Malawi - Karonga Rural Development Project

RESTIICTED Report No. PA-106a TM$ repor is for official u only by te BDn Group ad spedfally authorized oranizations or peron It nay not be pubihed, quoted of cited without Bank Group authorIation. The Daa Group does not accept repontiblitY foc the cracY or completenes of the report. INTERNATIONAL BANK FOR RECONSTRUCnION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF KARONGA RURAL DEVELOPMENT PROJECT MALAWI December 30, 1971 Agriculture Projects Department  CURRENCY EQUIVALMffS Currency Unit - Malawi Kwacha - 100 Tambala (t) IMK 1.0 - US$1.30 US$1.0 - MK 0.769 WEIGHTS AND HEASURES 1 acre (ac) - 0.405 hectare (ha) 1 mile (mi) - 1.61 kilometers (km) 1 square mile (sq mi) - 639.5 acre - 259 ha 1 pound (lb) - 0.455 kilogram (kg) 1 short ton (sh ton) - 2,000 lb - 911 kg i bag - 200 lb - 91.1 kg 1 hundredweight (cwt) - 112 lb - 51.02 kg 1 inch (in) - 25.64 millimeters (mm) 1 liter (1) 0.264 gallons (U.S.) ABBREVIATIONS ADMARC a Agricultural Development and Marketing Corporation IDA - International Development Association MANR - Ministry of Agriculture and Natural Resources MYP - Malavi Young Pioneers NOIL a National Oil Industry Ltd. ODA - British Overseas Development Administration PMEA - Permanent Mission Eastern Africa FISCAL YEAR April 1 - March 31  MALAWI KARONGA RURAL DEVELOPMENT PROJECT TABLE O' CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i-iu I. INTRODUCTION ........................................... 1 II. BACKGROUND ............... , . 2 A. General .................................... 2 B. Agricultural Sector ..... .............. 2 C. Health ........................................... 4 II. THE PROJECT AREA ...................................... 4 IV. THE PROJECT ........................................... 7 A. General Description .............................. 7 B. Detailed Features ................................ 8 V. COST ESTIMATES AND FINANCIAL ARRANGEMENTS .... ......... 13 VI. ORGANIZATION AND MANAGEMENT ........................... 17 A. Organization .................. ................... 17 B. Management and Staffing .......................... 18 C. Settlement ....................................... 19 D. Credit Facilities .............. .. ................ 20 VII. PRODUCTION, MARKETS AND PRICES, AND FARMERS' AND GOVERNMENT'S BENEFITS .............. .. ................. 21 A. Production ................... .................... 21 B. Markets and Prices ............................... 22 C. Farmers' Benefits ............. .. ................. 23 D. Government Benefits ................................ 23 VIII. ECONOMIC BENEFITS AND JUSTIFICATION .................. . 24 IX. AGREEMENTS REACHED AND RECOMMENDATIONS ..... ........... 25 This report is based upon the findings of an Appraisal Mission which visited Malawi in April 1971, composed of Messrs. J. Gregor, J-J. Schul (IDA), D. Bickers (PMEA), R. Henderson and Dr. E. de Winter (consultants).  -2- ANNEXES 1. Health 2. The Project Area, Crops and Hydrology 3. Livestock 4. Further Studies 5. Marketing, Prices and Exports 6. Transportation 7. Project Costs 8. Disbursements 9. Organization Chart 10. Farmers' Budgets and Credit 11. Cash Flows 12. Rate of Return Calculation PIAPS 1. Malawi 2. Karonga Development Project Area 3. Health and Transport Facilities  MALAWI KARONGA RURAL DEVELOPMENT PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a first-phase project for agricultural devel- opment of the Karonga area in northern Malawi. The Government's strategy for the development of agriculture by integrated regional development has high priority. This would be the fourth IDA Credit for such development. Credit 113-MAI (1968) for US$6 million helped finance the Lilongwe Agricultural De- velopment Project in central Malawi followed by Credit 244-MAI (May 1971) for US$7.25 million for its second phase. Credit 114-MAI (1968) provided US$3.7 million for the Lower Shire Valley Development Project in southern Malawi, for which a second phase is now also under preparation. if. Karonga has considerable potential -- a fertile lakeshore plain with cheap water for irrigation and a sparsely populated scarp and plateau suitable for beef cattle. However, overland transport to the rest of Malawi is made difficult by a high escarpment (first Map), and the area has to rely on Lake Malawi for freight movements with a Lake Service in need of rehabil- itation. The health situation, which is unsatisfactory in the country as a whole, requires improved services in the project area. iii. The Karonga Rural Development Project comprises agricultural devel-i opment supported by improvements to health facilities and transportation. 