Peru - Sierra - Natural Resources Management and Poverty Alleviation (formerly known as Sierra Natural Resources and Community Development Project)

Report No. PIC2488 Project Name Peru-Sierra-Natural Resources Management and... Poverty Alleviation Project Region Latin America and Caribbean Sector Natural Resources Management Project ID PEPA42442 Borrower Republic of Peru Executing Agency PRONAMACHCS Proyecto Nacional de Manejo de Cuencas Ing. Carlos Torres Martinez Jr. Cahuide No 805, 6to piso Lima 11, Peru Tel. 51 - 1 - 4713164 Fax 51 - 1 - 4713182 Date PID Prepared January 6, 1997 Board Date January 16, 1997 1. Country and Sector Background. Since 1991, the Government of Peru has carried out far-reaching economy-wide reforms, oriented towards macroeconomic stability, trade liberalization, privatization and deregulation. The main thrust of the Government's strategy towards agriculture has been to: (i) eliminate major distortions in agricultural markets by liberalizing trade and prices; (ii) improve land tenure security; (iii) virtually eliminate direct subsidies and interventions in input markets; and (iv) help the disadvantaged amongst the rural population by controlling violence and implementing poverty targeted programs. As a result, agricultural growth is recovering and security in rural areas has greatly improved. Nevertheless, poverty remains widespread, private sector investment in agriculture remains low, and agricultural technology is below overall Latin American standards. The Government is accelerating the implementation of land and water rights legislation, focusing increasingly on poverty alleviation programs targeted towards the poorest regions, and continuing to redefine the role of the State so as to promote enhanced private sector development. 2. Good natural resources management is a pre-requisite for land productivity increases and poverty alleviation in the Sierra. Loss of erosion-prone fertile top soils can only be prevented by investments in agroforestry, terrace structures, erosion barriers and appropriate agronomic practices. Adequate water management also increases the efficiency of irrigation, crop yields and improves sanitary conditions. In addition, good natural resources management in the Sierra decreases sediment build-up in the coastal irrigation schemes. The recent civil war has disrupted the maintenance of existing soil conservation and water management structures which need urgent rehabilitation. The project builds upon the Government's past experience of supporting soil conservation in the Sierra but would involve the beneficiaries in the design and implementation of the investments and strengthen their organizations.  3. Project Objectives. The general project objective is to help alleviate the poverty of the rural Sierra people by promoting a productive and sustainable use of their natural resources in a participatory manner. Specific project objectives are to assist about 75,000 poor families in 1 micro-catchments of the Sierra to: (i) manage their natural resources sustainably through soil conservation and reforestation; (ii) increase rural productivity through irrigation and improved agricultural practices; and (iii) strengthen their rural organizations so that they can become autonomous and sustainable entities. 4. Project Description. The target population would be 1,0 of the poorest communities in seven administrative departments of the Sierra, living within micro-catchments with potential for production improvement through soil conservation and rural productive infrastructure. The project would finance: (i) demand-driven productive rural investments in the Sierra (US$77.4 million) on a grant basis matched by community labor; (ii) the participatory process by which rural investments are identified and formulated (US$0.5 million); (iii) institutional strengthening of rural communities (US$3.6 million); and (iv) goods, consulting services and training for PRONAMACHCS assisting the communities to carry out the above (US$11.7 million). The project would be implemented over a period of six years. 5. The geographical unit for project activities is the micro- catchment, with an average size of 10,000 ha. The micro-catchment allows for an integrated natural resources management. The Ministry of Agriculture would study the micro-catchments' productive potential. In micro-catchments with productive potential, the community would identify rural investments through participative planning. Later on, participative planning would also take place for the whole micro- catchment. Participative planning would involve communities, municipalities and other representative organizations. The type of rural investments financed in a particular micro-catchment would be based on technical, economic and environmental criteria. Investments would include: (i) soil conservation activities (construction of terraces, water infiltration furrows, live barriers); (ii) small-scale irrigation; (iii) reforestation and agroforestry; (iv) improvement of soil conserving agronomic practices; and (v) construction of community seed warehouses. 6. The rural community strengthening component would finance community training in participatory planning and management of community investment accounts and agricultural input stocks. It would also finance a program to support small-scale economic activities of women to increase their revenues. Women play an important role in the economy of the Sierra, as many men have to leave the area in the off-season to look for work in the cities. PRONAMACHCS would help communities prepare and implement the rural investments, and finance the investment costs (contractors, materials, inputs) as a grant to communities. The communities would implement the rural investments with their own labor, which would not be financed. The grant element is justified because of the project's poverty alleviation objective and positive environmental externalities, and would be a least-cost solution to financing such rural investments. -2-  7. Project Financing. The overall project cost is estimated at US$93.2 million in a period of six years. The project would be financed by a Bank loan of US$51 million (55 percent), US$14.3 million (15 percent) by Government, and US$27.9 million (30 percent) by project beneficiaries (in the form of labor). 8. Project Implementation. PRONAMACHCS, the agency within the Ministry of Agriculture which has been for 15 years in charge of natural resources management activities, would implement the project. As much as possible, PRONAMACHCS would involve NGOs and the private sector. PRONAMACHCS and FONCODES have signed a cooperation agreement to complement each other's activities and apply a consistent approach. An internal management information system and monitoring and evaluation unit would be established under the project. 9. Project Sustainability. The sustainability of the rural investments financed under the project would be guaranteed by community involvement in investment design and implementation and the (average) 30 percent contribution in unpaid community labor. This would provide community ownership and ensure that investments are properly maintained and operated as part of the agricultural work calendar. Moreover, the project would train the communities to manage their investment accounts and community stocks of inputs and tools. Overall, the project would support the strengthening of an existing successful institution (PRONAMACHCS). Additionally, extension services would enhance community capacity to manage natural resources on an ongoing basis. 