Document of The World Bank Public Disclosure Authorized
Report No: 29509
IMPLEMENTATION COMPLETION REPORT (IDA-29330 COFN-03910 PPFI-P9910)
ON A
CREDIT
Public Disclosure Authorized IN THE AMOUNT OF SDR 10.2 MILLION
TO THE
AZERBAIJAN REPUBLIC
FOR A
FARM PRIVATIZATION PROJECT
Public Disclosure Authorized JUNE 15, 2004 Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective June 15, 2004) Currency Unit = Manat 1 Manat = US$ .0002037 US$ 1 = 4909 Manat
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
AAS Academy of Agriculural Sciences ASDAPAgency for Support to the Development of the Agricultural Private Sector ABP Agroprombank FSU Former Soviet Union IDA International Development Association IFAD International Fund for Agricultural Development MOA Ministry of Agriculture MOE Ministry of Economy MOF Ministry of Finance PIU Project Implementation Unit PMU Project Management Unit PPF Project Preparation Facility SA Special Account SIC State Irrigation Committee SLC State Land Committee SOE Statement of Expenditures WUA Water Users' Association
Vice President: Shigeo Katsu Country Manager/Director: Donna Dowsett-Coirolo Sector Manager/Director: Benoit Blarel/Laura Tuck Task Team Leader/Task Manager: Thirumangalam V. Sampath
AZERBAIJAN REPUBLIC Farm Privatization Project
CONTENTS
Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 12 6. Sustainability 14 7. Bank and Borrower Performance 15 8. Lessons Learned 18 9. Partner Comments 19 10. Additional Information 20 Annex 1. Key Performance Indicators/Log Frame Matrix 22 Annex 2. Project Costs and Financing 24 Annex 3. Economic Costs and Benefits 26 Annex 4. Bank Inputs 30 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33 Annex 6. Ratings of Bank and Borrower Performance 34 Annex 7. List of Supporting Documents 35 Annex 8. Beneficiary Survey Results 36 Annex 9. Stakeholder Workshop Results 45
Project ID: P040544 Project Name: Farm Privatization Team Leader: T.V. Sampath TL Unit: ECSSD ICR Type: Intensive Learning Model (ILM) of ICR Report Date: June 25, 2004
1. Project Data Name: Farm Privatization L/C/TF Number: IDA-29330; COFN-03910; PPFI-P9910 Country/Department: AZERBAIJAN Region: Europe and Central Asia Region Sector/subsector: Central government administration (75%); Irrigation and drainage (17%); Sub-national government administration (5%); Other social services (3%) Theme: State enterprise/bank restructuring and privatization (P); Rural services and infrastructure (P); Environmental policies and institutions (P); Land management (S); Civic engagement, participation and community driven development (S)
KEY DATES Original Revised/Actual PCD: 05/25/1995 Effective: 04/16/1997 05/20/1997 Appraisal: 04/10/1996 MTR: 10/01/1999 11/01/2000 Approval: 01/16/1997 Closing: 06/30/2002 12/31/2003
Borrower/Implementing Agency: AZERBAIJAN REPUBLIC/MINISTRY OF AGRICULTURE Other Partners: Agency for Support to the Development of the Agricultural Private Sector
STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes F. Linn Country Director: D-M Dowsett-Coirolo Yukon Huang Sector Manager: Benoit Blarel Michael Gould Team Leader at ICR: T.V. Sampath T.V. Sampath ICR Primary Author: T.V. Sampath; Lucy M. Hancock
2. Principal Performance Ratings
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainability: HL Institutional Development Impact: H Bank Performance: S Borrower Performance: HS
QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: Yes project was considered as at risk during the early statges 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The Farm Privatization Project (FPP) was prepared in the mid-1990s, following Azerbaijan’s “second independence” in 1991 and the very difficult period that followed, during which Azerbaijan faced the problems of transition to a market economy, a costly undeclared war, and a huge population of refugees and displaced persons. By the end of 1995, measured GDP stood at about 34 percent of its 1988 value. Agriculture, accounting for about 30 percent of GDP in 1990, declined by about 43 percent.
In 1995, with the political situation gradually stabilizing and prospects improving for a peaceful resolution of the conflict with Armenia, the Government decided to embark on a reform program to stabilize the economy and accelerate structural reforms. Among the reforms was an effort to privatize agricultural land. A Land Reform Law was passed in 1996 to establish the right of former state and collective farm workers to own the land they worked. But ownership rights were fuzzy and a framework for implementation of the Land Reform Law was missing.
The objective of the Farm Privatization Project was to assist the Government in accelerating land privatization and restructuring of state and collective farms and to develop models for farm privatization in pilot areas that could serve as a basis for wider geographic replication.
Complementary activites to achieve the objective were to: (a) launch of services essential in support of private agriculture: land registration and titling, farm information and advisory services, credit access, and irrigation rehabilitation; (b) development of an enabling environment for land privatization; (c) development of community-based social services and formation of village groups to promote equitable and efficient implementation of the privatization program.
Project objectives corresponded to the Bank Group’s 1996 Country Assistance Strategy, which set out the Bank’s support for reforms intended to ensure that economic efficiency and competitiveness were enhanced. In this area, the focus of the Bank during the CAS period was specified as agriculture, especially because of the many opportunities to expand output and the incomes of Azerbaijan’s poor. Emphasis was to be on creation of land markets and accelerating privatization of state and collective farms within an appropriate legal framework, demonopolization of input/output channels, design of a rural credit scheme, and rehabilitation of basic infrastructure and dilapidated irrigation and drainage systems.
The project’s objective was ambitious, seeking to effect true land privatization that would devolve full responsibility for farm management to individuals with full land rights and formal, unambiguous titling. No countries of the CIS had then achieved this; even now, few other than Azerbaijan have approached it. The pilot approach limited risk in that achievement of the project objective did not depend on the timing of nationwide reforms.
The project was complex in that, besides activities on the national level, it envisioned four components each to be implemented in six pilot locations. Within each pilot, the project envisioned interlocking policy and institutional improvements, each challenging, that were unlikely to succeed individually. For example, only farmers granted title would have access to the
- 2 - project’s rural credit funds and/or be able to join Water Users’ Associations (WUAs); at the same time, broad participation in the credit program and the WUAs was required for their success, which in turn were key elements of long-term sustainability of the pilots. The interdependence of the project’s initiatives posed a significant risk. However, this element of risk was introduced deliberately as a means of increasing local pressure for the success of the whole.
3.2 Revised Objective: The objectives remained unchanged during the life of the project.
3.3 Original Components: A. Farm Privatization Support Services (US$20.0 million, of which US$10.1 million IDA, US$7.2 million IFAD. Component A comprised launch of support services for private farmers: land titling, market information, support for development of Water Users' Associations, and rural credit. (a) The land titling subcomponent aimed to ensure that titles were technically clear, certain and transferable, facilitating land transactions and use of land as collateral. To that end, this subcomponent financed development of a technically sound registration and cadastre system. (b) The Farm Information and Advisory Services (FIAS) subcomponent aimed to close the information gap for newly-private farmers and entrepreneurs, providing them agricultural extension services and marketing and legal information. (c) The Water Users' Associations (WUAs) support component aimed to remedy the tenuous financing of operations and maintenance of irrigation and drainage infrastructure by promoting associations of private farmers to help manage the infrastructure, collect water charges and undertake maintenance. (d) The Farm Credit subcomponent aimed to provide credit to finance farming inputs. This component was designed to support the project objective both by encouraging workers on the state farms in the six pilot areas to risk privatization, and also by providing a laboratory for development of Azeri models for farmer support services.
B. Rehabilitation of Main Irrigation Water Supply and Drainage Works (US$5.5 million, of which US$2.43 million IDA, US$1.49 million IFAD). Component B undertook rehabilitation of irrigation and drainage works needed for adequate water supply to the pilot farms. Most of the irrigation systems are gravity-fed; some portions of the farms are equipped with pumping facilities that supply water to irrigate higher lands or to raise the water pressure in closed pipes for sprinkler irrigation. In 1996, the systems were deteriorating, constrained by dilapidated infrastructure, non-functioning pipelines and blocked drainage systems. Participatory work undertaken during project preparation highlighted that irrigation infrastructure was configured for operation of state and collective farms, and as a result, did not guarantee access to water for all parts of the state farm. In this situation, farm members were inclined to reject distribution of the state farm in the form of plots (or might persist in a communal management style after formal privatization), out of fear that some would receive unwatered plots not able to provide livelihoods. Therefore, reconfiguration and general rehabilitation of the water supply was a condition of privatization. This component aimed to undertake rehabilitation and reconfiguration to assure that every parcel distributed in the pilot farms would be watered. Like Component A, this component was designed to support the project objective by encouraging workers on the state farms in the six pilot areas to risk privatization.
- 3 - C. Community Development (US$1 million, of which US$0.4 million IDA, US$0.6 million IFAD). This component was designed in light of lessons learned during the transition, as the project preparation team – the Government of Azerbaijan, the pilot farm members, the Bank and IFAD – sought to avoid a negative effect on those who would not be able to earn a living at farming: the young, the elderly, the sick and any whose farm labor would be found excess to the labor requirements of rationalized farms. These had formerly been the joint responsibility of the state and of the farms. To secure livelihoods to people in these categories, this project component aimed to develop suitable non-farm economic opportunities in rural areas.
D. Project Management and Implementation (US$2.3 million, of which US$1.78 million IDA). This component financed project management. An important feature was the decision to ensure that each of the six pilots would have a Project Implementation Unit that included staff representation from all the affected ministries and state agencies: Ministry of Agriculture, State Irrigation Committee, State Land Committee (SLC), Agrarian Reform Commission, and others. The purpose of this requirement was to promote distinction of responsibility for emerging legal issues on the spot among the affected agencies. The PIUs for this project were therefore designed to remedy the diffusion of responsibility in the yet-unsettled legal situation by incorporating staff and liaison from all affected agencies. This component also promoted training and capacity building within the implementing agency, to promote sustainability of project-funded initiatives.
The project components thus were reasonably designed to promote the project objectives. Component A incorporated lessons learned in other transition countries about the priority needs of newly private farmers. It incorporated best practice and lessons about the formalities required to render land reform irrevocable, sustainable financing of irrigation (via WUAs), on-the-ground experience of farm advisory services, and support the remonetization of rural areas by providing rural credit. Component B incorporated specific Azeri issues concerning infrastructure; in particular, the outcome of participatory work that showed the crucial role of infrastructure in furthering reform. Component C aimed to shore up the reform against equity issues that have emerged in other transition economies where privatization has benefited some and deprived others of their livelihoods. A Social Assessment undertaken in 1997 verified the direct relevance of Components A, B and C to the perceived needs of people living in rural areas.
3.4 Revised Components: The project did not undergo major changes. Some financing was re-allocated between IFAD and IDA, and both the irrigation and drainage subcomponent and the rural credit component were expanded to new areas. The changes did not amount to a restructuring, and there was no notification of the Board.
3.5 Quality at Entry: Project quality at entry was satisfactory. (The current QAG process did not exist when the project was formulated.) As noted above, the objectives were consistent with the Government’s reform program and with the Bank Group’s CAS. The activities designed to promote the objectives reflected lessons learned to date in other transition countries, participatory work, and relevant
- 4 - good practices.
External risks were reasonably estimated and mitigated. The project design took into account the risk of policy vacillation through use of pilots. It mitigated the risk of capture of project benefits by local elites through measures such as the linkage between credit access and land titling/WUA membership. It took into account the risk posed by credit to smallholders by requiring that they have training and gain experience with small loans before undertaking larger loans. Sustainable financing of operation and maintenance of the infrastructure in which the Bank invested was promoted through development of Water Users’ Associations, making ongoing financing the responsibility of farmers, those most affected by its success or failure.
