Niger - Agricultural Credit Project

RESTRICTED Report No. PA- 16- This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION AGRICULTURAL CREDIT PROJECT NIGER FILE COPY May 15, 1970 Agriculture Projects Department  CURRENCY EQUIVALENTS US$1.00 = CFA franc 277.71 CPA franc 1 US$0-0036 CFA franc 1 million = US$3,600 WEIGHTS AND MEASURES Metric System ABBREVIATIONS CNCA Caisse Nationale de Credit Agricole UNCC : Union Nigerienne de Credit et de Cooperation FED : Fonds Europeen de Developpement (t4V : Groupement Mutualiste Villageois CFDT : Compagnie Francaise pour le Developpement des Fibres Textiles SONARA : Societe Nigerienne de Commercialisation de l'Arachide CSPPN : Caisse de Stabilisation des Prix des Produits du Niger IRAT : Institut de Recherches Agronomiques Tropicales BCEAO : Banque Centrale des Etats de l'Afrique de l'Ouest BDRN : Banque de Developpement de la Republique du Niger BIAO : Banque Internationale pour l'Afrique Occidentale  NIGER AGRICULTURAL CREDIT PROJECT TABLE OF CONTENTS Page No. SUPI4ARY AND CONCLUSIONS ..... ....... ... * . ....... i-ii I. INTRODUCTION. II. BACKGROUND. 1 The Economy 1........... Agriculture .2 Agricultural C-;7edit. The Productivity Improvement Progra. 5 III. THE PROJECT . A. General Description. Definit-ion .......................... , Project Area.6 Institutional Aspects.6 Cooperatives .-- 7 Credit Procedures 7 Provisions of Farm Inputs 7 B. Detailed Features 9 The Lending Program . . 9 Fianagement and Extension Services 10 Project Cost Estimates . .11 Project Finance 12 Procurement and Disbursement 12 IV. ORGNMIZATION AND MANAGEIEUT ....... ........... 13 Project Coordiration .13 CNCA 13 Extension Services 14 Supply and Marketing Services 15 This report is baded on the findings of an appraisal mission consisting of Messrs. Kordik, lawussi and von Oppenfeld (IDA) and Brick (Consultant) who visited Niger in November 1968, and a subsequent visit by Mr. Hassid in November 1969.  TABLE OF CONTENTS (Continued) - 2 - Page No. V. PRODUCTION, MARKETS, FARMERS AND GOVERNMENT'S BENEFITS . ......................................... 16 Production ........................................ 16 Markets ........................................... 16 Prices .. 17 Producer Benefits ............... 17 Government Revenues 18 VI. BENEFITS AND JUSTIFICATION 18 VII. RECOMMENDATIONS . 19 ANNEXES 1. Agricultural Background Table 1: Cultivated Areas, Production, Yields 2. Research and Extension Services UNCC Organization Chart 3. Marketing and Prices b.. Credit and CNCA Table 1: Lending Operations Table 2: CNCA--Comparative and Forecast Income and Expenditure Accounts Table 3: CNCA--Comparative and Forecast Balance Sheets Table 4: CNCA--Project Credit Account--Cash Flow Table 5: Detailed Projects Costs and Financing 5. Project Coordinating Committee 6. Farm Inputs and Outputs Table 1: Budget for an Average GroundnutAlillet Farm Table 2: Budget for an Average Cotton/Sorghum Farm Table 3: Budget for 1tice/AIillet Farm Tabla 4: Yield and Price Assumptions 7. Table 1: Economic rate of Return Table 2: Annual Project Acreages MAPS 1. Agricultural Production 2. Agricultural Credit Project  NIGER AGRICULTURAL CREDIT PROJECT SUNMARY AND CONCLUSIONS i. This report appraises a Project for extending agricultural credit to Niger farmers, for which an IDA credit of US$584,000 equivalent is proposed. This would be the first agricultural project in Niger receiving Bank group support. The proposed amount of the credit, the size of the average farm in- volved (about 3 ha) and farmers' present annual incore (less than US$80), are indicative of limitations for development finance for agriculture in Niger. There is no immediately more attractive alternative. ii. Agriculture is the mainstay of the economy, with groundnuts, cotton and rice as the most important cash crops. The IDA credit would permit ac- celeration of the groundnut, cotton and rice productivity program, started in 1965 with financial help from the European Economic Community (EEC). iii. The Republic of Niger realizes the importance of agricultural credit to finance the increasing use of modern inputs. The main agency for agricul- tural credit is the Caisse Nationale de Credit Agricole (CNCA) established in 1967. Its limited operations, farm production credit and loans to cooper- atives, did not generate sufficient income to cover its operating costs. Recently, the Government enlarged the scope of CNCA's activities by authoriz- ing its participation in the financing of the groundnut export organization. This would enable CNCA to become a viable institution. Presently, its fi- nancial resources are adequate but the Government would have to increase CNCA's capital to meet projected requirements. The Project would also take advantage of on-going technical assistance provided by France. iv. The Project would support a four-year lending program estimated at CFAF 180 million (US$647,ooo), technical assistance and extension services at an estimated cost of CFAF 62.2 million (US$224,000 equivalent). The main components of the lending program are: CFAF 71.7 million (US$258,000) for seasonal inputs and CFAF 108 million (US$389,000) for on-farm development and scales to cooperatives. Of the total project cost of CFAF 2h2 million (US$871,000), IDA would finance about 67% representing the estimated foreign exchange component or CFAF 117 million (US$h21000) and costs of the extension services estimated at CFAF 44.4 million (US$160,000). Farmers would contri- bute 8% of total project cost and CNCA 25%. vY The borrower would be the Republic of Niger, which would authorize CNCA to retain as equity capital that part of the IDA credit earmarked for its lending program amounting to CFAF 100 million (US$360,000). Farmers would obtain medium-term loans from CNCh at 8% p.a. payable within four years and short-term loans at 9% p.a. All credit to farmers would be in kind.  - ii - vi. Successful implementation of the credit program would depend on improving and expanding the extension services. Exctension to cotton farmers would be improved by employing about 50 field agents, and about the same number of field workers would provide assistance to groundnut farmers. Cooperation with the agencies concerned would be assured through a newly established 'Project Coordinating Comnmittee."I vii. The strengthening of CNCA's equity capital with part of the IDA credit together with the proposed relending terms and the extension of its activities would enable CNCA to cover all its expenses, to accumulate reserves and to continue its lending activities after project termination. viii. The Project's main benefit would be the sustained production increase of groundnuts, cotton and rice by improving yields, which would in a time of declining prices, offset farmers' income losses and reduction of Government revenues. It would also expose subsistence farmers for the first time with improved farming techniques and bring them into the cash economy. About 5U% of the Project expendi- tures would be for additional current inputs and technical services. This resource use would help to introduce Niger farmers to improved methods of farming. Because of the almost immediate yield response to increased current input use the conven- tional assessment of the project's benefits indicates an exceptionally high rate of return. This is, however, very sensitive to lack of yield response and delays in the acceptance of improved methods by farmers. Nevertheless, even with conservative assumptions on yields and timing the rate of return would still be about 20%. ix. There are no ready opportunities for agricultural development in Niger other than the proposed continuation of the EEC-initiated productivity program in the course of which the local credit institution would also be strengthened. The Project would thus offer an economical resource use suitable for an IDA credit of US$ 584,ooo.  NIGER AGRICULTURAL CREDIT PROJECT I. INTRODUCTION 1.01 An agricultural credit project was identified by a Bank/IDA mission to Niger in September 1966 and prepared by an FAO/Bank mission in November 1967, consisting of Messrs. Brochu, Courbois and Haasjes. In June 1968, the Govern- ment applied for an IDA credit to permit the I"Caisse Nationale de Credit Agricole" (CNCA) to continue its lending operations in the field of short- and medium- term credit to farmers and cooperatives. The Project's total cost estimate, covering a four-year period from 1969 to 1973 was CFAF 905.34 million (US$3.26 million). IDA participation of CFAF 688.72 million (US$2.48 million) was sought while the balance was to be provided by the Fonds Europeen de Developpement (FED), CNCA resources and participating farmers. 1,02 The Project as presented by Government was not suitable for IDA finance. Expected investment in agricultural machinery and purchases of inputs were overestimated. The proposed use of 7,000 animal-drawn machinery units and 9,000 t of fertilizer during the Project period seemed excessively optimistic in view of the modest utilization of these inputs during the past years. Also, CNCA's financial structure and scope of operations needed strengthening before making it a viable institution; particularly, its lending program was too restricted to permit recovery of its operating costs. 1.03 In consultation and agreement with the Government of Niger, the original Project was substantially revised. Total project costs would now be about US$871,000 including an IDA credit us$584,ooo. Main emphasis would be on agricultural credit to members of credit societies and on agricultural extension services. CNCA's activities would be enlarged through financing the groundnut export organization. 1.04 This report is based on the findings of an appraisal mission consist- ing of Messrs. Kordik, Mawussi and von Oppenfeld (IDA) and Brick (Consultant) who visited Niger in November 1968 and a subsequent visit by Mr. Hassid in November 1969. The conclusion of negotiations with the Government was delayed, pending a decision about the strengthening of ONCA's finances. A decision satisfactory to the Association was reached in March 1970. II. BACKGROUND The Economy 2.01 Niger, a land-locked country south of the Sahara, suffers from high transport costs, being 1,000 to 1,300 km away from ports of entry. Agriculture  -2- provides a living for more than 95% of Niger's total population of 3.9 million which has been increasing at the annual rate of 2.5%. The average per capita income is about US$87. From 1959 to 1966, the GDP at market prices deflated by the price index for Niamey has been growing at an annual rate of 4.6%. Sub- sistence farming concentrating on millet and sorghum cultivation is predominant, while groundnuts, cotton and, to a lesser extent, rice are the most important cash crops. Extensive livestock breeding is of importance in areas of marginal rainfall, where nomadic herdsmen graze cattle, sheep and goats. Activities outside agriculture are of minor importance and natural resources which could be exploited are limited. The few industrial enterprises are mainly engaged in processing agricultural raw materials. Recently, however, a uranium deposit was discovered in the Sahara desert and investments in the mine and concentration plant are proceeding satisfactorily. Agriculture 2.02 General. A more detailed background on agriculture is given in Annex 1. Limited rainfall is the most serious constraint on agricultural production. Average annual precipitation varies from less than 25 mm in the North to 800 in the South (see Map 1), with sharply defined wet and dry seasons. Crops which can be grown without irrigation are grains, pulses, groundnuts and cotton. The total rice acreage, about 11,000 ha, receives additional water through irrigation. 2.03 Most soils are sandy and reasonably fertile, subject to phosphate fertilization. Some alluvial soils suitable for cotton and rice production are found along river valleys and natural depressions throughout the country, but their total area is limited. Only about 2% of Niger's total land area is cul- tivated and about 6% is under fallow. Possibilities of cultivation expansion appear to be limited, because of high population density in areas of better soils and adequate rainfall. In the most common rotations, three years of grain and cash crops are followed by three or four years of fallow. Restora- tion of soil fertility and soil moisture is left to nature which precludes reduction of the fallow period. 2.O4 Land Tenure and Cultural Practices. Land tenure follows the traditional tribal system under which local chiefs nominally assign plots to members of their community. However, land improved by the Government through irrigation or other reclamation activities is leased by the State without rent to progressive farmers. Moreover, increasing population pressure is leading to a more permanent form of land ownership with holdings being transferred to other family members, although land titles still do not exist. Practically, all work is done by hand labor and farm sizes vary according to the number of persons per household and crops cultivated. Generally, 0.5 tol.0 ha are worked by each member of the family, thus average holdings in the more productive areas cover about 3 ha cultivated land with additional 3-4 ha fallow. The average groundnut and rice acreage per farm is about 1 ha, while cotton averages only 0.5 ha per unit.  -3- 2.05 Prevailing cultivation techniques are primitive. Hand tools are used for all farm operations, including soil preparation and weeding. On- farm and to-market transport is by pack-camels or donkeys. Use of organic or inorganic fertilizers is limited to a few progressive farmers. 2.o6 Cash crop production on a significant level is fairly recent. Since more than 95% of the population live on farms, trade of staple food is of minor importance. Export possibilities of staple food are limited because neighbor- ing countries have similar production patterns and high transport costs preclude shipments to food deficient areas along the coast. Groundnuts, cotton and to a limited extent rice have increased significantly since independence in 1960 and are the only crops which could be successfully marketed in the foreseeable future. Livestock production, for which the country offers potential, is poorly organized and is hampered by lack of adequate water supply and by disease problems preventing adequate development of cattle exports. 2.07 Government's Policy and Priority in Agriculture. The Government's development strategy as formulated in the Perspectives Decennales de Developpe- ment 1965-1974 and the more specific Plan Quadriennal 1965-1968 gives priority to productivity improvement programs especially in agriculture. Village-based cooperatives, grouped into units of viable size have played a major role in these programs. The Government encourages the use of fertilizers, insecticides, selected seeds and animal-drawn equipment, in association with intensified research and extension efforts. French technical assistance has been an important factor. Although some of the Plan's production and investment targets seem optimistic, groundnut production already exceeded the 1974 target by 10% in 1967 and rice reached 80% of the target in the same year. A new development plan covering the period 1969 to 1974 emphasizes similar priorities. 2.08 Research. Agricultural research is the responsibility of the Institut de Rech=erches Agronomiques Tropicales et de Cultures Vivrieres (DAT) which maintains two stations. Under an agreement with France, which pays 50% of research costs, expatriates assisted by Nliger personnel carry out effective research work on all crops grown in the country. Their work is concentrating on applied research, covering all aspects of possible productivity improvements. Cotton research was started only three years ago and initial results although not yet conclusive are promising. Fertilizer dosage on alluvial soils is being studied. 2.09 Extension Services and Cooperatives. The 1Ministry of Rural Economics is primarily responsible for agricultural extension but its organization is weak, particularly with regard to coordination of the various services. The Development Commission maintains a Service d'Animation Rurale, i.e., an agricultural promotion service, aiming at inducing and preparing farmers to adopt technological improvements and to get organized into cooperatives. Detailed technical advice is provided by independent services of the Ministry's four departments, i.e., Agriculture, Livestock, Agricultural Engineering and Forestry. Extension services for rice are provided by the Agriculture and Agricultural Engineering Departments with the help of Chinese technicians.  -4- The Compagnie Francaise pour le Developpement des Fibres Textiles (CFDT) which is under contract with the Union Nigerienne de Credit et de Cooperation (UNEC) and partially financed by the Fonds d'Assistance' et de Cooperation (FAC), is responsible for cotton extension. While the Ministry's services are inefficient, CFDT services have better trained personnel, are more adequately supervised and more successful. More details are given in Annex 2. 2.10 In 1962, the Government founded UNCC, which is intended to be the country's cooperative union, to promote establishment of cooperatives and pro- vide credit. However, since 1967, the credit function has been turned over to the Caisse Nationale de Credit Agricole (CICA). Because farmers lack titles to their land, adequate loan securities are difficult to obtain. To overcome this problem UNCC encouraged the formation of mutual credit societies, the "Groupements MutuaXstes Villageois (GMV)" (see Annex 3), 1Pembers of the GMV mutually guarantee repayment of individual loans (Annex 4). 2.11 Marketing. Marketing of cash crops at the farm level was until 1962 exclusively in the hands of private traders. Since 1962, cooperatives have been increasingly involved in crop marketing, and the supply of inputs and other basic needs. Exports of groundnuts are handled by the "Societie Nigerienne de Commercialisation de l'Arachide (SONARA)," a joint private state-owned export organization. Cotton exports are the responsibility of CFDT. The Caisse de Stabilisation des Prix des Produits du Niger (CSPPN) attempts to stabilize groundnut and cotton prices. Details are given in Annex 3. Agricultural Credit 2.12 Since 1967, CNCA finances all credit needs at the farmers and cooperatives' levels. Two other banks, Banque de Developpement de la Republique du Niger (BDRN) and Banque Internationale pour l'Afrique Occidentale (BIAO), finance the stocks of cotton and groundnuts maintained by CFDT (cotton) and SONARA (groundnuts) before export. They are not otherwise involved in agri- culture. The prevailing commercial interest rates which are based on Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO) rate of 3.5% p.a., currently range between 6% and 8% p.a. Under the prevailing arrangements, the financing of SONARA's short-term requirements, the most important and profitable banking operation, is distributed between BDRN and BIAO in the proportion of 55% and 45%. These two institutions currently charge an interest rate of 5% p.a. plus a monthly fee of 1/12%. BCEAO provides discounting facilities for up to 80% of the volume of financing. In M$arch 1970, as a meansof improving CNCAIs operating results, the Government decided that CNCA would be given a share of CFAF 250 million representing about 11% in the financing of groundnuts for export from the 1970/71 campaign onwards (paras 4.02 and 4.o6).  - 5- The Productivity Improvement Program 2.13 Faced with the loss of the preferential French market as a conse- quence of France joining the Common Market, the Government was forced to improve agricultural productivity to counter losses from income due to reduced export prices. Fbllowing the recomnendations of the National Development Plan, a program exphasizing productivity improvement was started in 1965. Acreage expansion is no real alternative since most land in the prcductive zone is already farmed. The productivity improvement program was assisted by the Fonds Europeen de Developpement (FED) under the 1964 Younde convention and until 1968, FED had financed about US$1.5 million. These funds have been used for subsidizing costs of cotton spraying services, marketing facilities as well as inputs such as selected seeds, fertilizers, pesticides, and animal-drawn equip- ment. The agreement lapsed in May 1969, but disbursements of already earmarked funds may continue for two more years. This will include the financing of about 80 cooperative warehouses in the Project area. 2.14 The FED productivity improvement program is limited to groundnuts and cotton. A rice productivity improvement scheme is supported through Government funds and Chinese technical assistance. The programs are implemented in discrete steps: (a) introduction of selected seed to farmers, which had already led to sizable increases in output; (b) introduction of fertilizer to groundnut and rice growers and pest control to cotton farmers; (c) provision of animal-drawn equipment to improve cultivation techniques, especially to accelerate soil preparation and planting; and (d) improvement of irrigation for rice farmers. A final step contemplated for the future would be introduction of mixed farming, i.e., livestock for meat and dairy production. III. THE PROJECT A. General Description Definition 3.01 The project is the continuation and acceleration of the Government's productivity improvement program through the provision of improved extension services, current inputs, adequate credit and marketing facilities. It involves: (i) supply of about 2,000 units of ox-drawn implements, ox-carts and spare parts; (ii) supply of scales to new marketing cooperatives; (iii) expansion of extension services by meeting costs of an additional 100 agents;  - 6 - (iv) supply of selected seeds, fertilizer and pesticides; and (v) technical assistance to CNCA. 3.02 The Project aims at providing sustained increases in farmers' incomes and in Government revenues at a time of decreasing groundnut and cotton prices. Its main objective is to ensure continuation of groundnut, cotton and rice production increases by improving yields. It covers the four-year period 1970/71 through 1973/74. Through CNCA and the cooperatives, further credit would be provided to farmers for the purchase of farm implements and draft animals, seeds, fertilizer and pesticides. Scales would be provided to improve the functioning of cooperatives. The Project would also contribute to strengthening UNCO's cotton extension service and provide for a new UNCC extension branch dealing with groundnut producers. Finally, by meeting the cost of a foreign expert, it would guarantee continuation of technical assistance in training CNCA's local personnel. Project Area 3.03 The Project is confined to areas where UNCC is already active or would start operation during the Project period (see Yap 2). This covers most of the groundnut producing areas and all of the cotton zone and rice producing regions. Ecological conditions within the production zones vary little. Soils of groundnut producing areas are sandy, poor in organic matter and phosphorus. Cotton culti- vation is restricted to bands and pockets of alluvial soils in valleys and natural depressions. Rice production, relying on irrigation, is concentrated along the banks of the Niger River. Groundnut yields increase progressively from north to south, due to higher rainfall. Fertilizer application to groundnuts would be restricted to areas receiving 600 mm or more of rainfall because of poor response in marginal rainfall zones. 3.04 The rural population in areas covered by the Project is officially estimated to number 2.5 million, of which about 2 million live in the densely populated regions of Maradi and Zinder, the centers of groundnut production. The average size of a farming family is six persons, thus the total number of farms is estimated at 410,000. Average farm size, including fallow land, is at present 7 ha. Possibilities of expanding farm acreage are limited because of high population density in areas favorable to agricultural production. Institutional Aspects 3.05 The two institutions directly concermed with the Project are UNCC and CNCA. UNCC would continue to be responsible for preparing GMN input programs, distributing farm inputs to cooperatives, and organization and supervision of marketing. In addition to providing extension services to cooperatives and cotton farmers, UNCC would expand these activities to groundnut growers. FAC would continue its technical assistance to UNCC during project execution. Through the intermediary of the GMVs, CNCA would finance farmers' short- and medium-term credit requirements under the productivity improvement program. 3.06 The Ministries of Rural Economics and Development would continue to support the productivity improvement program through their rural development pro- motion and agricultural extension services. To make this cooperation more effec- tive, guidance would be provided through the Project Coordinating Conmittee. Details are given in para 4.01 and Annex 5.  -7- Cooperatives 3.07 Farmers' cooperatives are given a major role in the implementation of the program under UNCC's guidance and supervision. The number of cooperatives will be increased from 57 which are already operating to about 100. It is through these cooperatives that farmers participating in the program benefit from the supply of inputs, marketing facilities and technical guidance. Coopera- tives also assist farmers through the GMV's to obtain credit by preparing input programs at village level. 