Developing Capacity for Agricultural Sector Policy Formulation

34392 Public Disclosure Authorized Public Disclosure Authorized

Public Disclosure Authorized Agriculture Investment Sourcebook Public Disclosure Authorized

The World Bank This Sourcebook is also available online at www.worldbank.org/agsourcebook, where the content will be updated on a biannual basis. The World Bank

Agriculture Investment Sourcebook

Agriculture and Rural Development © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected]

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The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorse- ment or acceptance of such boundaries. This report has been prepared by the staff of the Agriculture and Rural Development Family of the World Bank. It is available at www.worldbank.org/agsourcebook, which will be updated on a biannual basis. Some of the numbers quoted are estimates or approximations. Please direct questions or comments to [email protected].

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Library of Congress Cataloging-in-Publication data has been applied for.

ISBN 13: 978-0-8213-6085-X ISBN 10: 0-8213-6085-X CONTENTS

Foreword vii Preface ix Acknowledgements xii Acronyms and Abbreviations xiv Introduction xvii

Module 1: Building Agricultural Policy and Institutional Capacity 1 Agriculture Investment Notes 12 Preparing a National Agricultural Development Strategy 12 Developing Capacity for Agricultural Sector Policy Formulation 17 Reform of Agriculture Subsidy and Protection Policy 22 Facilitating Efficient Adjustment to Liberalized Trade 27 Adjustment Lending for Agriculture Policy Reform 32 Improving Animal Health Services Through Public/Private Partnerships 37 Strengthening Farmer Organizational Capacity to Influence Agriculture Policy 42 Innovative Activity Profiles 47 Bulgaria: Adjustment Lending in a Transitional Economy 47 Ecuador: Commodity Chain Consultative Councils for Policy Formulation 49 Turkey: Hybrid Adjustment/Investment Lending 51 Guinea: Livestock Sector Partnership—Public Sector Herder Organization and the Private Sector 53

Module 2: Investments in Agricultural Science and Technology 55 Agriculture Investment Notes 68 Competitive Research Funds 68 Strengthening Public Research Institutes 73 Enhancing University Participation in National Agricultural Research Systems 78 Local Agricultural Research Committees 83 Biotechnology, Biosafety, and Agricultural Development 88 Innovative Activity Profiles 93 iii Brazil: Spill-ins from Foreign Research and Development Laboratories 93 Colombia: Decentralized, Demand-Driven, Competitive Technology Generation 95 Ecuador: Strategic International Alliances for Capacity Building and Research 97 India: Focus on Biotechnology 99 India: Revitalizing Institutional Capacity in Forestry Research 101 Senegal: Making Research Demand Driven 103

Module 3: Investments in Agricultural Extension and Information Systems 105 Agriculture Investment Notes 118 Contracting Extension Services 118 Decentralizing Agricultural Extension and Information Services 124 Client Groups as Key Intermediaries in Extension 129 Mass Media and Communications Technologies in Extension 135 Estonia: Transition to Private Extension Advisory Services 140 Innovative Activity Profiles 142 India: Participatory and Decentralized Agricultural Technology Transfer 142

CONTENTS CONTENTS CONTINUED

Russian Federation: Using Information and Communications Technologies for Rural Information Services 144 Uganda: Extension Decentralization, Privatization, and Reform 146 Venezuela: Contracting Decentralized Extension Services 148

Module 4: Investments in Sustainable Agricultural Intensification 151 Agriculture Investment Notes 163 Market-Driven Diversification 163 Smallholder Dairy Production 169 Aquaculture Production Systems 174 Organic Agricultural Production Systems 179 Urban and Periurban Agriculture 184 Conservation Tillage 189 Integrated Pest Management 194 Integrated Nutrient Management for Sustaining Soil Productivity 199 China: Fruit Promotion in the Mid-Yangtze 204 Innovative Activity Profiles 206 India: Community Organization for Sodic Lands Reclamation 206 India: Income Generation through Aquaculture 208

Module 5: Investment in Sustainable Natural Resource Management for Agriculture 211 Agriculture Investment Notes 223 Community-Based Natural Resources Management 223 Watershed Management for Agricultural Development 228 Agroforestry Systems 233 Pastoralism on Arid and Semi-Arid Lands 238 Integrated Livestock-Wildlife Management 243 Innovative Activity Profiles 248 Brazil: Participatory Microcatchment Strategy for Increased Productivity and Natural iv Resource Conservation 248 China: Commercial Plantations to Help Conserve Forests 250 Egypt: Matruh Resource Management to Ensure Sustainable Livelihoods for Remote Bedouin People 252 Latin America and Caribbean: Payments for Environmental Services in Silvopastoral Systems 254 China: Watershed Management Approach to Optimizing Incomes and Ecology in Poor Highlands 256

Module 6: Investment in Agribusiness and Market Development 259 Agricultural Investment Notes 270 Supporting Market and Supply Chain Development 270 Horticultural Exports from Developing Countries 275 Private Seed Enterprise Development 280 Promoting Private Sector Fertilizer Distribution Systems 285 Getting Markets Right in the Post-Reform Era in Africa 290

AGRICULTURE INVESTMENT SOURCEBOOK CONTENTS CONTINUED

Innovative Activity Profiles 295 Bangladesh: Autonomous Organization for Facilitating Market-led Export 295 China: Smallholder Cattle Development for Import Substitution 297 Colombia: Productive Agribusiness/Farmer Partnerships 299 Mali: Building Export Mango Systems 301

Module 7: Investments in Rural Finance for Agriculture 303 Agriculture Investment Notes 314 Microfinance Institutions Moving into Rural Finance for Agriculture 314 Financial Services through State Banks 319 Production Credit from Input Suppliers, Processors, and Buyers 324 Membership-Based Financial Organizations 329 Innovative Activity Profiles 334 Vietnam: Mobile Banking for Rural People 334 Zimbabwe: AGENT Program 336 India: Piloting of Smart Cards in Rural Areas 338 Madagascar: Microleasing for Agricultural Production 340 Ghana: Inventory Credit for Small-Scale Farmers 342

Module 8: Investments in Irrigation and Drainage 345 Agriculture Investment Notes 355 Investments to Empower Farmers to Manage Irrigation and Drainage Systems 355 Investments in Irrigation for Crop Diversification 360 Investments in Waterlogging and Salinity Control 365 Investments in Shallow Tubewells for Small-Scale Irrigation 370 Innovative Activity Profiles 374 China: Consumptive Use in Water Resource Management for Productivity, Equity, and the Ecology 374 Egypt: Improving Agricultural Production Through Better Drainage 376 India: Rationalized Public, Private, and Farmer Roles in Groundwater Management 378 v Mali: Institutional Reform to Focus Public Role on Essential Public Goods 380 Niger: Tailoring Irrigation Technology to Users’ Needs 382

Module 9: Investments in Land Administration, Policy and Markets 385 Agriculture Investment Notes 397 Investments in Systematic Land Titling and Registration 397 Community-Managed Land Reform 402 Innovative Activity Profiles 407 Armenia: Benefits of Securing and Registering Land for Rural Development 407 Brazil: Participatory Negotiations and Market-Assisted Land Reform 409 The Lao People’s Democratic Republic: Preserving Women’s Rights in Land Titling 411

Module 10: Managing Agricultural Risk, Vulnerability, and Disaster 413 Agriculture Investment Notes 422 Commodity Price Risk Management 422 Agricultural Insurance 427

CONTENTS CONTENTS CONTINUED

Responding to Disaster with Seed Distribution 432 Innovative Activity Profiles 437 Kenya: Community-Based Drought Management 437 Mongolia: Sustaining Livelihoods in Areas with High Natural Disaster Risk 440 Tanzania: Accessing Market-Based Price Risk Management Instruments 442 India: Innovative Rainfall-Indexed Insurance 444

Module 11: Scaling Up Agricultural Investments in the Bank’s Changing Internal Environment 447 Agriculture Investment Notes 459 Targeting Agricultural Investments to Maximize Poverty Impacts 459 Nine Lessons for Improving Project Design for Better Investment Performance 465 Agriculture Sector Program Lending 470 Community-Driven Development for Increased Agricultural Income 475 Monitoring and Evaluation: Measuring and Assessing Agricultural Development Programs 480 Innovative Activity Profiles 485 Mozambique: Harmonized Donor Funding Around Principles 485 Brazil: Empowering Rural Communities for Poverty Reduction 487 Uganda: Cross-Sectional Programmatic Adjustment Lending Focusing on Poverty Reduction 489

Appendix: Key Websites 491

Index 495

AGRICULTURE INVESTMENT SOURCEBOOK FOREWORD

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The World Bank’s new rural strategy, Reaching the Rural Poor, commits the Bank to five core areas of rural development: • fostering an enabling environment for broad-based and sustainable rural growth; • enhancing agricultural productivity and competitiveness; • encouraging non-farm economic growth; • improving social well-being, managing and mitigating risk, and reducing vulnerability; and • enhancing sustainability of natural resource management. Underlying all of the goals is support to agricultural growth that benefits the poor, for without a renewed effort to accelerate growth in the agricultural sector, few countries will be able to reach the Millennium Development Goals, especially the goal of halving poverty and hunger by 2015. While developing the new rural strategy, the need to better articulate good practice in agricultural policies and investments became clear. This is especially so, since the nature of donor supported investments in the sector, and the instruments for channeling those investments, has changed drastically over the last decade. This first edition of the Agriculture Investment Sourcebook, responds to that need, by compiling a wide range of emerging good practice and innovative approaches to investing in the agriculture sector. The first edition already provides a rich menu of options for profitably investing in the agricultural sector, but it is a work in progress. There are still important gaps that need to be filled, and good practice is constantly evolving as knowledge and experience accumulate. Our partners in other multilateral and bilateral institutions, national organizations, and civil society organizations possess much of the knowledge on how to get agriculture moving, and that has not been captured in this edition. We, therefore, plan to update of most of the modules in this Sourcebook annually. Our challenge now is to build on this edition of the Sourcebook by intensifying our efforts to evaluate, learn, and share knowledge in ways that promote the agricultural agenda and the welfare of rural people.

Kevin Cleaver Sushma Ganguly Director Sector Manager Agricultural and Rural Development Agricultural and Rural Development

viii

AGRICULTURE INVESTMENT SOURCEBOOK PREFACE

nvesting to promote agricultural growth and poverty reduction is a central pillar of the World Bank’s current rural strategy, Reaching the Rural Poor, which was released in 2003. One major thrust of the I strategy outlines the priorities and the approaches that the public sector, private sector, and civil society can employ to enhance productivity and competitiveness of the agricultural sector in ways that reduce rural poverty and sustain the natural resource base. These actions involve a rich mixture of science, technology, people, communication, management, learning, research, capacity building, institutional development, and grassroots participation. This Sourcebook has been prepared to help in implementing the rural strategy, by sharing information on investment options and innovative approaches that will aid the design of future lending programs for agriculture. The Sourcebook provides generic good practices and many examples that demonstrate that investment in agriculture can provide rewarding and sustainable returns to development efforts. The contents have been assembled from all regions and thematic groups of the Bank, and from the experiences of many partners. Box 1. The Sourcebook Modules sustainability, and can be broadly endorsed by the community of practitioners from 1. Building Agricultural Policy and Institutional Capacity within and outside the Bank. 2. Investments in Agricultural Science and Technology 3.Several Innovative Activity Profiles (IAPs) 3. Investments in Agricultural Extension and Information highlight design of successful or innovative Services investments. These provide a short de- 4. Investments in Sustainable Agricultural Intensification scription of an activity in the Bank’s 5. Investments in Sustainable Natural Resource Management portfolio or that of a partner agency, 6. Investments in Agribusiness and Market Development focusing on potential effectiveness in 7. Investments in Rural Finance for Agriculture poverty reduction, empowerment, or 8. Investments in Irrigation and Drainage sustainability. Activities profiled have often not been sufficiently tested and evaluated 9. Investments in Land Administration, Policy, and Markets in a range of settings to be considered 10. Managing Agricultural Risk, Vulnerability, and Disaster “good practice,” but should be closely 11. Scaling Up Agricultural Investments in the Bank’s Changing monitored for potential scaling up. Internal Environment Source: Authors. The Sourcebook thus provides introductions to topics, but not detailed guidelines on “how to” design and implement investments. The stand- STRUCTURE OF THE SOURCEBOOK alone nature of each subunit of the The Sourcebook is intended as a ready refer- Sourcebook allows flexibility and adaptability ence for practitioners (World Bank staff and of the materials, but necessarily results in some their partners in borrowing countries) seeking replication of the issues covered. Selected summary information on the state of the art readings and Web links1 are provided for about good practice for agricultural invest- readers who seek more in-depth information ments, and innovative activities that merit close and examples of practical experience. All monitoring for potential scaling up. Sourcebook material is available on the World Bank Web site that links with additional key The Sourcebook is divided into eleven self- sources of information, such as other Web contained modules (see box 1). Each module sites, readings, and manuals. contains three different types of subunits, x which can also be stand-alone documents: PREPARATION OF THE SOURCEBOOK 1.A Module Overview provides a summary of The Sourcebook draws on a wide range of the major issues and investment options for experience from donor agencies, govern- each investment area, and is intended as a ments, institutions, and other groups active in broad introduction to the topic. agricultural development. However, in this first edition of the Sourcebook, the initial contribu- 2.Several Agricultural Investment Notes (AINs) tions draw heavily from World Bank experi- summarize good practice (and sometimes ence, especially the “communities of practice” bad practice) in specific investment areas, represented by the Bank’s various thematic to provide a brief, but technically sound, groups. Approximately two-thirds of the AINs overview for the nonspecialist. For each and most of the IAPs originate from within the AIN the investments have been evaluated in Bank. In the future, it is hoped that these will different settings for effectiveness and be complemented by more contributions

1. A list of Websites where many selected readings can be obtained is provided in Appendix 1. Since specific Web links are often cumbersome and become quickly outdated, only the generic institutional Web links are provided.

AGRICULTURE INVESTMENT SOURCEBOOK drawn from the wealth of experience in other THE SOURCEBOOK AS A LIVING DOCUMENT international development agencies and in The Sourcebook is expected to expanded and countries, possibly as a major activity of the updated, as experience is gained with new newly formed Rural Alliance Platform (a investment initiatives. Most module overviews multidonor initiative) that is intended to share and investment notes should be valid for a experiences and coordinate donor actions. number of years. Individual modules can be Although the Sourcebook seeks to share experi- used as stand-alone documents, and it is ex- ence of both successes and failures—providing pected that several modules will be developed cautionary guidance on investment strategies to into their own Sourcebook—this is already avoid repeating past mistakes—there is a much occurring for the “Irrigation and Drainage” greater interest in sharing successes than fail- Module. The useful life of an IAP will be less, as ures, and this is reflected in the content. most are based on recent experience and have been subjected to limited evaluation. Readers are encouraged to check on current status by WHAT IS NOT COVERED contacting the person named in each profile. Thematic topic coverage is not always comprehensive, as materials were assembled on a pragmatic basis, depending on available materials, and on specialists willing to contribute original notes. The modules generally address the priority issues within a thematic area or areas in which operational guidance is needed, but there are important gaps that should be filled in future editions.

The Sourcebook also focuses on design of agricultural investment programs at the country level, and does not address important regional and global issues for the sector. Likewise, investment programs are the unifying element throughout the Sourcebook, although policy issues specific to those programs are also xi covered. The contents are also specifically focused on agricultural investments, recognizing that rural development and rural poverty reduction requires a much broader approach, and that even successful agricultural performance requires investments in areas such as rural infrastructure.

The Sourcebook, and the AINs in particular, therefore address public sector investment opportunities for agricultural development and how these might be approached. A companion publication in the World Bank’s Directions in Development series, will be oriented to broad policy issues, and the sequencing and integration of different types of investment within a coherent agricultural sector strategy.

PREFACE ACKNOWLEDGMENTS

The preparation of this Sourcebook involved a (ARD), Derek Byerlee (ARD), Marie-Hélène large number of people from within all units of Collion (MNA), Sanjiva Cooke (ARD), Cristophe the World Bank working on agriculture, and a Crepin (AFR), Cees de Haan (ARD consultant), variety of partner organizations. The design, Klaus Deininger (DEC), Ariel Dinar (ARD), and day-to-day coordination of the Nina Doetinchem (AFR), Graham Eele (DEC), Sourcebook, has been carried out by Gary Alex Enos Eskuri (ENV), Erick Fernandez (ARD), and Sam Kane (ARD consultants), and the Andrew Goodland (EAP), Matthias Grueninger overall task has been managed by Derek (MNA), Sam Kane (ARD consultant), Francois Byerlee and Eija Pehu (ARD), who collectively Le Gall (AFR), Annabel Mulder (ARD consult- assume responsibility for remaining errors and ant), John Nash (ARD), Ridley Nelson (OED), omissions. Agricultural and Rural Development Walter Ochs (ARD consultant), Nwanze Thematic Groups (TGs) coordinated the prepa- Okidegbe (ARD), Douglas Olson (EAP), Dou- ration of several of the modules, specifically: glas Pearce (CGAP), Eija Pehu (ARD), Herve Sustainable Agricultural Systems and Knowl- Plusquellec (Consultant), Idah Pswarayi- edge Institutions (SASKI) (Modules 2, 3, and 4); Riddihough (EAP), Annu Ratta (ARD consult- the NRM Thematic Group (Module 5); the ant), Pierre Rondot (ARD), Tijan Sallah (AFR), Private Sector and Agribusiness Thematic Kristina Sorby (ARD consultant), Amal Talbi Group (Module 6); Land Policies Thematic (ARD), Kees van der Meer (ARD), Panayotis Group (Module 9); Community-Driven Rural Varangis (ARD), Jaime Webbe (AFR), Melissa Development (part of Module 11); and the Williams (ARD), Johannes Woelcke (ARD), Gender Thematic Group (gender-related input Wael Zakout (EAP), and Ronald Zweig (EAP). across all modules). Individuals within these teams who merit special recognition include: Contributors to the module overviews and good Marie-Hélene Collion (MNA), Francois Le Gall practice notes from outside the Bank included; (AFR), Kees van der Meer (ARD), Wael Zakout Jacqueline Ashby (Centro Internacional de (EAP), John Bruce (ARD), Klaus Deininger Agricultura Tropical), Duncan Burnett (National (DEC), Idah Pswarayi-Riddihough (EAP), Jaime Resources Institute), Pavla Cornejo (Develop- Webbe (AFR), Melissa Williams (ARD) and ment Alternatives Inc.), Octavio Damiani Daniel Sellen (SAR). A number of individuals (IFAD), Timothy Donnay (USAID), Carl Eicher xii played a leading role in other modules, espe- (Michigan State University), Gerd Fleischer cially Jock Anderson (ARD) and John Nash (GTZ), Wayne Frank (USAID), Eleni Gabre- (ARD) (Module 1); Douglas Pearce (CGAP), Madhin (formerly International Food Policy Andrew Goodland (EAP), and Kees Van der Research Institute and now AFR, World Bank), Meer (ARD) (Module 7); Safwat Abdel-Dayem Francesco Goletti (Agrifood Consulting Interna- (ARD), and Ariel Dinar (ARD) (Module 8); Jock tional), John Kerr (Michigan State University), Anderson (ARD) and Panayotis Varangis (ARD) Hamdy Eisa (ARD consultant), Kimberly Lucas (Module 10); and Shawki Barghouti (ARD), and (USAID), Jerry Martin (Development Alterna- Sushma Ganguly (ARD) (Module 11). tives Inc.), Steve Morin (USAID), Erin Nicholson (USAID), Linda Nicolaides (Univer- Many individuals made written contributions to sity of Greenwich), John Orchard (National module overviews and good practice notes. Resources Institute), Anja Schilling (Swiss From within the World Bank, these included: Federal Institute for Snow and Avalanche Safwat Abdel-Dayem (ARD), Gary Alex (ARD Research), Thomas Thompson (International consultant), Mubarik Ali (ARD), Jock Anderson Fertilizer Development Center), Eduardo Trigo (ARD consultant), Amitabh Brar (CGAP Con- (private consultant, Argentina), Robert Tripp sultant), Shawki Barghouti (ARD), John Bruce (Overseas Development Institute), Dannielle

AGRICULTURE INVESTMENT SOURCEBOOK Typinski (USAID), and Don van Atta (Develop- Toledano (AFR), and members of the SASKI, ment Alternatives Inc.). NRM, Land Policies, and Community-Driven Rural Development Thematic Groups. We also Many Bank staff contributed and/or reviewed wish to thank the external reviewers; Suresh profiles of innovative ongoing or completed Babu (IFPRI), Kathleen Cloud (University of projects or project components: Paolo Agostini Illinois), Ralph Cummings (USAID), Howard (LAC), Deepak Ahluwalia (SAS), Ousmane Elliott (ISNAR), Mary Hill Rojas (WIDTECH), Badiane (AFR), Manish Bapna (SAS), Mohamed Peter Hobbs (Cornell University), Susana Benali (EAP), Eustacius Betubiza (ECA), Adel Lastarria (University of Wisconsin), John Pender Bichara (MNA), Erin Bryla (ARD consultant), (IFPRI), William Rivera (University of Mary- Raimundo Caminha, Arie Chupak (EAP), Luis land), David Rohrbach (ICRISAT), Arja Vainio- Coirolo (LAC), Marie-Hélène Collion (MNA), Mattila (University of Western Ontario). Overall Christine Cornelius (AFR), Cees de Hahn (ARD), peer review was provided by Julio Berdegue Graeme Donovan (consultant), Henry Gordon (RIMISP, Chile), Benoit Blarel (ECA), Hamdy (ECA), Wahida Huq (SAS), Rapeepun Jaisaard Eisa (consultant), Gershon Feder (DEC), and (ECA), Toru Kinishi, Patrick Labaste (AFR), Peter Hazell (IFPRI), William Lane, Douglas Lister (MNA), Graciela Lituma (LAC consultant), Mark Lundell (ECA), Finally, Kevin Cleaver (ARD) and Sushma Salifou Mahaman (AFR), Matthew McMahon Ganguly (ARD) contributed invaluable guid- (LAC), Robin Mearns (EAP), Jessica Mott (ECA), ance and support throughout the preparation Mohinder Mudahar (SAS), Ohn Myint (SAS), John of the Sourcebook. Many other individuals Nash (ARD), Douglas Olson (EAP), R.S. Pathak provided suggestions or support, including (SAS), Eija Pehu (ARD), Jeeva Perumalpillai- Felicity Proctor (ARD), Csaba Csaki (ARD), Essex (AFR), Anna Roumani (LAC consoultant), Mark Lundell (ECA), Mohamed Ben Ali (EAP), G. Russell, Götz Schreiber (ECA), Daniel Sellen Severin Kodderitzsch (ECA), Manish Bapna (SAS), Ashok Seth (consultant), Paul Sidhu (SAS), (SAS), Ernst Lutz (AFR), Dina Umali-Deininger Harideep Singh (LAC), Geoffrey Spencer (EAP), (SAS), Robert Townsend (AFR), and members Jürgen Voegele (EAP), Pierre Werbrouck (LAC), of the Agricultural and Rural Sector Board. Wael Zakout (EAP), and Zongmin Li (ECA Reginald MacIntyre (ARD consultant), Helen consultant). Freeman, and Cynthia Bartel (ARD consultant) provided able editorial support. Sarian Akibo- Each module was peer reviewed, usually by Betts (ARD) assisted with logistics and assem- xiii two Bank staff and one outside person. We bly of the manuscript, and Corazon Solomon appreciate the review contributions of; Deepak (ARD), Felicitas Doroteo-Gomez (ARD) and Ahluwalia (SAS), Jock Anderson (ARD consult- Rebecca Oh (ARD) were extremely supportive ant), Ousmane Badiane (AFR), Frank in managing finances and contracts. Melissa Byamugisha (AFR), Marie-Hélène Collion Williams (ARD) and Kathryn Carr (ARD) man- (MNA), Louise Cord (PREM), Carlos Cuevas aged the publication production, and Rosemary (OPD), Ijsbrand de Jong (AFR), Maria O’Neill (ARD) oversaw the electronic version. Fernández (LAC), Henry Gordon (ECA), While the above list is comprehensive, it is very Matthias Grueninger (MNA), Steven Jaffee likely that we have overlooked important (ECA), Jacob Kampen (AFR Consultant), Nadim contributors. Our apologies for this oversight, Khouri (LAC), Hoonae Kim (EAP), Agnes Kiss but thanks all the same. (AFR), Renate Kloeppinger-Todd (formerly IFC and now ARD), Donald Larson (DEC), Mark Lundell (ECA), Ohn Myint (SAS), Aleksandar Nacev (ECA), David Nielson (AFR), Gunars Platais (LAC), Katrine Saito (PRM), William Steele (AFR), Juergen Voegele (EAP), Josef

PREFACE ACRONYMS AND ABBREVIATIONS

ADC Agribusiness Development Center IADB Inter-American Development Bank ADS Agricultural Development Strategy IAP Innovative Activity Profile AIN Agricultural Investment Note ICA Investment Climate Assessment AKIS Agricultural Knowledge and Infor- ICT Information and Communication mation System Technology APL Adaptable Program Lending IFAD International Fund for Agricultural ASAL Agricultural Sector Adjustment Loan Development ASP Agricultural Sector Program IFC International Finance Corporation ATM Automatic Teller Machine IFPRI International Food Policy Research BDS Business Development Services Institute BP Bank Procedure IGA Income Generating Activity Bt Bacillus thuringiensis ILWM Integrated Livestock-Wildlife Man- CAS Country Assistance Strategy agement CBNRM Community-Based Natural Resource IMF International Monetary Fund Management IMT Irrigation Management Transfer CBO Community-Based Organization INM Integrated Nutrient Management CDD Community-Driven Development IPM Integrated Pest Management CF Conservation Farming IPPM Integrated Production and Pest CGAP The Consultative Group to Assist Management the Poor IPR Intellectual Property Rights CGIAR Consultative Group on International LEISA Low External Input and Sustainable Agricultural Research Agriculture CIAL Comité de investigación agricola M&E Monitoring and Evaluation local/local agricultural research MBFO Membership-Based Financial Orga- committee nization CRGP Competitive Research Grant Program MDG Millennium Development Goal CRMG Commodity Risk Management MENA Middle East and North Africa Group MFI Microfinance Institution CT Conservation Tillage MIS Management Information System xiv DFID Department for International Devel- NARI National Agricultural Research opment Institute DIS Direct Income Support NARO National Agricultural Research ECA Eastern Europe and Central Asia Organization Region NGO Nongovernmental Organization ESW Economic and Sector Work NOAA National Oceanic and Atmospheric EU European Union Agency FAO Food and Agriculture Organization NRM Natural Resource Management FFS Farmer Field School O&M Operations and Maintenance GCD Groundwater Conservation District OD Operational Directive GDP Gross Domestic Product OECD Organization for Economic Coop- GEF Global Environment Facility eration and Development GMO Genetically Modified Organism OED Operations and Evaluation Depart- GTZ Deutsche Gesselschaft fur ment Technische Zusammenarbeit OED Operations Evaluation Department HACCP Hazard Analysis Critical Control Point OP Operational Policy HIV/AIDS Human Immunodeficiency Virus/ PAD Project Appraisal Document Acquired Immunodeficiency Syndrome

AGRICULTURE INVESTMENT SOURCEBOOK ACRONYMS AND ABBREVIATIONS CONTINUED

PDA Personal Digital Assistant T&V Training-and-Visit PIM Participatory Irrigation Management TAP Technical Assistance Provider PO Producer Organization TG Thematic Group PRSP Poverty Reduction Strategy Paper TRIPS Trade Related Intellectual Property PSAL Programmatic Structural Adjustment Rights Lending TT Task Team PSIA Poverty and Social Impact Analysis UNESCO United Nations Educational, Scien- PVR Plant Variety Rights tific and Cultural Organization QAG Quality Assurance Group UPUA Urban and Periurban Agriculture R&D Research and Development URAA Uruguay Round Agreement on R&E Research and Extension Agriculture RPO Rural Producer Organization USAID United States Agency for Interna- S&T Science & Technology tional Development SAC Structural Adjustment Credit WHO World Health Organization SAL Structural Adjustment Loan WMA Wildlife Management Area SECAC Sectoral Adjustment Credit WTO World Trade Organization SECAL Sectoral Adjustment Loan WUA Water User Association SME Small/Medium Sized Enterprise WUG Water User Group SPA Sector Performance Analysis

PREFACE

INTRODUCTION

xvii

romoting pro-poor agricultural growth is not easy. It is subject to risks from many areas, from uncertain prices to the weather. Many investments, while providing high payoffs, can take years, P even decades to fully materialize. And because the population directly affected by rural development is widely dispersed, and often has little political voice, the results are often not visible to influential decision-makers. With the myriad demands on limited development funds, it is not surprising that in recent years agriculture has not received as much attention as it should have. However, few countries will reduce poverty significantly, nor will the world community achieve the Millennium Development Goals (MDG), if agriculture and rural development are ignored (see box A). The first MDG to “eradicate extreme poverty and hunger” cannot be reached without addressing the livelihood issues of the 70 percent of the world’s poor who live in rural areas, and without ensuring access to food of the poorest and most vulnerable. Rural people are also the custodian of much of the world’s land and water resources, and biodiversity, and will be central to achieving MDG 6 on environmental Box A. Millennium Development Goals: 1990–2015 • Improve social well being, manage and mitigate risk, and reduce vulnerability. 1. Eradicate extreme poverty and hunger • Halve the number of people with less than $1 a day • Enhance sustainability of natural resources • Halve the share of people who suffer from hunger management. 2. Achieve universal primary education • Ensure completion of primary schooling Pro-poor agricultural growth is therefore 3. Promote gender equality and empower women highlighted as one of the five strategic areas of • Eliminate gender disparity at all levels of education the strategy, but it also heavily influences the 4. Reduce child mortality other four areas, including nonfarm economic • Reduce by two-thirds the under five mortality rate growth, which in most countries is closely • Improve maternal health linked to agricultural growth. • Reduce by 75 percent the maternal mortality rate 5. Combat HIV/AIDS, malaria, and other diseases To act on these five major strategic areas, the • Reverse the spread of HIV/AIDS Bank, other international agencies, and national 6. Ensure environmental sustainability public and private sectors will have to increase • Reverse loss of environmental resources investment in agricultural and rural develop- 7. Halve the share of people without access to potable ment. However, this must be done in a way water that improves outcomes and impacts. Good 8. Significantly improve the lives of at least 100 million slum practices associated with such investment dwellers outcomes must be mainstreamed into the 9. Develop a global partnership for development Bank’s portfolio. • Raise official development assistance • Expand market access, especially in agriculture • Encourage debt sustainability THE WORLD BANK’S SUPPORT TO THE SECTOR Source: www.developmentgoals.org The World Bank is the largest single provider of loans for agricultural development, accounting for over one-half of all lending for agriculture sustainability. Other MDGs such as gender of the international financial institutions. How- equality (many farmers are women), child ever, financing for agricultural development by nutrition (depends on access to nutritious the World Bank and other donors has dropped xviii food), and market access (especially interna- sharply since 1990 (see figure A and figure B). tional trade in agriculture which remains highly This drop reflects both past successes (in- protected) depend directly or indirectly on pro- creased production and lower food prices) and poor agricultural growth. failures (poor ratings for outcomes, development impacts, and sustainability for agricultural The World Bank current rural strategy, Reach- projects). The rural strategy commits the Bank ing the Rural Poor, is designed to respond to to reverse this trend if countries are to meet the these challenges within a rapidly changing MDG goals of rural poverty reduction and environment for agricultural and rural develop- environmental sustainability. In particular, the ment. The strategy seeks to: strategy calls for a coordinated effort to identify good practice and innovative activities that • Foster an enabling environment for broad- should be scaled up to have wider impacts— based and sustainable rural growth. the focus of this Sourcebook.

• Enhance agricultural productivity and The Strategy also sets high standards for lending competitiveness. quality in terms of outcomes and impacts. The gap between quality of agricultural lending and • Encourage rural nonfarm economic growth. the average Bank-wide lending has narrowed

AGRICULTURE INVESTMENT SOURCEBOOK FIGURE A. IBRD/IDA COMMITMENTS TO THE AGRICULTURE, FISHING AND FORESTRY SECTOR, FY1990-2003

Committment 3,000 (3-year moving average) 2,500 (Millions US dollars) 2,000

1,500

1,000

500

0 FY91 FY93 FY95 FY97 FY99 FY01 FY03 Year Source: World Bank Internal Documents

FIGURE B. AGRICULTURE, FISHING AND FORESTRY SECTOR: SUB-SECTORAL COMMITMENTS FY 1995-2003

Irrigation and drainage

General agriculture, fishing and forestry xix Forestry

Crops

Animal production

Agro-industry 01-03 98-00 Agriculture market 95-97 and trade Agriculture extension and research

010203040506070 $ million Source: World Bank Internal Documents

INTRODUCTION Box B. The changing context for agricultural development have a wider impact on sector performance and investment—an objective of this Sourcebook. The environment and context for investment in agriculture has changed dramatically over the past 20 years. Instead of investing with a view to increasing production and world food supplies, CROSSCUTTING THEMES agricultural sector investments must now seek to increase Future investments in agriculture will need to competitiveness and profitability along the commodity chain deliver on some established principles for from farmer to consumer, enhance sustainability for the successful development programs—sound policy environmental and natural resource base, and empower rural frameworks for investment, long-term institu- people to manage change. The rural strategy identifies a number of critical changes that will influence this process, tional development, a focus on core public namely: goods (such as research and roads), empowerment of farmers, and a private-sector orientation. • A crisis in commodity prices for traditional agricultural Future investment programs, however, have to exports (cotton, coffee). respond to a rapidly changing environment for • Rapidly growing demand for higher-value agricultural products due to urbanization and income growth. agricultural investments (see box B) • Increased export demand for fruits, vegetables, and a variety of niche products (organic produce), especially The modules in this Sourcebook reflect a new within evolving multinational food market chains. emphasis in the rural strategy in several dimen- • Aging of the farm population and the impact of HIV/AIDS sions (see table A). These in turn highlight a on farming, especially in Africa. number of crosscutting themes in the Sourcebook. • Growing scarcity and degradation of land and water resources. POLICY REFORM. Many experiences have shown Source: World Bank, 2003. that investment made in a poor policy environment produces poor results. In most countries, significantly in recent years. This is despite the markets are now much more open and trade far special challenges associated with agricultural freer than in the past. Many, if not most, lending—dependency on weather, vagaries of parastatal corporations involved in agricultural commodity prices, the dispersed and often markets have been closed or scaled down. Still, remote nature of agricultural production, the there remains an unfinished agenda for policy high level of poverty in the sector, and an reform that cuts across the various thematic uneven global playing field for developing areas for investment treated in individual mod- xx countries in agricultural trade. ules. The challenge is now shifting from first generation of policy reforms built around The improvement in lending quality reflects a market liberalization, and redefinition of the role transition from public-sector oriented lending to of the state, to second generation policies and “new style” projects and programmatic ap- regulations to enhance competitiveness and proaches based on private-sector implementa- growth. These reforms, in turn, require new tion, market principles, decentralization, and roles and skills for the public sector. beneficiary participation. This transition has not been easy or straightforward, and in all INSTITUTIONAL CAPACITY. Institutional capacity subsectors the quest for good practice contin- development remains the key agenda item for ues. Further improvements in lending ratings donor investments. Moving from a government- require a concerted effort to share good prac- controlled and directed development strategy to tice for technical aspects of agricultural invest- a paradigm of market-based growth requires a ments, the processes by which investments are myriad of institutional changes in how programs designed, and the structure and sequencing of operate and are financed, how institutions are investment programs both within the sector and organized and interact, and what policies and across sectors. The challenge is to identify, capacities they need. Getting the institutional adapt, and disseminate these good practices to framework right is seldom a one-step process,

AGRICULTURE INVESTMENT SOURCEBOOK and the real test is the Table A. Changing emphasis in agricultural growth strategies in the rural strategy ability of institutions to evolve and adapt to a Less emphasis More emphasis rapidly changing environment for agriculture. In some sectors, espe- Resource and input-led growth Knowledge-led growth and cially research, exten- sustainable production systems sion, financial services, and market develop- Agricultural production Agricultural chains and markets ment, long-term institu- Food staples Higher value crops, animals, fish tional development is often required through a Traditional exports Nontraditional exports series of careful sequenced investments. Broad-based approaches Poverty focused within differentiated farm types and PUBLIC VERSUS PRIVATE ecological conditions SECTOR ROLES. Agriculture is by and large a private sector activity. One of Source: World Bank, 2003. the major reasons for the reduction in agricultural lending has been the redefinition of the that has not been adequately filled by the role of the state, and the emphasis on the private sector, due to high transactions costs private sector and market development. In and risks. This means that there is a need for a nearly all thematic areas of agricultural devel- more active public sector role in coordination opment addressed in this Sourcebook, there activities, joint financing, and building needed has been a marked shift toward private-sector capacity to allow the private sector to fill its implementation of programs and market-based role, in addition to financing core public goods allocation of resources. This has naturally led to (especially infrastructure). Many responsibilities more emphasis on policies to create the condi- are also being devolved to local or state tions for private sector investment, and a governments for decentralized program imple- reduction of public sector investment programs. mentation, and this provides additional chal- xxi Public funding for agricultural programs is lenges and opportunities. Strategies such as unlikely to increase dramatically, but must be contracting-out to the private sector, providing focused on core public goods—science and targeted matching grants to support activities technology innovations, information and dissemina- within the public interest, and expanding tion, infrastructure services, and environmental collaborative action in the context of market conservation. supply chain development and trade associations, and various types of consultations and PUBLIC-PRIVATE PARTNERSHIPS. It is now recognized coordination forums with the private sector are that a rigid distinction between public and all important. There is still much to do in this private sector roles is not possible, and there area to establish good practice. are many gray areas where public-private partnerships, often in conjunction with civil EMPOWERING FARMERS. A demand-side orientation society and producer and community organiza- for investment programs represents a funda- tions, are needed. In the least-developed mental shift in thinking away from seeing the countries, especially in Africa, the withdrawal farmer as a passive entity in his/her own of the public sector from markets (through the farming situation, to recognition that the farmer elimination of parastatals) has left a vacuum is the ultimate decisionmaker guiding change

INTRODUCTION in the sector. Empowerment of farmers is the diversification of regional and national agricul- result of decentralized program management, tural production and marketing systems, and participatory approaches to planning and much greater demands on the support systems implementation, building capacity of producer for agriculture—research, advisory services, and community organizations, responsiveness irrigation and drainage, market grades and and accountability of public agencies to users, standards, and information services—to provide and wide access to information about all these the enabling environment for farmers to benefit developments. Involving local communities and the private sector to grow and diversify. early in project design and throughout implementation increases the ability of projects to INTERNATIONAL AGREEMENTS AND REGULATORY SYSTEMS. effectively respond to demand, positively International agreements and regulatory sys- impacts the way projects are implemented, and tems have become more important with in- contributes to the sustainability of the outputs and creasing trade and global economic integration, the outcomes of the project. requiring increased emphasis on developing capacity for governments to represent their Making participatory mechanisms fully effective national interests in negotiations, and for will take time, as old habits are hard to change. mechanisms for producers and private Strengthening and working through partner- agribusinesses to influence negotiating posi- ships with producer organizations provides a tions. Advocacy by developing countries, tool for empowering farmers that runs through- development bodies, and much of civil society out this Sourcebook—influencing policy formu- for improved access to markets for agricultural lation, carrying out research and extension, products in industrial countries, and elimination implementing land reform programs, expand- of export subsidies, is a key issue. Most inter- ing financial services and marketing functions, national agreements also require developing improving management or irrigation systems new skills and capacities in both public and and natural resources, establishing new pro- private sectors for effective implementation. duction systems, and coping with risk and vulnerability. Few, if any, producer organiza- RECOGNITION OF DIFFERENT FARM TYPES. Adjustment— tions do all of these, but different organizations whether to export to liberalized global markets address different priorities, such that these or to the competitive domestic market within a organizations need to be an integral part of the country—is forcing many changes on small xxii design of most agricultural investment pro- farmers, including the transition out of agricul- grams. Finally, investment programs will have ture for marginal farms. Most agricultural to broaden participation to include all stake- sectors have a combination of different farm holders, not just farmers (and particularly types, with different needs for public services women farmers), as consumers and and investments and different abilities to agribusinesses have important interests that respond to markets. In all adjustments there are need to be heard in policy and program design. winners and losers—at least over the short term. The transition to liberalized markets DIVERSIFICATION TO HIGHER-VALUE COMMODITIES. offers unprecedented opportunities for small Markets have also changed with liberalization farmers to improve their economic circum- of trade policies in global markets, and the stances and so lift themselves out of poverty. It growing demands for higher-value, higher- may, however, also lead to their greater quality products. This is reflected in the grow- marginalization if the economic environment ing “supermarketization” of food outlets in does not enable family farms to become more Latin America and other regions, and the global market oriented and if inefficient markets, sourcing of food products by multinational especially land markets, constrain adjustment. If food companies. These changes in consumer farmers produce high-value agricultural prod- demand provide a basis for much greater ucts, they will need access to the complex

AGRICULTURE INVESTMENT SOURCEBOOK technology and market information needed to Box C. Checklist of readiness for scaling-up compete in these markets. For other farmers, adjustment programs may be required to ensure their What is known about impact? transition to the nonfarm sector, including into agricultural processing industries. · Level of social, environmental, or economic impact. · Cost of delivery of benefits. · Nature of beneficiaries. · Time scale. ADAPTING TO THE LOCAL CONTEXT What is known about success factors? The many geographic regions, countries, and agro-ecologies in which the Bank is involved · Organizational process and institutional factors. present quite different development problems · Cultural, environmental, and social factors. and opportunities, as seen in the regional rural · Policy and sectoral environment. strategies of the Bank. Sub-Saharan Africa and · Characteristics of beneficiaries. South Asia, with their high concentrations of rural What is the “state of practice”? poor, require particular attention to achieving · Innovation – minimal objective evidence. broad-based growth through small farmers. · Good practice – clear evidence from some settings. Middle-income countries of East Asia and the · Policy principle – proven in multiple settings. Pacific, Latin America, and the Middle East/North What are the scaling options? Africa require more attention to programs for marginal areas where poverty is increasingly · Internal replication; program expansion. · Catalyzing and supporting others; joint ventures. concentrated. Eastern Europe continues to focus · Capacity building; partnerships; replication by others. on strengthening of markets and private sector · Diffuse concepts and models; policy advocacy. capacities and attention to environmental conservation. Source: World Bank 2003a. The Middle-East-North Africa area is especially concerned with improved management of natural resources (particularly the scarce water resources). Within these very broad differences, design of invest- Learning and information management and ments in the agricultural sector must be context sharing processes are essential, and the recog- specific, introducing reforms suited to the country nition of this provides the basis for this conditions and sensitive to the path-dependent evolu- Sourcebook and its attempt to: tion of rural institutions. Trade-offs are often necessary and design of investments must be based on extensive • Improve monitoring and learning within xxiii analysis of past experiences and options for future projects and programs and between pro- program and market development. grams, projects, sectors, and regions.

• Identify and share widely the knowledge of SCALING UP INVESTMENT PROGRAMS what works and what does not in agricul- The rural strategy commits the Bank to a tural development projects and programs. process of rapidly scaling up good practice in order to achieve greater impact and coverage. • Support the buildup of knowledge to help (box C) These efforts to increase investment in practitioners address specific needs, situations, agriculture must rely heavily on monitoring, and local variability. feedback, analysis, and evaluation, facilitated through internal and external networking Investments with complex and multiple goals (meetings, workshops and conferences, joint make this process more difficult, and this is a impact assessment, peer-to-peer exchanges, fact relevant to the increased focus on poverty cross-visits). There is also much to be learned reduction and environmental sustainability. from failure as well as success. Combining impact assessment and ongoing learning processes may help to make monitor-

INTRODUCTION ing and evaluation activities more efficient and relevant to program needs. The preparation of this Sourcebook has identified ongoing evaluation and impact monitoring as a serious weakness, that must be corrected to guide successful scaling up of projects.

REFERENCES CITED Millennium Development Goals Website: www.developmentgoals.org

World Bank. 2003. Reaching the Rural Poor: A Renewed Strategy for Rural Development. Washington, D.C.: World Bank.

____ 2003a. “Scaling-Up Issues and Options: Supporting the World Bank Rural Develop- ment Strategy on Implementation of Good Practice and Innovation.” World Bank, Washington, D.C.

xxiv

AGRICULTURE INVESTMENT SOURCEBOOK 1

BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY

eveloping an enabling environment for pro-poor agricultural growth is essential for ensuring that the various types of public investments described in this Sourcebook are effective. D Governments must provide public goods and establish supporting legal, administrative, and regulatory systems to correct for market failures, facilitate efficient operation of the private sector, and protect the interests of the disadvantaged. The role of the public sector is evolving, driven by trade liberalization and international agreements, and requiring new skills and analytical capacities. Investments should focus on public sector program and institutional reforms, adjustment lending, human resource development, and strengthening capacity of sector institutions, both public and private.

RATIONALE FOR INVESTMENT IN POLICY AND INSTITUTIONAL CAPACITY The World Bank’s Rural Development Strategy identifies two important elements of successful poverty reductionæcreation of an investment climate conducive to rural growth, and empowerment of the poor to share in the benefits of that growth. Investments in policy and institutional capacity are critical to ensuring that the public sector can effectively abling environment in which markets guide the carry out its functions, which include coordina- allocation of resources for efficient outcomes. tion, participatory development of sector Although specific policies relevant to various strategies, policy formulation, and allocation subsectors within agriculture (for example, land and monitoring of public investment in agricul- administration, natural resources management, ture. These governmental functions seek to and agricultural research) are addressed promote an environment conducive to private throughout this Sourcebook, the means by sector activity and competitive markets in which policy is established, and the structure of socially acceptable ways (see box 1.1). the institutions devised to do this and to promote overall sector growth, are addressed here. Public policy is anchored in a set of values defining societal goals and a set of beliefs PAST INVESTMENTS about the best way of achieving those goals. Support for policy and institutional develop- Institutions are the rules, enforcement mecha- ment in the agricultural sector has evolved nisms, and organizations supporting market dramatically. In the 1970s and 1980s, much transactions. Institutions help transmit informa- investment went to building state organizations tion, enforce property rights and contracts, and to manage agricultural development programs. manage competition in markets, thus giving Ministries of agriculture, starting often with very people the opportunity and incentives to limited capacity, expanded their range of engage in fruitful market activity. Together, agencies and programs, many of which at- public policy and institutions create the en- tempted to supply inputs, credit, and services directly to producers, and to purchase and market agricultural products. Some of these Box 1.1 Key policies to promote a competitive agriculture public sector investments had high payoffs. However, economic returns to many of these • Macroeconomic – ensure undistorted exchange rate investments (such as large-scale irrigation) are policy, removal of implicit taxes and market barriers, nondiscriminatory taxation, macroeconomic stability, and now lower, and some interventions (such as government credibility. subsidies) are very costly in terms of the distort- • Trade – facilitate exports, participate in trade negotiations, ing effect that they have on domestic markets. reduce protection on import-substitute goods with relatively low and uniform tariffs, and remove nontariff The failure or lack of sustainability of many of barriers (while providing protection from acute price 2 these programs led to a rethinking of the role volatility). of the state in the agricultural sector. This was • Labor – ensure agricultural employment meets core labor standards especially in regard to child labor, hazardous responsible for a surge in adjustment lending work, and equal employment opportunities for women. (that is, lending to support policy and institu- • Competition – reevaluate the role of marketing boards, tional reforms conducive to growth) by the promote competition in input markets, establish labeling World Bank in the 1980s, when such annual regulations for grades and standards. lending averaged over US$900 million. From • Environment/natural resource use – establish sustainable 1990 through 2003, Bank agricultural adjust- management, internalize externalities where possible, and ment lending totaled US$5 billion. develop markets for pollution and carbon credits. • Land – develop land markets, security of tenure, titling and recording of land transactions, and land reform for fair Although adjustment lending and associated distribution of land ownership. policy and institutional reforms have had • Technology – maintain public good research activities, and significant impact on developing public policies foster private sector participation in research and exten- for the agricultural sector, the reform process is sion activities. not yet complete in many countries. Second- • Welfare and food security – establish social safety net generation policy adjustments are needed in programs to cope in times of extreme price changes and many cases, and capacity for effective imple- natural disasters. mentation of many reforms is lacking. In Source: World Bank 2003 particular, rapid changes in global markets and

AGRICULTURE INVESTMENT SOURCEBOOK technology demand a renewed focus within the Box 1.2 Payoffs to public investment public sector to correct persistent market 1 2 failures, efficiently provide core public goods , Public investment reduces rural poverty through improved establish supporting systems that encourage growth in agricultural production, agribusiness development, private initiative and investment, and protect rural nonfarm employment, lower food prices, and migration. the interests of the poor (see box 1.2). While there are often long time lags between investment and visible impact, investments in agricultural research, education, Over the past decade, there has been increasing and rural infrastructure are often the most effective in promot- recognition that “good governance” is key to ing agricultural growth and poverty reduction (see inset table). Regional analysis within India also suggests that public invest- sustainable development and poverty reduction. ment in less-favored areas not only offers the largest poverty Good governance is reflected in a capacity for reduction per unit of spending, but also leads to the highest analyzing policy options and the capacity for economic returns. implementing the policies and programs with Returns of agricultural public investments and transparency and accountability. However, the impacts on poverty reduction in China and India speed and impact of improvements in governance has been less in rural areas due to lower Economic Returns – levels of education, lower qualification of civil returns* poverty** servants, and more deeply ingrained traditions Sector China India China India of paternalism. The effectiveness of public sector R&D 9.59 13.45 6.79 84.5 institutions in promoting pro-poor agricultural Irrigation 1.88 1.36 1.33 9.7 growth is also hampered by the fact that there Roads 8.83 5.31 3.22 123.8 are often many different ministries or agencies operating within the sector (for example, public Education 8.68 1.39 8.80 41.0 works, water resources, trade, and environment) Electricity 1.26 0.26 2.27 3.8 each with a high degree of centralization. Poverty loan n.a. 1.09 1.13 17.8 *For China, yuan total rural GDP/ yuan exp., and for India, Rupee per Rupee spending KEY ISSUES IN POLICY AND INSTITUTIONAL ** For China, no. poor reduced/ 10,000 yuan exp., and for India, no. poor reduced/million Rupee exp. CAPACITY DEVELOPMENT The new generation of investments in policy Source: Fan, Zhang, and Zhang 2002 and institutional reform will likely be more challenging than in the past. Emphasis must be 3 on actually implementing reforms and fine- centralized. Although they may (arguably) have tuning these to suit local situations and evolv- been effective in the past, they are now inap- ing market conditions. The requirement for propriate to their new roles. Many public sector high-quality information and analysis to sup- agencies are still involved in areas where the port policy formulation and investment is now private sector would be more efficient (for greater than before, and there is a critical need example, marketing, and input supply), but to learn from experience, through improved lack the capacity and incentives to intervene monitoring and evaluation of policy impacts. effectively to promote the private sector. Privatization of noncore public functions and CHANGING ROLE OF GOVERNMENT. Many public decentralization of remaining programs and sector institutions are oversized and overly governance systems are critical to fostering

1. Market failure relates to high levels of risk and ineffective insurance markets, presence of economies of scale and indivisibilities, positive and negative externalities, and distributional inequalities. Governments must only act to correct such failures where interventions resulting in government failure are not worse than the original market failure. 2. Public goods are defined as those for which private suppliers cannot fully appropriate the benefits of their initiatives—they are nonrival (one person’s consumption of a good or service does not reduce availability to others) and nonexcludable (individuals cannot be easily excluded from consumption). Interventions relating to goods that are undersupplied because of positive externalities (for example, agricultural research and roads) will be different to interventions where economies of scale and natural monopolies create a rationale for public investment (for example, irrigation and rural electrification).

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY market development and agricultural growth. • Develop capacities and institutions for gov- The role of government has shifted toward ernment to carry out regulatory, information, being more of a coordinator that develops and policy, and negotiation functions to promote enforces the rules by which private sector efficient markets and respond to international participants interact within market arenas. This agreements and standards (see box 1.3). change, however, requires considerable capacity to formulate and implement policies to INTER-MINISTERIAL COLLABORATION. Development and promote market development and coordina- implementation of policies affecting the agricul- tion, and create capacity to respond to markets. tural sector increasingly depend on ministries Although current development strategies and agencies outside of the agricultural ministry, provide for increased private sector leadership that deal with public finance, food security, trade and a declining role for the public sector, the negotiations, natural resource management, and quality and efficiency of public sector institu- science and technology. An effective strategy for tions and policy are increasingly important to pro-poor agricultural development must neces- the emergence of a modernized and competi- sarily seek to strengthen linkages and communi- tive agriculture. The major priorities are to: cation between the range of public agencies with a stake in agricultural development (for example, • Support implementation of unfinished environment, land, labor, finance, industry, trade reforms, such as reducing public sector ministries). The large number of private sector bureaucracies, privatizing state corpora- interests involved across these areas complicates tions, and devolving programs to lower this. Thus the government must adopt a coordi- levels of government for more efficient nating role whereby it encourages, ideally implementation. through incentives rather than regulations, cooperation among ministries, agencies, and the • Formulate coherent national agricultural private sector, and a comprehensive approach to development strategies and innovative cross-sectoral issues. This coordinating role must sector development programs. extend into the regional and international arenas in which agriculturally-related agreements are • Develop mechanisms for producers and the increasingly made. private sector to participate in policy and program formulation and implementation PUBLIC-PRIVATE PARTNERSHIPS. It is now clear that 4 through public-private partnerships. more efficient outcomes can generally be

Box 1.3 Typical regulatory requirements of a modern agricultural and food system

• Legal and business regulation (with low costs of compliance for doing business), transparency, adjudication of contract disputes, contract enforcement, market regulation. • Food safety regulations and standards (especially in processing facilities), and testing for contamination (including microbial) and chemical residues. • Natural/environmental and common property resource (waterways, forests, air, fauna) protection, and land and water use management including tenure administration. • Biosafety regulation with respect to genetically modified organisms, pest and disease control and appropriate quarantine border measures, and agricultural biodiversity preservation. • Intellectual property rights (IPR) regulations to provide incentives for innovation, enforcement of IPR laws and patents, balancing security of property rights with technology accessibility for smallholders. • Verification and certification of seeds and plant propagation materials and registration and regulation of agrochemical use. • Inspection services and issuance of phytosanitary certificates, and verification and certification of products for satisfying relevant grades and standards. • Labeling requirements and their enforcement. Source: Authors

AGRICULTURE INVESTMENT SOURCEBOOK achieved if the private sector is involved in the Box 1.4 Food security, safety, and quality provision of public services. Many government functions can be contracted out to specialized Food security depends on there being adequate food availabil- private sector firms and nongovernmental ity, access, and utilization. Availability depends on production and organizations (NGOs) under competitive market supply, and access to incomes that enable the purchase bidding. Governments can also partner with the of food. Food utilization depends on health conditions and food private sector including producer organizations, quality that enables it to meet nutritional needs. As such, food NGOs, and trade associations, in areas such as quality and safety are essential to food utilization and food policy formulation, food safety regulation, and security. Potential investment areas for food safety and quality include: the provision of infrastructure.3 Other functions that need to be performed by the public sector General: are often better accomplished if the agencies • Policy analyses and food chain diagnostic studies are organized as financially autonomous enti- • Nutritional surveillance studies • Food fortification or supplementation programs ties, capable of securing much of their funding • Micronutrient-rich foods promotion through the recovery of costs from users. This is typically the case with “toll goods” and Export focused: • Developing laboratory capacity for residue testing and “natural monopolies” such as land registration biological agents, for example and titling bureaus, some phytosanitary ser- • Strengthening capacity for food inspection, auditing, and vices, plant varietal and agrochemical registra- certification tion, plant varietal protection, and seed certifi- • Training, risk analysis, and systems for product traceability cation. The financial viability of these public • Information on export market import standards service entities requires that commercial and Domestic market focused: social objectives be kept separate and distinct. • Investments in water and sanitation Where full cost recovery may exclude the poor • Hygiene training for street food vendors from a particular service, graduated fees or • Plant and animal quarantine infrastructure targeted voucher systems for the needy can be • Vaccination programs against livestock diseases introduced. These approaches will require a Source: Authors transparent definition of eligibility and a system that can be readily implemented. public goods to promote private sector investment, but in ways that are focused more MULTIPLE GOALS FOR THE SECTOR. Formulation of sharply on addressing the needs of the poor. public policy requires difficult choices (given Also, environmental considerations are an 5 limited resources) among alternative (and often increasingly important element of agricultural competing) priorities. A traditional focus of development initiatives, and policies and ministries of agriculture has been on food institutions must provide a basis for valuing production and self-sufficiency. This focus must natural resources used in agricultural produc- be broadened to include poverty reduction and tion, internalizing environmental costs and environmental concerns. Food security will benefits in production systems, and developing remain an objective, but with greater concern markets for environmental services. for improved access by the poor to a variety of safe and nutritional foods (see box 1.4). In- REFORM OF SUBSIDIES. Despite the fact that rich creased employment and income opportunities countries continue to maintain trade-distorting complemented by better market integration and subsidies, developing countries must review more effective and targeted social safety nets their agricultural support policies (price sup- are needed for poverty reduction. Broad-based ports, border protection, and subsidies) with a growth led by the private sector is often the view to improving sector efficiency and equity. most effective means to reduce poverty. Public Subsidies on inputs create disincentives to use expenditures must support provision of core scarce resources efficiently (for example, subsi-

3. See Innovative Agricultural Project (IAP): “Guinea: Livestock Sector Partnership—Public Sector Herder Organizations and the Private Sector.”

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY dized irrigation water), may have environmental because of low government salaries and poor costs (for example, pesticide subsidies), and incentive structures. The result was a “revolving draw scarce resources away from high payoff door” situation in key ministry units as the best- public investments, such as agricultural research trained staff left for the private sector or inter- and infrastructure. Numerous studies have national employment. Critical to future reforms shown that subsidies are disproportionately and institutional development will be the ability captured by the largest producers and do not to build and retain the necessary qualified meet the social equity objectives often used for human resources (with skills in areas such as their justification (see box 1.5). Finally, in the marketing and management), and the incentive longer term, subsidies may undermine competi- systems to staff institutions that formulate tiveness, since they typically become capitalized policy. Development of these human resource into land values, raising producers’ production capabilities must also take into account the costs. Since subsidies generally create strong future needs of private sector agencies, such as vested interests, removal of subsidies is often producer groups, agribusiness associations, and difficult, and may require interim, transition commodity chain consultative groups. support so that producers have sufficient time and resources to adjust to changed conditions. BUILDING CAPACITY IN PUBLIC EXPENDITURE MANAGE- Countries that have successfully made this MENT. In many countries, capacity to manage transition have achieved a more dynamic and public expenditures (both budget formulation competitive agricultural sector (see box 1.6). and execution) is especially weak in ministries of agriculture. Efforts must focus on strength- LACK OF TECHNICAL AND HUMAN CAPITAL. Govern- ening capacity for: policy formulation and ments often lack the skilled staff, equipment, costing, using results-oriented budgeting, and management tools to efficiently implement management of budget execution, monitoring complex programs. A chronic lack of funds for and reporting, and mechanisms for stakeholder in-service training and persistent traditional participation and interfacing with donors. attitudes with regard to training have deprived Building capacity for the development of public servants of knowledge and skills to medium-term expenditure frameworks is design and manage interventions for a sector in critical to translating Poverty Reduction Strat- which the private sector is in the lead. Past egy Programs (PRSPs) into public expenditure institution-building efforts often failed in part programs, and ensuring that agricultural sector 6 Box 1.5 India: inequitable distribution of subsidy benefits

The Government of India and most Indian states have subsidized agricultural inputs since the Green Revolution. In India, input subsidies to agriculture as a percent of agriculture GDP averaged 9 percent during the 1990s. In the state of Punjab, the largest subsidies are for electricity for pumping groundwater (a state subsidy) and fertilizer (a Government of India subsidy). Large farmers receive a disproportionate share of these subsidies (see inset table). The share of total subsidies that small farmers receive is less than the share of total land area that they farm, and the reverse is true for large farmers. Such subsidies are aggravating serious environmental degradation, especially over-exploitation of groundwater. Distribution of Punjab input subsidies by farm size, 1995-96

< 1 ha 1 - 2 ha 2 - 4 ha 4 – 6 ha > 6 ha

Farms in size category (%) 18.6 16.8 29.3 16.8 18.5 Land area in category (%) 2.9 5.8 20.1 21.0 50.2 % of fertilizer subsidy 2.5 4.8 18.6 21.9 52.2 % of electricity subsidy 1.3 4.1 17.4 22.5 54.7 % of canal water subsidy 1.4 3.6 16.9 23.0 55.1 Source: Singh 2003

AGRICULTURE INVESTMENT SOURCEBOOK priorities are reflected in implementation of Box 1.6 New Zealand: benefits of unsubsidized agriculture: an PRSPs, and related programmatic assistance. OECD example

Protection and subsidies often constrain growth and competi- FUTURE PRIORITIES FOR INVESTMENT tiveness of the agricultural sector. During the mid 1980s, Future investments in policy and institutional producer support in New Zealand accounted for about 40 capacity require sustained efforts over a consid- percent of farmer income. The fiscal unsustainability of these erable time to develop stable and competent subsidies, loss of preferential access to British markets, and public sector institutions to support market spiraling inflation pressured the government to abandon most support payments. Deregulation was rapid (nearly all subsidies development and address market failures. The were removed in 1984) and substantial (almost 30 different level of financing required for these initiatives subsidies and export incentives were removed and no industry will often be quite modest, but continuity of continued to receive preferential treatment). Around one support is critical. percent of New Zealand’s farmers exited agriculture (with the help of a one-time exit grant valued at approximately one-third DEVELOPING AND IMPLEMENTING AN AGRICULTURAL STRATEGY. of annual income). A comprehensive agricultural sector strategy is Since the late 1980s, agricultural output has grown by more essential as a basis for investment for pro-poor than 40 percent, the rate of productivity growth has increased growth. Such a strategy might form a part of a almost six-fold, the share of farming in GDP has risen from 14.2 broader rural development strategy or PRSP, but to 16.6 percent, and the share of rural population has remained will usually need to be developed in greater detail constant. Reform prompted greater competition, lower input as a stand-alone agricultural strategy document. In costs, adoption of practices that were more environmentally sustainable, and a more diversified and adaptable sector providing a “vision” for the future role of the responsive to market needs. sector, strategies should focus the efforts of donor organizations and governments on the most Source: World Bank 2003. relevant problems and solutions, and should ensure that initiatives are complementary rather service. Although there is no easy solution to than conflicting. Translating strategy priorities into the problem of retaining qualified economists, budgetary allocations is often more difficult than a common solution is for government to formulation of sector strategies. Budgetary alloca- contract out policy research to universities, tions must be well planned and based on revenue consulting firms, and research foundations, and expectations, as well as realistic estimates of the to undertake joint analyses of policy implications with relevant stakeholders. However, funding needs for different policy priorities. 7 Sequencing of funding allocations is also impor- ministries of agriculture still require a core tant. Budget allocations are, of course, largely capacity to tap available policy research, within the responsibility of ministries of finance. contract with outside institutions to fill research However, good analysis and effective information gaps, and analyze research output for use in systems within the agricultural sector, backed by the policymaking process. competent policy staff with good presentation and negotiating skills, are important for promoting A related need is to develop the capacity to public investment in agriculture and improving participate in negotiations at regional or global investment quality. levels (for example, the ongoing Doha Devel- opment Agenda negotiations under the auspices BUILDING POLICY AND NEGOTIATING CAPACITY. Devel- of the World Trade Organization (WTO) and oping and maintaining adequate policy formu- effectively represent the needs and concerns of lation, implementation, and analytical capacity domestic producers and citizens. Such negotia- has been a recurrent problem in most coun- tions include trade, the environment, grades tries. Retaining well-trained economists is and standards for market entry, intellectual especially important for policy formulation and property issues, foreign investment, and nego- analysis, since they often find attractive em- tiation with donor agencies (see box 1.7). ployment opportunities outside of government Donor agencies can provide technical assistance

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY and training in these areas so that public STRENGTHENING STATISTICAL AND INFORMATION SERVICES. officials can evaluate potential negotiating The quality of agricultural data systems is positions and the likely implications of these thought to have declined in many countries in on various groups, with particular emphasis on recent years, along with declines in ministry of the poor and vulnerable. agriculture budgets for these systems. Good information is an essential base for sound REFORMING AGRICULTURAL MINISTRIES. Ministries of policy formulation and for guiding investments agriculture are often inefficient and very by both the public and private sectors.4 Agricul- conservative, and may resist devolution of tural censuses, production and yield surveys, traditional core functions. Past investments in and market information systems can improve public institutions resulted in substantial decisions of government, producers, and bureaucratic structures (“over-dimensioned”) agribusinesses. Market information systems are requiring large recurrent cost financing. especially important to efficient operation of However, reform of a single ministry is often the private sector. difficult unless carried out within the context of structural reform of the entire civil service Wide dissemination of information is particu- system, or at least of the ministries dealing larly important for maximizing the benefits of with the agricultural sector (see box 1.8). data collection and to ensure equitable access Reform is likely to be a long-term process to information on production and markets. and political changes can easily wipe out New information and communications tech- progress, requiring a new start on reforms. A nologies (such as Web portals) can help im- bottom-up effort that builds a base and prove the quality, dissemination, and cost- constituency for ministry reform among key effectiveness of data collection. Although there stakeholders is important. is a significant public good element in such

Box 1.7 International agreements related to agriculture

The international community through a variety of international agreements has addressed many issues facing the agricultural sector. Countries, signatories to the agreements, are required to implement their provisions. Some key agreements, conventions, treaties, or protocols that affect agriculture include: 8 • International Plant Protection Convention (1951) • International Code of Conduct on the Distribution and Use of Pesticides (1985) • International Code of Conduct for Plant Germplasm Collecting and Transfer (1993) • World Trade Organization (WTO) Agreement on Agriculture (1995) • WTO Trade Related Intellectual Property (TRIPS) Agreement (1995) • Code of Conduct for Responsible Fisheries (1995) • United Nations Convention to Combat Desertification (1996) • World Food Summit: Rome Declaration and Plan of Action (1996) • Cartagena Protocol on Biosafety (2000) • Stockholm Convention on Persistent Organic Pollutants (POPs) (2001) • International Treaty on Plant Genetic Resources for Food and Agriculture (2001) Negotiations continue on a number of outstanding issues involving such areas as subsidies and market access for agricultural trade (WTO), market standards, and biotechnology (in the Food and Agriculture Organization/World Health Organization (FAO/WHO) Codex Alimentarius Committees). Governments, the private sector, and civil society need to understand the implications of agreements on these issues, have the institutional capacity to implement their relevant provisions, and the ability to formulate and present views in future negotiations.

Source: WEHAB Working Group 2002.

4. See the IAP, “Ecuador: Commodity Chain Consultative Councils for Policy Formulation”

AGRICULTURE INVESTMENT SOURCEBOOK systems, a portion of the costs may be recov- Box 1.8 Tanzania: reform of the Ministry of Agriculture ered from the private sector. Prior to the Agricultural Sector Management Project in FACILITATING ADJUSTMENT AND MANAGING RISK. A Tanzania, the Ministry of Agriculture was overloaded with pressing issue in many countries is to assist tasks for which it was ill suited. Reforms helped state agricul- producers to adjust to market and trade tural institutions to manage less, but better, in support of a liberalization—events that affect prices (and market-based economy. The government role in the agricul- so change competitiveness and profitability tural sector was better defined, enabling the ministry to focus among industries), and affect risks faced by on three major tasks—policy formulation and planning, development and provision of services in partnership with the farmers. This may require government assis- private sector, and regulation and inspection. Reform entailed tance to farmers (especially small farmers) to divestiture of many parastatals, spinning-off services of a make the transition to other enterprises in commercial nature to the private sector and reducing staff which they have a comparative advantage, or within the ministry. Staff skills were upgraded through on-the- in some cases to exit agriculture altogether.5 job training and higher education overseas, and agricultural In some circumstances, income support information systems were strengthened to support a market- programs can be helpful but must be based economy. Since reforms had implications beyond agriculture, other ministries were actively involved. “decoupled” (that is, not paid on the basis of current input use, output, or prices) so that Source: World Bank Internal Documents. these do not distort production. Similarly, market-based risk management systems for commodity prices and modern information All decentralization reforms need to recognize and communication technologies have poten- the limits of local government activity. Public tial to help producers to cope with risk investment will be necessary to develop capacity during the transition. of local governments and assist them in formulating coherent and effective strategies and DECENTRALIZING PROGRAMS AND AUTHORITY. Decentrali- programs for decentralization. However, this can zation is commonly promoted as a means of be difficult given the large number of (often empowering agricultural producers by enabling small) local governments and the frequency with local participation in the decision-making which they change. In addition, provision of process. This is expected to lead to more re- many agricultural services (for example, techni- sponsive and locally applicable policy decisions. cal advisory services) is in many cases the domain of user groups, farmer organizations, Although there can be a trade-off between 9 greater local government authority over expen- and trade associations. These may have different diture and potential misuse of funds, financial interests and priorities than local government, responsibility is an important element of effec- and agreements about how these responsibilities tive decentralization. If local governments and are divided, can be highly effective. private organizations are to carry out decentralized functions effectively, they must have DEVELOPING PARTICIPATORY SYSTEMS. Participation adequate revenues, either raised locally or enhances stakeholder influence and control transferred from the central government, and over priority setting, policymaking, resource must have authority to make decisions about allocations, and access to public goods and expenditures (that is, political decentralization). services. This in turn improves government While local governments have a role in provid- accountability and transparency, and increases ing “local” public goods, there are also many overall governance and economic efficiency of “national” or “regional” public goods that local development activities. Rural producer organi- government will not have the technical capacity zations can be central to a participatory system or interest to address. for agricultural decision-making, but frequently

5. See the IAP, “Turkey: Hybrid Adjustment/Investment Lending”

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY must make a transition from having been • The extent of liberalizing support and passive recipients of government assistance to protection policies for agriculture. being independent institutions developing their own policies, programs, and strategies Analytical work and policy dialogue is especially and negotiating with the government as important to assessing the needs for policy and equals. At the same time, initiatives to support institutional capacity building, and for preparing the development of such groups must do so investment proposals prior to scaling up. in a manner that avoids the potential for any one group (or a number of powerful individuals within the group) to pursue narrow agen- SELECTED READINGS das at the expense of other groups (or other Asterisk (*) at the end of a reference indicates individuals within the group). Agribusiness that it is available on the Web. See Appendix 1 trade associations (often participating in for a full list of Websites. commodity chain or marketing chain interest World Bank. 2003. Reaching the Rural Poor: A groups) are other key stakeholders with Renewed Strategy for Rural Development. interest and influence in the sector. The Washington, D.C.: World Bank. public sector should explicitly seek to develop alliances with such groups, and build a Ellis, F. 1992. Agricultural Policies in Develop- strong constituency for agricultural institu- ing Countries. Cambridge and New York: tions, but in ways that avoid special interest Cambridge University Press. subsidies and protection. Monke, E. A., and S. R. Pearson. 1989. The Policy Analysis Matrix for Agricultural SCALING UP INVESTMENTS Development. Ithaca, N.Y.: Cornell Univer- Improving policy and institutional capacity is sity Press.* critical for designing and implementing sound programs for pro-poor agricultural growth. Timmer, C. P., W. P. Falcon, and S. R. Pearson. Some indicators for monitoring the extent of 1983. Food policy Analysis. Baltimore: Johns progress in this area include: Hopkins University Press.*

• Existence of a sound agricultural sector World Bank. 2002. A Sourcebook for Poverty 10 development and investment strategy. Reduction Strategies. Washington, D.C.: World Bank. • Level of private investment in agriculture and agribusiness, and surveys of the investment climate for private investors in the sector. REFERENCES CITED Fan, S., Zhang, L., and X. Zhang. 2002. Growth, • Extent and quality of rural producer organi- Inequality, and Poverty in Rural China: The zation and agribusiness association input Role of Public Investments. Research Report into agriculture policy formulation and 125. Washington, D.C.: IFPRI. program design and implementation. Singh, K. 2003. “Punjab Agricultural Policy • Availability and quality of statistical infor- Review.” Report for the World Bank. New mation on the agricultural sector, agricul- Delhi, May 31. World Bank, Washington, tural production, and markets. D.C. Processed.

• Effective regulatory systems for emerging WEHAB Working Group. 2002. “A Framework areas such as food safety, biosafety, intel- for Action on Agriculture.” World Summit lectual property rights, and phytosanitary on Sustainable Development Report. standards. WEHAB Working Group, Johannesburg.

AGRICULTURE INVESTMENT SOURCEBOOK World Bank. 2003. “Agricultural Policies and Trade.” In Global Economic Prospects: Realizing the Development Promise of the Doha Agenda. Washington, D.C.: World Bank.

This Overview was prepared by Derek Byerlee, Sam Kane, and Gary Alex, with inputs from Jock Anderson, John Nash, and Pierre Rondot. Peer review comments were provided by Deepak Ahluwalia, Mark Lundell, Jock Anderson, Ralph Cummings (USAID), and Suresh Babu (IFPRI).

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY AGRICULTURE INVESTMENT NOTE for government in promoting sustainable agricultural sector growth. An ADS is both product and process. As product, the written PREPARING A NATIONAL document serves to focus and facilitate the AGRICULTURAL process. The strategy combines analysis, DEVELOPMENT STRATEGY process, and required action, and usually has five elements: An effective agricultural development strategy (ADS) is critical for identifying the key issues • A snapshot of the current status of the and opportunities facing the agriculture sector, agricultural sector, which, depending on the and developing operationally sound programs state of existing knowledge, may involve to promote pro-poor growth. Strategies must new economic and sector analysis, perhaps provide a “vision” for the future role of the involving formal models such as discussed sector, and set forth a policy framework and in the final section of this note. the investment priorities needed to achieve this vision. Key areas for support include building • A national vision of agriculture within the the human and institutional capacity for strate- time frame of a generation. gic analysis and planning, and establishing a participatory consultative process to articulate • A diagnosis of the key constraints that an agricultural development strategy that can prevent the agricultural sector from achiev- result in real progress for the sector. ing the vision, and an analysis of the main opportunities, inevitably requiring new Too many countries continue to invest in analytical studies and likely involving agricultural development without a clear overall modeling of growth processes. strategy. Central planning of agricultural production seldom worked in the past and is • Action plans for implementing the vision, largely discredited. The role of government in including assignment of responsibilities and promoting economic growth and development estimation of costs, and a comprehensive has changed with the increased importance of program of monitoring and evaluation to private-sector investment in agriculture. This measure costs and benefits and to under- does not, however, mean that the government stand any required revisions. 12 can abdicate its role in promoting agricultural development, and unless this role is clearly Developing an understanding of agricultural defined, the payoffs from investment in the production and marketing systems and their sector are likely to be less than satisfactory. sources of vulnerability is a complicated task, particularly if it involves considering mechanisms to help some people leave agriculture. WHAT IS AN AGRICULTURAL DEVELOPMENT Common problems include: insufficient time STRATEGY? for broad consultation, gaps in the required An ADS is a roadmap to assist governments, knowledge base, particularly concerning civil society, and donors in defining interven- reliable data on poverty in agroecological and tions to meet key objectives for the agricultural local government areas, problems with in- sector—typically including improved produc- country expertise, and lack of political and/or tivity and competitiveness, reduced rural bureaucratic champions. poverty, enhanced household food security, increased capital accumulation by poor rural households, and more sustainable manage- BENEFITS ment of natural resources. Such articulation of Effective processes for preparation of an ADS strategy does not imply central planning, but rely on intensive fact-finding, diagnostic stud- rather an analysis of the options and priorities ies, analyses, and program monitoring, evalua-

AGRICULTURE INVESTMENT SOURCEBOOK tion, and impact assessments. An ADS will Box 1.9 Uganda: plan for modernization of agriculture present combinations of policies and programs around which stakeholders can form a consen- In order to raise agricultural growth rates, the Ugandan sus and mobilize resources needed (see box Government developed a Plan for Modernization of Agriculture 1.9). This process helps to identify political through a broad-based consultative process. This plan is part of champions for reform, and can promote inter- Uganda’s broader strategy, which is defined in the Poverty change of experiences among practitioners to Eradication Action Plan (PEAP). The plan has been used as an learn what works and what does not work in important input into its Poverty Reduction Strategy Paper sectoral institutions, programs, and markets. (PRSP) and subsequent Poverty Reduction Support Credit (PRSC) in which agriculture has high priority. A focus point of Overall, an ADS can focus efforts such that the plan is the transformation of subsistence agriculture to duplication of projects and conflicts among commercial agriculture to accelerate growth through technical different initiatives are reduced, and it can change throughout the sector. Priority areas for action are: enhance collaboration among stakeholders research and technology development; agricultural advisory (including donor agencies, governments, the services; rural finance; agro-processing and marketing; agricul- private sector, and farmer and community tural education; sustainable natural resource utilization and organizations). management; and supportive physical infrastructure, particularly roads. The plan provides the strategic and operational framework for sustainable agricultural transformation, but does not provide a detailed plan for action. It describes the types of POLICY AND IMPLEMENTATION ISSUES policy interventions required to promote agricultural and rural AGRICULTURAL AND RURAL DEVELOPMENT STRATEGIES. development, and defines the roles of the public sector, the There is now a recognition that rural develop- private sector, and the civil society in this process. ment is broader than agricultural development, Source: Government of the Republic of Uganda 2000. involving substantially more attention to social, off-farm, and infrastructural investments. While an ADS can be developed as a component of a Rural Development Strategy, this involves a • Mobilization of institutions and partnerships trade-off between the benefits of approaching at different levels and in different sectors to agriculture as part of the larger rural picture, implement the ADS. and the potential problems of coordination and dilution of focus in analyses and planning. • Broad local participation in regular monitor- Development of a stand-alone ADS is often a ing, and understanding of the likely impact useful and preferred option. on those who will benefit and those who 13 will lose. AGRICULTURAL STRATEGY AS PROCESS. The process of forging an ADS shapes its design and chances of COUNTRY LEADERSHIP. The country must take the being implemented, and its likely development lead in analysis and strategy formulation, but impact. Hallmarks of a successful process are: can benefit from donor support, especially through sharing relevant experience from other • Strong political and administrative leader- countries and regions. ship at central and local levels. TIME FRAME AND MACRO CONTEXT. Agricultural • A strategic document identifying desired development is a long-term process, involving outcomes of decentralized agricultural institutional change, market development, and development programs, specifying time- technological adaptation. The time horizon for tables, budgets, and responsibilities. an ADS should be about 5-10 years, with an expectation that it be revised and updated • Consensus building and ownership of a approximately every five years. Elections and vision of agricultural development by changes in government are important factors policymakers, sector stakeholders, and the affecting timing for strategy preparation. As development community. changes are not always predictable, preparation

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY Box 1.10 Key snapshot data produce a single strategy with support across a range of ministries. Profile of the agricultural population • Number of farmers by farm size, land use and tenure status. LESSONS LEARNED • Agricultural laborers and wages. DEVELOP BASELINE INFORMATION. A snapshot of the • Agribusinesses by size, type, and profitability. current status of agriculture is critical at the Public sector investment programs onset of the process, and this should include • Density and state of rural roads, public markets, agricultural details and data such as that listed in box 1.10. extension services. • Adult literacy rate: overall, male, and female. IDENTIFY KEY CONSTRAINTS AND OPPORTUNITIES. Con- • Share of agricultural value invested in research. straints are factors that impede improved sector Agricultural production systems performance. Opportunities are strengths that • Major agroclimatic zones and soil types (map). can be built upon to improve sector perfor- • Irrigated (surface and ground, large-scale and small- and- medium) and rainfed (map). mance. These relate to policies, institutions, • Farmers’ organizations, NGOs in the sector. governance, public investment programs, and • Agriculture’s share of GDP, employment, import and the sociopolitical environment (see box 1.11). export. • Major markets (domestic and foreign). DEVELOP ACTIONS TO OVERCOME CONSTRAINTS AND TAP • Indicators of productivity and comparative advantage. OPPORTUNITIES. This section of the ADS will usually • Details of sectoral protection and taxation. contain recommended actions in policy reform, The natural resource base institution building, decentralization, and invest- • Management systems of natural resource base. ment in infrastructure and human capital. • Trends in resource base change. Proposed actions should be based on worldwide • Frequency of natural calamities. experience of both success and failure. Source: World Bank Internal Documents

IMPLEMENTATION AND MONITORING. Implementation of strategies should seek commitments across requires translating broad strategic directions the political spectrum. Since macroeconomic into institution-, budget-, and region-specific crises often accompany adjustment lending, action plans, focusing on the issues raised in an practitioners should be made aware of the ADS, mobilizing the financing for projects and 14 need and rationale to focus on high-quality programs, building institutions, and fiscal adjustment measures in agricultural mainstreaming agricultural development in spending in order to protect agricultural national plans. Monitoring development impact growth. Monitoring the effects of exchange is an integral component of an ADS, as it rates adjustments on agricultural terms of trade enables built-in flexible and effective response can lead to useful identification of policy in the course of implementation. problems and corresponding recommendations.

MULTIPLE MINISTRIES. Many issues within a broad RECOMMENDATIONS FOR PRACTITIONERS concept of “agriculture” (for example, irriga- Recommendations for practitioners involved in tion, livestock, food, trade, input supply, agro- investments (see box 1.12) related to preparing industry, and agricultural education) are the agricultural strategies include: responsibilities of different ministries. It is critical that inter-sectoral linkages and interac- • Develop a vision for agriculture shared by tions (for example, macroeconomic policy and as many stakeholders as possible, with agricultural trade policy) are appropriately input from farmers themselves expressed accommodated. Strong participatory leadership through farmer and community organiza- skills and good coordination are necessary to tions, local government, NGOs, and

AGRICULTURE INVESTMENT SOURCEBOOK others. Such a vision expresses what a Box 1.11 Illustrative data reflecting constraints and opportunities strategy is designed to achieve, without reverting to overly specific centralized Policy planning targets of the past. The vision • Nominal/effective protection coefficients and resource- should be specific enough to guide public cost estimates for selected agricultural commodities. policies and programs and allow monitor- • Subsidies on agricultural resources and inputs. ing by tracking defined indicators to • Food security and welfare policy. assess progress. Institutional • Price variability and postharvest losses for selected • Draw from global experiences, but recog- commodities. nize the context-specific characteristics that • Methods available for managing price risks. • Land tenure and ownership structure. will shape the relevance of this experience • Legal and regulatory environment (for example, contract to the local setting. Having strong and enforcement). committed “champions,” both in national • Technology generation and transfer systems. governments and in key donor and civil- Governance society organizations, is critical to reaching • Degree of fiscal decentralization. early strategic agreement and focus. • Percentage of marketed inputs/outputs managed by public organizations. • Seek support at all levels as a national ADS Public investment programs involves multisectoral issues, and engagement • Investment in basic rural infrastructure. with a range of stakeholders concerned with • Investment in agricultural research and extension. agricultural development. Sociopolitical (in qualitative terms where applicable) • Constraints on specific groups. • In countries engaged in PRSP-like pro- • Hidden costs of doing business. cesses, link into the PRSP dialogue with Source: World Bank Internal Documents. government, private sector, and civil society representatives at national and local levels so that there is broad consultation at all Box 1.12 Potential investments stages of formulating strategy. • Technical assistance for review of past experience and • Examine the current status of agriculture to analysis of the current situation. • Systems for gathering, processing, and storing data and establish the facts about rural poverty and 15 the systems of production within which the information for ADS development. poor operate. Identify key constraints that • Technical assistance for developing approaches to ADS development that encourages and enables all stakeholders impede improved performance and oppor- to participate. tunities on which to build and prioritize among actions for implementing the ADS. Source: Authors.

• Exploit available models of the economy and the agricultural sector, or contemplate undertaking new modeling to better under- around for decades, their guidance and stand key intersectoral linkages, and to insight are very relevant to the formulation more realistically model growth paths of a sound ADS (Tolley, Thomas, and Wong implicit in the vision being addressed. The 1982; Timmer, Falcon, and Pearson 1983; range of possible analytic models includes Tsakok 1990; Belli et al. 2001). computable general equilibrium models, social accounting matrices, simplified • Develop effective mechanisms for monitor- growth models, and multi-market models). ing the ADS implementation and develop- While some of these resources have been ment impact.

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY SELECTED READINGS This Note was prepared by Jock Anderson, Sam Kane, and Asterisk (*) at the end of a reference indicates Gary Alex, based on “Reaching the Rural Poor; Annex 5 – that it is available on the Web. See Appendix 1 Guidelines for the Preparation of National Rural Develop- for a full list of Websites. ment Strategies,” World Bank, 2003.

Timmer, C. P., W. P. Falcon, and S. R. Pearson. 1983. Food policy Analysis. Baltimore: Johns Hopkins University Press.*

Tolley, G. S., V. Thomas, and C. M. Wong. 1982. Agricultural Price Policies and the Developing Countries. Baltimore: Johns Hopkins University Press.

Tsakok, I. 1990. Agricultural Price Policy: A Practitioner’s Guide to Partial-Equilibrium Analysis. Ithaca, N.Y.: Cornell University Press.

REFERENCES CITED Belli, P., J. R. Anderson, H. N. Barnum, J. A. Dixon, and J.-P. Tan. 2001. Economic Analysis of Investment Operations: Analyti- cal Tools and Practical Applications. Wash- ington, D.C.: World Bank.

Gittinger, J P. 1982. Economic Analysis of Agricultural Projects. 2nd ed. Baltimore: Johns Hopkins University Press.

16 Government of the Republic of Uganda. 2000. Plan for Modernisation of Agriculture: Eradicating Poverty in Uganda. MAAIF and MFPED: Entebbe, Kampala.

Timmer, C. P., W. P. Falcon, and S. R. Pearson. 1983. Food policy Analysis. Baltimore: Johns Hopkins University Press.

Tolley, G. S., V. Thomas, and C. M. Wong. 1982. Agricultural Price Policies and the Developing Countries. Baltimore: Johns Hopkins University Press.

Tsakok, I. 1990. Agricultural Price Policy: A Practitioner’s Guide to Partial-Equilibrium Analysis. Ithaca, N.Y.: Cornell University Press.

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE • The need for effective capacity for policy formulation is becoming greater, as global trends increase challenges to the agricultural DEVELOPING CAPACITY FOR sector, and more participants (public sector, AGRICULTURAL SECTOR private sector, and civil society) are involved POLICY FORMULATION in developing this capacity.

Government policies and investment strategies PUBLIC POLICY FORMULATION AND PLANNING provide a critical base for agricultural sector Capacity for policy formulation can refer to development, and all governments need a individuals, organizations, or the country as a capacity for such policy formulation. However, whole. For investment purposes, the main focus many developing countries lack the people and is likely to be capacity of organizations in the institutions needed for effective agricultural public sector (for example, policy units, public policy formulation. New efforts to build local research organizations), private sector (universi- capacity to promote agricultural development ties, trade and farmer associations, consulting must take a broader view of the policy formu- firms), and civil society NGOs, institutes). lation process. It should involve different Capacity of an organization refers to its ability to stakeholders from the public and private successfully apply its skills and resources to the sectors and civil society in collaborative rela- accomplishment of its goals. Capacity develop- tionships, partnerships, and networks to guide ment is a process of improving an organization’s public policy and investment decisions in the performance by increasing its potential in terms agricultural sector. of its resources (human resources skills, infrastructure, finance, technology) and management Addressing objectives of rural poverty reduc- (program and process management, strategic tion, environmental conservation, food insecu- leadership, and networking and linkages). rity, and economic growth requires a support- Capacity for agricultural policy includes capacity ing policy environment built on sound analysis, for policy analysis, policy formulation, and research, and formulation and dissemination of policy dissemination. agricultural policies. Many developing countries lack people and institutions able to provide this The balance of resources (infrastructure, techni- environment. Past capacity development efforts cal, financial) and technical and managerial focused on investment in university-level skills needed for policy formulation should be 17 education and short-term training of policy guided by external factors (political, social, units. New approaches advocate collaborative legal, cultural context) and internal features projects, partnerships, and networking to (organization culture, incentives, and manage- address the current situation, which is charac- ment style) of the relevant organization. While terized as follows: most projects focus on the capacity of government agencies, the private sector (including • Institutional capacity to conduct sound producer organizations) and civil society need agricultural policy analysis, formulation, capacity to participate in policy debates (capac- and dissemination is weak, and even when ity for policy communication, public aware- individual capacity exists in the country, ness, and negotiating skills). there is a dearth of effective mechanisms to use existing capacity. BENEFITS • Investments in capacity have not always Improved policy research can reduce wasteful been successful, especially in improving allocation of resources, increase incomes of institutional capacity. farmers and enterprises, better target the disadvantaged, improve farmers access to

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY services and infrastructure, accelerate policy concepts of capacity (involving mainly analyti- reforms, and improve the success of policy cal skills and the public sector) have often been reforms (see box 1.13). Further, the improved used. Fourth, the use of long-term technical communication among stakeholders associ- assistance can in some cases actually weaken ated with increased capacity improves nego- capacity development efforts. Finally, lack of tiation and helps enhance transparency and sustainability might be the result of linking ownership of adopted policies, resulting in capacity development to policy reforms. more likelihood of success in implementation. PARTICIPATION. Project design and evaluation needs to take into account the participants involved in POLICY AND IMPLEMENTATION ISSUES capacity development, and the type of policy SUSTAINABILITY. Various factors explain the lack of analysis, formulation, and dissemination they are sustainability of past investments in capacity pursuing. The identification of what capacity development. First, the long-term nature of needs to be developed, for whom, and how, capacity development requires a multi-year requires the participation of different stakeholders commitment of funds that can be rarely ex- (especially the poor, women, and disadvantaged pected from any single donor. Second, incentive groups). Participatory methods for improved and management problems are often a result of communication and building consensus are the lack of public sector reforms related to critical to improve policy formulation capacity. A salaries, performance incentives, hiring and demand-driven approach is most likely to identify firing practices, and accountability processes in the real capacity needs, and enhance the owner- the public service. Where fundamental public ship and sustainability of the project and pro- administration reforms are required, objectives cesses (see box 1.14). of capacity development projects should be revised and made more realistic. Third, narrow INSTITUTIONAL CONSIDERATIONS. An important issue is the flexibility the public sector has to use existing country capacity in the private sector, Box 1.13 Bangladesh: collaborative research and capacity NGOs, and civil society. Contracting out of strengthening certain functions (for example, agricultural policy research) to the private sector builds on Capacity strengthening in food policy analysis was one of the existing nation-wide capacity. The use of four main components of the Bangladesh Food Policy Project competitive or matching grants can be an 18 funded by United States Agency for International Development (USAID) and implemented by International Food Policy effective way of harnessing existing capacity in Research Institute (IFPRI) in collaboration with the Ministry of other organizations. Coexisting capacity devel- Food between 1989 and 1994. The policy analysis during the opment activities in the country should be project estimated the inefficiency and costs of the food- coordinated such that efforts are not duplicated. targeted programs and enabled the government to abolish the When policy formulation for the agricultural food rationing system, reinforce its Food for Work and sector depends on the inputs of several line Vulnerable Group Feeding Programs, and introduce the new agencies outside of the agricultural ministry, Food for Education program. Estimates of the internal rate of return for food policy research investments ranged from 110 to there may be issues as to where capacity 260 percent. Other impacts included a saving of about US$60 development should be located to be most million per year from abolishing ineffective targeted programs, effective. In general, sound policy formulation and increased school attendance of poor children by 27 relies on transparent debate and circulation of percent for boys and 31 percent for girls. Studies were ideas, and policy units that have an appropriate completed in a collaborative fashion with local organizations. level of autonomy from the central government. The project strengthened the technical and analytical capabilities of local institutions, and showed that capacity-strengthening ENVIRONMENTAL CONSIDERATIONS. Environmental activities, strategically tied to information sharing, increases the acceptance and adoption of research results. issues are increasingly important in the design of agricultural programs and policies. Both public Source: Babu 1999.

AGRICULTURE INVESTMENT SOURCEBOOK Box 1.14 Ukraine: ownership in capacity building—the Ukraine Agricultural Policy Analysis Unit

In 1998, the World Bank and other donors began supporting the Ukraine Agricultural Policy Analysis Unit (APAU, whose primary role is to advise the Cabinet of Ministers on major issues of reform in agriculture. Collaboration between foreign technical assistance and highly qualified local experts has built strong local capacity for policy analysis. As the APAU arrangement is not under Ministry control, it can provide relatively unbiased recommendations. The unit has developed a reputation throughout the government as a consistent source of high-quality policy advice. Because of this reputation, the APAU has been able to position itself to strongly influence the reshaping of the agenda of Ukrainian agricultural policy, by improving current policy outputs, facilitating policy coordination, and proposing more market- oriented approaches to current problems. Among the primary functions of the APAU has been provision of technical comments to draft agriculture-related laws as they are being developed. The unit has also published many papers, presenting original analyses of various sector issues, and has delivered, a wide variety of training activities. Currently, donors fund the professional staff and other expenses. It remains to be seen to what extent the unit capacity will be sustainable once foreign assistance is withdrawn.

Source: World Bank Internal Documents. and private sector capacity is needed to address technical and process assistance. An exclusively issues such as environmental impact analysis, technical approach is not appropriate when trade and environment linkages, biodiversity, policy formulation is concerned, because of the and genetically modified organisms. need to involve different stakeholders who may not have technical backgrounds. Even for those who do, the process of analyzing, formulating, LESSONS LEARNED and disseminating policy is as important as CONTEXT, CONTENT, AND TIME DIMENSIONS. Capacity technical skills. A combination of methods and development for policy formulation depends approaches to improve both technical and on the context in which the capacity is devel- managerial skills is necessary for effective oped, the content of the capacity being devel- capacity development. oped, and the time horizon in which the process takes place. Confusion among these COLLABORATIVE ARRANGEMENTS AND COMMUNICATION. might lead to the wrong choice of capacity Methods of promoting collaboration and development activities. Context can relate to communication include hands-on research, policy reform (for example, agricultural input coauthorship of reports and presentations, joint 19 market liberalization), structural change (move- design and implementation of field work, and ment from central planning to market orienta- joint planning of workshops and training tion), strategy formulation (10-year strategy for activities (see box 1.15). Outsourcing of analyti- agricultural research), or evaluation of past cal tasks and dissemination activities can policies (policy review and impact analysis) promote collaboration between the public and and will determine the skills and amount of private sectors. Policy research in particular time needed. Similarly, emphasis will differ should be conducted by academic institutions with regard to analysis, coordination, dissemi- and private consulting firms—the capacity of nation and awareness, negotiation, policy which must be built in most cases. evaluation, and network management, depending on the specific context. Choices made as to MONITORING AND EVALUATION. Monitoring and the time horizon (short to long) of the capacity evaluation (M&E) of capacity development development effort will depend on resources should clarify “what capacity” is to be moni- available and desired outputs. tored and how this is to be measured. Also, the purpose of M&E and how results will be used TECHNICAL AND PROCESS ASSISTANCE. Capacity devel- should be clear—if M&E is regarded mainly as opment projects should use a combination of a surveillance system rather than as a learning

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY Box 1.15 Viet Nam: collaboration for increased agricultural policy analysis capacity

Since the late 1980s, Viet Nam has been developing capacity in policy formulation appropriate to the market system. Capacity building approaches in the agricultural sector have included short- and long-term training courses in-country and abroad, curricula development in the university, strategy formulation, policy analysis training, adoption of new research programs, and restructuring of the Ministry of Agricultural and Rural Development. These have been supported by different donors and have involved collaborative arrangements with various universities and research centers under the umbrella of the Consultative Group on International Agricultural Research (CGIAR). One of the most successful outcomes has been the renewal of the Information Center for Agriculture and Rural Development located in the ministry. The center includes some of the best agricultural policy analysts in Viet Nam, is responsive to the policy formulation needs of decisionmakers, and has established a network including research organizations, universities, international agricultural research centers, and local experts.

Source: Authors.

tool for improvement, it is likely that the • Undertake extensive consultations with overall process of M&E will fail. The methods, stakeholders in the government, private baselines, and indicators used for M&E should sector, academia, and civil society to develop be clearly defined and agreed before starting a sense of what is needed and by whom, the process, and agreement should be reached what is available, who will support invest- as to who will conduct the M&E. This will ments, and how these will be monitored. minimize conflicts of interest and improve the reliability of information obtained. • Promote participation and ownership through national workshops, close association with project designers, follow-up meetings, and RECOMMENDATIONS FOR PRACTITIONERS sharing the initial project documents. Capacity building investments should (see box 1.16): • Ensure that investment initiatives have built- in flexibility that allows periodic planning. • Understand the context of the capacity development initiative as this will largely • Involve a consortium of consulting service determine the appropriate project content providers, as no single consulting service 20 and time frame. provider is likely to be able to meet all the requirements for capacity building.

• Provide for contracting-out of research Box 1.16 Potential investments activities and competitive grants during project implementation. • Regional and in-country policy networks. • Partnerships among stakeholders in the private and public • Ensure that sufficient management oversight sectors, and civil society. is provided for policy-related investments • Participatory stakeholders workshop. • Collaborative research with international and local and that adequate resources are available for organizations. donor and agency coordination. • Competitive grants to conduct policy research and policy awareness. • Explore possibility of cofinancing both • Training and workshops for enhancing managerial capacity within the same time period and over time, at policy units, policy research organizations, and policy so as to improve long-term support to centers. capacity development. Source: Authors.

AGRICULTURE INVESTMENT SOURCEBOOK SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Capacity.org. 2003. “Evaluating Capacity Devel- opment.” Capacity.org newsletter, no. 17 (April). http://www.capacitry.org.

ECDPM. 1998. Approaches and Methods for National Capacity Building: Report of a Workshop. Maastricht: European Center for Development Policy Management.*

IFPRI. 2000. “Best Practices: Strengthening Policy Research Capacity around the World.” IFPRI, Washington, D.C.*

Rice, E. 1999. “Capacity Building in the Agricul- tural Sector in Africa.” Operations Evalua- tion Department Report Precis 180. World Bank, Washington, D.C.*

World Bank. 2001. “Public Expenditure Man- agement and Accountability: Evolution and Current Status of World Bank Work.” World Bank, Washington, D.C.

REFERENCES CITED Babu, S. 2000. “Impact of IFPRI’s Policy Re- search on Resource Allocation and Food 21 Security in Bangladesh.” Impact Assessment Discussion Paper 13. International Food Policy Research Institute, Washington, D.C.

This note was prepared by Francesco Goletti (ACI) with inputs from Derek Byerlee and Gary Alex.

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY AGRICULTURAL INVESTMENT NOTE and can have major negative implications for producers, consumers, and the environment, both domestically and abroad. Agricultural support REFORM OF AGRICULTURE policies, especially in Organization for Economic SUBSIDY AND PROTECTION Cooperation and Development (OECD) countries, POLICY lower the world price of many commodities and increase world price variability, both of which are Past programs for providing support to farmers damaging to developing countries. Counter-cyclical (for example, input subsidies, guaranteed prices, policies in rich countries tend to increase resource border protection) have been market distorting transfers to farmers when world commodity prices and highly inefficient. Such policies are typically decline, leaving producers in developing countries costly to consumers, detrimental to the environ- to bear the brunt of fluctuations. ment, and regressive in terms of domestic income distribution. Impacts on world markets Protection for agricultural producers has re- have significant consequences for developing mained very high, especially in the large OECD countries where agriculture is of major economic economies (see box 1.17). This support has importance. Key elements for policy reform in closed markets that would otherwise have been this area include: reducing input subsidies, available to developing country producers, and decoupling support from production, converting led to surpluses that have been exported existing tariffs to ad valorem forms, reducing the (sometimes using export subsidies) onto world overall level of support/protection, and restruc- markets, depressing world prices. Average turing of the classification and commitment levels of border protection (tariffs and nontariff system governed by the WTO. barriers) are also high in developing countries, where governments have intervened heavily in Support to agricultural producers can be provided commodity and input markets, through through (1) border measures such as import tariffs parastatals and marketing boards, and with and restrictions that raise domestic prices (thus price supports and input subsidies. financed by consumers), (2) export subsidies (generally taxpayer funded), and (3) subsidies to farmers (on both agricultural inputs and output) BENEFITS that are also financed by taxpayers. While these The benefits to a country from reform of its 22 policies are generally intended to support eco- support policy (irrespective of reform in other nomic development objectives, the impacts of countries) are substantial and include: a freeing support policies extend across international borders of public resources for other uses; greater overall economic efficiency; and the transition to more dynamic and innovative farming systems Box 1.17 OECD Producer Support that can adapt more easily to changing market Average producer support equivalents over 2000-02 equated signals. Further, reform at the global level will to US$47 billion (United States), US$92 billion (European result in even greater benefits—the estimated Union), and US$48 billion (Japan) (total support being consider- annual gain to developing countries from ably higher). These producer supports also vary greatly among liberalization of agriculture and food by high- commodities: rice 81 percent, sugar 45 percent, wheat 36 income countries is more than US$30 billion and percent, beef and veal 36 percent, and poultry 16 percent. On an estimated US$114 billion from developing average, prices received by OECD farmers were 31 percent countries’ own liberalization of agriculture and above world prices and almost one-third of total farm receipts originated from government programs. Of this support, 69 food trade policy (World Bank 2002). percent is administered via price support and output payments; the most distorting mechanisms. However, there may be losers in the overall reform process and the effects will differ across Source: OECD 2002. countries. Countries that are net importers of

AGRICULTURE INVESTMENT SOURCEBOOK agricultural products—and consumers in all efficient private sector supply of inputs at countries that do not liberalize—will lose as prices that enable producers to compete in prices rise. These losses will be tempered to global markets. Sound economic analysis must the extent that agricultural production and underlie decisions to continue any input exports of some products expand, and price support policy. volatility declines. Also, some producers will face increased production costs as input subsi- POLITICAL NATURE OF SUPPORT AND BURDEN ON TAXPAY- dies are removed. However, overall, unilateral ERS. Agricultural support poses huge out-of- liberalization will usually result in significant pocket costs to taxpayers and consumers. net benefits to the country, with important During 2000-02, the average annual total sup- poverty reduction potential, despite some port to agriculture in OECD countries reached groups being made worse off in the short run. US$315 billion. Of that, the EU provided US$113 billion, the United States US$95 billion, and Japan US$65 billion. In India, input subsi- KEY POLICY AND IMPLEMENTATION ISSUES dies alone averaged about 9 percent of agricul- TAX ON DEVELOPMENT. The collective impact of ture GDP during the 1990s (Gulati and policies of those countries providing large Narayanan 2003). Although fiscal transfers are support to domestic producers, has significant lower in developing countries (due in part to an impacts for those countries that do not provide inability of the public sector to finance these), comparable support (whether by choice or protection levels in the form of trade barriers otherwise). Industrial country agricultural (which require less financing) are common. protection blocks growers in developing Such trade barriers often place a major burden countries from diversifying out of traditional on poor consumers, especially where such crops as a way of increasing value and reduc- protection is directed at traditional food crops. ing vulnerability to price fluctuations. The Although it is often evident that resources used escalating tariff structure in industrial coun- for support and protection would be better tries—with higher tariffs for processed than for allocated elsewhere, there is strong political primary goods—magnifies the protection of pressure to maintain support to primary produc- domestic processing industries above the ers. This is in part because the (greater) benefits nominal tariff rate. In the European Union (EU) of liberalization are more diffuse than the and Japan, fully processed manufactured food concentrated benefits of protection, so the products face tariffs twice as large as products incentives for the beneficiaries to lobby for 23 in the first stage of processing. These policies liberalization are correspondingly less. amount to a tax on development. LOW TRANSFER EFFICIENCY. In terms of income INPUT SUBSIDIES. Governments frequently provide transfer efficiency (the percentage of consumer support to farmers through subsidized inputs— and taxpayer transfers that farmers actually water, power, credit, fertilizer, seed, and chemi- receive), no support policy linked to agricul- cals—that distort production incentives and tural activity is efficient. On average, only 25 impose net costs to taxpayers and consumers. percent of producer support actually finds its WTO rules allow the continuation of some way into the producer’s pocket. Only 25 per- production subsidies that are non or “mini- cent of production subsidies and 20 percent of mally” trade distorting, such as for general input subsidies benefit farmers (OECD 2002). government services (research, disease control, infrastructure), structural adjustment assistance, INEQUITABLE DISTRIBUTION OF BENEFITS. Large farmers and regional assistance programs. In general, and landowners get a much larger proportion domestic support should be redirected to the of benefits than small-scale farmers. In Europe areas where greater public good elements lie— the largest 4 percent of farmers receive 21 infrastructure and institutions that enable percent of support and have per-capita in-

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY comes that are more than double the average LESSONS LEARNED EU wage (Podbury 2000). In the US, the RESPONDING TO PROTECTIONISM IN THE NORTH. The largest 5 percent receive over 20 percent of continued high subsidies to farmers in many government payments. Similar trends exist in industrial countries makes agricultural trade developing countries. This is largely because reform in developing countries much more when support is given through either an difficult, as reducing their import barriers ap- artificially high price (for example, from pears to be “unilateral disarmament.” The ques- import restrictions, export subsidies, or direct tion of whether this kind of reaction is good payments per ton of production) or through development policy is a complex issue. Contin- input subsidies, the biggest beneficiaries are ued protectionism in a developing country the biggest producers, who are also the represents a tax on their consumers, and in the biggest users of inputs. case of many food products, this falls disproportionately on the poor. However, if it is likely that ADVERSE ENVIRONMENTAL IMPACTS. Agricultural industrial country subsidies on a product will be subsidies and protection can lead to excessive reduced or eliminated in the near term, with a use of chemicals and fertilizers that can harm consequent rise in its world price, temporary the environment. The high price paid to rice protection for domestic producers may be farmers in Japan, for example, encouraged justified. Given the slowness in global trade overuse of insecticides to protect crops. In negotiations, in most cases it is economically 1993, although Japan produced only 3 percent prudent for countries to adopt policies (and of the world’s rice, their share of global expen- producers to allocate resources) that accept diture on rice insecticides was 34 percent. prevailing international prices, distorted though Reducing distortions forces farmers to base they may be. It must be recognized, however, input and output decisions on real economic that this may be politically difficult and require costs, thus promoting sound farming practices considerable policy dialogue among a range of and sustainable natural resource management. stakeholders. In any case, policies of the industrial countries cannot be used to rationalize INTERNATIONAL AGREEMENTS. New multilateral trade developing country tariffs higher than the per- negotiations were launched at the Fourth WTO centage by which these policies depress world Ministerial Conference held in Doha in 2002, prices, which (about 5 – 20 percent for most with the objective of significantly reducing all products). Decoupled income support programs 24 types of barriers to agricultural trade including: (payments that are not linked to product prices, barriers to market access, export subsidies, and input use, or outputs) can be important for trade-distorting domestic support. Developing making the process of tariff reduction more country policy reforms will take place within palatable for producers. this context, but will continue to be influenced by unilateral political realities (see box 1.18). BRING AGRICULTURAL PRODUCTS INTO THE GENERAL FRAMEWORK OF AD VALOREM TARIFFS. Reducing tariff Domestic agricultural support is classified in peaks on products important to developing the WTO Uruguay Round Agreement on countries is critical. Although developed coun- Agriculture (URAA) using a system of “boxes” tries boast average ad valorem tariffs of less that rank programs according to their effect on than 5 percent on manufactured goods, they trade (see box 1.19). Policies deemed as trade still have very high tariffs on many agriculture distorting are put in the “amber box” which products. Specific tariffs—a tax expressed per consists of direct subsidies and price support unit of quantity—are nontransparent, because reflected in the gap between a fixed world their impact on relative prices changes fre- reference price and domestic support prices. quently and unpredictably, as world prices For industrial (developing) countries, amber change. They also tax lower-value products box support was subject to a 20 (13) percent relatively more, thereby creating a systematic reduction by 2000 (2004). bias against developing country products.

AGRICULTURE INVESTMENT SOURCEBOOK Tariff quotas (application of one level of tariff Box 1.18 What happened at Cancun? to imports within a certain quota, and a higher level of tariff to imports over that volume) The Cancun World Trade Organization (WTO) Ministerial result in a system whereby imports within the Meeting in September 2003 was originally planned to be a mid- quota are very profitable, generating a wasteful term review of progress in the Doha Round negotiations. use of resources geared toward obtaining Instead, because so little progress had been made in key areas, import quotas. Both specific tariffs and tariff it became an attempt to break the impasse. Ultimately, it failed quotas should be converted into ad valorem to do so. The proximate cause of the failure was disagreement tariffs—that is, tariffs calculated on some over whether to include in the Doha agenda the “Singapore Issues” of investment, competition policy, transparency in percentage of the border prices. Tariff escala- government procurement, and trade facilitation. But there is a tion also needs to be significantly reduced or widespread feeling that a compromise could have been eliminated by bringing down higher tariffs on reached in this area had not the atmosphere been poisoned by processed products (Hewitt 2003). the stalemate in agriculture. The EU and US made a joint offer, but developing countries considered it too little, too late, and UNDERTAKE STRONG COMMITMENTS TO REDUCE TRADE- with too many loopholes that would allow the rich countries to avoid serious reform. For their part, the developing countries DISTORTING DOMESTIC SUPPORT. Effective reform of were not very forthcoming; they made many demands, but few support policies across industrial and developing offers. What is now needed to put the negotiations back on countries will require changes to current meth- track is a grand bargain in which both developed and develop- ods of measurement and classification of sup- ing countries play their part. port as well as strong commitments to reductions, and would be aided by changes to current Source: Authors. methods of measurement and classification of support. Many stakeholders (including donors, governments, and the private sector including trade associations and producer groups) have a role in the policy analysis, advocacy, and negotiations processes related to this. Key investment Box 1.19 Domestic support in agriculture: the World Trade areas for the public sector are outlined in box Organization’s colored boxes 1.20. Potential changes that developing coun- AMBER BOX—includes all domestic support measures consid- tries, supported by donors, might advocate ered to distort production and trade, except those in the blue relate to both industrial countries and the and green boxes. These include measures to support prices, or developing countries themselves and include: subsidies directly related to production. Members are required 25 to reduce that support unless current levels are already low (5 • Commitment to reduce support on a policy percent of agricultural production for industrial countries, 10 type and commodity sector basis, rather percent for developing countries).

than based on a single aggregate measure- BLUE BOX—is the Amber Box with conditions that reduce ment of support. distortion. Any support that would normally be in the Amber Box is placed in the Blue Box if the support also requires • Further reduction of amber box subsidies (for farmers to limit production. At present there are no limits on example. to a maximum of 5 percent of the spending on Blue Box subsidies.

value of production at world prices), with a GREEN BOX—are subsidies that do not distort trade or at most commitment to extend that ceiling to each cause minimal distortion, such as research and extension individual commodity sector in the future. services. These are government funded and do not involve price support, but include direct income support for farmers, • Tighter criteria for policies included in the which is “decoupled” from current production levels or prices. green box, with a cap on these at 5 percent They also include environmental protection and regional development programs. There are no limits on Green Box of the total value of agricultural production, subsidies. as measured at world prices, or current levels of expenditures on the measures included in Source: WTO. the redefined green box, whichever is lower.

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY Box 1.20 Potential investments Hewitt, A. 2003. “The Reform of Agricultural Policies in OECD Countries: A Developing • Analytical studies to identify the instances where subsi- Country Perspective.” World Bank, Wash- dized inputs or price support might be appropriate. ington, D.C. Processed. • Support for the transition away from protection to market-led production systems. OECD 2002. “Agricultural Policies in OECD • Training for policy makers and representatives in interna- Countries: Monitoring and Evaluation 2002.” tional trade regimes and negotiations. OECD, Paris. Source: Authors. Podbury, T. 2000. “US and EU Agricultural SELECTED READINGS Support: Who Does it Benefit?” ABARE Asterisk (*) at the end of a reference indicates Current Issues. (October): 1-5. that it is available on the Web. See Appendix 1 for a full list of Websites. World Bank. 2002. Global Economic Prospects and the Developing Countries 2002. Wash- Barry, P. J. 1999. “Risk Management and Safety ington D.C.: World Bank. Nets for Farmers.” Choices 14 (3): 1. WTO. Domestic Support in Agriculture: The Ingco, M., and D. Nash, eds. In Press. Agricul- Boxes. http://www.wto.org/english/ ture and the WTO: Creating a Trading tratop_e/agric_e/agboxes_e.htm. System for Development. Conference Edi- tion. Washington, D.C.: World Bank. This note was prepared by Sam Kane and John Nash with inputs from Derek Byerlee and Gary Alex. World Bank. 2003. “Agricultural Policies and Trade.” In Global Economic Prospects: Realiz- ing the Development Promise of the Doha Agenda. Washington, D.C.: World Bank.*

World Bank. 2003. Market Access: Agricultural Policy Reform and Developing Countries. Trade Note 6. International Trade Depart- 26 ment. World Bank. Available at www.worldbank.org/trade.

World Bank. 2003. “Export Subsidies: Agricul- tural Policy Reform and Developing Coun- tries”. World Bank. Available at www.worldbank.org/trade.

World Bank. 2003. “Domestic Support for Agriculture: Agricultural Policy Reform and Developing Countries” World Bank. Avail- able at www.worldbank.org/trade.

REFERENCES CITED Gulati, A., and S. Narayanan. 2003. The Subsidy Syndrome in Indian Agriculture. New Delhi: Oxford University Press.

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE by focused transitional policies and appropriate investments for adjustment. Deregulation in isolation of complementary policy and invest- FACILITATING EFFICIENT ment initiatives may leave gaps that the private ADJUSTMENT TO LIBERALIZED sector is unwilling to fill, and may further TRADE marginalize the poor from participation in markets. These challenges provide a rationale Trade liberalization has potential to yield for public-sector intervention to assist with the considerable benefits to the poor in developing transition and adjustment process. The means countries, but often requires adjustments that by which this adjustment can be facilitated are are difficult or painful to execute effectively. many and include transitional income support Making the transition away from inefficient payments, formal market-based mechanisms to protected domestic industries to commercially manage risks, and general industry assistance oriented production based on global market for adjusting from one production system to forces presents several challenges, both eco- another. Many of these issues are addressed nomic and political. These include improving elsewhere in this Sourcebook, and this note competitiveness by overcoming existing policy will focus on those that are more directly biases within agriculture, participating effec- related to trade policy. tively in global negotiations, managing acute price volatility, providing safety nets for the poor that are adversely affected by liberaliza- BENEFITS tion, improving the investment climate to assist Outward-oriented countries tend to consistently emerging profitable industries, and retraining of grow faster than ones that are inward-looking. the workforce. The increase in aggregate welfare of developing countries from global agricultural trade Rapid growth of the world economy has been reform could be some US$142 billion annually. driven in part by the even faster rise in interna- Most of these gains would come from trade tional trade resulting both from technological policy reforms within developing countries developments and concerted efforts toward themselves (about US$114 billion). Developing trade liberalization. Trade liberalization is the countries stand to gain significantly because reduction of trade barriers to allow price their exports face higher barriers, and the signals in world markets to guide the allocation agricultural sector is relatively large. 27 of resources. It involves the deregulation of both domestic and international market envi- Poor consumers stand to benefit the most ronments such that price signals are based through increased availability and variety of primarily on economic forces (demand and food at lower prices. And since poor consum- supply) that foster the development of com- ers spend more of their limited incomes on petitive markets. As a result of trade liberaliza- food, they benefit disproportionately, making tion, the relative price structures for both food market liberalization a very pro-poor agricultural inputs and outputs can change policy. Producers benefit from the emergence substantially, and this, coupled with the decline of profitable new production opportunities that in prices for traditional commodities, can have arise when inappropriate subsidies and barriers major implications for producers. to trade are reduced. Farm incomes can increase both from higher prices of traditional While trade liberalization can potentially help products, and from diversification to new the poorest move from extreme poverty, products that become profitable. Further, input liberalization alone will not necessarily contrib- costs can fall and access to new technologies ute to growth or poverty reduction and may in can be improved when input markets are fact make the poor worse off if not supported liberalized. Some producers whose govern-

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY ments heavily subsidize inputs may lose (via sense that they are highly regulated, and eco- increased production costs), at least in the short nomic signals are distorted by direct and indirect run, but stand to benefit in the long run pro- public sector interventions. vided they have an underlying competitive advantage in some products. Exit strategies or TRANSITIONAL ISSUES. The resistance to policy permanent transfers may be necessary for those changes presented by adversely affected groups that do not. in part reflects barriers to their exit from inefficient production systems, as well as barriers to their participation in new opportunities as they POLICY AND IMPLEMENTATION ISSUES emerge. Imperfectly functioning capital and CHANGING ARCHITECTURE OF WORLD TRADE. While labor markets, inadequate public services, poor trade barriers in industrial countries are infrastructure, and research and extension generally low, the remaining barriers are systems that are biased toward traditional concentrated on agricultural products and (protected) production systems, all limit the labor-intensive manufactures in which devel- ability to transform farming systems and im- oping countries have a comparative advan- prove resource liquidity including labor mobil- tage. As agriculture has a larger tradable ity. Poorer farmers may be among the most component than most sectors, the trade adversely affected. Older persons, those who environment and trade policy strongly affect are less educated, and those with human capital the agriculture sector. New multilateral trade specific to farming are particularly affected. The negotiations were launched at the Fourth public sector must promote the development of WTO Ministerial Conference, held in Doha in supporting institutions and infrastructure, and 2001, with the objective of significantly of retraining programs for adjustment. reducing all types of barriers to agricultural trade, including trade-distorting domestic INCREASED PRICE VARIABILITY. Variable levies and support. For developing countries, the capac- quotas, as means of stabilizing the domestic ity to effectively participate in these negotia- price of tradable food commodities shifted tions must be increased so that they are fairly domestic instability of prices to world markets. represented, and their interests and concerns The URAA completed in 1994 had some effect relating to agricultural trade can be presented in reducing the trade-distorting effects of such in global efforts to achieve meaningful policies, and the Doha Round is expected to 28 progress in global trade policy reform. result in much more significant reforms. At the national level, there has been increased trans- POLICY BIASES AGAINST AGRICULTURE. Despite protecting mission of global price movements to domestic domestic producers, developing countries have in producers and consumers, which is further the past typically taxed their agricultural sectors, to complicated by other factors such as exchange some extent directly (for example, by taxes on rate fluctuations, climatic factors and poor exports or controlled food prices), but even more infrastructure. A challenge is to develop effec- so, indirectly, through trade barriers and macro- tive ways for farmers to manage price risks economic policies that overvalued the exchange while at the same time avoiding distorting price rate, and turned the internal terms of trade against signals and production incentives. agriculture. Commodity and input markets have been characterized by heavy government inter- CHANGING PRICE STRUCTURES. The biggest farm level ventions through centralized input procurement implication of trade liberalization and the measures (government parastatals and marketing movement toward competitive markets is boards), input subsidies, quotas, taxes on exports typically the adjustments of relative prices of agricultural commodities, and various regula- (both for agricultural inputs and outputs) that tory rules. These biases all reflect market and result from the removal of commodity-specific trade regimes that are far from “liberal” in the support or protection, either at home or

AGRICULTURE INVESTMENT SOURCEBOOK abroad. Existing production systems that have are most likely to be adversely affected through provided often-stable livelihoods for genera- the transition phase. tions can suddenly become unprofitable, but new opportunities open up to producers for PRICE BANDS. Price bands and price floors are redeploying resources used in the now ineffi- tools that have been used to manage price risks cient industries. The key issue for policymakers resulting from moves toward trade liberaliza- is to recognize where and when adjustment is tion. Price floor schemes aim for the elimina- essential, and to provide an environment in tion of the worst-case scenarios associated with which the exit of inefficient farmers and entry several concurrent years of especially low to new market opportunities is enabled. world prices. For specific “sensitive” commodities, a minimum world price or threshold level might be defined, below which a government LESSONS LEARNED would commit itself to intervention in order to There are several means of addressing issues maintain the domestic price received by pro- associated with trade liberalization and with ducers. The threshold price should be based on assisting the transition, such that potential the minimum-average cost of the least-cost benefits for the poor are fully exploited. Infor- international exporter. This leaves unhindered mal measures such as growing a variety of crops the development of market-based price risk management activities that programs of “price with different market and climatic risks can stabilization” have impeded. Similarly, many assist the transition to a commercially oriented countries are interested in price ceilings to agricultural sector. Contract farming and off-farm protect poor consumers from temporary sharp employment are also important. Some of the jumps in prices of food staples. These schemes more formal measures include: direct income should be approached with care, as although support, agricultural insurance, and market- they are based on solid theoretical underpin- based price risk management. These are nings, experience to date has been mixed. touched on here and discussed in greater detail in other chapters of this Sourcebook. WTO SAFEGUARDS. When there is either an abrupt and large inflow of imports, or a sudden INCOME SUPPORT AND SAFETY NETS. By decoupling decline in import prices that threaten a support from prices, direct income support country’s import-competing sector, WTO programs can provide for transition from price- safeguards can be applied as a means of distorting subsidies to an efficient and liberal- assisting producers in the adjustment process. 29 ized sector. Payments should be fixed and These measures (see box 1.21) permit the guaranteed (usually per hectare up to a maxi- temporary suspension of WTO obligations. mum), and not influenced by ex-post realiza- tions of market conditions. Features that will COMPLEMENTARY PUBLIC INVESTMENT TO FACILITATE increase the effectiveness of a decoupling TRANSITION TO EFFICIENT SYSTEMS. To encourage scheme include: make the payment program the necessary overall reallocation of re- transitory and for adjustment purposes only; sources that is required to ensure sustainable impose no requirements on input use or on growth from trade and market liberalization, outputs; implement credible and time-consis- establishment of a supportive investment tent policies with no changes in the eligibility environment is critical, as is the means to or payment rules; discontinue all other pro- empower the poor to participate in it. Trade grams linked to price support; and bind pay- reform must often be combined with public ments and time frame into WTO to prevent expenditure reform that encourages produc- reversal or agreements. Public works programs, tivity growth, competitiveness, reduced incentive systems for exit, government distribu- transaction costs, and market development. tion of resources in-kind, cash payments, and Key issues largely relate to overcoming social funds can all be used to help those who supply side constraints and include:

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY Box 1.21 WTO safeguard measures for countries adjusting to • Development of physical infrastructure and liberalization industries essential to trade and the transition to alternative production systems, such • Anti-dumping measures (based on injury to a domestic as transport, communications, financial industry) to counteract the effects of firms using price sector, and business services, particularly discrimination to lower export prices below home through introduction of regulatory policies market prices. that, where feasible, harness competition. • Countervailing duties also based on injury to a domestic Efficient and integrated input and output industry, but apply to the subsidization of the exporting markets will only evolve if ineffective country’s government. • Emergency temporary safeguards that are immediately parastatals are privatized or abolished. As applicable without formalities in the event of imports for institutions, supporting industries and threatening serious injury to domestic industries. infrastructure may require various forms of • Other measures include those related to balance of public-private cooperation. payments, “general waivers,” and modifications of schedules. Source: Foster and Valdés, in press. • Retraining labor so that displaced workers can develop new skills to productively fill emerging employment opportunities. • Building analytical capacity (in terms of Research and extension systems often need understanding policy reform options and reform to become more market-driven in impacts with respect to substitution effects, order to provide farmers with technologies supply response, exchange rate effects) for relevant to the new production opportuni- agricultural policy development, including ties. Elimination of testing requirements for the removal of the policy biases (that is, by imported and domestically produced inputs reducing explicit and implicit taxes on (seeds, fertilizers, and pesticides) not agriculture and reform of public sector related to environmental or sanitary or marketing arrangements), and developing phytosanitary threats will also ensure that macroeconomic policy that complements farmers can readily access a wider range of trade policy (for example, maintenance of a world-class technologies. stable real exchange rate at a realistic level—avoiding overvaluation). RECOMMENDATIONS FOR PRACTITIONERS 30 • Upgrading public sector institutions related Investments associated with facilitating to markets and trade—including customs, adjustment to trade liberalization (see box quality, grades and labeling standards, 1.22) should: certification agencies, financial supervision agencies, contract enforcement regulations, • Ensure that the interests of the agricultural and property rights laws. sector and consumers as a whole are represented in trade policy negotiations at • Development of private sector institutions global and regional levels. critical for markets—namely risk management systems (agricultural insurance, • Generally, accept the world price structure methods for price risk management), as a long-term characteristic of the environ- agencies for product certification, trade ment, and ensure that resource allocation associations and other frameworks for decisions are based on this, regardless of private sector organization and group whether the prices are depressed by the action, rural finance systems (including policies of other countries. inventory credit), and mechanisms for supply chain coordination (for example, • Provide support programs as temporary contracting and vertical integration). transitional tools. Industry-specific support

AGRICULTURE INVESTMENT SOURCEBOOK should only be used where comparative Box 1.22 Potential investments advantage exists, and reductions in global barriers are highly likely in the near future. • Capacity building and advocacy to promote a fair liberalization process in international trade negotiations. • Consider using decoupled income payments • Assistance for governments to develop income support as a safety net (for example, support pay- and safety net programs that help groups made worse off ments based on land area rather than pro- by liberalization. duction level) to cushion farmer incomes • Technical assistance in the development of risk manage- from precipitous price declines when other ment mechanisms that protect viable industries from short-term acutely low prices. forms of support are phased out. Ensure that • Investments to develop retraining programs and reform income payments are transitional and do not research and extension systems. become entitlements. • Technical assistance and capacity building to improve the investment climate, key administrative services, and critical • Promote the development of supporting infrastructural needs. industries, institutions, and infrastructure. • Technical assistance to help small-scale farmers in developing countries use market-based risk management instruments. • Develop training programs to enable poor Source: Authors. farmers and agricultural workers to rede- ploy their skills to new industries. Training Trade Policy Reform: Lessons and Implica- should endow workers with skills that are tions. Washington DC.: World Bank.* flexible and so can be adapted to various industries over time. World Bank. 2002. Global Economic Prospects and the Developing Countries 2002. Wash- ington D.C.: World Bank.* SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 REFERENCES CITED for a full list of Websites. Foster and A. Valdés. In Press. “Managing Potential Adverse Inpacts of Agriccultural Baffes, J., and J. Meerman. 1998. “From Prices Trade Liberalization.” In M. Ingco and D. to Income: Agricultural Subsidization Nash, eds., Agriculture and the WTO: without Protection?” The World Bank Creating a Trading System for Development. 31 Research Observer 13 (2): 191-211.* Conference Edition. Washington, D.C.: World Bank. Dollar, D., and K. Aart. 2001. “Trade, Growth, and Poverty.” Policy Research Working This Note was prepared by Sam Kane and John Nash with Paper 2615. World Bank, Washington D.C.* inputs from Derek Byerlee.

Ingco, M., and D. Nash, eds. In Press. Agricul- ture and the WTO: Creating a Trading System for Development. Conference Edi- tion. Washington, D.C.: World Bank.

Sadoulet, E., de Janvry, A., and B. Davis. 2001. “Cash Transfer Programs with Income Multi- pliers: PROCAMPO in Mexico.” FCND Discussion Paper 99. IFPRI, Washington, D.C.

Valdés, A. 1998. “Trade Policy Reform and Agriculture.” In J. Nash and W. Takacs, eds.,

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY AGRICULTURE INVESTMENT NOTE After focusing on major infrastructure investments in the 1960s and 1970s, attention turned to the “software” side of development ADJUSTMENT LENDING FOR and the provision of services and the policy AGRICULTURE POLICY environment for development. Policies that REFORM distorted private sector investment and activity, especially with regard to the marketing of Adjustment lending for agriculture (lending to products and inputs, were an obvious con- support policy and institutional change for straint to growth during the 1980s. Strategies sustained economic growth) expanded greatly evolved for dealing with these distortions in the late 1980s and 1990s, but included through loans conditional on market-liberaliz- relatively little focus on poverty in project ing policy changes. These loans, variously design and analysis. Some programs have called “structural adjustment loans” (SALs) and tended to overrely on conditionalities and “sectoral adjustment loans” (SECALs), were tranching. Challenges for future investment in devised largely to encourage the government agricultural adjustment programs include im- to retreat from private sector activities and to proving analytical capacity, building govern- facilitate a more open economy. Agricultural ment ownership and support, improving the sector adjustment loans (ASALs) were de- design and application of repayment conditions, signed specifically for the agriculture sector. ensuring that the poor benefit, and improving collaboration with other donors. Within the World Bank, new operational policy guidelines LENDING FOR AGRICULTURAL SECTOR are expected to improve adjustment lending (or ADJUSTMENT “development policy lending”) and eliminate Adjustment loans aim to support policy and some of the past restrictions on these programs. institutional changes needed to create an environment conducive to sustained and equitable growth. Adjustment operations generally aim to: promote competitive market structures (legal Box 1.23 Poverty and social impact analysis and regulatory reform); correct distortions in incentive regimes (taxation and trade reform); Poverty and social impact analysis (PSIA) involves the analysis of establish appropriate monitoring and safeguards 32 the distributional impact of policy reforms on the well-being of (financial sector reform); create an environment different stakeholder groups, with a particular focus on the conducive to private investment (judicial reform, poor and vulnerable. Important elements that PSIA needs to adoption of a modern investment code); encour- address include: age private sector activity (privatization and • Identification of the reforms likely to have the most public-private partnerships); promote good significant impact governance (civil service reform); and mitigate • Identifying stakeholders that influence the adoption and short-term adverse effects of adjustment policies implementation of the policy and which are being (establishment of social protection funds) influenced. (Jayarajah and Branson 1995). Eligibility for an • Understanding transmission channels by which stakehold- adjustment loan requires agreement on policy ers be affected. and institutional reform actions and satisfactory • Assessing institutions. • Gathering data and information. macroeconomic management. Funds are dis- • Analyzing impacts bursed in one or more stages (tranches) into a • Contemplating enhancement and compensation measures special deposit account, with tranches released • Assessing risks when the borrower complies with stipulated • Monitoring and evaluating impacts conditions such as the passage of reform legisla- • Fostering policy debate and feeding back into policy tion, the achievement of certain performance choice. benchmarks, or other evidence of progress Source: Arulpragasam et al. 2003. toward a satisfactory policy framework.

AGRICULTURE INVESTMENT SOURCEBOOK Adjustment operations accounted for 17 per- implementation of ASALs and assists borrowers cent of total Bank lending in the 1980s, and in identifying problems in time for mid-course increased to 29 percent of total lending during corrections (though this cannot compensate for the 1990s. This is partly attributable to in- poor design or lack of commitment). Failure to creased lending in the post-Soviet bloc coun- monitor social impacts of adjustment lending in tries, where the need to reduce the role of the sufficient detail has been a deficiency of earlier state in the economy was great. Agricultural operations. In some cases, when supervision adjustment lending has varied widely, ranging ends with release of the final tranche, policy from 5 percent of total agriculture lending in reversals undermine reforms. Even after the 1998 to 48 percent in 2002. final tranche release, progress should continue to be closely monitored, particularly with regard to impacts on the poorer and more BENEFITS vulnerable groups. Successful adjustment lending can lead to a more stable macroeconomic environment, a OVER-RELIANCE ON CONDITIONS AND TRANCHING. As it more transparent incentive system, improved is rarely possible to implement the full array of efficiency of resource allocation, and strength- needed policy changes and institution-building ened institutions and capacity for policy analy- activities at the outset of a reform program, sis, all contributing to accelerated economic conditionalities are typically a necessary part of growth. There can be a positive effect on adjustment lending. For instance, actions poverty through the increased income and relating to upgrading institutions, trade liberal- employment opportunities resulting from ization, and deregulation of licensing systems adjustment, although in the short term there and financial markets, can take several years, may be adverse effects on poverty reduction. so drastic reform may not be possible over Since a sound policy environment is essential relatively short periods. Past adjustment lending to sustainable growth, adjustment lending can however, has tended to over-rely on conditions be an important development tool to facilitate and tranching. An even distribution of the policy and institutional reform and implementa- priority conditionalities, and making the first tion. However, if not well designed and imple- tranche release conditional on the more impor- mented, policy-based lending can be highly tant reform actions can help reduce delays of ineffective. important reform activities. Conditionalities should be realistic, both economically and 33 politically, and seen to be so by both the POLICY AND IMPLEMENTATION ISSUES lender and the government (Jayarajah and EFFECTS ON THE POOR AND MONITORING. With adjust- Branson 1995). Future programs should include ment lending, conditionality can lead to major fewer conditionalities representing well-focused changes in agriculture that have large conse- and monitorable policy actions and clear quences for various stakeholder groups. The expectations for the borrower.6 lag-time between adjustment and economic growth is substantial, and the poor can be CONTENT AND COVERAGE. The overall conclusion of adversely affected through this transition phase. a recent study is that the analytical underpin- Poverty and social impact analysis (PSIA) is nings and relevance of the components of critical for ensuring that the design of reforms ASALs have been appropriate on most issues pays particular attention to impacts among (Feder and Anderson 2003). Typically, thematic different social groups and on the long-term coverage of agricultural adjustment operations effect on poverty (see box 1.23). Also, supervi- includes domestic market reforms and sion and monitoring is critical for effective privatization, external trade reform, land reform

6. See the IAP, “Bulgaria: Adjustment Lending in a Transitional Economy”

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY Box 1.24 Generating ownership carry certain measures through a noncoopera- tive parliamentary system or a noncohesive A 1995 World Bank study found that the most important governmental apparatus. Sufficient scrutiny and factors generating program ownership were (1) political realism to identify potential political risks and stability; (2) support of (or lack of opposition from) various government weaknesses is an important part of constituencies; and (3) preconceived official attitudes toward agricultural adjustment operations. Donors can reform. Conversely: (1) a specific regime type did not intrinsi- support the process by (1) strengthening the cally exhibit a greater degree of political will; (2) the intensity of external and exogenous shocks neither facilitated nor posed institutions involved; (2) assessing the capacity obstacles to achieving a consensus toward reform; (3) the initial of the borrower and tailoring conditionality conditions in the economy had little relevance in either accordingly; and (3) providing an appropriate encouraging or impeding ownership; and (4) the frequency and mix and sequence of program and project amount of government-Bank interaction was neither a neces- support to maintain critical expenditures and sary nor a sufficient guarantee for program ownership in the promote investments for longer-term growth. face of binding constraints.

Source: Jayarajah and Branson 1995. SUCCESS FACTORS. Success of adjustment initiatives is likely to be greater where infrastructure is well developed, educational levels are high, institu- to allow private ownership/user rights, removal tions in the public and private sectors are mature, of input subsidies and other price distortions, trade regimes are less highly distorted, and there and rural finance reforms. Domestic market is an ability to withstand or cope with exogenous reforms and privatization are still the core of shocks (such as droughts). Governments imple- adjustment operations, reflecting the fact that menting policy reforms need to be insulated from recent ASALs have been funded in regions still adverse impacts on income and savings to dominated by state-controlled domestic markets protect the reform process and maintain credibil- where most marketing and processing (and in ity. This may require governments to provide Eastern Europe and Central Asia, agricultural transitional support to ensure both the success of production) was handled by parastatals or the reforms and to minimize the effects of the state-supported entities. Most ASALs address reform on the most vulnerable groups. Successful domestic market and external trade reform adjustment often results in agricultural production components as well. moving from low to higher value-added activities. This requires policies conducive to resource 34 IMPLEMENTATION PROBLEMS. Implementation has a mobilization, development of infrastructure, trade mixed record, particularly regarding the re- and risk management, and technology transfer. moval of state control over the domestic Many countries that have failed to relax entry and economy and the privatization of large exit barriers for investment, and to sufficiently parastatals, where vested interests (and their open their economies to private investment, both political patrons in and around government) domestic and foreign. had much at stake. In some cases, subsidies have been removed, then reintroduced in different, less direct, forms. Even officially LESSONS LEARNED privatized parastatals are on some occasions ANALYTICAL FOUNDATIONS. Sound design of adjust- still not fully delinked from government control ment lending agricultural programs begins with and budget support (and consequently, not operationally oriented analytical work carried likely to operate as efficiently as expected). out well before program initiation. Ongoing policy dialogue on major macroeconomic and The relatively weak actual performance of sectoral issues is an important element in the governments in implementing ASALs reflects an design process to build consensus for reform overly optimistic assessment of political com- both within the government and among varied mitment, and/or of government capacity, to stakeholder groups. It is important to have

AGRICULTURE INVESTMENT SOURCEBOOK adequate knowledge of the public enterprise Box 1.25 Potential investments sector before embarking on privatization or public sector reforms. Also important are fiscal • Design of adjustment program reforms and implementa- adjustment measures in agricultural spending that tion plans, including identification of unambiguous and protect agricultural growth from crisis, and realistic conditions. understanding the effects of exchange rate policy • Situation and problem analysis to identify key thematic on agricultural terms of trade. This reflects the issues to be addressed and possible reform options. importance of basing phasing and sequencing of • Building ownership and administrative capacity of the reform activities on thorough analytical work that borrower through training and education programs. • Program budget support. accounts for time lags, substitution effects, and the linkages between agricultural policy reforms Source: Authors. and reforms in other sectors. adjustment lending needs to ensure consistency ESTABLISHING OWNERSHIP. Ownership increases the between the conditionalities imposed by the success of adjustment lending (Jayarajah and Bank and those prescribed by the IMF. In Branson 1995) (see box 1.24). Despite its general, a synergy exists between Fund policies importance, borrower ownership remains on stabilization and Bank support for structural conceptually elusive and insufficiently explored change. Policy Framework Papers for low- with regard to policy and practice of adjust- income countries can foster agreement be- ment lending. It is seldom clear as to what tween the two institutions and the borrower. constitutes adequate ownership or what can be done to increase and sustain commitment to an adjustment program. For ASALs, for instance, RECOMMENDATIONS FOR PRACTITIONERS having allies outside ministries of agriculture As is the case for any lending program, adjust- and ministries of finance is helpful because of ment operations must be built on strong ana- strong intersectoral linkages. lytical foundations, giving primacy to good prior economic and sector work. Adjustment PUBLIC ENTERPRISE REFORM. In many cases, adjust- lending interventions (see box 1.25) should: ment lending for public enterprise reform must accompany le.ding for agricultural sector policy • Coordinate the design and implementation reform. Public enterprise reforms include those of adjustment loans with the International related to divestiture of public enterprises Monetary Fund and other donors, and 35 (privatization) and those aimed at enterprises ensure reforms are consistent with reforms retained in the public sector. Both require in other sectors and are supported by an constant attention to governance issues such as appropriate macroeconomic framework. corruption and transparency. Privatization requires that enterprises appear viable to • Look for highly visible borrower commit- investors with the primary consideration in ment to, and ownership of, a definite reform negotiations (that need to be transparent) being plan. Conditionalities should be kept to a the quality of the investors and their plans for minimum, be realistic, and clearly indicate the enterprise, not the prices they offer. the expectations of the borrowing country.

COOPERATION AMONG DONORS. Donor assistance is • Identify what should be analyzed at the often part of a wider international effort; and donors expense and what governments many groups typically have a significant say in themselves, with technical assistance, the policy dialogue with borrowers. Close should analyze. cooperation among donors and NGOs is necessary to avoid duplication of effort and • Progress in a logical sequence and disburse conflicting advice and objectives. World Bank funding via appropriate tranching that

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY requires that higher priority conditions be Jayarajah, C., and W. H. Branson. 1995. Struc- met first. Efforts to reduce price and other tural and Sectoral Adjustment: World Bank sector distortions should cover both outputs Experience, 1980-92. Operations Evaluation and inputs. Study. Washington D.C.: World Bank.

• Consider appropriate increases in investment This Note was prepared by Jock Anderson and Sam Kane lending to complement adjustment lending, with inputs from Gary Alex and Derek Byerlee. and in particular, to overcome infrastructural constraints faced by producers.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Arulpragasam, J., S. Beddies, S. Brown, et al. 2003. “A User’s Guide to Poverty and Social Impact Analysis.” World Bank, Washington D.C.*

Easterly, W. 2001. “The Effect of International Monetary Fund and World Bank Programs on Poverty.” Policy Research Working Paper 2517. World Bank, Washington, D.C.*

Jayarajah, C., and W. H. Branson. 1995. Struc- tural and Sectoral Adjustment: World Bank Experience, 1980-92. Operations Evaluation Study. Washington D.C.: World Bank.*

World Bank. 1994. Adjustment in Africa: 36 Reforms, Results, and the Road Ahead. New York: Oxford University Press.

World Bank. 2001. “Adjustment Lending Retro- spective: Final Report, Operations Policy and Country Services.” World Bank, Wash- ington, D.C.

REFERENCES CITED Arulpragasam, J., S. Beddies, S. Brown, et al. 2003. “A User’s Guide to Poverty and Social Impact Analysis.” World Bank, Washington D.C.

Feder, G. and Anderson, J. R. 2003. “Review of Agricultural Adjustment Lending: FY1996 – FY2002.” ARD, World Bank, Washington, D.C. Processed.

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE Gauthier, Simeon, and de Haan 1999). A similar trend has been observed in South Asia. Lack of operating funds for public sector field veteri- IMPROVING ANIMAL HEALTH nary services is partly responsible for major SERVICES THROUGH PUBLIC/ outbreaks of rinderpest in Sub-Saharan Africa PRIVATE PARTNERSHIPS and the Middle East in the 1980s and, more recently, of Rift Valley fever in East Africa and An efficient animal health service is critical to foot-and-mouth disease in Zimbabwe, livestock production. Most such services in Botswana, and South America. developing countries have historically been provided by the public sector but have been IMPROVING ANIMAL HEALTH SERVICES set back by quality problems. Over the past 20 Animal health services in developing countries years, service efficiency has declined dramati- are typically based in a public sector agency cally. A better balance between the public and where veterinarians lacking sufficient resources the private sector and between professional try to cover all aspects of animal health. To and paraprofessional veterinary staff may offer improve animal health services, reform must considerable potential to improve services. provide for more efficient distribution of Actions needed to ensure an efficient animal service delivery responsibility at two levels: health service include refocusing and strength- between public and private service providers, ening public sector activities to undertake as well as between professional veterinarians public goods, such as policy development, and paraprofessionals (lay animal health quarantine and disease surveillance, vaccina- workers). In defining this responsibility, both tion against major diseases, food safety, and public health and food safety issues need to be establishing, especially in more marginal areas, adequately considered, and lay animal health networks of community animal health workers. workers need to be directed by a responsible Private services for private good tasks, such as veterinarian (public official or mandated clinical treatments, vaccination, and animal private veterinarian). breeding, should also be promoted. PUBLIC/PRIVATE DISTRIBUTION OF SERVICE DELIVERY Poor animal health is the main reason for RESPONSIBILITY. The economic characteristics of losses in livestock production. Direct and services should help define the distribution of indirect losses of meat, milk, and work output responsibilities between the public and the 37 are estimated at about US$2 billion a year in private sector. For the public sector, service Sub-Saharan Africa alone. Better animal health delivery focuses on “public goods,” which service is the production input in highest involve market failures, externalities, or moral demand by livestock farmers and is, therefore, hazards. Government strategy should be to a key point of contact between the government strengthen the public sector to “do less but and the farmer. better” and to create an enabling environment for private sector development. The less but Over the past 20 years, the quality of public better approach implies that public sector tasks veterinary services has declined in many must be supervised but not necessarily imple- developing countries. Structural adjustment mented, by public agencies (see table 1.1). programs reduced funding for university veterinary departments while recruitment of PROFESSIONAL/PARAPROFESSIONAL DISTRIBUTION OF new staff continued. As a result, the ratio of RESPONSIBILITIES. A more efficient distribution of expenditure on salaries to expenditure on responsibilities between professional and recurrent costs increased to 85:15 in many paraprofessional veterinarians and lay animal African countries, compared to an optimal health care workers can improve the efficiency 60:40 (de Haan and Bekure 1991; Gauthier of delivery of animal health services. Herder-

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY Table 1.1 Economic characteristics and delivery of animal health services

Type of economic good Sectoral Delivery Service Public Private Public Private

Clinical diagnosis Private but some YY consumption externalities Clinical treatment Pure private YY Vaccine production Pure private YY Vaccination, major contagious Public because Y YY diseases of strong (contracted by consumption public sector) externalities Vaccination against minor diseases Private but some YY consumption externalities Veterinary surveillance Public because Y Y (quarantine, epidemiology) of strong (contracted by consumption public sector) externalities Control of vet. pharmaceutical Public because Y Y sales of moral hazard (contracted by public sector) Food safety control (meat inspections) Public because of moral hazard Y Y (contracted by public sector) 38 Veterinary research/extension Public because of Private for Y Y market failure commercial (contracted by (poverty focused) purposes public sector)

“Y” = Yes, acceptable; “YY” = “Yes, strongly recommended” Source: Umali, Feder, and de Haan 1994.

auxiliaries or low- and mid-level technicians which official controls are necessary to are important in most private animal health prevent major disease outbreaks, public systems, especially in traditional livestock health threats, or loss of important markets. production systems. These technicians are Animal health services should ensure effective familiar with local conditions and are often communication between professional and more readily accepted by the local population paraprofessional animal health providers, as than are public veterinarians. Although well as regulate paraveterinarian use of paraprofessionals generally have extensive products that carry public health risk knowledge of the local situation (including of (antibiotics), disease quarantine risk gender roles), they need to distinguish tasks (attenuated vaccines), or drug resistance undertaken by auxiliaries from those for (antibiotics or trypanocides).

AGRICULTURE INVESTMENT SOURCEBOOK BENEFITS Box 1.26 Former Soviet Union countries: privatization of Since the early 1990s, in Sub-Saharan Africa, veterinary services policy change has resulted in the number of private veterinarians increasing from almost Under the former Soviet Union’s centralized economy, most zero to about 2,500 in 2000. Veterinarians in veterinarians were employed by collective farms. In the 1990s, private practices almost unanimously indicate these farms were broken up and many workers and veterinar- that they are now better off than as public ians received farm assets. Veterinarians had few alternatives servants. In Eastern Europe, a private service other than to start private practice, though on a small scale. It system evolved, almost by default (see box took most governments a decade to acknowledge private services and formalize this in their veterinary legislation. In a few 1.26). Morocco shifted from a public system in countries, viability of private veterinary services was enhanced 1980 to an entirely private system in 1990 (see by the state contracting veterinarians to carry out mandated box 1.27). Progress has been slower in South disease control programs. The change in the state role from and East Asia, where public sector services are executing veterinary services to overseeing quality of services still dominant. was much slower. A major problem for veterinarians was their limited lack of business management experience.

A vast network of auxiliary veterinary assistants Source: Schillhorn van Veen, forthcoming. (estimated at 10,000 or more) is now operating in Sub-Saharan Africa, and paraprofessionals are increasingly common in South and East “moonlighting” by public service veterinarians) Asia. Farmers generally view these private is a most serious entry barrier to the systems as better than public systems in deliv- privatization of animal health services and can ering timely services, providing services to the be addressed by introducing full cost recovery poor, and reducing livestock mortality. A by the public sector for curative and “willingness to pay” survey in three Indian noncompulsory interventions. Given the choice states has shown that the landless poor are between unreliable public services and high- willing to pay for good quality services. In a quality private services, farmers will pay for variety of settings, animal health service re- services. Decentralizing revenue collection by forms have reduced the incidence of human introducing a revolving account at district level brucellosis and other diseases transmitted from also creates a direct incentive for cost recovery. animals to humans; reduced mortality in cattle by 45 percent to 60 percent and in small stock by 20 to70 percent; and increased family Box 1.27 Morocco: privatization success 39 incomes by US$48 to US$300 per year. The Moroccan government (the Moroccan Livestock Service Directorate) privatized its veterinary services in 1983. From only two private veterinarians in that year, the number in- POLICY AND IMPLEMENTATION ISSUES creased to 76 in 1989 and 318 by 2000, or about one-half the CLARIFY PUBLIC AND PRIVATE SECTOR ROLES. The first total number of veterinarians in the country. Private veterinar- step for every policymaker is to define or ians now provide care for 70 percent of the country’s cattle redefine public and private sector roles, taking and 60 percent of its sheep. Factors in this success were: into account standards and guidelines from the world body for animal health (OIE). Experience • The political will of the livestock service to make privatization a success. shows that this should be done in a public • Support from a well-functioning, national association of debate and that the political change to a veterinarians. multiagent setup is critical. Since there are • A clear subcontracting policy for compulsory vaccination often significant vested interests such as public campaigns. The government pays the veterinarian a fee for sector employees working at two or more jobs, each vaccination. this is often a complex and sensitive process. • Suspension of public provision of curative services and noncompulsory vaccinations once a private veterinarian has established a practice in an area. PREVENT UNFAIR COMPETITION. Unfair competition (continued subsidization of public services and Source: de Haan 1993.

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY Box 1.28 Potential investments private animal health workers has occurred spontaneously. This partly resulted from credit • Policy analyses and technical assistance in policy reform. from pharmaceutical companies, providing an • Strengthening animal health training in universities and important source of funds for private animal training centers. health workers. Although many prospective • Public-private partnerships to strengthen paraprofessional private veterinarians argue that they need a car, skills. less expensive means of transport can often • Financing for contracted private provision of food safety serve as well. inspections, vaccination for major diseases, and other public goods services. • Financial services for private animal health workers. • Public veterinary laboratories. RECOMMENDATIONS FOR PRACTITIONERS • Research and extension on animal production and health. Distribution of responsibilities between public Source: Authors. and private sectors is the key policy issue, and once defined they should be confirmed through appropriate regulations. Rather than EXTENT OF PRIVATIZATION. Many feel that liberaliza- copying regulations from industrial countries, tion has gone too far, and that inadequate rules should be adapted to the needs of the regulatory control over the quality of veterinary prevailing production systems, allowing a treatment has led to indiscriminate use of broader scope of responsibility for herder- dangerous substances. Moreover, the reorgani- auxiliaries and lower-level technicians in areas zation of ministries of agriculture as part of that cannot profitably maintain a professional structural adjustment and decentralization veterinarian. Legislation should also allow other reforms, has left central veterinary departments activities, such as subcontracting of public weak and poorly equipped to carry out their sector work or artificial insemination, that are tasks. Privatization has left marginal areas with often critical for the economic survival of the inadequate veterinary coverage. The need for private practitioner (see box 1.28). efficient, official veterinary services operating under a direct chain of command principle Professional veterinarian training in most must be considered in any decentralization and developing countries still focuses on public privatization reforms. sector tasks, with little hands-on skill development and often complete neglect of commer- 40 LESSONS LEARNED cial and management skills and herd-health ELIMINATE BARRIERS TO IMPORTS OF VETERINARY INPUTS. management. Training in those areas is critical Sales of drugs are important to the financial to the successful restructuring of animal health viability of private veterinarians. Veterinarians services because public sector veterinarians are should not, however, be given a monopoly on notoriously poorly equipped in economics and all drug sales, in particular the sale of items that policy areas. pose little or no risk to public health, such as feed additives, anthelminics, and certain Quality of paraprofessional animal health work- acaricides. Government intervention in veteri- ers depends on selection of mature personalities, nary drug trade should remain normative and both men and women, from the community regulatory, establishing lists of drugs that can with an interest in a part-time occupation be imported. (shopkeepers, farmers). Paraprofessionals should undergo training in regular short courses RECONSIDER FINANCIAL SUPPORT MECHANISMS. Although (two to six days because part-time workers can donors have tried to accelerate animal health not afford more time) and should also be part of service restructuring through targeted credit networks of private veterinarians to enhance schemes, in some cases the emergence of quality and availability of supplies.

AGRICULTURE INVESTMENT SOURCEBOOK SELECTED READINGS Schillhorn van Veen, T. W. Forthcoming. East- Asterisk (*) at the end of a reference indicates ern Europe and the Former Soviet Union: that it is available on the Web. See Appendix 1 Animal Health Systems in Transition. Office for a full list of Websites. of International Epizootics Scientific and Technical Review 23. Place: Publisher. Catley, A., S. Blakeway, and T. Leyland. 2001. Community-Based Animal Healthcare A Umali, D. L., G. Feder, and C. de Haan. 1994. Practical Guide to Improving Primary “Animal Health Services: Finding the Bal- Veterinary Services. London: Intermediate ance Between Public and Private Delivery.” Technology Development Group Publishing. World Bank Research Observer 9 (1): 76-9.

FAO. 1991. “Guidelines for Strengthening This Note was prepared by Cees de Haan with inputs from Animal Health Services in Developing the Sustainable Agriculture (SASKI) Thematic Team of the Countries.” FAO, Rome.* World Bank.

FAO. 1997. “Principles for Rational Delivery of Public and Private Veterinary Services with Reference to Africa.” Rome, FAO.*

OIE. 2003. “Guidelines for the Evaluation of Veterinary Services.” In Terrestrial Animal Health Code. 12th ed. Paris: OIE.

REFERENCES CITED de Haan, C. 1993. “The Delivery of Livestock Services to Smallholders.” In P. W. Daniels, S. Holden, E. Lewin, and S. Dadi, eds., Livestock Services to Smallholders: A Critical Evaluation. Proceedings of a seminar held in Yogyakarta, Indonesia, November 10-15, 1992. Indonesia International Animal 41 Science Research and Development Foun- dation, Bogor, Indonesia. de Haan, C., and S. Bekure. 1991. “Animal Health Services in Sub-Saharan Africa: Initial Experiences with Alternative Ap- proaches.” Technical Paper 134. World Bank, Washington, D.C.

Gauthier, J., M. Simeon, and C. de Haan. 1999. “The Effect of Structural Adjustment Programs on the Delivery of Veterinary Services in Africa.” Proceedings for Re- gional Conference of Office International des Epizooties for Africa, Dakar, and Senegal, Paris.

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY AGRICULTURE INVESTMENT NOTE political liberalization often remains symbolic and, in practice, decisions are made without them. Increasingly governments are aware of STRENGTHENING FARMER the importance of having farmers participate in ORGANIZATIONAL CAPACITY agricultural policymaking, and therefore sup- TO INFLUENCE AGRICULTURE port RPO capacity building. This requires POLICY institutional frameworks that recognize their potential role, and mechanisms for farmers to Lack of capacity to use economic opportunities voice their concerns at the local, national, and and an inability to access resources and services international levels of policy formulation. contribute to poverty—a condition that is also profoundly affected by a lack of empowerment. In the competition for economic and political RURAL PRODUCER ORGANIZATIONS power, the voices of the poor, particularly the In all rural societies, traditional organizations rural poor, are usually not heard. Rural producer have an inward-oriented or “bonding” function organizations (RPOs) help address these prob- to facilitate collective actions that mitigate lems by empowering rural people, building rural against the uncertainties of agricultural produc- social capital, increasing farmers’ voice in public tion, and regulate relationships within the sector decision-making. Building this capacity group. In contrast, formal producer organiza- requires: identifying rural producer organizations perform a “bridging” function to organize tions, strengthening their internal governance relationships between the group and the structures and information systems, developing outside world. In the context of developing an active policy dialogue with government countries, RPOs typically include elements of agencies, and building technical, strategic, and both traditional and formal organizations. They negotiating capacity of RPO leaders. are rooted in local customs, but organized on economic principles. Inclusion is characteristic In most countries, economic liberalization has in traditional groupings, where everyone is been accompanied by political liberalization inherently a member, but formal producer that offers new opportunities for action by organizations tend to be more exclusive. RPOs economic agents, including rural producer are membership organizations created by organizations. The withdrawal of the state from producers to provide services. They differ from 42 some activities has left a vacuum in the institu- NGOs, which also provide services to produc- tional and organizational framework for ad- ers, but are not necessarily membership based. dressing rural needs. This vacuum has only RPOs can be local and serve only at village and been partially filled by the private sector. There inter-village levels, or can operate at regional is also a need for improved governance in the and national levels (as unions and federations). regulatory environment and the correction of market failures (public goods, externalities). BENEFITS Many of the world’s poor live in rural areas Adjusting to new economic and market condi- with agriculture or agriculture-related activities tions is made more difficult in rural areas by as the mainstay of their livelihood. When poor the imbalance of power between poorly orga- producers band together, they gain bargaining nized agricultural producers and powerful power and may access the services and republic or private operators. This imbalance is sources they need to diversify, improve com- largely related to producers’ limited access to petitiveness, access markets, increase incomes, information and education, and a relative lack and equitably distribute associated benefits. of capacity to formulate objectives and define a strategic vision for development. Their partici- RPOs play an important role in policy dialogue pation in public debates on economic and and in some cases, rural federations are in-

AGRICULTURE INVESTMENT SOURCEBOOK volved with macroeconomic and political the poor, who lack the minimum assets and, in issues. Examples include the Indigenous and general, do not belong to formal groups that Afro-Ecuadorian Peoples Development Project can help them take advantage of what an RPO (Ecuador) and the Agricultural Services and can offer. The cost of reaching the unorganized Producer Organizations Project (Senegal; see can be high, but projects financed by donors box 1.29). In both countries, RPOs are at the may help RPOs improve inclusion to reach the forefront of a larger civil society movement, poorest, and make sure that their voices are advocating political and socioeconomic heard in policy development processes. changes. Strengthening the capacity of producer organizations to influence policy in an RESISTANCE TO RPO EMPOWERMENT. Empowering informed and democratic manner builds social producer organizations should create forces in capital that complements investments in other a society that can lead to a shift in power forms of capitalænatural, human, physical, and relationships. Since existing elite groups may financial. Effective RPOs can improve policy try to counter these forces, wide communica- outcomes and the efficiency of rural service tion and careful monitoring of ongoing change providers. This in turn can have major benefits processes are necessary. Governments and for poor people if they are able to organize civil servants are likely to resist change be- themselves effectively. cause they are afraid of losing control and privileges. Political parties and individuals will try to co-opt the process and use RPOs as POLICY AND IMPLEMENTATION ISSUES vehicles to promote their own agenda. An MULTIPLE FUNCTIONS OF RPOS. Rural producer effective RPO support program should there- organizations typically perform multiple func- fore analyze stakeholder interests to identify tions, generally including: advocacy or policy potential opponents and resistance to reform, functions (syndicates or unions), economic and and design specific activities that bring about technical functions (cooperatives or associa- win-win situations. tions), and local development functions (especially when decentralization has not yet taken INCREMENTAL PROCESS OF DEVELOPMENT. Empower- place and local governments do not exist). ment of RPOs through learning-by-doing will Most RPOs address all three functions to frequently entail some failures and misuse of varying degrees. funds by the emerging organizations. Appropri- ate controls and audits are necessary and a 43 EQUITY. RPOs are not necessarily inclusive. phased program of institutional development There may be entry barriers for the poorest of and delegation of responsibilities is frequently

Box 1.29 Senegal: strengthening RPO capacity to participate in policymaking

The National Cooperation and Consultation Committee of Rural People of Senegal (CNCR: Conseil National de Concertation et de Coopération des Ruraux) was created in 1993 by 19 national federations to represent rural producers in agricultural policy formulation and negotiation processes. CNCR goals are to: (i) strengthen the unity of the farmers movement and represent rural producers, (ii) defend farmers’ interests in decision-making processes regarding agriculture and rural development, and (iii) contribute to sustainable development of family farming systems. Since 1994, CNCR has been recognized by the Government of Senegal and the World Bank as a partner in preparation and implementation of a US$6 million RPO capacity-building component of the Agricultural Services and Producer Organization Project. CNCR also chairs the board of directors of the National Agricultural Research Fund, and is an influential member of the Board of the National Agency for Agricultural and Rural Advisory Services. CNCR (http://www.cncr.org) is systematically associated with any agricultural policy formulation in Senegal, and at a regional level participates in West African Monetary Union policymaking meetings as a member of the West African Network of Rural Producers Organizations http://www.roppa-ao.org).

Source: Bosc et al. 2002.

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY beneficial. Capacity building of producer Often the best-established producer organiza- organizations is a slow and uneven process tions are commodity-based associations regulated by existing social behavior and dominated by large farmers. These are cultural norms. Donors may get impatient and legitimate representatives of the sector, but force the process artificially, thus engendering do not necessarily represent the interests of unsustainable advances. small farmers. Still, such organizations usually open membership to smaller farmers to maintain the association’s credibility as a LESSONS LEARNED representative of all-farmer interests. Public IDENTIFYING ORGANIZATIONS TO SUPPORT. Experience support should encourage such develop- indicates that any membership organization ments and effective integration of small- should be eligible for program support as long farmer interests in the association agenda. as members are agricultural producers living in Small-farmer influence and participation is rural areas and providing it meets three criteria: facilitated by having local and regional meetings and activities in addition to national • It should be recognized as useful (principle activities, and by carrying out programs of utility) by its members—members must targeted to the needs of small producers. value the ability of the entity to promote beneficial policy. DEFINING WHAT TO STRENGTHEN. Investments need to help RPOs become more effective at provid- • It should have an identity (that is, a history ing the services for which they were created. and effective operating rules) that, even if This often requires improvements in: not formalized, regulates the relationships among its members and between members • Internal governance structures and account- and the outside world. ability mechanisms.

• It should be legally recognized, with gov- • Internal and external information systems. erning bodies functioning effectively, in particular holding regular elections and • Capacity to articulate members needs and meetings with accountability mechanisms. negotiate.