7he agricultural component would involve a total fabout 446Q0 farmers on 15,3_10_acres, including development of 1,500 acres of irrigated and 6,000 acres of rainfed rice schemes, together with the settlement of some 2,800 farmers; improvement of 7,800 acres of cotton, groundnuts, and maize farmed by about 1,800 farmersz provision of extension services and farm credit; drilling of 11 boreholes; constru'ction of buildings such as staff housing, offices and workshops; and upgrading of 77 miles of feeder roads. For livestock, 22 dipping tanks and four cattle markets would be constructed and an 18,000-acre holding ground developed with improvements to the stock routes. Health would be improved through a bilharzia control program on irrigation schemes, construction and operation of five rural outposts and improvem-e'nts to the-su'p''porting services at the Chilumba Rural Hospital and the Karonga District Hospital. The transportation component would markedly improve the Lake Service by providing improved terminal facilities for Karonga and at the southern end of the Lake, as well as additional shipping capacity. The project would also provide for studies of high value crops and hydrology, and research on use of inputs, leading to preparation of a second-phase project. iv. The agriculture and health components of the project would be managed by a Project Unit, a section of the Ministry of Agriculture and Natural Resources (MANR), headed by a Project Manager with headquarters in Karonga, reporting directly to the Permanent Secretary. Malawi Railways Limited, a Government-owned body, which owns and operates the Lake Service, would be in  - ii - charge of the improvements to the Lake Service under the responsibility of the Ministry of Transport and Communications. A liaison committee would be set up to ensure coordination between the Project Unit and ministries con- cerned. v. Total project costs are estimated at US$7.8 million. The proposed credit of US$6.6 million would finance 85% of project costs, covering foreign exchange costs estimated at US$4.1 million and 69% of local currency costs. The balance of US$1.2 million local costs would be provided by Govern- ment by annual budgetary allocations over 5 years. However, Government's net contribution would be only about US$0.8 million, as the project would con- tribute to Government revenue by about US$0.4 million over the same period by way of scheme service charges and livestock dipping and grazing fees. Funds for agricultural development and health facilities would be disbursed by the Project Unit, while funds for transportation would be disbursed by the Government on behalf of Malawi Railways Limited. Goods and services to be procured by international competitive bidding would have a total value of about US$2.7 million. Other goods and services, amounting to about US$1.2 million, which by nature of their small size and scattered distribution would be unsuitable for international tendering, would be subject to local competitive bidding. vi. Average annual net cash incomes per farm family would increase from about US$8 to about US$204/annum on double cropped irrigated rice schemes, US$184/annum on rainfed rice schemes, and to about US$108/annum for farmers with dry-land crops. Based on the Bank's Economics Department's price fore- casts for rice, cotton, groundnuts and maize, the economic return is esti- mated at about 12%. This return varies between 16 and 12%, according to high or low price estimates of rice and cotton, which are the major project production. vii. The project is suitable for an IDA credit of US$6.6 million pro- vided assurances are obtained and steps taken as set out in the recommenda- t:Lons.  MALAWI KARONGA RURAL DEVELOPMENT PROJECT I. INTRODUCTION 1.01 The Government of Malawi has requested an IDA credit to help finance an integrated rural development project consisting of investments in agriculture, livestock, transportation and health facilities in the Karonga region of northern Malawi. The project is intended to be the first phase of a broader development program in the region; this would be the fourth IDA Credit for an integrated rural development project in Malawi. 