3.08 UNCC has initiated and guided the establishment of cooperatives. To avoid setting up small cooperatives with low turnover and high administrative cost, UNCC has grouped several villages into sections and six to seven sections into a cooperative. Thus the average cooperative markets crops of the order of CFAF 20 million (US$72,000). Annual dividends are paid to members, giving them a strong incentive to sell to the cooperative. Administration is the responsibil- ity of elected officials, assisted by one UNCC agent for each cooperative. Recording procedures have been simplified by using symbols instead of figures, permitting illiterate officials to keep track of crops delivered and money paid out. Cooperatives' fixed assets are kept to a minimum and consist mainly of scales, simple huts and concrete slabs for crop storing. Credit Procedures 3.09 Credit requests are collected by the cooperative's UNCC agent at village level several months prior to the planting season. In evaluating requests, he is assisted by agents of the agricultural promotion and extension services. Village programs are submitted to regional loan committees for approval (see Annex 4). Approved programs are transmitted to UNCC for carrying out necessary imports. Upon delivery of inputs through cooperatives to village societies, the local Chairman signs a receipt on behalf of the society, which becomes the loan document between CNCA and participating farmers. For medium-term loans, a 20% farmer's participation is required and is paid when the loan document is signed. 3.10 At harvest time, credit societies are informed about repayments due. The society Chairman assisted by members of the Board supervises repayments at the cooperative markets. Farmers receive full price for delivered crops and repay their debts on the spot. Since society members are mutually liable, defaults are recovered through the society's share in the cooperative's profits. 3.11 These procedures have worked reasonably well in the past and would be continued under the Project. However, the 2C% downpayment requirement has undoubtedly excluded many farmers from the implement credit program because of their low cash position. For the Project, the 20% downpayment requirement has, therefore, been reduced to 10%. Assurances on this point have been obtained from the Govermnent during negotiation and, in view of limited experiences to date, CNCA would, in agreement with MA, from time to time review downpayment require- ments and adjust them to farmers' financial capacities. An added advantage of the system is the small number of accounts - corresponding to the number of credit societies - to be handled by CNCA. Provisions of Farm Inputs 3.12 Seeds. Full details of farm inputs are given in Annex 6. The groundnut seed program started several years ago and is now providing about 2,000 t of (shelled) selected seeds to farmers. IRAT is in control of foundation seed  - 8 - production and supervises mPrltiplication at farm level. Before distribution to far- mers, seeds are treated with a fungicide dressing of which about 2.5 t per annum are used in the Project area. Farmers are supplied at sowing time with quantities required and return 150 kg at harvest time for each 100 kg seeds received. The additional 50 kg adequately cover multiplication bonuses to seed producers, storage, fungicides and interest. Since yields decline due to seed deterioration, farmers' seeds need to be replaced every five years. 3.13 Cotton and rice seeds are not under UNCC's responsibility. Distribution is directly through CFDT for cotton and IRAT for rice seed and no special credit facilities would be required. Improved cotton seed varieties, which will lead to a production shift from 1-1/32" to 1-1/16" staple length in the coming years, are presently promoted by CFDT. 3.1h Fertilizer. For groundnuts in zones of more than 600 mm rainfall, an application of 75 kg superphosphate per ha is recommended. Present cultural practices do not include soil inoculation with nitrogen-fixing bacteria. Cince nitrogen appli- cation for groundnuts is not economical in Niger, intrcduction of inoculation may result in higher yields. Assurances have been obtained that inoculation tests would be started by IRAT during the 1970 crop season. Cotton fertilization is still on an experimental level and, under the Project, only irrigated cotton or soils of lower fertility would receive fertilizers since lack of fertilizers is the major produc- tion constraint only in these instances. Assurances have been obtained that cotton fertilizer trials would be further pursued under IRAT supervisicn. Rice fertilization would be based on 120 kg urea per ha and crop. 3.15 Farmers would purchase fertilizer on credit. At present, about 80% of all fertilizer used is applied to groundnuts. Total consumption would be expected to rise from 500 t in 1968/69 to 800 t in 1973/7h, an increase of about 60%. Groundnuts would continue to receive the bulk of the fertilizer while cotton fertilization would only increase slowly depending on further results obtained by experimental stations. Fertilizer is not produced locally and all of it would be imported. 3.16 All fertilizer is presently subsidized. The Fonds Europeen de Developpement (FED) pays a 40% subsidy on all fertilizers destined for groundnut and cotton produc- tion. Existing agreements will cover the first two project years, and indications are that the FED fertilizer subsidy will be continued thereafter. The Government is presently subsidizing the cost of nitrogen fertilizer to rice farmers. Since nitrogen application is profitable to rice farmers, assurances have been obtained during nego- tiations that this subsidy would be graduaUly phased out over the Project period. 3.17 Insecticides. Fungicides would be used for dressing of selected seeds at the rate of 1,250 g per ton shelled groundnuts to prevent fungus damage. Control of cotton pests is imperative. On average four treatments against insects with a DDT- Endrin mixture are required per growing season. Spraying is carried out on a credit basis by CFDT spraying units. Motorized knap-sack-sprayers were supplied on a grant basis by FED and no additional sprayers would be needed during project execution. Presently, FED is also subsidizing 3Q% of the insecticides cost. The Government intends to phase out this subsidy after 1971/72. Rice cultivation is currently not subject to any serious disease or insect problems. 3618 Implements. Prior to the FED program instituted about six years ago, importation of such implements as plows, seeders, cultivators, hoes and carts from Senegal was highly successful. However, ox-drawn equipment introduced under the FED program was not well received; only about 1,000 units were sold. The problems were:  - 9 - (a) FED procureiient procedures limited imports to equipment available in member countries, most of which was unsuitable; and (b) extension demonstrations and maintenance services were inadequate. The Project provides for imports of ox-drawn implements to be procured through international competitive bidding and to be assembled by UNCC. They would be supplied to farmers on credit. Servicing and maintenance of this equipment remains UNCC's responsibility. Mobile workshops tour the country and under an ILO program, local blacksmiths are trained to undertake simple repairs. As Niger's farmers still live in relatively large family units, it can be expected that each piece of equip- ment supplied under the Project would be utilized by several farmers. 