Document of The eo gorank

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 2034 Report No. 2034 Public Disclosure Authorized Profect Performance Audit Report Profect Performance Audit Report BENIN ZOU-BORGOU COTTON PROJECT BENIN ZOU-BORGOU COTTON PROJECT (Credit 307-BEN) (Credit 307-BEN)

April 20, 1978 April 20, 1978 Public Disclosure Authorized Public Disclosure Authorized

Operations Evaluation Department Operations Evaluation Department

Ths document has a restricted distribution and may be used by recipients only Inthe performance of the r oiUa" Si IbIis adyadMi diStz h ad olipInsfthpdeimancef of t their official duties. Its contents may not otherwise be disclosed without World Bank authoriatims. CURRENCY EQUIVALENTS

Currency Unit = CFA Franc US$1 = CFAF 245 CFAF 1 = US$0.0408 CFAF million = US$40,800 See Annex 2, Table 6 for variations through life of project

WEIGHTS AND MEASURES

1 millimeter (mm) = 0.039 inch (in) 1 meter (m) = 1,000 mm 3.2808 feet = 1.0936 yards 1 hectare (ha) = 0.01 spkm = 2.47 acres 1 kilogram (kg) = 2,2046 pounds (lb) 1 metric ton (t) = 1,000 kg = 0.9842 long ton = 2,205 lb

ABBREVIATIONS

CARDER - Centre d'Action Regional pour le Developpement Rural CCCE - Caisse Centrale de Cooperation Economique CFDT - Compagnie Francaise pour le Developpement des Fibres Textiles FAC - Fonds d'Aide et de Cooperation FAS - Fonds Autonome de Stabilisation et de Soutien des Prix des Produits a l'Exportation FED - European Development Fund IRAT - Institute de Recherches Agronomiques Tropicales et des Cultures Vivrieres IRCT - Institute de Recherches du Coton et des Textiles Exotiques IRHO - Institut de Recherches pour les Huiles et Oleagineux OCAD - Office de Commercialisation Agricole du Dahomey RMWA - IBRD's Resident Mission to Western Africa SATEC - Societe d'Aide Technique et de Cooperation SEDES - Societe' d'Etudes pour le Developpement Economique et Social SOCAD - Societé Nationale de Credit Agricole et de Commercialisation SONACEB -. Societé Nationale de Commercialisation et d'Exportation SONACO - Societé Nationale Agricole pour le Coton SONADER - Societé Nationale pour le Developpement Rural du Dahomey SONAGRI - Societé Nationale d'Agriculture SORGEM - Societé d'Organisation, de Gestion et de Marketing UNDP - United Nations Development Program FOR OFFICIAL USE ONLY

Project Performance Audit Report

BENIN ZOU-BORGOU COTTON PROJECT

(Credit 307-BEN)

Table of Contents

Page

Preface

Basic Data Sheet

Highlights

PROJECT PERFORMANCE AUDIT MEMORANDUM

I. Project Summary 1

II. Main Issues 3

General 3 Suspension of Disbursements 4 The Cotton/Maize Competition 5 The Role of Expatriates 9 PROJECT COMPLETION REPORT

1. Background A 1 2. From Identification to Board Approval A 3 3. Implementation A 4 4. Institutional Development and Performance A 12 5. Agricultural and Social Impact A 18 6. Rates of Return A 22 7. Special Issues A 23 8. Bank Performance A 24 9. Future of the Project A 26 10. Conclusion A 26

Map

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Project Performance Audit Report

BENIN ZOU-BORGOU COTTON PROJECT

(Credit 307-BEN)

PREFACE

This report presents the results of an audit of accomplishments under Credit 307-BEN, signed in May 1972 for US$6.1 million, to promote cotton production in the departments of Zou and Borgou. The credit has been fully disbursed with the exception of a yet unprocessed claim amounting to US$27,000. The project demonstrated the need for strength- ening of the administrative infrastructure and consequently a Technical Assistance Project was signed in June 1977.

The report consists of the Audit Memorandum and a Project Com- pletion Report prepared by the Western Africa Regional Office in July 1977. The Memorandum is based on the PCR, a summary review of project supervision reports, the appraisal report and other relevant Bank documents, and discussions with Bank staff. The PCR adequately covers major project developments and highlights the difficulties encountered during project execution. The Audit Memorandum expands the discussion of some of the reasons which contributed to the failure of most project components and to negative returns on project investments.

PROJECT COMPLETION REPORT BASIC DATA SHEET

BENIN ZOU-BORGOUCOTTON PROJECT (CREDIT 307-BEN)

KEY PROJECT DATA

Appraisal Actual or Item Expectation Current Estimate /1 Total Project Cost (US$ million) 12.678 12.27- Overrun (% 7)/2 Credit Amount (US$ million) 6.1 Disbursed 6. Cancelled October 1977' Repaid to ) Outstanding to ) 6.1 Date Physical Components Completed 12/74 12/75 Proportion Completed by Above Date (%) 100 100 Proportion of Time Overrun %)- 25 Economic Rate of Return (%) 34 negative

OTHER PROJECT DATA

Original Actual or Item Plan Revisions Est. Actual

First Mention in Files or Timetable - - 3/02/66 Government's Application - - 10/02/69 Negotiations 9/20/71 9/20/71 & 3/72 Board Approval 12/15/71 2/15/72 5/22/72 Credit Agreement Date 12/15/71 2/72 5/24/72 Effectiveness Date 8/31/72 9/30 10/31 11/30/72 C 4/04/73 1/31 3/31/73 ( Closing Date 9/30/75 /5 11/30/77 3/31/78 /6 Borrower Government Executing Agency SONACO Fiscal Year of Borrower January 1 - December 31, 1977 Follow-on Project Name /7 Technical Assistance Project Credit Number 716-BEN Amount (US$ million) 1.7 Credit Agreement Date 6/03/77

MISSION DATA

Sent Month, No of No of Date of Item By Year Weeks Persons Manweeks- Report

files IdentiationPrearaionBank Bank I066/70 No information available in Appraisal Bank 1-2/71 4 5 20 1/21/72

Supervision I Bank 4-5/72 1.5 1 1.5 6/05/72 Supervision II Bank 10-11/72 1.5 2 3.0 11/24/72 Supervision III Bank 12/72 0.5 2 1.0 1/26/73 Supervision IV Bank 6/73 1.0 2 2.0 8/13/73 Supervision V Bank 9/73 0.5 1 0.5 10/10/73 Supervision VI Bank 5/74 1.5 2 3.0 6/26/74 Supervision VII Bank 10/74 4.0 4 16.0 L 2/75

Supervision VIII Bank 1-2/75 1.0 4 4 .0 /12 2/26/75 Supervision IX Bank 2/75 1.5 2 3.0 5/29/75 Supervision X Bank 5/76 2.0 3 6.0 /13 6/24/76 Supervision XI Bank 9/76 2.0 2 4.0 - 11/02/76

Completion Bank 2/77 3.0 2 4.0 7/29/77 Total 38.0

COUNTRY EXCHANGE RATES

Name of Currency (Abbreviation) Communaute Financiere Africaine Franc (CFAF) Year: Appraisal Year Average Exchange Rate: US$1 = 277 Intervening Years Average US$1 = 241 Completion Year Average US$1 = 247

/1 At exchange rate of US$1 - CFAF 245 /2 Project was scaled down. /3 US$27,000 not yet disbursed. 7_ Most recent month available. /5 As shown in Credit Agreement. Remaining US$27,000 not yet disbursed. /7 Continuation of project concerned. T Number of 5-day weeks shown in the mission report plus travel time. 79 Number of weeks times number of persons. /10 Supervision mission took place before signature of the Credit Agreement because IDA financing was to be applied retroactively to January 1, 1972. /11 Including time spent on appraisal of follow-up project. /12 Including time spent on follow up project. /13 Mission focussed primarily on preparation of a technical assistance project.

Project Performance Audit Report

BENIN ZOU-BORGOU COTTON PROJECT

(Credit 307-BEN)

HIGHLIGHTS

The Zou-Borgou Cotton Project provided funds for expanding and improving cotton and rice production, processing and marketing in two major departments of Benin. The credit also financed applied research and studies for an eventual crop diversification project.

The project did not achieve the principal institutional and produc- tion objectives set at appraisal; in fact, cotton production is now below pre-project levels. The disappointing project performance was a result of organizational and administrative changes introduced by the Government as well as market forces which led farmers to abandon cotton production in favor of maize cultivation. The appraisal had estimated a 34% rate of return, but as a result of reduced cotton acreage and yields, and despite increased maize production, the rate of return is now estimated to be negative.

The following points may be of special interest:

- Government's curtailment of successful work of expatriate managing firms (PCR, paras. 1.06, 1.07, 3.02, 3.05-3.06, 4.02, 4.04, 4.19-4.22)

- Suspension and untimely resumption of disbursements (PPAR, paras. 12-16; PCR, paras. 3.05-3.07, 3.29, 3.31, 3.04)

- Inappropriate price and marketing policies leading to reduced cotton output and losses to the economy (PCR, paras. 3.09, 3.18-3.20, 4.05-4.07, 4.12-4.14, 5.09-5.12, 6.02)

- Decline in cotton production due to increased competition from maize (PPAR, paras. 17-26)

- Positive work of newly established village groups (PCR, paras. 3.17, 4.10, 5.14-5.15)

Project Performance Audit Memorandum

BENIN ZOU-BORGOU COTTON PROJECT

(Credit 307-BEN)

1/ I PROJECT SUMMARY--

1. The project, carried out from 1973 to 1977, was intended to increase seed cotton production in the Zou-Borgou area - occupying more than half the country and the source of most domestic cotton production - from 25,000 tons in 1970 to 56,000 tons by 1974. Other objectives were to increase the output of food crops grown in rotation with cotton and to develop rice production.

2. The project was to include: (a) staffing and equipping the Societe Nationale Agricole pour le Coton (SONACO) to assume all cotton development work in the project area after 1974; (b) establishing a revolving fund to provide cotton growers with seasonal and medium-term credit; (c) constructing two ginneries and six small rice hullers; (d) rehabilitating feeder roads; (e) carrying out field trials; and (f) preparing an agricultural diversification project in Zou and Borgou. Its estimated cost was US$12.7 million, of which 48% (US$6.1 million) was to be met by the credit, and 25% (US$3.1 million) by FAC, the French aid agency.

3. The pre-implementation phases were slow and difficult. Success- ful cotton production, started in 1963 with French technical assistance, prompted IDA to consider financing an expansion of the program. Changes in Government and difficult institutional issues caused delays in project identification and preparation. These issues persisted and, together with institutional changes during appraisal, resulted in protracted negotiations, revisions of the appraisal and credit documents, and even two Board presen- tations. The credit became effective seven months behind schedule, on account of further institutional changes and the poor performance of project management.

4. During the first year of implementation, Government decided to entrust immediately the responsibility for field operations of cotton extension services, ginning and primary marketing to SONACO, and lint marketing to the Societe Nationale de Credit Agricole et de Commerciali- sation (SOCAD), the agricultural export agency. This action was in viola- tion of the agreement that the two French technical assistance agencies

1/ Adapted from the PCR. -2-

already running the programs in Zou and Borgou since 1963 (SATEC and CFDT respectively1/) would maintain control of field operations, under the SONACO umbrella, and that CFDT would retain control over cotton marketing, for much of the project period, though in all cases gradually shifting responsibility to Beninoise and Government institutions. The action resulted in a de facto suspension of disbursements for nine months, until new technical assistance arrangements were worked out and the Credit Agree- ment revised. Most of the SATEC and CFDT expatriate staffs left the project in 1974.

5. Project implementation was uneven. The main component, cotton production, dropped from 36,000 tons in 1972 to 18,000 tons in 1975. The building and road programs were reasonably successful. On the other hand, only one of two ginneries was installed, since it provided sufficient capacity for the ongoing production. The equipment for one rice mill (instead of six hullers) was purchased but has not been installed. Primary marketing of cotton has been increasingly taken over by village groups, which proved to be successful in this undertaking. The marketing and quality of cotton lint however has deteriorated because of poor management. Problems with the procurement and distribution of farm inputs contributed heavily to the failure of the project to meet its objectives. Poor management also led to delays in disbursements, and a shaky financial position of SONACO.

6. From the institutional standpoint, the project failed in its objec- tive to make SONACO a viable institution able to deal with all aspects of cotton production. The agency suffered from premature assumption of field control, government interference and weak financial management, yet succeeded in some aspects of its work, such as properly managing cotton ginning and transport. After the departure of foreign technical assistance in 1974-75, the quality of extension services deteriorated, though some competent per- sonnel remained on duty and the work is now improving. SOCAD, the agricul- tural export agency, has poorly managed lint marketing and did not properly maintain a separate cotton account.

7. Project production objectives were far from met. For cotton, instead of the overall incremental output of 20,000 tons of seed cotton anticipated at appraisal, there was an actual decrease of 18,000 tons. The production of maize, sorghum and rice did not meet appraisal targets. Ground- nut output proved better than estimates, the only successful crop component. For all crops, the economic value of the actual incremental output is far below that of the incremental output estimated at appraisal - as a ratio, 1:10. The decrease in cotton output resulted from a combined drop in hectarage and yields caused by institutional changes, unfavorable pricing

1/ Societe d'Aide Technique et de Cooperation; Compagnie Francaise pour le Developpement des Fibres Textiles. -3-

policies, and drought, all factors which occurred independently of the proj- ect. As a result, the rate of return, estimated at 34% at appraisal, is actually negative, even under the assumption that cotton production makes a significant recovery.

8. It is important to note that the project was successful in a few of its special activities: in expanding ox-traction in Borgou, improving techniques of cotton pest control, introducing better cotton and food crop varieties, and developing hybrid maize production. Another positive achieve- ment was the creation of active village groups.

