and plantation crops. Most of the land is farmed by the private sector, either by smallholders or commercial farmers. Land tenure security is quite good, but land is not easily tradeable, sub-divided or sub-leased to small farmers. There are also long delays in land titling and other matters of land administration, frustrating private investors. While cultivable land is abundant in areas close to infrastructure, it is not sufficiently accessible to smallholders. All land is vested in the President who has delegated the land administration function to the Commissioner of Lands. About 4 million ha are classified as State Land and administered by the Commissioner of Lands; 68 million ha (or 91 percent of the total land area) are classified as Trust and Reserve Land, access to which is governed by customary law and institutions. 3. Zambia can be divided into three broad agro-ecological zones. Zone 1, which is mainly located in southern areas of Southern and Western Provinces, has low agricultural potential, with a sparse population of less than half a million, poorly distributed annual rainfall of about 600 mm, and low fertility soils. Furthermore, widespread incidence of trypanosomiasis and other diseases limits livestock production. Zone 2 covers the central belt of the country. It is the most populous zone, with over 4 million inhabitants and has the highest agricultural potential. It has a well distributed annual rainfall of between 800 to 1000 mm, and generally good soils. Zone 3 covers large areas of Northern, Luapula and North-Western Provinces and has a population of over 3.5 million. Although this zone has annual rainfall in excess of 1000 mm, problems of soil acidity and low fertility, combined with low solar radiation levels due to cloud cover, limit yields. In addition, .his zonle is not suitable for cattle rearing. 4. 'T he approximately 700,000 farmers in Zambia can be grouped into three main categories. About 75 percenti are smallholders with an average farm size of 2 ha who typically cultivate with hand tools for subsistence. An estimated 17 percent are "emerging" commercial farmers with farms betwveen 10-2() ha in size, who employ animal draft power and hired labor for cultivation, use farm inputs (improved seeds and fertilizer), and produce significant marketable surpluses. The balance of 8 percent are larger commercial farmers with farm sizes exceeding 60 ha and account for about 60 percent of the marketed output. The commercial farmers are mainly located along the Line-of-Rail or near major urban centers and produce a range of livestock and crop products mainly lor the domestic market. In nrral areas 65 percent of the population are women  - 84 - ANNEX - 12 Page 2 of 3 and a large proportion of them are heads of households. Surveys show that women invest more time in agriculture than men. In the smallholder sub-sector, women play a major role in both farm management and in the provision of labor. 5. Maize dominates Zambian agriculture, accounting for about 76 percent of the cropped area. This concentration on a single crop is a result of years of input subsidies, directed agricultural services and guaranteed prices, as well as large consumer subsidies that have inflated demand for maize products. Until recently, improved seed for maize was readily available at subsidized prices and the entire marketing chain for maize was publicly supported through a network of parastatals. Cotton and groundnuts each account for 8 percent of the cultivated area. Soya bean and sunflower are emerging as new field crops, with tobacco and wheat important in the commercial sector. The national livestock herd comprises 2.6 million head of cattle; 0.5 million head of sheep and goats; 0.3 million pigs and 4.3 million poultry. Eighty percent of cattle and over 90 percent of sheep, goats and pigs are in the smallholder sector, whereas over 50 percent of poultry are managed commercially. There are marked differences in the management and productivity levels between the commercial and traditional sectors. Calving percentages in traditional herds average 50 percent, compared to 70 percent in commercial herds, and offtake rates are 3 percent compared to 18 percent. Development of the livestock industry is strongly constrained by the widespread incidence of several major diseases, including Trypanosomiasis and East Coast Fever. B. Current Institutional Framework 6. The Ministry of Agriculture, Food and Fisheries (MAFF) is organized on hierarchical lines with most budgetary, financial, and many regulatory and administrative functions centralized at MAFF headquarters. Responsibility for the management of technical services tends to be decentralized to provincial, district and research station levels, but without corresponding delegation of administrative and financial powers. This leads to inefficiencies and a general lack of accountability for performance at provincial and district levels. A detailed MAFF organization chart is attached in Annex 3. The Minister of Agriculture is assisted by two deputy ministers, one for Agriculture and the other for Food Security, and by a civil service headed by the Permanent Secretary. The Permanent Secretary of MAFF is assisted by a deputy permanent secretary and six departments: policy and planning; fisheries; agriculture; veterinary services; seed control and certification; and a national agricultural information service. The MAFF also administers a number of parastatals including Lima Bank, Zamseed, Natco, Lintco, and the Dairy Produce Board. The MAFF offers agricultural services, mainly to smallholders, through nine provincial and sixty two district offices. The most extensive and heavily staffed departments include those for Agricultural Extension and Research and Veterinary Services. Other sections of MAFF, such as the Irrigation and Mechanization and Farm Power units, are small and act mainly as technical support units to field extension operations. As policies to privatize the parastatal companies are implemented, MAFF should progressively reduce the number of technical support units to minimize redundancy. 7. Apart from the services of MAFF, several other ministries of the Government and parastatal organizations are significantly involved in the agricultural sector. The Zambia Bureau of Standards (ZABS), a statutory body under the Ministry of Commerce, Trade and Industry, is responsible for national standards including those for agriculture. As Zambia's current policy is to promote exports and access to information on required standards in other countries, the work of ZBS will become increasingly important. The Ministry of Lands (MOL) controls land affairs,  - 85 - - 85 - ~~ANNEX - 12 Page 3 of 3 including the allocation, survey and registration of leasehold titles to State, Trust and Reserve lands in both rural and urban areas. Historically, management of land affairs has been highly centralized and inefficient, and past attempts to decentralize have been frustrated by lack of funds and qualified staff. A large cooperative infrastructure which is heavily influenced, and often de facto controlled by the Government, is comprised of about 2000 primary cooperative societies at the grassroots level, district and provincial unions at the secondary level, and the Zambian Cooperative Federation (ZCF) at the national level. This cooperative structure has historically been involved in a wide range of support activities, from input and credit supply through marketing and storage, with limited success. 8. In some sub-sectors, where government controls have been limited, the private sector has demonstrated some dynamism, for example in the areas of horticulture, legumes, coffee, and poultry. Exchange rate reforms and market liberalization policies under the structural adjustment program have greatly facilitated these private sector activities. The commercial farming sector, represented by the Zambian National Farmers Union and several affiliated producer associations, is developing new markets, especially exports. These producer associations are also developing new cooperative ventures that are producer controlled, especially in the supply of fertilizers, chemicals and farm machinery. There is also increased private sector activity in seed production and supply. These initiatives are the beginning of a process that has been delayed by pervasive government intervention which created uncertainty in markets, but it is now being rapidly dismantled by the adjustment program.   22- 24- Z A M B I A 20 Ta 5D IBaL-~ ~/\ \j<- lIRD 26328 AGRICULTURAL SECTOR INVESTMENT PROGRAM 'K-pb T A N Z A N I A NAT ONAL PARKS I * RMAfL StAtKS SAIN ROADS o RESEARCHOSTATAS PAA_ O tEOCOGYAYSSATS*fES + INTERNATIONAL AIRPORT CGODESN VAdlfY AGRICUTURE RESEARCH Tt 4- ARFIELDS 21V2tS :;