Malawi - Agricultural Marketing and Estate Development

 Agricultural Marketing & Estate Development Report No: ; Type: Report/Evaluation Memorandum ; Country: Malawi; Region: Africa; Sector: Agro-Industry & Marketing; Major Sector: Agriculture; ProjectID: P001650 The Malawi Agricultural Marketing and Estate Development project (AMED), supported by Credit 1966-MAI for SDR 14.2 million (US$19.8 million), was approved in FY89. The credit was fully disbursed and closed on June 30, 1996, six months behind schedule. The Implementation Completion Report (ICR) was drafted by the FAO/World Bank Cooperative Programme for the Africa Regional Office. The borrower's contribution to the ICR is attached as Appendix B of the report. The objectives of the project were to: (i) diversify and improve marketing of smallholder output; and (ii) improve resource utilization and productivity on estates. The project, estimated to cost US$28.3 million, included the following components: (i) credit (88 percent of project cost) for agricultural processing and marketing, and for estate development (focusing on intensification and diversification, especially on small estates), and a pilot credit scheme for rural traders (supported by a training program); (ii) institutional strengthening (9 percent of project cost) in the Ministry of Agriculture and Livestock Development (MOALD) and the Malawi Bureau of Standards (MBS) to improve market intelligence services and supporting analysis, and regulatory and quality control systems; and (iii) construction and/or improvement of rural markets (3 percent of project cost) that were identified as potential growth centers for private trade in agricultural produce. Performance in meeting the objectives was mixed. Implementation was handicapped by the lack of coordinated project management. Overall responsibility for implementation rested with MOALD and the Reserve Bank of Malawi (RBM), and responsibility for the credit component was split between the RBM and the Ministry of Finance. There were two parallel monitoring committees with some overlap in membership, the Marketing Committee chaired by the Secretary of Agriculture, and the Estates and Agro-industry Committee, chaired by the Secretary of Finance. In consequence there was no unity of command, it was difficult to resolve contentious issues, and monitoring and evaluation received little professional guidance. Lending for the credit components totaled about US$16.5 million, compared to the projected level of US$25 million. The major part of this shortfall was in lending to small estates. Lending was channeled through two commercial banks (CBs) and the Investment and Development Bank (Indebank—a parastatal). The CBs were reluctant to lend to estates, especially small ones, because they felt that the allowed margins were insufficient given the administrative costs and risks attached to small loans. Eventually, some loans to small estates (7.5 percent of estate credit) were channeled through Indefund (a subsidiary of Indebank). Loans for marketing and processing were only about 66 percent of target, but did fund a range of activities supporting production diversification. At appraisal it was estimated that, for the expected major uses of credit, the financial rate of return for the investments would range between 18 and 40 percent. Available data on investments actually funded indicates that returns were of this order of magnitude. In response to the major drought in 1991/92, and because of the shortfall in lending to small estates, the project was restructured in 1992 to shift about US$5.3 million from the estate credit component to supplement seasonal credit to smallholders through the Smallholder Agricultural Credit Administration (supported by Credit 1851-MAI). In line with experience under Credit 1851, the recovery rate for these loans was low. The pilot scheme for loans to small traders was very slow to get off the ground, largely because of the inexperience of the Small Enterprise Development Corporation (SEDOM) in this type of lending. However, from a start in 1992/93 it expanded rapidly to its limit of about US$2 million by 1995/96. Loan recovery on this component exceeded 90 percent, and 20 percent of the loans were to women. The objectives in institutional and market development were largely met. Support provided to the Pricing and Marketing Section (PMS) of MOALD helped achieve the price liberalization and market reform measures which were introduced over the project life. However, the section is understaffed and dissemination of the data from the price information system is limited. Twelve of a planned sixteen rural markets were constructed, the shortfall resulting from funding limitations rather than lack of demand. The Operations Evaluation Department (OED) agrees with the ratings of the ICR that sustainability is likely, institutional development is modest, and Bank performance satisfactory. OED, however, rates the project outcome as marginally satisfactory, rather than satisfactory, since, while the project achieved most of its physical objectives, there were some major shortcomings, as the impact of several components appears to be limited. The project illustrates the difficulties of implementing an operation outside of the clear lines of ministerial responsibility, and highlights the need, in such conditions, for a clear locus of responsibility at a senior cabinet level. A second lesson is that private financial institutions will not increase their lending to clients whom they consider risky, without significant incentives. The ICR provides a satisfactory account of the implementation of the project. However, it is disappointing in providing very little data on the results of the innovative components designed to stimulate the development of rural markets and support market traders.