A weakness in design was use of Agroprombank as agent for the credit program. Threatened with shutdown in accordance with Bank and Government-supported reform of the financial sector, Agroprombank did not have a long view of its best interests and did not invest adequately in performance.
4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Outcome is highly satisfactory, as the project met or exceeded all its relevant objectives and has achieved substantial development results, without major shortcomings. The main objectives to support effective farm land privatization, to establish a new water management regime and to improve overall farm income have all been achieved successfully. Azerbaijan developed the necessary legal framework to clarify and finalize individual ownership rights to farmland. In January 1997, the first land title was issued in Azerbaijan in the course of project preparation. By mid-1998, a year into project implementation, formal land titling was complete in the six pilot farms: 23,282 citizens living in 21 villages received in total 10,458 ha of cropland and orchards, through distribution to male and female heads of 6645 families. Some families chose to work together; thus, in the Gilinjli pilot farm in Barda district, 325 families have established altogether 53 farms.
The overall project was extremely successful: building on the success of the pilots, land titling was rolled out nationwide -- using the FPP methodology -- and privatization as envisioned in the Law is now 99.2 percent complete. An area of about 1.4 million ha is now privately owned, and corresponding titles have been distributed to 869,785 families. In addition, ownership of home plots has also been established through titling (a further 0.2 million ha). As discussed later, privatization had a profound effect on increasing productivity and, in all likelihood, on reducing rural poverty.
The works dealing with rehabilitation of the water delivery to former state farms and establishment of WUAs very quickly kindled a lot of interest among farmers throughout the country. Although only 19 WUAs were provided with direct support, the development of legislation and provision of basic training and TA to WUAs helped establish the first steps toward user-driven water management. Today's 580 WUAs in the country, although still in need of support, are a testimony to this effort.
- 5 - Altogether, about 95 percent of all arable farmland has been privatized. Of the 2020 state and collective farms in existence in 1996, 1979 were privatized, while 41 remained in public ownership as seed-growing and pedigree cattle-breeding farms. As well, of each privatized farm, about 4 percent was set aside by law as a land fund for resolution of disputes. The remaining 0.8 percent of arable farmland comprises about 6500 parcels of land that are on the border between former state and collective farms and nearby municipalities that dispute the state/collective farms’ former ownership.
Distribution of farmland in Azerbaijan was completed very rapidly; most was complete by the end of 2000. Azerbaijan’s is the current record time for essentially complete farmland distribution, but the implementation team deserves better praise than that, as no other country in the CIS has yet substantially completed it at all. The rapidity of the farmland distribution process is attributable to the process tested in project preparation, which was seen as fair and acceptable. On a given farm, land was first divided into parcels estimated as nearly equal taking into account area and quality. Then parcels were chosen by farmers, whose place in the selection queue was set by lottery. In this way it was assured that those responsible for the preliminary division would do their best to ensure evenness in value, not knowing which they themselves might receive.
The finalization of land rights brought about an immediate and very substantial difference to productivity, even though prior to the project the liveliness of “private” farming had already been noted despite the fuzziness of ownership rights. Following formal receipt of land titles as evidence of absolute ownership, people used land differently. It should also be noted that privatization facilitated shifts in the crop mix, as farmers identified better income opportunities. There was a shift from cotton to sugar beet production; winter wheat was introduced; tea production fell. Data from 2001 compared to that of 1997 shows that on the pilot farms, productivity increased 250 to 300 percent. Country-wide, overall agricultural output rose a little more than 50 percent from 1995 to 2002. (That is, the agricultural production index normalized so that production in 1990 has index=100 stood at 55 in 1995, 77 in 2002.) Output growth from 1997 to 2003 is shown in Figure 1.
Figure 1. Country-Wide Production Growth, by Crop, 1997 to 2003
- 6 - Production in Tons as Percent of 1997 Values - All Azerbaijan -
1000%
2003 Level 500% 1999 Level
0% Fruit Rice Garlic Onion Maize Sugar Barley Wheat Cotton Melons Potatoes Cabbage Tomatoes Cucumber
Source: Agency for Support to the Development of the Agricultural Private Sector, 2004.
Note: As it is off this scale, note that fruit production in 1999 was 1460% of 1997 value. In 1999, it was about 1900% of 1997 value. Note: The weak performance of cotton is attributed by the team to the fact that real privatization of the cotton ginneries has not taken place. Due to lack of competition among ginneries, prices offered to producers have remained low, with the result that private farmers have little incentive to produce cotton. Farmers have therefore switched out of cotton and into others more supportive of household incomes, such as sugar beet.
This advance has taken place in substantial year-on-year changes since 1997 (see Figure 2). Although hesitant to present dramatic conclusions, the ICR team does in fact attribute a major part of national growth in output to land privatization and titling. The other major influences on Azeri agriculture over these years were regional drought and a worldwide drop in cotton and wheat prices. Privatization and the linked reforms appear to have been the principal cause of resumption in agricultural growth.
Figure 2. Trends in GDP and Agriculture Value Added
- 7 - Economic Trends in Azerbaijan 1992-2002
5 1.0
4 0.8 Agr Value Added GDP (constant 1995 US$billion) - Left Scale 3 0.6 Agriculture, value added
GDP (constant 1995 2 0.4 US$billion) - Right Scale
1 0.2
0 0.0 1992 1997 2002 Year Source: World Development Indicators, 2004
Official statistics for 2003 show rural poverty, at 42 percent, to be lower than urban poverty, at 55 percent. The IMF has credited the lower poverty prevalence in rural relative to urban areas to the successful land reform and privatization (see Joint IDA-IMF Staff Assessment of the PRSP: State Programme on Poverty Reduction and Economic Development [2003-2005], April 15, 2003, para. 27).
4.2 Outputs by components: Overview As noted above, the project design anticipated that farm information support services would be tested and developed on the pilot farms before national rollout of land titling. In the event, land titling moved far ahead of schedule as other state and collective farms eagerly took up the distribution model. But this posed a challenge, requiring that the implementation team establish successful models for the support services very quickly. Newly private farmers would need access to credit, support for maintenance of irrigation and drainage, access to advisory services, and so on. For this reason, having achieved the project’s primary objective of privatizing farms within about two years, the Bank and Government is now devoting the rest of the project’s implementation period to privatizing farms nationwide and later in a phased manner to resolve related issues.
Component A Land Registration: Highly Satisfactory. The land registration component far exceeded its objectives, which originally concerned only title issuance on the pilot farms. By now, as noted above, the SLC has issued about 870,000 land titles, privatizing nearly all the land made eligible by the Land Law. As well, this subcomponent undertook early work to address the issue of titling non-arable rural land, transferring to municipalities ownership of pastures, social buildings and the like. It began technical work (not yet complete) toward a unified land registration and cadastre in cities as well as rural areas. The SLC now has 60 functioning regional and district offices, equipped and staffed with trained specialists to handle land transactions. The number of land transactions is rising. This subcomponent exceeded objectives in the areas of privatization, sector policy (private land management), and institutional development (land titling and the establishment of centers able to facilitate transactions in land ownership).
- 8 - Farm Information and Advisory Services: Satisfactory. This component established a FIAS unit in the Ministry of Agriculture in Baku. It produced and distributed booklets describing legal and management issues facing private farmers, access to credit, appropriate crop production methods and related topics, provided training and seminars for newly-private farmers, and undertook testing and demonstration of new on-farm methods. This component met its objectives, both preparing and distributing information, and the institutional development objective of incorporating a fully-functional FIAS as part of the Ministry of Agriculture.
Support to Water Users’ Associations: Highly Satisfactory. This subcomponent’s outcome greatly exceeded the subcomponent objective of setting up Water Users’ Associations in the pilot farms. Water Users’ Associations have been set up on the pilot farms, distributing water, managing water infrastructure, collecting water charges and mediating cooperation on water issues among their members. Water charges collected cover 100% of the cost of WUA operations, including on-farm operations and maintenance.
Beyond the pilot farms, the WUA model has spread throughout Azerbaijan, such that by project end, more than 580 WUAs have emerged, together covering about 725,000 ha, broadly modeled on the WUAs of the pilot farms. As well, the Bank/Government team had made significant progress in identifying and addressing the institutional requirements of this national movement: enabling legislative framework, a national policy concerning devolution of infrastructure ownership to WUAs, and so on. Suitable legislation was prepared and passed in Parliament, and Azeri experts in WUA formation developed and deployed by the Ministry of Agriculture.
Rural Credit Access: Satisfactory. This subcomponent exceeded its objective of launching and piloting rural credit access on the pilot farms. However, the credit initiative had a slow start; initial demand was lower than expected. The Bank/Government implementation team made an intense effort to uncover and address the risks and constraints perceived by farmers. The loan application was simplified, the tax burden on private farmers made lighter. A ramp-up in lending followed. But in 2000, cotton prices fell and at the same time Azerbaijan was affected by regional drought conditions. In the aftermath of this, both repayment rates and the demand for new loans dropped. Yet although these difficult events slowed disbursement in the early years, borrowing/repayment then rose again. Now, at project end, the credit component has fully disbursed and is achieving repayment at a rate of over 90 percent (with reflows being made available for new loans). It has achieved a good reputation for transparency in loan approvals and, at the Government’s request, has expanded into a broader geographical area, making additional villages eligible.
At project inception, Agroprombank (APB) was selected as the agent for the credit program because, even though state-owned, it was the only institution that reached into all major agricultural regions. During implementation, a Bank financial sector operation recommended sale or closure of APB, but a compromise was reached that allowed the firm to provisionally remain open (and state-owned) to disburse credit on an agency basis. However, because of the uncertainty generated by this process, APB did not develop as an effective lending institution as the central Bank decisded not to allow APB to undertake credit on its own account. The
- 9 - insitution eventually functioned as anticipated, but the process took longer than expected and in a shape where it is not shielded from being potentially forced to lend for political reasons due to its ownership status.
Component B. Irrigation and Drainage Rehab. Satisfactory. This component originally aimed to rehabilitate irrigation and drainage infrastructure on the six pilot farms so that every privatized plot would be watered and drained as needed to assure it was capable of providing a livelihood. The projected irrigation and drainage works were carried out, improving irrigation and drainage over an area of 11,499 ha. In 2000, IFAD funds were reallocated from other components (see "Costs and Financing," section 5.4) to expand irrigation and drainage rehabilitation to six additional villages in the same raions as the pilot farms. The additional works improved irrigation over an area of 5,617 ha. It was to allow time for completion of these later works that the project was extended for 18 months. Altogether, the project financed rehabilitation or new construction of 553 km of irrigation canals/pipelines, 631 km of collector-drainage systems, 16 lift irrigation (pumping) units, and 16 artesian wells. Works on the pilot farms were completed successively in 1999 (Salyan, Sharur, Xachmaz), 2000 (Barda, Lenkoran), and 2002 (Udjar). Additional irrigation and drainage works were completed during the project extension and finished in 2003. All irrigation and drainage works wihtin the project area are now complete and functioning as intended. A subsequent irrigation project currently being implemented will further strengthen the sector under a nationwide program for WUAs and irrigation rehabilitation.
Component C. Community Development. Satisfactory. In the project's early years, the NGO selected under ICB focused more on deliverables such as setting up business centers and offering training courses than on participatory work with vulnerable members of the rural population. Following a 1997 assessment of the needs of vulnerable people on the pilot farms, the NGO worked with community members to develop proposals for small-scale income-earning enterprises. However, the proposals were not technically strong. The NGO's contract was eventually terminated. A new international consultant was hired in spring 2002, who organized community initiatives to improve the drinking water supply in six raions. This component met the goals set out in the PAD (setting up business centers, carrying out a needs assessment, promoting development of community groups), and is therefore evaluated as satisfactory. However, the ICR team considers that had the NGO's terms of reference focused on off-farm job creation, the NGO would likewise have focused more intently on measurable economic benefit.