9. The events which led to the failure of the project to meet targets could not have been anticipated at appraisal without some extraordinary foresight into political change and Government policy on expatriate personnel. Project design is still considered to have-been suited to its targets. The decision to invest in a cotton project was based on the excellent performance of the cotton development program in the country begun in 1963. Further, the development of cotton production financed by the Bank in other countries of West Africa had been successful. There are indications that the deteriora- tion of the cotton industry in Benin would have been worse in the absence of a continuing dialogue between IDA and the Government during the disbursement period. A regular schedule of supervision missions was maintained, which made it possible to identify main obstacles to project implementation; the magnitude of the institutional problems was such that supervision concen- trated on these aspects of the project.

10. Because of the institutional difficulties, the idea of a follow- up project focussing on agricultural diversification, as anticipated at appraisal, was abandoned. Instead, Government and IDA have agreed on a follow-up technical assistance project. This project (Credit 716-BEN, approved in May 1977), of an interim nature, is designed to prepare the ground for the resumption of agricultural developments, while giving time to the Government to clarify its agricultural policies.

II. MAIN ISSUES

General

11. The project failed in reaching its main objective to increase the seed cotton production of the Zou-Borgou regions. The PCR is correct in attributing this failure to a large extent to changes in government, frequent policy revisions, and organizational upheavals. However, a broader discussion seems needed on some other factors which also contributed to the project's poor performance and which in part should have received more atten- tion during project preparation and appraisal. The project had been classed -4-

a "Problem Project" during all the years of implementation and a question can be raised about the Bank's decision to continue a venture which seemed to become more an economic burden than an asset to the country.

Suspension of Disbursements

12. The Credit Agreement provided for credit effectiveness by August 1972, but due to organizational problems the date of effectiveness had to be postponed six times and the credit was finally declared effective on April 4, 1973. Organizational problems were already evident at the project's beginning and overshadowed it during all the years of execution. Bank staff focussed on these institutional issues - management, expatriates and inter- agency relations - with too little time for attention to some of the agri- cultural problems (PCR, para. 8.05).

13. Following a unilateral decision by the Government to turn over marketing and processing activities to national agencies, a decision in breach of the Credit Agreement's covenants, a Dahomean delegation visited Washington in October 1973. During the three-day discussions a conclusion was reached that disbursements of the credit would be halted until new agreements, which would guarantee efficient project management of field extension and credit services, as well as cotton processing and marketing, would be worked out. In a letter dated August 22, 1974 the Bank informed the Dahomey Minister of Finance that disbursements would be resumed. At that date about US$2.4 million remained undisbursed.

14. Resumption of disbursements occurred at a time when the May 1974 supervision mission had just reported that more recent government decisions, although not in breach of the Agreement, would have -.and as it turned out had - a negative impact on project execution. Government had: (i) moved SONACO headquarters away from Cotonou, thus rendering liaison and coordination with ministries, other agencies and importers more difficult; (ii) transferred experienced extension personnel, thereby contributing to a considerable loss of farmers' confidence; (iii) failed to improve the project's administration - accounting and auditing remained as poor as before; and finally, (iv) resisted taking a decision on revising the cotton pricing structure, although incentives to stimulate cotton production were badly needed.

15. It should have been apparent by August 1974 that even with temporary mending of Government's relations with CFDT on cotton marketing, the project was already in need of a complete revision.1/ Cotton production was lagging behind appraisal estimates and the cotton area, based on the performance through 1973, could at best have been termed stagnant. In fact, during the supervision mission's visit in May, some information on the drastic expansion of the 1974 maize acreage in the Zou region (planted in February) should have been available. This information would have shown that the maize area had expanded by 70% since the preceding year (consequently the

1/ The Region's staff expected to bring about changes in project implementa- tion through increased leverage to be provided by the follow-up project which was appraised in October 1974 and would have been negotiated in early 1975. -5-

area under cotton planted in June decreased by 35%). Supervision recognized that average cotton yields in the Zou area showed a poor performance in 1973 while only those in the Borgou area continued to be above appraisal estimates./

16. In the light of continuous organizational difficulties and the emergence of these production problems, the question arises why the Bank agreed to resume disbursements at the August 1974 date. The Bank has argued that the Government might have interpreted any further delay in resuming disbursements as politically motivated, evidence of hostility to the political posture of the new Government (which assumed power in December 1972). But there is no indication that the Government had thus interpreted the Bank's decision to halt disbursements for this project in 1973. Also, other Bank operations in the country, which were more success- ful, continued to receive disbursements. The preparation mission for the second project had completed its work by May 1974 and had reached the con- clusion that diversification into food crops, with special emphasis on maize in the south, would be essential for the success of the follow-up project. Based on these findings, and cautioned on the deteriorating administrative developments by the supervision mission, it may have been useful to consider a modification of the first project along the lines of the proposed second. This was not done. The question arises if a mid- term mission to review the project in depth should have been launched at this stage: to make recommendations on necessary project changes and to take a definitive position on resumption of disbursements or cancellation of the credit. Given the further deterioration of institutional effective- ness and cotton production in subsequent years, hindsight would suggest that this was one of the few cases where more abrupt action - cancellation - was prescribed and might have had beneficial effects. It is important to note, however, that it is the combination of institutional and produc- tion indicators which showed the clear downward trend from objectives, and the Bank was not at all times fully aware of the production issues (as discussed next).

The Cotton/Maize Competition

17. From reviewing supervision reports and correspondence on files, a minor reservation emerges on the PCR view that project supervision was handled efficiently, and that the missions focussed on the major issues (para. 8.05). Supervision missions followed the traditional twice a year pattern, although it became apparent at an early stage that the pro- ject was facing tremendous difficulties. By focussing mainly on project organization, too little attention was paid to agricultural developments.

1/ The supervision efforts seem to have been unbalanced, paying too much attention to CFDT operations in the Borgou area and too little to SATEC activities in the Zou region. SATEC, financed by FAC, was also pro- moting improved maize production. Judging from the success of this component, maize might have received more attention than cotton. -6-

Supervision missions did not recognize the importance and increasing competition of maize in the Zou region and, during the initial project period, opposed Government proposals to increase cotton prices to farmers. In effect, the Bank's position strengthened the competitive position of maize, but the economics of the trade-off seem never to have been analyzed for this project although a planned follow-on project which was shelved in favor of the Technical Assistance project, would have provided for assistance to food crop production.

18. Projects in Africa dealing with annual export crops have been facing increased competition from maize in the mid 1970s. Examples are known from Malawi, Tanzania, Zambia and Senegal. ./ A number of reasons account for the upsurge of maize production, the traditional staple for many Africans. Some of the causes believed to be leading to this develop- ment (and which call for a more comprehensive study of the subject) are discussed below.

19. During the past years demand for maize in some African countries has been growing at a fast pace, reflecting rapid increases of domestic urban populations and incomes and, for some small countries, growing markets in neighboring, more industrialized countries, such as in Zambia for Malawi maize. In the case of Benin, a major market is developing in Nigeria, which imported about 20,000-40,000 tons annually during the past ten years. Most Nigerian maize imports are destined to the Lagos-Ibadan area of Western Nigeria, a region with a high population density bordering the Zou project area.

20. The growing demand for maize in Benin as well as in neighboring Nigeria led to price increases in Benin's "free market", reaching CFAF 30-55/kg in 1975 with occasional peak prices of up to CFAF 200/kg (up from CFAF 12-15/kg at appraisal). During the same time cotton prices remained at CFAF 45/kg. While at appraisal the producer price for cotton was about three times the price of maize, the ratio deteriorated in favor of maize whose price first equalized and finally surpassed cotton.

21. From the Benin farmer's point of view there are several factors which make maize cultivation more attractive than cotton. Maize is a long established crop, grown for hundreds of years, while cotton was introduced only ten to fifteen years ago. Thus there is a natural, cultural bias toward maize. In addition, maize is much less labor intensive. The appraisal report correctly assumed for the Zou area an average of 153 man-days/ha for cotton production and only 98 man-days/ha for maize. In other words labor input for cotton is 50% higher than for maize. Hired labor, as experience

1/ The Lilongwe Agricultural Development Projects (Credits 113-MAI, 244-MAI, 550-MAI) where farmers favor maize over groundnuts, the Flue Cured Tobacco Project (Credit 217-TA) and the Integrated Family Farming Project (Loan 882-ZA) in both of which tobacco is losing ground to maize and the Casamance Rice Project (Credit 252-SE) where interest in rice is diminishing. -7-

with another Benin agricultural project suggests (Hinvi Agricultural Development, Credit 144-BEN), is in short supply in the country and the farmers' preference for less labor intensive ventures is understand- able.

22. More important, the returns per man-day are higher in maize. Average maize yields (kg/ha) are already 30% to 40% above average cotton yields, and feasible maize yields, as demonstrated by farmers growing hybrids, are around two tons and more. These are modest yields by modern farming standards, but represent a quantity which cannot be matched by cotton. Even if cotton/maize prices per kg were equal, average cotton yields would need to be substantially higher to offset higher input costs. Maize gross returns are practically identical with net returns, disregarding labor costs. But cotton production costs are substantial, thus the large gap between gross and net returns to cotton. At subsidized prices farmers had to spend CFAF 8,950/ha, 1/ a cost corres- ponding to the value of 200 kg cotton. The net return problem would have become even more aerious if input subsidies had been abolished. At 1974 and 1975 uns4bsidized prices, about 360 kg and 570 kg cotton, respectively, would have been required to pay for fertilizer and insecticides. Based on higher average yields (950 kg maize versus 500 kg cotton during the 1973-1976 period), a price equal to cotton (CFAF 45kg) and negligible inputs costs, the net return per man/day reaches about CFAF 430 for maize and only CFAF 88 for cotton (at subsidized input costs).

23. There are other factors which are likely to persuade farmers to switch from cotton to maize. Cotton is probably not ideally suited to the Zou area from a climatic point of view. Poor yields during two years of project execution have been blamed on drought. In other years production seems to have suffered 2rom elevated humidity and the related high incidence of insect infestation.2. Farmers also give preference to maize because there is no need for further processing; it can be stored on the farm and, if need arises, can be consumed by the family. It is relatively easy to elude any government controls in regard to where and at what price maize is being sold (the farmer cannot avoid deductions from the proceeds of cotton sales for credit repayments) and offers an element of speculation.

24. What conclusions can be drawn from this experience? First, although it was difficult to foresee at the time of appraisal how maize prices would develop, how swiftly maize would change from a subsistence to a cash crop, and how fast markets for this crop would develop in Benin

1/ Recommended input application: 150 kg/ha compound fertilizer; 17.5 1/ha insecticides. Subsidized input prices (see PCR, Annex 2, Table 7).

2/ It was a shortcoming of the appraisal to treat the climatic factors only in a superficial manner. As a matter of fact, the appraisal report does not give any rainfall records, nor does it analyze the likely incidence of droughts but states categorically, and as it turned out incorrectly: "soils and climate are suitable for cotton cultivation." -8-

as well as neighboring Nigeria, it should have been possible to recognize this trend at least at mid-term during project execution. The apparent preoccupation of supervision with organizational aspects militated, how- ever, against an early identification of a changing situation. Second, the project demonstrates the farmers' quick response and capability to adjust to changing market conditions, a flexibility for which no allowance had been made in project design. The appraisal report called for a reduc- tion in the average area planted to maize and sorghum per farm, and its substitution by cotton. The farmers have moved in the opposite direction. In fact if the maize component were isolated, especially SATEC's efforts to propagate hybrids in Zou, the success of that activity would have to be described as relatively good. The project as a whole was not able to shift resources aggressively in that direction.l/

25. This project illustrates the inappropriateness of promoting a single annual cash crop for export or domestic markets in Africa witho t considering adequately the flexibility annual crops allow the farmers=' unless they are located in areas where soils, climatic conditions or remote markets tend to limit the choice of crops. The fact that cotton projects have been successful in Sahelian regions does not imply the likely success of similar projects in the coastal region, with better soils, different climates and large growing urban populations.

26. In hindsight it cannot be said that the project would have been successful if a larger maize component had been included. But in the future it will be necessary to evaluate more closely the competitive position of maize in particular and other grains and staples in general vis a vis the specified cash crops, especially those primarily destined for export. It may be necessary to consider a combination of export cash crop and staple foods with the latter included not only to satisfy farmers' subsistence needs but to supply domestic markets, and sometimes also those of neighboring countries, and to provide an important measure of flexibility to the implementing agency. This project, as well as the others mentioned, highlight the difference in price trends for commodities governed by world markets and those subject to local demands. Farmers reacted to these events and proved their ability to adjust cropping patterns to changes in relative prices. The project design would have been better to allow for this kind of flexibility, and the economic and financial

1/ Due to the introduction of low cost and labor saving ULV spraying, cotton production showed an upward swing in the 1977/78 season after reaching an all time low in 1976/77.

2/ Tree crops with gestation periods of several years are unlikely to be uprooted if in a given year prices will be low. Annual crop acreage, however, will be expanded following a year with a high price and reduced in a year following a period of depressed prices, i.e., the economist's classic hog-cycle pattern emerges. A similar situation evolved in the Benin Hinvi Agricultural Development Project (Credit 144-BEN) which has been audited by OED simultaneously. -9-

viability to have been analyzed in this light. Ex ante viability, and ex post success or failure of a project are still determined by evaluating the physical appraisal estimates and comparing actual annual crop acreages and yields with their estimates. Instead of following a design which makes no allowances for farmers to follow market trends and adjust theii cropping patterns to demands, project managements too often feel constrained to seek to make farmers comply with narrow cropping patterns established at appraisal. The experience on this project, and on many others based on annual crops, points to the need for analysis of alternative cropping patterns during preparation and appraisal with particular reference to possible shifts in value between crops. Appraisal reports, and certainly Project Files, should present such analysis with the rationale for the cropping pattern(s) chosen as being the one(s) most likely to be followed and on which economic and financial viability are predicated. Subsequently and most important, supervision missions should review regularly with proj- ect managements such factors affecting cropping patterns (and hence the project development path) as may be dictated by economic or other con- siderations.1/ The Zou-Borgou experience may be suggesting to the Bank, in addition to its less encouraging lessons, that the crop basis of some smallholder activities may have to be reformulated. The PCR touches on this subject in para. 10.01, where it points out that the Government itself has begun to shift away from vertical monocrop strategies and that the change in emphasis helps explain some of the unexpected organizational changes.