3.19 Draft Animals. There is plenty of cattle in Niger from which farmers could select suitable animals. Training of draft animals is organized by UNCC at training centers throughout the country. Future efforts by UNCC would be directed at training animals on farms by owners under assistance by extension agents. CNCA credit would be available to cover full cost of animal training at centers or for the purchase of trained animals. 3.20 Scales. Credit would be available to newly created cooperatives for the purchase of scales. Under the existing organizational set up, each section would be equipped with one scale. A fee of CFAF 35 per ton weighed would be charged to cover repayments and maintenance charges. B. Detailed Features The Lending Program 3.21 Lending under the Project would consist of short-term and medium-term operations. Medium-term lending would be CFAF 65.2 million (US$235,000) for oxen and animal-drawn implements including spares and ox-carts and would be CFAF 22.5 million (US$81,000) for scales to new cooperatives to facilitate and expand coop- erative marketing of groundnut, rice and cotton under the Project. Short-term credit of about CFAF 71.7 million (US$258,000) would be for seeds, fertilizer and pesticides, including spray costs. Credit societies and their members would receive credit only in kind and would repay their loans through cooperatives at harvest time from crop proceeds. Repayment of credits for cooperative scales would be from fixed fees per ton weighed, permitting credit recovery within four years. 3.22 The amounts required for short-term credit at the beginning of each season would be reimbursed so that the additional working capital required to finance the additional seasonal inputs needed as their use builds up would be their incremental cost from one season to the next. The provision of additional seasonal inputs is an essential part of the Project. Without it, investments in farm implements would not be economically efficient and the Project would be ineffective; the estimated cost of additional seasonal inputs required during the Project period would be CFAF 71.7 million (US$258,000) (para 3.27). During negotiations, assurances have been obtained that the Government would make provisions to assure beyond the Project disbursement period continued availability and financing of seasonal inputs at a level not lwoer than during the Project period.  - 10 - 3.23 CNCA would continue making short-term loans to credit societies at a fixed commission of 6% equivalent to a 9% interest p.a. for loans repayable within eight months. To offer more incentive to farmers, medium-term loans for farm implements and oxen previously repayable within three years would be repaid within four years at a fixed annual commission of v% on the original loan amount, which is equivalent to an 8% yearly interest on the outstanding balance. Assurances have been obtained on lending terms and conditons as well as on repayment periods for medium-term credit. Management and Extension Services 3.24 One of the causes of low farmerstparticipation in the development program has been a lack of adequate extension services. French Technical Assist- ance, combined with concentration on the training of high ranking Niger officials, has provided management capacity at UNCC level while budgetary limitations restricted the number of field staff. The present pattern of one expatriate or Niger official supervising four to six extension workers should be changed over the four-year period to a ratio of about 1:15 (Annex 2). A total of CFAF 44.4 million (US$160,000) has been included in the Project cost to cover the additional extension personnel during the disbursement period. At the end of the disbursement period, incremental groundnut output attributable to the Project would generate annual export tax revenues of about CFAF 26 million. This would permit Government to cover the cost of the additional extension service at the end of the period (CFAF 20.7 million per annum). 3.25 The UNCC manager has been also appointed manager of CNCA. Since the Project credit program would be limited to zones of UNCC activities, such joint management is desirable for the time being. However, since CNCA's future operations would be extended to cover agricultural credit requirements through- out the country, appointment of a separate CNCA manager would eventually become necessary. Under the French Technical Assistance Agreement, CNCA has obtained the services of a banking adviser until 1970/71. His work with CNCA is crucial, because of the present manager's Lack of banking experience, as well as the need for continuous on-the-job training of local personnel. An extension of his assignment until 1972/73 is uncertain. Hence, the foreign exchange cost of CFAF 17.8 million (US$64,000) for the two-year assignment of an expatriate banking expert has been included in the Project cost.  -11_ Project Cost Estimates 3.26 The estimated total project cost would be CFAF 242.1 million (US$871,000) of which CFAF 117.7 million (US$424h,coo) or 49% would be foreign exclhange. Detailed cost estimates are as follows: CFAF 4Itllion US$'OCO Percent For- For- 1/ 2/ Local eign Total Local eign Total TPC- FEC- I. Dn,plements and Draft Animals Equipment, carts, spares 5.o 49.7 54.7 18.0 179.0 197.0 - 91 Oxen 31.0 - 31.0 111.0 - 111.0 - Sub-total 36.o 49.7 85.7 129.0 179.0 308.0 35 57 II. Scales to Cooperatives 22.5 22.5 - 81.0 81.0 9 100 TTI. Incremental VIorking _Capital Fertilizer _ 9.7 9.7 - 35.0 35.0 - 100 Seeds 4O.o - 40.0 144.0 - 144.0 - - Insecticides and Spray cost 4.0 18.0 22.0 14.0 65.0 79.0 - 82 Sub-total 44.0 27.7 71.7 158.0 100.0 258.0 30 39 IV. Technical Services CICA technical assistance - 17.8 17.8 - 64.0 64.o - 100 M.CC: additicnal ex- tension 44.4 - 44.4 16o.o - 16o.o - _ (personnel) - - 6. - Sub-total 44.4 17.8 62.2 160.0 64.o 224.0 26 29 TOTAL: 12h.4 117.7 242.1 447.o 424.0 871.0 100 49 -otal project cost. -6oreign exchange cost (see also Annex 4, Table 5).  - 12 - Project Finance 3.27 The Project would be financed as follows: Farmers CNCA IDA Credit Total ----CFAF Million------------ I. Implements and Draft Animals 20.5 15.5 49.7 85.7 II. Scales for Cooperatives - - 22.5 22.5 III. Incremental Working Capital - 4X.0 27.7 71.7 IV. Technical Services - - 62.2 62.2 Tota'l 20.5 59.5 162.1 242.1 (in uS$'000) (73) (214) (584) (871) Percent 8 25 67 100 The farmers' contribution of CFAF 20.5 million (US$73,000) would cover 50% of draft animal and 10,% of implement costs. CNCA would contribute CFAF 59.5 million (US$214,000) which would cover the full cost of seeds and spraying. The proposed IDA credit of CFAF 162 million (US$584,OOG) would cover the fertilizer and pesti- cide cost of CNCA's incremental working capital requirement, the foreign exchange cost of farm implements, scales, and the total cost of CNCA technical assistance and of UNCC's additional extension services. The Government would be the borrower and bear the foreign exchange risk. It would make available CFAF 100 million (US$360,000) to CNCA for short- and medium-term credit on terms and conditions set out in para 3.28. 3.28 The Government would authorize CNCA to retain the total part of IDA credit earmarked for its lending operations amounting to about OFAF 100 million (US$360,000) as equity capital (see para 4.06). The balance of the IDA credit CFAF 62.2 million (US$224,000) to CNCA for technical assistance and to UNCC for additional extension services would be a Government grant. Procurement and Disbursement 3.29 Since sales of equipment and inputs under the productivity improvement program were not sizable in the past, private dealers were not interested in imports, leaving the entire procurement to UNCC. Implements, scales, fertilizer and pesticides required under the Project would, therefore, be centrally procured by UNCC on the basis of international competitive bidding. Disbursements of IDA funds would cover the CIF cost of fertilizer, pesticides, farm implements and scales as well as the actual foreign exchange cost of CNCA technical assistance. Disbursement of IDA funds would also finance the full costs of the additional extension services against appropriate documentation. Assurances have been obtained during negotiations that CNCA would maintain separate accounts for all Project operations.  - 13 - 3.30 Disbursement of project funds over the Project period would be approximately as follows: Year 1 Year 2 Year 3 Year 4 Total ---------------CFAF Million- Farmers' Contribution - 5.1 6.0 8.5 20.5 CNCA Resources 41.0 4.9 6.2 7.4 59.5 IDA Credit 10.7 30.0 55.9 65.5 162.1 Total 51.7 40.0 69.0 81.4 242.1 IV. ORRGNIZATION AND MANAGEMET Project Coordination 4.01 Successful project execution would depend upon close cooperation between the Government, CNCA and UNCC. Fbr this purpose, the Government has agreed to set up a "Project Coordinating Committee," prior to effectiveness, to obtain immediate action whenever required. The Committee would be chaired by the Minister of Rural Economics, the Manager of CNCA/UNCC acting as secretary and include senior officials from the Ministry of Agriculture, Commerce, Finance, the Plan Organization, CSPPN, SONARA and CFDT. Most of the members of the Project Coordinating Committee are already members of the Administrative Councils of both institutions. Cooperation between CNCA and UINCC would be further ensured by the fact that they have the same manager. Details on the Project Coordinating Committee are given in Annex 5. CNCA 4.02 Operations. Following a ruling by Niger's Supreme Court, enforcing separation of UNCC's banking activities from its other operations, CNCA was esta- blished in October 1967. (Details on CNCA are given in Annex 4). Its responsi- bility is to provide credit to farmers, mainly for productive purposes, but under Government instructions, it also extends social credit. Its resources include budget appropriations, discounting facilities with the Central Bank and short-term deposits frcm Government agencies. Its main operations consist of agricultural loans: short-term (8 months) and medium-term ( 4 years) at fixed commissions equivalent to interest rates of about' 9% and 8% p.a. respectively and marketing loans to agricultural cooperatives at an interest rate of 7% p.a. The prevailing interest rates on short- and medium-term loans are adequate and in line with commercial interest rates in the country (see para 2.12). Assurances were obtained that the prevailing rates will not be changed without IDA's approval. In March 1970, the Government decided that CNCA's activities would be enlarged by the financing of groundnuts for export (see paras 2.12 and 4.06). 4.03 CNCA has reduced social credit activities, which amounted to CFAF 196 million under UNCC management in 1965/66, to CFAF 29 million in 1968/69. Assur- ances have been obtained during negotiations that CNCA would not continue social credit activities except in a trustee capacity, with losses for Government account and adequate compensation by the Government for services rendered. Assurances have also been obtained that its constitution would not be changed or amended unless agreed with IDA.  - 14 - 4.04 Management. As CNCA expands its credit activities throughout the country, a manager independent from UNCC would eventually be needed. Assurances have been obtained that a qualified Niger official would be trained to take over as manager not later than 1973. As already indicated in para 3.25, the services of a banking expert would continue to be provided for the entire project disburse- ment period. His role would be to assist the present manager and to provide on- the-job training for the future manager as well as the personnel of CNCA. 4.05 Since CNCA is not involved in preparing credit requests and deals mainly with GMV's rather than individuals (see credit procedures paras 3.09 to 3.11), staff requirements can be kept low. Training and qualifications of CNCA personnel are satisfactory. h.o6 Future Finances. In connection with CNCA's requirements and the proposed project, the Government of Niger has recently increased CNCA's capital from CFAF 67.4 million to CFAF 117.4 million with the proceeds of a loan from the French Caisse Centrale de Cooperation Economique (CCCE). In addition, the Govern- ment of Niger has agreed to further increase CNCA's capital by another CFAF 50 million on or before October 1, 1970 so as to enable it to participate in the financing of the groundnut export organization (paras 2.12 and 4.02). To further increase CNCA's resources, the lending portion of the IDA credit amounting to about CFAF 100 million (US$360,ooo) (see para 3.28) would be passed on to CNCA as equity. This would enable CNCA to continue its lending program beyond the disbursement period of the Project. Income and expenditure forecasts shown in Annex 4, Table 2, indicate that CNCA would be able to cover operating expenses, to make provisions for bad and doubtful debts and to build up adequate reserves. 