44 Box 1.30 Colombia: The Colombia Coffee Growers Federation • Technical and managerial capacity to implement activities. The Colombia Coffee Growers Federation represents approximately 250,000 farms with the objective of serving the welfare • Strategic capacities for policy analysis and of the country, and promoting the economic and social well- defining a vision and strategy to achieve being of Colombian coffee growers. The Federation engages in objectives. activities such as transport, coffee storage, agricultural research, and public works programs. The Federation has a democratic ESTABLISHING A POLICY DIALOGUE WITH GOVERNMENT. hierarchy based on Municipal Committees that are democratically elected. Managers are accountable to the democratically Investments to strengthen RPO capacity need elected Coffee Congress. The large volume of coffee produced to promote an enabling environment through means that producers can achieve economies of scale and have projects and policy dialogue with government effective negotiating power. The Federation has demonstrated (see box 1.30). This might entail: obtaining considerable political influence. The Coffee Fund, financed from recognition of RPOs from governments and membership fees and a levy on production, is large enough to ending mistrust from public services; ensuring influence Colombia’s macro-economy. As a result, the Federa- that RPOs are seen as full partners in develop- tion works in consultation with the government to manage this ment; and providing up-to-date information to fund. Some Committees have negotiated with local government to put up 30 percent matching funds for local projects. RPOs to facilitate their participation in developing rural development policies and prepar- Source: Bosc et al. 2002. ing and implementing rural projects. RPOs

AGRICULTURE INVESTMENT SOURCEBOOK must be given enough time, resources, and Box 1.31 Potential investments information to prepare effectively for participation in these activities. • Legal and regulatory reforms to facilitate rural producer organization growth. LEGITIMACY. RPO leaders may be isolated from • Assistance to national or regional federations to: (a) train their base and lack accountability to their leaders and members, and (b) build strategic planning skills members. Although programs to strengthen and develop operation and management procedures. RPOs are intended to resolve these problems, • Study tours and exchange visits. access to funds and services may still be avail- • Assistance in forming local, regional, and national RPO consultative forums. able only to RPO leadersæoften the local • Demand-driven funds to finance, on a matching grant basis, eliteæto the detriment of members. To mitigate RPO services, programs, and productive investment. against such risk, support programs for RPOs Source: Authors. should be extensively advertised to ensure that those who have problems accessing the information, often the poorest, are aware of the fund’s existence. Close monitoring and systematic evaluation is essential. limitations of RPOs—work with them at ALLOW SELF-MANAGEMENT OF FUNDS. Providing a their pace in a “learning-by-doing” manner. flexible development fund or demand-driven services linked to a productive investment fund • Concentrate on agreed-upon transparent allows RPOs to define activities to be financed decision-making processes and procedures, and determine the timing and pace of imple- and let RPOs decide the nature of the mentation. RPOs manage the funds they have activities they want to finance. been granted, and typically are able to select service providers from a list of regularly certi- • Target activities that RPOs have chosen and fied vendors. Such a funding mechanism that fit within their working capacity. requires that donors, RPOs, and the government agree on procedures and criteria for RPOs • Ensure that supported RPOs are legally to access funds. To ensure compliance with registered, with transparent governing rules, procedures and quality of services, close procedures, accounting, and reporting monitoring is required, as well as systematic, systems. 45 random, and post-activity audit by government and/or donors. • Guarantee independence from government or donor agencies, yet develop a strong and active policy dialogue with relevant RECOMMENDATIONS FOR PRACTITIONERS government agencies. There is no blueprint for supporting RPO development to improve policy analysis and • Promote a conducive legal environment advocacy capacities, as this must be tailored to with laws and regulatory systems that country circumstances (especially the political promote growth and recognition of RPOs. environment), and the characteristics of RPOs in that country. However, one principle applies: • Promote effective decentralization and support should empower RPOs—not make deconcentration of public services to them instruments of donor or government provide a basis for empowerment of local policy. Key recommendations for investment communities. include (see box 1.31): • Promote a dialogue among donor agencies • Guarantee equal access to all RPOs that to harmonize approaches and procedures meet funding criteria, and accept the in support of RPOs.

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Bosc, P., D. Eychenne, K. Hussein, B. Losch, M.-R. Mercoiret, P. Rondot, and S. Mackin- tosh-Walker. 2002. “The Role of Rural Producer Organizations in the World Bank Rural Development Strategy.” Rural Devel- opment Strategy Background Paper 8. World Bank, Washington D.C.*

Hussi, P., J. Murphy, O. Lindberg, and L. Brenneman. 1993. The Development of Cooperatives and Other Rural Organiza- tions: The Role of the World Bank. Technical Paper 199. Washington, D.C.: World Bank.

Pratt, D., F. Le Gall, and C. de Haan. 1997. Investing in Pastoralism: Sustainable Natural Resource Use in Arid Africa and the Middle East. Technical Paper 365. Washing- ton, D.C.: World Bank.

Rondot, P., and M.-H. Collion, eds. 2001. “Agricultural Producer Organizations: Their Contribution to Rural Capacity Building and Poverty Reduction.” Report of a Workshop, June 28-30, 1999, Washington, D.C. World Bank, Washington D.C.* 46 Subramanian, A., V. Jagannathan, and R. Meinzen-Dick, eds. 1997. User Organizations for Sustainable Water Services. Technical Paper 354. Washington, D.C.: World Bank.

REFERENCES CITED Bosc, P., D. Eychenne, K. Hussein, B. Losch, M.-R. Mercoiret, P. Rondot, and S. Mackin- tosh-Walker. 2002. “The Role of Rural Producer Organizations in the World Bank Rural Development Strategy.” Rural Devel- opment Strategy Background Paper 8. World Bank, Washington D.C.

This Note was prepared by the Sourcebook team based on the Agricultural Technology Note “Investing in Rural Producer Organizations” by Pierre Rondot.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE agriculture, contribute to rural employment generation, improve living standards, and provide more consumer choices by: BULGARIA: ADJUSTMENT LENDING IN A TRANSITIONAL • Developing an active land market. ECONOMY • Developing a grain market by privatizing Bulgaria has a diversified agriculture, with the grain marketing agency and limiting the fertile soils and favorable climatic conditions. operations of State Grain Reserves. By the end of the communist period in 1989, 90 percent of the land was in large coopera- • Privatizing agro-industrial and processing tives or agro-industrial complexes averaging firms, including grain mills, seed, and food 24,000 hectares. Input use was intensive and industries. livestock production was highly subsidized. • Privatizing irrigation systems by decentraliz- What’s innovative? Agriculture sector adjustment ing operations management and mainte- reform in a transitional economy – privatization, nance to water user associations. commercialization, land, and financial sector reform. • Improving agricultural financing to rural After 1990, priority was given to dismantling areas by private providers. large production complexes and to distributing land and nonland assets, including livestock, to • Liberalizing trade, improving market regula- former owners. Most input prices were decon- tions, and increasing competitiveness of trolled. However, new owners were often ill- tradable commodities. equipped to manage their new assets, and price controls (together with export controls • Improving forest legislation and increased and taxes) were maintained on outputs in order community-based participation in forest to keep food prices low for the urban popula- management. tion. This led to large illegal exports and shortages, especially in grains. There was great • Supporting Bulgaria’s accession process to instability in the trade regime, and import tariffs the EU. were high on fertilizer, a key input. Fertilizer 47 use declined by 75 percent and agricultural production in 1997 was only 45 percent of the BENEFITS AND IMPACTS 1989 levels. State intervention in cereal market- Both loans were one-tranche operations, ing and credit continued. By the mid 1990s, supporting a program of about 2 years. The both macroeconomic imbalances and lack of government took all of the designated steps structural reforms caused a financial crisis. before each of the loans went to the Board. A key feature of the Bulgaria adjustment program A new government was elected in 1997 with a was that it had the full support of the elected strong commitment to market reform. The government and parliament. Another feature government eliminated export bans and con- was the willingness of the Bank to adjust the trols on agriculture and food profit margins, state food reserves condition in response to eliminated most import quotas and duties on perceived risks of food shortages over the cereals, liberalized markets, and abolished period of the loan by the Bulgarian Govern- subsidized agricultural credit. ment, in light of tensions in Kosovo.

PROJECT OBJECTIVES AND DESCRIPTION Under ASAL I & II Bulgaria transformed itself, The Agriculture Sector Adjustment Loans in a very short period of time, from having one (ASAL) I & II sought to promote efficiency in of the worst agricultural trade regimes to one

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY of the most open in the region. The loans also • Timing of Bank interventions was impor- had significant institutional development impact tant. Constructive disengagement in a through privatization in the areas of grain period of poor policy environment prior to marketing, input marketing, and farmer services 1997 helped develop credibility with a – all key steps toward EU accession. Grain crop new government serious about economic production in 2002 was 4 million metric tons reforms. (the highest since the start of reforms) and was due in part to increased farmer access to high- • The “big bang” approach for transitional quality seeds and fertilizer supported by the economy reform can work under the right ASAL. Land market development led to an conditions, with the caveat that this success increase in land transactions of about 190 followed a long period of slow or no percent in 2000-01. change. Achievements are particularly significant given • Single tranche adjustment can work when the politically challenging nature of the needed there is strong commitment and when reforms. Strong borrower ownership, with undertaken within a well-elaborated, constructive dialogue between the Bank, medium-term framework. Moreover, single- borrower, and other stakeholders, and high- tranche loans are more flexible than multi- quality economic sector work contributed tranche loans since they avoid locking into significantly to this success and to the likely legal conditions and policy targets that may sustainability of the outcomes. not be fully supported by the Government. However, despite agriculture performing better The project shows the positive impact of the than the economy as a whole, some major Bank’s proactive and constructive engagement problems remain. Rural poverty reduction with the borrower, ensuring progress on all cannot be determined and privatization of reform package elements, and preventing agro-enterprises and institutional changes in backsliding in key areas. However, a major irrigation have not yet revitalized these sub- issue is whether greater priority should have sectors (irrigation requires an investment been given to targeted poverty reduction in a program). As well, agricultural exports have rural sector with a serious and increasing been declining given higher quality products poverty problem. 48 from competitors, and neither land markets nor rural finance are yet stimulating the rural economy as desired. These shortcomings COUNTRY PROFILE: BULGARIA notwithstanding, the country has continued to Project Name Agricultural Sector Adjustment stay on track in its bid for EU accession, fulfill- Loan (ASAL I and II) ing one of the top policy priorities. Project ID ASAL I: P057925, and ASAL II: P057926 LESSONS LEARNED AND ISSUES FOR WIDER Project Cost ASAL I: US$75.8 million, and ASAL APPLICABILITY II: US$50.0 million • Timely and quality sector work is essential. Dates ASAL I: FY 2000 – FY 2001, and The Bank began analytical work two full ASALII: FY 2002 – FY 2003 years before the ASAL I was approved. Policy Notes effectively engaged the Contact Point Henry Gordon government and other stakeholders, to The World Bank, 1818 H Street build support and consensus for difficult NW, Washington D.C. 20433 Telephone: (202) 473-2961; broad reforms. Process and substance are Email: [email protected] equally important.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE public and private sector. The project includes four components:

ECUADOR: COMMODITY • An Agricultural Policy Component to CHAIN CONSULTATIVE strengthen sector policy analysis capacity, COUNCILS FOR POLICY budget analysis, and investment monitoring. FORMULATION • An Agricultural Information and Dissemina- Ecuador’s agricultural sector is characterized by tion Component to improve crop and a variety of production systemsæboth temper- livestock information services, market news ate and tropicalæand a natural resource base and price information, agroclimatic impact with high production potential. There is a very forecasts, and the computer and informa- competitive export sectoræbanana, flowers, and tion system capacity of the Ministry of shrimpæas well as a large traditional small- Agriculture. holder sector producing rice, potato, coffee, cacao, maize, and livestock. The sector is • An Agricultural Sample Census Component characterized by low productivity even in the to support design and execution of a export sector, and most growth over the past national sample census, and strengthen 30 years has come from the expansion of data processing capabilities. agricultural area. • An Agricultural Farm Production Survey What’s innovative? Using new data to bring stake- Component to improve production survey holders together into market chain consultative methodology, speed processing of two councils with the government. surveys per year, and finance one farm expenditure survey. Widespread improvement in agricultural productivity will require the government to provide key public goods, including information BENEFITS AND IMPACTS on which farmers, traders, processors, and The project financed the 2002 Ecuadorian financial institutions can base decisions. Im- Agricultural Census, which has provided an proved information is equally important to the abundance of data on the agricultural sector Ecuadorian Government, as it moves away and on the various commodity subsectors. As 49 from past broad-based programs to more part of the process of analyzing and interpret- targeted interventions aimed at helping the ing these data, the Ministry facilitated the poor. Unfortunately the information base for formation of Consultative Councils for eleven public policy has been weak. The last agricul- subsectors (coffee, banana, potato, dairy, and tural census was conducted in 1974, and data others). Each Consultative Council comprises sets no longer provide a sound basis for deci- producers, traders, input suppliers, exporters or sion-making. An improved database was processors, and key ministry officials. essential for sound policy formulation and development of business plans. The Councils met originally to review data from the census. The census information was a critical motivating factor in forming the coun- PROJECT OBJECTIVES AND DESCRIPTION cils, because it filled a void where there had The Agricultural Census and Information been little hard data on the size and character- System Technical Assistance Project aims to istics of the subsectors. Much of the census improve availability, consistency, validity, and data were originally controversial, as the data timeliness of agricultural information to facili- conflicted with prior views and assumptions on tate decision-making processes in both the the sector. The Councils helped to verify and

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY interpret census information and to promote sectors, and between different private sector awareness and use of the data. Councils con- stakeholders in a commodity production and tinue to meet to discuss and seek solutions to marketing chain. Linking such Councils with subsector problems and to represent subsector data from an Agricultural Census or other interests with the government. analytical work on a subsector may be useful to encourage participation and provide coher- The main contribution of the Councils has been ence for initial Council meetings. to facilitate dialogue between the government and the various actors in the production chain (producers, marketers, processors, exporters, COUNTRY PROFILE: ECUADOR and importers). Use of up-to-date, reliable Project Name Agricultural Census and Informa- information has enabled these groups to agree tion System Technical Assistance to manage the production chains in a rational Project and efficient way. There have been agreements Project ID P077949 reached on milk prices and imports, corn prices, soybean imports, and various other Project Cost US$4.8 million commodities. Dates FY1999 - FY 2004

The major factor contributing to the success of Contact Point Matthew McMahon The World Bank, 1818 H Street the 14 Councils has been their ability to discuss NW, Washington D.C. 20433 policy options based on factual data. The Telephone: (202) 473-8586; formation of the Councils was not defined in Email: [email protected] the project design, but was introduced later and seen as an opportunity to make better use of and to confirm the validity of census data.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY The Councils provide a mechanism for intervening to address problems, as all participants 50 in the subsector are represented. This in some cases enables the Council to negotiate or initiate action to address a problem, where the government—with its limited capacityæacting alone would be unable to intervene effectively.

The Councils will continue with the active encouragement of the government, which will consider promoting formation of Consultative Councils for other subsectors as needed. Future modifications of the Consultative Council structure will likely increase the representation of smaller farmers.

Consultative Councils based on commodity market chains and industry clusters would be useful in most countries as a mechanism for consultation between the public and private

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE hectare basis to partially mitigate adverse impacts on income of removal of distortionary subsidies. TURKEY: HYBRID ADJUSTMENT/INVESTMENT • Facilitate farmers’ transition out of tobacco LENDING and hazelnut production through per hectare grants for a switch to alternative In the late 1990s, one of the most critical crops such as maize, soybean, sunflower, issues in Turkey’s agricultural sector was the beans, vegetables, and medicinal plants, inefficient and costly system of agricultural and more efficient production patterns. support policies. Subsidies for fertilizer, credit and price supports, mainly for sugar, hazelnut, • Promote more efficient cooperative market- and tobacco, were distortionary and failed to ing channels by assisting the execution of enhance productivity growth. These agricul- the Law on Agricultural Sales Cooperatives, tural policies favored larger farmers, were a through restructuring and cooperative heavy burden on consumers and taxpayers, development programs and financing labor and contributed to Turkey’s macroeconomic retrenchments. problems. Reforming this system was a primary goal of a dialogue initiated with Bank • Build public support for politically sensitive policy notes and workshops in 1998, leading reforms. to inclusion of agricultural policy reform elements in the Bank’s Economic Reform One-third of the loan is adjustment lending that Loan, effective 2000, and in an IMF macroeco- seeks to enable the government to make up nomic stabilization package. The reforms are some of the anticipated shortfall in funds also important to assist the government in needed for the critical first rounds of the DIS meeting preconditions for EU accession. payments in 2001-03. Recent work in Turkey highlights the latest usage of hybrid lending, moving the reform BENEFITS AND IMPACTS agenda forward quickly, but requiring “hands- A recent supervision report noted that the on” coordination to ensure success. government is on track with key elements of the ARIP supported program. With payments to What’s innovative? Agricultural sector reform over 2.18 million farmers, more than 50 percent 51 through a hybrid loan with an adjustment compo- of all DIS-eligible farmers were paid under the nent supported by investment components. 2001 DIS Program, exceeding by four-fold the target 12.5 percent of all farmers to be paid. In 2002, direct and indirect agricultural subsidies PROJECT OBJECTIVES AND DESCRIPTION (not including DIS) totaled US$1.1 billion, The Agricultural Reform Implementation Project compared to US$7.2 billion in 1999. No new (ARIP) evolved from the Economic Reform subsidies have been introduced. Loan to ensure sustainability of the reforms, including change and formation of sustainable Uptake on farmer transition grants has been institutions. slow because farmers are uncertain that hazelnut and tobacco support prices are being Two-thirds of the loan is for an investment permanently removed. However, as govern- program with objectives to: ment credibility on this improves, uptake of this component should increase. • Substitute subsidies with an incentive- neutral support system of Direct Income After a slow start, the Agricultural Support Support (DIS) payments, made on a per Cooperative Union reform program has had

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY some success, but progress in two of the largest early resolution of design and implementa- unions is uneven. Turning the unions into true tion problems. The budgetary support member-owned cooperatives is still incomplete aspect of an adjustment loan allows more because this takes time. Bank engagement in policy dialogue, compared to a pure investment operation.

LESSONS LEARNED AND ISSUES FOR WIDER • The investment portion of a hybrid loan APPLICABILITY makes it significantly more resource-inten- In the political economy of reform, “a spoonful sive than a straight adjustment loan, and of sugar helps the medicine go down.” Com- requires “hands-on” attention by the Bank. bined adjustment and investment lending may provide the appropriate mix – drawing atten- • Giving farmers a range of options, rather tion of higher-level government officials than preselecting an alternative crop, was through adjustment components while also wise. A selection menu encourages adop- providing needed long-term investment. Typi- tion of and participation in programs. cally adjustment lending is negotiated through the Ministry of Finance with implementation of • Cooperatives financed and directed by policy (and painful reforms) carried out by line government often degenerate and lose ministries. Adding an investment component efficiency and member participation. makes these often-painful adjustments more Member ownership and participation and palatable to all parties involved, and can prove relevance of services are key to sustainable particularly beneficial for reforms affecting the development of such cooperatives. rural sector. In the past, hybrid lending was tried and discarded due to the mismatch of time frames for these two instruments; how- COUNTRY PROFILE: TURKEY ever, recent evolution in approaches increases Project Name Agricultural Reform Implementa- the likelihood that they can prove positive tion Project complements for policy reform. Project ID P070286

Lessons learned include: Project Costs US$662.0 million Dates FY 2002 – FY 2006 52 • Laying a base for policy dialogue pays off, even if advice is not adopted right away. Contact Point Mark Lundell The World Bank, 1818 H Street NW, Washington, D.C. 20433 • Conditionality must be clear and straightfor- Telephone: (202) 458-4655; ward with strong government ownership. Email: [email protected];

• Given the macroeconomic implications of agricultural subsidies, cooperation with the IMF and integration of other Bank operations is helpful. The Bank took part in all key meetings; the Fund integrated key agricultural policy reforms into its program.

• For policy reform, a hybrid loan has important advantages over pure investment or adjustment loans. Preparing and supervising investment components keeps Bank staff involved in program details, and facilitates

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE (iii) herders organizations structured around socioeconomic objectives. The program established or facilitated: GUINEA: LIVESTOCK SECTOR PARTNERSHIP—PUBLIC • A unique mechanism for generating and SECTOR HERDER diffusing technologies at the grassroots ORGANIZATIONS AND THE level through private agents (paraprofes- PRIVATE SECTOR sionals such as auxiliaries or paravets) within herder communities to offer basic Guinea has a strong pastoral tradition, with animal health services and broader live- more than 2.2 million cattle and 1.5 million stock services. small ruminants kept by 210,000 households. Before 1984, the sector was overwhelmingly • An environment conducive to national and dominated by the public sector. The govern- foreign private firms to supply wholesale ment set cattle prices and imposed a mandatory inputs and livestock products. off-take of 10 percent from each herd. The livestock public sector was overstaffed, highly • Private veterinary clinics to assist parapro- centralized, poorly trained, and unable to fessionals in herder groups distribute provide adequate services to herders. inputs.

What’s innovative? Reform of livestock services in- • Coverage of the country’s main livestock cluding developing a community system of parapro- zones by private veterinary clinics and fessionals, private sector services, and public sector private input providers to respond to the policy formulation. herders’ ever-increasing demands.

From 1987 to 1995 a structural adjustment • Downstream construction of small commer- program for national livestock services rational- cial animal and meat markets for processing ized the sector, and prepared for future transfer of livestock products and sub-products of productive and commercial functions to (hides and skin for exports). herders and the private sector. The public sector terminated 1200 government jobs, • Strong involvement of producer organiza- retraining dismissed agents as producers or tions in production commodity chains. 53 animal health service providers. A line of credit, training plan, and study tours supported • Lighter, deconcentrated public management this reorientation. The government transferred of livestock sector institutions. state-owned clinics to the private sector, where private veterinarians demonstrated greater With this project the National Directorate for efficiency with better cost/benefit ratios. Herder Livestock (NDL) refocused on its public service organizations were formed to facilitate easier mission, and completed the transfer to the access to basic livestock services. private sector of animal health care and inputs distribution. The NDL remained responsible for policymaking, support to the development of PROJECT OBJECTIVES AND DESCRIPTION herder and other professional organizations The National Agricultural Services Program (including research and extension), and epide- helped to establish a new animal health services miological surveillance and control. system based on (i) a rationalized, restructured public sector, progressively deconcentrated and BENEFITS AND IMPACTS refocused on core public functions, (ii) a grow- The program put in place a nationwide live- ing network of private services providers, and stock services system (input delivery, technol-

MODULE 1: BUILDING AGRICULTURAL POLICY AND INSTITUTIONAL CAPACITY ogy transfer, advocacy, training) based on LESSONS LEARNED AND ISSUES FOR WIDER private delivery (veterinary clinics, private farms APPLICABILITY and paraprofessionals). This improved efficiency The Guinea experience can serve as a model of services and strengthened social linkages in for rehabilitation of the livestock sector. Spe- transhumance zones of conflict (see table 1.2). cific strategies and investments will vary de- Strengthened herder organizations and private pending on local situations, but four conditions operators improved demand and quality of are likely to be required for any successful services, such that the total numbers of auxilia- reform initiatives: ries nationwide is expected to reach 21,000 in the near futureæa 1/10 ratio of auxiliaries to • Reform is a long-term process that spans the herders, compared to a 1/20 ratio today. life of more than one project. It requires the adoption of an agreed approach by all Reforms contributed to an annual growth rate concerned parties to be successful. The case of the livestock sector of 5.6 percent, growth of the livestock reforms is such an example. in livestock numbers from 2.4 to 3.5 million, It has taken over a decade to implement and and an increase in meat production of 12,750 has broad support of all involved. metric tons. There was better coverage of herders’ needs in basic animal health care • Working through existing national director- and creation of additional employment. ates instead of project units, and using civil Annual fiscal revenues from the sector rose servants instead of contractual personnel and herder organizations have been able to for project implementation, strengthens pay for basic services, thus ensuring the government’s capacity and ownership. sustainability of the investment in the sector. With privatization of two state agencies, the • Political buy-in of the government into a distribution of animal health products is now major privatization initiative is an absolute entirely assumed by the private sector. necessity for its successful implementation. This can be achieved by demonstrating up- About 1,050 groups were provided with support front that privatization can be a win-win (primarily capacity strengthening) by the DNE. proposition as in the case of the DNE. In addition, DNE provided support to more than 200 departmental, provincial, regional, and • Motivating and equipping staff to leave the 54 national coordination committees. A total of 54 public sector is not merely achieved through conflict management committees were estab- training. A sound program must also assist lished in transhumance migratory areas to help concerned staff during the transition. resolve conflicts between farmers and herders.

COUNTRY PROFILE: GUINEA Table 1.2 Changes in the Guinea livestock sector, 1987-2000 Project Name National Agricultural Services Program (Livestock Health and Sector Stakeholders Pre-1987 2000 Animal Health Component)

Herders’ Associations 0 1050 Project ID P001081 Project Component Cost US$5.9 million Private Veterinarians 0 42 Dates FY 1997 – FY 2001 Auxiliaries Animal Health Workers 0 11,800 Contact Point Francois Le Gall Government Livestock Agents 1800+ 691 The World Bank, 1818 H Street Government Livestock Staff in Cities 1080+ 55 NW, Washington D.C. 20433 Telephone: (202) 473-0355; Email: [email protected] Source: World Bank Internal Documents.

AGRICULTURE INVESTMENT SOURCEBOOK 2

INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY

igher rates of growth in agricultural productivity are essential to promote broad-based economic growth, reduce rural poverty, and conserve natural resources. Productivity growth, in H turn, is based largely on application of science, technology, and information, provided through national agricultural research and development (R&D) systemsænot just public organizations, but all organizations that generate, share, import, and use agricultural knowledge and information.

RATIONAL FOR INVESTMENT Investment in agricultural science and technology (S&T) has been critically important to past growth performance, and is likely to be even more important for achieving future global development priorities, especially the Millennium Development Goals (MDG) of halving poverty and hunger by 2015. The challenge in deciding future investments in agricultural R&D is to maintain past productivity gains, while supporting technological innovation in more diverse agricultural systems that will differentiate products and add value by processing, to enable rural producers to capture a larger share of the gains. Accordingly, the World Bank’s current rural strategy, Reaching the Policy Research Institute (IFPRI) studies on Rural Poor, places high priority on investments in impacts of public investment in India and agricultural S&T. China show agricultural R&D to have higher impacts on poverty reduction than do most GROWTH AND COMPETITIVENESS. S&T underpin other public investments, behind only invest- innovation needed to promote economic ment in education in China and rural roads in growth, and enhance competitiveness. Agricul- India (Fan, Zhang, and Zhang 2000; Fan, ture is a critical sector in many countries, Hazell, and Thorat 1999). Studies show that in especially in low-income countries. Although low-income countries, a one percent increase complementary investments in policy reform, in agricultural yields leads to a 0.8 percent markets, and institutions are necessary, invest- reduction in the number of people below the ment in S&T is a key element in enhancing a poverty line (Thirtle, Lin, and Piesse 2003). country’s competitive advantage by reducing Over the long term, effects on food prices are production costs, improving product quality, especially important, as food is a large share of and generally increasing efficiency along the the expenditures of poor households. Employ- commodity chain. ment and wage effects of labor-intensive production and value-added processing are espe- POVERTY REDUCTION. Investment in agricultural cially important to poor people, who depend research has major impacts on poverty reduc- relatively more on wage labor (see box 2.2). tion through direct effects on producer incomes, indirect effects on consumer welfare through FOOD SECURITY. By 2020, IFPRI projects food lower food prices, employment and wage needs in developing countries to increase by effects, and growth-induced effects throughout nearly 600 million tons which is equal to one- the economy (see box 2.1). International Food third of current world food production. Contin- ued investment to increase productivity and enhanced environmental sustainability of Box 2.1 Past contributions of science and technology production systems is needed to ensure global food security. Investments in technology must The historical focus of research efforts on food crop technolo- also enhance household food security by gies, with emphasis on genetic improvement, has been undeni- ably successful. Average crop yields in developing countries have increasing productivity of household food increased by 71 percent since 1961, while average grain yields production, smoothing seasonal availability, 56 have doubled (to 2.8 tons per hectare). Yields of many com- mitigating the effects of drought, and improv- mercial crops and livestock have also grown rapidly (see inset ing nutritional content. figure below). ENVIRONMENT AND NATURAL RESOURCES. Future Yield growth in developing countries, 1961-2001 increases in agricultural productivity must come 200 from intensification, rather than exploitation of additional natural resources. Agricultural 160 systems must use natural resources more efficiently and repair past damage to eco- 120

Increase systems. This depends on application of scien- 80 tific knowledge, developing farmers’ skills, and a policy framework to improve resource use

% Yield 40 and conservation.

0 PUBLIC GOODS. Many products of agricultural Oilseed Cereals Tea Milk research are public goods that the private Source: FAOSTAT 2002. sector lacks incentives to produce. Small

AGRICULTURE INVESTMENT SOURCEBOOK Box 2.2. Agricultural research and development and poor people

Experience indicates that a broad-based approach to promoting agricultural growth can have substantial impacts on poverty reduction, providing agriculture is important to the incomes of rural poor; the agro-ecological base allows significant potential for productivity growth; land distribution is relatively equitable; and the poor consume nontradable food staples. This is illustrated by evidence from India (see inset figure A) and Nigeria (see inset figure B). Without these preconditions, agricultural research may still have strong poverty reduction impacts, but must be carefully targeted at poor producers and consumers.

India: elasticity of poverty reduction with Nigeria: impact of cassava research and respect to yield growth development

e) 2.0 Food price effect 10

Wage effect come 8 1.5 Direct 6

reduction (-v

effect

sehold in 1.0 4

by price 0.5 se in hou 2

% increa

Elasticity of poverty 0 0 Short-run Long-run <2 2-4 4-6 6-8 8-10 >10

Source: Datt and Ravallion 1998 Income level ('000 Naira) Source: Source: Afolami and Falusi 1999

Source: Datt and Ravallion 1998; Afolami and Falusi 1999. farmers with limited purchasing power are not cycles. The paradox is that, despite such organized to finance research. Private firms, with evidence off high returns, agricultural R&D limited opportunity to appropriate profits from funding is stagnating in many countries. provision of technologies, will not invest sufficiently in research. Because of these market failures and because of long-term risky PAST INVESTMENT ACTIVITY 57 payoffs, the public sector funds most agricul- In the early 1980s, as the Bank recognized the tural research, especially in developing coun- major contribution of R&D to increasing agri- tries (see figure 2.1). Although private sector cultural production, lending for agricultural funding for agricultural research is expanding R&D increased rapidly to become a priority in rapidly, due in part to the application of stronger the agricultural loan portfolio. Since 1980, the intellectual property protection, this private research Bank has provided over US$2.5 billion for often relies on knowledge provided by publicly- agricultural research in about 100 countries funded research. (see figure 2.2), accounting for a large share of all external support for agricultural research in ECONOMIC RETURNS TO INVESTMENT IN SCIENCE AND developing countries. In addition, the Bank is a TECHNOLOGY. Studies consistently show high leading contributor to the Consultative Group returns to investments in agricultural research on International in developing countries, averaging over 40 percent (see table 2.1). Rates of return tend to Agricultural Research (CGIAR), granting US$50 be higher for research in industrial countries million annually to the system. However, and for commodities with short production despite the high priority accorded to agricul-

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY FIGURE 2.1 PUBLIC AND PRIVATE AGRICULTURAL R&D INVESTMENT, 1976-95

Source: Pardey and Beintema 2001.

tural S&T in the Bank’s rural strategies, lending mortar” period up to the early 1980s empha- has fallen sharply since 1998. This is especially sized expanding public sector research through so in Africa and South Asia, where past invest- investment in physical infrastructure, equip- ments often failed because borrowing countries ment, and human resource development, in had not committed to a program of sustainable many cases to create centralized national institutional development. agricultural research organizations/institutions (NAROs/NARIs). From the late 1980s, emphasis World Bank support to agricultural technology shifted to improving management of existing programs has evolved over time. A “bricks and public sector research organizations through better planning, improved financial management, greater accountability, and increased relevance 58 Table 2.1. Estimated rates of return to investment in of programs to clients. In the mid-to-late 1990s the agricultural research instability and inefficiency evident in many public research organizations (see box 2.3) led to an empha- Number Median rate sis on development of institutionally pluralistic Region of estimates of return (%) agricultural knowledge and information systems (AKISs) with greater client and private sector partici- Africa 188 34 pation and financing. Asia 222 50 A 1997 evaluation of World Bank lending for Latin America 262 43 agricultural research from 1980 through the early 1990s suggested that portfolio perfor- Middle East/North Africa 11 36 mance should be rated as “unacceptable” All developing countries 683 43 (Purcell and Anderson 1997). The evaluation recommended that the Bank provide compre- All developed countries 990 46 hensive assistance for research systems, only All 1,772 44 when the borrower makes a clear commitment to adequately fund the system and to adopt Note : Information based on studies carried out from 1953 to 1997. sound management principles. Source: Alston et al. 1998.

AGRICULTURE INVESTMENT SOURCEBOOK FIGURE 2.2 LENDING FOR AGRICULTURAL RESEARCH, 1981-2002

Source: World Bank Internal Documents.

Since 1997, the Bank has supported agricultural other rural people, must be central partners. R&D within the framework of the development Investments in this system must be long term, of effective and efficient AKISs that “link people focused on support to increasing rural innova- and institutions to promote mutual learning and tion and competitiveness, and follow a set of generate, share and utilize agriculture-related guiding principles (see box 2.4). technology, knowledge and information” (FAO/ World Bank 2000). Such a system integrates farmers, agricultural educators, researchers, and FUTURE DIRECTIONS FOR LENDING extensionists to harness knowledge and infor- PROMOTING PLURALISTIC SYSTEMS. Public research mation from various sources for improved agencies will remain central to providing livelihoods (see figure 2.3). Farmers are at the coherence to many research efforts.1 Strategies, heart of this knowledge triangle and, along with however, must enhance, not restrict, participa- 59

Box 2.3 Common problems in public research organizations

Common problems identified in reviews of World Bank support to agricultural research result from strong path-dependency in institutional development and slow institutional and policy change: • Lack of a consensus on a strategic vision for public sector research organizations and the evolution of the research system. • Ineffective leadership for many research organizations, resulting in internal management problems and lack of political support and funding for research. • Continued emphasis on building centralized national agricultural research organizations/institutes (NAROs/NARIs) at the expense of fostering a public-private system, including universities. • Difficulties in establishing an appropriate legal and governance framework for research organizations to provide the efficiency and flexibility needed in management of financial, physical, and human resources. • Loss of highly qualified scientific staff, and difficulties in recruiting the best and the brightest. • Weak links of NAROs with other research providers, clients, technology transfer agencies and developmental organizations. • Weak accountability to clients and funders. Source: Authors

1. See the AIN, “Strengthening Public Research Institutes”

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY FIGURE 2.3 ARGRICULTURAL KNOWLEDGE TRIANGLE tion by the full range of research providers, including universities, private firms, nongovernmental organizations (NGOs), and farmer Research organizations. This will require:

• Defining public and private roles. Effective research systems incorporate both public and private organizations, each filling the role for which it has an advantage. Public funding is critical to provide public goods and to establish the rules of the game that Farmers encourage an efficient overall research system. Not all countries can afford extensive public systems, but all must have institutional capacity to provide rural people access to benefits from advances in S&T, Education Extension whether developed at home or elsewhere. Efforts to promote greater private sector Source: FAO/World Bank 2000.

Box 2.4 Guiding principles for investment in research systems

The World Bank and FAO developed the following guiding • Accountable for use of funds and for results, with principles for agricultural knowledge and information systems incentive structures that ensure assignment of qualified (AKISs) program design: staff who are given adequate support and held responsible for results. Defined role for the public sector. Research investments need • Relevant to the needs and resource constraints of to target public funding for the provision of public goods so different categories of clients, balancing objectives of that investments are: profitability, productivity, and sustainability. • Made within a sound policy framework. • Pluralistic, involving a range of institutions with different • Based on clear national strategies that articulate a long- comparative advantages undertaking different research term vision and national policies, plans, and objectives for activities. research. • Well monitored and evaluated to ensure a results- 60 • Economically efficient with benefits and expected orientation; account for impacts on human, social, and outcomes that justify the investment. environmental capital; and demonstrate cost effectiveness. • Equitable with research results available to the poor and Based on a sustainable system. Institutional sustainability minority groups. depends on principles listed above and on financial sustainability Strengthened demand for services. Strengthening demand is and development of institutional capacity through investments critical to improving their efficiency, effectiveness, and that: sustainability, and requires that investments be: • Develop human and social capital necessary for clients • Demand-driven responding to farmer needs and interests and local institutions to be capable of continuous learning and involving clients in program governance, priority and problem solving. setting, and evaluation. • Are cost-shared by major stakeholders, based on agreed • Participatory, empowering local people to solve problems criteria including ability to pay for and use research and mobilize resources. results. • Based on subsidiarity with responsibilities devolved to • Develop political support from stakeholders as a basis for the lowest possible level of government consistent securing future financing. with competency, comparative advantage, and efficient Source: FAO/World Bank 2000. use of funds. Improved quality of services. Management improvements essential to improving research execution require that research programs are:

AGRICULTURE INVESTMENT SOURCEBOOK participation in developing country research tion, and evaluation of research programs. To systems have mixed results but remain a be effective and sustainable, research systems long-term priority for science policy. must become more responsive to client demands and interests and become more ac- • Improving science and technology policy. countable to clients by: Many countries have invested substantially in technology development, while restrict- • Encouraging participation. Empowering ing import of “free” technology available farmers as purchasers, providers, and co- through access from abroad i.e. “spill-ins”. financiers of research helps ensure that Sound policy frameworks for innovation research systems respond to their needs. (intellectual property rights (IPRs), biosafety Rapid appraisals and participatory on-farm regulations, genetic resources policy, and research draws on farmer knowledge and seed and input market regulations) are provides opportunities for them to partici- prerequisites to efficient functioning of pate fully in planning, executing, and scientific organizations and to enabling develop- evaluating research. Farmer and other ing countries to reap benefits from global stakeholder participation on research advances in S&T. governing boards and advisory panels can have real influence over research decisions • Delinking funding and execution. Deci- and priorities. Participation of women sions on financing of public goods can farmers is particularly important, given often be separated from responsibilities for their crucial role in rural production sys- producing them and, even when public tems; the special constraints under which financing of services is justified, the private they operate (for example, time con- sector (for-profit or not-for-profit) is often straints); and their range of activities and more efficient in delivering the product. enterprises, including marketing, agro- Initial experiences show that competitively processing, and food storage. contracting S&T services divides responsibility between the public and private • Decentralizing and deconcentrating re- sectors and improves the quality, account- search. Decentralization strategies being ability, and impact of services. pursued in many countries lead to complex trade-offs in the case of agricultural re- • Promoting partnerships. An efficient and search. Deconcentrating research involves 61 effective division of labor for S&T depends establishing research facilities under a on partnerships to integrate the various central research institute but located in players into an overall system. Partnerships different agro-ecological zones or political allow for specialization, exploit institutional units (for example, provinces). Decentrali- comparative advantage, and may reduce zation devolves funding, governance, and costs. Partnerships are often particularly administrative responsibilities to regional, useful in linking institutions with differing state, or local governments. Both ap- competitive advantages for work at differ- proaches can bring scientists closer to ent levels of the research continuum, as clients and better focus research on local with international research centers for problems and opportunities, but they can strategic research, and NGOs and producer also result in inefficient and fragmented organizations for adaptive research. systems that fail to take advantage of important economies of size and scope in STRENGTHENING DEMAND FOR RESEARCH PRODUCTS. Past much R&D. However, where possible, investments in S&T have mostly focused on decentralizing adaptive research is desir- supply of research products. Farmers, and able, by ultimately allocating funding to especially poor farmers, generally lack ability to users, who then contract needed research participate in funding, priority setting, execu- services (see figure 2.4).

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY FIGURE 2.4 PUBLIC AGRICULTURAL RESEARCH FUNDING

62 • Responding to consumer demand. Increas- • Right-sizing. Sustainability demands that ing consumer purchasing power and national governments provide adequate changes in food preferences will promote budgetary support to agricultural R&D, and the market signals to direct private R&D. ‘right-size’ research organizations to the Public research programs also must also resources available, using funds saved for learn to respond better to market demands. operating costs and for paying scientists competitive salaries. Without evidence of SUSTAINABILITY OF R&D INVESTMENTS. Many public government commitment to such policies research organizations have suffered financial and reforms, external investment directed crises with declining budgets leading to to public research organizations is ineffi- minimal operating budgets and erosion of cient and unsustainable. Agricultural R&D salaries and incentives. Financing a recurrent must receive priority in national budgets. cycle of expansion and decline of public research organizations under consecutive • Ensuring sustainable financing. Public Bank projects is inefficient and requires investment in agricultural research in greater attention to: developing countries must increase sharply

AGRICULTURE INVESTMENT SOURCEBOOK FIGURE 2.5 AGRICULTURAL RESEARCH INTENSITY BY REGION; PUBLIC SECTOR ONLY

Source: Pardey and Beintema 2001.

in order to promote a dynamic and com- tory evaluation are key to ensuring ac- petitive agricultural sector (see figure 2.5). countability. Such reforms should help to In almost all cases, government must develop a local political constituency for provide core funding for public research sustainable organizations, but this will institutions (or universities) that maintain a generally require better evaluation of core scientific capacity to undertake long- impacts and diffusion efforts to increase term public good research. public awareness of these impacts.

• Improving management. Currently, many CHANGING RESEARCH PRIORITIES. Research systems research organizations are unproductive, must reconcile national priorities derived from suffering from poor leadership, onerous national development strategies and policies, bureaucratic procedures, political interfer- with demand driven and market-oriented 63 ence, low morale, and weak links to clients. priorities arising from clients. However, future Reforms are needed, through long-term investments will often give priority to the support for institutional development to following areas: address problems of inadequate operating funds, weak human resource policies, lack of • Improved poverty targeting. With the private performance incentives, and lack of clear sector increasingly serving the commercial priorities. In many cases, this requires the farming sector, public funding must focus creation of flexible and efficient autonomous more sharply on the poor. Public R&D research organizations that are run along organization must carefully set priorities in private-sector lines, with independent govern- terms of commodities, regions, and types of ing boards representing key stakeholders. technology important to the poor, combined with bottom-up processes of partici- • Accountability. Reforms must make re- patory priority setting, executing, and search institutions and researchers ac- evaluating research. Poverty targeting leads countable to clients and funding agencies. to quite different strategies for different Client co-financing of research, participa- types of farmers (see table 2.2). Gender is tion in governance bodies, and participa- relevant also in targeting S&T investments

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY Table 2.2 Strategies for enhancing poverty reduction of agricultural research by farm type

Sector Direct impacts Indirect impacts Major R&D actors

Commercial farmers • Increase micronutrient • Increase productivity to • Private agribusiness content of food to provide reduce food prices for • Public regulatory nutritional benefits non-tradable food staples framework • Generate employment in • Producer/trade high-value industries, organizations processing and handling Small, market-oriented • Diversify production to • Increase agricultural • Public research farmers increase value-addition productivity to stimulate • Public-private partnerships and high value crop/ overall economic growth • Producer organizations livestock production • Diversify production • NGOs • Develop technologies to systems to generate reduce production risks employment • Strengthen producer • Increase productivity to organizations to improve reduce food prices demand for research and • Increase value-added build human and social capital Subsistence-oriented • Increase productivity and • Build human and social • Public research farmers reduce production risks capital necessary to • Producer and community and improve storage and address a range of organizations utilization of food livelihood opportunities • Women’s groups • Reduce labor require- • NGOs ment for tasks performed by women and the very poor • Encourage market access 64 for higher value crops/ livestock • Improve natural resource management (NRM)

Source: Byerlee and Alex 2002.

to reduce poverty, as a large share of poor prove product quality and food safety, meet farmers are women in most developing more demanding grade and standard require- countries and the number of women farmers ments, and diversify to higher-value and niche is increasing as men migrate to off-farm products. Nontraditional exports (for example, employment. horticultural exports, cut flowers, organic foods) offer potential for major increases in • Aligning R&D to market trends. Improved rural employment and incomes, but fre- technology and information, especially at the quently require substantial research and an postharvest stage, is essential to help farmers entirely new base of knowledge and skills not to orient to market needs, lower costs, im- generally available in country.

AGRICULTURE INVESTMENT SOURCEBOOK • Natural resources and environmental country science capacity and level of devel- conservation. Degradation of natural re- opment, all countries will need to strengthen sources and public concern over environ- their policy and regulatory frameworks for mental issues, are shifting research priori- IPRs, biosafety and food safety, and identity ties and funding toward broader issues, preservation (that is, tracability of products many global in nature such as land, water, from farm to consumer). forests, and biodiversity; pesticide safety, and residue minimization; livestock waste • Strategic alliances and partnerships. All management; water quality preservation; countries can benefit from regulatory and watershed protection. There are also frameworks favorable to technology spill- increasing opportunities for agriculture to ins, public-private partnerships, and re- provide environmental services through gional and international alliances. Links to carbon farming and conserving biodiversity. the CGIAR enable many developing coun- Success in meeting these challenges re- tries to tap sources of new knowledge and quires sharply increased skills in research innovations. However, since many com- on natural resources management (NRM), modities are not covered by the CGIAR (for social sciences, and environmental issues. example, horticulture, tropical fruits, and coffee) research organizations must seek a • Social science and policy research. In many broader range of partners. Regional re- research systems, there is a perennial search initiatives led by regional or subre- problem of maintaining capacity to carry gional agricultural research organizations out socioeconomic research. This will are especially important in sharing the cost become even more crucial in future, with of research for many small countries. the need to provide support to public policy formulation, poverty reduction, a • Managing IPRs. Proprietary technologies are more market-oriented agriculture, and natural important in providing incentives for private resource management. sector research investments, but the results of such investments often do not benefit the ACCESSING NEW KNOWLEDGE. Developing countries poor. Public research institutions need the will need to make use of the latest advances in capacity to form partnerships or contractual S&T to address intractable problems in agricul- arrangements to obtain use of proprietary tural production and exploit new opportunities. scientific knowledge and to patent their own 65 Country size and level of technological devel- research in ways that will protect the inter- opment will shape different strategies for ests of resource-poor farmers. different countries, as they seek to overcome both scientific and institutional constraints STRENGTHENING UPTAKE PATHWAYS. Linear systems of associated with the use of new technologies. research that pass recommendations to exten- Key strategies to tap benefits from new tech- sion, which then transfers them to farmers, are nologies include: largely obsolete. AKISs have become more pluralistic, and farmers now seek out advisory • Investing in advanced science and technol- and information services from a variety of ogy. Biotechnology and information and sources. R&D organizations must use a range of communications technologies provide new potential uptake pathways or institutional tools to address the needs of the rural poor. mechanisms to provide research results to users. To a large extent, developing countries are not sharing in the benefits from these • Commercializing research products. Public advances, thus creating “molecular” and research institutions will increasingly rely “digital” divides. While strategies to access on private sector market mechanisms for these new technologies will vary with dissemination of research products.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY Establishing links early in the research sustainability of investments is a continuing process is often critical to ensure that challenge. Long-term commitments, through appropriate partnerships are established adjustable program lending and sequential and that the final research product can be operations, are important to building institutional used. Clustering of industries and R&D capacity and sustainability of agricultural knowl- organizations into science parks may edge and information systems. The level of facilitate commercialization of public sector financing provided might be less per year than innovations. The success of the industrial in the past, but continued over a longer period. clusters has varied greatly and seems to relate to the level of critical mass in the Increased agricultural S&T sector analysis and cluster, the diversification of the companies, policy dialogue are needed in many countries the economic incentives provided, and the that have yet to commit to reform of their intensity of interaction between R&D agricultural research systems. In these cases, bodies and business communities. policy dialogue will provide options for moving forward with reforms, before Bank support to • Linking to demand-driven extension sys- agricultural S&T is renewed. Better monitoring tems. Decentralized extension services and evaluation of research programs at all accountable to local user groups should levels is essential to improve program manage- facilitate client “purchase” of research ment and impacts, enhance scientific quality, services and products that respond to their and demonstrate results to funding agencies. needs. Matching grant programs for farmer and community groups can allow them to Finally, important gaps in established good test and disseminate new technologies. A practice that need to be addressed in future number of countries have introduced work include new approaches to research- competitive grant programs to provide such extension linkages in decentralized systems, grants to farmer groups. commercialization of research products, decentralizing research, involving producer organizations in financing and executing research, and SCALING UP INVESTMENTS multicountry research investments. Investments in S&T to support rural development remain a priority for the World Bank 66 Group. Research reforms such as competitive SELECTED READINGS funding, contractual mechanisms, user funds, Asterisk (*) at the end of a reference indicates decentralization, science parks, and regional that it is available on the Web. See Appendix 1 and international partnerships, have promise. for a full list of Websites. However, for most of these initiatives, experience is still limited, and more in-depth evalua- Byerlee, D., and R. G. Echeverria, eds. 2002. tion is required prior to wider scaling up. Agricultural Research Policy in an Era of Biotechnology is also a key investment priority, Privatization. Wallingford, U.K.: CABI but monitoring of risks, both actual and per- Publishing. ceived, must be an integral part of Bank sup- Chema, S., E. Gilbert, and H. Roseboom. In port. Complementary investments in agricul- Press. A Critical Review of Key Issues and tural education have been neglected, but are Recent Experiences in Reforming Agricul- essential to ensure a new generation of agricultural Research in Africa. Research Report tural scientists and leaders. 24. The Hague: ISNAR.* Agricultural investments must be tailored to Gijsbers, G., W. Janssen, H. Hambly Odame, individual country conditions and needs, and and G. Meijerink, eds. 2001. Planning

AGRICULTURE INVESTMENT SOURCEBOOK Agricultural Research: A Sourcebook. between Government Spending, Growth, Wallingford, U.K.: CABI Publishing. and Poverty in Rural India. Research Report 110. Washington, D.C.: IFPRI. ISNAR. International Service for National Agricultural Research. http:// FAO/World Bank. 2000. “Agricultural Knowl- www.isnar.cgiar.org. edge and Information Systems for Rural Development: Strategic Vision and Guiding Pardey, P., and N. Beintema. 2001. Slow Magic: Principles.” FAO, Rome; World Bank, Agricultural R&D a Century after Mendel. Washington, D.C. Food Policy Report. Washington, D.C.: IFPRI.* FAOSTAT. 2002. FAO Statistical Databases. http://apps.fao.org/default.htm. Tabor, S., W. Janssen, and H. Bruneau, eds. 1998. Financing Agricultural Research: A Pardey, P., and N. Beintema. 2001. Slow Magic: Sourcebook. The Hague: ISNAR.* Agricultural R&D a Century after Mendel. Food Policy Report. Washington, D.C.: IFPRI. World Bank. AKIS Sustainable Agriculture. http://www.worldbank.org/akis. Purcell, D. L. and J. R. Anderson. 1997. Agricul- tural Extension and Research: Achievements REFERENCES CITED and Problems in National Systems. Opera- Afolami, C. and A. Falusi. 1999. “Effect of Tech- tions Evaluation Study. Washington, D.C.: nology Change and Commercialisation on World Bank. Income Equity in Nigeria: The Case of Im- proved Cassava.” Paper presented at Assess- Thirtle, C., L. Lin, and J. Piesse. 2003. “The ing the Impact of Agricultural Research on Impact Of Research Led Agriculture Produc- Poverty Alleviation workshop, sponsored by tivity Growth On Poverty Reduction In CIAT, San Jose, Costa Rica. Africa, Asia And Latin America.” Contrib- uted paper for the 25th conference of the Alston, J. M., M. C. Marra, P. G. Pardey, and T. International Association of Agricultural J. Wyatt. 1998. Research Returns Redux: A Economists, Durban. Meta-Analysis of the Returns to Agricultural This Overview was prepared by Derek Byerlee, Gary Alex, R&D. EPTD Discussion Paper No. 38. 67 Washington, D.C.: IFPRI. and Eija Pehu, with inputs from the Sustainable Agriculture (SASKI) Thematic Team of the Bank. Peer review comments Byerlee, D., and G. Alex. 2002. “Designing were provided by Marie-Hélène Collion, Howard Elliott, Juergen Voegele, and Jacob Kampen. Investments in Agricultural Research for Enhanced Poverty Impacts.” SASKI Good Practice Note. World Bank, Washington, D.C.

Datt, G., and M. Ravallion. 1998. “Farm Productiv- ity and Rural Poverty in India.” FCND Discus- sion Paper 42. IFPRI, Washington, D.C.

Fan, S., L. Zhang, and X. Zhang. 2000. Growth and Poverty in Rural China: The Role of Public Investments. EPTD Discussion Paper 66. Washington, D.C.: IFPRI.

Fan, S., P. Hazell, and S. Thorat. 1999. Linkages

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY AGRICULTURE INVESTMENT NOTE scientific peer review to allocate funding. CRGPs are often linked to establishment of an agricultural research fund, open to a variety of COMPETITIVE RESEARCH potential contributors who may wish to finance FUNDS specific research on technology transfer activities through the fund. CRGPs complement Competitive research funds are being introduced “core” funding or “block” grant funding, which in many countries for financing agricultural annually allocate funds to specified public research, to mobilize available research capacity, research organizations for their core research stimulate scientific creativity, and promote programs, infrastructure, and human resources. efficiencies in the research system. Competitive research funds can be an effective mechanism for allocating resources for agricultural research BENEFITS and can drive reform of the overall research CRGPs are flexible and can be used to accom- system. High-quality review, administrative plish objectives difficult to achieve through efficiency, and transparent processes are essen- block funding. CRGPs can restrict funding to tial to program credibility, but most programs specific research topics (for example, rice); have yet to develop sustainability strategies. types of research (for example, adaptive on- farm research); projects requiring collaboration Many countries are seeking to reform to national between organizations or with farmers; or agricultural research systems that have become research within a specific region or discipline unproductive due to lack of operating funds, (see box 2.5). Their flexibility makes CRGPs a incentives, and flexibility. Competitive research useful tool in building national agricultural funds are used as financing mechanisms to research systems, as they can: mobilize available scientists for work on key problems, develop institutional linkages and • Mobilize the best available scientists, research capacities across organizations, and to including those in universities and the link scientists with users of new technologies. private sector, for work on specific high- priority projects.

COMPETITIVE RESEARCH GRANTS PROGRAMS • Develop a pluralistic research system by 68 In competitive research grants programs providing operating costs to better utilize (CRGPs) research providers are selected on a available human and physical infrastructure competitive basis, using calls for proposals and from a wide range of institutions.

Box 2.5 Ecuador: competitive grants

The Program for Modernization of Agricultural Services in Ecuador finances a competitive research grants program (CRGP) that has funded 112 research projects. The program has supported strategic work on innovations to open new export markets through controlling fruit fly (cherimoya, guava, zapote, and other Andean fruits), decreasing production costs for new export products (snails, tree tomatoes, babaco, mushrooms, and artichokes), and controlling disease and insects in traditional exports crops (banana, cacao, and coffee). The program introduced a new research culture and brought new organizations into the research system. Research projects are being executed by 45 different public and private organizations, with most projects directly linked to potential users of the technologies. The government contracted program management to a private agency to develop procedures and ensure objectivity in program operations. Research project costs averaged US$116,000, of which 54 percent is financed by grants and 46 percent by executing agencies, mostly through in-kind contributions. By leveraging of cofinancing for research projects, the program helped increase national research funding by 92 percent to approximately 0.54 percent of agricultural GDP.

Source: World Bank Internal Documents

AGRICULTURE INVESTMENT SOURCEBOOK • Promote research partnerships and collabo- Box 2.6 Brazil: EMBRAPA competitive grants scheme ration between different organizations, disciplines, or countries. In 1997 EMBRAPA (the Brazilian Agricultural Research Corporation) launched a competitive grants program to • Make research more demand-driven by diversify funding for research and stimulate efficiencies and involving clients in setting priorities and change in the national research system. World Bank financing financing, executing, and evaluating (two-thirds for competitive grants and one-third for capacity research. building) supported a program targeting small-farm production technology, advanced technologies, natural resource management (NRM), and agribusiness. • Increase total research funding by mobilizing funds from farmers, industry, and By 1999, the program had funded 69 projects (212 sub- other sources. projects) from 506 proposals submitted in five calls for proposals. Several factors facilitated the fast start-up. Brazil has a large agricultural research establishment with 5,500 full-time • Improve research quality and innovation by researchers distributed equally in EMBRAPA, state research selecting projects based on rigorous techni- agencies, and universities. The country had extensive experience cal review of scientific merit, sound work with competitive research programs, though not in the plan, and expected results. agricultural sector. The staff of the program secretariat traveled extensively to solicit stakeholder views on the program, and to publicize the program and procedures for grant proposals.

POLICY AND IMPLEMENTATION ISSUES Source: Reifschneider, Byerlee, and de Souza 2000. Success with competitive funding generally requires realistic expectations, clear priorities, efficient and transparent program management, PRIORITY SETTING. Competitive funding can and involvement of stakeholders in setting promote demand-driven research by involving priorities. It is important to be especially clear key stakeholders, especially users, in setting about objectives and desired long-term out- priorities, formulating projects, and screening comes, and to design CRGPs accordingly. proposals. However, purely demand-driven approaches with individual proposals consid- BASE FOR COMPETITION. CRGPs require sufficiently ered in isolation can lead to a fragmented large numbers of potential research providers portfolio of projects that lacks synergies to ensure a competitive environment and between activities and does not address adequate expertise for peer review and moni- national priorities. Important technological or 69 toring activities—a problem in small countries. market opportunities can be lost because of CRGPs must also enjoy strong support from farmers’ lack of information and preference research organizations and relevant govern- for short-term results. ment ministries (see box 2.6). Protection from political interference in resource allocation is PROGRAM SUSTAINABILITY. Most programs financing crucial to maintaining program credibility. CRGPs envision them as permanent features of the agricultural research system. This requires LIMITATIONS. Competitive grants can be an mechanism to ensure institutional and financial important element of overall research funding, sustainability. The institutional structure for a but are inherently unstable and do not provide CRGP must be efficient and transparent if it is the continuity required for some types of to win ongoing support from researchers and many programs. CRGPs should therefore be clients. An independent, influential, and re- used to complement core funding that pro- spected governing board can help defend the vides infrastructure, human resource develop- program and sustain its institutional vitality. ment, salaries, and support for long-term research programs requiring continuity (such COSTS AND COFINANCING. Introducing CRGPs can as crop breeding). involve high upfront costs—although established

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY funds in industrial countries have held overhead mentation with strict standards for accepting costs to less than 5 percent. Continuity of program and evaluating proposals. funding is critical, and program design should consider sources for future funding, including: PROPOSAL PREPARATION. Competitive grants are being introduced where there is no history of • Cofinancing from the research provider (a competitive funding, where there are poor grantee) to increase overall funding and incentive systems in research organizations, and demonstrate commitment to projects being where producersæespecially smallholdersæare financed. not well organized to express their demands. Proactive support for applicants to develop • Phasing in government funding for the proposals helps ensure good quality proposals CRGP, with donor financing gradually declin- by investing up front in building capacity for on- ing as a percentage of total program funding. farm diagnosis, problem definition, socioeconomic evaluation, and writing proposals. This • Building the CRGP into existing research may include workshops, field exercises, and funding so that competitive funding is used establishment of local networks with farmer to complement the core research program. organizations and extension. “Affirmative action” might be needed to strengthen capacity of • Establishing an agricultural research fund to poorer regions or weaker institutions to enable support the CRGP with funding from a them to compete for grants. variety of sources, including in some cases, an endowment. GOVERNANCE AND MANAGEMENT STRUCTURE. A sound governance and management structure is critical • Creating mechanisms for the private sector to efficient operation and integrity of a CRGP (farmers’ organizations, NGOs, and (see table 2.3). Pluralistic governance typically agribusiness) to finance grants in areas of requires an umbrella council, board, or steering special interest to the financier. committee with strong private and nongovernmental participation. A program secretariat with financial management powers and an appropri- LESSONS LEARNED ate level of technical expertise is necessary for Programs must maintain operational efficiency, efficient day-to-day program operations. 70 vitality, and transparency throughout imple-

Table 2.3 Typical governance structure for a CRGP

Governing board Responsible for overall policy for program; oversees operations; establishes program priorities and policies; represents program with funding agencies. Technical advisory committee Responsible for technical oversight of operations; provides technical input to preparation of calls for proposals; advises on peer reviewer selection; monitors technical quality of research projects. This is sometimes a subcommittee of the governing board or is combined with the technical review panel described below. Secretariat Responsible for management of program and daily operations; provides support for governing and technical bodies; facilitates communications regarding program operations. Technical review panel Responsible for evaluation, scoring, and ranking proposals and making recommendations for funding.

Source: Authors.

AGRICULTURE INVESTMENT SOURCEBOOK DECENTRALIZATION. Research—both basic and Box 2.7 Potential investments strategic—usually requires competition and selection at the national or international level, whereas adap- • Capacity building for research organizations. tive research CRGPs might be managed entirely • Analytical studies for program priority setting. at the state or district level. Decentralized • Administrative secretariat with adequate technical management is especially useful in developing assistance. regional capabilities for adaptive research and • Program promotion and assistance in preparing research developing linkages with producers. Decentral- proposals. ized CRGPs often benefit from oversight by a • Funds for research grants. • Monitoring and evaluation systems and impact studies. national secretariat. Source: Authors.

CLIENT PARTICIPATION. Farmer participation at all levels is desirable and is probably best sus- community enhance efficiency and quality of tained through participation in project prepa- research. Sound programs require: ration and execution, rather than in governing and review bodies. Rural producer organiza- • Clear program objectives that are estab- tions (RPOs) should be encouraged to col- lished from the outset to determine the laborate in, or lead adaptive research projects size, structure, duration, and type of grants under competitive grant programs. Rural to be madeæwhether for bringing new women need to be fully represented in such institutions into the research system, build- organizations. ing institutional capacity, promoting partnerships, enhancing quality of research, INSTITUTIONAL REFORM AND CAPACITY BUILDING. Com- developing linkage to clients, resolving a petitive funding can be an important tool in the high priority problem, or increasing the reform process, gradually changing the mental- total level of research funding. ity of tradition-bound research organizations. In Eastern Europe and Central Asia, CRGPs have • Specific priorities for funding that conform worked around entrenched institutional struc- to national research strategies and objec- tures resistant to change, financing critically tives to avoid a highly dispersed portfolio. needed research and demonstrating mechanisms that better link research to clients • Eligibility and screening criteria for proposals and grant recipients as these provide the 71 PHASED GROWTH. Programs should start small basis for proposal review and ensure and build on experience as scientists and quality proposals. Criteria generally cover: administrators become familiar with program scientific quality, clarity of work plan, operations and until the program’s reputation timeliness of completion, relevance to and credibility have been established. New priorities, experience of proposer, adequacy programs require a learning period as scien- of institutional support, adequacy of bud- tists come to understand and accept the get, and compliance with cofinancing proposal-writing process, and as the funding arrangements. Review sheets with scoring body gains experience with proposal solicita- and ranking systems provide a transparent tion and review. basis for selection decisions.

• Calls for proposals to provide comprehen- RECOMMENDATIONS FOR PRACTITIONERS sive information on program objectives and Care in each step of the program implementa- priorities and clear, detailed guidance for tion process is essential for efficient and effec- submitting proposals. Eligibility require- tive CRGP operations and related investments ments should be as flexible as possible to (see box 2.7). In all programs, transparency enhance participation of nontraditional and good communications with the scientific research suppliers. Calls for proposals

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY should be advertised widely to ensure that all Echeverria, R. G., and H. Elliot. 2002. “Financ- eligible candidates are aware of the program. ing Agricultural Research by Competitive Funding.” In D. Byerlee and R. G. • Technical review of all eligible proposals to Echeverria, eds., Agricultural Research evaluate each proposal according to the criteria Policy in an Era of Privatization. established. High standards of review from the Wallingford, U.K.: CABI Publishing. beginning of a program contribute to quality projects in the long term. Technical advisory panel members should have clear terms of reference REFERENCE CITED and be selected for their scientific expertise. Reifschneider, F. J., D. R. Byerlee, and F. B. de Souza. 2000. Competitive Grants in the New • Formal award of grants generally made by the Millennium: A Global Workshop for Design- governing board based on recommendations from ers and Practitioners. Proceedings of an technical review panels, possibly with consider- international workshop sponsored by the ation of additional criteria, such as regional equity, Brazilian Ministry of Agriculture and Food, strategic partnership development, and funding Embrapa, IDB, and the World Bank, May mobilization. 16-18. Brasília, Brazil: Embrapa.

• Monitoring and evaluation based on detailed This Note was prepared by Derek Byerlee and Gary Alex targets and milestones provided in project based on the Good Practice Note “Competitive Research proposals, and on semiannual and annual reports Grant Programs Good Practice for Design and Management” from grant recipients. Program evaluations must with inputs from the Sustainable Agriculture (SASKI) Thematic Team of the World Bank. be planned when the program is launched, and should focus on project outputs, outcomes, and impacts. The monitoring and evaluation system must cover individual grant projects, portfolio management by the CRGP secretariat, and institutional, economic, and social impacts of the CRGP.

72 SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

AKIS Thematic Team. 1999. “Competitive Research Grant Programs: Good Practice for Design and Management.” World Bank, Washington, D.C.*

George, Pamela. 1999. “Designing and Manag- ing Competitive Research Grant Programs: Good Practice and Lessons Learned.” Draft prepared by AKIS Thematic Team. World Bank, Washington, D.C.

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE many such organizations to seek greater autonomy and sufficient flexibility to efficiently manage financial, physical, and human re- STRENGTHENING PUBLIC sources for agricultural research. Autonomy RESEARCH INSTITUTES was expected to allow the research institute to get rid of excess staff, and improve manage- In many countries, institutional reforms are ment systems and personnel policies. Three essential to make public research organizations major types of national agricultural research more effective and efficient. A frequentæand organizations have evolved: often soundæstrategy for reform involves providing public agricultural research organizations • Semiautonomous organizations have a legal with an independent legal status and mixed status different from the regular civil service public-private system of governance. This can but lack a legal corporate identity. Such provide operational flexibility essential for sound organizations provide some flexibility in management of research, diversification of financial and personnel management, but funding, and recruitment of productive scientists. often continue to follow civil service rules. The success of these reforms depends on free- Their power to set their own business rules dom from political interference, a clear vision is often ambiguous, and they lack adequate and strategy, respected leadership, a stable flexibility to carry out modern scientific funding base, and close links to stakeholders. research. Most NAROs fall into this category.

Public agricultural research systems provide a • Publicly-owned corporations have a mixed, basis for innovation and increased productivity public-private governing body that, in necessary for a sustainable and competitive principle, has the power to set the rules for agricultural sector. National research systems financial, personnel, and asset manage- are becoming increasingly pluralistic, with a ment. However, since such organizations growing role for the private sector, new mecha- remain in the public sector, their flexibility nisms for research funding, and more global is often constrained by political factors and scientific linkages. Despite these changes, public funding continues to dominate. public sector NAROs continue to have a central Research organizations in Colombia, Uru- role to undertake basic and long-term research, guay, and Brazil are in this category. to provide public goods products, and to 73 support overall development of the research • Private or nongovernmental research system. However, many public research organi- corporations are fully private entities that zations need to resolve problems of low pro- operate for-profit or not-for-profit. These ductivity and relevance if they are to effectively organizations have full powers and more carry out these roles. independence from political processes, though they might still receive considerable financial support from government. The AUTONOMOUS NATIONAL AGRICULTURAL Crown Research Institutes in New Zealand RESEARCH ORGANIZATIONS (private for profit) and some research Most public research organizations were estab- foundations such as FUNDAGRO in Ecua- lished in the 1950s and 1960s as research dor (private not-for-profit) are examples. departments under ministries of agriculture. These grew over time with strong donor In practice, newly created autonomous or semi- support, but soon ran into problems due to autonomous research organizations have lack of compatibility between civil service rules generally found themselves still reliant on and the requirements for efficient research public funding, and substantially under the execution. By the 1980s, these problems led control of the ministry of agriculture. Autonomy

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY has not solved all problems, but it has gener- unproductive scientists, and a collegial, ally proven preferable to managing research nonhierarchical, and nonbureaucratic institutional programs within a government bureaucracy environment. (see box 2.8). Whatever their legal base (public or private), national or subnational organiza- Increased political status of an autonomous organizations will likely continue to form the backbone tion can give the director the same political of national research systems, and will continue status as the most senior government official in to rely on public funding (Eicher 1999). Long- the sector and can increase the influence of the term development of these organizations must research establishment in national policy be planned in the context of the overall na- debates, and can be an asset in negotiating tional research system, and with a view to the agreements with local or international organiza- roles that the research organization will play in tions. that larger system. Increasing stakeholder involvement includes farmers and their associations, the broader BENEFITS scientific community, and other branches of Major reasons for creating legally independent government in the governance and financing of NAROs include administrative flexibility and the research organization (see box 2.9). This increased stakeholder involvement. helps focus research on the most critical problems facing agriculture, informs users of new Administrative flexibility enables NAROs to technologies being developed, and diversifies obtain competent management, maintain a the base of funding for research. Participation creative environment, and have dependable by the broader scientific community, especially operating budgets. Good research depends on by universities, facilitates research collaboration respected leaders and highly qualified scientists and enhances scientific rigor in evaluating motivated to perform. This requires a flexible research programs. recruitment and promotion system, the ability to reward outstanding performance and dismiss POLICY AND IMPLEMENTATION ISSUES Many initiatives to create autonomous NAROs in the 1980s and 1990s failed. Reasons in- Box 2.8 Uruguay: effective reform cluded: fear by government officials that the 74 organization might abuse its autonomy; During the 1980s, it became apparent that the Uruguayan institutional cultures that were too weak to Agricultural Research Center under the Ministry or Agriculture prevent NARO officials from abusing flexibil- was constrained by civil service regulations and poor linkages to ity; defective design (such as statutes that farmers. As a result, in 1989, the National Agricultural Research Institute was created as a publicly owned legal entity, but with full poorly defined roles for the governing body); powers to set its own business rules along private-sector lines. flawed implementation (such as government The institute is governed by a Board of Directors, with two interference with NARO management); and members from government and two from farmer organizations. external and internal resistance (such as Farmers contribute about 40 percent of its budget through a levy opposition from staff who feared loss of job (0.4 percent) on sale of agricultural products. Government is security). Overcoming such opposition and obliged by law to provide a matching contribution. establishing new operating procedures re- Total research funding has increased and the institute has quires time and consistent support for man- developed a good reputation for its research work. One key to agement improvements. success was strong links to clients through decentralized research stations with regional advisory councils of farmers. Commodity Decentralization reforms are being pursued in working groups, roundtable consultations, and a technology many countries with a view to improving public diffusion unit further strengthen relations with clients. services. For research systems, especially in Source: Allegri 2002. larger countries, these can serve to provide

AGRICULTURE INVESTMENT SOURCEBOOK Box 2.9 Cote d’Ivoire: private National Agricultural Research Center

By the early 1990s, poor human and financial management, weak staff accountability, and lack of farmer input to program content caused inefficiency within the Cote d’Ivoire public research institute. Agricultural research came under strong pressure to provide technical support to producer organizations (POs) and extension staff and as a result, the National Agricultural Research Center was established as a private company with minority financial participation by the state. Board members are elected by the general assembly, which has a majority of users. After an external selection process, researchers were appointed and given three years to choose between remaining as civil servants with the Ministry of Sciences or becoming Center staff with private status. The researchers agreed to take Center employee status, provided their retirement and health insurance rights were guaranteed. The Center’s structural reforms and decentralization facilitate relationships with the private sector; a new salary and incentives system is enjoyed by researchers; and POs, which have strong representation on the board, support the new structure. Follow- ing four years of discussion, POs, the Center, the extension agency, the Ministry of Agriculture, and donors are setting up a National Decentralized Interprofessional Fund for Agricultural Services Financing, which will finance research, extension, training, and PO development. The Fund will be managed by users, with funding from levies on major crops to ensure financial sustainability for core agricultural services. The government and donors may provide additional funding.

Source: World Bank Internal Documents. administrative flexibility, facilitate closer links to for consulting or contract research, liberal clients, and allow for better focus on problems training and sabbatical policies, and arrange- of a particular province or agro-ecological zone. ments to commercialize research innovations. Both decentralization and deconcentration can realize some of these outcomes, but may sacrifice economies of scale and scope, and LESSONS LEARNED lose the critical mass of scientists and facilities There is no single “right way” to reform re- that is often necessary for productive research organizations, as the specific country search. Still, decentralizing adaptive research context and maturity of the existing research is important in almost all cases as a means of organization must be considered. improving responsiveness to client needs. KEY REFORMS. To be truly independent, NAROs Salary scales for scientists are a recurring must have an independent governing body to problem in public research organizations. prevent undue political interference. A governing 75 Although good scientists generally compete on body representative of major stakeholders, international or regional markets, many NAROs selected on the basis of professional merit, should maintain civil service salary scales for research have freedom to select the chief executive officer scientists that are inadequate. While this is based on merit and to establish policies for open, indefensible, there is no easy solution without transparent, merit-based recruitment and promotion, broader civil service reform, as senior civil and performance-based evaluation and reward systems. servants generally resist increasing salaries for The chair of the governing body should generally be a scientists above those of other government highly respected individual from outside government. officials. Ongoing reforms in China are using a rigorous review process to identify about one- SEPARATION OF FUNDING AND EXECUTION. Increasingly, third of the scientists who are internationally the bodies that fund research are separate from competitive and who will be put on a special those that perform research. Competitive and pay status that will quadruple their salaries; contractual funding mechanisms favor organiza- other scientists will be assigned to privatized tions that can deliver high quality, relevant research organizations or retired. Other incen- research (see box 2.10). They need to compete tive options include: providing opportunities for grants, and the signing of results-oriented contracts often improves performance.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY Box 2.10 Bangladesh: failed reform

The Bangladesh Agricultural Research Management project (1996-2001) failed to achieve projected efficiencies through institutional reform relating to the structure and role of the Bangladesh Agricultural Research Council, and associated national agricultural research organizations (NAROs). As a result, despite having financed useful research, the project outcome was considered “moderately unsatisfactory” and sustainability “unlikely.” Problems started early. Although the government passed an act to empower the Council there were requests for “flexibility” in the reform agenda even before appraisal. At appraisal, the government announced that personnel reforms were not possible, and research institutes could not be separated from parent ministries. During implementation, three major problems were not addressedælack of the Council’s authority over research institutes, lack of central budget and program coordination, and excess numbers of institutes and stations. Fundamental problems included the lack of a high level champion for reforms, and inability to subordinate individual interests of ministries and institutes to the need to improve overall coordination and efficiency. As a result, research efficiency suffered and the Council is considered “unsustainable.”

Source: World Bank Internal Documents.

BROADER PUBLIC SECTOR REFORM. Many countries are tion should be paid to developing human attempting to modernize and reorganize the resource management and incentive systems. public sector as a whole. In reforming research organizations, consultations with those managing broad public sector reforms are important. RECOMMENDATIONS FOR PRACTITIONERS Past experience provides a number of good OPERATING RULES. In creating or reforming an practices for the successful NARO reform and autonomous research body, considerable time related investments (see box 2.11). and resources are required to develop appropriate rules and policies. A governing body and • A thorough analysis of current performance a chief executive officer with requisite skills is required to lay the foundation for clear and experience from outside the public sector mission and vision statements that establish facilitates this process. Those with only public a clear role for the organization, define sector experience are likely to copy govern- public sector roles, and link the organiza- ment business rules and policies, defeating tion to funding sources, technology transfer 76 major objectives of autonomy. Particular atten- agencies, and national policy organizations (see box 2.12).

Box 2.11 Potential investments • Planning should be fully participatory through workshops and consultations that • A management change team. • Technical and legal assistance for developing the legal include a full cross section of farmer documentation for establishment. categories. • Technical assistance and training for establishing operating procedures, manuals, and guidelines. • Identifying a leader, or a “change” manager”, • Civil works and equipment. is important as independent research organi- • Training for governing board members, NARO manage- zations with poor leadership often fail. ment staff, and key stakeholders. • Core operational funding for research programs and for capacity development on a declining basis. • An effective governing body that is highly • Funding for competitive grants programs. professional, representative of key stake- • Technical assistance in developing diversified sources of holders, and independent is critical. Terms funding. of reference for the governing body should • Partnerships and linkages with international research clearly define its role in formulating policies programs. and priorities for the organization, but avoid Source: Authors. interference in its day-to-day management.

AGRICULTURE INVESTMENT SOURCEBOOK • Institutional and legal reform should be Box 2.12 Stakeholders to include in the governing body accompanied by strategies to diversify funding usually through: participation in • Producer organizations competitive grants schemes, commercial- • Agribusiness sector ization of research products, tapping of • Ministries of Agriculture, Science and Technology, and private funding through production Finance levies, contracts with the private sector, • Technology transfer agencies-public or private, including and joint ventures. NGOs • Distinguished university scientists • The price of flexibility is greater account- Source: Authors. ability for results. Funding agencies must establish realistic, clearly understood performance measures of evaluating performance. The staff of funding agencies need training in this area.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

AKIS Thematic Team. 1998. “Reforming Agricul- tural Research Organizations: Creating Autonomous Bodies and Managing Change.” AKIS Good Practice Note 01/99. World Bank, Washington, D.C.*

Byerlee, D., and R. G. Echeverria, eds. 2002. Agricultural Research Policy in an Era of Privatization. Wallingford, U.K.: CABI Publishing. 77

REFERENCES CITED Allegri, M. 2002. “Partnership of Producer and Government Financing to Reform Agricul- tural Research in Uruguay.” In D. Byerlee and R. G. Echeverria, eds., Agricultural Research Policy in an Era of Privatization. Wallingford, U.K.: CABI Publishing.

Eicher, C. K. 1999. “Institutions and the African Farmer.” Issues in Agriculture 14. CGIAR, Washington, D.C.

This Note was prepared by Derek Byerlee and Gary Alex based on the Good Practice Note “Reforming Agricultural Research Organizations Creating Autonomous Bodies and Managing Change” with inputs from the Sustainable Agriculture (SASKI) Thematic Team of the World Bank.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY AGRICULTURE INVESTMENT NOTE sustainability and establishing sound research programs. This is changing as CRGPs have increased university participation in agricultural ENHANCING UNIVERSITY research of national importance in a number of PARTICIPATION IN NATIONAL countries, including Ecuador, Brazil, and Chile. AGRICULTURAL RESEARCH SYSTEMS International donors have invested heavily in universities and faculties of agriculture. From Universities, with their functions of educating 1964 to 1990, World Bank-financed projects students and generating and disseminating provided US$713 million for 41 projects sup- knowledge, are central to productive AKISs. porting universities in 25 countries (both The number of agricultural faculties has grown agricultural and general). From the 1950s to rapidly, and since about half of the agricultural 1996, the United States Agency for International scientists in developing countries work in Development (USAID) provided US$456 million universities, they have considerable potential to for 63 agricultural universities in 40 countries. carry out research. University faculties devote In the 1990s, donor support to universities about 25 percent of their time to research, and declined sharply, but there has been a renewed the balance to teaching programs, supervising interest in the important symbiotic relationships postgraduate students, and consulting. Agricul- between investments in agricultural higher tural universities and faculties of agriculture in education, research, and extension. Three universities face challenges of providing rel- recent examples illustrate the “new directions” evant and high quality training for future in donor strategies for supporting tertiary agricultural scientists, mobilizing funding for (higher) education: research, disseminating research findings, and recruiting, promoting and retaining gifted • The World Bank publication Constructing teachers and researchers. Knowledge Societies (2002) stresses the powerful role that universities play in Agricultural universities and faculties of agricul- creating and disseminating knowledge, ture in universities in developing countries are building professional capacity, and reduc- central to building a comprehensive AKIS. They ing poverty. train future research staff and have the poten- 78 tial to use existing staff and facilities, such as • Four United States foundations have com- libraries, laboratories, and demonstration farms mitted US$100 million to assist in reforming to carry out research at marginal additional universities in six countries in Africa over cost. Many universities also provide consulting the 2000-2005 period. services to various public, private, and NGOs. • USAID in 2002 launched a new global Degree training is the primary function of training and capacity-building initiative to agricultural universities. From the early 1960s to increase graduate training in food and the mid 1980s, agricultural universities helped agriculture in United States universities, and to quadruple the number of developing coun- to strengthen agricultural higher education try agricultural researchers. However, results in developing countries. from the early phase of donor investment in university research have been mixed. Some UNIVERSITY CONTRIBUTION TO NATIONAL agricultural universities actively participate in AGRICULTURAL RESEARCH SYSTEMS AKIS and generate high-quality research, but in Many universities have the potential to partici- others, research capacities have eroded. Many pate in national agricultural research systems universities have expanded training capacities, (see box 2.13). Competitive grants, contracts, but have been unsuccessful in achieving fiscal and other mechanisms provide the necessary

AGRICULTURE INVESTMENT SOURCEBOOK Box 2.13 Uruguay: linking universities to the National Research Institute

In Uruguay, effective linkages have established a research partnership between universities and the National Research Institute. • Ten percent of the Institutes research budget is set aside for competitive contracting for research with outside agencies. Universities receive almost half of this funding. • University and Institute staff meet annually to prepare joint research programs. • Senior Institute staff spend up to 20 percent of their time teaching at universities. • The Institute facilitates university linkages with international programs (especially the international agricultural research centers. • University students receive National agricultural research institute fellowships. Source: Hobbs et al. 1998. links to do this (see box 2.14). In addition, as • Regional research. A university can assume private universities are becoming more lead responsibility for work on a particular important in the provision of higher education, commodity or production system within its these also should have an equal opportunity to region. compete for government support for technology development programs. • Consultant services. A university can provide consultant services by providing its The complementary nature of research, educa- research findings to NARIs, NGOs, interna- tion, and extension indicates a need for close tional agencies, and commercial firms. communication and cooperation among the core institutions in pluralistic national technology development systems. Agricultural universi- POLICY AND IMPLEMENTATION ISSUES ties and agricultural faculties can make the Universities must adapt to a changing global following contributions: agricultural environment and address new training and research challenges related to • National research. A university can assume NRM, agribusiness, biotechnology, and trade. full responsibility for public sector agricultural research by establishing a NARI within TRAINING FUTURE RESEARCH SPECIALISTS. Historical the university. support of donor-funded overseas postgraduate training is declining. World Bank support 79 • Basic research. A university can focus on for such training declined by 34 percent from basic and strategic research, leaving applied 1990 to 1997, and the number of USAID- and adaptive research to other institutions. financed postgraduate students studying

Box 2.14 Ghana: establishing a university role in national agricultural research programs

In Ghana, the Bank-supported National Agricultural Research Project, initiated in 1992, helped bring universities into the national research program through two mechanisms: • The Ghanaian National Commodity/Factor Research Programs, established for 17 strategically important research areas, are led by Program Coordination Committees. Scientists from universities serve on these committees and may serve as program coordinators. • A research grants scheme was designed to draw universities and other institutions into the research system, and to complement research activities under the national program. The scheme gave priority to basic and strategic research. By mid 1998, it had funded 110 research projects, including 34 that supported postgraduate research at local universities. Source: World Bank Internal Documents.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY agriculture in the United States fell from 310 in their university salaries, research programs are 1990 to 82 in 2000. often disrupted and the time available for research and supervision of postgraduate Long-term training for most masters’ students is students is curtailed. now undertaken in developing countries, and doctoral students are educated in both indus- FINANCING UNIVERSITY RESEARCH. Competitive fund- trial and developing countries. The next ing mechanisms are becoming increasingly challenge is to improve the quality and fiscal important for financing university research (see sustainability of universities that have devel- box 2.15), but if overhead costs are not cov- oped a regional reputation for high-quality ered, there can be a net loss of funds available masters’ and doctoral training. for the university’s own research program. A sustainable agricultural research program UNIVERSITY RESEARCH AND NATIONAL STRATEGIES. requires funding for: Research priorities must balance the university’s independence against strategic national re- • Infrastructure (building laboratories, estab- search needs, with policies and strategies lishing electronic communications, procur- designed to encourage, not stifle, individual ing equipment, and acquiring land or other initiative by scientists. Tying national funding to facilities) and training research students to research on high-priority topics will stimulate the masters and doctoral level. research in these areas. • Thesis research of postgraduate students FACULTY INCENTIVES. University programs require possibly funded through a competitive adequate salaries, innovative policies relating grant program or a research fund dedicated to faculty consulting, and incentives to faculty to thesis research. for development-oriented research and for mentoring and supervising postgraduate • Strategic research programs focusing on students. When university scientists take particular problems, such as biotechnology second jobs or consulting work to supplement or natural resources management. These programs require long-term funding and are usually inappropriate for funding Box 2.15 Chile: financing university research through a competitive system. 80 In Chile, even though the primary mission of higher education is • Maintaining relevance and effectiveness of training, the budget for agricultural research at the nation’s 17 research programs by establishing mecha- universities reached US$4 million in 1995. Funding came from: nisms to expand interaction with farmers. • Government grants to universities, including a research Universities can gain local agricultural fund used to contract staff. knowledge by recruiting students from farm • National competitive research grant programs (CRGPs), backgrounds, integrating students into joint which are a major source of research funding, but provide university-NARI research projects, and funding that is unstable, unfocused, and does not cover expanding research in the rural social overhead costs. sciences and in rural production systems • Government research contracts, mostly for applied and covering farming systems, ecosystems, and adaptive research projects. • Sale of research goods and services, especially contract agro-ecological regions. research. • Research grants from private sector and international sources. LESSONS LEARNED • University income and other sources that provided small Strategic plans, institutional structures for amounts of research funding. research, and project investments can enable Source: Venezian 1993. universities to execute high-quality research, if

AGRICULTURE INVESTMENT SOURCEBOOK the universities have an adequate policy frame- Box 2.16 Uganda: building an integrated agricultural work. (see box 2.16). knowledge and information systems

CRGPs targeting university scientists are cost- In Uganda, the five-year Agricultural Research and Training effective mechanisms for linking university Project, initiated in 1993, built an integrated system for research capability to national programs. agricultural research and education that includes universities. Assistance with grant proposal preparation Support to the university system covered: might be needed to help universities compete • Training to fill critical gaps in the university faculty. for such funding. • A Continuing Agricultural Education Center to provide demand-driven training for clients. Research infrastructure development should • A program for twinning Makerere University with foreign conform to university research priorities, with universities to strengthen curricula. expansion limited to essential facilities that • Capacity building for diploma-level training at agricultural can be maintained over time. Investments colleges. • Close coordination with universities in developing an should include human resource development effective national agricultural research institute (NARI). through postgraduate training and sabbaticals Source: World Bank Internal Documents. as well as investment in equipment, buildings, and related facilities. pluralistic national technology systems. Project Postgraduate programs provide universities investments (see box 2.17) can: with a cadre of motivated and low-cost student researchers. Client-oriented postgraduate EVALUATE UNIVERSITY CAPACITY TO CONTRIBUTE TO research contributes to the relevance of univer- R&D. Assessments of institutions and their sity programs, links research to teaching and agricultural research capacities and programs has the potential to attract funds from the should categorize universities as to whether private sector, donor projects, and other they deserve broad program support and can sources. Successful postgraduate programs effectively absorb such support; need reform, require an experienced faculty, an adequate but are still appropriate for targeted assistance; physical infrastructure, library and Internet or require major reforms before investments resources, and modest operating budgets. can be justified. Major university investments should also be conditioned on commitments to University programs establishing strategic respond to market and client needs. 81 research alliances with other institutions can strengthen national research programs while ESTABLISH MANDATES AND STRUCTURES. At both the building postgraduate training capacities in national government and university levels, im- universities. Ecuador’s competitive grants proving the framework for productive university program financed strategic alliance grants that involvement in research generally requires: enabled universities to establish partnerships with local and foreign institutions to develop Box 2.17 Key investments to develop university research postgraduate training programs and expand capacities core research capability.2 • Infrastructure (human and physical). RECOMMENDATIONS FOR PRACTITIONERS • Postgraduate degree training. Balanced development of efficient and sustain- • Strategic alliances. able technology systems suggests that universi- • Core research support. ties must become important contributors to • Competitive research grants. Source: Authors.

2. See the IAP, “Ecuador: Strategic International Alliances for Capacity Building and Research”

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY • Providing university research programs REFERENCES CITED legitimacy and visibility, helping align Hobbs, H., C. Valverde, E. Indarte, and B. programs with national priorities, and en- Lanfranco. 1998. “The Agricultural Technol- abling them to attract government funding. ogy Development Fund for Contract Re- search: An INIA (Uruguay) Initiative.” • University support to effectively carry out Briefing Paper 40. ISNAR, The Hague. research. This often requires a policy statement; a strategy outlining priorities and links Venezian, E. 1993. “A Case of University Partici- to users and other programs; incentive systems pation in National Agricultural Research: the that reward mentoring and supervision of Faculty of Agriculture, Catholic University postgraduate students and client-oriented of Chile.” In FAO, The Role of Universities in collaborative research; and a small research National Agricultural Research Systems. management unit to facilitate funding, execu- Report of the FAO Expert Consultation, tion, planning, monitoring, and evaluation. March 10–22, 1991. FAO, Rome.

• NARI-university partnerships, which include This Note was prepared by Carl Eicher and Gary Alex, joint research projects, joint supervision of based on a World Bank Good Practice Note “Integrating postgraduate students, and joint seminars Universities into National Agricultural Research and Exten- and annual research reviews. sion Systems,” with inputs from the Sustainable Agriculture (SASKI) Thematic Team of the World Bank. • Links to clients and stakeholders to ensure that programs respond to client needs. Links can be established with POs and rural NGOs that promote equity in development.

• Research publications that disseminate and promote research findings and increase the visibility of university programs. Equal incentives should be provided to locally published, development-oriented research, and to more academic work published 82 internationally.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

FAO. 1993. “The Role of Universities in Na- tional Agricultural Research Systems.” Report of the FAO Expert Consultation, March 10-22, Rome.

World Bank. 2002. “Constructing Knowledge Societies: New Challenges for Tertiary Education.” World Bank, Washington, D.C.*

World Bank. AKIS Sustainable Agriculture. http://www.worldbank.org/akis.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE pate in the design, testing, and dissemination of appropriate technologies is the objective of widespread experimentation with farmer LOCAL AGRICULTURAL participatory research groups in developing RESEARCH COMMITTEES countries. CIALs were developed to provide farmers and POs with a research service that is Local Agricultural Research Committees (known accountable to its client group, increases the by their Spanish acronym CIALs) are locally- ability of R&E services to reach remote areas, elected groups of farmers who run volunteer and provides feedback to improve the design agricultural technology testing services financed of technology. by local contributions in cash and kind and supplemented by funds from state or NGOs. The CIAL is a farmer-run, volunteer research CIALs enable farmers to express their technol- service that is initiated by and answerable to its ogy demands, and participate in the design, client group. Client groups may be informal or testing, and dissemination of appropriate formally organized groups of farmers motivated technologies. This adaptive research service is to test agricultural innovations (including the accountable to its clients, increases the out- best local practices) when appropriate technolo- reach of technology services to remote areas, gies are lacking or unproven for local condi- and provides feedback to improve technology tions. The client group elects a committee of design. Training facilitators and committees is a farmers chosen for their interest in experimenta- one-off investment that enables a research and tion and willingness to serve. The client group extension program to expand its coverage at can replace committee members who do not low cost, or to reduce the overall cost of put in enough time and elect new ones. Com- maintaining contact with farmer groups. The mittees, ranging in size from four to more than CIAL approach has been adapted successfully 20 members, conduct research on local, priority in eight Latin American countries and is ex- topics. This approach enables farmers to share panding in Africa and Asia. risk and build on local experience when trying out untested agricultural innovations. Development of technology recommendations is costly and time consuming, and mechanisms The committee works with its clients to estab- to ensure feedback to research and extension lish priorities for research topics, consults with (R&E) providers from poor farmers are essen- R&E providers, raises funds, plans experiments, 83 tial, but widely lacking. This results in low rates conducts trials on several farms, and regularly of technology adoption by resource-poor reports results to clients and R&E providers. producers. Even where a market for R&E Initially, the committee organizes a diagnostic services exists, the weak capacity of farmers to process in which all clients participate in express demand is a constraint. However, consultations with other farmers. When priori- resource-poor farmers in tropical countries ties are being established, attention to gender have successfully developed profitable and or ethnic differences is important, and special ecologically sustainable agricultural technolo- interest groups may need or demand a commit- gies on their own. Collaboration between tee of their own. A local or regional facilitator farmers and researchers at an early stage in the encourages client groups to choose a research design and testing of technologies has the theme with good chances of success, and with potential to blend local and nonlocal technical the potential to benefit most of its clients. knowledge and lead to successful innovations. When the client group identifies a research topic, the committee searches for information LOCAL AGRICULTURAL RESEARCH COMMITTEES to establish whether there is really a need for Strengthening the capacity of poor farmers to research. If the committee finds that locally- articulate their research needs and to partici- proven technologies are available, it asks

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY farmers or R&E providers experienced with the whether the committee’s priority is research or technology, to provide community-wide train- community development. If it is research, a ing. If committee members are unsure of what small group of expert farmers experiment with works locally, the experiment, will generally innovations on behalf of their client group. If compare multiple, unproven solutions that may the priority is community development, the be indigenous or of external origin. CIAL process may be included in social projects, such as credit schemes. The major costs of establishing a CIAL are incurred during the first year for training and a Effective links to research organizations is key one-off petty cash or inputs’ fund for opera- to all CIAL approaches. When farmers are very tions. For example, in Colombia, facilitator poor and there is a high level of cultural training by salaried professionals costs approxi- dependency or risk-avoidance, adaptations as mately US$600 and the start-up funds for CIAL outlined in box 2.19 are useful first steps in operations (the CIAL Fund) range from US$25 establishing effective CIALs. to $500 per CIAL in cash or kind. The facilitator, who may be a professional or a farmer with BENEFITS prior experience in a local committee, assists CIALs have achieved three types of benefits: client groups to establish CIALs, and then more rapid technology adoption; human and progressively hands over responsibility to the social capital formation; and welfare benefits. committee. One facilitator can support 50 or Technology adoption and welfare benefits more CIALs, provided that person can bring accrue to the wider client group; human and some members to regular meetings or has social capital formation benefits accrue mainly transportation to visit them. Training of facilita- though not exclusively to the members of tors and committees is a one-off investment that committees. Farmers and their organizations enables a research and extension program to gain new knowledge and skills plus the capac- expand coverage at a low cost. Training of ity to engage R&E providers in support of local experienced farmers as facilitators drastically experimentation (see box 2.20). reduces costs.

The CIAL process has been adapted success- POLICY AND IMPLEMENTATION ISSUES fully to different situations provided that com- FINANCIAL SUSTAINABILITY. CIAL costs depend 84 mittees, facilitators, and client groups keep to primarily on the frequency of visits by facilita- the basic principles outlined in the Recommen- tors and the number of CIALs supported by dations for Practitioners section. Adaptations by each facilitator. This in turn depends on the NGOs, universities, local governments, pro- density of CIALs in a region. Typical levels of ducer organizations, vocational schools, and facilitator-CIAL contact are biweekly for a new experiment stations has resulted in a wide CIAL. After the first experimental cycle the variety of committees (see box 2.18). The main frequency of contact is reduced progressively, difference in committee adaptation depends on and costs typically drop by 50 percent. In Colombia, in 1999, the cost of establishing a CIAL averaged US$670 for the first year, Box 2.18 CIAL development and spread declining to US$400 in the second year and US$200 in the fourth year. The costs of CIAL The CIAL approach to participatory on-farm research was first operations are often partly financed by spon- used by the International Center for Tropical Agriculture in sors who provide experimental inputs and/or 1992. By 2003 over 250 CIALs operate in eight Latin American countries. An unknown number of adaptations of the approach petty cash (for example, NGOs, local govern- exist in East and West Africa and Asia, including China. ment, R&E providers), and will be partially or wholly financed by local farmers’ contribu- Source: ISNAR. tions and community-based fundraising by

AGRICULTURE INVESTMENT SOURCEBOOK Box 2.19 Alternative approaches used in different situations

• Where short-term food security is a priority, begin by evaluating treatments in researchers’ trials, and subsequently share risk in farmer-run experimentation (Ecuador, East Africa). • Run a collective production plot using proven technologies together with the CIAL’s small experimental plots for untried technologies. The collective production helps compensate committee members for their time and adds to the petty cash fund (Honduras, Colombia). • Test and monitor innovations on farms without establishing formal experiments. This is especially useful with livestock or natural resource management (NRM) practices (East Africa, Southeast Asia) • Elect a large committee. In Northeast Brazil large committees sustained CIALs through periods of seasonal migration. In Honduras, large committees made the human capital development benefits of membership accessible to a broader cross- section of the client group. • Create a petty cash fund by providing the CIAL with experimental inputs in kind and then use profits from trials to fund the committee’s activities. This enabled CIALs in Bolivia and Colombia to increase their petty cash fund. • Run the petty cash fund as a revolving credit fund or as a small venture capital fund that makes loans for equipment that is rented out to the client group. • Form a CIAL to provide R&D on new products or processes for small agro-enterprises. Source: Authors.

committees (for example, raffles, dances, maintained with an NGO or state research or collective production plots). Once a petty cash extension provider. Mature CIALs can function fund has been established, most committees successfully with as little as three or four keep their fund going, and some have in- contacts per year with their facilitator, but creased their funds over time. The costs of geographically-isolated CIALs do not realize facilitator salaries and training are most com- their full research potential. R&D providers monly borne by sponsors such as NGOs, working with CIALs must commit to regular universities, local government, or public sector contact, respect for farmer research, punctual- R&E providers. ity, accountability, and shared decisionmaking. Support from R&D decisionmakers and links to local government enhance sustainablity (see LESSONS LEARNED box 2.21). In the initial phases, institutions can INSTITUTIONAL SUPPORT. CIALs provide a local overburden CIAL members with incessant adaptive research service that accelerates demands for meetings, but continuing contacts 85 innovation when an active relationship is can motivate participation.

Box 2.20 The potential impact of Local Agricultural Research Committees

• Strengthened farmer experimentation. An impact study of over 300 households in Colombia found that individual farmers influenced by Local Agricultural Research Committees (CIALs) were involved in over 50 different kinds of experiments on their own. • Improved the quality and relevance of on-farm research. Monitoring shows that 75 percent of CIAL experimental data can be statistically analyzed by scientists, and that other data are meaningful to farmers (CIAT, 1998). • Developed agro-enterprises. CIALs have introduced profitable new crops, post-harvest processes and/or new varieties. • Improved food security. An impact study in Colombia found that communities with CIALs had fewer respondents short of food in the “hungry months,” compared to those without. • Increased poor people’s access to new technologies. In Colombia, analysis of 15 technologies found that 63 percent of farmers in the poorest strata were adopting between six and 15 CIAL technologies, and were as likely to do so as the better-off strata of farmers. The speed of adoption of new technologies was faster in communities with CIALs and their neighboring communities, than in other communities that relied on traditional R&E. Source: Authors.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY Box 2.21 Bolivia: organizing Local Agricultural Research on their success in teaching large numbers of Committees in municipalities farmers to adopt proven technologies, they undervalue the generation of useful knowledge Sustainability and accountability can be ensured by establishing made available to many by CIALs. Restricting channels whereby Local Agricultural Research Committees CIALs to demonstrating technologies usually (CIALs) set priorities for their research and report back to means their experimentation is not driven by established farmer organizations and local government. In the client group’s demand for innovation, but Bolivia, municipalities are required by law to identify and by the facilitator’s perception of what is “safe.” respond to community demands for services, and rural CIALs play an important role in participatory municipalities must involve farmers in preparing municipal development plans and in local boards for economic promo- learning by generating new information, but they are tion that coordinate development efforts. Colmi Municipality a complement to assisted learning, not a substitute. already has ten CIALs with committee members elected by the In practice, many CIALs engage in both research and farmer organizations or rural syndicates, themselves elected by assisted learning. communities. The CIALs are linked with the municipality through their syndicate’s central office, which participates in Colmi’s local board for economic promotion and serves as a RECOMMENDATIONS FOR PRACTITIONERS channel for CIALs to influence municipal priorities, request Many features of the CIAL process (such as support, and contribute to municipal projects. This is proving an important source of human and social capital. type of sponsoring organization, who facilitates, committee size, type of experimentation, Source: Authors. size of petty cash fund) and related investments (see box 2.22) can vary greatly, provided that sponsors, trainers, client groups, committee ORGANIZATIONAL BASE. CIALs work best when members, and facilitators understand and formed inside a client group’s informal or formal adhere to the following basic principles: organization (for example, when a community, farmer association or cooperative, women’s • Form CIALs by motivating the client group group, parent’s association, parish council, or to elect farmers interested in testing agricul- small enterprise elects and oversees the commit- tural innovations and by building on local tee). Establishment of a CIAL inside an R&E experience. Programs need to support organization is a second-best option, as this can farmers in learning how to innovate rather result in loss of direct accountability to clients. than demonstrating technological “fixes.” 86 SOCIAL CONSIDERATIONS. CIALs can catalyze commit- • Establish a CIAL research topic priority that ment to collective action and to women’s partici- is relevant to the majority of farmers in the pation, but factionalism, conflict, or suspicions client group. within the client group can seriously undermine its support for a committee. Women’s participa- • Plan activities that regularly generate and tion in CIALs is often difficult and associated sustain the petty cash fund needed to with the need to gain acceptance. A CIAL must support CIAL operations. regularly report on progress to its client group to ensure accountability of the committee, so that • Expand and rotate committee membership research products belong to the community, not and ensure that committee members provide to the committee or individuals. regular progress reports on experiments to their clients, so that that research products REAL TECHNOLOGY DEVELOPMENT. CIALs are cost- reach the wider community and not just the effective when they build local capacity such as committee members or the sponsor. helping poor people collectively manage untried innovations. If clients, committees, • Include committee experimentation for very facilitators, or R&E providers judge CIALs only poor, risk-averse client groups in social

AGRICULTURE INVESTMENT SOURCEBOOK projects with short-term returns to sustain Box 2.22 Potential investments commitment over time and build local capacity. • Training for CIAL facilitators: US$600 per person for a short course plus one year of follow-up support. One • Encourage CIALs to exchange visits and facilitator can support up to 50 mature CIALs. sponsor their own regional meetings to • Start-up funds for CIAL experiments: a one-time, nonre- exchange results. newable investment in a CIAL fund can range from US$25 to 500 in cash or kind. • Minimize costs of visiting CIALs by possibly • Average running costs per CIAL in Colombia were US$670 for the first year, US$400 in the second year, and targeting agro-ecological zones that can be US$200 in the fourth year. reached from an experiment station or Source: Authors. municipal extension office.

• Train experienced farmers with prior search Committees, Honduras and Nicara- experience in a CIAL as facilitators to gua. http://www.isnar.cgiar.org/shiip/ reduce costs of facilitation, especially when Honduras-particip.htm. moving into large-scale implementation. This Note was prepared by Jacqueline Ashby of the Centro • Promote attendance of scientists and key Internacional de Agricultura Tropical, Cali, Colombia. R&D decisionmakers at CIAL meetings to ensure their support for CIALs.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Ashby, J. A., A. R. Braun, T. Garcia, M. del Pilar Guerrero, L. A. Hernandez, C. A. Quiros, and J. I. Roa. 2001. “Investing in Farmers as Researchers: Experience with Local Agricul- 87 tural Research Committees in Latin America.” CIAT, Cali, Colombia.*

CIAT. Solutions That Cross Frontiers. http:// www.ciat.cgiar.org/ipra/.

REFERENCES CITED CIAT. 1998. Background Information on Farmer Participatory Research: Latin America’s Farmer-researchers. http:// www.ciat.cgiar.org/newsroom/ release_17.htm.

ISNAR. Case Study: Honduras Participatory Research. Farmer Participation in Conserva- tion and Research Local Agricultural Re-

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY INNOVATIVE ACTIVITY PROFILE WHAT IS BIOTECHNOLOGY? Agricultural biotechnology refers to a wide range of technologies and products that can BIOTECHNOLOGY, BIOSAFETY, improve productivity or quality of crops, AND AGRICULTURAL livestock, fisheries, and forests. The first gen- DEVELOPMENT eration of these technologies, including plant tissue culture, micropropagation, molecular New techniques of biotechnology can stabilize diagnostics of crop and livestock diseases, and yields and improve rural incomes, reduce embryo transfer in livestock, have already been negative environmental impacts, provide adopted in many developing countries. These nutrient-enhanced and better quality food, and are simple to use, often inexpensive, and deliver vaccines and antibodies to improve relatively free of regulatory requirements and health. While most benefits have occurred in public controversy. industrial countries, the techniques have considerable potential for sustainable small-farm The next generation of tools and products, systems in developing countries. However, due based on molecular biology, is providing to the potential environmental and health revolutionary advances in genetic knowledge effects and socioeconomic implications, some and the capacity to change DNA. These mo- new technologies are controversial. Private lecular technologies can be either a research sector commercial dominance of biotechnology tool for development of technologies (genetic poses major challenges for access by poor markers, gene mapping) or a technological people. Biotechnology strategies must be innovation for field use, transfering genes country-specific, depending on needs and within and across species to generate scientific capabilities. All countries, however, transgenics (genetically modified organisms, will need the capacity for developing technol- commonly known as GMOs). Molecular ap- ogy policies and strategies, a strong regulatory proaches require advanced skills, research framework, and scientific skills to make use of laboratories, and the capacity to manage appropriate technologies. intellectual property. These requirements may pose a constraint for developing countries. The Agricultural biotechnology is increasingly seen use of transgenic crops also requires regulatory as a valuable tool for addressing production capacity to manage possible environmental and 88 and nutritional constraints in developing health risks, which have been the subject of countries, particularly in commodities impor- considerable debate. tant to poor producers and consumers. This view is supported in the World Banks current The application of molecular biotechnology has rural strategy, Reaching the Rural Poor, which so far been limited to a small number of input commits the Bank to helping developing traits, which are mostly of interest to commercial countries assess, and safely use new technolo- farmers in temperate countries. This research gies. However, continuing controversy and has been carried out in the private sector by debate over possible adverse health and large life science companies, which have very environmental impacts, and ethical and legal little incentive to invest in adapting this technol- issues relating to IPRs has slowed adoption in ogy to the needs of tropical countries. For the developing countries. To benefit from rapid full benefits of biotechnology to reach poor global advances in the biological sciences, farmers and consumers in developing countries, developing countries will have to invest national and international public sector institu- public funds in products that are not of tions will have to target investments to enable commercial interest to the private sector, but their researchers to gain access to proprietary are of high priority to their poor producers technologies, resulting from private sector and consumers. research. Developing country scientists will need to be able to apply these innovations to

AGRICULTURE INVESTMENT SOURCEBOOK national germ plasm, and develop capacity to Box 2.23 Kenya: benefits of biotechnology for small-scale do biotechnology research. Some benefits can banana producers be achieved by increasing the precision and speed of conventional breeding, whereas others Bananas are an important crop for 20 million resource-poor can only be achieved through transgenic crops. farmers in East Africa, but pests and diseases cause major production and quality problems. In 1996 the International Service for the Acquisition of Agri-Biotech Applications, the BENEFITS Kenya Agricultural Research Institute, and Genetic Technologies Modern biotechnology tools have the potential to Ltd. initiated a joint effort to produce disease-free planting significantly raise agricultural productivity in a materials by tissue culture. Initially the tissue culture plantlets more environmentally-friendly manner, supply were imported from South Africa, but now both the institute and Genetic Technologies have developed their capacity for cheaper and more nutritious food, and contribute banana micropropagation and distribution of plantlets. Net 3 to poverty alleviation. Many of the first genera- income of the participating farmers has increased by 35 tion of biotechnologies are relatively easy to percent. The project is scaling up to establish a self-sustaining apply, but still offer substantial benefits such as system of production, distribution, and utilization of tissue higher and more stable yields due to increased culture banana plantlets. More varieties will be offered and the tolerance to diseases and pests (see box 2.23). project will be extended to new areas within Kenya and in the Examples include virus-resistant sweet potatoes in East Africa region. Kenya, insect-resistant maize in East Africa, insect- Source: Wambugu and Romano 2001; Persley and George 1999 resistant cotton in China, and marker-assisted selection for sleeping sickness in African cattle. market in the United States and, as increased numbers of transgenic products were field- Input costs may also be lower as resistance to tested and commercialized, questions were insect pest and disease is incorporated into raised about the safety of these products. As crops and animals, reducing the need for the development of molecular biotechnology is externally applied pesticides. For example, in relatively recent, there is yet no model for a Mexico, pesticide use on cotton fell by more single best approach to deal with safety issues. than 80 percent, from an average of nearly 14 kg/ha of active ingredient in the 1980s to about Risks associated with GMOs in agriculture 2 kg/ha in 2002, as a result of using the Bacil- generally are in two categories: food safety lus thuringiensis (Bt) cotton variety resistant to and environmental safety. Food safety risks bollworm (Traxler et al. 2003). The reduction in include the potential increase in allergenicity 89 pesticide use has significant environmental and of GMO food products and the potential health benefits, and the introduction of herbicide-resistant crops can be used in minimum- tillage systems that reduce soil degradation and Box 2.24 China: Bt cotton erosion (see box 2.24). There is also potential to improve food quality (for example, “golden China is the world’s largest producer and consumer of cotton. In 2001, China produced 5.3 million metric tons (25 percent of rice,” with high vitamin A content), and to world production). About 13 million small farmers, usually develop healthier animal and plant products farming less than 0.5 hectares each, grow cotton. Adoption of (leaner meats, improved fatty acid profiles in Bt cotton progressed quickly from its introduction in 1997 to oil crops, and less fungal toxins in food crops). 1.5 million hectares in 2001 (31 percent of total area under cotton) with four to five million farmers benefiting from the new technology. The benefits have come through yield increases of up to 10 percent, reduction by one-half to two-thirds in BIOSAFETY FRAMEWORKS volume of insecticides used, reduced insecticide poisonings, and Application of genetic engineering to crop and gains in income of approximately US$500/hectare. Farmers livestock improvement is relatively recent. In adopting new technologies increased incomes despite the fall in 1994, the first transgenic variety reached the cotton prices.

3. See the IAP, “India: Focus on Biotechnology” Source: James 2002.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY increase in toxins in these products. Environ- external expertise and information and harmo- mental risks include: the possibility of gene nizing risk assessment principles, information flow to other cultivars of the same species or requirements, and standards of assessment on to related weed species, with the risk of a regional basis. This can help prevent conflicts developing aggressive weeds that are resistant of interest in small countries where developers to diseases, pests, and herbicides that could of technology serve as risk assessors. Harmo- potentially upset the ecosystem balance; the nizing biosafety standards requires adoption of possible effect on nontarget organisms from common values and objectives; shared interests crops with resistance traits operating through and concerns; the need to overcome differ- insecticidal protein expression; and the ences and to avoid disputes; the need to potential displacement of traditional cultivars cooperate with other interests; and the need to by a small number of transgenic cultivars that simplify procedures. In the absence of some or effectively reduce the biodiversity typically all of these factors, chances of effective harmo- found in small farmers’ fields. nization are limited.

Biosafety frameworks are required to assess and manage such risks. They typically include POLICY AND IMPLEMENTATION ISSUES five key elements: national policies; national ECOLOGICAL AND FOOD SAFETY RISKS. Possible risks inventory and evaluation; knowledge, skills and from using biotechnology tools and techniques capacity; regulations governing risk assessment relate to environmental and food safety. The and risk management; and systems to monitor, likelihood of risks, and appropriate risk man- inspect, and implement regulations. Ideally, the agement methods will contribute to risk assess- evolution of a national biosafety system begins ment regulations and guidelines governing with a national policy that is the basis for biosafety. Risk and risk management strategies legislation and/or regulations, leading to design are likely to be case-specific, depending on the and implementation of the systems necessary to trait, location, and management of the crop. undertake risk analysis, inspection, monitoring, and enforcement. A national assessment of COSTS AND CAPACITY. Molecular biotechnology existing regulatory, scientific, technical, eco- research can require substantial investments for nomic, and social capacity is relevant to the the necessary biosafety framework and labora- policy and implementation processes. Transpar- tories, for training scientists who must remain 90 ency and public participation are essential to current in the field, and for the operating costs build public trust in institutions, and in the risk for research. Consequently, a firm commitment assessment and risk management procedures in that ensures sustainable financing is needed a national biosafety system. before investing in biotechnology.

Except for a few countries with an extensive or INTELLECTUAL PROPERTY. Intellectual property growing domestic biotechnology sector, devel- disputes involve genes from developing coun- opment of a comprehensive national capacity tries being used by private sector companies in for a biosafety system is not likely to be neces- developed countries. Access by poor people to sary or feasible. Pragmatic, cost-effective new technologies protected by patents held by solutions to the problem of establishing regula- private companies, the major developers of tory systems will often involve combining new technology, is another area of controversy. responsibility for risk assessment and risk Developing countries need to develop the management in one agency, and drawing on technical and legal capacity for establishing IPR existing expertise in the private sector and laws, for negotiating international and commer- internationally agreed norms. Countries with a cial IPR agreements, and for patenting, where it small science community can implement is in the interest of the poor, inventions devel- effective biosafety systems by capitalizing on oped in their public research organizations.

AGRICULTURE INVESTMENT SOURCEBOOK INTERNATIONAL TRADE. Public controversy associ- case-by-case basis reflecting traits and the ated with consumer concerns over transgenic economic and ecological situation. crops may produce uncertainty in the markets and difficult policy issues for those countries • If the benefits of biotechnology in poor wanting to build biotechnology capacity while countries are to reach farmers and consum- exporting to regions which do not accept GMO ers, national and international public sector food products, such as Europe. Some develop- groups will have to support research, ing countries may have to decide whether to access to proprietary technologies and to give up opportunities to reduce food costs the development of appropriate regulatory through transgenics or give up their ability to frameworks for public and private research export to European markets. and technology transfer.

LESSONS LEARNED RECOMMENDATIONS FOR PRACTITIONERS Current biotechnology investments under Bank In many countries, investments in applied and projects focus on strengthening public sector adaptive research on the use and application of research organizations to serve smallholder noncontroversial biotechnologies will be farmers, and are quite modest when compared appropriate, targeting plant tissue culture, to large investments by private companies micropropagation, molecular diagnostics of focused on products for commercial agricul- crop and livestock diseases, and (possibly) ture. Key lessons are that: embryo transfer in livestock. Public investment in biotechnology research on and/or evaluation • While potential benefits from applying new of GMOs may be appropriate where this is tools to appropriate productivity and clearly targeted to Bank and country objectives, quality traits justify strong support for especially poverty reduction (see box 2.25). biotechnology, it is important that the Such investments should: public sector remains impartial and ensures that potential risks are considered, under- • Be based on country assessments to iden- stood, and addressed before proceeding tify opportunities and limitations on bio- with any biotechnology investment. technology investments.

• Investment in biotechnology needs to be 91 driven by its ability to solve agricultural Box 2.25 Potential investments problems, and priority for such funding should be within the overall national Investment in facilities, training, and technical assistance is needed to: research strategy that assesses tradeoffs with, and complementarities from other • Develop country strategies and priorities through areas of research. consultations with end-users of technologies. • Develop capacity for research on application of first • Public dialogue is very important and most generation, noncontroversial biotechnologies. • Strengthen national biotechnology research capabilities. countries have underinvested in this prior • Support strategic alliances, both with the private sector to undertaking research and testing on and with advanced research organizations. GMOs. This lack of dialogue contributes to • Develop capacity for both food and biosafety risk controversies and slows the release and assessment. uptake of valuable technologies. • Establish appropriate biosafety and food safety regulatory frameworks and enforcement mechanisms. • No broad generalizations can be made • Address public concerns, through information availability, about the risks of GMOs, and evaluation and public dialogue and consultations. and decision-making must be done on a Source: Authors.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY • Support capacity building for biotechnology Persley, G. J., and Pamela G., eds. 1999. Ba- research within the framework of a well- nana, Breeding, and Biotechnology: Com- articulated national policy and strategy. modity Advances through Banana Improve- ment Project Research, 1994-1998. Banana • Target high priority problems that are best Improvement Project Report 2. Washington, solved through biotechnology, rather than D.C.: World Bank. conventional research methods. Traxler, G., S. Godoy-Avila, J. Falck-Zepeda, • Give prior consideration to costs and and J. Espinoza-Arellano. 2003. “Transgenic tradeoffs in generating technologies locally, Cotton in Mexico: Economic and Environ- rather than drawing on regional and inter- mental Impacts.” In N. Kalaitzandonakes, national collaboration to develop and/or ed., Economic and Environmental Impacts import appropriate tools and technologies. of First Generation Biotechnologies. New York: Kluwer Academic. • Develop a sound biosafety framework with its regulatory environment and monitoring Wambugu, F. M., and M. K. Romano. 2001. The capacity, prior to undertaking biotechnol- Benefits of Biotechnology for Small-Scale ogy research. This framework may be able Banana Producers in Kenya. ISAAA Briefs to draw on regional capacity to evaluate 22. Ithaca, N.Y.: ISAAA. and manage risks and benefits. This capacity needs to also be reviewed before re- This Note was prepared by Eija Pehu with inputs from the search funding. Sustainable Agriculture (SASKI) Thematic Team of the World Bank.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Food and Agriculture Organization of the United Nations. http://www.fao.org. 92 International Food Policy Research Institute. http://www.ifpri.org.

International Service for the Acquisition of Agri- biotech Applications. http://www.isaaa.org.

International Service for National Agricultural Research. Agricultural Biotechnology; Research, Policy, Management and Service. http://www.isnar.cgiar.org/ibs.htm.

REFERENCES CITED James, Clive. 2001. Global Review of Commer- cialized Transgenic Crops: 2001. ISAAA Briefs 24: Preview. Ithaca, N.Y.: ISAAA.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE system. This was to be accomplished in four ways by: stimulating development of a more integrated and diversified National Agricultural BRAZIL: SPILL-INS FROM Research System, with greater participation of FOREIGN RESEARCH AND the private sector; increasing the role of clients DEVELOPMENT in defining research and technology transfer LABORATORIES priorities; refocusing public sector research on public goods, such as research on family farms, Brazil’s agricultural sector has been an impor- natural resource management, and upstream tant source of economic growth. Today the technology activities not attractive to the private sector faces the multiple challenges of increas- sector; helping EMBRAPA to address issues of ing productivity while addressing pressing decentralization and diversification of the re- poverty, unbalanced regional growth, and search system; and facilitating increased scientific natural resource constraints. Agricultural re- spill-ins from advanced research institutes. search is important for increasing productivity and reducing rural poverty. Nearly two-thirds of project funding allocated to a CRGP acted as a catalyst for the long-term What’s innovative? Collaborative linkage programs transition of the research system toward a with industrial countries, involving placement of mid- diversified system of agricultural research and career scientists in foreign research institutions to technology transfer. A committee, with repre- capitalize on advanced research. sentatives from various public, civic, and private stakeholders including farmer groups, Brazil has a broad agricultural research system. selects the best research proposals. In the mid 1990s, the national research agency Empresa Brasiliera de Pesquisas Agropecuarias A companion institutional capacity-building (EMBRAPA) had 2,064 researchers and an program aims to increase the capacity of institu- extensive infrastructure. State (province) re- tions to bid for grants, and includes support for search systems had an additional 2,395 re- research management improvements, training, searchers, and university teaching and research special studies, public-private partnerships, and faculty numbered over 4,000. However, this international collaborative research programs. capacity was underutilized and lacked ad- The international collaborative linkages pro- equate operating funding and linkages between gram includes a program for “EMBRAPA’s 93 institutions. As in many other developing Foreign R&D Lab,” referred to as LABEX. countries, the need to include private sector research, to increase competition, and to make Under the LABEX program, promising Brazilian research demand-driven and responsive to senior scientists in mid career are assigned to farmer needs, was recognized. There was a research programs in advanced research institu- need for strengthening domestic capacity by tions in industrial countries. These scientists capitalizing on research resources outside the observe the latest scientific developments in public sector, and encouraging technology and their field, develop joint programs for future scientific spill-ins (or activities) from advanced collaboration, and facilitate interaction between research institutes. research teams in areas relevant to the Brazilian agro-livestock sector. LABEX was initiated as a cooperative program between EMBRAPA and PROJECT OBJECTIVES AND DESCRIPTION the Agricultural Research Service of the United In 1997, the Agricultural Technology Develop- States Department of Agriculture (USDA). The ment Project led by EMBRAPA was initiated to LABEX program operates in the United States increase the efficiency and sustainability of and France, and is under analysis for collabora- resources in the Brazilian agricultural research tion in Asia, probably with Japan.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY BENEFITS AND IMPACTS investment; and develops integrated research The projects competitive grants component teams around specific projects. resulted in establishing relationships between EMBRAPA and the wider scientific community. About 258 diverse institutions are full participants, LESSONS LEARNED AND ISSUES FOR WIDER and another 400 are collaborating on research APPLICABILITY projects. EMBRAPA has now adopted the com- Brazil has an extensive and well-developed petitive system for all its research subprojects, agricultural research capacity. Rapid advances including the Bank-supported project. in science, and limited research funding, even in the best of circumstances, make it essential The LABEX program is innovative in facilitating to avoid duplication of research effort and to technology spill-ins. LABEX-USA, the first such access new technologies and scientific knowl- collaboration in the Americas, established a edge in the most cost-effective way. This “virtual laboratory” concept. Focus areas in this requires international exchanges and linkages. partnership are: Natural Resource Management (NRM) in Amazônia; the Cooperative Program in In the past, bilateral grant aid provided support the Animal Genome; International Cooperation for international training, collaborative research, and Sustainable Agriculture in the Insect Genome; and institutional development. In most countries, and Management of Swine Effluents in the State this has declined, leading to a growing isolation of Santa Catarina. LABEX-USA has already made of research scientists. EMBRAPA’s LABEX pro- significant contributions including: sequencing gram seeks to leverage EMBRAPA resources by the genome of the bacteria responsible for Pierce developing collaborative research, education, disease in California grapevines; experiments in training, and outreach efforts in areas of mutual precision-measurement of climatic variations to interest with international research institutions. determine soil electricity conductivity and stresses This strategy is likely to be relevant to many other in nitrogen, phosphorus, and water; and studies countries, especially those with more limited in intellectual property and biotechnology de- research and educational capabilities than Brazil. signed to establish modalities for more open use of patented/protected processes. PROJECT COUNTRY: BRAZIL The LABEX-France model involves research Project Name Agricultural Technology Develop- partnerships with Agropolis in Montpellier, 94 ment Project increasing the capacity of EMBRAPA to find new technologies and opportunities for coop- Project ID P043873 eration with the European public and private Project Cost US$120 million sectors in agriculture. Priority areas for LABEX- France are biotechnology and advanced biol- Dates FY1997 – FY 2005 ogy, agroindustrial technology, and sustainable Contact Point Raimundo N. Caminha management of natural resources. A Brazilian The World Bank, Edificio SUDENE, researcher from each focus area is located in Sala 13S-021, Cidade Universitaria, France, developing research activities appli- 50670-900 Recife, PE, Brazil cable to Brazilian concerns, and locating new Email: [email protected] technologies and opportunities for cooperation. The physical infrastructure available in LABEX- France collaboration provides several advantages over traditional forms of research cooperation as it reduces costs of conducting research; allows activities to be initiated or closed without direct overheads and infrastructure

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE • Creation of a competitive fund in which resources are assigned to proposals responding to needs of small rural producers. COLOMBIA: DECENTRALIZED, DEMAND-DRIVEN, • Institutional development, aimed primarily COMPETITIVE TECHNOLOGY at building local institutional mechanisms to GENERATION allow stakeholders, particularly small producers, to participate in addressing By the early 1990s, the institutional model of the problems of agricultural system productivity traditional public system of agricultural research and competitiveness. and extension in many Latin American countries had declined in its effectiveness. While working For assigning funds, the competitive fund used fairly well in the past in delivering technology four criteria: the use of a systems approach, for major commodities, the model now faced addressing sustainability, participation of end- new challenges to which it was unable to users in technology development, and building respond. Challenges included the development farmer capacity. of sustainable production systems, resource conservation, processing, and markets and Implementation was decentralized to five exports. In part, problems were due to an overly regions where local “nodes” were established centralized, highly bureaucratic research system and linked into regional “networks” to coordi- that was not well linked to its clients. nate research activities. The nodes are informal groups open to research institutions, farmer What’s innovative? Decentralized decision-making groups, NGOs, private sector, and officials of facilitating smallholder participation in a transparent departmental secretariats of agriculture. A total process for priority setting, and the awarding of com- of 340 organizations have participated in the petitive research grants. nodes, and an additional 160 in thematic networks that operate parallel to the nodes. In the early 1990s, the Government of Colom- Nodes develop lists of priority research issues bia committed itself to decentralizing technol- and project profiles, and at the network level ogy development and transfer in order to bring consolidate these for the region. These priori- applied research and extension (R&E) closer to ties are submitted to the PRONATTA Regional the priority problems of target beneficiaries, Coordination Unit. 95 who would participate in characterizing, prioritizing, and solving their problems. Competitive project selection for grants is done largely at the regional level. Calls-for-proposals are distributed widely, and proposals screened PROJECT OBJECTIVES AND DESCRIPTION for eligibility by the PRONATTA’s coordination In 1995, the National Agricultural Technology unit. Regional technical panels, using priorities Development Project (PRONATTA) was de- established by the regional networks, evaluate signed with World Bank support to assist this the proposals, which are ranked by priority and decentralization process, by offering funding submitted to the PRONATTA central office for for regional research funding and institution funding within the limits of available funds. building. The project’s four key objectives were to: promote a pluralistic technology system; The program has maintained high-quality support demand-driven and decentralized standards for award of grants. For the six calls- approaches; diversify financing through for-proposals up to the year 2003, rates of cofinancing by users and research providers; approval of proposals ranged from 13 to 22 and provide incentives for reforming public percent. Some 616 grants were awarded out of R&D. Two program components involved: 3,786 proposals submitted.

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY BENEFITS AND IMPACTS into the national research system, thus Within two years, the competitive fund ex- building a diverse research system with panded rapidly to cover all five regions of varied sources of funding. Colombia and has funded over 600 projects at an average cost of US$50,000. The program has • Decentralized execution of a competitive been widely-recognized for its transparent grants program is key to substantively approach to the awarding of grants and for involving local people in an applied and having funded high-quality, relevant research. adaptive research program. Of all projects funded by PRONATTA, 96 percent are rated satisfactory. • Local institutional capacity building for client groups, local government, and A total of 179 implementing agencies have potential service providers is important for been involved in project execution. The Co- promoting competition. Representative lombian Institute for Agricultural Research has involvement of all sections of farming received 39 percent of the grants; NGOsæ11 groups is not a simple task, and depends percent; universitiesænine percent; producer on community dynamics. Effective involve- associationsæsix percent; other public ment requires long-term investment in institutionsæfour percent; other agenciesæfive institutional development and community percent; and alliances between different participation. institutionsæ26 percent. Projects similar to the PRONATTA program are PRONATTA research projects have demonstrated being implemented in Peru, Ecuador, Nicara- their impacts with higher productivity, and gua, Brazil, Mexico, and some countries in adoption of sustainable management practices Europe and Central Asia. among small producers, especially through reduced use of agricultural chemicals and improved soil management practices. About PROJECT COUNTRY: COLOMBIA 153,000 beneficiaries have adopted technologies Project Name Agricultural Technology Develop- introduced by PRONATTA. A recent impact ment Project (Components: evaluation of completed projects found that the Research vast majority are producing, or are likely to Sub-Projects; Institutional Development) 96 produce, significant short- to medium-term benefits, mostly for small-scale producers. Project ID P006880 Benefits far exceed the cost of the investments. Project Component Cost Research Sub-Projects: US$21.0 million LESSONS LEARNED AND ISSUES FOR WIDER Institutional Development: APPLICABILITY US$1.1 million Competitive research grant program design should emphasize transparency in operation of Dates FY 1996 – FY 2004 the grant programs; incorporate farmers and Contact Point Matthew A. McMahon other beneficiaries in the process of priority The World Bank, 1818 H Street, setting, evaluation, and selection of projects; NW, Washington D.C. 20433 establish sound monitoring and evaluation Telephone: (202) 473-8586; systems; and develop mechanisms to enhance portfolio coherence. Major lessons learned from the PRONATTA experience are that:

• A competitive fund can draw a wide variety of research and extension service providers

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE commitment to cofinancing a substantial and sustainable program in identified priority areas for research. Strategic Alliance Grants (SAGs) ECUADOR: STRATEGIC were also authorized to improve higher educa- INTERNATIONAL ALLIANCES tion (masters level) in agriculture. Strategic FOR CAPACITY BUILDING AND alliance grants were larger than research project RESEARCH grants (average US$321,000 versus US$62,000). Participating institution cofinancing contributions By the mid 1990s, Ecuador’s agricultural re- averaged 45 percent of total program costs. search system, based principally on a public sector research institute, faced interrelated The SAG Program was designed to facilitate problems of low productivity, a funding crisis, access to relevant technologies and technical and attrition of scientists. At the same time expertise available internationally. The technol- technological and management innovation was ogy spill-ins resulting from this program repre- needed to improve productivity and competi- sent a cost-effective means of improving the tiveness of its important agricultural sector. technology base for Ecuador’s agriculture. The Modernization of production systems and competitive selection procedure requires sector institutions were essential if the sector evidence of institutional commitment to long- were to compete in regional and global mar- term work in the program area. This also kets. As a result, the government undertook a allowed Ecuadorian institutions to set their own program of institutional reform, with the objec- priorities for program development, and to tive of strengthening research capacity in a select their own partners for alliances. variety of public and private organizations, increasing efficiency of research, and improving linkages to clients. BENEFITS AND IMPACTS The SAGs financed six alliances for postgradu- What’s innovative? Competitive financing of grants ate program development in agricultural sub- for strategic alliance with international research or- jects. Six Ecuadorian universities participated as ganizations to strengthen domestic capacity for re- lead institutions and developed alliances with search and education. eight foreign universities, six international research centers, four local universities, and four other institutions. 97 PROJECT OBJECTIVES AND DESCRIPTION The Agricultural Research Project had three Seven SAGs for agricultural research financed major objectives: to introduce a competitive partnership development for three Ecuadorian research grants program (CRGP), to develop universities, the public research institute (with partnerships with international science institu- two research alliances), an NGO, and a pro- tions, and to strengthen national research ducer group. Research themes included fruit institutions. The government contracted a processing, regional agribusiness development, private firm to manage the CRGP within policy soils, production systems, biotechnology, guidelines established by the government. medicinal plants, and soil salinity management. Alliances involved six foreign universities, four Competitive grants for strategic partnership international research centers, three local alliances with international research organiza- universities, and ten other institutions, includ- tions were financed in parallel with grants for ing various client groups. individual research activities. Both followed the same competitive procedures and targeted The strategic alliances have allowed local development of local institutional capacity for organizations to draw on resources and techni- research in key thematic areas. Institutions cal expertise from international centers of submitting proposals had to demonstrate a excellence, and encouraged long-term relation-

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY ships with partner research and educational institutions and with client groups. This has proven effective in developing local capacity and providing efficient access to spill-ins of scientific knowledge and the latest technologies.

Competitive selection procedures helped to identify institutions with sufficient capacity and an interest and commitment to developing as a center of excellence for a specific thematic issue. Adding education programs to the SAGs provided for longer-term strategic capacity development for the country.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Financing for development of research capacity is likely to be needed in most countries where CRGPs are being introduced. Such capacity building can be financed through core funding for a research agency, though, as in the case of Ecuador, competitive procedures may be useful in identifying institutions with commitment to a particular field of research and a core capacity on which to build. This latter approach has been shown to be feasible even in a small research community such as Ecuador.

Competitive selection of projects to be financed also allows for participating institutions to 98 provide cofinancing, thus increasing total funding available for research and strengthening the overall system.

PROJECT COUNTRY: ECUADOR Project Name Agricultural Research Project (Competitive Grants Component) Project ID P007131 Project Component Cost US$16.7 million Dates FY1998 – FY 2004 Contact Point Matthew A. McMahon The World Bank, 1818 H Street, NW, Washington D.C. 20433 Telephone: (202) 473-8586; Email: [email protected]

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE being commodity-and-budget driven to one that was disciplinary-and-demand driven. The process used for developing scientific capacity included: INDIA: FOCUS ON BIOTECHNOLOGY • Establishing teams of excellence.

Despite food grain self-sufficiency, India faces • Training of scientists. continuing challenges in sustaining agricultural growth rates. Post green revolution develop- • Funding research through competitive ments have brought into sharp focus concerns grants which were open to public, private, relating to productivity, sustainability, and and community organizations. environmental protection. Developments in biotechnology offer great scope for improve- Teams or centers of excellence, consisting of a ments in crops, livestock, and aquaculture. prominent individual scientist or a group of Development of transgenic crops with in- scientists within existing institutions, are pro- creased yields and improved nutritional quali- vided with administrative and financial au- ties, and development of diagnostic kits for tonomy to facilitate contracting and collabora- plant and animal diseases, are some areas with tion with a range of partners. This approach was considerable potential. designed to draw in new ideas and disseminate these, and to pilot new forms of decentralized What’s innovative? Development of domestic com- management of research units/activities. Be- petitiveness in biotechnology research through fo- cause of rapid developments in science, cused training of research staff, organized into “Teams strengthening international linkages is important of Excellence” with control over resources through to improve the quality of science and the the competitive grant funding process. capabilities of scientists. Funds allocated under this subcomponent promote links with institu- Consequently building domestic capacity and tions having complementary interests/expertise. advancing research in biotechnology is critical and use of research providers, not part of the Within the NATP project, biotechnology invest- national agricultural research system, is consid- ments use tools of modern science to improve ered necessary in order to improve the out- crop, livestock, and fisheries productivity as the comes of these activities. At the same time, research program seeks to develop transgenic 99 with the rapid pace of international research, crops with inbuilt biotic and abiotic resistance links to international researchers is necessary. and to reduce the use of pesticides. The project also aims to develop diagnostic kits for early disease detection in animals and aquaculture; to PROJECT OBJECTIVES AND DESCRIPTION develop vaccines for better health management The overall objectives of the National Agricultural in animals; and to use biotechnology tools for Technology Project were to: improve the effi- processing and adding value to crops by in- ciency of the Indian Council of Agricultural Re- creasing the shelf life of fruits and vegetables. search (ICAR) organization and management systems; enhance the performance and effective- The project established a Biotechnology Advi- ness of priority research programs and of scientists sory Group (BAG) composed of scientists from in responding to the technological needs of public and private agencies to provide addi- farmers; and develop models that improve the tional views in establishing research and effectiveness and financial sustainability of technol- training priorities. The BAG group was de- ogy dissemination with greater accountability to, signed to “brainstorm” various issues related to and participation by, the farming communities. The biotechnology, guide ICAR, and review propos- project sought to change the research agenda from als submitted both through the sponsored and

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY competitive route. The project team considered LESSONS LEARNED AND ISSUES FOR WIDER it important to establish such an advisory APPLICABILITY group, because ICAR institutions are the weak- The progress on biotechnology research and its est amongst various agencies involved in initial results illustrate that: biotechnology research, such as the Council for Scientific and Industrial Research, universities, • Research programs focused on key prob- and the private sector. During the period 1998- lems, and subject to rigorous and transparent 2003 the project: monitoring, can yield important dividends.

• Established teams of excellence in the area • Building in-house competence through of plant biotechnology, viral biotechnology, human resource development and physical and animal biotechnology. infrastructure can result in rapid progress and quality research outputs. • Trained 200 scientists annually in state-of- the-art knowledge on crop and animal • Competitive research grants, awarded biotechnology. through a transparent selection process and followed up by good monitoring, • Developed transgenic rice, cotton, mustard, evaluation, and impact/outcome assess- muskmelon, potato, and pigeonpea. ment, are an effective mechanism for financing high-quality research work, • Used competitive grants to fund high- undertaken by multidisciplinary teams quality research in biotechnology. from a range of institutions.

• Established management systems to pro- • Competitive grants can be useful in provid- vide for rigorous monitoring and evalua- ing research support to more young scien- tion, including progress on execution of tists and to female scientists. research activities. In view of the major successes under the program, ICAR is developing major biotechnol- BENEFITS AND IMPACTS ogy programs based on a Competitive Research There has been significant progress in developing Grants Scheme. Program management empha- 100 capabilities for plant transgenic research with major sizes transparency, quality evaluation, and successes with transgenic rice and cotton. bottom-up approaches. Transgenic rice is already at the fourth generation stage, and field-testing will take place in 2004. Transgenic rice and cotton carry the Bacillus PROJECT COUNTRY INDIA thuringiensis (Bt) gene that mediates resistance Project Name National Agricultural Technology against insects. In addition, two genes (Lr 19 and Lr Project 28) were tagged for the first time using molecular Project ID P010561 markers, and have been combined in one genotype providing strong resistance to leaf rust disease in Project Cost US$249.0 million wheat. Another major achievement has been the Dates FY 1999 – FY 2004 characterization of viral genomes of plant and animal viruses, enabling the development of plants Contact Point Paul Singh Sidhu The World Bank, 70 Lodi Estate, with in-built resistance to insects and viruses, and New Delhi 110 003, India improved viral detection methods in livestock and Email: [email protected] aquaculture. Development of diagnostic kits will help detect plant viruses in citrus, potato, and banana, as well as diseases of livestock.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE research as one component within a broader forestry operation, or on forestry research within a broader research operation. FREEP INDIA: REVITALIZING specifically focused on improving institutional INSTITUTIONAL CAPACITY IN capacity to conduct forestry research, educa- FORESTRY RESEARCH tion, and extension, and to build this capacity in the national research system. The Indian Council of Forest Research and Exten- sion (ICFRE) has been conducting forestry research BENEFITS AND IMPACTS in India since the colonial era. ICFRE’s research The project achieved its targets by improving activities lacked the scientific and institutional the capacity of ICFRE to plan, prioritize, and mechanisms for ensuring scientific rigor, research carry out forest research. Specific targets priorities, for client orientation, and for using achieved included: research results. Management systems for staff, research activities, finances, reference libraries, and • After extensive consultation with stakehold- other facilities needed significant upgrading. For ers to identify priorities, ICFRE developed research, systems were needed to ensure that and is now implementing a National Forest research addressed specific technical concerns, Research Plan. provided multidisciplinary perspectives, and reflected national priorities and regional needs. • Research Advisory Groups, comprising multidisciplinary experts and clients, and What’s innovative? A stand-alone project focused chief scientific advisors, review research on institutional development of a key forestry re- projects to ensure their scientific quality and search organization by addressing core issues of or- their relevance to user needs. Increased ganizational weaknesses and basic institutional man- computer literacy and improved facilities agement rather than specific technical tasks. (library, modern nurseries, research equipment) help modernize research. PROJECT OBJECTIVES AND DESCRIPTION The main objective of Forestry Research Education • An information management system and and Extension Project (FREEP) was to improve the human resource development plan facilitate capacity and quality of forestry research. Other program budgeting and improved staff components included biodiversity conservation management. 101 and government forest policy analysis and development. Specific objectives related to: • Improved planting stock programs (in all states), small grants programs, technology • Strengthening the capacity of national, licensing, extension activities and materials, regional and state institutions to conduct and curricula reforms have dramatically priority forestry research, including planting increased ICFRE’s client outreach. stock improvement programs, through improvements to institutional management • The project has been quite successful in and administration programs. developing the “forestry knowledge and information system” but its intergration into • Improving the system of forestry education the broader AKIS remains uncertain. in research and academic institutions.

• Improving the dissemination of research LESSONS LEARNED AND ISSUES FOR WIDER findings to users of the information. APPLICABILITY This successful approach to institutional capac- FREEP represented a successful departure from ity development in forestry research provides past forestry projects in that it did not focus on lessons that can be applied beyond the forestry

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY sector and agriculture to other institutional revitalization programs as it:

• Focused on specific activities critical to sustainable change (for example, implementation of a sound management information system, arrangements to increase interactions with clients, external peer review mechanisms, and technical oversight).

• Addressed directly core organizational weaknesses within institutions and brought about institutional change within the relatively short time frame of one project.

• Focused on basic institutional management issues, such as finance, staffing, and administration, rather than on specific technical tasks or functions of an institution, for example, specific research.

• Coordinated with broader agricultural research and information programs and institutions to give coherence to technical services for rural areas, and to seek economies of scale in program operations. These policies and institutional mechanisms need to be mutually supportive in order to avoid conflicts and to enhance sustainability of technical services.

102 PROJECT COUNTRY: INDIA Project Name Forestry Research Education and Extension Project (Components: Research Management; Research Program Support) Project ID P010448 Project Component Cost US$48.7 million Dates FY 1995 – FY 2002 Contact Point Jessica Mott The World Bank, 1818 H Street, NW, Washington, D.C. 20433 Telephone: (202) 458-5607; Email: [email protected]

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE • An alternative to “institutional” or core funding for research operating costs.

SENEGAL: MAKING RESEARCH • More effective utilization of scarce human DEMAND DRIVEN and physical resources for research.

Evaluation of the Second Agricultural Research The project established the National Agricul- Project, completed in 1996, highlighted poor tural Research Fund (NARF), a legally indepen- performance of the Senegalese Research dent entity that separates its research funding Institution - ISRA (Institut Sénégalais de function from the execution function, and Recherches Agricoles). Despite considerable enables qualified entities, both public and investment since the mid 1980s, with two private, to access funds for research. Parallel successive Bank and two successive USAID- core funding provides ISRA and ITA with funds funded research projects, ISRA was still not for infrastructure, training, and management responding to farmers’ needs. Management strengthening needs. reforms, including incentive systems to reward performance and financial management im- NARF finances research proposals submitted provements, remained pending. Investments in through two mechanisms: researcher-devel- important subsectors of postharvest technology oped proposals related to ISRA’s or ITA’s and agroprocessing had been neglected be- strategic plans, and responses to calls-for- cause they were the responsibility of a different proposals issued by NARF on themes identi- research institute, the Food Technology Re- fied by end-users. The two types of propos- search Institute (ITA). als undergo the same two-tier screening procedure: first, by a scientific and technical What’s innovative? A new funding mechanism that committee of 15 scientific resource persons provides for core institutional capacity building in (six from outside Senegal) that screens parallel with a competitive research fund with sepa- proposals for scientific quality; and then by a rate funds for farmer-proposed and researcher-pro- management committee with a majority of posed projects, so as to develop demand orienta- producer organization and private sector tion in research. representatives. Once a proposal is approved, NARF signs a contract with the lead research institution. 103 PROJECT OBJECTIVES AND DESCRIPTION The Agricultural Services and Producer Organi- zation Project is a shift in approach from BENEFITS AND IMPACTS support only for supply of services to support The two separate funding mechanisms of core for both supply of and demand for services. funding of research institutes and NARF- Without strong demand from end-users, public contracted research, guarantee that institutional research institutions were unlikely to make development continues, while funding for essential, but difficult, reforms to improve operating costs goes directly to research teams responsiveness of research to clients. The working on projects relevant for the users, and project sought to strengthen producer organiza- for which teams are accountable for results. tion (PO) capacity to become effective research Projects are screened rigorously. Only 26 of the partners, and establish mechanisms to make first 79 research proposals were approved. research institutions accountable to clients. The Projects promote collaboration between organi- project design recognized the need for: zations with research capacity (85 percent of projects); with international organizations (12 • Capacity building for two research institutes percent); and with development agencies, such (ISRA and ITA). as POs, NGOs, or others (58 percent). Overall,

MODULE 2: INVESTMENTS IN AGRICULTURAL SCIENCE AND TECHNOLOGY 38 different institutions have received funding both to immediate producer concerns and to under the 26 projects. opportunities identified by scientists.

Under new funding arrangements, the Ministry The generation of sufficient proposals of good of Finance agreed that government funding quality and relevance is a function of the must cover research institute fixed costs, which research capacity of the country’s human can no longer be financed by International resources, hence the importance of core fund- Development Assistance funds. This lead the ing for capacity building in parallel with a Government to recognize that it could no competitive fund. longer afford to support ISRA’s extensive research infrastructure, and that closing redun- Research partnerships with strong interna- dant facilities was inevitable. tional research organizations also enhance quality of research, but governments often The program’s success is qualified by the fact object to use of loan funds to finance foreign that in its initial stage, no proposals were researchers. Complementary bilateral grant accepted for research on products likely to be funding can therefore be important to finance significant for future exports (horticulture and collaboration of researchers from advanced fisheries), for basic food crops (rice), or for research institutions. future technological breakthroughs (biotechnology). The Fund is therefore considering narrowing the scope for future grants to priority PROJECT COUNTRY: SENEGAL topics as defined by a group of experts from Project Name Agricultural Services and Producer within the national agricultural research system. Organizations (Components: NARF, ISRA, ITA) Project ID P002367 LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Project Component Cost US$13.2 million Sustainability of a competitive research fund mechanism depends on a manager’s ability to Dates FY 2000 – FY 2005 attract funding from other donors. For this Contact Point Marie-Hélène Collion reason, one performance indicator for the The World Bank, 1818 H Street, 104 project is the number of other donors that the NW, Washington D.C. 20433 Fund attracts. Telephone: (202) 473-4994; Email: [email protected] Research funds should be managed independently of research-implementing organizations, because of the conflicts of interest. Locating funds outside government ministries allows for more flexible management.

Establishing a management committee with a majority of users’ representatives, responsible for the program, produces a very different dynamic than when government officials are a majority on the governing body.

Having two channels for researcher-proposed and user-requested research proposals provides flexibility and allows a program to respond

AGRICULTURE INVESTMENT SOURCEBOOK 3

INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS

105

lobally, ministries of agriculture, universities, and the private sector employ more than 600,000 extension agents (Swanson, Farmer, and Bahal 1990). In the past, extension services, largely G public, were equated with the transfer of agricultural production technology in pre-determined “packages”. Extension systems are now understood to be much broader and more diverse, including public and private sector and civil society institutions that provide a broad range of services (advisory, technology transfer, training, promotional, and information) on a wide variety of subjects (agriculture, marketing, social organization, health and education) needed by rural people to better manage their agricultural systems and livelihoods. This module seeks to summarize principles and good practice for investments in building effective and sustainable extension systems.

RATIONALE FOR INVESTMENT The success of rural development programs depends largely on decisions by rural people on questions such as what to grow, where to sell, how to maintain soil fertility, and how to manage common grazing areas. Most clients of extension are farmers, grams. Many farmers want to stop farming (or both women and men, but many other rural because of lack of competitiveness will be people who are not economically active in forced to) and will seek information, educa- farming also rely on extension and information tion, and alternative skills to prepare them for services to inform and influence rural house- new employment. hold decisions. Extension services make significant contributions Past returns to extension investment have been to environmental protection and sustainable valuable but often high (see box 3.1). Future management of natural resources by promoting increases in agricultural production and rural conservation of land, water, and forests; conser- income must come from intensification, rather vation of biodiversity; pesticide safety and than “extensification” of agriculture. Knowledge residue minimization; livestock waste manage- and related information, skills, technologies, ment; and water quality preservation and water- and attitudes will play a key role in the sustain- shed protection. The client base for environmen- able intensification of agriculture and the tally oriented extension goes beyond the small- success of other rural investments. New tech- scale farmer because the varied activities of rural nologies and markets offer rural households residents, such as hunting, disposal of waste new opportunities, but they require better materials, harvest of fuel wood, and other access to information. Globalization and the products, affect the environment. need to trade in a global environment requires farmers and other rural people to become more competitive by acquiring more knowledge to PAST INVESTMENT ACTIVITY base decisions on and new skills to implement Public extension expenditures grew rapidly in those decisions. the 1970s and were estimated at US$6 billion globally for 1988 (Swanson, Farmer, and Bahal Although agriculture remains critically impor- 1990). Since then, structural adjustment pro- tant for their economic well-being, rural grams, public sector retrenchment, and reallo- people need other options and expect more cation of expenditures suggest that there may information than in the past, including infor- have been a substantial decrease in funding for mation on health care and nutrition, consumer extension; however, total funding often remains products, and government and other pro- high (up to 2 percent of agricultural GDP). In 106 some countries the extension service is one of the largest agencies in the government. Box 3.1 Returns to investment in extension and information services Since 1981, the World Bank has provided US$3 billion in direct support for extension, while Evaluations have often criticized extension for low efficiency and mobilizing another US$2.5 billion from govern- lack of equity in service provision, but report relatively high cost/ ments, beneficiaries, and other sources (see benefit ratios (Perraton et al. 1983). Rates of return on extension investments in developing countries have generally ranged from 5 figure 3.1). This Bank financing has fostered percent to more than 50 percent (Evenson 1997). A recent recognition of the importance of extension and metastudy of 289 studies of economic returns to agricultural has shaped development of many national research and extension found median rates of return of 58 extension systems. percent for extension investments, 49 percent for research investments, and 36 percent for investments in research and In the past, the World Bank was often associated extension combined (Alston et al. 2000). But methodological with Training-and-Visit (T&V) extension, a problems are daunting and rates of return are highly variable for system popularized in the 1970s and 1980s to even the same program, such that there is a considerable need for additional evaluation of extension impacts. address severe management deficiencies in existing extension services. T&V proved effec- Source: Gautam 2000; Feder, Murgai, and Quizon 2003. tive in specific circumstances in which standard-

AGRICULTURE INVESTMENT SOURCEBOOK FIGURE 3.1 TRENDS IN WORLD BANK LENDING FOR EXTENSION PROGRAMS, FY83-FY02

Source: World Bank Internal Documents. ized technology packages could be introduced countries and concluded that temporary, over large, relatively homogeneous areas. But targeted programs may provide a better return T&V did not resolve problems of sustainability on investment. It also revealed a limited capac- or address the needs of diverse rainfed systems ity of most borrowers and of Bank staff to and was widely considered a failure. undertake the necessary analysis for the design of extension systems. The World Bank Operations Evaluation Depart- ment (OED) review of Bank support to exten- By the early 1990s, the World Bank recognized sion services found that extension projects the need for new approaches to extension produced considerable benefits. The results of investments, including a larger role for the the OED review also noted concern over private sector, nongovernmental organizations 107 sustainability because three out of four projects (NGOs), and producer organizations, as well as were rated “uncertain” in terms of likely a more inclusive approach to women, indig- sustainability (Purcell and Anderson 1997). The enous peoples, and poor people (Cleaver 1993; OED study emphasized that no single exten- Ameur 1994; Antholt 1994). sion model is universally relevant, and situation-specific models need to be developed KEY ISSUES FOR INVESTMENT based on general principles and analyses of Future investments must avoid past mistakes specific farming systems and social conditions. and seek more sustainable institutional arrange- The study found widespread problems with ments for providing knowledge and informa- inadequate funding for recurrent costs, insuffi- tion services to rural people. The emerging cient technology, poor links to research, limited view is that the farmer is a responsible entre- farmer participation, and a top-down mentality. preneur, managing complex, agricultural and Extension staff quality was a major constraint off-farm activities to maximize well-being and staff training programs were inadequate to within many constraints. The farmer is a key correct deficiencies. The OED study suggested source of innovation—a concept reflected in a that investment in state-run, staff-intensive simple knowledge triangle (see figure 3.2). Key extension services is inappropriate for many to the concept of the agricultural knowledge

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS triangle is the realization that improving rural weaknesses, and motivations. This framework productivity, social equity, and competitiveness underlies the guiding principles for investment in requires effective and efficient agricultural extension and information systems (see box 3.2) knowledge and information systems (AKISs) that (FAO/World Bank 2000). “link people and institutions to promote mutual learning and generate, share, and utilize agriculture-related technology, knowledge, and infor- FUTURE DIRECTIONS FOR LENDING mation” (FAO/World Bank 2000). Such a system Future investments must recognize a diversity of integrates farmers, agricultural educators, re- clients and client needs, and varied approaches searchers, and extension workers to harness for technology transfer, advisory services, facili- knowledge and information from various sources tation, educational, and information services. for better farming and improved livelihoods. Making services more responsive to clients will entail focusing more on human and social Providing diverse extension and information capital development, as well as on giving the services to rural people necessitates a diversity farmer more influence over the extension of public and private service providers on agenda and the way in which services are both the supply and demand side of the delivered. To develop extension systems that are extension services market. How this market consistent with FAO/World Bank principles for functions depends on the institutional and effective AKISs, investments are needed to better policy environment for innovation and by the define public sector roles, enhance financial quality of services provided. The diversity in sustainability, strengthen ability of clients to extension service suppliers reflects also the express demand for services, support extension diversity in types of information and cost of system reforms, improve quality of services, providing information. Radio and television, address key poverty and environmental issues, input suppliers, agribusinesses, newspapers, and exploit potential of mass media and com- neighbors, public extension agents, religious munications technologies. organizations, bankers, NGOs, and other agencies each have their own strengths, DEFINING PUBLIC AND PRIVATE SECTOR ROLES. Private market mechanisms often fail to provide a socially optimum level of extension services for FIGURE 3.2 ARGRICULTURAL KNOWLEDGE two reasons. First, the demand from small-scale TRIANGLE 108 farmers may not be expressed well because of the farmers’ failure to recognize benefits from alternative production and marketing options; Research because farmers have limited purchasing power; or because they are not organized to access services. Second, supply is constrained because there may be few individuals or institutions capable of providing technical services or limited opportunity for private firms to appropriate benefits by charging for provision of information. The characteristics of Farmers specific services influence whether these are best supplied by the private, voluntary, or public sectors—different extension service needs are best fulfilled by different agencies. Education Extension Extension services can be categorized by differences in excludability (the degree to which farmers who do not pay for a service Source: FAO/World Bank 2000. can be excluded from its benefits) and rivalry

AGRICULTURE INVESTMENT SOURCEBOOK Box 3.2 Guiding principles for public investment in extension systems

Defined role for the public sector: Made within a sound policy framework that provides a conducive environment for investments to achieve desired impacts. • Based on clear national strategies that articulate a long-term vision and national policies, plans, and objectives for extension investments. • Economically efficient with benefits and expected outcomes that justify the investment. • Equitable with appropriate services available to the poor and minority groups and with a keen recognition that farmers and herders are both male and female. Strengthened demand for services: • Demand-driven, responding to farmer needs and interests and involving clients in program governance, priority setting, and evaluation, often by working through and strengthening producer organizations. • Participatory, drawing on and empowering local people to solve problems and mobilize local resources. • Based on subsidiarity with responsibilities devolved to the lowest possible level of government and consistent with organizational competency, comparative advantage, and efficient use of funds. Improved quality of services: • Accountable for the use of funds and for results with incentive structures that ensure assignment of qualified staff who are given adequate support and held responsible for providing services to clients. • Relevant to the needs and resource constraints of different categories of clients, balancing objectives of profitability, productivity, and sustainability, and drawing on effective training and links to research and other sources of innovation. • Pluralistic, involving a range of institutions with different comparative advantages; often separating financing and service delivery to broaden the range of service providers, raise operational efficiency, and make service providers more accountable for performance and results. • Well-monitored and evaluated to ensure a results orientation, account for impacts on human, social, and environmental capital, and demonstrate cost effectiveness. Based on a sustainable system: • Develop human and social capital necessary for clients and local institutions to foster continuous learning and problem solving. • Cost-shared by major stakeholders. • Develop political support from stakeholders as a basis for securing future financing. Source: FAO/World Bank 2000. 109 (the extent to which one farmer’s use of a to finance on their own. The most important service reduces its availability to others). While positive externalities associated with extension there is frequently a mix of public and private and information services are productivity elements in any specific extension service, spillovers, positive environmental and health some common services can be broadly classi- (human, livestock, and crop) impacts of appro- fied, as reflected in examples in table 3.1. priate technology use, and poverty reduction. Public financing is often important for coordi- Public and private sector roles frequently nation (often indirect) of extension activities, overlap, providing justification for public- regulation and provision of unbiased technical private partnerships. If families or firms benefit recommendations, disaster response and from services, they should pay; if communities poverty-oriented programs, training and devel- benefit, community groups or local government opment communications programs in which should pay; and if the region benefits, the economies of scale/scope exist, and promotion province or state should pay. The public sector of the rural extension and information system should finance extension services that generate as a whole. In general, the share of public important benefits for society as a whole, but sector in the funding of extension services will which extension clients are unlikely or unable decline with the transition to commercial

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS Table 3.1 Economic characteristics and delivery mechanisms for different extension services

Major delivery Main financing Main type mechanisms mechanism Service of good Public Privatea Public Privatea

Farm advisory services (generic) Public Yes Yes if Yes No contracted Farm advisory services Private Yes Yes, Yes for Yes, (farm-specific) preferred small preferred farmers and with cofinancing Farmer training Toll Yes Yes Yes Yes Integrated pest management advice Public Yes Yes, if Yes No contracted Market price info. (individualized Toll No Yes No Yes services) Market price information services Public Yes Yes, (mass media) preferred Yes Yes Environmental conservation Public Yes Yes, if information services contracted Yes No Irrigation water management advice Common pool Yes Yes, farmer Yes Yes, if organization cofinanced preferred Farmer organization development Common pool Yes Yes Yes Yes assistance 110 Advice on control of major Public Yes No Yes No contagious diseases Product quality certification for Private Yes Yes No Yes, export markets preferred

Note: The term “private” includes farmer organizations. Source: Authors.

agriculture. For low income countries, public In reality, most information services are pro- funding and other roles of the public sector vided outside of government, and extension may continue to be critical for many years. systems need to be designed with the understanding that they will be cost effective “only if PROMOTING PRIVATE SECTOR SERVICES. The private the public role is defined to complement what goods element of many extension services has the private sector can and will deliver” (Beynon raised interest in privatizing extension services. et al. 1998). Public sector programs should

AGRICULTURE INVESTMENT SOURCEBOOK avoid competing with private extension ser- goods knowledge for smallholders, as well as vices and should provide technical support to support for development of a pluralistic exten- private providers, develop public-private partnerships sion system and extension services market.2 for service delivery, share information, coordinate activities with private service providers, establish DEVELOPING SUSTAINABLE FINANCING MECHANISMS. Cost mechanisms for accreditation of private advisory recovery is important to expand resources services, and establish financing mechanisms to available for extension and to ensure that cofinance private service delivery.1 clients value the services being provided. Key to this are: CONTRACTING FOR EXTENSION SERVICES. There is growing recognition that, even in situations in • Introducing cost-sharing mechanisms. which public financing of extension is justified, Various cofinancing arrangements are private service delivery is often the more possible, including financing under a efficient way to serve clients. Contracting producer-controlled levy on agricultural strategies for extension services take many products, fee-for-service arrangements, approaches to the division of responsibilities cost-sharing for a total program, or for financing, procurement, and delivery of cofinancing by a producer organization. services, though most reforms involve public Although large producers might be able to funding for private service delivery (Rivera, fully fund costs of extension services, most Zijp, and Alex 2000). Contracting promotes commercial farmers will drop out of pro- institutional pluralism, accountability to clients, grams if their share of costs exceeds 50 and efficiency in operations. Contracting percent to 65 percent of the total. For directly by farmers introduces fundamental small-scale farmers in developing countries, changes in relationships (see figure 3.3). Public a cost-recovery rate of 10 percent to 20 financing of contracted extension and informa- percent is a reasonable initial target. tion services represents an investment in public

FIGURE 3.3 ALTERNATIVE FINANCING MECHANISMA FOR EXTENSION SERVICES

Traditional financing systems—extension New financing systems—extension accountable to financier accountable to financier 111 Users and/or clients Users and/or clients

Services Services Accountability $$

Extension organization $$ Extension organization

Accountability $$

Sources of public finance Sources of public finance

1. See the IAP, “Estonia: Transition to Private Extension Advisory Services” 2. See the AIN, “Contracting Extension Services”

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS • “Downsizing” public extension agencies. to develop skills in problem analysis, This is a difficult but an inescapable issue problem solving, and management. Partici- that many public extension agencies will patory methods are inclusive and foster face. Situations in which public funding equal access to extension services and and operating procedures do not allow resources for women and ethnic minorities. existing staff to be used effectively and They merge with participatory technology profitably, it is preferable to reduce the development, which taps indigenous number of government staff. This might knowledge especially relevant to sustain- involve transfers to decentralized govern- able agriculture.3 ment units (but only if the staff can be used effectively there), early retirements • Increasing accountability to clients. Increas- with redundancy payments, or other ing user influence over extension services is arrangements, such as secondments to or an element of the most recent extension contracting by NGOs and other develop- reforms. Placing client representatives on ment programs. Undertaking new exten- advisory and management boards, involving sion initiatives without addressing existing farmers in setting program priorities, evalu- problems of overstaffing undermines the ating participation of staff and programs, chances for program sustainability. and giving authority to farmers to approve work plans all help make extension services • Accessing other sources of funding. Diversi- more responsive to farmers. Through fying the funding base enhances financial demand-driven funding programs, the sustainability of public extension programs. greatest accountability comes when farmers Sources might include environmental are given authority to set the agenda, select groups (ministries of environment, NGOs, service providers, and hire and fire exten- and environmental services beneficiaries); sion staff. These programs typically use special interest groups (women’s organiza- mechanisms that enable client groups to tions, youth, and expatriate communities); propose development activities. Once the humanitarian NGOs; and others. activity is approved, financing or other resources are transferred to the client group, STRENGTHENING THE DEMAND FOR SERVICES. Future which is then responsible for implementing investments in extension must emphasize the approved project with extension provid- 112 development of capacity for clients to express ers accountable to the client groups. their demand for services, increase their influence over or active participation in programs, • Working with client organizations. Client and enhance their ability to finance services. groups of various types make extension Investments can introduce inclusive participa- services more accessible to small-scale tory approaches, accountability mechanisms, farmers by providing economies of scale in and strengthen producer organizations. service delivery and a mechanism for producers to express their demands for • Increasing client participation. Participatory services. Working with client groups may extension intensifies and improves interac- enable extension programs to reach more tion between farmers and extension agents, farmers and rural households (increasing recognizing that innovation requires deci- efficiency), facilitate participation in exten- sions by the farmer to change practices. In sion activities (increasing effectiveness), such programs, extension agents increas- and develop human resources and social ingly serve as facilitators, assisting farmers capital (increasing equity). The client group

3. See the IAP, “India: Participatory and Decentralized Agricultural Technology Transfer”

AGRICULTURE INVESTMENT SOURCEBOOK role may entail receiving services for Box 3.3 Development of national extension strategies organizational strengthening (client), facilitating delivery of services (partner), The 1994 evaluation of World Bank support to extension providing services to members (executing emphasized the importance of basing extension investments on agency), or financing services (financier). a sound strategy for a national extension system (Purcell and Roles and potential differ markedly be- Anderson 1997). Such a strategy requires, among other things, tween small informal extension contact thorough analysis of: groups and formal commercial organiza- • Farming systems and production and social conditions. tions. Producer organizations are a main • Available technologies and management innovations that focus for agricultural extension, but can increase productivity, including the productivity of women’s and other community groups are research and other programs to provide future innova- also important partners. Investments are tions. needed to strengthen client group capaci- • Market and economic trends for key commodities. • Government commitment for funding and human ties and develop mechanisms for their resources for extension. effective involvement in extension and A national extension strategy should: advisory services. • Prioritize target groups and areas and plan differential REFORMING GOVERNMENT EXTENSION SERVICES. Govern- program approaches appropriate to their needs and ments retain a key role in guiding the evolu- opportunities. tion of the extension system as a whole. Public • Integrate public and private sector activities and traditional and modern communications technologies. extension services remain important for exten- • Plan activities at a level of sophistication and intensity sion coordination even when most services are supportable with available human resources. privatized or decentralized. Organizational • Maximize cost recovery and farmer ownership of arrangements will vary by country, and exten- extension programs. sion will be based in a department within the • Ensure that technology generation/adaptation and ministry of agriculture, in an autonomous information support services are in place. institute, or combined with a research organi- • Incorporate plans for staff training in technical, economic, social, and communications skills. zation. Support is often needed for reforms to • Accept that extension program formats are not perma- promote a pluralistic system, establish a coher- nent but must change in response to circumstances. ent national strategy, manage for results, and • Incorporate comprehensive monitoring and evaluation decentralize extension program responsibili- (M&E) systems. ties. An important first step for program reform Source: Purcell and Anderson 1997. 113 and new investments is the development of a national strategy for extension through broad consultation with stakeholders (see box 3.3). cofinancing, enhances the response to local Mechanisms for regular consultations and problems and opportunities, increases exchange of information among service pro- accountability to clients, and increases viders must take place frequently at both program efficiency. But these reforms are national and local levels and depend on using not easy. A comprehensive strategy for the convening power of a government agency. decentralizing extension services must ensure service quality, develop capacities • Decentralizing extension program. Decen- needed at all levels in the system, and tralization reforms being implemented in provide clear definition of the respective many countries offer opportunities for roles and responsibilities of local and fundamental changes in the way in which national governments and user groups. rural extension services are provided. Transferring program governance, adminis- • Managing for results. Public extension tration, and management to the local level agencies need to improve their focus on facilitates user participation and objectives and manage for results. This

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS requires clear objectives and effective curricula for university programs can systems for monitoring and evaluating provide a base for training the future individual and program performance. generation of extension agents. Incentive systems must be aligned with institutional objectives to reward individuals • Improving development communications and programs that produce results in terms support. Not enough attention has been of overall social objectives. given to packaging information and training materials through brochures, radio and TV IMPROVING THE QUALITY OF SERVICES. While all of the programs, posters, demonstration materials, above reforms aim to improve the relevance videos, and technical reports that help and quality of extension services, additional convey information and knowledge to investment is essential to improve the capacity farmers and extension workers, including of service providers to deliver advice and input suppliers, financial services agency information to farmers. Quality of extension staff, and NGO staff. services depends on a range of technical and support services which must often be provided • Establishing quality control systems. Quality through public funding agencies even to control becomes increasingly important and private extension providers. Key areas include: difficult with the move to multiple service providers. Standards can vary within decen- • Improving technical support, such as tralized programs and between different research-extension linkages. Linking service providers, who, as with input suppliers, providers to sources of innovation and could have vested interests contrary to technical support, including national those of the farmer. At a minimum, publicly research programs, is essential if they are funded services should provide a source of to have technically sound advice to offer unbiased information for farmers. Controls clients. Technical support generally requires on private extension and information some in-house technical specialists (if the services are difficult to enforce and prob- service provider is large enough) in addi- lems are probably best handled on an a tion to effective linkages to other programs. case-by-case basis. Accreditation programs Extension programs should be structured so and registries of qualified service providers that farmers, agribusinesses, and various are useful in many cases and can be main- 114 extension providers can develop demand- tained by government or an appropriate driven linkages with researchers, private private sector group. firms, and universities to access relevant technical support as needed. SUPPORTING THE MILLENNIUM DEVELOPMENT GOALS (MDGS). Increased extension support is needed • Strengthening training of extension agents. to achieve the MDGs, especially as they relate Training is a critical need and often inad- to poverty reduction, gender equality, and equately provided in extension programs. environmental conservation. Improvements are needed in both pre- service (university) and in-service training • Poverty targeting of investments. Poverty for extension agents. Training programs reduction and environmental objectives need to emphasize new extension concepts are often best met through extension and methodologies, as well as expand investments that increase overall agricul- attention to marketing, management, tural productivity growth that generates environmental issues, and the development employment opportunities and reduces of farmer and other client organizations. food costs. In most cases, additional For sustainable and long-term development, poverty-targeted interventions (such as by investment in practical and well-rounded geographic, commodity, or production

AGRICULTURE INVESTMENT SOURCEBOOK systems) will be needed to reach poor watershed management, biodiversity con- people, women, and indigenous and servation, and reforestation. General educa- minority groups. Poverty targeting requires tion campaigns are also required to raise priority setting for allocation of public public awareness of environmental issues. resources, designing and evaluating pro- Because some environmental impacts are grams to meet different client needs with long-term and benefits often accrue down- emphasis on empowering the rural poor, stream, user financing of such programs is building individual and institutional capac- not usually a feasible option. ity, and developing demand for services where there has been little in the past. EXPANDING USE OF MASS MEDIA AND COMMUNICATIONS Services frequently need to address social TECHNOLOGIES. The mass media has been and organizational constraints to innova- underutilized by extension, and new commu- tion, facilitating rural financial services, nications technologies now offer opportuni- obtaining secure land tenure, improving ties to deliver a richer array of valuable management of community resources, and information of value to farmers and rural focusing on issues formerly considered households. Development communications outside the ambit of extension, such as and mass media like radio and print media HIV/AIDS education, and access to health, have long been a part of extension systems education, and social programs. but have generally not received adequate attention or financing. New information and • Promoting gender equity. There is an communications technologies (ICTs) can increasingly better understanding and make production of mass media and devel- appreciation of the roles, rights, and re- opment communications products more sponsibilities of both men and women in efficient and can provide higher-quality agricultural production and of the greater products that are more effective in delivering constraints faced by women. Many ex- information messages and transmitting amples of extension programs designed knowledge. Many benefits from new ICTs, with a gender focus now exist, and the such as Internet, computer systems, and gender message has been widely dissemi- telecommunications, will come from linking nated; however, greater attention still needs these to traditional communications media. to be given to gender analysis, gender- This would enable radio broadcasters, for sensitivity training, the targeting of women example, to access global sources of informa- 115 farmers, increasing the number of women tion in preparing programs. extension staff, and gender-sensitive M&E. The advances in telecommunications and • Promoting environmental conservation. information technologies also provide exten- Intensification of production systems (for sion systems with opportunities to deliver example, increased use of agrochemicals, information services in new ways (FAO 2000). land use changes, shorter fallow periods) Rural telecenters, cellular phones, and com- requires extension systems to introduce puter software provide new sources of infor- measures to mitigate environmental degra- mation for extension agents and farmers in dation. All extension programs should ways that allow for interactive two-way com- incorporate promotional activities for munications. Private service delivery, cost environmental conservation and sustainable recovery, and “wholesaling” of information— management of natural resources. Focused providing it to intermediaries (NGOs, private extension programs, often working with sector, press, and others) which will use it to and through community groups, should provide services to farmers—are important promote collective action for natural re- strategies for expanding use of ICTs in rural source conservation activities, such as extension systems.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS SCALING UP INVESTMENTS SELECTED READINGS Scaling up extension investments should be Asterisk (*) at the end of a reference indicates done within the context of widely shared that it is available on the Web. See Appendix 1 national extension strategies. Piloting new for a full list of Websites. approaches will often be necessary to develop local capacity and an understanding of exten- Alex, G., W. Zijp, and D. Byerlee. 2002. “Rural sion reforms. Building new institutional Extension and Advisory Services: New arrangements and developing sustainable Directions.” Rural Development Strategy extension systems requires a long-term per- Background Paper 9. World Bank, Washing- spective and continuity in institutional and ton, D.C.* program development. When introducing reforms, such as the contracting out of service FAO. 2000. “The Role of Information and provision, evaluation of different country Communications Technologies in Rural experiences should be an integral part of the Development and Food Security.” Work- planning and scaling up process. shop Report. FAO, Rome.*

Despite the trend toward greater Bank lending Feder, G., A. Willett, and W. Zijp. 1999. “Agri- under Poverty Reduction Support Credits cultural Extension: Generic Challenges and (PRSCs) and sectorwide approaches, extension Some Ingredients for Solutions.” Policy investments for long-term institutional devel- Research Working Paper 2129. World Bank, opment will need to rely on specialized AKIS Washington, D.C.* projects to build institutional capacity and address system issues in a comprehensive Neuchatel Group. 1999. “Common Framework way. Funding of extension programs may on Agricultural Extension.” Neuchatel increasingly rely on community-driven devel- Group, Switzerland.* opment (CDD) programs that allocate resources to communities and local groups to Neuchatel Group. 2002. “Common Framework address their own development priorities. on Financing Agricultural and Rural Exten- Although such groups initially tend to place sion.” Neuchatel Group, Switzerland.* priority on small-scale infrastructure, extension services are necessary to assist communities Rivera, W. M. 2001. “Agricultural and Rural 116 plan, implement, and maintain investments Extension Worldwide: Options for Institu- oriented to income generation for sustainable tional Reform in the Developing Countries.” poverty reduction. FAO, Rome.*

The following series of Agricultural World Bank. 2002. “Extension and Rural Devel- Investment Notes (AINs) provide additional opment: Converging Views for Institutional guidelines to good practice in selected areas Approaches?” Workshop Summary, World of extension system reform and Bank, Washington, D.C.* development. Priority topics for future work in defining good practice in this area include steps to reform public extension agencies, REFERENCES CITED the establishment of cofinancing and cost- Alex, G., W. Zijp, and D. Byerlee. 2002. “Rural sharing arrangements for extension, Extension and Advisory Services: New Direc- promotion of farmer-to-farmer extension tions.” Rural Development Strategy Background services, the development of effective Paper 9. World Bank, Washington, D.C. research-extension linkages, transitional arrangements for public extension, and Alston, J. M., C. Chan-Kang, M. C. Marra, P. G. environmental extension services. Pardey, and T.J. Wyatt. 2000. A Meta-

AGRICULTURE INVESTMENT SOURCEBOOK Analysis of Rates of Return to Agricultural Gautam, M. 2000. Agricultural Extension: The R&D: Ex Pede Herculem? Research Report Kenya Experience: An Impact Evaluation. 113. Washington, D.C.: IFPRI. World Bank Operations Evaluation Study. Washington, D.C.: World Bank. Ameur, C. 1994. “Agricultural Extension: A Step Beyond the Next Step.” Technical Paper Perraton, H., D. T. Jamison, J. Jenkins, F. Orivel, 247. World Bank, Washington, D.C. and L. Wolft. 1983. “Basic Education and Agricultural Extension: Costs, Effects, and Antholt, C. 1994. “Getting Ready for the Alternatives.” Staff Working Paper 564. Twenty-First Century: Technical Change World Bank, Washington, D.C. and Institutional Modernization in Agricul- ture.” Technical Paper 217. World Bank, Purcell, D. L., and J. R. Anderson. 1997. Agri- Washington, D.C. cultural Research and Extension: Achieve- ments and Problems in National Systems. Beynon, J., S. Akroyd, A. Duncan, and S. Jones. World Bank Operations Evaluations Study. 1998. Financing the Future: Options for Washington, D.C.: World Bank. Agricultural Research and Extension in Rivera, W. M., W. Zijp, and G. Alex. 2000. Sub-Saharan Africa. Oxford: Oxford Policy “Contracting for Extension: Review of Management. Emerging Practice.” AKIS Good Practice Note. AKIS Thematic Team. World Bank, Cleaver, K. 1993. “A Strategy to Develop Agri- Washington, D.C. culture in Sub-Saharan Africa and a Focus for the World Bank.” Technical Paper 203. Swanson, B. E., B. J. Farmer, and R. Bahal. World Bank, Washington, D.C. 1990. “The Current Status of Agricultural Extension Worldwide.” In B. E. Swanson, Evenson, R. 1997. “The Economic Contributions ed., Report of the Global Consultation on of Agricultural Extension to Agricultural and Agricultural Extension. FAO, Rome. Rural Development.” In B. E. Swanson, R. P. Bentz, and A. J. Sofranko, eds., Improv- World Bank. 2002. “Extension and Rural Devel- ing Agricultural Extension: A Reference opment: Converging Views for Institutional Manual. Rome: FAO. Approaches?” Workshop Summary. World 117 Bank, Washington, D.C. FAO. 2000. “The Role of Information and Communication Technologies in Rural This Overview was prepared by Gary Alex with inputs from Development and Food Security.” Work- the Sustainable Agriculture (SASKI) Thematic Team of the shop Report. FAO, Rome. Bank. Peer review comments were provided by David Nielson, Aleksandar Nacev, Matthias Grueninger, Jock Anderson, William Rivera, and Mary Hill Rojas. FAO/World Bank. 2000. “Agricultural Knowl- edge and Information Systems for Rural Development: Strategic Vision and Guiding Principles.” AKIS Thematic Team. World Bank, Washington, D.C.