Component D. Project Management. Satisfactory. Project management was a decisive factor in the success of the project. At the national level, the Project Management Unit in Baku was responsible for planning, procurement and audit. The component financed the professional development of this group of state employees experience in, legal, regulatory, and technical aspects of private land ownership; in rural credit issues; and in procurement and financial management. The PMU was successful. Indeed, in 2000, the Government designated the project PMU as the Agency for the Support of Development of the Private Sector, and charged it with management of additional World Bank and IFAD initiatives in the rural sector. Independence of the PMU from any single agency was an element of the PMU's design from the project's outset. At one time, the project team considered physical location of the PMU within the Ministry of
- 10 - Agriculture; however, this was only a matter of physical location, and in the end separate quarters were obtained for it.
The Project Implementation Units in the project area raions were designed in an opposite manner. While the PMU was designed as a free-standing entity, the six raion PIUs were staffed by employees of the line ministries concerned with farm privatization, and all PIU staff members were to revert to their line ministries at the close of the project. Each PIU was headed from the respective raion administration and included staff from the Ministry of Agriculture, the State Irrigation Committee, the State Land Committee, the Agrarian Reform Commission and Agroprombank. As a result, during project implementation, initiatives required of these ministries and agencies were advocated to them by their own staff members at the PIUs, who understood the big picture of privatization as well as their own ministry's point of view. This advocacy effectively harnessed the capacity of the various agencies, and was a significant success factor for the project.
As planned, following project implementation all PIU staff immediately reverted to the line ministries from which they were drawn, having internalized the multidisciplinary Azeri approach to farm privatization. It is expected that they will continue to contribute to the sustainability of project initiatives in the future.
Conclusion
The Government learned critical lessons from the FPP. In the course of implementation, the Government developed important conclusions on how agricultural development could best be pursued. The Government strategy reflected in the PRSP for example, highlights priority areas for Government spending in order to achieve sustainable increases in agricultural incomes. These include farm advisory services, agricultural research, veterinary disease control, rural credit, rehabilitation of irrigation, and formation of Water Users’ Associations. Discussions with Government officials confirmed that the Government often characterizes the FPP in its discussions as “the school of agricultural development in Azerbaijan,” and that the pilot initiatives and lessons learned in the Farm Privatization Project are the basis on which the Government seeks to develop initiatives in its priority areas.
4.3 Net Present Value/Economic rate of return: A project-wide economic rate of return was not estimated in the SAR; instead, the economic viability of the project was analyzed using a three-hectare model crop and dairy farm. Scenarios "with project" and “without project” were presented, the “with project” scenario anticipating the more-profitable operations to result from privatization and project investments in support services. The SAR analysis of the model farm indicated that the financial rate of return would be around 20 percent, and economic rate of return would be around 25 percent. Farm incomes were expected to rise 50 to 100 percent in real terms.
It was not possible to update the farm-level ERR and FRR because of a lack of data: important gains have been made by farmers' switching into crops outside the SAR baseline. However, the "with project" crop model as presented in the SAR has been updated to the extent possible, using data from the pilot farms. The results are presented in Annex 3, and show that the farmer's gross
- 11 - margin per hectare increased more than the SAR anticipated, at least for the four crops analyzed both before and after. However, these figures do not illuminate the changes and their causes particularly well. First, it is not possible to present "without project" figures for comparison, as there is no clear delineation of areas of Azerbaijan that were "with" and "without" project. Second, the update of the SAR's model fails to capture gains from crop switching, nor from price changes dependent in part on improved marketing of crops by the newly private farmers.
In any case, as the SAR properly noted, the project is aimed not at establishing prosperity at six pilot farms, but rather at privatization of Azerbaijan's farmland, in turn a means to expand output and the incomes of Azerbaijan's poor (cf. CAS cited in 3.2). PMU monitoring indicates that in the pilot areas, household incomes have risen about 400%. For Azerbaijan as a whole, growth in output has been dramatic, as Figure 1 shows. As noted on page 6, the agricultural production index in Azerbaijan has risen from 55 in 1995 to 77 in 2002 (where 1990 production is 100) and of GDP increases by 36% in real terms between 1995 and 2001. This change is generally attributed to the effects of farm privatization.
4.4 Financial rate of return: The SAR did not estimate a financial rate of return for the project.
4.5 Institutional development impact: Institutional development impact was high. The project developed a successful model of land privatization that was replicated country-wide and resulted in virtually complete privatization of Azerbaijan's arable land in a period of a few years. Work is already underway in Azerbaijan to extend the systems developed for titling arable land to cover non-arable and municipal land. As well, the project initiated development of farm information systems (and linkage between these and agricultural research institutions), the provision of rural credit with a sustainable level of credit recovery, and Water Users' Associations, with the needed legislative/regulatory support.
Table 1. Macroeconomic indicators 1995-2002 Economic Indicator 1995 1996 1997 1998 1999 2000 2001 2002 Current account balance (% of GDP) -17 -29 -23 -31 -13 -3 -1 -13 Inflation, GDP deflator (annual %) 546 26 9 -1 2 12 3 1 GDP growth (annual %) -12 1 6 10 7 11 10 11 Manat exchange rate (30 June) 4530 4350 3980 3856 3975 4470 4631 4843 Fiscal balance (current revenue, -4.9 -2.8 -1.6 -3.9 -4.7 -0.6 -0.4 -0.5 including grants, less total expenditure, (including net lending) as % of GDP GNP per capita (US$ by Atlas 190 240 410 510 570 610 660 710 method) Source: World Development Indicators, World Bank SIMA/LDB
5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Pressure from the World Bank for closure of APB created a state of uncertainty that caused difficulty in implementation of the credit component. The uncertainty over its future may have restrained APB's willingess to effectively fight for survival and may have played a role in the institution's reluctance to improve its credit operations and the delays in credit disbursement early
- 12 - in the project.
The rise in oil prices was an external factor supportive of agricultural sector reform, as it created new opportunities outside the agriculture sector that may have helped to buffer fears of change.
The regional drought of 2000 negatively affected project implementation, as the newly-private farmers contended with elevated risks and difficulties. Repayment rates and demand for new credits dropped. Repayment rates and credit demand later revived.
The drop in world prices for cotton and wheat negatively affected both implementation and outcome: implementation, as newly-private farmers who had borrowed money and invested sweat equity to raise production then found that higher production did not raise incomes from those crops after all; outcome, as rural incomes from these crops gained less than expected, even though farm productivity gained more.
5.2 Factors generally subject to government control: From the outset, the Government provided supportive signals: the PMU was supplied with central facilities and a very competent, well-connected Director able to work with the Ministries as needed. Higher-level intervention was provided when needed to resolve project issues. After a lag in the provision of counterpart funds was flagged by the Bank team, the Government remedied the shortfall and subsequently provided counterpart funds in full and on time. The Bank team met often with high officials who helped facilitate project progress, and their involvement helped overcome incentives at the local level to leave land management centralized in the hands of a few.
As noted earlier, the project benefited from Azerbaijan's macroeconomic stability (see Table 1). The steady conditions maintained by the Government at the center limited uncertainty, creating an environment conducive to growth as farmers experimented with new crops, new styles of management and new associations, and undertook rural credit.
At several key points, the Government revised relevant regulations or legislation to promote project progress. Legislation was revised to permit issuance of land titles in the raions rather than the capital as a means of facilitating land transactions and in turn raising the value of land as collateral. Legislation governing the character of voluntary organizations such as the Water Users' Associations was revised to avert taxation of water charges and render the WUAs sustainable. Farmers were granted a five-year tax holiday to provide them an opportunity to invest in their new holdings, and the rural tax structure in general was simplified and streamlined in order to promote transparency. However, most importantly, the privatization policy underlying the entire project did not alter.
5.3 Factors generally subject to implementing agency control: The PMU led the project with dedication, carrying out social assessment, monitoring project indicators, and making an ongoing effort to identify and resolve emerging issues. The PMU undertook an active program of ongoing internal training that continually raised capacity in community development, farm information services, rural credit, project financial management, monitoring and evaluation, procurement, and other issues. As a result, the PMU was able to carry out its end of the Action Plans agreed between Bank and Goverenment in a timely way. The
- 13 - PMU achieved rapid procurement of ICB-procured items, which was critical to the quick start of the project.
5.4 Costs and financing: The project was cofinanced by an IFAD credit of US$9.3 million, originally allocated to WUA development (US$1.3 million), irrigation and drainage works at Udjar (US$1.5 million), community development (US$0.6 million) and rural credit (US$6 million).
In the project's first year, disbursement lagged somewhat due to a lack of qualified bidders to enable ICB for the irrigation and drainage works contracts. Azerbaijan’s domestic construction industry was comprised of a single Government-owned entity, and no other bidders emerged. This issue was resolved when the state construction industry broke itself up. Forming international joint ventures with companies from other countries, these companies then bid on project contracts, enabling valid ICB. Disbursement on the irrigation and drainage contracts then took place at about the expected rate. Disbursement on the credit component also lagged initially, because farmers were hesitant to borrow money for fear of losing their new landholdings. As noted elsewhere, the project team and Government worked to reduce farmer concerns, and had success as farmers gradually became bolder in borrowing.
Some changes to activity allocations occurred as the project matured. First, IFAD agreed with the Bank that full financing of the salaries of WUA staff from IFAD funds, as planned for the life of the project) could develop the WUAs along unsustainable lines. Therefore, IFAD decided that it would fund only a very limited number of positions. This saved US$0.7 million. Second, the NGO contracted to undertake the social development component funded by IFAD did not identify community-building entrepreneurial activities as had been hoped. This left US$1.5 million unspent. IFAD adjusted to these changes by reallocating: (a) US$1.5 million to an expansion of the irrigation and drainage component to area beyond the pilot farms, and (b) US$0.7 million to the credit line developed under other project components. As for IDA, its funds were spent as planned, except that due to the slow spin-up of the credit component, eligibility was extended from the original 21 villages to 113 altogether. Unallocated funds were ultimately disbursed by the credit component. No funds were cancelled.
6. Sustainability 6.1 Rationale for sustainability rating: The principal achievement of the Farm Privatization Project, privatization and renewed profitability of farmland, is highly likely to be sustained. Private farming is firmly established in Azerbaijan, and there is very strong support for it among farmers and officials. The beneficial effects in terms of a better crop mix and higher productivity are well understood. This, together with higher farm income levels, makes backtracking very unlikely. The success of the model of farm privatization used in the project has spread country-wide; nearly all of Azerbaijan's arable land is now private. Support for the mechanism used for land registration is so strong among officials and ordinary citizens that it is now being used for the privatization of non-agricultural land.
Achievement of the contributing objectives is also highly likely to be sustained:
- 14 - · As noted earlier, WUAs have spread from the pilot areas to all parts of the country. Operations are financed from water charges. Their efficacy in supporting irrigation schemes has been well established.
· The WUAs' acceptance of a role in operations and maintenace provides assurance that improvements made under the project to the irrigation and drainage systems will be sustained.
· The benefits from the project credit component are durable so far, as credits from reflows continue to be granted to farmers. In the long run, this initiative is likely to be folded into a larger one.
· The Farm Information and Advisory service is recognized by the Government and by farmers as providing a valuable service. It has become an established part of the Ministry of Agriculture and is funded from budgetary sources.
In sum, the project made an important contribution to Azerbaijan’s transition progress and greatly facilitated the transformation of the agricultural sector to a competitive market system — achievements that have broad institutional and political support in the country, and are highly likely to endure.