4.07 Accounts and Audit. Auditing would be carried out by an auditor already selected but not yet appointed by the Ministry of Finance. The auditor appears to be well qualified and proposed auditing arrangements would be acceptable to DA. Assurances have been obtained that the appointment of the auditor would be made prior to effectiveness of the credit. Further assurances were obtained that CNCA would retain at all times an auditor satisfactory to the Bank. Extension Services 4.08 UNCC would be responsible for providing extension services in the Project area and would be supported by the Ministry of Agriculture's services. Its operations are described in more detail in Annex 2. The extension services' objective would be to increase the number of farmers using modern inputs, to assist them in obtaining inputs on credit and finally to guide and supervise them in their proper use. 4.09 Two UNCC divisions would be responsible for extension. One division managed by CFDT under an agreement with the Government provides the extension service for cotton growers. The present organization is strong at management level with seven section chiefs (five expatriates), but weak at field level, employing only 30 extension workers. Another 20 extension workers are presently undergoing training and would take up their field assignments during 1969/70. An extension density of one field worker for about 100 farmers would be the target. Accordingly, 50 additional extension agents would be employed during project execution. Present management arrangements are satisfactory and would provide adequate training and supervision of all field personnel. Assurances have been obtained that the agreement between the Government and CFDT would be continued until June 197k.  - 15 - 4.10 The second division of UNCC deals principally with providing extension to the present 57 cooperatives which will be increased to 100. Extension agents assigned to cooperatives assist in their business transactions, arrange necessary CNCA contacts and help credit societies and farmers in preparing annual input programs. The agents' work is supervised by 15 district officers, who report to five regional officers. Total staff of this division numbers 99, including 17 expatriates, and its distribution shows similar deficiencies in the ratio of supervisory personnel and field workers (see para h.09). About 40 cooperative extension agents will be needed for new cooperatives to be created during the Project period. To accelerate inpuit use by groundnut farmers, 50 additional field agents would be employed during the Project period. Adequate training of the additional personnel would be assured through UNOC's well qualified supervisory staff. Extension to the 1,000 rice farmers, who would participate in the Project, is adequately covered by extension staff trained under the Chinese Technical Assistance Program, and already assigned to their posts (see Annex 6, para 21). Assurances have been obtained that expansion of the extension service would be in line with project requirements and would be continued beyond the Project disburse- ment period. Details are given in Annex 2. 4.11 UNCC's annual expenditures are present47y covered by Government budget allocations. The Government contribution, which amounted to CFAF 145 million in 1967/68, covers all expenditures, including salaries of present staff, and vehicle operation. Assurances have been obtained that UNCC would continue to receive the Government's financial support, and that allowances would be made to compensate for increasing expenditures during and after the Project disbursement period. Supply and Marketing Services 4.12 In view of the relatively small volume of inputs involved under the Project, UNCC would remain responsible for carrying out all procurements. UNCC agents would continue to check and collect farm input demands and organize distribution. This system functioned satisfactorily during the last years, and led to reduction of surplus stock, which plagued UNCC at the beginning of its operations, as well as to low distribution costs. 4.13 The Project area's farmers would continue marketing their crops through cooperatives. The cooperative marketing system works well and offers adequate incentives (para 3.08) to assure farmer's participation. During the Project period, cooperative activites would be exoanded into new areas shown in Map 2. The expansion program, which would be geared to the availability of qualified extension staff, aims at establishing 43 additional cooperatives by 1973/74. h.14 Cooperatives sell groundnuts to the Societe Nigerienne de Commercialisa- tion de l'Arachide (SONARA) and cotton to the Compagnie Francaise pour le Developpement des Fibres Textiles (CFDT). Both agencies are marketing organizations operating at national level. 4.15 SONARA, established in 1963, is a marketing company of joint Government and private ownership. Its objective is to purchase groundnuts from cooperatives and private merchants and to carry out exports. To achieve this, it organizes storage, stock finance, shipment and maintains an office in Paris. SORAIA is well managed and equipped to market the Project's incremental production.  - 16 - 4.16 Cotton exports ;;ould continue to be CFDT's responsibility. Since most French textile companies are CFDT shareholders, excellent relations between the export agency and the industry have been established. Niger's cotton exports would benefit from this arrangement and no additi cnal marketing arrangements to cope with the Project's incremental production would be necessary. h.17 Rice would be sold from cooperatives to local dealers and would go into the local markets. Exoortable surpluses, which are anticipated only in small quantities and on a temporary basis, would be handled by UNCC directly. V. PRODUCTION, MARKETS. FARIkERS AND GOVERdIENT'S BENEFITS Production 5.01 During the four-year period, as much as 25% of the farmers living in the areas covered by the Project are expected to benefit from it. The largest portion (96%) of them would cultivate groundnut (about 1 ha each) as a commercia:L crop, in addition to millet (2 ha) as their subsistence crop. The balance (4%) would grow cotton (