Document of the World Bank

Public Disclosure Authorized Report No: ICR2579

IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-93614)

ON A GRANT

UNDER THE GLOBAL FOOD CRISIS RESPONSE PROGRAM

Public Disclosure Authorized IN THE AMOUNT OF US$3.0 MILLION

TO THE

LAO PEOPLE’S DEMOCRATIC REPUBLIC

FOR A

RICE PRODUCTIVITY IMPROVEMENT PROJECT

Public Disclosure Authorized

December 21, 2012

Southeast Asia Sustainable Development Department Southeast Asia Country Management Unit East Asia and Pacific Region

Public Disclosure Authorized

CURRENCY EQUIVALENTS

(Appraisal Exchange Rate Effective September 20, 2008) Currency Unit = Lao Kip Kip 8850 = US$1

(Closing Date Exchange Rate Effective July 01, 2012) Currency Unit = Lao Kip Kip 7986 = US$1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ACIAR Australian Center for International Agricultural Research ADB Asian Development Bank ADP Agriculture Development Project AFD Agence Française de Développement AusAID Australian Agency for International Development CIAT Centro Internacional de Agricultura Tropical (Colombia) CPS Country Partnership Strategy DAFO District Agriculture and Forestry Office DS Dry Season EIRR Economic Internal Rate of Return EMP Environmental Management Plan EPP Emergency Project Paper EU European Union FAO Food and Agriculture Organization of the United Nations FIRR Financial Internal Rate of Return FM Financial Management FPCR Food Crisis Response Program Trust Fund GFRP Global Food Crisis Response Program GM Gross Margin GOL Government of Lao PDR Ha Hectare ICB International Competitive Bidding ICY Improving Crop Yields Project (ACIAR supported) IFAD International Fund for Agricultural Development IFR Interim Financial Report INGO International Non-government Organization IRRI International Rice Research Institute KDP Khammouane Development Project (H4040, H7560) LUFSIP Lao Upland Food Security Improvement Project (H5610) MAF Ministry of Agriculture and Forestry MoF Ministry of Finance ii

M&E Monitoring and Evaluation NAFES National Agriculture and Forestry Extension Service NAFReC Northern Agriculture and Forestry Research and Center NAFRI National Agriculture and Forestry Research Institute NCB National Competitive Bidding NGO Non-governmental Organization NGPES National Growth an Poverty Eradication Strategy PAFO Provincial Agriculture and Forestry Office PDO Project Development Objective PrMO Procurement Monitoring Office PRSP Poverty Reduction Strategy Paper RISEP Rice Seed Multiplication System Improvement Project RPIP Rice Productivity Improvement Project RRSMCs Rice Research and Seed Multiplication Centers SDC Swiss Agency for Development and Cooperation SIDA Swedish International Development Agency SMS Seed Multiplication Systems UNDP United Nations Development Program VDC Village Development Committee WFP World Food Programme WS Wet Season

Vice President: Ms. Pamela Cox Country Director: Ms. Annette Dixon Country Manager Ms. Keiko Miwa Sector Manager: Ms. Julia M. Fraser Project Task Team Leader: Mr. Paavo Eliste ICR Team Leader: Mr. Chanhsom Manythong

iii

LAO PEOPLE’S DEMOCRATIC REPUBLIC RICE PRODUCTIVITY IMPROVEMENT PROJECT

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 4 3. Assessment of Outcomes ...... 10 4. Assessment of Risk to Development Outcome ...... 14 5. Assessment of Bank and Borrower Performance ...... 15 6. Lessons Learned...... 18 7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors...... 19 Annex 1. Project Costs and Financing ...... 20 Annex 2. Outputs by Component...... 21 Annex 3. Economic and Financial Analysis ...... 21 Annex 4. Grant Preparation and Implementation Support/Supervision Processes ..... 32 Annex 5. Beneficiary Survey Results ...... 33 Annex 6. Stakeholder Workshop Report and Results ...... 35 Annex 7. Summary of Grantee's ICR and/or Comments on Draft ICR ...... 36 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 37 Annex 9. List of Supporting Documents ...... 42 MAP (IBRD36573) ...... 42

iv

A. Basic Information

LAO PDR: Rice Lao People's Country: Project Name: Productivity Democratic Republic Improvement Project Project ID: P114617 L/C/TF Number(s): TF-93614 ICR Date: 12/21/2012 ICR Type: Core ICR Lending Instrument: ERL Borrower: LAO PDR Original Total USD 3.00M Disbursed Amount: USD 3.00M Commitment: Revised Amount: USD 3.00M Environmental Category: C Implementing Agencies: Ministry of Agriculture and Forestry Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: Effectiveness: 03/02/2009 Appraisal: Restructuring(s): 12/15/2011 Approval: 01/13/2009 Mid-term Review: Closing: 12/31/2011 06/30/2012

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Satisfactory Unsatisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance:

i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately

Closing/Inactive status: Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 18 20 Crops 62 60 Public administration- Agriculture, fishing and forestry 20 20

Theme Code (as % of total Bank financing) Global food crisis response 100 100

E. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox James W. Adams Country Director: Annette Dixon Ian C. Porter Sector Manager: Julia M. Fraser Rahul Raturi Project Team Leader: Paavo Eliste Richard H. E. Chisholm ICR Team Leader: Chanhsom Manythong ICR Primary Author: Chanhsom Manythong Jean-Paul Chausse

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The main development objective would be to increase rice productivity and overall volume of rice production among smallholders in four selected provinces, thereby substantially increasing incomes and improving food security for small farm households. This would result in a very rapid reduction of seasonal and disaster related shortages of rice in the project areas, as well as reducing the impacts of rising food prices and population increases in the longer term.

ii Revised Project Development Objectives (as approved by original approving authority)

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Increase in yield (25%) of surplus rice (over consumption needs) 2,500 kg/ha in wet season 3,900 kg/ha in wet and 3,500 kg / ha in dry season and 4,400 3,125 kg/ha in wet Value season kg/ha in dry season season and 4,375 quantitative or kg/ha in dry Qualitative) 27 improved varieties 19 improved season 18 local varieties varieties produced 12 local varieties Date achieved 04/30/2010 03/02/2009 05/31/2012 Achieved. Average yield increase was 56% for WS and 26% for DS. Reduction Comments of number of varieties used by farmers is a good sign of sector development, (incl. % indicates increasing commercialization of rice and harmonization of quality of achievement) paddy for milling Increase in value of surplus rice produced (10%) by participating farmer groups Indicator 2 : compared to baseline Total paddy production per Total paddy production household 6,600 per household 4,750 kg. kg. Total Total production of rice production of rice after losses and seed use after losses and Value 2,489 kg; 10% increase seed use 3,482 kg. quantitative or Household rice equals to Kip 5.2 Household rice Qualitative) consumption 1,200 million consumption 1,200 kg/year. Surplus rice kg/year. 1,289 kg. Value of Surplus rice 2,282 surplus rice Kip 4.7 kg. Value of million. surplus rice Kip 6.7 million. Date achieved 04/30/2010 03/02/2009 05/31/2012 Achieved. Average value of surplus rice (in paddy equivalent) increased 43% Comments compared to target of 10%. Value of household paddy production increased by (incl. % 39% and household surplus rice increased by 77% over average household achievement) consumption of 1,200kg/year Decrease in number of months of rice shortage in participating Indicator 3 : households compared to baseline Value 2 months – 11% of the 1 month – 3% of quantitative or farmers the farmers Qualitative)

iii Date achieved 04/30/2010 05/31/2012 Achieved. Usefulness of this indicator was diminished by the absence of target Comments value. However, the benchmarking surveys show a significant decline both in (incl. % number of months and percentage of households on rice shortage which indicate achievement) satisfactory outcome

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Production of an incremental annual volume of quality seed Indicator 1 : (R1 foundation and R2 registered seed) of at least 140 tons from all participating centers R1 – 82 tons and R1 – 4.6 tons and R2 – R2 –2,608 tons Value 134 tons 140 tons of R1 and (quantitative R2 seed 19 improved or Qualitative) 20 varieties of rice seed varieties produced 12 local varieties Date achieved 04/30/2010 03/02/2009 05/31/2012 Comments Achieved. Stations and centers produced 2,690 tons of R1 and R2 seed over (incl. % project period. In average, annual seed production was 896 tons compared to 150 achievement) tons before the project 746 tons (about 500%) increased Both upland and lowland glutinous and non glutinous varieties available from Indicator 2 : seed centers and at least three varieties of seed from another center available at any one center 19 improved 27 improved varieties varieties 18 local varieties Value 12 local varieties produced (quantitative or Qualitative) 1 variety exchange No exchange of seed between stations – between the centres Napok to Thasano Date achieved 04/30/2010 05/31/2012 Target and purpose of the number of varieties produced by stations were unclear, Comments but trend indicates positive development of rice sector. Participating stations and (incl. % centers produced only lowland varieties since RPIP operated only in lowland achievement) provinces Farmer leaders able to coordinate own groups as a result of on station (at least 2 Indicator 3 : training days per annum) and in-field training (2 days per month per village) provided Project provided on average 6 days of Value No training provided per training per annum (quantitative annum and no in-field for each group (178 or Qualitative) training provided. groups) member, all in the field.

iv Date achieved 04/30/2010 05/31/2012 Comments It is not possible to measure "coordination" by group leaders. All group members (incl. % were exposed to the same training. Inappropriate indicator achievement) At least 75% of all seed produced is sold or transferred under the project to seed Indicator 4 : producers rather than being sold as paddy 4,417 tons of seed used by households; 1,651 tons was sold or exchanged with Value No seed sold or 75% of all seed other households; (quantitative transferred under the produced is sold or 1,692 tons sold as or Qualitative) project transferred paddy and 1,074 tons were own used and preserved by farmer groups Date achieved 04/30/2010 03/02/2009 05/31/2012 Partially achieved. The target was unrealistic in the absence of functional seed Comments markets. According to NAFRI data, 57% of seed produced under project was (incl. % used by households themselves; 18% was sold or exchanged with other achievement) households; 19% sold as paddy Number of farmer groups adopting and maintaining use of all or part of project Indicator 5 : input packages is at least 25% of all groups formed 25% of farmers 60 out of 178 groups (45 out of groups will Value No groups maintaining 178) adoption and continue to be (quantitative use of all or part of maintaining supported by the or Qualitative) project input packages project input Government seed packages stock program Date achieved 04/30/2010 03/02/2009 05/31/2012 Comments Achieved. At least 34% of farmers use of all or part of project input packages (incl. % based on the number of groups who will continue to produce seed under achievement) Government seed program. The actual value may be larger Proportion of rice production sold/traded as seed rather than used for Indicator 6 : consumption reaches 30% Value 25% of total rice No rice production 30% sold/traded as (quantitative seed produced is sold/traded as seed seed or Qualitative) used as seed Date achieved 04/30/2010 03/02/2009 05/31/2012 Comments Partially achieved. The target was too ambitions given the lack of functioning (incl. % seed markets in Laos achievement) Indicator 7 : Incomes of participating farmers in groups increase by at least 20% Returns to family labor Returns to family for WS rice labor for WS rice Value Kip26,591/day Incomes increase Kip 36,518/day (quantitative by at least 20% or Qualitative) Returns to family labor Returns to family for DS rice labor for DS rice