Feder, G., R. Murgai, and J. B. Quizon. 2003. “Sending Farmers Back to School: The Impact of Farmer Field Schools in Indone- sia.” Policy Research Working Paper 3022. World Bank, Washington, D.C.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS AGRICULTURE INVESTMENT NOTE to clients, lack of financial sustainability, and poor links to sources of new technology (Feder, Willett, and Zijp 1999). Many systems CONTRACTING EXTENSION were unable to respond to changing priorities, SERVICES needs, and opportunities due in part to the lack of incentives and flexibility within public With the recognition of the limitations of public agencies for the efficient delivery of quality agencies in efficient and effective delivery of services to widely dispersed rural people. public services, a trend has developed toward increasing separation of functions of financing Although the public sector will continue to and delivery of public services. Governments finance (at least an important share of) the costs typically must continue to finance many rural of extension programs, the increasing diversity extension services, but provision of services is of extension service providers will mean that more commonly contracted to private advisory delivery of services will often be contracted out service firms, NGOs, universities, producer rather than provided by civil servants (see box organizations, and other groups. Alternative 3.4). Potential providers could include combina- arrangements assign procurement responsibility tions of the private sector, NGOs, farmers’ to central or local government or to clients associations, universities, and other entities with themselves. Competitive procedures can im- the capacity to provide the services. Contracting prove quality of services, make providers more out extension services makes it possible to take accountable for results, and improve efficiency. advantage of all of the talent and experience Contracting allows for specialization and existing in the field but does not eliminate a selection of service providers according to their government role which, in addition to funding, individual competitive advantage. ensures quality assurance, oversight, and provision of training and information to contracted Many countries established public extension services providers. services in the 1960s and 1970s to promote agricultural sector productivity and rural devel- Contracting systems that separate responsibili- opment. These public extension agencies often ties for financing, procuring, and delivering produced positive results in early years but extension services rely on diverse contractual soon encountered a range of common prob- arrangements that underlie four types of contracting: private funding for private services, 118 lems, including difficulty in measuring impacts, lack of political support, lack of accountability public funding of publicly provided services,

Box 3.4 Chile: evolution of contracted extension services

Chile’s extension system, based on contracting private service providers, has evolved since its introduction in 1978. Evalua- tions report positive results from contracted services, and there is no support for return to a system of government service provision. Until 1983, the Entrepreneur Technical Assistance Program provided vouchers for farmers with potential for commercial development to use in purchasing extension services. Problems with this system resulted in a series of reforms that have made the program more demand-driven, with farmer organizations proposing defined projects for commercialization and modernization of small-farm agriculture. Chile’s experience indicates the need for contracted extension programs to evolve over time and to: • Design different programs to serve different categories of farmers and different program objectives. • Decentralize program design and contracting to regional and municipal (district) levels to expand participation of farmers. • Expand market orientation and marketing services within programs. • Provide good technical support services and training to contracted extension agents. • Establish good evaluation and monitoring systems at the national level. Source: Beynon et al. 1998; Cox and Ortega, forthcoming.

AGRICULTURE INVESTMENT SOURCEBOOK private funding for public service provision, Box 3.5 Outsourcing extension services and public funding of private service provision (outsourcing) (Rivera, Zijp, and Alex 2000). Of Advantages these, public funding of private service provision is the most common strategy for reform. In • Reduces permanent staff requirements and allows deployment of resources to high-priority areas. such systems, the state usually retains responsi- • Allows for accessing providers with special skills to provide bility for establishing criteria for use of funds, specific services. quality control, and M&E, while private entities • Promotes partnerships and working relationships with provide services, define specific objectives for other providers. each locality, train extension staff, develop • Enhances flexibility in responding to special needs of appropriate extension methods, and conduct diverse clientele. M&E studies. • Tests innovative and higher risk “new” systems. • Increases provider accountability and forces more attention to financial management. Public contracting of private extension service delivery can involve national agency contract- Disadvantages ing (for example, Venezuela and Chile), local • Institutional memory may be lost; some private providers government contracting, and grants to client may not pass on new skills and lessons learned. organizations to contract services (for example, • Increases the need for skills of contract negotiation, Uganda). Contracted extension services are supervision, and monitoring performance. likely to spread as agriculture becomes more • High initial costs (if not offset by staff reductions). commercialized and competitive and as public Source: Rivera, Zijp, and Alex 2000. budgets for agricultural extension services demand greater accountability. draw on the best available expertise to provide services to farmers. Competition among potential BENEFITS providers keeps costs down and establishes a Government contracting recognizes that, even market for extension services that should be situations in which public financing of exten- sustainable as public funding is withdrawn. sion is justified, private service delivery is often more efficient in serving clients. Contracting defines responsibilities and encourages clarity POLICY AND IMPLEMENTATION ISSUES in objectives and outputs. In addition, it ex- PROCUREMENT AGENT. Contracting mechanisms can ploits the comparative advantages of different involve different agents in procuring services, 119 institutions and, consequently, improves variety such as central, regional, or local governments. and quality of services. Contracting also pro- For example, Bangladesh experimented with a vides opportunities for the development of the series of partnership funds for services as part of private sector in rural areas and offers other its extension innovation and reform process (see potential benefits (see box 3.5). Extension box 3.6). Alternatively, producer or community programs implemented by the private sector groups can procure services directly with fund- are typically more operationally efficient, more ing provided by public extension programs. This accountable for their performance and results, arrangement helps ensure service provider and more flexible in promoting extension staff accountability to clients. Selecting the service for good job performance and dismissing staff provider, awarding the contract, and approving for poor performance. work plans are procurement functions that can be shared by client groups and different levels Contracts make providers accountable for the of government. Contracting arrangements should quantity and quality of services to be delivered increase farmer participation in three areas: and introduce penalties or nonrenewal of con- selecting extension providers, deciding the tract if these are not met. Provision of services content of work programs, and assessing perfor- by a wider set of suppliers makes it possible to mance of extension providers.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS Box 3.6 Bangladesh: extension partnership initiative funds competitive selection depending on the cost and quality of proposals. Competitive contracting In support of its new agricultural extension policy, Bangladesh procedures seek to improve efficiency and established three partnership funds at different levels under the quality by instilling a private sector attitude of Agricultural Services Innovation and Reform Project: cost consciousness and results orientation, even in public institutions forced to compete to • A Upazila (subdistrict) partnership fund provided US$1,500 per year of flexible funding for each of the 640 provide services. Program transparency and subdistricts to use to promote the collaboration between reputation are enhanced by fair and well- public and private agencies in delivery of extension developed competitive procedures. services through subdistrict partnership projects. These funds supported on average four to five small-scale CONTRACTS VS. GRANTS. Contracting involves projects per subdistrict. selection of a service provider to deliver de- • A competitive grants program in 12 districts financed fined services, whereas grant programs allocate district partnership projects implemented jointly by two or more service providers from the public or private sector. resources on the basis of project proposals • A national-level competitive grants program funded prepared by client groups or service providers. national partnership projects to build the capacity of Either approach can use competitive or non- smaller NGOs to provide quality extension services. competitive procedures. Competitive grants are These partnership funds increased collaboration between often suited to research outreach programs (see service providers and increased acceptance of NGOs as box 3.7). But the communities that need legitimate extension service providers. Impacts and sustainability extension services the most are less likely to be are yet to be determined. able to prepare competitive proposals, provide Source: Authors. cofinancing, demonstrate potential economic impact, and compete for projects.

PERFORMANCE-BASED CONTRACTING. Extension TRANSITION ISSUES. Moving from public agency services are typically contracted on the basis of service delivery to contracted services fre- financing inputs needed for delivery of ser- quently encounters problems, especially when vices. An alternative approach involves perfor- there is opposition from extension staff worried mance-based contracts that tie payment to about loss of employment or suspicious of outputs or delivery of services, such as the private institutions’ motivation and capacity. number of women farmers trained, the number Reforms must be sensitive to and deal with 120 of publications distributed or sold, or results such concerns and opposition. Financing costs and impacts, such as increased production, of staff retrenchment is often useful and may reduced irrigation water use, or improved be combined with training and the reorienta- product quality. These results-based contract- tion of redundant extension agents to jobs with ing schemes provide incentives to improve private service providers which usually offer efficiency and/or effectiveness of extension better salaries, support, and job satisfaction. services, but they frequently encounter problems of measuring output and outcome quality, LESSONS LEARNED as well as problems with contract costing and PROGRAM/CONTRACT MANAGEMENT. Experience high- negotiations. In these and other schemes, lights the importance of developing capacity to contract performance can also be evaluated by prepare terms of reference, negotiate contracts, farmers who directly observe performance of monitor contractor performance and compli- service providers. ance, and exercise financial control. Program management skills are needed at the national COMPETITIVE CONTRACTING. Contracts can be level, but training and capacity building require awarded on the basis of negotiations (often even greater attention if contracting is done by limited to contracts with client organizations or local government or client groups. Contracting public sector agencies), or on the basis of requires a collaborative relationship between

AGRICULTURE INVESTMENT SOURCEBOOK agencies and government commitment to shift Box 3.7 Kenya: competitive grants for research outreach from controlling resources and programs to monitoring and supervising contracts. In 2000, the Kenyan Agricultural Research Institute, under pressure to ensure that its technologies reached farmers, CONTRACTOR CERTIFICATION. Contracting requires a embarked on the Agricultural Technology and Information minimum established capacity within service Response Initiative to empower farmers to make technology providers to compete for contracts and deliver and information demands on agricultural service providers. The services—a major problem in some countries initiative targets community-based organizations (CBOs) as and in remote areas of most countries. A beneficiaries or intermediaries (farmer organizations) facilitating member acquisition of appropriate technologies and informa- registry of prequalified service providers tion. Grants cover acquisition of technologies (for example, expedites contracting under government- planting material), exchange visits to other farmers who have financed contracting systems. Such a registry is already adopted the technology, visits by the institute’s staff, and ideally maintained by the private sector in a other costs of observing, learning, and adopting technologies. trade association, farmers’ federation, NGO Smaller grants are given preference over larger ones to expand forum, agricultural extension society, or the number of beneficiaries. The average grant is about government agency. The registry must be US$3,000. The iniatiative is now working with 178 CBOs to cover 11,835 farm families. Experience has been quite positive: managed in a fully transparent fashion and an example of success is the Shaza Women’s Group in the kept up-to-date. Kwale district, which was able to multiply members’ assets four times in 18 months. QUALITY ENHANCEMENT. Competition between service providers can discourage information Source: Gustafson 2002. sharing and good practice and can cause service providers to attempt to increase short- Silva 2000). For situations in which these term profits by neglecting training and special- factors are lacking, contracting on behalf of the ized technical support, both of which are community by an intermediary may be war- necessary for enhancing quality of services. ranted. Experience in Africa indicates that a Institutional arrangements and program fund- facilitating professional NGO is crucial to ing allocation to quality-enhancing support successful operation of user innovation funds services (training, technical support, develop- for producer organizations (Collion 2001). ment communications) can exploit economies of scale to provide support to service providers and can emphasize national priority issues RECOMMENDATIONS FOR PRACTITIONERS 121 (gender equity, environmental conservation). Public financing for extension services contracts constitutes an investment in technical COMMUNITY CONTRACTING. Contracted extension services for sustainable agricultural systems programs work best when community or development. This requires political will for producer organization (clients) are heavily extension reform; capable service providers; involved in selecting extension agents, evaluat- clarity in institutional roles and objectives; and ing services, certifying agents, cofinancing an effective demand for services. There can be program costs, contracting services, determin- no blanket prescription for design of such ing program content, and deciding how ser- contracting systems, but the following recom- vices are allocated. Such contracting is facili- mendations should guide contracting programs tated for cases in which there have been (see box 3.8): previous community-managed projects; there is some degree of social cohesion; community • Programs need to clearly separate functions organizations have legal status; communities of financing and service delivery with are responsible for program operations and procedures and guidelines that maintain the maintenance; and there is provision for capac- integrity and objectivity of the contracting ity building for community organizations (de

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS Box 3.8 Potential investments • Requiring some cofinancing by clients helps to ensure their desire for and commitment • Costs of program and contract management units. to using services. The level of cofinancing • Training and technical and legal assistance for establishing will often be fairly low, perhaps 5 percent contracting procedures. to 25 percent for small and marginal farm- • Studies to establish program priorities and targets. ers; for larger farmers, a higher cofinancing • Cofinancing of contracts for extension services. rate can be required with provision for • Training, development communications, and technical eventual graduation to full self-sufficiency. support for service providers. • Training, orientation, and promotion of contracting programs for potential clients and service providers. • M&E studies and monitoring systems to assess perfor- SELECTED READINGS mance and impact. Asterisk (*) at the end of a reference indicates Source: Authors. that it is available on the Web. See Appendix 1 for a full list of Websites.

process. This will often involve a third Rivera, W. M., and W. Zijp, eds. 2002. Contract- party in the procurement (contracting) of ing for Agricultural Extension: Interna- services financed by public funds and tional Case Studies and Emerging Practices. delivered by private or other providers. New York: CABI Publishing.

• Contracting procedures require clear terms Rivera, W. M., W. Zijp, and G. Alex. 2000. of reference and deliverables for services, “Contracting for Extension: Review of as well as a clear means of evaluating Emerging Practice.” AKIS Good Practice completion of contract requirements. This Note. AKIS Thematic Team. World Bank, helps in defining and organizing activities Washington, D.C.* and avoids contentious disputes over completion of contract work. REFERENCES CITED • Service providers need good links to Beynon, J., S. Akroyd, A. Duncan, and S. Jones. research and other sources of information. 1998. Financing the Future: Options for Agricultural Research and Extension in • Contracted extension services should, as far 122 Sub-Saharan Africa. Oxford: Oxford Policy as possible, involve competitive selection Management. procedures. Competition complicates the selection process but introduces a rigor Collion, M.-H. 2001. “World Bank Strategies for useful in defining plans. Funding Research and Extension.” Paper presented at Funding Development-Oriented • Whenever possible, contracting directly by Agricultural Research and Extension work- clients is desirable. Even in cases in which shop, December 10-14, Feldafing, Germany. this is not feasible, clients still need to have some role in contractor selection and Cox, M., and H. Ortega. Forthcoming. “Chile: evaluation. Origins and Evolutions of a Privatized Extension System.” In W. M. Rivera, and G. • Contracting procedures must be sensitive to Alex, eds., Extension Reforms for Rural broader societal issues of equity, directing Development. Place: Publisher. services to small and marginal farmers when appropriate and ensuring equal de Silva, S. 2000. “Community-Based Contract- access to services by women, youth, and ing: A Review of Stakeholder Experience.” minority groups. World Bank, Washington, D.C.

AGRICULTURE INVESTMENT SOURCEBOOK Feder, G., A. Willett, and W. Zijp. 1999. “Agri- cultural Extension: Generic Challenges and Some Ingredients for Solutions.” Policy Research Working Paper 2129. World Bank, Washington, D.C.

Gustafson, D. J. 2002. “Supporting the Demand for Change: Recent Project Experience with Farmer Learning Grants in Kenya.” Paper presented at New Approaches to Extension: A Workshop for Practitioners, sponsored by the World Bank, USAID, and the Neuchatel Group, November 11-15, Washington, D.C.

Rivera, W. M., W. Zijp, and G. Alex. 2000. “Contracting for Extension: Review of Emerging Practice.” AKIS Good Practice Note. AKIS Thematic Team. World Bank, Washington, D.C.*

This note was prepared by Gary Alex, based on a World Bank Good Practice Note “Contracting for Extension: Review of Emerging Practice” with inputs from David Nielson and the Sustainable Agriculture (SASKI) Thematic Team of the World Bank.

123

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS AGRICULTURE INVESTMENT NOTE location-specific services to improve management and efficiency of input use, conserve natural resources, support diversification and DECENTRALIZING value-added production, respond to community- AGRICULTURAL EXTENSION or farmer-specific interests, and provide nonfarm AND INFORMATION SERVICES information services relating to poverty reduction. Decentralizing extension services helps to Decentralization reforms that are implemented address many problems of extension by facilitat- as part of wider public sector reforms offer ing a greater interaction with clients and a better opportunities for fundamental changes in the focus on local needs and opportunities. way in which rural extension services are provided. Transferring program governance, administration, and management to the local GLOBAL TREND TOWARD DECENTRALIZATION level facilitates user participation and Even as national extension systems involve cofinancing, enhances ability to respond to more groups or bodies, state and local govern- local problems and opportunities, increases ments have become more important with the accountability to clients, and increases program transfer of responsibility for government ser- efficiency. These reforms are not easy. A vices from national to local governments. comprehensive strategy for decentralizing Decentralization reforms became widespread extension services must ensure service quality, during the 1980s and 1990s when governments develop capacities needed at all levels in the pursued decentralization initiatives because system, and provide a clear definition of the centralized approaches to economic manage- respective roles and responsibilities of local ment and service provision had failed. Effective and national governments and user groups. decentralization requires a combination of administrative, political, and financial decen- National extension agencies were organized to tralization (see box 3.9). transfer standard technologies to farmers throughout the country. Over time, this often proved inefficient and made it difficult for BENEFITS programs to be responsive to clients. Extension Decentralization provides the potential to increasingly has been required to provide respond more effectively to specific local needs 124

Box 3.9 Defining decentralization

Decentralization generally involves a mix of three reform strategies: • Administrative decentralization is the transfer of authority over regional staff from the central government to regional or local governments. • Political decentralization (or democratic decentralization) is the selection of local government officials by local election rather than by central government appointment. • Fiscal decentralization is the transfer of responsibility for raising and spending program funds to lower-level government units. Three additional reform strategies that are related to but distinct from decentralization are: • Deconcentration is the central government dispersing staff responsibilities to regional offices without changing the basis for authority and control. This is not true decentralization and can actually increase central control and influence. • Delegation is the transfer of responsibility for public functions to lower levels of government or to other organizations which implement programs on behalf of the central government. • Privatization is government transfer to the private sector of managerial, fiscal, and decisionmaking control, while retaining regulatory authority. Source: Authors.

AGRICULTURE INVESTMENT SOURCEBOOK and become more accountable to users. Some Box 3.10 United States: a decentralized extension system effective extension systems, such as the United States, Scandinavia, and France, have long been The U.S. Cooperative Extension Service is a successful decen- decentralized with responsibility devolved to tralized system. The Cooperative Extension Service was local governments, often in conjunction with established in 1914 with the objective of “extension education.” local producer organizations (see box 3.10). “Cooperative” refers to the cooperation between the federal, Decentralization is generally expected to state, and county governments in organizing and financing encourage local financing and ownership of services. The service worked closely with farmer organizations programs, result in more efficient and equitable (Farm Bureaus) for many years and is financed by federal, state, and county governments, as well as state agricultural universi- allocation of government resources, provide ties. The federal government provides financing, broad program incentives for efficient service delivery, ensure lower- guidelines, and reviews of program compliance. State govern- cost services, build local capacity, and respond more ments define specific programs, provide cofinancing, coordinate effectively to local needs. local programs, and ensure auditing and reporting. State universities provide technical support and coordination; and Decentralized development efforts, such as CDD, county governments provide a share of the financing, guide offer the potential for increased community local implementation, participate in selection of personnel, and evaluate programs and personnel. Local volunteers from the participation to ensure the inclusion of all groups community assist in implementation and have been important of society in rural decision-making, regardless of in extension program development. gender, age, class, or ethnicity. In addition to devolving control and decision-making power, Source: Claar, Dahl, and Watts 1980. these initiatives can help communities build skills (human and social capital) through education and training, as well as by expanding the depth and frequently stop at this point, and central range of their social networks. authorities often retain control over deconcentrated administrative structures. As a Decentralization offers opportunities to intro- result, an important decision must be made duce other reforms, such as contracting out about whether to phase reforms and risk services, strengthening M&E, and improving getting stalled, or implement total reforms at management. Decentralization facilitates client one time, recognizing the risk of serious pro- participation in planning, cofinancing, imple- gram disruptions. menting, and evaluating programs, and it makes greater accountability possible by FUNDING. Fiscal decentralization is often seen as 125 making program administration closer and a way to reduce central government budgets by more accessible to clients. off-loading tasks that a central government can no longer finance, a practice known as “devolving insolvency.” Intergovernmental fiscal POLICY AND IMPLEMENTATION ISSUES transfers or grants are usually needed to fi- Decentralization represents a fundamental nance decentralized programs. Concern over restructuring of power and financial relation- local administrative capacity and accountability ships and is rarely implemented without frequently leads central governments to impose controversy. A number of key issues in plan- controls that are costly to administer and that ning such reforms must be addressed: restrict local flexibility in managing funds. However, experience indicates that local PHASED VS. ABRUPT REFORM. Deconcentration is governments are generally capable of assuming nearly always the first and necessary step in substantial fiscal responsibility. While grants any process of decentralization. This puts staff from the central government are usually neces- from central administrations in closer contact sary to maintain programs, decentralization with local people, problems, and conditions, offers opportunities to introduce cost sharing and it also provides a channel for local interac- by local government and users and increase tion. Unfortunately, decentralization reforms total resources available for extension.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS COORDINATION. Decentralization involves differ- tive, and political decentralization. Reforms ent institutions and levels of government must be tailored to country-specific conditions collaborating in financing and implementing (see box 3.11). Privatization, deconcentration, programs. Coordination is essential as program and delegation initiatives can complement and objectives, approaches, training schedules, reinforce an overall decentralization policy, but implementation periods, and incentives vary these do not constitute—and can in some cases between decentralized implementation units. work against—effective decentralization. There is also potential for overlap of programs Successful decentralization reforms require: in different areas, competition for staff, clients, and markets, and duplication of effort in • Providing local men and women with providing support services, such as training and substantial influence over local develop- technical support. ment activities and the local political system.

LEVEL OF DECENTRALIZATION. Decentralization may • Ensuring availability of adequate financial involve a decision to decentralize authority to resources from intergovernmental fiscal local governments or to local community transfers or grants and user payments to groups. Devolving program responsibility to enable decentralized institutions to accom- local communities fully empowers rural people plish their tasks. but bypasses and weakens local government. Community collaboration with local and national • Ensuring adequate administrative capacity governments in managing programs makes it of local units through training and infra- possible to coordinate programs across a structure investments. broader area, ensures that interests of the poor are represented, facilitates the scaling up of • Establishing reliable mechanisms, such as successful initiatives, and overcomes local and transparent planning, reporting and evalua- often male-dominated authoritarian enclaves. tion, and routine audits, for accountability of decisionmakers to local people.

LESSONS LEARNED Strategies for decentralization must be adapted to Decentralization takes many forms, and there the local institutional environment, legal frame- are various combinations of fiscal, administra- work, political traditions, administrative structures, 126 Box 3.11 India, China, and Uganda: approaches to decentralized service provision

India’s National Agricultural Technology Project established Agricultural Technology Management Agencies in pilot districts to coordinate agricultural extension and rural development activities. The agencies, registered as civil societies to provide a degree of autonomy, are delegated responsibility for extension, are controlled by governing boards of stakeholders. They also receive guidance from farmer advisory committees established in production blocks; and have administrative offices linked to state and national extension offices and receive technical backstopping and training from regional research staff. China’s Agrotechnology Extension Center System, based on national, provincial, county, and township institutions, guides extension activities and provides technical support to township agrotechnology extension stations. These provide key services from more than 370,000 staff and 500,000 farmer technicians operating at the village level. Funding for each level of the system comes mainly from that level of government. Both are actively engaged in innovative strategies to broaden their funding base through fee for service arrangements, contracts with producers, input sales, and profit sharing with clients. Uganda’s National Agricultural Advisory Services Program represents an ambitious plan to decentralize extension services, scaling up from six pilot districts to national coverage by 2008. An autonomous board coordinates the program at the national level. Local farmer groups are represented in subcounty and district levels. Farmer forums approve project proposals submitted by farmer groups. Funding for projects comes from the program’s fund, most of which is allocated to subcounty farmer forums.

Source: Swanson and Samy 2003.

AGRICULTURE INVESTMENT SOURCEBOOK and social and agro-ecological conditions. Decen- Box 3.12 Ghana: incomplete decentralization reforms tralized extension reforms can be appropriate for cases in which there is already a strong political In 1997, Ghana’s Ministry of Food and Agriculture decided to decentralization in the country but should be decentralize operations to provide more responsive and undertaken with caution when decentralization is effective services. Staff and budget of the ministry were to be not yet well established (see box 3.12). transferred to 110 District Directorates of Agriculture. In 2002, these still remained under the ministry because legislation to Decentralization still requires the central govern- establish a local government service for the staff of district ment to retain responsibility for cofinancing, government units had not been enacted. Because extension staff have not yet been integrated and because specialized quality control, promotion, support services, and services have been disrupted, frustration has grown, reducing M&E. Clear division of responsibilities and the impact of decentralization. Political commitment was capacity building at all levels is key to successful essential to start reforms but because of loss of commitment, decentralization reforms. This process depends implementation stalled. Agricultural extension can not effec- on a supportive national policy framework and tively decentralize operations without the framework of overall a clear extension strategy within this framework decentralization policies and structures. (AKIS 2000). Over the short term, decentraliza- Source: Amezah and Hesse 2002. tion rarely reduces—and may increase requirements for central government financing. policy objectives with local people’s priorities that emerge from the decentralized RECOMMENDATIONS FOR PRACTITIONERS program governance. Before launching decentralization of extension services, investments in extensive planning, • Provide for fiscal transfers from central to promotion, and training in new operational local government to finance decentralized procedures is essential to sensitize staff to the services, structuring transfers to give users changes and to the likely opposition from maximum influence over programs and central agencies that lose influence because of promote institutional pluralism in service decentralization. Extension strategies generally provision. should (see box 3.13): • Develop capacities in a range of public and • Decentralize service provision whenever private providers, such as local governments, possible, emphasizing user control over executing agencies, and community or 127 program planning, implementation, and producer groups, and introduce competitive evaluation. Box 3.13 Potential investments • Provide for extensive planning, wide promotion of the rationale and principles • Training and raising awareness for all staff regarding new behind decentralization, and training in procedures and rationale for decentralization. new operational procedures, in addition to • Development of new regulations and operating proce- ensuring clear terms of reference for divi- dures. sion of responsibilities among different • Equipment and facilities for local government agencies. levels of government. • Training and capacity building for client organizations and service providers. • Fiscal transfers to local government. • Provide adequate centralized support for • Central support services, including subject matter special- decentralized services, especially for train- ists, development communications and mass media, and ing, subject matter specialists, and the training facilities. production of extension materials. • M&E systems. • National and local strategy development and priority- • Develop procedures for priority setting to setting with participation of all stakeholders. reconcile central government financing and Source: Authors.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS mechanisms that ensure the most compe- Views on International Approaches? work- tent institutions provide services. shop, sponsored by the World Bank, USAID, and the Neuchatel Initiative, No- • Establish effective systems to monitor and vember 12-15, Washington, D.C. evaluate decentralized programs and ensure that the data are available at appro- Claar, J. B., D. T. Dahl, and L. H. Watts. 1980. priate levels. Central monitoring should be “The Cooperative Extension Service: An sensitive to equity issues and the possibil- Adaptable Model for Developing Coun- ity of local elite capture of programs, that tries.” College of Agriculture INTERPAKS exclude services to poor people, women, Series 1. University of Illinois Urbana- or minority groups. Champaign, Urbana-Champaign.

Swanson, B. E., and M. M. Samy. 2003. “Decen- SELECTED READINGS tralization of Agricultural Extension Sys- Asterisk (*) at the end of a reference indicates tems: Key Elements for Success.” Proceed- that it is available on the Web. See Appendix 1 ings of Regional Conference on for a full list of Websites. Operationalizing Reforms in Agricultural Extension in South Asia, sponsored by The AKIS. 2000. “Decentralizing Agricultural Exten- Ministry of Agriculture of the Government sion: Lessons and Good Practice.” AKIS of India and the World Bank’s South Asia Thematic Team. World Bank, Washington, Rural Development Unit, May 6-8, New D.C.* Delhi, India.

Manor, J. 1999. The Political Economy of Demo- This Note was prepared by Gary Alex, based on a World cratic Decentralization. Washington, D.C.: Bank Good Practice Note “Decentralizing Agricultural World Bank. Extension: Lessons and Good Practice” with inputs from David Nielson and the Sustainable Agriculture (SASKI) Thematic Team of the World Bank. Swanson, B. E., and M. M. Samy. 2003. “Decen- tralization of Agricultural Extension Sys- tems: Key Elements for Success.” Proceed- ings of Regional Conference on 128 Operationalizing Reforms in Agricultural Extension in South Asia, sponsored by The Ministry of Agriculture of the Government of India and the World Bank’s South Asia Rural Development Unit, May 6-8, New Delhi, India.*

REFERENCES CITED AKIS. 2000. “Decentralizing Agricultural Exten- sion: Lessons and Good Practice.” AKIS Thematic Team. World Bank, Washington, D.C.

Amezah, K., and J. Hesse. 2002. “Reforms in the Ghanaian Extension System.” Case study was prepared for the Extension and Rural Development: A Convergence of

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE India found that community user groups rarely perform as expected, and, although most group members felt group objectives had been CLIENT GROUPS AS KEY achieved, participation was poor, little informa- INTERMEDIARIES IN tion was available to members on group EXTENSION activities, and sustainability relied heavily on project staff (World Bank 2002). Despite past Client groups of various types make extension efforts, few producer organizations in develop- services more accessible to small-scale farmers ing countries have developed as effective by providing economies of scale in service organizations with sustainable programs. delivery and a mechanism for producers to express their demands for services. Working with client groups may enable extension PRODUCER GROUPS AND ORGANIZATIONS programs to reach more farmers and rural In pluralistic extension systems, various client households (increasing efficiency), facilitate groups help to formulate client demands for participation in extension activities (increasing services. Producer groups are the major focus effectiveness), and develop human resources for agricultural extension services, though other and social capital (increasing equity). The client organizations, based on community member- group role may entail receiving services for ship, specific social or developmental objec- organizational strengthening (client), facilitating tives, or specialized client groups, such as delivery of services (partner), providing ser- youth clubs or women’s organizations, can be vices to members (executing agency), or equally important to extension programs. Rural financing services (financier). Roles and poten- producers’ groups fall generally into two tial differ markedly between small, informal categories with differing objectives and poten- extension contact groups and formal commer- tials, as well as differing extension needs cial organizations. Producer organizations are a (Rondot and Collion 2001). main focus for agricultural extension, but women’s and other community groups are also COMMUNITY-BASED, RESOURCE-ORIENTED GROUPS. important partners. Investments are needed to These are generally small informal groups of strengthen client group capacities and develop farmers and rural people with diversified mechanisms for their effective involvement in production systems. They require extension extension and advisory services. assistance for community organization, mar- 129 keting, and collaborative management of Past development programs seeking to work natural resources. One type of such farmer through producer or community groups have grouping is the extension contact group achieved varying levels of success. In the 1960s organized for the convenience of extension and 1970s, donor programs supported coopera- service delivery. Other informal groups may tives, many of which failed (often spectacu- be semipermanent, coming together for a larly) for varying reasons, especially because of specific purpose and dissolving when this has excessive governmental control. Rural develop- been achieved, such as managing natural ment programs organized community groups to resources. These seldom evolve into formal undertake a wide variety of activities, and organizations and, although they can assume agricultural extension services organized varied roles in extension and information contact groups for technology transfer. Such service delivery, their major strength is in local groups were often effective in facilitating serving as a contact point for extension. service delivery and increasing client participation in programs, but many were “groups” in COMMODITY-BASED AND MARKET-ORIENTED GROUPS. name only, with little organizational identity or These are generally larger and more formal cohesion and little independence. A study in organizations, with more sophisticated needs

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS for extension assistance in production and people scattered over wide, sometimes inacces- marketing, business planning, and develop- sible, areas. Client organizations help extension ment for specific products. These groups can “reach” members but, more importantly, serve play a wider role in extension because they are to organize demand for extension services. more likely to be able to define needs, They enable members to participate in defining cofinance service delivery, and coordinate objectives and needs, provide feedback to help extension and information activities. programs deliver more relevant services, become more accountable to clients, and establish Current trends likely to increase the importance a base for cofinancing and eventual self-financ- of producer organizations and facilitate their ing of services. In working with client organiza- involvement in extension include moves to tions, extension services build important social and decentralize government, better definition of human capital, empowering clients to analyze respective roles of public and private sectors, and resolve their own problems (see boxes more competitive markets, improvements in rural 3.14 and 3.15). As agricultural markets become infrastructure and services, and better-educated more competitive and demand for information producers. Future support for client organizations and services increases, there will be a growing will be more effective if based on better under- need for more permanent, formal organizations standing of issues involved in strengthening such to provide rural services. groups and a more comprehensive strategy for organizational development and sustainability. POLICY AND IMPLEMENTATION ISSUES VARIED ROLES OF CLIENT ORGANIZATIONS. Client BENEFITS organizations can convene members for dis- Extension systems face challenges in delivering seminating information and training, contract information services to large numbers of rural extension services on behalf of members,

Box 3.14 Norway: agricultural research/extension circles

Norway’s agricultural research/extension circles are an example of farmer-owned and led extension services. About 25 percent of Norwegian farmers are Circle members, paying annual fees and electing management boards. Circle programs combine extension and adaptive research and include field experiments, soil testing, farm policy analysis, information and advisory services, 130 and promotion of agricultural communities. Priorities are established in membership meetings, with research ideas and guidelines obtained from the national university. Factors contributing to program success include farmer ownership and leadership, combination of adaptive research and extension, fee-based membership, public sector financing, and adaptation of an existing institutional model.

Source: Haug 1991.

Box 3.15 Malawi: National Smallholder Farmers’ Association

The National Smallholder Farmers Association was formed in 1997 to provide services and promote the social and economic development of smallholders. It is financed through a government levy, member dues, user fees, and donor support and its 96,000 members are organized in about 5,000 local “clubs.” Groups of five to 10 clubs are federated into Group Action Committees organized into 32 separate associations. Services are focused on marketing, using collective bargaining power to negotiate favorable transportation rates and market terms and prices, and providing assistance for feasibility studies, training, and technical and management advice. Associations work with traditional crops (tobacco, maize, cotton, and groundnuts), but are giving increased attention to higher-value and export crops (chili peppers, paprika, ginger, turmeric, and sesame). The associations have field staff and operate farm supply shops that serve as informal information centers.

Source: Walton 2002.

AGRICULTURE INVESTMENT SOURCEBOOK provide input to program governance and Box 3.16 West Africa: institutional arrangements priority setting, lobby government for extension services, or assume full responsibility for A workshop in Bohicon, Benin in 2001 reviewed experience of providing services to members. 10 West African extension programs that provided management advisory services for family farms. Approaches varied by MARKET ORIENTATION. Some special interest clients country and program, but each relied on some form of (for example, women’s groups, environmental producer organization to manage services. The management conservation groups) may continue to support advisory services evolved in response to farmer need to extension systems due to personal commit- compete in rapidly changing markets. Advisory services analyzed individual farm situations and opportunities, and ment, but few producer groups will sustain developed farm management capacity using management tools interest if there is no direct economic benefit. and decision aids that identify farmers’ options. Producer For this reason, sustainable extension programs organization arrangements to support these programs included generally must support marketing activities or a farmer organization that managed the system in Mali; cotton market-oriented agricultural production to organizations managing systems in Mali and Burkina Faso; local generate the financial benefits that provide a farmer groups that managed centers providing services in Mali; basis for sustainability of the extension systems. and a farmer organization in Benin that contracted a private firm to provide advisory services to individual farmer members.

DUAL ROLE FOR EXTENSION. Extension services Source: Faure and Kleene 2002. support clients through establishing client organizations and strengthening their programs procedures to ensure that these groups are not and core management systems, in addition to excluded. If this fails, establishment of sepa- providing technical and advisory services to rate organizations might be necessary to promote innovation, increase profitability, provide equal services. Women’s political implement projects, and develop linkages to voices can be strengthened by ensuring other sources of assistance. equality of opportunity to participate in organized governing bodies at the local, regional, LEVEL OF ORGANIZATION. Producer organizations national and international levels, as well as by face a dilemma in terms of scale of operation. promoting leadership training for rural women CBOs (typically 10 to 30 members) can achieve and ethnic minorities. group cohesion and unite around common local objectives, but they lack economies of scale and political influence. National or re- LESSONS LEARNED 131 gional organizations can be more effective INSTITUTION BUILDING. Extension services can work advocates with government and achieve econo- with producer organizations as full partners, mies of scale in operations, but they may lose representing members’ interests. This requires touch with the rural membership base. A patience and a long-term perspective. Donor strategy of linking community groups in a support can strengthen client organizations and national federation seeks to combine these stimulate demand for extension, but, having strengths (FAO 2001). West African experience donor funding carries a risk of undermining reflects the varied possible roles of producer long-term sustainability of the organizations organizations in providing market-oriented (Delion 2000). advisory services (see box 3.16). EXISTING VS. NEW ORGANIZATIONS. Working with EQUITY CONCERNS. Many groups that are domi- existing organizations is often more successful nated by local elites do not truly empower than starting new ones, especially if groups are producers or reach disadvantaged groups formed by a project specifically to qualify for a (Chamala and Shingi 1997). Ensuring participa- special subsidy or benefit. In Brazil, such tion of women, minority groups, and the poor associations rarely survived beyond the subsidy might require changes to organizational period (Pieri et al. 2002).

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS GROUP PROMOTION. Responsibility for promoting • Define the role of client organizations, which client organizations has often fallen to poorly depends on the type of client. Organizations prepared extension agents with little training or of large farmers and those producing cash understanding of principles of group formation. crops are most likely to be able to assume Most extension programs need dramatic improve- full responsibility for organizing and financ- ment in staff skills (social, legal, and business) for ing extension services. Organizations of working with client groups, whether informal small farmers with diversified production community groups or larger formal organizations. systems are likely to be effective partners in planning and implementing programs in ACCOUNTABILITY AND ADVOCACY. Producer organiza- conjunction with other service providers but tions are often seen as a mechanism for small- will generally remain dependent on public scale farmers to make public extension agen- financing for services. cies more accountable and responsive, and as advocates for continued program funding. • Carry out social assessments, including Accountability is enhanced only if client organi- gender analyses, to understand better the zations have real control over program re- dynamics of client groups and their leader- sources and management. There are only a few ship and assess the participation and instances of producer organizations effectively benefit distribution by gender, age, defending extension program funding (as in ethnicity, and income level. Venezuela) (Carney 1996). Building effective organizations that can lobby for and influence • Devote resources to building client organi- extension priorities will take time and possibly zation capacity and increasing member new organizational arrangements. participation in planning, implementation, cofinancing, and evaluation of extension programs. Extension programs need to RECOMMENDATIONS FOR PRACTITIONERS emphasize training both for client organiza- National extension strategies and program tion staff and members, as well as for mechanisms will vary depending on types of extension service providers. producers/clients, local institutions, and local opportunities and problems. Extension agencies • Promote independence of client organizations, should consider options for working with client enabling them to identify extension needs, 132 organizations in any program. Public support select service providers, and evaluate program should be oriented toward empowering clients, performance. Channeling funding through organizing sustainable groups, developing client organizations to procure services, rather human capacities, and encouraging participatory than providing them directly from public problem-solving through extension investments agencies or public agency contracts strength- that (see box 3.17) (Chamala and Shingi 1997): ens organizational autonomy and influence.

Box 3.17 Potential investments

• Technical assistance and training for government and stakeholders to develop a favorable policy and regulatory environment for client organization involvement in extension. • Training and study tours for client group members and leaders. • Technical assistance for participatory planning and implementation of extension activities. • Multi-stakeholder forums for extension planning and evaluation. • Market linkage development and market information services. • Support for youth groups, women’s groups, and ethnic and cultural minority groups. • Cofinancing grants for client groups to procure needed services, including information and communication technology equipment. Source: Authors.

AGRICULTURE INVESTMENT SOURCEBOOK • Plan for collaboration among client Natural Resource Perspectives 14. ODI, organizations, local government, the London. private sector, and producers in providing services. Chamala, S., and P. Shingi. 1997. “Establishing and Strengthening Farmer Organizations.” • Encourage transparency in program opera- In B. Swanson, ed., Improving Agricultural tions so members are fully aware of pro- Extension: A Reference Manual. Rome: gram objectives, status, and finances. This FAO. may prevent the misuse of organizations by politicians. Delion, J. 2000. “Producer Organization-Donor Partnerships in Project Implementation in SELECTED READINGS Africa: Risks and Precautions from a Social Asterisk (*) at the end of a reference indicates Perspective.” AKIS Discussion Paper. World that it is available on the Web. See Appendix 1 Bank, Washington, D.C. for a full list of Websites. FAO. 2001. “The Inter-Group Resource Book: A Carney, D. 1996. “Formal Farmers Organiza- Guide to Building Small Farmer Group tions in the Agricultural Technology System: Associations and Networks.” Rome, FAO. Current Roles and Future Challenges.” Natural Resource Perspectives 14. ODI, Faure, G., and P. Kleene. 2002. “Management London.* Advice for Family Farms in West Africa: Role of Producers’ Organizations in the Chamala, S., and P. M. Shingi. 1997. “Establish- Delivery of Sustainable Agricultural Exten- ing and Strengthening Farmer Organiza- sion Services.” Paper presented at New tions.” In B. Swanson, ed., Improving Approaches to Extension: A Workshop for Agricultural Extension: A Reference Practitioners, sponsored by the World Bank, Manual. Rome: FAO.* USAID, and the Neuchatel Group, Novem- ber 11-15, Washington, D.C. Delion, J. 2000. “Producer Organization-Donor Partnerships in Project Implementation in Haug, R. 1991. “Public-Private Cooperation: Africa: Risks and Precautions from a Social Farmer-Led Research/Extension Circles in Perspective.” AKIS Discussion Paper. World Norway.” In W. M. Rivera and D. J. 133 Bank, Washington, D.C.* Gustafson, eds., Agricultural Extension: Worldwide Institutional Evolution and Rondot, P., and M.-H. Collion. 2002. “Investing Forces for Change. Amsterdam: Elsevier in Rural Producer Organizations for Sustain- Science Publishers. able Agricultural Development.” Paper presented at Policies and Approaches for Pieri, C., G. Evers, J. Landers, P. O’Connell, and Rural Poverty Reduction: What Works in E. Terry. 2002. “No-Till Farming for Sustain- Practice, sponsored by the European able Rural Development.” Agriculture and Commission and the governments of Rural Development Working Paper. World France, Germany, the United Kingdom and Bank, Washington, D.C. the Netherlands, September 4-6, Agropolis, Montpellier, France.* Rondot, P., and M.-H. Collion. 2002. “Investing in Rural Producer Organizations for Sustain- able Agricultural Development.” Paper REFERENCES CITED presented at Policies and Approaches for Carney, D. 1996. “Formal Farmers Organiza- Rural Poverty Reduction: What Works in tions in the Agricultural Technology System: Practice, sponsored by the European Current Roles and Future Challenges.” Commission and the governments of

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS France, Germany, the United Kingdom and the Netherlands, September 4-6, Agropolis, Montpellier, France.

Walton, J. 2002. “Malawi: National Smallholder Farmers’ Association of Malawi (NASFAM).” Case study was prepared for the Extension and Rural Development: A Convergence of Views on International Approaches? workshop, sponsored by the World Bank, USAID, and the Neuchatel Initiative, No- vember 12-15, Washington, D.C.

World Bank. 2002. “Community User Groups: Vehicles for Collective Actionæor Personal Gain?” PREM Notes 72. World Bank, Wash- ington, D.C.

This Note was prepared by Gary Alex with inputs from Pierre Rondot and the Sustainable Agriculture (SASKI) Thematic Team of the World Bank.

134

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE simple channels for two-way communications. New technologies can give farm families better access and can be a major empowering re- MASS MEDIA AND source. Key communications tools for improv- COMMUNICATIONS ing extension services include: TECHNOLOGIES IN EXTENSION • Development communications. This is essential to extension services, providing Extension systems have yet to exploit the full easily understood information for electronic potential of mass media communications and face-to-face communications. technologies to improve rural people’s access to knowledge and information. Development • Mass media. This includes broadcast (radio communications and mass media like radio and and television), print (newspapers, maga- print media have long been a part of extension zines, and extension brochures), and other systems but have generally not received ad- approaches, such as poster campaigns, equate attention or financing. New technologi- traditional theater, and songs. Public exten- cal developments can make these function sion services have been slow to realize the more efficiently and effectively and provide potential of mass media, but private firms extension systems with opportunities to deliver use mass media effectively in advertising new information services in new ways. Private campaigns. Increasing rural literacy and service delivery, cost recovery, and wholesaling basic education should make mass media of information are important strategies for communications more effective in reaching expanding use of information and communica- large numbers of small-scale farmers. tions technologies in rural extension systems. • Rural telecommunications systems. These Communication is the essence of extension range from the pay phone to digital wireless services. Extension services, both people and phones and the Internet and are powerful approaches, seek to provide rural people with tools for expanding the flow of information knowledge and information. The information of all types, and facilitating market transac- and communications technology (ICT) revolu- tions, changes in employment, competition, tion provides new options for accessing infor- emergence of new industries, and social mation by providing it directly to farmers and transformations (Talero and Gaudette 1996). 135 rural households or to nonfarmer sources of Phone communications enhance quality of information, such as extension agents, life and make working and living in rural agribusiness, and other intermediaries. Most areas more attractive. extension programs have yet to effectively integrate mass media and ICTs into systems for • Information technologies. These manage supporting extension staff. These technologies large volumes of information that can be are likely to become increasingly important as used in planning, administering, and moni- extension systems try to provide information to toring extension programs. Technologies, a wider and more diverse client base. such as remote sensing, geographic information systems, global positioning systems, and weather and climate forecasting gener- INFORMATION AND COMMUNICATIONS ate knowledge that extension systems TECHNOLOGY IN EXTENSION SYSTEMS provide to clients. ICTs offer opportunities to reach more people and to carry out various functions within BENEFITS extension systems more effectively and effi- New information technologies and the inven- ciently. ICTs can provide easy access to local or tiveness of agricultural scientists, farmers, rural global information and knowledge and are women, and entrepreneurs are leading to new

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS mass media and ICT applications in agriculture. of lower education, skill levels, and incomes. Communications technologies can help exten- Women have less access to ICTs than men. In sion systems provide information better, selected developing countries, women ac- cheaper, and faster. The ability of information counted for 6-37 percent of Internet users. technologies to manage large quantities of data Women’s lower access to ICTs is due to cultural enables these systems provide new services. and social attitudes that restrict women’s use of Desktop publishing, PowerPoint presentations, new technologies or that require seclusion of digital images, and lower-cost audiovisual women; financial dependency on male family hardware improve communication effective- members; and less educational opportunities ness. Computers and new software allow for women (Wete 1991). farmers, producer organizations, and extension agents to access information on a range of new COST EFFECTIVENESS. Public extension services can technologies, markets, and other information mainstream mass media in cost-effective exten- from local or remote databases. sion programs. In Malawi, even in the early 1980s, direct extension agent-to-farmer services ICTs and traditional mass media can help the cost US$21 per contact; a one-day farmer farmer compete in the evolving knowledge training course cost US$4 to US$5 per partici- economy where competitive advantage is often pant; a mobile film show cost US$0.17 per dependent on timely access to high-quality farmer per hour; and a radio program cost information. Changes in farming systems also US$0.004 per listener per hour (Perraton et al. require extension systems to provide more 1983). Advances in communications technolo- knowledge and information support as produc- gies have further reduced costs and opened ers diversify to new crops, meet higher food opportunities for new and better applications quality standards, or adapt to greater resource of ICTs. constraints. Many benefits derive from linking new technologies with traditional media. COST RECOVERY. Many extension services (market Internet searches identify global knowledge information and farm level advisory services) resources for local print media use; call-in provide private benefits that should be paid for Internet radio shows allow listeners to phone by users. Cost recovery is important in expand- in questions that can be researched on the ing rural access to information services. Rev- Internet before the results are then reported enue from advertising associated with informa- 136 over the radio. tion dissemination (radio or television advertising) or subscriptions (magazines, or Internet advisory services) offer opportunities for self- POLICY AND IMPLEMENTATION ISSUES financing mass media services. Public extension In expanding use of ICTs, extension systems agencies need to establish good business will need to address the cost and policy issues relations with private partners, either by selling of reaching clients in rural areas. advertising to private firms for government- owned media or providing high-quality infor- THE DIGITAL DIVIDE. In 1999, Latin America, Africa, mation products for use by private sector and the Middle East accounted for only 4.2 publishers and broadcasters. percent of all people connected to the Internet. There were only 0.7 telephones per 100 people TRAINING AND SUPPORT. Introducing computers and in rural areas of low-income countries, com- new communications technologies in traditional pared to 48.5 in rural areas of high-income extension agencies can improve efficiency but countries (Hudson 1998). Rural areas are also can also have major implications for training much less connected than urban areas. Physical and technical support costs, in addition to the infrastructure is not the only factor: rural initial hardware costs. Investments in curricula people are often less able to use ICTs because of training programs and staffing are needed to

AGRICULTURE INVESTMENT SOURCEBOOK provide extension service providers with the KNOWING THE CLIENT. Knowing audience charac- capacity to effectively use new technologies teristics, preferences, needs, interests, and and to link clients and sources of information. access to media are critical to understanding the potential use of specific media, analyzing POLICIES AND REGULATIONS. Regulatory constraints and targeting audiences, and designing media may limit rural access to communication tech- products. nologies. National and international regulations constrain expansion of local radio. Protection INSTITUTIONAL ARRANGEMENTS. Support for develop- of telecommunications monopolies, restrictions ment communications in public extension on voice-over Internet protocol, and regulation services is complicated by the number of of Internet use often limit rural access to ICTs. government agencies requiring such services. Extension programs can identify such policy Limited demand from any one institution often constraints and raise them with national makes it desirable for extension services to policymakers. Educating rural constituencies contract out communications support to spe- (producer organizations and agribusiness) cialized agencies. This requires a recurrent about these policy issues can create a constitu- budget item for communications support, but ency for reform. avoids investment in costly equipment that may be underused and poorly maintained.

LESSONS LEARNED TELECENTERS. Rural telecenters (or telecottages) The falling costs and ever-increasing capacity have efficiently provided rural people with of ICTs, their ease of use and potential for access to ICTs; however, financial sustainability wide coverage, and the entertainment value is still a major problem for such centers. Gener- of cleverly packaged information and educa- ally, telecenters work best when Internet access tional media present opportunities to mix is part of larger information centers and linked different types of digital and traditional infor- to rural radio and other information services.4 mation technologies. Telecenter networks are useful in exchanging ideas and good practice experience. Varying MATCHING MEDIA TO MESSAGES. Radio and television institutional arrangements are possible (see box reach many people quickly with simple mes- 3.18). UNESCO has produced a useful guide to sages. Print is good for getting detailed infor- establishing telecenters in Africa (Jensen and mation to people. Interpersonal communica- Esterhuyen 2001). 137 tions, group meetings, and demonstrations are best for teaching and developing credibility. A range of media can be combined in an overall Box 3.18 India: Info Village Project in Pondicherry communications strategy, but this is something that public extension services often do poorly. The Info Village Project in Pondicherry, India, supported by the M.S. Swaminathan Research Foundation, has established village information centers managed by villagers. Farmers have been DEVELOPING CONTENT. The use of ICTs and mass willing to pay for extension and marketing information from media is not a one-time investment. There must these centers. In one village, four women are managing a center be capability and commitment to continuous effectively. They send and receive e-mails and faxes and development of quality information and educa- download daily news from the Internet and display it on a tional materials to supply clients through these Bulletin Board outside the info center. The Info Centers are media. Effective development communications highly user-friendly, demand-driven, managed by local people, and cater to a variety of information needs. requires active participation of intended beneficiaries and continuous assessment of their interests. Source: MSSRF 2002.

4. See the IAP, “Russian Federation: Using Information and Communications Technologies for Rural Information Services”

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS RECOMMENDATIONS FOR PRACTITIONERS • Build into programs strategies that promote Extension systems can use mass media and ICTs equal access and opportunity for the poor in three interlinked information subsystems for and disadvantaged groups, including accessing and developing knowledge products, women, to use mass media and ICTs. supporting intermediaries and service providers, and linking rural people directly to sources of • Assess telecommunications policies and information and knowledge. Investments are regulations that might constrain rural access needed so that public extension services can: to information and communication services.

• Develop extension strategies that identify • Promote use of the Internet and establish- available communications resources; ment of self-financed telecenters. assess needs for communications; and determine the type of communications Cost efficiency and practicalities dictate the need support needed. Many traditional uses of to develop multipurpose information systems ICTs in extension are proven technologies that provide health, educational, cultural and that still need to be piloted and adapted other information, as well as agricultural infor- to specific countries. mation. Extension programs can also achieve efficiencies by wholesaling public information • Analyze information needs through knowl- services—packaging information and distributing edge, attitude, and practice surveys, includ- it through electronic and other means for use by ing gender analyses, that can be conducted frontline extension service providers. through rapid rural appraisals and do not need to be costly or lengthy. SELECTED READINGS Asterisk (*) at the end of a reference indicates • Expand use of mass media, especially that it is available on the Web. See Appendix 1 radio, to complement other extension for a full list of Websites. services and integrate use of various media for distribution of information. FAO. 2001. “International Workshop on Farm Radio Broadcasting.” Workshop Report. • Establish capacity in development commu- FAO, Rome.* nications to package information for use in 138 extension and advisory service programs, Fundacion Chasquinet. http://www.chasquinet.org. including provision for building capacity for local input of content and for supply and Garforth, C. 1986. “Mass Media and Communi- distribution of local material (see box 3.19). cations Technology in Investment.” In G. Jones, ed., Rural Extension: Strategies and Goals. London: Elsevier Applied Science Box 3.19 Potential investments Publishers.

Expanding use of ICTs in rural extension systems will require Hafkin, N., and N. Taggart. 2001. “Gender, investments in the 4Cs Information Technology and Developing • Connectivity (equipment and infrastructure). Countries: An Analytic Study.” Office of • Capacity building (training and institution building for use Women in Development. USAID, Washing- of ICTs). ton, DC.* • Content (preparation of materials and linkages for obtaining information and knowledge products). • Conducive environment (policy and regulatory reforms to REFERENCES CITED facilitate use of ICTs). Hudson, H. E. 1998. “Global Information Source: Authors. Infrastructure: The Rural Challenge.” In D.

AGRICULTURE INVESTMENT SOURCEBOOK Richardson and L. Paisley, eds., The First Mile of Connectivity—Advancing Telecom- munications for Rural Development through a Participatory Communications Approach. FAO, Rome.

Jensen, M., and A. Esterhuysen. 2001. “The Community Telecentre Cookbook for Africa: Recipes for Self-Sustainability: How to Establish a Multi-Purpose Community Telecentre in Africa.” UNESCO, Paris.

M.S. Swaminathan Research Foundation. Information Village Research Project. http:// www.mssrf.org/.

Perraton, H., D. T. Jamison, J. Jenkins, F. Orivel, and L. Wolft. 1983. “Basic Education and Agricultural Extension-Costs, Effects, and Alternatives.” Staff Working Paper 564. World Bank, Washington, D.C.

Talero, E., and P. Gaudette. 1996. “Harnessing Information for Development: A Proposal for a World Bank Group Strategy.” Discus- sion Paper 313. World Bank, Washington, D.C.

Wete, F. 1991. “New Technology for Transfer- ring Agricultural Information.” In W. M. Rivera and D. J. Gustafson, eds., Agricul- tural Extension Worldwide: Institutional 139 Evolution and Forces for Change. Amsterdam: Elsevier Science Publishers.

This Note was prepared by Gary Alex with inputs from Matthias Grueninger and the Sustainable Agriculture (SASKI) Thematic Team of the World Bank.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS INNOVATIVE ACTIVITY PROFILE members included farmers, advisers, and public officials. For two years, the group generated ideas, monitored developments, and ESTONIA: TRANSITION TO formulated concepts and strategies. The PRIVATE EXTENSION group’s function is continuing under an ADVISORY SERVICES informal advisory concept group made up of major stakeholders. Since independence in 1991, Estonia has followed an open and liberal reform path with Privately operated advisory services were agriculture important to economic growth and intended to provide agronomic and farm busi- export earnings. Before independence agricul- ness advice for the most commercially viable tural production was organized in approxi- farms (about 3,700). The project established a mately 350 large state cooperatives, each Private Advisory Services Development Fund to managing some 3,500 hectares with about 300 support a demand-driven advisory service, employees. Assets of the state and collective which funded certified private advisers on a farms were privatized after independence, and contract basis. Private advisers were trained in the farm structure evolved toward smaller-size methodology and technical subjects, and an family farms. The agronomic advisory service Association of Rural Advisors in Estonia was before independence was highly specialized, created. A system for certification of advisers aimed at servicing state and collective farms, was put in place under the Ministry of Agricul- and ensuring delivery of centrally planned ture, and only certified advisers qualify for production targets. Advisors did not provide advisory contracts that are partly subsidized by business- or market-related advice. After inde- the Fund. Government subsidies for individual pendence, new private farmers lacked business advisory contracts between farmers and advisers experience and needed advice on production were to be gradually reduced over a nine-year techniques, business operations, and farm period (from 90 percent in 1996 to 0 percent in management. 2004). However, phasing out of the subsidy has been delayed for a few years in response to What’s innovative? Establishing a Private Advisory slower-than-anticipated growth in farm incomes. Services Development Fund and using different extension strategies, including the Internet for differ- The middle category of farmers received public 140 ent categories of farmers. extension services through mass media, farmers’ organizations, and information networks. The project supported publications from PROJECT OBJECTIVES AND DESCRIPTION various agricultural institutions and it also The objectives of the agriculture project were funded a large number of group advisory to increase rural incomes and stimulate the sessions conducted by farmers and federation rural economy. Project components included advisers or by private advisers in response to land reform, farm drainage rehabilitation, land requests made by county councils and/or use management, agricultural advisory services, farmers’ groups. In addition, the project sup- food quality and veterinary laboratories, and ported the establishment of an Agricultural project management. Information Coordinating Center (AICC) and an internet-based agricultural information network The extension component targeted different connecting the farming community to rural categories of farmers using different extension advisers, the ministry, and other domestic and strategies, depending on information needs, international resources for information. The purchasing power, and access to technologies central portal and Web site of the AICC (http:// and solutions. To make the strategies demand- www.epk.ee) is maintained and continually driven and relevant, a National Agricultural updated under a contractual arrangement with Extension Task Force was created whose the Foundation for Rural Development.

AGRICULTURE INVESTMENT SOURCEBOOK A large number of marginal farmers (about husbandry, and they adopted improved agricul- 6,500) need information on both farming and tural practices, especially in plant protection, alternative employment opportunities. Rural animal nutrition, and fodder production. Information Centers (RIC) in almost all communities, linked to the AICC, provide this informa- There is now broad understanding and accep- tion electronically. The project has supported tance among farmers that advisory services have the establishment of the Centers with training to be paid for by the beneficiaries. Annual for staff and provision of computers and office customer satisfaction surveys, conducted in 1996 equipment. The information activity has strong through 2000, showed very high levels of links with other initiatives, including banks, satisfaction with the advice given (more than 90 insurance companies, and commercial compa- percent), and more than one-half of the respon- nies promoting their services through the dents indicated that they continue to buy advice. Internet. The ministry provides printed information for RICs and electronic information LESSONS LEARNED AND ISSUES FOR WIDER through the AICC. APPLICABILITY Government does not need to “own” the rural advisory system for it to be effective and BENEFITS AND IMPACTS efficient. The Estonian experience shows that Over the project period, 13,572 private advisory an effective public-private partnership can contracts were approved. The number peaked satisfactorily meet the varying information at 2,894 in 1998 and then declined to 2,689 in needs of the rural clientele, and can very 1999; 2,350 in 2000; and 1,410 in 2001. The quickly adapt to changing client characteristics number of active certified advisers participating and needs. in the scheme declined from a high of 189 in 1997 to 69 as of September 2002 (with 10 more Internet-based information services are proving waiting to be certified). Reasons for the decline to be a cost-effective and efficient way to link include: the emergence of private input suppli- rural populations in sparsely populated areas to ers furnishing “free” topical advice; the estab- the world. lishment of private advisers who prefer to operate outside the state-supported system; and Having a nationally agreed agricultural and the increase in farmers’ basic know-how and a rural policy and strategy in place is beneficial subsequent decline in their need for advice. for designing a project targeted at national 141 Most advisers have expertise in plant produc- priority objectives. tion (29 percent), animal husbandry (20 percent), or farm economics (36 percent), with only a limited number experienced in fields, PROJECT COUNTRY: ESTONIA such as forestry, marketing, or business plan- Project Name Agriculture Project (Agricultural ning. About two-thirds of current certified Advisory Service Component) advisers are part-time and hold other jobs, as Project ID P008403 well (for example, university teachers, researchers, private farmers). Many of the advisers who Project Component Cost US$5.3 million left the advisory support system are employed with private companies. Dates FY 1997 – FY 2002 Contact Point Gotz Schreiber Dairying is the dominant farming system and, The World Bank, 1818 H Street with project support, has become quite prof- NW, Washington D.C. 20433 itable: with average net farm incomes increased Telephone: (202) 473-4495; by an estimated 35 percent during the five E-mail: [email protected] years of the project. Farmers increased their knowledge in grain production and animal

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS INNOVATIVE ACTIVITY PROFILE (ATMAs) at the district level; Farmers’ Infor- mation and Advisory Centres and Farmers’ Advisory Committees (FACs) for continuous INDIA: PARTICIPATORY AND production areas (blocks); Farmer interest DECENTRALIZED groups and self-help groups at the village AGRICULTURAL TECHNOLOGY level; and strengthened institutions for train- TRANSFER ing, coordination, and M&E at the state and national level. From the mid 1960s to the late 1980s, agricultural extension played a central role in improv- To provide operational and financial flexibil- ing agricultural productivity in India. ity, ATMAs are registered as independent societies under the Societies Registration Act. What’s innovative? Decentralized agricultural tech- Their management structure provides for nology management agencies increase user partici- improved interagency coordination and pation in extension programs, involve nontraditional accountability to all stakeholders, including partners, and make extension more accountable farmers and its governing board includes the to farmers. district collector as chair; the project director as secretary; and membership from district The T&V system was broadly implemented and line departments, zonal research stations, initially worked well in irrigated areas, provid- farmer representatives, NGOs, the private ing rapid dissemination of green revolution sector, and others. At the block level, FACs technologies, but T&V was much less effective have a rotating farmer representative as in rainfed areas. While the overall extension chairperson; a member secretary; and farmer system grew rapidly, it was unable to adapt to representatives, block level functionaries, and changing needs and grew less efficient and others as members. Village level groups work effective. Constraints included a multiplicity of closely with FACs and public and private public extension agencies; lack of coordination; extension agents. limited technical capacity; weak community organizations and poor communications capac- ATMAs provide for decentralized participatory ity; and weak financial support. A new ap- operation of farmer-driven extension services proach was needed to develop technologies and have institutionalized bottom-up planning 142 applicable to diverse agro-climatic conditions; processes through preparation of Strategic focus on sustainable agriculture; adopt commu- Research and Extension Plans, based on nity participatory approaches; use a farming participatory rural appraisals and Block Action systems approach to serve the poor in marginal Plans. Aggregation of block plans forms the areas; develop a broader skill base; and adjust district’s annual work plan. The ATMA pro- to financial constraints. gram relies on a group approach based on village level groups, as well as training of volunteer farmers to be paraprofessionals. PROJECT OBJECTIVES AND DESCRIPTION A component of the National Agricultural ATMAs support private extension initiatives by Technology Project implemented an effective contracting NGOs to take on extension re- and efficient demand-driven extension service sponsibilities in selected blocks/areas, using with strong linkages to researchers and farm- farmer-to-farmer extension services provided ers, improved coordination among the line by individuals or through farmer organiza- departments, and public-private partnerships tions, in addition to developing partnerships for technology testing and extension. The with input providers (seeds, fertilizers, and Project’s institutional innovations include crop protection chemicals) for demonstrations Agriculture Technology Management Agencies and farmer training. The ATMAs use teams of

AGRICULTURE INVESTMENT SOURCEBOOK research and extension personnel to prepare FACs are operational in most project blocks, Strategic Research Extension Plans; identify and they are recognized by government line research priorities in joint workshops with departments; however, ATMAs have yet to fully state agricultural university scientists and assert their authority and overcome the chal- district/block functionaries; and finance some lenges of providing greater representation for technology refinement and validation work in female members and more leadership training. response to location-specific needs. Internal conflicts between ATMA priorities and departmental responsibilities persist, and BENEFITS AND IMPACTS extension staff require considerable motivation ATMAs in most districts have developed in such to work in a farm advisory role with multiple a way that farmers and other stakeholders have funding sources. a sense of program ownership. Operational flexibility allows extension services to respond to local needs and to improve program rel- PROJECT COUNTRY: INDIA evance and effectiveness, but program Project Name National Agricultural Technology sustainability is still uncertain. Project (Innovation Technology Dissemination) ATMA success stories include the diversification Project ID P010561 of production systems for greater income and/ Project Component Cost or sustainability (for example, the cultivation of US$ 31.5 million high-value crops including flowers, fruits, vegetables, and medicinal plants); improved Dates FY1999 – FY 2004 natural resource management, such as Contact Point Paul Singh Sidhu vermiculture; integrated pest management; The World Bank, 70 Lodi Estate, organic farming; well recharging; integrated New Delhi 110 003, India plant nutrient management; resource conserva- E-mail: [email protected] tion technologies; and the development of new enterprises, such as cashew processing, beekeeping, dairying, value addition through processing, and group marketing. 143

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY The Farmer Interest Groups effectively mobi- lized men, women, and young people to join common interest groups such as producer groups for flower, fruit, vegetable, milk, and other products, as well as marketing groups for seed. These groups have developed federations for mutual support. Training of farm leaders in technology and leadership skills is important, and successful groups can help promote new groups. Strong farmer organizations/federations can be a positive link in the cost-effective provision of extension support to small and marginal farming communities, as well as an alternative to privatization of extension service.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS INNOVATIVE ACTIVITY PROFILE improve decisionmaking by farmers, public institutions, and private enterprises. Central to this was the development of a national market RUSSIAN FEDERATION: USING information system for collecting, processing, INFORMATION AND and disseminating market information on about COMMUNICATIONS 50 agricultural commodities and inputs. This TECHNOLOGIES FOR RURAL would aid the agricultural sector in its transition INFORMATION SERVICES from a centralized command economy to a market economy. In the early 1990s, when the centrally managed economy changed to a market-based economy, The information system was designed on the Russian farmers and policymakers faced serious basis of pilot projects. Oblast (regional level) constraints to improving agricultural production offices collect and process information locally systems. These obstacles included inefficient and from rayon (district level) offices, and farm structures, lack of competitive markets, manage the database. A central Market Informa- and an outdated information system designed tion Unit in the ministry draws information from to meet the requirements of a centralized commodity exchanges, Goskomstat, interna- bureaucracy. Strengthening and expanding tional sources, and databases at the oblast level. agricultural information and knowledge sys- The system consists of a Price Information tems was seen as a way of addressing a wide Service for farmers, traders, processors, and range of linked issues. consumers, and a Price Monitoring Service for government agencies and policymakers. What’s innovative? Regional agriculture and market information made available through a Web site and The project provided equipment, supplies, a computing network linking 28 regions, nearly one- training, and technical assistance to ministry, third of all the regions in the Russian Federation. and to its departments at oblast and rayon levels. The ministry released the market infor- In the past, the government used Goskomstat mation, initially as a public good, through (State Statistical Committee) and Ministry of television, radio, electronic, and print media, Agriculture and Forestry statistical systems in and it phased in the introduction of cost recov- Moscow to generate information necessary for ery through provision of commercial informa- 144 managing a centrally planned economy. The tion services. During the 1995–2000 period, the ongoing privatization, deregulation, and decen- project established: tralization of the economy led to the emergence of private farmers, restructured farms, • An initial framework for the development and agribusiness enterprises which has gener- of a rural information and knowledge ated a need for new statistical and information system needed during Russia’s transition to services to improve marketing decisions, such a market economy. as opportunities to adjust production and marketing activities in response to changes in • A computing network connecting 28 re- prices, demand, and supply of agricultural gions and more that 300 districts across commodities and inputs. Russia. This network provided agriculture and market information and a Web site (http://www.aris.ru) and included sections PROJECT OBJECTIVES AND DESCRIPTION on price information, markets, and agricul- The main objective of the market information ture information. development component of the Agricultural Reform Implementation Support Project was to • A modern press and video center in the make available information and knowledge to ministry, using a variety of media to dis-

AGRICULTURE INVESTMENT SOURCEBOOK seminate multidisciplinary material on • Tailor information packages to local agriculture and related topics to regions, situations. institutions, and farm producers. • Incorporate flexibility and scalability in technology hardware, using internationally BENEFITS AND IMPACTS accepted standards. The market information system is currently operating in 28 regions and about 300 rayons • Expect only partial cost recovery, recogniz- across Russia (roughly one-third of all Russia). It ing that information can be a public good, provides weekly and biweekly producer, whole- especially in transition economies. sale, and retail prices on a wide range of agricultural products (by grades and quality, as well as • Link various information technologies (for prices for inputs, such as agricultural machinery, example using Web page material to pro- fertilizer, chemicals, and fuel). These prices are duce a series of newsprint reports to be disseminated through the Internet, the Agricul- distributed regionally). tural Reform Implementation Support Web site, answering machines, mass media, and on The revolution in information and communica- information boards in the ministry. Periodic tions technologies provides a host of opportuni- market reports and analytical reports are pro- ties to improve farmer access to market, techni- duced and placed on the Internet. The services cal, and other information needs. Most extension offered by system are now the main source of programs, and probably most rural programs, producer, wholesale, and retail prices used by can incorporate new information technologies agricultural producers, traders, banks, donor and systems to advance their objectives. agencies, and others interested in entering the agricultural sector in Russia. COUNTRY: THE RUSSIAN FEDERATION Econometric studies commissioned by the Project Name Agricultural Reform Implementa- project show that the market information system tion Support Project (Market led to a substantial reduction in the variation of Information prices of 10 products covered by the information System Component) system within the participating regions (a 20 Project ID P008811 percent reduction in price variation). This Project Component Cost 145 indicates substantially improved efficiency of US$9.3 million agricultural markets and increased access to market information by market participants. Dates FY 1995 – FY 2001 Contact Point Mark Lundell The World Bank, 1818 H Street LESSONS LEARNED AND ISSUES FOR WIDER NW, Washington, D.C. 20433 APPLICABILITY Telephone: (202) 458-4655; Access to relevant market and production E-mail: [email protected] information benefits farm and consumer households through reduction in regional and temporal variations in price and product availability. Effective and efficient rural information systems should:

• Build on the local culture, customs, and media and incorporate these into local information and knowledge-transfer project activities.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS INNOVATIVE ACTIVITY PROFILE • Advisory and information services to farmers. NAADS provides funding and training for initiatives from farmers groups, UGANDA: EXTENSION working in conjunction with local govern- DECENTRALIZATION, ment, to contract for private agricultural PRIVATIZATION, AND REFORM advisory services.

In Uganda, current real incomes of rural people • Technology development and linkages and real agricultural GDP are still below levels with markets. NAADS provides funds to of the 1970s; however, recent agricultural farmers to contract researchers to work growth (more than four percent annually over with them in their fields on technology the past 10 years) provides momentum for rural and market development and adaptation. development. This growth has been accompanied by a profound reorientation of the public • Ensuring quality of services. NAADS funds sector role in the agricultural economy and the development of a regulatory frame- public institutional reforms. However, agricul- work and service standards for service tural productivity is still low. providers.

What’s innovative? A decentralized, private exten- • Promotion of private sector institutional sion system that allows farmer groups to contract development. NAADS provides limited their own extension service providers and research- funding on a competitive basis for retrain- ers in technology development and marketing. ing and technical upgrading for service providers. In addition, the project provides Low productivity is in part a consequence of a comprehensive package of benefits, inadequate communication among researchers, including training, which will enable public extension, and farmers. Farmers’ needs, both sector extension providers to transition to agricultural and socioeconomic, such as the employment in the private sector. impact of HIV/AIDS on farming households, are not sufficiently reflected in research and • Program management, monitoring, and extension efforts. Research and extension are evaluation. NAADS establishes and sup- overly dependent on donor funding, and ports national and district level entities to 146 require a more stable institutional base of both coordinate, monitor, evaluate, and admin- financial and political support. ister the project.

Brochures, radio spots, and rural drama PROJECT OBJECTIVES AND DESCRIPTION groups are used to disseminate information The National Agricultural Advisory Services on the NAADS project. Market and commod- (NAADS) project, part of the Plan for Modern- ity studies will provide a better understanding ization of Agriculture, is based on strong of the local economic conditions and help government commitment to decentralization identify project priorities. and private sector development. Its objective is to improve the productivity and livelihoods of The project philosophy, consistent with the farmers, by establishing a relevant and respon- government vision, includes: sive contract-based agricultural advisory service. This involves the transforming of the • Independence and flexibility. The NAADS existing publicly-delivered national level board is a small and semi-autonomous extension service to a decentralized, largely unit. It is not housed within either the farmer-owned, private sector advisory services Ministry of Agriculture or the National system. Components of the project are: Agricultural Research Organization.

AGRICULTURE INVESTMENT SOURCEBOOK • Further decentralization. Responsibility and project planning and implementation stages funding for agricultural advisory services is of critical importance. are being moved from the district level to the subcounty and farmer level. • A responsive training program must be established for the staff of the extension • Contracting out services. The government system. has decided to give districts strong incentives to reduce the number of extension • Flexibility is required to meet the needs of a providers employed as civil servants, in heterogeneous population of beneficiaries. favor of contracting the services of agricul- When the delivery of extension services has tural advisers. been limited to one delivery mechanism this has often been difficult to achieve. Enabling • Cost sharing. The government has decided subcounties and beneficiaries to contract to institute, at a gradual and deliberate with any qualified institution or entity to pace, the requirement that farmers and deliver advisory services will permit great local governments pay part of the cost of flexibility in the types of delivery mecha- the project. nisms that might be employed.

NAADS is still in its pilot phase, but the project BENEFITS AND IMPACTS has attracted a great deal of attention and Sixteen districts, which cover a total of 224 support in Uganda and from donors interested subcounties, are in a pilot phase of the NAADS in sustainable approaches to extension and project. Organized into local groups some information service delivery in Africa. 8,000 farmers participate collectively in decisionmaking processes. The framework developed for extension services provides a PROJECT COUNTRY: UGANDA strategic base for rural information and commu- Project Name National Agricultural Advisory nication services. Services Project Project ID P044695 Farmer control of resources provides and strengthens previously weak linkages to the Project Cost US$107.92 million research system, makes technologies more Dates FY 2000 – FY 2008 147 accessible, and facilitates the use of farmer Contact Point Christine E. Cornelius innovations and local knowledge. The World Bank, 1818 H Street NW, Washington, D.C. 20433 The private sector advisory partners have begun Telephone: (202) 458-1882; to register as companies and eventually extension E-mail: [email protected] services will be completely privatized. Current extension workers, who will soon become private sector service providers, are involved in retraining to match their skills with what is required by private sector advisory services.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • Participation of local professionals, such as policymakers, researchers and extension agents and beneficiaries throughout the

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS INNOVATIVE ACTIVITY PROFILE The project specifically targets poor farmers and their families with small but viable farming operations and finances four component VENEZUELA: CONTRACTING activities: DECENTRALIZED EXTENSION SERVICES • Establishment of institutional structures to coordinate and administer the decentralized In Venezuela, the existence of chronic rural agriculture extension system. Among other poverty, despite abundant natural resource expenditures, the project funded the devel- wealth, has created a sense of urgency for opment of national and state-level subject improving the productivity and competitiveness matter specialists. of its agriculture sector. By the mid-1990s, it was clear that agricultural extension services • Extension services contracted out to private were not capable of modernizing agriculture firms or NGOs for 180 municipalities. and promoting rural development. The government did not know how many extension • Training for private extension agents, agents it had or how much it was spending on members of ACEs and local government, extension. Several different agencies provided and national and regional extension staff. extension services, but extension agents were rarely in the field. Small farmers claimed that • Technical assistance and analytical studies services never reached them, and larger farmers to improve extension service planning and felt the extension agents had nothing to offer. implementation. Research programs claimed to have many new technologies “on the shelf,” but these technolo- Municipal agricultural extension services are gies were not being adopted by farmers. provided in each participating municipality through contracted services of executing bodies What’s innovative? Decentralization, and contract- (private firms, universities, and NGOs). Each ing of private extension services to improve account- municipal agricultural extension office prepares ability, flexibility, and responsiveness to farmer needs. an annual municipal project outlining the objectives and the proposed activities to achieve each objective. This plan is submitted 148 PROJECT OBJECTIVES AND DESCRIPTION to the Board of the ACE for approval, after A fundamental premise for the Agricultural which participating municipalities submit plans Extension Project was to ensure that extension to the implementing agency—the Foundation services were accountable to clients, and this is for Training and Innovation for Rural Develop- incorporated in its institutional structure. The ment—for approval of matching funds to decentralized program, focused at the municipal cofinance the project. The foundation negotiates (district) level, relies on extension agents con- agreements with municipalities, relevant state tracted through private firms and NGOs. This governments, and ACEs in the municipalities for provides flexibility and responsiveness to clients. cofinancing contracted extension services and Client participation is encouraged through then employs competitive procedures to con- establishment of Civil Associations for Extension tract services from NGOs or private firms. (ACEs) at the municipal level. The ACEs, consisting of representatives of the municipal The costs of the municipal project are shared government and beneficiaries of extension between four contributors: participating farmers, services, coordinate the implementation of the municipal government, the state government, extension activities. Cofinancing by clients and and the national government. It is expected that municipal and state governments ensures that farmer contributions will generally be small to recipients value the services being provided. begin with but will increase over time.

AGRICULTURE INVESTMENT SOURCEBOOK Extension approaches are based on farmer The project has already attracted considerable preference, the results of an annual diagnostic attention and has had visits from delegations survey, and technical assistance available from from several African and Latin American coun- subject matter specialists. Extension program tries that are also considering extension service design focuses on providing services targeted reforms. A regional workshop held in 2001 to small farmers in an effort to enhance social provided an opportunity to share Venezuela’s and gender equality. Environmental and natural experience with other countries in the region. resource conservation impacts of projects are given priority attention, and the project includes activities to increase the environmental PROJECT COUNTRY: VENEZUELA awareness of farmers. Project Name Agricultural Extension Project Project ID P008222

BENEFITS AND IMPACTS Project Cost US$79.0 million Benefits from the extension project are in- Dates FY 1996 – FY 2004 creased awareness by farmers with a better of their own extension needs, as well as increased Contact Point Matthew McMahon The World Bank, 1818 H Street visibility and credibility of extension agents. NW, Washington, D.C. 20433 Farmers are now organized into 76 ACE Telephone: (202) 473-8586, groups, representing about 10,000 farmers. E-mail: [email protected] Countrywide, 492 extension agents deliver services to 45,000 clients (not all clients are members of the ACEs) in 123 municipalities.

Program monitoring systems indicate that there has been wide adoption of the innovations introduced by the extension teams, with more than 4,000 innovations adopted in participating municipalities. While impact evaluations are being undertaken, demand from municipalities to participate in the program now exceeds the resources available to the program. 149 Nearly 25 percent of extension agents are women, and extension services for women have emerged as an important part of the overall municipal extension program.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Contracting extension service delivery from private firms and NGOs is becoming more common and is an effective way of enhancing accountability to clients, which is an important part of any service. Using existing or creating new social mechanisms is an effective way to make service providers more accountable to clients.

MODULE 3: INVESTMENTS IN AGRICULTURAL EXTENSION AND INFORMATION SYSTEMS

INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION

151

growing population and limited natural resource base means that if current and future food and fiber needs are to be met, these resources will have to be used in a more sustainable way. A Promoting sustainable agriculture requires that farm management techniques foster synergies, conserve nutrients, increase economic stability, and promote equitable outcomes for male and female small-scale farmers. This overview summarizes the basic underlying principles and approaches for planning investments in sustainable agricultural production systems, including technologies to intensify production. These issues and investments complement investments needed for the sustainable management of off-farm natural resources important to agricultural production systems.1

1. See Module 5, “Sustainable Natural Resource Management” for more information on the sustainable management of off-farm natural resources important to agricultural production systems. Box 4.1 Household strategies to improve livelihoods there is limited new land and water resources that can be brought into production to satisfy • Intensification of existing farm production patterns through this demand. The expected ecological impacts increased use of inputs or better quality inputs. from doubling food production using past • Diversification of production with emphasis on greater production strategies may result in production market orientation and value addition involving a shift to systems becoming unsustainable. Agricultural new, generally higher-value products. systems must therefore intensify existing land • Increase farm size, an option limited to a few areas where and water resources using more sustainable additional land resources are still available. methods, and by changing current production • Increase off-farm income to supplement farm activities and provide financing for additional input use. systems and diversifying into new, more • Exit from agriculture, including migration from rural areas. productive enterprises. Source: Dixon et al. 2001 and FAO 2001. Agricultural intensification is an increase in the productivity of existing land and water re- RATIONALE FOR INVESTMENT sources in the production of food and cash Future global food and fiber demand is ex- crops, livestock, forestry, and aquaculture. pected to increase substantially as populations Generally associated with increased use of grow, and average incomes rise. However, external inputs, intensification is now defined

Table 4.1 Comparison of farming systems and relative importance of different poverty reduction strategies

Dualistic mixed Wetland Rainfed Rainfed Rainfed large/small Category rice based humid highland dry/cold farms

Characteristics

Agr. population (million) 860 400 520 490 190 Total land (m ha) 330 2,013 842 3,478 3,116 152 Irrigated (%) 58 11 20 18 9 Agr. pop./cultivated ha 860 400 520 490 190

Alternative Strategies for Poverty Reductiona

Intensification * * — — *** Diversification *** *** — ** ** Increased farm size ———— * Increased off-farm income ** ** *** * — Exit from agriculture — — ** *** —

a. Assessments of relative importance based on expert judgment: *** Highest priority. ** Second highest priority. * Third highest priority. Source: Dixon et al. 2001.

AGRICULTURE INVESTMENT SOURCEBOOK as the more efficient use of production inputs. Box 4.2 Production practices relating to sustainable Increased productivity comes from the use of intensification improved varieties and breeds, more efficient use of labor, and better farm management Integrated pest management (IPM) is an ecosystem-based (Dixon et al. 2001). Diversification, which strategy that seeks to control pests or their damage through a represents a change in the farm enterprise combination of techniques (biological control, pest monitoring pattern to increase profitability or reduce risk, against economic thresholds, habitat manipulation, modification is one option for sustainable intensification. of cultural practices, use of resistant varieties), using less toxic chemical pesticides only after pest monitoring indicates their Although intensification of production systems need. is an important goal, these systems need to be sustainable to provide for current needs with- Conservation farming (CF) encompasses four broad, intertwined management practices: minimal soil disturbance (no out compromising the ability of future genera- plowing and harrowing), maintenance of a permanent vegeta- tions to meet their needs. Sustainable agricul- tive soil cover, direct sowing, and sound crop rotation. tural can be defined as the management and conservation of the natural resource base, and Low external input and sustainable agriculture (LEISA) uses the orientation of technological and institu- farmers’ knowledge and a range of management practices tional change to ensure the attainment and (agroforestry, IPM, intercropping, crop-livestock integration, continued satisfaction of human needs for microclimate management) to minimize the need for purchased present and future generations. Such sustain- inputs. able development in the agriculture, forestry, Organic agriculture employs agronomic, biological and mechani- and fisheries sectors conserves land, water, cal methods to control pests and maintain soil fertility with plant, and animal genetic resources and is virtual elimination of synthetic chemicals for crop and livestock environmentally nondegrading, technically production. appropriate, economically viable, equitable, and socially acceptable (FAO 1995). Precision agriculture maximizes productivity of inputs, often using a global positioning system (GPS), to match input A recent study investigating alternative house- application and agronomic practices with soil attributes, hold strategies for farming systems in develop- seasonal conditions, and crop requirements as they vary across ing countries reinforced the need for greater a field or between small plots. development attention to diversification and Diversification is an adjustment of the farm enterprise pattern intensification (see box 4.1) (Dixon et al. 2001). in order to increase farm income or reduce income variability 153 For five categories of farming systems that by reducing risk, by exploiting new market opportunities and cover approximately 98 percent of cultivated existing market niches, diversifying not only production, but also lands, the characteristics and relative impor- on-farm processing and other farm-based, income-generating tance of alternative poverty reduction strategies activity (Dixon et al 2001). are presented in table 4.1. Intensification and diversification are important in all cases. How- Source: A uthors. ever in the relatively constrained circumstances of rainfed highlands and rainfed dry/cold climates, off-farm employment and exit from by making greater use of biological and eco- agriculture are more important (though not logical factors in production processes (FAO always easily achievable). 2003). A range of new technologies, management strategies, and analytical tools relevant to Sustainable agriculture is not a clearly defined sustainable agricultural intensification has production model, but rather a set of comple- emerged in recent years (see box 4.2). mentary approaches that seeks to minimize negative environmental impacts from agricul- The heterogeneity in developing countries of ture, by increasing efficiency of input use and productive resources, infrastructure, inputs,

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.3 Pakistan: effects of resource degradation on agricultural biodiversity, soil degradation, and reduced water availability and quality, and these further productivity reduce future agricultural productivity. The Pakistan Punjab illustrates the potential problems arising from agricultural intensification and resource degradation. Average growth in total factor productivity since the green PAST INVESTMENT ACTIVITY revolution has been moderate at 1.26 percent, but with wide Commodity-focused investments in the 1970s regional variation. Negative growth observed in the wheat-rice and 1980s sought to expand and intensify system relates in large part to continuous and widespread production systems, such as basic food crops resource degradation measured by specific indicators of soil and traditional cash crops that have broad and water quality. This resource degradation has offset much of impacts on poor people and/or national econo- the gain from investments in technology, infrastructure, and education. Policy distortions, especially water pricing, and lack of mies. These investments generally supported research and extension on more sustainable cropping systems, monocropping and expansion of a single contributed to this resource degradation. dominant technology or production system, and often focused on more productive regions Source: Ali and Byerlee 2001. of a country. Since the 1980s, World Bank financing for production of specific agricultural commodities has declined steadily, in line with skilled labor and access to new technologies the decrease in total Bank financing for agricul- means that development initiatives have be ture, and consistent with the growing recogni- targeted to locally specific problems. For tion that the public sector is not well suited to instance, in many African countries intensifica- picking commodities or production activities tion will likely involve increasing the use of that were likely to be economically successful. underutilized resources and external inputs (especially fertilizer), whereas in some Asian Only 26 of the Project Appraisal Documents countries that have fully capitalized on green (PADs) for current projects specifically men- revolution technologies, substituting better tioned sustainable agriculture practices. This knowledge to reduce external input use will be may reflect a significant and worrisome weak- key to sustainable development (see box 4.3). ening of the technical analysis and input into project preparation and appraisal. As sustain- Environmental and social sustainability of able agricultural intensification is a key strategy 154 productive resources depend in part on eco- for achieving goals of rural poverty reduction nomic profitability that must provide for rein- and environmental conservation, there is an vestment in the maintenance of these resources urgent need to increase support to this area. (including the natural environment) and on a There is also a related need to increase techni- satisfactory standard of living for owners and cal expertise, to ensure sound planning for employees involved in the production process. investments in the intensification and In turn, economic sustainability is dependent sustainability of production systems. on a productive workforce and productive natural resources. New investments for intensification of agricultural production systems since the mid 1990s have Sustainable agricultural intensification invest- generally been based on a better understanding ments are particularly relevant to poor people of the underlying social, economic, and environ- in developing countries, where poverty, agri- mental elements of sustainability, and a general cultural productivity, and resource degradation commitment to the principles underlying sustain- are closely interrelated, and negatively affected able agriculture and development. These invest- by increasing population pressures on the ments have focused mainly on high-value com- natural resource base. Poverty often results in modities, minimum tillage, and integrated pest overcropping, which contributes to a loss of management (IPM).

AGRICULTURE INVESTMENT SOURCEBOOK KEY ISSUES FOR INVESTMENT hold economy. In addition, marketing Future investments are likely to support more supply chains and a wide range of stake- diverse products and production systems and holders are part of the holistic approach to include less favorable production regions. required for sustainable agricultural systems Investments will need to apply modern science (see figure 4.1). and new marketing systems to help both women and men farmers move into more • Sensitive to social change. The transition productive and sustainable production systems. from one farming system to another is Investments in sustainable agricultural intensifi- often as much an issues of behavioral cation must be economically, environmentally, change as of economic change. Production and socially sound, efficient, and based on systems are rooted in cultures and tradi- sustainable institutions. Common characteristics tions and major changes may require two for these investments are described as follows: or more generations of farmers to make the transition, such as from subsistence farming • Based on holistic systems approaches. to commercial farming; from nomadic Farming systems are defined by economic, pastoralism to settled agriculture; and from social, and environmental conditions within traditional to nontraditional crops. Since which they operate. Interventions must be social resistance to change may be strong, a based on an understanding of the interrela- sound social analysis should be in the plan tionships between these factors, and will for new investments in agricultural intensifi- therefore frequently require a holistic, cation. Extension services must help farm- multidisciplinary approach. For example, ers address and adapt to social change, but introduction of a new production system or these services are frequently very weak in an innovation in an established system will their ability to deal with social issues. often require attention to the policy environment, agro-ecology, market systems, • Targeted to specific production environ- social system (including the gender and ments. There are 72 major categories of social group-based division of labor and farming systemsæeach with numerous access to resources), and the farm/house- variationsæfound in the various agro-

FIGURE 4.1 STAKEHOLDERS INFLUENCING AGRICULTURAL PRODUCTION AND SUPPLY CHAINS 155

Policy Level

Agricultural Production Food Industry Consumption

Input Industry

Food Process Food Retail NGOs Research Producers Industry Industry Consumers

Research Extension

Note: The arrows represent the direction of major influences in the supply chain, though influence can flow both ways. Source: Sorby, Fleischer, and Pehu 2003.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION ecological regions of the developing world • Focused on poor and marginal farmers. If (Dixon et al. 2001). Investments in sustain- countries are to achieve social objectives able intensification must be designed within and improve political stability, investment the context of established agricultural in sustainable agricultural production systems and the level of technology, re- should be directed at poor people. But, this source availability, and market opportuni- does not mean that all can find sustainable ties in the area. In areas for example where livelihoods within agriculture and some high input use already threatens environ- marginal farmers with little potential to mental resources, the challenge will be to improve incomes in agriculture must seek use less purchased inputs more efficiently. off-farm employment. Practitioners must In other areas, as in most of Africa, in- consider wider social impacts of invest- creased use of production inputs will be ments, and the need for alternative employ- necessary to provide sustainable livelihood ment. options to growing populations. • Equitably shared by all gender and minor- • Supported by a sound policy framework. As ity groups. Agricultural production system the private sector is largely involved in innovations are socially sustainable only agricultural production and marketing when all members of society share in the systems, governments have a key role in benefits. Since, on a global basis, nearly establishing a facilitating policy and regula- one-half of all farmers are women, and tory environment for sustainable agricul- since in most rural areas women carry out ture. To maximize agriculture’s efficiency many specialized production activities and sustainability, public policy should (planting, weeding, vegetable gardening, seek to internalize all costs and benefits in managing small animals, postharvest han- the prices of production inputs, such as dling), investments must ensure their improving pricing mechanisms for irrigation participation in programs and avoid nega- water, facilitating land market development, tive impacts. Men may displace women and eliminating distorting taxes and subsi- farmers, as has occurred in some parts of dies on chemical inputs, including fertiliz- Africa, when export horticultural market ers. Government investment programs must opportunities have encouraged men to take also provide for critical infrastructure, such over women’s traditional plots of land. The 156 as roads, and other public goods, such as same is true for many minority ethnic and regulatory frameworks, administration of cultural groups, who have more limited property rights, research, and information access to education, loans, property rights, services, especially for small farmers. and technical information. Social analysis is needed to guide project design and invest- • Built on knowledge-intensive innovations. ment, draw on traditional knowledge, and Sustainable intensification must build on a identify and mitigate negative environmen- strong understanding of the system and its tal impacts on different groups. Gender components. Research and extension (R&E) analysis is a particularly important tool for will need to provide the technical and predicting gender-specific impacts of management recommendations suited to agricultural intensification investments, and specific farms and fields rather than broad this facilitates the mitigation of adverse general areas. “Precision farming” systems impacts, such as increases in women’s will help apply the knowledge to field-level workload or reduced access to land. production. Investments in biotechnology, information and communications technolo- • Participatory processes. All relevant stake- gies (ICTs), and processing, and marketing holders should be included in the design technologies are also needed. and implementation of sustainable intensifi-

AGRICULTURE INVESTMENT SOURCEBOOK cation activities as this will empower mand for quality, safety of products, and farmers to plan and execute these activities, information on method of production. In and to obtain information and develop these circumstances, an effective response options needed in the decision-making requires that agribusinesses, government process. With these skills, farmers have a and commodity organizations develop better ability to negotiate their interests standards, grades and certification of with agribusinesses and governments. processes. The latter may relate to farm Strengthening representative rural producer practices, including environmental and organizations (RPOs) and other advocacy social conduct (that is, encouraging envi- groups for the agricultural sector can ronmentally sustainable or “good” farming facilitate this empowerment. practices). Farmer organizations have a central role in scaling up production to • Environmentally sound. Sustainable agricul- develop new markets and meet market tural production systems must be environ- demands. mentally soundæneither depleting the natural resource base on which they de- • Low risk. Agricultural production nearly pend nor contributing significantly to the always involves substantial risk due to depletion of downstream resources. Agri- weather, pests and diseases, and market cultural intensification investments should prices. Farmers, particularly resource-poor seek to reduce soil erosion and land degra- farmers, are risk adverse, and may maintain dation, avoid loss of biodiversity, and traditional production systems and practices improve efficiency of land and water even when market, environmental, and resource use. In general, more efficient use technological changes make these no of existing resources avoids pressures on longer sustainable. Sustainable intensifica- more marginal production areas, thus tion innovations are most acceptable to preventing more widespread environmental farmers when these involve minimal risk or degradation. reduce risks. Where this is not the case, investments may be needed to help deal • Nonpolluting. As agricultural production with risk by providing financial, informa- systems use inputs more intensively, avoid- tion, and risk management services, as well ing pollution of environmental resources as improved infrastructure. In addition, (water, land, air) and food products financial incentives such as matching grants 157 through minimizing downstream pollution may be needed to encourage resource-poor from agrochemicals, livestock manures, and farmers to try out more sustainable meth- soil erosion is critical to the sustainability of ods of production. downstream production systems. Govern- ment regulation relating to pollution, both • Trade-offs. Options for intensification will mitigation measures and charges, is relevant not necessarily involve win-win scenarios. to environmental assessments of new In practice there are trade-offs between production systems. productivity (and income), environmental sustainability, and various social objectives. • Market and private sector based. Lack of Common trade-offs include efficiency/ input and output markets required for equity, specialization/flexibility, profits/ production system intensification affects environmental benefits, and long-term/ particularly small farmers. Investment is short-term paybacks. These trade-offs needed to develop these markets and present difficult choices for policymakers infrastructure as they will expand produc- and sound cost/benefit analysis accounting ers’ production options and facilitate pro- for economic variables, and their social and duction changes to satisfy consumer de- environmental implications, must be em-

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION ployed. This will involve building the equipment costs, enhances soil fertility, capacity of both public and private sector reduces erosion, and improves water decision makers to make effective decisions infiltration, thereby reducing unit costs and within complex decision environments. It conserving land resources. Improved crop will also require that compensatory mecha- residue management, including mulching, nisms are used to mitigate adverse effects is often a necessary component of these on those groups that are negatively affected systems. No-till systems of conservation by initiatives that provide positive overall farming have proven a major success in net benefits to the target population. Latin America, and are being used in South Asia and Africa.2

FUTURE DIRECTIONS FOR LENDING • Organic farming eliminates use of chemical Public investments to intensify sustainable inputs and can be sustainable as long as production systems are generally best focused practices maintain productivity at a reason- on facilitating the capacity of farmers, govern- able level, consistent with price incentives ment, and the private sector to make decisions provided by growing market opportunities about the appropriate technological and resource for organic produce. Organic farming allocation and on providing the necessary social/ depends mainly on the development of organizational and physical infrastructure. It is niche markets with reliable standards and critical that agricultural production systems be certification systems for production.3 sufficiently flexible to adapt to changing environmental and economic conditions. • IPM systems have been developed for many crops to control pests, weeds, and New technologies will be developed and diseases, while reducing potential environ- variations on established production systems mental damage from excessive use of are likely to continue. At present, improved chemicals. Scaling up IPM technologies is a production practices that may warrant public challenge, as these management systems sector support include: rely on farmers understanding complex pest ecologies and crop-pest relationships. • Varietal improvement will remain crucial as Thus, IPM systems require continuous it becomes increasingly difficult to “adjust research and technical support and inten- 4 158 the environment to the plant.” Plant variet- sive farmer education and training. ies adapted to specific production environments and sustainable agricultural practices, • Precision agriculture improves productivity and to pest and disease resistance will by better matching management practices become increasingly important. Livestock to localized crop and soil conditions. improvement will increase productivity and Relatively sophisticated technologies are make more efficient use of scarce land and used to vary input applications and produc- water resources. Biotechnology’s potential tion practices, according to seasonal condi- as a tool for sustainable production systems tions, soil and land characteristics, and should be evaluated and supported on a production potential. However, with help case-by-case basis. from extension and other services, resource poor farmers can also apply such precision • Conservation farming practices can reduce agriculture principles for differential input unnecessary input use. Minimum tillage or application and management on dispersed no-till crop production reduces labor and small plots. Appropriate technologies

2. See the AIN, “Conservation Tillage” 3. See the AIN, “Organic Agricultural Production Systems” 4. See the AIN, “Integrated Pest Management”

AGRICULTURE INVESTMENT SOURCEBOOK suitable for use by small farmers include profitable and generate substantial employ- simple color charts to guide decisions on ment and foreign exchange, but require fertilizer application, and laser leveling of safeguards to ensure that poor people fields for irrigation. benefit equitably. In some areas, family fish ponds can provide important family nutri- Public investment can also support transition to tion benefits.6 more profitable and sustainable farming systems. Some of the system adaptations that are • Tree crops, including fruit, beverage, timber, options for sustainable intensification of pro- and specialty crops, offer opportunities for duction include: environmentally sound production systems as these maintain vegetation cover, and can • Integrated crop-livestock production can reduce soil erosion. Tree crops, especially enhance environmental sustainability by multiple species plantations, help maintain feeding crop residues to animals, thus a relatively high level of biodiversity. They improving nutrient cycling. This crop- are important to export earnings in many livestock approach is likely to become countries and, while often suited to large- increasingly profitable given the large, scale plantations, are also important to worldwide increase in demand for meat, smallholders with mixed cropping systems. milk, and animal fiber. The suitability of many livestock enterprises to small farm Sustainable intensification will frequently require production systems holds considerable activities that provide an enabling environment potential for poverty reduction. and support services for the market-led changes, or component technologies, including manage- • Agricultural diversification which must be ment practices. Much investment will come from pursued where existing farming systems are private sector-based market supply chains, includ- not environmentally sustainable or eco- ing input supply and output marketing and pro- nomically viable. Diversification into high- cessing enterprises and farmers. Public investment value, nontraditional crops and livestock will need to focus on a number of key areas. systems, such as horticulture are attractive because of the growing market demand for NEW KNOWLEDGE AND INFORMATION SERVICES. A key these products, high labor intensity and investment area is in technology associated high returns to labor and management. In with management innovations to improve 159 contrast to other low-input strategies for overall productivity and sustainability of agri- sustainable intensification, diversification to cultural systems. Much research will focus on high-value products frequently requires use development of improved management sys- of relatively high levels of inputs, which tems, with emphasis on understanding agricul- must be monitored and managed carefully.5 tural ecology, farm management and social systems. Biotechnology offers opportunities to • Aquaculture has potential for sustainable diversify and intensify agricultural production growth in many countries, as declines in systems—tissue culture for production of virus- global capture fisheries (that is, non-farmed free planting stock (for example, bananas) and fishing) has put upward pressure on retail transgenic crops with pest resistance or other prices for fish. Investments must take into beneficial characteristics (see box 4.4). account the potential environmental impacts due to habitat loss, land use change, Agricultural extension, education and training and introduction of new species. Many investment is needed at all levelsæfarmers, intensive aquaculture systems are highly technicians, and university graduatesæ—to

5. See the AIN, “Market-Driven Diversification” 6. See the AIN, “Aquaculture Production Systems”

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.4 South Africa: Bt cotton and sustainable development introduce principles of sustainable intensification and to develop human resources in this of the Makhathini Flat field. Many sustainable intensification invest- South Africa has been a leader in Africa in research, production, ments have significant information require- and commercialization of biotechnology products. In the ments, such as weather forecasts, market Makhathini Flat, an arid region, smallholders grew cotton as a information, natural resource conditions, and subsistence crop, but since growing Bacillus thuringiensis (Bt) pest incidence, for which investments in rural cotton (genetically modified cotton producing a protein that information and communications systems are acts as insect control), they have seen the following benefits: needed.

• Environmental/agronomic benefits: more than 50 percent PUBLIC POLICY AND REGULATORY SYSTEMS. In many reduction in pesticide spraying; easier crop management; cases, government policies limit agricultural reduced risk of bollworm attacks. • Economic benefits: 20 percent to 60 percent yield intensification and diversification, by distorting increases; higher gross margins (on average US$50 per production decisions and by encouraging hectare); reduction in labor requirement. monocropping through input and output • Social/health benefits: school enrolment improvement; subsidies (see box 4.5). Pricing policies on fewer pesticide poisonings; general community livelihood water, land resources, and other natural re- improvement; less drudgery in weeding for women. source inputs to agricultural production systems should encourage efficient allocation and use, an issue especially important to irrigation water management. Public policies should encourage investment in productive infrastructure, such as small-scale irrigation and erosion Box 4.5 Policy issues affecting adoption of sustainable control. However, these policies must be agriculture practices complemented by regulatory systems and incentives that minimize pollution from agricul- Price, trade, and tax policiesæinput subsidies encourage tural production and processing activities. excessive use; minimum support prices for cereals discourage diversification; electricity or fuel subsidies encourage groundwa- Government monitoring of changes in environ- ter depletion; subsidized milk/dairy imports discourage local mental conditions is an important input to production; and fuel or machinery subsidies discourage guide policy formulation on sustainability. conservation tillage. 160 MARKET AND PRIVATE SECTOR DEVELOPMENT. While • Investments: analytical work, advocacy, stakeholder investments in the policy and regulatory inclusion, policy formulation. environment and in public goods knowledge Insecure property rightsæno incentive for long term and information services benefit the private investments. • Investments: land titling, group ownership, conflict resolu- sector, additional public investments may be tion, gender-based division of labor and access to re- needed to facilitate private investment. Gov- sources, intellectual property rights (IPRs) required to ernments must provide key infrastructure for promote private sector research and development. rural transportation and communications, and Externalitiesæwater and air pollution, siltation, salinization, may need to share the risks that private com- climate change. panies undertake with new sustainable intensi- • Investments: advocacy, information campaigns, and fication investments. Targeted and time-limited regulations. grants promoting specific investment initiatives, Financial marketsæenvironmental conservation investments commonly have long gestation periods and high initial such as pilot production trials, marketing trials, investment costs; and traditional banking services are often training, and extension activities, are useful to inaccessible and compounded by insecure land tenure. test and introduce new production systems and • Investments: new financial services mechanisms for innovations. Access to efficient financial services agriculture. is key to enabling farmers to intensify production Source: Authors. systems. RPOs provide a mechanism for collec-

AGRICULTURE INVESTMENT SOURCEBOOK tive action for input procurement, testing new pesticides authorized for procurement. technologies and innovations, and establishing sustainable output markets. SELECTED READINGS Asterisk (*) at the end of a reference indicates SCALING UP INVESTMENTS that it is available on the Web. See Appendix 1 Investments in intensification of sustainable for a full list of Websites. agricultural production systems require monitoring systems that evaluate economic, social, Bruinsma, J., ed. 2003. World Agriculture: and environmental changes throughout and Towards 2015/2030: An FAO Perspective. following the program’s implementation. Key Earthscan Publications Ltd.: London.* impact indicators are investment profitability, poverty, and environmental conditions. Useful de Haan, C., T. S. van Veen, B. Brandenburg, J. outcome indicators include: area coverage, Gauthier, F. Le Gall, R. Mearns, M. Simeon. numbers of producers, value of production, 2001. Livestock Development: Implications equity in employment generation, and pro- for Rural Poverty, the Environment, and ductivity changes of natural resources and Global Food Security. Directions in Devel- other inputs. opment 23241. Washington, D.C.: World Bank.* A more clearly poverty-focused approach to lending, and better understanding of the Rosegrant, M. W., X. Cai, and S. A. Cline. 2002. principles of sustainable agriculture, are likely World Water and Food to 2025: Dealing to result in increased lending either as project with Scarcity. IFPRI: Washington, D.C.* components or as a project, integrating various elements of sustainable intensifica- Scherr, S. J., and P. B. R. Hazell. 1994. “Sustain- tion. Increased technical input for project able Agricultural Development Strategies in Fragile Lands.” EPTD Discussion Paper 1. design and supervision to support additional IFPRI, Washington, D.C.* lending is critical in order to complement those skilled in process and policy issues. U.K. Department for International Develop- Attention to two World Bank safeguard ment, Overseas Development Institute, policies is especially relevant to investments Netherlands Ministry of Foreign Affairs. in intensification and diversification of agri- 161 Keysheets for Sustainable Livelihoods. http:/ cultural production systems: /www.odi.org.uk/keysheets. • Environmental assessment (Operational Policy (OP)/Bank Procedure (BP) 4.01)æan REFERENCES CITED Environmental Assessment is required if a Ali, M., and D. Byerlee. 2001. “Productivity new agricultural production system has Growth and Sustainability in Post-Green potentially adverse environmental risks or Revolution Agriculture in the Indian and impacts. Pakistan Punjabs.” World Bank Research Observer 16 (2): 199-218. • Pest management (OP 4.09)æany agricultural production investment involving Bruinsma, J., ed. 2003. World Agriculture: procurement and use of pesticides, or that Towards 2015/2030: An FAO Perspective. could expand the use of pesticides and Earthscan Publications Ltd.: London. unsustainable pest management practices, requires an Environmental Assessment, a Dixon, J. A., D. P. Gibbon, and A. Gulliver. Pest Management Plan, and a list of the 2001. Farming Systems and Poverty: Im-

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION proving Farmers’ Livelihoods in a Changing World. Rome: FAO; Washington, D.C.: Word Bank.

James, C. 2002. Global Review of Commercial- ized Transgenic Crops: 2001 Feature: Bt Cotton. ISAAA Briefs 26. Ithaca, N.Y.: ISAAA.

Pétry, F. 1995. Sustainability Issues in Agricul- tural and Rural Development Policies. Training Materials for Agricultural Planning. 2 vols. Rome: FAO.

Sorby, K., G. Fleischer, and E. Pehu. 2003. “Integrated Pest Management In Develop- ment: Review of Trends and Implementa- tion Strategies.” World Bank, Washington, D.C.

This Overview was prepared by Sam Kane, Eija Pehu, Wayne Frank (USAID), and Gary Alex, with inputs from the Sustainable Agriculture (SASKI) Thematic Team of the Bank. Peer review comments were provided by Peter Hobbs (Cornell University), Maria Fernandez, and Arja Vainio-Mattila (University of Western Ontario).

162

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE economically viable and environmentally sustainable, diversified production systems.

MARKET-DRIVEN Diversification at the farm level is the adoption DIVERSIFICATION of multiple production activities that are complementary in economic and/or ecological In many cases diversification can lead to im- dimensions—this complementarity contributes proved agricultural productivity and income, to the overall sustainability of the farming through integrated resource management and system. The diversification process generally responding to changing markets. Important involves introducing new farm enterprise issues for diversifying into market-oriented activities (for example, crops, livestock, pro- production systems include: developing markets cessing) and reflects a reallocation of produc- and market access, managing risks, targeting tion resources and inputs, as well as a change small farmers, and promoting an enabling policy in production methods and the outputs pro- environment. Donors and governments will duced. This note discusses the framework that need to provide the training, infrastructure, and will encourage market-driven diversification analytical support necessary to improve the conducive to sustainable intensification, ability of farmers to make the transition to through improved crop rotations,

FIGURE 4.2 INDIA: PER CAPITA CONSUMPTION INCREASE BY FOOD GROUP, 1977-99

Percent 100

70 163 60

0 Pulse CerealsMeat, eggs, Vegetables Milk fish

Source: Joshi et al. 2002

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION complementarities among different farm enter- more environmentally sustainable while also prises (livestock and crop), and improved risk responding to market signals profitably. management.

BENEFITS NEED TO ADJUST TO CHANGING MARKET Farm-level diversification involving mixed FORCES production systems can exploit potential Increasing international migration, global media synergies and complementarities among differ- and marketing systems, rising average incomes, ent operations for more productive and more and urbanization are rapidly changing the sustainable use of the resources upon which structure of consumer demand throughout the farm systems depend. Replacing monoculture world. This is true for markets in both indus- systems with mixed systems can improve trial and developing countries, and for food biodiversity, and can reduce production risks and nonfood products (see figure 4.2). These associated with droughts and pest infestations. changes give rise to new market opportunities The increased variety of outputs produced (both domestic and export) at a time when reduces marketing risks associated with unex- prices for traditional commodities—such as pected declines in the price of any one prod- rice, cotton, coffee, and tea—are declining. uct. Diversification may also allow labor and machinery requirements to be more evenly On the supply side, technological advances distributed throughout the year, seasonal cash have expanded the range of production possi- flows to be better managed, product ranges to bilities at the farm level. Improved agricultural be broadened, and marketing risks to be machinery, biotechnology, new herbicides, and reduced (see box 4.6). IPM have facilitated better use of the sources of competitive advantage unique to developing The transition to more profitable production countries (for example, unique microclimates systems increases demand for farm and non- and soil types, low labor costs, and counter- farm labor (largely due to the more labor- season production). New technologies have intensive nature of high-value crops), and is also increased the feasibility of integrating associated with increasing incomes for wage different systems within any one “mixed” employees. Diversification can have large farming system (multipurpose machinery for multiplier effects, creating off-farm employment 164 integrated crop rotations). Supply-side changes opportunities in downstream and upstream that expand the range of feasible options, and economic sectors. demand-side factors that alter the relative profitability of those options, are requiring that farmers make a transition from traditional POLICY AND IMPLEMENTATION ISSUES enterprises (often monoculture) to new and Diversification must be a market-oriented unfamiliar ones. The new enterprises can be process, driven by consumer demand and initiated by private sector agents. However, public sector participation will remain critical in Box 4.6 Benefits of diversification to livestock production certain areas such as the regulatory and policy • Provides a source of organic fertilizer. environment and the provision of pure or • Buffers food supply, reducing climatic and price risks of partial public goods (for example, infrastructure crop production. and research). • Provides meat, milk, and fiber for household use or sale. • Provides transport and traction, spreading labor demand A STABLE AND SUPPORTIVE POLICY ENVIRONMENT. and offering alternative sources of income. Perhaps most important is an overall agricul- • Uses crop residues as livestock feed. tural policy that does not skew production Source: Authors. incentives, and that promotes efficient decision-

AGRICULTURE INVESTMENT SOURCEBOOK making based on market demand and resource Box 4.7 Turkey: policy reform constraints. In many countries, agricultural policies distort production decisions toward Turkey recently reformed its agricultural policies to promote food grains undermining competitiveness and diversification. In phasing out input and output subsidies, a the long-term sustainable management of system of decoupled subsidies was used to partially cushion natural resources. Support policies aimed at the blow to farmers. Because prior subsidies had led to a encouraging adjustment to market-led produc- surplus of hazelnut and tobacco production, a project tion should be transitory and crop neutral. provided financial and advisory support to farmers to switch production to alternative crops. Support includes incentives for uprooting existing tree crops, and technical and business LIBERALIZATION OF RULES AND REGULATIONS. Rules and advice on alternative production systems. Strengthening of regulations governing market activity, curbing national land administration systems and cooperatives are abuse of market power (particularly in network further elements of reform. Improved information systems will industries such as transport, energy, and com- provide an additional foundation for comparing the cost, munication), and enforcing contract law help to speed, and transparency of alternative production methods, strengthen markets and ensure that the poor and facilitate monitoring of new production systems intro- benefit equitably. Policies that protect resource duced in each region. use rights (land and water in particular) and Source: World Bank Internal Documents. encourage investments on a long-term basis are essential for successful diversification initiatives (see box 4.7). Insecure land title dampens the incentives for farmers to make the initial investments needed to transform their production ORGANIZED FARMERS. RPOs are useful in facilitating systems. Secure land and water ownership rights innovation and diversification into new farm improve farmers’ ability to provide collateral to enterprises. Collective action enables small lenders, thereby facilitating access to financial farmers to source inputs in bulk and at com- resources required for initial investments. petitive prices, explore market opportunities and linkages, obtain market and technical MARKETS AND INFRASTRUCTURE. Transition to new support, pool output to improve bargaining production enterprises must be based on power, and form partnerships with commercial market demand and sustained competitiveness enterprises, governmental agencies, R&E of producers (typically from either low-cost entities, and other community groups. production or high-value and differentiated 165 products). This depends on competitive non- GENDER EQUITY. Diversification can offer new farm private enterprise at each stage of the employment opportunities to both women and supply chain, and requires strengthening of men, but safeguards are needed to ensure processing and logistical systems, input supply equity of opportunity. Women are often disad- systems, and financial services. vantaged by traditions that discriminate with regard to participating in market networks, RISK ENVIRONMENT. Natural resource suitability, accessing financing and inputs, and entering crop yields, market prices, and adequacy of into contracts. Furthermore, diversification can infrastructure provide more uncertainty for result in women being displaced from tradi- new crops than for traditional products. Irriga- tional production and marketing activities. tion, integrated capital markets (to reduce price Processing plants frequently employ a high variability through risk pooling), stable govern- percentage of women in their workforce, but ment policy, and reliable information and labor standards are often low and potential for communication systems all help to reduce risk. exploitation of women is high. Activities Technical services are needed to minimize risks involving diversification should allow for the of pests and diseases devastating new crop or empowerment and participation of women and livestock enterprises. minority groups.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.8 Key considerations for diversification signed to respond to the needs of small and marginal farmers, providing technologies suited • Government policy and stability of policies—exchange rate to small farms. Improved transportation and trends, volatility, and risks; trade tariffs, quotas, and taxes. communication systems reduce isolation com- • Economic and environmental compatibility of alternative mon to small farmers in less productive areas, farming activities and potential conflicts among different and thereby reduce transaction costs for market enterprises. participation. • Infrastructure and distribution channels and participants in the supply chain. PUBLIC INVESTMENTS. Diversification must be based • Market demand and sustainability. • Asset ownership patterns and security of access to land, on private investment, but co-investment by the water, loans. public sector is likely to be required to facilitate • Food security (household and national). adjustment and the introduction of new pro- • Storage requirements, critical product volumes, food safety duction and marketing systems. Investments requirements. must be appropriately timed and sequenced, • Existing research and extension systems. with adequate market analysis before product- • Potential for value-added processing. specific investments are made. Initial invest- Source: Authors. ments should be as generic and flexible in nature as possible to reduce risk of market LESSONS LEARNED volatilities and production uncertainties for ASSESSING ALTERNATIVES. The process of assessing specific products. The public sector can finance alternative diversification opportunities requires or cofinance feasibility studies and investment intensive analysis and research and farmers strategies to promote private investment and typically do not have the resources required for can share start-up costs and risk by providing in-depth feasibility analyses (see box 4.8). The matching grants that are time limited and public sector can facilitate this process, but targeted. Public financing is also appropriate must maintain a supportive rather than a lead for public goods investments for removing role, encouraging farmer and private sector infrastructure bottlenecks and ensuring ad- initiative as opposed to “picking winners.” equacy of technical support systems.

INFORMATION AND COMMUNICATION. Cost-effective, SHARING LEARNING COSTS. Diversification usually dependable communication systems are essen- involves technology development and learning 166 tial to convey market information to processors that can best be provided through R&E systems and producers, so that the products produced that enable costs of learning and experimenta- are competitive in markets and satisfy con- tion to be pooled and shared equitably (see sumer demands. APROFA, a governmental box 4.10). In most cases, production and agency in Mali, uses agribusiness centers and marketing technologies will not be readily reference centers to disseminate new technolo- available in-country, but can be “imported” gies and products to producers. It has become from other countries. This may involve sourc- increasingly important to invest in forward ing the technology from either a private firm or information systems that maintain product a public research center. Local research capac- identity and traceability throughout the entire ity is useful—if not essential—to facilitate supply chain. technology import and to address second- generation problems. TARGETING SMALLHOLDERS. Diversification opportunities are not always equal, and small-scale farmers are often relatively less able to access RECOMMENDATIONS FOR PRACTITIONERS information and financial resources that will Diversification initiatives must be market led allow them to enter new markets (see box 4.9). and based on sustainable comparative advan- Research and extension systems can be de- tage. Public investments (see box 4.11) should:

AGRICULTURE INVESTMENT SOURCEBOOK Box 4.9 India: self-targeting of project components

Many components of the Uttar Pradesh Diversified Agriculture Support Project were chosen because of their “self-targeting” character in reaching poor and disadvantaged groups. The seclusion of women required that they be provided access to home- based income-earning opportunities. Also, the extent of landlessness required that activities not be biased against those with little or no land. Households with small or marginal landholdings benefit from horticulture activities, since fruit trees can be planted along plot boundaries or in home gardens. Livestock activities, including small ruminants (sheep and goats), and cow and buffalo milk production, provide significant benefits to the poor, including those with little or no land (provided they also have access to commons, cut fodder, or crop residues).

Source: World Bank Internal Documents.

Box 4.10 Vietnam: technical support for diversification

In Vietnam, the Agricultural Diversification Project provided technical support for intensifying crop and livestock production, focusing on participatory research and extension, for example, piloting fruit tree plantings and nurseries. Inclusion of farmers in the research process ensured that technologies responded to farmer needs. The project promotes a mix of farm activities, such as investment in rubber, livestock, and food crops, in a “smallholder technical package” that introduces sustainable management practices (such as terracing and contour farming on sloping and degraded lands).

Source: World Bank Internal Documents.

• Seek farmer collaboration through participa- Box 4.11 Potential investments tory evaluation of the suitability of alternative production systems and products. • Analytical support for market and technical feasibility. • Development of output and input markets. • Policy support and guidance for the sequencing of • Sequence investments and activities such investment activities. that they systematically build markets and • Financial markets and risk management tools to encourage capacity to supply them. private investment. • Infrastructure to improve market access—roads, ports, • Invest in flexible skills and technologies cold chains, telecommunications. • Public good R&E. (rather than those that are highly product 167 specific) and target products with multiple • Regulatory and certification systems to satisfy market and uses and markets. trade standards. • Market and technical information systems. • Establish appropriate means to manage risk Source: Authors. through development of infrastructure that reduces uncertainty in production and marketing processes. SELECTED READINGS Asterisk (*) at the end of a reference indicates • Facilitate development of producer organi- that it is available on the Web. See Appendix 1 zations to promote the interests of for a full list of Websites. smallholders through collective action. Delgado, C. 1995. “Agricultural Diversification • Make production inputs and markets “user and Export Promotion in Sub-Saharan friendly” (for example, available in small Africa.” Food Policy 20 (3): 225-243. packages and convenient locations) so that farmers can test the new production system World Bank. 1990. “Agricultural Diversification: without committing to a complete transition. Policies and Issues from East Asian Experi-

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION ence.” Policy and Research Series 11. World Bank, Washington, D.C.*

REFERENCES CITED Joshi, P. K., A. Gulati, P. S. Birthal, and L. Tewari. 2002. “Agriculture Diversification in South Asia: Patterns, Determinants, and Policy Implications.” MSSD Discussion Paper 57. IFPRI, Washington, D.C.

This Note was prepared by Sam Kane, Kristina Sorby, and Shawki Barghouti with inputs from the Sustainable Agricul- ture (SASKI) Thematic Team of the World Bank.

168

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE lands of Ethiopia with one or two cows; rice farmers in the Punjab of India with 10 buffa- loes; and Sahelian pastoralists with herds of up SMALLHOLDER DAIRY to 100 animals. PRODUCTION Although future regional market developments Smallholder dairy production is common in are difficult to predict, it seems that developing many parts of the developing world, provid- countries have a good chance of benefiting ing an important source of nutrition and from new market opportunities. Milk produc- income to millions of households. Income tion growth in developed countries is con- from such production often accrues to women strained by land and water availability, and who use this to provide better nutrition and increasingly by strict environmental legislation education for their children. Projections for and reforms in subsidies provided to the dairy future growth in demand for livestock prod- industry. Because of the comparative advantage ucts show good growth prospects for the of temperate climates, production expansion is dairy industry. Public support is often needed most likely to come from North America, the to put in place appropriate policies, establish Southern Cone of South America, and areas marketing chains, and provide services for such as the Ukraine, though there remain growth of smallholder dairying. opportunities for growth in other areas, such as China, India and Eastern Africa (see box 4.12). Globally, there are about 300 million rural and periurban poor whose livelihoods depend on the daily income and nutrition they receive from milk production. In India, about 40 million landless poor families get a major part Box 4.12 India: Operation Flood—how a commodity project of their income from milk. Since there are can reduce poverty fewer economies of scale involved in dairy production than in some other livestock Operation Flood was supported by the Bank and other donors production systems, the strong concentration from the mid 1970s to the mid 1990s. It originally started as a of production evident in the pig and poultry marketing project but gradually developed into production and sector is not yet seen in the dairy sector. input services. It is based on a three-tier cooperative system that includes: Markets in developing countries are secure, as 169 demand for milk and milk products is ex- • Village-level dairy cooperative societies, which are farmer pected to increase by more than 3 percent controlled, with an elected management committee, annually over the next 10 to 20 years (Delgado including at least one woman. et al. 1999). Per capita milk consumption will • Regional milk producers’ unions that own the dairy plants then still be only one-fourth of the per capita and transport equipment for milk collection and process- consumption in the industrial countries. ing. • State federations for interstate sales and coordination. The National Dairy Development Board, a government apex organization, provided the technical support. Operation Flood SMALLHOLDER DAIRY DEVELOPMENT now has 9 million members (60 percent are landless), with a Smallholder dairy production takes many forms daily milk throughput of about 30 million liters. It has made and is often combined with cottage industry important contributions to poverty reduction, human health, (small household) processing activities. Small- and nutrition and is the most successful Bank operation in the holder dairy production is mostly carried out livestock sector. Operational issues included interference by by the family, with some very limited hired government, in particular in the federations, and its search for labor. Examples of smallholder dairy produc- monopoly positions when support from outside sources was tion are the mixed farms in Central America phased out. with 25 cattle; small mixed farms in the high- Source: de Haan et al. 2001.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION BENEFITS MARKETS. Milk, being highly perishable, requires Certain characteristics of smallholder dairy daily collection and market delivery. Many past production systemsæintensive, year-round labor investments have focused on developing needs, the provision of regular income, and western-style collection, processing, and distri- easy substitution of the product between home bution systems, with pasteurized products. and marketæmake dairy production a good However, there is growing evidence, for ex- example of pro-poor approach to agriculture ample from Nairobi (Staal 2002), that this and rural development. The production charac- approach might be counterproductive. Pasteur- teristics of smallholder dairying, such as use of ization and packing costs nearly double the crop residues, fodder-crop rotation, and pro- price of milk to consumers, thus reducing farm duction of organic fertilizer, provide a strong gate prices and limiting access by the urban synergy with other parts of the farming system. poor. Giving the formal sector the exclusive Milk’s perishable nature and the limited market- right to distribute milk and milk products also ing leverage of an individual small producer affects employment opportunities for many make it highly suitable for cooperative market- small intermediaries involved in the distribution ing, and hence an important tool for farmer system. In addition, marketing through a formal empowerment. However, smallholder dairying collection system introduces one of the few carries risks. In many cases, a small herd economies of scale in dairy production, as it is constitutes a large part of the farmer’s assets, often accompanied by a requirement for on- and disease and death can wipe out these farm cooling equipment, which is normally assets entirely, potentially leading to increased profitable only with a production level of 100 indebtedness and poverty. liters or more per day. Such requirements, in situations where milk is boiled before consumption, are unnecessary, as boiling obviates POLICY AND IMPLEMENTATION ISSUES the need for pasteurization. SUBSIDIES AND DUMPING. With milk production mainly being a smallholder activity, and milk seen by many as a being a staple product, the LESSONS LEARNED dairy sector is the subject of political attention Success in smallholder dairy production can be and inappropriate policies. Thus the sector has evaluated at three levels; farm, market, and suffered from excessive price controls, and institutional (see box 4.13). Dairy production 170 greatly distorting subsidies both in OECD normally requires a high quality of support countries and in developing countries. In services as dairy breeds are generally more developing countries, the dairy sector has been costly and more vulnerable than other cattle to negatively affected by the dumping of surplus disease and health problems. subsidized dairy products by the European Union (EU) and the United States. With global VETERINARY. Because smallholder dairy develop- trade negotiations in the World Trade Organiza- ment is a rather risky endeavor, good, easily tion (WTO) on the issue of agricultural subsi- accessible veterinary services are essential. dies, producer groups, local industry, donors Experience in many countries, such as India and finance ministries need to discuss issues of and Kenya, shows that private veterinary domestic liberalization and appropriate adjust- services (also supplemented by public services ment that may be needed as a transition for the “public goods” such as vaccination) are mechanism. Other policy issues encountered in highly desirable, and can provide the flexible, Bank projects include cooperative monopolies dynamic services the smallholder dairy pro- (India), excessive interference of government in ducer requires. the sector, the introduction of unsustainable subsidies, for example for artificial insemination BREEDING. The choice of dairy breed has been (AI) (India, Kenya, Morocco) and health ser- subject to much debate. Past introductions of vices, and excessive food safety regulations. pure exotic breeds have almost universally

AGRICULTURE INVESTMENT SOURCEBOOK failed (with the exception of restocking pro- Box 4.13 Indicators of success grams in areas such as the Balkans). Generally, a combination of selection in local breeds and A successful smallholder dairy sector is characterized by the cross-breeding with exotic genetics is more following: appropriate, leaving it to the skill of the individual smallholders to decide on the level of • At the farm level: calving rate of 80 percent or more, a exotic germplasm they can manage. This production level (depending on conditions) of 600 to approach has been quite successful in India, 3000 liters per lactation (that is, about 300 days), mostly Northern Brazil, and Kenya. fodder based, and economically attractive. • At the marketing level: a viable formal collection system (private or cooperative), supplemented by small traders. Breeding systems are also subject to consider- • At the institutional level: an influential national organization. able debate. AI systems, often demanded by Source: Authors. Bank clients, have high costs and logistic and maintenance requirements, because of the need for liquid nitrogen to store semen. Such facili- accompanied by an insurance system to miti- ties can be organized in areas with good gate animal loss risks. However, experience communications and infrastructure, but many with livestock insurance has not been very AI systems have proven unsustainable without good, because of the moral hazard problems continued subsidies. Terminating subsidies, as involved. in Kenya, can then cause collapse of the system, which in the absence of alternatives, The credit-in-kind system, whereby animals are results in a considerable deterioration in the provided on condition that some of the off- genetic base of the dairy herd. AI requires spring are passed on to other members of the adequate producer skills, infrastructure, and community, has been effective in many pro- communication facilities. Where AI is to be grams. If the program is adequately integrated introduced, it should be privatized, and where in the local community, peer pressure ensures appropriate conditions do not exist, bull camps sustainability of the passing-on mechanism. A or the use of fresh semen have given good number of nongovernmental organizations results, as in Indian Watershed projects. (NGOs), such as Heifer Project International, Oxfam, and Farm Africa, are specialized in this EXTENSION. Most general extension staff mem- area (see box 4.14). bers have little experience with livestock and 171 dairy farming. Key areas requiring additional FARMER ORGANIZATIONS. The perishable nature of extension training include fodder production dairy products gives individual farmers little and livestock feeding schemes, husbandry (in particular calf raising), and dairy hygiene. Box 4.14 Indonesia: in-kind credit in Java Health and breeding services can best be handled by specialized professional services. The Provincial Development Program of Central Java Province Extension staff must also help producers cope introduced a new in-kind loan project in the 1980s to replace with social change, such as changing gender the existing small ruminant credit system. Target farmers were roles and issues of access and control over divided into groups of 10 with each farmer receiving two resources. female goats or sheep. Each group leader received small ruminant management training and a good quality buck or ram. Each recipient had to repay four lambs or kids over a three- CREDIT. Capital requirements for smallholder year period. Post-program evaluation in 1988 found the dairy producers are high and may be especially program to be successful in introducing new technology, constraining for women farmers. Credit increasing farmer income, improving production performance, schemes need to be long-term. If, for example, and improving dynamics within farmer groups. The system can a pregnant three-year-old cow is the starting work equally well for dairy cattle. stock for the family dairy, credit terms should be for at least three years. Loans are ideally Source: de Hann et al. 2001.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION leverage in marketing. However, the involve- • Establish an appropriate balance between ment of many smallholders in milk marketing public and private involvement in the makes dairy products suitable to cooperative supply of services. In many instances public processing and marketing systems. Most coop- sector involvement is best restricted to eratives also provide services such as health limited-term cofinancing arrangements that and breeding, although cross subsidies of these encourage private sector investment. A services through the price of the milk become direct government role is appropriate in an issue. Government interference can how- areas such as auditing of certification ever be a constraint to building organizational systems and management of quarantine capacity. procedures and epidemic risks.

FEED SUPPLY. Feed supply is a major issue for • Promote establishment of effective financial smallholder dairy systems, as most systems markets and risk management mechanisms. operate under conditions of extreme land This is largely the role of the private sector, pressure (Kenya, India) or labor availability and private investment may be best initi- (West Africa with high labor needs at the end ated through limited-term cofinancing of a marked dry season). Feed conservation for schemes. dry season supplementation has been a major issue, as most technologies, such as silage, • Provide technical assistance to both male haymaking, and urea treatment are not suitable and female farmers. Assistance is needed in for smallholder or humid tropical environ- areas such as breeding policy (what breeds ments. Fodder trees and mixed tree-legume are most suitable to the production and protein banks can be a solution. market environment?; where to source breeding stock?; is AI appropriate?), animal health (control of internal parasites, mastitis RECOMMENDATIONS FOR PRACTITIONERS management), milk hygiene, and feeding Key conditions for successful dairy develop- policy (managing feed supply, conservation ment involve market access and availability of of surpluses, supplementary feeding). services to smallholders and require public policy and institutional development and targeted investment. Sound investments gener- SELECTED READINGS 172 ally must (see box 4.15): Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 Potential investments: for a full list of Websites.

• Conduct a detailed assessment on the extent de Haan, C. 2000. “Livestock Breeding Tech- and nature of market demand. Key ques- nologies and Rural Development: Develop- tions to consider include: Do local consum- ment Experiences.” World Bank, Washing- ers want pasteurized milk and can they ton, D.C.* afford it? Are there opportunities to export? What safety and quality standards must be de Haan, C., H. Steinfeld, and H. D. Blackburn. met? All initiatives to promote smallholder 1997. Livestock and the Environment: dairying must be led by market demand. Finding a Balance. Brussels: European Commission Directorate-General for Devel- • Promote private sector development of opment.* supply chain infrastructure required for efficient production and marketing. This de Haan, C., T. S. van Veen, B. Brandenburg, J. includes transportation and communication Gauthier, F. Le Gall, R. Mearns, M. Simeon. systems, food testing and certification 2001. Livestock Development: Implications for facilities, and cold chain infrastructure.

AGRICULTURE INVESTMENT SOURCEBOOK Rural Poverty, the Environment, and Global Box 4.15 Potential investments Food Security. Directions in Development 23241. Washington, D.C.: World Bank.* • Animal health and breeding services, with a focus on developing private systems. Costs would be about LEAD Initiative. Livestock, Environment and US$2,000-5,000 for breeding services, and US$10,000 – Development. http:// 20,000 for veterinary practices. www.leadvirtualcentre.org. • Extension services to provide specialized skills for dairy production. Rangnekar, D., and W. Thorpe, eds. 2002. • Market development and infrastructure. Cooling systems vary between US$1000 and US$20,000. Wood-fueled Smallholder Dairy Production and Market- pasteurization plants at nominal costs can be effective up ing — Opportunities and Constraints. to about 500 liters per day; small pasteurization plants Proceedings of a South–South workshop (2,000 liters per day) cost about US$10,000; and larger held at National Dairy Development Board, processing plant costs vary according to individual design. Anand, India, March 13-16, 2001. Anand, • Financial services (savings and credit) need to be included India: National Dairy Development Board; in the overall microfinance systems, eventually supported Nairobi, Kenya: International Livestock by special credit in-kind schemes. • Producer organization support, mostly in the form of Research Institute.* technical assistance. Source: Authors. World Bank. Sustainable Agriculture. http:// lnweb18.worldbank.org/ESSD/ardext.nsf/ 26ByDocName/SustainableAgriculture. This Note was prepared by Cees de Haan with inputs from the Sustainable Agriculture (SASKI) Thematic Team of the World Bank. REFERENCES CITED de Haan, C., T. S. van Veen, B. Brandenburg, J. Gauthier, F. Le Gall, R. Mearns, M. Simeon. 2001. Livestock Development: Implications for Rural Poverty, the Environment, and Global Food Security. Directions in Develop- ment 23241. Washington, D.C.: World Bank.

Delgado, C., M. Rosegrant, H. Steinfeld, S. Ehui, 173 C. Courbois. 1999. Livestock to 2020: The Next Food Revolution. Washington, D.C.: IFPRI; Rome: FAO; Nairobi, Kenya: ILRI.

Staal, S. 2002. “The Competitiveness of Small- holder Dairy Production: Evidence from Sub-Saharan Africa, Asia and Latin America.” In D. Rangnekar, and W. Thorpe, eds., Smallholder Dairy Production and Marketing — Opportunities and Con- straints. Proceedings of a South–South workshop held at National Dairy Develop- ment Board, Anand, India, March 13-16, 2001. Anand, India: National Dairy Devel- opment Board; Nairobi, Kenya: Interna- tional Livestock Research Institute.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION AGRICULTURE INVESTMENT NOTE could conceivably rise to nearly 90 million tons if the 10 percent annual rate of increase between 1985 and 1999 can be maintained. AQUACULTURE PRODUCTION Doubling of the 1999 production level (33 SYSTEMS million metric tons) will require global expansion of aquaculture systems and an estimated With possible future food shortages and overall capital investment of US$20-30 billion declining yields of capture fisheries, the (see box 4.16). potential for aquaculture production in developing countries continues to rise. Worldwide The development of reliable production tech- production from aquaculture is growing nologies that often require only simple man- rapidly, far outstripping the growth rate in the agement skills has facilitated the recent rapid catch of wild fish from both freshwater and expansion of the industry. Options for aquacul- marine sources. Future public sector invest- ture development can involve production at ments need to provide a policy environment household, community, or industrial scale, and the technological base necessary to employing ponds, net pens, net cages, flow- promote aquaculture investments by private through raceways, and water recirculation farmers, while ensuring compliance with systems. Fish monoculture systems have also environmental regulations and encouraging been developed for a wide range of species sustainable production practices. that are most often grown on processed feed diets in ponds or raceways, and in irrigation Aquaculture is the farming and husbandry of canals with flowing water. aquatic organisms such as fish, crustaceans, mollusks, seaweed, and the production of freshwater and marine pearls. It has grown at BENEFITS an annual average rate of 10 percent since the Aquaculture can be integrated with other mid 1980s, reaching 33.3 million tons (or farming systems. Inland fish culture is often about 26 percent of global fish supply) in carried out in farm ponds with direct links to 1999. During the same period, capture fisher- animal husbandry and agriculture, where by- ies averaged an annual growth rate of less products of each subcomponent are recycled as than 2 percent, and its contribution to human resources for the others (for example, fish 174 nutrition actually declined by about 10 per- waste that enters irrigation canals becomes a cent because of an increase in wild catch supplementary fertilizer for crops). Pond culture species of lower value (typically used to on farms of this kind often includes the culture produce fishmeal for feed and fertilizer). of many fish species that feed on grasses, legumes, benthic invertebrates, detritus, zoop- lankton, and phytoplankton. Fish culture has CONTEXT FOR AQUACULTURE INVESTMENTS been gaining application in rice fields where a Aquaculture development is driven by an second benefit is control of insect pests and increased demand for products and a need to reduced the need to apply pesticides. reduce dependency on overexploited inland and marine capture fisheries. In 1999 per Areas that are not suitable for agriculture and capita annual consumption of fish products are not critical habitats for wildlife can often be worldwide was about 21 kilograms. Capture effectively used for aquaculture pond develop- fisheries are close to their limits, and the ment. Publicly-owned lands and waters suitable growing world population means that annual for conversion to aquaculture can be devel- aquaculture production must increase by oped or leased to poor households that other- about 21 million tons to maintain the current wise lack productive assets. Furthermore, level of per capita fish consumption. This is a aquaculture often produces direct management challenging goal, but aquaculture production roles for women. In addition to generating

AGRICULTURE INVESTMENT SOURCEBOOK income and employment opportunities at the Box 4.16 Aquaculture goes global local level, aquaculture can generate foreign exchange from exports and can improve food Most aquaculture development has occurred in Asia, particu- availability and quality for local consumers. larly China, which produced about 57 percent of the world’s aquaculture products (FAO 1997). However, production from In China, filter-feeding bivalves (clams, oysters, the rest of the world nearly doubled between 1984 and 1995. scallops), seaweed, and bottom-dwelling sea Fish farmers in Latin America, the Caribbean, Europe, the cucumbers are often reared near fish cages as a Middle East, and Africa have a valuable base of knowledge and means of capturing fish wastes and improving experience upon which to build. Technological advances, such as hatchery development, feed formulation, disease control, water quality. Although somewhat more com- engineering, and production system management, particularly plex to manage, these integrated marine aquac- from Asia, have global significance and applicability as the ulture systems improved environmental impacts demand for aquaculture spreads to other, less experienced of aquaculture, and have an added advantage regions. of reducing market risks to farmers from potential diseases or price fluctuations that Source: Zweig 1998. affect any one product. sion and training, as well as assistance in disease Aquaculture is increasingly used to produce diagnosis, prevention, and control. For example, fingerlings and seed materials for community- the Shrimp Farming and Environment consor- based programs for stocking open water such tium provides useful guidelines on better man- as irrigation and hydropower reservoirs, lakes, agement practices for shrimp aquaculture, and and coastal areas. This also provides lessons on the Food and Agriculture Organization (FAO) has proper management of greater (nonfarm) technical guidelines in a Code of Conduct for aquatic environments. Responsible Fisheries (FAO 1995).

Environmental and social impact assessments POLICY AND IMPLEMENTATION ISSUES need to be included in the process of site Rapid growth of aquaculture has not been selection. Integrated coastal zone and rural without problems, including disease pandemics development plans can help identify suitable such as those with global shrimp farming and areas for aquaculture development. These plans carp culture in South Asia. Exceeding carrying help ensure that development does not nega- capacity has in some cases led to levels of fish tively affect critical natural habitats or entail an 175 waste that caused toxic conditions that can kill unacceptable level of risk from possible indus- aquaculture crops and degrade water quality. trial or municipal pollution. A summary of Proper planning and facility monitoring (includ- generic environmental issues and an assessment ing new tools for predictive modeling of water strategy for aquaculture has been prepared quality) have helped to manage most systems, (World Bank 1991. Social implications, such as although consistent disease control still has not the ability of small farmers, the landless, women, been achieved for some species. and minority groups to participate in, and benefit from, the development of aquaculture systems, Public and private sector roles need to be must be carefully evaluated. This would require defined. Although a high percentage of aquacul- evaluation of possible impacts on gender-based ture production is generated through private division of labor and access to resources. sector investment and management, the public sector can play an important role in formulating Capacity building, both in terms of knowledge a regulatory framework. Licensing private aquac- and physical and institutional infrastructure, is ulture enterprises helps ensure minimal adverse necessary to promote sustainable aquaculture environmental and social effects and mitigation (see box 4.17). Hatcheries for supply of finger- of any such impacts. Public sector services can lings and specialized input suppliers of fish provide support for research programs, exten- feed and other inputs and services are best

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.17 China: coastal and inland aquaculture adversely affect biodiversity and fish populations, and use for feed may transmit diseases to The objective of the Sustainable Coastal Resources Develop- cultured organisms (as documented for brackish ment Project is to establish integrated coastal zone manage- water shrimp). Processed feeds should be used ment plans that include zoning of mariculture (that is, marine instead of feeds derived wholly from wild fish organisms raised in their natural habitat). This involves the and mollusks. Alternatives include lysine-rich production of fish in cages and ponds, oysters, hard clams, yeast, a single-cell source of protein that is several species of seaweed, and shrimp in four coastal prov- being widely used in China and other countries. inces. In addition to improved shrimp culture methods, the project provides training in seafood processing techniques and upgrades processing plants. The Southwest Poverty Reduction Transfer of species used for aquaculture be- Project includes an aquaculture component to provide tween river basins, countries, and regions must employment for people from impoverished inland areas in be carefully evaluated with regard to impacts Guangxi through enterprises involved in the production of on other indigenous aquatic species, habitats, seafood products, including fish, shellfish, and pearls. and genetics, as well as for the possibility for inadvertent transmission of disease. The Freshwater Fisheries Project developed integrated fish farming complexes around eight major Chinese cities, providing a Water quality standards are important to ensure source of fish close to markets. The Guangxi Agricultural the optimal growth and quality of aquatic Development Project achieved its objectives of providing employment for about 2,200 households and production of organisms. With the ongoing expansion of about 8,500 tons of fish a year from the development of 1,500 aquaculture development, countries that lack hectares of integrated fish ponds on saline, alkaline, or water- guidelines for water quality will need to create logged soils. It introduced yeast as a protein-rich feed supplement them to assist potential entrepreneurs with site to replace fish meal, reducing the cost of feed and dependency selection, and to help protect the consumer upon foreign exchange to import fish meal. Tourism emerged as from unsafe aquaculture products. an unexpected benefit, because tourists are attracted to view migrating birds drawn to some of the project fish ponds. Postharvest fish handling methods and infra- Source: Zweig 1998. structure should ensure that a safe product reaches domestic and export markets which may have specific requirements. For example, developed in the private sector. Research and the United States National Oceanic and Atmo- extension systems must develop and promote spheric Agency (NOAA 1993) and the Euro- 176 production technologies (stocking, disease pean Community have developed specific control, feeding practices), suited to small and requirements for the seafood processing indus- landless farmers. Infrastructure needs include try that also require safe and environmentally processing facilities and cold-chains, and sound production methods. Existing facilities regulatory systems must provide for compli- often need only simple changes requiring ance and certification of food safety standards. modest investments to ensure quality standards are met.

LESSONS LEARNED Greater reliance on aquaculture reduces depen- RECOMMENDATIONS FOR PRACTITIONERS dency on aquatic natural resources, and en- There is broad scope for investment in aquac- hances the capacity to foster conservation of ulture development to improve food supply; natural aquatic habitats and biodiversity (see provide employment and income, diversify and box 4.18). intensify farming systems; and improve resource use. Most investment will come from Collection of wild seed stock should be discour- private enterprise, but public sector investment aged, as should the collection of fish for feed will need to (see box 4.19): purposes. Harvesting of wild species can

AGRICULTURE INVESTMENT SOURCEBOOK • Develop mechanisms for the poor, both Box 4.18 South Asia: experiences with aquaculture men and women, to participate. Aquacul- ture development can take place at multiple In Bangladesh, the Third Fisheries Project was designed to levels, from small-scale household opera- enhance floodplain fisheries, improve shrimp farming, and tions through to community projects and develop aquaculture by groups of women. In addition to industrial plants. Land and water tenure increasing fish production, the project helped improve under- rights policies are central to making it standing of aquatic ecology and production dynamics and of the possible for the poor to engage in aquacul- social complexities and policy issues that affect the livelihoods ture production. Leasing public land and of local people. These findings are being applied in the proposed Fourth Fisheries Project, which emphasizes community water bodies to poor households can be an participation and organization. important tool for poverty reduction. In India, the Shrimp and Fish Culture Project focuses on • Finance research and training on aquacul- increasing shrimp production on government lands converted to ture systems to address problems and seek shrimp farms. Some 75 percent of ponds were to be leased to ways of exploiting new technological poor coastal families who could not otherwise afford to become opportunities. involved in shrimp farming. An inland component of the project supports efforts by cooperative societies to gain access to fishing rights in lakes and reservoirs, and offers credit to begin rearing • Identify where aquaculture can be inte- fingerlings and purchase appropriate fishing gear and boats. grated effectively into existing farming systems, or can make profitable use of Source: Zweig 1998. lands that are unsuitable for other purposes.

• Combine various types of aquaculture in Box 4.19 Potential investments integrated systems to take advantage of symbiotic relationships among species, • Establishment of a favorable policy and regulatory environment for development of aquaculture. such as bivalves and caged finfish. • Matching grants for small-scale aquaculture in poor regions. • Encourage proper planning and monitoring • Research and development of seed stock production to maintain healthy stock, prevent disease, systems, alternative feeds for fish, and improved production mange cash flows and production cycles. technologies. • Development of improved postharvest processing and 177 • Ensure environmentally sound development storage systems. of aquaculture systems, based on environ- • Training and management advisory services. • Market research and promotion. mental impact assessments and monitoring • Environmental assessments, mitigation measures, regulatory of environmental impacts. mechanisms, and monitoring. Source: Authors. • Ensure that international quality and safety standards are met, and that certification systems are established and operative. World Aquaculture Society. http://was.org/ main/FrameMain.asp.

SELECTED READINGS Asterisk (*) at the end of a reference indicates REFERENCES CITED that it is available on the Web. See Appendix 1 FAO. 1995. Review of the State of World Aquac- for a full list of Websites. ulture. Fisheries Circular 886, Rev. 1. FAO Inland Water Resources and Aquaculture Network of Aquaculture Centres in Asia-Pacific. Service, Fishery Resources Division. Rome: http://www.enaca.org. FAO.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION FAO. 1997. The Status of World Fisheries and Aquaculture: 1996. Rome: FAO.

