MEMORANDUM TO THE DCI COMMITTEE CONCERNING THE 2012 Annual Action Programme for Madagascar under the accompanying measures for former Sugar Protocol countries 1. IDENTIFICATION Budget line 21.060300 Total cost €4 685 000 financed completely from the EU’s general budget Legal basis Regulation (EC) No 1905/2006 of the European Parliament and of the Council of 18 December 2006 establishing a financing instrument for development cooperation, and in particular Article 17 thereof 2. COUNTRY BACKGROUND The Council Decision of 5 December 2011 clearly provides for the European Commission to implement certain programmes that will directly benefit the people of Madagascar. In this context, the present Annual Action Programme (AAP) focuses on the implementation of activities designed to support the population living in sugar producing areas in the framework of the programme of accompanying measures for former Sugar Protocol countries. The trend in gross domestic product (GDP) at constant prices was -3.7% in 2009, 0.6% in 2010 and 0.7% in 20111, while the population growth rate was estimated at 2.8% per year over the period in question2. There was a corresponding automatic increase in the poverty rate, which rose from 65% in 2008 to 76.5% in 20103. The poverty rate is higher in rural than in urban areas, yet Madagascar is a rural and agricultural country. The rate of urbanisation has not increased much over 20 years (from 16 to 20%). The employment structure has changed little over the past 40 years. In 2010, 80% of the population still lived in rural areas where 89% of households work in agriculture. The sugar sector – structured around five industrial production sites – was the country’s main agro-industry in the 1990s. It accounted for 2.8% of GDP and over 70 000 direct and indirect jobs. Through bad management, however, this sector gradually declined. Production levels fell to 10% of capacity in 2006-2007 while the country's sugar imports were worth more than USD 40 million per year. The Stratégie Nationale d'Adaptation du Secteur Sucrier (SNASS – National Strategy for the Adaptation of the Sugar Sector) was adopted in 2006 with the objective of reviving industrial sugar production in order for the country to be self-sufficient by 2014, while maintaining – even developing – its export markets. Today three industrial sites (Ambilobe, Namakia and Morondava) are now being operated again by subsidiaries of the Complant group4 under a management lease, and industrial sugar production has reached 73 000 tonnes for 2010/11, which represents 60% of installed capacity for the Ambilobe site 1 Selected Economic Indicators (World Bank) and INSTAT 2 INSTAT – Projections: the last census dates from 1993. 3 Enquête périodique des ménages (EPM) 2010 (Periodic Survey of Households) 4 COMPLANT International Sugar Industry Co. Ltd (China). 1 and 75% for the other two. The Ambilobe site is currently the only one where there is some outsourcing of sugar-cane production to farmers in the surrounding area. 3. SUMMARY OF THE ACTION PROGRAMME (a) Background This project will focus on the main issues linked to reviving sugar-cane production on the Ambilobe site, which is the country's biggest sugar site. The hydraulic infrastructure, whose management the State transferred to users at the beginning of the 2000s without sufficient support, is now in a state of disrepair. The resulting water shortage is made worse owing to inefficient management by farmers located upstream of the network. Rural organisations (water user groups and the federation of sugar-cane planters) are not yet able to provide the services or fulfil the functions for which they were created, such as water management, defending planters’ interests vis-à-vis factory owners and agricultural producers, improving and financing production and developing it in the best interests of peasant farmers, etc. Finally the poor state of tracks hampers the expansion of sugar cane to some farming areas where moving the cane is difficult and collection costs constitute 50% of production costs. The sugar cane supplied by surrounding small farms is needed to reach a stable operating level, particularly as the yield from the factory site is low, far below the performance level of other producer countries. (b) The policy of the beneficiary country The SNASS was adopted in 2006 to enable the country to benefit from the EU accompanying measures programme. This strategy was in line with the national development strategy, the ‘Madagascar Action Plan’ (MAP), which focused on the development of sectors with high growth potential (mining, tourism, crafts) as well as the development of agri-business to accompany the diversification of agricultural activities. Since the start of the crisis in 2009 the government in place has been a transitional authority which is not mandated to draw up a new five-year development and poverty reduction plan and is unable to implement existing plans. However, until the democratic elections in mid- 2013 (from which a new government is expected), the broad guidelines of