6.2 Transition arrangement to regular operations: Privatization of farmland. Azerbaijan's state and collective farms have now been privatized, and virtually all arable land is now privately owned and managed. Regular operations are underway.
Support services to private farmers. Azerbaijan's land registration and titling system is now free-standing of the project. As noted above, most of Azerbaijan's new WUAs were founded independent of project support, and therefore do not face any transition issues. The WUAs on the pilot farms have become free-standing as well. The Farmer Information and Advisory Service that has become established at the Ministry of Agriculture depends on a line in the national budget. The Government is satisfied that FIAS adds value, and will continue to support it.
Investments in further development of the land registration system, sustainable rural credit institutions and farm information advisory services were incorporated in the Agricultural Development and Credit Project, a follow-on project approved in 1999 that aimed to further the reforms launched under the Farm Privatization Project. The ADCP also invested in further development of WUAs country-wide.
Irrigation and rehabilitation. The infrastructure works financed by the project are now owned by the WUAs, which in turn are composed of farmers whose livelihoods depend on the good operation of that infrastructure. This transition has already been made.
Community development. The business centers and training centers developed by the NGO contracted under this subcomponent were folded into the FIAS initiative that is now sustained by the Ministry of Agriculture.
- 15 - Project management unit. The expertise developed at the Agency in the course of this project has largely been retained. Those staff members continue to work on privatization of agriculture, providing support to other Government initiatives including the follow-on Bank projects.
7. Bank and Borrower Performance Bank 7.1 Lending: The Bank's performance during project preparation was satisfactory, key to project success. The preparation team attended to Government priorities, advice and experience, and in turn contributed best practice in WUA development and emerging lessons concerning privatization of farming and the transition. The Bank team stressed that titling be legally-executed and perceived as equitable as key to making the reform durable. The Bank team sponsored study tours for a group of key individuals, not only ministers but also those at the operational level, to visit private farm enterprises in Canada. These tours were an opportunity for those involved to surface and discuss issues, in the process developing ideas about Azeri solutions and a shared sense of possibility that later provided ongoing support to project implementation.
The Bank/Government team worked with farmers through participatory exercises, discovering the issues faced by those unable to farm and the hesitation of all farm members to undertake division of the state farms that might be unfair and, in the worst case, might assign unwatered parcels to the unlucky. The Bank/Government team revised project design in light of these issues. It developed a process for dividing the farmland into parcels that was generally seen as fair and transparent, and was elected by most state and collective farms that privatized in 1999-2000.
Preparation of the rural credit subcomponent was relatively weak, as the impact of APB's uncertain situation was not fully assessed, intrinsically high transaction costs were underestimated, and factors making the farmers hesitant to borrow were not fully anticipated. As noted earlier, while credit disbursements were initially slow, the credit component was ultimately successful.
Experience of the task team in agriculture, community development and issues of the economic transition were likely the most important factors in the overall success of the preparation effort.
7.2 Supervision: The Bank's supervision performance was satisfactory. Project implementation progress was realistically reported, and the TTL showed no hesitation in flagging components that strayed off track, drawing high-level attention to the underlying issues.
The Bank team proposed good management practices for the PMU, encouraging the hire of needed international technical assistance, for example in procurement, financial management, monitoring and evaluation, community development, and other areas of TA where international experience was cost-effective.
The project team brought international lessons learned to implementation. To that end, the task team pressed for realistic water charges, pointing out that, however painful, these were needed for sustainable financing of operations and maintenance of irrigation and drainage infrastructure. The
- 16 - Bank team suggested topics and new areas for the Farm Information and Advisory Services, encouraging demonstration plots, work on crops adapted to individual farming, links with agricultural research, advice on marketing, and development of other extension topics that have proved valuable elsewhere. The team pressed early on for procurement of expertise to improve APB's management of its rural credit portfolio, noting that the ad hoc system in use was adequate only for small-scale operations with no surprises. This turned out to be prescient when the drought of 2000 harmed borrowers differentially depending on crops grown, and the portfolio management system was found unable to analyze the changing pattern of borrower risk.
The Bank team worked with IFAD to ensure that IFAD's cooperation with the Bank met IFAD's own standards of success; when the credit subcomponent faced delays, the Bank team facilitated IFAD's decision to move its funds out of that subcomponent and into the irrigation and drainage component, accepting the Bank's larger share of the higher-risk yet absolutely necessary rural credit pilot.
The Bank team maintained very strong and cooperative relations with the Government, proposing and supporting revision of legislation and regulation to render private farm management practical.
Continuity of the task team leader from preparation to closing was also an important factor in success.
7.3 Overall Bank performance: The Bank's overall performance is rated satisfactory. While the performance of the preparation and implementation team was exemplary, as noted above, in terms of its experience, application of past lessons, diligent supervision and willingness to learn from partners, during the crucial year 2001 the Bank's contribution was less than it might have been, just following the mid-term review, when the supervision schedule for 2001 was cut back for budgetary reasons.
Borrower 7.4 Preparation: The Government of Azerbaijan identified an opportunity for land reform, delineated the conditions needed to make it work (above all, perceived equity), and supported it fully until it was formally, finally complete. The final success of the project was largely the outcome of the Government's initial vision and its openness during the preparation period.
7.5 Government implementation performance: One key to project success was the Government's willingness to experiment on a pilot basis and to adopt lessons learned for quick scale-up of the successes of the pilot phase. Another key was excellent cooperation among the affected ministries, agencies and other Government bodies. This was a direct result of the work of the implementing agency, which effectively harmonized the Ministry of Agriculture, State Irrigation Committee, State Land Committee and raion administrations. Given the scope for pursuit of divergent interests as infrastructure changed hands, the tax structure altered and numerous opportunities for rent-seeking were eliminated, the degree of cooperation attained was an outstanding achievement.
7.6 Implementing Agency: The project was ultimately implemented not by the Ministry of Agriculture, as originally planned
- 17 - but rather by the Agency for Support to the Development of the Agricultural Private Sector, as noted above initially a free-standing PMU, ultimately a new agency of the Government. The Agency did an outstanding job. In terms of preparation for the job, the Agency was up and running within a few months of effectiveness. International expertise was promptly hired and retained as long as needed to lay the groundwork for Agency functions such as procurement, financial management and evaluation functions. Procurement was fair and prompt, giving a boost to the project when all the project's major procurement for components in the critical path (such as land registration) was rapidly completed to Bank satisfaction. Audits were completed satisfactorily; monitoring and evaluation were excellent, and the Agency's local staff capacity rose steadily.
7.7 Overall Borrower performance: Overall performance was highly satisfactory. Government support for the principle that distribution be equitable and perceived as such was vital to the good outcome of the project. During implementation, the Government listened to Bank advice and perceptions, and for its own part, used political capital to make numerous difficult choices: it restrained the influence of local elites, surrendered tax revenue to support the struggling private farms in their early years, cancelled farm debts, limited the authority of raion water administrations (Raivodkhoze) over farm infrastructure, and created an enabling environment for private farming by working together with international consultants to develop legislation needed for formation of Water Users' Associations and limitation of taxation thereon. Counterpart funds were received on time after the Bank flagged the issue. The principal party responsible for this unique success is the Government of Azerbaijan.
8. Lessons Learned With Government support and advice about where the opportunities are for feasible reform, a Bank project can support profound change. Even with strong preparation and good design, this project required the active and energetic intervention of ministers, whose commitment was strengthened by the fact that they were overseeing the success of their own initiative. Reduction of taxes on farmers, devolution of water infrastructure to WUAs, pressure for very high levels of productivity from the State Land Committee, were all vital and all required strong Government support. The credit component would likely have failed, had not the highest levels of Government intervened to counter the expectation of political elites that they could borrow and not repay.
Perceived fairness of distribution provides strong support for the sustainability of a land distribution program. The methodology used to distribute farmland allocated parcels by lottery. This approach assured that those who designed the parcel division would seek evenness in value, not knowing which parcel they themselves might receive.
A key to success of rural credit initiatives is whether the project team correctly identifies the issues faced by farmers. An over-lengthy credit application, the need to travel to the capital for an application, inconveniently timed repayments, the likelihood that market profits will be robbed on the road – all these and a host of other micro-issues affect success. Unraveling of these by listening to the client and analyzing rural incentives can take a rural credit initiative from apparent
- 18 - failure to success.
NGOs are not necessarily well-prepared to focus on participatory work and listen to the voices of the poor. As noted above in the description of the community development component, the NGO hired for community development was not specifically instructed to achieve economic gain for the poorest members of the community. It may have been believed by the project team that NGOs automatically bring a grass-roots point of view to their contracted activities, and that this performance indicator need not be spelled out. In practice the NGO performed as a for-profit consultancy might, focusing on achievements easiest to monitor and quantify: building, contracting, delivering classes and lectures -- rather than on searching out and encouraging fledgling economic efforts among vulnerable and commercially inexperienced village members, whose initial ideas were often a long way from viable. Still, the latter is what needed to be done; the former was an overlap and indeed a competition with the project's FIAS component, a point the NGO could hardly have missed. In short, the NGO behaved as a rational economic actor meeting its TOR and achieving payment and a growth in salable experience. Perhaps no more should have been expected, and the TOR should have been written accordingly.
The transaction costs of rural credit are high. These costs are sometimes concealed by the structure of donor or government-sponsored initiatives. However, they must not be underestimated if work toward sustainable rural credit is undertaken.
9. Partner Comments (a) Borrower/implementing agency:
Government of Azerbaijan Republic
Government Commission’s Views on the Farm Privatization Project Implementation
State Commission to Support the Development of the Agricultural Farms and a Project Management Unit (PMU) for the implementation of the World Bank assisted “Farm Privatization Project” were established by a Decree of President of Azerbaijan Republic in September No: 195 on September 19, 1996. The project was very successfully implemented through the Project. Working Groups established in Pilot Districts (Raions).
The statute of the Central and District Working Groups for the implementation of the Pilot Agricultural Enterprises Privatization Project was approved by Resolution No: 168 of Cabinet of Ministries of Azerbaijan Republic on December 2, 1996 and under this statute the role, responsibility and rights of Central and Local Working Groups were clearly defined.
The organizational structure and their activities helped us to successfully implement “Farm Privatization Project” all the defined objectives and goals. All the issues related to the implementation of the Project were broadly guided regularly by the State Commission for Supporting the establishment of the privatized Agricultural Farms and their development and resolution to remove any impediments were made time in consultation with the visiting
- 19 - missions of the Bank for smoother implementation of the project. It should be noted that, First Deputy Prime Minister and Chairman of State Commission for Agrarian Reforms, Mr. Abbas Abbasov and members of state commission made special and concerted efforts and contribution to all the proposals made by the Agency and helped through necessary government resolutions to formulate and issue the government policies, rules and regulations to make the activities.
The laws and legal normative acts passed and adopted by Azerbaijan Government had a great role in privatization Project implementation. In this respect, we would like to mention the step taken for exemption of land owners and farmers from different types of taxes that acted as barriers for the privatized farmers to function independently. The Government of Azerbaijan (GoA) has removed all the complexities and unified the tax impose only land tax now. The committment of the President of the Republic of Azerbaijan to the privatization process and issuance of suitable decrees and related rules and regulation played a key role in the process of privatizing State and Collective farms.
Mr. T. Sampath Task Manager for the “Farm Privatization Project” from the World bank, had a great knowledge on the natural-climatic condition and the socio economic conditions of the pilot farms, who constantly interacted and kept the implementation of the Project under the control and whenever there were delays he helped with his efficient and productive proposals to successfully solve these problems. There was an excellent mutual understanding between Mr. Sampath and Project management staff and farm people during the implementation of the Project. Above all, the high level mutual understanding between the Agency and Mr. Sampath had resulted to increase the number of villages covered by the project components not only from initial pilot 21 to 113 and also out side the project areas. The Government of Azerbaijan (GoA) request the World Bank approval to provide his continued support for resolving the issues or difficulties we are facing in the implementation of other Projects that the Agency continues to implement.