The Role of Expatriates

27. The PCR gives little emphasis to a part of the project history which may deserve attention under other format. From the point of view of SATEC, for example, the Zou cotton project began in 1963 and progressed at a commendable rate until the political changes in 1972 and the collapse of the efficient field service (and the end of expatriate management). From that perspective, the Bank's financial contribution began at the end of the period of success, and Bank involvement was not able to prevent the turnaround. This whole PPA report would have been enriched by a summary of SATEC's (and CFDT's) project completion report if it had chosen to prepare one.

28. The expatriate story that deserves treatment is broader than that, however. For one thing, SATEC and CFDT approached their assigments in Zou and Borgou in different ways, and it would be interesting to know whether either one's administrative structure and program design was able to survive the depressing influences of the post 1973 period better than the other's. It is known that SATEC was more involved in promoting maize in Zou, but maize is of less importance in the Borgou area.

1/ CPS intends to draw the attention of agricultural staff to this issue. - 10 -

29. Also, the Zou Borgou experience stands in striking contrast with another Benin agricultural project which OED is currently auditing (Benin- Hinvi Agricultural Project, Credit 144-BEN). For that project the PCR is able to describe a remarkably successful administrative performance by SONADER, an executing agency with no remaining expatriate support. The difference between the SONADER success and the SONACO failure (to date) may depend in part upon the role played by expatriates in the evolution of those two agencies and the manner in which the expatriates prepared for phase-out. Two other factors that help explain SONADER's successful record are that it was established ten years ahead of SONACO and that it was less affected by rotation of staff. BENIN

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Table of Contents

Page No.

I. BACKGROUND ...... A 1

Introduction ...... A 1 Project Description A 1 Production Targets ...... A 2 Project Costs and Financing ...... A 2 Organization and Management ...... A 2

II. FROM IDENTIFICATION TO BOARD APPROVAL ...... A 3

III. IMPLEMENTATION ...... A 4

A. Chronological Review ...... A 4 Effectiveness and Start up ...... A 4 Disbursement Period ...... *...... A 5 Concluding Phase ...... A 6 B. Physical Progress ...... A 7 General Infrastructure ...... A 7 Farm Investments ...... A 8 Marketing and Processing ...... A 8 Special Studies ...... A 9 C. Procurement and Distribution of Farm Inputs . A 10 D. Cost and Disbursements ...... A 10 Unit and Total Costs ...... A 10 Expenditure Categories ...... A 11 Financial Sources ...... A 11 Schedules and Delays ..... A 11 Exchange Rate Adjustments ...... A 11 E. Covenants ...... 0...... A 12 Subsidies ...... A 12

IV. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE ...... A 12

A. Institutional Design and Growth ...... A 12 SONACO and SONAGRI ...... A 12 Extension Services and CARDERs ... A 13 SOCAD *...... *..*...... A 13 Government Policy-Making ...... A 14 B. Supporting Services ...... A 14 Research ...... A 14 Input Supply ...... A 14 -2-

Page No.

C. Farm Credit ...... *...... A 15 D. Financial Performance and Returns ...... A 15 E. Staff and Training Issues ...... *...... A 16 F. Foreign Technicians ...... A 16 G. Accounting and Reporting ...... A 17

V. AGRICULTURAL AND SOCIAL IMPACT ...... A 18 A. Incremental Output ...... A 18 B. Technological Changes ...... A 19 C. Prices and Inflation ...... o...... A 20 D. Number and Selection of Farmers ...... A 21 E. Village Groups ...... A 21 F. Government Income and Deficits ...... A 22

VI. RATES OF RETURN ...... o...... A 22

VII. SPECIAL ISSUES ...... A 23 A. Weather and Risk ...... 0 ... A 23 B. Research and Technical Availabilities A 23

VIII. BANK PERFORMANCE ...... *..o*o.. A 24

IX. FUTURE OF THE PROJECT ...... A 26

X. CONCLUSION ...... o...... A 26

ANNEXES

1. Project Design

Table 1 - Crop Production Targets Table 2 - Project Cost Estimates Table 3 - Project Financing Plan

2. Project Implementation

Table 1 - Implementation of the Infrastructure Program Table 2 - Project Performance Table 3 - Project Costs Table 4 - Reallocation of the Proceeds of the Credit Table 5 - Disbursement Schedule Table 6 - Exchange Rate Fluctuations Table 7 - Average Cost of Inputs to Government and to the Farmer -3-

Table 8 - Net Profit from Sale of Lint Table 9 - Use of Inputs by Farmers Table 10 - Economic Rate of Return Table 11 - Rainfall

3. Sections of the Credit Agreement on which Government defaulted

I. BACKGROUND

Introduction

1.01 The project reviewed in this report has some salient aspects that, stated at the beginning, should help to put the detailed facts and discussion in perspective. First, the project cycle took place in Benin over an eight- year period that was marked by changes in Government and political changes. Second, negotiations were prolonged and difficult, especially concerning institutional arrangements; even after approval by the Board, it became necessary to renegotiate the credit documents and to present "revised gray cover documents" to the Board for a second approval. Third, although the project was technically sound, it failed to reach its production objec- tives because of Government interventions which discouraged the project's participants -- in fact, it is impossible to calculate a meaningful economic rate of return. Government has recently taken some action in the right direction to regain farmers' confidence, but uncertainties remain on its ability to foster agricultural production. However, IDA is supporting this effort through the technical Assistance Project approved by the Board in May, 1977 which objective is to prepare a follow-up project.

1.02 The main objective of the IDA financed project was to increase seed cotton production in the Zou-Borgou area -- where 72% of the country's cotton is produced -- from 25,000 tons in 1970 to 56,000 tons by 1974. This was in line with Government's objective to improve the country's balance of payments, and to improve the standard of living of farmers. The expansion of production was to be brought about by encouraging existing cotton farmers to expand their plantings, increasing the number of growers, and improving productivity. In addition, the productivity of crops grown in rotation with cotton was to be improved through the residual effects of fertilizers applied to cotton. There were also small components, devoted to rice production, road improvements, and studies. The project was a follow up to a cotton development project carried out with French technical assistance over 1963-70.

Project Description

1.03 The project, to be carried out from 1971 to 1974, was to include the following main components:

(a) staffing and equipping the recently established Societe Nationale Agricole pour le Coton (SONACO) to administer extension, credit and primary marketing services in the project area;

(b) establishing a revolving fund to provide cotton growers with seasonal credits for insecticides and fertilizers; and medium-term credit for the purchase of agricultural equipment; A 2

(c) clearing and improving water control on some 3,300 ha of low-lying land for rice production;

(d) constructing two additional ginneries in the project area to increase annual ginning capacity from 43,000 tons of seed cotton to 67,000 tons; and providing six small rice hullers to process 3,600 tons of paddy annually;

(e) rehabilitating about 610 km of tertiary roads;

(f) carrying out field trials throughout the project area to adapt research results for practical application by project participants; and

(g) preparing an agricultural diversification project in Borgou and Zou.

Production Targets

1.04 The number of farmers growing cotton was expected to increase from 29,000 to 41,000. Areas, yields and output of cotton and rice, and subsidiary food crops grown in association with cotton, were expected to increase under the project as shown in Annex 1, Table 1.

Project Costs and Financing

1.05 Project costs were estimated at close to US$13 million (CFAF 3.3 billion), broken down as shown in Annex 1, Table 2. Under the financing arrangement, 48% of the costs (or 80% of the foreign exchange costs) were to be met by the IDA credit, 24.5% by a FAC grant, and 27.5% by Government. The project financing plan is shown in Annex 1, Table 3.

Organization and Management

1.06 The Ministry of Rural Development and Cooperation was to be re- sponsible for the project through the recently established SONACO (Societe Nationale Agricole pour le Coton). To provide personnel to manage operations, SONACO was to engage two French technical assistance agencies, Compagnie Francaise pour le Developpement des Fibres Textiles (CFDT) and Societe d'Aide Technique et de Cooperation (SATEC), which had been working in the project area since 1965. Both are consulting firms, but in addition CFDT owned and operated three ginneries in the country, and was in charge of cotton lint and seed marketing.

1.07 To cover ginning and marketing, Government and CFDT entered into a joint venture arrangement ("Association en participation") which was to be managed by CFDT. CFDT was to manage all ginneries in the project area, its own three mills plus three owned by Government, including the two new gin- neries to be constructed under the project. CFDT would be responsible for collecting seed cotton from buying stations at prices set by the Ministry A 3 of Economic Affairs; and after ginning, cotton lint and seed were to be exported or sold locally by CFDT. Any profits from these operations were to be divided as follows: 80% to Government; and 20% to CFDT, with a yealy limit of CFAF 20 million. Any losses were to borne as follows: by Govern- ment, if caused by excessive producer prices; by CFDT, if caused b- negli- gence.

II. FROM IDENTIFICATION TO APPROVAL

2.01 A RMWA report on the agricultural sector, dated March 2, 1966, first discussed the ongoing cotton program, which had started in 1963 with FAC financing and technical support by French agencies. The report noted that the scheme was aimed at the promotion of more intensive cotton produc- tion techniques, and should be monitored by RMWA, with a view to future Bank financing. The report also cautioned that investment climate was unfavorable (political instability, institutional problems).

2.02 In October, 1967, a RMWA mission identified a cotton development project in the Mono region, but due to political instability, preparation work was delayed. A year later, in October 1968, following a change in the Presi- dency, RMWA resumed discussions on the project's preparation. The Government decided the project should cover three Departements (Borgou, Zou and Mono). Preparation was mainly done by CFDT and one SEDES economist. The report was completed in July 1969 1/.

2.03 The Government, however, rejected the proposed project, and decided to limit the development effort to two Departments only (Borgou and Zou). Con- sequently, a new report, consisting essentially of excerpts from the original CFDT/SEDES report, was prepared by the Ministry of Rural Development and SONADER. This report was received by the Bank in September 1969 2/ but was incomplete. Subsequently, RMWA was asked to undertake a preparation review mission. Organization was a major issue, and it was suggested to Govern- ment that a commission be convened to study the question. However, follow- ing another change in Government in late 1969, no further discussions were held on the proposed project until after a new presidency was established in May 1970.

2.04 In June 1970, a RMWA preparation mission visited Benin to up-date the preparation report, and discuss organization and management of the project. A representative of FAC, the French assistance agency, participated in most

1/ Projet de Developpement Agricole et Cotonnier 1970-1975.

2/ Projet de Developpement Agricole et Cotonnier dans les Prefectures du Zou et du Borgou. A 4

of the discussions with the Government. The preparation mission was also assisted by SATEC and CFDT (para 1.06), both operating under French financing. Following the mission, a revised project report was prepared by Government, but which left open the question of organization because the commission con- vened to study this matter had not yet made a recommendation. Subsequently, the commission recommended the creation of a national cotton agency. Another mission visited Benin in July. At this time the Government confirmed its willingness: (a) to present a project aiming at the two Departments of Zou and Borgou; (b) to seek joint financing by the Bank and FAC except for the agricultural credit, which would be financed by CCCE, and (c) to create SONACO, which was done under a decree published in January 1971.

2.05 Appraisal took place in January-February 1971 and included repre- sentatives of FAC. Prior to the green cover stage, a number of institutional issues were discussed with Government. During negotiations, in September 1971, Government agreed on: the status of SONACO as a "societe d'etat", which would not need an independent source of income; financing extension services out of cotton profits; profit sharing arrangements under the joint venture; farm credit arrangements; and audit conditions. Then, in late 1971, Government proposed a series of amendments to the draft credit agreement. After an exchange of cables, a compromise was reached on cotton seed market- ing, credit to farmers, profit sharing, and the rate of Africanization. The credit agreement and the appraisal report were updated, and incidentally were adjusted for the realignment of currencies in December 1971. The gray cover was issued in January, and the credit was approved by the Board on February 15, 1972.

2.06 This Credit Agreement, however, was short lived. Government created a new marketing and agricultural credit agency, SOCAD, as a non-public entity, and IDA was concerned with possible conflicts between SOCAD and the responsi- bilities of the stabilization fund (FAS) as defined in the Credit Agreement. When Government informed IDA that SOCAD was to take over management of the stabilization fund, IDA agreed on condition that SOCAD would maintain a sepa- rate cotton account. A project Agreement was then concluded between SOCAD and IDA on May 24, and the Credit Agreement was amended accordingly, follow- ing supplementary negotiations held in March 1972. The Board finally approved the amended documents on May 22, 1972. The final Credit Agreement was signed two days later.

III. IMPLEMENTATION

A. Chronological Review

Effectiveness and Start up

3.01 Operations supposed to be financed under the project began on January 1, 1972 roughly at the time the first Gray Cover documents were dis- tributed. Under the original Credit Agreement, the expected date of credit A 5

effectiveness was February 1972. At the signing of the amended Credit Agree- ment (para 2.06), effectiveness was expected to occur by August 31, 1972. However, a succession of events thereafter caused several postponements of effectiveness: to September 30, to October 31, to November 30, and to January 31, 1972 and then to March 31, 1973.

3.02 The first postponement to September 30, 1972, resulted from: (a) recess of the Supreme Court, which has to render legal opinions; (b) a need for IDA to review the contract between Government and SONACO: (c) revisions of the contract between SONACO and SATEC: (d) completion of the contract on the joint venture, and (e) appointment of a Deputy General Manager of SONACO acceptable to IDA. Further obstacles to effectiveness developed as follows: (a) the General Manager of SONACO undertook to modify the service contracts with CFDT and SATEC, taking over direct control of extension services, con- trary to the Credit Agreement, (b) a radical change in the staffing of all state agencies, on October 26, created uncertainties; and (c) following the recommendation of a supervision mission in October-November, 1972, IDA in- formed Government that SONACO's management should be replaced.