1.02 The region has high development potential as it has high although poorly distributed rainfall and large areas of good soils and is inhabited by industrious people who have shown their interest in development by their willingness to participate in Government-sponsored pilot projects. But the area severely lacks infrastructure -- it is almost cut off from the rest of Malawi by a high mountain range that is impassable to commercial transport (see Escarpment, first Map) and must rely on the Lake Service on Lake Malawi, which needs rehabilitation and additional investment. Health facilities are inadequate to cope with the problems in the area. 1.03 The project, prepared and submitted by Government, included con- struction of irrigation and drainage works on about 9,000 acres, new port facilities, the purchase of additional vessels and construction of a new district hospital. Although appraisal confirmed that potential exists for intensive rice production on larger areas than proposed in the Government submission, the mission, because of inadequate hydrological data, is recom- mending that an initial 7,500 ac of rice only be developed. Appraisal also showed that new port facilities would much improve the quality of service, lower operating costs and, by cutting down the turnaround time of existing vessels, reduce the need for additional shipping capacity. Finally, it was concluded that project-related health problems could be met satisfactorily by improvements to the existing district hospital. 1.04 To date, IDA has financed three agricultural projects in Malawi: Credit 113-MAI (1968) for US$6 million for the Lilongwe Agricultural Develop- ment Project, Credit 244-MAI (May 1971) for US$7.25 million for the second phase of that project, and Credit 114-MAI (1968) for US$3.7 million for the Lower Shire Valley Development Project. Progress on Credits 113-MAI and 114-MAI has been good. 1.05 This report is based on the findings of an appraisal mission to Malawi in April 1971 consisting of Messrs. J. Gregor and J-J. Schul (IDA), D. Bickers (PMEA), and R. Henderson and Dr. E. de Winter (Consultants).  - 2 - II. BACKGROUND A. General 2.01 Malawi is a landlocked country of about 36,000 sq mi. Its population is estimated at 4.4 million and is growing at about 2.5% a year; average population density is 122 per sq mi. Over the past four years, GNP has increased by 8% to 9% annually. Agriculture, which contributes about 35% of GNP and absorbs 7% of current Government expenditures, has grown at about the same rate. The average income per capita is K 60. B. Agricultural Sector Crops 2.02 Malawi is divided into three regions: Southern, Central and Northern (first Map). Maize, cotton, pulses and groundnuts are grown throughout the country. Cotton and tea are produced mainly in the south; tobacco, groundnuts and pulses in the Central region; and rice in the north. 2.03 Maize is the principal subsistence crop and production is estimated at 1.0 to 1.3 million tons 1/ per year. Surplus quantities are marketed, some directly to shopkeepers and the rest to the Agricultural Development and Marketing Corporation (ADMARC) 2/. Except in years of national deficit, most of ADMARC's purchases are exported to neighboring countries. 2.04 The importance of rice has increased considerably. During the last five years, local consumption of milled rice has gone up by 50%, rice exports have climbed from 1 to 3% of total exports, and further growth is expected. Malawi continues to be somewhat sheltered from the decline in world market prices through her ability to sell high quality rice to privileged markets in Southern Africa. The Ministry of Agriculture and Natural Resources (MANR) expects to increase marketed rice production from 9,600 tons in 1970 to 32,000 tons by 1975, with the Karonga area maintaining its present share of 35%. These forecasts are based on the implementation of irrigated schemes on the plains along Lake Malawi. Several such schemes have been started in the Central and Southern regions under bilateral aid programs 3/, mainly British. 2.05 Cattle population in Malawi is estimated at about 510,000 head and is increasing annually by about 3%. Most animals are in small privately owned herds. Beef consumption has more than doubled since 1965, and pre- sently stands at 57,700 head per annum. Beef fattening is carried out 1/ All tonnages in this report are metric unless otherwise specified. 2/ Formerly the Farmers' Marketing Board. 3/ Fifteen pilot schemes totalling 2,552 ac.  - 3 - mainly in the Southern and Central regions near the main consumption centers but there is a severe shortage of feeder cattle and projections emphasize the future importance of the north as a major area for production. The project would initiate this development. Agricultural Institutions 2.06 The Ministry of Agriculture and Natural Resources (MANR) is divided into 10 Departments, of which five would be involved in the proposed project: Extension and Training, Research, Technical Services (including irrigation and land use), Animal Health, and Hydrology. Marketing and supply of farm inputs is the responsibility of ADMARC (para 2.03), a parastatal body whose executive chairman is answerable to the Minister of Agriculture and Natural Resources. 