v Kip36,039/day Kip 46,381/day Date achieved 04/30/2010 03/02/2009 05/31/2012 Comments Achieved. Return to family labor is used as proxy for income. Returns to labor (incl. % increased 37% for WS paddy production and 29% for DS paddy production. achievement) Number of months of rice food insecurity in participating households declines by Indicator 8 : an average 80% by project end Value 2 months – 11% of the 1 month – 3% of (quantitative 80% decline farmers the farmers or Qualitative) Date achieved 04/30/2010 03/02/2009 05/31/2012 Achieved in spirit. The target was not based on actual food security baseline Comments data. However, the number of months of rice insecurity declined 50% (from 2 (incl. % months to 1) and percentage of rice food insecurity household declined 73%, achievement) indicate a good result Project management team established in NAFRI using own systems and Indicator 9 : operating with staff experienced in World Bank procurement and safeguards methodologies Total of 9 persons Value active including (quantitative Project team active management, FM, or Qualitative) procurement, M&E and actuarial staff Date achieved 04/30/2010 05/31/2012 Comments Achieved. No specific qualitative or quantitative baseline values or targets were (incl. % established for this indicator. Project management team was fully functioning achievement) Baseline survey, group formation methodology and monitoring surveys in Indicator 10 : proposed demonstration areas completed on time Value Baseline survey (quantitative completed or Qualitative) Date achieved 05/31/2012 No baseline values or targets were established for this indicator. Baseline survey Comments was completed with slight delay but benchmarking surveys were carried out on- (incl. % time. Quality of the baseline and benchmarking surveys was good and provided achievement) adequate data Improvement in output and productivity in target areas quantified in terms of Indicator 11 : both quality and quantity through timely data analysis Regular system of Value field and office (quantitative reports as a result of or Qualitative) M&E Date achieved 05/31/2012 No specific qualitative or quantitative baseline values or targets were established Comments for this indicator. However, baseline and benchmarking surveys quantified well (incl. % the improvement of output and productivity in target areas through timely data achievement) analysis

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G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 08/04/2009 Moderately Satisfactory Moderately Satisfactory 0.15 Moderately Moderately 2 06/29/2010 0.29 Unsatisfactory Unsatisfactory Moderately Moderately 3 03/15/2011 0.67 Unsatisfactory Unsatisfactory Moderately Moderately 4 07/21/2011 0.88 Unsatisfactory Unsatisfactory 5 12/22/2011 Moderately Satisfactory Moderately Satisfactory 1.47

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions The Grant Closing Date was extended at Government request from December 31, 2011 to June 30, 2012 to (a) complete the delivery of farm and seed processing equipment under Component 1: Support to Rice Seed Multiplication Stations; 12/15/2011 N MU MU 1.30 and (b) uncommitted fund of $302,590 to provide emergency assistance to 4,000 households affected by Typhoons Haima (July 2011) and Noktent (August 2011) in Khammouane, Sanvannakhet and Champasak Provinces.

vii I. Disbursement Profile

viii 1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

In 2008, rural poverty in Lao PDR was high as two-thirds of the rural population, or 71% of the country’s total, was considered as having a weak livelihood base, putting them at risk of facing one or more shocks per year. In addition, chronic malnutrition was severe and every second child in rural areas was chronically malnourished. This situation changed little despite the country’s rapid economic growth over the last decade. Although average rice yields improved from 3.1 tons/ha in 2001 to 3.5 tons/ha in 2007, productivity growth rates in Lao PDR lagged behind rates of productivity growth of neighboring countries like Vietnam and Cambodia. The average annual paddy production growth rate was about 2.2% over 2001-2007, which was below the population growth rate of 2.5% per annum.

By appraisal in September 2008, Lao PDR was facing serious food security challenges, with parts of the population experiencing the compounded effects of surges in food and agricultural input prices and a record flood earlier in 2008 which caused significant losses in paddy production. Only about one-third of the Lao population was considered fully food secure in terms of 12 month rice availability. Food insecurity among the uplands population was particularly problematic with rice shortages for at least three to four months each year, especially in the mid-to late wet season. The food price index, which normally varied by only 6 to 8% annually, rose by around 40% starting November 2007 and was a severe blow to rural households already on a precarious footing.

The Government of Lao PDR (GOL) recognized the growing problem of food insecurity, income disparities and seasonal shortages of food, particularly in its 47 poorest districts, and set food production and food security as high priority agricultural goals. GOL’s strategy focused on four measures: (i) improved availability and quality of seed varieties; (ii) establishment of village development groups to promote development at grassroots level; (iii) establishment of production groups in pilot areas to promote production, processing and marketing activities; and (iv) increased agricultural productivity through new technology (fertilizers, compost, quality seed and advanced breeding). In particular the strategy called for increased capacity of seed multiplication centers and extension service delivery to farmers. However, GOL lacked the resources to implement this strategy effectively, but recognized the need to respond urgently given the burgeoning food crisis. This was the basis for GOL’s request to IDA for the Rice Productivity Improvement Project (RPIP).

Rationale for IDA involvement. The RPIP was fully in line with the 2005 Country Assistance Strategy (CAS) (2005-08) which had been designed to support GOL’s National Growth and Poverty Eradication Strategy (NGPES) and, within this framework, to support key drivers of future growth, better targeting of social outcomes and a reduction in the population’s vulnerability through strengthened service delivery capacities and targeted poverty reduction programs. In the agricultural sector, IDA assistance focused on strengthening institutional capacity to support a diversified and

1 modernized agricultural sector; promoting sustained and equitable rural growth; and improving the ability of farmers and rural communities to respond to improved market opportunities. The RPIP complemented other projects in IDA’s portfolio, which focused on food security and poverty alleviation, as well as projects financed by other donors.

Global Food Crisis Response Program (GFRP). Laos had been clearly impacted by the rising food prices and severe flooding, and as such, the project fell within the mandate of the GFRP established in May 2008. The project did not focus on the immediate emergency response of the 2008 floods (distribution of food, seeds and/or fertilizer), which was left to other donors better equipped for such emergency response. Rather, the RPIP focused on addressing constraints related to: (a) improving seed availability to farmers to increase domestic rice production and productivity; (b) improving food access for the poor; (c) raising the incomes of (predominantly poor) rice producers; and (d) improving the country’s ability to manage grain price volatility and to cushion future domestic supply shocks.

1.2 Original Project Development Objectives (PDO) and Key Indicators

The PDO was to increase rice productivity and overall volume of rice production among smallholders in selected provinces, thereby increasing incomes and improving food security for small farm households. This would result in reducing the seasonal and disaster-related shortages of rice in the short run, as well as reducing the impacts of rising food prices.

The key Outcome Indicators were: (i) increase in yield (25%) of surplus rice (over consumption needs); (ii) increase in value of surplus rice produced (10%) by participating farmer groups compared to baseline; and (iii) decrease in number of months of rice shortage in participating households compared to baseline.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification.

The PDO and key indicators were not revised.

1.4 Main Beneficiaries

Original. The project’s direct beneficiaries were to be the members of about 200 seed multiplication groups of about 20 farmers each (in the same number of villages), or about 4,000 households, in 20 districts of four participating provinces: Khammouane, Savannakhet, Champassak and Saravan. Participating households would benefit from increased production and incomes, and improved food security. Other direct beneficiaries included the State Research and Seed Multiplication Centers (Naphok Central Seed Station in Vientiane; Provincial Agricultural Training Center of Khammouane Province; Thasano Seed Station of Savannakhet Province; Nongdaeng Crop and Livestock Research Center of Salavan Province; and Phonengam Agriculture and Forestry Research

2 Center of Champassak Province) which received equipment and operating capital to improve their capacity to produce and condition seeds of improved rice varieties.

Indirect but significant beneficiaries would be other farmers in the project villages who, although not participating in seed multiplication activities, would gain access to improved seeds produced by the groups by trading their own paddy production against improved seeds. The EPP estimated that potentially more than 200,000 households could benefit from the improved seed produced as a result of the project.

Revised. The project provided emergency assistance to 4,000 households who were affected by Typhoons Haima (July 2011) and Nock-ten (August 2011), that caused significant damage in Khammouane, Savannakhet and Champasak.

1.5 Original Components

The project comprised three components:

Component 1: Support to Rice Research and Seed Multiplication Centers (base cost $1.32 million, 44% of the project cost). This component aimed to support production of larger quantities of high quality rice seed varieties – breeder seed (BS), foundation seed (R1) and registered seed (R2) -- appropriate for different conditions in Government Rice Research and Seed Multiplication Centers (RRSMCs) for later multiplication as certified seed (R3) by farmer groups under Component 2. The project provided critical equipment and infrastructure for seed production and conditioning, including drying, grading, packaging, cool storage, as well as small training facilities and transportation at the beneficiary government research centers and seed multiplication stations.

Component 2: Support to Farmer Seed Groups and On-Farm Demonstrations (base cost $1.09 million, 36.3% of the project cost). The component established and supported a system of seed multiplication by small farmers’ groups (up to 200 farmer groups of about 20 farmers each in about 70 Khum Bahns in the four participating provinces). The system was based on the use of modern, high-yielding technical packages as the basis for broader dissemination of seed multiplication technology and scale-up of improved seed use. The project aimed to support farmer groups over six crop cycles (three years), with each group receiving support for two consecutive cycles. Technical support and monitoring were to be provided by participating Seed Multiplication Stations and Provincial and District Agricultural and Forestry Offices (PAFOs and DAFOs), with the assistance of Junior Consultants (recent agriculture college graduates) specifically recruited and trained for this purpose by the project.

Component 3: Management Monitoring and Evaluation (base cost US$0.59 million, 19.6 % of the project cost). The component supported overall project management and coordination, and establishment and implementation of a detailed monitoring and evaluation (M&E) system. Capacity building was to include training of agricultural college students to prepare them for a future role as agriculture technicians.

1.6 Revised Components (restructuring) N/A

3 1.7 Other significant changes

In the aftermath of typhoons Haima and Nock-ten, GOL requested a restructuring to (i) extend its closing date by six months until June 30, 2012, to complete ongoing delivery of farm and seed processing equipment; and (ii) use the uncommitted Grant amount of US$302,590 to purchase 240 tons of improved rice seed varieties from project seed multiplication groups for distribution to about 4,000 typhoon-affected households to restore their rice production in the following crop season. The request was approved on December 15, 2011 and the Grant Agreement amended accordingly.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

Soundness of background analysis. As noted in Section 1.1 above, the RPIP was prepared as an emergency project through the newly created GFRP. Therefore, there was no time to carry out sector analytical work. The Bank team processed the entire operation in roughly six months (August 2008 to January 2009). The main principles of the design were based on the experiences and lessons of other donor-funded projects in Laos such as the Rice Seed Multiplication and Distribution System Improvement Project (RICEP) funded by the Japan International Cooperation Agency (JICA) and the Increasing Crop Yields Project funded by Australian bi-lateral aid (Aus-AID). The design was also informed by analytical work on the impact of improved seed use on paddy rice yield by the World Food Programme (WFP), as well as research and demonstrations on rice seed use and production systems done by the Australian Center for International Agricultural Research (ACIAR) and the International Rice Research Institute (IRRI). All these projects and analytical work provided evidence of the significant impact of improved seed and fertilizer inputs on rice productivity.