NOAA. 1993. “National Marine Fishery Products Inspection Manual (Hazard Analysis at Critical Control Points Submission Guide).” NOAA, National Marine Fisheries Service, Inspection Services, Department of Com- merce, Silver Spring, Md.

World Bank. 1991. Environmental Assessment Sourcebook: Vol. II, Sectoral Guidelines. Technical Paper 140. Washington, D.C.: World Bank.

Zweig, R. 1998. “Sustainable Aquaculture: Seizing Opportunities to Meet Global Demand.” Agriculture Technology Notes 22. World Bank, Washington D.C.

This Note was prepared by the Sourcebook team based on a World Bank Agricultural Technology Note “Sustainable Aquaculture” with inputs from Ronald Zweig and the Sustainable Agriculture (SASKI) Thematic Team of the World Bank.

178

7. This AIN has been adapted from O. Damiani, “Small Farmers and Organic Agriculture: Lessons from Latin America and the Caribbean” (IFAD, Rome, 2002).

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE in place of chemical inputs. Cultural and biological practices control pests and crop rotations, and animal and green manures maintain soil ORGANIC AGRICULTURAL fertility. There is a virtual prohibition on use of PRODUCTION SYSTEMS synthetic chemicals for crop and livestock production. Most organic agricultural systems Organic agriculture can improve farmers’ in- also apply improved land husbandry techniques, comes and the management of natural re- such as soil-conservation measures, crop rota- sources, but entails additional production and tion, and reduced crop residue burning. certification costs and a significant time lag for transition to organic certificate and to realize Organic production usually involves annual profits. Organic production must be based on inspection of production sites by independent sustainable comparative advantage and is likely specialized certification agencies, interviews with to be most successful in areas with effective producers, review of organic fertilizers and other research and extension systems, a supportive inputs used, and laboratory tests of soils, water, policy and regulatory framework, necessary and agricultural products. Requirements include: infrastructure, adequate certification systems, land must not have been used for conventional and good access to foreign markets. Producer agriculture relying on chemical or synthetic associations have been key to accessing mar- inputs for a minimum time period (usually three kets, disseminating production technologies, and years); conventionally grown crops must be a monitoring compliance with organic standards.7 minimum distance from organic crops, and a forested area may be required as a barrier Over the past 50 years, agricultural production between organically and conventionally grown has increased dramatically, in part through the crops; inputs must be organic with no chemical use of chemical fertilizers, pesticides, and or synthetic inputs permitted; soil-conservation antibiotics. These technologies and the inten- measures must be applied; and farmer associa- sive production systems they support can result tions must be able to organize supervision to in increased human and environmental health ensure that organic standards are met by all risks. As a result, a market has developed for members. Certification focuses on the process of “organic” food products, which consumers production rather than the end product itself. perceive as being safer and more environmentally friendly. Retail sales of organic products 179 were estimated at US$19.7 billion worldwide in BENEFITS 2000, and have grown more than 20 percent Small farmers may have competitive advantages annually in major markets over the past 15 in organic farming and can benefit in several years. However, these growth rates are from a ways (see box 4.20). First, production costs low base, and organic food sales generally may be reduced by substituting labor and account for less than 2 percent of total sales in organic inputs for chemical inputs that are most markets. Thus opportunities to profitably often more expensive and difficult to obtain. enter this market are somewhat limited by Second, prices may be higher for organic demand. Organic agricultural production, given products. Third, organic production may its limited production levels and variability in reduce health risks from handling chemical yields, is unlikely to impact substantially on inputs. Finally, soil conservation measures and global food supplies. control of pests and diseases with manual and biological methods may reduce contamination of natural resources. ORGANIC PRODUCTION SYSTEMS Organic agricultural production systems employ Benefits of organic production are by no means agronomic, biological, and mechanical methods guaranteed as crop yields may fall, price

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.20 El Salvador: benefits of fresh organic vegetable does not require major on-farm investment, there are costs, such as certification costs, some production additional investments in soil conservation and Three farmer associations in the Las Pilas region are producing equipment, higher labor costs, and sometimes organic vegetables on 36 hectares. The 52 members of the lower yields. associations previously cultivated cabbage and tomato with conventional technologies, selling them through intermediaries LAND TENURE. Most organic producers own their in the wholesale fruit and vegetable market in San Salvador. land. Small farmers lacking secure land tenure are Their shift to organic production involved a wide variety of new reluctant to move into organic production, as they vegetable crops, planning of cultivation in order to sell year- need to invest in land-conservation measures. round, and direct marketing to supermarkets, restaurants and hotels in San Salvador. Organic production in Las Pilas successfully competes against imports, mainly because of product TECHNOLOGY ISSUES. Organic production requires quality and product differentiation. a high level of managerial knowledge and ability to protect crops from pests and diseases, Source: Damiani 2002. and to comply with the production process requirements. Access to adequate quantities of organic inputs, such as natural pest enemies, premiums may diminish as production increases, livestock manure, mineral rock phosphate, and distribution systems may prove inadequate, and organic matter can be a problem. Lack of unexpected negative environmental impacts (for technology can be an advantage for some example, weed migration from fields to natural organic producers as their success is related to habitats) may result. Investment in organic not previously using chemical inputs and: they production should be made only after feasibility can be certified as organic with little or no studies based on realistic production and market change in production practices; training and assumptions indicate that benefits are likely to technical assistance costs are likely to be be sustainable over the long term. significantly lower; and the transitional period can be shorter and less expensive, and yield decreases are likely to be less. POLICY AND IMPLEMENTATION ISSUES YIELD OF ORGANIC PRODUCTS. Typically, yields fall ENVIRONMENTAL IMPACTS. Organic production (by up to 10 percent to 30 percent) as a result systems can have some negative environmental 180 of the conversion to organic production, and impacts, such as overuse of animal manures there are commonly significant pest and soil that can lead to nitrite pollution of water fertility problems throughout the transition supplies. Insufficient application of organic period. The extent of declining yields depends manures can lead to soil “mining” and long- on physical farm characteristics, farm manage- term productivity declines. ment, and previous chemical input usage. Small producers who use little or no chemicals may CERTIFICATION REQUIREMENTS AND COSTS. Reliable see no change, or even an increase in yields independent accreditation and control systems due to better management. Also, yield volatility are essential to enforce organic standards and is likely to be greater with organic production regulations, and to meet phytosanitary stan- due to pest losses. dards and general quality requirements. For organic farmers, certification is one of the most TRANSITION TO ORGANIC PRODUCTION. The transition important cost items, with costs varying as they from conventional to organic production depend on availability of a certification agency, usually takes three years and during this pe- farm size and volume of production, and the riod, farmers cannot obtain organic certification product. Total certification cost usually involves and its resulting price margin. Access to afford- both a fixed cost and a variable cost that covers able credit throughout the transition period is certification and inspection. For example, costs critical. While shifting to organic production are: US$18.50 per hectare for coffee farmers in

AGRICULTURE INVESTMENT SOURCEBOOK Guatemala, US$11 per farmer for cacao produc- processing, and packing facilities, handling ers in Costa Rica, and 4.4 percent of gross only organic crops. This additional cost means revenue for sugarcane farmers in Argentina. the minimum volume of organic product needed for a viable enterprise is more than for LABOR COSTS. Organic production systems often conventional crops. Stable relationships with use more labor because they need additional soil importers, traders, or wholesalers in the target conservation measures—such as, construction market are important to coordinate distribution and upkeep of terraces and live barriers; new and access information. management practices; manual control of weeds, pests, and diseases; and applying large volumes GENDER ISSUES. Because of less business experience of organic fertilizers. They also have potentially and gender-based discrimination, women organic increased harvest costs (see table 4.2). The farmers may find it more difficult to make re- combined effect on production costs from quired contacts, negotiate agreements, and obtain increased labor requirements and lower chemical access to credit. Women find low paying jobs in inputs will vary and must be assessed in relation organic farming, providing labor for weeding and to other factors, particularly yield and price harvesting (for crops like coffee, cacao, banana changes. In places where chemical input is low, and vegetables) and in packing facilities. total costs are likely to rise because labor cost increases are likely to exceed chemical savings. LESSONS LEARNED RESEARCH, EXTENSION AND TRAINING. Extension PROCESSING AND MARKETING FACILITIES. Marketing of services have, with the exception of coffee, most organic products requires certified sorting, faced problems in finding professionals trained

Table 4.2 Production costs of organic and conventional crops (US$/ha)

Crop Organic Conventional

Sugarcane (Argentina)

Production cost (PC) 490 562 Labor cost (LC) 238 154 181 LC/PC (%) 49 27

Coffee (Mexico)

Production cost (PC) 680 452 Labor cost (LC) 522 360 LC/PC (%) 77 80

Banana (Dominican Republic)

Production cost (PC) 2,560 2,370 Labor cost (LC) 1,826 1,218 LC/PC (%) 71 51

Source: Damiani 2002.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION in organic agriculture. Including organic farmers. Investments in organic agriculture (see production systems into research and educa- box 4.22) should: tion programs is essential to supplying technologies and well-trained professionals for the • Strengthen associations of small producers future. For small organic producers, extension that play a major role in marketing, produc- services are particularly important to improve tion, dissemination of organic technologies, product quality and ensure compliance with and monitoring members’ compliance with organic production methods. organic methods of production.

STRENGTHENING FARMER ASSOCIATIONS. Producer • Provide financial support during the transi- organizations play a major role in enabling tion period by covering start-up costs of small farmers to begin organic production as certification systems, and organization of an they make possible economies of scale by effective and participatory monitoring marketing product in quantities that attract system. foreign buyers. These buyers find it easier and cheaper to contract with organizations • Strengthen government policies and institu- rather than with a large number of individual tions dealing with organic agriculture, such farmers (see box 4.21). Associations train that appropriate regulations protect produc- large numbers of small-scale farmers, and ers, consumers, and exporters. organize monitoring systems to ensure compliance with production standards. • Use NGOs with experience in organic Compliance is very important because if production as preferential partners for only one member fails to comply with projects. NGOs have frequently promoted production standards, buyers’ trust is lost production based on local resources, rather and there are severe consequences for the than on purchased inputs and often have entire group. skills in supporting small farmer associations and marketing of organic products. MARKETING ORGANIC PRODUCTS. Supermarkets are the fastest growing sales outlets for organic • Consider using domestic markets as an produce but small-scale farmers often do not entry point to gain experience with organic sell to these because they lack marketing production processes, certification require- 182 skills and connections. As a result, marketing ments, and quality standards. through farmer associations has been key in helping small farmers obtain better prices. • Target producers with the highest potential Marketing contracts (that is, contract farming) for success, concentrating on small farmers may secure and stabilize prices, and may with stable land tenure, access to financial provide access to extension services and resources and other inputs for organic credit. Outgrower schemes are common, but farming. may require high costs for monitoring and enforcing contract provisions. In developing countries, domestic markets for organic SELECTED READINGS products are attractive because they can be Asterisk (*) at the end of a reference indicates less demanding in terms of quality, than that it is available on the Web. See Appendix 1 export markets. for a full list of Websites.

Coote, C., P. Greenhalgh, and J. Orchard. 2003. RECOMMENDATIONS FOR PRACTITIONERS “High Value Horticulture and Organic Organic production is one of several options Export Markets for Sub-Saharan Africa.” for improving production and incomes of small Natural Resources Institute, U.K.

AGRICULTURE INVESTMENT SOURCEBOOK Box 4.21 Costa Rica: farm associations and organic cacao and banana

The Talamanca Small Farmers Association (APPTA) created in 1987 had 1,500 members by 2000. Most members abandoned cacao plantations in the 1970s because of disease and low prices, and were making a living from subsistence crops and poultry. APPTA promoted a revival of cacao production and, with help of an NGO, established contacts with buyers of organic cacao in the United States. By the early 1990s, APPTA had a significant area of cacao certified by a United States certification agency (Organic Crop Improvement Association), allowing members to regain an important source of cash income. Following this initial success, APPTA obtained organic certification for banana production for baby food (puree of organic banana) for export to Europe and the United States.

Source: Damiani 2002.

Box 4.22 Potential investments

• Training for producers on organic production and markets and problems of noncompliance. • Extension services for organic production and maintenance of product quality. • University training and research programs to develop resources and technologies for organic agriculture. • Support for soil conservation measures and for certification costs during the transition period. • Support for farmer associations, NGOs, and marketing firms developing organic agricultural markets. • Financial resources to support investment in packing and processing facilities. Source: Authors.

Damiani, O. 2002. “Small Farmers and Organic Agriculture: Lessons from Latin America and the Caribbean.” IFAD, Rome.

FAO/ITC/CTA. 2001. World Markets for Organic Fruit and Vegetables: Opportunities for Developing Countries in the Production and Export of Organic Agricultural Products. 183 Rome: FAO/ITC/CTA.*

Scialabba, N. 2000. “Factors Influencing Or- ganic Agriculture Policies with a Focus on Developing Countries.” IFOAM Scientific Conference, August 28-31, Basel, Switzer- land.*

REFERENCES CITED Damiani, O. 2002. “Small Farmers and Organic Agriculture: Lessons from Latin America and the Caribbean.” IFAD, Rome.

This Note was prepared by the Sourcebook team based on an IFAD publication “Small Farmers and Organic Agriculture: Lessons from Latin America and the Caribbean” by Octavio Damiani.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION AGRICULTURE INVESTMENT NOTE ute food and nonfood agricultural products for both local urban markets and for export. As the UPUA production system is close to urban URBAN AND PERIURBAN consumers, it can be well connected in terms AGRICULTURE of input and output markets. UPUA products may reach urban consumers and processing Agricultural activities in and around cities and points the day they are harvested. These towns contribute significantly to meeting the systems are also characterized by the small needs of these urban areas, providing employ- scale of production, high proportion of perish- ment to urban dwellers, especially women, and able crops (especially leafy vegetables), disease absorbing city wastes. Institutional and techno- and insect pressure, intensity of input use, crop logical innovations are needed to integrate diversity, and low use of mechanical power. urban and periurban agriculture (UPUA) with evolving urban marketing systems, and to satisfy demands of urban consumers. Other BENEFITS investment needs include capacity for supply Poor men and women engage in UPUA to and demand analysis, awareness campaigns on increase household food security and to gener- food quality and environmentally sound prac- ate income. The contribution of food produced tices, technological and institutional innovation in UPUA to meet the total food needs of for production and monitoring food safety and different cities varies widely. For Hanoi, it quality, and an enabling environment for the supplies about one-half of the food demand, private sector to distribute inputs and services. and engages more than 10 percent of the urban labor force in processing and marketing, Migration of the poor from rural to urban areas retailing, input supply, and seed and seedling (where basic services are more available and production (Anh, Anh, and, forthcoming). costs of living are less) will continue to be a These percentages are higher for many African major trend in developing countries. This cities and some Latin American cities. Even in results in shifting poverty from rural areas to cities like Manila where little land is left for urban slums and increasing urban and crop-based agriculture, the contribution of periurban agriculture. Sustainable production, agricultural business activities to income and processing, and distribution of food in and employment remain significant (Ali and 184 around cities and towns contribute to the goal Porciancola 2001). UPUA systems can play an of a safe, affordable, and reliable food supply important role in environmental and public for the urban poor, and provide income and health by reusing and managing urban waste- employment to a large number of urban poor, waters and solid waste. Maintaining a large especially women. Critical issues concerning number of trees in cities and home gardening UPUA include: use of pesticides; use of urban contribute to air quality as well as employment. waste in agricultural production; environmental Urban agriculture can also be seen as a survival pollution caused by agricultural activities in strategy for the urban poor during crisis peri- densely populated areas; conflicts over land ods, and contributes to household food secu- and water between agricultural, industrial, and rity, especially for women and the elderly. housing uses; unhygienic food marketing; and an inability of producers, wholesalers, retailers, and other agents engaged in food processing POLICY AND IMPLEMENTATION ISSUES and marketing to integrate within coordinated Key issues of UPUA in production, livelihood food chains. earnings, environmental protection, and input supply at the household, institutional, and UPUA includes activities within or on the fringe policy levels are included in table 4.3. of a town or city that use natural, physical, and human resources to grow, process, and distrib- INPUTS AND SERVICES SUPPLIES. In the provision of

AGRICULTURE INVESTMENT SOURCEBOOK Table 4.3 Issues of sustainable urban and peri-urban agriculture (UPUA)

185

Source: Authors.

agricultural services, especially those with some INFORMATION SYSTEMS. The diversity of UPUA is element of public good such as extension and often high to maximize the efficiency of re- irrigation, UPUA is often ignored. If these source use, meet market demands, and to constraints to UPUA are not addressed, there reduce risk. Off-farm employment options for may be major consequences in terms of the family labor and the possibility of hiring labor regularity and quality of food supply, poverty add to the complexity of decision-making. and gender equity, resource conservation, and Changing market structure, increased demand human health in urban areas. Removing such for food quality, and fluctuations in output public sector biases against UPUA would prices are additional dimensions of decision- encourage private sector involvement in the making. To cope with these, farmers and supply of services and inputs critical to prof- especially the poor ones, require efficient itable and sustainable farming in urban areas. agricultural information systems and sophisticated

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION managerial skills. Urban farmers are closer to LAND TENURE ISSUES. The long-term continuity of markets than are their rural farmers and have agricultural production from a given piece of an advantage in targeting specific consumer land in UPUA remains uncertain, because the segments (high income, for example) and opportunity cost of using it for agriculture is responding quickly to changes in the demands high due to demand for industrial, housing, of these, provided they have good access to and development purposes. The right to use market information. There is always a danger land for UPUA is sometimes not well defined, that resource poor farmers and disadvantaged especially when it is practiced on vacant groups in UPUA will be left behind. municipal or encroached lands. This can create conflicts and can lead to underinvestment as NEW MARKET STRUCTURES. The shares of high-value well as exploitative production practices and crops such as fruits and vegetables and live- degradation of the land. stock products are rapidly increasing in urban diets, and consumers are demanding better quality and safe foods. In response, the organi- LESSON LEARNED zational structure of urban markets, including TECHNICAL AND MANAGERIAL CAPACITY OF FARMERS AND those in developing countries, is changing. FOOD MARKETERS. Effective UPUA requires the Smallholder urban producers and small retailers provision of nondiscriminatory extension and wholesalers in urban areas typically lack services for farmers that are linked with de- resources, organization, and skill to provide mand-driven research systems. The public quality food of the standard demanded by sector can help to build and reform systems to urban consumers, or to integrate with new supply farmers with required inputs and link coordinated market structures. them to downstream markets. It can also play an active role in building the capacity of HEALTH AND ENVIRONMENTAL ISSUES. Input use, farmers and food wholesalers and retailers to especially for fertilizer and pesticides, is rela- meet emerging market demands. It can also tively high in UPUA, leading to potentially high improve the capacity of the private sector to residues in food, especially vegetables. This supply farm inputs and more effectively pro- may create health hazards for both consumers cess and market outputs. and producers, and degrade resources such as soil and underground water reserves. Farmers PROMOTE THE ADOPTION OF ENVIRONMENTALLY SOUND 186 have little incentive to reduce pesticide use in FARMING PRACTICES. The application of city wastes view of low pesticide costs, inadequate knowl- (both solid and liquid) and the large number of edge of conservation farming options (IPM for trees can help clean the city environment. example), low availability of extension services, However, to ensure that applications are not and inadequate market premiums for providing negatively affecting environmental indicators, consumers with products that have been and that they are not risking the safety of the produced using environmentally sound and food produced, effective regulatory systems are socially acceptable production practices. Farm- required. These include the quality of waste ers need technical advice to improve food applied in agricultural production, and levels of quality, and institutional innovations to monitor pesticide residue and microbial contamination agricultural practices and food standards. on food. To be effective, these regulatory systems should be based on sound technical USE OF URBAN WASTE. The use of solid waste planning, and credible monitoring systems. and wastewater in UPUA has both advan- Extension is also important to bring to farmers tages and disadvantages. It saves farmers new technologies that can ensure long-term money, and reduces environmental pollution. environmental sustainability of the system. The However, it may create microbial infections public sector can play an important role in in food, and heavy metal contamination of providing advice in planning and promoting soil, water, and food. effective supply of technical services to farmers,

AGRICULTURE INVESTMENT SOURCEBOOK particularly involving the private sector and Box 4.23 South Asia: the AVRDC/CIRAD UPUA project producer organizations. In 2002, AVRDC/CIRAD initiated a 3-year coordinated project PRODUCER ORGANIZATIONS. Because of the very with national partners in Hanoi, Ho Chi Minh City, Phnom Penh, small operations, input purchase and output and Vientiane to diagnose problems and introduce technologi- marketing are typically a problem in UPUA. cal and institutional innovations in UPUA. The project has Organization of producers can benefit from undertaken an analysis of the supply of and demand food in economies of scale in markets (see box 4.23). urban and periurban areas, as well as an analysis of the These organizations can identify opportunities vegetable, fish, and livestock production and marketing systems. Other accomplishments include: and constraints, and organize funds to overcome bottlenecks. They can arrange inputs and • The development of producer organizations (POs) for organize training as new opportunity arises, improving the dissemination of technical innovations, and and can lobby to protect the UPUA from strengthening farmer access to markets by carrying out unnecessary regulations. pilot operations for vegetable and fish production systems. • Introduction of off-season tomato varieties and technologies and efficient marketing systems on a pilot basis. • Analysis of the pesticide residues and lead content of RECOMMENDATIONS FOR PRACTITIONERS selected vegetables that has been supported by the UPUA must be given due importance in urban introduction of tool-kits for spot-checking of pesticide planning, encouraging its contributions in residue for selected pesticides. supplying food and engaging the labor force in • Training of farmers for off-season vegetable production food production, processing, and distribution. and integrated pest management (IPM) technologies. Other recommendations relating to investments • Improved regional cooperation to share breeding material, in UPUA include (see box 4.24): information, and literature related to UPUA. These activities and innovations are contributing to enhanced • Create an enabling environment for the safety and year round supply of food, as well as providing private sector to supply inputs and services income and employment in urban and peri-urban areas, both by providing training and information. on and off farm.

Source: AVRDC/CIRAD Internal Documents. • Promote the development of responsive agricultural extension and training programs to enhance farmers’ ability to make • Promote reform of land tenure arrange- efficient decisions under the complex ments where this is a major constraint to 187 environment of UPUA. This would include market- oriented environmentally sustain- skill training especially on good agricultural able UPUA. Well documented land records practices for crop and livestock production, business analysis, and developing information systems at the PO level. Box 4.24 Potential investments • Encourage organization of associations in • Market analysis of the supply and demand for food and the food chain to enable farmers and small evolving marketing structures. enterprises to integrate with changing • Training inbusiness management for food retailers and market structures in cities. Involvement of wholesalers. women and disadvantaged groups in these • Promotion of innovations to produce and market safe and associations is necessary to improve social hygienic food. equity. • Awareness campaigns for consumers and producers about food safety and environmentally safe production. • Technical capacity and equipment for environmental • Introduce pilot projects on innovative monitoring, particularly with regards to high input use and methods and tools to produce, process, and applications of city wastes. monitor the distribution of hygienic and Source: Authors. safe food.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION can encourage sustainable, profitable, and equitable resource use.

• Develop cost-effective water treatment and manure decomposition plants to enable productive disposal of UPUA waste with minimal environmental risks. Equipment and procedures for lead and microbial contamination will also force producers to carefully use urban wastes to avoid environmental contamination or rejection of outputs for safety reasons.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Smit, J., A. Ratta, and J. Nasr. 1996. Urban Agriculture: Food, Jobs and Sustainable Cities. Habitat II Series. New York: UNDP.

IFPRI. 1998. “Does Urban Agriculture Help Prevent Malnutrition? Evidence from Kampala.” Food Consumption and Nutrition Discussion Paper 45. IFPRI, Washington, D.C.*

REFERENCES CITED 188 Ali, M., and F. Porciancola. 2001. “Urban and Peri-urban Agriculture in Metro Manila: Resources and Opportunities for Food Production.” Technical Bulletin 26. Asian Vegetable Research and Development Center, Shanhua, Tainan, Taiwan.

Anh, M.T.P., H.L. Anh, and M. Ali. Forthcoming. “Urban And Peri-Urban Agriculture In Hanoi: Resources, Opportunities And Constraints For Sustainable Food Produc- tion.” Technical Bulletin. AVRDC/CIRAD, AVRDC, Shanhua, Tainan, Taiwan.

This Note was prepared by Mubarik Ali, with input from Gary Alex and Sam Kane.

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE circumstances, and requires time to change traditional attitudes and approaches and to demonstrate benefits (see box 4.25). A success- CONSERVATION TILLAGE ful transition to CT farming generally requires three to five years. Conservation tillage (CT) can significantly improve rural agricultural productivity, and Key factors in the successful introduction of CT incomes. At the same time it can conserve the farming include the willingness of governments natural resource base for agricultural production, to: empower rural communities and POs; as part of an overall approach to the manage- develop effective R&E systems; support experiment of natural resources. Widespread adoption enced producer groups or community organiza- in Latin America and expanding use in South tions; and develop systems to secure land Asia have shown that investment in research tenure and water rights. Other facilitating and extension (R&E) systems, capacity building, factors include effective input and output and the development and distribution of neces- markets, and access to cover crop seed and sary equipment are effective means of promot- appropriate machinery. ing the use and benefits of conservation tillage.

Conventional tillage practices of plowing and BENEFITS tilling the land evolved largely to control weeds. ECONOMIC. CT increases farm profitability by Although widespread, these systems have some improving land productivity through residue serious disadvantages by exposing soil to wind mulching practices that allow sowing at the and water erosion, and by incurring high optimal time, conserve moisture, and reduce energy costs for tilling operations. Production vulnerability to drought or moisture stress. CT systems using CT are becoming more common also reduces costs of labor, inputs and machin- and offer a range of benefits, such as increased ery (longer life and lower maintenance costs). land productivity, reduced production costs, In Brazil, net farm incomes increased by as and prevention of soil erosion. much as 59 percent over five years and in animal traction systems CT farming has increased maize yields by up to 20 percent. THE DEVELOPMENT OF CONSERVATION TILLAGE SYSTEMS ENVIRONMENTAL. CT adoption is likely to result in: 189 CT farming covers four broad, intertwined decreased soil erosion and water loss through management practices: minimal soil disturbance runoff; decreased carbon dioxide emissions and with no plowing and harrowing; maintenance higher carbon sequestration; reduced fuel of a permanent vegetative soil cover; direct sowing; and sound crop rotation. Introduction of these practices requires a supportive social Box 4.25 Brazil: key elements of smallholder no-till systems environment and institutional framework. Many for maize and bean production in Parana CT practices have evolved from farmer innovations supported by farmer-led organizations, in • Use of animal traction, family labor, and limited use of purchased inputs. partnership with private business. CT farming is • Biomass management with animal-drawn knife-roller and a sustainable land resource management planting with animal-drawn no-tillage planter. system that combines productivity gains and • Management of crop residues with knife-roller. increased profitability with ecosystem manage- • Use of cover crop management. ment for environmental protection. However, • Runoff control with contour bunds built with animal-drawn CT farming should not be seen as a “quick fix” moldboard plow. or a blueprint that solves all sustainability or • Planting of dwarf elephant grass on contour bunds for livestock feed. profitability problems. It is highly location- specific, must be adapted to specific farmer Source: Pieri et al. 2002.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.26 India: impact of no-till in the Indo-Gangetic Plains consumption; increased water productivity; less flooding; and recharging of underground In the rice-wheat system conservation tillage (CT) saves up to aquifers. Other benefits are increased fertilizer one million liters of irrigation water and about 60 liters of efficiency, improved drainage, reduced water- diesel per hectare. No-till has the potential to save six-to-ten logging, and increased diversity of desirable plowing operations, reducing costs by US$50-60 per hectare as insects. In South Asia CT farming is estimated compared to conventional tillage. Reducing turnaround time to save 60 liters of diesel per hectare per year. between rice harvest and wheat planting also increases wheat yields. SOCIAL. CT initiatives are generally scale neutral, so that smallholders benefit equally (see box No-till has proven very effective in controlling weeds in wheat because most weed germination is triggered by sunlight or by 4.26). Reduced labor requirements free up more lower temperatures. Since the soil is disturbed less with no-till, time for nonfarm employment, child education, less weed seed is exposed and so less germinates. Recent data and care of the elderly. Increased stability of suggest that no-till reduces weed infestations over time, and production can increase food security. eventually no herbicides are required in some seasons.

Custom machinery services allow small-scale farmers to use POLICY AND IMPLEMENTATION ISSUES no-till and reduce operating capital requirements, since fewer TECHNOLOGICAL BASE. Effective CT implementation tractor hours are needed. Farmers no longer need to maintain initiatives are based on a sound understanding bullocks all year on the farm. In Haryana in 2001, 70 percent of farmers who adopted no-till did not own a tractor and used of technical aspects of production, including custom tractor services, and 40 percent of the adopters were CT plant cover and cover crops, crop rotation, small landholders with farms smaller than two hectares. equipment and IPM. Transition problems, such as increased weed growth in direct-seeded rice, Source: Ekboir 2002. occur in early years of CT production. Devel- opment and supply of appropriate equipment and improved seed for both crops and cover crops facilitates farm-level adoption. Research systems must be able to provide solutions to varied location-specific production problems. Box 4.27 Responses to common criticisms of conservation Technologies, including biotechnology-assisted development of herbicide-resistant varieties, tillage farming 190 and development of safer pesticides and Limited to deep soils and high rainfall conditions: Conservation pesticide application strategies, will likely be tillage (CT) farming practices can be adapted to a wide range important for increasing the use of CT. of soils under semi-arid or humid tropical or temperate climatic conditions. DISINCENTIVES TO WORLD BANK INVESTMENTS. Factors that deter Bank investment in CT farming Suited only to large mechanized farms: In Brazil and Paraguay, include the often lengthy time taken to develop private entrepreneurs have made CT equipment for small and disseminate relevant technologies; high farms available in local marketplaces and enabled family farms initial investments in equipment and farmer to successfully adopt CT farming practices using animal power. In South Asia, whole villages adopted no-till wheat after rice training and education; deferred benefits; and using rental farm machinery. the Bank’s pesticide safeguard policies on investments associated with increased use and Results in increased herbicide use. Full adoption of CT practices their impact on CT herbicide use. There have (cover crops, crop rotations, and integrated weed management) also been misconceptions about CT farming over a two-to-five year period can reduce weed pressure, and (see box 4.27). practitioners claim that they use less herbicide (and other pesticides) than under conventional tillage systems. CAPACITY BUILDING. Farmer organizations are key to changing traditional attitudes and practices, Source: Pieri et al. 2002. and are able to do so because of their under-

AGRICULTURE INVESTMENT SOURCEBOOK standing of local conditions. CT investments Box 4.28 Priorities for conservation tillage adaptive research must strengthen such farmer organizations and extension systems, and link farmers to the • Cover crops - collection of locally available germplasm and scientific community. introduction as appropriate. • Crop residues - on-field management (both mechanical OTHER ENVIRONMENTAL CONCERNS. In some circum- and chemical) and for productive uses. stances CT farming can result in pest and weed • Integrated production and pest management (IPPM) – buildup, requiring increased application of limited pesticide use. pesticides and herbicides, with negative impli- • Fertilizer - mineral/organic requirements, (needs, timing, and methods of application). cations for local biodiversity and water quality. • Machinery/tool adaptation - adaptation and fine-tuning of Some farmers also burn mulch contributing to conservation tillage (CT) planters. air pollution and loss of organic matter. No-till • Integration of crops and livestock production - best crop and low-till systems may also increase growth rotations, increase biomass. of fungi in humid climates, risking contamina- • Pathways of change - on-farm test of pathways best suited tion of agricultural produce by aflatoxins and to local/zonal typology. mycotoxins, with possible loss of markets and • Land/soil benchmark - characterization of representative on-farm soils. negative impacts on human health. Research • Soil as a rooting environment - rooting depth, root investments are needed to develop systems for distribution for crops and cover crops. sustainable management of crop residues, such • Socioeconomic studies - reasons for adoption and as using drills to plant into residues, baling and nonadoption, gender considerations. removal for livestock feed, and microbial Source: Pieri et al. 2002. sprays to speed decomposition.

are essential to CT farming, (see box 4.28). LESSONS LEARNED Extension programs should foster linkages Changing farming practices that have evolved among those involved, synthesizing feedback over many generations is difficult. CT is more from the field, prioritizing needs, and assisting than a switch from one technical package to with implementation of adaptive on-farm another, and demands an integrated approach research. In Brazil, CT education and training including collaborative efforts on social mobili- in university courses has been an effective zation, education and training, and marketing. means of extension. In South Asia, traveling Such action can be undertaken in discussion seminars were effective in bringing farmers to 191 groups and seminars, and through field visits. see CT systems in operation, and to hear other farmers’ experiences with the systems. The two main driving forces behind the development and adoption of CT are farmers CT systems take considerable time to imple- faced with acute and highly visible land ment, with a lag between investment and degradation, and a few innovators who realization of tangible results. This means that realize that radical changes to farming prac- in the initial stages of CT introduction signifi- tices are required. A CT development strategy cant support (subsidized equipment, local can create the conditions to capitalize on meetings) may be required until benefits experiences of initial innovators and regional become apparent and sufficiently compelling agents for change, such as farmers, technical for stakeholders to independently support the specialists, private input sector, and extension system. Planning should provide for phase-out agents, to promote the spread of CT innova- of such incentives, particularly subsidies. tions through a network of local, state, and national POs. RECOMMENDATIONS FOR PRACTITIONERS Adaptive research systems guided by the Implicit in CT activities is that governments concerns of farmers and other interest groups. and other major stakeholders give priority to

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.29 Potential investments to local problems identified by farmers and the wider community. • Farm and community group organization and orientation to conservation tillage (CT). • Involve local manufacturers in the develop- • Research systems for adapting CT technologies to local ment and manufacture of required equip- conditions. ment that is within the budget of farmers. • Extension systems that support the design, manufacture, Farmers must be shown how equipment and distribution of required equipment. works and allowed to experiment with it. • Seminars, meetings, and demonstrations of CT equipment and practices. • Support for institutions to improve rural financial services • Pay special attention to the integration of and land administration systems. crops and livestock in CT systems. A particu- • Support workshops and study tours for private sector lar challenge is the development of rotational equipment manufacture, input supply, and services. grazing patterns on cover crops that do not • Grant programs to encourage socially and environmentally jeopardize the sustainability of CT systems. beneficial practices where market forces fail to do so. Source: Authors. • Use targeted, short-term subsidies to support small farmer testing and adoption of no-till practices. appropriate policies and coordinated interventions that help to achieve more rational land use, improve land management SELECTED READINGS practices, and develop an updated knowledge Asterisk (*) at the end of a reference indicates and information base. CT investments should that it is available on the Web. See Appendix 1 (see box 4.29): for a full list of Websites.

• Ensure that implementation plans account Alberta Reduced Tillage Linkages. Alberta for context-specific attributes of the envi- Update on Direct Seeding. Direct Seeding ronment (slope, soil type, water resources). Factsheet Summaries. http:// Establishing a geographical database may www.reducedtillage.ca/ be helpful for this purpose. directseedingfactsheets.html.

192 • Identify and train innovative and entrepre- Ekboir, J., K. Boa, and A. A. Dankyi. 2002. neurial leadership, and stimulate a coopera- Impact of No-Till Technologies in Ghana. tive approach involving all interest groups. Economics Program Paper 02-01. Mexico, D.F.: CIMMYT.* • Ensure private sector participation in machinery supply, chemical and informa- Hobbs, P., and R. Gupta. 2002. “Resource tion supply, sponsorship of farmer organi- Conserving Technologies for Wheat in Rice- zations, financing, research, and extension. Wheat Systems.” In J. K. Ladha, ed., Im- proving the Productivity and Sustainability • Develop effective coordination and com- of Rice-Wheat Systems: Issues and Impact. munication mechanisms and networks to Proceedings of an International Symposium share ideas and knowledge between held at the 2001 Annual Meetings of the farmers and interest groups. Farmer-to- American Society of Agronomy, Crop farmer contact is often the most cost- Science Society of America, and Soil Sci- effective means of communication. ence Society of America, Oct. 22, Charlotte, N.C. Madison, Wisc.: American Society of • Develop research systems with an on-farm Agronomy, Crop Science Society of research perspective that provides solutions America, Soil Science Society of America.

AGRICULTURE INVESTMENT SOURCEBOOK Hobbs, P. R., Y. Singh, G. S. Giri, J. G. Lauren, and J. M. Duxbury. 2002. “Direct-Seeding and Reduced-Tillage Options in the Rice- Wheat Systems of the Indo-Gangetic Plains of South Asia.” In S. Pandey, M. Mortimer, L. Wade, T. P. Tuong, K. Lopez and B. Hardy. Direct Seeding: Research Issues and Opportunities. Proceedings of the Interna- tional Workshop on Direct Seeding in Asian Rice Systems: Strategic Research Issues and Opportunities, January 25-28, Bangkok, Thailand. Philippines: International Rice Research Institute.*

FAO. Intensifying Crop Production with Conser- vation Agriculture. http://www.fao.org/ag/ ags/AGSE/Main.htm.

REFERENCES CITED Ekboir, J., ed. 2002. Developing No-Till Pack- ages for Small-Scale Farmers. Mexico, D.F.: CIMMYT.

Pieri, C., G. Evers, J. Landers, P. O’Connell, and E. Terry. 2002. “No-Till Farming for Sustain- able Rural Development.” Agriculture and Rural Development Working Paper. World Bank, Washington, D.C.

This Note was prepared by Sam Kane with inputs from the Sustainable Agriculture (SASKI) Thematic Team of the World Bank. 193

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION AGRICULTURE INVESTMENT NOTE led to concerns over risks to human health, the environment, and food quality. In some cases, particularly where chemical inputs are subsi- INTEGRATED PEST dized, pesticides have been over-used and the MANAGEMENT long-term sustainability of agricultural systems has been undermined. IPM is seen as a way of Integrated pest management (IPM) practices achieving sustainable agricultural production have produced substantial environmental and with less damage to human health and the economic benefits in various agricultural environment, while at the same time increasing systems. Introducing IPM requires a coordi- incomes in rural areas. nated strategy of enhancing management skills of producers, awareness of food chain operators and consumers, an appropriate regulatory INVESTMENT IN IPM and policy environment, and economic incen- IPM is essentially a diverse mix of manage- tives for incorporating external benefits of ment practices used to keep pest incidence improved practices into farm-level decision- below economically damaging levels. These making. Training and capacity building at the include targeted and judicious use of synthetic level of the individual producer and service pesticides, biological control, and other provider is essential. nonchemical means (see box 4.30). In addition to this mix of technical options, IPM The use of chemical pesticides in agriculture focuses increasingly on enhancing farmer has produced impressive yield gains, but has skills to use agro-ecological knowledge to manage production ecosystems. Application of IPM tools and tactics is therefore highly Box 4.30 Integrated pest management technical toolbox situation- and location-specific. Integrated pest management (IPM) combines natural forms of control, taking advantage of ecological relationships in the Investment in public IPM research has yielded agricultural system, with economically derived rules for returns comparable to research on other agri- application of pesticides with low toxicity to minimize negative cultural technologies. Recently, the Bank’s effects on human health, beneficial organisms, and the environ- competitive research grants programs have ment. Nonchemical methods of pest control, include: channeled substantial funding into IPM-related 194 research. Pest-resistant seed varieties developed • Biological control. Use of natural enemies of crop pests (beneficials), such as parasites, predators, and insect through genetic modification techniques add pathogens, and environmentally friendly chemical interven- new technological options to the IPM toolbox. tions such as pheromones and feeding attractants and biopesticides. Constraints to IPM adoption include a lack of • Cultural and crop or livestock management controls. Tissue incentives for participatory multidisciplinary culture, disease-free seed, trap crops, cultivation, refuge research, a gap between scientific IPM infor- management, mulching, field sanitation, crop rotations, mation and user-friendly management systems grazing rotations, and intercropping. • Strategic controls. Planting location, timing of planting, and and extension materials, and unfavorable timing of harvest. national policies, especially pesticide subsidies. • Genetically based controls. Insect- and disease-resistant In addition, in some cases such as rice, a varieties and root stocks. critical proportion of farmers must adopt IPM Biologically based pest control strategies may often be feasible practices to avoid pest invasion in IPM plots only in the long term. In such cases, rationalization of existing from neighboring non-IPM fields. Future patterns of pesticide use may be the first step toward making priority should be given to action-oriented more sustainable pest management. research, involving individual farmers and farmer groups in technology use, participatory Source: Sorby, Fleischer, and Pehu 2003. research, and technology evaluation.

AGRICULTURE INVESTMENT SOURCEBOOK R&E investment alone is unlikely to result in Box 4.31 Turkmenistan: biological control broad-based adoption of IPM systems, which tend to be complex and management-intensive. Since 1998, the Government of Turkmenistan has reestablished Mass media campaigns and social marketing its biological control scheme for cotton production, a scheme can shape the awareness and behavior of that had been nearly abandoned. Biological control was pesticide users. In Vietnam the simple message introduced in the early 1980s after chemical pesticides became “do not spray early in the season” was success- ineffective and residues, especially persistent organochlorine ful in changing commonly-held perceptions compounds, were found in water, soil, and food. The breakup of and contributed to significant reduction in the centrally planned economy of the Soviet Union led to a deterioration of the rearing facilities for predators to control pesticide use. insect pests in cotton. Since 1998, the government rehabilitated insect rearing facilities (primarily for Trichogramma and Bracon), and introduced cost recovery from farmers. With over 90 BENEFITS percent of cotton crop protection now under biological control, Adoption of IPM practices can reduce pesticide there are greatly reduced environmental and health risks. costs, increase production, and reduce damage to the environment and human health. Concerns Source: Schillhorn van veen et al. 2000. focused on groundwater pollution, pesticide poisonings, loss of biodiversity, and negative effects on soil health, provide strong justification technologies such as improved seeds or chemi- for public sector investment in IPM (see box cals. Extension services play a key role in pro- 4.31). Increasing food quality and safety stan- viding IPM information, though the complexity dards have specific implications for pesticide of some IPM approaches requires a heavy residues in agricultural products. However, emphasis on teaching agro-ecological concepts developing the certification systems and the as a basis for farmer adoption of IPM practices. necessary monitoring capacity can be a major hurdle to attaining this market access. Investment COST/BENEFIT ISSUES. Attention to economic in this area is critical. Evidence on cost effective- viability of IPM investments is particularly ness on IPM is mixed. Most analysts suggest that important in large-scale extension and training IPM programs contribute to a decline in pesticide programs. Extrapolating costs and potential use but labor costs may increase. benefits based on pilot project experience may

Box 4.32 Pakistan: incoherent policies constrain IPM 195 POLICY AND IMPLEMENTATION ISSUES adoption PERNICIOUS EFFECT OF SUBSIDIES. Efforts to promote IPM often must struggle against the legacy of Adoption of IPM in Pakistan is still in its infancy, despite policies aimed at promoting pesticide use as a significant investment in R&E. The government sees IPM as a key means of modernizing agriculture. Such poli- element of agricultural policy, yet deregulating imports of cies, ranging from explicit subsidies to prefer- generic pesticides has improved farmer access to inexpensive ential tariffs and foreign exchange regimes to chemicals. Emerging pest resistance due to misuse of pesticides chemical-oriented agricultural R&E services, led to a decade-long decline of productivity in the cotton sector, in which poor rural women, who pick cotton as their serve to reduce the cost of using chemical only source of income, were most affected by the health pesticides and can seriously undermine IPM impacts of increasing insecticide use. Reviving the cotton adoption (see box 4.32). Promoting input economy has been the main motive behind changes in market pricing that reflects the true costs pesticide policy. After thorough analysis of the economics in the associated with production and consumption is pesticide subsector, and consultation with all relevant stakehold- critical to encouraging IPM adoption in areas ers in 2001, a comprehensive national IPM program was where it can be beneficial. designed, including farmer training, tightening regulatory control, and removal of pesticide subsidies.

TIME LAG FOR ADOPTION. IPM skills and practices do Source: FAO/UNDP/Government of Pakistan 2001. not spread as easily as information embedded in

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Box 4.33 The Farmer Field School concept for IPM training However, the number of cases where these criteria are met is limited. The Farmer Field School (FFS) approach stressing experiential learning of fundamental agro-ecological principles evolved in the 1980s in Southeast Asia to address the problem of LESSONS LEARNED insecticide overuse. Excessive use of broad-spectrum insecti- NEED FOR COMPREHENSIVE APPROACH. In many cides in irrigated rice, stimulated by the lack of pest resistance countries, IPM interventions have been planned of early high-yielding varieties, was disrupting the ecosystem without a clear understanding of pest manage- thus affecting farmer’s yields and profits. FFS farmers, trained in ment problems. IPM initiatives are often “add- weekly sessions throughout the cropping season, conducted hands-on experimentation in the field. Capacity building for ons” to regular R&E projects, and tend to be extension staff and farmer groups has been central to pilot isolated activities. A comprehensive approach projects for IPM training in FFSs in over 25 countries. to pest management, integrating interventions within an IPM national strategic plan, is pre- While the FFS model might be a promising approach to ferred. Coordinated interventions based on promoting participatory IPM, after mixed experience with identifiable targets and benchmarks are likely large-scale projects in Indonesia and Vietnam, there are serious to be more effective than isolated activities. reservations as to the advisability of financing FFS programs on Verification of IPM outcomes (for example, a large scale through public extension services. Large-scale reduction of pesticide use) is more important programs have proven financially unsustainable and had insignificant impacts on pesticide use and IPM diffusion (Feder, than simply measuring inputs such as the Murgai, and Quizon 2003). number of farmers trained.

Source: Authors. IPM TRAINING. Participatory training and extension are important to changing attitudes of overestimate training impacts and underesti- farmers and their service providers. One such mate costs, as these investments in human approach—the Farmer Field School (FFS)—has capital development may produce benefits only received particular attention (see box 4.33). An in the long term. Program initiatives must alternative strategy targets IPM for cropping assess expected and actual changes in produc- systems with significant potential to reduce tion costs, yields, output prices, and pesticide inefficient pesticide use and raise farm income, use and the sustainability of these changes. In for example cotton and horticultural crops. In addition, yield variability is likely to increase, cropping systems with a low level of external 196 and farmers must have access to tools for inputs, integrating IPM messages into a pro- managing production risks. gram to promote overall good agricultural practice is more effective than focusing on pest ROLE OF GENETICALLY MODIFIED ORGANISMS (GMOS). control alone. Training for input suppliers, Varieties resistant to pests and diseases, possi- extension agents, financial services providers, bly developed through use of biotechnologies, and produce buyers is important to develop the have potential to eliminate the need for mul- overall IPM knowledge system. tiple applications of pesticides. Biosafety issues and impacts on the overall ecology are contro- NEW MARKET OPPORTUNITIES. In global markets, versial, and must be addressed in considering maintaining competitiveness requires producers the use of GMOs. to be sensitive to changing consumer preferences regarding product quality. This provides LONG-TERM SUSTAINABILITY. IPM initiatives will be new opportunities for cooperation between most successful in situations where there is producers and the private sector. However, overuse of chemicals for pest control, and where IPM is to be used to increase product where supportive R&E systems and policy and value, supporting certification systems must be regulatory frameworks are in place. Also, established to assure downstream participants economic viability is enhanced where markets (including retailers and consumers) that IPM place a premium on IPM-produced products. principles have been followed (see box 4.34).

AGRICULTURE INVESTMENT SOURCEBOOK RECOMMENDATIONS FOR PRACTITIONERS Box 4.34 Options for cooperation with the private sector Given the lessons emerging from past experience, investments related to IMP should (see High-value niche markets for tropical products grown in an box 4.35): environmentally and socially responsible manner are a fast- growing market segment (for example, “sustainable” coffee). • Promote policy changes required to allow Integrated pest management (IPM) is an indispensable tool for the emergence of undistorted input markets delivering a good-quality product through a “sustainable” that price pesticides at levels reflecting the production process. Private firms developing specialty product true economic and environmental costs of lines are good partners for local authorities, farmer associations, and NGOs. production and consumption of chemically- based pest control inputs. IPM programs may support the development of the biopesticide industry, which is still small, but relevant to crops • Develop a sound research base for devel- with limited markets that are neglected by large pesticide oping and supporting IPM technologies and producers. Cooperation with the chemical industry can be management systems. rewarding, as both the public and private sector share an interest in reducing pesticide overuse, and in promoting • Address the larger institutional and policy resistance management strategies. Initiatives for “Safe Use” of toxic chemicals have been started by the pesticide industry and environment issues governing pesticide use, sometimes supported as public-private partnerships. before focusing on knowledge transfer to extension agents and farmers. Source: Authors.

• Develop a reliable information base on trends in pesticide use and productivity of CABI Bioscience. Sustainable Agriculture: pest management systems to support Promoting an Integrated Approach to Food design of a sound pest management strat- Security and Productivity. http://www.cabi- egy. bioscience.org/Html/ SustainableAgriculture.htm. Identify likely changes in markets and prices and production options, including the CGIAR. The Systemwide Program on Integrated potential for adding value through certifica- Pest Management. http:// tion of compliance with IPM standards. www.spipm.cgiar.org. 197 • Include stakeholders from agriculture, Farah, J. 1994. “Pesticide Policies in Developing environment, and health sectors in activities Countries: Do They Encourage Excessive to build consensus on approaches to use of Use?” Discussion Paper 238. World Bank, IPM (Fleischer and Waibel 2003). Washington, D.C.*

• Invest in IPM training of farmers and Gallagher, K. D. 1999. “Farmer Education for extension workers, adopting a demand- IPM.” Sustainable Developments Interna- driven approach to target training inputs to tional, International Edition 1.* address producers’ pest management problems, and to respond to emerging Box 4.35 Potential investments market opportunities. • Policy analysis and strategy development. • Research on pests and diseases. SELECTED READINGS • Training of extension staff and other service providers. Asterisk (*) at the end of a reference indicates • Training of individual farmers and farmer groups. that it is available on the Web. See Appendix 1 • Awareness campaigns among farmers, consumers, and food chain operators. for a full list of Websites. Source: Authors.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION Global IPM Facility. http://www.fao.org/ This Note was prepared by Gerd Fleischer (GTZ) with globalipmfacility/home.htm. inputs from the Sustainable Agriculture (SASKI) Thematic Team of the World Bank Integrated Pest Management Collaborative Research Support Program (IPM CRSP). http://www.ag.vt.edu/ipmcrsp/index.asp.

Murray, D. L., P. L. Taylor. 2000. “Claim No Easy Victories: Evaluating the Pesticide Industry’s Global Safe Use Campaign.” World Development 28 (10): 1735-1749.*

REFERENCES CITED FAO/UNDP/Government of Pakistan 2001. “Policy and Strategy for Rational Use of Pesticides in Pakistan. Building Consensus for Action.” Food and Agriculture Organiza- tion, United Nations Development Programme, Government of Pakistan. United Nations Systems in Pakistan Publicaions No. UN-PAK/FAO/2001/02, Islamabad 2001.

Feder, G., R. Murgai, and J. B. Quizon. 2003. “Sending Farmers Back to School: The Impact of Farmer Field Schools in Indone- sia.” Policy Research Working Paper 3022. World Bank, Washington, D.C.

Fleischer, G., and H. Waibel. 2003. “Pesticide 198 Policy and Integrated Pest Management.” In K. M. Maredia, D. Dakouo, and D. Mota- Sanchez, eds., Integrated Pest Management in the Global Arena. Wallingford, U.K.: CABI Publishing.

Schillhorn van Veen, T. W., D. A. Forno, S. Joffe, D. L. Umali-Deininger, S. Cooke. 1997. Integrated Pest Management: Strate- gies and Policies for Effective Implementa- tion. Environmentally Sustainable Develop- ment Studies and Monographs Series 13. Washington, D.C.: World Bank.

Sorby, K., G. Fleischer, and E. Pehu. 2003. Integrated Pest Management in Development: Review of Trends and Implementation Strategies. Agricul- ture and Rural Development Working Paper 5. World Bank, Washington, D.C.

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE both organic and inorganic plant nutrients for optimal production of cultivated crops, forage, and tree species, while conserving the natural INTEGRATED NUTRIENT resource base essential for long-term MANAGEMENT FOR sustainability. Nutrient flows occur at different SUSTAINING SOIL scales in any agroecosystem, and soil nutrient PRODUCTIVITY budgets for a given area and time can be calculated by the difference between the nutri- Future food and fiber must be produced on ent inputs and outputs (see figure 4.3). Large existing agriculture land, with less negative soil nutrient surpluses can lead to environmen- impacts on natural resources and the environ- tal pollution, whereas persistent soil nutrient ment than in the past. The timely supply, deficits usually indicate nutrient mining. efficient use, and careful monitoring of nutrients in integrated crop, forage, and tree pro- Effective INM involves four interrelated strategies: duction systems offer the potential for significant improvement of efficiency in plant nutrient • Conservation and efficient use of native soil use. Farmers, researchers, and other stakehold- nutrients. Conservation practices help to ers need to be more actively involved in the reduce loss of nutrients from generation and use of the knowledge required agroecosystems due to surface water flows for integrated nutrient management. and from erosion of soil by wind and water. Vegetative barriers minimize off-farm Although science-based agriculture has made transport of dissolved nutrients, dust, and major contributions to both the quantity and sediments, and deep-rooted plants act as quality of the global food supply, the rate of nutrient safety nets, intercepting leached yield increase for major food crops has begun nutrients from the root zone and returning to slow in recent years. In many parts of the these to the soil surface via litter fall, world, agricultural production increases have mulch, or as green manure. In general, been accompanied by significant degradation conserving existing nutrient resources is of natural resources including nutrient deple- easier and cheaper than replenishing and tion on agricultural lands. rehabilitating degraded resources.

Integrated nutrient management (INM) is an • Recycling of organic nutrient flows. Return- 199 approach that involves the management of ing crop residues and/or animal manure to

FIGURE 4.3 NUTRIENT FLOWS IN AGROECOSYSTEMS

Inputs Outputs

Mineral fertilizers Harvested crop parts Organic manures Crop residues Atmospheric deposition Plant Leaching Biological nitrogen-fixation Gaseous losses Sedimentation Water erosion

Source: Smaling 1993.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION cropland is important for system one example of an INM practice that also sustainability. Composting crop residues contributes to IPM. Integration of nitrogen- and animal manures enhances the utiliza- fixing species into cropping systems diversi- tion efficiency of easily lost nutrients such fies inputs/outputs and reduces risk on as nitrogen. Converting linear flows (lost both economic and ecological fronts. from the system) of organic nutrients to cyclical flows (returned to the system) can • Addition of plant nutrients. The nutrient reduce the need for external nutrient content of highly weathered soils is very inputs. There are related potential price low. In most cases, the export of nutrients benefits in organic product markets. Live- in harvested products results in one or stock are important for processing crop more plant nutrients becoming limiting. In residues, adding value to farm outputs, the humid tropics, calcium and phosphorus improving labor efficiency, and providing are often limiting for crop growth and manure. productivity. Appropriate amounts of lime and nutrients are essential to optimize plant • Enhancing biological nitrogen fixation and root growth, enhance the efficiency of soil biological activity. Nitrogen fixing crop, added nutrients, and avoid soil degradation forage and tree/shrub species scavenge (see box 4.36). Although inorganic fertiliz- nitrogen from the soil and/or fix nitrogen ers such as limestone and rock phosphate from the atmosphere when soil levels are are consistent with organic agriculture, below plant requirements. Most nitrogen- inorganic fertilizers are often the most fixing plant species also form symbiotic efficient means of adding soil nutrients. In relationships with mycorrhizal fungi that many places (such as in Africa) they are improve soil aggregation, nutrient and essential for improving productivity to water use efficiencies, and protect the plant levels that will then enable adoption of roots from a variety of pathogens. This is wider INM practices.

In the past, the cost of soil and crop sampling Box 4.36 Soil nutrient recapitalization and nutrient analyses made site-specific fertilizer application recommendations prohibitively Researchers estimate that the croplands of many smallholder expensive for most agricultural programs. Blan- farmers, especially in Africa, have become depleted of the ket fertilizer recommendations were common, 200 nutrients that are removed by crop harvests. Published estimates from 40 African countries indicate a net negative but blanket application of fertilizers is often annual balance of 22 kg of nitrogen, 2.5 kg of phosphorus, and uneconomic and can lead to pollution. Recent 15 kg of potassium per hectare of cultivated land. To meet advances in plant nutrient decision support increasing demand for food, soil scientists have recommended a models, improved access to high-resolution major capital investment to replenish soil nutrients in Africa. satellite images, and the improved interpretation Social scientists, however, caution against blanket nutrient of crop and soil spectral signatures make site- recapitalization as nutrient deficit statistics are based on limited specific recommendations possible. datasets, and fail to account for nutrient variability and transfers at the farm and watershed level. Furthermore, many socioeconomic and institutional factors influence farm management decisions. For example, smallholder farmers in western Kenya BENEFITS are gradually but significantly improving both crop yields and The reduced erosion and increased cycling of soil fertility because of the availability of locally repackaged organic residues in INM can increase or at least one to five kg bags of fertilizer that they can afford, transport, maintain native soil organic matter levels, and and use on selected crop fields. As crop yields and input-output thus improve both nutrient and water retention markets improve, they invest further resources for more capacity of the soil. Soils with around three fertilizer nutrients and improved seed. percent soil organic matter content and dy- Source: Anderson et al. 2002. namic soil fauna populations generally have better soil structure, water infiltration, soil

AGRICULTURE INVESTMENT SOURCEBOOK aeration, and plant root growth than soils with assessed to facilitate and promote the wide- lower organic matter. Improved soil water spread adoption of INM practices. INM pro- infiltration and retention significantly reduces grams need to consider also the impacts on surface flow of water, soil erosion, and nutrient water and air pollution, siltation, salinization, removals, and also minimizes the risk of down- biodiversity impacts, carbon sequestration and stream flooding. greenhouse gas mitigation in research programs.

INM can reduce plant requirements for inor- FERTILIZER, SOIL, AND PLANT-TESTING LABORATORIES. ganic nitrogen fertilizer, and reduced use of Accurate information on the nutrient composi- purchased fertilizer nutrients can result in a tion of available fertilizers and site-specific significant saving of scarce cash resources for application recommendations are important to small farmers. INM practices can also signifi- INM, which relies on a good understanding of cantly reduce the emissions of greenhouse nutrient contents and flows. Consequently, gases (nitrous and nitric oxides). Excessive there is a need for reliable soil, plant, and applications of nitrogen fertilizer can result in nutrient input testing facilities that can provide increased leaching of nitrates into ground low-cost testing services to farmers in the initial water, increasing health risks to newborn stages of INM adoption. Opportunities exist for infants and cancer risk in adults. Organic use of properly tested and treated urban waste nutrient flows cycled through the return of and sludge, and these and local rock phos- organic residues as compost, manure, and/or phates need to be tested to ensure that materi- mulch have significant implications for conserv- als with high concentrations of heavy metals or ing soil fauna biodiversity. toxins are not supplied to farmers. Public laboratories (especially for soil testing) are often inefficient, inaccurate and poorly man- POLICY AND IMPLEMENTATION ISSUES aged, whereas private laboratories are relatively PRECISION FARMING. For large-scale farming, there rare and costly. Country-specific strategies are has been significant private sector investment in needed to establish and maintain accurate fertilizer-based nutrient delivery and tracking analytical laboratory capacity. systems. This has resulted in precision farming that uses satellite-based global positioning PRICE, TRADE AND TAX POLICIES. Fertilizer prices for systems on tractors and harvesters to monitor many tropical smallholder farmers, especially in and manage soil, plant, and grain nutrients by Africa, are more than double the prices paid by 201 location in the field. Most smallholder farmers farmers in industrial countries. Crop prices are in the tropics, however, will need public sup- also too low or too unstable to allow farmers to port for participatory, multidisciplinary R&E profitably invest in nutrient replenishment of services to apply INM principles to the varied their depleted or degraded farmlands. Public infrastructure, soil, and climatic conditions of policy needs to seek ways of reducing high their farms. This will require extensive local fertilizer prices to farmers through more effi- adaptive testing of technologies supported by cient marketing systems, but rarely should comprehensive databases on soil characteristics, consider introducing subsidies. crop nutrient use and productivity, organic and inorganic fertilizer properties, and market prices. LABOR SUPPLY. Labor markets can be constraining as INM often requires more labor inputs than RESULTS TAKE TIME. Benefits from INM are often do systems relying solely on inorganic fertiliz- seen only in the medium to long term, and in ers. Labor supply is affected by the dynamics many cases the benefits are to populations of labor markets and the impact of disease living downstream of INM practitioners. Costs (HIV/AIDS, for example). Appropriate tools and and benefits of INM practices should be moni- machinery for small farmers, that can be locally tored and quantified at farm and landscape levels produced, refined, and maintained, can signifi- so that appropriate premiums and taxes can be cantly reduce the drudgery of field work and

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION facilitate the adoption of labor-intensive INM tenure security helps in accessing financial practices. Excellent examples of such tools can services to improve farmers’ access to credit for be found in the cover crop and conservation these investments. tillage systems of southern Brazil. INFRASTRUCTURE AND SERVICES. INM strategies are adapted to many situations, but are most likely LESSONS LEARNED to thrive in an environment in which support- FARMER LEARNING. Adding fertilizer nutrients will ing infrastructure and services exist and agricul- not be enough to improve and sustain crop ture can be profitable. Roads are needed to productivity. It is essential to also engage bring in appropriate inputs and take out mar- farmers in the diagnosis and design of farm and ketable products. Farmers must also have watershed nutrient management and facilitate access to market information and INM knowl- farmer learning. As farmers become familiar edge obtained from productive research sys- with INM principles, they begin to innovate tems and extension information services. Good with different strategies in their own environ- information services and other means to help ments (see box 4.37). manage risk provide a basis for farmer innovation and adoption of INM. INORGANIC FERTILIZERS. In most tropical soils and integrated cropping systems, inorganic fertiliz- LEGUMES AND ADAPTED SPECIES. Legumes are central ers must supplement organic nutrients. On to the INM strategy, and leguminous species degraded soils, inorganic nutrients are needed that combine moderate seed yield with high to prime the biological potential of native root and leaf biomass (and thus have a low vegetation to produce the organic inputs prior harvest index) can help farmers meet house- to the adoption of INM strategies. The availabil- hold food needs while improving soil fertility. ity of appropriately formulated fertilizers at accessible prices is important for increasing the SOIL MICROBES. The selection and use of adapted use of these nutrient sources by smallholder soil microbes (rhizobia and mycorrhizal fungi), farmers. together with the active manipulation of soil macrofauna (“soil engineers”), organic residues, PROPERTY RIGHTS. Land and resource tenure rights and modest levels of inorganic nutrients, can influence the relative values of land, labor, and promote significant synergistic responses in 202 capital. Secure tenure is important in providing plant growth and yield. incentives for investment in land resources, soil nutrient buildup, erosion control, perennial crops, and other critical elements of INM. Land RECOMMENDATIONS FOR PRACTITIONERS Investments designed to facilitate widespread adoption of sustainable INM practices will need Box 4.37 Nutrient budgeting tools: NUTMON to consider the (see box 4.38): A consortium of African and Dutch research institutes has worked with farmers in Sub-Saharan Africa to establish a • General environment for agricultural program called NUTMON to monitor farm level nutrients. profitability. INM investment planning must Participating farmers know that land productivity has been assess adequacy of infrastructure (roads, declining for years, and that continuous cropping, loss of communications, markets), financial ser- nutrients in harvested products, and manure shortages are to vices, and technical support, and structure blame. NUTMON increases farmer awareness of the role of INM programs accordingly. soil nutrients, and gives them a tool to assess nutrient balance on the farm. Researchers have documented changes in crop management as a result of NUTMON. • Policy and price environment. Fertilizer pricing policies as well as regulations Source: Vlaming, Gitari, and van Wijk 1997. governing environmental impacts of agri-

AGRICULTURE INVESTMENT SOURCEBOOK cultural production (such as pollution Box 4.38 Potential investments from overuse of fertilizers) affect accept- ability of INM innovations, and need to • Policy analysis and formulation and regulatory system be assessed in program planning. development relevant to fertilizers and soil fertility management. • Knowledge base. R&E information sys- • Training and extension to facilitate farmer access to tems are central to INM. NGOs and knowledge on integrated nutrient management (INM) and farmer organizations can be allies in advocacy and information campaigns. promoting INM technologies, but sound • Soil-plant, and fertilizer testing facilities and incentives for private investment in testing facilities. research and soil/plant/fertilizer testing • Participatory research on soil nutrient management, laboratories are essential backups. including site and crop-specific fertilizer use recommendations. • Regional fertilizer purchasing, mixing, and local repackaging. SELECTED READINGS • Processing of urban waste and sludge for use as soil Asterisk (*) at the end of a reference indi- amendments. cates that it is available on the Web. See • Transportation infrastructure. • Systems for environmental services payment (including Appendix 1 for a full list of Websites. quantifying on-farm and off-farm costs and benefits of INM). Department for International Development. Source: Authors. Soil Fertility and Nutrient Management. http://www.odi.org.uk/keysheets/ green_7_soil_fertility_and_nutrient_mgt.html. Netherlands: Dutch Association of Fertilizer Producers. Havlin, J. L., S. L. Tisdale, W. L. Nelson, J. D. Beaton. 1998. Soil Fertility and Fertiliz- Anderson, J., M. Blackie, M. Eilitta, E. ers: An Introduction to Nutrient Manage- Fernandes, N. Sanginga, E. Smaling, and D. ment. 6th ed. Upper Saddle River, N.J.: Spencer. 2002. “A Consultative Review of Prentice Hall. the Rockefeller Foundation’s Activities to Improve and Sustain Soil Fertility in East Integrated Plant Nutrition Systems (IPNS) and Southern Africa.” The Rockefeller Compendium. http://www.fadinap.org/ Foundation, N.Y. ipns/ipnscompendium/documents.htm. 203 Vlaming, J., J. N. Gitari, and M. S. van Wijk. International Fertilizer Industry Association. 1997. “Farmers and Researchers on Their http://www.fertilizer.org. Way to Integrated Nutrient Management.” ILEIA Newsletter 13 (3): 6. Vanlauwe, B., J. Diels, N. Sanginga, and R. Merckx, eds. 2002. Integrated Plant Nutri- This Note was prepared by Erick Fernandes with input from ent Management in Sub-Saharan Africa: the Sourcebook team. From Concept to Practice. Wallingford, U.K.: CABI Publishing.

REFERENCES CITED Smaling, E. M. A. 1993. “Soil Nutrient in Sub- Saharan Africa.” In H. van Reuler and W. H. Prins, eds., The Role of Plant Nutrients for Sustainable Food Crop Production in Sub-Saharan Africa. Leidschendam,

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION INNOVATIVE ACTIVITY PROFILE • Establish commercially independent Fruit Development Corporations to market fruit in local, distant, and export markets. CHINA: FRUIT PROMOTION IN THE MID-YANGTZE • Provide a demonstration model for fruit production that could be applied else- Only about 137 million hectares of China’s 960 where. million hectares of land are arable. Farming systems are intensive with heavy use of inputs. The project was designed to develop unused Foodgrains occupy about 70 percent of total and underutilized hilly areas into productive cropland and, although intensive farming has high-value citrus production. It emphasized the allowed China to meet its basic food needs, the extension of already existing research results to government’s central concern in recent years farmers, community participation in investment has been stagnating grain production. One and operation, and an integrated approach element of the agricultural strategy involves along the value chain from selection of better exploring ways to increase use of uplands and varieties to market-enhancing postharvest other underused areas to expand productivity treatment. Villagers participated in both the of nonstaple food and commercial crops to land terracing and planting, and soil conserva- meet demand, increase farmer incomes, and tion measures, such as terracing, contour reduce the pressure on land suited to produc- planting, and use of green cover crops, were tion of grains. introduced to improve environmental conditions. The new and better varieties included What’s innovative? Focusing on bringing hillside lands, some with longer harvesting seasons, allowing traditionally considered uncultivable, into sustainable greater production in off-peak months and production systems to increase farmer incomes – consequently higher prices. New irrigation, by using improved technologies and commercial planting, and postharvest technologies were solutions along the entire value chain. adopted. Grading, packaging, and storage facilities were installed, and independent PROJECT OBJECTIVES AND DESCRIPTION commercial corporations set up to market the The main objectives of the Mid-Yangtze Agri- output. cultural Development Project were to increase 204 the production, productivity, and marketability Farmers were responsible for contributing to of fruit production in low-income areas of the investment in orchard development through Sichuan, Hubei, and Chongqing, and thus uncompensated labor during terracing, plant- increase incomes and alleviate poverty. The ing, growing, and harvesting. The county project was designed to provide a demonstra- governments of the project area, which re- tion model for the development of hilly waste- ceived IDA funds, passed on orchard develop- lands into orchards. Specific objectives were to: ment costs, such as for terracing and technical services, to project farmers as 10-year loans at • Develop 12,000 hectares of new orchards and commercial rates of interest. rehabilitate 2,500 hectares of existing orchards. Commercial Fruit Development Corporations • Increase the provincial agriculture bureau’s (CFDCs) invested in and managed modern ability to: identify, propagate, and distribute treatment, packing, and storage facilities, and healthy, disease-free planting materials; purchased fruit from farmers. They sell the fruit institutionalize virus indexing and budwood purchased from farmers in local, distant, and registration programs; provide technical export markets, although farmers are free to assistance for R&E programs, and training use other distribution channels. Provincial Fruit for managerial and technical staff. Development Corporations provide marketing

AGRICULTURE INVESTMENT SOURCEBOOK services, such as market information, and • Cooperation among the Ministry of Agricul- interprovincial and export trading services to ture, provincial and local governments, and the CFDCs on a commission basis, but the research institutes is essential to effective CFDCs are also free to use other channels, such implementation. as Foreign Trade Corporations and direct export sales. • Implementing agency staff must have strong technical skills relevant to program operations. BENEFITS AND IMPACTS • Household income increased dramatically, The project has applicability to other regions of for example, orange growers income the world that need to expand production to increasing by Y13,000 to Y26,000 depend- fragile hillside lands, or to reduce soil erosion ing variety of orange grown. while still improving production on these lands. If the baseline characteristics of the Chinese • Income generating activities and employment example (labor surplus, government support, opportunities for participating farm families market demand) are used as a guide, such a have increased with 13,000 extra jobs during project could be applied to other similar regions. construction and implementation.

• Large numbers of nonproject farmers now PROJECT COUNTRY: CHINA use technologies developed under the Project Name Mid-Yangtze Agricultural Develop- project. It appears that acreage of new ment Project orchards developed by farmers outside the project area amounts to four to five times Project ID P003541 that in project orchards. Project Cost US$130.8 million • Soil erosion has been reduced through introduction of terracing and planting of Dates FY1991 – FY 1997 vetiver grass for stability. In one example, eroded acreage has been reduced from 48 Contact Point Rapeepun Jaisaard percent in 1990 to only 13 percent in 1995. The World Bank, 1818 H Street NW, Washington, D.C. 20433 Telephone : (202) 458-4057; email 205 [email protected] LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY The project, providing demonstration models for the development of waste hilly lands into orchards, has proven highly satisfactory. Key lessons learned include:

• Participation of farmers with a sense of ownership from the beginning made a big difference in how the project was implemented.

• A strong research and scientific base drawn from domestic and international experience, and the involvement of a science and technical committee, were essential to the success of this project.

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION INNOVATIVE ACTIVITY PROFILE value. It thus built a project design based on participation, decentralization, and linking research and technology institutions to farm- INDIA: COMMUNITY ers. Under Sodic I, approximately 64,000 ORGANIZATION FOR SODIC hectares of barren lands were brought under LANDS RECLAMATION green cover for the first time. Sodic II seeks to use the approaches tested in Sodic I to in- Uttar Pradesh State in India has about 17 crease agricultural productivity in ten districts million hectares under cultivation, and accounts of Uttar Pradesh. Essential elements for sus- for 10 percent of India’s net sown area and 25 tained land quality improvements were de- percent of the total irrigated area. It produces fined to include community participation and nearly 20 percent of India’s food grains. A ownership, rehabilitation of drains, improved major concern in the state is the declining irrigation management, and increased re- productivity of food grains, especially of rice search on appropriate technologies. The and wheat. This is mainly due to water-induced research-extension link was also found to be land degradation (salinization, sodification, weak and was to be strengthened through groundwater depletion), and loss of soil fertility community-based mechanisms. Important with the sustained removal of nutrients associ- components relating to participation and the ated with more intensive cropping and the characteristics of these include: inappropriate use of heavily subsidized nitrog- enous fertilizers. • The on-farm development and land reclamation component focuses on beneficiary- What’s innovative? Making participation a necessary led, on-farm reclamation efforts. condition for sustainable land reclamation and development by investing heavily in participatory pro- • The technology dissemination component cesses, community mobilization and organization, establishes a community-based, demand- before and during implementation. driven system, building on the successes of the pilot project in developing grassroot PROJECT OBJECTIVES AND DESCRIPTION organizations and their participation in The main objectives of the Uttar Pradesh Sodic supporting technology dissemination. Lands Reclamation Projects (Sodic I and Sodic II) 206 were to: • Human resources development and institutional capacity building of support services • Develop models for environmental protec- focuses on staff training and institutional tion and improved agricultural production strengthening in the Panchayats (village through large-scale reclamation of sodic governance institutions), NGOs, and ex- lands. ecuting government agencies.

• Strengthen local institutions to manage such • Adaptive research verifies and refines schemes. available technologies to suit the specific needs of local farmers, and to bring about • Contribute to poverty reduction of the sustainable increases in the productivity of families concerned. sodic lands through reclamation. Support for additional research on improving cost The Sodic I pilot took the approach that for effectiveness and efficiency of land recla- any physical investments in the land to lead mation is made available through a Com- to effective reduction in sodicity, the invest- petitive Agricultural Research Fund acces- ments would have to be partnered and sible to both the private sector and na- owned by a community that recognizes their tional institutes.

AGRICULTURE INVESTMENT SOURCEBOOK Beneficiary participation occurs through tar- ties in project implementation is essential. geted project interventions including: An important ingredient for motivating beneficiaries was that they were able to see • Formation of Water User Groups (WUGs) returns in a short period by participating in consisting of 10-15 farmers responsible for the project. a pump set and shared wells. WUG formation is supported by local NGOs that are • Joint partnership with all organizations that also supported through project activities have key roles in project implementation (capacity building). helps to ensure that they are fully supportive and complete their functions on time. • Establishment of Site Implementation Committees comprised of two members • Public corporations/societies have more (one male and one female) from every flexibility than line departments. sodic landholder household, in combination with WUG representatives and indirect • Capable NGOs are important for forming, beneficiaries such as school teachers and training, and supporting farmer groups. local leaders. These committees have a mandate for resolving conflicts, monitoring PROJECT COUNTRY: INDIA progress, selecting resource people and trainers, and maintaining infrastructure. Project Name Sodic Lands I and II

Project ID Sodic Lands I: P009961 and Sodic BENEFITS AND IMPACTS Lands II: P050646 Yields of rice and wheat doubled as compared to original project estimates, wage rates Project Cost Sodic Lands I: US$ 80.2 million doubled, and land values increased by a factor and Sodic Lands II (org.): of four. By the end of the first project, cropping US$286.6 million intensity had increased from 62 to 222 percent, Dates Sodic Lands I FY 1994 – FY 2001 wheat and rice yields had reached 2.7 and 3.0 and Sodic Lands II FY 1999 – FY tons per hectare, respectively, and more than 2006 one million people had directly benefited from project activities. Contact Point J. A. Perumalpillai-Essex and Paul 207 Sidhu The World Bank, 1818 H Street LESSONS LEARNED AND ISSUES FOR WIDER NW, Washington, D.C. 20433 APPLICABILITY Telephone: (202) 458-9057; Success has been attributable to: flexibility in email: [email protected] project design; strong commitment of project and Paul Sidhu: management and staff; strong beneficiary [email protected] participation facilitated by effective use of NGOs as supporting and motivating agencies, and a systematic approach to a full reclamation package including beneficiary involvement, construction of drains, on-farm development, application of chemical amendments, and crop production. Some of the key lessons learned include:

• Mobilization and involvement of communi-

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION INNOVATIVE ACTIVITY PROFILE to shrimp and fish culture the rest of the year. As a result, shrimp yields were low (average below 300 kilograms per hectare), reflecting INDIA: INCOME GENERATION poor infrastructure, low density of stocking, THROUGH AQUACULTURE inadequate water exchange, lack of feed, and low level of technology. The project’s shrimp The fisheries subsector contributes only about component supported the first attempt to 2.4 percent of India’s agricultural GDP, and less introduce the technologically advanced semi- than one percent of total GDP. However, intensive shrimp culture. fisheries are important in providing employment to an estimated nine million people For shrimp aquaculture, the project brought predominantly from poorer coastal communi- together entrepreneurs to work with beneficia- ties. Furthermore, fisheries contribute to im- ries from the weakest socioeconomic sections proved nutritional standards and foreign ex- of the community (with a ratio of 3 entrepre- change earnings. The development of fresh and neurs to 7 beneficiaries). Pond site and infra- brackish water aquaculture has been necessary structure development account for 73 percent for India to continue to meet its growing of total project costs and involved development domestic needs and maintain its position in the costs of about US$11,000 per hectare. Close export markets. coordination between shrimp production, hatcheries, and feed suppliers was important. What’s innovative? Using technical assistance to build Other activities financed include credit for fishing cooperatives and to reform the regulatory private entrepreneurs for establishment of and institutional practices needed to improve the support infrastructure and services (hatcheries, efficiency and poverty impact of inland fisheries man- nurseries, feed mills, ice plants, individual aged by small farmer-owned cooperatives. quick freezing machinery) and initial working capital for stocking ponds and feed to benefit PROJECT OBJECTIVES AND DESCRIPTION poorer farmers. The participating state govern- The overall project objective of the Shrimp and ments constructed basic infrastructure and Fish Culture Project was poverty reduction common facilities on state-owned lands, and through employment from increased shrimp recovered costs through lease charges. and inland fish production, tapping 208 underutilized intertidal areas and inland water Although individual ponds are owned by bodies. Interventions included: individual beneficiaries, the interlinkages in the system required coordinated management • A brackish water shrimp component (three through an association of pond owners. Tech- states and about 80 percent of project nical assistance and training to promote devel- costs). opment of fish cooperatives was an important aspect of the project. Some of the ponds were • An inland fisheries component (four states leased to the private sector firms to provide and about eight percent of project costs). opportunities for improved technology access and transfer to the community farmers. High • Project management, including environ- investment needs, the ongoing need for in- mental management and training (about 12 tense management and coordinated decision- percent of project costs). making, and high risk aversion of poor farmers made the system complex, and required the In the past almost all shrimp culture was based project to focus on developing solutions for on a traditional, extensive shrimp culture these problems. system, with ponds frequently used for paddy cultivation in the rainy season, and converted Overall, the project focused on reform and

AGRICULTURE INVESTMENT SOURCEBOOK capacity building of the cooperatives; reform sector overall. It has been learnt that project of regulations and lease and management impact is enhanced by: practices; strengthening of the cooperative position vis-à-vis large contractors and down- • Maximizing participation of the poor stream water user associations; increase in through clear selection processes and cooperative members’ knowledge of the detailed information. ecosystem, natural cycle of species and catch management; and capacity building for in- • Providing in-service training to fisheries creased market orientation. extension officers, especially in the areas of physical planning, optimizing fish production, marketing, and business management. BENEFITS AND IMPACTS Specific impacts included: fish catch increased • Initiating accurate monitoring of fish/shrimp by up to 250 percent; in Bihar, Andhra Pradesh, yields, and feeding this information back and Orissa, approximately 15,000 members of into planning to ensure fair rental charges the 118 project-assisted cooperatives are by state governments. engaged in rearing fingerlings and marketing fish; cooperative membership has expanded to Aquaculture systems need to be guided by include women; and per capita income of appropriate policies embedded in a functioning fishermen has risen by between Rs6,000 to regulatory framework. Aquaculture develop- Rs13,250. ment must be accompanied by support from institutions capable of addressing collateral However, following the mid-term review the problems, such as displacement of existing number of shrimp farm sites was reduced to fishermen and health and sanitation problems. six from 13, largely due to: the identified A similar approach could be replicated in other shrimp sites proving to be impractical on freshwater and intertidal areas, though addi- detailed technical surveys; and private sector tional work would be required to refine the developments overtaking project develop- program model for use in other situations. ments. Subsequently support services to infrastructure (shrimp hatcheries, ice plants and feed mills) were also reduced. This reflected PROJECT COUNTRY: INDIA the low demand resulting from a lower num- Project Name Shrimp and Fish Culture Project 209 ber of project-assisted shrimp production farms, and private sector investment in sup- Project ID P009921 porting infrastructure and service provision, reducing the need for project investment. Project Cost US$41.3 million

Dates FY 1992 – FY 2001 LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Contact Point Harideep Singh The project highlighted the potential for suc- The World Bank, 1818 H Street cessful community-based semi-intensive shrimp NW, Washington, D.C. 20433 culture. However, the technology and invest- Telephone (202) 458-1380; email ment intensiveness of the farms, complexities [email protected] of management at group level by risk-averse farmers, environmental impact and resource linkages between farms, and the need for effective supply chains for an efficient industry, pointed to the need for follow-on work at an industry and watershed level to develop the

MODULE 4: INVESTMENTS IN SUSTAINABLE AGRICULTURAL INTENSIFICATION

INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE

211

n recent years, increases in agricultural productivity have come in part at the expense of deterioration of the natural resource base on which farming systems depend. It is urgent that this trend be I reversed, by encouraging farmers to adopt more sustainable methods of farming that will have long- term benefits in environmental conservation and development of sustainable livelihoods. Public sector investments are critical to reversing trends in degradation of natural resources. Specific objectives for sustainable natural resource management (NRM) include: improving agroecosystem productivity; conserving biodiversity; reducing land degradation; improving water management; ensuring the sustainability of forests; managing the sustainability of wildlife and fisheries; and mitigating the effects of global climate change.

NRM refers to the processes and practices relating to the allocation and use of natural resources. Sustainable NRM optimizes the use of resources to meet current livelihood needs, while maintaining and improving the stock and quality of resources so that future generations will be able to meet their needs. NRM decisions are made at various levels—house- Over the last 40 years as food production has hold, farm, community, national, and global. This doubled, agricultural production systems have Module focuses on off-farm investments and activi- expanded, with significant impacts on the ties at the local and community level that have direct natural resource base (see figure 5.1): implications for sustainable agricultural systems. Farm-level practices or technologies with a benign or • The amount of agricultural land going out positive effect on the natural environment are of production each year due to soil erosion outlined in the Sustainable Intensification Module. is about 20 million hectares, and approximately 40 percent of the world’s cropland is now degraded. RATIONALE FOR INVESTMENT Agricultural production systems depend on • Irrigated agriculture consumes about 70 natural resourcesæland (over 55 percent of non- percent of the total volume of fresh water forest land), water (about 80 percent of total fresh used by humans, resulting in major envi- water), biodiversity, forests, pastures, and wildlife. ronmental consequences: salinization, Farm activities can also have major impacts on lowering of water tables, waterlogging, and the quality and availability of these resources well degradation of water quality, with subse- beyond the boundaries of the production system quent impacts on ecological systems affect- (for example, downstream pollution and soil ing fisheries and wetlands. erosion). Although natural resources are critical to agricultural production, farm households also • Agriculture currently contributes about 30 frequently depend on them to meet other needs, percent of the global emission of green- such as fuel, construction materials, and supple- house gases resulting from human activity. mental foods. Thus rural livelihoods are intricately This has major implications for global linked to the condition of natural resources, climate change. particularly for those 1.3 billion people living on fragile lands. • The unplanned expansion of intensive production systems, which are typically

FIGURE 5.1 GLOBAL CHANGE IN AGRICULTURAL AREA, 1960–2000 212

Source: FAOSTAT 2003.

AGRICULTURE INVESTMENT SOURCEBOOK monoculture, can contribute to a significant FIGURE 5.2 WATER USE; DEVELOPING loss in biodiversity. COUNTRIES, 1995

• Deforestation rates have reached almost Livestock one percent per year in some regions. Industrial 2% 7% Domestic Sustainable NRM is critical to reducing poverty. 8% If productive capacity continues to erode, satisfying future food needs will be seriously compromised and the poorest will suffer the most through increased food costs and greater vulnerability to their livelihood. Further, increased agricultural production and productivity and increased incomes provide more resources in the long run for addressing environ- Irrigation mental problems. Improving natural resources 83% facilitates farmers’ transition to production systems that are better matched to the available Source: Rosegrant, Cai, and Cline 2002. natural and human resources, can respond to market signals, and are more profitable, stable, and sustainable. Good NRM also expands employment in industries, such as fishing, income and employment opportunities timber extraction, tourism, and other uses, throughout the wider community—for instance, such as power generation. This income is through eco/agrotourism or through often critically important for purchase of agroforestry production that attracts down- production inputs to maintain the produc- stream processing industries. tivity of the farming system.

Sustainable NRM is important to agricultural • Risk and vulnerability reduction. Sustain- development as a basis for: able NRM reduces vulnerability of both farm and urban communities to natural • General agricultural productivity. Agricul- resource disasters, such as droughts, ture is the major user of most available land landslides, and floods and to the loss of 213 and water resources (see figure 5.2). How- biodiversity from overgrazing and defores- ever, many farmers lack essential knowl- tation. A healthy resource base helps edge, resources, and skills to manage mitigate vulnerability to climate variability intensive farming operations on a sound and reduces risks of failed harvests. basis. This leads to use of inappropriate technologies and unsustainable practices • Pollution reduction. Pollution from agri- that contribute to exhaustion of natural cultural production and processing can resources and environmental pollution. have major impacts on “off-site” natural resource quality. Water pollution from • Off-farm agricultural uses. Many agricultural agricultural chemical use and livestock systems rely on “off-farm” natural resources, manures is a potential health hazard; such as livestock grazing on roadsides and irrigation use can cause salinity problems; woodlots. Forests provide building materials and burning crop residues may affect air for farms, fences, and homes. quality and human health.

• Non-farm employment. Natural resources • Environmental services. Improved NRM provide off-farm incomes through provides extensive downstream benefits in

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE the form of “environmental services” such PAST INVESTMENT ACTIVITY as hydrologic function, sediment control, Prior to the 1980s, most natural resource investments nurseries for fisheries, and biodiversity by the World Bank were extractive: timber, fishing, conservation. Environmental resources and water for irrigation. In the late 1980s, the Bank contribute to the health of the global shifted attention to conservation and sustainable ecosystem as wild races of the major food crops management of natural resources, with a dramatic and semi-domesticated crops, located in forest increase in NRM and forestry investment. reserves and natural ecosystems, are important Annual investments, including all forestry- sources of genes for crop improvement programs related investments, peaked at over and semi-domesticated crops represent new US$1 billion in 1994 but have since declined to market opportunities. Maintaining tree cover approximately US$250 million annually (see and appropriate hillside grazing and crop cultiva- box 5.1). tion practices preserve soil and water resources and enhance the hydrologic functions of water- Recent projects have relied on local capacity shed areas. Coastal zone protection, mangrove building and user groups to improve resource and wetlands preservation, and border areas of management. Decentralization, community- parks and protected areas are important for the driven development mechanisms, stakeholder maintenance of environmental services. participation, and local ownership of natural resources have shown a steady increase in • Cultural integrity. Indigenous cultures use land and Bank-assisted projects, which are becoming other natural resources in unique ways, which often increasingly multisectoral. This is partly in help to define national identities, even in industrial response to stakeholder demands to comple- countries. Indigenous technical knowledge coupled ment NRM investments with activities to with scientific research provides significant scope for produce more immediate impacts on incomes management innovations to conserve natural and poverty reduction. As a result, the number resources and develop new marketable products (for of integrated projects, especially watershed example, nutraceuticals). and micro-watershed projects, is increasing, as well as the number of projects incorporating rural development funds and alternative livelihood options.

214 Box 5.1 Key trends in past lending for improved NRM by area of intervention

• Biodiversity—Earlier approaches introducing “fortress” protection systems to restrict access to parks and protected areas were generally unsuccessful. These have been replaced by programs relying on local peoples’ participation in the conservation and rehabilitation of protected areas and buffer zones. • Forests/forestry—Forestry lending has declined, but there is increased emphasis on forestry in watershed conservation investments and agroforestry. • Land resource management—Lending continues to focus on combating land degradation and promoting sustainable land management, especially relating to arid land management and watershed management. Major past investments have been for intensification of agricultural production. • Natural resource management (NRM) institutionsæInstitutional capacity development focused on local institutions tasked with managing natural resources, has led to increasingly decentralized NRM and development of a range of participatory management systems. • Water resourcesæInvestments in new irrigation construction have declined due to their high costs, environmental impacts, and low returns on investments. Attention is now focused on water use efficiency, water resource planning, and watershed development. Source: Authors.

AGRICULTURE INVESTMENT SOURCEBOOK KEY ISSUES FOR INVESTMENT resource use and other objectives. Resource NRM investments are generally focused on conserva- preservation objectives are frequently at odds tion and sustainable use of resources, with institu- with production objectives, and while conser- tional strategies emphasizing local management, vation and development goals can be comple- equitable access, and provision of alternative liveli- mentary, they can also be in conflict. hood options. Because of the environmental externalities associated with NRM decisions, invest- ECONOMIC CHARACTERISTICS OF NATURAL RESOURCES. ments are increasingly considered from a basin Land, water, forests, and biodiversity are gener- or eco-regional perspective, and analyzed in ally regarded as public goods (to which access is terms of ecological, economic, and social nonrival and nonexcludable) or common pool systems. Key implementation issues are as goods (to which access is nonexcludable but follows. rival). Investment in “developing” these natural resources may shift the status of the resources to POLITICAL NATURE OF NRM. Power and politics are that of a private good, negatively impacting poor central to many NRM issues, as natural re- people by affecting their access to these assets. sources, a major source of wealth, tend to be at In addition, as investment benefits accrue only the center of many governance issues and in the medium to long term, it may be difficult intercommunity conflicts. Any change in access to persuade resource users to undertake NRM will almost certainly create “losers”: often the investments. Success may depend on appropri- powerful, with strong incentives and ability to ately valuing these resources with incentives for resist change or the poor, who are powerless conserving and maximizing their productivity; and lose access to a resource. Efficient, equi- and developing markets and appropriate pricing table, and sustainable NRM is often difficult for mechanisms that reflect the true value of the this reason and governments must balance resource, incorporating externality values. Since competing demands for use of resources and resources have different values for different conflicts among the parties. Negotiating skills stakeholders, accruing over different periods of of community groups are essential for time, a variety of interventions are required to brokering agreements and facilitating decision- strengthen the different sources of value (see making by local users. For many NRM pro- table 5.1). Farmers should pay for use of natural grams, however, the sustainability of these local resources (for example, irrigation water) and for institutions has been a problem as they become costs of mitigating agricultural pollution (agro- inactive once a project ends. chemical runoff, manure disposal), and should 215 be reimbursed for the positive externalities such POLICY AND REGULATORY ENVIRONMENT. Ineffective as planting trees for carbon sequestration. NRM policy and regulatory environments (particularly subsidies, taxes and property PROMOTING ADOPTION OF NRM PRACTICES. Most rights), together with poor infrastructure affect- farmers place a high priority on improvements ing access to markets, often discourage sustain- in land, water, and forest resource management able long-term investments by distorting incen- as these resources are central to their liveli- tive systems and increasing uncertainty. How- hoods. Although generally sympathetic to ever, relationships between policy and incen- improving environmental conditions, they are tive structures and product prices are complex. often unwilling or unable to invest to improve Agricultural producers compete for natural these conditions or to produce long-term resources with other users such as industry and benefits. NRM programs must deal with such municipalities, whose needs increase with problems by providing appropriate incentives, population growth and increasing affluence. In monetary or otherwise, to make small farmers’ these circumstances, in a complex and uncer- investment possible. This may require public tain decision-making environment, choices funding for development activities or economic generally involve tradeoffs among sustainable incentives, linked to introduction of sustainable

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE Table 5.1 Investment strategies to enhance value of natural resources

Strategies to Seource of value Examples of valu enhance value Vtalue from use D,irec Agricultural production Investment in increasing timber, recreation productivity and efficiency in use of resources I,ndirect Watershed protection Development of natural beauty, carbon environmental services sequestration. markets Value from Fsuture options Plossible future use Investments in natura preservation resource conservation; environmental education Edxistence Biodiversity, religion an Conservation of protected culture, inheritance areas

Source: Authors.

NRM practices. An improved understanding is ments. More experience is needed to identify needed of the factors influencing farm and effective ways of enforcing these arrangements. household decision-making. In many areas farmers have invested heavily in NRM (for DELIVERING NRM SERVICES. NRM investments example, terracing in northern Ethiopia, Eritrea, should be based on sound technical analyses and parts of Asia; and tree planting in hill areas provided within a framework and mechanism of Kenya), irrespective of the government that effectively delivers NRM services at the 216 policy and program frameworks. community level. Turkey’s East Anatolia Water- shed Rehabilitation Project, with its participa- Environmental services markets and govern- tory watershed management planning, pro- ment transfer payments should reward farmers vided a framework for ensuring that perfor- for sound resource management, encourage mance would be measured against specific conservation, and provide an additional source indicators. Local government institutions de- of income for farmers. Payments ideally should cided how they could most effectively deliver come from downstream beneficiaries, such as NRM-related services based on the stated needs industry, urban areas or downstream farmers of the community. Decentralized approaches using water resources. However, for many for planning and local organization of service resources, identifying and collecting data on delivery are important because most NRM resource use is difficult (for example, aesthetic problems and recommended practices are site- values of maintaining a “clean” environment, specific, requiring a high level of managerial or the conservation of biodiversity), and gov- input and adaptation to local ecological, economic, ernment transfer payments might be necessary. and social circumstances. This may introduce the problem of “moral hazard” with beneficiaries accepting program PROVIDING ALTERNATIVE LIVELIHOOD OPTIONS. Appropri- incentives and then reneging on their commit- ate incentives are key to NRM program success.

AGRICULTURE INVESTMENT SOURCEBOOK Direct income benefits accrue to the farmers, Box 5.2 Marginal areas: a special focus men and women, who adopt new management practices, and government incentive systems can Agricultural systems in marginal areas that are less favorable for benefit others. However, this frequently leaves agricultural production often provide farmers with only a many others not benefiting from NRM programs precarious existence. As a general rule, natural resource and who, consequently, may be tempted or conservation is a priority for these less-favored production forced to over exploit natural resources. To areas. Sound NRM may require public policy initiatives to reduce such pressures on natural resources, establish markets, strengthen or establish property rights, and investments are often needed to provide alterna- ensure realistic pricing of natural resources. In some systems, traditional usage rights (for example, for grazing or use of forest tive income opportunities within agriculture. resources) can be effectively and sustainably maintained This can be done by intensifying production through internal social discipline. Mechanisms that provide systems and expanding processing and market- better drought preparedness are particularly important for ing opportunities, or through education, busi- food security and environmental management. In areas with ness development services and micro-finance sufficient agricultural potential, public investment is needed to programs, which may or may not be linked to support technology development, roads, and irrigation. natural resource use. Source: World Bank 1999.

POVERTY FOCUS. Past NRM projects have not been national impacts require concerted regional and very satisfactory in their poverty focus or international action, as provided for in part by socioeconomic impacts analysis. Although the Global Environment Facility (GEF) (see box impacts may be indirect and long term, NRM 5.4). Mechanisms and institutions are needed to investments must emphasize rural poverty facilitate global financing and support for global reduction, especially in marginal areas, where public goods, such as biodiversity conservation pressure on the natural resource base makes and carbon sequestration. Regional public goods improved NRM a priority (see box 5.2). Provid- are an even more common phenomenon with ing for the critical needs of clean water, fuel, many shared resources and ecosystems, dictat- and income of poor people is a prerequisite for ing coordinated and integrated actions by effective incentive systems and market mecha- neighboring countries to sustainably manage nisms to improve NRM.

MAINTAINING PROTECTED AREAS. Protected area Box 5.3 Biodiversity: careful management can help diversify management plans now recognize the need to rural livelihoods 217 educate farmers and other rural peoples about the value of biodiversity and its potential Biodiversity is a unique asset to rural communities. Many herbs benefits, especially buffer zone arrangements to are used for medicinal purposes; plant extracts can be used as conserve protected areas and critical ecosys- biopesticides; roots and tuber crops contain novel carbohy- tems, and the preservation of biological corri- drates for use as functional food ingredients; and many woody species produce polymers of interest to industry. Indigenous dors for movement of wildlife (see box 5.3). ethnic groups and rural women have extensive knowledge and Continued rapid deforestation in many areas management skills relating to plant and animal biodiversity. underscores the threat to protected areas (see Adding value to these resources can come from combining the figure 5.3). The development of income oppor- indigenous knowledge of local communities and the knowledge tunities for local people is important to provide of the science and business community. The resource manage- direct incentives for conservation as ment challenge is to ensure the environmental sustainability of biodiversity conservation is often a difficult the resource, including sustainable harvest of the species of “sell” to farmers, because benefits are long term interest, or its domestication. A social and economic challenge is to design contracts for use of the resource with sound and not always obvious. mechanisms for fair sharing of the benefits among the different stakeholders. GLOBAL AND REGIONAL CONSIDERATIONS. The many natural resource issues with regional and inter- Source: Nickel and Sennhauser.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE FIGURE 5.3 ANNUAL RATE OF FOREST COVER CHANGE, 1990–2000

Annual rate of South forest cover Africa America World Asia change (%) 0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 -0.9

Source: FAO 2003.

resources such as shared pasture lands, water Improved natural resource management re- bodies, and eco-regions. quires the integration of sound policy, innovative technical solutions, and effective and sustainable institutions. FUTURE DIRECTIONS FOR LENDING Future investments must promote interventions ESTABLISHING A SOUND POLICY AND REGULATORY ENVI- and policy that respond to major government RONMENT. Policies and programs must put in and market failures underlying current trends in place appropriate incentives for sustainable natural resource degradation. When there are NRM and the removal of subsidies that discour- positive externalities and net societal benefits, age sustainable NRM. Where short-term subsi- 218 individuals and organizations underinvest. They dies are provided, recipients’ actions need to may overinvest where environmental costs are be monitored. borne by the wider community ESTABLISHING SECURE PROPERTY RIGHTS. Secure property rights to natural resources for individuals or organized community groups are essential in Box 5.4 Global Environment Facility both conserving these resources and, in cases The Global Environment Facility (GEF) program is an important where this is appropriate, valuing and develop- resource for expanding investment in sustainable NRM. GEF ing markets for them. Clearly defined and financing provides grants for projects and studies, strategy legally recognized property rights are critical to development, and project preparation for activities that address long-term investments in land improvement. In six critical threats to the global environment—climate change, practice, rights to resources are often unclear biodiversity loss, degradation of international waters, ozone and conflicts develop. Because of the difficul- depletion, land degradation, or persistent organic pollutants. ties in registering formal title to resources, GEF cofinancing can support conservation of protected areas and biodiversity, sustainable land management, and water seeking secure usufruct right is often more resource planning and management. appropriate than attempting to establish full ownership rights to the resource. Traditional Source: World Bank 2000. use rights, especially communal rights of

AGRICULTURE INVESTMENT SOURCEBOOK indigenous groups, are important in many NEW TECHNOLOGIESÆKNOWLEDGE AND INFORMATION areas, and investments should be sensitive to SERVICES. New technologies and approaches these and ensure that they are safeguarded. have been developed to improve NRM. For example, private rainwater harvesting technolo- DECENTRALIZING NRM. Government willingness to gies are useful in mountainous areas where devolve legal, fiscal and administrative deci- more conventional irrigation options are not sion-making power to the appropriate level is available. Integrated watershed management critical to strengthening tenurial rights and key combines water harvesting, groundwater to effective and sustainable NRM. Decentraliza- recharge, and vegetative cover with the devel- tion coupled with community-based natural opment of viable agricultural systems to in- resource management facilitates farmer partici- crease agricultural carrying capacity. Land pation in NRM through: management systems use integrated management packages including conservation tillage • Community-driven development with practices, soil treatment, weed control, vegeta- devolution of natural resource use rights and tive cover, and agroforestry. Mass media com- decision-making to community groups.1 munication approaches will help deliver to the widest audience possible extension and infor- • Rural investment funds that provide de- mation services about new technologies and mand-driven grants for natural resource approaches to improve NRM, and thereby management subprojects, such as tree increase the potential for sustainable use. planting or the development of resource management plans. DEVELOPING MARKET-BASED STRATEGIES. Establishing a base for commercial profitability for sound • Participatory management plans or joint NRM depends on a favorable policy environ- management systems under which government with an appropriate incentives structure. ment retains control over natural resources, Models for private sector investment are being but communities are consulted on key used successfully in management of forest issues (for example, user rights), and may areas and plantations. Recent NRM projects be given roles in monitoring and evalua- have supported private insurance companies tion. providing index-based livestock insurance for pastoral systems2 , development funds for • Communal management of a common accredited microfinance institutions, and busi- 219 resource such as pasture or tribal lands. ness centers facilitating development of small- and medium-sized enterprises in fragile areas. STRENGTHENING NRM INSTITUTIONS. Investments to build institutional capacity to equip local com- IMPROVING ENVIRONMENTAL MONITORING AND INFORMA- munities and governments with the skills to TION SYSTEMS. Establishing the science and knowl- manage resources in a sustainable and produc- edge base for monitoring and evaluating inter- tive manner is key to ensuring that decentraliza- ventions is important to planning and monitor- tion works. Management systems must prefer- ing natural resources. New technologies, such as ably be democratic in action, ensure transpar- satellite imagery, geographic information sys- ency and accountability, have well-defined tems, and the Internet, will facilitate more mechanisms for conflict resolution and for efficient and reliable data collection on land establishing secure property rights, and em- cover, water usage and quality, biodiversity, and power vulnerable populations, such as women, other measures of resource inventory and indigenous people, and very poor people. quality needed for sound management.

1. See the AIN, “Community-Based Natural Resources Management” 2. See the IAP, “Mongolia: Sustaining Livelihoods in Areas with High Natural Disaster Risk” (Module 10).

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE PROVIDING A RANGE OF LIVELIHOOD OPTIONS. Project with poor people suffering from a loss of access investments will generally need to integrate to resources. activities contributing to natural resources conservation, sustainable productivity, and improved rural livelihoods. The linkages be- SCALING-UP INVESTMENTS tween NRM interventions and poverty reduction Strengthening national data collection, monitor- are critical to project design, and should give ing, and evaluation systems should be an ele- special emphasis to involving women and ment of most NRM projects, providing a basis for vulnerable populations in decision-making improved monitoring and evaluation of the processes. Many local development and produc- projects themselves. Key impact indicators for tion-oriented activities can be financed through NRM investments will be rural incomes, quality matching grants. Cost sharing and parallel and stock of the natural resources, and rates of development of rural financial services to change in natural resource indicators. Outcome support productive projects are helpful in indicators should relate to the numbers of adopt- broadening impacts and enhancing financial ers and adapters of new management systems, sustainability of NRM program investments. area coverage of adoption, impact per unit of adoption of new practices, changes in agricultural REDUCING AGRICULTURAL SYSTEM POLLUTION. The and resource productivity, and development of impacts of agricultural production, processing, social capital relevant to sound NRM. and marketing systems on downstream environmental resources result in “brown environ- Scaling-up is a challenge for NRM investments. mental impacts.” These are growing concerns There are many successful NRM pilot activities that require greater attention in environmental and models for development that have often impact assessments for agricultural investments. not been successful in scaling-up to the na- “Green environmental impacts” from produc- tional level. Frequently, the problem relates to tion systems impact on forest cover, the level of technical and managerial support biodiversity, and ecosystem stability, require required for programs, the site-specific nature substantial investment in research, extension, of most NRM interventions, and the need to and training relating to NRM practices. negotiate implementation arrangements suited to local power structures and institutions. DEVELOPING ENVIRONMENTAL SERVICES MARKETS. Creat- However, community management systems 220 ing markets for environmental services is a and decentralization are increasingly being developing issue. For example downstream scaled up and incorporated into wider govern- beneficiaries such as cities, power plants, and ment programs and policies. Ensuring site- farmers pay for sound natural resource man- specific adaptations of NRM investments is agement and conservation of watershed areas. challenging in larger projects, and will be even Ecotourism is another example. Payment for more critical in any attempts to incorporate carbon sequestration is another potential NRM into program investments. Safeguard source of income for developing countries, policies are often critical to NRM investments providing incentives for conservation of pasture (see box 5.5). and forest resources. Innovative approaches to market such services require extensive feasibil- The complex nature of NRM issues requires ity studies and extensive testing through pilot that integrated program approaches be pro- activity before they can be scaled-up.3 One risk moted to achieve sustainable outcomes. Invest- of market arrangements for environmental ments must be multidisciplinary and services is that local elites capture the benefit, multiactivity, and financed over relatively long

3. See the IAP, “Latin America and Caribbean: Payments for Environmental Services in Silvopastoral Systems”

AGRICULTURE INVESTMENT SOURCEBOOK Box 5.5 Key safeguard policy issues for NRM investments

• Environmental Assessment (Operational Policy (OP)/Bank Procedure (BP) 4.01)æan environmental assessment is required if an NRM project has potential for adverse environmental risks or impacts. • Natural Habitats (OP 4.04)æprotection of natural habitats (land and water areas where most of the original plant and animal species are still present) is required for any NRM investment that may cause degradation of the habitat. • Projects in International Waterways (OP 7.50)æthe borrower must notify other riparian countries of any proposed NRM investment involving a body of water that flows through or forms part of the boundary of two or more countries. • Involuntary Resettlement (OP/BP 4.12)æa Resettlement Action Plan is required if an NRM investment results in physical relocation, loss of land or access to land or other assets, or impacts on livelihoods due to restrictions on access to parks or protected areas. • Indigenous Peoples (Operational Directive 4.20)æan Indigenous Peoples Action Plan is required if an NRM investment affects indigenous people. • Forestry (OP 4.36)ægovernment commitment to undertake sustainable management and conservation-oriented forestry is required for any investment with potential to impact significantly on forested areas. (Investment with an exclusive focus on environmental protection or supportive of small farmers may be appraised on its own merits.) Source: World Bank, Operational Manual. periods, making the Adaptable Program Lend- Organising, Negotiating and Learning-by- ing (APL) approach potentially valuable. Efforts Doing.” GTZ and IUCN, Kasparek Verlag, to achieve a better balance between conserva- Heidelberg, Germany.* tion and poverty reduction objectives can be expected to lead to greater cross-sector coordi- Clark, T. W. 2002. The Policy Process: A Practical nation in development and implementation of Guide for Natural Resource Professionals. ecotourism, watershed, agroforestry, and silvi- New Haven, Conn.: Yale University Press. pastoral approaches. Institute of Development Studies. 1997. “Commu- Future work is needed to develop good nity-Based Sustainable Development: Consen- practice recommendations and to synthesize sus or Conflict?” IDS Bulletin 28, no. 4.* experience with investments in: indicators for sustainable NRM investments; technologies Thomas-Slayter, B., A. L. Esser, and M. D.Shields. and metrics for NRM program monitoring 1993. “Tools of Gender Analysis: A Guide to and evaluation; investing in wetland conser- Field Methods for Bringing Gender into 221 vation; investment in marginal lands; con- Sustainable Resource Managment.” Clark serving agro-biodiversity; and minimizing University, Worcester, Mass.* agricultural pollution. World Bank. 2003. “The Little Green Data Book 2003.” World Bank, Washington, D.C.* SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 REFERENCES CITED for a full list of Websites. FAO. 2003. “State of the Worlds Forest’s 2003.” FAO, Rome. Borrini-Feyerabend, G., ed. 2000. Beyond Fences: Seeking Social Sustainability in Conservation. FAOSTAT. 2003. FAO Statistical Databases. 2 vols. Gland, Switzerland: IUCN. http://apps.fao.org/default.htm.

Borrini-Feyerabend, G., Farvar, M. T., Nickel, W. and E. Sennhauser. Medicinal Plants: Nguinguiri, J. C. & Ndangang, V. A. 2000. Local Heritage with Global Importance. “Co-management of Natural Resources: http://wbln1018.worldbank.org/sar/sa.nsf/

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE 0/fae63d87e2bd14038525687f0057e0d1? OpenDocument.

Rosegrant, M. W., X. Cai, and S. A. Cline. 2002. World Water and Food to 2025: Dealing with Scarcity. IFPRI: Washington, D.C.

World Bank. 1999. “Drylands, Poverty and Development: Proceedings of the June 15 and 16, 1999 World Bank Round Table.” World Bank, Washington, D.C.

World Bank. 2000. “The World Bank and The Global Environment: A Progress Report.” World Bank, Washington, D.C.

World Bank. Operational Manual. http:// wbln0018.worldbank.org/institutional/ manuals/opmanual.nsf/.

This Overview was prepared by Jaime Webbe, Sam Kane, Gary Alex, and Idah Pswarayi-Riddihough with inputs from the Natural Resources Management Thematic Team of the Bank. Peer review comments were provided by Gunars Platais, Agnes Kiss, Nadim Khouri, John Pender (IFPRI), and Mary Hill Rojas (WIDTECH).

222

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE Community based institutions are key to any CBNRM project and selecting and building the capacity of local institutions is critical. The COMMUNITY-BASED NATURAL selection process must ensure transparency RESOURCES MANAGEMENT and accountability and minimize conflict. Together with decentralization reforms, Community-Based Natural Resources Manage- CBNRM ensures stakeholder participation, ment (CBNRM) is an approach under which increases sustainability, and provides a forum communities become responsible for managing for conflict resolution. Such a community- natural resources (forests, land, water, based approach often leads to more equitable biodiversity) within a designated area. The and more sustainable natural resource man- communityæoften assisted and monitored by agement for the following reasons (Brown et outside technical specialistsæutilize and protect al. 2002; Brown 1999): natural resources within established guidelines or according to a detailed, mutually-agreed • Proximity to resources. Those in closest plan. The active participation of stakeholders in contact with, and whose livelihoods are natural resource decision-making and use impacted by, natural resources are best increases economic and environmental ben- placed to ensure effective stewardship. efits. Critical investment areas include: introduction of viable management systems; secur- • Equity. Natural resources should be man- ing legal control over resources and resource aged to ensure equitable benefits for the utilization; improving environmental gover- diverse interest groups within a population. nance; and information management. • Capacity. Communities often have better Population growth and economic development knowledge and expertise in the manage- are increasing pressure on land, water, forest, ment of the natural resources than govern- and biodiversity resources. Government attempts ment agencies/private industry. to conserve natural resources through top-down regulatory systems have often failed. Limited • Biodiversity. Multiple purpose management government capacity to enforce laws and regula- of natural resources by communities gener- tions compounds management problems, ally provides more varied land use, with particularly when regulations are inappropriate greater species diversity than private/ 223 to the social, cultural, and ecological environ- industrial management systems. ments. In seeking an alternative, natural resource managers have found that increasing the • Cost-effectiveness. Local management may role of local people in managing their natural help reduce government costs. resources is often the most appropriate solution. • Development philosophy. Local participa- CBNRM is an approach that gives communities tion, decentralization, and subsidiarity may, full or partial control over decisions regarding in themselves, be considered important natural resources, such as water, forests, pas- development objectives. tures, communal lands, protected areas, and fisheries. The extent of CBNRM control can range from community consultations to joint BENEFITS management to full decision-making and benefit Sound CBNRM optimizes the use of the natural collection responsibility, using tools such as joint resource base to enhance agricultural produc- management plans, community management tivity goals, ensure long-term sustainability, and plans, stakeholder consultations and workshops, protect the livelihoods of farm families. Im- and communal land tenure rights. proved natural resource management has

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE increased soil fertility and water retention, enables them to contribute to decision-making reversed soil erosion, improved water manage- processes. This increases rural peoples’ ability ment, maintained and/or improved biodiversity, to demand and obtain rights and services. The reduced habitat destruction, and reduced Access Initiative, a new Bank tool, is an effort deforestation. Economic opportunities from to assess people’s access to information, partici- sustainable use of natural resources can act as a pation, and justice in decisions that affect the catalyst in reducing poverty and improving environment (The Access Initiative). food security (see box 5.6). Early economic benefits equitably distributed to stakeholders from NRM, are important to develop the com- POLICY AND IMPLEMENTATION ISSUES mitment to continue sustainable management CONFLICT RESOLUTION. Control over natural re- systems. Also, the transfer of control over sources is often highly political, since natural development funds to community institutions resources can be the basis of production and wealth (see box 5.7). Powerful interest groups, Box 5.6 Armenia: Natural Resources Management and hesitant to give up control over natural re- Poverty Reduction Project sources, often come into conflict with local stakeholders over scarce resources. Devolving In Armenia, the Natural Resources Management and Poverty control to community groups can lead to Reduction Project contributes to sound resources management conflicts between local authorities and commu- and poverty reduction through: nities as roles and responsibilities change. Without adequate traditional or formal mecha- • A small grants scheme for biodiversity investments that supports alternative livelihoods to increase rural incomes, nisms for conflict prevention, management, and while reducing pressure on natural resources. resolution, conflicts among different interest • A community infrastructure and income generation fund groups often result in inequitable sharing of that supports the rehabilitation of access roads and the economic benefits, and unsustainable natural stabilization of land at risk from landslides and erosion. resource use practices. • A forest management component that supports the generation of employment opportunities targeted at INTERESTS OF POOR PEOPLE. Natural resources are surplus household labor. the basis for most rural economic activities and Source: World Bank Internal Documents. therefore are especially important for poor people. Improving access can increase liveli- 224 hood opportunities, while restricting access can Box 5.7 Zimbabwe: uneven benefits from CBNRM disrupt traditional economies. Since changes to NRM practices can have disproportionate The Communal Areas Management Program for Indigenous impacts on poor people and marginalized Resources is a rural development and conservation initiative in groups such as indigenous populations, their Zimbabwe that seeks to provide rural people the authority to interests must be considered in any interven- manage and benefit from their natural resources. The program tion (see box 5.8). decentralized decision-making and devolved resource management responsibilities, thereby passing financial incentives for conservation management down to local communities. In some GOVERNANCE AND RIGHTS TO RESOURCES. Resource areas, devolution of power successfully changed attitudes from use rights are central to CBNRM programs and dependency on central institutions to self-reliance and self- governance reforms have profound implica- sufficiency. However, in areas where natural resource control tions for management of natural resources. and economic benefits were retained at the district council Good governance can promote economic level or higher, local communities were left frustrated and growth, but mismanagement of natural re- powerless, ultimately leading to misunderstandings and hostility sources can exacerbate conflict and corruption. towards the program, and continued illegal poaching and encroachment into wildlife areas. Many NRM systems may serve one community’s interests over those of another. Source: Grimble and Laidlaw 2002. For example, wetlands can be important to

AGRICULTURE INVESTMENT SOURCEBOOK both fisheries and agriculture; pasture lands for Box 5.8 Argentina: Indigenous Community Development pastoralists or settled agriculturalists; and forests for Project downstream hydrology or for shifting cultivation. This situation requires development of Since indigenous populations in Argentina have high poverty institutions that protect the rights of different levels, the National Institute for Indigenous Affairs was created stakeholders, resolve differences, and balance to engage indigenous populations in development activities. The investments that might develop one use over Indigenous Community Development Project empowers another. vulnerable groups by: • Strengthening the capacity of pre-existing indigenous SCALING UP. CBNRM is by definition a local organizations. intervention, and is by nature a relatively slow • Ensuring legal recognition of customary indigenous land process of participatory decision-making. How- and resource use rights. ever, scaling up successful activities is important • Introducing gender concerns into social programs through to expand the scope of benefits. Since CBNRM is gender workshops. reliant upon a number of location-specific • Building social and cultural assets in indigenous communi- criteria, such as available natural resources and ties. • Involving nonindigenous stakeholders in consultations to the strength of community groups, scaling up minimize conflict. CBNRM can be slow and costly. It is made • Establishing a transparent system for the allocation of easier by flexible project designs, demonstration project development resources. of benefits to policymakers, and a focus on Source: World Bank Internal Documents. scaling up of community processes rather than a particular project. use over time. Information from farmers, SUSTAINABLE FINANCING. Long-term viability of NRM including traditional knowledge, needs to be at requires sustainable funding for operation and the forefront of any CBNRM program. Science- maintenance of local institutions. This requires based knowledge and information tools, innovative mechanisms for cost-sharing and cost including geographic information systems, can recovery for program operations and the estab- complement this and be integrated into CBNRM lishment of income generation schemes to programs, especially in building management provide incentives to participate in the program. capacity of government institutions.

225 LESSONS LEARNED Effective community participation comes from Box 5.9 Criteria for well-functioning community empowerment, which depends largely on organizations government commitment to the time and resources needed to build consensus among • Groups/communities address a felt need and have a stakeholders, establish new institutional ar- common interest. rangements with appropriate rules and incen- • Benefits to individuals outweigh the costs of their partici- tives for local involvement and capacity build- pation in the project. • There is clear understanding of the benefits to be derived ing, and decentralized finance and administra- from the project. tion (see box 5.9). • The groups/communities have the capacity, leadership, knowledge, and skills to manage the tasks for implementing INFORMATION SYSTEMS. Reliable and timely informa- the project. tion is critical to sound NRM and to good • Groups/communities are capable of making and enforcing economic and governance decisions. Types of their own rules and regulations. information relevant to CBNRM include: stream • An inclusive decision-making process exists throughout the flow surveys, species composition indices, project life. vegetative cover mapping, and changes in land Source: World Bank 1996.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE COMBINING PRODUCTION AND CONSERVATION. Sound resources and their complexities and NRM strategies must encourage subsistence potential changes that occur over time. farmers to use better manage production systems. Since this often depends on their • Fostering accountability and responsibility, ability to finance investments in resource by establishing mechanisms, such as public management, income generation activities are posting of information on resource alloca- an important component of CBNRM initia- tions, broad representation in local institu- tives as are extension and information ser- tions, and requiring external audits of vices that build farmers’ skills and confidence community organizations. to invest in NRM. • Avoiding overly complex management and STAKEHOLDER PARTICIPATION. Critical to long-term administration systems, or capital and sustainability of CBNRM is the ability to institu- technical inputs that can overwhelm the tionalize stakeholder participation. capacity of local institutions “Operationalizing” participatory development rests on a willingness to share power and be POLICY. A sound legal framework for local receptive to new ideas; to listen to people institutions is necessary to enable them to enter instead of lecturing them; and to take risks by into contractual agreements, collect fees, levy opening up management processes rather than sanctions, access loans for investments, and trying to control them. Tools for facilitating own and manage property. Investments must stakeholder participation include Participatory strengthen resource use, access, and ownership Rural Appraisal (also termed Participation – rights, including, as appropriate, intellectual Reflection – Action) (Institute of Development property rights. Effective enforcement of rights Studies) and community driven development to resources relies on sound arrangements for (World Bank, Community-Driven Develop- checks and balances, pluralistic approaches, ment). While community empowerment and and conflict management. participation are ultimate objectives, external agencies are often helpful in awareness raising, TECHNICAL. CBNRM programs should avoid catalyzing group formation, and facilitating dogmatic approaches and “technology pack- identification of community projects. ages”, but rather seek alternatives adapted to diverse agro-ecological and cultural contexts. 226 Demand-driven research/extension services RECOMMENDATIONS FOR PRACTITIONERS and programs that foster innovation and adap- Three general implementation themes impor- tive NRM and social learning, are needed to tant to CBNRM initiativesinstitutions, policies, develop location-appropriate technologies. On- and technologies—provide a framework for farm research, and socioeconomic research CBNRM investments (see box 5.10). support CBNRM, while farmer-to-farmer extension and farmer group approaches contribute to efficient and effective extension service INSTITUTIONS. Investments in CBNRM must build delivery. These often need to be comple- local capacity to assume responsibility for NRM. mented by general environmental education. This requires:

• Accepting that CBNRM is a time-consuming SELECTED READINGS and labor-intensive process. Program Asterisk (*) at the end of a reference indicates supporters must be patient and willing to that it is available on the Web. See Appendix 1 work collaboratively with local groups. for a full list of Websites.

• Ensuring that stakeholders and partners World Bank. 1996. “Participation in Forest and have a thorough understanding of natural Conservation Management.” In The World

AGRICULTURE INVESTMENT SOURCEBOOK Bank Participation Sourcebook. Washing- Box 5.10 Potential investments ton, D.C.: World Bank.* • Government policy formulation. World Bank. 1999. “The International Workshop • Capacity building for community organizations and local on Community-Based Natural Resource government. Management (CBNRM): Workshop Report.” • Development of community management plans. May 10-14, Washington, D.C.* • Rural investment funds for community projects. • Detailed environmental communication strategies and United Nations Development Programme, research and extension support. • Baseline studies and comprehensive monitoring and United Nations Environment Programme, evaluation systems. World Bank, World Resources Institute. • Training for local stakeholders. 2002. A Guide to World Resources 2002- • Assistance to local organizations in obtaining legal status 2004: Decisions for the Earth: Balance, and legal recognition of traditional resource use rights. Voice and Power. Washington, D.C.: World • Enforcement systems to reduce illegal resource use. Resources Institute. Source: Authors.

REFERENCES CITED World Bank. Community-Driven Development. Brown, D. 1999. Principles & Practice of Forest http://www.worldbank.org/transport/training/ Co-Management: Evidence from West- arms_01/dongier.pdf Central Africa. EU Tropical Forestry Paper No. 2, London: ODI. This Note was prepared by Timothy Donnay (USAID) and Jaime Webbe with inputs from the Natural Resources Brown, D., Y. Malla, K. Schreckenberg, and O. Management Thematic Team of the World Bank. Springate-Baginski. 2002. “Community For- estry, From Supervising ‘Subjects’ to Support- ing ‘Citizens’: Recent Developments in Com- munity Forestry in Asia and Africa.” Natural Resources Perspectives 75. ODI, London.

Grimble, R and M. Laidlaw. 2002. “Biological Resource Management: Integrating 227 Biodiversity Concerns in Rural Development Projects and Programs.” Biodiversity Series Paper 85. World Bank, Washington, D.C.

Institute of Development Studies. http:// www.ids.ac.uk/ids/particip/index.html.

The Access Initiative. http:// www.accessinitiative.org.

World Bank. 1996. “Participation in Forest and Conservation Management.” In The World Bank Participation Sourcebook. Washing- ton, D.C.: World Bank.*

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE AGRICULTURE INVESTMENT NOTE increase agriculture productivity, thereby improving peoples’ livelihoods. Watershed management strategies vary. For example, in WATERSHED MANAGEMENT dry areas, increasing water availability raises FOR AGRICULTURAL potential returns, making the land more attrac- DEVELOPMENT tive to investment; in areas with short, intense rainy seasons, watershed management harvests Watershed management harmonizes the use of water in surface reservoirs; and in areas with soil, water, and vegetation in the watershed excess moisture, facilitating safe runoff through area in order to increase agricultural productiv- contour plowing or drainage systems reduces ity and conserve natural resources. Conserva- waterlogging and erosion. Investments in tion measures include revegetating barren land technology, social institutions, and markets are to assist in the control of runoff; introducing frequently needed to maximize the impact of sustainable agricultural practices for hilly areas improved watershed management. to improve soil and water management; and constructing water reservoirs for irrigation TECHNICAL INVESTMENTS. Soil conservation, water purposes. Watershed management often re- harvesting, increasing vegetative cover, and quires collective action among diverse stake- safe disposal of excess water are basic water- holders, among whom costs and benefits may shed management technologies. In dry areas be distributed unevenly. Accordingly, water- the focus is on water harvesting (capturing shed investments must rely on people with the rainfall otherwise lost to runoff), whereas in experience, incentives, and skills needed to wet areas it is disposal of excess water. In organize stakeholders. Complementary invest- many upland watersheds in seasonally water- ments may be needed to improve access to scarce areas, upper catchments are often agricultural inputs and services (seedlings, degraded lands used for grazing, gathering veterinary services, land titling, etc.) and output firewood, or cultivation (often on unproductive markets (processing facilities, roads). plots). Lower watershed areas typically contain better agricultural land. Harvesting water from Rainfed agriculture in much of the world is the upper catchment areas makes it available characterized by low yields, low and declining for irrigation and other uses downstream. soil fertility, severe soil erosion, and low invest- Irrigation can transform agricultural systems 228 ment in land improvement. Soil and water from single-season, rainfed cropping with conservation efforts have treated these problems livestock subsisting on degraded grazing land, in a piecemeal manner, and have failed to to multiple cropping of irrigated land, cash capture synergies among various components of crops, and intensive livestock production (such a watershed system. As a result, development as stall-fed dairy cattle). Watershed manage- efforts are often threatened by deteriorating ment technologies must be appropriate to local environmental conditions in the watershed area, resource conditions, population densities, crop due in part to inappropriate resource use and types, institutional capacities, and must ensure increasing population pressures. that poor people benefit (see box 5.11).

SOCIAL INSTITUTIONS. At the community and KEY INVESTMENTS IN WATERSHED national levels, watershed management im- MANAGEMENT provements rely on the development of social Watershed management seeks to make the best institutions for the resource user groups for use of soil, water, and vegetation within con- water, forests, and land, as these groups are straints of watershed’s agro-climatic and topo- key to most watershed programs. The groups graphic conditions to strengthen the natural also represent social capital formation that can resource base (soil, vegetation cover) and to have wide applicability in empowering rural

AGRICULTURE INVESTMENT SOURCEBOOK Box 5. 11 India: positive and negative effects on poor people

If watershed management succeeds in expanding irrigated area substantially, demand for labor may rise sufficiently to raise incomes, thus benefiting the poorest people in a watershed community. The nongovernmental organization (NGO) Social Centre in Ahmednagar, India, offers several examples of such success. In Adgaon village watershed, annual employment rose from 75 to 200 days, and laborers’ incomes rose above those of small farmers. After four years of watershed management, laborers in Mendhwan could find employment eight months of the year, compared with three months of work previously. In Sherikoldara, landowners began to lease land to laborers rather than pay the high wage costs. Watershed management also can make people worse off if it limits their access to uncultivated common lands on which they depend. A survey in ten villages covered by watershed projects found that respondents’ perception of benefits from the projects rose with landholding size. Landless people were much more likely to indicate that projects had harmed their interests, with the unanimous complaint relating to loss access to common of lands.

Source: WOTR 1999. people, enabling them to undertake additional watersheds combine to form larger ones, good development activities. Such groups must often management of a large-scale watershed will deal with problems of unequal distribution of require harmonizing the use of water resources benefits in which downstream land users between small watersheds, not just within benefit at the expense of upstream land users. them. Projects in Northeastern Brazil have had considerable success with watershed manage- INVESTMENT IN MARKETS. Sustainable watershed ment implemented at the community level (see development relies on well-developed markets box 5.12). This decentralized approach facili- to give farmers incentives to invest in sustain- tates the design of projects that reflect the able production systems, facilitate access to needs and interests of local groups. Such inputs, and increase agricultural productivity. community-based approaches are not always Increasing productivity and decreasing mar- appropriate, when watersheds extend over keting costs lead to increased profitability and large areas with large populations. this reduces the need for farmers to expand into marginal areas, such as steep slopes. LAG TIME FOR RECEIPT OF BENEFITS. Watershed Where market access is poor, watershed management investments are complicated by projects may need to invest in infrastructure the fact that benefits are generated only slowly. 229 and communications systems to improve Natural vegetation can take years to establish access to input and output markets. and, since watershed management aims to

Box 5.12 Brazil: micro-watershed management POLICY AND IMPLEMENTATION ISSUES UNIT OF IMPLEMENTATION. A watershed is defined Micro-watershed management is often chosen as an alternative by topographic boundaries. However, imple- to projects that include entire watersheds. The Brazil State of mentation of watershed management projects Santa Catarina Natural Resource Management and Poverty may be much easier if the area is aligned to Reduction Project identified a number of reasons for this boundaries defined by human settlement including: patterns or political units to make it easier for • Greater ease in measuring results. stakeholders, including women, to work • Stronger social cohesion within micro-watersheds. collectively to establish and abide by new land- • More manageable size when compared to large water- use patterns and to establish benefit-sharing sheds. mechanisms. Such action, which is difficult • Greater ease in scaling micro-watershed management even within a village, is much harder when projects to other areas such as downstream communities. working across village boundaries. When small Source: World Bank Internal Documents.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE arrest all forms of degradation, some benefits one group to another. For example, down- may not even be visible. Under such circum- stream water users would lease land from stances, maintaining support requires active upstream landholders in order to take it out of local involvement, avoiding high costs, and production or limit the types of use. Under providing complementary funding (grant or such circumstances, downstream users profit loan) for income-generation activities, espe- from increased water supplies and improved cially in the early stages of work. Projects must water quality, while upstream users receive consider tradeoffs between cost and participa- compensation payments for nonuse. Such benefit tion, in that initial participation may be im- transfers contribute to ensuring participation of all. proved if costs are allowed to rise, but the initiative may prove to be financially unsustain- ACCESSING SOCIAL DEVELOPMENT SKILLS. The design of able in the longer term. social institutions to ensure that all land users support watershed investments is context- SHARING OF BENEFITS. Watershed development can specific. Many government agencies responsible either help or harm poor people (see box for watershed management employ only techni- 5.13). Improved watershed hydrology generat- cally trained people, who are not well-equipped ing benefits largely for downstream water to address social problems of watershed devel- users, may only be successful if upstream land opment. As many nongovernmental organiza- users limit grazing and other activities and this tions (NGOs) have strong social organization requires cooperation of all. One option to skills, it may make sense for government agen- minimize this problem is to establish environ- cies to use these NGOs to implement projects. mental service markets or other such mechanisms, so that benefits can be transferred from PROGRAM COORDINATION. Watershed development cuts across traditional administrative boundaries relating to soil conservation, forestry, Box 5.13 India and Ethiopia: sharing benefits irrigation, and agriculture, requiring coordination and involvement of these departments Well-publicized watershed projects in India and Ethiopia provide good examples of how benefits of watershed develop- from the outset of a project. National or state ment can be shared with those who bear the costs. governments must also harmonize planning with local level participatory planning and • In Sukhomajri village, India, a project aimed at providing implementation activities. This helps to avoid irrigation water from a small runoff pond. Landless families duplication of efforts or conflicts among 230 used the pond’s catchment area for grazing, but the resulting lack of vegetative cover caused erosion that different localities about activities and objec- threatened the pond with siltation. To resolve this problem, tives. However, this coordination amongst villagers proposed that landless families receive rights to government agencies is often more difficult to irrigation water in exchange for eliminating grazing in the achieve at the national or state/provincial level catchment area. Irrigators paid for the water they used, than at the district or local level. with proceeds distributed equally among households regardless of landholding status. MONITORING. Monitoring the social and biophysi- • The village of Echmare, Ethiopia, on its own initiative, cal impacts of watershed management assesses assigned degraded land to community members for the purpose of private tree planting. Everyone in the commu- the usefulness of watershed management nity was assigned a small plot under the condition that investments, and the best approaches to such their rights would be revoked if they did not manage the management. Monitoring can range from using land well. Results were quite positive. Participants managed sophisticated instruments to collection of their plots very well; tree survival rates were high; and simple indicators involving various interest household wealth increased. This demonstrates how groups. Watershed management initiatives must harnessing private incentives can result in the achievement build capacity and systems for the routine of broader social benefits. monitoring of watershed conditions. Source: World Bank Internal Documents.

AGRICULTURE INVESTMENT SOURCEBOOK LESSONS LEARNED RECOMMENDATIONS FOR PRACTITIONERS CONDITIONS FOR SUCCESS. Watershed develop- • Watershed management investments must ment is most likely to be successful where be planned to fit local conditions and agro-ecological conditions are conducive to needs (see box 5.14). Where upper major improvements in water management; catchments are denuded due to overgraz- where local people have the capacity to work ing, firewood extraction, or cultivation, collectively for the common good; and where heavy soil erosion can cause siltation of markets are accessible. Watershed develop- water harvesting and storage structures, ment involves long-term investments; re- making the watershed investment unsus- quires a long-term vision within user groups; tainable in these areas. Revegetating and requires keeping user costs low, particu- uplands is a high priority in such areas. In larly during the early stages of a project, to gentle sloping areas, investments may avoid discouraging local participation. Expe- need to focus on increasing soil moisture. rience suggests that good management In high rainfall areas, better soil and water practices and social institutions must be management can result in higher land undertaken at the small watershed level productivity. On steep slopes, contour before taking steps to improve watershed hedgerows reduce erosion and retain management of a larger area. fertilizers and other inputs, thus raising yields. On flatter lands, use of furrows PRIORITY INNOVATIONS. Water harvesting in dry and drains reduces waterlogging and climates and drainage in areas with good soils, raises productivity. but excess moisture, is likely to yield the greatest water management benefits. Projects • Projects may offer landless people employ- that reduce soil erosion and incrementally raise ment such as planting vegetation or con- the moisture content of soils in rainfed areas structing soil and water conservation may find it more difficult to demonstrate quick structures, to compensate for their loss of benefits needed to persuade producers to participate in programs. Box 5.14 Potential investments INSTITUTIONS. Reliance on NGOs to establish institutions at the local level can have draw- • Revegetation of pastures and forest areas based on a conservation plan agreed to by all stakeholders. backs. Such outsourcing may result in govern- 231 ment agencies failing to make staff investments • Development of social institutions to support revegetation and eliminate future denuding of pasture and forest areas, in these skills; and to take the outsourced work particularly by ensuring that everyone benefits from less seriously than the technical work, even revegetation. though it is essential to project success. Such • Soil conservation and water harvesting infrastructure. contracted services may be restricted to a short • Environmental monitoring systems to determine changes period at the start-up of a program, even in water availability, moisture levels, soil erosion, and though the need may be ongoing. vegetative cover, coupled with livelihood monitoring systems to identify those benefiting and those hurt from watershed management efforts. SUSTAINABILITY. Evidence suggests that farmers • Extension services to introduce profitable new cropping are more likely to maintain soil and water systems and conservation measures and environmental conservation investments when they contribute education to ensure that local people understand the at least part of the cost, providing it is relatively potential economic benefits of watershed management. low, and where conservation measures provide • Infrastructural improvements such as roads, bus service, direct benefits. Ensuring that benefits from communication. improved watershed management are equitably • Improved access to credit and input and output markets shared is key to ensuring that all stakeholders for crops and livestock. are willing to participate in project activities. Source: Authors.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE access to uplands. This, however, may not Michigan State University. Watershed Window: give them an intrinsic interest in watershed Resources for Developing Countries’ Water- management, which is a basis for long-term shed Management. sustainability, if they lack incentives to www.watershedwindow.org maintain vegetative cover on upper watershed lands. Institutional mechanisms to Revenga, C., S. Murray, J. Abramovitz, and A. share watershed benefits among all con- Hammond. 1998. “Watersheds of the World: cerned users are preferable to only provid- Ecological Value and Vulnerability.” Wash- ing landless people with access to project- ington, D.C.: World Resources Institute. sponsored employment. Watershed Management Council. • If desired economic benefits are to be www.watershed.org realized, watershed development programs must ensure the incentives and inputs needed to stimulate agricultural productivity. REFERENCES CITED WOTR. 1999. “Watershed Development and the • Developing cooperation between depart- Landless.” The Watershed Family: Newslet- ments of soil conservation and agriculture ter of the Indo-German Watershed Devel- and with other government agencies, opment Programme 2. WOTR, although frequently difficult, is essential to Maharashtra, India. planning and implementing effective watershed management programs. This Note was prepared by John Kerr (IFPRI) with inputs from the Natural Resources Management Thematic Team of the World Bank. SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

FAO. 2000. “Land-Water Linkages in Rural Water- sheds Electronic Workshop: Summary of 232 Conclusions and Recommendations, Septem- ber 18 - October 27, 2000.” FAO, Rome.*

Kerr, J. 2002. Watershed Management Projects in India: An Evaluation. In collaboration with G. Pangare and V. Lokur Pangare. IFPRI Research Report 127. Washington, D.C.: IFPRI.*

Kerr, J., G. Pangare, V. Lokur Pangare, P.J. George, and S. Kolavalli. 1998. “The Role of Watershed Projects in Developing Rainfed Agriculture in India.” World Bank, Washington, D.C.*

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE Box 5.15 Agroforestry defined

‘The World Agroforestry Centre defines agroforestry as a AGROFORESTRY SYSTEMS dynamic, ecologically based, natural resources management system that, through the integration of trees on farms and in Agroforestry has long been recognized for its the agricultural landscape, diversifies and sustains production for potential as a stable and sustainable production increased social, economic and environmental benefits for land system and for its potential contribution to users at all levels.’ broader agricultural systems. Agroforestry can Source: World Agroforestry Centre. extend the amount of time that a given area can be productive, improve livelihoods, and contribute to forest and biodiversity conserva- interspersed with rows of crops in areas tion. Constraints to agroforestry systems in- where fallow periods are not possible. clude: high interest rates, unclear institutional responsibilities, limiting policy frameworks, • Parkland system. Trees and crops are poorly developed markets, and inadequate grown together with trees acting as a research and extension. Support to agroforestry permanent upper canopy providing shade needs to address this broad range of issues, or protection from wind. within flexible program designs. • Silvopastoral system. Trees are planted on Agroforestry investments present opportunities pastureland to provide shade and forage for to address NRM and agricultural needs through grazing livestock. on-farm and off-farm tree production (see box 5.15). Agroforestry investments have been • Home gardens. Trees are planted for pro- accepted as an appropriate investment area for ductive purposes within small plots with many years, and are frequently combined with other crops, including vegetables, fodder, other rural development activities. Generally, grains, herbs, and medicinal plants. agroforestry investments aim either at ensuring environmental sustainability through the conser- • Multistrata system. Trees and crops are vation of soil or forests or at reducing poverty interplanted with multiple tree species by generating new income opportunities. maturing at different rates and occupying different canopy positions. 233

AGROFORESTRY INVESTMENTS • Improved fallow. Tree species are planted Agroforestry investments can take one of two either just before or just after crops have been forms: simultaneous agroforestry, in which harvested in areas entering a fallow cycle. trees are intercropped with crops or livestock, and sequential agroforestry, in which trees and • Taungya system. Trees are intercropped crops are rotated. There is a broad range of with other crops until the trees become specific investment choices representing differ- mature, at which point cultivation of the ent agroforestry technologies including: other crops is abandoned.

• Boundary planting. Trees are planted as • Relay cropping. Trees and crops are planted living fences along field borders to pro- together with planting dates staggered such vide fodder and limit soil erosion and that crops mature before trees become very water runoff. large at the end of the rainy season.

• Hedgerow intercropping. Leguminous, Agroforestry technology investment choices nitrogen-fixing trees are planted in rows, balance forestry and agricultural production

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE and conservation and production goals. How- outcomes because of the role trees play in larger ever, agroforestry is not appropriate in all areas, ecosystem functions. Trees can improve soil quality in as trees take up space on a more-or-less per- various ways: root systems prevent soil erosion, manent basis and may compete with crops for leguminous species fix nitrogen, improve water, sunlight, and nutrients, thereby limiting nutrient recycling, and detritus from trees crop production. increases the organic content of soil. Well- developed agroforestry systems provide habitat for wild animals and contribute to biodiversity. BENEFITS Agroforestry affects climate change by storing POVERTY REDUCTION. Agroforestry projects can carbon, and offsets deforestation by providing reduce poverty directly by providing lumber, an alternate source of wood products. Finally, fuelwood, fruit and nuts, and livestock fodder, agroforestry can act as a buffer between pro- all of which can be sold to generate income or tected forests and surrounding agricultural land fulfill basic family needs (see box 5.16). The and minimize edge effects in natural forests. sale of timber is particularly important to poverty reduction, as returns are long term. Indirectly, agroforestry can increase crop POLICY AND IMPLEMENTATION ISSUES production and incomes through conservation LAND TENURE. Because agroforestry requires a of soils and soil moisture. long-term investment, with benefits delayed by three years or more, farmers must be willing and REDUCING VULNERABILITY. Agroforestry has long been able to invest in medium to long-term land a traditional coping mechanism to reduce produc- improvements. Where land tenure is not legally tion-related risks, particularly during times of established, landholders will seldom commit to drought or crop failure. Trees store biomass long-term land improvements. Land tenure during good production seasons and, when issues are complex, but must be addressed if annual crops fail, can be harvested to provide agroforestry is to be promoted as an investment. income to purchase food and other needs. MARKET ACCESS. Agroforestry’s contribution to ENVIRONMENTAL SUSTAINABILITY. Agroforestry is poverty reduction is dependent on people’s associated with positive environmental access to forest product markets. Market access can be improved through construction of roads, 234 development of farmer organizations to in- Box 5.16 Benefits of agroforestry crease the bargaining power of producers, or negotiation of contracts between farmers and • Agroforestry plantings in Indonesia currently harbor 50 percent of the plants, 60 percent of the birds, and 100 larger forestry companies. Market analysis is percent of the large animals that would normally be found essential to assess suitability of tree species as in a natural forest. cash crops (see box 5.17). • Cocoa agroforestry in Cameroon conserves 62 percent of the carbon found in a natural forest, and contains a plant GENDER. In the many situations where it is biomass of 304 tons/hectare (compared to 85 tons/ women’s responsibility to gather fuelwood and hectare in crop fields). tend the household gardens, agroforestry can • In southern Africa, improved fallow agroforestry systems (including species such as Sesbania) add soil nutrients give women more control over a productive equivalent to approximately US$240 worth of chemical resource. In other cases, where men exert fertilizers per hectare. traditional ownership rights over trees, they • In Burkina Faso, the planting of live fences (including Acacia may not have control over use of agroforestry nilotica, Acacia senegal, and Ziziphus mauritiana) has products or proceeds from their sale. Gender increased farm incomes by US$40 per year. issues and site-specific factors affecting these, Source: World Bank 2002; Adesina et al. 2001; Sanchez, Izac, and Scott should be addressed by gender assessments to 1999. ensure equitable access to agroforestry benefits.

AGRICULTURE INVESTMENT SOURCEBOOK MONOCULTURE PLANTATIONS AND PESTS. Monoculture Box 5.17 China: Sustainable Forestry Development Project plantings are often a pragmatic choice in agroforestry activities, simplifying provision of The China Sustainable Forestry Development Project strength- planting materials and technical recommenda- ens monitoring of markets for both forest species and fruit tions, and responding to demands for higher- trees. Product market and price information is stored in a value species. However, such single species database used to project trends in market prices and aid in plantings are vulnerable to pest attacks— selecting species for future plantings. Market monitoring will prudent planning requires a technically sound help to avoid flooding the market with one tree species, while assessment of pest risks for any agroforestry ensuring that producer groups are able to make harvesting and marketing decisions to obtain the best return on their program. agroforestry investments.

Source: World Bank Internal Documents. LESSONS LEARNED PARTICIPATION OF POOR PEOPLE. Care needs to be taken when designing an agroforestry activity “fees” to do so. Policies can support to ensure that vulnerable groups are not ex- agroforestry production by establishing certifi- cluded. This is especially so when considering cation systems or easing restrictions on sale of the landless poor and people with poorly- certain, noncritical species. defined land rights. Inclusive implementation mechanisms need to be incorporated into the INSTITUTIONAL BASE FOR AGROFORESTRY. Government activity to enable the sharing of benefits and agencies (forestry and agricultural ministries) the encouragement of democratic approaches need to clarify roles and responsibilities, since to decision-making in the community. agroforestry incorporates aspects of both agriculture and forestry. Local NGOs can be SPECIES SELECTION. Appropriate species selection effective in disseminating agroforestry tech- is important, and varies by location depending nologies and in market development (see box on agroclimatic conditions, markets, and farmer 5.18). Building capacity in producer organiza- experience. Species selection should also be tions can strengthen the marketing abilities of coordinated across areas to ensure that the small producers and provide a base for long- market is not flooded due to the overproduc- term sustainability of both small producers and tion of a single species. Agroforestry can have their organizations. other negative effects on surrounding ecosys- 235 tems if non-native tree species spread beyond the farm boundaries. Where such risks are Box 5.18 Brazil: The Agroecological Laboratory of the substantial, agroforesty programs should Transamazon Highway consider the use of native species instead of 4 exotic trees. The Agroecological Laboratory of the Transamazon Highway is a Brazilian NGO that seeks to fill a gap in extension services by POLICY FRAMEWORK. The policy and regulatory addressing both agricultural and natural resource management framework must ensure that agroforestry issues (such as agroforestry). The NGO brings together products are marketable. Many governments different actors, including researchers, other NGOs, small have enacted limitations on the sale of timber farmers, and farmer organizations to facilitate the exchange of agroforestry information and it has also helped to establish a to curb illegal logging. These limitations can commercialization center for negotiating contracts between result in small-scale farmers either being pro- agribusiness and small agroforesters. hibited from selling timber and fuelwood, or being harassed and forced to pay informal Source: Authors.

4. See the IAP, “China: Commercial Plantations to Help Conserve Forests”

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE TECHNICAL SUPPORT. Agroforestry technologies tend collective management can provide advantages to be highly location-specific, requiring demand- of economies of scale, minimize individual driven adaptive research and extension services investment costs, and provide equitable distri- that can draw on local knowledge, address bution of benefits. However, community different user group problems, and provide management often loses the advantages of incentives for work on the real problems of individual management, such as more timely farmers. Demonstration plots have proven to be and responsive decision-making and lower effective in promoting agroforestry technologies, transaction costs. To be successful, community- and farmer-to-farmer extension has worked well based agroforestry must be supported by a in incorporating local knowledge into programs. strong institutional base and conflict resolution Formal training programs and workshops are processes. Decentralizing of control over needed to train extension staff and community resource and establishing institutions for farmer leaders and an effective information dissemina- participation facilitate community management. tion strategy for agroforestry projects is neces- Community action can be a means of introduc- sary. At another level, better integration of ing a new resource management system such agriculture and forestry programs in universities as forest certification which increases the value can be beneficial. of timber products. This is widely practiced in Mexico where 70 percent of forests are owned by the PRIVATE SECTOR ROLES. In general, private sector community. entities such as nurseries and forest product manufacturers are more efficient suppliers of MONITORING AND EVALUATION. Monitoring and services such as marketing contracts and inputs evaluation are important to support flexible than the public sector. With the private sector program management. Mapping technologies emphasis on profit, manufacturers are likely to such as Geographical Information Systems contract with large agroforestry producers (GIS), provide information on program impacts, whose economies of scale enable them to be such as land use changes and environmental more efficient producers. This situation preconditions and feedback from farmers on sents problems for small-scale farmers who knowledge, attitudes, practices and income lack bargaining power and who may be less relating to agroforestry activities, markets, and efficient producers. benefits is critical to refining the technologies used and the management of the program. 236 COMMUNITY-BASED AGROFORESTRY. With agroforestry activities on communal lands, the community’s RECOMMENDATIONS FOR PRACTITIONERS Agroforestry investments require flexible Box 5.19 Potential investments design, and focus on markets, adequate technical support, and attention to financial • Community nurseries to provide seedlings. sustainability (see box 5.19). Reviews repeat- • Demonstration plots, in-country study tours and work- edly emphasize the importance of agroforestry shops, and development of farmer-to-farmer extension networks. investments being flexible and responsive to • Adaptive research on agroforestry technology, markets, the demands of local producers. Projects and social issues. should generally: • Capacity building in farmer organizations, NGOs, government and private sector. • Build capacity in NGOs, line ministries, • Marketing studies/strategies. producer organizations, and the private • Assistance with improving access to credit. sector to develop or strengthen local • Establishment of production databases and land-use networks for transferring information. mapping. • Facilities for postharvest processing. • Assign adequate resources for research and Source: Authors. extension.

AGRICULTURE INVESTMENT SOURCEBOOK • Facilitate access to credit that takes into World Agroforestry Centre. http:// account the unique characteristics of www.worldagroforestrycentre.org. agroforestry, especially the time required to realize returns on investment. REFERENCES CITED • Supply reliable and high-quality seed stock Adesina, A., J. Gockowski, B. A. through local nurseries or cooperation with Nkongmeneck, \l “O Ndoye” O. Ndoye, D. the private sector. J. Sonwa, M. Tchatat, S. F. Weise. 2001. “The Role of Coca Agroforests in Commu- • Facilitate market access through road nity and Farm Forestry in Southern building and/or maintenance programs. Cameroon.” July Rural Development For- estry Network. ODI, London. • Promote security of land tenure rights and the ability of farmers to benefit from their Sanchez P., A.-M. Izac, B. Scott. 1999. “Deliver- agroforestry investments. ing on the Promise of Agroforestry.” Sep- tember CGIAR Newsletter. CGIAR, Washing- ton, D.C. SELECTED READINGS Asterisk (*) at the end of a reference indicates World Agroforestry Centre. http:// that it is available on the Web. See Appendix 1 www.worldagroforestrycentre.org. for a full list of Websites. World Bank. 2002. “Integrating Forests in Arnold, M., and P. Dewees. 1998. “Rethinking Economic Development.” In A Revised Approaches to Tree Management by Farm- Forest Strategy for the World Bank Group. ers.” Natural Resource Perspectives 26. World Bank, Washington, D.C. ODI, London.* This Note was prepared by Jaime Webbe with inputs from Carter, J. 1995. “Alley Farming: Have Resource- the Natural Resources Management Thematic Team of the Poor Farmers Benefited?” Natural Resource World Bank. Perspectives 3. ODI, London.*

Franzel, S., and S. J. Scherr. 2002. Trees on the 237 Farm: Assessing the Adoption Potential of Agroforestry Practices in Africa. Wallingford, U.K.: CABI Publishing.

Franzel, S., P. Cooper, G. L. Denning, and D. Eade, eds. 2002. Development and Agroforestry: Scaling Up the Impacts of Research. Nairobi: ICRAF; Oxford: Oxfam.

ODI Rural Development Forestry Network. http://www.odifpeg.org.uk/network/ index.html.

United Nations Forum on Forests. http:// www.un.org/esa/forests/.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE AGRICULTURE INVESTMENT NOTE resource degradation. Improving sustainability of pastoral livelihoods depends on ensuring access to the land suited to pastoral systems, PASTORALISM ON ARID AND and that pastoralists have the knowledge and SEMI-ARID LANDS resources to manage it sustainably. Pastoral systems differ in certain key features: Natural resource management (NRM) on arid rangelands used by pastoralists is important to • Mobility is a common feature though its environmental and social sustainability, espe- practice varies in range, seasonality, and cially in Africa and the Middle East. Poverty is links between movement of people and often acute in these areas where population livestock. For example, nomads move as pressure can lead to overgrazing and conflicts whole families with their livestock; transhu- over land use, accentuating problems of natural mance pastoralists move livestock accord- resource degradation and economic vulnerabil- ing to set seasonal and geographic routes; ity. Early donor support for range livestock and others are sedentary or semi-sedentary. development failed because it did not take into account local social, economic, and environ- • Livestock species associated with pastoral mental conditions. More recent interventions systems are determined by the environ- have taken more of a NRM approach, working ment, local culture and traditions, and with herder organizations and using participa- required functions (meat, milk, transport). tory approaches. Public investment is essential to improve public services and policy frame- • Economic orientation of land use for works, strengthen local institutions, and im- subsistence or market activity will signifi- prove management of rangeland resources. cantly influences management practices.

At least 10 million square kilometers of the • Social-territorial organization describes the earth’s land surface is categorized as arid or pastoralists’ relations with markets, settled semi-arid rangeland. These areas provide a agriculture, and nonpastoral communities, direct livelihood for about 180 million people all of which are shaped by customary living in close association with about 960 ethics, environmental factors, and accumu- million ruminant livestock. Social deprivation is lated management experience. 238 acute in these areas, which are among the most degraded in the world. Sustainable use of rangeland resources remains a key issue in BENEFITS many developing countries. Poverty is often endemic in arid zones, but it can be reduced by producing marketable products, such as meat and wool and by SUSTAINABLE PASTORALISM adding value to these through meatpacking and Pastoral systems use free-ranging or grass-fed yarn production. Inequality can also be re- animals as the principal means of utilizing duced, if poor people can effectively partici- natural range and grasslands. Grasses and pate in such activities. If climatic conditions woody plants (browse) provide feed for ani- permit and some diversification of economic mals, but, if overgrazed, productivity decreases activities can be introduced, this will reduce and lands can become susceptible to erosion or pastoralists’ dependence on only one economic weed infestation. Incomes from pastoral activity activity and their vulnerability to economic loss, also decline. Further, the sustainability of especially if drought conditions occur. pastoral systems is threatened if rangeland is converted to cropland, as much rangeland is Environmental benefits from sustainable man- marginal land, susceptible to accelerated agement of pastoral systems result from the

AGRICULTURE INVESTMENT SOURCEBOOK reduction of overgrazing that causes loss of then considerable crop encroachment into browse and desirable grasses, spread of weed marginal range areas can occur. species, soil erosion, and deterioration of key resource areas, such as water sites, salt licks, and • Feed subsidies. If governments provide bottom lands. Sustainable pasture management subsidies in general or to cover drought, prevents loss of plant and animal biodiversity then these may have detrimental environ- and negative livestock-wildlife interactions. The mental effects on range areas and raise role of grasslands as a storehouse of carbon equity issues. makes them potentially important in efforts to mitigate global climate change, and carbon LAND TENURE AND LAWS. Pastoralists often graze sequestration and may provide a future income land that is owned by the state, but whose use opportunity through transfer payments. is actually governed by a complex interaction between customary institutions and their rules, and national law. Land tenure laws become POLICY AND IMPLEMENTATION ISSUES important to protect pastoralists’ rights when POPULATION PRESSURE. Increasing population num- pastoral land is sought by outsiders for pasture bers will add pressure to the resource base and or other uses. In arid regions, land and water can greatly affect development of a sustainable rights must be dealt with together, as pastoral system. Therefore agro-ecological pastoralists may have to compete with cultiva- assessments need to embrace the entire system tors or urban dwellers. Laws are important in and changes over time. Assessments would providing pastoralists with a legal basis for cover: population, especially numbers of both access to and control over their lands. How- people and animals; household indicators of ever, these laws and tenurial systems are often wealth and well being such as herd or flock quite complex, and may differ between adja- size; and social support mechanisms such as cent countries through which pastoralists move. extended family or tribal obligations. Environ- Hence, familiarity with both customary and mental indicators would include the condition formal land law, especially its effectiveness, is and health of the resource base, particularly for necessary in preparing for investments in key resource areas such as flood plains, bottom pastoral systems. Key questions involve the lands, and drought refuges which are important types of local organizations recognized under in more arid zones. law, and the possibility of recognizing the authority of traditional leadership. 239 ENABLING POLICIES. Policy issues that have affected or currently affect sustainable pastoral develop- Project strategies may differ: in some cases it ment include: may be possible to define exclusive areas for grazing by pastoralist communities; in other • Exchange rate policies. The 1994 devalua- situations it may be better to maintain the tion in the CFA countries of francophone traditional flexibility that allows groups to West Africa affected livestock prices. renegotiate grazing territories according to the year’s rainfall. The subdivision of pasture • Trade policies. Open trade regimes are among individuals or families has not worked generally desirable but these can result in well in most pastoralist situations. food imports such as meat affecting local production. SOCIAL SERVICES. Pastoral areas are usually among the worst-served parts of any country in terms • Crop input prices. If governments support of basic social services. Mobile services tend to agriculture with pricing policies that favor be preferred over fixed facilities. Health ser- crop production (as has been the situation) vices usually separate human and animal to the disadvantage of pastoral systems, health, even where there is little reason to do

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE this. While literacy programs are increasingly government or development of capability for important as more responsibility passes to communities to assume responsibility for literate members of the community, investment services. The balance between public and is needed in general and technical education. private responsibilities is defined by type of Major constraints to development of input and good or service to be provided (see table 5.3). output markets for pastoralists’ products are The present trend is toward devolution of deficiencies in communication and transporta- service delivery to the private sector, with tion infrastructure. central government focusing on policy formulation and providing infrastructure. INSTITUTIONAL ARRANGEMENTS. Technical services, such as extension, research, animal health, and water supplies, and financial services such as LESSONS LEARNED marketing, banking, and credit, are key to ANALYSIS OF THE PASTORAL SYSTEM. Understanding the improving livelihoods of pastoralists. Institu- pastoralist’s rationale for mobility or reduced tional options for delivering these services mobility in the pastoral system and the integrity include allocation of responsibilities to local of the pastoral system as a whole is essential in

Table 5.3 Activities and responsibilities in support of pastoral development Syupport area Ayctivit Implementing responsibilit Policy Strategy for resource use, policy Central government with the possibility framework statements, legislation, advocacy for of contracting out some technical national pastoral organizations assistance Environmental Tree planting, wildlife management, Private sector with local government conservation alternative fuels/stoves, fire control and community involvement Drought Early warning systems, contingency Central/local government, with management measures, recovery measures, essential contributions from pastoral insurance communities and possibly from traders and banks 240 Basic Physical infrastructure, institutional Central/local government infrastructure framework S,ocial services Health services, primary education Central/local government support for adult literacy private services, and public inputs for vaccination and other public goods Technical Extension, credit, animal health Private provision of credit and services services, water supply systems, technical services subcontracted by the marketing support, agronomic inputs public sector as required. Local government and producers can manage extension Institution Cdounseling/training Local government and national an building regional herders’ federations

Source: de Haan, Pratt, and Le Gall 1997

AGRICULTURE INVESTMENT SOURCEBOOK designing effective interventions. Analysis of the Box 5.20 Kenya: drought management for pastoralists overall system should consider: the roles of livestock, access to resources and decision-making processes, The arid lands of northern Kenya are home to around one drought likelihood, population changes, trading million pastoralists, most living below the poverty line. Herders systems, and equity issues. practice opportunistic grazing management to take advantage of the unpredictably variable ecology. Growing pressures on INFORMATION NEEDS. An adequate information base is rangeland resources and the lack of legal recognition of pastoral essential to designing sound investments in pastoral land rights are undermining customary arrangements for systems. Information derives from databases regulating resource access, control, and management. The Kenya Arid Lands Resource Management Project institutionalizes characterizing the project area, field appraisals, drought mitigation and management tools, including a drought and special studies. Investments in pastoral early warning system, marketing outlets for livestock and systems require information on all of the area livestock products, infrastructure, and community development used by a pastoral population, including all subprojects to promote alternative livelihood strategies. The seasonal grazing areas and drought reserves. project develops institutional mechanisms for managing all phases of the drought “cycle,” including preparedness, mitigation, and recovery. HERDER ORGANIZATIONS. Herder organizations can manage communal resources and coordinate Source: Bruce and Mearns 2002. members’ management of their own household resources, facilitate grazing and water management, secure territorial rights, resolve conflicts, TECHNICAL INPUTS. Technological interventions and provide services such as animal health, require an understanding of how inputs interact borehole operation, and marketing. Development within a holistic system that considers market of herder organization requires a three-step and economic interactions, social impacts, and approach of understanding the existing social- the institutional base. New inputs, such as territorial organizations; formulating development fencing; new breeding stock; pest control and objectives; and identifying or establishing associa- pasture improvement, require management tions that build on customary institutions. systems that make effective use of these inputs, for example, supplementary feeding, breeding MARKET DEVELOPMENT. Herders frequently lack management, marketing, and grazing practices. access to formal markets and capacity (relating Investments in processing innovations can to production, marketing and inputs) to supply improve market access and generate new these markets. Improving market access requires employment opportunities. 241 investment by both public and private sectors in: market infrastructure (communication and PROCESS MONITORING. Pastoral system develop- transport systems, cold-chain facilities), systems ment projects often need to emphasize a for certification of grades and standards, policies “process” approach that enables managers to and regulations that facilitate trade, and technical make adjustments as the project proceeds. A services to improve product quality. sound management information system must have data collection procedures and perfor- DROUGHT MANAGEMENT. Drought is a natural mance indicators for ecological, socioeconomic, feature of arid and semi-arid areas, and projects and institutional changes and must ensure that need to be designed with drought management objectives and perspectives of all project consideration permeating all components, or stakeholders are reflected. with a separate drought management component (see box 5.20). Investments should provide for drought preparedness, customary RECOMMENDATIONS FOR PRACTITIONERS drought strategies, drought management Participation, flexibility, and sustainability must capabilities, and drought recovery assistance. be incorporated into project designs to support development of economically, socially, and

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE environmentally sustainable systems. This • Ensure adequate provision of technical requires pastoral development investments to: inputs and knowledge relating to pasture and livestock management, grazing prac- • Consider the pastoral system as a whole, tices, and drought management. assessing its potential to provide a basis for sustainable livelihoods, but recognizing inherent limitations. SELECTED READINGS Asterisk (*) at the end of a reference indicates • Improve baseline knowledge of pastoral that it is available on the Web. See Appendix 1 systems and their environments, developing for a full list of Web sites. a comprehensive understanding of resources, resource users, and the geopoliti- de Haan, C., B. Brandenburg, F. Le Gall, J. cal system in which they operate. Gauthier, M. Simeon, R. Mearns, and T. Schillhorn van Veen. 2001. Livestock Devel- • Develop mechanisms to ensure feedback opment: Implications on Rural Poverty, the from project implementation experience to Environment, and Global Food Security. design of future program activities (see Washington, D.C.: World Bank. box 5.21). de Haan, C., D. J. Pratt, F. Le Gall. 1997. Invest- • Strengthen existing pastoral institutions to ing in Pastoralism: Sustainable Natural minimize dependence on external inputs Resource Use in Arid Africa and the Middle and enable them to undertake activities on East. World Bank Technical Paper 365. a sustainable basis. Washington, D.C.: World Bank.