the MAP remain the reference framework, given that the objectives detailed in this document are no longer realistic given the suspension of most of the official development assistance and the austerity policy supported by the transitional authority since 2009 in order to maintain a stable macro- economic context. (c) Measures identified The overall objective of the action ‘Accompanying Measures for Sugar Protocol Countries – 2012 Allocation / Madagascar’ is to contribute to tackling poverty in rural areas by boosting economic activity and to bring down the cost of sugar on the internal market by increasing availability. It is also aimed at protecting jobs for the sector’s permanent and seasonal workers. The specific objective of the action is to increase and improve sugar production on the Ambilobe site (Diana region). The effects of the programme will directly benefit over 2 000 farmers, planters and/or rice growers. 2 (d) Expected results The expected results of this action are: Result 1: The surface area of irrigated crops cultivated directly by local farmers is increased and their productivity is improved by restoring the network’s capacity and through concerted and more efficient management and allocation of the available resources between the factory’s sugar cane and farmers’ out-of-season rice. Developing intensive out-of-season and more water-efficient rice-growing will enable rice production to be increased by about 3 000 tonnes. Result 2: Farmers’ cane production is increased by improving drainage of their land in certain areas and by boosting capacity for defending and promoting planters’ interests. Improving drainage is likely to generate a production gain of 30 to 40 tonnes/ha of virgin cane. Economic performance is also likely to be improved by the drop in costs (negotiation of the rates applied by producers, protection of the rural credit provided by the factory, etc.) and/or better product development (setting the price with the factory, improving the reliability of checks on delivery, seeking a fair valuation, etc.). Access to the fair trade market would thus generate a premium of USD 60 per tonne of sugar. Result 3: The surface area of cane cultivated by farmers in the surrounding area is increased by opening up areas with good development potential (Mananjeva, Antsaravibe and possibly Ampano). Given the willingness of carriers to reduce rates by 10% if road access is improved, the rehabilitation of transport infrastructure starts to produce benefits (returns higher than routine maintenance costs) once the area under cane in these locations exceeds 400 ha. This will act as a further incentive to the development of sugar cane in this area, where it used to cover 1 000 ha under SIRAMA. (e) Past EU assistance and lessons learnt The political crisis disrupted the implementation of the planned EU aid to Madagascar for the accompanying measures granted to the former Sugar Protocol countries for 2006-2010. Commitments over this period accounted for only 20% of the initial indicative allocation. Two-thirds of these funds have nonetheless been allocated to measures for the rehabilitation of hydro-agricultural infrastructure and to revive farmers’ production in Ambilobe. This project is intended to build on those measures. Assessment of these measures has confirmed the need – in order to achieve significant and sustainable results – to conclude quickly the rehabilitation work already started and to back this up by investing substantially in boosting local management capacities. The project also draws on the results achieved in the field of water management in certain large areas (Alaotra, Mangoky); these confirm that it would be possible to set up a sustainable land operating and maintenance system - managed by the farmers - in Madagascar following long-term, but gradually decreasing support accompanied by assistance to step up production. (f) Complementary actions As regards the sugar sector and the Ambilobe plant, this programme will supplement the autonomous support given to the sector by the State through the budgets of the Ministry of Agriculture and of the Centre malgache pour la canne et le sucre (CMCS – Madagascar Cane and Sugar Centre) and the aid provided to planters by the private sector (sugar season prefinancing, commercial bank loans). The Groupe des bailleurs de fonds du secteur du développement rural et de la sécurité alimentaire (GBF-DR ‘Rural development and food security donors group’) ensures that irrigation management strategies are harmonised between donors involved in this sector 3 (particularly the World Bank, the African Development Bank, the French Development Agency (AFD) and the Japan International Cooperation Agency). The GBF-DR has been in operation for several years and is facilitated by having a permanent secretariat: the Secrétariat multi-bailleur (Multi-donor Secretariat). The creation of a special donor group to deal with issues relating to drainage basins and irrigated areas is currently being considered by the group in order to step up exchanges on the subject.