Assessment of the project design. Overall, the project design was generally consistent with internationally and regionally recognized principles of farmer group-based seed multiplication systems, and it aimed at combining efficiency in food production by focusing on the major rice production provinces in the Mekong plains, which had the greatest capacity to respond quickly to the food crisis, while retaining a poverty reduction focus through targeting more remote districts, ethnic minorities and less commercialized farmer groups. The criteria used for the selection of participating villages rightly included the level of poverty and labor requirements. Implementation arrangements were in line with the national institutional framework, with overall coordination responsibility given to the National Agriculture and Forestry Research Institute (NAFRI), which had a mandate for seed production and was also responsible for the implementation of GOL’s rice production program. The day-to-day implementation of field activities was the responsibility of the provincial Seed Multiplication Stations (SMS) in close collaboration with PAFOs and DAFOs.

However, the design also had some shortcomings. First, there was a lack of recognition of the weaknesses in the institutional and policy environment of the seed sector, which

4 affected the capacity of SMS as much as lack of equipment and years of under investments. In this regard, while the investment in SMSs under Component 1 were generally well justified, there should have been a better balance between Component 1 and 2, with more weight given to latter. Under Component 1 priority should have been given to management and technical capacity building of seed stations, development of seed distribution systems to reach end clients, and production of R1 and R2 by providing sufficient operational funds.

Secondly, the design assumed that (i) farmer groups established under the project would become reasonably efficient producers of good quality seeds after receiving project assistance for only two cropping cycles; and (ii) these groups would be able to sell a significant share of their seeds to the local market at prices higher than paddy. These proved to be unrealistic assumptions. While limiting support for two crop cycles aimed to reach a larger number of farmers, thus broadening the project impact, evidence from implementation showed that even experienced farmers required significantly longer support to be able to produce quality seed. Also, very few non-project farmers were willing to buy improved seeds at prices higher than paddy, and farmers found it difficult to market their seeds more widely in the absence of seed distribution systems.

PDO and Indicators. The PDO was straight-forward, although it was not entirely clear whether the focus of the project was on short-term emergency response measures or the longer-term objective of a sustained supply response to the demand for improved seeds. It was therefore assumed for the purpose of this analysis that the primary focus of the PDO was to address the constraints for longer-term seed supply response. The outcome indicators indicate that the expected project outcomes applied directly to smallholders participating in seed multiplication activities, rather than the broader spectrum of farmers in project provinces. Furthermore, purpose and formulation of some PDO outcome indicators could have been clearer and more monitorable. As an example, the selected indicator “Increase in yield (25%) of surplus rice (over household consumption needs)”, mixed production and consumption data, making its measurement challenging.

The Intermediate Results for each component were generally clear and well-targeted to the components’ overall objectives. However, it was unclear how project performance against the main result indicator for Component 1 -- “An increase in the capacity of the participating research centers and seed multiplication stations to sustainably produce larger quantities of high quality seed (breeder, foundation and registered seed according to demand” as measured by “an increase of around 140 tons in the volume of production of R1 foundation and R2 registered seeds from all of participating centers” -- was to be assessed. Indeed, centers’ capacity to produce good quality seeds depended on both supply and demand factors, so the “incremental production potential” linked to the project’s specific support was not easy to measure.

The main intermediate result of Component 2 appears to have been unrealistic. Indeed, although demonstrating the benefits of using improved seeds to farmers was a reasonable objective, the “establishment of a (sustainable) system of seed multiplication by small farmers’ groups that would start the process of creating a sustained demand for high

5 quality seed and other inputs” was overly ambitious for an emergency operation with a relatively short (three year) implementation period. The overall PDO itself (increase rice productivity and overall volume of rice production among smallholders in selected provinces, thereby increasing incomes and improving food security for small farm households”) was achievable during the project period. However, the sustainability of maintaining improved yield levels cannot be measured so soon after project closing as farmers will have to renew seeds only every three to four years.

Adequacy of GOL commitment. The project was in line with GOL’s poverty reduction, food security and agricultural strategies. It specifically addressed two central measures of GOL agricultural development policy: (i) improving producers’ access to quality rice seed of improved rice varieties; and (ii) establishing village-level seed production groups in pilot areas which were expected to serve as demonstrations and eventually increase demand at grassroots level. GOL was fully committed to its objectives and implementation.

Assessment of risks. The Emergency Project Paper (EPP) assessed the overall risk level as “moderate”, and identified four specific risks: (i) delays in procurement (“moderate”); (ii) weak technical support at field level (“moderate”); (iii) misuse of inputs by farmer groups (“moderate”); and (iv) fiduciary risk (“substantial”). The primary risk was NAFRI’s weak financial management (FM) and procurement capacity. The Bank’s FM capacity assessment found that, although NAFRI was operating in a high risk environment, it had experience in managing several donor-funded projects. Because fiduciary risk was assessed as “substantial”, several risk mitigation measures were incorporated into the project’s design, albeit there were still implementation delays at start-up as discussed in Section 2.4.

The risk that was not identified in the EPP was the effect of the overall rice policy environment which affects farmer incentives and welfare, such as ad hoc export bans and price controls, as well as years of under-investments in supplementary public goods and services in general (roads and irrigation infrastructure, extension). (These issues are now being discussed under the preparation of GOL’s new rice sector strategy.) Addressing such policy risk was clearly beyond the scope of an emergency operation, but the risk should have been recognized and project design should have been adjusted accordingly. Finally, the EPP did not identify risks due to adverse climatic events even though it correctly recognized them as recurring events.

Overall, considering the shortcomings in design and the risk assessment, the project’s Quality at Entry is rated Moderately Unsatisfactory (MU).

2.2 Implementation

Overall, project implementation was satisfactory, driven largely by the leadership of NAFRI and the commitment of the technical staff at provincial and district levels. There were, however, several issues that limited the effectiveness of project implementation outcomes.

6

Weak procurement capacity. Serious and recurrent problems with the management of procurement activities arose which were largely related to the low quality of bidding documents. The recruitment of an international procurement consultant as required under the Grant Agreement to strengthen NAFRI’s implementation capacity in this respect was a condition for disbursement for civil works and goods. Although the Grant Agreement became effective on March 3, 2009, this recruitment was completed 14 months later. The procurement process for the civil works and equipment for improving participating Seed Centers’ capacity to produce good quality R1 and R2 seeds was initiated only at project mid-point. It was then plagued further by various processing difficulties, and as a result, was not fully completed by the initial Grant closing date of December 31, 2011, necessitating a six month extension. In the end, the late delivery was not a serious constraint, as this equipment was found not to be as binding a constraint to seed production as assumed at appraisal.

Typhoons in 2011. As mentioned above, two devastating typhoons hit three of the four project provinces in the summer of 2011. Overall, 564,000 households were severely affected by the flooding and nearly 75,000 ha of rice fields were destroyed. GOL requested that the project balance of $302,590 be used to distribute free project-produced seeds to about 4,000 households in project’s districts to restore their rice production the following crop season. This was agreed during the December 2011 restructuring.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

M&E design. The EPP included a detailed description of the M&E system to be established to collect and analyze progress against the PDO and the components’ intermediate results. The system design and its specific indicators were fair. Indicators were generally pertinent to assess: (i) the impact of the project on the capacity and efficiency of participating stations in producing R1 and R2 seeds and providing technical support (training) to farmer groups in R3 multiplication (Component 1); (ii) the impact of good seed use on rice productivity, farmers’ incomes and food security (Component 2); and (iii) overall quality of project implementation (Component 3). However, some indicators should have been formulated more clearly as discussed in section 2.1 above, and there was duplication of information between some indicators. Still, the indicators were appropriately focused on the efficiency of the delivery of inputs (R1 and R2) and outputs (R3), given the short implementation period.

M&E implementation and utilization. The detailed M&E design and implementation were contracted to an international non-governmental organization (INGO), which had appropriate capacity to do this under a short timeline. This arrangement resulted in a satisfactory outcome. Considerable preparation work was carried out in preparation of the baseline survey (guidelines for and training of field enumerators) and a total of six surveys were completed providing detailed coverage of project activities during a two year period: the baseline survey, a final impact survey and four benchmarking surveys covering four intervening crop cycles (from the wet season 2010 to dry season 2011/12). The surveys were of good quality and provided data to adequately monitor the project

7 progress. However, the baseline survey was carried out late - more than a year after effectiveness, so the true situation at appraisal in 2008 is not known.

2.4 Safeguards and Fiduciary Compliance

Environmental Safeguards. The project was correctly classified as category C as it did not finance any agrochemicals beyond limited amounts of fertilizer. Seed and fertilizer packages distributed to farmer multiplication groups would be accompanied by the necessary instructions on proper uses. Simple Environmental Guidelines were prepared and included in the Project Operational Manual. The project also provided on-the-job training and related extension materials on seed and fertilizer use.

Social Safeguards. The project’s social impact was expected to be positive. The EPP paid specific attention to social issues both for the selection of target districts and for ensuring the participation of ethnic minorities. Participating districts and villages were selected through criteria, which took into account poverty levels. The EPP correctly identified that the Indigenous People Policy (OP/BP 4.10) would be triggered under Component 2 and the Grant Agreement required that an Ethnic Minority Participation Framework (EMPF) be adopted not later than one month after effectiveness to ensure the effective participation of minority ethnic farmers in the seed multiplication activities and benefits. Although the EMPF was finalized with some delay (June 30, 2010), project management and the Bank team paid specific attention to this issue well before its final approval: out of a total of 4,616 farmer households participating in the 178 rice seed production groups, 1,379 (30%) farmers come from ethnic minority groups. Participation by ethnic farmers in the rice seed production groups varied from 40.5% in Khammoune to 7.3% in Champasack, which is consistent with the share of these groups from provincial populations. No major concerns were raised by ethnic farmers during project implementation. The project technologies to improve rice productivity were generally appropriate for ethnic farmers. All ethnic farmers expressed interest in participating in RPIP and expressed their satisfaction with benefits received.

Financial Management. The project’s financial management arrangements complied with the Bank’s requirements per OP/BP 10.02. All annual external audits were unqualified. The project met eventually all Financial Management covenants of the Grant Agreement, although there were delays in implementing some measures. A number of FM risks were identified throughout project implementation. There was also a high turnover of national FM staff at the beginning of the project, and an international FM consultant was recruited only in early 2011. This expert was shared with the ongoing Lao Upland Food Security Improvement Project (LUFSIP, H5610). The computerized accounting system, which was also procured jointly with LUFSIP, was not operational until mid-2011 and project accounts and IFRs had to be produced manually, which was prone to errors. Central and provincial staff training was also late. The FM capacity at provincial and district levels was very limited and weak backstopping from the central level resulted in poor accounting documentation, delays in submission of withdrawal applications and generally sluggish disbursements. FM risk was consistently assessed as substantial until closing.

8 Procurement. There were no major issues regarding compliance with procurement policy and guidelines. Most of the procurement of goods, works and services was conducted at national level on the basis of satisfactory annual procurement plans and standard procedures. However, there were delays in procurement activities due to NAFRI’s weak capacity as mentioned above. The EPP identified the need to strengthen NAFRI’s capacities in procurement. However, there were delays in recruiting the necessary staff (due to difficulties in mobilizing the necessary expertise on the local market) and this negatively impacted procurement progress, particularly under Component 1. As in the case of the international FM expert, it was decided that the procurement specialist would be shared with LUFSIP. NAFRI’s performance improved gradually thereafter.