• Promote market development to most Øygard, R., T. Vedeld, and J. Aune. 1999. Good efficiently use available resources. Practices in Drylands Management. As, Norway: Noragric Agricultural University of Norway; Washington, D.C.: World Bank.* Box 5.21 Potential investments

• Policy studies and policy formulation. REFERENCES CITED • Land tenure laws and dispute resolution. Bruce, J., and R. Mearns. 2002. Natural Re- 242 • Information systems, databases, and mapping of pasture conditions and soil erosion, using remote sensing, field source Management and Land Policy in surveys, and other methods. Developing Countries: Lessons Learned and • Herder association strengthening and training. New Challenges for the World Bank. • Animal health service provision systems based on paravets Drylands Programme Issue Paper 115. and private veterinarians. London: IIED. • Livestock markets, marketing systems, and market information services. de Haan, C., D. J. Pratt, F. Le Gall. 1997. Invest- • Drought monitoring and preparedness. ing in Pastoralism: Sustainable Natural • Diagnostic studies of social systems and traditional management systems. Resource Use in Arid Africa and the Middle • Research on pasture and herd management and use of East. World Bank Technical Paper 365. alternative feedstuffs. Washington, D.C.: World Bank. Source: Authors. This Note was prepared by Gary Alex and Francois Le Gall based on a World Bank Agricultural Technology Note “Investing in Pastoralism” and inputs from the Natural Resources Management Thematic Team of the World Bank.

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE wildlife and crop agriculture, and both can thrive in arid and semi-arid rangelands. In areas with variable rainfall, livestock and wildlife resources INTEGRATED LIVESTOCK- have a competitive advantage over crops. WILDLIFE MANAGEMENT A driving force for ILWM is the profitability of Differing objectives of biodiversity conservation game and mixed game/livestock ranches, and rural livelihood improvement have at times particularly in arid and semi-arid landscapes in led to competing land-use options. Agricultural Africa as livestock ranchers move into game cultivation or intensive livestock grazing up to ranching to reduce their exposure to a volatile park boundaries has led to conflict due to market and extreme climatic conditions. In wildlife damage to crops and property and South Africa, there are now 5,000 game ranches disease transmission to livestock. The integra- and more than 4,000 mixed farms (see box tion of wildlife with extensive livestock man- 5.22) (ABSA 2003). agement can bridge potentially conflicting interests. Integrated livestock and wildlife Another driving force behind ILWM is the management (ILWM) offers potential benefits recognition that there are opportunities for by mainstreaming sustainable biodiversity conservation and sustainable use of conservation in rangeland management. ILWM biodiversity within the productive landscape. can create alternative sources of income from In countries with large populations of wildlife livestock ranching and reduce land degrada- outside protected areas (for example Namibia, tion. Game or mixed game and livestock South Africa, and Botswana), IWLM ap- ranching can provide higher and less volatile proaches offer the opportunity for both wild- returns than livestock ranching in arid and life conservation and socioeconomic benefits. semi-arid landscapes. This is especially the case since wildlife areas

Conventional livestock farmers in arid and Box 5.22 South Africa: profitability of game ranch semi-arid areas often have problems due to dry and unpredictable climates, infertile soils, tick- management borne diseases, and limited support services. Profits from game ranch management depend on sufficient Wild game species are better adapted to harsh critical mass, a large diversity in wildlife, stocking with rarer environments than livestock, as they are animals, an emphasis on ecotourism, and a natural equilibrium 243 adapted to heat stress, water shortages, and between carnivores and prey animals. Game ranching is endemic diseases and can feed on available sensitive to economies of scale. In South Africa, very small game local vegetation. Game, which includes brows- ranches (below 150 large stock units—LSU) struggle to be ers and mixed feeders as well as grazers, is economic, while medium-sized hunting ranches (around 600 less impacted by bush encroachment in range- LSU) on average obtain an annual return of 9.1 percent on the land which is a phenomenon resulting from capital invested. Although up-front capital investments (land and fencing, game/cattle, buildings and infrastructure, vehicles, overgrazing, droughts, and land degradation. operating costs) are lower for cattle farming than for game Extensive livestock husbandry in an integrated ranching, cattle farming is rarely economic below a production wildlife-livestock environment maintains size of 400 LSU. Even large farms (1,000 LSU) usually do not habitat for wildlife and can improve overall exceed annual returns of 4.5 percent on capital invested rangeland productivity. (compared with 10.3 percent for a game ranch of comparable size). Hunting or professional game-capturing for sale of game There is growing recognition of potential at auctions increases the profitability of game ranches. Game complementarities between wildlife protection ranching can further increase profits and create job opportunities for skilled and semiskilled labor, if combined with and extensive livestock production systems, if ecotourism. these systems are well managed. Wildlife and livestock are generally more compatible than Source: ABSA 2003.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE and extensive rangelands all over Africa are • Trophy hunting provides income from fees under pressure from human population that professional hunters and their clients growth, deforestation, and agricultural expan- pay to hunt and camp. About 6,000 trophy sion. Wildlife and livestock are being pushed hunters visit South Africa annually, spend- onto marginal lands, arid rangelands, and ing on average US$6,000 on fees, not buffer zones around protected areas. Competi- including the price for trophies hunted tion for water access and grazing areas, espe- (ABSA 2003). Overhunting and diversion of cially in the arid rangelands, increases with funds may occur with trophy hunting and seasonal influx of migratory species as the dry so adequate safeguards must be taken to season progresses and as diversity and quan- avoid these problems. tity of grasses become less. • Fees for capture permits for wild animal trappers who sell game to zoological gar- BENEFITS dens, game parks, and wildlife management Efficient management of domestic and wild areas provide another income possibility. stock can increase incomes and reduce livelihood vulnerability. Traditional practices of • Wildlife tourism is becoming more popular maximizing the number of cattle have changed (see box 5.23). Although the average where revenue from wildlife has become an hunter spends more than four times as important alternative to livestock. Wildlife can much as the ordinary tourist, far more provide a steady income during times of tourists can be accommodated than hunt- drought or floods (Boyd et al. 1999) and ers. The main income for larger-sized game provide varied economic benefits: ranches is from tourism (ABSA 2003). In Kenya, wildlife tourism generates more • Harvest and export of wildlife meat can than 100 times more revenue than all other provide substantial income, as long as wildlife businesses together (Ashley and sanitation and hygiene requirements are Elliott 2003). met. Wildlife meat is important for personal consumption and for sale. Close monitoring A critical mass of conservation areas can have of wildlife harvest areas is necessary to a synergistic marketing effect as an area avoid over-harvesting with its effect on becomes known for wildlife tourism and the 244 wildlife numbers. total number of visitors grows. It also has had a positive impact on stocks of rare species as the competition among the enterprises for tourists, based on the diversity of wildlife, has Box 5.23 Tanzania: wildlife policy encouraged the breeding of rare species, such as rhino, giraffe, and oryx, and fuelled a The Wildlife Policy in Tanzania aims to empower local commu- market for translocation this game. nities to establish Wildlife Management Areas (WMAs), and manage these to obtain benefits from wildlife conservation outside protected areas in addition to livestock. The WMAs are defined as “areas declared by the Minister to be so and set POLICY AND IMPLEMENTATION ISSUES aside by village governments for the purpose of biological REMOVING BARRIERS TO ILWM. The most critical natural resource conservation.” Communities may lease trophy problems of wildlife and livestock mixing are hunting or game viewing concessions to tourist outfitters or disease transmission, competition for forage and may engage in hunting. As part of the process of establishing a water, and predators. Profitable ILWM generally WMA, village assemblies must pass a resolution and develop a requires establishment of animal health service village land-use plan based on a sound resource survey and centers, extension services and early warning approved by the District Council, the regional authorities, and the line ministry. systems based on disease and pest monitoring. Private ranchers are likely to use animal health Source: Shauri 1999. extension service systems, while pastoralists,

AGRICULTURE INVESTMENT SOURCEBOOK such as nomads and transhumance herders, are PAYMENTS FOR ENVIRONMENTAL SERVICES. ILWM might more likely to benefit from community-based, not always be the preferred land-use options as low-input veterinary support service units. rural communities or private landowners, may Some problems can be reduced if locally consider that other land uses provide better short- adapted breeds are the main livestock rather term returns, even though these may not be than high-producing but exotic breeds, as sustainable. If an area is important for biodiversity disease and parasite transmission are likely to conservation, interested parties, such as local be reduced. Damage by predators and other conservation NGOs, government, and interna- “problem animals” can be minimized by fencing tional donors may pay the community or land- off homesteads and gardens; killing problem owner to maintain wildlife-compatible land-use animals; and locating community areas away practices. Such a compensation scheme provides from known game trails and watering points. income to rural people who bear costs of global biodiversity conservation, but have minimal direct ENCOURAGING ACCEPTANCE OF ILWM. Wildlife in benefits from wildlife (see box 5.25). many countries contributes to a country’s economy through hunting or ecotourism, and it is important that this is recognized by all, Box 5.24 Key criteria for profitability of game ranching especially farmers and rangeland managers. Local governments, communities, and private The following criteria and costs need to be taken into account in estimating the potential returns prior to establishing a game landowners need an understanding of the ranch: trade-offs involved of different land use scenarios for people and for wildlife conser- • Minimum ranch size required for specific game. vation. Individual farms or communal group • Purchase and selling price of game. land may often not have sufficient size for • Additional expense of fencing to ensure that large and dangerous animals remain inside/outside a dedicated area. profitable game or mixed game and livestock • Operating costs including disease management and food management, but, as in southern Africa, supplements during droughts on smaller farms. adjoining private farms and communal • Infrastructure such as water provision, roads, lodges, and/or groups can organize to operate under hunting camps. comanagement agreements for ILWM to • Abattoir facilities, vehicles and housing. conserve biodiversity and realize sustainable Source: ABSA 2003. profits (see box 5.24). 245 CAPTURING BENEFITS FOR RURAL POOR PEOPLE. In Box 5.25 Namibia: “conservancy” policy extensive rangelands that are larger than national parks and reserve networks, wildlife In Namibia about 75 percent of wildlife exists outside pro- and livestock can coexist. Wildlife do exert a tected areas. An industry has developed based on consumptive “cost” on livestock production, competing for and nonconsumptive use of wildlife. Wildlife management units feed and water, becoming predators and called “conservancies” can be established on commercial and possible pest and disease transmitters. These communal land. Conservancies gain rights of the use and benefits from wildlife and tourism concessions. They must be costs to rural communities need to be offset by legally constituted and have clearly defined boundaries, defined benefits from wildlife, most of which currently membership, a committee representative of the membership, flow to government and the largely foreign- and a basis for equitable distribution of benefits to members. By owned private sector. In some countries, 2003, there were 14 conservancies registered covering 38,500 transfer of wildlife management rights to square kilometers of land, and a further 30 conservancies were communities has established a basis for them to being formed. All have the objective of conserving and utilizing benefit. For example, safari hunting, commer- wildlife, while integrating traditional livestock-raising activities. cial ranching for meat, hides and live sale, and Despite the progressive nature of the existing policies, a lack of secure group tenure, still undermines the ability of conservan- ecotourism, provide opportunities for improv- cies to enforce zoning of areas for different land-use purposes. ing rural livelihoods, and meeting conservation and development objectives. Source: Namibia Ministry of Environment and Tourism.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE LESSONS LEARNED planning. For wildlife conservation planning, BENEFITS FOR PASTORALISTS VERSUS AGRO-PASTORALISTS. being able to examine those ecosystems that are Potential benefits from ILWM differ significantly under pressure for conversion into farmland and for pastoralists whose livelihood is primarily other uses that are often unfavorable to wildlife from livestock and agro-pastoralists whose conservation, is very important. livelihood is from integrated livestock and agriculture. The lifestyle of pastoralists is likely to facilitate ILWM while for agro-pastoralists, RECOMMENDATIONS FOR PRACTITIONERS conflict with wildlife is much higher, as crops Establishing ILWM systems to conserve natural can be damaged and predators damage live- resources and improve livelihood options for stock. Under these circumstances, it may be rural people requires investment strategies to more difficult to introduce ILWM in agro- (see box 5.26): pastoralist situations but they also may see financial advantages resulting from their more secure land • Encourage wildlife-compatible land use by tenure and lifestyle which facilitate the development providing services necessary to improve of tourism. incomes of pastoralists, and by removing policy barriers to income generation from NEW MONITORING AND DATA MANAGEMENT TOOLS. ILWM. Ecological information models capable of tracking the full range of land-use options are • Support participatory land-use planning by important tools for long-term land-use planning village councils or land-use planning and policy formulation at local, regional, and forums representing all key stakeholders, national levels. Technology such as SAVANNA investing in strengthening institutional (Coughenour et al. 2000) allow for prediction of capacity at the community and local levels, future range conditions, wildlife migratory and providing technical support for re- corridors, livestock distribution, and populations. source assessments, planning and monitor- The models and technology facilitate land-use ing of ILWM systems.

• Emphasize habitat management, rather then species management. Box 5.26 Potential investments 246 • Develop markets for ecosystem services by • Development of policy and regulatory frameworks for establishing innovative payment schemes ILWM. for maintenance of ecosystem goods and • ILWM feasibility and baseline studies on ecosystem status services such as habitat maintenance. and biodiversity. • Development of models to support informed • Provide for holistic evaluation of ILWM decisionmaking at all levels. systems with comprehensive impact studies • Support to participatory land-use planning. measuring both environmental and socio- • Institutional strengthening of community and local government levels. economic impacts. • Sustainable consumptive and nonconsumptive wildlife use enterprises (ecotourism enterprise development, sport hunting, game cropping). SELECTED READINGS • Establishment of animal health centers and animal health Asterisk (*) at the end of a reference indicates extension services. that it is available on the Web. See Appendix 1 • Establishment of early warning systems for diseases and for a full list of Web sites. pests. • Training in livestock marketing and upgrading of livestock marketing infrastructure. ABSA. 2003. “Game Ranch Profitability in Source: Authors. Southern Africa.” SA Financial Sector Forum, South Africa.*

AGRICULTURE INVESTMENT SOURCEBOOK Boyd, C., R. Blench, D. Bourn, L. Drake and P. Stevenson. 1999. “Reconciling Interests Among Wildlife, Livestock and People in Eastern Africa: A Sustainable Livelihoods Approach.” Natural Resource Perspectives 45. Overseas Development Institute, London.*

Burn, D., and R. Blench., eds. 1999. Can Livestock and Wildlife Co-exist? An Interdis- ciplinary Appraoch. London: ODI.

Reid, R. S. “Livestock and Wildlife in Pastoral Systems of East Africa: Inevitable Conflict or Unexpected Synergy?” International Live- stock Research Institute, Nairobi, Kenya.*

REFERENCES CITED ABSA. 2003. “Game Ranch Profitability in Southern Africa.” SA Financial Sector Forum, South Africa.

Ashley, C., and J. Elliott. 2003. “‘Just Wildlife?’ or A Source of Local Development?” Natural Resources Perspectives 85. ODI, London.

Boyd, C., R. Blench, D. Bourn, L. Drake and P. Stevenson. 1999. “Reconciling Interests Among Wildlife, Livestock and People in Eastern Africa: A Sustainable Livelihoods Approach.” Natural Resource Perspectives 45. ODI, London. 247 Coughenour, M., R. Reid, and P. Thornton. 2000. The Savanna Model: Providing Solutions for Wildlife Preservation and Human Development in East Africa and the Western United States. Washington, D.C.: Future Harvest.

Namibia Ministry of Environment and Toursim. http://www.met.gov.na/.

Shauri, V. 1999. “The New Wildlife Policy in Tanzania: Old Wine in a New Bottle?” Lawyers’ Environmental Action Team, Dar es Salaam, Tanzania.

This Note was prepared by Nina Doetinchem and Cristophe Crepin with inputs from the Natural Resources Management Thematic Team of the World Bank.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE • An incentive program for sustainable NRM and conservation through community awareness building, the provision of grants BRAZIL: PARTICIPATORY for demonstration plots, and greater en- MICROCATCHMENT STRATEGY forcement of land legislation. FOR INCREASED PRODUCTIVITY AND NATURAL • Training of extension agents and RESOURCE CONSERVATION beneficiaries.

Before the 1980s in Brazil, agricultural pro- The above interventions at a microwatershed duction increases were primarily the result of level take advantage of: geographical units of a expansion in areas under cultivation. After more manageable size, linked by hydrological 1986, the agriculture sector rebounded with processes; stronger social cohesion within intensified production so that by 1996, agri- microwatersheds; ease of monitoring and culture accounted for about 10 percent of measuring results; and ease of scaling GDP. This period left a legacy of deforesta- microwatershed management projects to other tion and increased soil erosion, and ques- areas such as downstream communities. tions about sustainability, specifically of soil productivity and water quality. In the state of The Technology and Institutional Development São Paulo, 62 percent of total land areas is component finances (i) rural extension; (ii) considered to be cultivable, although most rural organization; and (iii) agro-ecological soils are of moderate or marginal quality and mapping at the microcatchment level. To declining productivity. change the crop-focused orientation of the extension system and farmers toward a What’s innovative? Developing participatory pro- microcatchment orientation, the project processes on a microcatchment scale to reverse land vides operational and technical guidelines and degradation and improve watershed health. intensive training to all extension staff, including municipal and private extension workers.

PROJECT OBJECTIVES AND DESCRIPTION Incentive grants are provided to farmers adopt- In 1986 the Government of São Paulo commis- ing sustainable technologies and practices that 248 sioned a study on the risks of erosion in the have a demonstration value. Farmer groups Peixe-Paranapanema River watershed. The may receive grants for (a) collective purchase findings emphasized the seriousness of sheet of specified farm implements for tillage and and gully erosion. The purposes of the Land improved land management practices; and (b) Management Project were to increase agricul- construction of water supply systems for tural production and farm incomes while agrochemical mixing points to avoid pollution ensuring the conservation of natural resources. of streams and water sources. Individual Major components included: farmers may receive grants for (a) land management practices, such as contour farming and • Technology and institutional development strip cropping, vegetative contours, bunding to increase awareness of natural resource and terracing; (b) protective fencing along management issues, and facilitate participa- water courses; and (c) provision of seeds for tory management of land resources. green manure crops.

• Adaptive agricultural research to provide Based on the results of a participatory socioeco- technical solutions for soil conservation, nomic and agro-ecological survey and on the integrated pest management, disposal of agro-ecological maps produced under the residual inputs, and crop diversification. project, project extension workers, together with

AGRICULTURE INVESTMENT SOURCEBOOK the microcatchment beneficiaries, prepared a • Participatory methods for selecting mutually-agreed Microcatchment Development microwatersheds and activities to be under- Plan. This identified the principal agronomic and taken, based on technical, environmental, environmental problems, and proposed solu- and social criteria, should be used. tions through collective land and water management activities. The Plan set technical targets for • Financial incentives for adopting technol- all community works and farm level interven- ogy/behavioral changes are needed. tions and is supported by individual farmland- use plans and by plans for collective activities. • Robust monitoring and evaluation systems These are reviewed and approved by the must be in place, with strong management Regional Microcatchment Commission and by units able to adjust implementation plans. the Project Coordination Unit. • Legal framework, including sanctions against activities detrimental to the environ- BENEFITS AND IMPACTS ment and community efforts, is essential. So far, the project has produced important behavioral changes among technical staff, • Inputs need to be supplied in a timely local governments, and project beneficiaries. manner to prevent implementation delays. It has also supported synergies between project activities and other state and local PROJECT COUNTRY: BRAZIL initiatives. Project management has approved and implemented 310 microwatershed man- Project Name São Paulo Land Management agement plans, established 71 demonstration Project plots for new technologies including 51 for Project ID P006474 no-till pasture rehabilitation and 20 for small- scale dairy production; approved 4,270 Project Cost US$123.0 million management plans for individual properties; Dates FY 2000 – FY2006 disbursed incentive grants to 710 beneficiaries; replanted or restored 626 hectares of Contact Point Graciela Lituma The World Bank, 1818 H Street riparian vegetation; and engaged 24,810 NW, Washington D.C. 20433 beneficiaries in project activities. Telephone: (202) 473-1892 Email: [email protected] 249

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • Management and implementation structure must set out clear responsibilities at state, regional and local levels, with emphasis on strong local participation (government, beneficiaries, and private sector).

• NRM strategies should be based on technological changes adapted to local needs and conditions to produce immediate benefits.

• Creative, motivated, and well-trained extension workers, provided with intensive training in group dynamics and use of participatory methods are essential.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE • Establishing of timber plantations (to control soil erosion, contribute to watershed management, and support forestry CHINA: COMMERCIAL research). PLANTATIONS TO HELP CONSERVE FORESTS • Establishing economic tree crops.

In China, the forest sector is critical to rural • Precommercial thinning of existing planta- livelihoods, supplying 40 percent of rural tions. household energy, and raw material for construction projects and the pulp and paper • Provision of technical support for planting industry. Wood supply is limited, with forest stock development and nursery cover of only 0.13 hectare per capita (in com- management. parison to a global average of 0.6 hectare per capita). Recently China has been losing 500,000 Plantation establishment is accompanied by the hectares of natural forest per year, due largely appropriate market and technical research with to poor governance of the logging industry. To much drawn from other Bank projects and address these issues, the Government an- Chinese research institutions. This research nounced a ban on logging in natural forests, coordination effort allowed the task team to introduced new land laws, initiated reforesta- gather information, such as the identification of tion programs with investments in plantations, ecotypes and the development of plantation and promoted environmentally sustainable species lists, in a cost efficient manner. logging practices. Provided that they are managed and monitored What’s innovative? Promoting commercial planta- appropriately, commercial plantations can tions to ensure forest conservation, with public as- reduce pressure on natural forests by providing sistance focused on facilitating initial market devel- fuelwood and lumber that might illegally be cut opment and ensuring public good benefits. from natural forests. A clear system for monitoring and evaluation provides for monitoring on three levels: implementation progress, growth PROJECT OBJECTIVES AND DESCRIPTION and quality of plantations, and environmental 250 The China Sustainable Forestry Development and social parameters. Project aims to develop a participatory framework for the sustainable management and Appropriate species selection taking into conservation of forests and associated account soil, water, and slope conditions is biodiversity, while minimizing the social and important for growth and for market potential. economic costs of the new government policy. So that the market is not flooded by any one The project includes a protected area manage- species, the project addresses this issue by ment component, a national forest management monitoring market prices for both lumber and component, and a plantation component. The fruit trees so trends can be forecast. This plantation component accounting for 81 per- information, made available to plantation cent of the total project costs, and 99 percent of owners, is an effort to reach the private sector the World Bank loan, involves individual and their species investment decisions. farmers and local organizations in commercial tree plantations with the objectives of narrowing the gap between domestic wood supply BENEFITS AND IMPACTS and demand, and generating new employment The project has only recently begun to be and income opportunities for rural households. implemented. Some 115,090 hectares of com- This is addressed through four plantation mercial wood plantations for fiber and pulp, subcomponents including: plywood, and construction timber will be

AGRICULTURE INVESTMENT SOURCEBOOK established in nine provinces to meet the forecasted national and local shortages of PROJECT COUNTRY: CHINA wood. The main afforestation beneficiaries are Project Name Sustainable Forestry Development individual households, shareholding coopera- Project (Plantation Component) tive forest farms, village-township collective Project ID P064729 forest farms, and state forest farms. Project Component Cost US$174.96 million Some 57,940 hectares of economic forest Dates FY 2003 – FY2010 crops, including fruit, nut, and medicinal trees, will be established in eleven provinces. The Contact Point Mohamed Benali The World Bank, 1818 H Street tree crops include chestnut, walnut, ginkgo, NW, Washington D.C. 20433 eucommia, apricot, jujube, apple, pear, prickly Telephone: (202) 473-7357 ash, pomegranate, and Chinese yew. Those Email: [email protected] participating in this subcomponent include individual households, shareholding cooperative forest farms, village/township forest farms, and state forest farms.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Experience during planning and project development has helped identify a number of key factors associated with the management of plantations:

The conservation of forests and biodiversity can be achieved through establishing protected areas, improving management of community forests, and developing alternative sources of forest products. By establishing plantations on nonforested land, local and 251 regional demands for wood products can be more easily met without threatening natural forests. As government legislation prohibits the acquisition of wood products from natural forests, private sector plantations are the favored investment choice.

The establishment of large-scale commercial plantations requires the cooperation of government agencies and the private sector and this should be considered early in the project development cycle.

Finally, establishing plantations requires credible empowerment mechanisms so that owners are able to invest in land improvements with the assurance that they will receive the benefits from such an investment.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE effective utilization of rangeland and vegetative cover.

EGYPT: MATRUH RESOURCE • Adaptive research implemented on a MANAGEMENT TO ENSURE demand-driven basis. SUSTAINABLE LIVELIHOODS FOR REMOTE BEDOUIN PEOPLE • Extension and training, which would provide funding for establishing an effec- Egypt’s poverty rate remains approximately 20 tive agricultural extension service. to 25 percent, with it being a disproportionately rural phenomenon. With limited irrigation • Rural finance, which would give special potential, NRM issues are critical to sustainable attention to promoting on-farm income- economic development, this being especially so generating activities targeted to small in the more marginalized Bedouin areas along farmers, the landless, and rural women. the northwestern Mediterranean coast. All activities are implemented within the frame- What’s innovative? Engaging an isolated group in a work of traditional tribal organizations, result- broad natural resource management project through ing in a demand-driven development process. the incorporation of existing tribal structures. This tribal framework ensures that government personnel become sensitized to Bedouin needs The Bedouin people who make up 85 percent and concerns and it mobilizes local populations of the population in the area rely on rainfed to manage natural resources in a sustainable agriculture and herding. Given that from 1992 manner. To incorporate tribal systems into their to 2002, the population in this area was ex- management framework, community groups pected to increase by more than 20 percent, which determined their composition and the sustainability of such livelihood systems is structure, were established. in question. The Government of Egypt has sought to maximize the agricultural potential in dryland areas while managing natural resources BENEFITS AND IMPACTS in a sustainable manner but there have been The first Matruh project (1994-2002) was several problems as the tribes have tended to recognized for its innovative participatory 252 remain isolated, and the government has had approach. With the objective of conserving the little experience addressing Bedouin concerns. natural resource base, 1.2 million cubic meters of water storage facilities have been constructed, exceeding the estimated target by PROJECT OBJECTIVES AND DESCRIPTION about five times, and representing an increase The Matruh Resource Management Project I in water availability of 45 percent. The project was aimed at 1) conserving water, land, and also established 250 rangeland management vegetation resources in the project areas, and units, and established fodder trees and shrubs 2) alleviating poverty and improving the quality on approximately 5,000 hectares. In terms of of life of the local Bedouin population. The poverty reduction and improving the liveli- following project components were designed to hoods, construction of safe drinking water achieve these objectives: storage facilities resulted in agricultural and health benefits for the local Bedouin popula- • Water harvesting and watershed management, tion. Increased fodder availability and genetic which would introduce several environmen- improvement led to increased income from tally-sound water-harvesting interventions. livestock and the adoption of high-yielding varieties led to increases in productivity of • Rangeland and grazing management, barley, olives and figs, and vegetables (with which would focus on improvement and increases ranging from 27 to 70 percent).

AGRICULTURE INVESTMENT SOURCEBOOK Overall, socioeconomic conditions of 10,440 households have been improved. In addition, the PROJECT COUNTRY: EGYPT project built a good foundation for local capacity Project Name Matruh Resource Management in resource management through technical Project I and II (MRMP I and II) assistance, training, and support for project staff, Project ID MRMP I: P005153, and farmers and community representatives. MRMP II: P074075

The second Matruh project (2003-2009) is Project Cost MRMP I: US$29.5 million, and MRMP II: US$39.8 million continuing to improve local capacity by supporting local representatives, training in Com- Dates MRMP I: FY 1994 – FY 2003, and munity Action Plan development and imple- MRMP II: FY 2003 – FY 2009 mentation, providing access to information and Contact Point Marie-Hélène Collion communication facilities, and developing The World Bank, 1818 H Street literacy classes and women’s groups. All com- NW, Washington D.C. 20433 munity development activities take place within Telephone: (202) 473-499 the framework of traditional tribal systems. Email: [email protected]

Based on the first project experiences, the second project also added a component specifically directed at conserving biodiversity; increased the focus on off-farm income generation; and provided for rehabilitation and construction of feeder roads.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • A multisectoral/multidisciplinary approach in NRM and poverty reduction projects is more likely to achieve objectives than single-sector projects. 253 • Participatory project implementation requires flexible budgeting that is not constrained to predetermined outputs, but relies on a demand-driven identification of activities.

• Adequate initial training and capacity building is a prerequisite to the start-up of activities requiring beneficiary participation.

• Rural credit programs, particularly in remote areas, require innovative mechanisms that adapt to constraints on the financial institutions and on the beneficiaries.

• Targeting the poorest sections of a society where communities have strong traditional structures can be a challenging process.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE system broadly mimics a forest ecosystem. The silvopastoral project consists of five components:

LATIN AMERICA AND • Ecosystem enhancements through institu- CARIBBEAN: PAYMENTS FOR tional capacity building and the develop- ENVIRONMENTAL SERVICES IN ment of community training programs. SILVOPASTORAL SYSTEMS • Environmental monitoring to measure In Central America, approximately 38 percent changes in land use, carbon sequestration, of the total land area is classified as permanent biodiversity, and water quality. pasture. This represents a substantial increase over the last decade, due in part to conversion • An eco-services fund for payment of envi- of tropical rainforest to pasture. In Colombia, ronmental services provided by the Costa Rica, and Nicaragua, the rate of defores- silvopastoral systems. tation in natural forests over the past decade has been between 6 percent and 25 percent. • Policy formulation and dissemination Much of past deforestation in the tropical areas focusing on sector and environmental could be accounted for by distorted incentives, policies associated with the sustainable such as subsidized interest rates, and export intensification of livestock production. subsidies used to promote large ranching operations. More recent deforestation has • Project management through international largely been a function of poverty, unemploy- NGOs. ment, and inequitable land distribution and landless poor people have cleared tropical Environmental services payments are distributed forests for subsistence farming. While current through individual contracts with farmers based practices of preserving forests within protected on land-use changes compared with the baseline. areas are necessary, they are not sufficient to These land-use changes are measured using ensure forest protection. satellite and Global Positioning System technology and this technology helps control monitoring What’s innovative? Providing financial incentives to costs. While development programs typically farmers, in the form of payments for eco-services— make payments ex-ante (that is, for costs of 254 converting degraded pasture land into more diverse inputs), participating farmers are paid ex-post vegetation resulting in increased carbon sequestra- (that is, when they have made the change). tion and associated biodiversity. The relation between the land-use changes, and carbon sequestration and biodiversity, is PROJECT OBJECTIVES AND DESCRIPTION closely monitored to be able to provide precise Providing forest protection beyond protected estimates of the contribution of different land area borders, the Regional Integrated uses to these “global public goods.” The effects Silvopastoral Approaches to Ecosystem Manage- of payments on the adoption of silvopastoral ment Project was established, encompassing systems, and farmers’ views, especially related sites in Colombia, Costa Rica, and Nicaragua. Its to risk, are the main socioeconomic variables objectives are to institute a system of incentive monitored. This tests whether payments for payments to farmers who adopt silvopastoral environmental services are needed to “tip the techniques on degraded pasture lands. These balance” in favor of the adoption of techniques include replanting degraded lands silvopastoral systems. with vegetation such as trees, legumes, and fast- growing shrubs that are environmentally sound Payments will total about US$1.2 million. To and financially productive so that the resulting sustain payments in the long term, the project

AGRICULTURE INVESTMENT SOURCEBOOK is exploring various funding sources. The Past experiences in similar projects have shown Government of Costa Rica has already ear- that economic incentives, such as those devel- marked general tax funds for the incentives. oped in the Latin America and Caribbean Possible revenues—a cost recovery approach— project, are especially important for ensuring may come from those benefiting directly from individual participant buy-in, since payments biodiversity conservation, such as municipali- are directly linked to participation level. The ties for the improved quality of water. process has previously been used with hesita- tion as land rights were poorly established. This project has circumvented risks associated BENEFITS AND IMPACTS with weak land rights by not requiring land Socioeconomic surveys, technical/information titles to make payments. workshops, and preliminary studies have begun. The number of farms participating in Initial experience has shown the need for well- the payment program will be 300. Initial feed- established institutional mechanisms to manage back indicates that: and monitor the process, and for valuing the opportunity cost of alternate land uses when • The farmer response to the incentive calculating appropriate payments. scheme has been positive. Farmers say that although the payment offered is small PROJECT COUNTRIES: compared to the costs of establishing the COLOMBIA, COSTA RICA, more intensive silvopastoral systems, the AND NICARAGUA payment is very important, as is the technical assistance. Project Name Integrated Silvopastoral Approaches to Ecosystem Management •The most likely land-use changes expected are more trees in pasture; improved pas- Project ID P072979 ture; live fences and windbreaks; and Project Cost US$8.4 million “protein” banks (shrubs etc. for livestock). Dates FY 2003 – FY 2008 • Policymakers see this as an opportunity to Contact Point Paola Agostini and Cees De Haan improve the environment and productivity. The World Bank, 1818 H Street The Minister of Environment of Costa Rica NW, Washington D.C. 20433 255 has already indicated that silvopastoral Email: [email protected] activities will be eligible for government and [email protected] environmental payment schemes.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY A virtual platform5 has been established by FAO-LEAD (Livestock, Environment And Devel- opment Initiative, co-financier and partner in the project) for the dissemination of information, dialogues, and e-mail conferences on issues related to the project. The platform allows the project to be known worldwide, and to benefit from interaction with global experts.

5 See Livestock, Environment and Development Initiative (LEAD) website: http://lead.virtualcentre.org

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE • Introducing more efficient and sustainable uses of land and water resources.

CHINA: WATERSHED • Reducing erosion and sediment flow into MANAGEMENT APPROACH TO the Yellow River. OPTIMIZING INCOMES AND ECOLOGY IN POOR The project targets several of the poorest HIGHLANDS counties in Shanxi, Shaanxi, and Gansu provinces, and the autonomous region of Inner Although the productivity of China’s irrigated Mongolia. The project follows an approach of areas is now among the highest in the world, integrated planning and treatment of small progress in dryland agriculture has lagged, watersheds and: particularly in rainfed regions in Northwest and Southwest China. High population pres- • Creates productive farmland for sustainable sures and unsustainable agricultural practices production of field crops and orchards, characterize these areas. The Loess Plateau in replacing crop areas on erodible Northwest China is one of the poorest areas. slopelands. Early efforts to address environmental issues (soil erosion) of the Loess Plateau included • Plants the slopelands with trees, shrubs, campaigns to terrace slopes, plant trees and and grasses for the production of fuel, shrubs, and build dams in the gullies to timber, and fodder increasing the per intercept sediment runoff. These interventions hectare productivity on improved farmland. were not integrated with efforts to raise agricultural productivity and farm incomes. The project follows a participatory approach Planners and farmers now realize that land and key involvement of local public institutions conservation is compatible with sustainable so that there is an integrated approach to and productive agriculture, and that these are interventions. Small watershed development mutually reinforcing. This strategic approach involves integration of forestry, soil and water has been implemented with considerable conservation, agriculture, and livestock. The success on more than 700,000 hectares of land various interventions include terracing, sedi- in the first Loess Plateau Watershed Rehabilita- ment control structures, and irrigation for 256 tion Project (Loess I). cropland improvement. Slopeland protection is achieved through livestock management, What’s innovative? Using an integrated small water- afforestation, vegetative cover, and horticulture. shed management approach in highlands, drawing The projects have involved specialists in these on local knowledge resources and integrating land areas. Following a two-year participatory tenure, grazing management, farming and conserva- planning process, during which staff collected tion priorities to optimize both productivity and the information about local soil erosion control ecological balance. practices, the project proceeded to assist participating farmers to complete over 80,000 hectares of terracing, and replant 160,000 hectares with PROJECT OBJECTIVES AND DESCRIPTION forest trees and income-generating shrubs and The Loess Plateau Watershed Rehabilitation trees , such as apple, pear, walnut, and apricot. Project II aims to implement the interventions tested by Loess I in other provinces, promoting While the private sector has been reluctant to sustainable development by increasing agricul- provide financing for the types of investments tural production and incomes, and improving involved, farmers share project costs by provid- ecological conditions in tributary watersheds of ing labor (up to 25 days per year) and by paying the Yellow River. Specific objectives are: for part of the investment costs, with the share

AGRICULTURE INVESTMENT SOURCEBOOK paid depending on the extent of private and • Provide farmer-to-farmer exchange trips to public benefit of the investment. Overall, the pilot/project areas. farmers contribute about one-third of the total investment. Local and provincial governments • Use a comprehensive media campaign to pay most of the remaining investment costs. publicize project objectives and activities for a sustained period of time to ensure it is The leading implementing agency is the widely known. Ministry of Water Resources. Four provincial water resources bureaus and twenty county • Keep projects as simple as possible, given water conservancy bureaus have led project local circumstances and the objectives set. implementation.

PROJECT COUNTRY: CHINA

BENEFITS AND IMPACTS Project Name Loess Plateau Watershed Within two years, participating farmers were Rehabilitation Project (I & II) able to double and in some cases triple crop Project ID Loess Plateau I: P003540 and yields and replant previously barren hillsides, Loess Plateau II: P056216 enabling over 500,000 farmers to improve their Project Cost Loess Plateau I: US$150 million standard of living. Over 3,000 villages are now and Loess Plateau II: US$150 actively involved and working with over 1,200 million microcatchments and, by the end of Loess II, over 3 million people will have benefited Dates Loess Plateau I: directly from the projects. FY 1995 – FY 2003 and Loess Plateau II: FY 2000 – FY 2004

LESSONS LEARNED AND POTENTIAL FOR WIDER Contact Point Jurgen Voegele APPLICABILITY The World Bank, 9th Floor Much of the project success has been due to Building A, Fuhua Mansion No. 8, Chaoyangmen Beidajie keeping project activities focused and simple, Dongcheng District and allowing each watershed group to develop Beijing 100027, China its own terracing and reforestation plans. Email: [email protected] Overly complex designs for extension and 257 agricultural programs can complicate implementation, take authority out of the hands of farmers, and limit potential for success. Major lessons learned were that similar projects are well advised to:

• Insist that, from the very start, farmers plan for grazing and livestock management.

• Allow local procurement for construction, terracing, and land reclamation, but use a strict quality control system for work at all levels, including random spot-checking.

• Import improved tree seedlings that can improve farmers’ abilities to protect hillsides.

MODULE 5: INVESTMENT IN SUSTAINABLE NATURAL RESOURCE MANAGEMENT FOR AGRICULTURE

INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT

259

ell functioning agricultural markets and a competitive and innovative private sector are critical to agricultural growth and structural change. Efficient agricultural markets provide W the basis for capitalizing on market opportunities and benefiting from increased farm productivity. Private sector and market development require a suitable enabling environment, characterized by a stable macroeconomic climate with adequate commercial laws and financial services, a well functioning legal system, and adequate infrastructure. Enhancing private sector and market development in a way that includes the poor presents a key challenge to development efforts.

RATIONALE FOR INVESTMENT The farm sector includes, in addition to agricultural producers, a diverse range of large and small enterprises, sometimes referred to as agribusiness, that include farm input and service suppliers (seeds, fertilizer, equipment), downstream processors, traders, and retailers. These enterprises are interlinked in networks that together constitute agricultural market systems that match buyers and sellers, provide a venue for consolidating small lots and grading, global market access provided under the facilitate physical exchange and price discov- World Trade Organization (WTO). Increased ery, transmit information, and manage risk. competitiveness in national and international Markets coordinate the activities of input markets has become a core issue for national providers, producers, and downstream agents. policy (see box 6.1). Privatization and market Nongovernmental organizations (NGOs) such liberalization reforms continue in many as industry associations and producer organiza- countries and, even where they are completed, tions play supportive roles. must be accompanied by a thorough review and reform of public policy relating to private sector Although a well-functioning private agribusiness and market development. sector is a precondition for a productive farm sector, the environment for private sector Many requirements for effective market and operations frequently has serious limitations. private sector development have public good Rural areas often lack infrastructure, effective characteristics. Public good dimensions include: local government, adequate commercial and contract law and other legal provisions, trade social services, and information and communi- agreements, competition policy, food safety cation systems. In addition, product and often regulations, establishment and enforcement of factor markets do not function well, and consid- grades and standards, infrastructure, training, erable interregional market rigidities exist. This market information services, and overall coordi- increases risks associated with doing business nation of public and private sector activity. and contributes to interregional disparities. While some of these can be provided by the When agro-enterprises find it too costly or risky private sector, this often requires regulation and to rely on small-scale farmers for raw material cofinancing or approval by the public sector. supply, these farmers are excluded from market Public investment to improve the rural invest- opportunities. For agricultural growth to be pro- ment climate improves the competitiveness of poor, the rural poor must be successfully agriculture and rural enterprises. Without the integrated into expanding markets. support of public sector enabling institutions, private sector agro-enterprises and markets will Competitiveness of agricultural production remain inadequately developed and inequitable. and market efficiency are becoming more important with the commercialization of Improved market efficiency and greater private 260 agriculture and the growing importance of sector activity are essential to aid the transition

Box 6.1 Competitiveness and supply chains

Competitiveness is the ability of enterprises to earn a sufficient income for employed labor and capital. If a firm is competitive, it can invest to expand, innovate, and adjust to market changes. Competitiveness depends on the cost structure and on prices realized on sales which are factors dependent on the firm’s own performance; on public infrastructure and services; and on performance of other institutions providing the firm with inputs and services. Since firms that are linked to distant input or product markets often depend heavily on other firms and the public sector, competitiveness may need to be analyzed for clusters of enterprises with interrelated activities. Competitiveness frequently depends on a chain of firms that together produce, collect, process, transport, and sell products. In agriculture, many firms and farms are strongly interdependent in such supply chains. For example, to be competitive, fruit producers in Ghana must be effectively linked with suppliers, technology providers, traders, processors, transporters, and retailers in the United Kingdom to earn sufficient income for their labor, land, and capital. Supply chains provide for market linkages that ensure the supply, quality, and safety of agricultural products. Performance of the chain depends on effective cooperation and coordination among all partners in the chain.

Source: Authors.

AGRICULTURE INVESTMENT SOURCEBOOK from subsistence farming to more commercial- legacy of state-controlled and parastatal-man- ized agricultural systems. The latter produce and aged markets in many countries left the institu- market food staple crops more efficiently, or tional and policy frameworks for liberalized higher-value products (mainly livestock, aquacul- and private sector-led markets underdeveloped, ture and horticulture products) that require more and private sector capacities relatively limited. inputs, processing, and handling. Market effi- More recently attention has focused on ciency improves competitiveness in local and strengthening a new architecture for agricul- foreign markets, and increases incomes to farm- tural market institutions and incentives, pro- ers, laborers, and small entrepreneurs involved in moting private commercial activity and reori- input supply and downstream processing and enting state activity to the provision of enabling distribution. Private sector development typically regulatory and physical infrastructure. As a generates employment opportunities distributed result, Bank lending for agricultural markets across a broad spectrum of the economy. In- and trade and agro-industry has begun to creased market efficiency can also improve living increase again (see figure 6.1). conditions for poor consumers by reducing food prices, improving quality and variety, and increasing accessibility of food and other consumer KEY ISSUES FOR INVESTMENT goods. This results in increased real household The expanding role of the private sector is income and improved nutritional status. increasingly realized, as is acceptance that markets are the best vehicle for rural economic growth, and for facilitating specialization and PAST INVESTMENT ACTIVITY diversification. The increased focus on private In the 1960s and 1970s, governments in many enterprise and market development for poverty countries played a direct role in input supply, reduction emphasizes improvement of the production, trade, transport, and distribution, or enabling environment, and an adjustment of at least had a dominant role in the control or priorities to facilitate market participation by management of these markets. The World Bank the poor. Key issues in this regard include: and other donors provided significant direct adapting to globalization pressures, defining investment in parastatals (state-owned compa- public and private roles, communicating with nies), government controlled cooperatives, and the private sector, public-private cooperation, public marketing. When government-dominated managing risk, improving market access, systems fell into disgrace in the 1980s and 1990s promoting competition, addressing food safety 261 because of their poor performance, lending for issues, and ensuring gender equity of growth. these types of investments disappeared. Difficult, lengthy, and sometimes disruptive processes of Adapting to globalization and dynamic market privatization and market liberalization marked change. Rapid changes in consumer demand, the ensuing transition from government-domi- technologies, and organization of markets and nated systems to market-based systems. World supply-chains present continuous challenges Bank support focused mainly on lending for to producers. Competitive forces require adjustment and reform. Direct investment was producers to regularly adjust the technologies left to private investors, commercial banks, and employed in production and marketing pro- within the World Bank Group, to the Interna- cesses, and to improve the efficiency of tional Finance Corporation (IFC). linkages within supply chains. Agribusinesses must have the flexibility to adapt as new Although privatization and liberalization were technologies emerge, as new trade and market often necessary to stabilize economies and requirements are established, and as consumer provide a basis for economic growth, in many demand evolves. Grades and product and cases these reforms did not result in a quick process standards are taking on greater impor- response from private investors. The long tance in light of consumer (and the retail

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT FIGURE 6.1 WORLD BANK LENDING TO "AGROINDUSTRY" AND "AGRICULTURAL MARKETS AND TRADE", 1990–2002

U.S. Dollars 800 (millions)

600

400

200

0 1990 1992 1994 1996 1998 2000 2002 Years

Source: World Bank Internal Documents.

gatekeeper) demands for quality, safety, justification of public interventions is complex authenticity, and sustainability of products. and requires significant analytical capacity. Public The need to meet these demands can repre- sector involvement must be guided by high- sent a major challenge to market entry or quality analytical work with regard to markets continued market access. The government role and commodity chains, that ensures that the costs is to efficiently provide the public goods that of public intervention do not exceed the benefits. enable private enterprises to competitively Important information needs relate to the follow- produce for local and international markets, ing issues and guidelines: and to ensure that the benefits of these interven- 262 tions do not bypass the poor but expand their • The public sector should not do what the production and income opportunities. private sector can do (for example, direct provision or distribution of agricultural DEFINING PUBLIC AND PRIVATE ROLES. One of the most inputs such as seed or fertilizer). difficult challenges for policymakers in a developing market economy is to find a good balance • Public interventions should go to those between public and private responsibilities. activities that have the highest potential net Although public goods are the responsibility of benefits (that is, where objective policy the public sector and private goods of the private research and analysis indicate the greater sector, many goods and services, the so-called economic and social returns—not where impure public goods, have shades of public and powerful political lobbyists prefer). private characteristics that may require joint public-private actions. Markets function imper- • Subsidization of variable inputs and credit fectly due to externalities, economies of scale, are usually undesirable—exit strategies for asymmetric information, nonexcludability, and subsidization and border protection are excessive contracting costs. These market imper- needed where they exist, and some transi- fections often require public sector intervention. tion mechanisms (such as direct income But the identification of market failures and support) may be appropriate.

AGRICULTURE INVESTMENT SOURCEBOOK • Public-private cofinancing of lumpy one-time • Facilitating efficient marketing functions investments is often a preferable strategy (for through standardized terms for the delivery example, for information systems, transport of products, their conditioning (sorting, and storage infrastructure). packaging, grading, and labeling), the mode of payment, arbitration of commercial COMMUNICATING WITH THE PRIVATE SECTOR. In disputes, and policing of markets. developing countries with a legacy of state dominance of the economy, the voice of • Monitoring quality of products through entrepreneurs is often weak. Communication technical standards and norms. between government and the private sector is not well institutionalized and often limited to • Research and development and training to larger companies with greater political influ- improve skills of technical staff. ence. Smaller enterprises, in rural areas in particular, have little access to systems for • Generic promotion of agricultural and food public policy dialogue and therefore limited products in foreign markets. ability to influence political outcomes. In such situations government decision makers Reducing risks faced by private firms. As a may overlook important information and result of market liberalization, price risk has private sector concerns when preparing and been shifted from governments to producers implementing policies. and consumers. The risks associated with private sector investment are exacerbated by Similarly, donors also have little experience ineffective systems for enforcing property rights in working with the private sector because and rules for contracts, and by distortionary they are often legally confined to dealing trade policies. High rates of inflation and with governments. Major efforts are needed shortages of foreign exchange contribute to to establish good communication and coop- investment uncertainty and the inaccessibility eration between private sector entities and of intermediate inputs. Farmers and firms have donor agencies, to develop better mutual “traditional” means of managing their risks (that understanding, and to overcome past mistrust is, through savings, diversification, selective and antagonisms. market relationships), but these may result in lower than optimal investment and missed PUBLIC-PRIVATE COOPERATION. Development of opportunities. A high-risk environment encour- 263 market institutions and provision of support- ages a short-term perspective—it constrains ing public good services remain areas in transition away from subsistence farming which synergies can be obtained through toward commercial systems, and acts as an cooperation between the private and public overall disincentive to the integration of the sector. Public-private cooperation is especially poor into the economy. important for: Governments can reduce risk for private • Developing and maintaining market infra- entrepreneurs through a stable policy climate, structure that reduces costs of exchanging better information services, technologies, and physical products. infrastructure. A functioning or enabling legal and regulatory environment and contract • Developing and maintaining information disputes mechanisms (for example, arbitration systems for data on supply and demand, in the absence of an effective judicial system) trade, prices, and technology. are also important. Further, the public sector can facilitate the use of existing traditional • Preparation and implementation of new commodity exchanges (for example, spot rules and regulations related to the agricul- markets) as well as more complex markets for tural, trade, fiscal and economic policies. risk management (for example, futures, hedg-

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT ing, and insurance), and in certain cases can regulatory checks and balances is essential to promote the establishment of new commodity ensure a level playing field for local enterprise. exchanges.1 Safety nets will be needed in some Promotion of regional markets across national instances to cushion some groups from adverse borders with harmonized regulations, grades social and economic aspects. and standards, research and information systems, and business certification, can all expand REDUCING BARRIERS TO MARKET ACCESS AND ENSURING the scale of production and marketing. This EQUITABLE OUTCOMES. The impacts of market will improve market efficiency and also reduce development are highly differentiated across market entry costs and expand opportunities rural enterprises, community groups, and indi- for local farmers. viduals. Some stakeholders (the landless or women for example) stand to lose from the LABOR MARKETS. Availability of skilled labor and development of more open and competitive flexibility of labor markets are important markets and targeted efforts to mitigate potential considerations in investment decisions for negative impacts and promote equitable access private sector enterprises. Labor market regula- to the benefits are often necessary. Small enter- tions can have major impacts on the cost of prises are more dependent on public services labor. For instance, if layoffs are very expensive than larger enterprises, because they lack econo- as a result of employment contract regulations, mies of scale for contracting their own technical employers may be discouraged from hiring and management services. Moreover, they have new labor. An important trade-off in designing less political influence, and public sector officials labor policy is to accommodate the needs of often have little knowledge of the needs of and compliance costs for, local industry, while small enterprises and the obstacles they face. ensuring that the interests of the local Furthermore, new technologies and new market workforce (the poor, women, and the requirements may tend to exclude small produc- underrepresented in particular) are fully ad- ers. Market forces alone will not ensure such dressed. Application of sound labor laws participation because of the potentially high (following International Labour Organization transaction costs faced by upstream and down- standards) encourages pro-poor growth and stream economic entities involved in transac- increases the ability to access some interna- tions with small, dispersed groups. Public tional markets and meet the labor standards set support initiatives, especially technology, infor- by foreign buyers. 264 mation and advising services, and strengthening of producer organizations (POs) are often FOOD SAFETY AND STANDARDS. International public required to provide a level playing field that sanitary and phytosanitary standards pose enables small enterprises and small farms to important problems for exporters from develop- participate in free markets. ing countries with their limited institutional and financial resources. These standards involve PROMOTING COMPETITION. In government-domi- protection of public health, prevention of the nated markets, competition was seldom en- spread of harmful animal diseases and plant couraged, whereas in a market economy it is pests, and protection of ecosystems. Of increas- crucial. An important issue for government ing importance are requirements of private policy is to promote competition through free sector buyers in Organisation for Economic Co- market entry, and to curb monopolistic and operation and Development (OECD) countries, monopsonistic market power. Since globaliza- who often set product and process standards, tion forces can concentrate enormous market involving environmental and social requirements power, government capacity to apply legal and that are well in excess of minimum legislated

1. See the AINs, “Commodity Price Risk Management” and “Agricultural Insurance” (Module 10).

AGRICULTURE INVESTMENT SOURCEBOOK food safety standards. With the rapid increase in For donor agencies, priority investments should proportion of food products marketed through be directed at economic and sector work to supermarkets (both in industrial and developing support policy formulation and competitiveness countries), it is critical that coordinated supply planning. Lending for infrastructure can be chains enable producers to meet the specific significant, but most other investment needs requirements of modern retailers. They should (generally related to capacity building) are also certify that the grades and standards they likely to be relatively small, even though they set (as well as government implemented safety may be crucial to market and enterprise devel- standards) have been satisfied. opment and, hence, to rural growth and poverty reduction. GENDER. In many countries, the management of certain crops and particularly agricultural IMPROVING POLICY AND REGULATORY FRAMEWORKS. processing is traditionally viewed as Lending in support of policy formulation and “women’s work.” Increasing numbers of regulatory frameworks will typically need to women are participating in the formal labor focus on policy analysis, restructuring of public force (in field production, in pick-and-pack services, and building public and private sector operations, in food processing plants, and in capacity. Although many countries have imple- managerial and supervisory positions). It is mented major policy reforms, the business important to ensure that women producers environment is often still far from conducive to are not discriminated against in terms of private sector growth, especially in rural areas. opportunity to participate in national and Investment Climate Assessments (ICAs) have international markets through producers become a common tool to identify major associations and contract farming. Similarly, obstacles for private sector development. While female workers should have acceptable these assessments are being adapted to cover employment conditions, and women entre- rural areas to provide input to policy dialogue, preneurs should have equal access to credit, and the preparation of lending operations, it is training, and market contracts. Gender-related important to consider the full range of analyti- issues in market and agribusiness develop- cal methods and frameworks, and to adopt ment must be fully explored through sound innovative approaches where appropriate. gender assessments, as a basis for planning any new public investments. Effective legal and regulatory policies for efficient functioning of markets (for example, 265 contract enforcement rules, labeling regulations) FUTURE DIRECTIONS FOR LENDING are critical to increasing investment. Many Public support for development of agricultural developing countries have complicated systems markets and private sector capacity can in- of business regulations that increase costs of volve: improving the policy and regulatory private sector operation and open avenues for framework; privatization; provision of public corruption. A sound legal framework and goods infrastructure and services to enhance effective mechanisms for efficient and fair competitiveness; development of entrepreneur- adjudication of contract disputes is necessary in ial capacity, industry and producer associations, any country to enable efficient market transac- and new market chains; and information and tions. Trade policy, including duties and quotas communication systems. The most crucial on imports and taxes and subsidies for exports, government responsibility is that of formulating may distort relative prices and can have a major economic policies. This requires continuous impact on investment. Monetary policy affects policy and market analysis. Most direct invest- investment through direct effects on interest ments are the responsibility of the private rates (the cost of capital). Property rights (intel- sector, but large-scale public sector investment lectual, land) must be protected to encourage may be required for public infrastructure. investment and innovation.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT PRIVATIZATION. Privatization continues to be an an important bearing on private investment important area for reform, because many and competitiveness. The same can apply to inefficient parastatal enterprises still exist. The government support for, or direct provision of, complexity of privatization of agricultural agricultural, postharvest, and food technology industries is due to the interlinkages of input research, training, and dissemination. If these supply, financing, and commodity markets and basic needs are not met, there will be the political sensitivity of food supply and underinvestment in the local economy. prices. The transition from public to private ownership has major implications for financing DEVELOPING ENTREPRENEURIAL CAPACITY. Entrepre- production and processing systems, since neurial and managerial skillsæincluding implicit in the previous financing for such market research, promotion, pricing strategies, systems was the de jure or de facto exclusive marketing channel management, and other commodity procurement and marketing rights skillsænecessary for effective private sector of the state enterprise. Privatization therefore investment are not widely developed in many may require reengineering of the entire farm to countries. This is due, in part, to the past factory to buyer supply chain. Particular atten- dominance of processing/marketing activity by tion should also be given to market-making parastatal (and/or foreign) enterprises and the (see box 6.2). concentration of trade in unprocessed standard commodities. This limited skills base IMPROVEMENT OF PUBLIC GOODS AND SERVICES. The inhibits the ability of entrepreneurs to pen- ability of private enterprises to compete de- etrate international markets for nontraditional pends very much on the availability and quality products, and to compete with established of public goods (incentive structures, infrastruc- companies in domestic and regional markets. ture, public services) and public “bads” (cost Business development services (BDS) that and disincentives of misguided interventions, help firms improve quality and efficiency of poor governance). Investors will invest capital processes, reduce costs, and expand opera- where infrastructure and services enable them tions are important to all firms, but are espe- to compete in the marketplace. Well-targeted cially critical to small firms and new start-ups. public investments in roads, ports, telecommu- Needs assessments indicate scope for pro- nications, marketplaces, and water supply have grams of training, internships, and technical assistance to build skills in small business 266 management, so that small firms and those in Box 6.2 Privatization and market-making rural areas develop capacity to participate in markets. BDS are best provided by financially The “privatization as asset-transfer” approach has frequently autonomous entities, capable of securing given insufficient attention to the range of market-making functions and services (risk management, price discovery, quality much of their funding through the recovery of control, market intelligence, production statistics, remote area costs from users. Examples in agriculture are collection services, farm extension) formerly undertaken by agribusiness development centers (ADCs), state enterprises. Key to fostering development of new project development facilities, learning institutions is the need to: through exchange schemes, and nonprofit

• Promote government commitment to “sell” the reform to private sector institutes (see box 6.3). stakeholders and support the implementation process; • Develop a consultative process that sharpens understand- BUSINESS ASSOCIATIONS AND EMPOWERMENT. Business ing of key issues and provides a grounding and record for associations have valuable roles to play as public debate; and vehicles for connecting producers and clients, • Plan for a 2-3 year transitional period that maintains the crystallizing and expressing the viewpoints of momentum of reform while avoiding the emergence of affinity groups, taking collective action, network- function/service gaps. ing among members, and providing economic Source: World Bank 2001. services in training, information, facilitation,

AGRICULTURE INVESTMENT SOURCEBOOK technology, and legal support. They include Box 6.3 Agribusiness development centers chambers of commerce, regional business councils, and business associations that include Between 1993 and 2003, project-based agribusiness develop- seed trade associations, fertilizer importers and ment centers (ADCs) have been established to provide dealers associations, fruit and vegetable export- advisory and analytical services to private sector agro-enter- ers associations, rice millers associations, and prises in a number of countries. They have played a variety of others. These associations often represent catalytic and facilitation roles, although they generally focus on influential private sector entrepreneurs—al- technical and market information. The experience of ADCs though not necessarily the poorest ones—who points to the importance of: clear definitions of objectives and clientele; credibility and competence of staff (dependent in part constitute a potential engine for growth, and on the extent to which the ADC board is led by the private could therefore contribute substantially to sector); a realistic strategy for financial services; and the government policy and strategy formulation. separation of technical and financial services.

Source: World Bank 2001. Governments can facilitate association development, but must be cautious in initiating activities, as this may be perceived as government control. It may also undermine the legitimacy Box 6.4 Guinea: Foutah Jalon (Guinea) potato growers and private sector members’ ownership, mak- successfully competing with European farmers ing continued funding uncertain once public sector support is withdrawn. Any program The Federation of Foutah Jalon Farmers has 13,500 members providing financial, technical, and/or human who produce approximately 4,000 tons of potatoes every year. The Federation markets an additional 3,000 tons of nonmem- resource support to associations should involve ber production each year. Besides support to marketing, the a commitment of the association itself. At the Federation provides members with technical advice and inputs local level, building capacity of local private sector (imported potato seeds and bags). Marketing of potatoes is associations can facilitate dialogue with local govern- managed by a group of women called “Dioulamoussous” who ment, and be an important element in empowering collect produce from 21 Federation warehouses and resell it in small businesses. the capital city of Conakry. The farmers and the women traders agree upon the producer price as well as the women’s margin. COOPERATIVES AND PRODUCER ASSOCIATION-OWNED After negotiation with the Federation, the government agreed ENTERPRISES. A special type of private collective to limit potato imports from Europe during the period when enterprise is that of the producer group-owned Fouta Jalon potatoes are marketed. This protection measure allowed Fouta Jalon farmers to develop their production enterprise, usually based on small farmers 267 associating in cooperatives, producer associa- through improvements in productivity, storage, and marketing. In four years, yields per hectare increased from 3 to 20 tons. tions, or informal marketing groups. These Protection measures have now been lifted and Foutah Jalon group enterprises build economies of scale and farmers are competitive with European farmers. This scheme improve small farmer marketing options, has been so successful that in certain villages people speak of providing direct impact on the welfare and urban-rural migration: urban people are moving back to Foutah competitiveness of small producers, as well as Jalon to grow potatoes. being social safety nets (see box 6.4). As Source: http://www.paysansdufouta.org/. producers become more “market-savvy” their interest in such group enterprises is likely to increase, and enterprise development becomes warranted to help these groups become estab- more feasible and important. lished and overcome their disadvantages of limited business management experience, A first requirement for public support for education, and poverty. Similar to support to cooperatives and other producer group-owned other private entrepreneurs, direct public enterprises is the establishment of a facilitating subsidies must be approached with caution. legal, regulatory, and policy framework for There must be a clear justification for public such enterprises. Additional support is often support to overcome initial constraints and a

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT defined exit strategy to avoid dependency and and trading activities. Although market infor- continuing subsidies. mation has public good elements, most of the efforts to develop public sector market infor- SUPPLY CHAINS FOR MARKET INTEGRATION. Perishable, mation systems have failed, as most systems high-value products with stringent quality and have lacked commercial utility and have been safety requirements typically require complex unsustainable. Building sustainable market contracting arrangements to control quality and information systems will require: identifying coordinate specialized production, trading, and mechanisms for private management; obtain- processing activities.2 Effective supply chains ing at least partial cost recovery; having a transmit demand signals to suppliers who in modest scope covering only one or a few commer- turn can respond flexibly and efficiently to cially important commodities; ensuring a participa- satisfy consumer demand. This allows private tory process with users defining their needs; includ- entities to share information and technology, ing some non-price data (market closures, quality pursue marketing strategies, reduce risks and comments, food safety problems); and making cost- transaction costs, and safeguard quality and effective use of available information technologies to safety. Public support, through independent achieve timely and wide dissemination. intermediaries with adequate knowledge of tools and technologies, can play an important role in enhancing the emergence of effective SCALING UP INVESTMENTS supply chains.3 This must be based on sound Prior to scaling up, public investments in industry or chain analysis, and must take into agricultural private sector and market develop- account the resource availability constraints and ment need to be oriented toward, and criti- implications for small farmers. Producer organically evaluated against, the objectives of zations are important for linking small farmers poverty reduction, efficiency, and to market chains. sustainability. Key outcome criteria will relate to market efficiency, including reductions of INFORMATION SERVICES. Information is crucial to subsidies and market distortions, increases in efficient agricultural markets. The availability quality and value addition, enterprise profit- of accurate price and other market information ability, and employment generation. Two key helps to reduce risks and transaction costs, safeguard policies generally relevant to investments and to enable market participants to plan and in agricultural private sector and market develop- 268 coordinate more effectively their production ment must also be considered (see box 6.5). Various operational policies and safeguards relating to Box 6.5 Key safeguard policy issues for private sector and subsidies and grants may also be relevant. market development investments Although the following five investment notes are • Environmental Assessment (Operational Policy (OP)/Bank important themes for practitioners involved in Procedure (BP) 4.01)æan Environmental Assessment is private sector and market development, they by no required if private sector or market development activities means reflect a comprehensive collection. Future may have potential adverse environmental risks or impacts. editions of this Sourcebook will include notes on • Pest Management (OP 4.09)æprivate sector and market other areas of best practices that are equally as development investments involving procurement and use important as those in this edition. Such future work of pesticides or that might expand use of pesticides and will include: Facilitating Food and Commodity unsustainable pest management practices require an Environmental Assessment, a Pest Management Plan, and a Markets, Managing Standards and Grades, Producers list of pesticides authorized for procurement. Organizations, and Trade Associations. Source: World Bank Operational Manual.

2. See the AIN, “Horticultural Exports from Developing Countries”. 3. See the AIN, “Supporting Market and Supply Chain Development”.

AGRICULTURE INVESTMENT SOURCEBOOK SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Dolan, C. S., and K. Sorby. 2003. “Gender and Employment in High-Value Agriculture Industries.” Agricultural and Rural Devel- opment Working Paper 7. World Bank, Washington, D.C.*

Jaffee, S. 1992. Exporting High-Value Food Commodities; Success Stories from Devel- oping Countries. With the assistance of P. Gordon. World Bank Discussion Paper 198. Washington, D.C.: World Bank.* van der Meer, K. 2003. “Public-Private Coopera- tion in Agricultural Research: Examples from the Netherlands.” In D. Byerlee and R. G. Echeverria, eds., Agricultural Research Policy in an Era of Privatization. Wallingford, U.K.: CABI Publishing.

World Bank. 2001. “Promoting Agro-Enterprise and Agro-food Systems Development in Developing and Transition Countries: Towards an Operational Strategy for the World Bank Group.” World Bank, Washing- ton, D.C.*

269 REFERENCES CITED Fédération des Paysans du Fouta Djallon. http:/ /www.paysansdufouta.org/.

World Bank. 2001. “Promoting Agro-Enterprise and Agro-food Systems Development in Developing and Transition Countries: To- wards an Operational Strategy for the World Bank Group.” World Bank, Washington, D.C.

World Bank. Operational Manual. http:// wbln0018.worldbank.org/institutional/ manuals/opmanual.nsf/.

This Overview was prepared by Sam Kane, Kees van der Meer, Derek Byerlee, and Gary Alex. Peer review comments were provided by Steven Jaffee, Kathleen Cloud (University of Illinois), and Ousmane Badiane.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT AGRICULTURAL INVESTMENT NOTE the flow of products, payments and capital, technology, ownership rights, and information among these participants and exploit synergies SUPPORTING MARKET AND for market expansion and cost reduction. SUPPLY CHAIN DEVELOPMENT Closed chains perform the same functions within one company that controls various Trade liberalization, urbanization, concentration stages in the product chain. of retailers, and quality and safety requirements are leading to rapid changes in the organization The development, organization, and manage- of markets. Market-driven systems are replacing ment of supply chains is primarily a function of supply-driven and product-oriented systems. the private sector requiring private investment Closed and coordinated supply chains can in inputs, equipment, market information, bypass open wholesale and spot markets. technology, and skills. The public sector role is Supply chain development enables integration that of creating favorable conditions for devel- of market functions and linkages between opment of supply chains, for fostering public- different participants in the system, and allows private cooperation, and for enabling inclusion for better coordination and planning. Access to of smallholder and small enterprises. supply chains and supply chain competitiveness are issues that have become important for Supply-driven systems producing heteroge- growth and poverty reduction in agriculture. neous commodities in uncertain quantities and Analysis of supply chains is important in qualities, once typical of agriculture, are planning investments to enhance competitive- becoming obsolete and are being replaced by ness and market participation by small farmers. demand-driven supply chains, requiring major changes in production, technology, and Globalization, changing consumer demands, logistics. Coping with these challenges ex- and new information and communication ceeds the capacity of most individual entities. technologies are key driving forces in global Public investment associated with policy and agro-food industries. Consumers are demand- regulatory reform, improving infrastructure ing more information on the food safety, services, demand-driven public research and ecological, and social aspects of the products development, training, and advisory services they buy. Rising per capita incomes, urbaniza- may be beneficial for boosting the competi- 270 tion, the increasing numbers of women in the tiveness of supply chains. formal labor force, and market liberalization have spurred the rapid growth of modern retail Private entities have commercial interests in chains. Large supermarket chains, sourcing cooperating in coordinated supply chains to food from global markets, are increasingly share information and technology, pursue acting as gatekeepers for consumer markets. In common marketing strategies, reduce risks and developing countries supermarkets are rapidly transaction costs, and safeguard quality and increasing their share in the food market. safety of products. Nevertheless, cooperative supply-chain strategies require high initial transaction costs and are not without risks of INVESTMENT IN INTEGRATED SUPPLY CHAIN noncooperation (trust of partners). Public SYSTEMS involvement may be appropriate to facilitate Closed and coordinated supply chain organiza- the transition from product-based, supply- tion and management are rapidly replacing driven marketing systems to demand-driven open markets, especially for perishable food, arrangements, especially if involvement of but increasingly also in food staple markets. smallholders can be maximized. Coordinated supply chains are institutional arrangements that link producers, processors, traders, retailers, and consumers. They regulate

AGRICULTURE INVESTMENT SOURCEBOOK BENEFITS can address infrastructure constraints through Benefits of well-coordinated supply chains cofinancing arrangements that promote private derive from stable markets that can result in investment in infrastructure. greater profitability and employment. Supply chain coordination can: SMALLHOLDER INCLUSION. Small-scale producers, especially women producers, are often at a • Provide access to new market outlets and disadvantage in adjusting to new market thus increase the producers’ ability to conditions, because they lack technical and match production and demand. market knowledge and investment funds. The contribution of individual smallholders is often • Provide access for producers and small of low marginal benefit for chain partners, enterprises to information on technology, while the cost of uncooperative behavior by a financing, and market requirements for smallholder (for example, moral hazard in the qualities and quantities. use of antibiotics and pesticides) may be high. Contract farming can be a suitable arrangement • Better control product quality and safety to link farmers to supply-chains, but in many through tracking, tracing, and certification. cases other arrangements may be preferable (see box 6.6). Special assistance (training, • Share risks among chain partners, espe- capacity building of POs) to make smallholders cially for large investments. attractive chain partners can also be justified for externality and equity reasons. Large farm • Reduce lead-time and losses of perishable participation in supply chains can have sub- products through joint planning and coordi- stantial poverty impacts, as they often generate nation of supply. considerable employment, demonstrate ways to

• Provide a means to pool production and thus develop economies of scale. Box 6.6 Contract farming Contract farming is a forward agreement between farmers and • Increase employment from enhanced processing and/or marketing firms for the supply of agricultural participation in value-adding activities. products, frequently at predetermined prices. This can provide the necessary backward and forward market linkages for profitable smallholder production. The approach is widely used 271 POLICY AND IMPLEMENTATION ISSUES for cash crops, fruits and vegetables, and dairy. POLICY AND REGULATORY ENVIRONMENT. Private For farmers, contractual arrangements can provide access to sector investment requires a sound enabling production services, credit, and knowledge of new technology. environment for enforcing laws related to Pricing arrangements can reduce risk and uncertainty and give trade, labor, environmental, contracts and farmers the opportunity to diversify into new crops. Contract intellectual property. This is especially impor- farming may be more efficient than plantation production, and tant for participation of foreign partners and is often more politically acceptable. It can give agribusinesses international trade as well as public welfare the opportunity to organize a reliable supply of products of the desired quality and access to land not otherwise available. measures. Contract farming requires a long-term commitment from INFRASTRUCTURE LIMITATIONS. Traditional market and farmers and the agribusiness, with both recognizing that infrastructure services (wholesale markets, honoring contractual arrangements is to their long-term benefit. transport and communication systems, inspec- The public sector can facilitate contractual arrangements by promoting development of producer organizations (POs), tions, storage facilities) are often not conducive establishment of appropriate contract law, provision of required to the development and functioning of supply infrastructure, and development of effective land administration chains. Supply chains for perishable products systems. in particular need reliable cold storage facilities Source: Eaton and Shepherd 2001. at every link of the chain. The public sector

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT diversify income and security risks, and estab- approaches, and experiences in supply chain lish new market outlets from which smaller development (Agri Chain Competence Center). farmers may subsequently benefit. FLEXIBILITY. As profitability of products and markets TIME TO BUILD TRUST AND ACCUMULATE KNOWLEDGE. change with frequent changes in consumers’ Development of supply chain entities involves preferences and new competition, supply chain much trial-and-error type organizational learn- partners need to learn how to deal with changing ing. Knowledge about chains is essential for market conditions through flexible organizational developing a workable structure, and knowl- arrangements, production and market diversifica- edge within chains (such as product design, tion, and new technologies. packaging and distribution, market and customer preferences), is essential for ensuring the TECHNOLOGICAL INNOVATION. Private enterprises chain’s sustainability and efficient functioning. generally have access to state-of-the-art technologies, but adapting these to local conditions might require additional testing LESSONS LEARNED and research. Government research and CAPACITY OF GOVERNMENT TO ASSIST. Supply chain extension (R&E) systems are usually not well competitiveness depends on good logistics and suited to providing timely and specialized low transaction costs. The public sector can support needed by private sector supply create conditions for development of efficient chains. The public sector can support innova- private-sector supply chains, but government tion by maintaining core scientific expertise capacity to support supply chain development (in laboratories and key technical areas such and increase involvement of smallholders is as entomology, soil science, pathology), and typically limited. Pilot programs for supply by providing matching grants on a competi- chain development, based on public-private tive basis to the private sector for technology cooperation, can be useful to build capacity development. within the private sector and government (see box 6.7). Specialized intermediaries are useful DOMESTIC MARKETS. Emergence of modern retail in collecting and sharing information on tools, systems in developing countries presents new challenges and opportunities for producers. The new retail systems have product require- 272 Box 6.7 Building private and public sector capacity through ments for quality, safety standards, and timely chain pilots delivery that are higher than the traditional markets, but still lower than export markets. In pilot projects, partners collaborate to identify and resolve These local markets provide an avenue for problems, “learning by doing” and “learning from best practices,” learning and gradual improvement of supply as chain partners analyze operations and look for practical ways chains (see box 6.8). to reduce costs and improve quality. Collaboration allows dissemination of information on new technologies, and means to improve collaboration among chain partners. Pilot projects RECOMMENDATIONS FOR PRACTITIONERS show partners how to improve quality, certification, logistics Orienting production and marketing systems to (reduction of lead-time and storage), information exchange, consumer responsiveness, and innovation. The pilot project customer demand must be the driving force approach should be bottom-up, with initiatives for vertical chain behind the operation of agriculture supply coordination coming from potential chain partners. A typical chains. Investments should seek to: pilot project lasts one to three years and consists of a four- phase cycle of orientation/analysis, definition, implementation, • Develop trust, commitment, and transpar- and monitoring and evaluation. ency among partners in the chain to im- Source: Van Roekel, Willems, and Boselie 2003. prove communication and information exchange. Awareness-raising activities that

AGRICULTURE INVESTMENT SOURCEBOOK Box 6.8 Thailand: fresh food supply chain for the domestic market

In 1998, Royal Ahold and the Thai Central Retail Corporation began a supply chain project aimed at providing Thai consumers high-quality fresh fruits and vegetables at affordable prices; reducing lead times and postharvest losses; and raising knowledge of supply chain functions and principles. The project built a fresh distribution center for quality control, sorting, washing, packaging, and processing. Standardized crates, pallets, and crate-washing facilities were introduced and widely accepted by the Thai retail industry. A network of contract farmers sells through buyers who are preferred suppliers, due to their ability to exert backwards control on the supply chain. Informal farmer associations are also in direct long-term business relationships with retailers. The emphasis of the supply chain development strategy has changed from supply chain optimization activities such as reducing postharvest losses, shrinkage, and handling costs, to integral chain care such as Hazard Analysis Critical Control Points (HACCP) good agricultural practices certification. Supply chain partners have established alliances with research institutes and the Ministry of Agriculture to improve food safety assurance and certification systems.

Source: van Roekel et al. 2002; http://www.haccpforexcellence.com/.

provide chain partners opportunities to get acquainted and build up relationships help Box 6.9 Potential investment chain partners jointly plan flow of goods, information, technology and capital. Boosting national capacities in supply chain development: • Pilot projects for developing expertise of enterprises, • Rely on initiative and leadership of a producer groups, service providers, and public agencies private company for sustainability of a (for example, research, inspection, certification bodies). chain project. Leadership and power should • Support to specialized independent service providers to develop and share expertise, promote public-private not be concentrated within one company cooperation, organize training, and facilitate the develop- and different chain partners can provide ment of supply chains. leadership in different areas. Boosting capacities of individual supply chains: • Review of policy and regulatory frameworks for supply • Promote public-private partnerships with chain development. stakeholders that include representatives • Market and infrastructure services. from business, universities, ministries, and • Support for public-private cooperation in infrastructure public agencies. Limiting the number of services, research and extension, training and other skills for supply chain management. 273 chain participating partners helps to • Develop Good Agricultural Practices/Good Manufacturing achieve a chain market orientation. Practices to meet buyer standards. • Build capacity of producer organizations (POs) to • Recognize that social and cultural differ- participate in coordinated supply chains. ences can lead to misunderstandings and Source: Authors. miscommunication between chain partners, especially when chains include foreign participants. collaboration is often based largely on • Recognize that different chain partners are commitment and knowledge of one or a often responsible for supply chain strategies few persons (see box 6.9). at the policy level and that strategies need to be translated into incentives at the operational level to avoid conflicts among chain partners. SELECTED READINGS Asterisk (*) at the end of a reference indicates • Provide incentives to discourage key that it is available on the Web. See Appendix 1 individuals from leaving the chain, as for a full list of Websites.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT van Roekel, J., R. Kopicki, C. J. E. Broekmans, and D. M. Boselie. 2002. “Building Agri Supply Chains: Issues and Guidelines.” World Bank, Washington, D.C.*

van Roekel, J., S. Willems, and D. M. Boselie. 2002. “Agri-Supply-Chain Management: To Stimulate Cross-Border Trade in Developing Countries and Emerging Economies.” World Bank, Washington, D.C.*

REFERENCES CITED Agri Chain Competence Center. http://www.kc- acc.org/.

Eaton, C., and A. W. Shepherd. 2001. “Contract Farming: Partnerships for Growth.” FAO Agricultural Services Bulletin 145. FAO, Rome.

HACCP for Excellence. http:// www.haccpforexcellence.com/.

van Roekel, J., S. Willems, and D. M. Boselie. 2002. “Agri-Supply-Chain Management: To Stimulate Cross-Border Trade in Developing Countries and Emerging Economies.” World Bank, Washington, D.C.

This Note was prepared by Kees van der Meer, Sam Kane, and Gary Alex. 274

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURAL INVESTMENT NOTE organized and integrated supply chains is opening new opportunities for these producers. The coordinated supply of perishable products HORTICULTURAL EXPORTS to targeted high value consumer markets FROM DEVELOPING requires demand oriented production and COUNTRIES marketing systems.

International demand for horticultural products with high unit value and income elasticity is EXPANDING OPPORTUNITIES FOR EXPORT growing rapidly. Growers in developing coun- HORTICULTURE tries often have a comparative advantage due Horticultural products include fresh, frozen, to low labor costs, seasonality, and favorable and processed fruit and vegetables, and prod- natural resource endowments. Exploiting these ucts such as medicinal herbs, ornamental opportunities may increase the income, skills, plants, and cut flowers. Key characteristics of and employment of the rural poor. A highly horticultural production are high technological integrated, demand led supply system, cold and managerial requirements, seasonality of chain infrastructure, and technical support are production, perishable nature, and challenging necessary to realize the potential benefits of requirements for export and marketing. Rising horticultural production for export. consumer income, urban lifestyles, demand for convenience food, ethnic niche markets, and Low prices for cereals, coffee, tea and cotton trade liberalization have increased the volume are forcing developing country producers to and value of the international horticultural shift away from supply-led production and trade (see figure 6.2). Growing demand for open market selling. The emergence of highly convenient consumer packages gives develop-

FIGURE 6.2 FRUIT AND VEGETABLE EXPORT VALUES; 1992–94 AND 1998–2001 AVERAGES (DEVELOPED AND DEVELOPING COUNTRIES)

Export Value 9 (Billions U.S. Dollars) 8 275 7 Developed 6 Developing 5

0 1992-94 1998-01 1992-94 1998-01 Fruit Vegetables

Source: FAO 2003.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT ing countries a chance to add value by grading adopt a strategy aimed at supplying changing and packaging prior to export. products to changing markets to generate new value adding activities. Inflexible suppliers North America, Western Europe, and Japan have that are unable to compete will be forced to been the main markets. Russia and Eastern exit the industry. Europe provide promising opportunities. The Middle East is important already for slightly lower grades. On local markets demand is growing for BENEFITS produce that is not export quality and this allows Horticultural production for export benefits the growers and traders to generate revenue and poor in several ways (see box 6.10). It creates experience which will help them to penetrate the employment in production, transport, input high value markets of industrial countries. supply, processing, sorting and grading. These activities offer job openings to the unskilled Exports of fruits and vegetables from develop- segment of the work force, many of whom are ing countries are likely to rise in the coming women. The poor benefit also from the in- years. As competition is likely to intensify and creased employment on large farms and planta- erode profit margins for established fruit and tions, and from opportunities to produce for vegetable exports, product differentiation will markets that these enterprises offer to small increasingly be necessary in order to retain farmers. Export horticulture production enables and capture new markets. Producers must small growers to acquire new knowledge and technology which is valuable in producing and Box 6.10 Egypt: the benefits of horticultural exports marketing other high quality products.

In 1997, a donor implemented an export promotion project for horticulture to expand exports of grape, strawberry, melon, POLICY AND IMPLEMENTATION ISSUES mango, green bean, and cut flowers to regional and European MARKET ORIENTATION. Profitable horticultural Union markets. The agency provided assistance for: export systems must satisfy consumer demand • Management of production and marketing including cold in end markets. Identifying demand and sup- chain and logistics; plying markets is largely a private sector activ- • Accessing cultivars that were disease resistant and better ity—government attempts to lead in this field suited to market windows; have usually failed. Traditional open markets • Management of labor engaged in production and post 276 that facilitate price discovery and valuation harvest tasks; based on product specification remain essential • Accessing production technologies, including farm water to match buyers and suppliers of traditional management. commodities. Highly integrated market struc- By 2001, grape exports had tripled, strawberry and melon tures are similarly vital for horticulture.4 exports had doubled, and green bean exports had increased by 30 percent, compensating declining mango exports. These increases generated 8,000 jobs in production and processing, Enabling investment climate. Non-interference 5,500 of which were taken by women. In addition, it spawned by government in commercial activities was a 22,000 jobs in related activities. Quality assurance and key factor in past successes but the public compliance with market requirements improved while sector must make the environment conducive transport costs fell by US$1.7 million for grapes. Exposure to to private investment (see box 6.11). It must new production techniques for as many as 100,000 small and often take action to overcome market failure, medium farmers led to significant adoption rates. The project reduce unnecessarily high transaction costs, trained female packinghouse workers to take on supervisory and management roles. and in some cases provide support based on an “infant-industry” justification. Source: Lambert 2002.

4. See the IAP, “Bangladesh: Autonomous Organization for Facilitating Market-led Export”.

AGRICULTURE INVESTMENT SOURCEBOOK GENDER. Women are often the ones who grow Box 6.11 An enabling environment and market horticultural crops for the domestic market but they are often not involved as • Macroeconomic and trade policy: elimination of tariffs and contract growers in export supply chains. other trade barriers, exchange rate policy, and non- Instead, they become employed in the fields distorting agricultural policies. and in packing houses. In Guatemala, for • Legislation on plant variety rights (PVR): drafting and example, women hold only three percent of enforcing PVR legislation that facilitates access to improved snow pea production contracts, but contribute plant varieties (“imported technology”). more than one third of total field labor, and virtually all processing labor. Projects should • Certification capacity: complying with market grades and promote women’s access to contract farming standards has public good aspects that may complement national labor and environmental policies. and marketing in addition to encouraging fair employment practices. Source: Authors.

INFRASTRUCTURE. Information and communication systems, power and water supply, quality control, testing, and certification services are Box 6.12 Kenya: key findings in horticulture essential to access competitive markets (see In response to the secular price decline of coffee and tea, and box 6.12). Cold storage must be operational at Kenya’s comparative advantages, nontraditional horticultural each distribution stage, to avoid losses of crops are replacing them as the major export crops. A recent quality and value.5 Roads, rail, port and airport survey found that export horticulture initiatives led to poverty facilities are particularly important as freight reduction. Other findings included: costs can amount to 30 or 40 percent of import Access to irrigation is as critical as access to land. prices. However, high costs, economies of scale, and an inability to make users pay for Young farmers are more willing than older ones to adopt new services from which providers cannot exclude horticultural crops, especially when helped by family labor, older them, often deter private investors. The public or experienced labor in particular. sector may need to finance or co-finance such Horticultural production requires considerable investments in investments, on condition of defining exit post harvest and transport infrastructure, including air cargo. strategies and private sector management and Managerial skills to link production with marketing and maintenance responsibilities. distribution are essential. 277 KNOWLEDGE AND TECHNICAL SUPPORT. Horticulture Policy should aim to reduce barriers to the participation of the production systems are technologically and poor. managerially intensive. They therefore require Exporters should provide credit and extension services to strong R&E support. Current public R&E sys- smallholders. tems are often geared to traditional food crops Source: McCulloch and Ota 2002. and offer little support to export horticultural crops. Much horticultural technology has to be imported to meet export market demands. To GRADES AND STANDARDS. Horticultural exports must help farmers and traders make the most of satisfy stringent safety and quality standards these imported goods, domestic public research (see box 6.13). This can put small growers at a institutions must become more demand driven disadvantage because they typically cannot and responsive to markets, facilitate technology produce large volumes of homogeneous high imports and address second generation prob- value produce and there are risks associated lems such as outbreaks of new pests. with pooling production that must meet stan-

5. See the IAP, “Mali: Building Export Mango Systems”.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT Box 6.13 European Union marketing standards: compliance credibility and reputation. Producers have two options to reduce their risks: offer a variety of with EC No. 1148/2001 products to importers, or exploit comparative EU Regulation EC No. 1148/2001, introduced on July 1, 2002, advantage and specialize in producing one requires all fresh produce arriving in the EU to undergo an ISO product. Specialization is often necessary and 9000 style inspection to verify conformity with marketing can be supported by innovations in irrigation, standards. This inspection is carried out at the port or airport pest monitoring, crop rotations, and controlled before release into circulation. The only exceptions are for atmosphere storage to maintain production consignments with certificates of compliance from countries levels and protect product quality. whose systems of export quality inspection have been approved by the EU. Such consignments with both a Link between local and export production. Local phytosanitary and a quality conformity certificate are released when customs procedures are complete. Exporters with markets provide growers and traders with approved certification systems obviously have a competitive experience with which to enter export markets edge. Some countries, such as Jordan, have established a and with outlets for surplus produce that does pesticide residue testing laboratory and a heavy metals testing not meet export standards. The demand and laboratory, and issue conformity documents on consignments standards in export markets often differ from to the EU. those in the domestic market, and technologies Source: Authors. and systems are needed to establish the competencies needed to supply the primary market.

INDUSTRY AND TRADE ASSOCIATIONS. Most successful dards. Certification costs can also be a hurdle. horticultural ventures are assisted by a trade Public investment may be needed to help association representing the interests of the farmers and other market chain participants sector. The association helps to organize meet standards. Outgrower schemes can help production, negotiate contracts, develop ana- farmers meet the certification requirements lytical capacity, improve market information required for some markets. systems, promote products, coordinate research, enforce quality standards, and pool risks. The public sector can, with appropriate LESSONS LEARNED restraint, assist these associations through co- FEASIBILITY ANALYSIS AND PLANNING. Horticultural financing schemes. exports are potentially profitable but risky. 278 They require matching consumer demand with FINANCE. Grower access to finance is often a production potential and capacity for risk problem. Domestic banking systems are typi- management, and take time to develop. Signifi- cally not well developed, and commercial cant financial resources and a flexible long banks are reluctant to lend due to a poor term perspective are essential for potential knowledge of the sector, perceived high credit market entrants. Where farmers and entrepre- risks, and concerns over collateral. Contract neurs often lack the skills and resources to production agreements involve agribusinesses conduct market analyses, develop personal and exporters supplying outgrowers with contacts, and run marketing trials, government production inputs and committing to buy the support can be crucial. But as the public sector produce, and provide one solution to the lack is not good at “picking winners”, it should limit of credit for production. its support to providing unbiased market analyses and technical assistance. RECOMMENDATIONS FOR PRACTITIONERS RISK. Horticulture products are perishable but Export horticulture is not new to the Bank must meet strict quality standards. Failure to portfolio but it is somewhat difficult to define deliver produce on time affects the exporters’ what the Bank has financed and how it has

AGRICULTURE INVESTMENT SOURCEBOOK affected the poor. This is partly due to the Box 6.14 Potential investments complex nature of agricultural supply chains, and the need for multi component activities Technical assistance to build capacity to meet export standards that in appropriate sequence meet the needs of and certify compliance. multiple stakeholders and enterprises. Future investments must (see box 6.14): Development of horticultural, producer, and trade associations and business development service providers. • Base analysis and planning on identified Public good infrastructure such as transport and communica- market demand and recognize the risk tion systems. inherent in horticultural markets, along with Industry feasibility and planning studies. the need to enter them with a long term perspective. Strategic planning must be Source: Authors. flexible enough to adapt to changing competition and demand. Reardon, T., and J. Berdegué. 2002. “The Rapid Rise of Supermarkets in Latin America: • Enable private investment and capacity to Challenges and Opportunities for Develop- comply with standards and certification ment.” Development Policy Review 20 (4): requirements for product quality and safety, 371-388.* environmental and labor standards.

• Provide public goods such as information REFERENCES CITED systems, R&E, certification capacity, and FAO, 2003 “The Market for Non-Traditional risk management that reduce supply Agricultural Exports (NTAEs).” FAO, Rome. chain transaction costs. Public involvement must not distort market mecha- Lambert, A. M. 2002. “A Scoping Study for nisms. It should foster participation. Grant Detailed Case-studies of Trade Facilitation/ schemes can be effective but exit clauses Export Promotion Projects for Non-Tradi- are usually necessary. tional Agricultural Products in Sub-Saharan Africa.” World Bank, Washington, D.C. • Build capacity in government agencies to certify product safety and standards, and McCulloch, N., and M. Ota. 2002. Export expedite inbound products and outbound Horticulture and Poverty in Kenya. IDS 279 produce at national borders. Working Paper 174. Brighton, U.K: Institute of Development Studies, University of • Monitor impacts on the poor, on women and Sussex. on minority groups, recognizing that most poverty reduction impacts will be indirect. This Note was prepared by Sam Kane, Tijan Sallah, Gary Alex, and Kees van der Meer.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Jaffee, S. 1992. Exporting High-Value Food Commodities: Success Stories from Devel- oping Countries. With P. Gordon. Discus- sion Paper 198. Washington, D.C.: World Bank.*

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT AGRICULTURAL INVESTMENT NOTE Public sector interventions should be market- based to the extent possible, using competitive grants, matching grants, and vouchers. Public- PRIVATE SEED ENTERPRISE private cooperation can realize synergies in policy DEVELOPMENT preparation and implementation, developing new varieties, and developing efficient and effective Donor investment strategies should support the marketing outlets. Public investment can be development of private seed enterprises to justified because of the large spillover benefits to make quality seeds available to small farmers. society. The seed sector comprises the following This requires a long-term outlook, recognizing different activities with varying opportunities for that the first steps will likely be taken with private and public investment. higher-value seed crops (such as hybrids), and the strengthening of various elements of the • Plant breeding. Seed enterprises require seed system (which may be pursued by inde- access to new varieties. Although private pendent enterprises or combined in a single plant breeding capacity is increasing, many firm). Support must enhance development of crops will depend on public sector breed- competitive markets. Seed enterprise developing programs for the foreseeable future. ment includes attention to the policy environ- Public plant breeding organizations must ment, support to public sector plant breeding, have adequate links to private seed distri- seed regulatory reform, and strengthening input bution mechanisms. and output marketing capacities. • Source seed production. Production of Seed provision is at an important crossroads in commercial seed entails multiplication of many developing countries. Donor support to several generations of source seed (for public seed enterprises has diminished because example, breeder seed, foundation seed). these have not been efficient. Strategies for Enterprises managing commercial seed supporting the private seed sector are still evolv- multiplication may or may not have capac- ing. As a result, many farmers have little access to ity to produce and maintain source seed. commercial seed, and this has restricted the choice of crops and varieties. Since benefits of • Seed multiplication. Source seed is multi- modern plant breeding can only reach farmers plied to produce commercial seed. In most 280 through an efficient seed system, there is an cases, a seed enterprise supervises contract urgent need to develop the private seed sector. farmers to multiply seed.

• Quality control. The multiplication process DEVELOPING PRIVATE SEED ENTERPRISES must ensure both the genetic purity and Public seed enterprises have introduced new physical quality of the seed. Quality control crop varieties and have been important in systems may range from managing a man- development efforts, but it is increasingly datory seed certification scheme to only difficult to defend their continued support, as requiring that seed be truthfully labeled. seed production and marketing are inherently Responsibility for quality control is now private sector activities. Public enterprises shifting to seed enterprises. generally lack the incentives that a competitive private sector can offer to respond to changing • Seed conditioning. Seed must be cleaned, demands or new markets or to increase indus- dried, treated, and stored before sale. This try efficiency. requires specialized equipment and (for certain crops) considerable storage capacity. An emerging private seed industry faces many obstacles, some relating to the general business • Seed marketing. Seed is sold through input climate and others specific to the seed industry. dealers, requiring distribution capacity

AGRICULTURE INVESTMENT SOURCEBOOK through a competent, independent network Box 6.15 India: the private provision of public rice varieties of wholesalers and retailers. Private companies produce almost one-half the rice seed sold These components of seed provision may all be in Andhra Pradesh State, even though all varieties are publicly managed by a single firm or in the hands of developed. The state agricultural university system’s transparent various linked enterprises (see box 6.15). Any procedure for selling breeder seed to private companies has investment in seed enterprise development must facilitated private seed enterprise development. Andhra examine the options of supporting smaller, Pradesh is a leader in development of the private millet and specialized operations versus larger, integrated sorghum hybrid seed industry. This experience with hybrids is now utilized for the lower profit (but high volume) rice seed firms with the choice depending in large part on industry. the resources and capacities available and the stage of evolution of the seed industry. Some enterprises specialize in only certain aspects of seed provision. Some individuals supervise seed multiplication by farmers, contracting their services to seed companies that do not have a presence in the area. Other individuals own seed BENEFITS cleaning and storage facilities that they contract out. Such The potential benefits of investing in seed enter- specialized services allow medium-size enterprises to fill gaps in prise development will depend on whether their capacities. At the other end of the spectrum, the larger investment is for varieties or for seed. The former seed companies have integrated operations and take responsi- represents the genetic gains to be derived from bility for foundation seed production, supervision of growers, access to new products of plant breeding, while processing, and marketing. This range of capacities and “cluster- the latter represents gains from the physical ing” of facilities in the state allows dozens of enterprises to contribute to rice seed provision in Andhra Pradesh. quality of commercial seed. The two are different, and commonly used phrases such as “improved Source: Tripp and Pal 2001. seed” tend to confuse the issue.

Estimating the gains from access to new varieties important role, requiring support to strengthen may be relatively straightforward, if data are scientific capacities and define respective available on the yield (or other) advantages of responsibilities between the public and private new varieties over those currently in farmers’ sectors. In most cases the public sector will fields. Investments in varietal development have need to maintain breeder seed of its varieties, no payoff unless the new varieties reach farmers establish an efficient system to provide com- and, in many cases, absence of a commercial mercial enterprises access to this seed, and 281 seed system results in new varieties not being enforce a system of plant variety protection used. Farmer-to-farmer seed diffusion helps (ensuring access royalties). spread varieties, but is rarely sufficient. Once in their hands, farmers can often maintain new NATIONAL SEED REGULATORY FRAMEWORKS. Systems for varieties by saving their own seed, in some variety release and registration must be equally cases maintaining varieties for many years with accessible for private and public plant breed- little loss in purity or performance. In other ers, and must allow for rapid assessment and cases (especially for crops subject to significant release. Harmonization of national release cross-pollination) farmers need access to new procedures across a region allows access to seed supplies more frequently, and in the case new varieties across a number of countries of hybrids, should purchase fresh seed each year rather than being delayed by individual and and commercial seed may offer few advantages. idiosyncratic country reviews. Seed certification and quality control procedures are generally managed by a public sector certifying agency. POLICY AND IMPLEMENTATION ISSUES Consideration should be given to shifting these VARIETAL DEVELOPMENT. Although private plant functions by licensing private seed companies breeding is developing for certain crops, public to do their own certification and testing and by research systems will continue to play an enforcing truthful labeling laws.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT NEGLECTED AREAS/CROPS. Given that farmers save LESSONS LEARNED seed from one season to the next, one major START-UP CROPS/VARIETIES. Commercial seed produc- challenge for seed enterprises is to ensure tion must begin with products that have a high repeat sales. The emergence of a private seed probability of repeat sales: hybrid seed, seeds industry is almost always based on hybrid seed that are difficult to manage on-farm, or seed of (that must be replaced each year to maintain its crops that have a market premium for quality. yield advantage), or on seeds that farmers find Although commercial seed production has difficult to save (such as vegetables). Seed of limited economies of scale, it does offer econo- many crops (particularly those grown by mies of scope, so that once a production and isolated and/or less commercially oriented marketing system is in place for more profitable farmers) is less likely to be included in a seed crops, other types of seed can be added. nascent private seed sector. This does not, however, argue for continued public seed MINI-PACK DISTRIBUTION. The production and sale of production, as public seed enterprises have small packs (“mini-packs”) of seed of new also failed to reach this market. Instead, appro- varieties can provide additional business to priate incentives for seed productionæoften emerging seed enterprises, help to develop a local, informal, small scaleæcan encourage market for a wider range of seed types, and enterprises to serve these markets before they support the diffusion of new crop varieties. Such are gradually included in a growing conven- schemes often attract outside support from tional private seed industry (see box 6.16). donors interested in promoting use of new seed or responding to emergency situations character- GENDER. Because women have responsibility for ized by loss of seed stocks (for example seed selection and preservation in many tradi- droughts, conflicts). There have been a number tional farming systems, commercial seed pro- of successes with contracting seed enterprises to duction presents good opportunities for includ- package seed in small quantities that are attrac- ing women as contract farmers and marketers tive and affordable. Distributing these through as well as employees. rural input suppliers helps develop markets for quality seed. Where there are noncommercial elements in such mini-pack schemes, quality control and strategies for phase-out of subsidies are particularly important. Box 6.16 Nepal: small-scale vegetable seed production 282 SEED ENTREPRENEURS. Seed provision entails a The Seed Sector Support Project funded by the United Kingdom’s Department for International Development range of skills (plant breeding, seed produc- (DFID) helped organize and train Nepalese farmers in tion, marketing) that no one person is likely to vegetable seed production and arranged annual “workshops” possess. Seed businesses tend to be initiated by in which seed dealers and producers meet to establish people already with some experience: plant contracts for the coming season. The project initially acquired breeders (establishing their own seed busi- source seed for the seed producers, but has evolved to the nesses, “privatizing” their plant breeding skills point where the Seed Entrepreneurs Association of Nepal and developing marketing expertise); contract facilitates meetings with producers and helps members to growers for seed companies with knowledge of organize source seed production. seed multiplication; seed company production Such efforts have expanded the amount of vegetable seed for agronomists; and the commercial sector, either sale in Nepal and in certain cases (such as radish) established people involved in the grain trade or input Nepal as a seed exporter to neighboring countries. However, marketing (see box 6.17). the model has so far had little success in establishing commercially viable small-scale seed production for crops such as rice, wheat, or maize. COMMUNITY SEED PRODUCTION. Many development projects have used community-level seed Source Authors. production as the starting point for commer-

AGRICULTURE INVESTMENT SOURCEBOOK cial seed development. Results have been Box 6.17 Small African seed enterprises disappointing with little commercial sustainability. Reasons for lack of success are The recent emergence of small seed enterprises in Africa twofold: inattention to transaction costs (for illustrates the possible sources of skills and resources that can making contracts for source seed, ensuring support seed enterprise development. quality control, and obtaining information) Uganda: Harvest Farm Seeds. A grain trading company in and a lack of experience and resources for Kampala became involved in procuring grain suitable for seed marketing. Community-level seed projects for relief operations in neighboring countries. With this need more appropriate goals to be successful, experience it established Harvest Farm Seeds, to produce and such as testing and disseminating new variet- sell commercial seed of public varieties. It is planning to ies, developing farmers’ experimentation establish its own plant breeding capacity. Much of its sales are capacities, and forming better links between still to relief organizations, but it is strengthening its marketing farmers and researchers. network in Uganda. Ghana: seed producers. The collapse of the parastatal Ghana EMERGENCY SEED PROGRAMS. Donors and govern- Seed Company left producers without a formal source of seed ments have often been involved in the free for maize and cowpea. A Sasakawa-Global 2000 funded project distribution of seed, in the context of emergen- approached former contract growers about establishing their cies related to drought or civil unrest. Even in own enterprises. The project supervised their seed production, facilitated contacts with local input dealers to purchase and these cases, externally provided seed is not market the seed, coordinated access to public seed processing always a priority, but many of these programs facilities and provided seed certification services. still acquire a semi-permanent status based on ideas of support to agriculture or introduction Source: Authors. of new technology. Such interventions are difficult to stop, but must be designed to do as little damage as possible to the prospects for Box 6.18 Potential investments seed enterprise development. This usually means using local seed enterprises, paying Needs assessment, training, study tours, and matching grants to attention to farmer feedback and demand for support a national seed industry, including support to establish varieties, and distributing the seed through a seed trade association. retail outlets (using vouchers). If this is not Support for transparent, well-managed systems for breeder done, it is very difficult for the commercial seed and foundation seed production and sale. seed sector to develop, and farmers acquire 283 the idea that seed is an input (often of low Financial services support to seed enterprises. quality) that is given away. Competitive grants for applied research in breeding and variety improvement. Seed regulatory reform and regional harmonization of seed laws. RECOMMENDATIONS FOR PRACTITIONERS Key public sector investments include sector Training and support for seed retailers, preferably through analysis, development of sector strategies, grants and vouchers schemes. policy reform, establishing the regulatory Source: Authors. framework and capacity building (see box 6.18). Donor support for seed enterprise development requires careful assessment of institutional development. Other investment options, with the most useful assistance often considerations include: coming not from large projects, but from well- targeted support to specific policy initiatives • Investments in building capacity of private or to lowering transaction costs for commer- enterprises and associationsæoften through cial development. This requires donors to matching grants—to develop of new variet- have capacity for sustained monitoring of ies and retail systems.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT • Attention to the advantages of industrial REFERENCES CITED “clusters,” and promoting the sharing of Tripp, R., and S. Pal. 2001. “The Private Deliv- knowledge, facilities, and personnel. ery of Public Crop Varieties: Rice in Andhra Pradesh.” World Development 29 (1):103- • Emerging seed enterprises that can profit 117. from technical and organizational support and links with enterprises in other countries. This Note was prepared by Robert Tripp (ODI) with inputs from Kees van der Meer, Gary Alex, and Sam Kane • Support to regulatory harmonization across a region which allows resources to be used more effectively and have broader regional impact.

• Public agricultural research institutes efforts to become more supportive of private seed sector development.

• Support for the development of rural input retailing and produce marketing which is essential for promoting private seed sector development.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Websites.

Almekinders, C., and N. P. Louwaars. 1999. Farmers’ Seed Production. New Approaches and Practices. London: Intermediate Tech- nology Publications. 284 Louwaars, N. P., ed. 2002. Seed Policy, Legisla- tion, and Law: Narrowing a Wider Focus. Binghamton, N.Y.: Food Products Press.

Tripp, R. 2000. Strategies for Seed System Development in Sub-Saharan Africa: A study of Kenya, Malawi, Zambia, and Zimbabwe. ICRISAT Working Paper Series 2. Bulawayo, Zimbabwe: ICRISAT.

Tripp, R. 2001. Seed Provision and Agricultural Development: the Institutions of Rural Development. Oxford: James Currey.

Tripp, R., and D. Byerlee. 2000. “Public Plant Breeding in an Era of Privatisation.” Natural Resource Perspectives 57. ODI, London.*

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURAL INVESTMENT NOTE distort demand and hinder the development of a sustainable fertilizer marketing system.

PROMOTING PRIVATE SECTOR The market development process typically FERTILIZER DISTRIBUTION includes an agribusiness development project, SYSTEMS public policy reform, extensive training in business development and fertilizer technology, Competitive markets for agricultural inputs are and formation of a fertilizer distributors trade critical to agricultural development. Farmers association. Activities focus on business devel- need access to a wide range of fertilizer inputs opment, private extension services, market so that they can more sustainably manage soil information systems, private sector advocacy, nutrients, improve productivity and diversify and media information campaigns. into new production enterprises. Fertilizer market development largely depends on reform Public sector interventions to promote fertilizer of policies and regulations relating to imports markets must have the clear objective of and exports, to subsidies and protection of producing independent, sustainable, and inefficient production and marketing entities, to financially viable business entities. Donors can market entry, and to truth-in-labeling require- provide resources, methods, and tools for ments. A competitive private sector fertilizer effective delivery of business development distribution network will also benefit from assistance to client firms. Assistance should investment to address training needs, reduce enable farmers and fertilizer suppliers to make transportation costs, and facilitate development informed market choices and operate in open of fertilizer sector trade associations. and competitive markets. The capacity of local intermediaries that provide services to Throughout the developing world, govern- agribusiness should be expanded, and in many ments are disbanding and divesting parastatal instances, support for market and enterprise fertilizer marketing organizations that have development (rather than direct producer proven inefficient, costly, and unsustainable. assistance) will be the most appropriate mecha- Governments now see their role as that of nism to reduce poverty, albeit a relatively establishing an enabling environment for indirect route. private fertilizer market development. However, fertilizer distribution systems have been slow to 285 emerge in many countries that lack a tradition BENEFITS of private enterprise. Additional public support Farmers, taxpayers, and consumers benefit may be necessary to catalyze the development from public investment that enables the emer- of efficient fertilizer distribution systems. gence of private sector fertilizer markets (see box 6.19). Specific benefits include:

FERTILIZER MARKET DEVELOPMENT Efficient fertilizer systems are needed to pro- Box 6.19 Bangladesh: withdrawal of subsidies vide producers with competitively priced fertilizer products that meet the needs of local During 1988–94, the Government of Bangladesh saved about farming systems. Demand at the farm level for US$119 million by withdrawing fertilizer subsidies. The 800- fertilizer must be induced ultimately by prof- member Bangladesh Fertilizer Association was created, and the itable production technologies and attractive fertilizer retail network employed 170,000 people. Fertilizer sales increased at an annual rate of eight percent, and govern- prices for agricultural products at the farm-gate. ment fertilizer imports declined from 100 percent to nil. The Government policy, laws, regulations, and government instituted monthly fertilizer market monitoring to services should reflect a commitment to an improve the industry information base. expanded role for the private sector. Experi- ence has shown government subsidies can Source: IFDC 1994.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT • Private fertilizer distribution replaces ineffi- tion through safety nets or public investment, cient parastatals and subsidies that are often such as access roads, may be needed. a substantial burden on public expenditures. DISTRIBUTION NETWORK COVERAGE AND COST. Private • Private fertilizer distribution results in lower sector firms will target those agricultural areas prices to farmers, more timely supply, in which they can make the most profit. This greater variety in fertilizer formulation to generally means that the more productive and meet local requirements, and production accessible areas develop a dense distributor diversification (see box 6.20). network first. Remote or sparsely populated areas are left unserved, or are required to pay • Improved availability of fertilizer and other higher prices. Public sector interventions may inputs contributes to supply chain integra- be necessary to overcome logistical constraints, tion and increased agricultural productivity. reduce transaction costs, and improve poorer farmers’ access to competitively priced fertilizer products in remote areas. POLICY AND IMPLEMENTATION ISSUES PARASTATAL COMPETITION. Public sector enterprises TRADE CREDIT. Trade credit may be important to and subsidized fertilizer distribution discourage enable distributors to import adequate quanti- development of competitive private ties of fertilizer. However, past experience has agribusiness. Protection of inefficient domestic shown that direct public sector involvement in producers and traders typically reduces the credit provision must be approached with care. product range available, and increases fertilizer Trade credit will generally be accessible to prices. An enabling environment for firms with good credit records, sound cash and agribusiness development is critical. Structured profit projections, and good relations with dissolution of state enterprises—with incentives suppliers. Long-term relationships lead to for the private sector to fill the void—is essen- greater confidence in repayment, and thus tial to market development (see box 6.21). improved access to credit.

WINNERS AND LOSERS. Although privatization of PARTNERSHIPS. Fertilizer supply chains are often parastatals and abolition of subsidies generally fragmented and uncoordinated. Strategic has many benefits, there are typically also some alliances among manufacturers, traders and 286 losers: users may face higher prices; producers importers, distributors and retailers, regulatory in isolated areas may lose access to fertilizers; authorities, and farmers can enhance the flow and employees in parastatals may lose jobs. of information (farm-level demand in particu- Some phasing of reforms and some compensa- lar) and products throughout the supply chain. Such alliances are an invaluable means for Box 6.20 Malawi: fertilizer for diversification identification of problems and opportunities for practical field initiatives. Malawi’s heavy dependence on tobacco for export earnings has been a cause for concern. The government is promoting PRODUCER ORGANIZATIONS. Producer organizations increased fertilizer use to make food crops and other export can be an important link in input marketing crops more profitable. This strategy relies on applications of systems, usually in retail distribution or group diammonium phosphate and urea top-dressing for maize purchasing from private retail distributors. In cultivation, followed by groundnuts or pulses, both of which have some cases, large formal producer organizations good export potential. Use of residual phosphate and atmospheric nitrogen fixation by follow-on crops, reduce costs of may become fertilizer importers or wholesalers. providing crop nutrients. Training for fertilizer dealers and fertilizer demonstrations for farmers were key to program success. LESSONS LEARNED Source: Bumb 2002. IMPROVING THE REGULATORY FRAMEWORK. The primary role of government is to provide a

AGRICULTURE INVESTMENT SOURCEBOOK transparent and predictable policy environ- Box 6.21 Free distribution of fertilizer ment, especially on trade and regulatory issues, so that economic forces can guide Government or donor distribution of free fertilizer, as in some fertilizer production and use decisions. Gov- “starter pack” programs, can harm local fertilizer market ernment must also ensure fertilizer product development. Free distribution of samples for trials can be an quality and integrity through truth-in-labeling effective marketing tool in demonstrating the value of fertilizer laws so that farmers get the quality and and in some circumstances, such as post-disaster situations, quantity of fertilizer they purchase. An appro- government assistance is appropriate to help farmers get land priate government agency should collect and back into production. However, when free distribution continues over time, there is danger of driving local retail distributors test samples based on both complaints and out of business. Voucher systems or mechanisms by which spot inspections, particularly at the retail level. fertilizers are supplied through local retailers can avoid such risk, Safe, maximum limits are needed to regulate while helping build sustainable distribution networks. fertilizer content of heavy metals and other Source: IFDC Internal Documents impurities that could damage public health, crop production, or the environment. Enforce- ment of regulations is often more effective at the local than at the national level, though a national fertilizer information system facilitates Box 6.22 Kosovo: establishment of input supplier networks effective dialogue between farmers and the In Kosovo between 2000 and 2002, the International Fertilizer fertilizer industry. Development Center assisted with establishment of five agri- inputs trade associations that obtained credit independently TRADE ASSOCIATION DEVELOPMENT. Trade associations and imported fertilizer. As a result: can be important to fertilizer market develop- Fertilizer use increased from 40,000 to 71,000 metric tons, ment. Benefits of a fertilizer trade association commercial seed from 16,000 to 43,900 metric tons, and crop include: improved access to trade and invest- protection products from 25 to 80 metric tons. ment credit and business services; development of a market information system; better coordi- Agro-inputs sales increased by 64 percent to US$18 million nation of supply chain activities; identification with US$9 million in fertilizer sales. of new products and markets; and develop- Modern fertilizer use technologies contributed significantly to ment of trade relationships. Governance and yield increases for wheat and maize of 69 and 150 percent, and election of association officials should be increases in net added income of US$200/hectare and US$726/hectare. democratic, open, and transparent. Revenue 287 can be generated through membership dues, Trade associations established under the project lobbied fees for services, and other means to enable the successfully to eliminate tariffs on imported fertilizer. association to become financially independent The European Agency for Reconstruction financed and supplied and sustainable (see box 6.22). 35,000 metric tons of fertilizer, which was auctioned for distribution by the private sector. FERTILIZER IMPORTS AT OPTIMAL ECONOMIES OF SCALE. The competitive supply of fertilizer on local Source: IFDC 2003. markets usually requires importers and distributors to operate on a relatively large scale. As contracts by importers to distributors and efficient minimum orders are large and there is retailers shorten cash cycles. a lag between product ordering and arrival, traders must anticipate demand accurately. TRAINING IN BUSINESS MANAGEMENT. Training in Regional harmonization of market regulations fertilizer business management involves finan- can facilitate trade, eliminating need for repack- cial and business planning, strategic manage- aging or relabeling, preshipment inspections, ment, competitive analysis, and procurement border taxes, and unnecessary testing. Groups and marketing planning. The public sector of importers can pool imports to facilitate must not assume a direct role in these areas, operations at an optimal scale. Forward selling but can promote development of managerial

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT Box 6.23 Ethiopia: extension services for fertilizer sector RECOMMENDATIONS FOR PRACTITIONERS Once organized, the private sector can become a key development partner in lobbying for removal of constraints to A recent World Bank project sought to increase agricultural private fertilizer market development. In the productivity by developing an enabling environment for a meantime, development of competitive private competitive fertilizer sector, promoting increased and environ- sector fertilizer distribution and marketing mentally safe fertilizer use, and addressing supply-side con- systems may rely on investments to: straints. Extension agents were trained in the technical aspects of fertilizer use and soil fertility maintenance, with the intention • Privatize parastatals and avoid free or that they would provide advisory services to farmers on subsidized fertilizer distribution. improved fertilizer use practices. While the extension service was not meant to get involved in fertilizer distribution, extension agents began to spend 50 to 70 percent of their time on • Promote regulatory liberalization and fertilizer distribution and credit administration. This left them ensure that business registration is not a little time to focus on advisory services. Occasional adversarial barrier to new entrants. encounters relating to loan recovery negatively affected the relationship between agents and farmers. • Establish capacity for government to moni- Source: World Bank Internal Documents. tor and enforce regulations on fertilizer sales, with particular regard to truth-in- labeling.

Box 6.24 Potential investments • Encourage development of fertilizer industry trade associations. • Agricultural sector analyses to identify constraints to market development. • Encourage economies of scale in operations • Policy and regulatory reform in the fertilizer sector. by sound import and export regulations, • Establishment of government regulatory capacity. • Systems to monitor and enforce truth-in-labeling, including regional harmonization, efficient logistical analytical laboratories. systems, and collective procurement. • Training in the public and private sectors to improve analytical and managerial capacities. • Encourage private fertilizer distributors to • Facilitation of regional regulatory harmonization and provide extension services as a necessary procurement to achieve economies of scale. business promotion service and focus • Port, rail, and road transportation and information public extension services on addressing 288 infrastructure. issues, such as nutrient management and Source: Authors. negative environmental externalities.

• Use study tours to market economies for government officials and fertilizer sector skills by cofinancing BDS providers or subsidiz- policymakers to promote understanding of ing initial use of these services. advantages of markets and liberalization of regulations (see box 6.24). AGRICULTURAL EXTENSION SERVICES. Extension services are often best provided by the dealers themselves, as extension can be viewed as a SELECTED READINGS marketing activity to cultivate customer loyalty, Asterisk (*) at the end of a reference indicates and as a cost of doing business (see box 6.23). that it is available on the Web. See Appendix 1 Public support can assist fertilizer dealers for a full list of Websites. provide extension services that involve advice, field monitoring, soil testing, export opportuni- Bumb, B., ed. 2002. An Action Plan for Devel- ties, input demonstrations and field days. oping Sustainable Agricultural Input Supply

AGRICULTURE INVESTMENT SOURCEBOOK Systems in Malawi. Muscle Shoals, Ala.: IFDC.

Gisselquist, D., and C. Van Der Meer. n.d. “Regulations for Seed and Fertilizer Mar- kets: A Good Practice Guide for Policymakers.” Rural Development Working Paper 22817. World Bank, Washington, D.C.*

IFDC. 2000. A Strategic Framework for African Agricultural Input Supply System Develop- ment. Muscle Shoals, Ala.: IFDC.

REFERENCES CITED Bumb, B., ed. 2002. An Action Plan for Devel- oping Sustainable Agricultural Input Supply Systems in Malawi. Muscle Shoals, Ala.: IFDC.

IFDC. 1994. “Fertilizer Distribution Improve- ment Project-II (End of Project Report).” Ministry of Agriculture, Bangladesh.

IFDC. 2003. “Kosovo Agribusiness Develop- ment Program: Completion of Project Report, June 2000–January 2003.” IFDC, Muscle Shoals, Alabama.

This Note was prepared by Thomas Thompson (International Fertilizer Development Center) with inputs from Kees van der Meer, Gary Alex, and Sam Kane. 289

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT AGRICULTURAL INVESTMENT NOTE box 6.26). In many places, these high transaction costs keep small-scale producers and the poor out of the market altogether. On average, GETTING MARKETS RIGHT IN only one-quarter to one-third of agricultural THE POST-REFORM ERA IN production reaches the market in Sub-Saharan AFRICA Africa, and producers remain trapped in low- yield, subsistence production. Thus, an impor- Many small farmers in low-income countries tant lesson learned in the aftermath of struc- are excluded from markets for agricultural tural adjustment is the critical importance of products and inputs because the costs and risks moving beyond “getting prices right,” which of market participation are simply too high. As entailed the removal of policy distortions, to a consequence, they often do not adopt new “getting markets rights.” Getting markets right technologies to improve crop yields and natural involves creating an enabling environment for resource management (NRM). Getting markets the private sector to operate, and strengthening right is therefore a critical issue for increasing market institutions to reduce transaction costs the food security and incomes of smallholder and improve market performance. farmers and expanding smallholder access to new market opportunities. Government investments are needed to create an appropriate INVESTMENTS NEEDED TO GET MARKETS RIGHT institutional framework, address risk manage- The weakness of market distribution systems ment, complete reforms, and invest in appro- is partly a problem of poor infrastructure, priate infrastructure. particularly roads and communication systems. The road density in India in the 1950s Structural adjustments and economic liberaliza- was five times greater than that of all Sub- tion have had mixed and generally limited Saharan Africa today. But the poor distribu- impact on improving livelihoods of the poor, tion system is also due to the absence of key particularly in Africa. Producers do respond to market support institutions, such as market market opportunities, but many markets func- information systems, grades and standards, tion poorly even in the post-liberation period contract enforcement mechanisms, and (see box 6.25). The large markup from pro- auctions and exchanges. Sales by order, ducer price to export price or, in the case of forward contracts, and other more sophisti- 290 imported goods, from import price to final cated marketing arrangements are virtually consumer price, is a symptom of weakly unknown. Agricultural market development functioning trade and distribution systems (see requires investment in:

Box 6.25 Producers’ response to functional markets • Institutional framework. Institutional changes are needed to support the devel- In Mali, liberalization of the rice market led to a tripling of opment of competitive and efficient agricul- production over the 1990s, as small-scale processors and tural markets and increase the access of traders successfully halved the marketing margin from producer small farmers to these markets. Institutional to consumer. In Kenya, liberalization of dairy markets led to innovation should reduce transaction costs dairy production becoming the fastest growing source of income for over 600,000 small farmers with one to three cows. related to market coordination, facilitate expansion of exchange outside of personal- However, where markets do not function, productivity gains do ized networks, and enhance market special- not translate into increased income. In Ethiopia, a quintupling of ization (see box 6.27). maize production since 1995 resulted in a collapse of maize prices in 2002. This led to a disengagement of farmers from maize production and a drop in fertilizer application by one- • Risk management. With the decline of third. public buffer stocks and price stabilization schemes, private risk management markets Source: Authors. are emerging as an important force in

AGRICULTURE INVESTMENT SOURCEBOOK coping with risk. Market-based instruments Box 6.26 Impact of transport costs for managing risk (for example, forward and options contracts) enable producers In much of Sub-Saharan Africa, the final price of agricultural and consumers to cope with an increasingly goods is three to five times the price that producers receive. As integrated global economy. an example, in 1995, while it cost only US$38 to transport a ton of maize from Kansas to the Kenyan port of Mombassa, it • Full implementation of the reforms. Full cost US$110 to transport that same ton from Mombassa to implementation of structural reforms will the town of Kisumu some 300 kilometers inland. require more effort to stay-the-course on Source: Graeme Donovan, personal communication. liberalization and to introduce other policy measures supportive of sectoral reforms.

• Infrastructure. Investments in key mar- Box 6.27 Mali: “Silicon Mali” keting infrastructure are needed to support agricultural production and market- Mali’s success in establishing a market information system ing and improve the access of small earned it the title of “Silicon Mali” by Forbes Magazine in 2002. farmers and traders to markets. These Mali’s market information system (Observatoire des Marchés investments can be based on public- Agricoles) is based on enumerators visiting 58 markets around private partnerships. Mali and recording the high and low prices for grains, crops, and livestock. They enter these on laptop computers and e-mail the information by FM radio waves—all solar-powered equipment—to other regional offices where data are compiled and BENEFITS reports prepared for different types of producers. The welfare of the poor is intimately tied to their ability to efficiently acquire food and The system built up over a decade has made Malian grain farmers more efficient, knowing when and where to sell, and for inputs from markets, and accessing output what price. With better information, the government can now markets to generate cash income. The poor rely on the private sector to shift surpluses to areas with have little land, but derive much of their shortages without resorting to foreign aid. Mali’s information income from agricultural production—rang- system has become a model for the rest of West Africa, where ing from 40 percent in Kenya to over 80 such countries as Niger and Burkina Faso are setting up similar percent in Mozambique and Ethiopia. How- systems that will be linked together. Soon, farmers will be able ever, most of the rural poor are net food to do more selling across national boundaries. buyers. Africa’s rural poor spend up to 40 Source: Sansoni 2002. 291 percent or more of their scarce cash income on food. Research in Southern Africa has shown that improved food marketing policies in the early 1990s improved real household income by 7-13 percent among the poorest private sector capacity, in risk management, urban households, and by up to 20 percent and in appropriate infrastructure would signifi- among the rural poor (Jayne et al. 2002). cantly improve the welfare of the poor.

Despite attempts to reform African agricultural markets, the development of a policy environ- POLICY AND IMPLEMENTATION ISSUES ment conducive to competition and private In the post-reform era, the fundamental market investment has remained elusive, and crucial challenge facing developing countries is to market institutions remain rudimentary and understand how markets function, what roles weak. A significant proportion of small farmers different institutions play, and how to design, opt not to participate in markets because the transfer, and maintain these institutions. Get- costs and risks of market participation are ting markets right depends on getting the simply too high. Thus, investing in an institu- underlying set of institutions right and develop- tional framework to make markets work, in ing private sector capacity.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT DEFINING THE PUBLIC SECTOR ROLE. Defining the market promotion, logistics and supply chain appropriate role of the state vis-à-vis the management, and quality control. private sector is critical to getting markets right. The failure of markets should not imply a IMPORTANCE OF DOMESTIC MARKETS. While the reversal of market reform policies, but rather great thrust of donor efforts has been on the signal a new role for the public sector, in development of export markets, domestic providing the institutions and infrastructure for food markets remain undercapitalized, risky, the private sector to function. rudimentary, and relatively thin, with little scope for forward contracting or quality ESTABLISHING DIALOGUE WITH THE PRIVATE SECTOR. differentiation. Development of viable do- Governments often are unwilling to engage the mestic food grain markets requires invest- private sector in discussions and dialogue ments in market, transport, and storage regarding the market. Thus, the private sector infrastructure, information systems, domestic operates without clear trust or knowledge of grades and standards, and access to inventory the policy environment, leading to a vicious finance. Increasing storage by smallholders cycle of mistrust and inappropriate behavior. and warehouse receipts systems can help to dampen volatility of domestic markets. LACK OF PRIVATE SECTOR CAPACITY. Private sector capacity is often a major constraint on market IMPORTANCE OF MARKET TRADERS. Many efforts to development. Most agricultural traders lack develop agricultural markets have targeted formal skills and trade finance. They operate smallholders directly, often bypassing or small-scale businesses with few assets and trade excluding other key economic actors, such as only with people they know, in cash terms and traders and processors. This neglects the over very short distances. Contracts are verbal capacity of those already in the market (for and there is no legal system of enforcement. In example, small independent traders and food countries such as Malawi and Ethiopia, two- processors) who may be well-placed to pro- thirds of traders cannot get bank loans, only six mote market activities. Building on the com- percent own a vehicle, and less than one-half parative advantage of traders is an important have a telephone or permanent storage facilities. strategy for many market development efforts.

CONTRACT ENFORCEABILITY. Very little emphasis has 292 LESSONS LEARNED been given to the critical area of contract Following market reforms in many countries, enforceability. Institutional innovation to investments to strengthen market institutions reduce contract risk in domestic and export have involved development of market informa- markets can build institutions that monitor tion systems, vertically integrated smallholder- trade behavior (for example, a credit referral to-export schemes, warehouse receipt systems, agency or better business bureau), as well as and smallholder associations. Little is known of mechanisms to ensure contract performance the cumulative impacts of these investments. (for example, dispute settlement mechanisms).

SMALLHOLDER PARTICIPATION. A great deal of emphasis INPUT DISTRIBUTION. Relatively little emphasis has been placed, rightly, on strengthening small- has been placed on input distribution, which holder participation in markets and on developing is perhaps the area most adversely affected by high-value export markets for smallholders. market liberalization. Expansion of programs However, several gaps exist in market develop- to improve input marketing and reduce costs ment. Many interventions are relatively short-term of fertilizer to smallholders needs to be ex- with an emphasis on quick results, without plored further. necessarily addressing the root causes of market failures. Root problems have to do with access to WAREHOUSE RECEIPTS FOR RURAL FINANCE. Because of trade finance, human capacity in agribusiness and difficulties accessing adequate finance, farmers,

AGRICULTURE INVESTMENT SOURCEBOOK traders, and processors have been unable to Risk management initiatives to help farmers take advantage of opportunities created by cope with changing markets can include globalization and market liberalization. Ware- investment in information on market trends, house receipt financing is a possible solution. A forecasting future trends, and developing warehouse receipts system allows farmers to capacity to react to this information. Market store their products in a reliable warehouse chains will need to make greater use of instru- until prices increase, using the product as loan ments such as forward, futures, and options collateral and accessing funds before they sell contracts, requiring training and capacity the product. Receipts are typically issued to building for farmer organizations to use these. producer groups rather than individual farmers. Infrastructure investments are needed to im- POLICY REFORM. Finally, at a more fundamental prove transport infrastructure, both in terms of level, policies in many countries remain unfa- transport fleets and roads, and mechanisms such vorable and in need of further reform. This as transport exchanges to coordinate logistics requires development of analytical capacity for services and maximize utilization of transport market analysis, and to cope with a changing capacity. Other investments in telecommunica- global economic environment. tions, particularly mobile communications, are needed to facilitate market information flows.

RECOMMENDATIONS FOR PRACTITIONERS In sum, productivity gains brought about Practitioners aiming to get markets right need through research and technology diffusion to focus on developing private sector capacity must underlie the future African agricultural and investing in the institutions and appropri- revolution. However, markets must play a key ate infrastructure to enable the private sector to role in bringing technology, namely inputs, to function in areas of input distribution, domestic producers and in enabling them to realize food grain markets, traditional export markets, income gains from increased production. and export markets for nontraditional, high- Making markets work for the poor in Africa is a value products. critical challenge and pivotal to reducing poverty and hunger in Africa. Policy-related investments must complete the implementation of market reform, with adoption of appropriate accompanying measures to SELECTED READINGS 293 alleviate negative impact of reforms. This will Asterisk (*) at the end of a reference indicates require attention to maintaining credible and that it is available on the Web. See Appendix 1 stable macroeconomic policies. for a full list of Websites.

Institutional investments are needed to de- Gabre-Madhin, E. Z. 2001. Market Institutions, velop official systems of grades and standards Transaction Costs, and Social Capital in the for agricultural products, market information Ethiopian Grain Market. Research Report systems, and functioning systems of trade 124. IFPRI: Washington, D.C.* finance and warehouse receipts, as well as to institute dispute settlement mechanisms and Kherallah, M., C. Delgado, E. Gabre-Madhin, N. legal reform. Market coordination can be Minot, and M. Johnson. 2002. Reforming facilitated through commodity exchanges and Agricultural Markets in Africa. Baltimore: auctions, and by supporting contract farming, Johns Hopkins University Press. outgrower schemes, farmer organizations, and traders’ associations. Overall there is a need to promote effective governance and capacity REFERENCES CITED building of state agencies for regulation and Jayne, T. S., J. Govereh, A. Mwanaumo, A. monitoring of markets. Chapoto, and J. K. Nyoro. 2002. “False

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT Promise or False Premise? The Experience of Food and Input Market Reform in East- ern and Southern Africa.” In T.S. Jayne, I. J. Minde, and G. Argwings-Kodhek, eds., Perspectives on Agricultural Transformation: A View from Africa. New York: Nova Science.

Sansoni, S. 2002. Silicon Mali. Forbes Global, February 4. http://www.forbes.com/global/ 2002/0204/042.html.

This Note was prepared by Eleni Gabre-Madhin (Interna- tional Food Policy Research Institute) with inputs from Kees van der Meer, Gary Alex, and Sam Kane.

294

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE and two from NGOsæprovide the management structure.

BANGLADESH: AUTONOMOUS HORTEX works with private entrepreneurs, ORGANIZATION FOR NGOs, and government agencies to forge FACILITATING MARKET-LED productive alliances and provide catalytic EXPORT technical services, combined with limited investment, in export operations that may Reduction of rural poverty in Bangladesh operate at a loss until adequate export volumes clearly requires improved agricultural growth are developed. HORTEX provides assistance in and diversifcation into products, including grading, packaging, quality control and export export products, with higher income elastici- logistics, assists in marketing, facilitates con- ties. This requires improved farm technology, tracts with overseas interests, and explores both for intensification of food-grain produc- potential joint venture investments. tion (to release land for higher value crops) and to enable farmers to grow diversified crops In its first season of successful operation for which Bangladesh has a comparative (1998), HORTEX arranged with an NGO for advantage. However, Bangladesh has very contract production of French beans, identified limited experience in commercial horticultural interested buyers in Europe, selected appropri- production and marketing, and lacks extension ate varieties, developed and contracted for systems that can provide improved production supply of export-quality boxes, trained NGO technologies and marketing information for extension staff, and organized export logistics. export horticulture. HORTEX initially bore the costs of seeds, fertilizer and cartons as demonstration costs. What’s innovative? An autonomous agency to facili- Based upon analyses of market opportunities tate market linkage and export competitiveness for and domestic production possibilities and producers and exporters in a young horticulture constraints, HORTEX has identified other export industry potentially profitable products such as chili peppers, okra, bitter gourd, yard long beans and baby pineapple. These include both new PROJECT OBJECTIVES AND DESCRIPTION export commodities and traditional exports. For The goal of the Agricultural Services Innovation traditional exports, quality has historically been 295 and Reform Project is higher agricultural pro- poor; packaging has not conformed to interna- ductivity and incomes through production tional trade standards; shelf life has been intensification and diversification supported by limited; and prices have been low. For these more demand-driven and locally responsive commodities HORTEX facilitates entry into agricultural services. The project provides nontraditional markets and improves returns support through a quasi-private organization from traditional markets by introducing im- (HORTEX) to pioneer horticultural production proved production practices, post-harvest and export activities that emphasize contract handling, and packaging to improve quality farming with NGOs or private entrepreneurs and reduce spoilage. using participatory approaches to extension. HORTEX organizes trial shipments of new HORTEX is an autonomous, nonprofit, facilitat- products, or of traditional products to new ing organization that is not itself commercially markets such as Singapore and the Middle East. involved in production and export. A managing While the HORTEX business plan provides a director and a governing body consisting of 11 basis for operations, flexibility is maintained to membersæthree from government, one from adjust for market developments and interest the central bank, five from the private sector, expressed by importers in particular products.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT In later stages of the program, HORTEX is likely to concentrate more on quality monitor- PROJECT COUNTRY: BANGLADESH ing and promotion of Bangladeshi horticultural Project Name Agricultural Services Innovation products. Its future role might include estab- and Reform (HORTEX lishment of a recognized trademark and reputa- Component) tion for Bangladeshi products leading to long- Project ID P058468 run profitability. Evidence of success will be measured by the number of NGOs and private Project entrepreneurs able to export profitably without Component Cost US$ 2.4 million HORTEX services. Dates FY 2000 – FY 2003 Contact Point Wahida Huq The World Bank , G.P.O. Box 97, BENEFITS AND IMPACTS Dhaka 1000, Bangladesh Strengthened partnerships among NGOs and Email: [email protected] the private sector has resulted in improved extension services that enable farmers to undertake highly profitable diversified production activities. Market-oriented penetration of export markets has yielded higher farm incomes, with benefits accruing mainly to the poor and with significant multiplier effects throughout the local economy.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • As farming systems become more complex and market demand becomes increasingly sophisticated, agricultural extension systems need to become more decentralized to reflect location- and market-specific issues. 296 • Cooperation between a technical agency with access to international marketing experience and NGOs that have gained the trust of small farmers can be extremely useful in introducing new higher-value crops in a country dominated by small farmers.

• Agencies adopting a catalytic role (for example, HORTEX) should focus on providing critical technical services rather than making direct investments in infrastructure.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE cattle operations. The project involves improvements to animal husbandry technology and processing and marketing infrastructure. CHINA: SMALLHOLDER Strengthening the commercial infrastructure to CATTLE DEVELOPMENT FOR link production and markets through develop- IMPORT SUBSTITUTION ment of live-cattle markets, processing facilities, market information services, and quality assur- Livestock raising is a large part of the house- ance programs is an innovative component of hold farming system in China, with farm fami- this project. lies traditionally keeping a few animals, mainly pigs and chicken, for sale and home consump- The Market Linkage Development component tion. Beef production has mainly been from aims to provide linkages from producers to cattle that have outlived their usefulness as cattle markets. The project supports the con- draft animals. struction of nine, small, live cattle markets that act as centers for trade and market information, What’s innovative? Developing markets and market as well as places to access technical knowledge linkages to enable smallholders to respond to a grow- and veterinary services. They give farmers a ing market demand for high-quality, safe beef. competitive alternative to direct sale to slaughterhouses and processors. Over the last 20 years, per capita meat consumption has increased from 0.4 to 2.4-3.0 The project also supports the construction, kilograms per year, while domestic production expansion, and rehabilitation of five cattle has increased at only one-half that rate. The slaughterhouses and processing plants to ex- increased demand for quality beef cannot be pand markets for farmers and provide value- fully satisfied due to generally weak infrastruc- adding opportunities. These processors provide ture in marketing, slaughtering, and processing, key linkages between production and final- and a weak market information system linking product markets by producing quality beef of producers, processors, and commercial buyers. specified grades on delivery schedules required There is an urgent need for a better-integrated by end markets. This is achieved through system involving forward and backward link- integrated planning and management by pro- ages among producers, processors, and buyers. cessing facilities, feedlots, and farmers. Proces- sors match supply and demand on a year-round 297 basis through their purchasing and storage PROJECT OBJECTIVES AND DESCRIPTION activities. Contracts specifying the quantity to be The Smallholder Cattle Development Project supplied and date of delivery are negotiated aims to: improve smallholder cattle production between processors and farmers with payments within existing crop farming areas using crop based on quality, schedules, and grades. This by-product surpluses; and improve the quality sends essential signals to farmers and feedlots and marketability of cattle to enhance farmer about the type and quantity of beef required, incomes and reduce poverty. which results in a production response with production of cattle of the quality demanded by The project supports the government policy of consumers, utilization of grading standards, and developing the beef cattle subsector in representation and packaging of product to the sponse to emerging market demand for quality specifications of customers. beef, and to develop meat production that does not use grain. The project puts special empha- The entire process provides an avenue for sis on assisting smallholders, who have surplus inducing farmers to respond to markets. The labor and by-products, but are constrained by information collection system collects market low productivity and poor quality of existing information and feeds it back to cattle markets,

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT feedlots, processors, local bureaus of animal • It is essential for meat and other fresh foods husbandry, and farmers. The participating that accepted food safety practices are slaughtering and processing enterprises use strictly followed at all stages of the supply beef grading and assurance programs and work chain, that appropriate testing procedures toward achieving the HACCP or ISO-9002 best- are followed, and auditing systems are practice level. Introduction of a quality-based established. differential beef pricing system serves as an incentive scheme for small farmers to produce improved cattle. PROJECT COUNTRY: CHINA Project Name Smallholder Cattle Development (Market Development BENEFITS AND IMPACTS Component) The project provides employment for about Project ID P045264 3,000 people through the development of nine cattle markets, 130 feedlots, and five processing Project enterprises, and provides additional employment Component Cost US$25.45 million opportunities in the rural economy through Dates FY 1999 – FY 2006 general commercial development. Development Contact Point Mohamed N. Benali of improved markets and linkages to consumers The World Bank 1818 H Street has increased incomes of producers, expanded NW, Washington D.C. 20433 on-farm employment opportunities, and im- Telephone: (202) 473-7357 proved the supply of safe, high-quality beef to Email: [email protected] local consumers. The improved information system enables producers to respond more effectively to consumer demand, and thus has improved competitiveness vis-a-vis foreign producers. The improved quality assurance in meat inspection, food safety, and processing technology has reduced the health risk from unhygienic handling of beef, and reduced food safety risks to consumers. 298

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • A market-based orientation is essential to compete with international suppliers, particularly for China and other countries that have recently joined the WTO or other trade agreements.

• Contracts must be based on demand in end-markets and have clear quantity and quality specifications with transparent payment schedules. Specific mechanisms must be included for contract enforcement, although compliance is best assured through well-aligned incentives that benefit both partise to the contract.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE Project implementation is based on three principles: the (limited) responsibilities of the public sector are specifically defined; execution COLOMBIA: PRODUCTIVE of project activities is completely decentralized AGRIBUSINESS/FARMER and transferred to the private sector; and PARTNERSHIPS participation of stakeholders structured through a clear distribution of roles and responsibilities Liberalization of the economy coupled with an based on recognized competencies and capaci- overvalued peso and falling world prices for ties of each party. Operational procedures are commodities have led to fundamental changes designed to provide transparent rules, clear in the composition of Colombia’s agricultural eligibility criteria for identification of beneficia- production. However, limited education and ries and allocation of resources, efficient flow business skills of the rural population, the high of funds, and adequate supervision. cost of and limited access to capital (particularly for smallholders), and the prevalence of Participation of relevant stakeholders at the rural violence have impeded the ability of strategic level of the project is ensured by smallholders to capitalize from these changes. including representatives of the financial sector, The challenge of the rural sector is to increase agricultural producer organizations, and small its competitiveness in a free market economy. farmers organizations in the National Technical The government strategy seeks to promote Committee, which ensures consistency of farming systems that combine both perennial project implementation with agreed conceptual crops (agro-ecological conditions permitting) and technical design. A Coordination Group with subsistence and annual crops and animal (consisting of a team of dedicated professionals husbandry. This is expected to allow farmers to with relevant disciplinary backgrounds) report- reduce debt levels, diversify risk, and increase ing to the Committee conducts a public infor- employment and incomes. mation campaign, selects productive partnership ideas presented jointly by interested What’s innovative? Building sustainable win-win part- partnership participants, arranges the contract- nerships between rural producer organizations and ing of Technical Assistance Providers to facili- agribusinesses. tate preparation and implementation of productive partnerships, and establishes agreements with partnership representatives for administra- 299 PROJECT OBJECTIVES AND DESCRIPTION tion of incentive programs. The Productive Partnerships Support Project objective is to establish economically viable and The project supports the implementation of sustainable productive partnerships between productive partnerships by financing: cost agribusiness and small farmer producer organi- sharing transfers as a financial incentive for zations, by providing an integrated package of participating small-farmer producer organiza- incentives and assistance. Demand-driven, tions; and technical assistance and training to sustainable, productive partnerships are ex- productive partnership participants. The incen- pected to generate income and employment tives can be used for: access to output markets opportunities for participating small farmers. A and inputs (for example, high quality seed, and productive partnership is considered any col- credit for working capital purposes) for the laborative arrangement between a small farmer farmer, and opportunities to expand food producer organization and an agribusiness processing activities by securing supplies from enterprise that reduces technical, commercial, small producers that meet certain predeter- financial, and/or social risks; increases produc- mined quality standards, without the need to tivity; and produces income gains in a value- expand own production capacity for chain, such that all parties benefit. agribusiness firms.

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT Specific applications may include: on-farm the great diversity in capacity and socioeco- infrastructure such as irrigation canals, aquacul- nomic conditions. An impartial group (such ture facilities, greenhouses, storage facilities; as the National Technical Committee Con- durable goods such as machinery, equipment, sortium) is extremely important to adapt tools, fences; vegetative materials for nurseries; implementation to the dynamics of each (iv) operational inputs such as fertilizers and particular location. chemicals that do not appear on the negative list; services such as land leveling; special • The process of designing partnerships studies, surveys, laboratory analyses and inven- should be highly participatory, drawing on tories; insurance; publicity, market and commu- the contributions of municipal governments nication services; labor usually in the form of and local small-farmer organizations. remuneration to the beneficiary or family (this is particularly important for organic crops); and • Proper mechanisms must be set in place to purchase of land (financed from counterpart provide participating farmers with indepen- funds). The maximum value of the incentive is dent sources of technical assistance to 40 percent of the required investment. counterbalance dependence and excessive monopoly situations in relationships be- Technical Assistance providers (NGOs or tween suppliers and buyers. consulting firms) support preparation of productive partnership proposals and facilitate • A simple monitoring and control system implementation of approved partnerships. should be in place from the start of the Development of clear schedules of incentives is operation to rapidly identify and correct a key part of the project, and is essential to the problems. It is advisable to separate moni- sustainability of the partnerships. toring and evaluation functions, and rely on an independent agency to conduct periodic impact evaluations. BENEFITS AND IMPACTS Development of productive partnerships • Clearly, defining contractual, arbitration, between agribusinesses and small-farmer and conflict resolution mechanisms, and organizations has improved the accessibility of operational, monitoring, and supervision both input and output markets to smallholders. procedures can ensure transparency in 300 This has increased the range of production financial transactions and encourage provi- alternatives available to them, and has im- sion of matching grants by government. proved the profitability of diversification alternatives. In doing so, rural employment has increased, a broader range of production PROJECT COUNTRY: COLOMBIA systems has been established, ecological Project Name Productive Partnerships Support sustainability has improved, and the financial Project ID P041642 and agroclimatic risks associated with agricultural production have been reduced. Project Cost US$52.3 million Agribusiness investment in the sector has Dates FY 2002 – FY 2008 improved the inflow of new technologies, and has improved the linkages between farmers Contact Point Pierre Werbrouck and the end-markets that they serve. The World Bank 1818 H Street NW, Washington D.C. 20433 Telephone: (202) 473-0745; Email: [email protected] LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • A flexible, open design is needed for programs with local governments due to

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE significantly increase the volume of mangoes exported. On the production side, this is to be achieved by improving product quality to meet MALI: BUILDING EXPORT market requirements, and on the marketing MANGO SYSTEMS side, by resolving transportation bottlenecks by developing sea shipment logistics. Mali relies on an agricultural system centered on a few major crops (cereals, rice, and cotton) The Agency identified a Cote d’Ivoire enter- produced by many smallholders. High produc- prise willing to set up a joint-venture and share tion risks and poor productivity contribute to risks. It guaranteed a fixed price to the im- the high incidence of rural poverty. Most porter, who bore the logistic and commercial smallholders have diversified their production risks associated with exporting the product. systems to include horticultural crops as The Cote d’Ivoire partner is liable for financing complementary cash crops in the off-season. fruit purchases from growers, and packaging However, diversification into export crops, such material at the pack-house, and for securing as mangos, has been constrained by limited forwarding and inland logistics. Fixed prices extension and research services, unorganized include a profit margin for each party. If the and inadequate logistical infrastructure, and an average selling price exceeds a fixed amount, ignorance of market requirements. the additional profit is split equally.

What’s innovative? An autonomous agency improv- The Cote d’Ivoire partner assigned two experi- ing supply chain coordination and linking smallholders enced pack-house managers (administrative to export markets for horticultural products. and packing) to implement proper packing, accounting, and shipping procedures. The The potential for horticultural exports is due to Agency acts as an intermediary between the the good positioning of Mali in the mango sector producer associations and their trading partners and the growing demand in European markets. and provides a number of extension services to The Agricultural Trading and Processing Promo- the growers and pack-house employees to tion Agency, an NGO established as an autono- increase productivity, reduce costs, and im- mous body under the Chambers of Agriculture prove quality. Key intermediaries are involved with an agreement with the government, under- in technology transfer to growers, and pro- took to design and implement an export promo- ducer associations assist with training and 301 tion project for Malian mangoes. The Agency technical assistance activities, as well as work- was formed to restructure supply-chains, de- ing to pool production and negotiate contracts. velop commercialization channels, and promote the application of research and technology. Services provided relate to agricultural inputs, quality management, conservation techniques, harvesting techniques, seedling sourcing, PROJECT OBJECTIVES AND DESCRIPTION varieties, orchard restructuring, quality control The primary objective of one component of the and certification, and national regulations on Agricultural Trading and Processing Promotion the production side. Services provided on the Project was to improve the supply chain for commercialization side include the organization mango exports by filling the gap left by public of the marketing participants, training in export sector withdrawal, while strengthening the standards application, logistics improvement, linkage between the small producers and and financing. markets. A second objective was to develop new communication channels for trade ex- The Agency exploits new information technol- changes (especially sea-freight logistics), and a ogy through its agribusiness centers where third objective was to encourage crop diversifi- product exhibits are held, and where there is a cation. Overall, the aim of this project is to reference center and an Internet café. These

MODULE 6: INVESTMENT IN AGRIBUSINESS AND MARKET DEVELOPMENT centers serve as a place for growers to access levels. All chain participants must receive outputs from The Agency’s programs. Local training on quality standards and market radio programs, as well as “audio-technical requirements, and internal control systems books” (many villages have a cassette recorder must be installed at collection and process- running on batteries) are also used to dissemi- ing sites. nate information. Given the low literacy rates, a key future challenge will be the development of • Integrated technical and extension services management information systems and traceabil- for production, processing, and distribution ity management systems to track production. are essential for improving supply chain coordination and efficiency.

BENEFITS AND IMPACTS Benefits include: profitability for all partners; PROJECT COUNTRY: MALI reduction by half in transit time to Northern Project Name Agricultural Trading and Processing Europe; higher quality products delivered to Promotion (Mango Export customers; access to new European markets; Component) timely payments to growers; farm income Project ID P001755 diversification; training of the rural labor force; introduction of improved technologies; increase Dates FY 1995 – FY 2003 of prices to growers by 25 percent; increased Contact Point Patrick Labaste pack-house employment (60 percent are The World Bank, 1818 H Street women); and improved pack-house working NW, Washington D.C. 20433 conditions and pay. Telephone: (202) 473-4999 Email: [email protected]

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • Successful export systems must establish linkages between farmers and their markets to enable them to satisfy, and adapt to, market demand. 302 • Incentive structures between partners (particularly between growers/grower associations and agribusinesses) must be designed to minimize enforcement problems.

• Efficient and reliable cold-chain infrastructure is essential to ensure preservation of product quality. “Multi-modal” containers (fitted with “gensets,” that is, clipped generator units required to keep the refrig- eration going) are important, but must be complemented by good logistical planning to ensure minimal delays.

• Quality control is critical for perishables, especially for exports to the European Union, which requires high compliance

AGRICULTURE INVESTMENT SOURCEBOOK 7

INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE

303

roviding financial services to households and agribusiness in poorer and marginal rural areas remains a challenge for the World Bank and other funding agencies. Although the adoption of a financial P systems approach and the expansion of the microfinance sector have led to significant breakthroughs in performance, outreach, and lending volumes, this has rarely extended to more marginal rural areas dependent on agriculture. Recent progress in providing financial services have impacted poor rural households with diversified nonfarm income sources or income from nonseasonal agricultural activities. Several factors increase cost and risks of financing agriculture and for these reasons financial service providers perceive investment in agriculture to be unattractive (see box 7.1). However, recent efforts by the World Bank and other organizations are starting to bear fruit in the form of emerging models and successful approaches. Rather than repeating a comprehensive treatment of the well-documented challenges and past failures of agricultural finance (World Bank, forthcoming; IADB 2001; Yaron, Benjamin, and Piprek 1997), this Module explores promising new directions in rural finance for agriculture, and identifies lessons for policy and lending. Box 7.1 Challenges of providing financing for agriculture to financial services, such as poor agriculturally-dependent households in less-favored (low • High, interrelated covariant risks: Due to variable rainfall productivity, more remote) rural areas. (especially for nonirrigated crop production); pests and diseases; price fluctuations; and constrained smallholder access to inputs, advice, and markets. RATIONALE FOR INVESTMENT • Dispersed demand for financial services: Due to low Constraints to agricultural development are population densities; small size of individual transactions. many, and access to financial services is only • High information/transaction costs for service providers: one response needed to address these con- Due to remoteness of clients, and heterogeneity among communities and farms. This creates potential for informa- straints. However, improving the provision of, tion asymmetries and moral hazard risks. and access to, financing for agriculture can • Seasonality of agricultural production (in particular crop meet a range of needs, and can be critical to production): Leads to a lag between investment needs and the success of agricultural development pro- expected revenues, and consequent liquidity management grams. Indeed, many investments in agriculture challenges. are dependent on access to appropriate finan- • Lack of usable collateral: Due to ill-defined property and cial services. At the production level, financing land-use rights, high cost or lengthy registration proce- for agriculture can enable farmers to introduce dures, and social constraints to foreclosure. irrigation or other technologies; finance input Source: Authors. and marketing costs; cofinance extension and information services; bridge the preharvest Within the current financial systems approach, income gap and avoid having to sell immedi- financing for agriculture is seen as part of a ately following harvest at low prices; smooth comprehensive rural finance strategy. The seasonal income flows through deposit facilities terms Rural Finance for Agriculture and Fi- and access to remittances or insure against nancing for Agriculture are used interchange- price or yield fluctuations. If agribusinesses are ably throughout this Module to define all not able to access financial services, this will financial services provided to those engaged in constrain their capacity to finance and supply the agricultural sector. The Module focuses on farmers, and to buy and process farm produce. the provision of financial services for agricultural activities and to agriculturally dependent households, though most do not exclusively PAST INVESTMENT EXPERIENCES 304 provide financing for agriculture. They also Since the 1950s the donor community has provide financial services to nonagricultural made large-scale investments in recognition of rural and, in some cases, urban communities. the importance of supporting financing for These providers include both formal and agriculture. However, the widespread develop- informal institutions ranging from full-service ment of sound and sustainable financial sys- banks to specialized agricultural finance tems for agriculture has not occurred, and the institutions to microfinance institutions (MFIs), challenges described above still remain. Atten- financial cooperatives, credit unions, savings tion has frequently been drawn to the apparent and loan associations, traders, and processors. failure of past approaches, and in particular to They encompass all types of financial services the directed credit programs of the 1960s to the (credit, savings, money transfers, leasing, and mid 1980s. Although these provided a short- insurance1 ), for agricultural activities broadly term impetus to agricultural production, they defined to include primarily production, but have been criticized as costly, unsustainable, also processing, distribution, and marketing. In and supporting a misperception of free credit, this module, particular emphasis is placed on thus jeopardizing future efforts to create sus- those who presently have only limited access tainable financial institutions. Since the 1980s,

1. This module is primarily concerned with credit, savings, and leasing. Insurance is addressed in Module 10: “Managing Risk and Vulnerability.”

AGRICULTURE INVESTMENT SOURCEBOOK attention has switched to the development of Box 7.2 Operational policy 8.30 sustainable financial institutions providing services to poor clients. This has entailed • Targeted subsidies may be warranted if they are transpar- greater donor support to the establishment of ent, capped, explicitly budgeted, fiscally sustainable, and an appropriate policy, regulatory, and legal economically justified. environment for financial institutions, and • Subsidies should not directly subsidize the ultimate clients, support for the development of innovative but rather be aimed at building the capacity of financial approaches to reach poorer clients. intermediaries or supporting institutions (for example, supervisory authorities). • Conditions are specified for acceptable targeted credit that During the 1990s, there was a steady increase fosters a sustainable flow of financial services to in the number of World Bank operations with underserved groups (such as the poor, women, and rural and microfinance components, with microentrepreneurs), and is accompanied by reforms that average annual lending of US$630 million address problems in institutional infrastructure and financial (World Bank, forthcoming). However, the markets. relative share of agriculture in total Bank • Financial Intermediary Loans (FILs) should be limited to operations with rural and microfinance compo- those that have sufficient institutional capacity. • New and existing institutions that do not qualify as a nents has declined from 65 percent during “viable institution” may participate in a FIL, if they agree to fiscal years 1992 to 1994 to only 27 percent in an institutional development plan that includes a set of 2001. This is attributed to the trend to include time-bound performance indicators that can be moni- microfinance and grant components in projects tored, and that provides for a midterm review of progress. for other sectors, the poor performance of Source: World Bank, Operational Manual. agricultural credit lines and agricultural banks, and the Bank’s Operational Policy (OP) 8.30 that limits the use of subsidized credit (see box 7.2). The focus of recent Bank operations has of finance, is often the partner ministry in a therefore shifted from the provision of credit to borrowing country for agricultural loans. Within agricultural production (especially for larger a financial systems approach, financing for farms) and agribusiness, to small loans for off- agriculture is viewed as part of the wider rural farm activities and savings services. Although finance market. Underpinning this approach is these operations have had some success, they the fact that institutions adhering to commercial do not constitute a replacement for previous principles are most likely to achieve outreach agriculturally-focused operations. Viable mecha- and sustainability, and that the role of the 305 nisms to address specific demands for agricul- public sector should be focused on ensuring tural financing continue to be a challenge. that the environment is conducive to the emergence and growth of such institutions.

KEY POLICY ISSUES This approach also recognizes that there are a FINANCIAL SYSTEMS DEVELOPMENT. In response to the number of institutions (formal and informal) deficiencies of past approaches to financing for and individuals that together constitute the agriculture, new thinking has emerged that financial system (see box 7.3). In certain cases, embraces the financial systems approach, while these institutions will be in place, with infra- recognizing the specific challenges of the structure and networks in agricultural commu- agricultural sector and the rural setting. Financ- nities that can be the basis for improving ing for agriculture has too often been seen in provision of financial services. The challenge isolation from wider financial systems develop- for governments and donors is to identify and ment, and has overemphasized credit, as work with those institutions that are viable opposed to savings and other financial services. financial service providers, and where these are One symptom (and cause) of this is that the absent, to create the incentives and environ- ministry of agriculture, rather than the ministry ment for such institutions to emerge.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE Box 7.3 Institutions and individuals in the rural finance system profitable and thereby encourage investment. Financial sector policy needs to promote the • Agricultural Banks: Whether privatized or state-owned, development of financial organizations that are these banks have a rural network that provides financial transparent and accountable. This must be services specifically for the agricultural sector. supported by a strong legal and regulatory • Postal and Savings Banks: These often act as the principal framework, including the provision of a legal source of deposit and money transfer services in rural basis for secure property rights, financial trans- areas. Traditionally these were owned by the state, actions, and savings mobilization (see box 7.5). although in some countries they have been commercialized. • Microfinance Institutions (MFIs): Specialized institutions that Deficiencies in the enabling environment can provide microfinance products targeted at the poor frequently limit the viability of financial service and low-income populations, including small farmers. providers, and therefore the spread of financial • Membership-Based Financial Organizations (MBFOs): services into rural areas and agriculture. This Membership-based organizations can include financial requires institutional strengthening in the cooperatives or credit unions, and savings and credit broadest sense, of the judicial system, property associations. These organizations usually have a common registries, contracts and markets, infrastructure, bond, such as community, geography or activity. and service providers. • Processors and Traders: A wide variety of businesses and entrepreneurs in the agricultural market system that are principally engaged in agricultural activities (such as APPROPRIATE STRATEGIES FOR THE POOR. Within the processing, marketing, input provision, storage) also provide agricultural sector, social groups have different credit as part of transactions. financial (and nonfinancial) needs (see box • Informal Financial Intermediaries: Group-based models 7.6). Credit is only suitable in certain circum- such as Rotating Savings and Credit Associations stances. For example, there is a significant (ROSCAs), moneylenders, retail stores offering goods on difference between financing a liquidity short- credit, informal deposit collectors, and others. age for a viable activity, and giving money to Source: Authors. people or enterprises without a viable business model (including farming), who may not be able to meet repayment commitments. One The financial systems approach recognizes that may lead to poverty reduction and increased rural and agricultural clients need a full range employment, and the other to an unsustainable of financial services including savings, short- debt burden. Microfinance has demonstrated 306 and long- term finance, insurance, money that careful design of financial products and transfers for remittances, and leasing (see box delivery mechanisms can allow those previ- 7.4). Successfully meeting these demands ously considered “unbankable” to be good requires designing financial products to meet clients. However, there are still cases where client needs, by using client and market re- credit is not suitable, and where grants may be search, and adapting delivery mechanisms to a more appropriate response: provide low-cost and convenient access. • Where the recipients are too poor to repay a DEVELOPING APPROPRIATE POLICY FRAMEWORKS. The loan, such as some groups of landless poor. public sector plays a vital role in creating suitable conditions for financial market devel- • Where the primary eligibility or targeting opment. Specifically, the public sector must criteria are not “ability to pay,” but instead provide the policy environment for rural is membership of a certain target group (for finance for agriculture to flourish including example, credit to farmers to promote conditions for macroeconomic growth and adoption of a certain technology). stability, and appropriate agricultural and financial sector policies. Agricultural policy • For a “lumpy” or long-term investment, or a reform may be necessary to remove historical risky start-up, neither of which fit a short- biases against agriculture, to help the sector be term, high-cost microloan.

AGRICULTURE INVESTMENT SOURCEBOOK Box 7.4 Financial products demanded by the rural sector

Savings: Savings mobilization contributes to an institution’s sources of funds for on-lending, and is also a financial service that is equally, if not more, important to the rural poor than lending. In the absence of formal savings opportunities, the rural poor often pay depositors or store money in insecure places. Short-Term Finance: This is finance for working capital, such as inventories or agricultural inputs. Short-term finance for agricultural activities including input supply and processing, tends to be linked to crop cycles, and thus defined by the growing season. Term Finance: Term finance (FAO, forthcoming), defined as loan terms over one year, may be used for farm machinery, irrigation equipment, land improvements, livestock, tree crops and processing equipment. Term finance does not only imply loans, and may also include leasing of machinery and equipment. The challenges presented in box 7.3 apply even more strongly to term finance, which is more costly and risky than short-term finance, since it ties up larger amounts of money for longer periods, and requires the mobilization of long-term funds (to balance assets with liabilities). Leasing: In a lease agreement, the leaseholder pays a regular rent/lease for the use of equipment while the legal property remains in the hands of the institution. Due to the ready availability of collateral (the leased equipment), it may be an easier product to provide by rural financial intermediaries than other term finance, but its viability depends on appropriate tax and legal incentives.1 Money Transfer for Remittances: Income from national or international remittances is important in most developing economies, and disproportionately so for many poor rural areas where it may be the principal income source. Remittance monies can make significant contributions to consumption smoothing, and efficient mechanisms for money transfers are widely demanded by the rural poor. However, care needs to be taken to ensure that access to remittance services will not be misused for money- laundering purposes. Insurance: Insurance products are in particularly high demand (and short supply) in the agricultural sector, given the risk of crop failure and price fluctuations. Insurance products span loan insurance, crop insurance, and life insurance, but experience with these is mixed. Hedging instruments based on weather or price indices are also increasingly available.

Source: Authors.

1. See the IAP, “Madagascar: Microleasing for Agricultural Production.”

307 Box 7.5 Improving the legal environment for rural finance for agriculture

Enable Unsecured Loan Portfolios: Change laws to permit unsecured loan portfolios to serve as collateral for accessing loans from the formal sector for refinancing. Reform Borrower Status and the Law: Reform laws relating to the status of borrowers with regard to age of majority, home- stead, literacy, and civil registration. Facilitate the poor, illiterate, and young heads of households in legally conducting business with the formal sector, such as the signing of contracts, opening businesses, and borrowing. Simplify Bankruptcy Procedures: Simplify and reduce the cost of bankruptcy procedures to have a simple and cheap exit mechanism for paying unsecured debt, recuperating lender funds and returning remaining funds to the borrower. Expand Collateral Use: Broaden the concept of security interest for immovable property, for example from land titles to land use rights. This requires recording economically important land use rights and simple legal mechanisms for transferring such rights. Write Civil and Commercial Registration: Create governing legislation for all relevant legal institutions that permits civil and commercial registration systems, and where possible, private systems. This should include a filing system to report security interests for property and land use rights for immovable property.