3.03 Upon Government's request, another supervision mission visited Benin in December 1972, and submitted a report on SONACO's problems: excess per- sonnel, late and unsatisfactory reporting, belated publication of input and crop prices, mishandling of fertilizer supply, poorly kept accounts, excessive vehicle operating expenses and cost of mission travel, construction under- taken without bids or preliminary cost estimates. Government was requested to take steps before the credit could be declared effective. In response, Government set up an inquiry commission to investigate SONACO's activities. Finally Government appointed a new General Manager and Deputy General Manager to SONACO on March 27, 1973. This was regarded by IDA as the essential step, and the credit was finally declared effective on April 4, 1973.

3.04 The credit thus became effective more than a year after the project was supposed to have commenced. During that period, operations were partially financed by CFDT and SATEC. In addition, debts to suppliers of inputs and equipment had reached CFAF 446 million. CFDT and SATEC had threatened to withdraw after January 1, 1973, and the suppliers, who were pressing to be paid, were likely reaching the limit of their patience also. The long delay in effectiveness thus meant the project began on the brink of collapse.

Disbursement Period (1973-1977)

3.05 While the change in management could have resulted in a marked improvement in the conduct of project operations, basic institutional issues developed shortly after the credit became effective. In September, 1973, a supervision mission found that Government had instructed SOCAD to take over lint and seed sales, and SONACO to take over responsibility for extension services, and for cotton ginning and marketing. At that time the project was officially listed as a problem project. IDA then took the position that no change in project organization and management should be made until completion of the project in December 1974. However, in October 1973, dur- ing discussions in Washington with a Beninois delegation, IDA reluctantly A 6 agreed to Government's plan provided that satisfactory new arrangements were worked out. In the meantime, Government agreed not to submit any disburse- ment request relating to project expenses incurred after October 25.

3.06 Early in 1974, SONACO entered into a new and satisfactory technical assistance agreement with CFDT. The French Government expressed willingness to continue its financial support of the project; and SOCAD and SONACO had made satisfactory arrangements for marketing cotton lint and seed. It was concluded that disbursement could be resumed after revision of the credit agreement, which would include new provisions on the qualification of key SONACO management staff, the use of technical assistance for cotton grading, and on SONACO's and SOCAD's accounting.

3.07 Meanwhile, a supervision mission in May 1974 detected serious new management problems: an abrupt move of project headquarters and changes of field personnel on the decision of Government; inadequate accounting; and failure to publish input and crop prices before the beginning of the cropping season. These problems were considered to be subsidary to the revisions of the credit agreement which were made through an exchange of letters without formal renegotiation. Disbursements were resumed in August 1974.

3.08 Despite these difficulties, SONACO, with the help of French con- sulting firms, prepared a follow up project (para 3.21). An appraisal mis- sion visited Benin in October-November 1974, but was unable to secure all the needed information. A follow-up mission, in February 1975, identified three new issues: (a) a Government proposal to broaden the responsibilities of SONACO, which would become SONAGRI; (b) Government's intention to control food marketing and hold down food prices; and (c) Government's inability to have the project accounts properly audited. The issues were discussed with a Government delegation in August-September 1975. The discussions led to Gov- ernment agreeing to partially meet IDA's conditions, especially the appoint- ment of an independent auditor. However, the next supervision mission, in April-May 1976, noted the further deterioration in the field, and the drop of cotton production, but also the positive steps taken by SONAGRI to improve accounting, procure inputs, and maintain its ginneries and transport fleet. It recommended a reallocation of available funds to finance the farm inputs purchased for 1974 and 1975, and continuation of the independent audit of project accounts.

Concluding Phase

3.09 All these difficulties, together with inadequate price and market- ing policies have resulted in severe production decline, the disorganization of extension services and, ultimately, farmers' disconfidence in the project management as described in detail in Chapter 5.

3.10 Altogether, conditions were not met to propose the financing of the follow-up project requested by Government, but given some progress accom- plished by SONAGRI, IDA proposed to finance an Interim Technical Assistance project with the hope that it would help Government in establishing sound A 7

development plans and that action taken on prices would permit to regain farmers' confidence in the project. This T.A. project was appraised in February 1977, and approved by the Board in May 1977.

B. Physical Progress

General Infrastructure

3.11 Investments in infrastructure under the project were to total CFAF 679.9 million (US$2.66 million) or 22.5% of the project cost without contingencies. The accomplishments of the infrastructure program are sum- marized in Annex 2, Table 1.

3.12 The building program was subjected to changes in plans and a gen- eral lag of about one year. Housing construction was delayed partly because Project Management failed to acquire the necessary land on time. Some of the completed buildings (four houses and one office) were not occupied by SONAGRI because of a disagreement with the contractors concerning the intro- duction of a price adjustment clause to reflect the inflationary trend since 1973; (IDA has agreed to accept a revised price and the matter is being resolved). As SONACO headquarters were moved to Cotonou, the head office in Parakou was not built. Thirty village stores anticipated for the Zou were not built by the project authority, but by the village groups themselves, with material financed on credit through project funds (some 230 village stores were built by 1974); in the Borgou, 13 instead of 30 were built, a larger size making up for the lower number.

3.13 For the processing plants program, the main accomplishment was the construction of an 18,000-ton ginnery at Glazoue, in the Zou. The plant was designed and its construction supervised by CFDT. The equipment was supplied under procurement procedures acceptable to IDA. The facility became operational in 1973 and has been running satisfactorily. Water supply is a problem, however, because an adequate underground source has not been located. Storage facilities had to be built for water carted from a stream. The con- struction of this ginnery brought the country's total capacity from 67,000 to 85,000 tons of seed cotton per year (from 43,000 to 61,000 tons in the project area). A second ginnery of 6,000 tons was to be built under the project. But it was found that the Glazoue ginnery provided adequate capac- ity to handle all cotton output during the life of the project. Supported by the agreement of SONACO and various supervision missions, Government authorities reluctantly accepted the advice to postpone further construc- tion until justified.

3.14 The rice mill program turned out to be a failure. The initial project proposals called for constructing six small (800 kg of paddy per hour) rice hullers. In 1972, with IDA approval, SONACO decided on one large mill with cleaning and polishing equipment instead of the six smaller hullers. Government decided for political reasons that the large mill should be in- stalled at Nikki in the Central Borgou, and went ahead with procurement. IDA opposed the Nikki location for the large mill. Since the bulk of the rice A 8

production comes from the North Borgou, IDA missions recommended that the large mill should be located a Kandi, some 150 km north of Nikki; and also that SONACO should arrange to set up a smaller mill at Nikki. Unfortunately, political considerations prevailed (e.g. the population of Nikki created a "committee for the defense of the rice mill"). The mill equipment arrived at Nikki in 1973, in boxes, and as of February, 1977, was still unpacked and probably is now unusable (a clear misinvestment of some US$35,000). Thus rice processing facilities have not improved under the project, despite the achievements in the development of a paddy production (para 5.08).

3.15 The feeder road program was relatively successful, with 80% of targets met. The Ministry of Public Works, supported by expatriate engineers, supervised a feeder road brigade in each of the departments. Equipment was supplied by the Ministry, which was reimbursed by IDA on a rental cost basis. The failure to reach appraisal estimates resulted from exhaustion of the funds allocated to the program before completion. Against an average cost per km of CFAF 351,400 estimated at appraisal, the actual cost averaged CFAF 380,000 until early 1974, and CFAF 417,600 later in 1974. The road component made it possible to open up new areas, and the new roads are well travelled. As of 1977, though maintenance of the new roads had been poor, they were still in a reasonable state of repair. The feeder road component was supervised separately in connection with the IDA financed highway project (Credit 415-BEN).

Farm Investments

3.16 Project farmers made a significant investment in animal traction (about 3,000 pairs of oxen in 1974, against an appraisal estimate of 1,900). In 1974 1,600 ha of bottomland had been developed for rice cultivation (as against an appraisal estimate of 3,900 ha). The development of land devoted to rice is treated as an investment because it resulted in the improvement of previously uncropped bottomland. As shown in Annex 2, Table 2, the total area devoted to upland crops under the project increased from about 90,000 ha to about 100,000 ha. However, there is no way of knowing if this in- crease corresponds to an actual expansion of cropped areas and can be con- sidered as land improvement.

Marketing and Processing

3.17 A positive achievement of the project has been the marketing of cotton through village collection centers. Initially, growers sold their cotton to CFDT through SONACO extension staff, an arrangement that provided opportunities for purchasing agents to tamper with weights and prices on receipts I/ (which most growers could not read). This situation prompted the project management to organize pre-cooperative associations (para 5.15)

I/ It is stated in the supervision report of August 1973 that 10 agents were jailed in the Zou for stealing cotton. A 9

and literacy programs, including training sessions on cotton weighing. By 1973, the weighing of half the cotton crop was recorded by association rep- resentatives. In 1974 and 1975, all weighing of cotton was handled by the associations in the Borgou. In the Zou, the proportion fluctuated, and in 1976 only 60 out of 500 groups handled cotton weighing. More recently, the primary marketing system seems to have deteriorated. During a field visit by a FAC-IDA mission in February 1977, it was noted that the production of one village had been graded No. 1 by the CARDER agent, while the entire lot was No. 2.

3.18 The marketing of ginned cotton, after being taken over from CFDT by SONACO in 1974, deteriorated. During the first year of marketing by SONACO, deliveries were made later than in previous years, and the quality of the early deliveries was poor. At the end of 1974, SOCAD still had in stock 20% of the 1973 output.

3.19 The project made a promising beginning in the production of hybrid maize for marketing. In contrast with traditional, open-pollinated varieties, hybrid maize was promoted as a cash crop in the Zou - (neighboring Nigeria is an important potential outlet for this crop). An important feature is that maize brings cash to farmers before they sell the cotton crop. As maize is often harvested at the end of the main rainy season and stored during the second rainy season, there is a problem of storage and drying, which has been handled by research (para 7.05). Project management in Zou started organizing the purchase of maize in 1972 with SOCAD financing. In 1973 it secured 750 tons from growers, and delivered this amount to SOCAD. SOCAD however did not have adequate storage capacity. In 1974, some 2,000 tons of maize would have been available for the market, but SOCAD waited until October to announce that it could purchase 500 tons at CFAF 15.5/kilo, while the price in Cotonou had already reached CFAF 25. In 1975 and 1976, the situation deteriorated fur- ther, with official prices fixed at unrealistically low levels. As a result, farmers are now reluctant to sell maize through Government channels.

3.20 Regarding rice marketing, no progress was made under the project, because of the failure to build the rice mill (para 3.13). In addition, offi- cial farmgate prices of paddy were kept too low (para 5.11). Marketing of groundnuts by the CARDERs has not been successful. In 1977, the Zou CARDER collected 300 of an estimated 31,000 tons produced in the department. A major part of the crop is used for family consumption, with oil extracted by simple home-made mills.

Special Studies

3.21 A feasibility study for a second-phase project was carried out by consultants in 1974 (SATEC), with the support of RMWA staff. This study suggested an agricultural development project over a four-year development period and an extension of the project area to the Atakora province. At IDA's request, a consultant studied the rice potential of the Borgou in 1973. A 10

C. Procurement and Distribution of Farm Inputs

3.22 Procurement and distribution problems contributed heavily to the failure of the project to meet its objectives. The main problems had to do with input supply. In 1972, a contract for cotton insecticide had to be cancelled because the supplier was discovered to be involved in patent in- fringement. That same year, the successive postponements of credit effec- tiveness resulted in payment delays that jeopardized SONACO's credibility and creditworthiness. The delay also resulted in the payment of CFAF 97 million (US$35,760) in interest on overdue payments, which IDA agreed to reimburse.

3.23 A project review mission in April 1972, when the project was being reassessed, noted that the Ministry and SONACO had failed to follow IDA Guidelines for international competitive bidding, That same year SONACO failed to make arrangements for prompt fertilizer delivery. A shipment unloaded at the port was left unprotected; out of 600 tons which were damaged, 360 tons were considered lost. Part of the cotton insecticide procured in 1973 was stored for the following season, and during storage, the chemicals coagulated and plugged the sprayer nozzles the second year. In 1973, plows were delivered after the plowing season had ended. Because of the difficulties with delivery of inputs, the farmers lost confidence in the planting program for cotton.

3.24 Early in 1974, because of a tight supply situation for the 1974 planting season, SONACO did not receive any bids from qualified suppliers for its input needs. As a result, in February 1974 a supervision mission arranged for IDA approval for SONACO to negotiate directly with suppliers.

3.25 In 1975,SONACO followed ICB procedures, but tendering was behind schedule, and there was no suitable arrangement to move fertilizers promptly from the port to the users. SONACO failed either to plan the distribution of inputs, or to react to unforeseeable circumstances (e.g. mobilization of railroad capacity to transport an emergency stockpile of food to Niger in 1973 and 1974).

D. Cost and Disbursements

Unit and Total Costs

3.26 The project was affected by the drastic price increases of recent years. From 1972 to 1975, the unit cost of insecticides more than doubled, while the unit cost of fertilizer tripled. As a result, the total purchase of farm inputs increased well above appraisal estimates. Despite a substan- tial drop in fertilizer orders, resulting from a decline in farmer demand, total purchases of fertilizers over 1972-74 reached CFAF 1.1 million, A 11 against CFAF 0.7 million estimated at appraisal. For the same three-year period, insecticide purchases amounted to CFAF 0.7 million, against CFAF 0.9 million estimated, because of the switch to a cheaper insecticide in 1973. But the effects of inflation were felt strongly in 1975, when the total expenditures for insecticides reached CFAF 0.7 million. The roads program was also hard hit: a technical assistance contract was sig .ed in 1972 for US$240,000, instead of $150,000, and the cost of hiring equipment was double the appraisal estimate. Overall personnel costs remained within appraisal estimates because expatriate staff departed earlier than antici- pated. A comparison of appraisal estimates and actual costs is shown in Annex 2, Table 3.