2.5 Post-completion Operation/Next Phase

There is no direct follow-up to RPIP which was designed as an emergency response to the 2008 food crisis. However, some of its seed multiplication activities will be continued under the LUFSIP and the ongoing Khammouane Development Project (KDP, Grants H4040 and H7560). In addition, the project had some positive impacts on GOL’s strategy for the development of the rice and seed sector (with on-going with Bank assistance).

 The project demonstrated that in addition to lack of equipment, the other constraint for Seed Centers to produce quality R1 and R2 seeds was lack of operational funds, which forced seed stations to engage essentially in commercial seed production activities where seed produced by project farmers was processed by stations and sold to development projects and donors. This was encouraged by GOL, which provided seed stations only with recurrent funds to cover staff salaries but not for operating costs, which were expected to be covered by the stations themselves through their seed production activities. It thus highlighted the need for reform of seed production systems through a combination of allocation of core public funding for those functions which have a clear public goods nature, such as production of breeder and R1 seed, and gradual privatization of more commercial functions, such as R2 and R3 production, and associated development of private seed distribution systems.

 RPIP did manage to link a number of its seed producer groups to markets or follow- up activities. Some 10 to 20 project farmer groups were linked to millers who purchased R3 seeds for their contract farming operations under the European Union- funded Enhancing Milled Rice Production Project. These groups stand a good chance to continue their seed production activities on commercial principles. Another 60 groups (34%) out of those supported by RPIP will continue to participate in GOL’s new seed production program for which it has a dedicated budget of 22 billion Kip or $2.75 million over 2012-2015 for the production of seed stocks to respond to emergency situations. GOL’s decision to allocate its own funding for its seed production program was partly driven by evidence of success of RPIP seed multiplication activities.

9 3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation arrangements

Rating: Satisfactory

The objectives of increasing rice productivity and volume of production were highly relevant during the 2008 food crisis. Although the food crisis has subsided, the population of Laos continues to grow, and the country still needs to meet a growing rice demand, so increasing rice production and productivity remains fully relevant. The objectives were aligned with the country development and agriculture sector agendas at the time of preparation and remain so today. GOL’s strategy, as stated in the NGPES, was and still is, to eradicate poverty, in particular in rural areas through “improving livelihood and food security through agriculture (crop and livestock activities)”. The project coverage of priority poverty districts and its criteria for selecting participating villages and households were also in line with the NGPES. Its focus on improving rice productivity and production was in line with Government National Strategy for Agriculture and Food Security and it is still at the core of GOL’s new rice development strategy (under preparation). Finally, the project helped enhance the country’s capacity to respond to the effects of adverse climatic events, which is fully consistent with the mandate of the Bank’s GFRP and remains very relevant to the country’s disaster-prone main rice producing regions.

3.2 Achievement of Project Development Objectives

Rating: Moderately Satisfactory

Assessment of achievement of the PDO is based on the degree to which the project achieved its outcome and intermediate results indicators as determined by the project baseline and benchmarking surveys (see Annex 2 for detail). The achievement of the PDO can be assessed along the four dimensions included in the PDO formulation.

 Increasing rice productivity among smallholders in selected provinces

Increase in yield (25%) of surplus rice (over consumption needs): Rice yields in the wet season increased from 2.5 tons/ha in 2009 to 3.9 tons/ha in 2011 and from 3.5/ha to 4.4 t/ha in the dry season. These incremental yields are consistent with total average incremental yield increases of 1.2 tons/ha over wet and dry seasons as projected at appraisal. The yield increases are directly attributable to the provision of seed, fertilizer and training by the project (see tables 1 and 2 and Annex 2 for details). Research by ACIAR and IRRI from Laos shows that using good seed of improved varietals, ceteris paribus, would increase rice yields by at least 15-25%. This, when combined with increased application of fertilizer, which was not widely practiced in the wet season, coupled with farmer training, led to a 56% increase in wet season yields. Increases in dry season yields of 26% are mostly attributable to introduction of good seed as farmers already used fertilizer for dry season paddy. The average rural household surplus of rice,

10 after meeting consumption requirements, increased from 1,289 kg per household before the project to 2,282 kg per household at closing. As a result, the contribution of the project to increasing yields and household surpluses is satisfactory.

 Increasing overall volume of rice production among smallholders in selected provinces

The project established 178 farmer multiplication groups comprising 4,600 families compared to the original target of 4,000 families. These farmers produced an additional 9,066 tons of R3 equivalent seeds over six cropping cycles. It was estimated that 29% of the seeds produced during the 2011 wet season were used as seeds (sold, exchanged or own use) and 71% as paddy (sold or consumed), very close to the target result of “at least 30%”. The M&E system did not provide information about the proportion of the farmers participating in seed multiplication groups who adopted and are maintaining the use of all or part of project input packages (target result: “at least 25%”). However, about 60 groups will continue to participate in government rice seed production programs as a conservative lower bound estimate. As such, at least 34% of seed multiplication groups maintain the use of all or part of project input packages. Due to lack of data on the proportion of farmers adopting and maintaining project inputs, achievement of this part of the PDO is lowered to moderately satisfactory.

 Increasing incomes for small farm households

Increase in value of surplus rice produced (10%) by participating farmer groups: The value of wet season rice (in paddy equivalent) increased from Kip 4.7 million “without project” to Kip 6.7 million “with project” or a 45% increase. It should be noted that price levels of paddy in 2012 were about 20% lower than in 2008. Therefore, the evaluation of incomes used a gross margin (GM) approach as a proxy. The GM for paddy production increased from Kip 2.9 million to Kip 4.2 million per hectare for wet season (74%); and Kip 3.9 million to Kip 5.7 million per hectare (45%) for dry season paddy. The GM for R3 seed production increased from Kip 2.9 million to Kip 5.6 million per hectare (95%) for wet season; and from Kip 3.9 million to Kip 7.5 million (90%) for dry season paddy. The return to family labor for wet season paddy was $3.3/day without project, compared to prevailing off-farm wage rates of $4.5/day. The without project return to labor for dry season paddy was $4.5/day. End of project return to labor for wet season paddy production rose to $4.6/day (37%) and for dry season paddy to $5.8/day (29%). The return to labor for wet season R3 production was $5.1/day (55%) and $6.3/day for dry season R3 (40%). As a result the achievement of this part of the PDO is considered to be satisfactory.

 Improving food security for small farm households

Decrease in number of months of rice shortage in participating households: According to the project M&E data, 11% of the households participating in seed multiplication groups were food insecure with, on average, a two month rice shortage per year before the project. At the end of the project, only 3% households were food insecure and their

11 monthly deficit had dropped to one month. Food security analysis showed that average production of wet season paddy per household increased from 4,750 kg of paddy under baseline conditions to 6,600 kg of paddy under at the end of project. The surplus milled rice increased from 2,489 kg per household to 3,482 kg per household (39% increase). Using an estimate of 200 kg per capita rice consumption among rural populations, the annual food consumption requirements of the average rural household with six members would be about 1,200 kg. The marketable surplus of rice has thus increased from 1,289 kg per household under baseline conditions to 2,282 kg per household at the end of the project. As a result the achievement of this part of the PDO is considered to be satisfactory.

Other unintended outcomes and impacts. At GOL’s request, the project was restructured to contribute to the emergency response to damage caused by Haima and Nock-ten Typhoons (July and August, 2011) in three project provinces (Khammouane, Savannakhet and Champasak). A total of 420 tons of high quality R3 seed were procured from project farmers and distributed to 4,000 affected families to permit the planting of 4,000 ha of rice during the 2012 wet season, thus creating a market for R3 seed while addressing emergency recovery needs.

The project results may have indirectly influenced GOL’s decision to dedicate a budget of 22 billion Kip (US$2.75 million equivalent) over 2012-2015 for a seed production program. This is the first time GOL has allocated such a substantial amount for targeted seed production activities.

The actual impact of the project was wider than just the direct beneficiaries -- farmers participating in seed multiplication groups. Many non-participating farmers living in the project villages exchanged paddy against the seeds produced by participating farmers on one-to-one basis, to test the new varieties. According to data from NAFRI, about 572 tons of seed were exchanged against paddy over the project life. Assuming a seeding rate of 100 kg/ha (20% more than project farmers), this would yield about 5,100 ha of sown area under good seed and about 4,300 hectares harvested after crop losses. Assuming conservatively a 15% incremental yield increase as a result of using good seed, ceteris paribus, the incremental production would be about 1,900 tons of paddy over the life of the project or $553,000 using economic net incremental value estimates.

3.3 Efficiency (Satisfactory)

As this was emergency project, a conventional economic and financial analysis was not carried out during appraisal. The EPP included crop budgets for rice paddy and seed production for “with” and “without” project scenarios for return to labor calculations. Similar crop budget analysis was carried based on the M&E data and the Lao PDR Rice Sector Study (see Annex 3 for details).

Paddy production gross margin analysis. The Gross Margin (GM) analysis shows that paddy (R4) production is a relatively marginal economic activity under “without project” scenarios at 2012 farm-gate prices of 1,800 Kip per kg for wet season paddy and 2,000

12 Kip per kg for dry season paddy. The “without project” return to family labor for wet season paddy was $3.3 per day, which is below prevailing off-farm wage rates of $4.5 per day. The “without project” return to labor for dry season paddy production was $4.5 per day. Under the “with project” scenario, return to labor for wet season paddy production rose to $4.6 per day (37% increase) and for dry season paddy to $5.8 per day (29% increase). These estimates are lower than return to labor calculations done during appraisal (about $9 per day for wet season paddy and $13.5 for dry season paddy). There may be two reasons for that: (a) a methodological difference of construction of farm budgets and underlying assumptions as no details of the appraisal farm model calculations were available; and (b) the difference in price levels. The average paddy prices in 2008 were 2,226 Kip per kg. Applying this price to the GM models would increase the “with project” return to labor for wet season paddy production to $6.4 per day and to dry season paddy to $6.8 per day.

R3 production gross margin analysis. The results show that the “with project” return to labor increased to $5.1 for wet season R3 production (55% increase) and $6.3 for dry season R3 production (40% increase).

Food security analysis was carried out using farm budgets for wet season paddy production. Results show that the marketable surplus of milled rice increased from 1,289 kg per household under “without project” scenario to 2,282 kg per household under “with project” scenario (77% increase). The value of rice in paddy equivalent increased from Kip 4.7 million “without project” to Kip 6.7 million “with project” due to higher price levels in 2008. Benchmarking survey data shows that only 3% of rural households experienced rice shortages equivalent to one month’s rice consumption.

Benefit-Cost Analysis (BCA) was carried out only for activities under Component 2. BCA was not carried out for investments under Component 1 which supported rice research and seed multiplication centers to due difficulties in attributing the values for the public good and services generated by these investments. Benefit-Cost Ratio (BCR) from incremental paddy production by 178 target farmers over six cropping seasons was 1.2. The BCR of 1.2 should be treated as a conservative lower bound estimate. The reasons why BRC is underestimated are two-fold. First, it does not consider the economic value of R3 seed production due to difficulties of assigning economic values for R3 seed which is currently not traded in private markets in Laos, nor with neighboring countries. Secondly, it does not account for possible incremental production through area expansion. It is assumed that all incremental production comes only from yield improvements, while in reality some R3 seed production could have come from additional land being brought under production. In sum, the BCA shows that project investments on seed multiplication activities were relatively efficient.