Source: Fleisig and de la Peña 2003.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE Box 7.6 Categorizing the agricultural poor and their financial Access to flexible and safe savings facilities can enable poor households to reduce their vulner- needs ability to shocks, save for expenses such as The “entrepreneurial poor” are those who are already engaged school fees, and can provide an important in viable but low-productivity economic activities (including source of funds during the growing season. agricultural production or processing) or who have good Transfer payment services, which facilitate investment opportunities, but are constrained principally by lack access to remittance monies, are unaffected by of access to financing. These include farmers with access to agricultural production cycles, and can provide sufficient land and inputs to consistently produce a surplus for important consumption smoothing and risk- marketing, and where demand exists for their produce in reducing mechanisms for the poor. Credit is accessible (local, national, or international) markets. The likely not suited to the needs of the extreme development of financial systems that cater to rural and agricultural entrepreneurs can service this group, through poor, who have little likelihood of productive increased outreach and sustainability of institutions providing investment and credit repayment. financial services. The success of microfinance in the past 20 years The very poor are those who have reasonable economic has led some to believe that the development of opportunities but are handicapped by low skills, poor basic economic infrastructure, lack of social capital, a remote location, sustainable institutions providing financial and lack financial institutions. These include farmers and services to the poor on a full cost-recovery basis agricultural businesses in marginal production areas, often is sufficient for poverty reduction. However, the distant from markets and poorly served by both public and causes of poverty are numerous and complex, private sector services. Financial service provision to poor and although microfinance is an important people in these areas may not be viable, and flexible low-cost poverty-reduction tool, its effectiveness is delivery mechanisms are needed. Savings may be more closely linked to other interventions (and vice appropriate than credit, and investments through grants may be versa). Nonfinancial services can also help the necessary to increase the economic potential of such areas. rural poor “graduate” to become suitable The extreme poor or destitute, especially those in areas with candidates for microcredit and other financial low economic potential, are most likely not best served by services, for example through building skills financial services, but may require grant-based approaches to and capacities (health and education), and improve livelihoods. through improving access to markets. The Source: Authors. starting point for operations in rural finance for agriculture must therefore be a research and 308 consultative process to develop a solid under- • Where the recipient lacks the skills (or standing of the financial needs of the poor, and health) to productively utilize a loan. factors limiting their access to financial services.

Where there is an element of entitlement or SUBSIDIES, CREDIT LINES AND GUARANTEES. The revised compensation in project design, credit (which OP 8.30 (World Bank, Operational Manual) is, of course, actually debt) is also not the clarifies the Bank’s policy by stating the condi- appropriate tool. For example, if an amount of tions under which subsidies and directed money is to be given automatically to individu- credits may be used. They can be used as part als in a certain target group (such as refugees, of an operation that aims to foster a market- HIV/AIDS sufferers, or retrenched workers), a oriented environment, which in turn enhances grant should be used. Grants can take the form access of the poor and micro and small-sized of start-up equipment for a farm or enterprise, enterprises to financial services. Market failures a contribution to transition costs associated that result in poorly functioning and shallow with adopting new activities, a grant (or food agricultural financial markets may justify care- subsidy) to help a person move out of destitu- fully designed subsidies, provided they are tion or recover from an emergency, or a sav- time-bound and used for overcoming those ings-type deposit that can be accessed later at a failures, and do not distort prices or target time of need (as opposed to a cash grant). certain clients. Technical assistance, training,

AGRICULTURE INVESTMENT SOURCEBOOK investment in systems, and other capacity- marketing chains. Such guarantees should building subsidies can support the emergence of decline rapidly over-time, and should be strong rural financial service providers. How- designed to develop sustainable business ever, subsidies can also distort financial markets, relationships between providers and recipients inhibit the development of the financial system, through building trust and a good credit his- and reduce access of rural populations to tory. Guarantees are only useful if a substantial financial services. This type of negative impact portion of the credit risk remains with the results from subsidies being applied to price institution, to avoid moral hazard and to allow (interest rate subsidies for the end borrower), or for the buildup of good credit practices. to directing credit to certain groups or for certain purposes, without an overriding goal of creating sustainable financial institutions. Long- NEW DIRECTIONS FOR LENDING term or structural subsidies should also be Approaches are needed that expand the depth, avoided, because they can create dependence scale, and outreach of financing for agriculture, on donor funding. Sustainability in the provision with a wider range of better-designed financial of financial services implies a transition to more services, provided at a lower cost and to commercial sources of funding over time, as poorer clients. This requires action on two donor funding is limited in size, temporary, and complementary fronts: improving the overall its availability is subject to policy changes. environment for the development of financial systems, and increasing the capacity of institu- Credit lines and guarantees can also distort tions to provide financial services to the agri- markets, and therefore should be used carefully cultural sector. – and only where parallel measures are taken to improve the operating environment for rural IMPROVING THE ENVIRONMENT FOR RURAL FINANCE FOR financial service provision.2 Funding for lend- AGRICULTURE. Creating a conducive policy frame- ing portfolios may be justified in the short to work for financing for agriculture is consistent medium term under the following conditions: if with policies for improving the investment the financial institution is not able to take climate, supporting financial systems develop- deposits (to avoid the risk of external funding ment, and increasing agricultural growth undermining mobilization deposits), if sufficient (Yaron, Benjamin, and Piprek 1997). The capacity-building support has been successfully challenges of providing financial services to provided, and if commercial sources of finance small-scale farmer activities do merit particular 309 (investors and banks) are not an available emphasis on the following: option. In the longer term, however, both deposits and commercial sources of funds are • Strengthening the capacity of land and more sustainable (and less distorting) sources property registries, and streamlining registra- of funds for intermediation than donor funding, tion processes, to make collateral easier and and do not expose the borrower to exchange cheaper to use, and promote secure land rate risks (CGAP 2002). tenure and land-use rights. This creates an incentive for farm investment (for example, Financial guarantees can be used to attract the modernization of the property registra- commercial financial intermediaries into lend- tion system in Latvia during the Rural Devel- ing to MFIs with an agricultural portfolio, or to opment Project 1997-2001 led to an eightfold develop financial credit within commodity increase in mortgage registrations).

2. OP 8.30 states that targeted lines of credit, when justified, should be accompanied by reforms to rectify underlying market imperfections. A Bank Financial Intermediary Loan may support directed credit programs to promote sustained financing for such sectors, provided the programs are accompanied by reforms to address the underlying institutional infrastructure problems, and any market imperfections that inhibit the market-based flow of credit to these sectors. Such reforms include measures to (a) address obstacles that impede the flow of funds to the credit recipients, or (b) enhance the creditworthiness of the intended beneficiaries through appropriate approaches such as mutual group guarantees.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE • Ensuring that debtor rights do not outweigh able financial institutions that can provide creditor rights, and building the capacity of longer-term access to financial services in rural rural courts to process claims efficiently and areas. Funds for on-lending are of little benefi- transparently. cial use if the financial institution receiving them lacks the ability to use them effectively. • Eliminating any interest rate subsidies to Key areas for capacity building include: agricultural lending through development banks or other institutions supported by • Investment in information systems that government or donors. provide timely and accurate data to management. • Investing in communications and physical infrastructure to lower operating costs for • Training for staff, management, and board financial service providers, and investing in members. education and health services to enhance the capacity of clients to take advantage of • Strengthening internal controls and external financial services. monitoring, and improving the transparency and quality of external reporting. • Reforming financial sector regulation and supervision (if needed) to promote the devel- • Assistance in product design and marketing opment of nonbank financial institutions. For of a range of financial services. example, this could be a shareholder-based entity that is allowed to offer a limited range • One-off grants to support innovations (for of financial services (such as credit, deposits, example, introducing new technology, or a and domestic transfer payments), and that new loan product), or expansion into more operates within a specialized regulatory marginalized rural areas. framework and set of reporting requirements that do not restrict microfinance activities. This • Building on existing infrastructure (such as may be necessary to encourage financial post offices, state banks, retail stores, sector development, and to enable product traders) to provide a range of financial diversification beyond credit to deposit services at low cost and at scale. facilities and transfer payment services. 310 However, this option should only be consid- At present substantial Bank and donor funds lie ered if there is sufficient will and available unused in apexes (second-tier wholesale resources to invest in building supervisory funds), intended for on-lending by agricultural capacity to enforce the regulations. Poor and microfinance providers. For example, the people’s money may otherwise be put at risk.3 Social Development Fund in Yemen had only 40 percent of its fund assets (US$5 million) CAPACITY DEVELOPMENT FOR RURAL FINANCE FOR AGRI- allocated to MFI investments.4 The absorptive CULTURE. Bank investment in financing for capacity for apex funds is therefore limited by agriculture has long since moved away from the size and expansion capacity of existing channeling production credit through subsi- providers of financing for agriculture. Funds dized public-sector agricultural banks. It now should only be committed to apexes if: a) recognizes the importance of building sustain- sufficient absorption capacity exists for using

3. To enable rural financial service providers to take deposits from the general public, there may be a case for prudential regulation that is aimed at protecting the soundness of the financial system as well as depositors. Given its high cost, care should be taken to avoid using prudential regulation for nonprudential purposes (that is, the formation and creation of MFIs, preventing fraud and financial crimes). The introduction of new regulations often sets off unintended consequences (such as renewed enforcement of interest rate ceilings), and the costs of new regulation and its supervision have to be justified by a critical mass of qualifying institutions. 4. A more efficient apex is the Rural Finance Corporation of Moldova, which claims to have 100 percent of its fund assets (US$4.8 million) committed to MFI investments (MixMarket).

AGRICULTURE INVESTMENT SOURCEBOOK the apex funds effectively, and/or b) simulta- successful innovation for wider application. To neous investment in developing institutional improve the viability of rural financial services capacity of existing providers is carried out. and lower their cost to clients, flexible delivery Well designed capacity-building support re- mechanisms are needed. Instead of investing in quires involvement of a financial sector special- expensive branch networks, financial services ist, and need not be limited to direct providers could instead be made available through of financial services – there are many other existing delivery outlets, such as an agricultural institutions that can play a vital role, from development bank, a rural post office, retail credit bureaus and industry associations to rural stores, or rented offices in schools and hospi- producer organizations, community self-help tals. If other financial institutions are present, groups, agribusiness development centers, and branch facilities could be shared to lower local nongovernmental organizations (NGOs). operating costs. Mobile and automatic teller Without this capacity-building investment the machine (ATM)-based delivery mechanisms are scale of provision of financing for agriculture being piloted by several rural finance institu- will remain limited. tions, and show significant potential for lowering the costs of providing rural financial ser- INNOVATION—NEW PRODUCT DEVELOPMENT AND DELIV- vice. ERY MECHANISMS. Improving the outreach and performance of rural finance for agriculture CAPITALIZING ON EXISTING INSTITUTIONS AND INFRA- requires innovations and new or adapted STRUCTURE. If existing infrastructure and institu- financial products to overcome the challenges tions are already in place, these may be utilized presented by agricultural activities and environ- where appropriate to improve financial ser- ments. Applying products and approaches that vices. There are advantages and cost savings work in urban settings or for nonfarm activities from working through institutions that are has only worked for those agricultural activities already established in rural areas, though the that have a similar income and risk profile to choice of institution must be carefully consid- nonagricultural activities, such as egg produc- ered. There are potentially significant benefits tion or greenhouse-based vegetable produc- (and risks) of using established branch net- tion. Rural finance for agriculture needs to works and client bases provided this is com- match seasonal income cycles and term invest- bined with extensive reform of bank systems ment needs, manage risks, mobilize savings, and management. Where the institutional develop lower cost operations, and cope with commitment is lacking, or the costs of reform- 311 deficiencies in client information availability. ing and building the capacity of existing institutions or rehabilitating infrastructure is too Diversification of loan portfolios over time and great, starting from scratch may be the pre- economic sectors, and product diversification ferred option. Membership-based financial toward savings, insurance, and leasing, can be organizations can build the capacity of existing effective risk management strategies. Savings- community organizations, including, where based approaches offer particular promise in appropriate, linking these to the formal finan- more remote rural areas. New and promising cial sector.5 In some circumstances, financial products that help address the challenges services may be best provided by organizations posed by financing agricultural activities merit falling outside the traditional definition of a support for piloting. Innovation involves risk- financial institution. For example, there is taking on the part of the provider, and there is considerable potential for extending and a legitimate role for donors to support innova- improving sources of production credit for tion, and provide the resources to scale-up farmers by input suppliers, processors, and buyers.6

5. See the AIN, “Membership-Based Financial Organizations” 6. See the AIN, “Production Credit from Input Suppliers, Processors and Buyers”

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE SCALING-UP INVESTMENTS thresholds or targets. A business plan agreed to The emphasis of donor or government moni- by the financial institution can provide key toring of finance providers for agriculture performance targets, and can also be used as should be on institutional performance and the basis for designing institution-building progress in institutional capacity, instead of on assistance. Capacity building of project activities and outputs. Experience has shown implementers, as well as the financial service that investment in rural financial service providers, can also be included within projects if providers produces superior results if program appropriate. design, reporting, and monitoring focus on areas that are considered key for performance. The World Bank is in a strong position to Performance can be defined as the extent and influence borrowing governments and other efficiency with which they reach their target donors, and can take a lead in the quality and group. This is best measured jointly as out- effectiveness of scaling-up financing for agricul- reach and sustainability. Outreach is a mea- ture through the following practical actions: sure of the scale and depth of penetration of a rural financial service provider to its target • Incorporating financial expertise into the group, and sustainability is the ability of an project team (whether through an in-house institution to survive over the long term. specialist or an outside consultant) for rural Sustainability has ownership, governance, and finance for agriculture projects, or projects management components, and financial that include a component of finance to dimensions (see box 7.7). farmers or agriculture-dependent households.

Tranched funding can be an effective means of • Considering rural finance for agriculture enforcing performance targets, with the dis- projects and components as falling under a bursement of subsequent tranches dependent wider financial systems approach, and not on the achievement of minimum performance simply as a contribution to a narrow agriculture sector goal.

Box 7.7 Minimum reporting indicators • Requiring financial service institutions to follow internationally accepted accounting All project phases (project appraisal, design, monitoring and standards and to practice full disclosure. 312 reporting during implementation, final evaluation) should use Where indicators specific to microfinance are appropriate measures of outreach and sustainability. Such used, then standard definitions should be indicators should include: applied (CGAP 2003). External audits and • Number of clients that are being served (measured by ratings of rural finance for agriculture provid- active clients or accounts). ers should be required as standard for more • Client poverty level (through average outstanding loan or formal financial institutions. A professional savings balance, as a percentage of GDP/capita).2 appraisal of all financial institutions that on- • Performance in loan collection (for example, portfolio at lend bank loan funds should be encouraged. risk beyond a stated number of days). For smaller and less formal community- • Efficiency (operating and/or lending costs as a percentage owned organizations, this may be too expen- of the loan portfolio or assets). • Financial sustainability (use return on assets and/or return sive and other forms of reporting and moni- on equity. For subsidized institutions, financial self-suffi- toring should then be used, consistent with ciency, adjusted return on assets, and/or the subsidy full disclosure and accepted indicators. dependency index can all be used to quantify the subsidy that is required/invested for a certain project outcome). Sources: World Bank, forthcoming; CGAP 2003. SELECTED READINGS Asterisk (*) at the end of a reference indicates 2. This indicator may be less relevant for projects that promote financial services that it is available on the Web. See the Appen- to larger agribusinesses. dix for a full list of Web sites.

AGRICULTURE INVESTMENT SOURCEBOOK CGAP. 2001. “Disclosure Guidelines for Finan- Fleisig, H., and N. de la Peña. 2003. “Legal and cial Reporting by Microfinance Institutions.” Regulatory Requirements for Effective Rural CGAP, Washington, D.C.* Financial Markets.” Paper presented at Paving the Way Forward for Rural Finance: FAO. Forthcoming. Term Finance in Agricul- An International Conference on Best Prac- ture: A Review of Relevant Experiences. tices, sponsored by USAID and hosted by FAO/World Bank Cooperative Program. BASIS CRSP partner, World Council of Place: Publisher. Credit Unions, June 2-4, Washington, D.C.

Fleisig, H. W., and N. de la Peña. 2003. “Legal IADB. 2001. “Rural Finance Strategy.” Sustain- and Regulatory Requirements for Effective able Development Department Sector Rural Financial Markets.” Paper presented at Strategy and Policy Papers Series. IADB, Paving the Way Forward for Rural Finance: Washington, D.C. An International Conference on Best Prac- tices, sponsored by USAID and hosted by MixMarket. http://www.mixmarket.org/en/ BASIS CRSP partner, World Council of home_page.asp. Credit Unions, June 2-4, Washington, D.C.* World Bank. Forthcoming. Rural Finance Hollinger, F. 2003. “Financing Term Investments Services: Implementing the Bank’s Strategy in Agriculture: A Review of International to Reach the Rural Poor. Rural Private Experiences.” Paper presented at Paving the Sector, Markets, Finance and Infrastructure Thematic Group. Place: Publisher. Way Forward for Rural Finance: An Interna- tional Conference on Best Practices, spon- World Bank. Operational Manual. http:// sored by USAID and hosted by BASIS CRSP wbln0018.worldbank.org/institutional/ partner, World Council of Credit Unions, manuals/opmanual.nsf/. June 2-4, Washington, D.C.* Yaron, J., M. P. Benjamin, and G. L. Piprek. Yaron, J., M. P. Benjamin, and G. L. Piprek. 1997. Rural Finance: Issues, Design, and 1997. Rural Finance: Issues, Design, and Best Practices. ESSD Studies and Mono- Best Practices. ESSD Studies and Mono- graphs Series 14. Washington, D.C.: World graphs Series 14. Washington, D.C.: World Bank. Bank.* 313 This Overview was written by Douglas Pearce (CGAP), Andrew Goodland, and Annabel Muelder, with researcher REFERENCES CITED support from Amitabh Brar (CGAP). Peer reviewer com- CGAP. 2002. “Water, Water Everywhere, But Not ments were provided by Cornelis van der Meer, Carlos a Drop to Drink.” CGAP Donor Brief 3. Cuevas, Honnae Kim, Renate Kloeppinger-Todd, William Steel, CGAP, Washington, D.C. Jock Anderson, and Katrine Saito.

CGAP. 2003. “Microfinance Consensus Guide- lines: Definitions of Selected Financial Terms, Ratios, and Adjustments for Microfinance.” CGAP and the World Bank Group, Washington, D.C.

FAO. Forthcoming. Term Finance in Agricul- ture: A Review of Relevant Experiences. FAO/World Bank Cooperative Program. Place: Publisher.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE AGRICULTURE INVESTMENT NOTE INVOLVEMENT OF MICROFINANCE INSTITUTIONS Public investments can help microfinance MICROFINANCE providers meet the challenges of financing for INSTITUTIONS MOVING INTO agriculture. These require adaptations to RURAL FINANCE FOR conventional financial products and delivery AGRICULTURE mechanisms, including the following:

Microfinance institutions (MFIs) have tended to MATCHING DISBURSEMENT AND REPAYMENT TO AGRICUL- avoid less densely populated or diversified TURAL PRODUCTION CYCLES. Flexibility in loan rural areas, and financing of seasonal or longer- disbursement and repayment is needed, with term crop and livestock activities. However, a finance made available when farmers need it few innovative MFIs have recently led the way and repayments matching income from pro- in adapting their operations and products to duce sales. PRODEM, a rural MFI in Bolivia, expand into agricultural lending. Techniques redesigned its lending products by using used have included tailoring procedures and market research to understand the financial products to agricultural seasonal needs, apply- service demands of agricultural clients (see box ing risk management techniques, and adopting 7.8). new technologies. Successful MFIs have important strengths, such as financial sustainability, Several other leading MFIs have also adapted excellent portfolio quality, financial products their lending methodology to fit agricultural that fit diverse client needs, and a clear com- activities. For example, the agricultural loans mitment and orientation to the poor. Prudent product of Calpiá, an El Salvadorian MFI, have risk management techniques can increase the been successful largely as a result of their outreach of MFIs to less affluent, more remote flexibility on timing, amount disbursed, and rural areas and more diversified farmers. repayment schedules. With regular bimonthly, trimester, semester, annual or even end-of-crop- Rural financial services have benefited signifi- cycle and irregular payment options, repayment cantly from treating the rural household as a schedules are sufficiently flexible to be attrac- unit with diverse activities and sources of tive to a range of agricultural activities. Calpiá’s income and financing, instead of maintaining a agricultural lending product still treats the farm 314 narrow focus on agricultural credit. However, household as a financial unit, basing lending financing for agriculture still tends to fall decisions on overall repayment capacity. outside the scope of the mainstream microfinance industry. Where rural FLEXIBILITY IN COLLATERAL REQUIREMENTS. Land may microfinance providers do exist, they are hold little value as collateral, as land-use rights mostly limited to diversified rural economies may be difficult to prove, clients may not own and to clients with a number of income land, land markets may be weak, or cost of sources. Rural areas that are not densely registering land as collateral may be high. Finan- populated, or that are dependent on a few cial service providers therefore need to be more principal crop and livestock activities, tend to flexible in terms of the collateral required, even if be avoided by MFIs, because of higher transac- the value of nonmortgage guarantees is some- tion costs, price and yield risks, seasonality, times more significant as a repayment incentive and collateral limitations in the agricultural than its real resale value. Personal guarantees, sector. Conventional microcredit relies heavily movable assets, and group guarantees can all be on short-term loans with frequent, regular adequate alternatives. Because it is time consum- repayments, which does not fit well with ing and more expensive to get the notarization seasonal crop production or livestock produc- required for a mortgage guarantee, Centenary tion (except for poultry). Rural Development Bank (CERUDEB) in Uganda

AGRICULTURE INVESTMENT SOURCEBOOK also accepts livestock, personal guarantors, land FLEXIBLE DELIVERY MECHANISMS. Making use of without a title, household items, and business existing delivery outlets, rather than investing equipment. Since women may be disadvantaged in expensive new branch networks, can signifi- by traditions of registering property in the cantly lower the cost of providing financial husband’s name, women tend to rely more services, and can also allow a wider range of heavily on their human capital for accessing services to be provided. This also holds poten- loans (shown by women’s greater participation in tial for rural women whose opportunity cost of solidarity groups). engaging in financial transactions, due to time constraints, not only involves lost income but USING TECHNOLOGY. Technological innovations also internal household substitutions (for can increase operational efficiency and lower example, child labor for female labor). costs of operating in rural areas, while improving financial services available to rural clients. Options include: working with/through rural ATMs, point-of-sale machines, and smart/debit post offices, retail stores, rented offices in cards provide flexible payment options and schools and hospitals, or shared offices with more convenient access to client accounts. other financial institutions. Mobile staff can They can also reduce branch infrastructure and help reduce operating costs and improve employee costs. A major advantage of their use access in more remote areas. For example, in rural areas with poor infrastructure and Constanta, an MFI in Georgia, uses temporary communications is that financial transactions “service points” (typically rented rooms in a can be conducted entirely offline with all bank branch) coordinated by nearby branch account information stored in the chip. offices, and linked to mobile loan officers. In Latvia, the Agricultural Finance Company used Personal digital assistants (PDAs) can stream- mobile credit officers to overcome transporta- line loan officer activities and speed decision- tion problems faced by farmers. This mobility making. The value of fast, in-the-field decisions also enabled loan officers to visit clients fre- can be enhanced by incorporating credit quently and encourage loan repayment. scoring into palm pilots or hand-held computers. However, this requires well-developed client information systems. ADEMI in the Dominican Republic has developed a credit Box 7.8 Bolivia: PRODEM—using market research to adapt scoring system linked to laptops and PDAs, and 315 estimates that it will substantially reduce loan lending methodology disbursement time in rural areas. PRODEM is one of the largest providers of rural financial However, while the potential offered by new services in Bolivia. It conducted donor-supported market technologies is significant, experience has been research and product development to adapt its range of financial products to suit client needs, including the financing mixed. There has been a tendency to overesti- needs of small farmers. A customized repayment scheme was mate the short-term benefits and underestimate introduced for small farmers, with differing repayment sched- the up-front implementation costs. In India, the ules even for members within a solidarity group to fit harvest Swayam Krishi Sangam’s experiment combines calendars. Individual agricultural loans were also introduced, smart cards with hand-held computers to stream- with collateral at a ratio of 1.5:1 to the loan amount. PRODEM line meetings between clients and borrowers in further minimizes risk by restricting final loan payments to a remote areas. However, this did not produce the maximum of 60 percent of the loan amount, and by limiting dramatic time savings expected, and expansion each office’s portfolio in each economic sector to 30 percent. 7 Money transfer, microleasing, and savings products were also of the project has been put on hold. designed. Agricultural lending now accounts for about one-fifth of PRODEM’s loan portfolio.

Sources: Lee 2000; Rubio 2003, Internal report prepared for CGAP. 7. See the IAP, “India: Piloting of Smart Cards in Rural Areas”

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE RISK MANAGEMENT TECHNIQUES. A principal factor losses from price or weather risk, and discouraging MFI lending to small farmers is allows greater confidence in moving into the systemic risk inherent in much small- agricultural lending. However, this can be holder agriculture. Most MFIs that have suc- expensive and is still to be tested for MFIs. cessfully moved into agricultural lending have used a diversification strategy to reduce lending risk, both in their portfolio and at the BENEFITS household level. Increased MFI activity in more difficult rural areas and in financing agriculture, results in Portfolio diversification helps ensure that a loan increased competition, higher volumes of portfolio be diversified across sectors and finance, and a wider range of financial services regions/communities, and that repayments do available to farmers and their households. The not fall due at the same time. This increases the rapid growth of the agriculture portfolio of stability of the portfolio and reduces lending risk MFIs such as Bolivia’s PRODEM and Caja los from weather events and from price fluctuations Andes, and El Salvador’s Calpiá, suggests that in certain crops. Confianza, a Peruvian MFI, there was significant unmet demand for financ- which developed from a purely agricultural ing for agriculture. portfolio, has now set a target percentage for agricultural lending of 30 percent of its overall MFIs can offer credit not just for agriculture but portfolio. Uganda’s CERUDEB, which reached also for nonfarm, household, and emergency out to rural areas from an urban base, set its needs, as well as savings and transfer payment upper limit at 25 percent. Household diversifica- services (if they are appropriately licensed). tion is also important, as many of those MFIs Increased competition between financial that have developed a stable agricultural lending service providers operating in rural areas (such portfolio minimize risk by excluding households as product-market credit providers, moneylend- that are reliant on only one or perhaps two ers, credit unions) can lead to more favorable crops and have no off-farm income. Other risk and transparent terms of access for the poor. management techniques include: Good practice MFIs can also bring a commitment to efficiency, transparency in reporting, • Limiting the length of loans to agricultural high portfolio quality, and sustainability. smallholders. However, this can result in a 316 lack of term finance important to agriculture, for such investments as tree crops, POLICY AND IMPLEMENTATION ISSUES erosion control, some livestock activities, POLICY ENVIRONMENT. Expansion by sustainable and equipment and machinery. microfinance providers into financing for agriculture will ultimately be limited by under- • Testing a new rural market before investing lying constraints arising from poor infrastruc- in a branch office. This reduces the risks ture, high-risk or low-return agriculture, defi- involved in expanding rural finance out- cient client information, poorly functioning reach. Calpiá reduces the risk of establish- property registries and markets, and policy ing new rural branches by first building the biases/distortions. Improving the enabling portfolio from neighboring branches and environment for rural finance remains an conducting market studies of a new region. urgent priority. Rural branches are set up only if the portfolio size merits the investment in infrastruc- SERVICES FOR THE POOR. Even those MFIs that have ture and human capital. successfully expanded into financing for agriculture have mostly been limited to farmers with • Purchasing hedging instruments on interna- diversified household incomes in less-remote tional markets helps to manage potential areas. Portfolio diversification is a widely used

AGRICULTURE INVESTMENT SOURCEBOOK risk management strategy. Although effective, it areas or from abroad do not follow the same has a clear drawback, from a poverty reduction seasonal patterns, and can smooth demand for and market development perspective, of limit- loans and facilitate repayment in periods of low ing access for poorer farmers from marginal agricultural income, as can savings deposits. rural areas. Other institutional models also have this problem, although less formal membership- based financial organizations may have a LESSONS LEARNED greater tolerance for operating in these areas, Principal lessons learned for supporting MFIs to given their responsiveness to their members, move into agricultural finance are: and also their relatively low cost. • Flexible disbursement and repayment TERM FINANCE. Term finance is more costly and schedules are key to successful agricultural risky than short-term finance, since it ties up lending, although they may increase default larger amounts of money for longer periods, and risk and present liquidity management requires the mobilization of long-term funding. challenges. It requires more careful screening and selection of borrowers, increasing transaction costs. Term • Diversification at the portfolio and client finance is best provided by competent financial household levels can reduce the risk for institutions within a well-developed rural MFIs of expanding into financing agricul- financial system, as increased attention is ture. However, it can also restrict access to needed to maintain a good lender-borrower financial services for farm households relationship over time, and techniques are dependent on agriculture. Nonfinancial needed to manage increased lending risks. interventions to improve market access and BAAC in Thailand, a large state-owned bank infrastructure may make these clients more and one of the largest MFIs in the world, attractive in the longer term. reportedly has over half of its outstanding loans (which total US$5.6 billion) with terms over • Technology can help lower costs and expand one year. BAAC uses donor and government rural finance operations, but a careful cost- funding and term deposits to supplement its benefit analysis should first be conducted, commercial borrowings to match its liability- and the MFI’s management information asset structure. Longer-term donor funding can system (MIS) may first need to be upgraded. potentially address the funding constraint for 317 term loans, but not the higher risk involved. RECOMMENDATIONS FOR PRACTITIONERS LIQUIDITY MANAGEMENT. Disbursements in several Recommendations for practitioners involved in installments over a cropping period, repayments MFI related investments include (see box 7.9): at harvest, and a lean time characterized by repeated requirements for cash, all present a • Plan feasibility studies, piloting, and market liquidity management challenge to providers. research to reduce risks of moving into An institution’s cash flow can therefore become financing for agriculture and enhance more cyclical, with suboptimal asset productiv- usefulness of financial services to farmers. ity. To improve the productivity of staff and assets, and to improve liquidity management, • Assess the impact on the financial institu- alternative financial products can be developed, tion itself (for example on cash flow, loan such as nonseasonal loans for household needs repayment, and staff productivity) of and deposit facilities. However, in communities adapting loans to fit agricultural cycles. that are highly dependent on a few agricultural activities, the demand for these products will • Focus on other financial services as well as also be seasonal. Transfer payments from urban credit, as access to remittance monies and

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE Box 7.9 Potential investments Financiera Calpía in El Salvador.” Econom- ics and Sociology Occasional Paper 2571. • Funding for product design (savings facilities and transfer Ohio State University, Columbus, Ohio.* payments, and not just loans), including funds for market and client research, piloting new products and staff Yaron, J., M. P. Benjamin, and G. L. Piprek. orientation. 1997. Rural Finance: Issues, Design, and • Support for replicating proven approaches (PRODEM or Best Practices. ESSD Studies and Mono- Calpiá) with other MFIs. graphs Series 14. Washington, D.C.: World • Funding for piloting adoption of technologies (ATMs, palm Bank.* pilots, and smart cards ) and/or the use of flexible delivery mechanisms (postal offices, retail stores, and schools). • Feasibility studies to assist MFIs in making decisions on introduction of new technology. REFERENCES CITED • Management information systems and equipment for their Lee, N. 2000. “Client Based Market Research: effective operation. The Case of PRODEM.” Calmeadow, • Investment in a positive enabling environment to enhance Ontario; Pact Publications, Washington, the viability of rural finance for agriculture, through D.C. developing infrastructure, legal systems, and communications. • Research and piloting of innovative sources of collateral for This Note was written by Douglas Pearce (CGAP), Andrew the agricultural sector, to allow economically active poor Goodland, and Annabel Mulder with researcher support who are landless or asset-poor, to qualify for loans. from Amitabh Brar (CGAP). • Nonfinancial support to farmers, through business development services, infrastructure improvements and other means, to bring clients up to a level where they are creditworthy. Source: Authors.

deposit services can help clients (and MFIs) smooth seasonal income flows.

• Expansion costs (for example, setting-up new rural branches) may merit funding 318 support, but more cost-effective alternatives, such as sharing facilities with other financial or nonfinancial entities (post office, stores), should be explored first.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appen- dix for a full list of Web sites.

Campion, A., and S. S. Halpern. 2001. “Auto- mating Microfinance: Experience from Latin America, Asia and Africa.” Occasional Paper 5. MicroFinance Network, Washington, D.C.

Navajas, S., and C. Gonzalez-Vega. 2000. “Innovative Approaches to Rural Lending:

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE to the risks involved with agricultural lending and the cost of maintaining service points in sparsely populated rural areas characterized by FINANCIAL SERVICES cyclical demand. Moreover, nonbank financial THROUGH STATE BANKS institutions, such as NGOs and credit unions, are more limited in the range of financial Networks of state banks or recently privatized services they can provide. Therefore, they may state banks with extensive rural branch net- not be able to supplement income from lend- works offer a mechanism for introducing low- ing with income from transfer payment and cost financial services at scale, as these are deposit services. frequently the only multiservice financial institutions that have extensive networks in Offering diverse financial services through rural branches. Technical assistance to improve existing banking infrastructure has greater management and training can help these potential for viability if the branch network institutions fill the gap in financial services for runs efficiently and at low cost. There is an farmers and their households. However, such increasing number of examples of financial support is only recommended where both the services being offered successfully to rural state bank management and government populations through state banks, taking advan- owners (if any) are committed to allowing tage of existing branches, assets, established sufficient space for good practice financial customer base, existing transfer and remittance services to be introduced. Given the long services, operating systems, and banking history of directed credit and undue political licenses to lower initial and subsequent costs. influence, unqualified support to state banks is The shortcomings of state banks are well not advisable. Also, where privatization is the known, however, and their vulnerability to goal, there is a danger that new owners will political influence, associated with a tendency change the focus of the bank away from toward subsidized and/or directed credit,8 has serving poorer agricultural clients. rightly made working with such banks unattractive for the World Bank and most donor agen- Financial institutions with large rural branch cies. This Note does not advocate a return to networks offer the potential for low-cost access either unqualified support to state banks, or to a range of financial services. State-owned lines of credit through state banks. What it does banks that may have extensive rural networks explore are ways to build on, or take advan- 319 of branches or outlets include agricultural tage of, their infrastructure, services, and development banks, regional development systems to extend a range of viable, demand- banks, savings banks, and postal banks. Priva- driven and low-cost financial services to agri- tized state banks may also have significant rural culture-dependent populations and outreach, and this Note is also relevant to those agribusinesses. that do. In many cases, however, the privatization process has resulted in reduced There are three main options for engaging with rural branch coverage. such banks: i) a management-led turnaround of the bank, ii) the creation of a specialized unit that utilizes bank branches and systems, and iii) PROVIDING FINANCIAL SERVICES linkages with other financial service providers. Specialized MFIs have tended to avoid clients The first is the most ambitious, as it implies a that depend on agriculture, or live in geo- complete reform of the bank. The second does graphically remote areas. This is due primarily not address the weaknesses of the overall

8. The World Bank’s OP and Bank Procedure (BP) 8.30 on Financial Intermediary Lending do not permit directed lines of credit and interest rate subsidies.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE bank, but rather attempts to set up a subsidiary Bank (in Tanzania) funding to contract a US or department with sufficient operational consulting firm to provide management and independence to implement good practice technical assistance over a period of at least micro or rural finance through the existing rural two years. branch infrastructure. The third option makes use of state banks without needing to work These contracts sought to make the bank through them directly. financially sound; add new financial services tailored to previously neglected yet attractive MANAGEMENT-LED BANK TURNAROUND. Management market segments, such as the poor and low contracts supplemented by technical assistance income groups; and prepare the bank to produced the recent impressive performance operate independently. The contracts included turnarounds of two state banks: the Agricultural the cost of temporary foreign senior manage- Bank of Mongolia (AgBank), and the National ment, intensive technical assistance, systems Microfinance Bank (NMB) of Tanzania (see box and infrastructure improvements, and new 7.10). The respective governments used United product development and marketing to diver- States Agency for International Development sify financial services and improve branch (USAID) (in the case of Mongolia) and World viability.

SPECIALIZED MICRO OR RURAL FINANCE UNIT. Creation Box 7.10 The Agricultural Bank of Mongolia and The National of a specialized financial service department or Microfinance Bank of Tanzania subsidiary within a state bank structure can help insulate the bank from political influence The Agricultural Bank of Mongolia (AgBank) was formed in and provide freedom to operate along lines of 1991 out of the breakup of the State Bank of Mongolia, and by internationally accepted good practice. The 1999, after several failed reform attempts, was in receivership. A US consulting firm was contracted in 2000 to improve the success of the local microfinance units (unit viability of its existing rural branch network of 275 service desas), state-owned Bank Rakyat in Indonesia, points. AgBank has dramatically improved its profitability the world’s largest sustainable microfinance through management reform, and introduction of new provider, illustrates the potential of autono- products. AgBank invested in market research leading to mous units within a state bank structure. product development and then product marketing to encour- CrediAmigo, an autonomous microfinance unit age client uptake of services. New loan and deposit products set up by Banco do Nordeste, a regional breathed life into previously underutilized branches. After losses Brazilian development bank, is a more recent 320 of more than US$4 million in 1999, AgBank attained profitability in January 2001. Although lending activity in many rural example (see box 7.11). branches is at a relatively low level, operating costs are correspondingly low. AgBank was privatized in early 2003 for LINKAGES WITH OTHER FINANCIAL SERVICES PROVIDERS. US$6.8 million. Arrangements that allow specialized financial The National Microfinance Bank (NMB) of Tanzania with its service providers to take advantage of infrastruc- rural branch network of 100 points of service was created in ture, staff, and systems of state, savings, and 1997 in a spin-off of assets of the state-owned National Bank of postal banks can improve access to diverse Commerce. The government contracted a US consulting firm to financial services for agriculturally dependent place an external management team in the bank. Public populations. An agreement with a postal savings confidence in the bank grew, as did deposit levels. New bank, for example, may allow a financial institu- microloan products were researched and designed to develop tion to provide money transfer services to their a lending business, and the loan portfolio grew from zero to customers. Microfinance NGOs that are not over US$4 million, with more than 10,000 loans (average loan size of US$400), including microenterprise and consumer loans. allowed to offer deposit services may be able to The number of branches has increased to 115 (43 of which negotiate access to savings schemes for clients offer loans), and performance has improved notably. NMB is through state banks. For example, the now one of the most profitable banks in the country. Senegalese Postal Savings Bank began offering Source: Dressen, Dyer, and Northrip 2001. deposit services to client groups of microfinance NGOs in 1995. Small rural credit unions can also

AGRICULTURE INVESTMENT SOURCEBOOK benefit from state banks by having a safe place Box 7.11 Brazil: Banco do Nordeste to store their excess funds. Donors may support such linkages by providing funding for harmo- In 1995, a new president of Banco do Nordeste implemented a nizing systems and procedures, management reform of the bank and contacted the World Bank about information systems, improving transfer payment developing a microfinance program. The bank had 176 branches systems, technical assistance for microfinance throughout the northeast region, and was willing to adopt good product design, and training for staff involved in microfinance practices (interest rates that fully cover costs, and the linkage arrangements. a commitment to high levels of loan recovery) and invest in the training, information, and operating systems needed for microfinance. Preparation and rollout took several years, but the results achieved have been impressive. With over 100,000 BENEFITS active clients and an outstanding loan portfolio of more than Improving the quality, efficiency, and range of US$24 million, CrediAmigo, an autonomous microfinance unit financial services on offer through rural branches in the Bank, is now one of Latin America’s largest microfinance of state banks serves the diverse financial needs providers. of rural populations at scale. Moreover, adding During a pilot stage, Banco do Nordeste secured high quality new financial products to an existing network international expertise (through a leading microfinance NGO) and product range can be cheaper than investing and learned from microfinance in other countries through in and maintaining specialized infrastructure, and management study tours. After CrediAmigo was initiated as a can therefore allow for lower cost financial pilot in five branches, the Bank arranged a US$900,000 services to the end users. Japanese government grant to fund systems development and further technical assistance. Once the Bank decided that Banco do Nordeste was ready to scale-up safely and effectively, a A full management-led turnaround of a state US$50 million World Bank loan to support expansion was bank is the most ambitious and costly of the finalized in 2000. approaches presented in this Note, and can appear expensive. The management contract Source: Schonberger and Christen 2001. for AgBank in Mongolia was almost US$3 million. Other donors such as Deutsche cial products designed for agricultural activi- Gesselschaft fur Technische Zusammenarbeit ties. Neither CrediAmigo nor NMB have yet (GTZ) also provided at least US$2 million in moved into agricultural lending on any scale. direct technical assistance and training. This Banks need to take rational decisions as to the appears more reasonable when compared with relative risk and return from agricultural lend- either the eventual privatization proceeds ing compared to other financial services, and 321 (US$6.8 million), or AgBank’s loan portfolio should not be forced into directed agricultural (US$25 million). For Tanzania’s NMB this lending. An important first step is to ensure that simple cost-benefit comparison is less favor- the bank has the management capacity, sys- able, with an overall contract of US$7 million tems, procedures, and product development and a smaller portfolio (US$4 million), but a skills to expand into product areas such as wide array of deposit products are offered and agricultural lending. Parallel initiatives to over 21,000 loans have been disbursed. More- improve the policy and operating environment over, both banks have been turned around for rural finance for agriculture and the risk from being cash drains to a profitable status. In profile of agricultural activities can improve the the case of Brazil’s Banco do Nordeste, less perceived attractiveness of financing agricul- than US$1.4 million in grant-based technical ture. BAAC, a reformed agricultural develop- assistance helped produce a sustainable pro- ment bank in Thailand, illustrates the potential gram with over 100,000 active clients. of state banks in agriculture, as over 90 percent of the loans to its 5 million borrowers are for agricultural activities. POLICY AND IMPLEMENTATION ISSUES CREDIT FOR AGRICULTURE. There is no guarantee PRIVATIZATION. If privatization is an eventual goal that small farmers will be able to access finan- for a state bank under a management turn-

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE around contract, ongoing support beyond the COMMITMENT TO GOOD PRACTICE FINANCIAL SERVICES. length of that contract might be necessary to The government, board, and management of ensure that improved performance continues the state bank must agree to introduction of over the longer term. Achieving profitability is sound financial service practices and refrain an important first step, as commercial owners from exerting political influence on bank are unlikely to close profit-making product decisions. Good practice includes: strict loan lines and branches. Mongolia’s AgBank will be repayment, separate staff incentive and moni- a test case of the management turnaround toring systems, full cost interest rates, and approach, and whether the vision of improving appropriate reporting and portfolio manage- branch viability rather than simply closing ment practices. The case of BAAC illustrates the branches is continued. The same U.S. consult- danger of not having a clear separation from ing firm that had helped turn the bank around government influence (see box 7.12). to profitability has been given an ongoing management contract by the new owners, DEMAND FOR NEW FINANCIAL SERVICES. Since there is which is a positive indication of intent. little competition from other financial service providers offering deposit and transfer payment services in rural areas, lack of demand is LESSONS LEARNED unlikely to be a constraint, except perhaps in The following are critical conditions for success remote underpopulated areas. in working with state banks through either a management-led turnaround or a specialized COMMITMENT TO LONG-TERM ENGAGEMENT. Donors, as unit/department. Where these do not exist, the well as state banks and government must take alternative of facilitating interinstitutional a long term view of reforms. In Banco do linkage arrangements should be considered, Nordeste’s CrediAmigo program, an initial pilot with contractual arrangements designed to hold provided important lessons for subsequent the state bank to minimum relevant standards scaling-up, and a World Bank loan was not of good practice. approved until almost five years after initial contacts were made.

Box 7.12 Thailand: reformed agricultural development bank—BAAC RECOMMENDATIONS FOR PRACTITIONERS 322 BAAC is a good example of a reformed agriculture develop- • Only consider working with state banks if ment bank by virtue of its enormous outreach, with 86 percent there is sufficient long-term protection of farming households in Thailand as clients. In 2001, BAAC had from government influence. The BAAC over 5 million borrowers, a total portfolio outstanding of example illustrates the risk of political US$5.7 billion, and deposits totalling US$5 billion. However, a decisions influencing Bank policies. debt-suspension program was initiated in 2001, giving participating farmers two options. Under a debt moratorium no interest or principal would be due until 2004, but participants • Be prepared for substantial technical would not be eligible for any new loans. Alternatively, under a assistance and systems investment. debt reduction option, farmers who continued to repay loans Funding will likely be needed to update would receive a portion of their interest payments from the systems, improve procedures, improve government and still remain eligible for future loans. So far, 1.1 external public image, enhance cus- million clients (21 percent of total portfolio) have enrolled tomer service, and train staff. Such under the debt moratorium scheme and one million (14 investment is critical to success and percent of the portfolio) have enrolled in the debt reduction should not be seen as optional. If suit- scheme. This high level of loan reprogramming could cause BAAC serious repayment problems and undermine its culture able funding is not available, the less of high repayment. ambitious linkage option should be considered (see box 7.13). Source: CGAP Internal Documents.

AGRICULTURE INVESTMENT SOURCEBOOK • Proceed ambitiously but cautiously. Banco Box 7.13 Potential investments do Nordeste decided to scale-up the CrediAmigo pilot program too early and too • New senior management to reform the bank. fast, expanding from five branches to 50, • Technical assistance to introduce new lending instruments and to 100,000 clients within the first year of and systems. operation. The resulting heavy loan losses • Infrastructure improvements. led to a temporary slowdown in expansion • New product development and marketing. and an intensive loan recovery program. • Funding to improve and harmonize systems, procedures, and reporting. • Training and orientation for staff and management of the • Support development and introduction of new institutions. financial products. Market research linked to Source: Authors. product design and piloting can result in products that better suit the diverse financial needs of rural clients, that are appropriately World Bank. Operational Manual. http:// priced, and that lead to increased client wbln0018.worldbank.org/institutional/ uptake and branch transaction volumes. manuals/opmanual.nsf/.

This Note was written by Douglas Pearce (CGAP), with SELECTED READINGS extensive reference to those documents and authors cited in Asterisk (*) at the end of a reference indicates the “References Cited’ section. that it is available on the Web. See the Appen- dix for a full list of Web sites.

Dressen, R., J. Dyer, and Z. Northrip. 2001. “Turning Around State-Owned Banks in Underserved Markets.” Small Enterprise Development 13 (4): 58-67.

Grashof, L. 2002. “Country Case Study: Agricul- tural Bank of Mongolia.” GTZ, Eschborn, Germany.* 323 Kamewe H. T., and I. A. Radcliffe. 2000. “Reviv- ing Postal Savings Banks in East Africa.” United Nations Development Programme, New York.*

REFERENCES CITED Dressen, R., J. Dyer, and Z. Northrip. 2001. “Turning Around State-Owned Banks in Underserved Markets.” Small Enterprise Development 13 (4): 58-67.

Schonberger, S. N., and R. P. Christen. 2001. “A Multilateral Donor Triumphs over Disburse- ment Pressure: The Story of Microfinance at Banco do Nordeste in Brazil.” CGAP Focus Note 23. CGAP, Washington, D.C.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE AGRICULTURE INVESTMENT NOTE market for the farmers’ produce. The repayment of the credit (and interest, if charged) is deducted when the farmer sells the produce. PRODUCTION CREDIT FROM INPUT SUPPLIERS, Because these trading arrangements fall outside PROCESSORS, AND BUYERS formal financial system regulation, farmers are vulnerable and the true cost of credit is difficult Private firms such as input suppliers and to ascertain. Smaller and more marginal farmers product buyers and processors supply a sizable are particularly at risk as they often have portion of farmer credit needs. The provision limited access to market information, low of credit fits naturally in established business bargaining power, and weak business relation- relationships, facilitated by good mutual knowl- ships with credit providers. However, success- edge, while collateral constraints are limited by ful models have evolved that create clear win- linking credit with nonfinancial services. This win outcomes for farmers and private credit Note highlights the largely unexploited poten- providers. These have included smaller farmers tial of supporting these arrangements by often through producer groups (see box 7.14). improving the development of producer asso- Government and donors can increase the ciations, brokering contractual linkages be- outreach of production credit from input tween farmers and private businesses, and suppliers, processors, and buyers by: develop- developing linkages with specialized financial ing producer associations that enable small and institutions. However, support in this area must marginal farmers to engage with agribusinesses; proceed with caution due to limited project facilitating market brokerage between farmers experience and thus limited knowledge about and agribusiness; and supporting linkages with good practice. The risks of moral hazard are financial institutions to improve the efficiency high especially where contract enforcement is and transparency of credit. weak. There are also dangers of distorting input and output markets. DEVELOPMENT OF PRODUCER ASSOCIATIONS FOR SMALLER AND MORE MARGINAL FARMERS. Producer associations Agricultural commodity systems in developing or groups can link small farmers into market countries are frequently characterized by systems and to credit sources (see box 7.15). financial transactions that provide market Producer associations address the following 324 participants an important source of financial constraints for processors and other buyers in services in the absence of, or in addition to, dealing with small farmers: institutional sources.9 Although these financial transactions are largely independent of govern- • Lowering transaction costs resulting from ment and donor support and influence, and fall having to distribute inputs to, collect crops outside the formal financial sector, they are from, and monitor and keep records on often vital to farmers for accessing inputs and many scattered, individual farmers. bridging periods of low income prior to harvests. Usually on the basis of securing access to • Mitigating unacceptable levels of lending the farmers’ produce, processors or buyers risk resulting from high levels of side- provide inputs on credit (usually in kind), often selling (to buyers other than those that supplemented with technical advice to ensure provided the inputs). This situation is quality standards are met, and guaranteeing a exacerbated by inadequate contract en-

9. In El Salvador, for example, almost one-half of the rural people who access credit from sources other than family and friends do so from private sector suppliers rather than microfinance institutions or banks (Buchenau and Hidalgo 2002). Four out of every five rice mills surveyed by FAO in India provide advance payments for inputs to farmers, accounting for about one-half of the total value of the crop (Shepherd 2003). In Zimbabwe the number of smallholders receiving input loans from the Cotton Company of Zimbabwe exceeds the total number of clients of formal microfinance institutions in the country (Gordon and Goodland 2000).

AGRICULTURE INVESTMENT SOURCEBOOK Box 7.14 Cotton Company of Zimbabwe

In 1996, loan proceeds under the World Bank Agricultural Credit and Export Promotion Project were reallocated to establish a credit scheme by the Cotton Company of Zimbabwe (Cottco) to provide inputs to small farmers. Credit is extended to farmer groups with joint liability, and services (including extension advice) are provided by the company. Since its inception, the scheme has consistently reached over 50,000 smallholders each season, with repayment rates in excess of 98 percent. The scheme has assisted farmers to obtain increased yields and higher grades, with average smallholder yields increasing to 900 kilograms per hectare, compared to the national average of 700 kilograms per hectare. The scheme has captured the loyalty of producers, but competitors complain of the competitive advantage provided to Cottco by concessional financing from the Government. As of 2003, there is only one other competitor in the sector and Cottco has an 80 percent market share.

Source: Gordon and Goodland 2000; Poulton et al.

forcement, but can be addressed by establishing joint group liability. Box 7.15 Mozambique: producer associations linked to processors and exporters • Increasing the efficiency of providing technical support services needed to in- V&M Grain Company is a leading domestic agribusiness crease the quality and quantity of produc- company in Mozambique. V&M offers interest-free advances to tion that meet buyer requirements. small and large traders, as well as to umbrella groups of producer associations. An overall repayment rate of 98 percent is reported. Advances to producer associations are based on 50 BROKERING MARKET LINKAGES. The starting point for percent of the value of crops at an agreed price, with no other any credit-based relationship between product collateral arrangements, and are provided for up to 20 days. The market participants is the development of a umbrella groups use a portion of the advance to transport their business relationship. This can take some time collected produce to a warehouse, and the rest is distributed and cost to foster, and requires initial networks downwards to producer associations who further distribute or contacts, thus excluding many smaller and them to their producer members. Loans average between US$ more marginal farmers. There is a legitimate 5,000-10,000. Approximately 10 percent of overall value of trade is reportedly lost in side-sales, where the advance is taken role for a third party to broker such business from V&M but goods are sold to someone else. relationships to reduce initial transaction costs, Source: de Vletter 2003, Internal report prepared for CGAP and there have been successful experiences in 325 doing so using local NGOs (such as FAIDA, Tanzania) ministries of agriculture (such as the Department of Agrarian Reform, the Philip- pines), or parastatal agribusiness development Box 7.16 Tanzania: FAIDA centers (for example ZATAC, Zambia) (see box 7.16). The scope of these “broker” technical In a typical FAIDA market linkage scheme, farmers receive inputs (seeds, fertilizers), extension services, and a small loan assistance activities has included: the formation from a company, while being assured they can sell their produce and capacity building of producer groups; to the same firm. To minimize costs, the distribution of inputs, market matching – introducing farmers to delivery of extension services, and the collection of output are potential business partners (agro-processors); organized through farmer groups. The facilitator from FAIDA and, facilitating the negotiation of contracts assists groups of farmers to organize themselves. Normally between farmers and business partners. farmers open a group savings account, which serves as collateral for the inputs and the loans from the company. FAIDA can assist the company to access additional credit LINKAGE ARRANGEMENTS WITH FINANCIAL INSTITUTIONS. sources to finance the scheme, thereby ensuring that the Financial institutions specialize in providing collaboration is fair to both parties and results in a clear “win- financial services, whereas traders and proces- win” situation. sors usually lack the expertise and systems to Source: FAIDA.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE do this effectively. By unbundling credit from • Smallholder farm productivity is increased input supply transactions, credit products can through the improved access to inputs, be made more transparent and efficient, with often supported by privately provided explicit interest rates and terms, thus allowing extension (as an “embedded” market for competition and farmer choice to improve service). credit product design. Financial institutions can provide credit to farmers either directly in • Agribusiness development is stimulated monetary form, or through input suppliers in through the secured access to raw materials kind. Risk, information, and operating cost and greater influence over production pro- constraints remain for financial institutions cesses (quality and food safety are important entering agricultural lending. Financial institu- for access to international markets). tions benefit from maintaining links to processors, traders, and other market system actors, that lower their costs and risks by ensuring that POLICY AND IMPLEMENTATION ISSUES their farmer clients have a sales outlet, access AVOIDING MARKET DISTORTIONS. A central dilemma to inputs, and appropriate product and techni- for the World Bank and donors is how to cal advice (see box 7.17). However, unbun- support the extension and development of dling credit from the sale of farm produce can financial services to small farmers, without result in traders or processors losing an impor- distorting already-functioning product market tant mechanism for securing supply. Before systems. Providing financial support to specific intervening in this area, donors need to be companies to enable them to establish or aware of the economic and social contexts in extend credit can be beneficial to smallholders which informal transactions have evolved. in the short term, but it may give the chosen company a market advantage and hurt competition. BENEFITS In post-liberalized economies, with state with- CHOICE OF IMPLEMENTATION PARTNER. The choice of drawal from input supply and marketing of approach, and the selection of implementation outputs, facilitating production credit from partners by a borrowing government, will private sources benefits various stakeholders: depend on local circumstances and in particular the capacity of local institutions. Evidence of 326 • Small-scale and marginal farmers increase commitment to servicing the smallholder sector their access to domestic and international is an important prerequisite. markets and to private input suppliers. MARKET AND FINANCIAL SYSTEM DEVELOPMENT. The suitability of producer credit will depend partly Box 7.17 Peru: linkage arrangements on the level of market development and financial systems development. Where these are Critecnia is a firm that works with small cotton farmers in Peru. The farmers sign a management contract with Critecnia, which strong, it may be preferable to support the buys and markets their produce, and provides inputs relatively provision of producer credit through financial cheaply. Prior to Critecnia’s involvement, poor repayment by institutions, even though credit through private farmers was endemic, and financial institutions were wary of market participants may persist, in competition financing farmers. Critecnia now negotiates loans on behalf of with financial institutions, to secure access to the farmers, with the farmers providing land guarantees. farmers’ produce. Before supporting these Critecnia subtracts loan payments and fees for technical approaches, it is also necessary that market assistance and management at point of sale, and then splits net development be at a sufficient level for inputs profits equally with farmers. Critecnia is reportedly profitable, with high repayment rates in most years. and outputs to be freely traded, and that financial systems can provide funds to proces- Source: Wenner 2001 sors and buyers to on-lend to producers.

AGRICULTURE INVESTMENT SOURCEBOOK LESSONS LEARNED Box 7.18 Potential investments Producer credit schemes can be successful even where contract enforcement systems are Direct public (and donor) investment needs are limited weak, though this requires overcoming the because market-provided production credit is delivered challenge of default – often associated with through private firms and individuals. However, public invest- side-selling. The most successful producer ment can provide: credit schemes have used a combination of • Support for development and strengthening of producer mechanisms to reduce default, including group organizations. liability, incentives for developing strong • Capacity building for institutions providing a brokering role business relationships (such as the provision of for business relationships between small farmers (and further services), close monitoring, and rewards producer groups) and agribusinesses. for prompt repayment. • Market facilitation and information. • Training and technical assistance on marketing and credit program management. The choice of crop is also important. As a • An environment for the emergence of strong agricultural general rule, suitable crops are nonfood cash markets. crops (cotton, tobacco) and high-value horticul- Source: Authors. tural crops. Common characteristics are: crops that require high levels of inputs and/or technical knowledge that farmers would find difficult production credit, as an important first step to access in the absence of input credit to understanding options. schemes; lack of alternative markets; and crops requiring specialized postharvest activities • Focused support to groups of farmers and/ (packaging, processing, export), often with or geographical areas that are not presently specific fixed investment asset (milling plants). well integrated into product markets, thus helping develop/extend markets. Working with partners to develop linkages between financial and nonfinancial actors, and • Designing any subsidies (grant, technical to promote producer associations, requires assistance, training) to build capacity, not to substantial technical assistance and capacity- subsidize costs or price of services or loans building investments. Other donors may in provided to farmers, and with a plan for some cases be better placed than the Bank to eventual reduction and phase-out over provide this support, although the Bank could time. 327 provide complementary support to improve the operating environment for rural finance institu- • Making support available through transpar- tions and for agribusiness. ent selection criteria, with access open to more than one partner (be it a financial institution, NGO, or processor), and with RECOMMENDATIONS FOR PRACTITIONERS ongoing access to support dependent on Despite the potential for reaching many pro- achieving agreed performance targets. ducers through this type of producer credit, donors and governments must proceed with caution to avoid introducing market distortions SELECTED READINGS and disrupting existing informal financial Asterisk (*) at the end of a reference indicates services. Interventions and investments should that it is available on the Web. See the Appen- be based on (see box 7.18): dix for a full list of Web sites.

• An analysis of marketing systems and an Dorward, A., Kydd, J. & Poulton, C., eds. 1998. assessment of the competence and commit- Smallholder Cash Crop Production under ment of the private sector to engage in Market Liberalisation: A New Institutional

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE Economics Perspective. Oxon and New ian Development - Research Projects. http:/ York: CAB International. /www.wye.ic.ac.uk/AgEcon/ADU/research/ projects/cottonE/. Eaton, C., and A. Shepherd. 2001. “Contract Farming: Partnerships for Growth: A Shepherd, A. 2003. “Financing of Agricultural Guide.” FAO Agricultural Services Bulletin Marketing – Case Studies from Asia.” FAO, 145. FAO, Rome.* Rome.

FAIDA. http://www.faida.or.tz. Wenner M. 2001. “Making Rural Finance Work.” Microenterprise Development Review 3 (2): Pearce, D. 2003. “Buyer and Supplier Credit to 1-4. IADB, Washington, D.C. Farmers: Do Donors have a Role to Play?” Paper presented at Paving the Way Forward This Note was written by Andrew Goodland and Douglas for Rural Finance: An International Confer- Pearce (CGAP). ence on Best Practices, sponsored by USAID and hosted by BASIS CRSP partner, World Council of Credit Unions, June 2-4, Washington, D.C.*

Phillips, R., and A. Serrano. 2000. “Case Study: Developing Self-Managed Outgrower Capacity in Zambia and Mozambique.” Paper presented at Rural Capacity Building and Poverty Reduction Workshop, sponsored by the World Bank’s AKIS thematic group, June 28-30, Washington, D.C.*

REFERENCES CITED Buchenau, J., and A. Hidalgo. 2002. “Servicios Financieros Privados en el Area Rural de 328 América Latina: Situación y Perspectivas.” Banco Interamericano de Desarrollo Departamento de Desarrollo Sostenible, Fortaleza, Brazil.

FAIDA. http://www.faida.or.tz.

Gordon, A., and A. Goodland. 2000. “Produc- tion Credit for African Small-holders: Condi- tions for Private Provision.” Savings and Development, no. 1:55-84.

Poulton, C., J. Kydd, A. Osorio, D. Tschirley, W. Maro, M. Nylandsted Larsen, B. Zulu, B. Hanyani-Mlambo. Competition and Coordi- nation in Cotton Market Systems in South- ern and Eastern Africa. Imperial College of Science, Technology and Medicine. Agrar-

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE while village-based Savings and Loan Associa- tions can be much more informal. The degree of formality depends on factors such as scale, MEMBERSHIP-BASED resources, level of systems development, FINANCIAL ORGANIZATIONS financial product range, management capacity, and level of legal recognition. This Note covers Support to membership-based financial organi- only those institutions with a primary focus on zations, including relatively formal credit financial service provision, not multiservice unions, savings and credit cooperatives, and organizations with nonfinancial aims.10 less formal community-based savings and loan associations, has had mixed results. In some Less formal MBFOs are low cost, relying on cases sustainable institutions have resulted, primary low-level institutional systems and successfully reducing transaction costs and infrastructure, and local, often volunteer, staff. collateral constraints. In others, donor support They can therefore operate in less-favored rural has created dependence, and failed to address areas that are unreached or underserved by problems of weak governance, poor internal banks and formal MFIs. Their ability to access control, and capture by elites. This note sets local information on potential borrowers lowers out lessons learned and good practice in transaction costs associated with screening and supporting membership-based organizations monitoring. Their membership-based nature can that provide rural financial services for agricul- provide useful peer pressure in enforcing loan ture. Support to such organizations is recom- contracts. However, they often suffer from weak mended where rural financial markets are internal controls and monitoring, and may be underdeveloped, but social, geographic, and susceptible to deterioration in portfolio quality, economic conditions create a comparative capture by well-educated/influential persons, and advantage for this low-cost approach. even fraud. Some MBFOs are run for the benefit of a few members, who monopolize access to Membership-Based Financial Organizations loans, or alternatively give loans to members as a (MBFOs) are important long-term sources of “right,” with loan amounts simply multiples of financial services in rural areas. Credit unions and member savings or shares. More formal MBFOs, savings and loan cooperatives are the leading such as savings and loans cooperatives registered sources of financial services to the poor in Latin with financial institution supervisory authorities, America and in Central and Eastern Europe, and are more protected from these weaknesses, but 329 are present worldwide. However, the perfor- have higher cost structures, and are less suited to mance of MBFOs has varied greatly, with prob- more marginal rural areas. lems arising from weak governance, poor internal control, donor dependence, and–for those Support to MBFOs can be directed at four institutions focused on agriculture–covariant risks. levels: the retail level, the wholesale or second- tier level, support institutions, and the policy The term membership-based organization refers and operating environment. All levels may to a range of organizations that are member- need to be addressed, although not necessarily owned and controlled, with membership in a single project: defined either geographically (a community) or by activity (farmer cooperatives). More formal • Retail level. Capacity building and technical membership-based institutions include Savings assistance for MBFOs may need to focus and Loans Cooperatives and Credit Unions, on: loan analysis techniques, delinquency

10. This Note does not discuss community-based organizations that engage in financial services as their secondary or tertiary activity, such as churches, welfare, and development associations, or purely informal associations such as ROSCAs and CARE’s Village Savings and Loan Model. These approaches will be discussed in a forthcoming Micro and Rural Finance Operational Note.

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE control, product pricing, loan loss provision- providers in such areas as bookkeeping, ing, sufficiency of institutional capital, technical assistance, external audits, or maintenance of adequate reserves, and product design. Since technical assistance proper asset/liability management. If finan- needs extend beyond the lifetime of most cial product ranges are too narrow, product donor interventions, providers that can development may be necessary–for example charge MBFOs fees for their services are designing loan products for crop production, more sustainable than continued reliance or deposit services for agricultural traders. on subsidies.

• Wholesale or second-tier level. Capacity • Policy and operating environment. Work building can strengthen or create federa- with government and other stakeholders to tions or networks that provide services to improve the policy framework and operating better enable members: to negotiate funds environment for MBFOs may involve legal from banks or donors; to represent member reform, removal of interest rate caps, and interests at regional and national levels; to investment in infrastructure and services. develop common procedures and products; to improve the marketing/branding of the organization; to monitor performance; and BENEFITS to provide a refinancing facility to meet MBFOs can operate effectively in situations and short-term liquidity needs of the members. with clients that banks view as unattractive, The SICREDI system in Brazil, for example, because they are primarily concerned with depends on a well functioning second-tier providing access to financial services for their structure (see box 7.19). members, not maximizing profits. Less formal MBFOs, such as Savings and Credit Associa- • Support institutions. Investment is needed tions, are particularly well suited to remoter to strengthen or create low-cost service and poorer rural areas, due to the reliance on (often voluntary or part time) local staff and management, a narrow product range, group Box 7.19 Brazil: agriculturally oriented rural credit unions — and personal guarantees, and client information SICREDI provided by the community. Investment in community-based MBFOs can contribute to SICREDI is a savings and loan cooperative/credit union model 330 local empowerment. Local ownership also that serves the needs of small farmers and their households, ensures the social and cultural sustainability of and that has the following characteristics: savings-first, membership based on a common bond, member ownership, and equal the organization. voting rights. SICREDI is now the largest savings-based, member-owned credit union system in Brazil, with membership MBFOs can be more responsive to member based on agricultural communities. As of December 2002, needs than other financial institutions. Some SICREDI had US$518 million in savings, and outstanding loans have designed loan products to fit agricultural of US$315 million. activities or offered financial products tailored SICREDI is composed of 767 agencies joined in 129 Credit to member needs (see box 7.20). They can Unions, which are audited and refinanced by the National base product design on agricultural cycles, Development Bank. The SICREDI Council develops policies and convenience of payments, and financial needs product, and provides training services. Factors in the success of of different farming activities. However, to do the SICREDI system include: use of consistent lending practices, this, the MBFOs need a basic level of product system-level management of liquidity risk, and system-wide design expertise and systems to cope with commitment to uniform standards. To use the SICREDI name and logo, credit unions must pass financial and product quality more complex financial products. Technical standards and meet specified policy criteria. assistance can be valuable in this regard, as long as the product range is kept consistent Source: Brian Branch, personal communication; DGRV. with staff and systems capacity.

AGRICULTURE INVESTMENT SOURCEBOOK POLICY AND IMPLEMENTATION ISSUES Box 7.20 Mali: village-based savings and credit associations MEMBER OWNERSHIP. MBFOs depend on members exercising influence over the management of Village-based savings and credit organizations (CVECAs) are their institutions to reduce delinquency and risk prevalent in parts of West Africa, and survive even in remote of fraud. However, the fact that voting rights areas. The Niono region of Mali has a network of CVECAs with are distributed equally among members can over 9,000 active borrowers and savers. It is financially sustain- weaken the monitoring function, and make able overall, with good reported portfolio quality. CVECAs are institutions vulnerable to dominant chairper- organized into a network, which borrows from an apex bank sons and management. and on-lends money to the CVECAs. Loan funds are also generated from member savings. A fee-based auditing and training service provides ongoing support functions. DEPENDENCY. Donors must be careful not to create dependency. A donor can undermine The highly decentralized structure of the network results in MBFOs by pushing them to grow too fast, or more efficient decisionmaking and lower operational costs – each village decides its own interest rates and loan products. by providing too much external funding rela- This helps to fit financial products to seasonal agricultural cycles. tive to internal member funds. One option is to Costs are also kept low by collaborating with the village limit any funding offered to an amount equal to farmers association for client appraisals, loan guarantees, and the community’s own contribution, particularly repayments. when financing a loan portfolio. Funds can be Source: Chao-Beroff 1999; Ouattara, González-Vega, and Graham matched to levels of member savings plus 1999. share contributions. Some specialists recom- mend that no external funds be provided for on-lending. and protection against fraud. In Guatemala, for example, The Consultative Group to STRENGTHENING VERSUS CREATING MBFOS. Where Assist the Poor (CGAP) recently funded the MBFOs do not exist, as in some former repub- development of a rating agency to set stan- lics of the Soviet Union, they have been dards for and provide transparency on, credit created from scratch. This has had mixed union performance. results, and is not recommended because it risks creating dependence on external sup- ORGANIZATIONAL SUSTAINABILITY. Organizations port. For the governance structure of an receiving funding should commit to a MBFO to be effective, members must have sustainability plan, with funding structured to and exercise ownership. ensure the plan is carried out (with tranches 331 based on performance targets). Capacity build- PRUDENTIAL REGULATION. Prudential regulation ing should be emphasized over funds for on- and supervision is important in helping lending, which can distort governance and ensure the safety of deposits made by the negatively affect portfolio quality. poor. The capacity of financial regulatory authorities to understand microfinance meth- LENGTH OF SUPPORT. Institution-building processes odologies and effectively supervise MBFOs often take longer and are more costly than needs to be improved in tandem with regula- originally envisioned. For example, the institu- tory reforms. However, MBFOs that operate tion-building project in Mali took over 10 years with closed memberships, or at a small scale before the CVECA system reached full technical may well merit exemption from such regula- and financial sustainability. The human and tion. The argument for this is especially financial resources available within small rural strong where government lacks capacity to communities limit management and gover- provide effective supervision. Second-tier nance capacity. Projects often require more entities may instead take on a monitoring and supervision, support, and monitoring than supervisory role of their members to ensure initially assumed. Where community resources effective governance, transparent reporting, and capacity are severely limited (for example

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE in remote communities or where economic reliance and local autonomy. Effective gover- activity is at a very low level) informal group nance and transparent monitoring and report- models may be more appropriate. Institutions ing systems are essential to protect against should not be pushed to grow more quickly fraud and poor management of savings. Main- than their capacity allows. taining a balance of depositors to borrowers is important, in order to avoid borrowers putting the institution’s deposits at risk. LESSONS LEARNED Challenges remain for the Bank and donors to When considering legal and supervisory reform provide cost-effective support that does not (for example, prudential regulation of deposit- create long-term dependency. Any subsidies taking institutions), caution is required regard- provided should be tied to a time frame (that ing potential side effects of new legislation, the is, not permanent), linked to performance cost of supervision, and the capacity of the targets, and matched with member resources. supervisory agency. Accounting at the level of the MBFO should be transparent and clearly identify any subsidies received. Any support to service providers and RECOMMENDATIONS FOR PRACTITIONERS second tier structures should have service Recent successes in strengthening credit unions charges built in from the start, and low cost and savings and loan cooperatives indicate that structures should be sought that can be sustain- a focus on the retail level, combined with able at project termination. addressing policy and legal issues, can be most effective. Investments should (see box 7.21): Deposit mobilization is essential to MBFOs. A savings-first approach contributes to project • Offer technical assistance to those MBFOs ownership among members as well as to self- that are most open to receiving it, rather than providing blanket assistance to all Box 7.21 Potential investments MBFOs. These MBFOs can provide a positive demonstration model to others (see • Long-term, performance-based technical assistance box 7.22). focused on selected MBFOs. • Monitoring mechanisms for MBFOs • Link technical assistance and financial • Capacity building to strengthen or create federations or support to performance criteria. Reporting 332 networks. • Development of policy and regulatory frameworks for and monitoring systems need to track MBFO operations and protection of depositors. performance against agreed indicators in Source: Authors. key areas such as portfolio quality, efficiency, sustainability, and asset protection.

Box 7.22 Guatemala: institutional strengthening of savings and • Ensure strengthening MBFOs is the primary loan cooperatives goal, not subsidizing second-tier federations. Increased MBFO capacity and re- An approach of selecting and focusing efforts on those leading sources should create more sustainable cooperatives/credit unions most open to change was devel- demand for such federations. oped and tested in Guatemala between 1987 and 1994. Rapid growth in outreach and financial performance of 20 selected • Introduce regulation and supervision credit unions resulted in increases in membership from 60,000 to 200,000, loan portfolio from US$13 million to US$54.5 mechanisms for MBFOs that have grown million, and deposits from US$5 million to US$59 million. beyond a small community base and Portfolio delinquency (portfolio at risk over 30 days) fell from represent a potential threat to the financial 19 to 7 percent over the same period. system or to large numbers of depositors. This may require capacity-building of the Source: Westley and Branch 2000. financial institution’s supervisory agency.

AGRICULTURE INVESTMENT SOURCEBOOK Interim supervision and monitoring by a second-tier structure can offer a level of protection to depositors.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appen- dix for a full list of Web sites.

CGAP. 2002. “Consensus Microfinance Policy Guidance: Regulation and Supervision.” CGAP, Washington, D.C. *

Staschen, S. 2001. “Financial Technology of Small Farmer Co-operatives Ltd. (SFCLs): Products and Innovations.” Working Paper 2. Rural Finance Nepal, Kathmandu.*

REFERENCES CITED Chao-Beroff, R. 1999. “Self-Reliant Village Banks, Mali (Case Study).” CGAP, Eschborn, Germany.

DGRV. http://www.dgrv.org/publish/ article_60.html.

Ouattara, K., C. González-Vega, and D. H. Graham. 1999. “Village Banks, Caisses Villageoises, and Credit Unions: Lessons from Client-Owned Microfinance Organiza- tions in West Africa.” Economics and 333 Sociology Occasional Paper No. 2523. USAID Best Practices Project. Bethesda, Md.

Westley, G. D., and B. Branch. 2000. “Safe Money: Building Effective Credit Unions in Latin America.” IADB, Washington, D.C.

This Note was written by Douglas Pearce (CGAP), Annabel Mulder, and Andrew Goodland, with researcher support from Amitabh Brar (CGAP).

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE each month, on average, one mobile banking unit mobilizes about 2,000 deposit accounts (US$1.2 million), releases about 1,900 loans VIETNAM: MOBILE BANKING (US$1 million equivalent), and collects 1,400 FOR RURAL PEOPLE loan repayments (US$650,000 equivalent). The operation is profitable, generating a net monthly The Rural Finance Project was approved in 1996 income before taxes of about US$1,000, after with World Bank funding of US$110 million. The deductions are made for provisions (reserve for project has supported several key components defaulted loans), vehicle running costs and of the country assistance strategy including: 1) maintenance, cost of funds, and operating costs. assisting in the transition to a market economy; 2) strengthening the rural finance system Given its financial viability, the public bank will through finance to agriculture, small/medium maintain these operations. A follow-up project sized enterprises (SMEs), and technical assis- (Second Rural Finance Project) initiated in 2002 tance; and 3) reducing poverty by promoting builds on the experiences and success of the growth. Living conditions are to be improved by earlier project. An additional 210 vehicles will encouraging private sector investments, be provided to several participating banks. strengthening the banking system, and increasing access of the rural poor to financial services. The seven banks that participated in the project BENEFITS AND IMPACTS had to complete an institutional development By overcoming one of the key impediments to program prior to being accredited into the successful rural finance provision (high transac- program. The dominant bank within the project tion costs) mobile banking can be a suitable is a public bank. The project has supported delivery mechanism for remote areas. The main several financing initiatives, reflecting the benefits are cost reduction and increased geo- various challenges facing Vietnamese communi- graphical coverage. In Vietnam impact studies of ties. One innovative feature of this rural finance the mobile banking project have found that: project is its mobile banking operations.11 • It provided better financial services to people What’s innovative? Mobile banking—trimming trans- in remote areas by allowing access to formal action costs of serving rural and remote areas. banking services. Previous financing oppor- 334 tunities had been limited to informal money- PROJECT OBJECTIVES AND DESCRIPTION lenders with extremely high interest rates. Mobile banking provides banking services to remote and mountainous areas without bank • Borrowers served by the mobile offices branches, through the use of specially equipped managed to expand their businesses, and vehicles. The project’s institutional building com- 99 percent of them had increased their ponent financed 159 vehicles at a cost of income as a result of the project. US$22,000 each. These vehicles were distributed to bank branches to provide financial services including arranging loans, loan disbursement, LESSONS LEARNED AND ISSUES FOR WIDER collection of loan repayments, and deposit taking. APPLICABILITY Each vehicle carries three bank employees. Mobile banking can be considered an alternative to “fixed” delivery mechanisms (branches The mobile banking operation has been effec- of financial intermediaries) in areas where it is tive, with 315,000 rural people receiving finan- not feasible to maintain a network of rural cial services. Experience so far indicates that branches. The advantage of a mobile office

11. Sources: “Sustainable Management of Agriculture and Natural Resource Management Case Study, Antalya.” Rural Finance Project Implementation Completion Report (2001). World Bank Task Team managers comments.

AGRICULTURE INVESTMENT SOURCEBOOK (attached to a branch) is that it can visit remote rural areas for loan analysis, disbursement, and repayment depending on the needs of the area (for example, weekly, monthly). This results in greater geographical coverage achieved by one office and therefore a reduction in fixed costs. This successful project experience in Vietnam, and the continuing use of mobile banking by Vietnam’s dominant rural bank, demonstrates that this operation is a cost-effective way of delivering rural finance.

The applicability of mobile banking to other countries and settings will depend on the cost effectiveness in new settings (transportation costs may vary according to road conditions and networks), as well as cultural and social compatibility. Although initial capital investment in mobile offices is substantial, these costs need to be seen in relation to those of establishing and maintaining a fixed delivery mechanism in these remote areas. Indeed, the cost effectiveness of mobile banking services in Vietnam proved to be much better than for the established branches in these remote areas.

The commitment of bank management to increase outreach and provide people in remote areas with access to financial services is seen as a key factor in the success of the project. Given that mobile banking operations require conducting monetary transactions away 335 from the branch office, security is also an important issue. Consequently, a key precondition for successful mobile banking operations is low levels of crime in the countryside and the country as a whole, as well as a well-maintained system of law and order.

PROJECT COUNTRY: VIETNAM Project Name Rural Finance Project Project ID P004847 Project Cost US$139.7 million Dates FY 1997 – FY 2002 Contact Point Arie Chupak, Task Team Leader The World Bank

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE Agents are identified through nominations from the communities themselves. The NGO provides training to selected agents on input ZIMBABWE: AGENT PROGRAM handling, marketing, finance, and bookkeeping. The trained agents place input orders with Six million Zimbabweans live in smallholder the NGO, which negotiates prices and terms farming areas, and agriculture accounts for 15 with input suppliers (seed houses, fertilizer percent of GDP and 70 percent of employment. manufacturers, intermediate technology provid- In the early 1990s the agricultural input distri- ers). The NGO then consolidates the orders bution and marketing systems were reformed, and arranges bulk purchases and delivery of reducing the role of the state in input distribu- the inputs. The NGO underwrites 75 percent of tion. Previously, marketing cooperatives set up 30-60-day credits (up to US$2,000) provided by by the state supplied up to 70 percent of input suppliers to the agents, who repay as agricultural input requirements to the small- they sell the inputs to farmers. Continual holder sector. Reforms led to a withdrawal of monitoring of stocks is carried out. After two state funding for marketing cooperatives and years of good performance, agents graduate the subsequent collapse of the input supply and deal directly with the suppliers with no system. Extension services were also cut back. further involvement from the NGO. The role The response from the private sector was played by the NGO is therefore in the initial weak: input manufacturers and distributors did identification of suitable agents, the provision not supply smallholder areas due to the low of training, and the fostering of linkages be- aggregate demand and high costs of dealing tween the agents and input suppliers through with small and dispersed communities. Rural the provision of financial guarantees. traders were further hindered from stocking inputs due to the absence of rural finance markets and limited access to credit. This led to BENEFITS AND IMPACTS reduced access to inputs by smallholder farm- The current performance of the program is ers, and consequently a decline in smallholder encouraging. By late 2001, 580 agents had been agricultural productivity.12 trained with 60 percent of these having graduated and are now working in the private sector What’s innovative? Creating linkages between vil- distribution network. 336 lage retailers and input suppliers using time-bound guarantees and technical assistance. Several benefits accrue to smallholders. Inputs are now readily available and cheaper to purchase, due to lower transportation costs and PROJECT OBJECTIVES AND DESCRIPTION bulk purchases made by the NGO. The in- The Zimbabwe AGENT program was initially creased variety of available inputs gives farmers piloted in 1995 with International Fund for a greater choice. And, farmers benefit from the Agricultural Development (IFAD) funding and agents’ advice on the appropriate selection and the support of an international NGO. The use of inputs. Surveys show that the poorest objective was to increase access to inputs for farmers constitute the principal client group of smallholders by establishing a network of rural the agents. traders providing agricultural inputs. The program was targeted at local input suppliers The program has not been restricted to recur- (“agents”), typically small-scale village retailers. rent input expenditures, but has also increased

12. CGAP, “Agricultural Microfinance Case Study: CARE Agent Program” (case study presented at the Rural Enterprise and Agribusiness Promotion workshop, CARE Canada, March 11-13, 2002).

AGRICULTURE INVESTMENT SOURCEBOOK access to intermediate production technologies, sure in recent years due to shortages of foreign such as machines to make peanut butter, oil exchange in the economy. This has hindered presses, small-scale irrigation equipment, and input suppliers’ access to raw materials for hand tools. This allows farmers to increase manufacturing fertilizers. productivity and on-farm value-added. Increasing the productivity of agriculture leads Agents benefit through increasing their stocks to higher farmer incomes where there are and turnover and increasing incomes. Suppliers opportunities for marketing their produce. This are able to access the smallholder market with implies a need for a strong private sector relatively low initial risk-taking, and thereby presence, and supportive infrastructure and increase sales and profits. public institutions.

PROJECT COUNTRY: ZIMBABWE LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Project Name AGENT Program The AGENT approach is successful because Dates 1995 to present appropriate incentives are in place for all participants: Contact Point Goldon Mahove, CARE Zimbabwe • The benefits to input suppliers and agents are clear, and create favorable conditions for developing strong business relationships. Requiring agents to pay their own training costs increases their commitment to the success of the program.

• The NGO input is strictly time-bound with a clear exit strategy, preventing compla- cency or dependence of the agents and/or the input suppliers on the NGO.

• The agents themselves monitor the pro- 337 gram. They are given training and are required to maintain records of their customers. This enables the NGO to estimate better the level of outreach to target groups.

The scheme has already created considerable interest and demonstrated its potential. The model has been taken up by the largest manufacturer of fertilizers in Zimbabwe, which has launched its own input distribution.

Markets that operate in the absence of excessive government intervention are critical to the success of the scheme. For example, fixing the price of inputs can undermine the system. The Zimbabwe scheme has also come under pres-

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE The smart card technology was piloted in the field in April 2001 and completed in May 2002. The pilot has had mixed results, and full INDIA: PILOTING OF SMART implementation has been put on hold. How- CARDS IN RURAL AREAS ever, important lessons can still be drawn.

Swayam Krishi Sangam Microfinance Pvt. Ltd. Smart cards are the size of a credit card, and (SKS) was founded in June 1998 to serve very hold a microchip with personal client informa- poor women in India’s drought-prone Deccan tion. The major advantage is that financial region. Modeled on dominant South Asian transactions can be conducted entirely off line group-lending models, it offers income-generat- with all account information stored in the chip. ing loans, seasonal loans, and savings products At SKS the smart card technology works as in a sparsely populated area. The main eco- follows: SKS officers are equipped with small nomic activities of SKS clients are agricultural, hand-held computers, and clients with smart including horticulture and livestock rearing. cards. Prior to the morning meetings, group The challenge was to deliver small loans to information is downloaded from the MFI remote areas. As of October 2003, SKS had terminal. During the meeting transactions are 23,277 clients and US$ 2,108,695 outstanding. saved on the computer and the smart card. The All its loans are below US$300. client smart card records all transactions he/she has maintained with the financial institution, What’s innovative? Using smart cards for financial while the loan officer uploads the day’s trans- control and improved efficiency in MFIs. actions onto the main terminal upon arrival at the branch office. Although SKS implemented many efficient MFI processes, it soon hit the so-called “efficiency wall” due to the small size of loans, high travel BENEFITS AND IMPACTS costs to reach remote villages, and time-con- ENHANCED FINANCIAL CONTROLS. Strong financial suming and error-prone manual entry systems. controls are important to maintain trust with An analysis of its microfinance processes customers and investors. The smart card tech- showed that the greatest potential to increase nology contributed by reducing fraud and efficiency was to focus on the time between 7 error. Given that SKS loan officers manually 338 and 9:30 in the morning, when borrower record around 20,000 transactions per year groups and loan officers usually met. Observa- there is great scope for error. With automated tion of the meetings showed that considerable processes, pressing the wrong button or enter- time was spent recording data in customer ing a wrong calculation becomes immediately passbooks. Furthermore, with all transactions apparent to the loan officer. A single data entry recorded manually, there was scope for error point has been key to reducing errors from and fraud. 13 manually entering data several times.

TIME SAVINGS. It was expected that the smart card PROJECT OBJECTIVES AND DESCRIPTION technology would translate into significant time SKS has developed a smart card technology savings leading to increased productivity and with US$125,000 provided by CGAP’s 2000 Pro- lower operational costs. The time saved from Poor Innovation Challenge Award, the introducing this technology was not as signifi- Grameen Foundation-USA, and Digital Partners. cant as anticipated with regard to client meet-

13. A. Campion and S. S. Halpern, “Automating Microfinance: Experience from Latin America, Asia and Africa” (Occasional Paper 5, MicroFinance Network, Washington, D.C., 2001); “Grameen Connections: The Newsletter of the Grameen Foundation” 4 (2); SKS Web site: http://www.sksindia.com; V. Akula and R. Bhatia, May 2002, “Summary Report of SKS Smart Card/Palm Project.”

AGRICULTURE INVESTMENT SOURCEBOOK ings. The meeting time was reduced by only 11 projection of benefits and costs of technol- percent (rather than the anticipated 50 percent). ogy introduction. It took 45 seconds to process each smart card, only marginally faster than manual recording. • Technology introduction may take time, for Furthermore, baseline studies conducted with example in SKS it required customization of inexperienced staff overstated meeting lengths, the MIS, which took four months and and therefore overestimated potential time increased operating costs. savings from the new technology. For smart cards to operate efficiently, SKS had Time was also saved by uploading data into the to limit product variety and repayment options central Management Information System (MIS), initially. Although such restrictions on opera- and reduced the burden on loan officers who tional flexibility are common for MFIs that previously had to enter data manually on their introduce new technologies, such limitations on return from the field. This allowed manage- operations have to be borne in mind. ment to access client information more quickly than before, and thereby improve monitoring. PROJECT COUNTRY: INDIA Project Name Smart Cards in group lending in LESSONS LEARNED AND ISSUES FOR WIDER rural areas APPLICABILITY Dates April 2001— May 2002 The experience of SKS shows that smart cards can potentially make a contribution Contact Point SKS at: www.sksindia.com toward enhancing financial controls and improving efficiency. For SKS, although benefits did materialize, especially in reducing the scope for error and fraud, efficiency gains from reducing processing time were smaller than anticipated, and the initial start- up costs were high. However, as the state of such technology improves, processing time for smart cards is likely to decline, and the technology will become less expensive. 339 Future smart cards will also have the potential to broaden the range of financial services available, including linking to ATM networks and credit from local merchants, and holding additional nonfinancial information, such as health information. Lessons to be drawn from the SKS experience include:

• New technology must be consistent with existing procedures and systems, and sufficient budget must be allocated to developing staff capacity for using the technology and to cover initial familiariza- tion problems.

• Project appraisals should always be based on a baseline that allows for a realistic

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE percent interest rate over 10 to 36 months. The down payment must increase to 40 percent in the case of second-hand goods. Farmer groups MADAGASCAR: MICROLEASING at village level are involved in the screening of FOR AGRICULTURAL potential borrowers. Since there are few sec- PRODUCTION ondary income sources in the area, these are not used for lease qualification. Instead, the The Caisses d’Epargne et de Credit Agricole microlease is secured by the equipment rental Mutuels (CECAM)—an Agricultural Savings and and through a verbal commitment of the Credit Union—was created in 1991 by a farmer member’s solidarity group. During the payment organization with the technical assistance of a term, CECAM retains ownership of the equip- French NGO. The objective was to provide loan ment. After the final payment, ownership is and savings services to agricultural households legally transferred to the client. and farmer organizations. CECAM is a network of over 170 local banks and regional credit The payment schedule for microlease loans is unions mainly based in less-favored rural largely adapted to fit the client’s production regions, with over 52,000 members (largely cycle. For example, for certain agricultural farm households). By the end of 2002 CECAM businesses, payments have been structured to had become the largest financial institution in meet the business cash flow, with as little as rural Madagascar. It provides a range of finan- four payments due over the course of a year. cial services, including working capital loans, By 2002 CECAM’s outstanding portfolio in grain storage loans, and term loans. In addition leasing was US$1 million, or about 27 percent to these loan products, CECAM provides inno- of the credit portfolio. The number of “leasing vative microleases for agricultural equipment.14 borrowers” was 2,564, corresponding to 8.9 percent of all borrowers and 5.5 percent of its What’s Innovative? Successful microleasing of agri- members. The average leasing amount was cultural equipment to farmers. US$390 per leaseholder. Since 1993, CECAM has signed 23,000 lease contracts with 11,500 members. Repayment rate on all leases dis- PROJECT OBJECTIVES AND DESCRIPTION bursed has been 95.8 percent. Key factors in Recognizing the need for farmers in Madagas- the success of this project are its project- 340 car to obtain capital assets, CECAM developed specific product design, a large capital base, a microleasing product together with a French and the involvement of farmers in the manage- NGO in 1993. CECAM microleases are offered ment of the institution. on capital equipment required for agriculture, equipment for rural craftspeople, and domestic equipment such as sewing machines and solar BENEFITS AND IMPACTS lighting units. The CECAM leasing product is There are essentially two outcomes to this type unique because it is targeted specifically at of lease agreement: either the lease is fully rural people. Leaseholders are required to be “met” and the client becomes the legal owner network members and to put down 20 percent of the equipment, or the lease is terminated of equipment value at lease initiation, with the before the full value of the equipment has been remaining 80 percent to be repaid with 30 paid. In this case the equipment remains legally

14. U. Andriantsivaliana and J.-H. Fraslin, “La Location Vente Mutualiste” (communication presented at the International Seminar Le financement de l’Agriculture familiale dans le contexte de libéralisation : Quelle contribution de la microfinance?, Dakar, Sénégal, 2002); J.-H. Fraslin, “CECAM: A Cooperative Agricultural Financial Institution Providing Credit Adapted to Farmers’ Demand in Madagascar” (paper presented at Paving the Way Forward for Rural Finance: An International Conference on Best Practices, sponsored by USAID and hosted by BASIS CRSP partner, World Council of Credit Unions, Washington, D.C., 2003); A. Dowla and J. Herve, “Leasing: a New Option for Microfinance Institutions” (Technical Note 6, Weidemann Associates, Inc., Arlington, Virginia; Development Alternatives, Inc., Bethesda, Md., 2003).

AGRICULTURE INVESTMENT SOURCEBOOK in the hands of CECAM. The following benefits demand for financing. It appears that rural MFIs from microleasing can be identified. are equipped to enter this market.

Benefits for the leaseholder include: Nevertheless, MFIs should be aware of the risks involved in microleasing. These depend in part • Business strengthening. During the lease on the life span of the asset and salvage value, term, entrepreneurs with scarce resources which influence the cost of the lease. In addi- benefit from using the equipment. The tion, the up-front costs of leasing may have a impacts are: more efficient or increased negative impact on the MFI’s liquidity and agricultural production; crop or livestock profitability. Finally, since there are many fixed diversification; or involvement and value- costs in signing a lease agreement, these will added in postharvest activities. It can also weigh more heavily with microleasing (due to enable the diversification into secondary a higher cost per dollar leased) than with nonagricultural business. In all cases, the larger-scale leasing. effects are that this strengthens the farmer’s business and increases income. PROJECT COUNTRY: MADAGASCAR • Asset-building. Since no collateral is needed Project Name Microleasing for agricultural (except for animals as dairy cows or draft production oxen), this product is accessible by indi- Dates 1993-2003 viduals who would not have sufficient collateral to qualify for an equivalent loan. Contact Point CECAM, Madagascar or If leaseholders can meet the lease term, ICAR : [email protected] they become the legal owner of the equipment. This builds the farmer’s asset base and increases borrowing capacity for future lending transactions.

Benefits for the microfinance institution are:

• Limited transaction costs and risk. Risk of default is reduced by the MFI remaining the 341 legal owner of the equipment—the collateral—until the lease is met. Transaction costs are lower than mid-term lending for agricultural equipment since lease transactions can be arranged quickly and simply.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY The key advantage compared to lending is that the leased equipment is usually sufficient to secure a lease transaction (but can be complemented with a pledge as in the case of CECAM), whereas lending usually involves the pledging of assets for collateral. The rapid growth of leasing in a number of countries suggests that leasing is addressing an unmet

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE INNOVATIVE ACTIVITY PROFILE the “lean season,” when prices are much higher. The goal of the project was to provide small-scale farmers with an opportunity to take GHANA: INVENTORY CREDIT advantage of these seasonal price swings. FOR SMALL-SCALE FARMERS The Ghana Inventory Credit Project works in The contribution of warehouse receipt systems the following way. Farmers form groups typi- to developing agricultural markets is well cally of 20-50 members to store their produce. known. In addition to providing a source of The technical service provider operates the collateral and facilitating access to credit, warehouse, and a lending institution provides warehouse receipts help to create standards for credit based on the warehouse receipt. Upon weights and measures, and develop grading arrival of the goods at the warehouse, the systems. They also help increase awareness of products are graded according to moisture quality issues, moderate seasonal price variabil- content and nonproduct materials. The farmers ity, and pave the way for the development of then receive a receipt stating the quantity and futures and derivative markets for managing quality of the goods deposited. Loans are given price risks. However, the spread of warehouse to groups on behalf of their members, which receipts and inventory credit has been limited then disburse them individually. Once the grain in those countries without trusted warehouse is warehoused, the goods are the collective operators, with weak regulatory and supervi- property of the group, which is jointly respon- sory capacity, and with heavy state intervention sible for treatment, storage, and sale. Neverthe- in markets. This is particularly the case for Sub- less, each farmer’s account is tracked separately Saharan Africa, where postharvest price fluctua- by the group. Throughout this process, the tions are often large and benefits from storage technical service provider gives market advice. are significant. Where inventory credit has been successful, it has generally excluded small-scale Initially, the credit amount was limited to 70- farmers due to high administrative costs and 80 percent of the stored grain’s harvest value low produce volumes.15 to limit the lender’s risk, in case prices did not rise as anticipated. With increasing warehouse What’s innovative? Using warehouse receipt systems activity and competitors entering this market, to provide inventory credit to small-scale farmers. the interseasonal price gap was narrowed. 342 This resulted in the loan percentage declining to 40-50 percent due to the farmers decreasing PROJECT OBJECTIVES AND DESCRIPTION debt capacity. In 1989, an international technical service provider pioneered the use of inventory credit for small-scale farmers in Ghana for grain BENEFITS AND IMPACTS marketing, particularly maize. Given immediate By the late 1990s the scheme was assisting over cash needs, small-scale farmers often sell their 100 farmer groups with loans in excess of produce shortly after harvest, when prices are US$170,000, and with nearly a 100 percent at their lowest. Without adequate storage repayment rate. Based on the success of the facilities and access to loan funds, they are program, the Agricultural Development Bank of unable to hold their crops for later sale during Ghana has promoted large-scale commercial

15. J. P. Coulter, G. Kwadzo and S. Bakari, “Warehouse Receipts: Financing Agricultural Producers” (Technical Note 5, Weidemann Associates, Inc., Arlington, Virginia; Development Alternatives, Inc., Bethesda, Md., 2000); J. P. Coulter and G. E. Onumah, “The Role of Warehouse Receipt Systems in Enhanced Commodity Marketing and Rural Livelihoods in Africa” (Food Policy 27 (4): 319-338, August 2002); G. Kwadzo, “Inventory Credit: A Financial Product in Ghana” (presentation at the Advancing Microfinance in Rural West Africa conference, Bamako, Mali, February 22-25, 2000); Technoserve Ghana 2000, and Technoserve home page: http:// www.technoserve.org/africa/ghana-other.html#Maize.

AGRICULTURE INVESTMENT SOURCEBOOK inventory credit. The schemes have dramati- expanding into other crops or attracting a cally reduced interseasonal price fluctuations, wider clientele. The use of farmer groups can benefiting those small-scale farmers with no help to increase unit volumes and share moni- choice but to sell immediately after harvest. toring costs.

It therefore appears that inventory credit programs can offer farmers marketing and PROJECT COUNTRY: GHANA credit options that spur productivity and in- Project Name Using Warehouse Receipts crease their incomes. Financial institutions Systems for Inventory Credit benefit from decreased risks and from liquidity Dates 1989-present as a result of instant collateral to guarantee or reimburse defaulted loans. The farmers benefit Contact Point TechnoServe, Ghana from increased profitability due to the ability to delay sales, from improved price transparency, and from enhanced negotiating ability as a result of working in farmers’ groups.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY While the project brought almost immediate significant benefits to small farmer groups, its major role has been to contribute to the increased efficiency of agricultural markets. As a result, inventory credit may be viewed more as a means to an end rather than an end in itself. As the markets have improved and inventory credit has spread, price fluctuations have decreased, such that the benefits of farmer inventory credit are diminished.

An inventory credit program is profitable only 343 when the increase in the value of the stored goods exceeds the cost of storage and bor- rowed funds. This is difficult to achieve where price fluctuations are low and costs high due to small volumes and high administrative costs. This suggests that the model put forward by the technical service provider is best considered as a temporary intervention where markets are weakly developed, as reflected in high price fluctuations, and where obstacles to introducing inventory credit further up the marketing chain will take time to address.

For a model based on small-scale farmers to be sustainable, it is crucial to increase warehouse volumes, and thus reduce unit costs and increase system efficiency, for instance by

MODULE 7: INVESTMENTS IN RURAL FINANCE FOR AGRICULTURE

INVESTMENTS IN IRRIGATION AND DRAINAGE

345

rrigation and drainage systems have traditionally been the largest subsector for World Bank agricul tural lending, and remain important to improving agricultural productivity and reducing poverty in I many countries. However, the context for irrigation and drainage investments has changed, and irrigation systems are now seen to have complex interactions with other rural social and policy issues. Decision-makers must consider these broader issues in the design and implementation of multi-component irrigation and drainage projects.

RATIONALE FOR INVESTMENT The World Bank’s current rural strategy, Reaching the Rural Poor, recognizes that water is an essential input into agricultural production, as well as the basis for livelihoods of rural communities and the quality of natural resources. Efficient agricultural production for local and export markets will become increasingly important for economic growth and poverty reduction. Over the past 30 years, the world’s net irrigated area has increased by almost 60 percent, from less than 170 million hectares in 1970 to over 270 million hectares in 2000 (FAOSTAT 2002). In also incur relatively high transaction costs and developing countries overall, agriculture ac- must accommodate various safeguard policies. counts for more than 85 percent of water utilization (IWMI 2001). Globally irrigated agriculture represents only 17 percent of total land cropped, IMPACT but provides 40 percent of the world’s food. In many regions, irrigated agriculture is the Meeting the food and fiber needs of the global main source of rural employment, has higher population in the next 25-30 years requires that productivity than rainfed agriculture, and irrigated agricultural area be expanded by 15-20 reduces risks associated with climatic uncer- percent (Tiwari and Dinar 2002a). tainty. Investment in irrigation agriculture can benefit the poor if they are included in the Given the present land and water resource design of projects; they participate in manage- constraints and shortage of potential areas for ment of irrigation systems; and they are ex- new development, most production gains must posed to new economic opportunities through come from better utilization of existing irrigated increased private sector investment in irrigation. area. This is a great challenge as physical deterioration, outdated infrastructure, or inadequate institutional arrangements have resulted in the PAST INVESTMENTS existing systems performing below expectation. The Bank has lent approximately US$20.7 billion for irrigation and drainage investments since While there has been some institutional reform, 1980 with commitments differing widely among national and local irrigation organizations need regions (see figure 8.1). Lending for the modernizing and improved management, (both subsector has varied considerably, and de- operational and maintenance). These issues are creased in recent years, dropping from US$1,040 increasingly related to problems of financing. million per year during 1994-96 to US$891 million per year in 1997-99, and US$490 million New investment in irrigation must address per year from 2000-02 (see figure 8.2). This issues of poverty reduction through a focus on reduced level of funding still represents about appropriate smallholder technologies, reducing 27 percent of the total allocation to the agricul- water scarcity and environmental quality ture sector, and 10 percent of total rural lending. problems and the adoption of efficient water The number of projects remained stable from management practices and technologies. 346 1999 to 2001, but is roughly one-half of that of Private sector investment in large-scale irriga- the 1980s and early 1990s. In addition to financ- tion requires an investment climate providing ing full-scale irrigation and drainage projects, an security for investments. Such investments increasing amount of investment in irrigation must seek income generation opportunities and and drainage is being provided as part of improved environments for a broad group of community-based development, natural re- beneficiaries including resource poor farmers sources management, and other projects. and the nonfarm population. The historically high level of investment in The complexity and political sensitivity of irrigation can be attributed primarily to the large water issues have important implications for potential gains from greater agricultural produc- irrigation and drainage investments particularly tivity, and the reduced weather-related risk to as these relate to water allocation and its use production. Opportunities for rewarding new which are strongly tied to food security and investments are more difficult because of poverty, the natural environment, regional increasing costs, such as water extraction and income distribution and investment profitabil- distribution; new environmental and social costs ity. Water-related investments are typically not previously recognized in irrigation projects; viewed as risky ventures, especially if interna- a growing need for drainage investments; and tional borders are crossed. Such investments falling commodity prices.

AGRICULTURE INVESTMENT SOURCEBOOK FIGURE 8.1 REGIONAL DISTRIBUTION OF ACTIVE IRRIGATION AND DRAINAGE LENDING, 2001

Europe/ Central Asia Latin America/ Caribbean

Middle East/ North Africa

East Asia/ Pacific

South Asia

Africa

Source: World Bank Internal Documents

FIGURE 8.2 WORLD BANK INVESTMENTS IN IRRIGATION AND DRAINAGE, 1979•2002

Commitment of U.S. Dollars (millions of current dollars)

160

140

120 347 100

0 1979 1984 1989 1994 1999

Years Source: World Bank Internal Documents

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE Box 8.1 Shortcomings of past investments regulatory framework for equitable distribution of benefits from efficiency-related improve- The most commonly used economic incentives in irrigation ments needs to be established. projects are water pricing and user participation. Of the 67 active projects in the irrigation and drainage portfolio in 2000, 52 (77 percent) used water-pricing incentives and 34 (51 KEY ISSUES FOR FUTURE INVESTMENTS percent) employed user participation incentives (Tiwari and Issues related to irrigation and drainage sector Dinar 2002b). However, in most cases “water pricing” focused investments are highly interrelated and there is mainly on operation and maintenance cost recovery, rather a need for a holistic approach. than as a signal for the scarcity value of water. Relatively few initiatives have successfully attempted recovery of investment costs. Water pricing (along with good management and MAXIMIZING IMPACTS ON POVERTY REDUCTION. Projects appropriate fee collection) is important in ensuring efficient will require greater emphasis on targeting the water service delivery. poor, focusing on their empowerment, and designing appropriate regulatory systems. Although recent projects have focused on poverty reduction objectives, fewer than half include data on poverty issues. Project design and implementation need to Project appraisals must now analyze poverty impacts, and consider the following: monitoring systems must measure long-term impacts on employment, incomes, and other determinants of poverty. • Does external support improve access to Monitoring investment impacts on small-scale farmers, women, water specifically for smallholders, enabling and minorities needs to be improved in future irrigation and them to improve their agricultural produc- drainage projects. New small-scale drip irrigation and sprinkler tion, incomes, and food security? systems (and appropriate drainage systems), and technologies for cultivating high-value crops offer opportunities to improve productivity of assets of the poor. • Are the opportunities optimally used to strengthen resource-poor peoples’ access to Source: World Bank 2003. irrigated or potentially irrigated land?

Irrigation investments changed to respond to • Are smallholders protected from expropria- changes in the global environment and past tion without compensation, and is more experience with irrigation and drainage projects equity in resource rights being achieved by (see box 8.1). In the 1970s and 1980s invest- linking water rights to the land user? ment involved large irrigation and drainage 348 schemes with considerable infrastructure • What priority is given to women’s access to development. In the 1990s, investment sup- water and lands, and the impact of this on ported system rehabilitation and management their incomes? and more recently, small irrigation schemes under community-driven development • Are poor people being included from the projects. Increased water scarcity has shifted start in planning procedures and processes? the focus from exploitation of water resources and building infrastructure to improvement of • Does irrigation provide benefits for the water use efficiency. Accordingly the Bank has landless? shifted toward smaller investments, focused on poverty reduction and community empower- • Is access being improved to inputs, mar- ment. Associated with this is a greater emphasis kets, and other institutions (van Koppen on markets, the private sector, and water user 1988)? associations (WUA) in managing irrigation. The public sector’s limited ability to effectively INTEGRATED IRRIGATION AND DRAINAGE AREA DEVELOP- guide economic activity, and the participation MENT. Irrigation and drainage need complemen- of the private sector for efficient outcomes, is tary investments in financial services, research now well recognized. A suitable public sector and extension, input supply, and market

AGRICULTURE INVESTMENT SOURCEBOOK development in order to achieve substantial public sector agencies that manage large diversification and intensification of production irrigation systems. Addressing these issues will systems, and to increase the system’s productiv- require improved interaction between minis- ity and profitability. tries of agriculture, finance, planning, and environment. MULTIPLE INTERESTS IN WATER. Competing interests may result in conflicts over water allocation LAND RIGHTS. As land ownership is typically a and use. The main water subsectors, namely prerequisite for water rights, an effective land irrigation and drainage, water supply, hydro- administration system should ensure that land power, flood control, and environment, have rights are secure and tradable. Smallholders increasingly adopted a cooperative approach to and especially women have less secure land water management. But, there is still room for rights even though they are often the main improvement in cross-sectoral planning and users. If social, economic, and gender equity coordination as only modest progress has been issues are to be enhanced, effective land made in integrating water management activi- administration systems need to include mecha- ties within river basins. Stakeholder participa- nisms that recognize traditional and formal tion and the resultant sense of ownership is impor- rights to land. tant in each phase of project design, implementation, and post-project management. Irrigation agencies CAPACITY BUILDING. Training and technical assis- need to establish links with appropriate basin agen- tance for building country capacity of individu- cies and various interests (agricultural, urban, als and institutions, such as local governmental industrial, and environmental) to prepare bodies, and public sector water agencies, to seasonal water management plans with clear reform irrigation and drainage policies and water allocation rules. This will ensure that their organizational structures is necessary. The decisionmakers consider the potential impacts World Bank Institute and other capacity- that seemingly desirable activities may impose building partners, such as, the IWRM Interna- on other interest groups. For example, while tional Network for Capacity Building—CAPNET, there may be agricultural benefits from more and strengthening university curricula on efficient farm water use, this may have negative irrigation systems operation and management, consequences for rural households that rely on can be useful. seepage and runoff for their domestic water requirements. WATER PRICING AND COST RECOVERY. A key policy 349 issue is water pricing and cost recovery of POLICY AND INSTITUTIONAL REFORM ISSUES. Sustainable investments in irrigation and drainage water management improvements inevitably developmentæor at least of covering system require significant adjustment in existing operation and management costs. This requires institutional arrangements because past irriga- that managers and users be aware of the value tion investments had done little to restructure and quantities of water used in order to de- irrigation agencies and expand private sector velop incentive frameworks aimed at recover- participation, within the context of broader ing costs and reducing water wastage. In many national reforms. A few countries, such as areas institutionalizing water pricing systems China and Mexico, have emphasized finan- and full cost recovery will require many years cially autonomous utilities that sell bulk water to fully implement. to users. Key policy issues influencing irrigation investments include: effective and efficient PRIVATIZING WATER USE RIGHTS. Private ownership of institutional structures, transparent and effective water and water rights is a contentious issue in regulatory frameworks (water rights and irriga- many countries, where water has traditionally tion laws), land tenure, decentralized irrigation been seen as a free good, though one con- and drainage management, and reform of trolled to varying degrees by the state or by

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE Box 8.2 China: the Hai Basin surface water systems and become available for other users and are therefore not lost to the Present development of China’s Hai Basin (mainly due to hydrologic system. Even if individual systems irrigation) has resulted in annual evapo-transpiration (ET) that are inefficient, overall basin efficiency may be far exceeds sustainable levels. Annual outflow to the Bohai Sea quite high in such areas. Improvements in is about 5 billion cubic meters, but would need to be about 9 water use efficiencies by upstream users might billion cubic meters to provide adequate environmental flows. reduce water available for downstream use. In addition there is about 9 billion cubic meters of over- However, some losses due to inefficiencies are exploitation of groundwater annually. Increasing the outflow to absolute and unrecoverable, and “real” water the sea and eliminating the groundwater over-exploitation would require ET in the basin to be reduced by about 13 savings result from reductions of nonrecover- billion cubic meters per year. Conventional water conservation able losses such as evapo-transpiration or programs have made the situation worse by increasing ET. The losses to nonusable water bodies such as saline Global Environmental Facility (GEF) Hai Basin Integrated Water aquifers or the ocean. Thus, for water quantity and Environment Management Project, presently being management, the starting point needs to be the prepared, seeks to use a new approach by managing basin water balance (hydrologic cycle) to provide the water resources in terms of ET, and by seeking “real” water basis for allocation of water. savings that reduce ET to sustainable levels. Remote sensing and ET data systems will be a key tool for providing accurate estimates of actual ET, thus making it possible to plan and EMPHASIS ON PRODUCTIVITY IMPROVEMENT. Increased manage water resources on a sustainable basis. water supply for agriculture must come from within the sector by increasing “use efficiency” Source: Olson 2003. through improved management practices that minimize evapo-transpiration, such as cropping private individuals. Private ownership is a patterns, cultivation methods, timely availability useful tool in establishing the value of and of inputs, and soil-moisture management. New market for irrigation water. Many reforms in the investments may be needed, in areas such as irrigation and larger water sector would be crop genetics, and nontraditional crops such as strengthened by such a policy shift, though horticulture, floriculture, and fodder. Invest- enforcement of changes in water rights and ment may also be required to improve market- water prices are difficult on both technical and ing infrastructure to respond to changes market political grounds. opportunities.

350 In countries where there is acute competition SUSTAINABLE NATURAL RESOURCES MANAGEMENT. Invest- for water, a forum for water users, including ments in irrigation and drainage must also the resource poor, should be established to provide for sustainable management of natural negotiate management plans and the policies resources and the physical environment. This is and regulations, such as a national water act; to particularly so given that water allocation and protect all parties; and to carry out these plans. use for agricultural purposes are inevitably Trade in water rights needs to be established associated with externalities and conflicts and regulated. between water development for irrigation for agriculture and for domestic and industrial CONCEPT OF “REAL” WATER SAVINGS. Experience in uses, and the ecological functions of water in China and elsewhere has shown that, if projects the natural environment. Use of irrigation water concentrate only on improvements to physical must be carefully regulated and monitored to irrigation and drainage systems, this may ensure sufficient environmental stream flows improve water use efficiency, but may not and to avoid “mining” groundwater aquifers. result in much “real” water savings because of the “return-flow factor” (see box 8.2). That is, Future irrigation development must identify some losses from existing inefficient systems environmental externalities (both positive and return to groundwater aquifers or downstream negative) related to management, and address

AGRICULTURE INVESTMENT SOURCEBOOK these in design and implementation of projects Box 8.3 Environmental management issues (see box 8.3). As an example, improving the marginal productivity of water use may require Improving management of water sources, return flows, and increased nitrogen fertilizer application, which drainage to avoid damaging wetlands, mobilizing salts and may contaminate nearby wetlands resulting in agricultural chemicals, downstream pollution, and waterlogging. loss of biodiversity. An alternative approach Regulating and monitoring extraction of water for irrigation to might use legume crops, such as alfalfa, clover, ensure sufficient environmental stream flows and to avoid and soybean, in crop rotations for nitrogen “mining” groundwater aquifers. fixation. Technological and managerial innovations from an effective research and extension Establishing appropriate rules/standards for use of low-quality system can, with cooperation of the different water in irrigation. groups, help resolve conflicts over resource Creating a supporting environment and capacity for adaptation use. Development of such mechanisms is a key to climate change. investment area for the Bank. Adopting environmental planning in the design/modernization of new/existing irrigation and drainage schemes

Source: IWMI 2001. FUTURE PRIORITIES FOR INVESTMENT Irrigation and drainage investments must recognize the political sensitivities relating to changes. Governments have a role in establish- water access and use, as well as the multiple ing such systems and the private sector, the and competing interests regarding its allocation. research and development community, and A long-term holistic view must see water as a WUAs have critical interests in these informa- vital resource that needs careful stewardship to tion systems. ensure sustainability and equitable access and use. Cross sectoral planning and cooperation INFRASTRUCTURE AND TECHNICAL ISSUES. Irrigation and and a water basin-wide perspective are impor- drainage infrastructure is identified as a priority tant, and objectives set should be time specific, in the Bank’s rural strategy. New infrastructure realistic, and measurable. and service investments should be linked to existing infrastructure and services. There are Investments, in addition to achieving greater trade-offs between new system development, productivity from land (agriculture) and water renovations to bring systems back to original resources, need to be linked to broader issues specifications, and upgrading or modernizing 351 of development and the political economy, infrastructure to accommodate new needs. including poverty reduction, land reform, and Priority should be given to making better use of institutional development. Establishing leader- existing infrastructure. Rehabilitation of major ship and ownership (from farmer to politician) distribution systems should focus on modern- and building capacity (organizational and ization to account for present and future needs, managerial skills, and databases) in irrigation rather than those needs for which the system and drainage projects and related reforms of was initially designed. Modernization of infra- policies and organizational structures are structure must be accompanied by improve- important for sustainability of investments. ments in management systems to optimize the use of the infrastructure, and infrastructure INFORMATION SYSTEMS FOR DECISION-MAKING. Im- design should be demand-driven such that the proved information systems are needed for technologies are well understood and accepted. irrigation and drainage decision-makers. These Access to information and markets for agro- must measure and routinely monitor project inputs and agro-products, agricultural credit, farm impacts relating to water extraction, allocation, roads, and telecommunications services, are basic and pricing; environmental impacts; farm water requirements to achieve full benefits of irrigation and efficiency improvements; and groundwater drainage investments.

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE Improved infrastructure and technical capacity of operation and maintenance costs, relatively will also be important for improving reliability little has been done on recovery of investment of supplies and services. This may require costs. This is particularly important to future development of new storage facilities to replace proposals for expansion and intensification of capacity lost to sedimentation, minimizing/ existing schemes and is a continuing policy issue. eliminating sedimentation, and saving water lost during flood flows. Improved reliability will WATER USER ASSOCIATIONS. Water user associations, foster innovative investments that may other- usually formed around a group of potential wise not occur because of high production risks users (farmers), are increasingly important for associated with unreliable supply. irrigation management (organizing the extraction, allocation, and distribution of water). FOCUS ON SMALLHOLDERS. Promoting technologies They can also undertake other activities, and services tailored for smallholders is likely including the provision of extension, technical, to have greater impact on poverty reduction. and marketing services relating to on-farm Such technologies include treadle and small- agricultural production. These services en- engine powered pumps, low-cost drip/sprin- hance productivity of the irrigation systems, kler systems, technologies for groundwater but may stretch the capacity of the associa- extraction, and training and technical advisory tions. User groups have been found to work services specifically for smallholders. The well, (that is internalize costs and benefits of private sector has much potential to provide schemes) when there is no public body that these services but is constrained by the high will “rescue” the group if it fails to mobilize costs associated with transactions with small- the required funds for operation and mainte- scale producers. Rural producer organizations nance. There are, however, few cases of water (RPOs) may be a means of overcoming this user associations covering 100 percent of the scale-related problem, and thereby encourage costs of operations and maintenance. More private sector provision of services to small- work is therefore needed to develop manage- scale producers. Targeting smallholders (and ment systems that can make these associations the diverse interest groups identified by gender and fully sustainable. ethnicity) is consistent with the need to more effectively address poverty. SCALING UP INVESTMENTS Monitoring and evaluation of irrigation and 352 ECONOMIC INCENTIVES AND FINANCIAL SUSTAINABILITY OF INVESTMENT. Irrigated agriculture systems should drainage investments is increasingly important ultimately be financially sustainable and not given the growing competition with other require continuing investment by donors. This sectors for scarce investments and the need to may require a rethinking of the roles of govern- respond to changing circumstances during ment and the private sector in irrigation and project implementation. Monitoring and evalua- drainage projects and the nature of their in- tion systems must measure the full range of volvement in design and implementation. The irrigation and drainage-related government’s functions will include environ- benefitsæeconomic, environmental, and social. mental monitoring, auditing, and regulation of Key outcome indicators relate to production land and water markets and establishing the per unit of water use, real water savings, and policy framework within which the private changes in land use. Impact indicators focus on sector can function. This may require policy incomes, poverty reduction, and system changes that provide incentives (for example, sustainability. Such monitoring can also contrib- taxes, subsidies, water rights) that incorporate ute to the adaptive planning of current pro- principles of equity within the context of grams and scaling up. customary rights, and provide a workable basis for water transfers among owners and users. Investments will need to conform to World While more recent programs focus on recovery Bank Safeguard guidelines, as summarized in

AGRICULTURE INVESTMENT SOURCEBOOK box 8.4 and must be accompanied by clear Box 8.4 Key safeguard policy issues for irrigation and drainage plans for eventual phasing out of support and investments for the financial independence of the irrigation system that may rely increasingly on private Environmental Assessment (Operational Policy (OP)/Bank sector investment (see box 8.4). Improved Procedure (BP) 4.01)æan Environmental Assessment is analysis of existing knowledge regarding required if a project may have potential adverse environmental successes and failures of past investments will risks or impacts. provide a basis for identifying key elements of Safety of Dams (OP 4.37)ædam safety measures and/or good practice, and innovative approaches for reviews and safety inspections are required if an investment scaling-up irrigation and drainage investments involves construction of a large or high hazard dam or is with a high probability of success and benefi- dependant upon an existing dam. cial impact on the poor. Natural Habitats (OP 4.04)æprotection of natural habitats (land and water areas where most of the original plant and animal Good practice guidelines are needed with species are still present) is required for an investment with reference to irrigation investment and: (i) potential to cause degradation of the natural habitat. poverty reduction, (ii) the context of increasing Projects in International Waterways (OP 7.50)æthe Borrower water scarcity and competition for water, (iii) must notify other riparians of any proposed investment impacts on the environment, and (iv) policies involving a body of water that flows through or forms part of for enhanced private sector investment. the boundary of two or more countries. Involuntary Resettlement (OP/BP 4.12)æa Resettlement Action Plan is required if an investment results in physical relocation; SELECTED READINGS loss of land or access to land or other assets; or impacts on Asterisk (*) at the end of a reference indicates livelihoods due to restrictions on access to parks or protected that it is available on the Web. See the Appen- areas. dix for a full list of Web sites. Source: World Bank, Operational Manual.

Easter, W., H. Plusquellec, and A. Subramanian. 1998. “Irrigation Improvement Strategy REFERENCES CITED Review.” Water Resources Thematic Group World Bank. 2003. Reaching the Rural Poor: A Draft Final Report. World Bank, Washing- Renewed Strategy for Rural Development. ton, D.C.* Washington, D.C.: World Bank. 353 IWMI. 2001. “Water for Rural Development.” FAOSTAT. 2002. FAO Statistical Databases. Draft Background Paper on Water for Rural http://apps.fao.org/default.htm. Development Prepared for the World Bank. International Water Management Institute, IWMI. 2001. “Water for Rural Development.” Colombo, Sri Lanka.* Draft Background Paper on Water for Rural Development Prepared for the World Bank. Rosegrant, M. W., X. Cai, and S. A. Cline. 2002. International Water Management Institute, World Water and Food to 2025: Dealing Colombo, Sri Lanka. with Scarcity. IFPRI: Washington, D.C.* Olson, D. 2003. “Real Water Savings and ET Tiwari, D. N., and A. Dinar. 2002a. “Prospects Reduction: The Hai Basin Paradigm.” Draft. of Irrigated Agriculture: Whether the Irri- World Bank, Washington, D.C. gated Area and Irrigation Water Must Increase to Meet Food Needs of the Fu- Tiwari, D. N., and A. Dinar. 2002a. “Prospects of ture.” Agriculture and Rural Development Irrigated Agriculture: Whether the Irrigated Department Water Team. World Bank, Area and Irrigation Water Must Increase to Washington, D.C.* Meet Food Needs of the Future.” Agriculture

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE and Rural Development Department Water Team, World Bank, Washington, D.C.

Tiwari, D., and A. Dinar. 2002b. “The Role and Use of Economic Incentives in Irrigated Agriculture.” Working Paper. World Bank, Washington, D.C.

van Koppen, B. 1988. “Water Rights and Poverty Alleviation: Inclusion and Exclusion of Resource- Poor Women and Men as Rights Holders in Externally Supported Irrigation Development.” In D. Merrey, and S. Baviskar, eds. Gender Analysis and Reform of Irrigation Management: Concepts, Cases and Gaps in Knowledge. Proceed- ings of the Workshop on Gender and Water, 15- 19 September 1997, Habarana, Sri Lanka. IWMI, Colombo, Sri Lanka.

World Bank. Operational Manual. http:// wbln0018.worldbank.org/institutional/ manuals/opmanual.nsf/.

This Overview was prepared by Safwat Abdel-Dayem, Ariel Dinar, and Sam Kane with inputs from irrigation and drainage specialists in the Irrigation and Drainage Network of the World Bank. Peer review comments were provided by Ohn Myint and Ijsbrand de Jong.

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AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE Box 8.5 Mali: success story

The Office du Niger in Mali, known for many years as an INVESTMENTS TO EMPOWER example of an irrigation system with a heavy financial burden, is FARMERS TO MANAGE now seen as a success story. The Office was created during IRRIGATION AND DRAINAGE colonial times to produce cotton, but in the 1950s cotton SYSTEMS cultivation was abandoned because of waterlogging and rice became the dominant crop. In the 1980s the Office was Water user associations are important for restructured to focus on both institutional and technical issues. The paddy processing and marketing functions were privatized, empowering farmers to manage irrigation and and activities now focus on the essential functions of water drainage systems and offer potential for reduc- services, planning, and maintenance. Improved water delivery ing costs and improving irrigation services. The and land levelling enabled the adoption of transplanting optimal size and allocation of responsibilities to methods and high-yielding varieties, increasing paddy yields such associations is a complex issue dependent from 1.5 to 6 tons per hectare. on local conditions and capacities. The impact Although there are no formal user associations, farmers are of farmer management of irrigation systems on represented in decisions on use of water fees through their agricultural productivity may not be substantial elected delegates, who are members of joint committees, each if this is not accompanied by investment in covering about 5,000 to 8,000 hectares. These committees physical infrastructure to improve the quality of decide on the annual maintenance program, budgets, and services. Empowerment of smallholders, and procurement, while day-to-day management remains the particularly women, also requires investment in responsibility of the Office. This approach matches the capacity level of the farmers, and may be a suitable model for other water user association capacity. Irrigation low-income countries with a low level of literacy. agencies need to provide to support to develop sustainable user associations Source: Couture and Lavigne 2000.

Following rapid expansion of irrigated agricul- EMPOWERING WATER USER ASSOCIATIONS— ture worldwide from the 1950s to the 1980s, ALTERNATIVE APPROACHES many governments found it difficult to manage Commercial associations of farmers, common in recurring costs and collect water charges for Latin America are legal entities that can enter irrigation. This led to deterioration of infrastruc- into contracts and have power to enforce rules ture, shrinkage of irrigated area, poor distribu- and regulations. They are responsible for water tion and wastage of water, waterlogging, and distribution, fee collection, maintenance, conflict 355 salinity (Vermillion and Sagardoy 1999). Many resolution and representing farmers in discus- governments transferred management responsi- sions with public agencies. Farmer members are bility to local water service providers, such as not directly involved in management of systems, WUA or cooperatives, expecting this transfer to as the associations hire professional staff for this. reduce financial burdens on government and Social associations common in Asia, rely on help increase productivity and profitability of direct participation by all members and daily irrigated agriculture since users were expected interaction for decisionmaking, monitoring, and to operate systems more effectively to meet sanctioning. These associations are involved in their own needs. While these transfers have maintenance activities by providing labor, and in been successful in some cases, in many coun- some cases by collecting irrigation service fees. tries financial considerations continue to domi- This model is most appropriate in socially nate the debate on empowering users in cohesive societies with small landholdings and irrigation management (see box 8.5).1 simple irrigation technology.

1. See the IAP, “Mali: Institutional Reform to Focus Public Role on Essential Public Goods”

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE The question of optimal size for user associa- BENEFITS tions in large-scale irrigation systems with a Typical objectives of transferring management to large number of small farmers is very complex. WUA include: Expert opinions vary widelyæfrom 40 hectares to a few thousand hectaresædepending on • Eliminating recurring government expendi- whether the key performance objective is the tures for operation and maintenance. extent of cooperation on irrigation activities or financial viability of the associations. • Reducing the rate of deterioration of irrigation infrastructure. A multitiered organization is now considered an appropriate model for schemes with small • Providing transparency in management and farmers. Base-level user groups send represen- accountability of the irrigation service tatives to the higher level organization that provider to water users. allocates water among the user groups and negotiates any conflicts. In turn, these units • Increasing farmers’ income and the produc- may federate into a higher level, with an apex tivity of water. level organization for the entire system. This approach has been used in Nepal since the Commercial associations have been very early 1990s.In contrast to the gradualist ap- successful in improving the recovery of recur- proach used in other Indian states, Andhra rent costs and stopping deterioration of infra- Pradesh opted for a “super big-bang” top-down structure through better maintenance and approach to reforming its irrigation sector. After equipment. However, despite widespread new legislation in 1997, elections created over adoption of management transfer programs, 10,000 user associations for all major, medium, there is still inconclusive and conflicting evi- and minor irrigation schemes, and six months dence on their impact on agricultural perfor- later created user committees at the level of mance (see box 8.6). In most large-scale secondary canals. projects, institutional reforms alone may not improve productivity of irrigated agriculture and promote crop diversification which may be need physical improvement of the system, and this generally requires user participation. In Box 8.6 Approaches to irrigation management 356 Latin America, raising agricultural productivity Participatory irrigation management (PIM) involves users in is most challenging under systems managed by irrigation management. The irrigation service provider may be a irrigation agencies according to well-estab- financially autonomous utility or a local entity. It is generally lished rules, such as delivery of water to users governed, at least in part, by farmers who are involved in key on prearranged schedules. decisions on water resources management, irrigation water delivery, annual budgets, priorities for maintenance and rehabilitation, and personnel. POLICY AND IMPLEMENTATION ISSUES Irrigation management transfer (IMT) reassigns responsibility and POLICY REFORMS. Several policy issues must be authority from government agencies to non governmental addressed before embarking on institutional organizations (NGOs). IMT is about replacing the reforms: What functions should be transferred governmentænot just working with itæas is the case with PIM. to what organizations? How will irrigation IMT may include all or partial transfer of management functions, operations and maintenance (O&M) and and may be implemented at subsystem levels or for entire rehabilitation be financed after reforms? What irrigation systems. Farmers may hire technical and administrative staff or even contract other organizations to manage the policy and legal changes need to be made to system. support the reforms? What changes should be made in public agency mandates as a result of Source: Authors. the transfer?

AGRICULTURE INVESTMENT SOURCEBOOK SCOPE OF GROUP ACTIVITIES. Water user associations Box 8.7 Key elements of a successful management transfer often expand their mandated activities to program include input supply, marketing, research and extension, and credit programs. There is a good • Absence of strong opposition to IMT by bureaucracies and argument for these activities, which increase the local elites. system’s productivity, but these can easily over- • Supporting legislation and support services for local water stretch group management capacity. service providers. • Capacity to create (or alter) local organizations to take SYSTEM REHABILITATION. The most contentious over water management. issue is whether physical infrastructure • Irrigation infrastructure suitable for management by should be rehabiltiated before or after man- farmers organizations. • Clear land and water rights. agement transfer. Farmers may be very reluctant to take over responsibilities for Source: Authors. systems in poor condition, given the lack of funds for O&M, and the need for even LESSONS LEARNED greater funds for rehabilitation. If the gov- There is no “one-size-fits-all” approach to em- ernment undertakes rehabilitation before powering users in irrigation management (see transfer, this reinforces a perception that it is box 8.7). In the early 1990s, Mexico’s experience a government system and that government and its successful replication in Turkey and will finance future rehabilitation. However, Albania raised great interest. The Mexican model Mexico used financing of rehabilitation is known as the “big-bang” approach because it works as a bargaining tool to promote covered about 3 million hectares, and was transfers that were not very economically completed in 3-4 years. This contrasts with the attractive to farmers. gradual piloting approach used in most Asian countries. One advantage of the Mexican ap- LAND RIGHTS. Secure land rights, providing either proach is the limited number of associations ownership or secure tenancy, is necessary (about 400), which reduces efforts required for before users can be expected to invest in transferring procedures, training, and monitoring. irrigation systems. Obstacles to replicating the “big bang” approach are unsecured land tenure, low productivity of Boundaries. There is a consensus that WUAs irrigation systems in many countries and, in some should be based on hydraulic boundaries (that cases the high level of technology required. 357 is, at the level of minor or distributary canals) to perform efficiently. However for historical With the IMT approach, where irrigation reasons in some countries, user organizations management is transferred to a nongovernmen- are based on administrative boundaries. tal organization (NGO), stakeholders may have conflicting interests, such as tensions between SUSTAINABILITY. Few WUAs have been able to farmers at different ends of canals; wealthy achieve 100 percent cost recovery for operation farmers who pay bribes for extra water may and maintenance costs, or have funds for resist the formation of strong water associa- construction. Using traditional user associations tions; farmers may favor taking over manage- to strengthen large-scale agency-managed ment, but irrigation department staff may resist irrigation systems has met with little success. for fear of losing jobs and revenue; and gov- Users have no incentive to cooperate if water ernment finance and planning departments delivery is too erratic or if a rigid delivery may promote IMT to reduce the burden of schedule is imposedæfrequent deficiencies of financing irrigation. large-scale systems. Social associations developed to provide cheap labor for maintenance The role of irrigation/water resources agencies or to collect water fees are often weak. changes with the transfer of responsibilities to

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE Box 8.8 Potential investments may fail. Such transfer requires legal action in the form of a decree or legislative act, Study tours and exchange visits. such as the Agreement of Transfer between the government and the association defin- • Assistance in forming user organizations through support ing mutual obligations and the By-laws of to government agencies, community organizations, or the Association defining rights and obliga- NGOs. • Gender analyses and planning for women’s participation in tions of the association and its members. water user associations (WUAs). • Assistance in changing legislation. • Time-bound lending conditions for official • Assistance in changing the roles of government agencies. development assistance often conflict with • Training of user organizations (accounting, operation, and the time required to implement social maintenance). reforms needed to ensure the effective • Special equipment for maintenance. empowerment of users. In Turkey, a trans- • Office equipment. fer program was initiated first and then a • Rehabilitation and upgrading works in severely deterio- rated systems. Bank project later contributed to the financing of maintenance and office equipment Source: Authors. for the water associations.

users to that of providing technical guidance • Involving farmers in irrigation management and managerial, accounting, and financial should be part of an overall irrigation advisory services; assisting with dispute resolu- reform program that includes irrigation tion; and monitoring performance of associa- agency reform and improvement in service tions. Agencies may focus more attention on delivery functions. river basin planning, surface and groundwater resource management and allocation, and • Adequate infrastructure is essential to environmental monitoring, and enforcement. ensure that institutional and policy reforms But, agency reform may result in a drastic lead to effective and efficient irrigation reduction in staffæfrequently the cause of systems so that is water delivered in a resistance to reformsæunless staff can be deployed to reliable and measurable way. other tasks. • Technical change must complement man- 358 agement reforms to improve the efficiency RECOMMENDATIONS FOR PRACTITIONERS and productivity of irrigation systems and Before making investments in irrigation and farmer organizations with irrigation gover- drainage projects, it is essential to determine nance responsibilities may act as the cata- whether water users are motivated to take over lyst for this modernization. responsibilities for management and whether there is likely to be resistance from third parties (staff of the present managing organization or SELECTED READINGS influential water users) (see box 8.8). For low- Asterisk (*) at the end of a reference indicates income countries, the Mali experience is a that it is available on the Web. See the Appen- good example because it combines user moni- dix for a full list of Web sites. toring of maintenance spending with the handling of the finances by the agency. Oblitas, K., and J. R. Peter. 1999. “Transferring Irrigation Management to Farmers in • Decision to transfer responsibility to users Andhra Pradesh, India.” In association must be made at the highest government with G. Pingle, H. M. Qaddumi, and J. level as without this, management transfer Perera. Technical Paper 449. World Bank, programs adopted under donor pressure Washington, D.C.*

AGRICULTURE INVESTMENT SOURCEBOOK Salman, S. M. A. 1997. “The Legal Framework for Water Users’ Associations: A Compara- tive Study.” Technical Paper 360. World Bank, Washington, D.C.*

Subramanian, A., N. Jagannathan, and R. Meinzen-Dick, eds. 1997. “User Organiza- tions for Sustainable Water Services.” Technical Paper 354. World Bank, Washing- ton, D.C.*

REFERENCES CITED Couture, J. L. and P. Lavigne. 2000. “Institu- tional Innovations and Irrigation Manage- ment in Office du Niger, Mali (1910-1990).” Seminar at the Institutional Reforms in Irrigation and Drainage, sponsored by the World Bank, December 11-12, Washington, D.C.

Vermillion, D. L., and J. A. Sagardoy. 1999. “Transfer of Irrigation Management Ser- vices: Guidelines.” FAO Irrigation and Drainage Paper 58. FAO, Rome.

This note was prepared by Herve Plusquellec with inputs from Walter Ochs, Safwat Abdel-Dayem, Ariel Dinar, and other irrigation and drainage specialists in the Irrigation and Drainage Network of the World Bank.

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MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE AGRICULTURE INVESTMENT NOTE vices needed for diversification. Because of the importance of rice, many issues discussed in this note deal with diversification of rice-based INVESTMENTS IN IRRIGATION cropping systems. The lessons learned are also FOR CROP DIVERSIFICATION valid for increasing productivity of other irrigated agricultural systems. Farmers’ efforts to diversify production are frequently hampered by inadequate irrigation systems. If diversification results in high-value IRRIGATION, DRAINAGE, AND CROP crop being grown, irrigation system invest- DIVERSIFICATION ments may be more economically viable as a WATER DELIVERY. Paddy and non-paddy crops result of the higher returns and the increase in require different irrigation management. Both water use efficiency. Diversification in irrigated excess water and deficits adversely affect yields agriculture often requires new or improved of non-paddy crops, whereas rice does well technologies for water delivery and drainage, with continuous irrigation and/or field-to-field with investment needed to modernize water irrigation, which has been the dominant control so as to increase the flexibility of water method of irrigation in most of South and delivery and drainage. In order to ensure that Southeast Asia. Basin irrigation, the method farmers benefit from agricultural diversification, used for irrigated rice, is also used for other investments are required in marketing and crops, such as groundnuts, maize, and soy- processing facilities and services, such as beans, but is not suited to crops sensitive to research, extension, and credit, and incentive wet soil conditions or to soils that form crusts. structures to facilitate growth of high-value Delivery of irrigation water to non-paddy crops crop production. at discrete, variable intervals with precise flows is more complex than continuous delivery for Adoption of high-yielding crop varieties during rice. Flow rates must be carefully controlled to the green revolution, combined with rapid irrigate non-paddy crops whether surface or expansion of irrigated areas from the 1960s to pressure systems are used. the 1980s, resulted in a significant increase in food production, especially rice production in ON-FARM IRRIGATION AND DRAINAGE NETWORKS. Many Asia. Surpluses resulted in a decline in grain irrigation projects designed for rice production 360 prices in domestic and world markets, and in have a low density of irrigation ditches and response to this, farmers sought alternatives to farm drains. Such infrastructure is sufficient for cereal cultivation. Other factors spurring crop field-to-field irrigation, but non-paddy crops diversification include: availability of advanced require direct plot access to irrigation and irrigation technology; development and adop- drainage that provide intermittent water supply tion of improved high-value crops; increased and prevent soil saturation affecting crop domestic and regional demand for fruits, production. The density of the tertiary system vegetables, and livestock products; growth of required for non-paddy crop cultivation de- private agribusiness in processing and market- pends on factors, including land slope, nature ing; and removal of distorting policies that of soils, farm size, mechanization, and method favored selected crops. of on-farm water application.

However, many farmers in rice-based agricul- LAND CONSOLIDATION. Construction of a dense on- tural systems experienced severe problems in farm irrigation and drainage system needed for diversifying to other crops, constrained by crop diversification cannot reasonably be imple- deficiencies in irrigation infrastructure and mented where farm plots of random shape are management at the farm level and by a poor scattered throughout the irrigated area. A land policy environment and lack of support ser- consolidation program is often needed as a basis

AGRICULTURE INVESTMENT SOURCEBOOK for a cost-effective layout for an on-farm irriga- fication generally implies a shift from cereal tion system suited to efficient water manage- crops to other field crops or high-value horti- ment. Farm plots should be rearranged in a cultural crops (see box 8.9). These may require geometric grid that determines layout of irriga- less water, but offer opportunities for greater tion and drainage systems and farm roads. In employment, higher incomes, and more value- Morocco, since the 1960s, planning for new added processing. irrigation systems starts with a land consolidation program that regroups individual farmers’ Two Bank projects - a success story in Brazil small plots into rectangular blocks of about 30 and an unsatisfactory result in Thailand - hectares. In Japan, Korea, China, and Taiwan illustrate the importance of irrigation system where diversification is common, irrigation design, access to markets, and farmer training in systems were systematically developed in enhancing crop diversification. In Thailand in conjunction with land reform, providing irriga- 1977 at appraisal time, it was expected that tion and drainage access for each plot and crop. during the dry season about half of the Lam Pao Failure of land consolidation programs has been Scheme under the Northeast Irrigation Project II common, and political commitmentæsometimes would be cropped with high-yielding rice supported by external stimuliæhas been impor- varieties, with the rest under peanuts and mung tant in driving land reform. bean. Over twenty years later, the cropping intensity during the dry season averages about DRAINAGE. Improving drainage reduces waterlog- 32 percent. Dry season vegetables are produced ging and salinization, allowing a wider choice mostly near the larger canals. Expansion of of potential crops and encouraging crop diver- diversified irrigated agriculture is constrained by sification. Complementary on-farm drainage the lack of tertiary canal service to individual facilities for fast removal of excess water and fields, the unreliability of canal water, seasonal lowering of the water table may need to be migration of rural labor to urban centers, and installed and integrated with the main drainage poorly organized markets in the area. system. Some farmers provide these facilities with rudimentary but costly systems of dual- In Brazil, the Upper and Middle Sao Francisco purpose field ditches and raised bedsæa tech- Irrigation Project, appraised in 1985, consisted nique widely used in delta areas in Southeast of rehabilitation of seven existing public Asia. These systems, while effective, take up schemes and construction of a new scheme, considerable productive land area. “Formosa.” Irrigation systems were designed to 361 provide high quality of service to each user, SOIL MANAGEMENT. In many cases, conversion of with the possibility of adopting sophisticated lands from rice to non-paddy cultivation can be pressurized farm applications. The expected done only at considerable cost as the high clay content of heavy soils that are excellent for rice Box 8.9 India: Uttar Pradesh sodic lands reclamation project cultivation result in low infiltration rates and poor suitability for other crops, and impose In 1993 an estimated 1.25 million hectares of land in Uttar large power requirements for land preparation. Pradesh was completely barren due to sodification. Another Diversification from rice to other crops there- 1.25 million hectares of low-yielding salt-affected lands covered fore has greatest potential on lighter soils. about 10 percent of the net cultivated area of the state. A Bank-supported project to rehabilitate these lands introduced technology that included drainage, incentives, soil amendments (gypsum), tubewells, and institutional components. Within six BENEFITS months of beginning reclamation activities, productivity and Agricultural diversification creates opportunities income began to increase. Farmers began to diversify by for higher and more stable rural incomes planting high-value crops, both nontraditional (guava, Cape through more efficient use of resources and the gooseberry, sunflower) and traditional (mustard, sugarcane). exploitation of comparative advantage. Diversi- Source: World Bank 2002.

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE Box 8.10 Groundwater and crop diversification: “farmers posing a major threat to health and the environment. A decline in groundwater levels vote by drilling” increases pumping costs, affecting sustainability During the last 20 years, with low development costs, there has of groundwater supplies and the profitability of been great increase in use of groundwater resources for new cropping systems. irrigation. Canal water distribution is often erratic or based on rigid scheduling, and large variations between planned and COMPLEMENTARY INVESTMENTS. Irrigation and drain- actual allocation of water hamper cultivation of non-paddy age investments alone are seldom sufficient to crops. Farmers quickly realize the potential operational increase agricultural diversification. Comple- advantage of groundwater over surface water. Groundwater mentary investments in roads, research and development in Thailand has largely solved water supply extension, markets, and financial services are problems. In a project in Phitsanulok, farmers access to groundwater, provides freedom over crop calendars and choice necessary to increase productivity and to of crops, as they plant at the time best for their own situation maximize the impact of agricultural diversifica- and markets, and can water crops at the frequency and tion on poverty and incomes. duration most suitable to their crop and soil characteristics.

Source: Mainuddin, Loof, and Abernethy 2000. LESSONS LEARNED Agricultural diversification is an evolutionary area of crop diversification was greatly under- process that requires the support of appropriate estimated at 13 percent as the area now de- policies, technologies, infrastructure, and voted to fruit crops (mainly banana and services. Constraints include: limited technolo- mango) averages 61 percent in the rehabilita- gies for alternative crops, irrigation water tion sites and 32 percent in the new scheme. supply and management deficiencies, poorly Improved market access via a new highway to developed agricultural markets, weaknesses in Brasilia greatly enhanced prospects for output research and extension, and unfavorable growth in Formosa, and the project has gener- government policies (Barghouti, Garbus, and ated considerable off-farm employment. Umali 1992). In Japan, South Korea, and Taiwan, the unique role of rice in the agricultural economies of these countries has made it POLICY AND IMPLEMENTATION ISSUES difficult to replace. Social, cultural, and food EQUITY IN DIVERSIFICATION. Diversified crop security considerations have led to heavy production can have major impacts on 362 government protection for rice farmers. employment and stimulate off-farm economic development and these can be important Crop diversification in irrigated rice systems contributors to poverty reduction. However, occurs at a pace determined by markets and opportunities for farmers to diversify are not policies. Private investment generally grows always equal as irrigation and drainage gradually, as farmers gain experience with new infrastructure can be costly, especially some markets and production systems. Market infor- micro-irrigation equipment and infrastructure. mation systems and market access are critical to Wealthier farmers are better able to finance promoting diversified cropping. Diversification such investments, assume risk and access the is most advanced where farmers have easy considerable knowledge and information access to reliable water in river delta areas and services required for successful diversification. alluvial areas, where there has been explosive development of groundwater resources. In GROUNDWATER DEVELOPMENT. Deficiencies in water other surface irrigation systems, diversification delivery from surface irrigation systems have will remain constrained if investments support spurred farmers to tap other sources of water, only urgently-needed rehabilitation, and do not primarily from drains and groundwater (see upgrade irrigation infrastructure to meet the box 8.10). This has sometimes led to requirements of a diversified agriculture. overexploitation of groundwater resources,

AGRICULTURE INVESTMENT SOURCEBOOK RECOMMENDATIONS FOR PRACTITIONERS Box 8.11 Potential investments Diversification in irrigated areas requires improvement of main canals and distribution • Modernization of the water distribution system to provide systems, and construction of a tertiary (on- reliable and flexible delivery. farm) irrigation and drainage system to meet • Tertiary and on-farm development (including irrigation, precise water delivery requirements of diversi- drainage system, and farm roads) serving each farm plot. fied crops. This may need to be complemented • Micro-irrigation. by reorganization of farm boundaries, land • Greenhouses, tunnels, and mulching. consolidation, and improvements to main • Marketing and food processing facilities. • Extension and financial services drainage and flood control systems. Source: Authors.

Improvement of irrigation and drainage facilities is a prerequisite to crop diversification, but Box 8.12 MENA region: diversification should be complemented by other support services. Governments should encourage The agricultural sector in MENA countries has witnessed investment for the modernization of marketing remarkable change and modernization, especially in the facilities and more generally by investing in irrigation subsector, which benefited from a variety of recent improved roads, communication systems, and advances in water management, crop improvement, and storage (see box 8.11). Extension programs marketing and processing. Changes were often led by private with information on irrigation, agronomic sector companies who introduced modern production technology, such as plastic houses, tunnels and mulches, practices and economics help farmers decide improved hybrid varieties, drip irrigation systems, soluble which crops to grow. An assured and stable fertilizers and herbicides, modern market information systems, market, and readily available inputs and credit, and refrigerated transport equipment for long hauls. are also essential to sustain crop diversification, Source: Authors. as demonstrated in the Middle East and North Africa (MENA) (see box 8.12). Water Reports 19. Rome: FAO.* Before initiating a crop diversification program, detailed studies should determine the quality of Plusquellec, H. 1987. “Crop Diversification in irrigation service and its suitability for diversi- Irrigated Agriculture: Water Management fied crops; assess the potential markets; and the Constraints.” In T. J. Davis, and I. A. available level of services and technology. The Schirmer, eds., Sustainability Issues in 363 in-depth diagnosis of the irrigation systems Agriculture Development: Proceedings of the should go beyond an evaluation of the indica- Seventh Agriculture Sector Symposium. tors of hydraulic, financial, agricultural, and Washington, D.C.: World Bank.* environmental performance to cover problems, such as obtaining credit, and access to markets Plusquellec, H. 2002. How Design, Management participation by women and poor people in and Policy Affect the Performance of Irriga- their efforts to diversify. tion Projects: Emerging Modernization Procedures and Design Standards. FAO: Bangkok.* SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appen- REFERENCES CITED dix for a full list of Web sites. Barghouti, S., L. Garbus, and D. Umali, eds. 1992. Trends in Agricultural Diversification: Burt, C. M., and S. W. Styles. 1999. Modern Regional Perspectives. Technical Paper 180. Water Control and Management Practices Washington, D.C.: World Bank. in Irrigation: Impact on Performance. Mainuddin, M., R. Loof and C. L. Abernethy.

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE 2000. “Operational Plans and Performance in the Phitsanulok Irrigation System, Thai- land.” International Journal of Water Resources 16 (3): 321-342.

World Bank. 2002. “Implementing the New Rural Development Strategy in a Country Driven Process: Agriculture and Rural Development Project Profiles.” Presentation at the Country Director/Rural Sector Board Learning Event, September 8-10, sponsored by the World Bank, Antalya, Turkey.

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AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE supply canals and seepage from reservoirs. Low areas within a command area are vulnerable if farmers on higher ground do not practice good INVESTMENTS IN water management. High water tables result WATERLOGGING AND from deep percolation and lateral underground SALINITY CONTROL water flows. Some soils develop high water tables due to low drainage porosity, whereas Salt movement by rising water tables in surface others maintain high water tables because of irrigation, and by pumping brackish water from low water-transmitting properties. Slowly falling groundwater systems, can lead to land saliniza- water tables may affect plant growth even when tion and reduced crop productivity. The pri- levels eventually fall below root zones. mary investments in waterlogging and salinity control involve irrigation and drainage infrastructure, and improved irrigation water man- SALINITY agement to control seepage losses from canals Soil salinization is a concern for irrigation and reservoirs. This is vital where natural systems in arid and some semi-arid climates, leaching of excessive salts from the soil is not and some temperate or tropical areas close to adequate, and where geological conditions lead oceans or saltwater tidal areas. Salts in the to salinity in irrigated areas. Proper manage- temperate and tropical climates are leached ment and provision for subsurface drainage in from soils profiles over time, but in arid and irrigation systems can address salinity prob- semi-arid climates salt builds up due to higher lems, and enhance productivity and evaporation rates. When irrigated areas are sustainability of irrigation systems. developed in arid climates, soils often must be artificially leached before cropping can begin. Waterlogging and salinity problems often In semi-arid climates some natural leaching require some form of drainage to allow sustain- takes place during rainy seasons if adequate able agriculture production. This must be an drainage is provided. integral part of irrigation system investments. However, poor irrigation and agronomic practices have led to salinity, sodicity, and Box 8.13 Egypt: economic impact of drainage waterlogging affecting 40-50 percent of the Egypt’s National Drainage Program (1992-00) Implementation world’s 270 million hectares of land currently 365 under irrigation. Drainage investments are Completion Report rated drainage components highly needed to control waterlogging and salinity on satisfactory and estimated an economic rate of return of 19 percent. Drainage is one of the most important investments for 60-85 million hectares of currently irrigated raising agricultural productivity in a country with limited water lands. This investment can yield significant resources and high population growth. Drainage is estimated to economic benefits (see box 8.13). have increased production in 1998-99 as follows: Seed Cotton ...... 95,000 tons

WATERLOGGING Rice ...... 240,000 tons Waterlogging occurs when soil pores stay filled Wheat ...... 380,000 tons with water, resulting in oxygen deficiency that impairs root growth and its ability to absorb Maize ...... 1,050,000 tons nutrients. Rice plants are an exception, as they The annual contribution of drainage to the Gross Domestic transfer air to roots and are able to grow well Product was estimated at US$0.9 billion or 8 percent of even when roots are submerged for long peri- agricultural value added. ods. Irrigation systems are vulnerable to water- Source: Ali, van Leeuwen, and Koopmans 2001. logging at critical locations such as irrigation

2. See the IAP, “Egypt: Improving Agricultural Production Through Better Drainage”

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE improved surface irrigation systems (such as Box 8.14 India: Sodic Lands Reclamation Project furrow irrigation, border irrigation or basin Sodification of soil left 1.25 million hectares of land completely irrigation) or pressurized systems (such as barren in Uttar Pradesh so the Sodic Lands Reclamation sprinkler, drip and micro irrigation, or precision Project (approved in 1993) helped provide sustainable solutions land leveling). All require credit or financial to the complex problems. Keys to success were farmer assistance, plus extension and training for participation, incentives, and improved technologies. Farmer successful establishment, operation, and main- groups made major decisions and did virtually all the work, and tenance. Improving irrigation efficiency often smallholder receipt of clear titles to land provided incentives to requires that conveyance and distribution systems be make the barren lands productive. Farmers successfully used a package of technology involving a strict process of soil testing, modernized to provide the right amount of water at digging surface drainage, building tubewells, applying gypsum, the time needed by the crop (for example, in China, leaching and flushing with good quality groundwater, good crop the number of irrigations was reduced from five to husbandry, and regular flushing of salts from link drains. three of additional water to crop requirementsæcommonly less than 10-15 percent— Source: World Bank 2002. to leach and this did not significantly affect wheat yields as water was supplied at critical growth times). Irrigation water also contains naturally occurring salts leached from soils of the catchment area or Seepage control is needed, where seepage from the recharge area of an aquifer. Salt accumula- canals and reservoirs causes waterlogging or tion in soil depends on irrigation water quality, salinization. Investments to control seepage irrigation management, and adequacy of drain- generally involve canal lining. Farmers, through age (Hillel 2000). Land salinization initially WUAs, are usually responsible for lining their results in a lowering of crop yields or vegetative own (tertiary) canals, whereas governments are growth followed by appearance of salt patches. generally responsible for the larger canals. It can progress to a barren salty landscape if Many canal lining systems have joints that action (such as drainage) is not taken to leach transmit large quantities of water to the seepage excessive salts from the soil. areas. These rigid canal lining systems may improve hydraulic transport of water in the Sodic soil is closely related to saline soils. supply canal, but do not provide adequate Applying irrigation water to areas with abundant seepage control unless a flexible geo-mem- salts (common in arid and semi-arid areas) and brane is properly installed under the canal 366 more than 15 percent exchangeable sodium lining. Seepage control from dams is also leads to the formation of sodic (or alkaline) important for dam foundation safety, and soils. Low chloride and calcium content in some modern lining techniques use geo-membranes soil and/or irrigation water can cause clay to prevent seepage from small- and medium- particles in the soil to adsorb sodium and size reservoirs. Interceptor drains are used to magnesium salts and swell. The soil then loses collect and route seepage water to supply its structure and permeability, water infiltration canals. is hindered, and plant roots/soil organisms are deprived of oxygen. The solution to sodic soil Drainage investments are critical to remove problems is the use of soil amendments, such as excess water from irrigation systems and to gypsum, leaching, and drainage (see box 8.14). control waterlogging and salinity (see box 8.15). Surface drainage can control runoff from rainfall, but subsurface drainage is critical to INVESTMENT NEEDS prevent root zone waterlogging and saliniza- Irrigation water management is the important tion. When poverty reduction is an important first step in controlling waterlogging and goal, and for larger systems, governments salinity. This involves controlling water to make initial investments with some sort of minimize losses, thus controlling deep percola- cost-sharing/cost recovery arrangement as in tion and runoff. Investments may involve the case of Egypt2 and Pakistan. In commercial

AGRICULTURE INVESTMENT SOURCEBOOK agriculture, drainage investments are often Box 8.15 Egypt:drainage borne by farmers and user associations Adequate drainage has mitigated the effect of the irrigation- Subsurface drainage can be provided by deep induced waterlogging and salinity in Egypt, which has invested open drains, horizontal pipes or tubewells. about US$3 billion (in FY2001 dollars) since the 1970s to Open drains normally must be 1-2 meters deep provide drainage for 2 million hectares. The government and to, and therefore take a significant amount of farmers have shown strong commitment to the program, cropland out of production. Subsurface pipe adopting appropriate technologies, improving irrigation systems, drains minimize loss of land, are readily ac- transferring management to water users associations, and adopting a well-functioning system of cost recovery. Egypt has a cepted by farmers, and although initial invest- cropping intensity of 230 percent, and crop yields for wheat, ment costs are higher, the cost of operation and rice, and cotton are among the highest in the world. Improved maintenance is much less. Tubewells are also drainage accounts for 15-25 percent of crop yield increases. used for drainage, particularly where ground- Reuse of drainage water in irrigation contributes to making water quality is good and water transmission overall water use efficiency in the lower Nile River Basin one of properties of the substrata are adequate. the highest in the world. Tubewell irrigation, however, can draw excess Source: World Bank 2002. salts from below the root zone and create water-quality problems.

Surface drainage through constructed channels Box 8.16 Pakistan: biodrainage in the Punjab or waterways is important to remove excess water in humid areas. Shaping land surfaces is Evaluation of biodrainage project examined an irrigated area of often necessary to provide uniform water 18.2 hectares with 4 hectares of six-year-old eucalypt trees infiltration and to minimize ponding, particu- planted at 1,340 trees/hectare. The surrounding area was larly with surface irrigation. These investments planted to cotton, rice, and sugarcane. The average water table depth under the eucalypts ranged from 1.4 to 2.7 meters, and are often financed by credit to farmers from in the irrigated crop area surrounding the plantation was 1.1 to private sources, but poverty reduction objec- 2.1 meters. Soil salinity remained below critical limits in the tives may justify subsidies, cost sharing, or plantation. Water table drawdown resulted in the groundwater government financing. moving as a front toward the eucalyptus plantation area and improved environmental conditions in the surrounding area.

Biodrainage has not been used extensively in Source: FAO 2002. large-scale projects, although it has promise 367 under the right conditions. Biodrainage re- moves excess groundwater through transpira- crop diversification for higher income and tion by vegetation with high water use, such as lower risk reasons. For the India project even Eucalyptus trees (see box 8.16). This maintains without accounting for incremental revenues groundwater levels below the root zone of from horticulture or benefits from improved crop plants. Other advantages are wind erosion education, health, and family income, the rate control, elimination of drainage water disposal of return was estimated at 28 percent. problems, low investment cost, and ecological benefits. Disadvantages are that biodrainage Social benefits primarily relate to poverty areas use potential cropland, do not remove reduction, though other improvements in rural salts, and may interfere with water use by quality of life can be significant, such as a crops (FAO 2002). reduction of mosquito-breeding areas, improved storm water control, and improved access to fields. BENEFITS Economic benefits from control of waterlogging Environmental benefits can include mainte- and salinity include: improved crop productiv- nance of wetlands, elimination of barren saline ity; greater sustainability; and opportunities for areas, and enhanced habitat and aesthetic

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE values. Care must be taken when installing Environmental implications should be explored drainage facilities to protect existing wetlands through environmental assessments, baseline and mitigate any damage. Disposal of drainage studies, and monitoring of environmental water from saline land can be a problem for changes. Plans for mitigation of environmental downstream users. problems should be developed early in the project design phase. All investments to control waterlogging and salinity should seek to POLICY AND IMPLEMENTATION ISSUES enhance environmental resources and develop Sustainability of irrigation systems in arid and policy packages to protect the environment. semi-arid zones is unlikely if waterlogging and salinity problems are not controlled. Drainage needs must be evaluated when LESSONS LEARNED irrigation projects are initiated. Monitoring and GET TO THE SOURCE. The first priority is to find evaluation of water tables and water quality and eliminate (or reduce) the sources of excess changes in existing systems are critical. Irriga- water, such as seepage from canals and over- tion budgets must have adequate financing irrigation, as this minimizes the drainage needs. for such monitoring, and for correcting problems that are detected. Decisions on when to DISPOSAL OF DRAINAGE WATER. Investments in undertake drainage work require realistic proper disposal or reuse of the drainage water information from baseline studies, projections, is most important to minimize environmental or models, especially for newly irrigated land. concerns with water quality in downstream areas. However, water treatment is expensive Institutional considerations should be addressed and normally not feasible for irrigation systems. as early as possible in planning for waterlogging Systems for reuse of drainage water are some- and salinity control. Water user associations times worth consideration, and might include facilitate participation of stakeholders, which is using drainage water from salt-sensitive crops especially important early in the planning for salt-tolerant crops, and then from these for process. Arrangements for monitoring and more salt-tolerant varieties of trees, and finally evaluation of water tables, water quality, and diverting water to solar evaporators for crystal- soil quality changes are necessary on a continu- lized salt collection. ing basis, as changes in cropping systems, water 368 supply, seasonal water variation, and chemical TUBEWELLS FOR DRAINAGE. Public drainage tubewells use all impact groundwater levels and quality. are impractical when pumped water is too saline for irrigation use, especially if farmers are expected to pay for operation and maintenance. Box 8.17 Potential investments

• Credit and financial services to enable farmers to invest in RECOMMENDATIONS FOR PRACTITIONERS on-farm drainage and water management improvements. • Monitoring and evaluation systems for water tables and Controlling waterlogging and salinity requires water quality. investments involving (see box 8.17): • Surface, subsurface, or biodrainage control measures. • Environmental impact studies of irrigation and drainage • Timely provision of drainage for irrigation investments. schemes based on sound investigation and • Water user association strengthening to allow participation planning during the project design phase. in planning and implementation of drainage and salinity control measures. • Seepage control measures for dams, reservoirs, and canals. • Use of participatory approaches so that inputs from stakeholders are provided Source: Authors. during all phases of implementation.

• Investments to minimize drainage needs,

AGRICULTURE INVESTMENT SOURCEBOOK such as effective canal lining and good on- Learning Event, September 8-10, sponsored farm irrigation water management. by the World Bank, Antalya, Turkey.

• Consideration of environmental impacts to This note was prepared by Walter Ochs with inputs from avoid water quality problems for down- Herve Plusquellec, Safwat Abdel-Dayem, Ariel Dinar, and stream users. other irrigation and drainage specialists in the Irrigation and Drainage Network of the World Bank.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appen- dix for a full list of Web sites.

Christen, E. W., and J. E. Ayars. 2001. “Subsur- face Drainage System Design and Manage- ment in Irrigated Agriculture: Best Manage- ment Practices for Reducing Drainage Volume and Salt Load.” Technical Report 38-01. CSIRO Land and Water, Griffith, NSW, Australia.*

Madramootoo, C. A., W. R. Johnston, and L. S. Willardson. 1997. Management of Agricul- tural Drainage Water Quality. Water Re- ports 13. Rome: FAO.*

REFERENCES CITED Ali, A. M., H. M. van Leeuwen, and R. K. Koopmans. 2001. “Benefits of Draining Agricultural Lands in Egypt. Results of Five Years’ Monitoring Drainage Effects and 369 Impacts.” Water Resources Development 17 (4): 633-646.

Heuperman, A. F., A. S. Kapoor, H. W. Denecke. 2002. Biodrainage: Principles, Experiences and Applications. Knowledge Synthesis Report 6. Rome: FAO.

Hillel, D. 2000. Salinity Management for Sus- tainable Irrigation: Integrating Science, Environment, and Economics. Washington, D.C.: World Bank.