Expenditure Categories

3.27 The increase in fertilizer costs (para 3.26) and the construction of one ginnery instead of the anticipated two led to a reallocation of ex- penditure categories shown in Annex 2, Table 4.

Financial Sources

3.28 The financing plan is shown in Annex 1, Table 3. Under the cove- nants, the FAC grant ensured financing of project costs in 1971, while dis- bursement of the IDA credit started in 1972. Government has been slow to pay its contribution to the project. As of February 1977, a sum of CFAF 450 million (US$1.8 million) remained to be reimbursed to SONAGRI. This default has contributed to SONAGRI's difficult financial situation. The T.A. proj- ect (para 3.10) provides for payment to SONAGRI of Government's contribution, and of the balance of input subsidies not yet reimbursed.

Schedules and Delays

3.29 A comparison between estimated and actual IDA disbursements (Annex 2, Table 5) illustrates the adverse effect of poor project implementation on the schedule of disbursements. The initial delay resulted from the successive postponements in effectiveness until April 1973. Subsequently, disbursements were virtually suspended for expenses incurred between October 1973 and August 1974 (para 3.05). After an agreement was reached to resume them, actual dis- bursements were slow, mainly because of doubts as to the eligibility of farm input purchases. The credit agreement specified that IDA should repay IC% of the foreign exchange cost of inputs and implements purchased in 1972, and 15% of such costs thereafter. The demand for inputs declined after 1973, while the costs increased. At the end of 1976 IDA agreed to and subsequently financed 15% of the foreign exchange costs of inputs supplied in 1974 and 1975, in order to replenish the project's revolving fund to a level that would ensure a satisfactory supply of inputs for the cotton crop.

Exchange Rate Adjustments

3.30 In the original, unrevised gray cover appraisal report (January, 1972), total project cost was estimated at US$5.7 million. However, the US A 12

dollar was devalued against the CFA franc in late 1971, This increased the foreign exchange costs of the project, and it was agreed to increase the credit from $5.7 million to $6.1 million. Fluctuations of the exchange rate are shown in Annex 2, Table 6.

E. Covenants

3.31 Covenants of the Credit and Project Agreements have been largely ignored by Government, SONACO, and SOCAD. Problems relating to conditions of effectiveness are outlined in paras 3.01-04. The most serious cases of default during project implementation concern the management aspects, pro- curement (see para 3.23), technical assistance, the agreement relative to cotton purchasing and ginning, and accounts and audits (para 4.23). The defaults were responsible for the long delay in credit effectiveness; in 1972-73, the suspension of disbursements; in 1973-74, delays in the prep- aration of follow-up project, and the drastic reduction in the scope of the follow-up-project. The sections of the Credit Agreement and Projects Agreements on which Government defaulted are given in Annex 3.

Subsidies

3.37 There was supposed to be an annual review of cotton fertilizer subsidies in consultation with IDA, with a view to eliminating such sub- sidies not later than 1981. Such a consultation took place only once, in 1974, when Government reduced the subsidy and increased cotton prices in response to recommendations made by a supervision mission. Average costs of fertilizers and insecticides to Government and the farmer (not includ- ing land transportation costs) are shown in Annex 2, Table 7. Likewise, a revolving credit fund, including agreed-to interest rates, was supposed to be established, and agricultural lending procedures were not to be amended without the prior approval of IDA. Government however did subsidize the interest rates.

IV. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE

A. Institutional Design and Growth

SONACO and SONAGRI

4.01 SONACO was created for the purpose of the project (para 2.04), to build up a national cotton development agency which would progressively take over from the French CFDT and SATEC. In a first phase SONACO was to be purely responsible for the procurement of inputs and overall program coordination. SONACO was also to contract with CFDT and SATEC to manage the programs at the department level. It was anticipated at appraisal that A 13

the appointment of nationals as deputies, rather than counterparts, to expa- triate staff, would enable SONACO to africanize the posts of 14 expatriates by 1975.

4.02 As discussed in Para 3.05, in 1973 SONACO became responsible for all aspects of rural development and cotton production and marketing in the project area. This change from the initial concept (para 1.06), abruptly decided by Government, caused inextricable managerial problems because of the lack of competent Beninese civil servants and constant Government inter- ference in project management matters (para 4.06). SONACO's management has never been in a position to adequately control field extension work and to efficiently organize the timely procurement and distribution of farm inputs and implements (paras 3.22, 3.23). Moreover, its financial (para 4.14) and accounting (para 4.23) problems remained to be solved. On the other hand, the management of the ginneries and the maintenance of the transport fleet, entrusted to technicians not directly affected by Government, has remained satisfactory.

4.03 The tran3formation of SONACO into SONAGRI in 1976 (para 3.08) relieved this agency's burden by making field extension the responsibility of the CARDERs. SONAGRI's personnel now includes competent technical staff except in accounting and financial management. Its staff is to be strength- ened under the proposed T.A. project.

Extension Services and CARDERs

4.04 The competent extension services, set up in the sixties by SATEC and CFDT, were the basis of the development anticipated under the project. Originally managed by expatriate staff, the project was hoped to progressively phase out expatriate personnel as a result of on-the-job training programs. However, the departure of all foreign technicians in 1974 (Borgou) and in 1975 (Zou), together with Government interferences, caused a rapid decline of extension service efficiency. In 1975 and 1976, extension agents were used primarily to push political slogans rather than sound agricultural technology. Nevertheless, despite many staff changes decided by Government, each CARDER still has few competent technicians, but since the departure of expatriate staff no planning effort has been undertaken. The rehabilitation of the extension services is feasible with foreign technical assistance.

SOCAD

4.05 Under the project, arrangements were worked out for cotton marketing by CFDT, which took over from the ineffective OCAD (Office de Commercialisa- tion Agricole du Dahomey). In 1973, however, Government transferred respon- sibility for cotton marketing and export from CFDT to SOCAD, and incorporated the Stabilization Fund (FAS) into SOCAD. The marketing performance of SOCAD has been poor from the standpoint of both quality control and timely shipment of lint. A covenant provided for the creation of a separate cotton account, but this account was never properly maintained, and it is clear that SOCAD (renamed SONACEB in 1976) will never accept to provide adequate data on its A 14

cotton marketing operations and its financial situation. (It is also unlikely that SOCAD has ever been in a position to do so). The supervision mission of April 1976 suggested that SONACEB should be denied participation in any future Bank-financed project. During discussions with IDA missions for the prepara- tion of a follow up project, Government transferred the management of the cotton account back to FAS. Thus the efforts to build up an effective mar- keting organization under the project have ended in failure.

Government Policy-Making

4.06 Another major factor responsible for the failure of the project has been the lack of constructive agricultural policies. First, price policy has adversely affected farmers' incentives and their confidence in the project (paras 5.09 - 5.12). Second, Government has tried to channel food production through official marketing, without provision for storage and for adequate pricing. And third, between 1974 and 1976, Government conducted a policy of shifting personnel from one region to another, or from one service ,to another. This resulted in a disruption of extension services.

4.07 Government's marketing actions were motivated by its determination to maintain low food prices, to avoid salary increases which would have strained its financial situation. In this respect the government met its short term objective. In the case of personnel turnover, government's in- terest was to enforce its control over the various agencies; such control was achieved, but at the expense of efficiency.

B. Supporting Services

Research

4.08 Under the Credit Agreement, research has been subcontracted to the French Institutes IRCT, IRAT and IRHO. The research component has been successful (para 7.05), but there has been no effort to develop a national research capability, since the efforts at Africanization were focussed on other support services. The research programs actually were undertaken as local components of overall commodity-oriented programs designed and managed by the French headquarters. This organization gave the advantage of a re- gional approach. On the other hand, the programs did not always address the needs of the country. There was also a certain duplication of efforts, for instance between IRCT and IRAT on fertilizer trials. In the case of ground- nuts, a limited program was to be carried out by IRHO, but this agency decided to subcontract the work to IRAT.

Input Supply

4.09 Under SONACO, the organization of input supply has deteriorated (para 3.23) with disastrous consequences on cotton production. For instance, the drop in production in 1974 resulted in large part from the failure to procure and distribute fertilizers and insecticides on time. The difficulty was compounded by the tight world supply situation, the country's poor credit standing, and the occasional refusal of ships to call on Cotonou. Late sup- ply of inputs also accounted for a further drop in yields and production in 1975. A 15

C. Farm Credit

4.10 Under the project a revolving fund, managed by SONACO, was created to meet seasonal and medium-term credit requirements. Credit applications were to be reviewed by the extension worker or the village group. Interest rate for both seasonal and medium-term credit was scheduled to be 8%. Medium term loans were repayable within two years with a 33.3% down payment for individual farmers, and three years with a 25% down payment for members of village groups. The groups were also charged a fee of CFAF 600, to be credited to their guarantee fund, for each loan, which would be individual. In Borgou repayments were to be deducted from farmer's cotton sales proceeds. In the Zou village groups were responsible for repayments of their members.

4.11 Under the terms of the Credit Agreement, SONACO was to keep a special account covering the revolving agricultural credit fund including interest income, which was to be used exclusively for SONACO's credit opera- tions. These accounts however were not properly kept, which makes it diffi- cult to assess the performance of the credit scheme. According to the report of a consultant (assigned to Benin in 1973 to assist SONACO with financial and accounting matters), the amount of credit extended in 1972 and 1973 amounted to CFAF 883 million (US$3.5 million), as against an appraisal estimate of CFAF 670 million (US$2.7 million). Credit repayment was nearly 100% in 1972, and 95% in 1973. This good rate of credit recov- ery resulted from SONACO's control of cotton marketing, and the automatic recovery in Borgou. SONACO however failed to respect the covenant speci- fying an 8% interest rate, and there is no certainty as to the present rate of recovery.

D. Financial Performance and Returns

4.12 Since SOCAD failed to maintain proper accounts, reliable data on the financial performance of the project are not available. The net profits realized by SOCAD from the sale of lint are shown in Annex 2, Table 8. The large increase in profits in 1973 resulted from a twofold increase in lint prices at that time. The loss in 1974 is accounted for by the large in- ventory (6,500 tons of lint, worth about CFAF 1,300 million or US$5.2 mil- lion).

4.13 The decline in output and low export prices associated with poor cotton quality and high processing costs resulted in heavy losses to the national economy, estimated at US$10 million for 1974, and US$25 million for 1975 and again in 1976.

4.14 It was anticipated at appraisal that Government revenues accruing from taxes on cotton lint and seed exports would be inadequate to cover the costs of extension services in the project area. In fact SONACO, and now SONAGRI, has faced financial difficulties. In early 1977 the total overdraft A 16

of SONAGRI reached CFAF 1,150 million (US$4.7 million) because Government had not paid part of its contribution to the project (CFAF 450 million-US$1.8 million) , and FAS still owed CFAF 700 million (US$2.9 million) for subsidies on inputs distributed in 1975 and 1976.

4.15 Likewise the CARDERs, now responsible for regional development, are facing financial problems, although no figures are available. According to their statutes, the CARDERs are supposed to become self-financing through marketing and processing operations. This leaves doubt as to their finan- cial prospects, since they are performing support services that are normally funded out of the Government budget.

E. Staff and Training Issues

4.16 It was expected that 19 expatriates would be needed in 1972 for key positions. By 1975, this number was to be reduced to five, as the result of in-service training of nationals. In fact during 1972-1974, the number of expatriates was maintained at about 13, as the eight posts of sector (district) chiefs that were to be filled by expatriates were nearly all filled by nationals. By 1975 all the expatriate posts had been taken over by Beninois.

4.17 Qualified nationals had been trained by both SATEC and CFDT to fill key positions and field extension posts. The field personnel in place in 1976 gave an impression of good professional ability and good organiza- tion. In this respect the project reached its objective. It should be noted however that a number of nationals were found to be unscrupulous (some agents were jailed for stealing cotton, others were found to have cheated on the quality of cotton). The main issue relating to Beninois capability has been the constant turnover of personnel, which has disrupted field operations, and the lack of leadership.

4.18 The newly created SONACO faced management problems because the General Director, appointed with IDA approval in 1971, proved to be unsuitable. His successor gave evidence of good managerial ability, although his effective- ness was hampered by a series of Government actions. A constant weak point with respect to national capability has been the lack of competent staff in financial and accounting management.

F. Foreign Technicians

4.19 The staff supplied by SATEC and CFDT has been performing satisfac- torily. A notable exception has been the two financial directors assigned by CFDT to SONACO Headquarters: the first was judged unsuitable by IDA and was replaced; his successor had good accounting but inadequate managerial capability and could not cope with the situation. The relations between CFDT and the Beninois have been stormy, as the result of CFDT's hold over cotton production and its ownership of ginneries. CFDT was viewed as a representative of foreign A 17

interests that were dominating the cotton industry and making excessive profits from it. The creation of SONACO and the Joint Venture were intended to remove Beninois objections to CFDT's image of an instrument of foreign economic domination. These changes however did not suffice to improve rela- tions between Government and CFDT.

4.20 The new Government that took over in October 1972 decided to afri- canize the economy. This led to the nationalization of the cotton industry. In spite of the settlement of financial issues and the conclusion of a new technical assistance agreement, CFDT retained its image as a representative of foreign interests, and relations with Government failed to improve.

4.21 Because SATEC had a purely technical assistance contract, it main- tained better relations with Government, and the SATEC expatriates had good personal and working relationships with their Beninois colleagues. However, the relations between SATEC and Government suffered as the result of Govern- ment's failure to pay SATEC. The same problem was faced by IRAT and IRCT. In 1976 IRAT threatened to withdraw its personnel for this reason.

4.22 In summary, there are two sides to this issue of technical assis- tance. The effectiveness of the foreign personnel was affected by the poli- tical changes that occurred during project implementation. The premature termination of contracts with CFDT and SATEC led to a disruption of project activities. Yet the technical assistance activities over 10 years enabled the country to build a national cotton industry on a firm basis. Rational agricultural policies coupled with low-key technical assistance could-enable the country to rehabilitate its cotton industry and expand its foodcrop pro- duction.