2.07 While there are now shortages in all categories of staff in the Ag- ricultural Services in Malawi, training facilities will eliminate only those in some categories by 1972. The Bunda College of Agriculture--a part of the University of Malawi -- will produce, from 1972 on, about 12 graduates in ag- riculture per year, so that most of the senior professional posts will con- tinue to be held by expatriates during the next few years. Technical Assis- tants are trained in the Colby College of Agriculture, which has an annual output of about 125. This is inadequate and Government is considering the creation of a National Resources College to fill the need. In the meantime, projects will have to provide their own training facilities to fill vacant Technical Assistant posts. 2.08 The Extension and Training Department is in charge of farmers' training settlements and management of pilot schemes. In particular, it gives technical advice to the Malawi Young Pioneer (MYP) movement at centers that train young men and women volunteers in basic discipline, civics, agri- culture and community development. 2.09 A Chief Research Officer directs policy from the main Research Station at Chitedze near Lilongwe in the Central region. Here work is done on main crops (tobacco, groundnuts, and maize) and animal husbandry, while special crops are catered for in substations such as Makanga (near Chiromo in the Southern region) for cotton and Dwangwa (near Khota Khota) for rice. Regional and district trial work is the responsibility of field research officers stationed in the relevant areas. 2.10 ADMARC has statutory monopoly rights to purchase all major crops grown on smallholdings at prices it fixes itself; however, it has so far chosen to exercise this right only for cotton, groundnuts and tobacco. Most rice and maize is sold to ADMARC, but some is bartered or sold directly by farmers to shopkeepers. ADMARC bulks purchases of farm inputs for small- holders throughout the country and distributes them through its depots. ADMARC has been successful in its operations.  - 4 - C. Health 2.11 The health situation in Malawi gives cause for concern, not because the diseases are more serious than those in surrounding countries, but be- cause the expenditure Malawi could in the past afford on public health has been inadequate. The country spends an average US$0.94 equivalent per cap- ita annually on health services, which is one of the lowest rates in Africa 1/. This rate is even lower in rural areas such as Karonga where, in 1970, expenditures for health were only about US$0.73 equivalent per capita, despite the considerable impact there of water-borne diseases (mainly bil- harzia) in addition to the usual diseases found elsewhere. Health services are generally poor and understaffed. Recent surveys showed that an average of about 9% of farmers' time was lost through illness and this percentage could go up in irrigated areas where water-borne diseases are likely to in- crease. Further details are in Annex 1. 2.12 The improvement of health facilities is an integral part of the project, particularly in view of the likely increase in the incidence of water-borne diseases caused by the proposed irrigation schemes. Because of financial constraints, Government health services have been very poor, es- pecially in the Karonga area, and this project therefore aims at improving the health facilities in the project area. III. THE PROJECT AREA 3.01 The project area (second and third Maps) would be within the Karonga and Chitipa administrative districts, which form the northern part of Malawi. The two districts together cover about 2 million acres (3,100 sq mi) divided into an alluvial plain, lying at an altitude of 1,500 ft on the shores of Lake Malawi; a broken escarpment; and a higher plateau, with an average altitude of 3,500 feet, which forms the catchment area for the many rivers flowing to the plain. Soils, Climate and Hydrology 3.02 The lakeshore plain covers about 249,000 acres, of which about 1.57,000 acres (63%) of fertile alluvial soils are suitable for intensive ag- r:iculture. The plateau and scarp covering the remaining 1.7 million acres are mainly ferrisols of poor or medium fertility 2/. Average temperatures on 1, Sample figures drawn from various World Health Organization Reports (1968-1971, converted to US$): Ghana 2.44, Kenya 1.76, Lesotho 1.21, Rwanda 0.32, Uganda 1.52, Zambia 9.40. Compare with Netherlands 88.31, United Kingdom 95.16, USA 105.20 (not including expenditure on water supply, sewage, refuse disposal, etc. and private health expenditure). 2/ A ferrisol is a soil with an iron-cemented hardpan caused under tropical conditions by rain washing iron through the soil and packing it hard below the surface.  the lakeshore range from 66