Working with the Agency, the other beneficiaries, Ministry of Agriculture, State Land and Cartography Committee, Amelioration and Water Farm Committee had properly realized their commitment within the Project. Besides, the strong contribution for project is the credit support provided by the Agency for Development of the Agricultural Private Sector. The Agency developed the proposals for the improvement of the legislation related with the provision of credit issues, establishment of “Agrocredit” Jointstock Credit Organization, Implementing Agency for credit component had closely cooperated with the Agency.
As a result of the implementation of “Farm Privatization Project” it was the first time in Azerbaijan, which the privatization of land and property a legal framework was established with the passage of necessary legislation and legal normative acts in pilot farms and 6645 families received land titles. The Information and Advisory Centers that meet the international requirements had been established in Project Districts.
The legal-normative documents prepared by the Agency for the operation of the first water Users Associations (WUA’s) established within Project for water fee collection, operation and maintenance of the on farm irrigation infrastructures by the beneficiaries
- 20 - themselves had played important role in developing legal base for other rest of the 550 WUA’s established countrywide. At the same time, documentations prepared by the project Agency provide valuable assistance to the Parliament for evolving and passing new Low regulating the WUA’s that are acceptable more widely in Azerbaijan Republic.
(b) Cofinanciers: No comments.
(c) Other partners (NGOs/private sector): Not applicable.
10. Additional Information In “The Environmental Implications of Privatization,” Lovei and Gentry consider Azerbaijan as a case study. While devoting most space to the future of the oil, gas and chemical industries, they briefly note two countervailing tendencies in agriculture that will influence the level of privatization-related potential environmental damage. First, use of toxic pesticides is a cause of environmental degradation; second, there is broad public unease about the presence of toxins in agricultural products. The authors do not try to go beyond these observations to forecast the net trend, and it would be difficult to do so: while more-prosperous farmers will have the opportunity to use a higher level of toxic pollutants, on the other hand, consumers will have the opportunity to reject farm goods that are tainted with pollutants. (We may add some observations from implementation experience of the farm privatization project: farmers are interested in protecting the future value of their land; farm households consume a substantial proportion of their own produce; and farmers work with their own hands and those of family members on the crops where they will choose to apply or not apply toxins.)
In “Republic of Azerbaijan State Programme on Poverty Reduction and Economic Development, 2003-2005,” the Government notes that according to Household Budget Survey (HBS) data, urban levels of poverty are consistently higher than rural levels (55 percent versus 42 percent, for example, if the poverty line for monthly household income less than 120,000 AZM). The difference is attributed to the importance of land and home produce as a safety net. The rural population is better off, the Government notes, because of the value of produce consumed from the household’s own agricultural plot or livestock. The Government does not propose that this is an outcome of privatization; however, the Joint IDA-IMF Staff Assessment of the PRSP: State Programme on Poverty Reduction and Economic Development (2003-2005), dated April 15, 2003, remarks (para. 27) that the lower poverty prevalence now found in rural relative to urban areas can to a large extent be attributed to the successful land reform and privatization.
The ICR team agrees, observing that privatization was immediately followed by changes in cropping patterns aimed to preserve subsistence production and enhance profitable marketing opportunities. Low-profit tea bushes were torn up, poorly-remunerated cotton production was dropped, and standard rotations wheat/barley/cotton/lucerne were revised. Farms now grow peanuts, sugar beet, mustard, safflower, sunflower, chickpea and cowpea; production of livestock forage has soared as has production of fruits and vegetables including potatoes.
- 21 - The Joint IDA-IMF Staff Assessment also confirms the relevance of the project’s activities beyond land registration, as it notes the importance for medium-term poverty reduction of rehabilitating irrigation and drainage infrastructure and financing its ongoing maintenance, and of developing rural finance, rural off-farm enterprises, and agricultural extension services that are useful and financially sustainable. This confirms the relevance of the project pilots that have tested models to meet these precise needs. Various reasonable approaches were tested on the small scale of the pilots, yielding a harvest of relevant experience that will be applied by the Agency and other ministries and partners involved in Azeri privatization issues.
The “Azerbaijan Republic Poverty Assessment,” June 4, 2003 (World Bank Report No. 24890-AZ) notes that, “The farm and land reform effort which was initiated in 1995 was successful in stimulating agricultural growth and in contributing towards poverty reduction in rural households, but the poverty reduction achievements of the land privatization process now need to be consolidated through ensuring that rural growth is sustained.” The document lists priorities for poverty reduction, which include national establishment of information and advisory services, agricultural research, consolidation of land registration in support of land markets, veterinary disease control, rural credit, rehabilitation of irrigation, and support for formation of Water Users’ Associations – in other words, rollout on the national level of initiatives to address the issues for which approaches have been tested in the project pilots. This confirms project relevance; the initiatives selected for testing and development on the pilot farms correctly focused on what is required to promote rural development and poverty alleviation.
- 22 - Annex 1. Key Performance Indicators/Log Frame Matrix
Output Indicators (Note that this table refers only to pilot farms, except where noted) Indicator Baseline SAR Forecast Actual for End of Project at End of Project No. of Land Titles Issued 0 4800 6645 No. of Individual Farm Units 0 410 6645 Established Water Users' Associations formed 0 19 31 Total area covered by WUAs 0 9310 ha 17,116 ha No. of farmers covered by WUA 0 620 7766 Performance of irrigation water 0 >90% 95% charges collection Cotton crop yield 1500-2000 kg/ha 3000 kg/ha 2800 kg/ha Wheat crop yield 1500/2000 kg/ha 3500 kg/ha 3200 kg/ha Barley crop yield 1200/1500 kg/ha 3400 kg/ha 2200 kg/ha Corn crop yield about 2500 kg/ha 4500 kg/ha 3800 kg/ha Forage crop yield 6100 kg/ha** 8500 kg/ha 9800 kg/ha Vegetable crop yield 80 quintal ha, or 8000 140 quintal/ha or 14000 150 quintal/ha or 15000 kg/ha kg/ha kg/ha Fruit crop yield 80 quintal/ha or 8000 140 quintal/ha or 14000 160 quintal/ha or 16000 kg/ha kg/ha kg/ha Cow milk yield 1050-1500 3500 kg/animal/year 3000 kg/animal/yr kg/animal/yr Buffalo milk yield 800-1200 kg/animal/yr 3000 kg/animal/year 2800 kg/animal/yr Cropping intensity 65% 125% 150% Irrigation conveyance efficiency 45% > 65% 65% Field application efficiency 45% >65% 80% Saline and waterlogged area 32% <20% 15% WUA water charges 50% 85% 100% on pilots collected/budgetary requirement Soil pH 8.7-8.8 <8.5* ~7.5 Canals rehabilitated 0 940 km 1633 km Pipelines repaired 0 80 km 94 km Water control structures 0 650 structures 2347 structures New canals 0 92 km 92 km Subsurface drains [rehabilitated] 0 150 km 185 km *Indicator for soil pH presented in SAR showed ph>8.5 at project end. This was obviously a typo, and should have read as it does here, pH<8.5.
Outcome or Impact Indicators Indicator Baseline SAR Forecast Actual for End of Project at End of Project No. of Land Titles Issued 0 6000-8000 869,785 nationwide Water Users' Associations formed 0 about 30 - 40 580 nationwide Rural Household Incomes US$200-300 Not forecast US$950-1400 Note: Growth in farm incomes was more the result of growth in value-added per hectare a consequence of changes in cropping intensity and changes in crop mix. Indeed, as crop mixes changed, different areas were used for each crop, and thus productivity before and after is in general not a pure comparison of the same areas differently
- 23 - managed. Among the important crop mix changes was the shift from cotton to sugar beet production, as the farmers identified better income opportunities. Also important was the exit from tea production. This crop had historically been grown for Soviet self-sufficiency, but as the bushes had not been renewed in over a decade, quality was very low and the output was not competitive. Cropping intensity rose as winter wheat was introduced, allowing double cropping in some areas. Crop mix and cropping intensity changes were facilitated first by ownership rights, and second by the promulgation of new crops and farming and management techniques by the Farm Information and Advisory Services component.
- 24 - Annex 2. Project Costs and Financing
Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Farm Privatization Support Services 18.57 11.46 62 Rehabilitation of Main Irrigation and Drainage Works 4.20 8.33 198 Community Development Program 0.98 0.55 56 Project Management and Implementation 1.92 3.46 180 Total Baseline Cost 25.67 23.80 Physical Contingencies 1.34 Price Contingencies 1.80 Total Project Costs 28.81 23.80 Total Financing Required 28.81 23.80 Change in the rate of exchange between SDR and USD explains the reduced expenditure as denominated in USD, from the projected US$28.81 million to US$23.80 million.
Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB 2 N.B.F. Total Cost NCB Other 1. Works 4.30 0.20 0.10 0.00 4.60 (2.20) (0.00) (0.00) (0.00) (2.20) 2. Goods 1.20 0.00 0.40 0.00 1.60 (1.00) (0.00) (0.30) (0.00) (1.30) 3. Services 0.00 0.00 4.30 0.00 4.30 -- TA and Training (0.00) (0.00) (3.50) (0.00) (3.50) 4. Line of Credit 0.00 0.00 12.80 0.00 12.80 (0.00) (0.00) (5.60) (0.00) (5.60) 5. Operating Costs 0.00 0.00 4.60 0.00 4.60 (0.00) (0.00) (1.20) (0.00) (1.20) 6. Project Preparation 0.00 0.00 0.90 0.00 0.90 Facility (0.00) (0.00) (0.90) (0.00) (0.90) Total 5.50 0.20 23.10 0.00 28.80 (3.20) (0.00) (11.50) (0.00) (14.70)
Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB 2 N.B.F. Total Cost NCB Other 1. Works 2.56 0.00 0.00 3.43 6.00 (2.03) (0.00) (0.00) (2.48) (4.52) 2. Goods 2.62 0.00 0.49 0.21 3.32 (2.25) (0.00) (0.40) (0.19) (2.85) 3. Services 0.00 0.00 1.99 0.57 2.56
- 25 - -- TA and Training (0.00) (0.00) (1.67) (0.46) (2.13) 4. Line of Credit 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Operating Costs 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Project Preparation 0.00 0.00 0.00 0.00 0.00 Facility (0.00) (0.00) (0.00) (0.00) (0.00) Total 5.19 0.00 2.47 4.22 11.88 (4.29) (0.00) (2.07) (3.14) (9.49)
1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies. 2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.
Project Financing by Sub-Component (in US$ million equivalent) Percentage of Appraisal Sub-Component Appraisal Estimate Actual/Latest Estimate IDA Govt. CoF. IDA Govt. CoF. IDA Govt. CoF. A. Farm Privatization 10.09 0.78 7.22 6.27 0.21 4.98 62.1 26.9 69.0 Support Services B. Rehab - Main 2.43 0.89 1.49 4.01 1.23 3.09 165.0 138.2 207.4 Irrigation Water Supply & Drainage Works C. Community 0.40 0.05 0.59 0.00 0.55 0.0 0.0 93.2 Development Program D. Project Management 1.78 0.45 2.90 0.56 162.9 124.4 and Implementation Note: Cofinancier is IFAD. Note: Table does not show appraisal estimate of contribution from Privatized Farm Units. The value of this was projected at US$1.94 million to Component A and US$0.71 to Component B. A final estimate of this contribution is not available.