G. Accounting and Reporting

4.23 Both SONACO and SOCAD have consistently failed to keep proper accounts, and to have them audited by a Government auditor with independent authority (Controleur d'Etat). In the case of SONACO, the first General Director wanted to keep accounts under his direct control. The supervision mission of December 1972 found that SONACO funds had been misused. The replacement of the General Director did not solve the problem, however, because of poor performances by the financial directors, and complications resulting from the takeover of CFDT activities and assets.

4.24 As a major effort to improve the situation, IDA sent a consultant on a four-month mission in 1973 to assist SONACO and SOCAD with accounting and financial matters. Unfortunately, the consultant's recommendations were ignored. Usually IDA requires an independent auditor, Government or otherwise. In the case of the project, Government wanted to appoint a Gov- ernment auditor, but such person was not available. Yielding to IDA's in- sistence, Government finally agreed in 1975 to have the accounts of SONACO and SOCAD reviewed by outside independent auditors, in the absence of a A 18

qualified Government auditor. The auditors (SORGEM and Price Waterhouse) in reports published in 1976, pointed out deficiencies in SONACO's organi- zation and in its financial management. Although helping SONACO and SOCAD to prepare financial statements for the fiscal years 1974/75 and 1975/76 (closing in June), the auditors disclaimed an approving opinion on the accounts because accounting procedures were not adequate and internal audit procedures did not exist.

4.25 Proper reporting has been equally defective. The first supervi- sion mission in 1972 recommended a format for quarterly reports, an annual report, and an annual program of work. But the preparation of quarterly reports remained erratic, and those reports that were submitted did not follow the suggested guidelines. In 1974, IDA recommended an overhaul of the quarterly reporting system, but SONACO failed to take the recommenda- tions into account. In 1973 and 1974, SATEC prepared comprehensive annual reports on its activities in the Zou as part of its monitoring activities (para 4.26). The research institutes IRAT and IRCT also submitted detailed reports on their activities during project implementation.

4.26 There was no provision for monitoring and evaluation of the project. However, SATEC organized the monitoring of the various operations (cotton, hybrid maize, rice, ox-traction) in the Zou. Surveys made by the extension agents dealt with the adoption of improved practices and corresponding yields.

V. AGRICULTURAL AND SOCIAL IMPACT

A. Incremental Output

5.01 Since the main appraisal target was to increase cotton output, the project ended in failure. However, appraisal targets were nearly met for maize, sorghum and groundnuts, but not for rice. The overall incremen- tal crop production (aggregate 1972-1974) in the project area was as follows (details at Annex 2, Table 2):

Maize and Cotton Sorghum Groundnuts Rice ------'000 ton------

3 year Total (5.9) 17.6 27.4 3.7

3 year Total (Appraisal estimate) 43.6 36.9 14.5 11.9

As a ratio, the value of the actual incremental output to that of the incre- mental output estimated at appraisal, using observed economic farm gate prices (para 6.02), is 1:10. A 19

5.02 The decrease in cotton production resulted from a combined drop in hectarage and yields, caused by various events (institutional changes, unfavorable pricing policies, droughts) that occurred independently of the project. In fact, there is reason to believe that the situation would have been worse in the absence of the project, because IDA was instrumental in counteracting institutional weaknesses and slowing down unfavorable Govern- ment actions.

B. Technological Changes

5.03 During the project, improved cotton growing practices previously proven in the area were extended to new areas for growers who had already adopted them, and to new growers. Nearly all project farmers applied the recommended 150 kg of NPK fertilizers. Insecticide applications are manda- tory but were not fully respected. For instance, farmers on the average made five applications instead of seven in the Zou in 1973; one influence was an anti-insecticide campaign by youth organizations. Timing of appli- cations was not always adequate and there were complaints about the poor quality of the products. In 1973, only 43% of the growers made six appli- cations. A more recent innovation has been the introduction of ULV (ultra low volume) applications in the Zou in 1975. An estimate of input consump- tion is given in Annex 2, Table 9.

5.04 It was anticipated at appraisal that cotton farmers would move through three stages of improved technology. The pre-project Stage 1 was considered to be the use of insecticides. The other stages were to be Stage 2: use of fertilizers in addition to pesticides; Stage 3: growing cotton in blocks and observing cotton rotations; and Stage 4: using animal drawn farm implements. In fact farmers were at Stage 2 from the very beginning, and were more faithful in following fertilizer than pesticide recommendations. The practices under Stage 3 have not been forcefully promoted, while Stage 4 have been widely adopted in the Borgou (para 5.06).

5.05 While growers have become well trained in the use of improved cotton growing practices, cotton hectarage and production steadily declined during project implementation. The quality of the lint likewise declined. In 1973 the FOB prices for lint were the same for Benin and Ivory Coast (CFAF 188/kg). In 1974 the price in Benin was 172, as against 228 in Ivory Coast. This deterioration however is only temporary, and the situation can be reversed once adequate incentives are again made available to growers, and sufficient inputs are delivered on time.

5.06 The use of ox traction made great strides in the Borgou (Annex 2, Table 9), and was tested but not extended on a large scale in the Zou. In the Borgou, the areas plowed increased from 5,000 ha in 1972 to 7,000 ha in 1973, then dropped to 5,400 ha in 1974. According to observations made by extension workers, plowing was said to increase cotton and maize yields by some 60%. In the Zou where trypanosomiasis and the lack of cattle-raising A 20

tradition were the main obstacles to oxenization, some progress has been made: trypano-resistant cattle breeds have been introduced, and ox-traction has been adopted on some 100 ha. Its expansion should be possible if a supply of animals can be assured, and credit made available.

5.07 The main technological change brought about under the project (with separate FAC financing) has been the introduction of hybrid maize in the Zou. The maize variety MHNI, developed by IRAT, is seeded in lines, with treated seed, and receives 100 kg/ha of ammonium sulfate. Yields were found to average 1,360 kg/ha, a 60% increase over the average 860 kg/ha for traditional maize. Hectarage rose from 360 ha in 1972 to 940 in 1973 and 1,100 in 1974. During the same period production moved from 435 tons to 1,020 and 5,400 tons.

5.08 Production of improved bottomland rice (rainfed) made headway under the project, although not to the extent anticipated at appraisal. Yields have averaged 2 ton/ha in certain years, but with fluctuations (Annex 2, Table 2).

C. Prices and Inflation

5.09 Producer prices of seed cotton increased slightly during the proj- ect from CFAF 36.75/kilo in 1972 and 1973 to CFAF 40 in 1974 and CFAF 45 in 1975. Recent prices have been too low to provide sufficient incentives to growers, even though the price of fertilizers and insecticides has increased only slightly as the result of heavy subsidization. (Both farmgate prices of cotton and input costs have failed to reflect the twofold increase in world prices.) The farmgate price of CFAF 45/kg in 1975 was only half the world market price. Cotton price at that time was low in relation to the price of other food crops, resulting in a disincentive to farmers.

5.10 For maize, the official buying price was CFAF 13-16/kg in 1973 and 1974, which provided sufficient incentive to farmers to grow it as a cash crop, but traders in 1974 had been buying the crop for CFAF 18-20/kg. In 1975 the official price paid by SONAGRI was CFAF 25/kg, while market prices fluctuated in the CFAF 30-55/kg range, depending on the area and the season. In 1976, Government embarked on a full-scale campaign against private trading and exports. The official producer price was fixed at CFAF 30/kg, in spite of the high demand and high black market prices, in order to maintain low prices and low salaries in the urban centers. Thus Government's policy was a strong disincentive to expanded maize production.

5.11 For groundnuts, the official price of CFAF 18/kg (unshelled) in 1973 was not high enough and caused a decline in production. The price was increased to CFAF 25/kg in 1974, and CFAF 40/kg in 1975, which provided suf- ficient incentive. For paddy, the 1973-74 price of CFAF 20/kg offered by the Government mill in the Oueme contrasted sharply with the price of CFAF 30-35/kg offered by traders. In 1976, the official producer price of paddy was fixed at CFAF 36/kg. A 21

5.12 In addition to fixing prices at levels that failed to provide sufficient incentives, Government has published prices after the planting season, thus forcing farmers to make planting decisions in the dark. However, Government's response to supervision recommendations were not all negative. In 1974, a supervision mission reviewed cotton prices and fertilizer subsi- dies, and presented its findings and recommendations to Government. Govern- ment reacted positively (para 3.37). In 1975, IDA missions urged changes in pricing and marketing policies. The response was positive in the case of cotton, but not maize.

D. Number and Selection of Farmers

5.13 We have no reliable statistic on the number of project farmers (corresponding to the number of cotton growers). The data shown in various reports fluctuate widely. What is not clear is whether the reported figures apply to individuals or to farm families. In spite of the uncertainty, there is evidence from the cotton hectarage that the numbers increased initially, then decreased in 1975 and 1976, as growers became disenchanted with prices and the late 'supply of inputs.

E. Village Groups

5.14 A most positive achievement of the project has been the develop- ment of effective village groups. In the Borgou, their numbers increased from 35 in 1971 to 329 in 1975, and in the Zou from 466 to 1,140 during the same period. The promotion of village groups by the project went hand in hand with an intensive literacy program, and training of group managers. The literacy program progressed steadily in Borgou, while in the Zou it caught up only in 1974 and 1975.

5.15 The village groups have been active in organizing the purchase of seed cotton (para 3.17) and in maintaining the credit accounts for their members; in the Zou a number of groups started mutual funds. The groups operate like small cooperatives, and some of them have demonstrated the ability to organize input distribution to market household items, and to invest their savings in rural community development (schools, wells, dis- pensaries). The groups have continued to operate satisfactorily despite unfavorable circumstances. More recently, the activities of the village groups have been disrupted by the withdrawal of members who, because of poor cotton yields, could not repay their credit. Marketing activities have also been disrupted by malpractices by purchasing agents (para 4.17). There is evidence however that the strengthening of the village group struc- ture is an irreversible process. A 22

F. Government Income and Deficits

5.16 The Credit Agreement provided for Government to finance SONACO out of its share of the joint venture profits. In view of the many disruptions, it is not surprising that Government revenues have not reached the appraisal objectives. The objectives would have been more than met, in view of the favorable world market prices for cotton lint and seed in 1974 and 1975, had the physical objectives been achieved. The project's objective to increase foreign exchange benefits would also have been surpassed. According to the accounts reviewed by external auditors, SOCAD derived a profit of CFAF 1,160 million (US$4.6 million) in 1973/74, but in 1974/75 it experienced a loss of CFAF 320 million (US$1.3 million).

VI. RATES OF RETURN

6.01 At appraisal the project's economic rate of return was estimated at 35% and was found to be highly sensitive falling to 6% with a combined 10% fall in benefits and a 10% rise in costs. Although increases in output of food crops as well as of cotton were expected at appraisal, project induced incremental benefits were assumed in the rate of return calculation to come from cotton only. Clearly then, a similar calculation conducted now would yield a negative rate of return as cotton production has decreased. Recal- culations of the project's rate of return which include the incremental output of cereals and groundnuts during the project period (para 5.01) also yield negative rates of return. Thus, if cotton production in 1975 (17,500 tons - a negative increment of 18,500 tons on the 1971 production level of 36,100 tons) is assumed to recover by 2,000 tons per annum during subsequent years and food crop outputs are assumed to stabilize, the net benefit stream still remains negative throughout. This calculation is presented in Annex 2, Table 10 together with the accompanying assumptions.

6.02 Many alternative hypotheses about future trends in production - both optimistic and pessimistic - are possible. However, none (including this one) can be considered very useful as all are beset by the problem of untangling the influences of Government from the effects of the project input. Without the project, cotton production is likely to have fallen even further, although it is not possible to assess by how much. Furthermore, immediate Government action to remove the institutional, technical and pricing constraints noted in this report would substantially improve productivity. An accurate assessment of the project's economic influence is unlikely to be possible even with a detailed study, although a second assessment in several years time, when the trend of production can be seen more clearly, could yield useful additional indicators. Our assessment at the present time is that the project, for reasons external to the project design, has notably failed to achieve economic viability. A 23

VII. SPECIAL ISSUES

A. Weather and Risk

7.01 The Borgou has one rainy season while the Zou has two (Annex 2, Table 11). The risk of crop failure is higher in the Zou, not necessarily because of insufficient rainfall during the second season, but because of the difficulty of seeding the second crop on time. Another effect of the climate in the Zou is the lack of sunshine for optimum yields, and an in- direct effect is the higher danger of parasitic infestations because of higher humidity. It is expected therefore that yields of cotton and other crops should be generally lower in the Zou. This is actually the case, as shown in Annex 2, Table 2. It is surprising that, in view of the ecological conditions, higher cotton yields were generally anticipated for the Zou dur- ing project preparation.

7.02 In the Zou, the impact of the environment on cotton production is illustrated by the 1973 season, when yields dropped to an average of 670 kg/ha, as against 1,100 kg/ha in 1972, mainly because of poor distribution of rain, insect and weed infestations, and delayed maturity. In 1974 yields averaged only 460 kg/ha in the Zou, and 830/ha in the Borgou; rainfall in the Zou was erratic throughout the year; rainfall in the Borgou started late and averaged from 60 to 90% of the normal in various parts of the province.

7.03 While erratic or insufficient rain obviously reduced cotton output during project implementation, available data are inadequate to assess the relative incidence of rainfall and institutional factors on the decline of production.

B. Research and Technical Availabilities

7.04 The technical component of the project, focussing on cotton, was designed from research data available during project preparation. Field trials were included in the project to further improve cotton production technology, and to introduce improved technology for the production of food crops.

7.05 The work carried out by IRCT and IRAT led to the following main developments that were readily incorporated into the extension programs: (a) determination of the most effective cotton insecticides; (b) introduc- tion of new cotton cultivars: BJA SM 67 in North Borgou, and 444-2-70 in South Borgou and North Zou; (c) introduction of ULV treatments in the Zou; (d) introduction of hybrid maize with fertilization in the Zou, and testing of suitable hybrids and composites ready for release to farmers in the Borgou; (e) testing of suitable rice and groundnut varieties, and development of rice A 24

production; (f) seed multiplication to cover the needs of project partici- pants; (g) design of practical techniques for maize drying and storage in the Zou; (h) expansion of ox-traction in the Zou; and (i) determination of the residual effect of cotton fertilizer on maize. The applied research program thus made a positive contribution to the project.