3.4 Justification of Overall Outcome Rating

Rating: Moderately Satisfactory. A moderately satisfactory overall rating is fully justified on the basis of: (i) satisfactory relevance of PDO; (ii) moderately satisfactory achievement of outcomes; and (iii) satisfactory efficiency. Even though the project met

13 most of its key performance targets, achievement of outcomes is rated Moderately Satisfactory due to the shortcoming in the design and measurement of some indicators cited in Section 2.1 significant risk to development outcomes cited in Sections 2.1 and 4.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

The project had a strong poverty alleviation focus and impact with eight of its 29 target districts (28%) being among GOL’s 47 poorest priority districts. Overall, 30% of the 4,600 families participating in seed multiplication groups were from ethnic minorities. Project benefits included incremental income increased (see Annex 3) and improved food security as cited above. There is no available information regarding the gender dimension of project design and impact. Finally, the seed purchased from project farmers was provided to 4,000 flood-affected farmers in three provinces, giving them the means to restore their livelihoods and address food security concerns.

(b) Institutional Change/Strengthening

While the project did not directly trigger institutional reforms needed to improve the performance of the rice seed sector, it did expose the key weaknesses in the current system, such as lack of demand planning for seeds and the need for the involvement of the private sector in seed production and distribution. This has influenced the GOL’s thinking and initiated the internal discussions on this matter. The principle decisions were to set up a National Seed Board, privatize some seed stations, and establish steps for seed quality control, and GOL took some concrete regulatory steps, such as preparation of a draft Seed Law and seed quality control guidelines by MAF. Some of these measures are being supported under LUFSIP which is scheduled to close in December 31, 2014. However, any substantial reforms in the seed sector will depend on GOL’s willingness to liberalize rice and paddy exports and refrain from price-setting interventions, which have negative effects on farmer welfare.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

There was no beneficiary/stakeholder workshop. Six beneficiary benchmarking surveys were conducted by the INGO under the project’s M&E. Their findings have been taken into account in the assessment of project’s achievements.

4. Assessment of Risk to Development Outcome (Rating: Significant)

The project has generated significant direct benefits to its target farmers and near-by non- project households. However, there is a risk of not sustaining these outcomes due to the following two factors, both of which are rated as significant:

 Government sector policies. The sustainability of the project’s outcome would require that farmers renew their seeds regularly (every three to four years) to maintain their

14 productive potential, and make rational use of fertilizers. However, current government policies and market structures are not supportive of farmers’ continued adoption of these technologies for two reasons: first being limited access to good quality seeds due to lack of distribution channels; and second being the negative impact of GOL trade policies on the profitability of rice production and thus on farmer welfare, namely discretionary export bans imposed at central and provincial levels on rice exports, which depress farm-gate prices and thus farmers’ willingness to adopt new technologies. Elimination of these policy distortions is thus a key condition for sustainable development of the rice and rice seed sector in Laos.

 Natural disasters. Laos has been subject to natural disasters (floods and droughts) that occur regularly, and with climate change, this unfortunate pattern is likely to continue and perhaps intensify. The recurrence of natural disasters regularly destroys the productive assets of smallholders in the project’s areas. The country’s capacity to quickly respond to these emergencies has been limited both financially and in terms of institutional preparedness. While GOL has been addressing emergency preparedness through preparation of disaster risk management plans and lately by allocating its designated budget funds to establish emergency rice seed stocks, the effectiveness of these measures remains to be tested, as it will take time to establish robust and functioning emergency preparedness/response systems.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry (Rating: Moderately Unsatisfactory)

The project was prepared and processed efficiently (in six months) as an emergency operation under OP/BP 8.0. Identified in September 2008, the project went to the Board on January 13, 2009 and the Grant became effective on March 2, 2009. The project was designed in close coordination with the MAF and NAFRI. Its design was in line with the country’s priorities and strategies (NGPES and Agricultural strategy) and the mandate of the Bank’s newly established GFRP and the CAS. The technical design of the project was sound and based on relevant experiences and lessons in Laos and other countries. However, perhaps as a trade-off with speed of preparation, it had some shortcomings, in particular: (i) technical assistance provided to newly formed seed multiplication groups was much too short; (ii) the project did not offer any secure and remunerative outlet for (at least part of) the seeds produced by farmer groups when, in the absence of a sufficiently deep local market demand, it was unrealistic to expect that they would be able to sell a significant part of their production; and (iii) the project design did not consider broader structural issues affecting the seed sector in Laos which has implications on the sustainability of its investments and risks to development outcomes as discussed above. The latter was a critical issue if the intention was to address longer-term sector development issues and would have been possible under the GFRP (Components “Food

15 price policies and market stabilization” or “Enhancing domestic food production and marketing response).

(b) Quality of Supervision (Rating: Moderately Satisfactory)

The quality of supervision was generally good, although there were delays in implementation in the initial stages and teething problems with procurement that proved difficult to solve. Six formal implementation support missions and two informal technical support missions (to monitor the use of inputs provided to farmers) were carried out by the Bank’s team over the 3.5 year implementation period. The launch workshop was held only on June 9-10, 2009 and the first supervision in September 2009. Initial supervision support focused primarily on resolving procurement-related issues. It was only at the beginning of 2010, during the second implementation support mission, that the Bank started to provide the proactive field implementation support necessary to ensure adequate performance of field activities, including group formation, training and efficient input distribution to farmers. Bottlenecks in financial and procurement management were gradually resolved and field implementation issues adequately handled in collaboration with implementing agencies. There were no major fiduciary or safeguard issues. The Bank team spent a substantial amount of time providing FM, procurement and technical guidance and monitoring, and played an important part in ensuring that the project fiduciary systems operated well.

In order to ensure more efficient use of grant resources the Bank team insisted of sharing the international fiduciary TA and the installation of electronic accounting system with LUFSIP, which had similar FM and procurement arrangements. The Bank team also paid considerable attention to the implementation of the M&E system during its missions, for monitoring implementation and tracking progress against the PDO and key indicators. Project supervision reporting was comprehensive and the ratings were candid: during the difficult start-up period, the project was rated moderately unsatisfactory until problems were adequately sorted out and benefits began to flow.

The emergency nature and short implementation period of the project were not amenable to deep restructuring to mitigate the design deficiencies. For example, there was no opportunity to improve distribution of R3 seed through structured extension activities to absorb R3 seed produced under the project due to short project timeline combined with delays at start-up and commitment of project funds. Furthermore, the institutional mandate for extension services in Laos falls under the National Agricultural and Forestry Extension Service (NAFES) which was not involved in the project preparation.

Finally, GOL requested to extend the Closing Date by six months to June 30, 2012, in order to allow for completion of procurement under Component 1 and use seed procured from project farmers from 2011/12 dry season to provide emergency assistance to the victims of the 2011 typhoons. This request and subsequent project restructuring were quickly and efficiently processed by the task team.

16 (c) Justification of Rating for Overall Bank Performance (Rating: Moderately Satisfactory)

Although there were some weaknesses in project design the Bank’s performance can still be considered “Moderately Satisfactory” as the project was able to achieve its PDO and intermediate results.

5.2 Borrower Performance

(a) Government Performance (Rating: Satisfactory)

GOL was fully supportive of the project and participated in its design. It appointed a strong team of senior managers and technical specialists within NAFRI to coordinate project activities and ensured that the concerned PAFOs and DAFOs were fully involved in project implementation. Key implementation issues were quickly resolved when raised to MAF’s senior management attention. Senior staff of NAFRI and MAF regularly joined implementation support missions. Implementation issues at central level were essentially linked to financial management and procurement matters for which responsible staff had little experience. Senior MAF managers monitored implementation closely and their evaluation of and feed-back on project’s achievements was instrumental in Government’s decision to continue support to selected seed multiplication farmer groups under Government’s new Emergency Food Security Program. GOL can be commended for its quick response to requesting a restructuring to allocate uncommitted funds for the purchase of project rice seed for 4,000 farming households in the three provinces affected by the two typhoons that hit in 2011.

(b) Implementing Agency or Agencies Performance (Rating: Moderately Satisfactory)

The project was implemented by NAFRI through Regional Research and Seed Multiplication Centers for Component 1 and PAFOs/DAFOs for Component 2. The implementation performance was generally satisfactory. The project complied eventually with all legal covenants, although there were delays in reaching some of them, such as recruitment of fiduciary staff, which had implications on project performance. This affected particularly the procurement of farm and seed processing equipment under Component 1. On the other hand, seed stations delivered agreed outputs (R1 and R2 seeds, training of farmers and technical backstopping of farmer groups) in a timely fashion. DAFOs and PAFOs were committed to the project objectives and beneficiaries and ensured a good coverage of famer groups, as evidenced by beneficiaries’ feedback under the M&E system.

There were also weaknesses of NAFRI to ensure the proper coordination and planning of seed production activities between seed stations, some delays in transferring operational funds from NAFRI to PAFOs/DAFOs, which in some cases may have delayed activities on the ground. There was also slow start in establishing M&E systems, but this work caught up well during later stages of the project implementation. The supervision

17 missions pointed out problems in project progress reports which did not always utilize the full richness of data generated by M&E system, although there was steady improvement throughout the project. Some of that was related to reporting and communication skills of NAFRI staff and should not be overplayed. Nevertheless, the project management was always well informed of the details of implementation progress and competent on technical issues. At the end of the project NAFRI did produce a pertinent project implementation completion report which used data from all these sources.

(c) Justification of Rating for Overall Borrower Performance (Rating: Moderately Satisfactory)

Based on the assessment of Borrower and Implementing Agencies’ performance, the rating for Overall Borrower Performance is “Moderately Satisfactory”, owing mainly the weaknesses related to NAFRI’s project management.

6. Lessons Learned

 It is necessary to avoid ambiguity in the central objectives of an “emergency operation” to be supported by the GFRP or any other Bank window, to ensure the most efficient design and implementation arrangements. If focus is strictly on one-off short-term measures of an emergency nature, project design should avoid activities whose efficiency may be negatively affected by broader structural institutional and policy issues, and the most efficient existing implementation/delivery mechanisms should be used. If the project aims to also address, in addition to shorter-term emergency issues, longer-term development issues, project design and the implementation period should be adjusted accordingly. The design should spell out more clearly the constraints imposed by existing institutional and policy framework, propose mitigation measures if possible, and structure project activities so as to ensure reasonably efficient implementation, even if addressing broader institutional or policy constraints is not possible or beyond the scope of the emergency operation.

 Seed multiplication is complex technology and should not be attempted lightly. Seed production is suitable for more advanced farmers. Lessons learned from the project show that significantly longer capacity building support than just two cropping seasons is required to establish strong seed producer groups. It is therefore suggested that seed multiplication activities be combined with parallel extension scale-up support for larger numbers of farmers, using some small seed packages produced under the project. This approach is now being piloted under LUFSIP.

 Demand side issues should be addressed as well as its supply side. The number of target groups to be established and supported, and related seed production targets, should be carefully calibrated against potential demand. Under RPIP, there should have been clear agreement at the beginning of each cropping season about the volume of seed to be produced and marketed to avoid any difficulty in marketing farmers’ outputs. Although it was acknowledged that there existed very little real demand for improved seeds (except the institutional demand from projects and NGOs) no

18 arrangements were made to provide an immediate remunerative outlet for the group’s seed outputs or to support the development of distribution channels.