- 26 - Annex 3. Economic Costs and Benefits As noted earlier, a project-wide rate of return was not estimated during project preparation and appraisal or presented in the Staff Appraisal Report. However, farm models based on possible farm size and crops were considered and analyzed, and from these, it was estimated that the financial rate of return for typical farm models would be about 20 percent in the pilot areas. Comparison of that projection to project experience is presented in the table below, an update of the table provided in Annex F of the SAR. It is clear from the data that the farmer's gross margin per hectare increased more than the SAR anticipated, at least for wheat, barley and corn, in the case of cotton, the sharp drop of international prices, well below long term averages, for the year 2001 and 2002 have sharply cut into the margins. With the recovery of cotton prices in 2003, however, the margin on cotton as well would reflect significant increases over SAR estimates. Table 3-1. Comparison of SAR Projection to Project Experience
UNITS WINTER WHEAT BARLEY COTTON CORN PRICE AMT VALUE PRICE AMT VALUE PRICE AMT VALUE PRICE AMT VALUE (USD/Kg) PER HA (USD/Kg) PER HA (USD/Kg) PER HA (USD/Kg) PER HA (USD) (USD) (USD) (USD) Using Exchange Rate 4911 Manats/USD (kg) (kg) (kg) (kg) PRODUCTION PER HA 0.18 3100 568.11 0.15 2800 427.61 0.41 2100 855.22 0.12 2800 342.09 GROSS INCOME PER HA (USD) 568.11 427.61 855.22 342.09
VARIABLE COSTS PER HA 1. Seed KG 0.41 320 130.32 0.31 230 70.25 0.24 80 19.55 0.47 75 35.13 2. Fertilizer Urea KG 0.10 312 31.77 0.10 178 18.12 0.10 398 40.52 0.10 178 18.12 Phosphate KG 0.06 462 27.28 0.06 366 21.61 0.06 479 28.29 0.06 83 4.90 Potash KG 0.04 135 5.50 0.04 174 7.09 0.04 186 7.57 0.04 194 7.90 Complex KG 0.14 0 0.00 0.14 0 0.00 0.14 202 27.56 0.14 0 0.00 3. Micro- Nutrients KG 0.31 0 0.00 0.31 0 0.00 0.31 11 3.36 0.31 6 1.83 4. Manure KG 0.00 5500 0.00 0.00 4400 0.00 0.00 6221 0.00 0.00 5100 0.00 5. Herbicides KG 1.63 0 0.00 1.63 0 0.00 1.63 5 8.14 1.63 0 0.00 6. Pesticides LITRE 1.22 3 3.67 1.22 2 2.44 1.22 26 31.77 1.22 10 11.73 7. Fuel & lubricant KG 0.10 94 9.57 0.10 102 10.38 0.10 289 29.42 0.10 178 18.12 8. Labor MANDAY 1.83 32 58.64 1.83 18 32.99 1.83 180 329.87 1.83 24 43.98
TOTAL VARIABLE COST PER HA (USD) 266.74 162.89 526.05 141.72 variable cost per 1000 kg output 86.05 58.17 250.50 50.61 variable cost expected in SAR 43.85 36.21 115.17 54.83 GROSS MARGINS PER HA IN USD 301.37 264.72 329.17 200.37 SAR ESTIMATE OF GROSS MARGINS PER HA IN181.14 USD 177.38 437.50 190.28
However, comparison of the farm budget presented in the SAR with actual output is misleading. While the SAR crop budget anticipated a gain in profitability as productivity rose while crop prices stayed steady, in fact yield per hectare rose less than expected, while prices rose far more. Comparison of yields turns out to be quite difficult, because of a more intensive agriculture crop rotation increased so that the land that was assigned a certain crop in the SAR analysis, ultimately held several shorter maturing crops during the course of a year. The SAR analysis held constant a number of factors that the farmers optimized as soon as they were free to do so. Unfortunately, data collection for M&E did not sufficiently take into account the crop rotation and cultures beyond the main crops. However, in spite of not being able to perform an in depth review of
- 27 - productivity increases due to weak M&E data, the project's economic development impact achieved through the farm privatization nationwide and its impact on agricultural growth overall should not be underestimated. Crop switching: A major factor in increased productivity was crop switching, as farmers expanded plantings of more valuable crops and moved crops from one area to another adopting more sustainable corp rotation patterns. Apparent changes in yield do not take this into account. Output prices: Crop budget comparison shows that prices went up, contributing substantially to farmer income, but does not show why. The price increases are in part a consequence of improved quality differentiation -- Azeri wheat is now sold by quality level, not as undifferentiated bulk, for example -- and second, a consequence of entering the global market. Azeri cotton is no longer sold only to the countries in the USSR's trading bloc and at the price set there, but rather is sold on the global market. While this permitts higher prices overall, it also subjects the cotton to significant price fluctuations as they were observed in 2001 and 2002.
The team notes that yield of major crops was significantly larger in the pilot areas than the national average, in the cases where it was measured. The limited data available tends to confirm the value of the comprehensive investments in the pilot areas.
Figure 3-4. Yield of Selected Crops, Country-Wide and in Pilot Areas, 1997 to 2003
Wheat Yield (Tons/Ha) as Percent of 1997 Values - All Azerbaijan and Five Pilot Areas -
500% 400%
300% 2003 Level 200% 1999 Level 100% 0% All Barda, “Gilinjli” Sherur, Pusyan Ujar, Salyan, “Shafag” “Yerguj” Azerbaijan “Gulaband” Khachmaz, Figure 3-4a. Wheat
- 28 - Barley Yield (Tons/Ha) as Percent of 1997 Values - All Azerbaijan and Three Pilot Areas -
500% 400%
300% 2003 Level 200% 1999 Level 100% 0% All Ujar, Salyan, “Shafag” “Yerguj” Azerbaijan Khachmaz, “Gulaband” Figure 3-4b. Barley
Cotton Yield (Tons/Ha) as Percent of 1997 Values - All Azerbaijan and Three Pilot Areas -
600%
400% 2003 Level 1999 Level 200%
0% All Barda, “Gilinjli” Ujar, Salyan, “Shafag” Azerbaijan “Gulaband” Figure 3-4c. Cotton
The shortcoming of the M&E data collection also afffected the ability to undertake a conclusive with/without project economic analysis. Here as well data collection failed to properly delineate the areas of Azerbaijan that were "with" and "without" project and especially taking into account the begining point of implementation of the various project components. For example, almost all of Azerbaijan had privatized farmland in accordance with the project model by the midterm review in 2000, with project support; meanwhile, on the pilot farms, irrigation and drainage rehabilitation was not complete until 2002. Likewise, the WUA model spread to more than half of Azerbaijan's irrigated farmland by end-project, supported by the project financing for technical assistance and legislative development; meanwhile, the credit component in pilot areas was ramping up slowly. Extension services developed in the pilot areas were rolled out country-wide to the extent practicable. Even project investments extended beyond the original pilot areas: irrigation and drainage rehabilitation was undertaken in additional villages adjacent to the original pilot farms, and credit access yet more widely. The return on irrigation and drainage works would be particularly hard to assess, as planned irrigation works were completed late, and the further extension of irrigation and drainage works rehabilitation was agreed too late in the project to have shown any results in productivity data. Thus, economic benefits are still largely in the future. Consideration of trends in Azerbaijan's overall production provides an indicator of the project,
- 29 - reflecting the project goal (national land privatization) and design (providing carrots for the privatization of six pilots as a means to advertise the real possibility nationwide). It is however an attempt to provide a comparative presentation of before and after situation as opposed to a strict comparison of with/without scenario. Agricultural production in Azerbaijan fell after 1991 until land titling began in 1996. From 1997 to 2002, it has risen steadily. As shown in the main text, agricultural GDP gain estimated to be about 44 percent altogether between 1995 and 2002. The growth in productivity is attributed principally to the ownership/titling process initiated during preparation of the Farm Privatization Project that ultimately spread nationwide by the end of 2000, now standing at 99.2 percent. The charts below show trends in national production, yield and (for clarification) area sown.
Figure 3-1. Country-Wide Production Growth, by Crop, 1997 to 2003
Production in Tons as Percent of 1997 Values - All Azerbaijan -
1000%
2003 Level 500% 1999 Level
0% Fruit Rice Garlic Onion Maize Sugar Barley Wheat Cotton Melons Potatoes Cabbage Tomatoes Cucumber
Source: Agency for Support to the Development of the Agricultural Private Sector, 2004.
Note: As it is off this scale, note that fruit production in 1999 was 1460% of 1997 value. In 1999, it was about 1900% of 1997 value. Note: The weak performance of cotton is attributed by the team to the fact that real privatization of the cotton ginneries has not taken place. The team believes that it is for this reason that prices offered to producers have remained low. The low prices offered provide private farmers with inadequate incentive to produce. They have therefore switched out of this crop and into others more supportive of household incomes.
Figure 3-2. Country-Wide Yield, by Crop, 1997 to 2003
- 30 - Yield (Tons/Ha) as Percent of 1997 Values - All Azerbaijan -
500% 400%
300% 2003 Level 200% 1999 Level 100% 0% Fruit Rice Garlic Onion Maize Sugar Barley Wheat Cotton Melons Potatoes Cabbage Tomatoes Cucumber
Source: Agency for Support to the Development of the Agricultural Private Sector, 2004
Figure 3-3. Country-Wide Sown Area, by Crop, 1997 to 2003
Area Sown as Percent of 1997 Values - All Azerbaijan -
500% 400%
300% 2003 Level 200% 1999 Level 100% 0% Fruit Rice Garlic Onion Maize Sugar Barley Wheat Cotton Melons Potatoes Cabbage Tomatoes Cucumber
Source: Agency for Support to the Development of the Agricultural Private Sector, 2004.