7.06 Some deficiencies can be noted in the programs and approaches:

(a) there was no prior review of the programs by IDA, as pro- vided for in the Credit Agreement. In fact, the programs were guided from France by the management of IRCT and IRAT, being simply the continuation of the work started before the project;

(b) in the Borgou there was no coordination or even communica- tion between IRCT and IRAT, leading to some duplication of efforts. On the other hand there was excellent coordination of activities between IRCT, IRAT and SATEC in the Zou;

(c) some of the programs were difficult to justify (study of growth regulators and foliar analysis by IRCT, organic mat- ter studies by IRAT); and

(d) the experimental techniques to determine fertilizer require- ments were not adequate.

7.07 In the Zou some aspects of the applied research program (hybrid maize and rice development, ox traction) were carried out by SATEC personnel assigned by the project for this purpose. This program was excellent, as it included applied research, demonstrations, and follow up, and covered all aspects of production, from variety testing on farmers' fields and seed mul- tiplication to marketing and storage.

VIII. BANK PERFORMANCE

8.01 The question can be asked if it was a wise decision for IDA to invest in a cotton project in Benin. This decision was based on the excellent performance of the cotton development program previously financed by FAC. As noted in the appraisal report "Seed cotton production grew rapidly from 1,400 tons in 1964 to 35,000 tons in 1970. Cotton acreage has expanded considerably, and production increases have been brought about by higher yielding varieties of superior staple length and lint output; improved extension services; and efficient arrangements for providing credit and inputs to farmers, and for purchasing, ginning and marketing the crop."

8.02 Furthermore, the development of cotton production had been follow- ing parallel paths in a number of West African countries, including Benin. There were similar cotton projects being carried out using the same overall A 25

approach as in Benin, and these have been highly succesful. In Ivory Coast, the Bank financed Cotton Areas Rural Development Project, started in 1974, has been performing well. In Senegal, the cotton development program, imple- mented with FED financing, has made outstanding strides; a recent study by DRC has shown a high rate of return and good farmer response for cotton production. The IDA financed '"Mali Sud" project is progressing well. In all three countries, cotton development is having a significant impact on the national economies.

8.03 In retrospect, it is difficult to see how IDA could have antici- pated the events that led to the failure of the project. The main innova- tion in the project, contributed by IDA, was the creation of a national cotton development agency, which was to take over gradually from expatriate organizations. What could not have been anticipated was that the existence of SONACO may have precipitated the nationalization of CFDT by Government and the ensuing deterioration of services. It can be argued, however, that the nationalization was the result of a reorientation of Government's political outlook, and would have taken place whether or not SONACO were in existence. It can even be argued that the existence of SONACO may have softened the impact of the changes in the agricultural sector, by providing some degree of continuity of a national structure already in place.

8.04 The project was designed, and covenants established, to ensure smooth implementation. The enforcement of conditions of effectiveness con- tributed to the buildup of SONACO as a viable institution. The temporary suspension of disbursements, following major infringements of covenants, contributed to a more rapid conclusion of new technical assistance arrange- ments. Government did keep IDA informed of its moves, even if a-posteriori. Government delegations visited Washington on several occasions to explain its decisions and seek IDA's agreement. This dialogue led to positive results regarding institutional arrangements and government policies.

8.05 A regular schedule of supervision missions was maintained through- out the development period, although the continuity of supervision personnel could not be assured. In addition the Bank financed a financial consultant to try to resolve accounting problems (para 4.24). However, the magnitude of the problems was such that certain aspects of the project were not super- vised: extension approaches, applied research, agricultural credit operations, and rice production. One clear and positive achievement of the supervision efforts was the arrangements for review of the accounts of SONACO and SOCAD by an independent auditor. But more generally, the important point is that supervision missions focussed on the major issues. The supervision missions perceived the main obstacles to project implementation, alerted government officials and suggested corrective measures. A 26

IX. FUTURE OF THE PROJECT

9.01 The follow up technical assistance project is to be of an interim nature, to prepare the ground for a resumption of agricultural development by strengthening SONAGRI, developing the capability of the CARDERs, furthering the training of agricultural staff, pursuing applied research and seed multiplication, and analyzing the agricultural situation. This interim period is expected to give Government time to clarify its agricultural policies and to establish proper marketing channels for agricultural products, es- pecially food crops. The project however entail definite risks. There is a possibility that the recommendations of the expatriate staff and consultants may not be accepted. Yet the fact that Government did request a technical assistance project, and did take positive measures over the past two years, are signs that Government is committed to sound agricultural development. This could lead to a full-scale follow-up project in the Zou and Borgou.

X. CONCLUSION

10.01 Although the project was technically sound (as demonstrated by the results obtained in 1972 and 1973), it ultimately failed to reach its production because of Government interventions which discouraged the project's participants. While it is thus clear that Government over- estimated its ability to manage large rural development schemes, it is also fair to point out that in the past, Government was not associ- ated closely enough with the preparation and implementation of such schemes, preferring to entrust these matters to foreign consulting firms (namely, CFDT and SATEC). The project was designed to enable Government - through SONACO - to take a larger part (step by step) in its management. However, a decision to change the project's concept and organization was taken only a few months after the project became effective. Also, Government decided to organize integrated rural development through regional agencies rather than through vertical monocrop organizations, thus shifting emphasis from the development of cash crops (cotton) toward food crops and cereals.

10.03 Unfortunately, since initial project progress was not sustained, the first priority now is to rebuild an extension service able to regain the farmers' confidence; this means that emphasis must be on cotton production. This would require an overall improvement of managerial capability in each CARDER and in all other institutions involved in the rural sector.

10.04 On the other hand, although Government now recognizes that agricul- tural development should be given the highest priority, a debate goes on as to whether a concerted effort should be made to reorganize the rural economy along socialist lines. However, recent attempts to organize collective farms in some areas have failed to get farmers' support and, therefore, Government has indicated that, for the meantime, rural development should be done through the improvement of existing extension and support services, and better price incentives. A 27

10.05 Despite these uncertainties, Government is taking i.ction in the right direction. Prices for cotton have recently been increased; and extension staff are more stable, as most of the CARDERs have been under the same management for one year. SONAGRI has improved its support services and is making efforts to appoint competent accounting staff and to itrove its accounting system. Government also admits that it needs foreign technical assistance in various fields and it then reached agreements with FAC, FED and UNDP to maintain existing technical assistance. The problem is now to define the orientation of future projects. Either Benin would accept to embark on large development schemes, such as those nov being implemented in neighboring countries, and this would undoubtedly require technical assistance at the initial stage; or, Benin would decide to rely only on its manpower resources and, in this case, the development pace would be slow for a long period. The Technical Assistance project would help IDA and Government to review all the implications of this basic choice.

ANNEX 1 Table 1

BENIN

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Crop Production Targets

Areas Yields Output '000 ha kg/ha '000 ton Y 0 Y 4 Y 0 Y 4 Y 0 Y 4

Cotton 28.6 58.8 880 950 25.1 55.7

Rice 1.1 3.9 1,500 2,600 1.6 10.0

Subsidiary Crops

Maize/sorghum 24.o 34.0 790 1,260 19.0 42.9

Groundnuts 13.1 19.7 745 1,070 9.8 21.2 ANNEX 1 BENIN Table 2

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Project Cost Estimates

US$ Thousand % Foreign Exchange

Agricultural Extension

Buildings 375.3 33 Equipment 310.4 76 Personnel 4,237.9 36 Operation 973.8 40

Sub-Total 5,897.4 38

Incremental Farm Inputs

Fertilizer 1,145.1 95 Insecticides 1,429.6 95 Equipment 305.0 95

Sub-Total 2,879.7 95

Processing Facilities (Construction and Equipment)

Ginneries 1,543.4 67 Rice Hullers 40.3 85

Sub-Total 1,583.7 68

Feeder Road Improvement 699.0 80

Research and Studies 733.5 80

Total 11,793.2 61 Contingencies 884.8 51

Grand Total 12,678.0 60 ANNEX 1 BENIN Table 3

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Project Financing Plan

IDA FAC Credit Grant Government ------US$ million------

Equipment 1.09 .19 Construction 1.48 .20 - Personnel - 2.15 2.09 Incremental Farm Inputs 2.59 - 0.29 Research, Studies .52 .19 .03 Contingencies .39 .19 .30

Total 6.07 3 11 3.49 ANNEX 2 Table 1

BENIN

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Implementation of the Infrastructure Program

Appraisal Actual

Buildings (units)

Head Office 1 0 Regional Offices 2 1 Houses 16 13 District Stores 2 2 Village Stores 60 17

Processing_Plants (units)

Ginneries 2 1 Rice Mills 6 1 T/

Feeder roads (km) 610 500

1/ Equipment received but not installed. BENIN

ZOU BORGOU COTTON PROJECT

COMPLETION REPORT

Project Performance

1. Farmers and Areas Supervised

1971-72 1972-73 1973-74 1974-75 1975-76 A E A E A E A A Number of project farmers

Zou 1/ 12,200 20,000 23,428 - 30,446 - 26,044 22,500 Borgou 2/ 15,200 14,672 1,036 1,334 - - 18,652

Areas under project supervision (ha)

Cotton Zou 21,040 20,830 16,637 23,690 21,479 26,680 13,800 27,500 7,460 27,500 Borgou 18,191 21,060 18,934 24,840 20,026 28,405 21,234 31,325 17,844 31,325

Maize-sorghum Zou 20,330 16,500 22,573 17,500 22,700 18,500 31,430 20,000 36,780 20,000

Maize-sorghum Borgou 13,320 9,750 8,340 10,000 8,680 12,000 7,820 14,000 - 14,000

Groundnut Zou 15,534 14,ooo 13,409 15,000 16,090 :16,000 24.480 16,500 26,100 16,500 Borgou 885 2,150 1,070 2,500 1,467 2,850 2,102 3,200 5,361 3,200

Rice Zou 110 150 100 185 425 425 267 550 550 550 Borgou 1,316 1,470 1,295 1,970 1,329 2,650 1,328 3,300 2,365 3,300

Number of village groups

Zou 466 496 542 511 54o Borgou 35 116 215 222 329

E = Appraisal Estimate A = Actual 1/ 3.7 active participants per farm 2/ 3 " "t i BENIN

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

2. Yields and Production

197177- -1111-73 1973-74 1973.7.5 1975-76- A E A E A E A E A E Yields (kg/ha)

Cotton Zou 840 850 1,107 850 670 900 463 952 349 952 Borgou 1,015 780 1,203 830 1,120 900 830 940 850 940

Maize-sorghum Zou 750 950 920 1,100 1,000 1,200 890 1,200 900 1,200 " " Borgou 700 850 800 1,000 770 1,200 860 1,350 690 1,350

Groundnut Zou 513 850 510 900 1,270 1,000 720 1,100 680 1,100 Borgou 784 785 790 845 710 890 1,380 935 850 935

Rice Zou 1,771 1,200 800 1,200 2,080 1,500 1,461 1,700 945 1,700 Borgou 1,270 1,865 1,660 1,925 1I970 2,360 2,330 2,745 1,270 2,745

Production (tons)

Cotton Zou 17,686 17,700 18,867 20,060 14,416 23,986 6,392 26,180 2,610 26,180 Borgou 18,466 16,447 22,783 20,674 22,410 25,657 17,670 29,521 15,000 29,521

Maize-sorghum Zou 15,310 15,675 20,720 19,250 22,700 22,200 27,970 2,000 33,100 24,000 Maize-sorghum Borgou 9,320 8,287 6,670 10,000 6,680 14,400 6,730 18,910 - 18,910

Groundnut Zou 6,480 11,900 7,360 13,500 19.140 16.000 17.620 18,10 18,270 1A,150 Borgou 695 1,685 850 2,110 1,043 2,538 2,900 3,000 4,560 3,000

Rice Zou 138 180 300 222 590 640 390 935 1,190 935 Borgou 1,673 2,741 2,152 3,791 2,616 6,257 3,090 9,062 3,000 9,062

A = Actual E = Appraisal Estimate BENIN

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT Project Costs (CFAF'000)

YEAR 1 - 1971 YEAR 2 -1972 YEAR 3 - 1973 YEAR 4 - 1974 YEAR 5-1975 A E A E A E A E A E

1. Agricultural Extension

Buildings - 4,500 - 77,230 38,735 14,250 16,823 - Furniture, office equipment - 2,540 3,059 11,560 - - - - Vehicles - 18,290 18,097 18,260 15,490 20,000 17,925 8,750 Salaries - expatriates - 114,650 128,93 138,030 135,955 122,900 93,436 107,800 - national - 123,420 36,783 154,310 114,958 159,610 108,943 163,260 Vehicles operation - 31,600 38,550 45,680 27,303 44,960 64,555 44,24o Rent, utilities - 17,110 23,089 20,250 21,592 22,590 23,544 22,740 Subtotal - 312,110 248,512 465,320 354,033 384,310 525,226 316,790

2. Incremental Ferm Inputs (unsubsidized) Fertilizers - - 215,852 215,450 66,359 72,240 414,223 5,160 Insecticides - - 198,000 282,720 (63,300) 49,290 149,146 33,700 Equipment - - 14,256 42,390 (7,038 7,930 64,990 27,880 Subtotal - - 428,108 540,560 (3,979) 129,460 628,359 66,540

3. Processing Plants

Ginneries - - - 259,120 251,449 135,740 7,374 - Rice hullers - - 4,027 8,600 - 1,720 - - Subtotal - - 4,027 267,720 251,449 137,460 7,374 -