7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors

(a) Grantee/Implementing agencies

The Ministry of Agriculture and Forestry (implementing agency) confirmed that the Lao Rice Productivity Improvement Project (RPIP) has been beneficial to the country and is in line with the Government strategy of increased food security of farmer groups and strengthening of community based rice seed production. The government goals on agriculture for the period of 2011 to 2015 have focused on improvement of rural livelihoods (through agriculture and livestock activities) and increased production and value added of agriculture commodities.

The MAF comments noted that key impacts of the project have been: (i) improving quality and quantity of seed production (R1 and R2) through enhanced capacity of the participating stations and centers by upgrading their facilities and improving human resources; and (ii) increased awareness of seed production technology among farmers through supporting rice seed multiplication by 178 farmers groups. The project produced more than 9,000 tons of R3 (or equivalent) rice seed by project farmers. Another key impact expressed by the implementing agency is overall paddy yield increase of 35%. The Government comments also appreciated the support provided to the 4,000 household who affected from Haima and Nock-ten Typhoons affected Laos in 2011.

The implementing agency comments pointed out that despite the general success of the project, there were delays in the procurement of farm inputs and seed processing and farm equipment for seed stations, which affected project implementation. In addition, the MAF comments recognized that lack of seed markets in Laos may affect the interest of farmer groups to continue with seed production activities, and suggested to involve other government organizations and line agencies, private sector (rice millers, rice exporters) and NGOs rice seed distribution systems, and find the way to promote rice value chain development. It was suggested that these lessons learned be incorporated in the future seed production projects.

(b) Co financiers/Donors

There were no co-financiers.

19 Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ Million equivalent) Appraisal Actual Percentage Estimate Components of (USD (USD Appraisal millions) millions) A. Support to Rice Research and 1.48 1.59 107 Seed Multiplication Centers B. Support to Farmer Seed Groups and On-Farm 0.94 0.94 100 Demonstrations C. Management Monitoring and 0.57 0.46 80.70 Evaluation Total Baseline Cost 3.00 2.99 99.98 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 Total Project Costs 3.00 2.99 99.98 Project Preparation Costs 0.00 0.00 0.00 0.00 0.00 0.00 Total Financing Required 3.00 2.99 2.99

(b) Financing Appraisal Actual/Latest Percentage Type of Source of Funds Estimate Estimate of Cofinancing (US$ millions) (US$ millions) Appraisal Global Food Crisis Response 3.00 2.99 99.98 Program

20 Annex 2. Outputs by Component Component 1: Support to Rice Research and Seed Multiplication Centers (base cost $1.32 million, 44% of the project cost). This component addressed the rundown in critical equipment and infrastructure in Government Rice Research and Seed Multiplication Centers (RRSMCs) to provide for secure separation of varieties and production of clean, dry, weed free, high quality R1 and R2 seed for later multiplication as R3 seed for general use by farmer groups under component 2. Specifically, the Project was to provide equipment for seed production and conditioning, including drying, grading, packaging, cool storage, as well as small training facilities and transportation at selected government research centers and seed multiplication stations including: Thasano Seed Station (Savannakhet Province); Nongdaeng Crop and Livestock Research Center (Salavan Province); Phonengam Agriculture and Forestry Research Center (Champassak Province), Provincial Agricultural Training Center of Khammouane Province and Naphok Central Seed Station in Vientiane. In addition, the project would provide support to establish a small seed laboratory at Naphok Central Station and others which were considered essential for ensuring quality standards.

Component outputs (Moderately Satisfactory). The Project supported and strengthened the capacity of participating centers to produce improved rice seeds (R1 and R2) to respond more efficiently to emergencies. They produced a total of 2,690 tons of R1 and R2 seeds over six cropping seasons or an average of 896 tons per year, against 150 tons in 2009. This represents more than three times the target result indicator (“an incremental production of “at least 140 t/year”). Some 156 tons of R2 were supplied to farmer groups (6% of total). It is estimated that at least 75% of R2 produced under the project was used for seed multiplication activities under Component 2 or sold (to third parties) as seeds, in line with the project’s target result. Seed Centers also provided 78 trainings on seed production and group management as well as technical backstopping to all groups established under the project.

The project also provided farm and seed processing equipment including nine tractors, four trucks, three plot harvesters, four transplanting machines, 30 seed driers, 25 winnovers and 20 threshers, which have been distributed to seed stations and selected farmer groups. The lack of these assets was not a great constraint to achieving the project targets, given the very low basis and modest incremental production volumes in absolute terms from 150 tons in 2009 to the average of 896 tons per year. These incremental production volumes were possible thanks to operational costs provided by the project which allowed seed stations to better utilize existing capacities. However, the equipment procured is necessary to ensure the longer term sustainability of seed production in Laos, especially in light of Government’s goal to produce 60,000 tons of rice seed by 2015.

Seed stations are now able to improve the quality of seed produced due to improved drying capacities. The total cumulative drying capacity of seed in beneficiary seed stations increased from 7.5 tons per day before the project to 52 tons per day after the

21 project1 (data per province/seed station is provided below). The cold storage capacity which was installed in Thasano seed station is 20 tons. This would help the seed station to better plan its seed production volumes, which do not need to be based on actual order given one year ahead (which is normally significantly less than actual expressed demand) and leave some additional stock for additional demand.

Table 1. Incremental seed drying capacities supported by RPIP. Province/seed station Drying capacity before Drying capacity after project (tons/day) project (tons/day) Khammouane/Xebangfai 1 16 Savannaketh/Thasano 4 4 Saravan/Nongdaeng 0.5 16 Champassac/Phonegnam 2 16

TOTAL 7.5 52

While there Government has not allocated additional operating costs to the operation and maintenance of the equipment and facilities provided under the project, the seed stations are now able to cover these costs themselves through sale of seed to third party customers (donor funded projects, millers and farmers). With increased operating revenues from seed sales, the stations are able to do even better maintenance of assets provided under the project. However, replacement of such equipment after their useful economic life will still have to be made either by the government, which is the owner of these assts. The longer term financial sustainability of seed stations hinges on broader seed sector reforms, which could include privatization of some seed stations and their assets, and full commercialization of their operations. The government is considering this option.

The project was supposed to finance laboratory equipment for seed quality control. Since this activity was also supported under the LUFSIP, and given that responsibility for seed quality control lay under the Department of Agriculture and not NAFRI, it was decided not to pursue acquisition of this equipment. Instead, the project procured lab equipment and materials for soil testing which was needed to determine more precise fertilizer application rates for different soil types. The lab equipment is located in Soil Survey and Land Use Planning Center under the Department of Land Management of NAFRI, and is being used for soil testing.

Component 2: Support to Farmer Seed Groups and On-Farm Demonstrations (base cost $1.09 million, 36.3% of the project cost). This component would establish and support up to 200 farmer groups of about 20 farmers each in about 70 Kum Bahns in each of the selected provinces (Khammouane, Savannakhet, Champassak and Saravane) as the basis for broader dissemination of seed multiplication technology and scale-up of

1 There was not an independent seed quality control system in place in Laos during implementation of RPIP. Such system is being established under LUFSIP.

22 improved seed use. The project was to support farmer groups over six crop cycles (three years), each group receiving support for two cycles. Technical support and monitoring was provided by participating Seed Multiplication Stations as well as Provincial and District Agricultural and Forestry Offices (PAFOs and DAFOs), with the assistance of 14 Junior Consultants (young graduates of agricultural colleges) specifically recruited for this purpose by the project. These Junior Consultants, who were based in project villages, worked closely with DAFO staff and supported them on farmer outreach, training and follow-up, and field data collection. At the end of the project, 4 Junior Consultants found employment with NGOs and 10 were hired by the government and work now as DAFO extension staff. As such, this capacity build under the project will continue to support agricultural development in Laos. This approach of seconding Junior Consultants with DAFO staff has proven to be successful and is being now replicated under the LUFSIP.

Component outputs (Satisfactory). The establishment of 200 farmer group within three years proved to be too ambitious (partly because the project lost one cropping season due to delays in procuring fertilizer). In total, 178 farmer seed multiplication groups, comprised of 4,600 families, were established under the project. More than 500 on-the- job training days, 153 tons of R2 seed, and 532 tons of fertilizers were provided to farmer groups. The training provided to the farmers covered the topics related to rice seed production and soil improvements, and included the following specific technical themes and activities: farmer group formation and site selection, rice seed preparation and seeding, planting techniques, and postharvest technologies, land preparation and fertilizer application, and compost making. The beneficiary households increased their yields and production significantly and have seen their incomes increase substantially when judging from return to labor (see Annex 3) while participating in the scheme. Participating farmers produced 9,066 tons of R3 equivalent seeds over the six cropping cycles of which an estimated 4,417 tons were utilized as seed.

Table2: Main inputs distributed to farmer groups during 2009-2012 Season Wet Dry season Wet Dry season Wet Dry Total season 2009/2010 season 2010/2011 season season 2009 2010 2011 2011/201 2 Seed 23.2 11.4 29.1 34.6 36.5 18 152.8 distributed (tons) Fertilizer 69.0 28.92 109.9 123.7 128.9 71.5 531.4 distributed (tons)

2 Low amount of fertilizer is due to procurement issues that year.

23 Table 3: Seed production by farmer groups and their usage during 2009-2012 Season Wet Dry Wet Dry Wet Dry Total season season season season season season 2009 2009/201 2010 2010/201 2011 2011/201 0 1 2 No. of Farmer 26 11 20 33 60 28 178 groups Seed produced, 1,092 1,032 1,522 2,433 1859.5 1128.6 9,066 tons Seed 474.8 434.7 1042.8 1041.6 776.7 646.6 4,417 used, tons

It is estimated that 46% of the seeds produced during the 2009-2012 wet season were used as seeds (sold, exchanged or own use). According to the Project Completion Report, NAFRI estimated that overall seed used by farmers over the project period was 4,147 tons throughout exchanges, own used and preserved and sold. The M&E system does not provide information about the proportion of the farmers participating in the seed multiplication groups who adopted and are maintaining the use of all or part of project input packages (target result: “at least 25%”). However, considering that about 60 groups will continue to participate in government rice seed production programs as a conservative lower bound estimate, one can conclude that at least 34% of seed multiplication groups will maintain the use of all or part of project input packages. This figure does not include those seed multiplication groups (estimated 10-20 groups) who may continue to produce seed for rice mills under contract farming arrangements created by EMRIP, since it is not clear whether these groups will also participate in the Government program.

Other unintended outcomes and impacts. At GOL request, the project contributed to the emergency response to damage caused by Typhoons Haima and Nock-ten (July and August, 2011) in three project provinces. A total of 420 tons of R3 seed was procured from project farmers and distributed to affected families to permit the planting of 4,000 ha of rice during the 2012 wet season, creating thus market for R3 seed while addressing emergency recovery needs.

It should be noted that the impact of the project went beyond the direct beneficiaries (farmers participating in seed multiplication groups). Many non-participating farmers living in project villages exchanged paddy against the seeds produced by participating farmers (generally on a one-to-one basis), to test the new varieties and sowed a portion of their land with good seed. According to data from NAFRI, about 572 tons of seed were exchanged against paddy over the project life. Assuming a seeding rate of 100 kg per hectare, the area sown under good seed would amount to about 5,100 ha with a harvest of about 4,300 hectares after crop losses. Assuming a conservative 15 percent incremental yield increase as a result of good seed, ceteris paribus, the incremental production from

24 such seed exchange would be about 1,900 tons of paddy over life of the project or $553,000 using economic net incremental value estimates.