- 31 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 7/8/1995 7 Task Team Leader, Economist, Privatization and Banking, Finance and Project Management, Land Registration and Management (2), Financial Management 12/8/1995 14 Task Team Leader, Privatization and Banking, Economist, Irrigation and Water Management, Finance and Project Management, Land Registration, Social Aspects and Participation (3), Procurement, Financial Restructuring, IFAD Representative, IFAD Economist, IFAD Lawyer
Appraisal/Negotiation 5/20/1996 10 Task Team Leader, Economist, Finance and Project Management, Irrigation and Water Management, Financial Restructuring, Procurement, IFAD Representative, IFAD Water Mgt Specialist, IFAD Sociologist, IFAD Legal Consultant Supervision 6/4/1997 2 Task Team Leader, Finance S HS and Project Management 11/21/1997 2 FINANCIAL MANAGEMENT S S (1); FARM PRIVATIZATION (1) 06/11/1998 3 CREDIT AND COM. DEV (1); S S FINANCE & ACCOUNTING (1); FARM PRIVATIZATION (1) 12/17/1998 5 RURAL CREDIT (1); S S FINANCIAL MANAGEMENT (1); PROJECT ACCOUNTS (1); MONITORING & EVALUATION (1); FARM PRIVATIZATION (1) 08/21/1999 5 AGRICULTURIST (1); S S
- 32 - FINANCE,RURAL CREDIT (1); PROCUREMENT & ORGANIZAT (1); IRRIGATION SYSTEMS (1); SOCIAL DEVELOPMENT (1) 06/22/2000 4 TASK TEAM LEADER (1); S S FINANCE, CREDIT, MGMT (1); PROCUREMENT (1); FINANCIAL MANAGEMENT (1) 11/13/2000 7 PROJECT IMPLEMENTATION S S (1); IRRIGATION ENGINEER (1); LAND REGIST. and AGRONOMY (1); FINANCE AND CREDIT (1); PROCUREMENT PLANNING (1); SOCIAL DEVELOPMENT (1); PROJECT COSTS (1) 12/08/2001 5 TASK TEAM LEADER (1); S S ENVIRONMENT ECONOMIST (1); PROCUREMENT SPEC (1); ORGANIZATION SPEC (1); FINANCE/ACCTS MGT (1) 05/17/2002 7 IFAD REPRESENTATIVE (1); S S IFAD CONSULTANT (1); INSTITUTIONAL SPEC (1); FINANCIAL SPEC (1); ORGANIZATION SPEC (1); TASK TEAM LEADER (1); IRRIGATION SPEC (1) 11/22/2002 6 ORGANIZATION SPEC (1); S S INSTITUTION SPEC (1); TASK TEAM LEADER & LR (1); SOCIOLOGIST (1); IFAD REPRESENTATIVE (1); IFAD FINANCE CONSULTANT (1)
ICR 04/2003 2 TASK TEAM LEADER, OPERATIONS ANALYST 10/2003 1 OPERATIONS ANALYST 02/2004 2 TASK TEAM LEADER, OPERATIONS ANALYST
(b) Staff:
Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 62.7 218.4 Appraisal/Negotiation 17.9 127.5
- 33 - Supervision 179 561.1 ICR 10.4 24 Total 270 931.1
- 34 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA
Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA
- 35 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)
6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU
6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU
- 36 - Annex 7. List of Supporting Documents Aide-Mémoires
Supervision Mission 30 May – 10 June 1998 Supervision Mission 2-16 December 1998 Supervision Mission 12-20 August 1999 Supervision Mission 13-22 June 2000 Mid-Term Review Mission, 13-29 November 2000 Supervision Mission 24 November – 9 December 2001 Supervision Mission 5 May – 17 May 2002 Supervision Mission 10 – 22 November 2002
Monitoring Reports
The World Bank Farm Privatization Project: AgroProm Bank Staff - Report on their training, training design and course inputs, by Sunderraman Krishnaswamy, June 1997. Brief About the Working of the Farm Privatization Project, Azerbaijan Republic, Baku. Baku, 1998. Project Monitoring Report (for the period until July 31, 1998) Base-line Report, March 1999 Third Quarter Progress Report, July-September 1999 Project Monitoring Report (for the period 1997-July 31, 2000), August 2000 Project Monitoring Report for the period until July 31, 1999 Project Monitoring Report for the period 1997-1999 Detailed Report on Credit Component and a Case Study of Selected Raions, March 2000 Fourth and Sixth Monthly Reports by Irrigation and Drainage Consultant, February and August 2000
Studies
Azerbaijan Republic Farm Privatization Project Main Report on Final Monitoring and Social Evaluation. Elat Agro-Business Consulting Center, May-June 2003. Land Reform in Azerbaijan: Legal and natural/ecological questions, by Garib Mamedov (Chairman of State Land Committee of Azerbaijan), Baku, 2000. Azerbaijan – Poverty Assessment, June 2003, World Bank, Washington DC (Two volumes). Azerbaijan Poverty Reduction Strategy Paper, 15 April 2003. The Environmental Implications of Privatization: Lessons for Developing Countries, World Bank Paper, 30 April 2002. The World Bank in Action: Stories of Development. World Bank Working Paper, January 1, 2002. Social Assessment. Study undertaken for Farm Privatization Project. January 1, 1998.
- 37 - Annex 8. Beneficiary Survey Results Survey Methodology
In May-June 2003, a survey of project beneficiaries was undertaken by Elat, an Azeri NGO with rural expertise, to quantify aspects of beneficiary experience with farm privatization. Elat aimed to survey a representative rather than a random sample because, in Azeri rural areas, cold calls to randomly selected households will not produced an unbiased result due to the non-representative nature of those willing to respond to such outreach. Few women would respond to that survey method, and fewer than half of men, among whom an even smaller group would feel obliged to provide the most exact answers possible. Therefore, Elat sought to achieve a representative survey by obtaining names from varied rural contacts and from members of village Baladiyas.
500 households were surveyed on pilot farms. Elat collected 500 names for that sample from the 21 villages included in the project frm the outset by asking the local PIU and the villages’ elected Baladiyas to supply names, including in the sample: (i) people who had applied for credit and people who had not, (ii) people who were WUA members and people who were not, (iii) widows, single people and married male heads of household, (iv) people receiving remittances from elsewhere and people who did not, (v) people with on-farm enterprises and people without.
In addition, 500 households were surveyed on non-pilot farms in the pilot raions. These were obtained from 21 villages selected for being closely comparable to the 21 pilot villages sampled in the first group, on the basis of such factors as soil quality, water availability and population. From these villages, as for the pilot villages, Elat assembled a list of interviewees, including farmers with and without off-farm enterprises, and members and non-members of WUAs or other associations. Interviewee references were sought from members of the elected Baladiya and also from Elat’s own contacts.
As well, 500 households were surveyed, drawn from the rest of the country. Elat identified two comparison raions for each project raion: one similar, one very different. In each of these twelve raions, Elat chose one or two villages to represent contrasting conditions of soil, infrastructure, water availability and quality, etc. From these villages, Elat assembled (from references supplied by the elected Baladiya and from its own contacts) a list of interviewees representing farmers with and without off-farm enterprises, and members/non-members of WUAs and other associations.
Elat's final report is in the project files.
Table A8-1: Respondents
Men: 1240 Women: 260 Age less than 25: 58 25 < Age < 55: 1110 Age > 55: 332 Single: 128 Married: 1029 Widowed:181 Other: 162
- 38 - Highlights from the Survey
· Tables A8-2 to A8-6 concern improved support for farmers in the pilot area.
Water. About 80% of farmers in the pilot area stated at project end that their farms were supplied with water according to the requirements of their chosen crops, while only about 25% said the same in non-pilot areas.
Land. In pilot areas, about 25% of land in control of farmers surveyed was land they had rented or bought in addition to their allotted parcels; no such expansion was found among the non-pilot farmers surveyed. In non-pilot areas, about 14% of the land under the control of newly private farmers was unused in 2002 due to lack of water there; in pilot areas, it was about a third of that. Family management and garden plots were dominant in pilot areas; but in non-pilot areas, management of private land organized as large farms was more important. It would appear that allotments off-pilot were smaller, at least in the surveyed groups.
Farm Information. Nearly all on-pilot farmers had obtained farm information in the form of brochures, advice, demonstrations, or mass media dissemination. About 80% reported an improvement in income as a result of this information. Off-pilot, only about 5% of farmers had received information from these sources though, again, about 80% of those who had reported an improvement of income as a result.
Credit. While about 57% of off-pilot farmers said that obtaining credit for on-farm investment was not really possible, only 1% of on-pilot farmers were equally pessimistic. As for off-farm investment, the non-pilot farmers describing such loans as not really possible was 73%, compared to pilot farmers, of whom only 18% were so pessimistic.
Chemicals. About twice as many respondents in pilot areas as outside were using fertilizers, and the same for chemical pesticides.
· Tables A8-7 and A8-8 highlight the increased incentives in the pilot areas for active farm management and water conservation.
Changing crop mix. At the time of the survey, about 80% of farmers in the pilot areas had already planned and implemented new cropping patterns on their farms, while only about 50% of those in non-pilot areas had done so as yet. Presumably this reflects the fact that in off-pilot areas, some farms had only just undergone formal titling.
Stewardship of land and water. At the time of the survey, about 95% of on-pilot farmers had volunteered labor to maintain irrigation structures, and 50% intended to do so again.
About 85% of pilot-area farmers had taken steps to reduce water use in the field (75% intended to do so again), and 45% had taken steps to protect the quality of their fields/land. Interestingly, about 80% intended to take future steps to protect the quality of their fields/land; presumably, the delay pertains to the cost of such investments. Off the pilot farms, these steps had not been taken,
- 39 - though the level of commitment to such actions at some date was comparable.
Incentives for Water Conservation. Farmers were asked why they undertook conservation measures. In pilot areas, only 20% stated that they had reduced the volume of water used in order to reduce water charges, while about 60% said they conserved water in order to protect the quality of land and avoid waterlogging. In non-pilot areas, about 25% said there was no need to worry about saving water at all. About 40% were concerned about water charges, and only 20% about protecting the quality of land.
· Tables A8-9 to A8-10 show that although the surveyed pilot and non-pilot areas had comparable incomes in 1998, income from crops and livestock had diverged dramatically by 2002.
Table A8-9 shows that incomes from various sources (crops, livestock, agroprocessing, pensions, remittances) were generally similar in the pilot areas and the surveyed off-pilot areas in 1998. However, by 2002, while income in the off-pilot areas had approximately doubled (in current manat), income in on-pilot areas had increased about tenfold (in current manat), mostly driven by increases in crop income and secondly by livestock income.
Table A8-10 details the larger crop production and sales on-pilot compared to off-pilot.
· Tables A8-11 to A8-13 show that privatization was seen as more equitable in pilot areas. Beneficiaries were more hopeful, and saw the result as fairer to weak members of society.
Table A8-11 shows that the reasons for supporting privatization were generally similar on-pilot and off-pilot. In all areas, water supply, credit and business advice were significant support to farmers’ willingness to undertake the transition.
Fears of privatization were also similar in pilot areas and outside. The most widespread initial fears were that the newly private farmers would not be able to pay startup costs for seeds and other inputs; that the new system would be reliant on bribes, which the newly private farmers would not be able to pay; and that the farmers would not be able to overcome lack of experience in private farming.
Table A8-12 shows that the distribution of state/collective farmland as private plots was ultimately perceived as being fair overall.
Table A8-13 shows how respondents sized up the winners and losers from privatization. 88% of respondents in the pilot area considered themselves winners from privatization, as did 54% of respondents outside the pilot area. In general, non-pilot respondents perceived more inequity in the outcome. While about 65% of on-pilot respondents saw pensioners, the old and disabled as losers in privatization, 80-90% of off-pilot respondents saw these vulnerable groups as having lost out. In pilot areas, about 70% of respondents saw “average” people as winners, while outside the pilot, about 50% of respondents did so.