10. Lessons from Experience. Natural resource management experience in Peru shows the importance of: (i) improved agronomic practices to enhance profitability of soil conservation; (ii) beneficiary participation in sub-project design and implementation; and (iii) the negative effect of salary payments to community labor creating disincentives for project maintenance. The FONCODES experience in demand-driven projects shows the importance of: (i) transparent and well-defined sub-project eligibility and evaluation criteria to speed up implementation; (ii) targeting mechanisms to reach the poor; (iii) promotional activities to stimulate a demand-driven approach among the poorer communities; and (iv) the degree of community participation, including women and indigenous groups, and decentralized project implementation. These lessons have been incorporated into the project design by expanding PRONAMACHCS' participative decision-making approach, using a detailed poverty map, introducing a project operational manual and strengthening the decentralized local offices and the extension services of PRONAMACHCS. 11. Rationale for Bank Involvement. The Bank's Country Assistance Strategy for Peru discussed by the Board on November 22, 1994, states that poverty reduction is the central objective of the Bank's involvement in this country. This would be achieved through both private sector-led and environmentally sustainable growth and investments in public goods and services directly benefiting the poor. The proposed project is fully consistent with this country's assistance strategy. It would finance investments in small-scale infrastructure and promote sustainable natural resource management practices in the poorest areas of the country. Direct community implementation is also -3 -  consistent with the objective of reducing the role of the State in productive activities. Finally, technical assistance and support would enhance institution building capacity. 12. Environmental Aspects. The project would generally have long-term beneficial environmental effects on water and soils at the micro- catchment level, including soil and water conservation, reduced sedimentation in streams and improvements in water quality. The project would also reduce sedimentation to the coastal river basins, thereby reducing effects of fertilizers, pesticides, and herbicides in downstream areas. Integration of environmental considerations into construction and operation of small irrigation projects and other off- farm activities would mitigate localized negative environmental impact. The environmental category is B. 13. Project Benefits. The project would target areas in which the rural poor can be well defined in terms of geography (above 2,000 m. sea level) and language. About 75,000 families in 1 micro-catchments in seven administrative departments would benefit from the project. Expected benefits of the project would be: (a) increasing the coverage, effectiveness and sustainability of small-scale rural investments in the Sierra; (b) increasing on- and off-farm incomes; and (c) reducing the resource degradation in risk-prone areas, through use of appropriate technologies to intensify land use in sustainable ways. The measured economic internal rate of return is estimated at 12 percent. 14. Participatory Approach. During preparation a beneficiary assessment was carried out in 144 communities. The project would apply a systematic participatory approach involving communities directly in sub-project design and implementation. For design, the community identifies its own promoter working with PRONAMACHCS' technical agents in preparing sub-projects. Many of these agents come from the same beneficiary communities and speak the local language. For implementation, the promoter supervises the sub-project, assisted by PRONAMACHCS. The community is responsible for either contributing their own labor to implement the project, or, if they contract a specialized firm to do the work, supervising the contractor. This participatory approach would be improved through continuous training by non- governmental organizations providing technical assistance to the communities. 15. Poverty Category. The project meets the criteria for a Program of Targeted Interventions. The main objective of the project is to increase rural household incomes and alleviate poverty through sustainable natural resources management, irrigation and forestry. The micro-catchments selected under the project are situated in the very poor higher Sierra areas where possibilities for productive development without outside assistance are rather scarce. Project activities would target these poor communities which have sufficient natural resources to increase their income level through enhanced natural resources management. 16. Program Objective Category. The project falls under three categories: Poverty Alleviation, Environment, and Infrastructure Development. Its primary objective is to reduce poverty in the Sierra. - 4 -  The integrated natural resource management approach would result in environmental benefits in the project area and in the downstream coastal areas. The project would re-orient infrastructure development towards low-income populations. 17. Risks. The first risk is that communities insufficiently participate. This can be caused by PRONAMACHCS staff imposing on communities to carry out non-economic rural investments or by a lack of free labor in the communities. This risk would be mitigated by the requirement to establish participative planning agreements with the communities before disbursement of project proceeds, courses in participative planning and a ceiling to the total investment amount per family. This would reduce incentives to choose non-economic activities and take on more activities than the community can carry out. The monitoring system would provide data on sub-project implementation, including community labor participation. The second risk is that soil conservation works would not be followed by improved agronomic practices. This would reduce the economic return of the project. This risk would be mitigated by providing the communities with extension services and agricultural inputs on a grant basis for the first year. The community would also receive training in managing an input supply revolving system. The third risk would be a lack of counterpart funds. In the past shortages of funds have hampered PRONAMACHCS' investment activities but never its operation. The additional project-related expenditures would be included in the Government's annual budget. This is already the case for the 1997 project-related expenditures. The risk of shortages of counterpart funds would be further mitigated through an on-going dialogue between the Bank and the Ministry of Economy and Finance on the adequate provision of counterpart funds to Bank-financed projects. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by The Public Information Center week ending January 10, 1997. - 5 -