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE AGRICULTURE INVESTMENT NOTE erty reduction, where groundwater levels are close to the surface and soils are productive. Shallow tubewells are already common in INVESTMENTS IN SHALLOW many parts of the world, particularly in Asia TUBEWELLS FOR SMALL- and Africa. SCALE IRRIGATION Shallow tubewell irrigation generally results in Shallow groundwater supplies provide a basis some form of crop diversification for home or for small tubewells for both domestic and local consumption or for export. Niger, for irrigation water needs. Water supplies for example, has developed a good export market garden areas and small fields are pumped using for green beans shipped by air to Europe, with human or animal power, but mechanized much of the production related to shallow pumps are becoming common in all parts of tubewells. Conjunctive use of tubewell water the world. Small engines constitute about two- (mostly shallow) to supplement inadequate thirds of shallow tubewell costs, but these can supplies of surface water or water that is not be used for other purposes such as powering available when needed to optimize crop pro- boats, hand tractors, and other farm machinery. duction, is also common in many countries, Shallow tubewells contribute to diversification particularly in Pakistan and India (see box 8.18). of cropping systems and improve economic and social conditions. However, problems arise if tubewells overexploit the groundwater INVESTMENTS supply or contribute to salinization of ground- Shallow tubewells can be drilled by hand with water. Evaluation of groundwater supply and simple soil auger-type tools, by power rotary quality, regulation of tubewell establishment, drilling, or with a drilling method, called jetting and technical support to farmers, are essential or washboarding. They represent a relatively for sustainable tubewell systems to contribute inexpensive way of supplying water for drink- to poverty reduction. ing and irrigation. In Bangladesh, wells are typically hand drilled even to depths of 60 Tubewells are a cost-effective source of irriga- meters, and cased with galvanized iron or tion water for many small-scale farmers, where plastic pipe that is slotted to allow water to groundwater is available at shallow depths (less enter while keeping the aquifer material out of 370 than 20 meters deep). These can irrigate up to the well. Wells are normally equipped with 5 hectares depending on the soil, crop, and centrifugal surface-mounted pumps with 5 to water conveyance losses. The technology is not 10 horsepower diesel engines. Each well can complicated, and the acceptance by farmers provide enough water to irrigate about 4 or 5 and poor rural communities is rapid. Tubewells hectares. can be one of the better investments for pov- In the semiarid Sahelian Zone of southern Box 8.18 India: groundwater wells Niger area, groundwater depth is 6 to 8 meters About one-half of the total irrigated area in India depends on and annual rainfall of 400-800 millimeters groundwater wells, and about 60 percent of irrigated food provides groundwater replenishment of about production is based on groundwater. In 1994, there were 10.5 500 million cubic meters. Most villages have at million dug wells and 6.7 million shallow tubewells in India. The least one dug well for domestic water supply number of shallow tubewells roughly doubled every 3.7 years and some irrigation. Some tubewells have been between 1951 and 1991. Groundwater irrigation results in at installed with 3 to 5 horsepower portable least a doubling of yield compared to surface-watered crops. However, some states in India are facing severe problems of gasoline-powered pumps, hand-operated declining water level due to overexploitation. pumps, or bucket and rope bailer systems. Irrigated area supplied by these tubewells is Source: Singh and Singh 2002. about 0.3 to 0.5 hectares, depending on the lift

AGRICULTURE INVESTMENT SOURCEBOOK encountered and the water losses during Box 8.19 Nigeria: National Fadama Development Project transport to the field.3 Nigeria’s Fadama project is centered on developing small-scale irrigation through extraction of shallow groundwater with low- BENEFITS cost gasoline-driven pumps for tubewells. About 30,000 Shallow tubewells provide substantial poverty hectares was irrigated using the complete tubewell-pump reduction benefits due to improved water package and with 30,500 pumps distributed to farmers. This supply for domestic use as well as gardens and resulted in a positive impact on farmer income and significant crops. Increased production and family in- poverty reduction. The economic rate of return of the project was estimated to be 40 percent. Additional benefits were comes lead to improved diets and better health. development of a simplified well-drilling technology, training of Engines used to pump tubewells represent farmers to help other farmers construct wells, infrastructure for about two-thirds of the cost of the tubewell. As transportation and storage of products, Fadama User Associa- these are also used to power boats, hand tion establishment, and development of an extensive monitor- tractors, and other farm machinery, they im- ing and evaluation system. Improved welfare of Fadama farmers prove the quality of life in rural communities, can be directly attributed to the project. and are a low-cost way of providing economic Source: World Bank 2002. benefits in poor areas with high groundwater levels (see box 8.19).

Negative environmental impacts of overexploiting the groundwater can be avoided if tubewells are not installed too closely together. Increased production from tubewells also reduces pressure Box 8.20 China: water overexploitation in Ninjin County on more marginal lands and increases land Groundwater is now the major source of irrigation in Ninjin values, thus providing incentives for conservation. County, since there has been a reduction in the quantity of Yellow River water. A rapid increase in irrigated areas has Benefits from tubewells can also impact water resulted in overexploitation of groundwater resources, causing markets. In Pakistan, for example, tubewell serious environmental problems. The density of tubewells has owners are sometimes active water sellers to reached more than one per 5 hectares, and average depth to neighbors. Well productivity, delivery potential, water level in the wells has increased from 3.7 to 7.5 meters over the last 30 years. About one-tenth of the wells go dry and the cost of operation and maintenance during the summer. Farmers have reduced on-farm losses by have a significant impact on the price of water. using plastic tube to carry water to their farms, but they still use 371 an inefficient method of basin irrigation. Application of water is about twice the standard volume for North China, and POLICY AND IMPLEMENTATION ISSUES irrigation accounts for 30 percent of total production costs. SUSTAINABILITY. Tubewell irrigation systems can Overexploitation of groundwater has resulted in a progressive contribute to the sustainability of an agricultural decline in profitability due to an increase in suction lift, and less area, but evaluation of groundwater hydrology (and poorer quality) water. The salt content of groundwater is is important to ensure sustainability of shallow contributing to an increase in soil salinity. Wheat, a major crop, is tubewell projects. Overpumping of groundwa- moderately salt tolerant, but maize (moderately salt sensitive), ter from shallow aquifers by large numbers of the other major crop, can fail if irrigated twice using saline groundwater. The area is thus facing a critical groundwater wells clustered in a small area can have nega- recharge problem, and the present situation is unsustainable. tive impacts on the water supply of neighbor- Reversing this trend will require adopting water-saving tech- ing tubewells. This can also lead to severe nologies, changing cropping patterns, and enforcing laws and consequences such as lower water tables, regulations, or reducing the number of wells. decline in water quality, compaction of soil, Source: Zhen and Routray 2002. and increased soil salinity (see box 8.20).

3. See the IAP, “Niger: Tailoring Irrigation Technology to Users’ Needs”

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE Policies to control density of wells in accor- Surveying, drilling test wells, water sampling, dance with the groundwater recharge potential and water level monitoring are useful to build are critical to sustainability. It is normally the a database and track long-term trends. The responsibility of governments to monitor and rational management of groundwater reevaluate groundwater and develop rules that sources is difficult without a basic under- control wells. standing of the distribution and yields of aquifers, and their vulnerability to pollution WATER QUALITY. Water quality of the groundwater and overdraft. These monitoring activities are is important because deterioration from salt or generally a government responsibility, but mineral build-up can affect its usefulness. local authorities or communities can carry out Government policies should require evaluation some of the work. of groundwater quality and likelihood of changes in quality over time, prior to installation Legislation and regulations are generally needed of wells. In Bangladesh, high arsenic levels in to control groundwater exploitation. However, water have become a major health problem and lack of political will, lack if awareness among are blamed in part on expanded use of shallow some farmers, but also active farmer opposition tubewells. Water quality evaluation is also and lobbying, have been major constraints to important to minimize future maintenance costs implementing this type of legislation in many since poor-quality water can increase encrusta- countries. Important issues to consider for national or regional legislation are: tion and corrosion. In dry climates, tubewells tend to recycle irrigation water, and in more arid • A system of licensing for extracting and climates, salts leached from the crop root zones using groundwater. tend to degrade the water. Thus, in time the water extracted declines in quality and contrib- • Registration of existing groundwater users, utes to soil salinization. This is the case in large and penalties for not complying with portions of the Indus River Basin in Pakistan. provisions of licensing.

• Arrangements to protect rights of shallow LESSONS LEARNED tubewell users from more influential farm- Public-private division of responsibility is ers who are able to drill and power deep important in formulating policy for shallow wells that lower the water table, and de- 372 tubewell development. Tubewell investments prive access to water from shallow are typically private goods that should be the tubewells. responsibility of those who will benefit from the investment. The public sector role should Training and extension are critical to facilitate generally be limited to establishment of a good installation, operation, and maintenance conducive policy and institutional environment of tubewells and for the development of local for investment. Direct subsidies for tubewell capacity for maintaining and repairing wells drilling and operation are best avoided unless and pumping equipment. To optimize the there is a compelling poverty reduction argu- benefits of tubewell investments, extension and ment for the subsidies. One-off matching grants training will be needed for irrigation water may be applicable in situations of high poverty management, improved agricultural technology, and poorly functioning financial markets. and marketing systems. Water user associations are appropriate for shallow tubewell schemes since they can help RECOMMENDATIONS FOR PRACTITIONERS control overexploitation and provide an oppor- Successful shallow tubewell systems require tunity for joint maintenance of wells and government promotion and regulation to pumping equipment. ensure that tubewell investments are legally

AGRICULTURE INVESTMENT SOURCEBOOK protected from overexploitation by excessive Box 8.21 Potential investments drilling or by other users of the same aquifer (see box 8.21). Experience with shallow • Evaluate groundwater resources and quality. tubewell projects emphasizes the need for • Reform policy and regulations to govern shallow tubewell investments to: development and operation. • Strengthen water user organizations to manage shallow • Evaluate the groundwater hydrology and tubewell systems. • Develop systems for monitoring water table depth and management to be certain that the ground- groundwater quality. water recharge potential is in balance with • Provide financial services to enable producers to finance: anticipated water usage. • Drilling tubewells by hand, power rotary drilling, or jetting. • Pump set with engine, hand pump or bailer system. • Monitor groundwater quality to ensure • Small canals or pipe to distribute water to fields. suitablity for irrigation, and make realistic • Micro-irrigation such as drip, mini-sprinkler, if justified by crop value. projections on the water quality change • Provide training and extension to help farmers install, with time. operate, and maintain shallow tubewell systems. • Provide guidance in irrigation water management, • Establish monitoring systems and laws and agronomy, and marketing through extension and training. regulations to ensure sustainable develop- Source: Authors. ment and operation of tubewell irrigation systems. Zhen, L., and J. K. Routray. 2002. “Groundwater Resource Use Practices and Implications for • Ensure provision of technical assistance, Sustainable Agricultural Development in the training, and extension services to help North China Plain: A Case Study in Ningjin farmers properly install, operate, and County of Shandong Province, PR China.” maintain the systems to optimize agronomic International Journal of Water Resources benefits. Marketing of products that are Development 18 (4): 581-593. new or more abundant in the area may also require advisory services. World Bank. 2002. “Implementing the New Rural Development Strategy in a Country Driven Process: Agriculture and Rural SELECTED READINGS Development Project Profiles.” Presentation 373 Asterisk (*) at the end of a reference indicates at the Country Director/Rural Sector Board that it is available on the Web. See the Appen- Learning Event, September 8-10, sponsored dix for a full list of Web sites. by the World Bank, Antalya, Turkey.

Kahnert, F., and G. Levine, eds. 1993. Ground- This note was prepared by Walter Ochs with inputs from water Irrigation and the Rural Poor: Op- Herve Plusquellec, Safwat Abdel-Dayem, Ariel Dinar, and tions for Development in the Gangetic other irrigation and drainage specialists in the Irrigation and Basin. Washington, D.C.: World Bank. Drainage Network of the World Bank. Peer review comments were provided by Ohn Myint and Ijsbrand de Jong. Koegel, R. G. 1985. Self-Help Wells. FAO Irriga- tion and Drainage Paper 30. Rome: FAO.*

REFERENCES CITED Singh, D. K., and A. K. Singh. 2002. “Groundwa- ter Situation in India: Problems and Perspec- tives.” International Journal of Water Re- sources Development 18 (4): 563-580.

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE INNOVATIVE ACTIVITY PROFILE Basin Water Resources Commission (TBWRC), with overall responsibility for water resources management in the basin. TBWRC has set CHINA: CONSUMPTIVE USE IN quotas for water use in the tributary sub-basins, WATER RESOURCE and has implemented a system to monitor and MANAGEMENT FOR enforce the quotas. In addition, physical and PRODUCTIVITY, EQUITY, AND management measures on the main Tarim River THE ECOLOGY will deliver more water downstream.

Historical irrigation development in the south- The project is based on the concept of Benefi- ern part of the Xinjiang Uygur Autonomous cial Consumptive Use which uses the knowl- Region in northwestern China has resulted in a edge of the hydrological process and a basin- severe reduction in downstream flows and in wide approach to optimize the availability and negative environmental impacts. The Tarim use of water to meet the objectives of increased Basin is a desert climate (50 millimeters annual production and productivity, equitable access rainfall), and the water source is principally across the basin, and long-term preservation of high mountain snow and glacier melt into the hydrological and ecological balance. tributaries of the Tarim River, as well as some groundwater that is recharged, mainly from Water consumption in the upstream sub-basins irrigation. is presently at the limit allowed by the quotas established and enforced by TBWRC, so no What’s innovative? Using the concept of beneficial additional water is available, that is the total consumption of water in a comprehensive basin- evapotranspiration (ET) in the sub-basins is wide assessment and strategy that improves the fixed at present levels. ET was divided into ecological balance and resource use equity, without three components for project planning and compromising productivity. management purposes: (i) consumptive use (CU) related to human activity (mostly in In the past, irrigation development in the Tarim irrigated agriculture); (ii) beneficial ET (BET) Basin involved continual expansion of irrigated from trees and green areas along rivers and in area without consideration of the ecological and around oases; and (iii) nonbeneficial ET balance or of other users (such as downstream) (NBET) mostly in low-lying areas with high 374 affected by reduced water supply. Attempts to water tables (including areas of salinization) restrict water usage were perceived by farmers and evaporation from nonecologically benefi- and irrigation technicians as a regulatory cial water surfaces. In the sub-basins, water measure that would result in decreased produc- consumption is about equally divided between tivity and production potential. CU, BET, and NBET and there is considerable opportunity for improvements in water resources management and development. The PROJECT OBJECTIVES AND DESCRIPTION improvements need to concentrate on preserv- The Tarim Basin II Project was designed to ing BET, reducing NBET, and maximizing the implement a system of sustainable water production and particularly the value of pro- resources development and management. The duction per unit of CU. project has the potentially conflicting objectives of increasing downstream flows to preserve the The Project includes various components fo- environment of the lower reaches of the Tarim cused on productivity increase as well as resto- River, while increasing upstream farmers’ ration of the Tarim River Ecosystem such as: incomes that are dependent upon irrigated agriculture. The project has supported the • Canal linings to reduce seepage in areas establishment and strengthening of the Tarim where most of the seepage goes to NBET.

AGRICULTURE INVESTMENT SOURCEBOOK • Conjunctive use of surface and groundwa- LESSONS LEARNED AND ISSUES FOR WIDER ter to allow groundwater to be used during APPLICABILITY low river flow months in the spring. This The Tarim Basin II Project has shown that, with reduces the need for high-evaporation a solid mix of institutional and technical mea- surface reservoirs, and lowers the water sures and with strong political will, it is pos- table in field areas to reduce capillary flux sible to meet the objectives of making more and NBET from ground surfaces. regular water deliveries downstream, while increasing incomes in upstream sub-basins • Land improvement that involves land through well-planned interventions. With leveling to reduce water requirements, and comprehensive ecological knowledge it may be drainage systems to lower water tables possible to find symbiotic strategies that serve thereby reducing NBET and increasing several objectives, such as improved productiv- yields. ity, improved ecology, and equity of resource access. • Establishment and strengthening of WUAs that receive and pay for water by volume, and thereby conserve water that previously PROJECT COUNTRY: CHINA was excessively applied and contributed to Project Name Tarim Basin II Project high water tables and NBET. Project ID P046563 • Agricultural practices, such as growing Project Cost US$272.6 million higher value crops with the adjustments in Dates FY1999 – FY 2005 cropping pattern, improved cultivation techniques, and seed improvements. Contact Point Douglas Olson The World Bank, 1818 H Street NW, Washington, D.C. 20433 Telephone: (202) 473-9227 BENEFITS AND IMPACTS Email: [email protected] Under the project, more than 300 million cubic meters of water have been delivered to a 300- kilometer stretch of the lower Tarim River known as the “Green Corridor,” where no river waters had flowed for 30 years prior to 2001. 375 The TBWRC now has a firm commitment to deliver 300 million cubic meters annually to this area. Strong institutional mechanisms, and the combination of establishing and enforcing quotas for the sub-basins and a commitment to deliver water annually to the lower reaches of the Tarim River, provide a solid foundation for sustainable water resources management and future development in the Tarim Basin. The new basin-wide and holistic approach of the project has resulted in a major shift in mentality of farmers and irrigation institutions — people are beginning to see that an ecology and equity-based water use approach that decrees limits on use through quotas does not have to compromise production and incomes.

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE INNOVATIVE ACTIVITY PROFILE In Phase I of the program, 302,400 hectares of irrigated farmland were targeted for drainage improved technical design and system manage- EGYPT: IMPROVING ment. A second phase, yet to begin, will target AGRICULTURAL another 336,000 hectares of land, and will PRODUCTION THROUGH involve technical training and institutional BETTER DRAINAGE reforms. Project activities include:

Approximately 97 percent of Egypt’s popula- • Subsurface drainage – development, re- tion live and work on only 4 percent of the newal, and rehabilitation. land, under conditions of extremely low rainfall. An estimated 3.5 million farmers cultivate • Open drain rehabilitation. average holdings of 0.85 hectare, making agriculture the largest employment sector. • Institutional support to EPADP and for the Farming is made difficult by an irregular and development of an Environment Manage- insufficient supply of irrigation water, and a rise ment Plan. The project also has provision in the water table following completion of the for social and participatory activities in two Aswan High Dam in 1970. This increased the project areas. irrigation potential of the area but also caused waterlogging and increased salt content of During National Drainage Program I, EPADP irrigation water. Given the extremely limited organized farmers into drainage associations water and arable land resources of the country, (Collector User Associations, CUAs) to facilitate efficiency of resource utilization is critical for interface with the end-users. By 1999, 2,269 agricultural productivity. CUAs were formed. NDP II will continue the development of CUAs. Additionally the project What’s innovative? Improving agricultural drainage, will develop two pilot schemes to explore the an often neglected technical solution, may some- potential of integrating irrigation associations times be as critical for productivity enhancement, (Water User Associations, WUAs) with CUAs. as irrigation. While the immediate need is for drainage system improvement, the projects are also 376 PROJECT OBJECTIVES AND DESCRIPTION focusing on creating institutional and commu- Through a series of projects—called the Na- nity mechanisms for the long-term develop- tional Drainage Program—the World Bank and ment and maintenance of the systems, and the partners, such as the German Development systems for cost recovery. Beneficiaries pay for Bank and the Netherlands Government, are drainage investments over a 20-year period working with the Government of Egypt to with no interest charged, effectively amounting introduce gradual reforms to introduce tech- to about 45 percent of the cost in real terms. nologies and improve the management of irrigation and drainage systems. Goals are to enhance agricultural productivity and the BENEFITS AND IMPACTS incomes of smallholder farmers by improving All major objectives of the first phase of the drainage conditions, reclaim land lost to water- project have been achieved. Over 248,000 logging and salinity, and improve the institu- hectares have been provided with new subsur- tional capacity of the Egyptian Public Authority face drainage. Including renewal areas, subsur- for Drainage Projects (EPADP). A second face drains have been installed on more than objective is to redress the negative environmen- 311,000 hectares. On this area, yields of major tal effects of the discharge of untreated indus- crops increased by up to 20 percent. Estimates trial and domestic waste into open drains. show that improved drainage accounts for 15

AGRICULTURE INVESTMENT SOURCEBOOK to 25 percent of this yield increase. Many new irrigation investments to equally important farmers switched to higher-value crops as a drainage issues and investments. result of this project, particularly in the Nile Valley and the Delta region. Reuse of drainage water in irrigation, guided by appropriate PROJECT COUNTRY: EGYPT criteria and guidelines, has resulted in one of Project Name National Drainage Project I and II the highest water use efficiencies in the world. (NDP I and II) The second phase will benefit about 400,000 Project ID NDP I: P005146, and farm households. NDP II: P0 45499

Different Egyptian public sector agencies have Project Costs NDP I: US$160 million, and improved their management capacity, such as NDP II (orig.): US$278.4 million EPADP which monitors and evaluates both the Dates NDP I: FY 1993 – FY 2001, and technical aspects of drainage (for example NDP II: FY 2001 – FY 2007 measurement and analysis of hydraulic conduc- Contact Point Tijan M. Sallah tivity, salinity, and crop yields), and important Telephone: (202) 473-2977 social and institutional issues. Cost recovery for Email:[email protected] drainage investments and maintenance has and Adel F. Bichara improved, as is reflected in a 25-year time Telephone: (202) 473-4189 frame for full recovery of capital costs, shared Email: [email protected] between government (50-55 percent) and The World Bank, 1818 H Street NW, Washington D.C. 20433 beneficiaries (40-45 percent).

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • Flexibility in implementation is key to guaranteeing success in this type of project.

• Although EPADP has improved its institutional capacity, further institutional building is needed, especially support to computer- 377 ize various aspects of its daily activities.

• Compensation for crops damaged during subsurface drainage installation should be incorporated into the drainage installation contract, to be paid directly to farmers by contractors. This will circumvent the delays farmers experience in getting compensation when a government agency manages the compensation.

Drainage has often been a neglected component of irrigation system development, but can have a substantial effect on crop yields and system sustainability. Institutional innovations, training, and capacity building may be needed to reorient irrigation agencies and farmers from

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE INNOVATIVE ACTIVITY PROFILE coordination and rationalization of the public sector agencies, increased involvement of users and the private sector in design and manage- INDIA: RATIONALIZED PUBLIC, ment of systems, and increased cost recovery PRIVATE, AND FARMER ROLES from users. To achieve these objectives the IN GROUNDWATER project finances the following: MANAGEMENT • Water sector institutional restructuring and Rajasthan, the largest state of India (supporting capacity building through (i) creation of a about 50 million people) is a desert state with state water planning department, (ii) mod- 10 percent of the national area and only one ernization of the water sector department, percent of the country’s water resources. The and (iii) piloting a community-driven present major user of water is agriculture (83 institution for groundwater management. percent of consumptive use), but projections to 2025 indicate a rapidly increasing demand for • Improving irrigation system performance nonirrigation use. Water scarcity and a deterio- through (i) the formation and fostering of ration in water quality restrict the availability of 620 WUAs, (ii) rehabilitation of irrigation water for domestic uses and irrigation supply. schemes, (iii) strengthening of agricultural extension, and (iv) enhancing safety of 16 What’s innovative? A participatory approach to sus- dams supplying the project area. tainable groundwater management and surface irrigation system/services management, with a ratio- • Capacity building for a project management nalized and improved public sector, and increased unit to ensure the effective implementation role for farmers and the private sector. and coordination of activities involving several government departments. The critical challenge is ensuring Rajasthan’s long-term, sustainable use of increasingly The WUAs, over time and in close coordination scarce water resources, and improving the with the Irrigation Department, are expected to water use efficiency for agriculture. Water take over the operation and management of resources management is affected by weak surface irrigation systems up to the distribution capacity and uncoordinated effort among level. The Government of Rajasthan has com- 378 current water sector departments, a weak mitted to moving toward full cost recovery of regulatory framework, poor management O&M costs. The rehabilitation of irrigation practices and unsustainable use in some areas, schemes (about 90 major, medium, and minor and high recurrent cost of delivery. Problems schemes) also involves participation of WUAs, are inherent in past approaches based entirely which contribute 15 percent of the rehabilita- on public sector resource management, with a tion costs. lack of beneficiary participation in scheme management and financing. The project would support at least three pilot schemes for a community-driven approach to groundwater management. This would involve PROJECT OBJECTIVES AND DESCRIPTION the establishment of groundwater conservation The Rajasthan Water Sector Restructuring districts (GCDs) covering identified aquifer Project (RWSRP) aims to improve the efficiency areas with water depletion and quality prob- of agricultural water use by increasing the lems. The GCDs would include an elected productivity of irrigated agriculture through body of stakeholder representatives (rural and improved performance of surface irrigation urban communities, farmers, industry, state systems and strengthened agricultural support agencies, and local government) empowered to services. The project aims at increasing system develop and implement groundwater manage- efficiency through downsizing, and improved ment plans, involving both supply- and de-

AGRICULTURE INVESTMENT SOURCEBOOK mand-side approaches for groundwater man- implement rehabilitation, if they are em- agement. The plans would be prepared at the powered early in the process. village level by the Groundwater Management Associations, and integrated at the community • Agricultural demonstration programs for level by the Gram Panchayat Level Committees, application technology should focus on a with assistance from NGOs and technical few high-quality demonstrations that can be support groups. replicated with good results.

The project includes a pilot scheme on “com- • Minimizing the turnover of senior staff will mercialization of irrigation services” in a improve the effectiveness and timeliness of distributory command, which would develop a the implementation of project activities. farmer owned and managed utility for the management of a larger command area on a • Funding from increased water charges can commercial basis. The core function of this make funds available for operation and entity is to provide water to farmers and other maintenance, improving the state’s overall users, and to manage and maintain the water recurrent budget situation. supply assets, including irrigation and drainage facilities. The farmer company would develop • Hybrid policy and multisectoral, statewide into an autonomous entity that would operate investment projects are complex. Investments on commercial lines and have a bulk water are better concentrated on a few critical entitlement from the Irrigation Department. issues. This lesson is reflected in the design of this project with its limited project period objectives, but set in a longer-term context. BENEFITS AND IMPACTS The project is in the early stages of implementation, but is expected to benefit about 250,000 PROJECT COUNTRY: INDIA farm families. The annual value of additional Project Name Rajasthan Water Sector agricultural production resulting from the Restructuring Project improved delivery of irrigation water and Project ID P040610 agricultural support services under the project could reach Rs 2.1 billion (US$45 million) by Project Cost US$180.2 million the end of the project. The project would Dates FY2002 — FY 2008 379 stimulate additional demand for labor, estimated at about 29,000 jobs per year, (mainly of Contact Point R.S. Pathak hired labor) and provide employment opportu- The World Bank, 70 Lodi Estate New Delhi 110 003, India nities for the landless. Construction of civil Email: [email protected] works would generate an additional temporary 5-year increase in labor demand in the project area. Other benefits include reduced pollution, fewer water-related diseases, and improved public health.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • A strong government commitment to fiscal and institutional reform at the highest level, and a sound legal framework, is critical to the successful formation and operation of WUAs. WUAs can effectively and efficiently

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE INNOVATIVE ACTIVITY PROFILE to activities directly related to the management of the land and water resources, with most commercial activities being progressively trans- MALI: INSTITUTIONAL REFORM ferred to farmers or other economic agents. TO FOCUS PUBLIC ROLE ON ESSENTIAL PUBLIC GOODS The project financed the following:

A 1998 survey estimated 72 percent of Mali’s • Sectoral policy reforms: (i) progressive people live below the poverty line, with pov- divesting of ON’s commercial activities, (ii) erty widespread in rural areas. Mali has areas liberalizing rice prices and marketing, and with good agricultural potential. In the short (iii) establishing land tenure security for ON and medium term, poverty reduction in Mali is farmers. dependent on accelerated growth in the agricultural sector. • Institutional reforms: (i) streamlining ON’s relationship with the government through What’s innovative? Redefining responsibilities and performance contracts, (ii) reorganizing and core activities of a public sector organization to cre- capacity building of ON, and (iii) restructur- ate a clear and viable focus on essential public goods. ing ON’s finances to eliminate its chronic deficit. Increased irrigation was expected to be one effective means to enhance productivity. How- ever, without effective policy reform, major • Irrigation infrastructure and agricultural investments in the irrigation sector cannot be services in five areas: (i) rehabilitation and expected to result in significant benefits. This modernization of the irrigation network and required i) reorganization of the management of perimeters, (ii) a pilot scheme to test the the major public regional development agency farmers’ capacity to participate in irrigation specializing in irrigation—Office du Niger’s rehabilitation and development, (iii) ap- (ON), ii) the establishment of secure land plied research on agricultural services, (iv) tenure for farmers, and iii) the liberalization of improved resource management, and (v) pricing and marketing policies for paddy and agricultural training and extension to rice. ON’s mandate included the construction, promote improved production practices 380 operation, and maintenance of irrigation facili- and crop diversification. ties; extension and applied research; and commercial activities, such as procurement and Market activity of ON was progressively di- distribution, agricultural credit, paddy and rice vested to market agents, and the credit function marketing and processing. Redefinition of ON’s to the National Agricultural Credit Bank. Rela- activities was achieved over time and com- tions between ON and the government was pleted with this project. streamlined to ensure the autonomy of ON and to establish a contractual agreement between the two. ON was internally reorganized, its PROJECT OBJECTIVES AND DESCRIPTION financing restructured, and investment made in The ON’s Consolidation Project sought to reduce capacity building. Village Associations (active in poverty, increase agricultural production, and other parts of Mali) were promoted to partner reduce government subsidies for agriculture by with ON, and take on some of its agricultural providing strong incentives to farmers to in- support functions over the longer term. crease production, improve the efficiency of irrigation management, and create mechanisms for sustainable irrigation development. ON’s mandate has been redefined, and is now limited

AGRICULTURE INVESTMENT SOURCEBOOK BENEFITS AND IMPACTS absence of official land titles. Land tenure Significant gains made in the productivity and security is one of the necessary conditions output of Mali’s agricultural sector included: for private sector investment in irrigated farming. • Increases in agricultural output, including nearly tripling total rice production and • The mechanism for setting water fees substantially improving vegetable produc- should be an independent and transparent tion, resulting in an annual increase in real negotiated process based on clear needs, per capita income of US$70. and free from government interference.

• Liberalization of the rice trade and reduc- Under some conditions, reorienting institutional tion in government expenditures on subsi- objectives for a specific administrative agency dies to the rice sector. may be key to broad success. This is particularly true where the agency has a portfolio of • Successful restructuring of ON, including a responsibilities that are not closely related, and shift of some of its functions to other for which adequate staff expertise is not avail- agencies and restoration of its financial able and where public sector institutions health. undertake commercial activities.

• Rehabilitation and modernization of 57 Divesting authority within a state structure is kilometers of canals and main drains. never a simple or easy process. Sometimes, however, this is necessary to enable an agency • Improved water fee collection rates from 60 to better serve its clients. As shown in Mali, to 97 percent, with fees now being retained the institutional realignment must also be in the areas where they are collected. accompanied by changes in attitude and behavior of employees. • Improved land tenure and increased incentive for farmers to invest in productivity PROJECT COUNTRY: MALI improvement. Project Name Office du Niger Consolidation Project ID P001718 LESSONS LEARNED AND ISSUES FOR WIDER 381 APPLICABILITY Project Cost US$83.6 million • Sectoral reforms should be accompanied by Dates FY1989 — FY 1999 adequate complementary sectoral investments to have a major impact. Contact Point Eustacius N.Betubiza The World Bank, 1818 H Street N.W. Washington, D.C. 20433 • Difficult institutional reforms, particularly Telephone: (202) 458-5618 those that go beyond a single ministry, Email: [email protected] should be headed by an independent agency outside the concerned ministries/ agencies.

• Greater farmer empowerment and involvement is one good way to ensure sustainability of irrigation investments.

• Greater transparency in land management increases farmers’ land security even in the

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE INNOVATIVE ACTIVITY PROFILE assisting Niger in testing and evaluating the following: capacity building of the private sector, improved low-cost technologies for NIGER: TAILORING IRRIGATION small-scale irrigation, improving grassroots TECHNOLOGY TO USERS’ saving, and erosion control works and monitor- NEEDS ing of replenishable shallow aquifers. The project focused primarily on the poorest farm- Three-quarters of Niger’s 1.3 million square ers, and on selected private commercial irriga- kilometers is desert, leaving 3.8 million hectares tors. Farmers interested in adopting technologies cultivable, most of which is in the south. Even in were asked to form economic interest groups. cultivable areas, variable and declining rainfall, and frequent drought cycles, make rainfed agricul- The private irrigation association, Nigerien ture a risky enterprise. Niger has the potential to Association for Promotion of Private Irrigation irrigate 270,000 hectares, using ground and (Association Nigérienne de Promotion de seasonal surface water sources, but only 22 l’Irrigation Privée, ANPIP), was the implement- percent of this potential area is actually irrigated. ing agency for the project. One distinguishing features of the project is the private legal status What’s innovative? Focus on privately owned, inex- of ANPIP, free from political and bureaucratic pensive, and simple pumping technologies, which are interference, with adequate legal and adminis- promoted through a nongovernmental project trative flexibility. Promotion of small-scale implementation unit. irrigation technologies was undertaken through information and assistance to farmers to access Large-scale, publicly funded irrigation schemes the technical and financial resources required have the potential for positive returns based on to adopt the technologies. existing technical capacity. Such schemes, supported in the past, were extremely costly, plagued ANPIP (i) carried out promotional campaigns in by weak institutional support, and lacked cost- support of the government’s private irrigation recovery measures to finance operations and development strategy; (ii) facilitated small maintenance. The government also supported farmers’ access to legal and administrative small- to medium-scale irrigation cooperatives on assistance for obtaining tenurial security; and the perimeter of these large-scale projects. The (iii) provided assistance, upon demand, in 382 National Office of Hydro-Agricultural Perimeters preparation of irrigation projects and in estab- was to provide technical extension support to lishing economic interest groups. Tasks con- these schemes, but with no budget nor incentives tracted out to consulting firms included: (i) for efficient service provision, its technical sup- testing and evaluating technologies; (ii) pro- port has been quite weak. State-controlled coop- moting grassroots savings and credit schemes eratives have neither been able to fully control (by an NGO); and (iii) project related evalua- nor to profit from their enterprises in a sustain- tion studies and periodic audits. able manner, due to state intervention and political interference in cooperative affairs. BENEFITS AND IMPACTS The project has strongly supported the national PROJECT OBJECTIVES AND DESCRIPTION agricultural strategy to increase productivity. The factors limiting farmers’ use of irrigation Significant gains made in Niger’s irrigation technologies included lack of knowledge of sector included: technologies, lack of availability of tested technologies and maintenance services, and • ANPIP grew gradually from a small group lack of finance. The Pilot Private Irrigation of ten people to 19 decentralized commit- Project aimed to address these issues through tees constituting 13,500 farmers.

AGRICULTURE INVESTMENT SOURCEBOOK • An information campaign about the new of technology and investment appropriate national irrigation policy (through printed to their farming conditions. booklets, a prospectus, and radio and TV commercials) reached 2,000 representatives • Making available simple, locally made and of farmers, and administration and tradi- affordable technologies, and training local tional authorities. Following this, over 1,500 craftspeople to manufacture and repair economic interest groups were established treadle pumps, kept the supply chain with membership of over 15,000 farmers. between farmer and manufacturer as short as possible, ensuring that pump parts and • The training component included 382 repair expertise would be locally available. training sessions covering 4,150 partici- Adaptations to irrigation technologies pants, and was complemented by radio, TV, reduced their prices. newspaper, printed handbook, and demonstrations in the local market. • Linking these basic technical changes with other changes, such as a sound irrigation • The project introduced the treadle pump policy, available credit, land tenure security and promoted the tubular borehole, sub- procedures, and effective monitoring of merged pumps, motor pumps, and irriga- project success, facilitated adoption and tion via buried pipes as components of contributed to the program’s success. comprehensive on-farm water systems. Farmers pay full cost for the technologies. PROJECT COUNTRY: NIGER • Cultivated area increased by about 63 Project Name Pilot Private Irrigation Project; percent and there was an increase in Niger Private Irrigation Promotion yield of the major crops of between 27 Project and 32 percent (onion and sweet pepper Project ID Pilot Private Irrigation: P001994 respectively). Private Irrigation Promotion: P072996

LESSONS LEARNED AND ISSUES FOR WIDER Project Cost Pilot Private Irrigation: APPLICABILITY US$7.5 million • The shift of project administration from Private Irrigation 383 government to a private agency (ANPIP) Promotion: US$48.4 million enabled a private sector management style, and the legal and administrative flexibility Dates Pilot Private Irrigation: FY 1997 — FY 2002 to execute the project. Private Irrigation • Promotion of private ownership of treadle Promotion: FY 2002 — FY 2008 pumps and improved irrigation technolo- Contact Point Daniel M. Sellen gies, with incentives for good operation The World Bank, 1818 H Street and maintenance were undertaken In NW, Washington D.C. 20433 relying on genuine demand in deciding the Telephone: (202) 473-2174 location of local pump manufacture, the Email: [email protected] project increased the chances that the nascent treadle pump market would be sustained in the long run.

• Giving farmers a menu of technology options, allowed them to choose the level

MODULE 8: INVESTMENTS IN IRRIGATION AND DRAINAGE

INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS

385

and is the main asset of agricultural households in developing countries and is a key determinant of household welfare. Most land is used for agricultural production, which provides the basis for L economic sustenance. Access to land plays an important role in improving agricultural productivity, achieving sustainable poverty reduction, and creating broader economic development. This overview provides a rationale for investments in land administration and reform, reviews past World Bank lending experiences, and provides guidance on new investment directions for land-related projects.

RATIONALE FOR INVESTMENT The Bank’s 1975 Land Reform Policy Paper highlighted the importance of land access and sound land policy for poverty reduction and economic growth. However, prior to the 1990s, the Bank’s recognition of this importance was not always matched by a strong portfolio of land-related investments, and land- related operations have often been complex, underfunded, lacking in political commitment, and limited in terms of stakeholder consultation and social assessment. The World Bank’s current rural strategy, Box 9.1 Impact of secure land tenure on poverty reduction members to temporarily move off-farm to improve their earning capacity. Insecurity of Smallholder tenure security can play an important role in tenure has negative impacts on governance and increasing productivity and reducing poverty. More secure land economic outcomes by increasing conflicts and tenure based on formal land titles and record systems can reducing investment in agricultural production enhance farm productivity and income by providing incentives and agribusiness development. Well-defined to smallholders to make productivity-enhancing investments (a property rights reduce the need by landholders security effect), facilitate access to credit and other service and to expend scarce resources to maintain or inputs (a collateral effect), and facilitate land transfers and defend their claims. Land reform involving the efficiency of use (a transaction effect). A detailed study before and after land titling in Honduras estimated that the combina- redistribution of land can be a means to correct tion of these effects on productivity provided an annual rate of historical injustices resulting from control of return of 17 percent. land, as well as an effective way of reducing poverty (see box 9.2). Source: López 1997. The public good elements associated with providing the technical infrastructure typically Box 9.2 Land tenure, land distribution, and poverty required for securing property rights, and the potential network effects associated with this, Redistributing land can be a powerful mechanism to benefit provide a strong rationale for government poor people. Typically, landless rural people have a higher involvement in establishing the infrastructure incidence of poverty (see figure 9.1). More equitable land distribution is associated with lower poverty rates and more and mechanisms needed to record, administer, rapid agricultural growth, due in part to higher productivity and and enforce land rights and by these actions greater use of labor on small farms. Secure tenure status raises strengthen the rule of law. productivity and access to land broadens employment options and provides incentives for families to employ their labor and Tenure security in the form of well-defined, management skills in productive, income-generating activities. secure, and transferable land rights is a key Importantly, land ownership (or secure tenure) confers social precondition for land markets. Well-functioning status in most cultures and improves opportunities to build land markets are important in that they transfer social and human capital. land to its best use and improve overall production efficiency and provide the basis for operation of financial markets in which land Reaching the Rural Poor, reflects a renewed 386 can be used as collateral. Although land sales interest in, and recognition of, the broader markets provide incentives for long-term relevance of land issues for sustainable and investment and structural change, they may be equitable development. The Strategy acknowl- less accessible to poor populations. Land rental edges that efficient allocation and optimal use markets may provide access to land at lower of land is an essential precursor for broader cost and facilitate family response to outside economic growth and poverty reduction. Ac- shocks and off-farm employment opportunities. cordingly, the Bank is working to increase land tenure security, to facilitate the development During the 1990s, the Bank accumulated broad and effective operation of land markets and to expertise in land-related issues, policy dia- improve land access by promoting land reform logue, and investments. The main focus of the in countries with inequitable land distribution. Bank’s land-related investments has been formalizing land rights through registration, and Greater security of tenure for small holders is improving access to credit. Projects include associated with increased productivity and facilitating free, public sector-managed registra- reduced poverty (see box 9.1). Secure property tion in Central and Eastern Europe, and the rights encourage landholders to manage re- improvement of land administration systems in sources sustainably, increase the value of Latin America and East Asia. The Bank has also household endowments, and allow household supported transformation of the farming sector

AGRICULTURE INVESTMENT SOURCEBOOK FIGURE 9.1 BANGLADESH: POVERTY PROFILE Box 9.3 The World Bank land thematic team BY LANDHOLDING CLASS The Bank’s thematic team on land policy and administration Headcount works on issues related to land rights such as the control of index of and access to land, and the use of associated natural resources poverty to promote sustainable development. The Team’s work also (percent) encompasses efforts to provide policy advice, technical 70 assistance, and guidance on the content of land policy reform programs.

Source: World Bank, Land Policy and Administration. 60

50 creation of property rights and mechanisms for titling, registration, transfer, dispute resolution, and revenue collection. Projects have also 40 supported the development of infrastructure required to facilitate land market transactions, 30 such as standards, processes, information systems, and mapping technologies (see box 9.3). 20 LEGAL FRAMEWORK. In a land reform project, if a pilot approach is to be used, then refinement 10 of the legal framework may be necessary. Uganda, Sri Lanka, and Colombia had well- developed legal frameworks which were 0 Landless 0.2–0.6 0.6–1.0 difficult or impractical to implement. Their land hectares hectares reform experience suggests the importance of starting with a pilot program in high-priority Landholding size areas and linking legal drafting to implementation, adjusting the drafting to take into account Source: IFAD 2001. feedback from the implementation process. 387 EFFICIENT AND EQUITABLE LAND ADMINISTRATION. Improved management of land can benefit in transition economies, and promoted commu- from the use of new information and communi- nity-managed land reform programs in Brazil, cation technologies. Much of Thailand’s success Colombia, and South Africa. in its land titling program was due to improvement of the land registry system and to the establishment of the one-working-day standard KEY ISSUES IN LAND ADMINISTRATION for completion of the registration of a parcel. Lending for Bank land policy and administra- Recovery of costs of land administration is a tion projects in 2001 totaled US$195 million, factor in deciding where and when land titling 92 percent of which was for land titling and programs will be implemented. While full cost administration. Limited financing was provided recovery may not be possible or desirable for land policy and governance (7 percent), (negative effect on poor people), the cost land reform (1 percent), and common property structure and the revenue from registration, resources (less than 1 percent). More recently, transaction fees, and land taxes provide a basis Bank land projects broadened to address the for long term sustainability of the land registry operational and financial sustainability of land and the administration system. Lack of social administration systems by supporting the equity in land titling and registration is a major

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS Box 9.4 Lessons for a sound land administration system have emphasized more marginal areas. The location decision will have implications for the • Develop a sound legal framework and a well-functioning cost of the land titling system, its fiscal land registry. sustainability, and its impact on poverty. Results • Use administrative titling, as this has proved to be more of land consolidation programs have been efficient than judicial titling. mixed, although clear benefits occur in irrigation • Provide nationwide coverage, though not necessarily a and drainage projects such as in the Indian uniform system throughout the country. Punjab. Programs tend to be costly and slow to Combine cadastre and registration functions in a single implement, often due to difficult negotiations institution to improve efficiency. • Use a systematic titling and registration program in areas and trade-offs in the consolidation process. with high priority for regularizing titles, as this can be cost However, cultivation of dispersed small land effective and facilitate uniform coverage. parcels can also provide important benefits to • Establish an effective means of resolving disputes. This is smallholder in reducing risk of total crop failure. essential and can include empowering field teams to resolve conflicts with participation of local community at LAND REFORM. A one-time redistributive reform the time of adjudication. effort may be necessary in countries where • Use public relations campaigns to educate property land ownership is highly unequal. But conven- holders and encourage collaboration. tional land reform programs that are limited Source: Authors. only to the transfer of land with no allowance for complementary investment, technical criticism as rights are granted for family/ assistance, and supplementary resources, have household property (land or housing) to one generally yielded few equity and efficiency person, usually the male head of household. benefits. For example, restricted access to Equity should also ensure that the claims of credit markets and insecure property rights in smallholders and marginal groups, including Nicaragua and the Philippines led to land women, are given the equal legal protection.1 reform beneficiaries selling their land, often at Such protection is particularly critical in situa- prices well below the productive value of the tions of conflict, rapid social or economic land (Jonakin 1996). change, or when property values escalate. Community-managed land reform programs Devolving to state, local, and district offices that (also referred to as “market-assisted” or negoti- 388 operate within a consistent national framework can ated programs) funded by government grants increase efficiency, cost-effectiveness, transparency, provide an alternative to conventional land and accessibility of land administration systems (see reform approaches by decentralizing land box 9.4). For situations in which public sector acquisition and allowing the self-selection of capacity is limited, use of the private sector (for beneficiaries to choose the type of project, example, contracting out land surveying and map- identify land, and arrange for investments and ping work) and involving local community groups technical support needed for their projects. can greatly facilitate implementation of land admin- Given the political and sensitive nature of land istration activities. reform, it is important to demonstrate that the community-managed approach can usefully FOCUS OF PROGRAMS. Although most Bank land complement other land reform efforts. At the administration projects—such as those in the local level, strong support by local govern- Lao People’s Democratic Republic, Moldova, ments and nongovernmental organizations and Peru—have focused initial titling efforts on (NGOs) has been critical to the success of areas of high economic potential, other projects community-based models. in Cote d’Ivoire, Tanzania, Indonesia, and Colombia

1. See the IAP, “Lao PDR: Preserving Women’s Rights in Land Titling”

AGRICULTURE INVESTMENT SOURCEBOOK Community-managed land reform projects have Box 9.5 Key objectives of land policy frameworks been substantially delayed by slow government acquisition of land. Although the Bank has • Security of land tenure, including legal recognition and allowed land purchase costs to be considered as support for customary land tenure systems. project counterpart funding since 1977, Bank • Equitable access to land, including legal recognition and financing has been limited to supporting the support for land rights of women and minority groups. nonland costs of land reform projects. The • Sound management of public lands. Bank’s inability to fund land acquisition has • Efficient use of land with well-functioning market mecha- prevented it from funding integrated land reform nisms for land transactions. • Protection of land resources through provisions for pilots for demonstration purposes. Recent conservation and sustainable use. changes in Bank policy have eliminated the • Linkage of land administration to poverty reduction overall prohibition on the use of funds for land strategies. acquisition providing conditions are met, such Source: Authors. as land market analysis, including productivity assessment, and project management, including monitoring and evaluation, and administration of funds. Box 9.6 Land policy issues vary by region Government land policy will vary by region and country conditions. In Africa, strengthening and working with customary KEY ISSUES IN LAND POLICY FRAMEWORKS community management systems is important. In Eastern Land policy refers to the public choices that Europe and Central Asia, the focus is on defining and strength- determine how land rights and land use are ening private property rights and land markets. In Latin America established, changed, restricted, and enforced and parts of Asia, ensuring indigenous people’s tenure rights is a in order to promote specific goals within a key issue. Government policies are stated in various ways, society. For land policy to be an effective including legislation, regulations, and “white papers” (policy instrument of poverty reduction and sustained statements). Policies must also be disseminated widely to economic growth, emphasis on the administra- ensure that citizens are aware of their rights and responsibilities in relation to land matters. tion and delivery of basic services must be complemented by a focus on strategic objec- Source: Authors. tives for land policy (see box 9.5). Policy frameworks should establish property rights 1991; Feder and Noronha 1987). Choosing the regimes appropriate to regional conditions, optimal regime will depend primarily on the 389 define and protect the rights of poor and type of land resource and its potential use; on vulnerable groups, and facilitate efficient land the ability to minimize negative or external administration systems. Policies must also effects through regulation; and on the costs promote economic efficiency and ensure involved in establishing and enforcing rights environmental conservation of land resources. (see box 9.6).

PROPERTY RIGHTS REGIMES. The Bank does not These typically involve land ownership by the have an operational policy on property rights, community rather than the individual. Property but its land projects recognize the importance rights are enforced through existing social that strong property rights have in creating norms, and market transactions are generally incentives for investment. The main challenge limited to the community. These arrangements in establishing any type of property rights have often been viewed as economically regime (customary tenure, common property, “inferior” and are seen as equivalent to collec- state land ownership, or individual ownership) tive cultivation. However, communal arrange- is to ensure its acceptance. Effective enforce- ments can be a cost-effective way to ensure ment mechanisms taking into account social land access and security of tenure for the poor needs aimed at maximizing social welfare and rural people under conditions of low popula- economic growth are vital (Feder and Feeny tion density, of high ecological variability, and

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS Box 9.7 New perspectives on customary land tenure security. Robust private rights (often “ownership”) are necessary if land rights are to be Customary land tenure is the predominant form of land tenure acquired by individuals through market transac- in indigenous areas of Latin America and South Asia, in Africa, tions or exchanged in formal and informal and in some countries of East Asia. It may be recognized by settings. Individual title ownership is a com- national law or exist independently of national law, grounded in mon means of providing secure and transfer- and legitimized by community consensus. Customary land able land rights and a source of credit and tenure systems often include important communal rights as investment once an economy has become well as family and individual land rights. These were seen as highly commercialized. obstacles to nation-building because customary land law varied widely and was implemented by ethnically based traditional leaders, whose power often came from control over land. The In a transition from customary tenure to indi- rules of customary land tenure are not static and have evolved vidual private property regime, legal and to meet new needs; attempts to replace such systems often fail, regulatory provisions are needed to avoid leaving greater tenure insecurity in their wake. disenfranchising individuals, particularly In many parts of Africa, for instance, it may prove too expensive women, who may be illiterate, poorly educated, to maintain modern land administration institutions in poor or who lack influence. Tenure security can be rural areas. Traditional land administrators, while they have significantly enhanced by less formal measures, limitations, represent a low-cost, community-based system of such as secure and transferable long-term leases and at land administration. These perspectives are increasingly reflected a lower cost than formal titling. These measures can in Bank policy and programs. In Cote d’Ivoire, the Bank is provide many of the advantages associated with full financing the titling and registration not of reformed rights but ownership rights. of customary rights. In rural Ghana, the Bank is supporting registration of community territories and land administration by traditional authorities. COMMON PROPERTY RIGHTS. Common property resources, such as public forests and pastures Source: Authors. are often difficult to manage and effective regimes require legal and practical control over of low resource values (see box 9.7). Working resources, adequate institutional arrangements within these customary tenure rights in the for decisionmaking and enforcement, and context of a national land policy framework sufficient social capital for implementing can often increase security of tenure and lead decisions. The Bank’s experience with common to major equity and efficiency benefits. property regimes has been experimental to 390 date, but there is growing appreciation that By building on successful experiences, the poverty reduction can sometimes best be Bank can promote legal recognition of custom- realized through community natural resource ary tenure arrangements in countries that do management under common property regimes, not recognize such rights (particularly in Africa using a variety of contractual arrangements. In and the former Soviet Union) and can build the these cases, fair, efficient, and equitable rules capacity of customary institutions. Existing for resource access for the community are customary tenure arrangements should be needed rather than individual titled ownership. assessed before legislation is drafted. This will State and community lands such as national ensure that the legal framework for land tenure parks and restricted areas, forest reserves, appropriately complements existing conditions community forests and woodlots, may be of land ownership and use, and that the covered by national policies that define uses, statutory rights of women and minority groups restrictions, and responsibilities for manage- are recognized and protected. Efforts should ment and control. Privatization of state lands is be made to recognize such systems through an issue relevant to many countries and has legislation and to build the capacity of existing been an important aspect of economic reform customary institutions that could implement in Eastern Europe and Central Asia. While full property rights laws and maximize tenure privatization can be politically sensitive, an

AGRICULTURE INVESTMENT SOURCEBOOK alternative approach, successful in China and Box 9.8 Government interventions and land markets East Asia, is the provision of long-term leases for use of state lands. Government interventions in rental market, such as sharecrop- ping restrictions, self-cultivation requirements, and rent controls, SOCIAL AND ECONOMIC ASPECTS OF LAND POLICY. Social often motivated by considerations of social justice, may have targeting of poor people, women, and minority unintended detrimental consequences. Legal and administrative groups should be included in nation land restrictions on rental markets negatively affect agricultural policy frameworks to improve their welfare by productivity and household welfare, discourage investment, and enhancing their access to and control of land. decrease security of tenure. Typical interventions in sales market, such as prohibiting foreign ownership, land ownership For this objective, detailed and adequate legal ceilings, and land price limits, can limit access to much-needed frameworks, streamlined procedures for trans- capital in markets, and ultimately undermine the ability of banks ferring tenure, and capacity building for sup- to engage in lending. porting institutions are still required. In Latin Source: Deininger 2003. America, the Bank has moved beyond an abstract recognition of women’s legal rights to ensuring such rights through joint titling of undermine the functioning of land markets and conjugal property. Countries in Asia and Latin unintentionally reduce opportunities for more America recognize customary land rights in equitable access to land (see box 9.8). Land- principle and allow for the internal manage- holding size and its impact on productivity may ment of land by indigenous communities with be a public policy concern. Family farms may the Bank actively involved in Bolivia, Nicara- be more productive where production pro- gua, and the Philippines. Pilot projects in Peru cesses are not overly capital intensive, and and Brazil have helped to streamline proce- access to credit and capital is broadly similar dures for giving ownership title to indigenous across farm sizes. But imperfections in factor populations (Roldan 2002). and credit markets may give advantages to larger farms who expand their holdings. LAND TAX. Land tax policy is a difficult political Broader agricultural sector policy changes, such issue as a system for land taxation, based on as eliminating credit subsidies and dismantling productivity and land values, it can be an agricultural protection, can improve the func- efficient means of revenue collection for tioning of land markets and can contribute to national or local governments. This approach is land price declines. Under these circumstances, generally more effective than taxes based on small farmers may have better access to land 391 outputs. Land revenues typically derive from through market mechanisms. Consequently, annual property taxes or taxes on land market land projects should seek to eliminate factor transactions. Thailand’s land titling program market distortions, land market restrictions, and produced a substantial increase in land transfer broader sector policy distortions. tax revenues and facilitated collection of annual land taxes. LAND RENTAL MARKETS. These can provide a low- cost mechanism for poor people to eventually become landowners provided that property KEY ISSUES IN LAND MARKET DEVELOPMENT rights are long-term, enforceable, and fully Efficient land markets should maximize land transferable. Rental markets may improve the productivity and introduce flexibility to the allocation of land and enhance equity, but the rural economy and to family livelihood strate- impact on equity depends on the landlord and gies. If government policies try to address tenant arrangements, and these may depend on social inequities through ownership ceilings, alternative employment opportunities. Productiv- fixed prices for land, restrictions on transfer, ity tends to be comparable between owned plots and land subdivision for inheritance, these and fixed-rent plots. Share cropping (share policies often introduce market distortions that tenancy) is a second-best option in rental mar-

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS kets, with studies indicating that it may be with two possible exceptions. Rapid changes in associated with some productivity loss compared the external environment justify ceilings on land to fixed-rent agreements. There is evidence that ownership and giving local communities author- eliminating the share-cropping option leads ity to restrict transferability of land (as is the case would-be renters to rely on wage labor which is in most customary systems). Such restrictions are both less efficient and less equitable. Rental best phased out as rapidly as possible. markets may enable landowners to increase the size of their farming operations and may provide In summary, governments have three options land-owning, non-farm households with a for improving land rental and sales markets: sustained income by renting out their land. • Eliminate distortions to improve functioning Transaction costs associated with land rentals of markets. are normally lower than those in sales markets but can be further reduced by making informa- • Reduce transaction costs, for example tion on land ownership, contractual forms, and through better land records. rent prices more widely available. Legal or other restrictions on land rental markets, such • Impose direct restrictions on market trans- as rent ceilings and tenancy restrictions tend to actions to avoid undesirable outcomes. reduce security of land rights, introduce market distortions, and force land owners to adopt The focus is usually on the first two, as direct measures to protect their claims to land and restrictions seldom yield expected outcomes and may negatively impact agricultural productivity and generally have resulted in efficiency losses. Exist- household welfare. Such restrictions may also dis- ing restrictions should generally be eliminated in courage investment and increase off-farm such a way as to minimize disruptions and nega- employment and migration. While both rent tive effects on equity. Restrictions on land markets ceilings and tenancy restrictions may transfer are unlikely to lead to significant redistribution of resources to poor people in the short term, the land, but will result in large bureaucracies with an long-term impacts are not likely to be advanta- interest in maintaining these restrictions. geous. Secure property rights, the ability to enforce contracts, and availability of necessary information are key to facilitating longer-term FUTURE DIRECTIONS FOR LENDING Recent experiences with land-related investments 392 contracts and determining the impact of tenancy on equity and investment. provide a basis for new approaches to land access and use that may improve land adminis- LAND SALES MARKETS. Land ownership provides tration and reform programs and ultimately incentives for investment in land, facilitates enhance economic and social benefits. Land structural change, and, through the ability to policy issues need to be addressed in World sell, provides a basis for using land as collateral Bank Poverty Reduction Strategy Papers (PRSPs) in credit markets. In environments where credit as access to land is often critical to the well- markets do not function well, land sales mar- being of poor people, and land tenure security is kets are more likely to lead to undesirable, essential to the investment needed to increase efficiency-reducing outcomes, such as specula- agricultural productivity and rural incomes. tive purchases, high transaction costs, distress sales, and reduced opportunity for small LAND POLICY AND ADMINISTRATION. Bank land producers to purchase land. projects need to provide more emphasis on ensuring the operational and financial Some restrictions on ownership are difficult to sustainability of land administration systems. enforce and wide experience indicates that these are not justified, are likely to be evaded, have • Developing sustainable land administration undesirable side effects, and should be avoided systems and land registries. Sustainability

AGRICULTURE INVESTMENT SOURCEBOOK requires greater attention to cost recovery, a these may need to evolve in order to be client-service orientation, and cost-effective reconciled with formal tenure systems and administrative systems. Programs will have with changing conditions. to strengthen land valuation skills and improve land tax administration, through • Promoting wide dissemination of land building capacity of both public and private policy and administration information. sector institutions. New technologies for Analysis of the legal and institutional mapping and monitoring land use and land frameworks for land administration is a quality will improve the ability of public standard component in Bank-sponsored agencies to plan and manage land for projects and should be widely conservation and sustainable use.2 Imple- disseminated. menting systematic titling and registration programs will need to complement on- • Increasing equity of land tenure and titling demand titling activity, with country analy- programs. Recognition of women’s land ses identifying priority areas and options. rights will need to be reflected in the law, For situations in which greater economic in land rights awareness campaigns, and in activity is not a factor, on-demand titling the provision of legal assistance. Legal and registration procedures are likely to be reform programs should address land adequate. The greatest impact of providing inheritance inequities and make mecha- land titles is improving farmers’ access to nisms for land tenure enforcement more credit as land can be used as collateral. accessible to women. Educational cam- Programs must be designed with greater paigns on gender-related land issues attention to their ability to improve access should target national policymakers, local to financial markets. officials, and communities. Indigenous land rights should be recognized in the policy • Increasing involvement of local communi- framework. Community access to restricted ties in land policy debates and titling areas and community control over tradi- programs. Projects will increasingly need to tional lands may require innovative legal engage local communities, including and implementation arrangements at the women, landless people, and minority field level. groups, in the analysis of tenure arrangements and the promotion of greater stake- • Strengthening land rental markets. Bank 393 holder participation in project design. land projects should seek to establish the Community participation will be enhanced legal and institutional conditions for long- if there is a national policy on such partici- term leasing arrangements and to improve pation. Financing local-level pilot projects the functioning of land rental markets by co-managed by communities can test what supporting the dissemination of land price will work in practice. information, the simplification of contractual mechanisms, and strengthening the • Enhancing security of tenure for common enforcement of rental contracts. property resources and promoting legal recognition of customary tenure arrange- LAND REFORM. Poverty is due to low income and ment. Land policy and administrative to lack of access to productive assets. There is arrangements are recognizing the value of considerable evidence that smallholders are traditional community institutions and usually more efficient producers. However lack tenure arrangements, as these are cost of credit may be a factor in their inability to effective and socially acceptable; however, purchase land and governments may need to

2. See the IAP, “Armenia: Benefits of Securing and Registering Land for Rural Development”

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS intervene to counter the failures in land and • Inclusion of technical assistance and financial markets. Land reform is seen as a support. Land reform programs will support direct and sustainable means of addressing the development of viable agricultural poverty. The Bank’s support for land reform, enterprises through technical assistance and provides funding to land reforms that have credit or grant support for sound business involved compulsory acquisition of land. In plans. These are likely to greatly increase these cases, those losing land are compensated the returns to investment in land reform. according to the Bank’s Safeguard Policy on Strong support by local governments and Involuntary Resettlement. As the Bank was, NGOs has been critical to the success of until recently, prohibited from disbursing community-based approaches, and land money against land, it supported resettlement reform programs should include an institu- and related investment costs rather than land tional capacity building component. acquisitions in those reforms. The Bank is still open to supporting well-conceived and ex- In some countries, where the government ecuted land reform programs based on com- retains title to and control over substantial pulsory acquisition or redistribution. amounts of productive land, privatization or long-term leasing arrangements may be an In the early 1990s, Bank staff working in Latin effective means of increasing employment and America and Asia developed a new and more productivity, as well as promoting better efficient model of land redistribution that used management and conservation of the land. market mechanisms. Using client government funds, Bank-funded projects channeled funds to associations of beneficiaries who would SCALING UP INVESTMENTS purchase land on the market. These programs As land project investments are increasingly redistributed land without coercion, respected linked to broader macroeconomic and poverty established property rights and were coupled issues, it is important to evaluate the contribu- with policy reforms to facilitate the operations tion these projects make to improved house- of land markets.3 An exception to the Bank’s hold welfare, poverty reduction, and economic disbursement rules now allows funding to development. To establish the effectiveness of support the purchase land. a land investment project to these goals, relevant indicators should be used to identify 394 It is not a matter of either community-driven economic, social, and environmental impacts. land reform or compulsory land reform. Each Economic indicators may include productivity, may play a useful role. For example, in Brazil, economic growth, land tax revenue, and cost the federal government acquired large blocks of of land transactions; social indicators may land compulsorily, and the Bank supported state include the incidence of land disputes, labor land reform programs which acquired land, mobility and land distribution profiles, includ- usually smaller holdings, on the market. In some ing female ownership; and environment indica- cases, compulsory acquisition and redistribution tors may include land use changes, erosion of land will remain an important alternative. control and deforestation. In this regard the Future land reform investments will likely stress: World Banks safeguard policies are relevant for practitioners involved in land administration • Community-managed land reform models. The initiatives (see box 9.9). model of community-managed land reform that is implemented in a number of countries pro- These impacts are likely to be measurable only vides an effective means of dealing with inequi- over many years, usually well after project table land access. completion which will affect the timing of

3. See the IAP, “Brazil: Participatory Negotiations and Market-Assisted Land Reform”

AGRICULTURE INVESTMENT SOURCEBOOK impact studies. Multipurpose household surveys Box 9.9 World Bank safeguard policies relevant to land policy provide an opportunity to measure land invest- and administration ment indicators at a relatively low cost. The Bank’s work in land policy and administration is affected by There appears to be substantial interest and policies defined in Operational Policies (OP) documents opportunity for expanding investments in land designed to build safeguard activities into a project: administration, policy, and market development. • OP 4.01 on environmental assessment requires that the Market economies which emphasize governance environmental impact of land projects be assessed and issues facilitate those land reforms projects that minimized. need functioning land markets. Future land • OP 4.12 on involuntary resettlement requires that involuntary displacement from land be minimized and that investments would benefit from definition and adequate compensation be paid to those whose land is analysis of good investment practice in the taken. For land titling projects, OP 4.12 excludes from following areas: customary land tenure systems, consideration disputes between two private parties where indigenous people’s land rights, land institu- the losing party is displaced. But OP 4.12 does apply to disputes between private displaced parties and govern- tions, technologies for land administration to ment as these are given protection even if they have no deal with issues of consolidation, registration, legal right to be on the land. Bank-funded titling projects land taxes, and revenue systems and analysis, may avoid titling in such areas. If a government complies and resettlement in post-conflict situations. with OP 4.12, an agreement must be reached on an involuntary resettlement framework. • OP 4.20 on indigenous peoples emphasizes the importance of land to traditional ways of living and culture by SELECTED READINGS protecting land rights under customary law that are Asterisk (*) at the end of a reference indicates recognized by national law. It seeks to avoid disrupting that it is available on the Web. See the Appen- those rights which, if affected, must be compensated. dix for a full list of Web sites. Other key safeguard policies include OP 4.04 on protecting natural habitats; OP 7.60 on requiring consultations among Deininger, K. 2003. Land Policies for Growth neighboring countries to ensure there are no objections in a disputed area; and OP 4.36 on committing governments to and Poverty Reduction. A World Bank undertake sustainable management and conservation-oriented Policy Research Report. Washington, DC: forestry. World Bank; Oxford and New York: Oxford Source: World Bank, Operational Manual. University Press. 395 Ghimire, K. B., and B. H. Moore, eds. 2001. Whose Land? Civil Society Perspectives on REFERENCES CITED Land Reform and Rural Poverty Reduction: Deininger, K. 2003. “Land Policies for Growth Regional Experiences from Africa, Asia and and Poverty Reduction.” A World Bank Policy Research Report. Washington, DC: Latin America. Rome: Popular Coalition to World Bank; Oxford and New York: Oxford Eradicate Hunger and Poverty; Switzerland: University Press. United Nations Institute.* Feder, G., and D. Feeney. 1991. “Land Tenure Toulmin, C., and J. Quan, eds. 2000. Evolving and Property Rights: Theory and Implica- Land Rights, Policy and Tenure in Africa. tions for Development Policy.” World Bank London: IIED. Economic Review 5 (1): 135-55.

World Bank. Land Policy and Administration. Feder, G., and R. Noronha. 1987. “Land Rights http://lnweb18.worldbank.org/ESSD/ Systems and Agricultural Development in ardext.nsf/24ByDocName/ Sub-Saharan Africa.” World Bank Research LandPolicyandAdministration Observer 2 (2): 143-69.

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS IFAD. 2001. Rural Poverty Report 2001: The Challenge of Ending Rural Poverty. Oxford and New York: Oxford University Press.

Jonakin, J. 1996. “The Impact of Structural Adjustment and Property Rights Conflicts on Nicaraguan Agrarian Reform Beneficia- ries.” World Development 24 (7): 1179–91.

López, R. 1996. “Land Titles and Farm Produc- tivity in Honduras.” Department of Agricul- tural and Resource Economics. University of Maryland, College Park, Md.

Roldan, R. 2002. “Indigenous Land Rights and Natural Resource Management: Legal and Institutional Issues.” Paper presented at the Regional Workshop on Land Issues in Latin America and The Caribbean, May 19-22, Pachuca, Mexico.

World Bank. Land Policy and Administration. http://lnweb18.worldbank.org/ESSD/ ardext.nsf/24ByDocName/ LandPolicyandAdministration

World Bank. Operational Manual. http:// wbln0018.worldbank.org/institutional/ manuals/opmanual.nsf/

This Overview was prepared by Danielle Typinski (USAID) based on the World Bank Policy Research Report. “Land 396 Policy for Pro-Poor Growth and Development” by the Bank Research Department and the Land Policy and Administra- tion Thematic Group of the World Bank and with further inputs from Wael Zakout, John W. Bruce, Klaus Deininger and other members of the Land Thematic Group. Peer review comments were provided by Frank Byamugisha, and Susana Lastarria (University of Wisconsin).

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE from a complete registry. Most projects embed land titling in a national land policy framework.

INVESTMENTS IN SYSTEMATIC The two main instruments of a land titling and LAND TITLING AND registration program are the land registry and REGISTRATION the cadastre. The registry provides authoritative information on all properties within a jurisdic- The security, duration, and enforceability of tion. The cadastre provides information on property rights have major impacts on land boundaries, use, and value of properties and is investment incentives, land market operations, used as a basis for land use planning, valua- and the development and functioning of tion, taxation, and the generation of maps. financial markets. In situations characterized by Support to systematic titling has been more high land values, conflict over land, and in- successful than activities aimed at building creasing population densities, formalized sustainable land registration agencies. Greater property rights systems with a strengthened attention must be given in future land invest- tenure of security have important economic ment projects to strategies and pilot operations and social benefits. Systematic titling and that will enable the establishment of sustain- registration offers equity and cost advantages able land registries. when implemented under supportive policy, legal, and institutional frameworks. BENEFITS Land tenure insecurity, exacerbated by popula- Land titling programs can create secure, clearly tion pressure, escalates conflict over land use, defined, and easily transferable land ownership inhibits land transactions, and discourages rights which ensure benefits to recipients/ investment in farming, industry, housing, and owners and improves incentives for long-term the physical infrastructure necessary to support investment. Case studies from Thailand Viet- economic growth. Property rights within a land nam, China, Honduras, and Paraguay demon- administration framework increase land tenure strate positive impacts of land titling on invest- security. The main mechanisms for formalizing ment and agricultural productivity (see box property rights are land registries and title 9.10). In contrast, studies in Africa show little documents. These provide protection against challenges to individual rights and facilitate 397 transfer of rights and the development of sec- Box 9.10 Thailand: institutionalizing an effective land titling ondary financial instruments, such as mortgages. and registration system

Thailand’s land titling program began in 1984 and by 1998, about 5.5 million title deeds had been issued to 2 million rural TITLING AND REGISTRATION households, 35 percent of which were poor farmers. An The Bank has accumulated broad expertise on additional 3.5 million titles were converted from lower level land administration investments which have certificates. Implementation involved large community participa- focused mainly on formalizing land rights tion in an innovative, systematic, village-by-village, and parcel-by- through systematic or sporadic registration. parcel approach involving local government and community Systematic registration identifies, adjudicates, leaders, landholders, and departmental staff. About 10 million and registers rights to all adjacent land parcels in people (16 percent of the national population) have directly a selected locality and within a given period of benefited from the program, mainly as a result of increased agricultural productivity and improved household incomes. The time. Sporadic registration processes land rights program resulted in an increase in revenue from land transac- on an ad hoc basis, usually when customers tion taxes from US$300 million in 1984 to US$1.2 billion in request registration of their parcels of land. The 1995 and facilitated collection of annual land taxes. Bank favors the systematic approach because of Source: Brits, Grant, and Burns 2002. benefits of equity, cost, and the externalities

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS Box 9.11 Lao PDR: building land administration policy and markets. Evidence from Thailand and Honduras points towards improved credit supply as the legislative frameworks main benefit from titling (Feder et al. 1988). The Lao People’s Democratic Republic project used an incremental, evolutionary policy, legal development process, and pilot activity involving field-testing to implement land titling and KEY POLICY AND IMPLEMENTATION ISSUES registration in the absence of a legal and institutional base. A LEGAL FRAMEWORK. An appropriate policy and cabinet-level committee was mandated to identify key policy legal framework for land tenure is a necessary issues and develop corresponding decrees. With interim condition for realizing benefits of land titling ministerial regulations for adjudication and registration in place, and registration programs (see box 9.11). The pilot projects were able to issue titles in advance of final legal framework must provide for effective legislation. This allowed titling and registration to take place without waiting for lengthy legislative procedures. Lessons from enforcement of laws and ensure that landhold- pilot projects were then integrated into more substantive legal ers’ rights are secure. Legal and institutional reforms. Pilot activities were used to identify and work through reform can occur in parallel, but should be policy and legislative issues, educate the public about land titles, undertaken by one cohesive management unit. adjust field methodologies from Thailand to the Lao environ- Land policy decisions should be kept separate ment, and train staff in systematic adjudication. from land administration management but can Source: Authors. be implemented in conjunction with preliminary legal reform efforts.

Box 9.12 Characteristics of a sound land registry EQUITY ISSUES. Formal land titling and registration is more likely to have a strong impact where • Registration of all properties (private, state, and custom- there are operational credit markets, and the ary) and all land transactions. latent demand for credit cannot be satisfied due • Well-developed, implemented, and monitored service to a lack of formal title. When these conditions standards. do not exist, a broader approach to rural devel- • Self-financed to ensure long-term sustainability. opment policy will often be required to facilitate • Computerized land record management and/or land the use of titling in supply of credit. When other registration. • Accessible at reasonable costs. markets (such as credit) are characterized by • No informal payments required. distortions that disadvantage small farmers, Source: Authors. formalized individual property rights can lead to 398 land transfers that cause greater inequity.

ONE VS. TWO AGENCY MODELS. Cadastre and registration functions should be connected and relationship between land titling and productiv- managed by a single institutional entity wher- ity, largely due to the existence of well-devel- ever possible (see box 9.12). Under projects in oped indigenous land rights, lower level of Thailand, Indonesia, Lao PDR, and El Salvador, agriculture intensification, and lack of formal one agencyætypically the Department of credit markets. Landsæundertook base mapping for cadastral purposes, development of standards for adjudi- Formal land titles also increase credit availabil- cation, cadastral surveying, and registration ity by enabling loans to be secured through a functions, as well as policy coordination. This lien on land which serves as collateral in both model generally works better than the two- formal and informal credit markets. The exist- agency model, which has cadastral and regis- ence of well-documented, transferable property tries under separate departments. rights and institutional arrangements that facilitate low-cost transfer of land titles is likely GENDER EQUITY. If there are no adequate safe- to contribute to development of financial guards, titling can permanently deprive certain

AGRICULTURE INVESTMENT SOURCEBOOK groups, such as women or indigenous peoples, Box 9.13 Nicaragua: joint titling efforts of their land rights. In Latin America titling programs have developed promising new From 1993 Nicaragua instituted joint titling of land to wife and approaches that include joint titling provisions husband. Sensitivity training was directed at high-level officials and guarantees for women’s land rights, but and at technicians involved in the land legalization process. these efforts have faced social and cultural Meetings were held with regional leaders and the local constraints (see box 9.13). Preferential treat- population. Radio and television spots and brochures written in ment of women in titling programs has in- clear language and in graphic format were developed to creased gender equity and contributed to support training efforts. Despite sensitivity training, the titling program ran into difficulties in its attempts to legalize women’s improving women’s rights. rights to land. In 1997, an evaluation found that most titles issued were granted to individuals (64 percent), and that joint COMMUNITY TITLES. More formalized property titling to family members (for example, father and son, two rights systems are needed in situations charac- brothers) represented 25 percent of total titling. Joint titling for terized by high property values, land conflicts, couples only reached 7.8 percent of the total number of titles and increasing population densities. Customary issued. collective action to define and enforce property Source: Authors. rights is generally effective in smaller communities with low-value properties, and where land transactions affect only the community (see Box 9.14 Botswana: improved tenure security through group box 9.14). rights

UNIFORMITY OF STANDARDS. Nationwide coverage of Botswana provides a good example of a gradual change in type a systematic registration program does not of land rights that an individual can enjoy in the absence of a imply uniform standards, as differences in land formalized property rights system. Since 1970, individual land values within a country (for example between rights gradually strengthened, with the exclusion of other rural and urban areas) may make it useful to people’s animals and the fencing arable lands, and later by have different standards of evidence and allocating land to all adult citizens, both male or female, and precision for different types of land. An official introducing common-law residential leases for commercially valuable land. registry can be relatively less precise in measurement but cheaper and still increase tenure Source: Authors. security. This situation can be gradually upgraded as needed. 399 LESSONS LEARNED FOR SYSTEMATIC LAND FINANCIAL EFFICIENCY. Land administration systems TITLING AND REGISTRATION PROJECTS must balance cost-effective service provision Effective land administration institutions need and cost-recovery mechanisms necessary to to be legally valid, authoritative, accessible, and make the system sustainable. Estimates of cost transparent. Lack of these conditions in Eastern per hectare for land titling vary considerably Europe resulted in abuse of bureaucratic from country to country, ranging from US$5.50 power, increased transaction costs, and delayed to US$50.00 (depending in part on what costs emergence of financial markets based on land/ are included). Major cost components include real estate as collateral. Titling programs should mapping, registration, surveying, adjudication, strengthen enforcement mechanisms because and institution building. Most countries have legally defined rights are of little value if these elected not to charge the full cost of registra- are not recognized and enforced. tion but to recover some costs from fees on subsequent land transactions. Governments, Poorly defined institutional responsibilities and especially those in economic difficulties, may overlapping mandates can undermine land tenure not extend titling programs to areas where land security, increase transaction costs, increase land transactions are low. conflicts, and erode public confidence in the land

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS Box 9.15 Lithuania: decentralized and upgraded systems tion agency may operate through local offices. Systematic land titling programs require rapid Lithuania established a temporary, decentralized system that will decisions and processing capability. Day-to-day eventually be absorbed into a more unified framework. management delegated to branch offices helps Registration of rights, both ownership and use, was done by to ensure transparency and provide easier village authorities, who established a temporary person-based access to information for local people. Decen- cadastral register of landowners. A parcel-based integrated tralizing implementation responsibilities, as in system under the National Agency for Cadastre will integrate these two registers and eventually replace them. First-time Lithuania, can reduce costs, increase efficiency, registration is based on low-level precision sketch maps, with enhance accountability, and promote good more detailed surveys developed for subsequent market governance(see box 9.15). transactions as money becomes available. A single department of land management with broad jurisdiction over rural, urban, and forest land and municipal registry offices ensured progress RECOMMENDATIONS FOR PRACTITIONERS of the processes. Practitioners involved with investment in Source: Valetta 2000. systematic land titling and registration initiatives should consider the following recommendations (see box 9.16): Box 9.16 Key areas for public investment • A policy and legal framework needs to be • Land policy formulation and development of legal and in place and land registration needs to be regulatory framework. planned and implemented in the context of • Institutional reform and development. a broader market economy. If the registra- • Dispute settlement. tion process itself does not guarantee • Systematic land titling, involving community participation and gender awareness activities. ownership then registered rights must be • Cadastral surveying and mapping, aerial photography, clarified and supported by land administra- adjudication activities, and issuance of land titles. tion institutions and the judiciary. For • Information technology support. example, if a legal framework does not exist • Property valuation. as in the case of Lao PDR, caution must be • Establishment of land registries. observed with the registration process. • Monitoring and evaluation. Source: Authors. • A strong commitment from implementing 400 agencies, both governments and donors, is administration system. There is often a lack of essential to successful implementation of coordination among the different entities that long-term, multiphased titling programs. deal separately with rural, urban, and state land and these compete with one another. • Coordination arrangements of government agencies with clearly defined responsibilities Contracting out services, such as surveying and and a shared vision is essential for timely mapping, to the private sector providers can and effective implementation. Lack of reduce the scope for political interference and such coordination can stall project activi- allow reduction in public sector staffing. While ties, undermine tenure security, increase the public sector must oversee and enforce transaction costs, and erode public trust in proper regulation of land administration, the system. developing private sector capacity is an essential feature of effective land administration. • Introduction of new technologies, such as computerized information systems, should Land administration is typically a central gov- be phased in and tested on a small scale ernment function, but a central land administra- before being widely adopted.

AGRICULTURE INVESTMENT SOURCEBOOK SELECTED READINGS This Note was prepared by Danielle Typinski (USAID) with Asterisk (*) at the end of a reference indicates inputs from Wael Zakout, John Bruce, Klaus Deininger and that it is available on the Web. See the Appen- other members of the Land Administration Thematic Group of the World Bank. dix for a full list of Web sites.

Benjaminsen, T. A., and C. Lund, eds. 2003. Securing Land Rights in Africa. London and Portland: Frank Cass & Co.

Holstein, L. 1996. “Towards Best Practice from World Bank Experience in Land Titling and Registration.” Paper presented at the Inter- national Conference on Land Tenure Administration, organized by the Geomatics Program University of Florida, November 12-14, Orlando, Fla.*

Larsson, G. 1991. Land Registration and Cadas- tral Systems: Tools for Land Information and Management. Harlow, Essex, England: Longman Scientific and Technical; New York: Wiley.

Plant, R., and S. Hvalkof. 2000. “Land Titling and Indigenous Peoples.” Sustainable Development Department Technical Papers Series. IADB, Washington, D.C.*

REFERENCES CITED Brits, A.-M., C. Grant, and T. Burns. 2002. “Comparative Study of Land Administration 401 Systems with Special Reference to Thailand, Indonesia, and Karnataka (India).” Paper presented at the Regional Workshops on Land Issues: Asia Program, sponsored by the World Bank, June 4-6, Phnom Penh, Cambodia.

Feder, G., T. Onchan, Y. Chalamwong, and C. Hongladarom. 1988. Land Policies and Farm Productivity in Thailand. Baltimore: Johns Hopkins University Press.

Valetta, W. 2000. “Completing the Transition: Lithuania Nears the End of Its Land Restitu- tion and Reform Programme.” FAO Legal Papers Online 11. FAO, Rome.

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS AGRICULTURE INVESTMENT NOTE efficient, cost-effective and better tailored to local conditions. With the strong support of NGOs and governments, community-managed COMMUNITY-MANAGED LAND land reform pilot projects were undertaken in REFORM Colombia, South Africa, and Brazil. Due to the limited experience, best practices cannot yet be Improving land assets of poor people through definitively established, but these pilot projects land reform can be an effective way of reduc- offer some useful lessons. ing poverty, facilitating broader economic growth through enhanced agricultural produc- Community-managed land reform provides tivity, and producing greater social harmony. potential beneficiaries with grants and/or loans Community-based land reform relies on grants to purchase land on the market and differs and/or loans to help beneficiaries purchase from government-directed land reform initia- land through voluntary sales. In some circum- tives involving the government taking land stances, this provides an attractive model for from a large farmer and transferring it free-of- land reform. Additional support typically charge to poor people. Selection of beneficia- includes production credit and technical assis- ries and land acquisition is handled at the local tance because these increase the productivity level with the government’s role limited to and sustainability of farming operations. This establishing the necessary policy and regulatory support can be provided with the same funding framework for making grants and for land as that for land acquisition or through parallel purchase. Land is transferred voluntarily be- programs. Producer and community organiza- tween willing parties with community organizations are key implementing agencies in this tions, NGOs, or other implementing agencies model for efficient and equity-enhancing asset helping beneficiaries identify available land for redistribution. purchase, negotiate and reach agreement with the seller, and submit this agreement for ap- Colonialism, civil upheavals as a result of proval to a local coordinating entity, such as a internal power struggles, and government district, municipality, or development commit- policy distortions that affected land markets, tee. The local coordinating entity verifies the have resulted in extremely inequitable distribu- eligibility of beneficiaries, ensures that there are tion of land ownership in many developing no legal impediments to transfer of the land, 402 countries. Land reform is an important issue, and confirms that the negotiated price is at fair especially in countries where land has been a market value. central demand and in post-conflict countries where land distribution remains highly unequal. Community-based land reform has the broader Land reform carried out in an ad hoc manner goal of establishing productive farm enterprises under political pressure rarely reflects the needs so beneficiaries receive a grant, loan, or combi- of poor communities. Conventional land reform nation grant/loan in a fixed amount, to be used programsæincluding expropriation and for investment purposes as well as for land privatization of state landæhave often expen- acquisition, and they are expected to make a sive, slow, and have not sufficiently addressed cash or in-kind contribution of their own (see the needs of beneficiaries for capacity building box 9.17). A systematic program of training and and training. Government-directed programs of preparation assists beneficiaries choose a land compulsory land purchase and settlement are investment project and identifies suitable land. suited to some circumstances but are only one Beneficiaries submit their investment plan to a of several possible models for land reform. local implementing agency which is typically a private or public financial institution for ap- In the early 1990s, Bank staff working in Latin praisal, based on clearly defined technical, America and Asia piloted the use of market economic, environmental, and poverty-reduc- mechanisms to make land redistribution more tion criteria. Once approved, the agency

AGRICULTURE INVESTMENT SOURCEBOOK transfers funds to the beneficiary, an imple- Box 9.17 Colombia: funding land acquisition and investments menting agency, or directly to the seller. In Brazil, beneficiaries assume a loan with a local The 1994 Colombian Land Reform Law provided for land bank using the acquired land as collateral. purchase grants of up to 70 percent of the negotiated land purchase price. Grants were restricted to land purchase and could not be used for complementary investments. This created BENEFITS incentives for collusion that inflated land prices and divided Improving small shareholders’ access to land sales surpluses among buyers and sellers. It also strongly biased enhances equity and may ultimately increase sales in favor of developed agricultural land close to infrastructure and already well-endowed with necessary complementary agricultural productivity as smaller family- investments. This approach to land reform resulted in a operated units are generally more efficient. redistribution rather than the creation of existing assets. With a focus on productive projects, rather than Allowing grants to finance nonland investments results in better on land transfers, sustainable poverty reduction targeting of underutilized lands and helps beneficiaries make and entrepreneurial development are at the other needed investments. center of community-managed land reform Source: Deininger 1999. efforts. Farm enterprise planning and identification of markets before land is transferred enables beneficiaries to start production imme- undistorted land policy environment supportive diately. In South Africa, 23 percent of the of smallholder agriculture is critical if land projects generated positive cash flows in the reform interventions are to be sustainable. initial period following land transfer. GRANTS VS. LOANS. Financing for land purchases When land and related investments are limited, and investments may be on a grant, loan, or beneficiaries can be encouraged to purchase mixed grant-loan basis, but good practice undeveloped or underutilized land, and, with would require beneficiaries to make at least the lower land prices, funds are then available some financial contribution. for productive investments. Three elements help prevent overpayment for land. First, FINANCIAL SERVICES. In rural areas, beneficiaries communities must demonstrate that a minimum with access to land but without access to supply of land is available on the local market. markets for products and credit may fail to Second, beneficiaries contribute to financing improve their status, and this can lead to the project, and are selected through a trans- widespread selling of land. Community-man- 403 parent process. Finally, programs must docu- aged land reform programs need to also ad- ment local land ownership patterns, land dress access to markets for credit, inputs, and prices, and farming models. outputs. In Nicaragua and the Philippines, financial intermediaries also provided input credit in-kind and helped land reform benefi- POLICY AND IMPLEMENTATION ISSUES ciaries to establish productive enterprises. POLICY FRAMEWORKS. Policy distortions, such as restrictions on ownership, use, rental, or land PARTICIPATION AND SOCIAL EQUITY. Community- sales, can negatively impact land use and managed land reform programs must rely on development of rural credit markets. Land beneficiaries and participation of all social ownership ceilings can make land of limited groups in the community taking the initiative value as collateral; rent controls and tenancy for land purchase and farm development. laws also hinder development of land rental Successful land reform depends on an ad- markets. Policies that drive land prices above equate local institutional structure and educa- the capitalized value of agricultural profits tion programs to facilitate participation. A increase land reform costs and may reduce common problem is the exclusion of women. sustainability by encouraging land reform In South Africa, guidelines for land reform do beneficiaries to sell land to large farmers. An not ensure gender equity so officials continue

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS Box 9.18 South Africa: institutional constraints than on physical quantity indicators helps to identify and rectify implementation problems Redistributive land reform is an important component of South and assess long-term impacts (Deininger 1999). Africa’s post-apartheid land policy. Grants are provided for poor households to acquire land plus associated productive infra- BANK LAND PURCHASES. There has been a substan- structure in the market. After three years, approximately tial delay in many community-managed land 200,000 hectares of land were transferred to 20,000 house- reform projects caused by limits on Bank financ- holds, representing only 0.6 percent of the target. Factors ing to nonland costs of projects. The inability to limiting program impact were a highly centralized approval fund land acquisition has prevented the Bank process in the Department of Land Affairs operating independently of the Department of Agriculture and provincial from financing integrated land reform pilot authorities that slowed implementation, as well as a limited projects. Recent policy changes have eliminated beneficiary participation in the planning process resulting in the blanket prohibition on condition that analy- approval of large projects based on collective production. These sis demonstrates that land purchase is an effi- have not done well. The government has since issued policy cient means of acquiring land; the land is for directives allowing for a more decentralized program imple- community-based land reform projects and is mentation with active beneficiary involvement and participation purchased by beneficiaries; the program results of the private sector, NGOs, and local governments. in increased productivity; there is a strategy for Source: Deininger 2003. dealing with any land market distortions; and that there are satisfactory management arrangements covering use of funds, monitoring and to believe that women are not capable of evaluation, and analysis of political risk. managing economic production projects; therefore, project activities are focused on men. Even though national agrarian reform policy LESSONS LEARNED states the need for gender equity, local offices IMPROVING LAND MARKETS. Land reform involving lack he mechanisms to implement this policy land purchase or rental requires transparency effectively (see box 9.18). in land markets—that is information on land prices. In addition, land reform beneficiaries TECHNICAL SUPPORT. Conventional land reform need to be able to assess the value and pro- programs, with land transfer but no technical ductive potential of the land. To deal with assistance and training, has not enabled benefi- these challenges, strategies include providing 404 ciaries to increase agricultural productivity and technical assistance at the community level, income. Land reform programs, whether commu- cofinancing of land purchases through private nity-managed or conventional, should generally financial intermediaries, and development of a ensure that adequate technical support is pro- market information system for land sales prices. vided to beneficiaries both during and after the land acquisition process. Local institutions, such FOCUSING ON PRODUCTIVE PROJECTS. Productivity- as NGOs, farmer organizations, and government oriented projects are key to community-based agencies can assist beneficiaries in selecting land reform because they offer an objective viable farm projects, evaluating land productivity criterion for establishing land prices, provide a potential, negotiating purchase prices, and basis for evaluation and support by financial arranging financing for land and capital require- institutions, and require beneficiaries to plan to ments not covered by the purchase grant. become independent farmers.

PROGRAM EVALUATION. Community-assisted land ASSESSING POTENTIAL SUPPLY AND DEMAND FOR LAND. reform projects are recent and have not been The potential demand for and supply of land thoroughly evaluatedæa priority for future for a project should be identified at the local programs. A monitoring and evaluation system level with the support of the central govern- focused on project quality indicators rather ment. Assessing this demand requires raising

AGRICULTURE INVESTMENT SOURCEBOOK awareness among potential beneficiaries, Box 9.19 Potential investments incorporating land reform into an overall local development strategy, and developing realistic • Studies of land availability and functioning of land markets. expectations for land reform. Local agencies • Training and technical assistance to strengthen local should ensure that the supply of family-sized coordinating agencies (local government, NGOs, citizen parcels of land exceeds demand. A general rule groups, or consulting companies). used in some cases has been thatæto prevent • Operating costs for local coordinating agencies. • Financing for land purchase and for investment and an increase in land pricesæthe supply of operating costs for farming operations. available land should be at least three times the • Technical assistance and training for new landowners. amount needed for the land reform program. A • Program monitoring and evaluation. land inventory is useful to classify land by Source: Authors. parcel size and to identify target areas not already characterized by very small landholdings that are suitable for agriculture. • Project appraisals examine local land markets to ensure their robustness to facilitate DECENTRALIZING IMPLEMENTATION. Negotiations at the local (decentralized) level have proven to efficient land acquisition. If not, a policy be faster and more cost-effective than conven- component is needed to address constraints tional centralized reform programs. Participa- and facilitate the operation of land markets. tion of community organizations facilitates • Projects ensure that land purchase prices land reform implementation, and local train- are in line with market prices. ing programs improve the ability of beneficiaries to negotiate with landowners over prices • Technical assistance and training provide (rental or sales) and to plan use of their land. assistance to beneficiaries to negotiate land acquisition, plan on-farm investments, MAXIMIZING USE OF MARKET MECHANISMS. Two manage farm operations, and access credit. lessons are evident in financing of community- based land reform. First, a grant used for land • Local implementing agencies establish purchases and investments is clearly preferable capacity to verify land status, confirm market to subsidized loan schemes, though provision prices, and appraise community subprojects. for some payment for land is appropriate. Second, without assured access to financial 405 markets, the sustainability of land reform is SELECTED READINGS limited. An integrated land reform project Asterisk (*) at the end of a reference indicates develops land markets jointly with other factor that it is available on the Web. See the Appen- markets, and helps beneficiaries with technical dix for a full list of Web sites. assistance to improve their skills. Adams, M. 2000. Breaking Ground: Develop- ment Aid for Land Reform. London: ODI. RECOMMENDATIONS FOR PRACTITIONERS Investments in community managed land Prosterman, R. and T. Hansted. 2003. “Land reform should be guided by the following Reform in the 21st Century: New Chal- considerations (see box 9.19): lenges, New Responses.” RDI Reports on Foreign Aid and Development 117. Rural • Analysis through economic and sector work Development Institute, Seattle, Wash.* determines the project’s context and evaluates the appropriateness of using market Strachan, L. W. 2001. “Assets-Based Develop- mechanisms for land reform. ment: The Role for Pro-Poor Land and Land

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS Tenure Reform.” Discussion Paper. CIDA, Quebec.

REFERENCES CITED Deininger, K. 1999. “Making Negotiated Land Reform Work: Initial Experience from Colombia, Brazil, and South Africa.” Policy Research Working Paper 2040. World Bank, Washington, D.C.

Deininger, K. 2003. Land Policies for Growth and Poverty Reduction. A World Bank Policy Research Report. Washington, D.C.: World Bank; Oxford and New York: Oxford University Press.

This Note was prepared by Danielle Typinski (USAID) with inputs from Wael Zakout, John Bruce, Klaus Deininger and other members of the Land Administration Thematic Group of the World Bank.

406

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE • Facilitate the use of property as collateral and to reduce transaction costs in title transfer and mortgaging. ARMENIA: BENEFITS OF SECURING AND REGISTERING The project also promotes least-cost registra- LAND FOR RURAL tion procedures by building on existing DEVELOPMENT databases of property information, by adding only market-relevant information to Since independence in May 1991, the Govern- these databases, and by contracting through ment of Armenia has pursued objectives of private surveyors. The project consists of consolidating national independence, promot- two main components: ing market reform, and changing the government’s role in the economy. • Support for establishment of a nationwide network of Information and Registration What’s innovative? Computerized cadastral and land Centers (IRCs) for secure registration of real registry systems to assist development of land mar- estate parcels and associated rights. kets, financial markets, and taxation inflows. • Support for land surveys to produce cadas- One of the areas pursued was land reform. tral maps. Agricultural land was distributed as private property to more than 320,000 farmers on a free- The project computerized and simplified the of-charge basis but with area allocated in propor- cadastral and land registry systems to make the tion to family size and with a five-year ban on the deed and title search process easier, thereby land resale. Following land distribution, private lessening property transfer and mortgage costs agricultural land accounted for 366,000 hectares and enhancing property market development. or approximately 26 percent of all rural land. This also provides updated information on real estate characteristics, thus improving the base This approach resulted in fragmentation of for taxation, sale of land, and use of land as agricultural holdings, with families owning collateral. Access to data is demand-driven and noncontiguous plots and inefficient farming administered by the Armenian Unified Cadas- due to an inability to use agricultural machin- tral Administration (SCA). ery. In order to achieve more efficient land use, 407 it was necessary to establish a land market to Inefficiencies arise when different cadastres are enable farmers through sales, exchanges and not integrated within a unified administrative leases, to consolidate family plots and to use system. The Government of Armenia has three land as collateral. parallel objectives for the Unified Cadastral Administration. The first is to develop and integrate a legal cadastre through an IRC net- PROJECT OBJECTIVES AND DESCRIPTION work, focusing on information about location, The Armenia Title Registration Project promotes demarcation, and ownership. The second is to private sector development by implementing a produce a physical cadastre through a classifica- transparent, parcel-based, and easily accessible tion taxonomy and detailed surveys, for the registration system for land and other real purpose of city and/or regional planning, public property. Specifically, it aims to: infrastructure development, and environmental management. The third is to assess real prop- • Increase the productivity and value of erty with a fiscal cadastre through its pre- land and other real estate by securing existing Inventory Bureaus (IBs), providing property rights and facilitating consolida- information essential for the establishment and tion of land parcels. the efficient operation of property taxation.

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS The registration system set up by the Unified Utilizing privatization committees rooted in the Cadastral Administration has units in each of local areas and awarding land based on house- the marzes (administrative regions). It is re- hold size has facilitated land titling. Using sponsible for the organization of surveying and household size as a determinant of parcel size mapping, collection of information, issuing of was feasible because of the link between the titles, and answering information requests titling system and the IRCs. through title reports, as well as for property dispute adjudication. Private property ownership provides incentives to increase agricultural productivity. Land reform and titling is important to agricultural BENEFITS AND IMPACTS reform in transition economies. A critical The primary beneficiaries of this project are review of a country’s title and cadastral system private farmers, small- and medium-sized is an important first step in planning a land enterprises, and urban property owners. Title reform effort. security increases incentives for investment in property and access to credit, thereby improv- PROJECT COUNTRY: ARMENIA ing the operational capacity of farmers and rural enterprises. In rural areas, land titling Project Name Title Registration Project facilitates consolidation of plots, increases the Project ID P057560 potential for agricultural productivity growth, and reduces the cost of property transactions. Project Cost US$10.6 million Similarly, in both rural and urban areas, Dates FY 1999 – FY 2004 registration documents the owners’ rights and obligations, builds up the pool of collateral- Contact Point Gotz Schreiber The World Bank, 1818 H Street ized real estate property, and reduces transac- NW, Washington, D.C. 20433 tion costs for land markets. In sum, the project Telephone: (202) 473-4495 assists the development of a property market Email: [email protected] and subsequent fair and transparent market valuation. About 477,000 cadastral files have been completed, and certificates have been issued for 288,000 of them. These lags are due 408 to the lengthy process of rectifying mis- matches between legal documentation and actual physical situation. The real estate market has begun to grow rapidly in the past three years. The number of registered transactions totaled 60,874 in 2002, compared with 40,803 in 2001.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Emergence of small private farms as the main producers of food and agricultural products has been the most significant development in the sector since independence. This change has provided much-needed flexibility and promoted entrepreneurial activity in the agricultural sector.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE based on the severity of the landlessness problem and conditions for successful implementation (that is, the immediate availability of BRAZIL: PARTICIPATORY land in the market and the capacity of the State NEGOTIATIONS AND MARKET- agencies to implement the project). The project ASSISTED LAND REFORM had five components:

The Northeast, accommodating one-half of all • A land purchase fund to finance land Brazilian poor people and two-thirds of all purchases. rural poor people, is vulnerable to drought and has a relatively poor resource base. Additional • Community subprojects (small matching constraints to improved investment and pro- grants to communities for investment ductivity in agriculture include ineffective projects, technical assistance, and start-up). financial systems and distorted land distribution. Studies have shown that family farms in • Institutional strengthening (technical assis- Brazil are more productive and labor intensive tance and training at the state level). than large farms. The highly distorted land ownership pattern is the result of economic • Project administration, supervision, and distortions, including subsidized agricultural monitoring. credit, high inflation, and inappropriate tax provisions. Past approaches to land reform, • Impact evaluation and dissemination by the based on centralized government-administered federal government. expropriation and redistribution, have had limited success. As a result, the government Community associations consisting of landless was interested in experimenting with faster, rural workers or rural workers owning land cheaper, and less conflictive approaches to sufficient only for subsistence farming selected land reform. suitable land and negotiated its purchase with willing sellers. Following negotiations, the What’s innovative? A market-based approach to land associations consulted with the State Land reform with negotiations made directly between Institute to confirm that the title was clean and willing buyers (poor beneficiaries) and willing sell- that the negotiated purchase price was consis- ers, with financing for purchases made available tent with market conditions. Communities then 409 through a government fund. presented their project to the State Technical Unit (STU), which verified the eligibility (based on agricultural skills) of the beneficiaries. At PROJECT OBJECTIVES AND DESCRIPTION this stage, beneficiaries were eligible for credit The objective of the Land Reform and Poverty from the Land Purchase Fund with credit Alleviation Project was to raise agricultural initially given for a 10-year period with a three- output and increase poor family incomes by year grace period at the government long-term providing improved access to land and funds interest rate. Decisions regarding land alloca- for complementary investment subprojects tion to individual members and corresponding planned and implemented by community payment obligations were made internally associations. The project experimented with a within the association. program of market-assisted land reform in which beneficiaries are given access to financ- Communities that participated in the Land ing for the purchase of suitable lands. The Purchase Fund program were eligible to purchases are negotiated between willing present proposals for complementary commu- sellers and willing buyers. Five states were nity subprojects and technical assistance to selected for participation in the pilot project establish their settlement and improve produc-

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS tivity of the acquired land. The community • Self-selection of beneficiaries is critical, but subprojects could be infrastructural, social, or information on the abilities of candidates is productive, and could be funded through frequently limited. Technical assistance, matching grants by the project. Community cofinancing, and management information labor and land constituted the counterpart systems can reduce these information contribution by the community. limitations.

• Decentralized and demand-driven imple- BENEFITS AND IMPACTS mentation is critical to achieving effective The process has proven to be fair and flexible. coordination of the various entities involved There is self-selection of beneficiaries, who in the process. because they are expected to repay their land purchase loan, have an incentive to bid down • Long-term viability is dependent on the the land price. Thus, by default, there has been availability of working capital and market- an automatic focus on poor and underutilized ing of increased agricultural production as a lands where social gains are maximized. Other result of diversification and improved achievements include: productivity. Complementary investment in infrastructure and services is necessary. • The number of families estimated to have benefited by the end of the project is • New community associations require 16,439, about 110 percent of what was special support to build human/social expected at appraisal (15,000 families). capital.

• The cost per beneficiary was reduced from PROJECT COUNTRY: BRAZIL US$11,600 to about US$3,000. Project Name Land Reform and Poverty • Newly-acquired farms show favorable Alleviation Pilot expectations for economic and financial Project ID P006475 viability, generating sufficient earnings to Project Cost US$150 million finance debt and improve living standards. Dates FY1998 – FY 2003 410 • Beneficiaries are less vulnerable to drought Contact Point Luis O. Coirolo and other climatic/economic risks. The World Bank, Edificio SUDENE, Sala 13S-021, Cidade Universitaria 50670-900 Recife, PE, Brazil LESSONS LEARNED AND ISSUES FOR WIDER Email: [email protected] APPLICABILITY • Community participation in the identification, financing, and implementation of subprojects that meet the beneficiaries’ most pressing needs increases the sense of ownership and sharpens the project focus on poverty reduction. Technical assistance should be provided to rural communities and smallholders to enable them to identify, design, and implement their own subprojects, thereby improving their capacity to compete for investment funds.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE that any property purchased during marriage is regarded as joint property. Land owned by a woman prior to her marriage remains her THE LAO PEOPLE’S individual property, as does any land she DEMOCRATIC REPUBLIC: inherits from her parents. PRESERVING WOMEN’S RIGHTS IN LAND TITLING But women have been disadvantaged in earlier titling work in which their customary rights The Lao People’s Democratic Republic (Lao had to be proven largely through oral testi- PDR) is one of the poorest and least devel- mony of their kin. Women generally have oped countries in the East Asia region. Since lower literacy rates, a heavy family workload, 1986, the Lao government has been transform- and a lesser role in public affairs. As a result, ing the economy from a centrally planned to a they often do not have the time—or under- market-oriented system. Lao law provides that stand the need—to participate in land adjudi- all land is owned by the state, with the state cation and titling processes. allocating perpetual, inheritable and marketable use rights to individuals based on existing possession and custom. PROJECT OBJECTIVES AND DESCRIPTION Since 1995, a collaborative effort by the Lao What’s innovative? A conscious, comprehensive ap- government, AusAid (Australian Agency for proach to including women’s issues in land reform International Development), and the World program design and implementation provides in- Bank has sought to address the land use rights creased recognition of women’s land rights, greater and inheritance issues affecting women. The security of tenure, and new access to credit for women. Laos Land Titling Project I has integrated gender-sensitive strategies into its implementa- In practice, women have less access to the land tion in urban and associated village areas in six than might be expected under prevailing provinces where both matrilineal inheritance customs, which differ substantially among and patrilocal residence prevail. The overall different ethnic groups but generally allow objectives of the project are to foster the women to inherit land. Women tend not to be development of efficient land markets and to able to exercise their rights where residence is facilitate domestic resource mobilization by patrilocal. When women move to their hus- providing a system of clear and enforceable 411 bands’ village, they have less access to land land use ownership rights, as well as by devel- and farm smaller and more dispersed plots. oping a land valuation capacity. The project Pressures from men to appropriate women’s focuses on development of a legal and policy land are very real. framework for land management, land titling, valuation, and administration. The Lao government has engaged in the systematic survey and titling of land use rights The Customer Relations Service of the Depart- in urban and periurban areas of seven prov- ment of Lands worked with the Lao Women’s inces since 1993. Titling provides security of Union (LWU) and its nationwide network of tenure and improved access to credit markets branches and members to ensure women’s as land can be used as collateral. Women titling rights in project implementation. They landholders should benefit from this program have developed a training curriculum to reduce as much as men because they comprise 51 gender bias among field teams and village percent of the population and 53 percent of the authorities and produced posters and bro- agricultural labor force. Under national law, chures on land rights for targeted villages men and women are now equally entitled to specifically for women. They have written hold property, and the Family Law specifies weekly news bulletins on activities of the land

MODULE 9: INVESTMENTS IN LAND ADMINISTRATION, POLICY AND MARKETS titling project for radio and newspapers, and increase household incomes and expand the performed a drama on women’s titling issues local economy. on television. Moreover, a study conducted in 2002 indicated In the field, the LWU works closely with local that land titles are becoming more important women through a series of meetings: a whole forms of collateral and that the size of loans village meeting, women’s focus group meetings, has increased with the use of land titles. and household group meetings. These meetings reached 2,285 people, almost one-half of which were women. In the meetings, the LWU com- LESSONS LEARNED AND ISSUES FOR WIDER municates information regarding women’s rights APPLICABILITY under the family law, inheritance law, property The project has provided an opportunity for law, and land law. Women are urged to make the government agencies to interact more sure they get their names on titles where effectively with local women at the district and appropriate and to participate actively in all village levels through a key women’s organiza- stages of the adjudication and titling. tion, and thus make important advances in titling land to women. The proposed Second Land Titling Project will be the second phase of the long-term land PROJECT COUNTRY: LAO PDR titling program. It is aimed at the development Project Name Land Titling Project I and II of the land administration capacity to support the country’s economic development and Project ID LTP I: P004208 poverty reduction goals. LTP II: P075006 Project Cost LTP I: US$28.4 million LTP II (orig.): US$23. 9 million BENEFITS AND IMPACTS The number of land titles under women’s Dates LTP I: FY 1997 – FY 2004 LTP II: FY 2004 – FY 2009 names or in joint names with their husband has increased. In areas where the systematic titling Contact Point Wael Zakout project is operating, 34 percent of titles are in The World Bank, 1818 H Street the name of women, 38 percent are in joint NW, Washington D.C. 20433 titles, and 24 percent are in the names of men. Telephone: (202) 473-3537 412 Email: [email protected] In areas of the country outside the project area, 15 percent of land titles are in women’s names, 28 percent in joint titles, and 56 percent in men’s names. Women’s names on the titles are defensive measures, protecting them in the event of a change of family status through marriage or divorce and from arbitrary decisionmaking by a husband over the disposi- tion of the wife’s lands or conjugal lands.

Women are using their new land titles to secure credit. In the project areas it was found that among those who mortgaged land, 51 percent were men and 49 percent were women. Women have both the tenure incentive and the credit to invest in sustainable land-management practices and productive activities, which

AGRICULTURE INVESTMENT SOURCEBOOK 10

MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER

413

Public intervention can facilitate better risk management through improved information systems, development of financial markets, promotion of market-based price and yield insurance schemes, and ensuring that the poor are able to benefit from these interventions and from participation in emerging systems.

RATIONALE FOR INVESTMENT Risk in agriculture is pervasive (see box 10.1). Several risk and vulnerability assessments by the World Bank have shown that commodity price, yield (mainly due to weather), and health risks are the most important risks that rural households face. Households are vulnerable to those risks when a significant loss threatens the sustainability of their livelihood base—a common situation for many small-farm households in developing and transition economies. Profit is the reward for risk-taking, and therefore any profit-seekers in the business of farming, as in any other business, must be able to bear some risk. Many farmers, however, are highly vulnerable and cannot readily bear additional risk in their farm/herd management or its potential shocks to their households. Box 10.1 Some risks affecting agricultural production systems same producers, their governments, and the international community. In more extreme • Climatic risks include risk of crop or herd loss (total or cases, international humanitarian assistance partial) from drought (micro or large-scale disaster, short may be necessary but that assistance may or long term), flooding, hard rains, hail, frost, snow, hard destabilize markets, create dependencies, or freeze, or wind. bias management via expectations of future • Environmental risks result in damage to land from soil disaster relief. erosion and to flora and fauna and from pest and disease attacks. Creating mechanisms to deal with catastrophic, • Social and economic risks include problems such as theft of crops or stock, damage by careless neighbors (fire, cattle), spatially covariate risks for large populations price fluctuations of commodities and key inputs (fertil- must be done in ways that do not undermine izer), family illness and loss of labor (HIV/AIDS, death), loss coping mechanisms that individual households of land access due to badly designed titling schemes, and use to deal with chronic day-to-day and year- infrastructure failure (roads degraded, transport break- to-year independent risks. Since the types and downs). severity of the risks confronting farmers vary • Political risks include more remotely generated (and thus greatly with farming systems and physical, significantly less manageable) events such as community socioeconomic and political environments, resettlement (for example, dam resettlement schemes), conflict and war; and political alienation/redistribution of generic guidance for good and relevant invest- land. ment activity in risk management interventions Source: Authors. is scarce. Past failures by governments and donors illustrate both the many pitfalls to avoid and some opportunities to explore in efforts to Just what farmers do to moderate the effects of help resource-poor farmers deal better with risk risk is remarkably similar at all economic levels and become less vulnerable to shocks. and throughout the world (see box 10.2). The specific components of these mechanisms vary as does the degree and formality with which PAST INVESTMENT ACTIVITY farmers employ them. The more informal Although there has been remarkably little Bank mechanisms for risk coping may reduce the assistance explicitly targeting agricultural risk, income of farmers (for example, diversification there has been indirect assistance through rural may come at the cost of specialization and finance operations, assistance for provision of 414 higher incomes). Any government intervention various public goods, and more recently assis- targeting risk must take into account how tance through disaster relief operations (see box farmer risk management mechanisms are 10.3). Quantifying the levels of World Bank applied, as well as farmers’ resource base. assistance addressing agricultural risk is problematic, and not clearly definable given that Risk management approaches can be distin- investments often target specific types of risk guished according to whether undertaken (for example, research on drought-tolerant before (mitigating) or after (coping) the event. crops) or risky environments (for example, arid Other categorizations used relate to whether and semi-arid rangeland management) without risk is viewed primarily as an individually classifying the funding as relevant to risk per se. experienced phenomenon (idiosyncratic) or a more widely experienced event (systemic). KEY ISSUES FOR INVESTMENT The incidence of risk in agriculture is important With mixed results, governments worldwide to policymakers at national and international have implemented various forms of public risk levels. Fluctuations in producer incomes, and management policies and programs. Broad particularly the threat of catastrophic loss, may quantitative assessments of the costs and ben- present difficult welfare problems for these efits of these programs are lacking. However

AGRICULTURE INVESTMENT SOURCEBOOK Box 10.2 Risk management approaches of farmers and other rural producers

Rural producers and communities employ several mechanisms to deal with the risky business of farming, and any interventions must account for the likely effect on these mechanisms and the resources available to farmers. Mechanisms include: Information gathering: • Using and improving information available in decision making, for example, market prices, regional rainfall probabilities, new crop varieties, emerging markets etc. Avoiding risks: • Adopting a precautionary stance, with the costs balanced against the possible reduction in serious negative consequences. • Using less risky technologies of lower but reliably yielding drought-resistant crops, or production of crops with more stable markets over those with potentially higher but less certain returns. Diversification: • Diversifying production systems through planting a variety of crops for separate markets to mitigate climatic, disease, pest and market vulnerability. • Acting with flexibility to adjust to changed circumstances, reflecting physical assets and markets. • Financing farm activities with credit, and borrowing in cash or in kind based on social capital. Sharing of risk: • Using informal and formal insurance through making small investments expected to provide returns only in the event of difficulty or catastrophe, for example, cash or gifts, “banking” through social capital. • Using risk pooling in formal or informal arrangements to share outputs and cost of production. • Using contract marketing and futures trading mechanisms (such as forward contracting to sell all of a crop at an agreed price, futures contracts, and hedging) to reduce price risks for commodities not yet produced, or for future inputs. Source: Authors. results of these programs often raise questions prone to loss if all their land is in one parcel. about sustainability (particularly financial), and Thus, as is always the case, it is critical that distribution of benefits to vulnerable groups interventions have clear goals, reliable informa- most in need of assistance (for example, tion, and sound analysis. women). Another problem is that subsidized public interventions are generally unsustainable Box 10.3 Investment in public goods in the long term and undermine risk markets and traditional risk management and coping Public investments that address risk reduction in farming have been considerable, but they are seldom designed to explicitly systems. Key themes associated with 415 sustainability and distribution policy issues are target this risk. Irrigation investments are one such case, where discussed below. the explicit intention has been to boost the productivity of the land and water resources involved, and to increase rural employment and food self-reliance. Indeed, such investment UNDERSTANDING RISK AND PRODUCTION SYSTEMS. together with varietal improvements formed the core of the Addressing problems of risk and vulnerability Green Revolution in South Asia and elsewhere in the 1960s. within an agricultural production and market- But this investment also considerably reduced the inherent ing system requires an understanding of the variability resulting from dependence on rainfall. Investments in cross-cutting issues, and the multiple ap- plant breeding have targeted vulnerability to pests, diseases, proaches to managing risk. These include droughts and floods, and as such targeted some of the more market development and access, crop diversifi- risky conditions facing farmers. These risk-reduction features (along with the corresponding productivity gains) are largely cation, irrigation and intensification of farming, public goods produced by investment in public research and development of financial and social capital. agencies. Public investments with collateral benefits affecting risk Changes in the system, including changes in a reduction include range management, veterinary and human risk management strategy, can have both vaccine development, HIV/AIDS, rural banking, and early- beneficial and detrimental effects. Consolidat- warning systems for conflict and weather. ing scattered plots of land may increase effi- Source: Authors. ciencies, but might make households more

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER BALANCING PRODUCTIVITY GAINS AND RISK REDUCTION. DEALING WITH SYSTEMIC RISK. Most traditional/ Farmers’ efforts to avoid risks through on-farm informal risk management strategies will fail management practices, such as plot diversifica- during years of widespread disaster, such as tion and use of traditional varieties and crops, droughts, pest infestations or floods, where help maintain stable but lower production and large numbers of people are affected in the income levels. Production instability tends to same village, district, or region. This is called increase domestic food price variability and the problem of systemic risk. Furthermore, if cause food insecurity problems for the landless nonfarm income depends on employment poor and increases uncertainty for rural pro- generated through sectors affected by the ducers. Instability in export crop production catastrophe, the success of nonfarm income in and economic returns leads to more volatile contributing to risk management can disappear foreign exchange earnings, which can destabi- along with surpluses. Rural banks can be lize a national economy. severely affected by poor loan collection if many farmers default at the same time because RECOGNIZING THE STRENGTHS AND LIMITATIONS OF of a shared catastrophe such as a major TRADITIONAL INSTITUTIONS. Formal risk-sharing drought. Governments have too often re- institutions such as private insurance, commod- sponded to farmers’ difficulties by “forgiving” ity exchanges (spot markets, futures trading, their loans, thereby undermining the operation and options markets) are widely available in of the credit system, and sending the wrong industrial countries to help farmers cope with signal to farmers about the need for them to production and marketing risks. In developing effectively manage their own risks. Govern- countries, risk-sharing institutions are usually ments do have responsibility for some direct much more rudimentary, and formal or com- involvement to manage severe systemic risk mercial institutions may not be available for (for example, an extreme drought that may most small-scale producers. Nevertheless, a occur only once in, say, 50 years), as the wide range of informal risk-sharing arrange- private sector will not generally provide ser- ments has evolved, including share tenancy vices to manage such risks. Effective govern- contracts, traditional money lending, and risk ment intervention to mitigate severe systemic sharing within extended family and other risks (often couched as social protection community networks. These informal systems measures such as the “food for work” schemes work well most years, in locations where risk of India), along with an enabling policy and 416 events are independent and vary widely in regulatory environment, will encourage private incidence by household over time and between sector provision of services for more frequent micro-locations. While these approaches do not and less severe risks. pool risks as efficiently as they would if they spanned broader regions or sectors of a na- PAST PRICE STABILIZATION INITIATIVES. Various mecha- tional economy (as do nation-wide crop- nisms, such as price supports, buffer stocks, insurance or credit schemes), they are normally and variable tariffs, have been used to pursue available to most poor farmers. Such informal traditional price stabilization objectives, with arrangements can help farmers to effectively varying degrees of success and many failures.1 manage the risk they routinely face on a Though perhaps theoretically sound, a fre- household level. They can also be relatively quent finding is that the welfare gains from effective for independent risks (illness, death), price stabilization are relatively small. Buffer but they do not do so well for systemic risks fund schemes supported by variable levies and where most of the community suffers at the tariffs have suffered from design and manage- same time. ment problems that often have compromised

1. See Module 1, “Building Agricultural Policy and Institutional Capacity”

AGRICULTURE INVESTMENT SOURCEBOOK their performance. As a result, a cautious ened by inappropriate management practices. approach to the use of stabilization schemes is The common practice of insuring “target” yields advised to avoid bankruptcy or an unsustain- rather than compensating for actual losses is able drain on public resources (such as experi- problematic in situations where averages do enced with the Indian foodgrain reserves in not accurately reflect yearly, or site-specific, recent years). In general, such schemes should fluctuations in yield. Public crop insurers also be developed only where specific criteria are tend to have high administration costs, since satisfied (for example, temporary protection of they insure mostly small-scale farmers and do an internationally competitive infant industry, not have a well-diversified portfolio of clients. or significant limitations to development of Although private insurance is growing in some market-based price risk management schemes), countries, it generally covers specific weather and should be implemented with clear sunset and pest problems faced by large-scale com- clauses. Future efforts should turn from tradi- mercial farms growing high-value crops, and is tional price stabilization toward mechanisms for frequently heavily subsidized. In the near market-based price risk management.2 future, private schemes are not likely to be adequate for addressing the vulnerability of the RETHINKING AGRICULTURAL INSURANCE PROGRAMS. larger population of resource-poor farmers. Agricultural insurance is provided or supported Other approaches (such as index-based insur- by the public sector in many countries. With ance) are required, along with efforts to build few exceptions these interventions have failed, an environment that enables improved avail- most being financially unviable. Many of the ability of private-sector insurance services larger all-risks crop insurance programs pay tailored to the needs of resource-poor produc- out two dollars or more for every dollar of ers.3 These new insurance products will likely premium they collect, the difference being require considerable time to develop and test. paid as government subsidy. Many farmers, despite high insurance subsidies by the gov- SOCIAL SAFETY NETS. Since all agricultural produc- ernment, are still reluctant or unable to pur- tion systems are subject to risk, and many small chase insurance. As a result, many of these farm households are quite vulnerable to shocks public insurance programs are made compul- of different types, governments must be pre- sory, either for all farmers growing specific pared to provide direct assistance to farmers crops (for example, Japanese rice farmers), or under various circumstances, such as those for those who borrow from agricultural banks noted above for systemic risk. Disaster re- 417 (for example, subsidized crop insurance in sponse programs are frequently required in Mexico). This further distorts production post-conflict situations and after natural disas- decisions, reduces incentives for the private ters, to ensure survival and to help restart sector to provide market-based approaches, agricultural and off-farm production. Poverty and results in little improvement in farm-level relief programs may be appropriate where risk management capacity. chronic poverty threatens survival and can only be effectively addressed through long-term The high cost of public insurance schemes development and support to education, health, results from attempts to insure risks difficult to and nutrition programs. Support might be quantify and assess (for example, climate, needed to help farmers adjust to: transition diseases, and pests), or simply too costly and from central planning (as in Eastern Europe); time consuming to quantify. Loss assessments changing market environments arising from are prone to severe moral hazard problems, trade liberalization; changes in consumer tastes; and damage reported can be caused or wors- and the banning of production of traditional

2. See the AIN, “Commodity Price Risk Management” 3. See the AIN, “Agricultural Insurance”

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER crops (such as opium poppy). Support pro- savings institutions may allow producers to sell grams may feature cash transfers or transfers of at periods of best price and buy at periods of in-kind resources. lowest cost. For example, pastoralists sell animals regularly and at periods of better price, but only when they have access to secure FUTURE DIRECTIONS FOR LENDING savings institutions and no longer have to store The range of interventions being discussed by their wealth “on-the-hoof.” Farmers able to bank the development community includes attention small excess profits are less likely to “bank” this to both chronic independent risk and large- excess in informal insurance or gift-giving. scale covariate risk. Future interventions must be designed specifically to avoid reducing TESTING NEW APPROACHES TO AGRICULTURAL INSURANCE. incentives for farmers to adopt effective pre- With traditional all-risk crop insurance schemes ventive measures. Dependency on relief efforts largely discredited as being unsustainable and must be avoided, and relief initiatives must not costly, there are no easy answers to the prob- undermine broader development efforts, nor lem of providing insurance for smallholder incentives for private-sector involvement. agriculture. While any approach must distinguish between the government’s role of ad- IMPROVING INFORMATION SYSTEMS. A critical compo- dressing systemic catastrophic risks, and the nent of most agricultural risk management private sector’s role in provision of insurance strategies is access to information—this requires tools for more frequent events, some new investments to improve the generation and products being developed warrant close moni- dissemination of agricultural information. toring and further testing. Area-based index Market price information systems have positive insurance is one new approach.4 Instead of affects on the marketing cycles for crops and insuring a farmer’s crop and its performance, livestock, such that producers optimize prices insurance is issued for some more readily obtained and better regulate the timing of sales measured objectively verifiable index (for throughout the year. Weather information example, area rainfall). This can substantially systems help farmers make critical production reduce moral hazard and adverse selection and marketing decisions relating to input and problems. However, implementation issues output combinations given their resource (such as the availability and reliability of long- constraints. Farmers facing a high likelihood of term rainfall and yield data for specific re- 418 drought may plant more stress-tolerant varieties gions) need to be resolved. Further, if data are of crops. Herders facing drought may sell early available, strong correlations between typical to improve sale prices and reduce pressure on on-farm yields and rainfall levels are required drought-stressed rangelands. Donors have a for this mechanism to be effective. The poten- critical role to play in convincing host govern- tial to provide effective insurance for rural ments that market and weather information producers is promising, however, and despite systems are appropriate policy interventions hurdles it seems likely that they may eventually and can support setting up efficient and sus- become widely available and handled routinely tainable information systems and education and by the private insurance industry. In the mean- training programs to accompany them. time, further field testing should be continued to assist the industry to develop and market STRENGTHENING RURAL FINANCIAL SERVICES. In prin- insurance products valuable to poor farmers. ciple, having a financial system serving rural areas in a flexible manner is the best single PROMOTING MARKET-BASED PRICE RISK MANAGEMENT. most important approach to enabling effective Various mechanisms, such as buffer stocks and risk management. Access to reliable and local price bands, used to pursue price stabilization

4. See the IAP, “India: Innovative Rainfall-Indexed Insurance”

AGRICULTURE INVESTMENT SOURCEBOOK objectives have met with varying degrees of EMPHASIZING DISASTER PLANNING RATHER THAN RELIEF. success and many failures. Recent initiatives The policies, or sometimes lack of them, such as trading in futures and options contracts governing disaster relief and planning at both are not intended to stabilize market prices, but national and international levels are critical rather to insulate producers from short-term areas in need of analysis and reform. Disaster is price volatility.5 While the government’s role in usually treated separately as a “humanitarian the functioning of these markets is regulatory, problem,” and not the development and politi- governments may need to adopt an active role cal problem that it usually is. Often as a result in facilitating initial development of derivative of public pressure, governments and donors markets, overcoming technical complexities, intervene in ways that in the long run actually and ensuring that the concerns of the poor are work to increase the likelihood of a subsequent adequately addressed. As for agricultural disaster by discouraging private risk mitigation insurance, a key policy issue is if and to what measures paid for by local populations. The extent poorer countries should (or can afford public interventions, in hindsight, are often to) subsidize privately provided, market-based, demonstrably ineffective and distort individual risk management mechanisms. incentives to plan more carefully for what are often normal and recurrent events. Current TARGETING USE OF CASH TRANSFERS AND SAFETY NET debate within the area of rural finance centers PROGRAMS. The recognition that the poorest on this critical and difficult issue. If govern- farmers might not be able to repay loans, but do ments bail farmers out of the effects of other- require external assistance, has led to increased wise-insurable or manageable natural disaster interest in use of cash (or other resource) risks whenever there is political pressure to do transfer programs. Such programs fall into two so, development of commercial insurance categories—poverty safety nets to ensure survival markets will be compromised and the workings or reduce poverty, and transitional support of various indigenous (non-commercial) forms programs that help producers adjust to new of risk-management practice will be affected. market realities or production constraints (for Innovative interventions to address specific example, the Direct Income Support Program in disaster needs without compromising disaster Turkey). Safety nets have an important role in risk-management practices either have not been helping rural households cope with risk and developed or have been designed poorly. chronic poverty, providing assistance to house- These interventions need to be informed by holds to meet short-run basic needs, and possi- sound technical analysis of how they can be 419 bly also to increase future income. These safety better targeted, implemented and evaluated as net programs target especially the temporarily to their impact and sustainability (see box 10.4). poor (households that experience sudden and unexpected drops in household income caus- RESPONDING TO DISASTERS. When planning and ing them to fall temporarily into poverty). mitigation measures fail, there is frequently a Transitional support programs target both poor need to “jump-start” agriculture to get farms and nonpoor households that are vulnerable to back into production after a disaster has oc- short-term income fluctuations, and poverty curred. Agricultural “starter pack” programs that due to structural changes in the agricultural fund free distribution of agricultural inputs economy. Cash transfer programs can yield have been used to assist resource-poor farmers significant development benefits through after a catastrophe. They have also been used income multipliers, stemming from increased to introduce new technologies (seed, fertilizer) household investment. Safety nets are espe- in non-emergency situations. Unfortunately, cially useful for reducing the risk associated these programs may create higher levels of risk with increased food prices. in the long run by undermining local markets,

5. See the IAP, “Tanzania: Accessing Market-Based Price Risk Management Instruments”

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER Box 10.4 The World Bank’s Disaster Management Facility example, micro-credit, infrastructure, market and weather information systems) should be in- The Disaster Management Facility was established in July 1998 creased where sustainable. This will require that to provide proactive leadership in introducing disaster preven- outcomes and impacts of risk-related initiatives tion and mitigation practices into the World Bank’s develop- be better documented so that a knowledge base ment efforts. A recent recommendation of the Facility is that can be built to guide future activities. Although disaster risk management be formally included in all Bank there are still many persistent problems relating planning for countries with high natural catastrophe exposure. to agricultural risks faced by the poor, there are The Facility also recommends that attention to risk by donors policy, institutional, resource, and market include the three steps of risk identification, risk mitigation, and financing. Other donors, such as the U.S. Agency for Interna- opportunities for risk management that can tional Development (USAID), recently mandated that all benefit vulnerable rural populations. country development strategies include conflict vulnerability assessments, thus directly including one type of “man-made” disaster into their development planning. The development and SELECTED READINGS humanitarian assistance communities are working to improve Asterisk (*) at the end of a reference indicates links between relief and development planning. While moving that it is available on the Web. See Appendix 1 slowly toward positive change, there is recognition of the need for a full list of Web sites. to prevent dependency on relief and to prevent relief efforts from undermining development efforts. Anderson, J. R. 2003. “Risk in Rural Development: Source: Web site of the World Bank’s Disaster Management Facility Challenges for Managers and Policy Makers.” (http://www.worldbank.org/dmf/) Accessed January 20, 2004. Agricultural Systems 75 (2-3): 161-197.

thus reducing the availability in good years of Barry, P. J. 1984. Risk Management in Agricul- commercial input suppliers and inputs. Distrib- ture. Ames, Iowa: Iowa State University uting farm inputs using vouchers and organized Press. fairs as a forum of exchange between market participants has shown potential to strengthen Duncan, R. 1997. “World Food Markets into the both formal and informal marketing systems.6 21st Century: Commodity Risk Management This also improves the ability of the agricultural Policies.” Australian Journal of Agricultural system to cope in times of hardship and re- and Resource Economics 41 (3): 429-443.* duces dependency on external aid. 420 Freeman, P. K., L. A. Martin, R. Mechler, K. Warner, and P. Hausmann. 2002. “Catastro- SCALING UP INVESTMENTS phes and Development: Integrating Natural For analysts trying to help decisionmakers at Catastrophes into Development Planning.” government and enterprise levels, the main Disaster Risk Management Working Paper message is that governments should not con- Series 4. World Bank, Washington, D.C.* tribute to the complexity of the environment in which farm decisions are made, or contribute Just, R. E. 2003. “Risk Research in Agricultural to the vulnerability of rural households through Economics: Opportunities and Challenges ill-conceived or inappropriate interventions. for the Next Twenty-Five Years.” Agricul- Given the poor record of most interventions tural Systems 75 (2-3): 123-159. specifically targeting risk, future efforts must stress rigorous evaluation. Those proven Skees, J.R. 2003. “Risk Management Challenges in endeavors that target the resource needs of Rural Financial Markets: Blending Risk Man- poorer and more vulnerable producers (for agement Innovations with Rural Finance.”

6. See the AIN, “Responding to Disaster with Seed Distribution”

AGRICULTURE INVESTMENT SOURCEBOOK Paper presented at Paving the Way Forward for Rural Finance: An International Confer- ence on Best Practices, sponsored by USAID and hosted by BASIS CRSP partner, World Council of Credit Unions, June 2-4, Washington, D.C.*

REFERENCES CITED World Bank Disaster Management Facility. http://www.worldbank.org/dmf/.

This overview was prepared by Jock Anderson and Kimberly Lucas. Peer review comments were provided by Henry Gordon, Katrine Saito, David Rohrbach (ICRISAT), and Donald Larson.

421

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER AGRICULTURE INVESTMENT NOTE through state marketing boards. However, government interventions have been costly and have crowded out private sector initiatives. COMMODITY PRICE RISK MANAGEMENT New price risk management schemes involve a substantially reduced overall role for govern- Commodity price instability has a negative ment in administration, and are based on devel- impact on economic growth, income distribu- opment of market-based price risk management tion, and the poor. Early attempts to deal with instruments rather than government guarantees commodity price volatility relying on direct and subsidies. The long-term objective must be government intervention (for example, floor for government to assume a regulatory role, prices, guaranteed prices) were generally unsuc- overseeing markets for risk management tools. cessful. Although there may be a case for limited However, the public sector can facilitate initial direct intervention in some circumstances, development of these markets and/or improve liberalization of markets has resulted in market- access to established foreign or international based instruments for commodity risk manage- markets for these tools, thus ensuring that needs ment (for example, futures trading, options). of the poor are adequately addressed. Market- However, there are substantial barriers to devel- based systems are most relevant for standard- opment of markets for, and farmer access to ized commodities traded internationally in large these risk management products. Key invest- volumes, mainly coffee, cocoa, rubber, cotton, ments needed to expand access to these ser- grains, sugar, and oilseeds (and some livestock vices include: public goods (price information products) (see box 10.5). They are less appli- systems, data management systems); technical cable to high-value, highly differentiated, or capacity in government and private service perishable products for which price risk is providers; and education of potential users.7 managed through forward contracts, often in the context of integrated supply chains. Although the old paradigm of domestic price protection and price stabilization increased instability in world markets, trade liberalization BENEFITS has increased transmission of international Use of price risk management instruments price movements to domestic producers and provides producers with certainty about the 422 consumers. Inability to manage this volatility minimum price they will receive for their crop destabilizes exchange rates and affects the (at the cost of higher revenues forgone), and governments’ ability to maintain a stable allows them to make more efficient farm economic environment. Low prices limit farmer management decisions regarding output mix incomes, and price volatility makes it difficult and input use. Elimination of worst price for farmers to plan production activities, allo- scenarios can provide incentives for investment cate resources efficiently, and obtain credit. in promising sectors (that are often high risk/ high return). Reducing market distortions foster diversification to new and more profitable MANAGING COMMODITY PRICE RISK agricultural enterprises. Further, eliminating the Governments in many countries have inter- primary reason for nonrepayment of loans (an vened in markets, often through state economic unanticipated decline in commodity prices) can enterprises, to insulate producers and consum- reduce the risk exposure of producers in the ers from world prices. Most interventions have eyes of lending facilities, and is likely to result taken a nonmarket approach in the form of in improved access to (and terms of) credit for quota or buffer stock programs organized small-scale agricultural producers.

7. This section refers mainly to cash crops for export markets and is less relevant for food crops.

AGRICULTURE INVESTMENT SOURCEBOOK POLICY AND IMPLEMENTATION ISSUES Box 10.5 Definitions of market-based instruments TARGETING USE OF NON-MARKET MECHANISMS. Reform- ing existing non-market interventions (such as The rationale and theoretical underpinnings of formal mecha- price bands and floors) so that they are mini- nisms for managing price risk are reasonably simple. There are mally distorting will enable the development of two basic types of risk management tools (generally referred to market-based mechanisms that “price stabiliza- as derivatives or hedging instruments): tion” has tended to impede. Key to success of Futures contracts involve the buyer (or seller) of a futures such nonmarket schemes is the ability to contract agreeing to purchase (or sell) a specified amount of a accurately define the threshold price, maintain commodity at a specified price on a specified date. Contract discipline in implementation, and include terms (for example, amounts, grades, delivery dates) are specific sunset clauses. Such schemes are only standardized, and transactions handled only by organized appropriate when major barriers to market- exchanges. Profits and losses in trades are settled daily through based alternatives will persist into the medium- margin funds deposited in the exchange as collateral. Futures contracts are usually settled before or at maturity, and do not term, and where there is a true underlying generally involve physical delivery of the product. competitive advantage for the commodity selected for the price floor scheme. Options contracts offer the right—but not the obligation—to purchase or sell a specified quantity of an underlying futures contract at a predetermined price on or before a given date. COMMODITY EXCHANGES. Well functioning com- Like futures contracts, exchange-traded options are standard- modity exchanges—systems of price discov- ized, over-the-counter options offered by banks and commodity ery—improve marketing efficiency for agricul- brokers. Purchase of an option is equivalent to price insurance tural products, and open up new production and therefore requires that a price (premium) be paid. Options and marketing opportunities to producers. include: calls (which give the buyer the right to buy the They reduce price risk (faced by both produc- underlying futures contract during a given period and are ers and buyers) by improving overall market purchased as insurance against price increases) and puts (which liquidity, enhancing stability of local trading give the buyer the right to sell the underlying futures contract networks, and providing farmers with more during a given period and are purchased as an insurance against price declines). certainty (through better information) of expected future prices (upon which they can Source: Varangis and Larson 1996. make better managerial decisions). Commodity exchanges require effective regulatory oversight to ensure market surveillance, supervision, and PRICE RISK MANAGEMENT TOOLS. Commodity deriva- compliance with quality standards. These tives markets present opportunities to hedge 423 exchanges can provide a platform for future commodity-related risks. Market-based tools development of a wider range of services for can effectively insulate producers from short- market participants—both buyers and sellers. term price volatility, but are not available in most developing countries and producers and Simple cash forward markets such as ware- traders (especially small and resource poor house receipt systems, offer some advantages farmers, and traders) are typically not able to of a commodity exchange and can offer perfor- access these. A key development challenge mance guarantees, improve credit accessibility, will be to address constraints to access and and reduce price risks. Warehouse receipt technical complexities (both real and per- systems enable farmers to store their products ceived) of designing, implementing, and in a reliable warehouse until prices increase, regulating markets for derivatives. using the product as a loan collateral and accessing funds before the product is sold. This BARRIERS TO PARTICIPATION. Sellers of market-based improves access to credit and reduces price instruments (for example, international banks risk. Such systems depend on effective grades and brokerage houses) often resist trading with and standards systems, and contract enforce- unfamiliar customers, particularly small-scale ment mechanisms that can guarantee perfor- producers, as performance risk and transaction mance by the seller. costs are greater. Similarly, the minimum size of

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER Box 10.6 Colombia: policy barriers system that encourages use of innovative financial instruments. This requires overcoming The Colombian government changed the legal framework so creditworthiness constraints by: improving the that the private sector was allowed to hedge price risks using security of sources of collateral and insurability external risk management instruments (including commodity through clarification of collateral law and derivative markets). However, the institution supervising coffee property rights; central bank regulations for exports does not allow contracts for longer than three months. using foreign exchange to hedge transactions; As a consequence, the fees to be paid for exports three use of offshore accounts; and the creation of months in the future remained uncertain, and represent a larger secure collateral in the form of warehouse risk than international coffee price risks. Exporters did not use the international hedging market and small producers ended up receipts backed by appropriate monitoring, absorbing the price risk. licensing, and bonding systems with international standards (Varangis and Larson 1996). Source: Varangis and Larson 1996.

TARGET LOCAL CLIENTS. Stakeholders (including producers, traders, government agencies) must Box 10.7 Mexico: price risk management develop an awareness of, and knowledge in, the operation of commodity exchanges, deriva- After liberalization of agricultural trade in Mexico increased price uncertainty for farmers, ASERCA, a government organiza- tive markets, hedging functions, and risk man- tion providing support services for agricultural commercializa- agement procedures. Technical assistance is tion, assisted cotton growers to hedge their price risk using needed on risk assessment and developing international markets. During the planting season, for a fixed fee internal procedures. Training should increase or premium, farmers can voluntarily participate in a program farmer understanding of basic mechanics of guaranteeing a minimum cotton price that is fixed using the hedging and the costs/benefits of participation. New York Cotton Futures Exchange. ASERCA offers a Capacity building initiatives must not neglect guaranteed price (in US dollars) and hedges its own risk by the intermediary institutions (especially coop- purchasing a “put” option on the Exchange for future delivery at harvest. Should the prices fall, ASERCA pays farmers the eratives, banks and other financial institutions, difference between the New York Exchange price at harvest and and local traders) needed to aggregate demands the minimum price. (This difference is equal to the payoff value of individual farmers to enable risk manage- of the put option.) If prices rise, ASERCA makes no payment to ment instruments of a minimum size to be farmers. By participating in the program, a farmer purchases traded on international markets (see box 10.7). insurance against a drop in prices below a certain level. 424 Source: Varangis and Larson 1996. REQUESTS FOR LOCAL COMMODITY DERIVATIVES MARKETS. Several countries have set up their own futures and options exchanges (for example, Argen- contracts traded on organized exchanges far tina, Brazil, China, Hungary, India, Malaysia, exceeds the annual quantity of production of South Africa, and Zimbabwe) and others have most individual producers in developing expressed interest in doing so. This can pro- countries, who, like many market intermediar- vide local users with better access to contract ies, lack knowledge of market-based price exchanges; ensure that contract specifications insurance instruments and an understanding of are appropriate for locally-traded commodities; how to use them. Technical and logistical introduce new contracts of local interest; and limitations and other policy and regulatory remove the exchange rate risk of using foreign controls can limit the development and use of exchanges. These benefits, however, must be derivatives markets (see box 10.6). weighed against the benefits of using existing exchanges that have well-established rules and regulations, confidence of their customers, and LESSONS LEARNED a high volume of transactions (liquidity) en- POLICY AND REGULATORY ENVIRONMENT. Policy and abling users to easily find a buyer or seller. regulatory reform should reduce government Preconditions for establishing new futures and intervention in markets and establish a legal options exchanges include a well-established

AGRICULTURE INVESTMENT SOURCEBOOK cash (spot) market; a developed financial Box 10.8 Potential investments sector and regulatory framework; sufficient capital to form a viable clearinghouse; and • Technical support for development of an enabling interest of the local business community. In regulatory and policy environment. most cases, it makes more sense to support • Support for business development services providers in local cash markets and assist the emergence of working with derivatives. simple cash-forward markets before consider- • Technical assistance for potential providers in assessing ing development of a full-fledged commodity producer demand, risk analysis, strategy development, futures market. tracking derivatives, selecting brokers and developing controls. • Technical assistance for customers (farmers, traders) on SCALING UP RISK MANAGEMENT INITIATIVES. Recent use of derivatives with support provided through producer initiatives have confirmed demand for risk groups, trade associations, or business development management tools by small-scale farmers in services providers. developing countries, and the technical feasibil- • Cofinancing of critical infrastructure for market develop- ity of making these instruments available to ment, information and communication systems, logistical them. However, transactions so far have been infrastructure, data management systems, and testing laboratories. on a relatively small scale and have required intensive technical assistance and capacity Source: Authors. building efforts. Expanding the size and scope of market development activities while bringing tion costs, local market imperfection and down the overall cost will require combining inefficiencies, lack of inter-temporal and inter- capacity building investments with larger agri- regional arbitrage, inadequate storage markets, cultural sector projects, or investing in special- and government intervention. ized piloting mechanisms to identify generic good practices and test principles at different scales and in different contexts. Whether techni- RECOMMENDATIONS FOR PRACTITIONERS cal assistance can lead to viable volumes of Direct government intervention in price risk demand for market-based risk management management should only be encouraged where instruments depends on several factors, but there are substantial barriers to the emergence mainly on the size and financial sophistication/ of private providers. General recommendations technical capacity of the organization that would related to investments related to price risk bundle price risks of many small farmers. management include (see box 10.8): 425 The use of derivatives in international com- • Focus reforms on regulatory liberalization, modity exchanges to hedge price risks seems reform of the legal system, clarification of to be more appropriate for internationally collateral law and property rights, central traded export/cash crops such as coffee, bank regulations for using foreign ex- cotton, sugar, rubber, palm oil and in some change and offshore accounts, contract cases cotton. But even in these cases, the issue enforcement law, and creation of secure of the basis risk—low correlation between local collateral in the form of appropriately and international prices—could reduce the backed warehouse receipts. effectiveness of hedging. Furthermore, market- based risk management instruments provide • Promote establishment of trading centers price protection against a short-term drop in and spot markets that serve as forums for prices, but they are not a solution for a longer- enabling efficient matching of commodity term decline in commodity prices. Finding buyers and sellers; conveying product appropriate market-based price risk manage- information and price signals; facilitating ment instruments for food commodities such as the flow of information and financial cereals, is even more challenging because of resources; and reducing supply chain higher basis risk. This is due to high transporta- transaction costs.

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER • Build awareness of the need to manage Risks.” In N. Scott, ed., Agribusiness and price risk effectively and develop the Commodity Risk Strategies and Manage- technical knowledge and capacity of ment. London: Incisive RWG Ltd. government to provide an enabling environment, providers to develop and market appropriate services and tools, and custom- REFERENCES CITED ers (farmers, traders) to understand and use Varangis, Panos and Don Larson, “Dealing with the tools effectively. Commodity Price Uncertainty,” The World Bank, October 1996. • Develop relevant technical and logistical infrastructure (for example, data processing This note was prepared by Erin Nicholson (USAID), capacities and information systems) to Panayotis Varangis, and Samuel A. Kane. reduce access limitations to commodity and derivative markets.

• Target the poor through enabling key clients who can act as intermediaries to pool the demands of producers to create orders of sufficient size to participate in markets.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Web sites.

Akiyama, T., J. Baffes, D. F. Larson, and P. Varangis. “Commodity Market Reform in Africa: Some Recent Experience.” Policy Research Working Paper 2995. World Bank, Washington, D.C.* 426 International Task Force on Commodity Risk Management. http://www.itf-commrisk.org.

Larson, D. F., P. Varangis, and N. Yabuki. 1998. “Commodity Risk Management and Devel- opment.” Policy Research Working Paper 1963. Paper prepared for the Roundtable Discussion on New Approaches to Com- modity Price Risk Management in Develop- ing Countries, April 28, Washington, D.C.*

Varangis, P., and D. F. Larson. 1996. “Dealing with Commodity Price Uncertainty.” Policy Research Working Paper 1667. World Bank, Washington, D.C.*

Varangis, P., U. Hess, and E. Bryla. 2003. “Inno- vative Approaches for Managing Agricultural

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE insurance payouts to the average premiums paid must be less than one. However, for most countries the ratio has far exceeded one, AGRICULTURAL INSURANCE indicating that the programs have been unsustainable without heavy subsidization. Concern for risks that stifle investment and contribute to vulnerability of the rural poor are a Traditional publicly supported crop insurance is driving force behind various types of agricultural all-risk or multiperil, covering either all the insurance (typically “crop insurance”). Insuring supposed production risks or a very broad small farmers against crop losses to adverse spectrum of those risks.9 All-risk insurance weather or other hazards has attracted public usually involves payments to the grower as sector involvement in the provision of agricultural compensation for any shortfall when yield insurance in many countries. With few excep- declines below a level set in the policy tions, such interventions have encountered severe (Gudger 1991). In some instances, this has problems due to high administrative costs, moral encouraged inappropriate use of insurance, hazard, and adverse selection. Government and led to excessive risk taking or moral interventions should be aimed at improving the hazard, such as growing crops in high-risk accessibility and quality of private sector insur- regions, thus increasing farmers’ exposure to ance. This will require the establishment of a future losses. Assumption by the public sector framework for responding to severe systemic of massive insurance losses in turn reduces events affecting agricultural production, and opportunities to participate in broader reinsur- establishing an appropriate regulatory environ- ance markets. The ad hoc nature of government to foster private sector innovation and ment policy has frequently been coupled with investment in services for less catastrophic events. an ineffective and uncertain regulatory framework that increases uncertainty for private Agricultural insurance is a financial tool to sector providers. transfer production risk associated with farming to a third party via payment of a premium that reflects the true long-term cost of the insurer BENEFITS assuming those risks.8 Past public sector Where affordable insurance is not available, interventions to provide insurance and enable poor households typically survive less severe the poor to cope in times of hardship have situations through informal coping strategies 427 typically failed. Government response in times (such as drawing down savings, asset sale, of severe calamity has been ad hoc, and has reciprocal exchanges, diversifying crops, lacked precise criteria for what “triggers” an nonfarm income). However, informal mecha- insurance payment thus leading to high poten- nisms often result in inefficient outcomes and tial for political interference and reduced unexploited market opportunities, because the opportunity to obtain reinsurance. As a result, fear of risk leads farmers to forgo potentially comprehensive publicly supported crop insur- profitable production choices. As well, these ance programs have been disastrous, being systems tend to break down in the face of both ineffective and fiscally burdensome. They catastrophes because of the correlated nature have involved heavy subsidization of premi- of such disasters (see box 10.9). ums, large delivery and service costs, and high aggregate losses. To be profitable, the ratio of Insurance acts as a guarantee for investment average administrative costs plus average and can serve as a form of collateral, allowing

8. This note specifically excludes the area of price insurance; see the AIN, “Commodity Price Risk Management” 9. Worldwide experience has shown that in most cases traditional crop insurance requires public support. This is directly through government insurance companies providing crop insurance, or indirectly where the public sector provides subsidies, reinsurance capacity, and design/pricing of insurance products, but it is the private sector that ultimately delivers the crop insurance to producers.

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER Box 10.9 Types of risks debt repayment capacity and helps mobilize rural credit at reduced costs. Furthermore, • Correlated/systemic risk. When many farmers experience a improved ability to manage risk disproportion- negative impact at the same time (drought for example). ately benefits the poor. This cannot be insured in traditional sense. • Idiosyncratic risk. Unique to a household and unrelated to neighbors and can be due to management factor. House- POLICY AND IMPLEMENTATION ISSUES holds can be insured against specific risks. CLASSIFYING RISKS AND ROLES. Agricultural risks vary Covariate risk • . Linked to second round effects (example: in terms of severity and frequency. For the drought leads to fall in price assets as assets flood the market). more severe and less frequent events (for • Basis risk in insurance. When an insured recipient receives example, intense and widespread flooding, payment for greater or less than the insured losses (when prolonged drought), markets typically fail to risk management tool does not correlate to farm-yield provide adequate insurance services because of losses). limited credible long-term statistical informa- Source: Authors. tion, an inability to reinsure on international markets, and the possibility of having to make large payments in years of catastrophic loss Box 10.10 Typical insurance problems (especially in the early years of the program). Because of this market failure (undersupplied Distorted incentives. When insurers know that government will risk management services for catastrophic automatically cover most losses, incentive to pursue sound events), the private sector is also likely to fail to insurance practices when assessing losses is reduced. Insurers provide services for the less severe, more may even collude with farmers in filing exaggerated or falsified frequent disruptive events (such as localized claims. drought, pest outbreak) that services would Asymmetry of information. Successful insurance programs require otherwise be provided for. When it does, that the insurer has adequate information about the nature of services often bypass the poor or smaller risks being insured. However, this is very difficult for farm-level farmers. Thus there is a role for the public yield insurance where farmers will always know more about sector to intervene (at least initially) in the area their potential crop yields than any insurer. of catastrophic risk management, as well as Adverse selection. Only those who are more prone to risk will facilitating private sector service provision for purchase public crop insurance, posing a challenge to the more frequent, statistically documented disas- viability of an insurer and initiating a cycle of losses. Conversely, 428 ters that they are better able to insure against. the private sector could leave the “bad” risks to the govern- The following distinguishes these, and potential ment. problems are discussed in box 10.10. Administrative costs. Providing services to small farmers can raise costs as data for individual farm-yield based insurance are • Major catastrophes (unprecedented anoma- deficient, and monitoring and inspection costs are high. lies) have a severe impact but occur rarely Moral hazard. Insurance payout based on individual low crop (say once in 50 to 100 years). Since fre- yields as opposed to the causes of reduced crop yields leads to quency of occurrence is undocumented, moral hazard – when a farmer’s own behavior or management insurers cannot establish statistical likeli- negatively influences crop yield. hoods and assign value for premiums. And Source: Authors since frequency is uncommon, farmers have little interest in purchasing such insurance.

farmers access to credit services, investment • Systemic crop losses pose severe impact but opportunities, and protection from mild and occur with documented frequency (for severe shocks. Compensating for catastrophic instance, a drought or flood every 7 to 15 income losses protects the consumption and years). Statistical analysis can be derived

AGRICULTURE INVESTMENT SOURCEBOOK allowing premiums to be established. With Box 10.11: Subsidies for crop insurance insurance often tied to access for credit, willingness to pay for protection on the Individual crop insurance often requires heavy government part of commercial farmers improves and subsidization: one important form is through subsidized premi- the private sector increasingly has demon- ums. This creates several problems since: it encourages farmers strated its capacity to respond. Some public to assume more risks on the margin; it benefits large commercial intervention may be needed, at least in the farmers disproportionately; it may cause rent-seeking by the early stages of developing agricultural private sector and so require more subsidies to expand insurance for this type of risk. coverage, and thus becoming a fiscal drain. If governments wish to support agricultural insurance with some form of subsidization, this should focus on the catastrophic layer of risks (Skees • Higher frequency but lower impact indepen- and Barnett 1999). This can be justified in terms of cognitive dent crop losses pose less severe impact but failure by the farmers (that is, unwilling to pay for risks that occur occur with increased frequency, and stem with remote probability), and the fact that governments already from a variety of mainly independent “own” large systemic risks affecting rural people in that losses causes. Independent yield losses that are from large systemic risks are socialized across all taxpayers. not systemic can be insured by the private Source: Authors. sector and direct public intervention is inappropriate in this area. For very frequent deviations of crop revenues, appropriate against; and building the capacity of the private savings and credit schemes should enable sector. Good practice for establishing private smoothing of farmers’ revenues and the sector-led insurance is still evolving, but impor- public sector role is more related to promot- tant implementation issues include: ing rural savings and credit schemes. For high-frequency events (more frequent than PUBLIC SECTOR INITIATION OF AGRICULTURE RISK MANAGE- 1 in 5 or 7 years) that cause systemic and MENT SERVICES. A critical public sector priority is high crop losses, agricultural insurance is to address large systemic risks that affect not likely to be the appropriate instrument agricultural production, and allow the private and a different approach is required based sector to develop insurance products for less on diversification and changes in crops or severe events and for individual, independent production technologies, for example. farm risks. Large systemic risks must then be identified, and appropriate insurance mechanisms to manage these where markets fail to 429 LESSONS LEARNED AND RECOMMENDATIONS do so must be developed. Essential to public FOR PRACTITIONERS intervention in this area is making the The overall objective for agricultural insurance government’s role explicit and transparent (see should be a private sector-led and demand- box 10.11). An unambiguous threshold to oriented system in which farmers (including trigger government payout (identifying what smallholders and the landless) are able to access will and will not be covered and to what services supplied by the private sector, and degree) must be clearly specified. This must be insurance products for mainly less systemic and quantifiable, and ideally measured by an more independent risks, and at a premium that independent, competent, and credible third reflects the true long-term cost of assuming those party. Farmer participation in publicly sup- risks. Given this, and given the market failure ported schemes should be voluntary, the associated with private sector supply, public service provider should purchase reinsurance sector involvement is important but should be on international markets where possible, and limited to: establishing a favorable environment administrative costs must be controlled. for private sector initiative; establishing mechanisms for management of catastrophic risk that DATA COLLECTION AND ACTUARIAL MODELING. In the private sector is unable to offer insurance designing insurance products for any type of

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER Box 10.12 Index-based insurance likelihood of various events. Various indices (for example, area rainfall or soil moisture Using weather-based index and area-based yield contracts to indexes) may be particularly attractive for their insure against natural disasters offers increased affordability and practicality and cost effectiveness (see box accessibility of insurance services for the rural poor. Because 10.12).10 An important area of public sector triggers can be verified independently, vulnerability to political support can be the development of information interference and manipulation of farm losses is reduced. It is sources such as risk maps that improve the practical to implement, and has low administrative and transac- institutional capacity of both public and private tion costs, so the private sector can provide it with little or no sector providers to identify and analyze risk. government subsidies. This information can form a common founda- Weather-based index insurance makes payments proportional to tion upon which the transparent identification the difference of a measurable weather event (rainfall, tempera- and pricing of risk (premium rates) can be ture) from a certain trigger, as measured at regional weather based. Donors can support both the develop- stations. Area-based index insurance makes payments propor- ment of information systems and the building tional to the decline of area yields below a certain trigger at the county or district level. For each of these, contracts are written of the capacity of institutions (such as the against specific perils/events (area-yield loss, drought, or flood) ministry of agriculture) to build databases that defined and recorded at a regional level (local weather station). can overcome information-related constraints to Insurance is sold in standard units (for example, US$10 or 100 private sector participation. payouts), with a standard contract or certificate for each unit purchased. The premium rate is the same for all buyers, who all CREATING A FAVORABLE REGULATORY ENVIRONMENT. To receive the same indemnity if the insured event occurs. Buyers encourage private sector initiative, the policy are free to purchase as many units of the insurance as they wish. The insurance is written against the average yield for a and regulatory environment must be deemed region (county/district) and a payment is made when the by all stakeholders as fair, credible, stable, and measured regional yield falls below a defined limit (say 80 enforceable. Toward this end, donors can percent of normal). contribute useful policy advice and capacity building support (see box 10.13). Source: Skees, Hazell, and Miranda 1999.

EDUCATING STAKEHOLDERS. Education of stakeholders is important if farmers are to understand the Box 10.13 Potential investments benefits of insuring against certain events. Workshops, information packages, media and • Technical assistance to analyze options for restructuring or other mechanisms are needed to explain the 430 phasing out traditional, unsustainable public sector agricultural insurance programs. characteristics of insurance schemes and the • Development of appropriate regulatory frameworks to different opportunities available. Further, encourage private sector provision of insurance products. technical assistance should be provided to both • Technical support for the private sector in design and public and private sector suppliers to ensure testing index-based insurance schemes. that the needs of producers (particularly the • Data collection/information systems to better understand most vulnerable) are met. Such assistance risk characteristics. might be best provided through cofinancing for • Education and training for farmers to understand risks and business service providers. insurance options. Source: Authors. DEVELOP EFFECTIVE FINANCIAL SYSTEMS. Generally, when the poor do not have access to credit, risk, insurers (both public and private) must there is less incentive and capacity to secure understand the relevant statistical properties. insurance and pay up-front premiums. Devel- This requires both credible long-term statistical opment of financial markets should be pro- information and actuarial models to define the moted where possible to facilitate saving and relevant risk probabilities and to predict the borrowing, and complement the insurance

10. See the IAP, “India: Innovative Rainfall-Indexed Insurance”

AGRICULTURE INVESTMENT SOURCEBOOK schemes that are established. The ability of Skees, J., P. Hazell, and M. Miranda. 1999. resource-poor farmers to access these services “New Approaches to Crop Yield Insurance being at the forefront of public sector involve- in Developing Countries.” EPTD Discussion ment. This will also contribute to improving Paper 55. IFPRI, Washington, D.C. access to funds required for making up-front margin deposits on futures and options con- This note was prepared by Panayotis Varangis, Samuel A. tracts for managing price risk. Linking finance Kane, and Erin Nicholson (USAID). to index-based insurance is an innovative approach that has emerged from recent work (Hess 2003).

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Web sites.

Gudger, M. 1991. “Crop Insurance: Failure of the Public Sector and the Rise of the Private Sector Alternative.” In D. Holden, P. B. R. Hazell, and A. J. Pritchard, eds., Risk in Agriculture: Proceedings of the Tenth Agriculture Sector Symposium. Washington, D.C.: World Bank.*

Skees, J., P. Hazell, and M. Miranda. 1999. “New Approaches to Crop Yield Insurance in Developing Countries.” EPTD Discussion Paper 55. IFPRI, Washington, D.C.*

REFERENCES CITED 431 Gudger, M. 1991. “Crop Insurance: Failure of the Public Sector and the Rise of the Private Sector Alternative.” In D. Holden, P. B. R. Hazell, and A. J. Pritchard, eds., Risk in Agriculture: Proceedings of the Tenth Agriculture Sector Symposium. Washington, D.C.: World Bank.

Hess, U. 2003. “Innovative Financial Services for Rural India: Monsoon-Indexed Lending and Insurance for Smallholders.” Agricul- ture and Rural Development Working Paper 9. World Bank, Washington, DC.*

Skees, J. R., and B. J. Barnett. 1999. “Concep- tual and Practical Considerations for Shar- ing Catastrophic/Systemic Risks.” Review of Agricultural Economics 21 (2): 424-441.

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER AGRICULTURE INVESTMENT NOTE such as maize, wheat, rice and sorghum. Roots and tubers, planting materials and vegetable seeds may also be distributed to be grown RESPONDING TO DISASTER close to homes, taking advantage of water WITH SEED DISTRIBUTION recycling. Cassava is especially useful in conflict situations since the plants can be left in the Seed is frequently distributed to farmers in post- ground and harvested over a long period of conflict and post-disaster (for example, post- time, allowing farmers to harvest depending on drought) situations as a way of “restarting” the security situation (USAID 2002). In some agricultural production and improving food situations, distribution of fertilizer and hand security. Programs must be appropriately tools may also be appropriate. targeted, locally adapted, and timely. They should strengthen local institutions and coping mechanisms, and avoid distorting markets and BENEFITS undermining local seed systems. To maximize Effective seed system interventions can prevent development impact and program efficiency, food shortages by enabling a population to programs may need to be accompanied by grow food, and can decrease emergency costs fertilizer, tools, training, and technical support.11 incurred through the provision of food aid. Compared to subsidies, the targeted supply of The apparent increase in international emer- seed and other production inputs can benefit gency situations has led to massive displace- smallholders most in need rather than the ment of people due to civil strife, drought, and richer or more influential members of the other emergencies. Drought and other disasters, community. This also can be an opportunity for both natural and artificial, have led to wide- the introduction of innovations (new varieties, spread destitution and a need for emergency new crops, new management practices) with food programs. Restarting agricultural produc- longer-term positive effects on agricultural tion disrupted by the emergency is often ham- productivity. Food security at the household pered by lack of adequate seed supplies, which and national levels can be increased, and local may have been lost or consumed. The distribu- markets strengthened. tion of seeds and associated inputs has become a common intervention for addressing the However, inappropriate uncoordinated inter- 432 problems of emergency situations, and promot- ventions can decrease seed system stability and ing long-term food security among agricultural varietal diversity, while bringing a set of unin- communities affected by disaster. By providing tended negative impacts on the social and the inputs necessary for crop production, such political economy of recipient communities. interventions increase agricultural productivity Some interventions can distort production and reduce dependence on food aid. incentives, destroy local seed markets, and prolong the transition to sustainable farming Seeds interventions merit consideration where systems. There is now a keen awareness that displaced peoples are returning to agriculture interventions need to be designed more care- or in situations where pests, floods, or drought fully to alleviate the root causes of specific have depleted normal seed supplies. Even in problems, rather than being viewed as a generic refugee settings, gardens may help people default response to emergencies. Interventions increase food security and exercise a small must build on strengths of existing seed systems measure of self-sufficiency. The most com- and alleviate the weaknesses of these, rather monly distributed seeds are for cereal crops than impose new systems from outside.

11. This AIN draws largely from USAID 2002. Disaster Reduction: A Practitioners Guide. Office of US Foreign Disaster Assistance, Washington, D.C.