- 40 - Table A8-2: Water Supply Pilot Outside Pilot Villages, % Villages, % (N=500) (N=1000) Concerning water availability My farm is supplied with water according to the requirements of 81 23 chosen crops My farm is supplied with water, but the timing does not correspond 12 34 to the crops My farm is supplied with some water, but it is not as much as the 2 11 crops require I do not have any crops that need watering 1 30 Concerning condition of water supply infrastructure It is getting worse every year 0 64 It is bad, but it has improved for the last years 23 19 It is neither very good nor very bad 28 11 It is good 45 0
Table A8-3: Land Use Category of Land Use/Rights % of Area % of Area Owned/Rented by Owned/Rented by Pilot Village Respondents Respondents Drawn from (N=500) Outside Pilot Villages (N=1000) Personal garden plot 34 32 Land received from privatization. but people do not work 9 26 there independently. it is shared in a large farm Land received from privatization but no one used it in 2002 4 14 because of lack of water there Land received from privatization. which is rented to 3 11 someone else Land received from privatization. which is not used for 1 6 some other reason Land received from privatization. working on it as a family 18 7 unit Land received from privatization. working on it with 9 4 relatives and neighbors Land rented from the municipality 16 0 Land rented from some other person entity 3 0 Land bought 5 0 In the future, do you intend to use all the land allotted to you? Yes 95 70
- 41 - No 5 30 Why are you not using some portion of land [N varies, as this question asked only of respondents for whom it was applicable]? Lack of money for seeds and inputs 20 70 Do not have good health 15 10 The land is not good quality and I cannot afford to 20 10 overcome the problems Received land too late to plant it this year 10 Other reasons 45
Table A8-4: Availability of Farm Information Type/Source of Pilot Villages, % (N=500) Outside Pilot Villages, % (N=1000) Brochure, Advice, Paid For Improvement Of Brochure, Advice, Paid For Improvement Information Demonstration, The Advice Income Resulted Demonstration, The Advice Of Income Mass Media Mass Media Resulted Private 97 39 79 5 100 80 advisory service State advisory - - - - service - - Neighbors or 34 5 51 28 36 71 relatives
Table A8-5: Credit Availability Pilot Villages, % Outside Pilot Villages, % (N=500) (N=1000) For For Off-Farm For For Off-Farm Plant-Growing Activities Plant-Growing Activities and Animal and Animal Husbandry Husbandry Find it difficult to obtain credit Not too difficult 64 36 18 8 It is possible, but with 34 39 22 15 difficulty Not really possible 1 18 57 73 Not interested in a credit 1 7 3 4 Have used land as collateral for a loan Yes 78 12 No 22 88 Will use land for collateral in future Yes 64 89 No 36 11
- 42 - Table A8-6: Fertilizer and Pesticide Use Pilot Villages Outside Pilot Pilot Villages OutsidePilot (N=500) Villages (N=1000) (N=500) Villages (N=1000) Fertilizer Chemical Pesticides Respondents using inputs, % 79 38 62 31
Table A8-7: Management of Resources Activity Pilot Villages, % Outside Pilot Villages, % (N=1000) (N=500) Since you became a In the future, do Since you became a In the future, do landowner,have you- you intend to - landowner, have you - you intend to - Planned and implemented a 79 95 48 80 new cropping pattern Collected information about 65 90 25 60 market prices for crops Volunteered my labour to 95 50 - 95 maintain the main irrigation structure Took steps to reduce water 85 75 - 60 use in the field Took measures to protect 45 80 - 75 the quality of the field or land
Table A8-8: Incentives for Water Conservation Pilot Outside Pilot Villages, % Villages, % (N=500) (N=1000) I have reduced the volume of water used in order to save money on 19 38 water charges I have reduced the volume of water used in order to protect the quality 59 19 of the land and avoid waterlogging I have reduced the volume of water used so that my neighbor will 13 5 have enough There is plenty of water and no need to worry about it 4 27
Table A8-9: Sources of Income Income Income, Pilot Villages Income, Outside Pilot Sources (N=500) Villages (N=1000) 1998 2002 1998 2002 (1998 manat) (2002 manat) (1998 manat) (2002 manat)
- 43 - Crops 780,000 18,000,000 760,000 1,000,000 Livestock 500,000 25,000,000 485,000 1,100,000 Fishing or fish-processing 350,000 250,000 360,000 200,000 agro-processing (dairy/jam, 250,000 300,000 265,000 250,000 canning, sugar, tobacco, ets. Other off-farm enterprise 1,000,000 1,000,000 110,000 1,200,000 Pension and social support 300,000 800,000 270,000 700,000 Remittances from abroad 250,000 220,000 267,000 200,000 Payment for labour on 120,000 - 110,000 - another person's farm got from livestock/fishing activities Salary 1,000,000 980,000 980,000 1,000,000 TOTAL 4,550,000 46,550,000 3,607,000 5,650,000
Table A8-10: Crop Production and Sales Income Source Total Crop Production (Tons) For Total Sales (Manat) For Eligible Eligible Respondents Respondents Outside Pilot In Pilot Outside Pilot In Pilot Villages Villages (N=500) Villages Villages (N=1000) (N=1000) (N=500) Wheat 450 2625 36 450 219 038 Cotton 100 450 5 250 21 250 Alfalfa 500 1050 26 000 10 050 Barley 200 525 28 000 28 000 Other vegetable 1000 1500 11 900 9 000 Rice 65 105 9 750 14 850 Tea 0 Cabbage 700 225 90 000 315 000 Tomato 1000 1800 320 000 320 000 Potato 2000 2250 262 500 262 500 Onion 2150 2150 255 000 255 000 Eggplant 960 960 111 000 111 000 Apple 1400 1400 260 000 260 000 Lemon 0 Pomegranate 1250 1250 210 000 210 000 Sugar beet 1000 1000 Dairy products, litr 280 900 50 000 126 000 Meat 136 500 189 000 800 000 Egg, unit 34000 50000 1 400 3 500 Wool 12 40 14 400 57 000
Table A8-11: Hopes and Fears Concerning Land Privatization Pilot Villages, % Outside Pilot (N=500) Villages, %
- 44 - (N=1000) Reasons for supporting privatization The community voted for privatization, so I had no 17 22 other choice. I had lost belief in kolkhoz/sovkhoz and wanted to 34 41 operate as a private farmer I trusted in reforms carried out by the Government 26 31 I was influenced by the relatives or neighbors 9 14 I thought that, with a water supply, I had a good chance 14 8 to increase my income I thought that, with some credit, I had a good chance to 17 21 increase my income. I thought that, with business advice, I would be able to 21 14 increase my income I trusted in it because it is an international model 14 13 I supported farm privatization for other reasons 23 26 Fears of privatization I was afraid I would not succeed because I thought I 61 64 would have to pay bribes, and I do not have enough money to do that. I was afraid I would not succeed because I have never 47 51 had any experience of private farming. I didn’t believe a Government initiative could work. 31 22 I didn’t believe that farming could be profitable 17 12 because the irrigation infrastructure was deteriorating. I was afraid I would not succeed because I didn’t have 67 59 any money to start out, to buy seeds and rent machines, etc. I didn’t believe I could succeed in the private system 31 27 without the support of the sovkhoz/kolkhoz. I had some other anxiety about privatization 29 38
Table A8-12: Distribution and Use of Land Pilot Villages, Outside Pilot % Villages, % (N=500) (N=1000) When the state/collective farm was divided up, did you receive a property share of the same average value as others? Same 45 35 Better 50 35 Worse 5 30 For the village as a whole, was the division fair or unfair? Fair 50 35 Unfair 40 45
- 45 - No opinion 10 20
Table A8-13: Estimated Winners/Losers in Privatization According to Respondents in According to Respondents Pilot Villages, % Outside Pilot Villages, % (N=500) (N=1000) This Group This Group This Group This Group “Benefited” “Lost” “Benefited” “Lost” Officials 21 29 68 10 Farmers 61 9 49 29 Pensioners and the old 15 65 7 89 Disabled 10 67 3 80 The young and strong 63 8 51 28 Women 34 39 21 67 Men 69 2 38 33 Average people 70 18 51 46 Future of children 89 9 33 19 The bourgeois 78 2 90 8 The respondent 88 5 54 37 People who were rich before 65 21 80 17
- 46 - Annex 9. Stakeholder Workshop Results A workshop was held in Baku on May 25, 2004, to gather the views of project stakeholders. Workshop participants included private farmers, employees of the project PMU (the Agency for Support to the Development of the Agricultural Private Sector), representatives of Agrarcreditbank, the Agrarian Reform Department of the Ministry of Agriculture, the State Land Committee and the State Irrigation Committee, and the World Bank's Resident Representative in Baku, among others.
Workshop participants uninimously agreed that the project has had a positive effect on incomes in Azerbaijan's rural areas. The following points were particularly emphasized.
Extension. The farm information and advisory service component, which offered extension services to the newly private farmers, was initially not popular with the Government, who thought it a substantial expense aimed at a vague goal. But by the end of the project, however, the Government as well as private farmers were enthusiasts for this component. It was named more often than any other as having been key to success.
First, it completely changed the rural worldview. Besides detailed information on credit, land privatization and so on, Ministry brochures conveyed the implicit message that the Government's rural policy was public and up for discussion, and that rural residents were to reflect on their own best interests and participate in decisions affecting them. Officials noted that it is very difficult to change people's worldview, but that the implicit message carried over and over again in Ministry brochures had done so.
Second, it was noted that in all of Azerbaijan, about 3,408,000 people became private farmers. While all were village residents, many had not farmed before, having been sovkhoz/kolkhoz teachers, for example, or administrative employees. These new farmers needed not only to learn market principles, but even to learn to farm. Ministry information explained to them how to use their new farms.
Several following forms of outreach were specified by various speakers as having been particularly effective.
l The Ministry of Agriculture undertook an extensive pilot outreach to the pilot farms. Ministry employees visited the villages to ask farmers to list their problems and the issues they would like to learn about. The Ministry then organized workshops by specialists from MoA or the universities to cover the demanded topics. l The Ministry of Agriculture prepared brochures describing crop alternatives appropriate to Azerbaijan's agroclimate zones, explaining the time and depth of sowing, and describing the various cash/non-cash inputs that would support yield increases: good quality seeds, labor-intensive methods, etc. Because the former state-owned farms tended toward monoculture, much of this crop information was new even to those who had worked on the state farms before, and was invaluable to the many who had not farmed at all. l The pilot farmers from Ujdar, among others, cited the support for preparation of business plans as particularly useful. l Demonstrations by Ministry employees showed the private farmers the importance of drainage for productivity. As drainage was a task the farmers would need to undertake themselves, convincing them of its importance was necessary. For example, Ministry employees showed the farmers how drainage helps prevent salinization of land. The representative of Salyan farm flagged the training received by the newly private farmers on the operation of irrigation equipment, processes for measuring water level in canals, use of irrigation water. Other Water Users' Associations then
- 47 - made use of the Salyan example and technical basis.
Community focus. The project's community decision-making focus was remarked on in several respects. l The project's community development component, which ultimately resolved the drinking water problem in five areas, was very important for those living nearby. The communities involved participated in these works. l The involvement of the community in credit decisions was specified as a reason for the success of the credit program. The farmers themselves participated in credit decisions, and always decided by majority vote. Farmers are eager to return the credit on time. 5,800 farmers have received credit from that fund by now. In this contribution of IFAD, both technical assistance and financial help were appreciated.
WUAs and infrastructure. The representative from Salyan farm noted that the Water Users Association arrangement was initially found difficult, a situation exacerbated by the fact that the infrastructure it was to maintain was in very poor condition ("like 1910"). The project identified the needed works and undertook them. According to this farmer's recollection, no increases were observed until the irrigation and drainage works were complete, and all project benefits resulted from rehabilitation of irrigation and drainage. Again, the financial assistance of IFAD that enabled implementation of this vital component was appreciated.
Interministerial cooperation. Project success was attributed also to the close cooperation of ministries, directed toward comprehensive solution of the problem.
Country conditions. Representatives of the ASDAP highlighted the support provided by the Government of Azerbaijan. In the first years of independence, agriculture did not show an improvement. Under Aliyev, it has improved. The Aliyev administration promoted a new entrepreneurial mentality, seeking to promote understanding of entrepreneurship, and to actively identify problems and remove them.
Emigration. Participants remarked that before the project, villagers wanted to emigrate to Baku or to Russia. Now, however, the villagers are better off than those in Baku. It was said that the emigration of the young from rural areas to the cities and to Russia has halted, and that the flow now is in the other direction.
AZERBAIJAN FARM PRIVATIZATION PROJECT "Lessons Learned and Recommendations of Stakeholders" Workshop
Agency for Support to the Development of the Agricultural Private Sector
Government House, Baku 10:00 a.m., May 25, Baku
l Presentation by the Agency Director l World Bank Country Manager makes opening speech and contribution on the "Farm Privatization Project" and opens the floor to discussion by the full assembly. l Mr. Famil Mehtiev, on behalf of the Agency Director, presents briefly the project accomplishments.
- 48 - Stakeholder Statements l On the Farm Information and Advisory Services: Statement by representative of the Ministry of Agriculture l On Land Privatization and Titling: Statement by the representative of State Land and Cartography Committee l On the Rehabilitation of Irrigation and Drainage: Statement by the representative of Amelioration and Water Farm Committee l On Rural Credit: Statement by the Chairman of Agrarcredit l On the Water Users' Associations: Statements by WUA Chairmen l On the privatized farms: ; Statements by Farmers from Pilot Farms l Additional Statements by Workshop Participants
Documentary film on Farm Privatization Project
- 49 - - 50 -