Component 3: Management Monitoring and Evaluation (base cost US$0.59 million, 19.6% of the project cost). This component supported overall project management and coordination, as well as the establishment and implementation of a detailed M&E system. Project management was the responsibility of a small management team established at the Headquarters of the NAFRI in Vientiane, consisting of a Project Director, Deputy Project Director, Procurement and Financial Management specialists and short term consultants.

Component Outputs (Moderately Satisfactory)

The project team managed to meet most agreed targets. There were no major fiduciary issues and project audit reports were unqualified. The project established a good M&E system, which included a baseline survey and crop season-specific benchmarking surveys. This system, which tested credible under the RPIP, was later replicated under LUFSIP with some additional technical improvements. Although the project quarterly reports fell short of using the richness of data generated by the M&E system, project management used this information to inform management decisions. While, project team had limited capacity in terms of quarterly reporting (primarily limited to English language skills) they were technically very knowledgeable and worked diligently to drive results on the ground. The internal NAFRI management reports contained a wealth of information on project inputs and outputs and this data was subsequently presented in final project report, which was of good quality and provided substantive inputs for the preparation of the ICR.

25 Annex 3. Economic and Financial Analysis

Overview

This annex presents results of the analysis of economic and financial impacts and efficiency of resources used for RPIP. The PDO was to increase rice productivity and overall volume of rice production among smallholders in four selected provinces, thereby increasing incomes and improving food security for small farm households.

The results of the analysis indicate that the project represented an efficient approach to addressing food security needs of participating farmers in Laos. As this was an emergency project, a conventional economic and financial analysis was not carried out during appraisal to calculate the net present value (NPV) or economic rate of return (ERR) estimates. The efficiency and effectiveness of project investments were evaluated through the analysis of gross margins and returns to labor using farm budgets. The ICR aims to replicate this analysis by constructing farm budgets which were developed based on the data which was collected through field work over February to May, 2012.

Methodology

Gross Margin Analysis was carried out for paddy (R4) and R3 production. Farm budgets for wet and dry season rice production systems were developed based on the data which was collected during supervision missions and field work in project provinces in February-March 2012. The output and input price data come from the same time period. The October 2012 ICR mission confirmed no significant changes to these price levels. It was not possible to replicate the analysis of farming margins carried out during appraisal due to lack of details of farm budgets. The comparative analysis was thus done only for return to labor indicators, albeit the results should be interpreted with caution given the differences in model assumptions and parameters.

The incremental yield increases for wet and dry season paddy crop come from the project baseline and benchmark surveys. The “without project” scenario assumes that farmers use old recycled seed of improved varietals produced on their farms, while under “with project” scenario farmers use good seed (R3) which will be recycled every three years. The average wet season paddy yields increased from 2.5 tons per hectare under the “without project” scenario to 3.9 tons per hectare under the “with project scenario”. This is about a 56 percent increase and is considered reasonable for the package of good seed, fertilizer and improved farming practices. The average dry season paddy yield increased from 3.5 tons per hectare to 4.4 tons per hectare, or a 26 percent increase. These incremental yields are consistent with a total average incremental yield increase of 1.2 tons per hectare over wet and dry seasons as projected at appraisal.

The main changes in wet season input use come from increased application of fertilizer as suggested by the project (200 kg of NPK fertilizer, 100 kg of urea per 1 hectare) and reduced use of seed (from 120 kg per hectare to 80 kg per hectare). It is assumed that application of good agricultural practices which were introduced by project-led training

26 would increase the use of family labor by seven days during the wet season, or a six percent increase. The total cost of wet season seed and fertilizer use increased from 466,000 Kip without the project to 1,577,280 Kip with the project. These figures are lower than appraisal assumptions of seed and fertilizer costs of 1,031,000 Kip and 1,816,500 Kip respectively in 2008.

The input use cost for dry season paddy production has remained essentially constant between “without” and “with” project scenarios. In fact, the cost of seed and fertilizer declined marginally from 1,844,000 Kip under the “without” project scenario to 1,777,333 Kip under “with” project due to more rational and efficient use of fertilizer and seed, and adoption of good farming practices as farmers tended to overuse fertilizer, or used poor quality or the wrong type of fertilizer.

The analysis shows that paddy production is a relatively marginal economic activity under the “without” project scenarios at 2012 farm-gate prices of 1,800 Kip per kg for wet season paddy and 2,000 Kip per kg for dry season paddy. The “without project” return to family labor for wet season paddy was $3.3 per day, which is well below prevailing off-farm wager rates of $4.5 per day in the project areas during 2012. The “without project” return to labor for dry season paddy production was $4.5 per day. Under the “with project” scenario, return to labor for wet season paddy production rose to $4.6 per day (37 percent increase) and for dry season paddy to $5.8 per day (29 percent increase) (Tables 1 and 2).

These estimates are lower than return to labor calculations done during project appraisal (about $9 per day for wet season paddy and $13.5 for dry season paddy). There may be two reasons for that. First there is the methodological difference in parameters of farm budgets and underlying assumptions. The details of the farm model calculations made during appraisal could not be found. The second was the differences in price levels. The average paddy prices in 2008 were 2,226 Kip per kg. Applying this price to the gross margin models would increase the “with project” return to labor for wet season paddy (R4) production to $6.4 per day and to dry season paddy to $6.8 per day.

Table 1. Gross margin analysis and return to labor for WS paddy (R4) production Without With % Unit project project change Production Kg/ha 2,500 3,900 56 Revenues Kip/ha 4,500,000 7,020,000 56 Costs of inputs Kip/ha 1,601,556 2,783,947 73.8 Gross margin Kip/ha 2,898,444 4,236,053 46.1 Family labor p-d 109 116 6.4 Returns to family labor Kip/p-d 26,591 36,518 37.3 Note: 1US$ = 8,000 Kip

27 Table 2. Gross margin analysis and return to labor for DS paddy (R4) production Without With Unit project project % change Production Kg/ha 3,500 4,400 25.7 Revenues Kip/ha 7,000,000 8,800,000 25.7 Costs of inputs Kip/ha 3,071,778 3,095,111 0.8 Gross margin Kip/ha 3,928,222 5,704,889 45.2 Family labor p-d 109 123 12.8 Returns to family labor Kip/p-d 36,039 46,381 28.7 Note: 1US$ = 8,000 Kip

The results indicate that at the current price levels, paddy production is an attractive economic activity only when farmers have access to irrigation which would allow them to practice double-cropping.

R3 production gross margin analysis. Since baseline and benchmark surveys did not differentiate between farmers who received R2 seed for R3 production, the ICR used the following assumptions for R3 production gross margin analysis. First, the ICR assumed that the price of R3 seed is in average 20 percent higher than R4 seed. This was confirmed during supervision missions. Although farmers were not able to sell all their R3 production at this price premium, it is assumed that it would be a reasonable proxy for higher yields of R3 production. Secondly, it was assumed that production of R3 seed would require about 20 percent more labor than paddy (R4) production. The results of gross margin analysis are presented in tables 3 and 4.

The “without project scenario” results are the same as for paddy (R4) production – farmers use old recycled seeds of otherwise improved varietals. The results show that “with project” return to labor increases to $5.1 for wet season R3 production (11 percent increase compared to paddy) and $6.3 for dry season R3 production (9 percent increase compared to paddy).

Table 3. Gross margin analysis and return to labor for wet season R3 production Without With % Unit project project change Production Unit 2,500 3,900 56.0 Revenues Kg/ha 4,500,000 8,424,000 87.2 Costs of inputs Kip/ha 1,601,556 2,783,947 73.8 Gross margin Kip/ha 2,898,444 5,640,053 94.6 Family labor Kip/ha 109 139 27.5 Returns to family labor p-d 26,591 40,576 52.6 Note: 1US$ = 8,000 Kip

28 Table 4. Gross margin analysis and return to labor for dry season R3 production Without With % Unit project project change Production Unit 3,500 4,400 25.7 Revenues Kg/ha 7,000,000 10,560,000 50.9 Costs of inputs Kip/ha 3,071,778 3,095,111 0.8 Gross margin Kip/ha 3,928,222 7,464,889 90.0 Family labor Kip/ha 109 147 34.9 Returns to family labor p-d 36,039 50,782 40.9 Note: 1US$ = 8,000 Kip

A financial analysis was not carried out for R1 and R2 production as these costs were treated as intermediary inputs in R3 and R4 production models. The EPP presents also an economic analysis of an organic non-glutinous rice production model. This analysis was not replicated by the ICR since the project did not support the production of non- glutinous rice. It should be noted that annual production of non-glutinous rice makes up about 10 percent of total rice production in Laos or about 300,000 tons of paddy which is being primarily grown under informal contract farming arrangements for trade with Thailand.

Food security analysis was carried out using farm budgets for wet season paddy (R4) production. The data from the baseline and benchmarking surveys shows that average area of wet season paddy in project areas declined from 1.9 hectares per household in 2010 to 1.7 hectares per household in 2012. The average production of wet season paddy per household increased from 4,750 kg of paddy under the “without project” scenario to 6,600 kg of paddy under the “with project” scenario. Assuming 12 percent postharvest losses and 100 kg of seed use per hectare before conditioning, this would leave a farm level surplus of 5,650 kg of paddy available for consumption and sales. This is converted into milled rice equivalent using a milling ratio of 61 percent which reflects the relatively low processing quality of village mills. The surplus rice per household under the “with project:” scenario is thus 3,482 kg per household compared to 2,489 kg per household under the “without project” scenario, or a39% increase.

The EPP argues that the average annual consumption needs of rice farming household are 2,600 kg of rice. Assuming that average household size is six members, this would imply a rice consumption level of 433 kg per person per year. This analysis argues that this estimate is grossly overstated. According to rice consumption data analysis carried out under the Lao PDR Rice Sector Study, using LECS 4 data from the 2007/08 household survey, the average rice consumption in Laos was 179 kg per capita in 2007/08, with average rice consumption in rural areas being higher at 199 kg per capita. Using a 199 kg per capita rice consumption estimate, the annual food consumption requirements of the average rural household with six members would be about 1,200 kg leaving the rest for sales or animal feed. The marketable surplus of rice has thus increased from 1,289 kg per household under the “without project” scenario to 2,282 kg per household under the “with project scenario” or almost double. The value of this surplus in paddy equivalent

29 increased from Kip 4.7 million ‘without project” to Kip 6.7 million “with project”, or a 43% increase, when using average paddy farm-gate prices from 2008 and 2012.

In sum, the average production and consumption estimated from farm model calculations do not seem to support the argument that rural household in project areas experience rice shortages. This is consistent with the findings of benchmarking surveys which show that only 3 percent of rural households in project areas experience rice shortages, equivalent to one month rice consumption requirements.

Benefit-Cost Analysis (BCA)

The BCA was carried out only for activities under Component 2 which provided support to farmer Seed Groups and On-Farm Demonstrations. The BCA was not carried out for investments under Component 1, which supported rice research and seed multiplication centers to due difficulties in attributing the values for the long-term public good and services generated by these investments.