4. Feeder Road Improvement

Equipment - - - 40,350 51,338 4,600 41,470 4,500 15,908 - Operating Costs - - 13,599 43,100 10,278 43,100 19,699 43,100 31,690 - Subtotal - - 13,599 83,450 61,616 47,700 61,169 47,600 47,958 -

5. Research

IRCT - 31,990 32,865 31,990 36,518 31,990 32,768 31,990 4,847 - 18,027 10,040 - - IRAT - 10,040 18,283 10,040 12,749 10,040 1,500 - 1,500 - - IRHO - - - 1,500 1,238 Subtotal- 42,030 51,148 43,530 50,505 43,530 50,795 43,530 4,567 -

6. Studies

Feasibility - - - - - 15,000 11,599 - I-- External audit ------23,881 - - Subtotal - - - - - 15,000 35,4b0 - - - A = Actual E = Appraisal Estimate ANNEX 2 Table 4

BENIN

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Reallocation of the Proceeds of the Credit

------in US$------

Appraisal Actual

I. Equipment, machinery, vehicles 1,120,000 666,000

II. Constructions, office furniture, 1,990,000 1,974,200 and supplies, applied research, studies

III. Farm inputs 2,590,000 3,459,800

IV. Unallocated 400,000 - ANNEX 2 BENIN Table 5

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Disbursement Schedule

Appraisal Estimate Actual ------US$ million cumulative------

1972/73

1st quarter 0.5 0 2nd quarter 1.0 0 3rd quarter 3.4 4th quarter 3.8 2.4

1973/74

1st quarter 4.1 3.6 2nd quarter 4.4 3rd quarter 5.0 4th quarter 5.3

1974/75

1st quarter 5 4 2nd quarter 5.5 3.9 3rd quarter 5.9 4.7 4th quarter 6.1 4.8

1975/76

1st quarter - 4.8 2nd quarter - 4.8 3rd quarter - 4.8 4th quarter - 4 8

1976/77

1st quarter - 4.8 2nd quarter - 4.8 3rd quarter - 4.8 4th quarter - 6.05 1/

1/ As of June 24, 1977. ANNEX 2 Table 6

BENIN

ZOU-BOUGOU COTTON PROJECT

COMPLETION REPORT

Exchange Rate Fluctuations

US$ CFAF

Before December 1971 1 277

January 1972 to July 1973 1 256

August - December 1973 1 200

1974 1 250

1975 1 : 225

1976 1 : 245 ANNEX 2 Table 7

BENIN

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Average Cost of Inputs to Government and to the Farmer

Import Price CIF Cotonou Subsidized Price

------CFAF/kg ------

Fertilizer 1972 26 21 1973 28 21 1974 6o 25 1975 77 25

CFAF/liter

Insecticides 1972 396 300 1973 300 300 1974 420 300 1975 800 300 ANNEX 2 BENIN Table 8

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Net Profit from Sale of Lint

Estimated Appraisal Seed Cotton Output Net Profit Estimate '000 tons CFAF Million

1971 37 400 1/ -

1972 42 500 1/ 639

1973 37 1,160 1/ 554

1974 32 (320) 519

1975 18 Not available 398

1976 17 Not available 363

1/ Figures 1971-1972-1973 are exact (determined by CFDT). BENIN

ZOU-BORGOU COTTON PROJECT

Completion Report

Use of Inputs by Farmers

1971 1972 1973 1974 1975 A l/ E 2/ A E A E A E A E Improved seed (tons)

Cotton - Zou - - 596 - - Borgou 436 - 447 - 572 - 910 - 946 - 1,061 - 892 Hybrid maize - 800 - - Zou - - - - 17 Rice - 60 - 63 - 5 - 2 - 1 - 4 - 3 - Fertilizer (tons)

Zou 3,105 - 2,714 - 3,548 - 2,069 - 921 Borgou L kl - 6,353 - 7 800 - 3,717 - 2 819 Total 5,738 - 9,067 6,T60 11,318 -,70 5,786 8,785 3,7 0 8,785 Insecticide (tons)

Zou 236 - 302 - Borgou 357 - 196 - 82 - 24 - 506 - 238 Total 493 - 791 -21 - 65 863 665 735 357 735 Implements (units, cumulated)

Plows (Borgou) 728 555 1,292 Ox-carts 800 2,371 1,390 4,619 1,860 - (Borgou) 303 - - 678 - 996 - 996 - 1,230 Pairs of oxen (cumulated)

Borgou 777 - 1,308 - 2,603 - 2,690 - 2,900

1/ Actual 2/ Appraisal Estimates BENIN

ZOU-BORCOUCOTTON PROJECT

COMPLETIONREPORT

ECONOMICRATE OF RETRN 1/ (CPAP Million Constant 1971 terms) 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

A _g-,FEITS Econoi c Prices of Output (CFAF/kg)

Seed Cotton 40.4 79.2 40.4 45.6 71.8 66.2 55.1 54.0 51.5 51.7 Maize/Sorghum (shelled) 20 Groundnuts (unshelled) 22 all years Rice (paddy) 25

Incrmnented Production (M.T.)

Seed Cotton 5500 670 (12090) (18550) (16550) (14550) (12550) (10550) (8550) (6550) Mazze/Sorghu= (shelled) 2760 4750 10070 15200 15200 15200 15200 15200 15200 15200 Groundnuts (unshelled) 1040 13010 13350 15660 15660 15660 15660 15660 15660 15660 Rice (paddy) 640 1300 1670 2380 2380 2380 2380 2380 2380 2380

Benefits (CFAF million)

Seed Cotton 222 53 (484) (846) (1188) (963) (691) (571) (440) (339) Maize/Sorghum 55 95 201 304 304 304 304 304 304 304 Groundnuts 22 286 294 344 344 344 344 344 344 344 Rice 16 32 42 59 59 59 59 59 59 59

TOTALBENEFITS 315 466 53 (139) (481) (256) 16 137 267 368

B. COSTSrCFAF million) Agricuitural Extensions

Constructions - 32 12 ------Vehicles 16 13 13 14 14 14 14 14 14 14 Salaries 135 184 133 71 71 71 71 71 71 71 Vehicle Opeations, Overheads 40 34 47 40 40 40 40 40 40 40 and Maintenance

Sub Total 191 263 205 125 125 125 125 125 125 125

Farm In,uts

Fertilizers 165 46 257 79 87 95 103 113 121 129 Insecticides 152 (43) 92 114 126 138 150 161 173 185 Equipment 11 (5) 40 10 10 10 10 10 10 10

Sib Total 328 (2) 389 203 223 243 263 284 304 324

Processing Plants (Construction)

Ginneries - 194 5 ------Rice Hullers 3 ------

Sub Total 3 194 5 - - -

Feeder Road Inprovement 11 45 40 28 12 12 12 12 12 12 Research 39 35 31 3 10 10 10 10 10 10

TOTAL ECONOMICCOSTS 572 535 670 359 370 390 410 431 451 471

NET BENEFIfS (WISSES) (257) (69) (617) (49S) (851) (646) (394) (294) (184) (103) a

1/ Analytical Notes a) General. Costs and benefits are expressed in constant 1971 terms net of identifiable taxes. A project life of 10 years has been taken as at appraisal. b) Benefits. Benefits are expressed on incremental production as of 1971. Cotton production is assumed to recover by 2,000 tons per annum from 1975. From 1975 food crop production is assumed to remain constant. Economic prices are expressed at farmgate. For seed cotton, the price is based on observed f.o.b. prices from 1972-74 and on EPD estimates and projections of c.i.f. prices of lint and cotton seed (with appropriate reductions in each case for processing and transport). Prices of food crops are based on observations of free marat farm qate prices in Benin on the assumption that these approximate economic values. c) Costs. Incremental Economic Costs during the project period were obtained from Annex 2, Table 3 and expressed not of taxes. Extrapolations beyond the project period take into account changes in crop production for farm inputs and minimal ongoing requirements for continuation of agricultural extension, road maintenance and applied research. As at appraisal, farm labor has not bosn coated. ANNEX 2 BENIN Table 11

ZOU-BORGOU COTTON PROJECT

COMPLETION REPORT

Rainfall (mm)

Abomey (Zou) Parakou (Borgou)

normal, 192 1973 1974 normal 1972 1973 1974

J 15 0 0 19 3 0 0 0

F 28 37 0.2 17 12 0 0 0

M 84 70 79 66 39 43 33 0

A 116 215 130 165 80 117 57 51

M 148 171 94 138 130 147 207 75

J 152 145 134; 193 162 82 250 195

114 134 73 154 180 171 143 183

A 65 65 109 71 298 140 296 140

S 135 84 228 140 247 70 253 217

0 140 49 169 97 111 137 108 74

N 50 0 20 21 0 0 0 0

D 20 6 21 0 4 43.5 0 0

Total 1,067 976 1,057.2 1,081 1,368 950.5 1,347 944 ANNEX 3 Page 1

BENIN

ZOU BORGOU COTTON PROJECT

COMPLETION REPORT

Sections of the Credit Agreement on which Government defaulted

A. Development Credit Agreement

Section 3.01 (a) The Borrower shall through its Ministry of Rural Development and Cooperation carry out Parts A, B, C, E and F of the Project and through its PWD carry out Part D of the Project with due diligence and efficiency and in conformity with sound administrative, financial, agricul- tural and public works practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose.

(b) Without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall take and cause to be taken all action necessary or appropriate to enable SONACO and SOCAD to perform their obligations under (i) the SONACO Project Agreement and the SONACO Contract, and (ii) the SOCAD Project Agreement, respectively, and shall not take or permit to be taken any action which would prevent or interfere with such performance.

Section 3.06 (b) The borrower shall (i) have such accounts audited at the end of each fiscal year, in accordance with sound auditing principles consistently applied, by its Controleurs d'Etat; (ii) furnish to the Associa- tion as soon as available, but in any case not later than four months afte the end of each such year, the report of such audit by such Controleurs d'Etat, of such scope and in such detail as the Asociation shall have reasonably requested; and (iii) furnish to the Association such other information concerning such accounts and the audit thereof as the Association shall from time to time reasonably request.

Section 3.07 (b) The Borrower shall not amend the agricultural lending procedures without the prior approval of the Association.

Section 3.11. Unless the Association shall otherwise agree, the Borrower shall use its share in the profits made by CFDT out of the purchasing and ginning of seed cotton and out of the marketing of cotton lint and seed and paid annually to the Borrower by CFDT under the Convention de mandat de gestion or such arrangements as shall be made in accordance with the provisions of Section 4.02 of this Agreement, in the following manner:

(a) Whenever, in any fiscal year of SOCAD, the net balance of the amounts entered into the SOCAD cotton account in accordance with the provisions of paragraph (b) of Section 2.02 of the SOCAD Project Agreement is less than CFAF 500 million, such profits shall be allocated as follows: ANNEX 3 Page 2

(i) So long as the amount of such profits does not exceed CFAF 100 million, such amount shall be allocated to the SOCAD cotton account;

(ii) Any amount in excess of CFAF 100 million shall, to the extent necessary, be earmarked for the financing of the Borrower's contribution under Part A of the Project and any amount remaining thereafter, if any, shall be allocated to the SOCAD cotton account.

(b) Whenever, in any fiscal year of SOCAD, the net balance of the amounts entered into the SOCAD cotton account in accordance with the provi- sions of paragraph (b) Section 2.02 of the SOCAD Project Agreement exceeds CFAF 500 million, such profits shall be allocated as follows:

(i) Such profits shall, to the extent necessary, be first earmarked for the financing of the Borrower's contribution under Part A of the Project;

(ii) Thereafter, such profits shall, to the extent necessary, be earmarked for the financing of cotton extension services outside the Project area and any amount remaining thereafter, if any, shall be allocated to the SOCAD cotton account.

Section 3.12. Before fixing cotton producer prices the Borrower shall, annually , consult the Association.

Section 4.01. After the Project has been completed the Borrower shall, through its PWD, adequately maintain the feeder roads referred to in paragraph (e) of Section 3.13 of this Agreement and carry out promptly all necessary repairs thereof, all in accordance with sound engineering and economic standards, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose.

Section 4.03. The Borrower shall annually review in consultation with the Association the level of cotton fertilizer subsidies to the cotton growers with the view to eliminating such subsidies not later than 1981.

B. Pro ect Agreement - SONACO

Section 2.02. SONACO shall comply with the agricultural lending procedures set forth in Schedule 4 to the Development Credit Agreement.

Section 4.01. SONACO shall maintain records adequate to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition. ANNEX 3 Page 3

C. Project Agreement - SOCAD

Section 2.01. SOCAD shall perform all its obligations under this Agreement with due diligence and efficiency and in conformity with sound administrative and financial practices.

Section 2.02. SOCAD shall (a) establish and thereafter maintain a separate cotton account; and (b) open and thereafter maintain in a banking institution satisfactory to the Association an account for its cotton oper- ations; such account shall be credited with such amounts as shall be allo- cated in accordance with the provisions of Section 3.11 of the Development Credit Agreement and debited solely with any amounts necessary to meet (i) transfers to be made to the Agricultural Credit Fund upon submission by SONACO of applications for reimbursements of amounts corresponding to the subsidy payable by the Borrower in respect of fertilizer purchased by SONACO for the use of cotton growers under the Project and (ii) the Borrow- er's share in losses incurred under the Convention de mandat de gestion or such arrangements as shall be made in accordance with the provisions of Section 4.02 of the Development Credit Agreement and the balance, if any, may be invested in obligations maturing within a year.

Section 4.01. SOCAD shall maintain records adequate to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition.

Section 4.03. SOCAD shall appoint and maintain a qualified and experienced accountant, under the repsonsibility and the supervision of SOCAD's President Directeur General, to carry out SOCAD's accounting opera- tions with respect to the SOCAD cotton account. Such accountant shall be assisted by appropriate personnel to keep SOCAD's accounts up to date.

Section 5.03. SOCAD shall enable the Association's representatives to inspect all offices and properties of SOCAD and any records and documents pertaining to the SOCAD cotton account. BENIN ADMINISTRATIVE UNITS & PROJECT AREA BRD3392R

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