Benefit-Cost Ratio (BCR) from increased paddy production (R4) by 178 target farmers and from incremental paddy production from seed exchanges between project and non- project farmers over six cropping seasons under Component 2 was 1.2. This BCR was calculated conservatively against the full cost of US$1.1 million of Component 2 without deducting US$0.4 million which was allocated for seed purchases for emergency distribution after the project restructuring.

The BCR of 1.2 should be treated as a conservative lower bound estimate. The reasons why BRC are underestimated are two-fold. First, it does not consider the economic value of R3 seed production due to difficulties of assigning prudent values for R3 seed which is currently not traded in private markets in Laos. Secondly, it does not account for possible incremental production through area expansion due to lack of information. It is assumed that all incremental production comes only from yield improvements, which is a conservative assumption, since some R3 seed production could have surely come from additional land being brought under production. As such, the BCA shows that project investments on seed multiplication activities were relatively efficient (and probably more than what can be derived from the presented data).

Assumptions and approach. Incremental value of production was imputed by using “with project” yields in harvested paddy areas as reported by NAFRI and deriving the “without project yields” using the percentage changes for wet and dry season yield increases from baseline and benchmark surveys used in the gross margin calculations above. The reference farm gate prices of paddy (economic prices) were derived from reference Thai border prices (FOB) which were calculated to estimate Producer Subsidy Equivalents (PSE) in the Laos PDR Rice Sector Study. The reference farm gate price for paddy was 3,163 Kip/kg for 2009/10 farming season and 4,276 Kip/kg for 2010/11 farming season. It was assumed that the reference farm gate prices for 2011/12 farming season were 4,200 Kip/kg. It was assumed that financial prices of purchased inputs and family labor reflected their economic values. The incremental production values where

30 calculated using net margins which included the cost of family labor. Lastly, the analysis assumes that, given the short duration of the project, no discounting need be applied to the estimated benefits and costs. The results are presented in Table 5.

Table 5: Calculation of incremental benefits of paddy (R4) production by project farmers Harvested Yield Yield Incremental area R4 With Without Incremental Net value of under R4 Production Project Project Production margin production (Ha) (MT) (MT/ha) (MT/ha) (MT) (US$/ton) (US$) 2009WS 268 1,092 4.1 2.6 395 183 72,322 2009/10DS 267 1,032 3.9 3.1 213 155 33,008 2010WS 353 1,522 4.3 2.8 546 332 181,391 2010/11DS 524 2,433 4.6 3.7 502 330 165,676 2011/WS 492 1,860 3.8 2.4 668 296 197,637 2011/12DS 256 1,129 4.4 3.5 233 286 66,629 Total 2,160 9,068 2,557 716,662

Table 6: Calculation of incremental benefits of paddy from seed exchange Seed Area Area Incremental Incremental value exchanged planted harvested Production Net margin of production (MT) (Ha) (Ha) (MT) (US$/MT) (US$) 2009WS 41 369 258 97 183 17,726 2009/10DS 53 477 467 245 155 38,040 2010WS 93 837 628 235 332 78,155 2010/11DS 141 1,269 1,155 606 330 200,067 2011/WS 184 1,656 1,358 509 296 150,729 2011/12DS 59 531 451 237 286 67,770 Total 571 5,139 4,318 1,930 552,487

31 Annex 4. Grant Preparation and Implementation Support/Supervision Processes

(a) Task Team members Name Title/Specialty Unit Remarks Lending

Rahul Raturi Sector Manager EASRE At the appraisal Mona Sur Peer Reviewer ARD Michael Morris Peer Reviewer AFTAR Riika Rajalahti Peer Reviewer ARD Indira Ekanajake Peer Reviewer LCSAR Kanathee Danaisawat Financial Manager EAPCO Chinnakorn Chantra Procurement Specialist EAPCO Phetsila Somsanith Program Assistant EACLF Olga Hoxon-Rizo Program Assistant EASRE Richard Chisholm Task Team Leader EASRE Manida Unkulvasapaul Environmental Specialist EASRE Viengkeo Environment Specialist EASRE Phetnavongxay Guzman Garcia-Rivero Consultant EASRE Dan Gibson Senior Social Scientist EASSI Tony Zola Consultant EASRE John Richardson Consultant EASRE Sybounheung Social Development EASSO Phandanouvong Specialist Nipa Siribuddhamas Financial Management EAPCO Specialist Thalavanh Program Assistant EACLF Vongsonephet Supervision/ICR Richard Chisholm Task Team Leader EASRE Paavo Eliste Task Team Leader EASTS Chinnakorn Chantra Procurement Specialist EAPCO Viengkeo Environment Specialist EASRE Phetnavongxay Sybounheung Social Development EASSO Phandanouvong Specialist Nipa Siribuddhamas Financial Management EAPCO Specialist Guzman P. Garcia- Consultant EASIS Rivero Stephanie Anne Kuttner Consultant LCSAR Roch Levesque Senior Counsel LEGAM

32 Financial Management Siriphone Vanitsaveth EASFM Specialist Malarak Souksavat Financial Management EASFM Analyst Khamphet Procurement Specialist EASR2 Chanvongnaraz Christopher Robert Christopher Robert EASFM Fabling Fabling Chanhsom Manythong Rural Development EASTS ICR author Specialist Jean-Paul Chausse Rural Development EASTS ICR co-author Advisor Thalavanh Program Assistant EACLF Vongsonephet Brong Lee Program Assistant EACLF

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) US$ Thousands Stage of Project Cycle No. of staff weeks (including travel and consultant costs) Lending FY 09 6.39 69.18

Total: 6.39 69.18 Supervision/ICR FY 09 2.30 13.91 FY 10 6.53 61.92 FY 11 21.68 59.82 FY 12 23.83 56.85 FY 13 11.95 27.39

Total: 66.29 219.89

33 Annex 5. Beneficiary Survey Results

N/A

34 Annex 6. Stakeholder Workshop Report and Results

List of Participants of ICR Consultations

No Name and Family name Institution/Responsible I Meeting participants in Savannakhet 1. Mr. Sayaloun Provincial Coordinator-Savannakhet 2. Mr. Chanmany Assistant Provincial Coordinator assistant-Savannakhet 3. Mrs. Saythong District-Coordinator-Outhomphon 4. Mr Som On District-Coordinator-Champhon Mr. Khamseng 5. Head of Savannakhet Agriculture division Sorphamixay 6. Mrs. Vangchai Savannakhet Agriculture division 7. Mrs. Khetsana Savannakhet Agriculture division 8. Mr. Senmaleng District-Coordinator-Xaibuli 9. Mr. Thavon District-Coordinator-Khaison 10. Mrs. Somkhamdee District-Coordinator-Xonbuli 11. Mr. Khatsomboun Provincial Coordinator-Khammouane 12. Mr. Chanthaphon District Coordinator-Sebangfai Khammouane

13. Meeting participants in Champasack 14. Mr. Somvang Head of Phon Ngam Station 15. Mr. Vongvilay Provincial Coordinator assistant-Champasack 16. Mr. Vorachit Sihathep Provincial Coordinator assistant-Champasack 17. Mr. Sithanat Provincial Coordinator-Salavane 18. Mr. Somxai Head of Nongdeng station -Salavane 19. Mr. Vongsavan District-Coordinator- Vapee

35 Annex 7. Summary of Grantee's ICR and/or Comments on Draft ICR

36

37

38

39

40 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

N/A

41 Annex 9. List of Supporting Documents

GOL National Growth and Poverty Elimination 2004 Strategy World Bank Country Partnership Strategy for the Lao March 2005 People’s Democratic Republic IRRI Sowing seeds in lab and field: 2006 socioeconomic impact of the Lao-IRRI Rice Research and Training Project WFP Comprehensive Food Security and 2007 Vulnerability Analysis (CFSVA) World Bank Lao PDR Country Economic Update July 2008 World Bank Emergency Project Paper December 2008 GOL Lao Expenditure and Consumption Survey 2008 (LECS IV) World Bank Financial Agreement March 2009 World Bank Grant Agreement March 2009 GOL/MAF Project Baseline Survey April 2010 GOL Agriculture Strategy 2011-2015 September 2010 GOL/MAF Ethnic Minority Participation Framework May 2011 World Bank Project Restructuring Paper November 2011 World Bank Laos Rice Brief Policy Note: Rice Price November 2011 Study GOL/Helvitas Project Benchmarking Survey February 2011 GOL/Helvitas Project Benchmarking Survey October 2011 GOL/Helvitas Project Benchmarking Survey March 2012 GOL/Helvitas Project Impact Report May 2012 GOL/Helvitas Project Benchmarking Survey June 2012 World Bank Rice Policy Study October 2012 World Bank Aide Memoires of the Project 2009-2012 Implementation Support Missions World Bank Implementation Status and Result Reports 2009-2012 GOL/MAF Project Quarterly Reports 2009-2012 GOL/MAF Project Completion Report 2012

42 IBRD 36573

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MYANMAR PEOPLE'S Gulf 20˚ DEM. REP. of Vientiane Tonkin

22˚ 22˚ 1A THAILAND 15˚

19 Andaman Sea Phongsaly VIETNAM 15˚ PHONGSALY VIETNAM 1B MYANMAR CAMBODIA 2E 17 21∞ Luang Gulf Namtha 10˚ LUANG Muang of Sam BOKEO NAMTHA Sai 13N Thailand Neua Mekong 3 100˚ 105˚ 110˚ Ban OUDOMSAI 6 Huaisai 2W 1C Chiang LUANG HOUAPHAN This map was produced by Kong PRABANG 106˚ 20˚ Pak Beng the Map Design Unit of The Mekong World Bank. The boundaries, 4B Luang colors, denominations and SAYABOURY Prabang XIANG any other information shown KHOANG on this map do not imply, on the part of The World Bank 4A 7 Xiang Group, any judgment on the Sayaboury legal status of any territory, Khoang or any endorsement or acceptance of such 13N boundaries. THAILAND Vang Vieng 5 VIENTIANE Xisomboun 1D XAISOMBOUN GULF 4 BOLIKHAMSAI Pone Paksane g Nam Ngum n Hong Namkading OF ko Reservoir e 10 M 13S 8 11 Mekong TONKIN 18˚ Sanakham Thanaleng 18˚ VIENTIANE A12 Ban PREFECTURE OF Nongsu 1E Kenethao VIENTIANE KHAMMOUANE 12 Thakhek

1F LAO PEOPLE'S DEMOCRATIC REPUBLIC 9A Keng Kabao Seno 9 RICE PRODUCTIVITY 9B Savannakhet Ban SAVANNAKHET IMPROVEMENT PROJECT Laksamsipha

1G 15 16˚ 16˚ SUPPORT TO RRSMCs* AND FARMER GROUPS AIRPORTS SARAVANE Saravane SUPPORT TO RRSMCs* SELECTED TOWNS 15 PROVINCE HEADQUARTERS 1H PRINCIPAL HIGHWAYS Sekong NATIONAL CAPITALS 20 SEKONG HIGHWAYS 16 PROVINCE BOUNDARIES OTHER ROADS 16 16B 1I INTERNATIONAL BOUNDARIES Champassak BORDER CROSSINGS CHAMPASSAK Attapeu 18B *Rice Research and Seed Multiplication Center. 18A ATTAPEU 13S 1J Mekong 0 50 100 150 Kilometers Khong

14˚ 0 25 50 75 100 Miles 14˚ 102˚ 104˚ CAMBODIA 106˚

OCTOBER 2008