AGRICULTURE INVESTMENT SOURCEBOOK POLICY AND IMPLEMENTATION ISSUES companies—the formal seed sector. In most AVAILABILITY, ACCESS, AND UTILIZATION. Practitioners emergency situations, relief agencies obtain of seed interventions are now starting to seed from the formal sector in relatively large understand the roles that seed availability, quantities, often because procurement from access, and utilization play in agricultural small farmers is deemed too difficult and seed recovery following a crisis, and use this under- is needed on short notice. Such seed is not standing to target interventions better. necessarily better than farmer-saved seed, and it is often easy to overestimate the ability of the • Seed availability refers to the seed supply commercial seed sector to supply seed to within the affected district, region, or effectively satisfy the needs and demands of community. It is described according to the local producers (Jones et al. 2002). desired type, quantity and quality of seed or planting material available, as well as DEPENDENCIES AND DISTORTIONS. Inappropriate seed where and when it can be obtained. Avail- distribution can cause a general dependency on ability may refer to both informal farmer-to- these programs. Many communities come to farmer networks and the commercial seed expect emergency seed aid as a right, thus system. Seed availability is often a factor undermining the advance of local seed systems following a long-term drought or a sudden- toward independent and sustainable enterprises. onset disaster when both stored and Seed insecurity may increase if spontaneous aid/ planted seeds may be destroyed or lost, relief in the form of free distribution of im- leaving farmers without seed to plant, and proved varieties undermines the capacity of without the ability to obtain new seed local seed systems, and limits adoption of locally through traditional farmer seed systems. suitable plant varieties and farming practices.

• Seed access refers to the ability of farmers SEED QUALITY AND HEALTH. It is critical that the seed to acquire the seed or planting material that being distributed be labeled accurately (such as is available. In some cases, seed may be seed type, quality characteristics), and that it is readily available on local markets, but appropriate for local conditions. Seed testing farmers are unable to purchase the needed should confirm that seed is viable before it is seed (due to lack of purchasing power or purchased and distributed. Also, when importing physical access). Poorly planned distribu- seed, attention must be given to the tion disrupts markets and eliminates local phytosanitary inspection of seed, even when 433 sources of income and incentives to pro- official requirements are waived because of a duce seed for future years. crisis situation. Introducing new diseases or insect pests to a region may cause long-term • Seed utilization refers to the ability of problems. In other situations, strict phytosanitary farmers to make use of seed, once it is controls make no sense (for example, moving accessed. This implies that farmers have seed across a land border over which seed and tools, land, knowledge, and physical ability grain normally flows freely in both directions). to plant seed. Sound technical advice is required in managing such seed imports. FORMAL AND FARMER SEED SYSTEMS. Most smallholder farmers use their own saved seed for planting. Depending on the crop and situation, farmer- LESSONS LEARNED saved seed can be of a comparatively high SITUATION ANALYSIS. Before making decisions physiological quality (in terms of germination about seed system interventions it is important percentage, physical purity, and varietal integ- to distinguish between problems of availability rity). Seed quality does not necessarily deterio- and problems of access. In some instances, the rate when seed is saved from season to season. costs of intervention (in terms of potential for Seed is also available from commercial seed creating dependency, distorting impacts, and

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER Box 10.14 Rwanda: scientist and technician training tive of the relief agency preference. Adequate farmer training/orientation and adequate food Most scientists working for the national research institute and distribution should ensure that treated seed is the Ministry of Agriculture before the war of 1994 were killed not used for food. Training of women in this or fled to neighboring countries. Newly recruited scientists and regard is a priority. technicians were generally inexperienced and lacked institutional memory relating to agricultural research and develop- FERTILIZER, TOOLS, AND TECHNICAL SUPPORT. For seed ment programs. In this situation, regional research networks distribution to be effective, it will often need to helped rejuvenate the national research and extension system. be linked with fertilizer, tools, and technical Training of scientists and technicians involved research methods, seed production, technology dissemination strategies, selection support. Even limited quantities of fertilizer (as criteria, and evaluation techniques. The training enabled little as 10 kilograms of nitrogen per hectare) scientists to restart field research to address needs of farming may significantly increase yields. Complemen- communities. tary inputs are best supplied through local Source: Buruchara et al. 2002. markets (traders, local stores), if farmers have the resources to make purchases. New inputs will generally need to be complemented by opportunity cost of donor funding) outweigh well-informed crop management advice, the benefits. Food aid alone may suffice to including to women. Targeting training to overcome the emergency through reducing the scientists and technicians is also important (see pressure to consume planting seed. box 10.14).

SOURCING THE SEED. Seed distribution programs TIMING. In most countries, the agricultural should be based on an understanding of the season presents a short window for planting, farming systems and what kinds of seeds are so seed must be provided and in farmers’ needed, what varieties are most appropriate hands at the start of the planting season. If an and accepted by the community, and what agricultural crisis is ongoing, seed distribution technologies are familiar to local farmers. When may need to be coupled with food distribution distributing new varieties, there should be so that all of the seeds are used for planting evidence that these have been tested and have rather than consumption. performed well in a similar agro-ecological area, and that cooking and processing quality TARGETING INTERVENTIONS. The distribution of 434 are compatible with local taste preferences. seeds, tools, or the means to access them Ideally, relief seed distribution should be of (vouchers) must be targeted to the poorest locally produced seed of locally adapted crops. farmers with the greatest need for assistance. A A program that purchases local seed can thorough assessment can determine not only support indigenous marketing of both tradi- what kinds of interventions are best, but also tional and commercial seeds. Past seed inter- how to target those interventions. Where ventions, in both disaster and non-disaster community organizations are strong, it is situations, have often failed because of a preferable for them to define eligibility criteria tendency to assume that modern technology and take responsibility for allocating seed and and formal systems are best, and that there is inputs among needy families. little value in strengthening what already works (Jones et al. 2002). VOUCHERS AND SEED FAIRS. Seed vouchers redeem- able from certified retailers and seed fairs serve TREATED SEED. There may be reasons to treat to strengthen farmer seed procurement sys- seed with pesticide or other seed treatments to tems, improve cost efficiency, and allow com- safeguard seed quality and crop productivity, mercial sector participation and farmer experi- and seed purchased from the formal seed mentation with new varieties (see boxes 10.15 sector may come with seed treatment irrespec- and 10.16). This provides a level playing field

AGRICULTURE INVESTMENT SOURCEBOOK Box 10.15 Uganda: emergency seed vouchers and farm tools

After unrest in 2000 had forced Ugandans from their farms, a program was initiated to enable families to reestablish farming systems. The program provided families with farm tools and vouchers for the purchase of seed. The intervention was based on an assessment that showed lack of access to seed (not lack of availability) to be the main problem. Beneficiaries redeemed their vouchers for seed at seed fairs or special market days, with about 12,000 families accessing over 200 metric tons of seed of 10 different crops and 30 varieties. Vouchers enabled farmers to buy commercial or traditional seed of their choice in the crops and varieties they preferred. They were able to examine the seed themselves and select seed of acceptable quality. Since they were unable to return to their farms until the middle of the rainy season, they were able to choose the seed of crops and varieties that are traditionally planted late. Seed fairs facilitated interaction between seed sellers and farmers, enabling both traditional and commercial seed sellers to market their seeds. Almost 50 percent of the participating grain traders were women. Overall, the assistance was flexible, timely, and cost effective.

Source: USAID 2002.

for the commercial seed sector and the farmer Box 10.16 Tanzania: seed fairs seed systems to compete and complement one another. Beneficiaries have a greater choice of After four years of drought in Tanzania, farming households crops, varieties, and seed quality, compared were ill prepared to cope with the drought of 2000. USAID with traditional seed-and-tool distribution sought to empower communities to access what they needed programs. This voucher and fair system is most from within their communities. The scheme provided vouchers appropriate where there is a problem with seed to vulnerable households to enable them to buy seed at special seed fairs organized locally. Prior to the project, seed surveys accessibility rather than availability but upward confirmed that, even after four years of drought, large amounts pressure on seed prices, must be considered. of seed were available locally. Meetings were held to inform all stakeholders about the voucher system. The most needy households were selected using democratic and transparent RECOMMENDATIONS FOR PRACTITIONERS guidelines. Each household received six vouchers valued at Important recommendations for practitioners about US$1.80 each. Some 14,000 voucher recipients bought involved in investments related to the response seed from more than 400 seed vendors in 30 seed fairs. to disasters with seed distribution include (see Source: USAID 2002. box 10.17): 435

• Carry out a situation analysis to identify the Box 10.17 Potential investments true cause and nature of the problem (access vs availability, chronic vs acute) and • Technical assistance for analysis of needs and alternative to understand both the farmer seed system ways of addressing seed supply problems. and the commercial seed system and plan • Financing of alternatives to seed interventions (for the intervention to strengthen existing example, food aid) where this will have a more positive impact on poverty and sustainable livelihoods. capabilities. • Procurement and distribution of seed where it is the best alternative. • If farmers have the resources to purchase • Vouchers systems for target farmers to purchase seeds seeds, use local markets (traders, local and other inputs. stores) for distribution. • Seed fairs where vendors (both commercial and local farmers) and buyers can trade seed. • Target specific groups with limited purchas- • Information campaigns to inform farmers of seed pro- ing power, using nongovernmental organi- grams or alternative sources of seed. • Training for farmers and for scientists and technicians zations (NGOs), local women’s groups, or providing support services. farmer associations to develop eligibility Source: Authors.

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER criteria for beneficiary selection, and to handle seed distribution.

• Identify the complementary inputs and training needed to increase productivity and build local capacity.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See Appendix 1 for a full list of Web sites.

Buruchara, R. A., L. Sperling, P. Ewell, and R. Kirkby. 2002. “The Role of Research Institu- tions in Seed-related Disaster Relief: Seeds of Hope Experiences in Rwanda.” Disasters 26 (4): 288.*

USAID. 1998. The Field Operations Guide for Disaster Assessments and Response. Wash- ington, D.C.: USAID, Office of U.S. Foreign Disaster Assistance.*

USAID. 2002. “Disaster Reduction: A Practitio- ners Guide.” USAID, Office of U.S. Foreign Disaster Assistance, Washington, D.C.*

REFERENCES CITED Buruchara, R. A., L. Sperling, P. Ewell, and R. 436 Kirkby. 2002. “The Role of Research Institu- tions in Seed–related Disaster Relief: Seeds of Hope Experiences in Rwanda.” Disasters 26 (4): 288-301.

Jones R. B., P. Bramel, C. Longley, T. Remington. 2002. “The Need to Look Beyond the Production and Provision of Relief Seed: Experiences from Southern Sudan.” Disasters 26 (4): 302-315.

USAID. 2002. “Disaster Reduction: A Practitio- ners Guide.” USAID, Office of U.S. Foreign Disaster Assistance, Washington, D.C.

This note was prepared by Samuel A. Kane.

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE contingency planning and rapid reaction), and recovery (continued drought relief activities). KENYA: COMMUNITY-BASED DROUGHT MANAGEMENT • Marketing and infrastructure addresses the bottlenecks that impede livestock market The pastoralist population in arid districts of linkages between the arid lands and the Kenya is counted amongst the poorest and rest of the national economy. most disadvantaged sections of society. The arid lands are well endowed with livestock • Community development is designed to resources, but lack reliable marketing outlets to achieve the fundamental objective of provide the full benefit of this resource for increasing the communities’ capacities to either pastoralists or consumers in the region. protect and develop their livelihoods by Environmental constraints in these districts are dealing with drought cycles in an effective extreme: fragile, easily degraded physical way. Delivery systems related to services environments and poor and variable water demanded by communities include animal resources. Drought is a normal and recurring health and livestock production, crop phenomenon that can kill 50 percent or more production, water supply and human of the livestock in severe cases. Experience health, and education. with typical top-down development projects for traditional nomadic pastoralist communities has been so bad that many donors still shy away BENEFITS AND IMPACTS from financing further development interven- Key achievements of the project have been its tions for these communities. However, neither role in coordination of assistance to the arid effective conservation of natural resources nor lands, and the overall national coordination of development of the potential of these areas will donors, in particular through the establishment be realized unless constraints imposed by of the Kenya Food Security Meeting. Adequate drought risks are addressed. and timely information provided by the project has enabled proper scheduling of drought What’s innovative? Working with communities in mitigation assistance. The project has also been drought-prone areas on an Early Warning System, highly successful in developing a devolved contingency planning, integration into the mainstream system of implementation with full participa- 437 economy, and improved district and national level tion, involvement, and ownership by district drought and risk management. governments, institutions, and communities. At the district level, the primary achievements have been the establishment of functional local PROJECT OBJECTIVES AND DESCRIPTION entities such as the District Steering Groups, the The overall objective of the first Arid Lands enhanced capacity of line ministries’ human Resource Management Project is to build the resources involved in project implementation capacity of communities in the arid districts of (Mobile Extension Teams), the start of effective Kenya to cope better with drought. To achieve decentralized planning and implementation, this objective the project focuses on the follow- and improved linkage between communities ing three components: and their local institutions.

• Drought management institutionalizes at As part of the drought management compo- national and district levels a structure to nent, the project has helped to finance an Early effectively manage all the phases of Warning System which is of vital importance drought. This includes preparedness for Kenya as 75 percent of the country has a (drought monitoring), mitigation (drought fragile arid or semi-arid environment. During

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER the severe 1999-2001 drought, the improved source Management Project. This follow-on drought management and coordination system project will support three complementary allowed vulnerable groups improved access to channels of intervention, which together food supplies. This enabled US$300 million of address vulnerability: food aid to be made available to about 3.3 million people. • Strengthening and institutionalizing natural resources and drought management. Livestock production is the mainstay of Kenya’s pastoral areas. Fifty-three livestock marketing • Empowering communities to identify, imple- and infrastructure investments have been ment, and sustain development priorities. implemented by the project. Stock routes have been improved through the rehabilitation or • Policy support, advocacy, and improvement creation of existing watering points. Holding in the delivery of essential services. grounds have been created close to livestock primary and secondary market centers to improve the contractual power of the animal LESSONS LEARNED AND ISSUES FOR WIDER holders. Moreover, new markets and sale yards APPLICABILITY have been promoted at the divisional level, • Strengthening of district-level multisectoral enabling a decongestion of the district markets. institutions can significantly improve the Slaughterhouse standards have been raised effectiveness of project interventions on with consequent improved hygiene, ante- and the ground. post-mortem health control, meat quality, and overall environmental conditions. • Community participation and contribution is key to project impact and sustainability, Over 1,200 microprojects have been imple- increasing ownership, and community mented on a fully participatory basis benefit- ability to replicate activities. ing some 180,000 people and addressing several sectoral needs identified by the com- • Continuous capacity building is needed at munities. Animal health interventions contrib- all levels as is strengthening of technical uted to an 11 percent vaccination coverage support services for quality interventions increase in 2002, and a 15 percent decrease in and technical follow-up. 438 Contagious Bovine Pleuro-Pneumonia and Contagious Caprine Pleuropneumonia. Aver- • Broader access to main services in arid age maize and bean yields have reportedly lands can only be achieved by strengthen- increased by 30 percent. Project-improved ing communities and support service actors access to water has reached an estimated 40 to provide cost-effective and, where pos- percent or 800,000 of the arid sible, profitable facilities that continue lands population, and an equivalent or higher beyond credit closure. percentage of livestock population. • Development is closely linked to education, Principal shortcomings are the limited progress which provides an important exit or diversion establishing a framework for natural re- fication strategy for pastoralists. source management, and developing a better understanding of how to monitor, protect, and • Support for diversification must be targeted sustainably develop the arid lands resource so as to not displace existing household base. Further, the exclusively grant-based activities. The more wealthy and less community development funding may increase vulnerable are more able to diversify into dependency. These shortcomings are addressed higher income activities while maintaining in the design of the second Arid Lands Re- herds. Exit from pastoral activities is not

AGRICULTURE INVESTMENT SOURCEBOOK risk-reducing “diversification,” but usually reflects loss of assets.

• An improved understanding of the arid lands resource base is essential for successful and sustainable project interventions.

PROJECT COUNTRY: KENYA Project Name Arid Lands Resource Management I and II Project ID ALRMP I: P001331, and ALRMP II: P078058 Project Cost ALRMP I (org.): US$25.1 million, and ALRMP II (org.): US$77.9 million Dates ALRMP I: FY199 6 – 2003, and ALRMP II: FY 2003 – 2009 Contact Point Christine Cornelius The World Bank, 1818 H Street N.W., Washington, D.C. 20433 Telephone: (202) 458-5618 Email: [email protected]

439

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER INNOVATIVE ACTIVITY PROFILE • Community-based pastureland management based on improved grazing discipline and alternative conflict resolution mechanisms. MONGOLIA: SUSTAINING LIVELIHOODS IN AREAS WITH • Risk forecasting and contingency planning HIGH NATURAL DISASTER RISK including an index-based livestock insurance scheme, meteorological monitoring, Rural poverty in Mongolia has been increasing and an early warning system. in depth and severity. Although the number of people living below the poverty line has been Pastureland throughout Mongolia is classified relatively stable (around 36 percent of the as “common land,” although tenure rights can population from 1995 to 1998), those who are be granted. As a result of this land tenure living below the poverty line have become system, pasture must be managed on a commu- even poorer. Previous projects targeting pov- nity rather than an individual basis. Currently erty reduction have fallen short due, in part, to five to nine percent of pastureland in Mongolia a lack of commitment by the government. In is considered degraded. This degradation July 2000, however, the government declared threatens sustainable livelihoods, and may be that poverty reduction was to be one of its worsened by poor management associated with highest priorities. This has paved the way for overuse, especially during natural disasters projects to address one of the root causes of such as drought and dzud. Within this project, poverty in Mongolia—vulnerability to risk. In communal land management is strengthened particular, a Participatory Living Standard through the development of community-based grazing management systems that include Assessment demonstrated that loss of employ- conflict resolution mechanisms and sanctions ment, high costs of health and education, and for noncompliance. Reducing instances of poor natural disasters are the most common factors land management is expected to allow herders associated with poverty. to sustain productive livelihoods thereby contributing to poverty reduction. What’s innovative? Managing risk and overgrazing pressures on degraded pasture lands through com- The number of herder families in Mongolia munity-based land-use management systems, pro- increased from 75,000 in 1990 to over 190,000 viding exit strategies for pastoralists, risk forecasting, 440 in 2000. This increase can be explained by the and an index-based livestock insurance mechanism. fact that many families began herding because of a lack of alternative income-generating opportunities. Exit strategies in the project are PROJECT OBJECTIVES AND DESCRIPTION targeted at presenting these new herders with The Mongolia Sustainable Livelihoods Project other income-generating opportunities. Provi- was financed to reduce vulnerability and sion of access to microfinance credit is used for promote the security and sustainability of rural alternate employment. Developing exit strate- livelihoods in a manner that can be scaled up. gies serves two functions: first addressing the In particular, the Mongolia project targets poverty of new herders by providing alternate natural disaster risk including drought and income opportunities; and second addressing dzud (winter disaster) through an integrated the poverty of established herders by reducing approach including: pressure on grazing land and making their livelihoods sustainable. • A Local Initiatives Fund to be managed in a socially inclusive, community-driven Another key to achieving the project objectives way to diversify incomes and improve has been identified as institutional capacity local infrastructure. building, which is critical for the return of

AGRICULTURE INVESTMENT SOURCEBOOK decisionmaking power to a decentralized and second year of the project, and is expected to local level. Capacity building is especially become profitable by the end of the project. necessary for the local management of rural investment funds, and for community-based management of common pasture lands. BENEFITS AND IMPACTS The Mongolia Sustainable Livelihoods project The pastoral risk management component will began in 2003, so outcomes have not yet been improve risk forecasting and contingency plan- measured. Experiences during planning, design, ning by improving coverage of weather forecast- and initial implementation have, however, ing data, broadening the range of data used in indicated a number of expected benefits, includ- semi-annual early warning system bulletins and ing poverty reduction through pasture land increasing their dissemination to local authorities management. Reducing poverty by addressing and herders, and development of sum-level livestock and grazing land management presents (rural district level) contingency plans. an opportunity to shift from simply managing poverty by providing welfare services to reduc- A risk index-based livestock insurance scheme is ing poverty by fostering the emergence of being developed, on the basis of which eligible secure and sustainable livelihoods. participating private insurance companies would offer livestock insurance to individual herders, herding households, or other juridical persons LESSONS LEARNED AND ISSUES FOR WIDER owning livestock to cover covariant risk arising APPLICABILITY from dzud, drought, or other weather-related The Mongolia project is designed as a pilot for events. The index, based on objective, third- scale-up in other areas, its flexible policy frame- party verifiable indicators such as weather data, work having wider application in the context of livestock mortality rates, and/or indices of range an adaptable program loan. The numerous vegetation condition, would differentiate relative advantages of managing sustainable livelihoods risk at an appropriate level (most likely at the via community-driven development can be rural district level) based on historical data. applied broadly as its tools allow for better Indemnities under the scheme would be trig- targeting of poverty reduction programs, and is gered once the index exceeded a given thresh- especially useful where welfare approaches have old level specific to that rural district. Insurance not worked. Decentralization is critical, and there cover would be for productive activities includ- is a growing need to support institutional frame- 441 ing: the replacement value of livestock; the works through which this can take place. value of goods or services to support risk preparedness and/or enhance livestock productivity, such as hay and fodder production or PROJECT COUNTRY: MONGOLIA purchase, acquisition of veterinary drugs and Project Name Sustainable Livelihoods Project services, construction of livestock shelters, and (Pastoral Risk Management breeding services; and/or the value of goods Component) and services to allow policyholders to engage in alternative or supplementary livelihood strate- Project ID P067770 gies. Liability of insurance companies has an Project Cost US$5.4 million (estimated) upper limit and the government covers claims Dates FY2003 – FY2007 beyond that amount. The project would also finance training workshops for participating Contact Point Robin Mearns insurance companies and public officials in- The World Bank, 1818 H Street volved, and a nationwide information campaign N.W., Washington, D.C. 20433 to publicize the scheme and attract policyhold- Telephone: (202) 458-4010 Email: [email protected] ers. The scheme will be launched during the

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER INNOVATIVE ACTIVITY PROFILE delivery. If the cooperative guarantees a high first payment at the beginning of the season, and market price falls, it will take losses on the TANZANIA: ACCESSING negative margin between first payment price to MARKET-BASED PRICE RISK farmers and actual market prices. MANAGEMENT INSTRUMENTS In past years, the cooperative union received The fall of coffee prices to 40-year lows in 2001 loans for its operations from a local commercial and 2002 affected over 400,000 low-income bank. However, the loan agreements and the coffee-producing households in Tanzania. The union’s access to financing were in serious 1993 liberalization of the coffee sector exposed jeopardy due to a history of poor financial farmers and their marketing organizations to performance, which related in large part to the intraseasonal price fluctuations. These fluctua- pricing problems previously described. The tions have made it difficult for farmers to government had supported many of the coop- optimize production technology, timing of erative unions through difficult times, but was sales, and use of assets that could eventually indicating an impatience about continuing to result in higher household incomes. Exposure do this indefinitely. to price volatility, coupled with absolute low prices for coffee, has greatly diminished the To assist the cooperative’s attempts to overall welfare of coffee farmers. strengthen its operations, the World Bank began working with the union in the summer What’s innovative? The use of market-based price of 2001 to help it protect its prices with market- risk management instruments to manage price risk, based hedging instruments. The World Bank’s giving farmers and organizations more price stabil- Commodity Risk Management Group (CRMG) ity and the ability to stay financially solvent even if aimed to provide services consisting of training global prices fall. and education about price risk management markets, principles, and products for the cooperative, the local bank, and others in the PROJECT OBJECTIVES AND DESCRIPTION Tanzanian coffee sector. The cooperative union To confront the negative effects of short-term used put options to design a hedging strategy price volatility, one of the largest coffee coop- that matched its risk profile, using the options 442 erative unions in Tanzania, averaging 20-100 in the international market to provide a floor kilograms production of coffee per farmer, price to protect against declining prices. The utilizes market-based price risk management objectives of the strategy were to protect the instruments to hedge price risk, and make union’s break-even position and guarantee a multiple payments to farmers throughout the first payment to farmers. Providers of financial year. Cooperative members receive a uniform products and services had intense due dili- minimum first payment price for their coffee gence requirements that included detailed when they deliver it, and later in the season, information about the ownership, structure, depending on sales and market performance financial status, and trading history of the overall, may receive subsequent payments for cooperative union. After completing this due their product. The guaranteed first payment diligence process, the cooperative was ap- provides farmers a form of price stability, but proved as a new client and was able enter the can have disastrous financial impacts for the market to hedge its price risk. cooperative. If the cooperative guarantees a low first payment at the beginning of the season The union took its first hedge position by buying and the market price rises, farmers, instead of a put option in October 2002. It continued with selling to the cooperative, will sell to traders market activity (reselling the option when it no who pay full market price in cash at the time of longer had exposure in a given month, and

AGRICULTURE INVESTMENT SOURCEBOOK purchasing new option contracts to cover up- between developing country commodity coming months) through the end of the selling producers and providers of risk management season in March. In total, during the 2002-03 products and services. From the provider’s crop year, the cooperative hedged about two- perspective, the technical assistance provided thirds of the total volume of coffee it handled. by the CRMG was critical. Without it, private sector participants have indicated that they would not have been willing and able to BENEFITS AND IMPACTS transact with such new clients in developing Thus far a number of positive effects have countries. From the cooperatives’ perspective, resulted: the technical assistance and training gave management the confidence and knowledge to • The union improved its relationship with its utilize risk management methods previously local bank and received a loan to cover the unknown to them. This work is beginning to cost of the premiums for the hedging stimulate demand from developing country instruments as part of its total loan package. organizations and has the potential for wide applicability. • Union management had a clearer view of overall financial status through the season. PROJECT COUNTRY: TANZANIA • Improved financial transparency helped the Project Name Market-Based Commodity Risk union make better selling decisions. Management Instruments for Developing Countries • The union paid farmers second and third Dates FY2002 – FY2003 payments. The price floor allowed the Contact Point Commodity Risk Management union to disperse revenue when it was Group earned. The World Bank, 1818 H Street N.W., Washington, D.C. 20433 Monitoring of the relationship between local Telephone: (202) 473-1718 Tanzanian coffee prices to the global market is Email: [email protected] being continued. When the two markets are highly correlated (prices moving in similar ways directionally), hedge quality is high. If, 443 however, the markets become disconnected, hedge quality is low and this negatively affects the cost benefit analysis of the overall risk management strategy. However, in a short period of time, the union in Tanzania has moved from being a very high-risk enterprise to a much more stable entity. Price risk management contributed to that growing stability, and the union’s managers have improved their knowledge about price risk management and access to such tools.

LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY This project provides technical assistance and training, which is necessary to “bridge the gap”

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER INNOVATIVE ACTIVITY PROFILE Karnataka (the district has experienced three consecutive droughts during the last years). One of the main incentives for KBS Bank to offer INDIA: INNOVATIVE RAINFALL- rainfall insurance was that local area banks are INDEXED INSURANCE limited to operations in three adjacent districts and therefore face limited portfolio diversifica- In much of India, weather volatility is the single tion. Rainfall insurance for its borrowers would most important risk faced by non-irrigated mitigate the natural default risk inherent in farmers. Drought risk affects the poor especially lending in such drought prone areas. as they typically have smaller land holdings and less access to irrigation. Due to an absence of KBS bought a bulk insurance policy from ICICI formal mechanisms such as insurance, farmers Lombard and sold around 260 individual farmer have developed a variety of informal strategies policies for three categories of groundnut and to deal with these risks including accumulation castor farmers—small, medium and large. Small of buffer stocks, diversification of income- farmers are defined as households farming less generating activities, and variation of cropping than 0.8 hectares of land, medium farm be- practices. However, these are often ineffective tween 0.8 and 2 hectares, and large farmers (particularly with regard to catastrophic events have more than 2 hectares. Premium rates are such as widespread droughts), and result in risk 456 Rs per year for the small farmers with a adverse decisionmaking and suboptimal liability of 14,250 Rs, medium farmers pay 600 resource allocation. Rs with a maximum liability of 20,000 Rs and large farmers pay 900 Rs for a liability of 20,000 What’s innovative? Using rainfall-indexed insurance Rs. KBS decided to initially limit liability per (combined with other financial services) to reduce farmer rather than imposing per hectare limits systemic risk and improve the supply of financial ser- in order to manage overall liability. KBS and vices to smallholders. ICICI Lombard opted for a weighted and capped rainfall index—the payout structure A pilot program in India initiated by KBS Bank weights the more critical periods for plant (Krishna Bhima Samruddi Local Area Bank) growth more heavily than others. KBS decided and ICICI Lombard, and supported by the that only borrowing farmers could buy weather World Bank, shows how farmers in such areas insurance policies, and it hopes to lower the 444 can protect their livelihoods. Weather-indexed interest rate for these farmers due to the reinsurance does not suffer from the usual moral duced risk of default. One of the top five hazard and adverse selection and high adminis- reinsurers in the world has agreed to reinsure tration cost problems of traditional crop insur- the entire weather insurance portfolio. ance, and it is therefore better suited to small farmers who depend on rainfall.12 BENEFITS AND IMPACTS Farmer uptake was immediate, with around 100 PROPOSED OBJECTIVES AND DESCRIPTION farmers signing up the first day. Informal Having worked on crop insurance pilot interviews with about 15 farmers who bought programss for the previous four years, BASIX the policies revealed that they are very well (one of India’s largest microfinance institutions aware of the rainfall-based index nature of the with nearly 100,000 borrowers in nine states) contracts and the associated basis risk. The launched India’s first rainfall insurance program farmers value the quick payout of the weather in July 2003 through its KBS Bank in policy, which distinguishes it from the federal Mahabubnagar in Andhra Pradesh, bordering crop insurance policy in India. Interviewed

12. This IAP draws largely from U. Hess, “Innovative Financial Services for Rural India: Monsoon-Indexed Lending and Insurance for Smallholders.” Agriculture and Rural Development Working Paper 9. (World Bank, Washington, D.C., 2003).

AGRICULTURE INVESTMENT SOURCEBOOK farmers also understand and appreciate the • Private sector involvement must be encour- weighted and capped structure of the contract, aged from the outset, and any government as it directly reflects their experience that the subsidies must be kept to a minimum with distribution of rain throughout the season a clear directive for complete phasing out. significantly affects yield. • Combining index-based programs with Overall, a win-win outcome of the scheme can other types of insurance and financial be expected in that not only do farmers services can improve the effectiveness of benefit (from insurance against catastrophic the trigger. events, improved income stability, and greater access to credit and lower interest rates), but banks also stand to benefit from secured PROJECT COUNTRY: INDIA lending and reduced default rates, improved Project Name Index-based Weather Insurance collateral, and increased lending amounts and Pilot savings in rural areas. Further, the public Contact Point Ulrich Hess sector can benefit from reduced need to Telephone: (202) 458-8493 provide emergency assistance. E-mail: [email protected] Commodity Risk Management Group LESSONS LEARNED AND ISSUES FOR WIDER The World Bank, 1818 H Street APPLICABILITY NW, Washington, D.C. 20433 Now that weather insurance has been initiated, Telephone: (202) 473-1718 the immediate challenge is to scale up the Email: [email protected] distribution and ensure fast claims settlement. It is important to manage expectations of the farming community for the insurance product. Other important lessons emerging from this pilot and other past index-based insurance initiatives include:

• The index must be based on long-term statistical information and credible actu- 445 arial models. To this end, the public sector can develop information sources such as risk maps.

• Triggers must be verified independently (this will reduce vulnerability to political interference and manipulated farm losses).

• The payment schedule (what will and will not be covered and the extent of coverage) must be clear, quantifiable, and measured by an independent and credible third party.

• Education programs and technical assistance for stakeholders (both farmers and service providers) should be provided.

MODULE 10: MANAGING AGRICULTURAL RISK, VULNERABILITY, AND DISASTER

SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT

447

he World Bank, through its new rural development strategy, Reaching the Rural Poor, is committed to increased lending for agricultural and rural development, and to enhancing the impacts of that Tlending on poverty reduction. However, future investments must conform to new realities in the Bank’s lending environment, new processes in country dialogue, such as Poverty Reduction Strategy Papers (PRSPs), and a renewed commitment to quality. This module explores some of the process options for investing in agriculture, in ways that are more sustainable than in the past and that have greater impact on poverty reduction.

EXPANDING SUPPORT TO AGRICULTURE—SCALING UP SUCCESSES A key thrust in the implementation of the Bank’s rural development strategy is identifying and “scaling up good practice investments and innovations in rural development” to broaden coverage and deepen developmental impact. Scaling up good practices, especially those shown to be effective in reducing poverty, must become an integral part of strategies to support agriculture. Box 11.1 India: success in scaling up watershed programs lines between these categories are seldom clear, and depend on allocating sufficient The watershed development work by the Social Center and resources for evaluation of promising innova- the Indo-German Watershed Development Programme tions at each stage. Scaling up often requires a (IGWDP) addressed the complex livelihoods and natural long process of phased stages (up to 10-15 resource issues of water and watershed management. By 1994, years) for development and refinement of the IGWDP had shown a wide range of local economic technologies and institutional processes, often (doubling of crop production, creation of employment oppor- with donor support (see box 11.1). tunities, restoration of groundwater resources) and social gains (setting up a village watershed committee, involvement of marginal groups, and reduced out-migration). Through these A particular problem with World Bank experi- successes the IGWDP has been extended to 146 watersheds ence in scaling up has been the tendency to involving over 200,000 villagers. replicate successful models without sufficient attention to either the difficulties of using a The state of practice evolved from early “innovative success stories” prior to the 1990s that focused on technical arrange- specific intervention on a wider scale, its ments with little regard for social complexities, to a “good replicability or sustainability, or to the varying practice” stage in the 1990s, where watershed management contexts in which that intervention is to be was viewed as a social problem but approaches were not used. The training and visit extension system consistently replicable. The process of scaling up involved the and integrated rural development programs are generation of a set of “local-level ingredients” of success from examples of models that were rapidly scaled pilot experiments. These provided specific mechanisms for building ownership, control, and motivation in communities, up without sufficient attention to costs and linking government communities and nongovernmental sustainability, or to characteristics of local organizations (NGOs), defining exit strategies, and developing farmers and farming systems. Many interven- mechanisms for continued local funding. This process took tions, such as community-driven development, approximately 4 years and built on 25 years of experience in have special issues of scaling up, which are the area. Successes included marshalling of political support, related to local capacity building and to devel- developing guidelines for government staff, coordinating oping links between communities, local gov- government agencies, adopting a long-term “cluster” approach, and developing NGO capacity. ernment, and higher levels of government. All interventions require adaptation to the local These experiences were further scaled up in other states, with physical, socioeconomic, and institutional the support of other donors. The World Bank became an active settings—replication across environments supporter of watershed management projects in India, building on the experience of the IGWDP. The first of these projects, usually does not work well for agricultural 448 the Northern Hills Watershed Project (1991-97) was highly investments. Much greater attention has to be rated in terms of the impact it achieved, and a second project is given to developing institutional capacity to now in operation to extend the scaling up. adapt and learn at the local level, based on Source: World Bank 2003; World Bank Internal Documents. established principles and processes, rather than replicating standard models.

The term “scaling up” is used with reference to There are no shortcuts to scaling up, and the replication, spread, or adaptation of tech- evaluation, learning, experimentation, and a niques, ideas, approaches, and concepts, to long-term commitment (often over decades) increase the scale of impact. An investment are needed. Adaptable program lending (APL) with potential to be scaled up typically moves introduced by the Bank in 1997 is especially through various stages: an innovation (minimal appropriate for long-term sequencing of invest- objective evidence); a good practice (clear ments to allow learning and adaptation (see evidence from several settings/evaluations); or box 11.2). a policy principle (proven in multiple settings; considered widely applicable “truism” essential Within countries, scaling up generally involves for success) (World Bank, 2003). However, the a number of steps (World Bank 2003):

AGRICULTURE INVESTMENT SOURCEBOOK • Identify promising innovations or pilots. Box 11.2 Adaptable program lending

• Assess country demand for scaling up. Adaptable program lending (APL) is suited to development efforts that require longer-term phased planning and implemen- • Review information on impacts, and factors tation common to agricultural sector activities, and that involve institutional development, technical change, and activities with that have enabled or hindered success. long production lead times (tree crops, livestock). They have been extensively used in the agricultural portfolio, especially in • Assess current state of good practice. Africa. A typical APL is phased in three stages—piloting and capacity building, scaling up, and institutionalization/consolida- • Review strategy options for scaling up in tion. The key to successful APLs is to have a clear long-term terms of processes, learning, and adapta- vision for the sector/subsector, and to set well-defined “triggers” tion. (indicators) for moving to the next phase. It is good practice to carry out an independent external evaluation before the end of each phase to evaluate progress and review strategy for the • Review institutional capacity and effective next phase. APLs also provide a transparent and flexible exit linkages and logistics among different types strategy for nonperforming loans. of participants—farmers, ministry, local government, NGOs, and the private sec- Source: Authors. tor—to permit and manage successful scaling up. Box 11.3 Improving knowledge management • Develop appropriate tool kits, manuals, and training programs to ensure effective Future World Bank investments in agricultural development implementation on a wider scale. require substantial attention to the development, testing, and sharing of good practice in certain key areas. Thematic groups • Consult widely with key stakeholders about (TGs) have a crucial role in knowledge management, especially sharing experience across regional operations. However, the options and plans and their role (manage- Bank and its TGs have generally not invested sufficiently in hard rial, financial) in sustaining the changes. evaluation to identify and verify good practice, prior to wider scaling up. Special efforts are required to deepen the ongoing Scaling across countries and regions requires evaluation of programs and a proactive stance is being taken by strong programs of knowledge sharing through the Bank in terms of addressing the key issues relating to communities-of-practice that draw on the knowledge management: Bank’s comparative advantage in accumulating • Taking a strategic approach to prioritizing clients and their 449 experience from its activities throughout the specific learning and information needs. world. Bank Thematic Groupsæformal or • Capitalizing on the comparative advantage of sector informal æand mechanisms such as this anchors in capturing and assessing cross-regional and Sourcebook and the Bank Web site, promote multisector experience (including lessons learned from this sharing of experience within the Bank and quality enhancement reviews), and disseminating the with partners (see box 11.3). results to development practitioners. • Ensuring the quality, timeliness, and accessibility of Web- based knowledge and information, and developing appropriate norms and standards for content management GETTING AGRICULTURAL of Web sites. LENDING INTO THE PIPELINE •Systematically capturing knowledge and designing effective courses and learning activities to assist practitioners—the Evaluation studies have consistently shown that strategic focus of learning programs must accurately reflect success in lending is more likely when it is both corporate priorities and the needs of operational staff. underpinned by thorough upstream analytical • Ensuring that knowledge management activities are work. Economic and Sector Work (ESW) must efficient, cost effective, and coordinated with minimal support future investments in terms of both duplication of effort. building and updating the stock of knowledge, Source: Authors.

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT and supporting investments and policy dia- •As part of preparation of strategies, empha- logue in client countries. By providing in-depth size the preparation of public expenditure analysis and diagnosis of the agricultural reviews that feed into the development of sector’s strengths and weaknesses, resource medium-term expenditure frameworks for base, and prospects as a source of growth and agriculture. poverty reduction, good ESW can help prioritize critical constraints and opportunities for agricul- • Deepen rural poverty diagnosis and analy- tural and rural development. It provides the sis, and support regular socioeconomic analytical basis for identifying what needs to be done surveys of rural poverty, including report- to improve the sector’s performance. ing incidence of rural poverty by gender, farm size, ethnicity, agro-ecological zone, There is an increased push in lending programs sources of income (commodities pro- for improved partnerships, a longer-term per- duced), rural nonfarm income, participation spective, and an approach that is country-driven in markets, as well as access to services. Seek to and results-oriented. ESW has to be done in a understand the mechanisms for linking different participatory manner, and requires building groups of the poor to agricultural and rural consensus and ownership of the vision of growth, and different types of public interven- agricultural development by policymakers, their tions. constituencies at all levels, and the development community. ESW should involve mobiliza- • Identify and evaluate new approaches to tion of institutions and development of partner- agricultural development to develop and ships across different sectors; broad local support programs for rural-focused PRSPs. participation in the decentralized design and This will need to be based on solid evalua- implementation of agricultural development tions that identify why various approaches programs, including coordinated timetables for or innovations have or have not worked or the work, budgets, and responsibilities; and been adopted in the past, including an regular monitoring and evaluation (M&E). assessment of distributional impacts.

The treatment of agricultural issues in the Coun- • Strengthen participatory processes and try Assistance Strategy (CAS) and related agricul- structures that build the voice of farmers ture lending pipeline depends on the robustness (and those key public and private agencies 450 of the stock of knowledge generated by ESW that represent them) in the articulation of products. ESW also provides the stock of knowl- priority public actions. This might involve edge and relevant data that enrich the agricul- identifying new partners (that will often be tural and rural content and diagnostics of PRSP farmers themselves), rather than the public preparation. For low-income countries, the PRSP agencies with which donors have tradition- process is now the major country strategic ally worked. framework for shaping investment lending and aligning donor support around national strate- • Identify priority public actions for the gies. To mainstream agricultural and rural devel- agricultural and rural sector from sound opment issues into the development dialogue analysis of public policy and expenditures, and priorities of PRSPs requires a number of key with special reference to their impacts on actions by governments and donors: the agricultural and rural poor.

• Support the preparation of national agri- • Develop appropriate targets and indicators cultural and rural development strategies to support the development of guidelines and related economic sector work and for a consistent set(s) of output, outcome, analysis as necessary inputs into the PRSP and impact indicators that address differen- process and its implementation. tiated groups of farmers and the rural poor.

AGRICULTURE INVESTMENT SOURCEBOOK LENDING INSTRUMENTS: FROM PROJECTS TO Despite the attractiveness of programmatic PROGRAMS lending, project lending remains important in The Bank has a number of instruments that the agricultural sector, especially for long-term are well suited to institutional and program institutional development. Projects allow for development, and to preparing for scaling up greater input of technical support to program successful activities. The Bank along with design and implementation, thus enhancing the other donors is shifting emphasis from discrete potential for innovation, reform, and shared project lending to programmatic lending that learning. The higher profile (more-so within provides direct budgetary support. Program- sectoral ministries and departments than in matic lending is a more efficient means of central agencies like Finance and Planning) transferring resources, requiring relatively less associated with a discrete project activity Bank attention to detailed design and imple- attracts greater attention from sectoral mentation supervision, and less borrower policymakers, and enhances potential for resources to comply with Bank fiduciary institutional and policy reform in the sector. oversight requirements. By streamlining a Project lending can also help to correct past program within core operations and activities, misallocation of resources by directing invest- an implementing agency can ensure long-term ment to specific activities that are typically commitment and sustainability of new initia- underfunded (for example, agricultural research tives. However, triggers for programmatic with long-term payoffs). However, project lending should be well defined, and monitorable lending should aim to improve existing pro- performance indicators to assess intermediate and grams and should avoid the creation of sepa- eventual outcomes (and the basis for continued rate programs and administrative structures. support) should be agreed on and clearly defined. This helps to increase government ownership Where possible, the triggers should draw on existing and allows for the eventual inclusion of the government commitments for action, especially as activity into a broader sectoral or multisectoral identified in PRSPs. program operation. Where appropriate, small projects may pilot new initiatives linked to PROGRAM LENDING. The agricultural sector pro- improving ongoing programs, prior to wider gram (ASP) is one form of a sector-wide scaling up. Some hybrid operations are also approach being promoted by donors to pro- being implemented to combine objectives of vide support over the medium to long term. In short-term structural adjustment with longer- 2 principle it eliminates the fragmentation, term institutional development. 451 duplication, and lack of country ownership that was common under the conventional In line with the Operation and Evaluation project investment approach.1 Program ap- Department (OED) findings (Battaile 2002), proaches are most appropriate where there is a successful support to the agricultural sector will coherent policy framework for the sector, require a mix of instruments and effective including an agricultural strategy, an adequate sequencing of support to policy adjustment, public expenditure review process in the capacity development, sectoral investments, sector, strong government commitment, and and piloting of activities prior to scaling up. potential for donor collaboration. Poverty This mix will be strongly conditioned by the Reduction Support Credits (PRSCs) have country-specific policy and institutional envi- extended this principle to multisectoral opera- ronment. In poor policy and institutional tions within the framework of the country- environments, simple project designs provide driven PRSP. better results than complex and multifaceted undertakings. Although the current mix of

1. See the AIN, “Agriculture Sector Program Lending” 2. See the IAP, “Turkey: Hybrid Adjustment/Investment Lending” (Module 1)

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT lending to agriculture is still weighted toward Although the approach has been rapidly scaled investment projects (see figure 11.1), program- up, the impact and sustainability of the CDD matic lending, especially Programmatic Struc- approach for production activities are still tural Adjustment Lending (PSAL) and PRSCs, is uncertain, and development of criteria and growing. Within project lending, there has also guidance for scaling up are inadequate. A been a dramatic switch toward multisectoral recent review suggests that economic assess- operations using a community-driven development is generally inadequate in CDD projects ment approach. (van der Meer and Noordam 2003). Where CDD projects move beyond purely public COMMUNITY-DRIVEN DEVELOPMENT FUNDS. Commu- goods, particular care is needed to ensure that nity driven development (CDD) is an approach grants do not distort private markets for inputs to poverty reduction that seeks to empower and services, including financial markets. communities and local governments with Another major requirement is to ensure that resources and decisionmaking powers, to productive investments are pro-poor, and are enable decentralized implementation of pro- not captured by local elites. grams in rural areas. Investments in agriculture implemented through the CDD approach The development of manuals and tool kits to should be targeted to provision of local public help capacity building at all levels is a key to goods and to developing productive assets for scaling up CDD operations. Much sharing of the poor. This approach typically gives commu- good practice is required, particularly with nities access to local investment funds (often, regard to developing objectives, designing but not always, provided in the form of match- eligibility and selection criteria, and M&E of ing grants) to implement subprojects of their grant programs. Proper procurement and choice. Initially, CDD grants, responding to capacity building for local institutions that community priorities, were focused largely on ensure delivery of services is important to social services and local infrastructure. In more improve their efficiency and relevance. This recent operations, more CDD grants are fo- includes: cused on income-generating activities (IGAs), especially in the agricultural sector. In 2002, • Good practice guidelines, tool kits, and about 45 percent of lending to the agricultural standard manuals for grants that target IGAs, sector was based on a CDD approach. including technical backstopping through 452 FIGURE 11.1 IBRD/IDA COMMITMENTS TO THE AGRICULTURE, FISHING AND FORESTRY SECTOR (INCLUDING AGRO-INDUSTRY, MARKETS AND TRADE): BY LENDING INSTRUMENT, FY01–03 PRSCs and Other PSALs Investment 3% 7% APLs/LILs 9% Sector Investment Other Adjustment 1% 22%

Specific Investment 58%

Source: World Bank Internal Documents.

AGRICULTURE INVESTMENT SOURCEBOOK advisory services responsive to community administration issues, thereby laying the neces- needs, and good practice tools for undertak- sary groundwork for future, more sectorally ing economic analysis of grant schemes. focused, PRSCs. Basic auditing, procurement, disbursement, and public sector management • Training to strengthen the capabilities of systems need to be in place before PRSCs can Bank staff and borrowers in identifying and provide sectoral support. assessing market failure, and in identifying cases in which grants and other interventions When backed by good PRSPs with strong rural may or may not be a suitable instrument. content, PRSCs may provide an appropriate tool for addressing agricultural and rural devel- A companion note on CDD operations in opment issues that increasingly cut across agriculture provides additional information on ministries. Although experience is still limited, current thinking regarding good practice. where countries have in place a well-articulated agricultural and rural development strategy and POVERTY REDUCTION SUPPORT CREDITS. The most a sector-based, medium-term expenditure rapidly expanding lending instrument is the framework, with wide ownership such as PRSC, which was introduced as a specific form Uganda, the PRSC seems to have been effective of structural adjustment credit (SAC) or sectoral in supporting investment in the agricultural adjustment credit (SECAC). Beginning in 2001, sector.3 Experience to date suggests that for programmatic lending, mostly through PRSCs, PRSCs to be effective: accounted for 19 percent of fiscal year 2002 Bank commitments, although relatively little of • The country environment must be suitable this has been allocated to agriculture. A PRSC for programmatic adjustment lending with program is usually a multidonor operation that appropriate institutional arrangements, a involves a series of sequential operations transparent budget process, and a stable (individual PRSCs), and that together support macroeconomic framework. the country’s medium-term development and reform program to implement its poverty • Investment programs should be backed by reduction strategy. well-articulated and country-owned agricultural strategies, medium-term expenditure PRSCs differ from traditional Bank policy-based frameworks with sectoral outcome and (“adjustment”) lending, both in content and in output indicators, and related analytical 453 the process of preparation and implementation. work, such as public expenditure reviews. Development of PRSCs starts with a country’s own PRSPs and involves extensive consultation • Sufficient institutional capacity should be in and donor coordination. It represents a move place within sectoral ministries to effec- away from narrow adjustment operations that tively implement the program. address economic stabilization and policy distortions through balance of payments sup- However, the PRSC should not replace sector port, to a more development-oriented investment lending, especially for long-term agenda—poverty, institutional capacity, social institutional development where innovative and structural reforms, especially in public practices are being piloted and tested prior to sector management—addressed through bud- wider scaling up, and for lumpy infrastructure getary support. PRSCs are especially suited for investments (for example roads and irrigation). cross-sectoral issues that transcend ministerial And even when based on a good PRSP, there boundaries. Many of the first-generation PRSCs are doubts about the ability of weaker minis- have focused on fiduciary and public sector tries (as agriculture often is) to effectively tap

3. See the IAP, “Uganda: Cross-Sectional Programmatic Adjustment Lending Focusing on Poverty Reduction”

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT into PRSC support. Given the key role of example, it is extremely inefficient for all agricultural and rural development, it will be countries to invest in the same research activi- important to put in place the preconditions, ties, especially if the market within a country is especially in agricultural ministries, to expand small. Thus, there is a good case on efficiency PRSC lending to agriculture. grounds for regional or international funding and execution of such research. Natural and MAKING DONOR COORDINATION WORK. Donor coordi- environmental resource conservation also nation is essential to improving the quality and presents a strong rationale for regional coopera- impact of development activities. Much lip tion in the management of shared ecosystems. service is paid to donor coordination, but frequently the reality is that each donor wants For small countries, regional market develop- to “coordinate the other donors around its own ment is essential to achieve economies of scale approaches and agenda.” Effective coordination that make many private sector investments must, however, be based on a process of viable. Regional harmonization of grades, country-driven coordination in which donors standards, and market regulations; contribute to definition of reform programs and phytosanitary and biosafety regulations, recip- investment initiatives, but do so in the context rocal recognition of business certifications and of country ownership of the process. This permits, including seed and varietal registra- implies, ideally, an explicit agreement on donor tion; and shared information systems are commitment for support over a multiyear important to increasing competitiveness and period, harmonization and streamlining of marketing efficiency. Regional harmonization of administrative and financial procedures, and a seed trade regulations has been relatively common M&E framework and indicators. This successful in Central America, Eastern Africa, is difficult to achieve, but less than total inte- and Central Asia, but other initiatives of this gration of program efforts still offers substantial sort are relatively few. benefits in improved efficiency of development assistance impacts. The case for regional programs is usually clear, but donors often provide support to sovereign The trend toward programmatic lending (in- countries, and tools and mechanisms are still cluding PRSCs) has stimulated cooperation and evolving for implementing regional programs alignment among donors in client countries. and coordinating or sharing knowledge across 454 Support for national donor platforms for agri- countries. Pilot mechanisms such as the Africa cultural and rural development is crucial for Region’s Multicountry Agricultural Productivity programmatic lending. The agricultural sector Program (MAPP), have considerable potential, investment program in Mozambique is an and warrant strong support and monitoring for example of successful multidonor collaboration potential adaptation to other situations. within a country-driven agenda.4 The new “Rural Alliance Platform” has potential to provide a forum for better coordination of CHALLENGES FOR SCALING UP AGRICULTURAL agriculture and rural development activities and DEVELOPMENT INITIATIVES approaches at a global level. IMPROVING PROJECT DESIGN FOR SUSTAINABLE PROJECT OUTCOMES. Investment in agriculture offers SCALING UP AT THE REGIONAL LEVEL. A key challenge potential for high returns in terms of poverty for agricultural lending is to find ways to reduction, economic growth, and environmen- support regional programs. Many development tal conservation. Consistent with economic problems transcend national boundaries and realities, high returns sometimes implies high solutions are best sought regionally. As an risk, a fact borne out by the perception of past

4. See the IAP, “Mozambique: Harmonized Donor Funding Around Principles”

AGRICULTURE INVESTMENT SOURCEBOOK low ratings for agricultural project performance • Customize the design of the investment in and sustainability. Average OED and Quality line with a comprehensive poverty diagnosis. Assurance Group (QAG) ratings for the Bank agricultural lending portfolio are generally • Link each component with a few carefully somewhat lower than those for all Bank selected performance indicators that are projects, in terms of quality at entry, perfor- quantifiable, and provide baseline informa- mance, and impact (see table 11.1), although tion. Integrate M&E into project design from this gap has sharply narrowed in recent years. the start for ongoing learning and feedback. The biggest challenge is to raise OED ratings of sustainability and institutional impact to at least •Explicitly analyze sustainability of project the Bank-wide average. Recent assessments by interventions over the long term, especially OED found that a sizable proportion of projects fiscal sustainability and institutional capacity. implemented in agriculture and rural development do not necessarily lead to satisfactory or Among these, the most urgent challenges for sustainable outcomes. agricultural lending are to enhance poverty impacts and sustainability, and improve M&E. Quality of project design in agricultural lending depends on many factors, but the following ENHANCING POVERTY IMPACTS. Poverty reduction four stand out:5 must be the overarching objective of World Bank investments in the agricultural sector. • Set clearly defined and modest objectives There is now a better understanding of the with realistic assumptions of time require- determinants, complexity, and multidimension- ments. Clearly link development objectives ality of poverty, which extends beyond low to the project components. levels of income to include dimensions of:

Table 11.1 Agricultural project ratings compared to all Bank projects (%)

Rating Agriculture Portfolioa Total Bank Portfolio

QAG Performance Ratings 455 (Average 2002–03) Problem Projects 10 12 At Risk Projects 11 16 OED Project Completion Reports (Average 2000–02) Satisfactory Outcomes 74 78 Likely Sustainability 63 74 Satisfactory Institutional Impact 46 50

Note: a. Using projects tagged as the responsibility of the Agriculture and Rural Sector Board as a proxy for the agriculture sector. Source: World Bank Internal Documents

5. See the AIN, “Nine Lessons for Improving Project Design for Better Investment Performance”

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT • Lack of opportunity: This is generally broad-based agricultural growth versus target- associated with the level and distribution of ing specific poor groups, the balance depend- human capital and social and physical ing on country-specific circumstances. assets, such as land and market opportunities. The initial conditions that define the nature of poverty (and thus the most appropriate invest- • Low level of security: Exposure to risk and ments for reducing poverty) vary widely, and a income shocks that may arise at the na- criticism of past Bank investments in agriculture tional, local, household, or individual has been the relatively homogeneous approach levels. taken to highly diverse rural areas. Future investment designs must accommodate the • Lack of empowerment: The inability of poor differing initial conditions that shape poverty if people and other excluded groups to benefits are to be effectively targeted to the participate in, negotiate with, change, and poor. Implications and strategies for poverty hold institutions accountable. targeting will vary according to the characteristics of farming systems (Dixon et al. 2001), The first step in targeting poverty within agri- especially the relative emphasis on intensifica- culture investment projects (aside from ensur- tion and diversification of agricultural activities, ing that national policy supports an agriculture versus options for increasing off-farm work or growth strategy and avoids market distortions eventual exit from agriculture. Even within and environmental degradation) is to diagnose farming systems, poverty reduction strategies the nature of poverty (see box 11.4). A key must recognize different farm types (commer- issue is the relative emphasis on promoting cial, medium scale with market potential, and marginal). Concerns for economic growth and food security require public policy and pro- Box 11.4 Targeting investments in poverty reduction grams to support growth in efficiency and competitiveness of commercial farms, while Agricultural investments can use various strategies for targeting investments on the poor, such as farm size, gender, farming encouraging the shift of medium-scale farms system, region, ethnicity or caste. An essential first step in with market potential to become fully competi- targeting poverty reduction is to ensure that national policy tive in domestic and international markets. supports an agriculture-driven growth strategy. With this Strategies for investing in marginal farms and macropolicy environment in place, poverty-targeted invest- 456 marginal areas are more difficult, because many ments must rely on: of these lack the resources and economies of • Sound diagnosis of the nature and causes of poverty that scale necessary to become competitive. For include: poverty profiles identifying the rural poor by many farmers in marginal areas and in middle- income and nonincome indicators, and by geographic, income countries, transition out of agriculture social, gender, and temporal incidence of poverty; analyzing will be the best alternative. Women are espe- severity of poverty, and assessing the degree of asset and cially important in agriculture and much more income inequality; and sources of vulnerability and their attention is required to mainstream gender causes. concerns (see box 11.5). • Well-formulated poverty reduction strategies that provide a basis for comprehensive measures to reduce poverty, providing for growth within the agricultural sector. More effective impact of agricultural opera- • Investment project designs that address the lack of tions on poverty requires actions on a number opportunity, security, and empowerment in the rural of fronts: context, and that draw on better poverty analysis, participation by the poor in decisionmaking, and adopting a • Deepen the understanding of agricultural relevant focus (for example, land distribution, market growth/poverty linkages seeking to increase access) to reach the poor through agriculture. poverty reduction for a given rate of Source: World Bank Internal Documents. growth, by understanding how poor people

AGRICULTURE INVESTMENT SOURCEBOOK participate in and contribute to agricultural Box 11.5 Gender enhancing and gender mainstreaming growth, and the mechanisms by which growth benefits poor people. In particular, more support Awareness of gender issues in rural projects has improved. is needed to strengthen qualitative and quantita- However, very often investments remain as pilot activities tive surveys to ensure information is collected lacking significant widespread impact. Gender analysis to guide and analyzed relevant to agricultural and rural project and program design is key. Analysis of gender dimension households (for example, vulnerability, access to enhances the understanding and removal of barriers to assets, livelihood options). inclusion of women and girls. Balanced analysis of women as economic actors and beneficiaries is essential. Recognizing women farmers and entrepreneurs as stakeholders can • Recognize the importance of agriculture to enhance the sustainability and effectiveness of projects, and lead the national pro-poor growth agenda. For to a stronger voice for women in their communities. The many low-income countries, agriculture is practice of including gender strategies and action plans arising and will remain the mainstay of the rural from the gender analysis in project documentation is an and national economy, and its secure and effective approach to ensure gender integration throughout the equitable growth must be adequately project, from justification to activities, budget, and monitoring addressed through the PRSP and other such and evaluation. processes. Source: Authors.

• Build national and regional capacity for agricultural policy research, dialogue, and (including farmer organizations, consumers, debate. Strengthening the underlying ana- and other stakeholder groups). Impact studies lytical framework for rural poverty reduction and monitoring systems are useful in this will allow public investment choices to be regard, and a general orientation to results effectively debated and considered. and accountability to clients helps in building a constituency. • Share good practice on approaches to agricultural and rural poverty reduction at Financial sustainability is enhanced by greater country and global levels. Although there is cost sharing and improved managerial, opera- growing global consensus on key ap- tional, and maintenance capacity of stakehold- proaches to rural poverty reduction, practi- ers other than government, and by more cal experience of what works and what does efficient implementation mechanisms. Objec- not work in different conditions could be tives of many past projects have been far too 457 better articulated, monitored, validated, and ambitious for a short 5-year project period. shared. Future donor involvement will often involve reduced public sector funding (and smaller ENHANCING SUSTAINABILITY THROUGH EXPANDED loans), but longer-term projects to build institu- PARTNERSHIPS. Enhancing long-term sustainability tions that benefit from stakeholder consulta- of lending operations, both institutional and tions, client participation, partnership and financial, remains a critical challenge. This alliance building, and learning and adaptation. requires more attention to institutional analyses for investments, and a better understanding of the determinants of institutional sustainability. MONITORING AND EVALUATION An important step in getting beyond purely M&E is a perennial “end of the list” entry in public sector approaches to implement pro- reviews and good practices for improving grams has been the development of partner- agricultural project and program performance. ships among public and private sector and civil In fact, this should be at the top of the list, as society. Much depends on building local there is little chance for a successful investment constituencies of support for programs, en- if government (and donors) do not define hancing the voice and influence of clients clearly what is to be accomplished, and how it

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT is to be measured. Both the QAG and OED in World Bank. 2000. “World Bank Lending the Bank have consistently flagged “chronic Instruments: Resources for Development weakness” in M&E systems that requires urgent Impact.” Operations Policy and Strategy. attention in the portfolio in general, and in World Bank, Washington, D.C.* agriculture in particular. World Bank. Gender in Monitoring and Evalua- M&E serves as a practical tool for better results- tion in Rural Development: A Tool Kit. oriented management, and an input to plan- http://lnweb18.worldbank.org/ESSD/ ning and decisionmaking at many levels. When ardext.nsf/22ByDocName done well, it allows year-to-year tracking of GenderinMonitoringandEvaluationinRural outcome-level indicators. Moreover, as a neces- DevelopmentAToolKit. sary feedback loop for continuous assessment, good M&E provides a knowledge system World Bank. Poverty Reduction Strategies and whereby lessons are learned for scaling up. PRSPs. http://www.worldbank.org/poverty/ The key issues for M&E are to: strategies/.

• Have an adequate M&E system in place before project/program approval for both REFERENCES CITED implementation and impact monitoring Battaile, W. 2002. “2001 Annual Review of from the beginning. Development Effectiveness: Making Choices.” World Bank, Washington, D.C. • Choose a few carefully selected indicators that can be readily tracked during imple- Dixon, J. A., D. P. Gibbon, and A. Gulliver. mentation, including clear tracking and 2001. Farming Systems and Poverty: Im- impact measurement indicators for gender proving Farmers’ Livelihoods in a Changing impacts. Indicators of project outcomes World. Rome: FAO; Washington, D.C.: should link to specific CAS outcomes. World Bank.

• Establish a basis for comparison by defining van der Meer, K., and M. Noordam. 2002. “The a relevant reference point and basis for Use of Grants in the Market Sector in Rural assessing impact at program outset. Where Development: A Review of World Bank 458 possible, ensure collection of baseline data Projects.” World Bank, Washington, D.C. and periodic updates, emphasizing only key variables related to indicators. World Bank. 2003. “Scaling-Up Issues and Options: Supporting the World Bank Rural • Use beneficiary evaluation and other Development Strategy on Implementation participatory evaluation tools to obtain of Good Practice and Innovation.” World feedback for use in guiding the manage- Bank, Washington, D.C. ment of a wide range of agricultural investment programs. This Overview was prepared by Derek Byerlee, Sam Kane, Eija Pehu, and Gary Alex. Peer review comments were received from Ai Chin Wee and Louise Cord. SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appen- dix for a full list of Web sites.

Battaile, W. 2002. “2001 Annual Review of Development Effectiveness: Making Choices.” World Bank, Washington, D.C.*

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE Table 11.2 Poverty reduction performance of agriculture sector projects, FY99–02 TARGETING AGRICULTURAL INVESTMENTS TO MAXIMIZE Percent projects rated POVERTY IMPACTS “satisfactory” or better Agriculture Other There is considerable evidence that progress in Performance Area Sector Sectors the agricultural sector can have major impacts on poverty reduction. While broad-based Poverty Diagnosis 19 21 agricultural growth strategies continue to be important in fighting poverty, investment Project Strategy 36 47 programs must be increasingly targeted to Project Design 30 42 ensure maximum impacts on the poor. Key mechanisms for targeting to directly improve Source: World Bank Project Documents. the incomes of the poor include focusing investments on: commodities that are important to the poor or regions where poor people are LINKAGES BETWEEN AGRICULTURAL GROWTH concentrated, mechanisms to reduce household AND POVERTY REDUCTION vulnerability and improve access to assets, and In low-income countries, the agricultural sector encouraging inclusive participation. Pro-poor is the primary engine of overall economic investment design is built on effective poverty growth, providing around 60 percent of total diagnosis, an appropriate project strategy, and employment, and 20 percent of GDP. Since inclusive implementation mechanisms. most of the world’s poor depend directly or indirectly on agriculture for their livelihoods, The major theme running throughout the World broad-based productivity increases in the sector Bank’s current rural strategy, reaching the rural is one of the most effective ways of reducing poor, is a focus on reaching the rural poor, by poverty (see box 11.6). Agricultural moderniza- promoting a holistic approach to rural develop- tion and productivity growth increases income ment. The first Millennium Development Goal of small-scale farmers and creates jobs in (MDG) of halving by 2015 the proportion of related industries (processing, marketing, people living on less than a dollar a day, and inputs) that are labor intensive. Increased 459 who suffer from hunger, is now the major productivity also indirectly benefits the poor driving force for Bank investments, including through lower food prices (food forming a large those in the agricultural sector. share of expenditure of poor households). Overall, the estimated elasticities of poverty The modules of this Sourcebook have outlined reduction with respect to agricultural productiv- approaches to addressing poverty reduction for ity are high (for example, the elasticity of specific investment areas. This note outlines the poverty reduction with respect to agricultural more generic lessons involving design pro- yields is about 0.72 percent in Africa (Thirtle et cesses for agricultural investments. This is al. 2003), and in India it has been estimated to especially important, since a recent review of a be 0.41 percent in the short run, and 1.9 per- sample of 177 rural projects approved from cent in the long run (Ravallion and Datt 1998). fiscal year 1999 to 2002 revealed that only about 20 percent were rated as satisfactory in terms of poverty analysis (see table 11.2). CONDITIONS INFLUENCING POVERTY IMPACT Ratings were also low for pro-poor project OF AGRICULTURE INTERVENTIONS strategy and design. The challenge for future POVERTY DIMENSIONS. The causes of poverty are investment lending is to sharply increase these multidimensional and typically interrelated. In ratings to at least the average for other sectors. general, poverty relates to inadequate assets

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT Box 11.6 India: poverty reduction from broad-based agriculture growth

In rural India, the percentage of the rural population living below the poverty line fluctuated between 50 and 65 percent before the mid-1960s, but then declined steadily to about one-third by 1993. Much of this decline has been attributed to broad-based growth in the agriculture sector and associated reductions in food prices. Yield-enhancing public investments in infrastructure, services, and institutions supporting agriculture have had a large, albeit mostly indirect, impact on poverty (see inset figure). The highest payoffs to public investments in terms of poverty reduction were achieved through rural roads, followed by agricultural research, education, rural and community development, and then soil and water conservation investment.

INDIA: ELASTICITY OF POVERTY REDUCTION WITH RESPECT TO YIELD GROWTH

Elasticity of 2.0 poverty 1.8 reduction Food price effect (negative) 1.6 1.4 Wage effect 1.2 Direct efect 1.0 0.8 0.6 0.4 0.2 0.0 Short-run Long-run

Source: Fan, Hazell, and Thorat 2000 ; Ravallion and Datt 1998.

(human, natural, physical, financial, and social), potential for productivity growth, most land is 460 the returns to these assets, lack of political controlled by small- and medium-scale farmers, power, and vulnerability to shocks. The 2000- farmers have (or potentially have) access to 01 World Development Report outlined a three- markets, and governance structures are sensi- pronged framework for action to reduce pov- tive to the needs of the poor. The strength of erty: (i) promoting opportunity by stimulating the link between agricultural growth and economic growth, making markets work better poverty is, however, conditioned by agro- for poor people, and building their assets; (ii) ecological conditions, the structure of farm facilitating the empowerment of poor people types and markets, level of technology use, by making state and social institutions more access to assets, infrastructure, markets, and responsive to them; and (iii) enhancing secu- institutions, and other factors. Therefore, for rity, by lowering the risk from events such as any specific situation, an analysis of the poten- bad weather and natural disasters, and reduc- tial for agricultural growth to contribute to ing poor people’s vulnerability to risks. poverty reduction must start with a review and assessment of the broader sectoral context for BROAD-BASED AGRICULTURAL GROWTH. Broad-based investment. Quite different agricultural invest- agricultural growth can be expected to have ment priorities and strategies may emerge the greatest impact on poverty where a large between and within countries depending on number of poor people depend on agriculture, the local context (Byerlee and Alex 2002). the agro-ecological base allows significant Nonetheless, in many developing countries the

AGRICULTURE INVESTMENT SOURCEBOOK FIGURE 11.2 EMPLOYMENT AND EXPENDITURE; THE POOR AND NONPOOR IN MALAWI, 1998 Percent

100

Employment in agriculture Expenditure on food

Non-poor Poor

Source: World Bank Internal Documents. high dependence by the poorest of the poor on new knowledge and skills. Livelihood shocks agriculture necessitates that agricultural devel- (natural disasters and market risks) may also be opment be central to poverty reduction (see more common. In these situations, there are 461 figure 11.2). likely to be trade-offs between the poverty reduction impacts of investment in general CHANGING CONTEXT FOR TARGETING POVERTY. Increas- productivity growth versus direct poverty ingly, interventions must be more effectively targeting. Specific strategies will depend largely targeted as the opportunities for high poverty on poverty diagnosis relating to livelihood impacts from broad-based growth are becom- strategies of the poor, their resource con- ing less common. This is particularly so in straints, and the market environment. middle-income countries in which the poor represent a smaller proportion of the population and are more marginalized (broad-based STEPS FOR TARGETING POVERTY growth may easily bypass the poor). Liberaliza- POVERTY DIAGNOSIS. A criticism of past invest- tion of trade has integrated markets, reducing ments in agricultural development has been the effects of productivity growth on domestic relatively homogeneous approach taken to rural prices of tradable food staples, and opening areas that are highly diverse in terms of re- opportunities for high-value crops in some sources, livelihoods, and people. Future invest- areas. Competitive pressures from liberalization ments must accommodate the differing initial may also squeeze farmers out of markets or conditions that shape the nature of poverty. A further marginalize them, unless they develop good poverty diagnosis should include:

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT Box 11.7 Web sources for diagnosis and design information • An analysis of the relative merits of reducing poverty through: i) new livelihoods: • The World Bank Poverty Monitoring Database http:// both farm and nonfarm sources, including www.worldbank.org/poverty/data/povmon.htm migration; ii) reduced vulnerability: treat- • LSMS Living Standards Measurement Study; Information ment of critical long-run trends (for ex- Tables http://www.worldbank.org/lsms/guide/select.html ample, degrading natural resources); shocks • World Bank Africa Household Survey Databank http:// (for example, natural, such as drought or www4.worldbank.org/afr/poverty/databank/default.cfm flooding), and economic, such as prices), • World Bank Research http://econ.worldbank.org/ and seasonality (both production and • World Bank Poverty Reduction Strategy Sourcebook http:/ /www.worldbank.org/poverty/strategies/sourcons.htm prices); and iii) access to, use of, and satisfaction with services and institutions Source: Authors. There is now a rich database for carrying out Box 11.8 Brazil rural poverty project; developing good strategy this analysis in many countries (see box 11.7). from effective diagnosis STRATEGY. Project interventions need to be Poverty diagnosis for the “Brazil, State of Piaui, Rural Poverty derived from the poverty diagnosis and appro- Reduction Project” summarized national and state-specific priate in the context of the country and other poverty data relating to the dimensions, characteristics, and sector interventions (see box 11.8). Strategies causes of rural poverty. The diagnosis recognized that rural can be focused, inclusive, or enabling. Focused poverty is fostered by a relatively weak natural resource base, or targeted actions center predominantly on vulnerability to frequent droughts, low labor productivity, high levels of illiteracy and poor quality and coverage of education, actions that bring benefits to poor people and relatively large family size, poor access to basic infrastructure specifically improve their social, environmental, and services, skewed land distribution, and poorly functioning and/or economic conditions, and remove rural financial markets. A multipronged set of strategies was barriers to their participation. Inclusive actions developed to meet needs of diverse groups and thus better are broad-based ones that improve opportuni- target poverty. The strategy developed from this diagnosis ties and services generally, and also address included a thorough review of strategic choices and was rated issues of equity and barriers to participation of as highly satisfactory. It included: poor people. Enabling actions relate to policies • Intensification of the economically viable small-farm sector. that underpin pro-poor economic growth, and • Revitalizing commercial agriculture to absorb wage labor promote sound and economic management, and foster downstream growth. 462 governance, and social policies. Where avail- • Stimulating growth of the rural nonfarm sector, especially able, investment strategies should be devel- processing and services. • Accepting a certain level of migration as inevitable and oped within a strategic framework for national rational. poverty reduction, such as the PRSP. • Provision of adequate safety nets for the rural poor who will not benefit from intensification. PROJECT DESIGN. Project design should have Source: World Bank Internal Documents appropriate organizational and institutional mechanisms to meet the particular needs of target groups identified in the diagnosis. These • A poverty profile that identifies the rural mechanisms may emphasize one or more of poor based on income and nonincome the following: indicators, analyzes the severity of rural poverty, and assesses income and asset • Broad-based productivity enhancement (particularly land) inequality. through technology and markets is still the most efficient means of reducing poverty in • An analysis of the main correlates of rural many situations. This involves investments poverty, for example, asset levels, market in research, extension, infrastructure, and participation, sources of income, and human resources that drive equitable geographic factors. growth processes.

AGRICULTURE INVESTMENT SOURCEBOOK • Geographic areas, particularly marginalized Box 11.9 India: watershed project design for social inclusion and resource-poor locations with limited access to social services and markets. One of four key elements of the strategy developed for the Karnataka Watershed Development Project in India was to • Specific disadvantaged groups—particularly reach marginalized and vulnerable groups. The project selected those that are excluded because of their watersheds with some of the poorest populations in gender, religion, caste, or ethnicity. Karnataka’s rainfed areas, and included those who subsist on the most marginal of resources: tribals and other vulnerable groups • Certain commodities (cassava or pulses) on (scheduled castes, other backward classes, landless, and populations below the poverty line). The project design which the poor in particular depend for involved the implementation of a Tribals and Vulnerable Groups income or consumption. Development Plan to cover all tribals and other vulnerable groups. Project implementation committees are composed of • Equitable land distribution to provide the various stakeholder groups: at least 50 percent of the executive poor with secure access to land. committee are women, and six are from scheduled tribes and other vulnerable groups. NGOs were intensively involved to • Improved quality of natural resource assets, build capacity of stakeholders in social aspects, beneficiary groups formation and nurturing, participatory planning and through improved management of land, implementation, and M&E throughout the life of the project. water and forest resources, and investments such as irrigation. Source: World Bank Internal Documents.

• Microfinancial services to promote savings and investment by poor households. MONITORING AND EVALUATION. Monitoring of project implementation and impact must be integrated • Building social capital and social inclu- into project design from the initial phases of the sion through decentralized development process, with a specific focus on poor and vulner- efforts (for example, CDD) that increase able groups. Performance indicators should not community participation (particularly be limited to income, but may include indicators women, indigenous groups, and remote/ of access to assets, proportion of population marginal producers) in decisionmaking below a minimum level of dietary consumption, (see box 11.9). and indicators of participation by the poor. These indicators can include both quantitative (factor • Managing risk and vulnerability—may productivity, income, health statistics, for ex- 463 involve farm diversification or better coping ample) and qualitative (satisfaction with the strategies, reducing market risks (for ex- provision of services, for example) measures. ample by improving market access and information), and improving food security (reducing production risks, or safety nets). SELECTED READINGS Effective programs include good targeting, Asterisk (*) at the end of a reference indicates high transfer efficiency, program transpar- that it is available on the Web. See the Appen- ency, and well-defined exit criteria. dix for a full list of Web sites.

• Reliable and affordable access to rural Byerlee, D., and G. Alex. 2002. “Designing infrastructure services—transport, water Investments in Agricultural Research for and sanitation, and information and com- Enhanced Poverty Impacts.” SASKI Good munication technology—dramatically Practice Note. World Bank, Washington, D.C.* increases rural people’s access to markets and services. World Bank. 2001. World Development Report 2000/2001: Attacking Poverty. New York: • Access to health and education that improves Oxford University Press; Washington, D.C.: productivity in farm and nonfarm jobs. World Bank.*

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT World Bank. Poverty Reduction Strategy Sourcebook. http://www.worldbank.org/ poverty/strategies/

REFERENCES CITED Byerlee, D., and G. Alex. 2002. “Designing Investments in Agricultural Research for Enhanced Poverty Impacts.” SASKI Good Practice Note. World Bank, Washington, D.C.*

Datt, G., and M. Ravallion. 1998. “Farm Pro- ductivity and Rural Development in India.” The Journal of Development Studies 34 (4): 62-85.

Fan, S., S. Thorat, and P. Hazell. 2000. “Impact of Public Expenditure on Poverty in Rural India.” Economic and Political Weekly XXXV (40).

Thirtle, C., L. Lin, and J. Piesse. 2003. “The Impact Of Research Led Agriculture Produc- tivity Growth On Poverty Reduction In Africa, Asia And Latin America.” Contrib- uted paper for the 25th conference of the International Association of Agricultural Economists, Durban.

This Note was prepared by Derek Byerlee and Sam Kane.

464

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE In recent years, Bank lending to agriculture has had persistent problems of sustainability and institutional development—generally below 50 NINE LESSONS FOR percent of projects are rated as “likely sustain- IMPROVING PROJECT DESIGN able,” and a little over 40 percent rated as FOR BETTER INVESTMENT contributing to “substantial institutional devel- PERFORMANCE opment.” This poor performance can be attributable to a variety of factors relating largely to Agriculture’s importance to poverty reduction is project design. Problems include weak specifi- now widely recognized, but the complexity cation of objectives, weak translation of objec- and perceived difficulty of investing in the tives into outcome-focused design, and poor sector, along with somewhat poorer perfor- policy and institutional design. An analysis of mance relative to other investment areas, has project evaluation results has identified several contributed to a decline in lending. The World key lessons outlined below for future invest- Bank OED recently identified seven key les- ments (World Bank 2003). sons from previous experience that can help improve the quality of project design and implementation, and thus significantly increase RECOMMENDATIONS FOR PRACTITIONERS project performance.6 Several key recommen- RATIONALE IDENTIFICATION. Clearly spell out the dations include: clearly identifying project rationale for the project and the linkages from rationale, analyzing poverty, phasing imple- the rationale to the design. If the project ratio- mentation, good M&E, and structuring stake- nale is not explicitly identified in an outcome- holder incentives. focused design, sound judgments made during preparation and appraisal may be compromised The environment in which the agriculture and M&E may be hindered. Without docu- sector contributes to poverty reduction, and the mented recording of the evolution of project means by which it can most effectively contrib- logic, staff changes may obliterate earlier logic ute, continues to change rapidly. Fully exploit- and decisions. All significant design issues ing the poverty reduction potential of agricul- should be separately identified and addressed ture requires that projects be evaluated criti- or disposed of rationally and explicitly in cally to build an information base from which superseding documents (box 11.10). knowledge can be leveraged to improve future 465 investment initiatives. This note draws from a recent OED study to outline the key generic issues to be addressed by practitioners during Box 11.10 Bangladesh: failure to document justification for project design (World Bank 2003). It recognizes reform changes that sound project design is a fundamental precondition to good project performance, and In the Bangladesh Agricultural Research Management Project, that the design process must: draw from rel- carefully analyzed and well-articulated institutional reforms evant past lessons, be an ongoing process in were developed early in preparation for consultation with the which changes in direction and the rationale borrower, but were dropped later without clearly articulated for these are well documented, and include and recorded justification. Consequently, the project reverted effective M&E systems such that lessons can be to “more of the same” and performed poorly. Such situations articulated and used to guide future invest- tend to be associated with a lack of ownership and pressure to lend as negotiations approach. ments toward more sustainable and effective outcomes and impacts. Source: Authors.

6. This note draws from R. Nelson, “Sector Lessons Note: OED’s Seven Leading Rural Lessons” (World Bank, Washington, D.C., Forthcoming).

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT POVERTY ANALYSIS. Critically analyze who is poor sideration should be given to realistic targets, and why they are poor to improve the pro- and readily quantifiable indicators linked to the poor focus of the project. Project design must objectives, and initiation of M&E design. Man- include effective logical framework links agement and information systems need to be between specific policy and investment actions established at an early stage to enable effective and prior poverty diagnosis. Rigid target-based and responsive management: approaches are typically ineffective, and linkages are better made through incentive struc- • Get the objectives stated appropriately— tures to encourage key agents (such as exten- neither too high and abstract nor too low sion agents) to work with the poor. The chal- and detailed. Aim for outcome-focused lenge is generally to provide for increased design. participation of the poor through group approaches, and through access to marketing • Start early, and reread Logical Framework channels suitable for resource-poor farmers. A Guidelines or attend training. clear section in the project appraisal document (PAD) should indicate: • Initiate plans for baseline surveys if needed during early preparation. If possible embed • Who are the poor, how many are there, and M&E in a permanent institution or link it to what are the reasons for their poverty? one.

• Who are the likely gainers and losers from • Build sustainable evaluation capacity not the proposed project interventions? just one-off project-specific M&E systems.

• Is the project area selection pro-poor (for • Look at incentives for M&E performance of example, poor geographical zones)? different stakeholders and get commitment at the project management level with • To what extent is each main investment or incentives to results-based management policy reform selectively pro-poor? processes.

• To what extent are participation processes • Try to ensure that M&E staff are recognized expected to be pro-poor? professionally within the institution and are 466 not in a temporary position. • Are there any grievance mechanisms accessible to the poor? • Coordinate M&E methods and reporting formats with other donors. • What indicators will suggest the achievement of any pro-poor objective? DESIGN REALISM. Make sure that the elements of the project design are not only time-specific This analysis can be used to customize project and measurable, but also are realistic and design to address specific characteristics, achievable—especially with regard to CDD- location-specific constraints, and opportunities type activities and the incremental processes of the poor. required for CDD implementation. Frequently, donors underestimate the time required to meet MONITORING AND EVALUATION. From the outset, targets, and do so such that impacts will be integrate M&E into project design. M&E should sustained into the future. This is particularly so be an organic part of project design, not an for capacity building investments where the afterthought. Effective M&E must be in place to building of trust and social capital is an incre- learn lessons for future, larger-scale operations mental process that demands iterative learning. (see box 11.11). As soon as project objectives Creating incentives and stabilizing expectations are initially formulated, even tentatively, con- takes time, and creating capacity at all levels

AGRICULTURE INVESTMENT SOURCEBOOK (government, community, private sector) Box 11.11 Pakistan: consequences of ineffective monitoring and usually takes more time than anticipated. evaluation Project closure (along with inadequate follow- up work) just when organizations are estab- Weaknesses in monitoring and evaluation (M&E) of the lished and most in need of external support, Pakistan Punjab Forest Sector Development Project were due has occurred far too frequently in past to the failure to design M&E during preparation, inappropriate projects—the result is lost trust in donor organi- institutional location of the M&E function, and lack of incentives zations due to the unfulfilled expectations that to report. This inhibited management responsiveness. For they initially created within the community. example, lack of M&E data and marketing studies left unad- Project design must recognize that organiza- dressed serious questions about possible oversupply of wood tional development typically spans multiple and alternative marketing strategies. project periods, and thus any one project must Source: Authors. seek to build upon previous initiatives, and also provide the basis for future efforts to expand on its own outcomes. not just rhetoric can be achieved by working simultaneously and cooperatively with diverse TECHNICAL BACKING. Ensure that project compo- interest groups to build support for reform. nents are based on thorough technical analysis, Reforms typically involve changes in laws and either through internal resources or via regulations, new governance and administrative outsourcing of the expertise required. The structures and procedures, financial arrange- World Bank (along with numerous other ments, and capacity building. Those who donors) has lost much of its capacity (techni- manage reform processes on a day-to-day basis need cally specialized human resources in particu- political commitment and support from politicians lar) to identify technical opportunities that and senior policymakers. Implementation delays in would greatly enhance agricultural projects. In institutional development are usually not unpredict- the past, donors have made major contribu- able, but some scheduling or flow charts can guide the tions in many technology-intensive fields sequence, timing, and realistic length of each imple- including; precision irrigation, conservation mentation step. tillage, pastoral livestock systems, export horticulture, and integrated pest management. STAKEHOLDER INCENTIVES. Through new policies However, a reduction in skilled staff has and institutional arrangements, create incen- reduced capacity to identify and exploit these tives for various stakeholders to fulfill their 467 types of opportunities—many of which still respective roles and responsibilities. There exist in agriculture (and are addressed should be thorough analysis of incentives throughout this Sourcebook). Building profes- created by any new “rules of the game” for sional and institutional relationships among individual and institutional stakeholders, and donors, universities, government agencies, and the time needed for these to have impact. private sector providers can enable stakehold- Institutional arrangements typically involve four ers to exploit their areas of specialization and sets of actors with different incentives: comparative advantage, and facilitate outsourcing of technical expertise. • At the central government level, key functions include new laws and regulations, IMPLEMENTATION ACTIONS. Design not just the nationwide coordination, building capacity, substance but the phased implementation and financial decentralization. actions involved in agricultural investment and reform initiatives. Detailing the process by • At the local government level, decentraliz- which policy and institutional reforms are to be ing public services involves establishing a achieved, and appropriately sequencing imple- national framework with an appropriate mentation, are as important as detailing the mixture of administrative, political, and substance of the reforms. Ensuring that action is fiscal decentralization, and establishing

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT institutional arrangements for each service important, but major decisions generally assigned to local governments. come from donor headquarters.

• Incentives at the community level are • Sufficient time to build trust. Donors have needed to make service providers account- often felt rushed to make commitments, able to farmers and enable the poor to even in cases where project preparation exert pressure on local governments. takes a long time. This can result in many donors pulling out very quickly when • For the private sector, including individual things start to go wrong. farmers, successful liberalization and privatization of commercial activities may • Clear definition of what elements are being require capacity building and transitional coordinated (for example, overall strategy, arrangements as circumstances, capacity, procurement, disbursement, phasing, and incentives evolve. community processes, reporting, subsidies or incentive payments), and realism about Participation of all legitimate stakeholder the limits to donor’s procedural (especially groups in reform processes helps to establish procurement) flexibility. the credibility of the proposed reforms, as- semble relevant information, and instill owner- • For the Bank, a willingness to let other ship in reforms. It is important to work closely donors chair coordination efforts may reduce with the potential losers who may undermine risk of perceived Bank heavy-handedness. the reform process. A revival in the use of farm budget analysis would help to assess private FINANCIAL PROJECTIONS. Improve the financial financial incentives for investments. sustainability of the project by incorporating specific analytical financial projections into the DONOR COORDINATION. Ensure donor coordination project design. Low sustainability ratings by basing project design on a clear understand- indicate problems with planning for overall ing of respective roles, responsibilities, and financial sustainability (see box 11.13). This is constraints of various partners. Without an attributable to the uncertainties involved with understanding of the roles of various stake- agricultural production and the complexities of holders, the leverage and broader development technical, political, and institutional dimensions 468 experience that may be obtained from effective of project settings. PADs should provide: donor coordination will never be realized (see box 11.12). The following are important ingre- • A table projecting local funding needs for dients for better donor coordination: the project period and at least 5 years beyond and including other significant • Willingness to really listen to donors and incremental donor projects in the sector. cultivate close relationships—what donors formally say may not reflect what is felt in • A table of the past 5 years of budgetary private. Country-level dialogue can be allocation to that sector or subsector.

Box 11.12 Nepal: an uncooperative and thus ineffective approach

Individual donors have supported different aspects of the community forestry program in Nepal, depending on their individual priorities, and have preferred to work in specific districts. Both aspects have put a great coordination burden on the government and stretched its limited institutional capacity. Diverse implementation strategies in different districts have created confusion, especially among field staff. This uncoordinated approach resulted in some important institutional issues receiving inadequate attention–for example, support for research has fallen between the cracks.

Source: Authors.

AGRICULTURE INVESTMENT SOURCEBOOK Box 11.13 Poor financial sustainability: a Bangladesh research project as a typical example

Despite two earlier projects with serious financial sustainability issues, the Bangladesh Agricultural Research Management Project had no analysis of financial sustainability. The Staff Appraisal Report (SAR) refers briefly to the risk of inadequate counterpart funding, and notes that the government agreed at negotiations that adequate funds would be made available for the project–the largely boiler-plate statement found in many SARs/Project Appraisal Documents (PADs). The post-project scenario for funding was not discussed or analyzed in relation to past budgetary allocations.

Source: Authors.

• Analysis of any gap between these two— World Bank. 2002. “Toward Sharpening the that is, between the demand for funds and Focus on Rural Poverty: A Review of World a reasonable expectation of the supply of Bank Experience.” Operations Evaluation funds. Study 24072. World Bank, Washington, D.C.* • Supporting evidence of changed government priorities for sectoral budgetary World Bank. 2002. The Next Ascent: An Evalua- allocations if budget demand is shown to tion of the Aga Khan Rural Support Pro- go significantly beyond past actuals. gram, Pakistan. OED Report. Washington, D.C.: World Bank.* • A substantive discussion on the implications of the data for financial sustainability, and an outline of how it has affected project design REFERENCES CITED (for example, toward reduced scale, increased Nelson, R. Forthcoming. “Sector Lessons Note: cost recovery, phasing, retrenchment). OED’s Seven Leading Rural Lessons.” World Bank, Washington, D.C. Designing a project to be within the financial capacity of the borrower requires more than This Note was prepared by Ridley Nelson. simplistic budget-cutting solutions, such as line agency staff reductions and needs to be assessed in the context of overall national budget management and civil service reform (staff reduction may not release funds if budgetary 469 allocations are related to staff numbers).

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appen- dix for a full list of Web sites.

Nelson, R. Forthcoming. “Sector Lessons Note: OED’s Seven Leading Rural Lessons.” World Bank, Washington, D.C.

UNDP. 1998. Capacity Assessment and Develop- ment: In a Systems and Strategic Manage- ment Context. Technical Advisory Paper 3. New York: United Nations Development Program.*

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT AGRICULTURE INVESTMENT NOTE expenditure program, under government leadership, adopting uniform procedures to disburse and account for all funds. A sector AGRICULTURE SECTOR program is defined as one that covers all the PROGRAM LENDING activities in a given sector (often used to mean all the activities of a government ministry’s The agriculture sector program (ASP), a sector budgetary programs). A sector-wide program: approach to development, is a medium to long (a) is sector-wide in scope or coverage; (b) is term national program specifically for agricul- based on a coherent sector policy framework; ture. The formulation, scope, and sequencing (c) is prepared and managed by local stake- of ASP depends on the depth of the country’s holders; (d) includes program participation by private sector, the status of its policy frame- all major donors, thus avoiding duplication work, and its institutional capacity to plan and and conflict with other donor projects; (e) implement a development program. Donors adopts, to the extent possible, the same support government priorities as contained in arrangements for accounting, budgeting, the program. This eliminates the fragmentation, procurement, and progress reporting, for all duplication, and lack of country ownership donors; and (f) is in line with the country’s common under the conventional project invest- institutional capacity. ment approach. Donor involvement should include technical assistance for capacity building (through training of preparation and man- BENEFITS agement teams, workshops, and other activi- Evidence suggests that projects perform signifi- ties), sector studies, and developing informa- cantly worse in situations of macroeconomic tion and communication systems. instability. However, stand-alone projects are ill-equipped to initiate macroeconomic reform, In many countries, the effectiveness of donor and adjustment lending, although suited to assistance provided to the agriculture sector addressing “stroke of the pen reforms” (such as has been less than satisfactory. An important export tariff elimination), is not very successful reason is that when aid is delivered through a in dealing with complex issues requiring longer variety of projects, it results in a fragmented gestation periods (for example, privatization of approach to agricultural development. Even if parastatals). ASP combines reforms in key 470 individual projects are well designed, the sectoral policies, expenditure patterns, and multiplicity of donors, objectives, management institutions with financing for a sectoral expen- systems, and procedures make it difficult for diture program with a longer-term horizon. The sector managers to absorb and manage aid approach broadens sources of funding, makes efficiently. Often donors have taken the lead in coverage of the sector more comprehensive, identifying, designing, and implementing brings ongoing projects into line with the projects. Although they do so with good sector policy, and develops common proce- intentions, this does little to help the country dures. It provides policymakers and practitio- develop capacity or foster a sense of owner- ners the opportunity for systematic and com- ship of their development projects. prehensive review of the public expenditure program, ensuring that priority programs are supported effectively, and are appropriately AGRICULTURE SECTOR-WIDE PROGRAMS sequenced. When successful, sector programs Agriculture sector-wide programs, like pro- focus discussions between donors and govern- grams in other sectors, function as an umbrella ment, link policy and implementation, balance to help ensure the coherence of donor-sup- investment and operating expenditure, and ported government activities. Sector program improve service coverage and quality (Foster, approaches support a single sector policy and Brown, and Naschold 2001).

AGRICULTURE INVESTMENT SOURCEBOOK ASPs will not be appropriate in all countries, Box 11.14 Kenya: agriculture sector program stakeholders especially where serious macroeconomic problems exist, where there is not a broad In Kenya, a workshop on the findings of the agricultural sector agreement on the aggregate pattern of priority review identified the following key stakeholders: public expenditure, and where institutional capacity to formulate, implement, and monitor • Farmers and their organizations: Smallholders and commercial farmers, farmers’ groups (male and female), programs is weak. ASPs cannot be thought of cooperative societies, apex and national farmer organiza- as substitutes for sound adjustment policies. tions. • Public sector: Ministry of agriculture, other line ministries, treasury, ministry of planning and national development, DESIGN AND IMPLEMENTATION ISSUES department of personnel management, parastatals, area MULTIPLE STAKEHOLDERS AND CROSS-SECTORAL ISSUES. development authorities, and local government including The agriculture sector has many stakeholders, provincial and district administrations. • Private sector: Traders, exporters, and agro-industries including private sector entities, multiple (including small-scale traders). government agencies, and numerous donor • Policy group: Academic institutions, other institutes and organizations and NGOs (see box 11.14). Many think-tanks, elected representatives at the national and government functions of greatest importance to local levels, financial institutions, and nongovernmental agriculture (for example, regulation of transport organizations. and trade, trade policy) are located outside of Source: Okidegbe et al. 1998. the agricultural ministry itself. This makes it difficult to develop consensus among stakeholders, and to concentrate public sector initiatives. For improved coordination, governments and donors must seek consensus and a donors may be unwilling or unable to harmo- common agreement on the most suitable nize their support due to their own internal structure (and ministry) to lead public sector procedures. The Special Program of Assistance reforms and program initiation. for the Africa region is one mechanism for improving donor coordination offering donors COUNTRY CAPACITY. A major obstacle to agriculture the opportunity to discuss ways to coordinate sector program success is lack of country their assistance and providing a model for capacity to plan and execute a comprehensive governments. Adoption of common implementation arrangements is likely to be a slow program—in particular, capacity for financial 471 management and for M&E. Initial ASPs should process. Project implementation manuals focus on reforming institutions and building should highlight the proposed implementation capacity, keeping early programs relatively arrangements. Donors are likely to agree to simple, focusing on a few core activities in one harmonize some activities but resist harmoniz- or two subsectors, and undertaking further ing others. While donors are likely to agree to tasks as capacity expands. A sector program common reporting and auditing functions, they may focus entirely on institutional development are less likely to harmonize procurement and and capacity building, and may not involve pooling of funds. ASP initial successes can capital investments at all. The determining build receptivity to further coordination. factor as to whether a program qualifies as ASP or not, is the extent to which coherent policy and institutional frameworks exists and the LESSONS LEARNED degree of government commitment. Experience from recent ASPs not only offer some important lessons for future ASPs, but DONOR COORDINATION. Donor coordination and also show that ASPs are not panaceas for harmonization of donor support is generally development success. ASPs have worked well difficult to achieve. Governments may lack the in some countries, and have experienced capacity or experience to handle this task, and significant implementation difficulties in others.

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT SUCCESS CRITERIA. Experiences have shown that • Demonstrate the consistency of ASP activi- ASPs work better in countries with: ties with program objectives, the outputs required to achieve objectives, and the • A coherent policy framework that addresses inputs needed to achieve outputs, empha- key macroeconomic and sectoral policy sizing cause and effect linkages. issues (there are no major policy distortions or at least measures are in place to redress • Assess the affordability and sustainability of existing distortions). the program through a detailed public expenditure review. • An institutional framework that is based on a detailed assessment of key institutions in • Address cross-cutting issues by evaluating the sector, and supported by institutional the extent to which the program minimizes reforms and rationalization. environmental degradation, reduces poverty, and improves gender equity, for • A sectoral public expenditure review example. process that identifies ways to improve the efficiency and impact of the public expen- • Identify the technical capacity required to diture program. ensure that productivity gains in agriculture, especially among smallholders, can be • A government commitment to the program achieved. with concrete evidence of political, fiscal, and administrative commitment to program • Establish common donor implementation arrangements, possibly pooling funds to preparation and implementation. reduce preparation costs, delays, and confusion. CLARIFYING SCOPE AND BUILDING CONSENSUS. Experi- ence shows that when initiating ASP prepara- CLIENT PARTICIPATION AND SOUND MANAGEMENT. ASP tion, it is useful for ASP advocates within implementation is likely to be affected by the government to clarify the scope of the ASP quality of public sector management, and the activities by first preparing a concept summary. guidance provided to those implementing the This can be used to build consensus within program at all levels. It is important to involve government and among the key stakeholders 472 stakeholders at early stages of program imple- on the need for an ASP. Once a consensus is mentation, establishing mechanisms for gener- reached to move forward, an ASP team, com- ating feedback from different client groups and prising representatives from key stakeholders, for assessing farmers’ opinions on the quality, can prepare a program document to guide the affordability, and relevance of services. For preparation effort. Such a document should example, a Zambian ASP successfully involved communicate to principal stakeholders; the ASP a wide range of stakeholders in the preparation scope, evaluation criteria, design features, and stages, but this was not followed up during preparation processes. Views of rural stake- implementation (see box 11.15). The end result holders throughout the country need to be was loss of ownership, poor implementation, incorporated in the preparation process. and low impact. This illustrates the importance of making efforts to sustain client participation/ AGRICULTURE SECTOR PROGRAM DESIGN. Past ASPs ownership throughout the entire ASP process. have illustrated the importance of taking into Options for generating such feedback include account the country’s implementation capacity beneficiary assessment, participatory rural and natural endowments. There is therefore no appraisal, systematic client consultation, partici- one standard design that is generally appli- patory M&E, and involving stakeholders in cable. While flexibility is important, experience advisory roles. ASPs should institutionalize a shows that ASP preparations must: learning culture and provide training for staff at

AGRICULTURE INVESTMENT SOURCEBOOK all levels to familiarize them with ASP principles Box 11.15 Zambia: Agriculture Sector Program and local and implementation issues, particularly the stakeholder ownership need for client consultation and special attention to gender issues, management, personnel, Prior to the agriculture sector program (ASP), there were some and incentives. Planning must ensure smooth 180 known donor-funded projects in the agricultural sector in implementation, as any ongoing projects are Zambia. The government had at best only partial knowledge of systematically integrated into the ASP. most of these. When the ASP was launched in October 1992, it was agreed with all major donors that the government would MONITORING AND EVALUATION. Good M&E systems drive the preparation process. The government began an 18- are needed for effective implementation of month preparation process to design a new, affordable program ASPs, especially for early identification of to revive the country’s agricultural sector. To do so, it created a national task force with 14 working subgroups. Representatives inadequate performance (deviations from of nongovernmental organizations, private farmers, the plans, client dissatisfaction, or weaker than universities, farmer groups, and public servants participated. expected linkages between inputs, outputs, They covered such issues as research, extension, privatization, and objectives) and timely remedial measures. rural finance, animal health, and land use and administration. The systems may also identify corrective Wherever possible, private sector members chaired the groups. actions to rectify deficiencies. Impact assess- The key to the eventual success of the program was to bring in ments require a suitable M&E framework for the private sector in a major way to run these groups. the overall performance of the sector, and can Source: Harrold et al. 1995. be viewed as a Sector Performance Analysis (SPA) (see box 11.16). Statistics from the years preceding the ASP usually provide the “benchmarks” for assessing performance and Box 11.16 Requirements for sector performance analysis impact. Sector performance findings should be summarized in interim and final reports Monitoring systems for sector performance analysis (SPA) and, following discussions/consultations with should track such things as changes in cultivated area, produc- major stakeholders and the ministry of agri- tion of key crops as well as total production, employment, and culture, should be distributed to all stakehold- incidence of poverty. A combination of quantitative and ers for action. qualitative methods can help to capture the main sources of variation and explain the reasons for change. For example, SPA analyses may try to quantify the impact of variable weather conditions, increased adoption of new technologies (including RECOMMENDATIONS FOR PRACTITIONERS the impact of extension services), investments, availability of 473 • Begin by identifying key stakeholders and credit, policy changes, and external shocks (changes in export important areas for investment, launching crop prices, for instance), as well as obtain qualitatiave informa- generic studies, appointing and training tion through consultations with farmers and other stakeholders. preparation and management teams, and Source: Okidegbe et al. 1998 preparing a concept document (see box 11.17). Gain consensus through startup workshops that enable dialogue and information sharing among stakeholders. Ensure that generic studies and the priorities, Box 11.17 Potential investments resources, and needs of stakeholders inform the final preparation report. Com- • Policy, regulatory, and institutional reform. plete a comprehensive evaluation of the • Information services. scope and technical feasibility of the ASP. • Provision of extension services to smallholder farmers. • Research priority setting. • Conduct a sectoral institutional analysis, • Development and protection of the natural resource base. • Private sector support. including analysis of sources of power and • Rural infrastructure. influence, and a sector expenditure report, Source: Okidegbe et al. 1998. to inform the ASP (data generated by

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT poverty assessments can be useful here), Okidegbe, N. 1998. Agriculture Sector Pro- and to develop realistic and time-specific grams: Sourcebook. Technical Paper 418. objectives for the ASP. Washington, D.C.: World Bank.*

• Develop effective common implementation arrangements among donors. REFERENCES CITED Foster, M., A. Brown, and F. Naschold. 2001. • Project design must reflect the constraints “Sector Programme Approaches: Will They and capacities faced, illustrate consistency Work in Agriculture?” Development Policy between activities and objectives, assess Review 19 (3): 321-338. sustainability through public cexpenditure reviews, and provide for linkages with Harrold, P. 1995. The Broad Sector Approach to other sectors (trade, roads, water, forestry, Investment Lending: Sector Investment health) and the accommodation of cross- Programs. Discussion Paper 302. Washing- sectoral issues (environment, poverty, ton, D.C.: World Bank. food security). Okidegbe, N. 1998. Agriculture Sector Pro- • Build a sound M&E system. grams: Sourcebook. Technical Paper 418. Washington, D.C.: World Bank. • Restructure donor support to conform to the country’s budget cycle, and phase out This Note was prepared by Nwanze Okidegbe with input individual projects in return for recognition from Sam Kane. as a stakeholder in the sector.

SELECTED READINGS Asterisk (*) at the end of a reference indicates that it is available on the Web. See the Appen- dix for a full list of Web sites.

Foster, M., A. Brown, and F. Naschold. 2001. 474 “Sector Programme Approaches: Will They Work in Agriculture?” Development Policy Review 19 (3): 321-338.*

Harrold, P. 1995. The Broad Sector Approach to Investment Lending: Sector Investment Programs. Discussion Paper 302. Washing- ton, D.C.: World Bank.*

Jones, S. P. 1997. Sector Investment Programs in Africa: Issues and Experience. Technical Paper 374. Washington, D.C.: World Bank.*

Okidegbe, N. 1997. Fostering Sustainable Development: The Sector Investment Pro- gram. Discussion Paper 363. Washington, D.C.: World Bank.*

AGRICULTURE INVESTMENT SOURCEBOOK AGRICULTURE INVESTMENT NOTE Typically, the CDD approach gives communities access to funds to implement subprojects of their choice. Local investment funds are COMMUNITY-DRIVEN often, but not always, provided in the form of DEVELOPMENT FOR matching grants, whereby participating commu- INCREASED AGRICULTURAL nities are expected to make a contribution in INCOME cash or in kind. To the extent that rural communities consider food security and income Community-driven development (CDD) invest- from agricultural sources as their priority needs, ments use a variety of mechanisms to em- projects using the CDD approach are expected power communities to define priorities and to promote agricultural development. take charge of their own development investments. Typically, CDD programs provide resources, often through cash grants, to enable POLICY AND IMPLEMENTATION ISSUES communities to undertake local development Local investment that is explicitly guided by activities. Initial community projects frequently community priorities and, in most cases, imple- involve small-scale infrastructure, but increas- mented by communities themselves, is the ingly productive projects become a priority to hallmark of the CDD approach. In order to address poverty and income issues. Agricul- respect the diverse needs of the poor, eligibility tural projects are potentially an important criteria for selection of subprojects are typically element of the subproject portfolio, though kept fairly open, either using a negative list of experience to date offers limited guidance on things that may not be financed (for example, how to maximize sustainable impact on religious structures or investments with poten- agricultural production systems with CDD tial negative environmental impacts); or a investments. Supporting income-generating broad positive list of eligible subprojects for activities (IGAs) without introducing unsus- project financing (for example, social and tainable subsidies and market distortions is a economic infrastructure, natural resource challenge to be addressed in future analyses management). Most World Bank lending using of CDD investments. the CDD approach over the past decade has focused on infrastructure and social services, CDD is an approach to poverty reduction that but other options are increasingly being ex- seeks to empower communities and local plored, such as IGAs and natural resource 475 governments with resources and management (NRM). Community choices are decisionmaking powers so that they can take conditioned by several factors: charge of their own development. “Empower- ment” refers to increasing the assets and capa- MEETING THE MOST BASIC NEEDS. When CDD bilities of poor people to participate in, negoti- projects target the poorest, beneficiaries usu- ate with, and hold accountable the institutions ally lack basic needs, such as safe drinking that affect their lives. Achieving empowerment water and access to health services. When means promoting a stronger voice, access to presented with the opportunity to improve information, social inclusion, accountability, critical services, those priorities prevail. Once and organizational strength. CDD is an estab- those needs are met, communities will address lished corporate priority of the World Bank and secondary needs. a key design principle in an increasing number of projects in rural areas. At present, approxi- DEFINING THE COMMUNITY. Subproject choice often mately 45 percent of the lending to the agricul- depends on the working definition of “commu- ture sector uses some variant of the CDD nity.” If defined narrowly as a water-users approach—a proportion that is likely to in- organization, for example, it would not be crease in future. surprising to find demands for irrigation pumps

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT Box 11.18 Typology of community organizations in World Bank choices, face important trade-offs in selecting subprojects from a range of sectors (health, educa- operations tion, water supply, transport, and agriculture; see box • Common property resource groups. Water user or 11.18). forestry management associations. • Producer organizations. Groups that engage in crop and APPRAISAL METHODS. Another determinant of livestock production, forest and forest products, fish subproject choice is the method of community production, postharvest and processing activities. mobilization and planning used. Tools that • Multisector functional committees. Village or municipal focus on community problems often come up development committees. with priorities such as health and education. • Single-sector functional committees. Health or education Tools that focus on a community’s resources committees (common in Social Fund projects). • Microcredit institutions. Community savings and loan and abilities may favor economic development groups or revolving credit accounts. priorities. Planning based on community Source: Parmesh Shah, personal communication. strengths and opportunities may produce a priority list different from that established by local government (Goldman 2003).

Box 11.19 Brazil: Hives of income-generating activity USING MATCHING GRANTS TO GENERATE INCOME. Commu- nities often identify productive activities as Throughout the State of Piauí in Brazil, 17 beekeeping sub- priorities, and matching grants have been used projects financed by the Rural Poverty Alleviation Project have successfully to stimulate substantial gains in generated an estimated total incremental income R$348,000, or R$660 per beneficiary family. Total estimated production of productivity and income (see box 11.19). Using honey is 189 tons (17 percent of state production). The grants to support IGAs in farm and rural nonfarm subproject package for beekeeping financed honey-bees, activity is controversial, with a growing number fumigation equipment, centrifuge, honey filters/decanters, of detractors and proponents on both sides.7 beehives and other materials and equipment. CEFAS, an nongovernmental organization, provided technical assistance. In Detractors argue that grants increase depen- one example 30 families formed the Association of Small Bee dency, undermine a culture of financial disci- Keepers in the Floriano Region. Previously, only four of those families were producing honey with a total yearly output of 320 pline, and crowd out development of sustainable kilograms. The 30 families now produce 9,000 kilograms microfinance institutions. Grants that benefit only annually. Average family income from honey increased from a small minority of the population may not 476 R$18 to R$510 per year. The association obtained financing support financially viable activities, and are not from Banco do Brasil for the construction of additional sustainable because fiscal transfers are insuffi- infrastructure to store the honey. cient after a project to continue such support. Source: Parker 1995. Proponents argue that, from a social assistance point of view, direct transfers may be justified for poverty reduction, particularly if they target or carts for produce. If the project works with the very poor.8 From a rural development parent-teacher organizations, then proposals perspective, direct support for productive assets would naturally focus on education. More may be justified to raise the income-earning typically, however, CDD projects work with potential of the community and “kick-start” the villages or groups of villages defined by admin- local economy. Others point to positive exter- istrative boundaries, physical proximity, and/or nalities generated from the associated private social cohesion. Communities comprise numer- sector development. Several rules-of-thumb for ous constituencies, which given hard budget use of grants in CDD are included in box 11.20.

7. This section is adapted from a concept note written by Jean Delion and William Steel, Africa Region. 8. Bank guidelines, specifically Operational Policy (OP) 8.30, state that “[s]ubsidies may be an appropriate use of public funds if they are fiscally sustainable and are economically justified or can be shown to be the least-cost way of achieving poverty reduction objectives.”

AGRICULTURE INVESTMENT SOURCEBOOK Using grants for IGAs for very poor people as Box 11.20 Suggested guidelines for providing grants for income social assistance is well accepted, although generating activities these interventions need to be carefully designed when working with the asset poor. In • Target grant assistance to very poor communities or district poverty initiatives in India, project groups that are beyond the current reach of microfinance teams have had considerable success funding institutions. One way is to make the grant amount large income generation for the poor who own a enough to be useful to the poorest, but too small to be plot of land, however small. They have had worthwhile for better-off groups. less success with the absolute poor who have • Grants should be combined with training and support to no assets (see box 11.21). establish local savings and credit associations to capture increased income flows and finance future income generating activities (IGAs). Grants can catalyze the formation of institutions • IGAs financed must be cost effective, as demonstrated by for collective action. These, in turn, become the impact and cost effectiveness indicators. means for sustainably managing numerous • The investments should not compete directly with private goods and services. Many argue that establish- investment (existing or likely). ment of viable institutions for collective action is • Beneficiaries should contribute to projects, with at least the primary goal of CDD programs. Accordingly, part of the contribution in cash (no less than 5 percent of the determining factor in whether or not to use total project cost). Over generous subsidies create false positive demand, and may jeopardize future maintenance grants may be the institutional outcome envis- of investments by beneficiaries. Subsidies can be structured aged and not the individual goods and services so that the poor make lower contributions, but this may produced, which may only be stepping stones have a negative effect on their ability to assert and defend to building institutions for collective action. their rights to flow of benefits. • If the economic returns to a subproject are higher than the financial returns, one can assume that some level of LESSONS LEARNED AND RECOMMENDATIONS subsidy is justified, the social returns being greater than the private returns. FOR PRACTITIONERS • If the profile of revenues is skewed so that returns do not The CDD approach may encourage collective accrue for some years after investment (for example, action for the purchase of inputs, technical forestry, tree crops), a subsidy to encourage adoption can support, and marketing. The logic of collective be justified. action is to bring new options to communities • Subsidies used without tied commitments for repayment, that are not open to individuals acting alone. user fees, or maintenance, may create perverse incentives for greater rent-seeking by beneficiaries. Often collective action is in everyone’s interest, 477 but it may not be in any individual’s interest to Source: McKean and Ostrom 1995. take on the cost of organizing the collective action. Certain investments are often needed to

Box 11.21 Income-generating activities for the absolute poor – innovative examples

The design of community driven development projects can address the difficult issue of income generation for beneficiaries with no assets: • In a current project in India, a group of landless poor applied for a grant from a village fund for poultry. The proposal was not simply to purchase poultry, but to manage a poultry unit in a different way. One group member asked for training to market eggs; another specialized in transport; and another specialized in animal health. This approach proved potentially more profitable than simply asking for a grant to buy poultry. • In another project, a village received a grant for irrigation. Although not everyone owned land, every member of the community contributed to the subproject and owned water rights. The landless were able to lease their water rights to landowners, thereby generating some income. Source: Ethel Sennhauser and Philippe Dongier, personal communication.

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT Box 11.22 Demand-driven agricultural service funds

The demand-driven agriculture services fund is part of support to rural producer organization (PO) capacity in agricultural services projects in Senegal and Burkina Faso. Funds allow POs to access public or private services to improve farming practices or develop off-farm income-generating activities. Key implementation responsibilities are shared as follows. • Local POs prepare capacity-building subproject proposals on the theme of their choice, requesting funding for training, advisory services, or small productive investments. POs submit proposals to a provincial forum composed solely of PO leaders. • Facilitating NGOs help POs to form regional forums. The NGOs (i) disseminate information, (ii) help POs select representatives at the village and local level, (iii) assist them to elaborate operating rules, (iv) maintain a database of eligible service providers, (v) train PO leaders and farmers on subproject selection procedures, and (vi) monitor program progress. • The Project maintains records on subprojects, prepares contracts with POs, transfers funds to their bank accounts, and organizes technical and financial audits of subprojects. The Burkina Faso project over five years financed approximately 1,250 capacity building subprojects, including 250 demand- driven agricultural extension subprojects. Financial audits have shown that funds were well managed, and demonstrated that POs have the ability to elaborate and implement subprojects. In Senegal, after the first 20 local farmers forums had been in place for less than a year, they had already financed 187 subprojects, 53 percent of which were for training and 38 percent for agricultural innovation testing.

Source: Pierre Rondot, personal communication.

complement the CDD approach. Targeted Some investments needed to overcome con- capacity-building efforts, for example, are straints to development may not figure in needed for participatory appraisal at the community proposals, because they are too grassroots and local government levels to ensure expensive (large public goods); benefit only that local development plans are properly individuals (some private goods); or are too articulated (see box 11.22). These may require long term (natural resource management). the use of NGOs or private companies experi- Projects may need to consider complementary enced in local development. Public extension funding windows for larger infrastructure that needs services may perform this role, although consid- to be planned and implemented above the commu- erable efforts may be needed to sensitize per- nity level (see box 11.23). 478 sonnel to participatory techniques and a demand-driven mentality. Technical support The CDD approach is not a panacea for agricul- services may need to be strengthened to cope ture or development in any other sector, but is with new demand from the CDD program. becoming increasingly important as a way to

Box 11.23 Ethiopia: Funding windows to match needs

The Pastoral Community Development Project in Ethiopia promotes sustainable livelihoods, improved services, and reduced vulnerability to drought by combining the CDD approach with: • A community investment fund (up to US$10,000 per community) with an open menu of possible microprojects to support nomadic lifestyles or diversification away from livestock. • A drought preparedness fund (up to US$80,000 per district) for local governments to implement larger infrastructure works that help pastoral communities cope with drought. • A support services component aimed at increasing the capacity of public services (in water supply, animal health, education, and extension) to meet needs of pastoral communities. Source: World Bank 2003.

AGRICULTURE INVESTMENT SOURCEBOOK channel funds to the grassroots level. It increases Funds, June 26. See related web resources the likelihood that such funds are used to meet at http://www.khanya-mrc.co.za/. the real demands of rural communities, and makes resulting investment more sustainable. McKean, M., and E. Ostrom. 1995. “Common Designers of projects that use the CDD approach Property Regimes in the Forest: Just a Relic to promote agricultural income generation will From the Past?” Unasylva 46 (180): 3-15. need to ensure that the financial instruments are compatible with the existing rural financial Parker, A. N. 1995. “Decentralization: They Way sector, and that complementary technical support Forward for Rural Development?” Policy services are present or provided by the project. Research Working Paper 1475. World Bank, Washington, D.C.

SELECTED READINGS World Bank. 2003. “Ethiopia: Pastoral Commu- Asterisk (*) at the end of a reference indicates nity Development Project.” Project Ap- that it is available on the Web. See the Appen- praisal Document. World Bank, Washing- dix for a full list of Web sites. ton, D.C.

Castillo, C. P., and R. Lema. 1998. “Economic This Note was prepared by Daniel Sellen, Talib Esmail, and Analysis of Social Investment Fund Projects: Melissa Williams. Case Studies and Minimum Requirements Proposal.” Report prepared for Latin America and the Caribbean Region Human Development. World Bank, Washington, D.C. Processed.* de Silva, Samantha. 2002. “Communities Taking the Lead: A Handbook on Direct Financing of Community Subprojects.” World Bank, Washington, D.C.* van Zyl, J., T. Barbosa, A. N. Parker, and L. Sonn. 1995. “Decentralized Rural Develop- 479 ment and Enhanced Community Participa- tion: A Case Study from Northeast Brazil.” Policy Research Working Paper 1498. World Bank, Washington, D.C.*

World Bank. Community Driven Development. http://www.worldbank.org/cdd.

REFERENCES CITED Goldman, I. 2003. “Models of Working with Local Government: Mainstreaming Partici- pation and Community Planning into Public Structures in Sub-Saharan Africa.” Presenta- tion to the World Bank, sponsored by Community Based Rural Development Community Driven Development Social

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT AGRICULTURE INVESTMENT NOTE MONITORING AND EVALUATION SYSTEMS Monitoring is defined as “the continuous assessment of project implementation in relation to MONITORING AND agreed schedules and the use of inputs infra- EVALUATION: MEASURING structure, and services by project beneficiaries” AND ASSESSING (Operational Directive (OD) 10.70). Evaluation AGRICULTURAL is defined as “the periodic assessment of the DEVELOPMENT PROGRAMS relevance; performance, efficiency, and impact (both expected and unexpected) of the project Monitoring and evaluation (M&E) are integral in relation to stated objectives” (OD 10.70). tools for assessing the efficiency and effectiveness of investment operations.9 Designing M&E makes it possible to assess the links M&E systems must start early in project between lending assistance and development preparation and be put into effect from the outcomes, and whether development objectives beginning of implementation. Early definition have been met. A well-designed M&E system is of project objectives, identification of sound characterized by clear objectives for investment performance indicators and clear reporting outputs and outcomes, and for sector/social requirements are important to effective M&E impacts. This typically requires: systems. Baseline studies and benchmark indicators can provide the basis for the M&E • Clear and measurable performance indicators; process. Agricultural investment operations need to identify responsible institutional • A robust risk management system through locations for M&E responsibilities and ensure well-identified assumptions about possible availability of adequate qualified staff with risks and ways to monitor, mitigate and ownership of the M&E system. manage them;

Invariably, PADs discuss M&E at the end of the • Clear responsibility for data collection and reporting requirements, and supervision mismanagement; sions—mostly occupied with institutional, procurement and financing issues—relegate • A realistic agreement with the borrower, M&E discussion to a minor element in progress keeping in view the borrower’s capacity to 480 reports. Both the World Bank QAG and the manage the proposed M&E system, and OED have consistently pointed out that atten- opportunities for capacity building as a part tion is urgently needed to strengthen M&E of the operation; systems and to improve performance and impact measurement. An Agricultural Knowl- • A good incentive environment with clear edge and Information Systems (AKIS) thematic accountability; and group review of agricultural research and extension projects found that only about 25 • Provision for annual review of the M&E percent of the projects reviewed had adequate system to provide information on local M&E plans (World Bank, 2003). M&E issues as constraints so that adjustments can be made they relate to potential for scaling up are in the project’s implementation. highlighted in the Overview of each module in this Agricultural Investment Sourcebook. This Monitoring focuses on project inputs, outputs, note summarizes key aspects of M&E that and outcomes, whereas periodic evaluation should be considered in the design and imple- (such as the mid-term review, completion mentation of agricultural operations. reports, beneficiary assessments, impact studies,

9. This note draws from the M&E sections of the Agricultural Sourcebook modules and World Bank. 2003. “Monitoring and Evaluation Component in Agricultural Operations: A Toolkit.” Agriculture and Rural Development Department Draft. World Bank, Washington, D.C.

AGRICULTURE INVESTMENT SOURCEBOOK etc.) establishes causality and attribution. M&E Box 11.24 World Bank monitoring and evaluation requirements must be an integral part of the project design, not a peripheral item added as an after- The Bank requires systematic monitoring and evaluation (M&E) thought. A well-designed M&E system provides of both program and project lending (Operational Directive data on the progress of the project and whether 10.70 and Operational Policy (OP)/Bank Procedure (BP) 13.05). it is meeting its objectives. This data may then Among other things, OD 10.70 sets out the concept of M&E, require adjustments to the project to take into and provides general guidance on the design and implementa- account different circumstances in the local tion of the information systems required for M&E activities. OP environment. M&E, with its focus on the 13.05 explains the rationale for Bank’s supervision of Bank- financed projects, which includes monitoring, evaluative review project’s objectives and its beneficiaries, con- and reporting. BP 13.05 explains the responsibilities of Task tributes to the accountability of those imple- Teams (TT), and requires that the borrower and the TT agree menting the project. The M&E system also on implementation arrangements, including M&E arrangements, helps in clarifying objectives and improves and use of appropriate performance indicators. accountability to stakeholders (see box 11.24). Source: World Bank Operational Manual.

DESIGN OF SOUND MONITORING AND The Logframe (see table 11.3) is used to: link EVALUATION SYSTEMS with the country social goals; set project objec- Bank experience shows that use of the “logical tives; define performance indicators; distinguish framework approach” or its recently refined between project impact and project version “Results Framework” is an essential tool deliverables; define critical assumptions and for development of a sound M&E system. risks on which the project is based; define the Effectiveness is enhanced by: system for monitoring, evaluation and supervision; identify the basic component clusters for • Participatory approaches to M&E during implementation planning; and define resources both the design and implementation phase; required for implementation.

• Clear identification, at the project design Taken together, these core concepts provide an stage, of data requirements and a workable organizational framework for summarizing the plan (agreed to with the Borrower) for fundamentals of the project. The Logframe obtaining this data; does not replace or substitute for traditional analytical tools and methods. Instead, it pro- 481 • Careful selection of a manageable number vides a structure for using those tools produc- of good quality performance indicators; tively and collaboratively.

• Preparation of a user-friendly project/ KEY PERFORMANCE INDICATORS. Performance indica- program-specific M&E operations guide; tors are measures of project inputs, processes, outputs, outcomes and impacts that are • Testing of the M&E system in the first year monitored during project implementation to of implementation to adapt it to local assess the project’s achievements. Perfor- realities; and mance indicators should be (“SMARTS”): simple and easily defined; measurable; attrib- • Annual reviews to make changes as utable; realistic; targeted; and specific. Indica- appropriate. tors are classified by their level in a logframe: i) input indicators which measure physical THE LOGICAL FRAMEWORK AND M&E. The logical and financial cost estimates needed to pro- framework (Log Frame) used since 1997 has duce certain outputs; ii) output indicators been further refined as a “Results Framework” which measure the results of using project that essentially consists of a 16-box matrix to inputs; iii) outcome indicators that measure structure a project design (World Bank 2003). progress in achieving project development

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT Table 11.3: Logical framework for project design and evaluation

Narrative Summary Performance Indicators M&E/ Supervision Major assumptions

Impacts CAS Goal: Indicators National databases; (Goal to Super Goal) Higher objective to (increasingly standardized) program evaluation Risk regarding which project will to measure social change system strategic impact contribute Outcomes Development Measures of People, events, processes, (DO to CAS Goal) Objective (DO) accomplishment of sources of data for Risk regarding Change in beneficiary the DO. The value, organizing the project program level behavior, systems or benefit and return evaluation system impact institutions on investment Outputs Products Indicators that measure People, events, (Output to DO) of project activities. the value added processes – program Risk regarding What the project of implementation management information design effectiveness can be held of the component system accountable for Components Input/Resources Program management (Component Resources used for Budget: financial, information system to Output) activity clusters physical, and human Risk regarding needed to accomplish resources required to implementation outputs produce the outputs and efficiency

Source: World Bank: The Logframe Handbook.

objectives and particularly at completion; and agricultural production and incomes due to iv) impact indicators which assess primarily weather and prices. 482 project development impact usually after completion. The fewer the number indicators PROJECT CYCLE AND M&E. M&E systems must be the better, with around six indicators in each part of initial design with its own chapter in category. In many projects the number of the project implementation manual setting indicators grows beyond the capacity of staff out its management information systems and resources. In these cases data collection pre- plan for use of data. The mid-term review dominates and reduces the time for reflection, should undertake a detailed review of M&E evaluation and chartering new steps. methodology and indicators. This Review assesses the likelihood of achieving the project’s development objectives or whether MAJOR ISSUES IN MONITORING AND changes are needed. EVALUATION OF AGRICULTURAL PROJECTS LAG TIME FOR IMPACT. Many agricultural projects PARTICIPATORY M&E. Involvement of stakehold- (for example, irrigation and research) have ers—particularly beneficiaries—in design and long gestation periods and impact on the implementation of M&E systems is important sustainability of natural resources and to ensure ownership of results. Approaches poverty reduction can only be determined to the inclusion of stakeholders, with their years after project completion. The project’s valuable local knowledge, in evaluation, are impact is also affected by the variability of improving. Such approaches are particularly

AGRICULTURE INVESTMENT SOURCEBOOK critical for activities requiring extensive Box 11.25: Methods for Establishing Controls for Impact community participation (for example, CDD- Assessment type initiatives). • Randomized controls: Farmers or other beneficiaries are BASELINE STUDIES. Baseline surveys and studies randomly placed into two groupsæthose affected by the provide benchmarks for measuring impact. program and those not. Program impact is assessed by However, frequently, baseline surveys are comparing outcome variables. completed after project start-up and well into • Constructed controls: Program participants are paired with the implementation phase. This should be an equivalent group not affected by program activities. avoided. Appointing M&E staff early in prepa- • Statistical controls: Program participants and non- ration is important if baseline studies are to be participants are compared after correcting for other characteristics that differ statistically between the two effective. Alternative means of assessing pro- groups. gram results against baselines or controls are • Reflexive controls: Data on program participants are listed in box 11.25. compared before and after program assistance. • Generic controls: Data on program participants are M&E STAFFING AND BUDGETING. Funding for M&E compared with established norms for changes occurring in activities must be ensured, particularly for staff the target population. training and baseline studies. Retroactive • Shadow controls: Actual changes in data for program participants are compared with estimates of what is financing of M&E costs may be needed to normally expected based on judgement of experts, cover baseline study costs. Selection of ad- program administrators, or participants. equate numbers of qualified staff and funding Source: Rossi and Freeman (1982) as summarized in Ezemenari and for impact studies and beneficiary assessments, others (1999). is essential to starting M&E systems on a solid foundation. M&E staff must avoid being seen as a police unit monitoring project management •Support to funding agencies (for example, and financial conduct (this is the task of the competitive grants programs) must establish auditors and project accountants). M&E staff realistic and clearly understood performance should function as an integral part of program measurement mechanisms. management and institutional planning units to anticipate needed changes and provide advice • Measuring performance of agricultural when requested. projects must include indicators to assess output and impact not only on beneficiaries 483 but also contribution to the national RECOMMENDATIONS FOR PRACTITIONERS economy and relevant agricultural strategies. • M&E costs should be distinct from other In CDD and extension projects, establishing project management costs and should effective systems to monitor decentralized provide detailed budget items for staffing, programs must ensure that the data are training, technical assistance, studies, available at the appropriate levels. workshops, and equipment. During project identification and preparation early deci- • Investments in intensification of sustainable sions on data collection should be under- agricultural production, environmental taken, this being used for finalizing baseline management and land resources require surveys and studies needed for appraisal. holistic monitoring systems capable of critically evaluating economic, social, and • The evaluation process particularly at mid- environmental changes throughout and term review and project completion should following program implementation. be transparent. Evaluation reports should be discussed in special workshops with • Public investments in agricultural private representation from project stakeholders. sector and market development should be

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT evaluated against the objectives of poverty ment Department Draft. World Bank, reduction, efficiency and sustainability. Washington, D.C.

• Since poverty reduction is the primary objective World Bank. Operational Manual. http:// of Bank investments, monitoring of impacts wbln0018.worldbank.org/institutional/ on the poor, women, and minority groups manuals/opmanual.nsf/. need special attention, even though many poverty reduction impacts for these are World Bank. The Logframe Handbook: A likely to be indirect. Logical Framework Approach to Project Cycle Management. http://wbln1023/OCS/ Quality.nsf/Main/MELFHandBook/$File/ SELECTED READINGS LFhandbook.pdf. Asterisk (*) at the end of a reference indicates that it is available on the Web. See the This Note was prepared by Hamdy Eisa. Appendix for a full list of Web sites.

AKIS. 2000. “Monitoring and Evaluation for AKIS Projects: Framework and Options.” AKIS Good Practice Note. World Bank, Washington, D.C.*

World Bank. 2003. “Monitoring and Evaluation Component in Agricultural Operations: A Toolkit.” Agriculture and Rural Develop- ment Department Draft. World Bank, Washington, D.C.

World Bank. The Logframe Handbook: A Logical Framework Approach to Project Cycle Management. http://wbln1023/OCS/ Quality.nsf/Main/MELFHandBook/$File/ 484 LFhandbook.pdf.

REFERENCES CITED Ezemenari, K., A. Rudqvist, and K. Subbarao. 1999. “Impact Evaluation: A Note on Con- cepts and Methods.” Poverty Reduction and Economic Management Network Draft. World Bank, Washington, D.C.

Rossi, P. H., H. E. Freeman, and S. Rosenbaum. 1982. Evaluation: A Systematic Approach. 2nd ed. Beverly Hills, Calif.: SAGE Publica- tions.

World Bank. 2003. “Monitoring and Evaluation Component in Agricultural Operations: A Toolkit.” Agriculture and Rural Develop-

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE and reviewed by the donor group against a set of agreed principles and milestones. MOZAMBIQUE: HARMONIZED DONOR FUNDING AROUND PROJECT OBJECTIVES AND DESCRIPTION PRINCIPLES The objectives of PROAGRI are to:

Following the end of civil war and severe • Improve institutional arrangements for drought in Mozambique in 1992-93, the agricul- financing and delivery of core public tural sector grew by an annual average of 14 agricultural services. percent, albeit from a very low base. Although this rapid growth partly reflected a recovery • Strengthen the government’s capacity effect, it was also due to gradual liberalization within MADER, at provincial and at local of macro and sectoral policies that started in levels, to provide core public sector func- 1987. Unfortunately, severe flooding in 2000 tions for the agricultural sector in a cost- slowed this progress. Although the flood and effective manner. cyclone disaster constituted a large exogenous shock to Mozambique’s economy, the poten- PROAGRI is a US$200 million phase of a long- tially large fiscal and monetary effects of this term program aimed at supporting sectoral shock were kept under control by the authori- development goals, by consolidating the ties’ commitment to macroeconomic discipline, sectoral public expenditure program, rational- as well as the generous response of izing the role of MADER, and improving the Mozambique’s external partners. Although effectiveness of MADER in policy formulation, interest rates are still high, they are stable and regulation, and public service provision. market determined, as is the exchange rate. PROAGRI includes all agricultural public Agricultural markets have been liberalized and expenditure managed by MADER. PROAGRI government has withdrawn from direct inter- has successfully replaced fragmented donor- vention in most economic activities. driven projects with a comprehensive program consistent with the role of MADER in a mar- What’s innovative? Harmonization of donor fund- ket-based economy. PROAGRI has three ing through two key mechanisms: notionally earmark- subprograms: institutional development, ing of funds contributed to a pooled account and agricultural support services, and natural 485 review of annual budgets against a matrix of basic resource management. principles rather than a list of specific tasks to be completed. BENEFITS AND IMPACTS The Mozambique Agricultural Sector Public Although strengthening MADER’s institutional Expenditure Program is a 5-year APL project capacity is the main focus of the institutional to support the Ministry of Agriculture and development subprogram, MADER’s activities Rural Development (MADER) in implement- in the field have been maintained and in some ing the first phase of a 15-year National cases strengthened. However, it is too early to Agricultural Development Program see the expected true impact of PROAGRI on (PROAGRI). Through this program, some 20 farmers. Institutional reforms implemented development partners agreed to support under PROAGRI have laid the groundwork to PROAGRI, and 11 are already providing make MADER’s activities much more effective, direct budget support to MADER. This sup- and make it possible for the agricultural support is not targeted at predetermined activi- port services to be more relevant and scaled up ties, but rather for those activities selected through the involvement of diversified provid- through a MADER-led participatory process, ers and the beneficiaries. Sixty percent of the

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT financial resources have already been chan- little doubt that through an adequate focus on neled to provinces and districts, leading to an decentralization, the Government of unprecedented level of decentralization and the Mozambique (at the various institutional and establishment of an institutional environment territorial levels) has significantly strengthened favorable to the achievement of field-based its capacity to carry out core public functions results in coming years. An environment has for the agriculture sector. MADER, at various developed within the government and MADER levels, is being transformed into a modern to assume true Mozambican ownership of their public sector institution increasingly capable of agricultural programs. PROAGRI is being promoting and managing diverse sets of agri- studied by other ministries for use in the design cultural interventions. The pooling of donor of a new government-wide financial manage- funds around a commonly agreed set of prin- ment system. ciples of development for host countries has potential for wide applicability throughout the With MADER in the driving seat, MADER and developing world. donors have developed a true partnership and efficient coordination. The strict observation of essential provisions of the Memorandum of PROJECT COUNTRY: MOZAMBIQUE Understanding, namely the regular auditing of Project Name Agriculture Sector Public Expendi- MADER accounts and the adoption of interna- ture Program (PROAGRI) tionally accepted procurement procedures, made PROAGRI path-breaking (both nationally and Project ID P001799 globally) in successful pooling of donor support. Project Cost US$202.0 million Dates FY 2000 – FY 2004 LESSONS LEARNED AND ISSUES FOR WIDER Contact Point Daniel Liborio Da Cruz Sousa APPLICABILITY The World Bank Office The key lesson is that a host country and a in Mozambique, significant number of donors can develop and Av. Kenneth Kaunda 1224, adopt common procedures for program plan- Maputo, Mozambique Telephone: (202) 5333+342 ning, procurement, disbursement, audit, and Email: [email protected] review. Although complicated to set up, it is 486 highly effective in building host country skills, capacities, and ownership. This greatly enhances donor coordination, and host ministry’s ownership and accountability, constructing agreement around basic principles for development activities rather than on a list of specific tasks or deliverables. PROAGRI is considered a leading model of donor coordination and apparently is one of the first examples of the complete pooling of donor funding in support of a program, in this case an agriculture sector program.

True partnership, understanding the institutional dynamics, and persistent collaboration with the institution’s leadership are essential ingredients to ensure the success of a sector- wide program particularly when the host ministry begins from a relatively weak institutional development stage. Furthermore, there is

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE producers and communities; (ii) productive subprojects, including agricultural production, agro-processing and handicrafts; and (iii) BRAZIL: EMPOWERING RURAL investments for use by the larger community, COMMUNITIES FOR POVERTY mainly for infrastructure. REDUCTION This component became the template for a Northeast Brazil contains the single largest radical program reformulation of NRDP (R- pocket of rural poverty in Latin America. The NRDP), which was virtually paralyzed by fiscal region comprises nine states and part of a crises and weakened administrative capacity. tenth, with a population of 45 million (about 28 The NRDP projects were transformed in their percent of Brazil’s total population). About 16.8 entirety into a community-based development million people in the Northeast live in rural program, drawing on and scaling up the suc- areas, some 64 percent of whom live in ex- cessful experience of the original component. treme poverty. Development indicators paint a R-NRDP covered not only those individuals with dismal picture of widespread misery, compared productive assets but all members of poor rural to the rest of Brazil. Poor rural families have communities based on a matching grant mecha- limited access to land, water, markets, financial nism linked to beneficiary contributions toward services, and other basic services. Adult illit- subproject costs. These matching grants were eracy rates and the rates of chronic malnutri- provided directly to community associations to tion of children are exceptionally high. The finance small-scale subprojects identified by the poor natural resource base and chronic drought association in a participatory manner. Two exacerbate the problem of poverty. The overall different delivery mechanisms for screening, result is a region widely characterized by poor approving, and implementing community social conditions and an agricultural system of subprojects were established. First, under the low productivity, with modest input use and state community schemes (PAC), rural commu- slow rates of technology adoption. nities submitted subproject investment proposals directly to their State Technical Agency What’s innovative? Sustainable rural poverty reduc- which screened, approved, and released funds tion through a decentralized approach to resource directly to the communities. Second, under the allocation, community participation, and creation of pilot municipal community scheme (FUMAC), social capital. subprojects identified and prepared by rural 487 communities were presented to Municipal Councils for approval. The Councils themselves PROJECT OBJECTIVES AND DESCRIPTION screened and submitted subprojects to the The World Bank has been involved in support- agency for subsequent financing. ing rural development and poverty reduction in Northeast Brazil since the mid 1970s. The The NRDP projects were closed between 1995 emphasis shifted successfully from a set of rural and 1997, and progressively replaced by the and agricultural development objectives to ongoing Rural Poverty Alleviation Projects poverty reduction objectives based on decen- (RPAP) in eight Northeast states. These projects tralization, matching grants, participation, and incorporate the lessons of the NRDP and other ownership. The era of CDD started with a small similar Bank CDD programs, expand successful but successful pilot component of the North- aspects of the NRDP, and enhance decentraliza- east Rural Development Program (NRDP) in tion. Community subprojects (broadly classified 1985. In this component, resources were as infrastructure, productive, and social) and transferred directly to community associations. institutional development are the main compo- The activities were financed through a Fund for nents of RPAP. The FUMAC approach has Community Support covering three “lines” of become the central mechanism under the RPAP. operation: (i) mobilization and organization of In addition, another delivery mechanism, the

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT Pilot Municipal Community Funds (FUMAC-P), • The decentralization of fiscal and invest- was introduced. Moving from PAC to FUMAC to ment decisionmaking from federal to state FUMAC-P represents increasing degrees of and local governments and to community decentralization of decisionmaking and re- organizations ensures efficient program source allocation responsibilities. administration and positive results.

• Enhanced participation in the financing of BENEFITS AND IMPACTS the subprojects generates a sense of owner- The primary goal of the R-NRDP and RPAP – to ship and a willingness to share responsibili- alleviate poverty through the provision of basic ties for project tasks, especially for the economic and social infrastructure and income Operation and Maintenance of project generation – is being achieved. The socioeco- investments. nomic benefits are significant: more than 44,000 subprojects (77 percent infrastructure, 20 • Poverty-targeting mechanisms should be percent productive, and 3 percent social) were simple and easily monitored. FUMAC and completed, benefiting about 7.5 million people particularly FUMAC-P experiences demon- in the long term and in a sustainable manner. strated that communities themselves are the These investments generated some 100,000 best positioned and informed to target additional permanent jobs, and the cultivated effectively. area was increased by more than 80,000 hectares. Moreover, these investments generated • Technical assistance should be provided to additional, sustainable, annual income or rural communities to enable them to iden- savings of more than US$200 million. Typical tify and implement their own subprojects. tractor and small-scale irrigation subprojects yield annual net income or savings exceeding • Project sustainability improves when mu- US$20,000. Another impressive aspect is the low nicipalities and communities contribute to overhead costs of 7 percent of total funds, with project financing through cost-sharing 93 percent going directly to the communities. arrangements, and when increased beneficiary participation is a substantial pillar of The social capital created by the programs, and project design. the sustainability of these impacts, are essential 488 in assessing the benefits. One of the primary achievements has been the support of a decentralized approach to resource allocation. The PROJECT COUNTRY: BRAZIL subproject development and approval process Project Name Northeast Rural Development that was captured in the project design Program (NRDP); strengthened the capacity of both communities Reformulated Northeast Rural and municipal governments to prioritize invest- Development Program (R-NRDP); ment decisions. Municipal governments are Rural Poverty Alleviation Program now more accustomed to participatory (RPAP) decisionmaking, with the community associa- Project Cost R-NRDP and RPAP: tions increasingly willing to voice their needs. US$800 million Dates R-NRDP and RPAP: 1993 – present LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY Contact Point Luis O. Coirolo R-NRDP and RPAP provide the following general The World Bank, 1818 H Street NW, Washington D.C. 20433 lessons for rural development and specific Email: [email protected] lessons for project design and implementation:

AGRICULTURE INVESTMENT SOURCEBOOK INNOVATIVE ACTIVITY PROFILE OBJECTIVES AND DESCRIPTION OF POVERTY REDUCTION SUPPORT CREDITS The Uganda Poverty Reduction Support Credit UGANDA: CROSS-SECTIONAL (PRSC) is a series of single-tranche program- PROGRAMMATIC ADJUSTMENT matic structural adjustment credits to support LENDING FOCUSING ON the implementation of PEAP/PRSP. The first POVERTY REDUCTION PRSC (PRSC1) established a rolling medium- term policy framework that set out a three-year Eradication of poverty is the number one reform program with performance benchmarks, priority on Uganda’s development agenda. policy measures, and outcome targets. Subse- Despite a significant progress in poverty quent PRSCs have refined and expanded the reduction in the 1990s, 35 percent of the program, each adding a new year to the three- population still lives below the poverty line. year rolling program. The reform program Poverty is mainly a rural phenomenon: 85 selectively focuses on policy and institutional percent of the Ugandans and 96 percent of reforms in PEAP/PRSP with the highest poverty the country’s poor live in rural areas. Agricul- impact. ture remains the backbone of Uganda’s economy accounting for 43 percent of the The objective of the reform program supported GDP, and 80 percent of employment. Hence, by PRSC is to improve public service delivery increasing agricultural growth rates, diversify- because weak public sector performance is one ing agricultural production, and expanding of the main constraints to economic develop- non-farm employment are essential for effec- ment and poverty reduction. The reform tive poverty reduction. program supports activities that improve access to and quality of education, health, water and What’s innovative? Series of single-tranche program- sanitation, and rural services, aiming to raise matic structural adjustment credits that support the quality of life and incomes of the poor. Since increasing access to and quality of these ser- implementation of PRSP, and involve extensive con- vices requires more broad-based action than sultations and donor coordination only addressing sector-specific constraints to their delivery, the program focuses heavily on In response to these challenges, the govern- activities enhancing efficient and equitable use ment developed a Poverty Eradication Action of public resources and promoting good Plan (PEAP); a home-grown medium-term 489 governance. The following key areas of reform development plan to guide government policy support the implementation of the Plan for and the development of sector and district Modernization of Agriculture: plans. The overarching goal of PEAP is to reduce poverty to 10 percent or less by the • Improve responsiveness and impact of year 2017. The specific goals include achiev- publicly funded research; ing universal access to primary education, primary health care and safe drinking water. • Increase access and effectiveness of agricul- As part of PEAP, through a broad-based tural advisory services; consultative process, the government developed the Plan for Modernization of Agricul- • Develop the legal and regulatory framework ture, which promotes the transformation of governing microfinance, and improve operat- subsistence agriculture to commercial agricul- ing capacity of microfinance institutions; ture. Because PEAP’s objectives are fully consistent with the PRSP process, a summary • Implement the 1998 Land Act in a priori- of the PEAP was used as a basis for the tized manner and promote access to land Uganda PRSP. by women and orphans;

MODULE 11: SCALING UP AGRICULTURAL INVESTMENTS IN THE BANK’S CHANGING INTERNAL ENVIRONMENT • Integrate environmental sustainability support disbursements to the PRSC reform concerns in all government programs; program, and PRSC missions have become joint donor missions. • Improve the network of district roads. • A series of PRSCs can be an effective mechanism to address comprehensively BENEFITS AND IMPACTS sector-level and system-wide reforms. Implementation of reforms in basic service sectors (education, health, water and sanita- • The shift to PRSCs is also attractive in that it tion) has proceeded broadly as planned. The is consistent with the Comprehensive net primary school enrollment has increased Development Framework approach and from 76 percent and 85 percent in 1999 to 83 directly links the PEAP/PRSP and Bank percent and 90 percent in 2002 for the poorest Group’s assistance program in Uganda. and richest quintiles, respectively, with equal numbers of boys and girls. HIV/AIDs prevalence rates have declined and safe water PROJECT COUNTRY: UGANDA coverage has increased from 46 percent in 1999 Project Name Poverty Reduction Support Credit to 55 percent in 2002. I and II

The government has also made progress with Project ID PRSC1: P050438 structural reforms in the area of rural develop- PRSC 2: P073671 ment. Preparations for a comprehensive reform PRSC3: P074081 of agricultural research delivery have been made, and a new strategy promoting more Credit Amount PRSC1: US$ 150 million demand-driven agricultural research has been PRSC2: US$ 150 million developed. The multi-donor supported Na- Dates PRSC1: Presented to the Board in tional Agricultural Advisory Services program May 2001 promotes a comprehensive reform of agricultural extension services, and is a demand- PRSC2: Presented to the Board in July 2002 driven program where public funds are channeled to farmer fora at the sub-county level to PRSC3: Presented to the Board in contract the services of farm advisors. Arrange- September 2003 ments to implement land reforms have also Contact Point Satu Kahkonen been established. The World Bank, 1818 H Street NW, Washington D.C. 20433 Telephone: (202) 473-2170 Email: [email protected] LESSONS LEARNED AND ISSUES FOR WIDER APPLICABILITY • The rolling nature of the policy framework enhances predictability of resource flows and improves the Bank’s ability to carry out continuous policy dialogue with the Gov- ernment on a key set of issues and monitor progress towards meeting agreed outcomes.

• PRSC has turned out to be a mechanism to bring donors together, and to harmonize donor practices. A large number of other donors have linked their budget APPENDIX: KEY WEBSITES

491

This list provides the websites where further material (including that listed within the “Selected Read- ings” sections within this Sourcebook) for readers seeking information about investing in agriculture for poverty reduction. It is not intended to be comprehensive but reflects the main sources for the selected readings. Web site Web address

BASIS Collaborative Research Support Program http://www.basis.wisc.edu/ and http://www.basis.wisc.edu/pubs.html Blackwell publishing-Blackwell Synergy http://www.blackwell-synergy.com/servlet useragent?func=showHome CIMMYT International Maize and Wheat http://www.cimmyt.org/ Improvement Center Community Integrated Pest Management http://www.communityipm.org/ CSIRO Land and Water http://www.clw.csiro.au/ and http://www.clw.csiro.au/publications/ DFID (UK Department for International http://www.dfid.gov.uk/ Development) eldis - Gateway to Development Information http://www.eldis.org/ European Centre for Development http://www.ecdpm.org/ Policy Management European Forum on Rural Development http://www.ruralforum.info/ Cooperation Food and Agriculture Organization http://www.fao.org/ and http://www.fao.org/publishing/ Game Management Africa http://www.gameranching.co.za/gameranching/ Gesellschaft fuer Technische Zusammenarbeit http://www.gtz.de/ 492 (GTZ; German Aid Agency) Institute of Development Studies. http://www.ids.ac.uk/ids/ Inter-American Development Bank – http://www.iadb.org/sds/ and http://www.iadb.org/ Sustainable Development Department sds/publication_list_e.htm International Food Policy Research Institute http://www.ifpri.org/ International Land Coalition http://www.landcoalition.org/ International Service for National Agricultural www.isnar.org and Research http://www.isnar.cgiar.org/publications/ Johannesburg Summit 2002 http://www.johannesburgsummit.org/html/ documents/documents.html LEAD (Livestock, Environment and http://www.virtualcentre.org/selector.htm Development Initiative)

AGRICULTURE INVESTMENT SOURCEBOOK Web site Web address

MicroSave Africa http://www.microsave-africa.com/home.asp?ID=15 National Bureau of Economic Research http://www.nber.org/ OECD http://www.oecd.org/home/ Organic Consumers Association http://www.organicconsumers.org/ Overseas Development Institute http://www.odi.org.uk/ and http://www.odi.org.uk/fpeg/publications/ Proceedings of the National Academy of http://www.pnas.org/ Sciences of the United States of America Provention Consortium http://www.proventionconsortium.org/ ReliefWeb http://www.reliefweb.int/w/rwb.nsf Rural Development Institute http://www.rdiland.org/HOME/index2.html Stanford University: Institute for http://iis-db.stanford.edu/featuredpublications.lhtml Environmental Science and Policy Sustainable Development International http://www.sustdev.org/ Swiss Center for Agricultural Extension and http://www.lbl.ch/ Rural Development The Consultative Group to Assist the Poor http://www.cgap.org/ and http://www.cgap.org/publications.html The International Center for Tropical Agriculture http://www.ciat.cgiar.org/ The Microfinance Gateway http://www.microfinancegateway.org/ 493 UNDP http://www.undp.org/ United States Agency for http://www.usaid.gov/ International Development University of Chicago Press http://www.press.uchicago.edu University of Florida - Geomatics http://www.surv.ufl.edu/ and http://www.surv.ufl.edu/publications/ University of Wisconsin-Madison: http://www.wisc.edu/ltc/ and Land Tenure Center http://www.wisc.edu/ltc/pubs.html World Bank Documents and Reports http://www-wds.worldbank.org/ World Bank Publications http://publications.worldbank.org/ecommerce/ World Bank Research http://econ.worldbank.org/ WTO http://www.wto.org/

APPENDIX: KEY WEBSITES

INDEX

495

Accountability use of hybrid, 51–52 client organization, 132 Africa, 290–293. See also specific countries to clients, 112 Agribusiness research institution and researcher, 63 export systems in Mali and, 301–302 Ad valorem tariffs, 24 farmer partnerships in Columbia and, 299– Adaptable program lending (APL), 221, 449 300 Adjustment lending future directions for lending to, 265–268 benefits of, 33 horticulture exports and, 275–279 cross-sectional programmatic, 489–490 issues in investment in, 261–265 explanation of, 32–33 market challenges in Africa and, 290–293 lessons learned from, 34–35 market-led export in Bangladesh and, policy and implementation issues related to, 295296 33–34 past investment activity in, 261 recommendations related to, 35–36 private fertilizer distribution and, 285–288 in transitional economies, 47–48 private seed enterprises and, 280–283 rationale for investment in, 259–261 in intensification (See Sustainable agricultural scaling up investments in, 268 intensification) smallholder cattle development and, 297–298 past activity in, 57–59 supply chain development and, 270–273 poverty reduction through targeted, 456, Agribusiness development centers (ADCs), 266, 459–463 267 priorities for, 66 Agricultural biotechnology. See Biotechnology rationale for, 55–57 Agricultural development initiatives Agricultural knowledge and information sys- agriculture sector program lending as, 470– tems (AKISs) 474 explanation of, 58, 60, 65 community-driven, 452–453, 475–479 role of, 108 cross-sectional programmatic adjustment university research and, 78 lending as, 489–490 Agricultural lending donor coordination as, 454 background of, 57–59 empowerment and, 487–488 challenges of, xx, xxi explanation of, 451 future directions for, 59–66, 108–115 harmonized donor funding as, 485–486 Agricultural markets to maximize poverty impacts, 459–463 benefits of functional, 291 monitoring and evaluation of, 457–458, 480–484 investment needs for functional, 290–291 poverty reduction support credits as, 453– lessons learned for functional, 292–293 454 policy and implementation issues related to program lending as, 451–452 functional, 291–292 project design for performance maximization recommendations for functional, 293 in, 465–469 Agricultural policy. See also Policy reform scaling up, 10, 447–449, 454–457 developing capacity for formulation of, 17– support for, 449–450 20 Agricultural development strategy farmer organizational capacity to influence, benefits of, 12–13 42–45 changing context of, xx future investments in, 7–10 emphasis in, xxi issues in, 3–7 explanation of, 12 past investments in, 2–3 496 importance of, 7 rationale for investment in, 1–2 lessons learned from, 14 reform of, xx, 22–26, 32–36 policy and implementation issues related to, scaling up investments in, 10 13–14 Agricultural productivity practitioner recommendations and, 14–15 diversification in, xxii Agricultural insurance effects of resource degradation on, 154 approaches to, 418 growth in, 55 benefits of, 427–428 irrigation and, 346–348 explanation of, 417, 427 natural resource use and, 56, 213 lessons learned from, 429–431 participatory microcatchment strategy for, policy and implementation issues related to, 248–249 428–429 sustainable intensification and, 153 Agricultural intensification. See Sustainable Agricultural project design agricultural intensification poverty reduction and, 465 Agricultural investments recommendations for, 465–469 establishment of supportive environment for, Agricultural Reform Implementation Project 29 (ARIP) (Turkey), 51–52 in extension services (See Extension services) Agricultural research. See also Agricultural future directions in, 59–66 investments

AGRICULTURE INVESTMENT SOURCEBOOK accountability of, 63 234–235 background of lending for, 57–59 recommendations for, 236–237 biotechnology and, 88–92, 99–100 Animal health services capacity building and, 97–98, 101–102 benefits of improved, 39 common problems in, 59 lessons learned and, 40 competitive research funds and, 68–72 overview of, 37 decentralization and, 95–96 policy and implementation issues related to, decentralizing and deconcentrating, 61, 62 39–40 demand-driven, 103–104 recommendations to improve, 40 economic returns on, 57 reforms to improve, 37–38 foreign research and development laborato- Aquaculture ries and, 93–94 benefits of, 174–175 local agricultural research committees and, explanation of, 174 83–87 income generation through, 208–209 management of, 63 investments in, 174 market trends and, 64 lessons learned from, 176 poverty reduction and, 64 policy implementation issues for, 175–176 priorities for, 63–64 recommendations for, 176–177 public research organizations and, 73–77 sustainable growth and, 159 role of farmers in, 61 Argentina, 225 scientist salaries in, 75 Arid rangelands, 238–242 strategies for, 65 Armenia university participation in, 78–82 land policy in, 407–408 uptake pathways for, 65–66 natural resource management in, 224 Agricultural sector adjustment loans (ASALs) Bulgaria and, 47–48 Bangladesh explanation of, 32–34 agricultural research in, 1876 Agricultural sector program (ASP) aquaculture in, 177 benefits of, 470–471 capacity strengthening in, 18 design and implementation issues related to, extension services in, 119, 120 471 fertilizer subsidies in, 285 explanation of, 470 market-led export in, 295–296 497 lessons learned from, 471–473 project design issues in, 465 recommendations for, 473–474 Basis risk, 428. See also Risk management Agricultural Services and Producer Organiza- Bedouins, 252–253 tions Project (Senegal), 43 Biodiversity, 217, 223 Agriculture Biodrainage, 367 international agreements related to, xxii, 8 Biopesticide industry, 197 organic, 158, 179–183 Biosafety systems, 90 precision, 158–159, 201 Biotechnology rainfed, 228 benefits of, 89 sustainable, 153–154 biosafety frameworks and, 89–90 urban and periurban, 184–188 explanation of, 88–89 Web sites related to, 491–493 in India, 99–100 Agroforestry systems lessons learned from investments in, 91 benefits in, 234 policy and implementation issues related to, explanation of, 233 90–91 investments in, 233–234 recommendations regarding, 91–92 lessons learned from, 235–236 in South Africa, 160 policy and implementation issues related to, Bolivia

INDEX financial services in, 315 types of, 129–130 local agricultural research committees in, 86 Climatic risk, 414. See also Risk management Botswana, 399 Colombia Brazil agribusiness/farmer partnerships in, 299–300 agricultural research in, 93–94 competitive technology generation in, 95–96 agroforestry in, 235 land reform in, 403 beekeeping in, 476 risk management in, 424 competitive research grants program in, 69 rural producer organizations in, 43, 44 financial services in, 321, 330 silvopastoral approach in, 254, 255 irrigation systems in, 361–362 Commercial plantations, 250–251 land reform in, 409–410 Commodity exchanges, 423 participatory microcatchment strategy in, Commodity price risk management 248–249 benefits of, 422 poverty reduction in, 462, 487–488 explanation of, 422 watershed management in, 229 lessons learned from, 424–425 Bulgaria, adjustment lending in, 47–48 policy and implementation issues related to, Burkina Faso, 478 423–424 recommendations for, 425–426 Cancun World Trade Organization (WTO) Common property rights, 390–391 Ministerial Meeting (September 2003), 25 Communications technology. See Information Capacity development and communications technology (ICT) future priorities for, 7–10 Community-based land reform importance of, 10 benefits of, 403 issues in, 3–7 elements of, 388–389, 402 overview of, xx–xxi goals of, 402–403 past support for, 2–3 lessons learned from, 404–405 for policy formulation, 17–20 models of, 394 rationale for, 1–2 participatory negotiations and, 409–410 recommendations for, 20 policy and implementation issues related to, for rural finance, 310–311 403–404 sustainability and, 18 recommendations for, 405 498 Cash transfer programs, 419 Community-based natural resources manage- Chemical use, 24 ment (CBNRM) Chile benefits of, 223–224 contracted extension services in, 118 explanation of, 223 university research in, 80 lessons learned from, 225–226 China policy and implementation issues related to, agroforestry in, 235 224–225 aquaculture in, 176 recommendations for, 226 benefits of biotechnology in, 89 Community-driven development (CDD) commercial plantations in, 250–251 explanation of, 452–453, 475 extension services in, 126 lessons learned from, 477–479 fruit promotion in, 204–205 policy and implementation issues related to, irrigation and drainage systems in, 350, 371, 475–477 374–375 Competition smallholder cattle development in, 297–298 parastatal, 286 watershed management in, 256–257 promotion of, 264 Client groups supply chain and, 260, 272 as extension services intermediaries, 129–133 Competitive research grants programs (CRGPs)

AGRICULTURE INVESTMENT SOURCEBOOK benefits of, 68–69 of extension services, 124–128, 142–143, in Ecuador, 97–98 146–149 explanation of, 68 global trends toward, 124 goverance structure for, 70 of natural resource management, 219 lessons learned from, 70–71 research, 74–75 policy and implementation issues related to, Demand-driven agriculture service fund, 478 69–70 Derivatives, 424 recommendations for, 71–72 Disaster planning, 419 Conservation farming, 158 Diversification Conservation tillage (CT) agricultural productivity and, xxii benefits of, 189–190 explanation of, 159, 163 criticisms of, 190 irrigation for crop, 360–363 development of, 189 market-driven, 163–167 explanation of, 189 policy and implementation issues related to, lessons learned from, 191 164–165 policy and implementation issues related to, Drainage systems. See Irrigation and drainage 190–191 systems recommendations for, 191–192 Drought management Consultative Group on International Agricul- community-based, 437–439 tural Research (CGIAR), 57, 65 explanation of, 241, 437 Consumer demand, xxii Dumping, 170 Contract farming, 271 Contracts Economic risk, 414. See also Risk management enforceability of, 292 Ecuador futures, 423 capacity building and research in, 97–98 options, 423 competitive research grants program in, 68 Cooperatives, 267–268 consultative councils for policy formulation Correlated/systemic risk, 428. See also Risk in, 49–50 management Egypt Costa Rica horticultural exports in, 276 organic agriculture in, 183 irrigation and drainage systems in, 365, 366, silvopastoral approach in, 254, 255 376–377 499 Cote d’Ivoire, agricultural research in, 75 Matruh resource management project in, Covariate risk, 428. See also Risk management 252–253 Credit El Salvador, 180 explanation of, 306, 308, 321 Empowerment from input suppliers, processors, and buyers, entrepreneurship and, 266–267 324–327 farmer, xxi–xxii, 61 inventory, 342–343 poverty reduction and, 42, 487–488 Credit lines, 308–309 of rural producer organizations, 43–44 Crop diversification, 360–363 of water user associations, 355–358 Crop insurance. See Agricultural insurance; Risk Entrepreneurial poor, 308 management Environmental assessment, 161 Environmental issues. See also Natural resource Dairy production. See Smallholder dairy pro- management (NRM) duction agricultural productivity and, 56 Decentralization agroforestry and, 234 agricultural growth and, 3–4, 9 chemical and fertilizer use and, 24 explanation of, 124 conservation tillage and, 189–191

INDEX extension services and, 106, 115 explanation of, 111, 118–119 importance of, 18–19 lessons learned from, 120–121 organic agriculture and, 180 policy and implementation issues related to, pastoralism and, 238–239 119–120 sustainable agricultural intensification and, Extension services decentralization 157 benefits of, 124–125 urban and periurban agriculture and, 186 explanation of, 124 Environmental risk, 414. See also Risk manage- in India, 142–143 ment lessons learned from, 126–127 Equity issues. See Gender equity policy and implementation issues related to, Estonia, 140–141 125–126 Ethiopia recommendations for, 127–128 community development project in, 478 trends toward, 124 fertilizer sector in, 288 in Uganda, 146–147 maize market in, 290 watershed management in, 230 Farmer Field School (FFS) approach, 196 European Union (EU), 278 Farmers Exports benefits distribution to, 23–24 horticultural, 275–279 empowerment of, xxi–xxii, 61 in Mali, 301–302 poverty reduction and types of, 64 market-let, 295–296 strengthening organizational capacity for, Extension services 42–45 agricultural technology transfer and, 142–143 Farms, xxii–xxiii client groups as intermediaries in, 129–133 Feed supply, 172 demand for services and, 112–113 Females. See Gender equity developing sustainable financing mecha- Fertilizer distribution systems nisms and, 111–112 benefits of promoting, 285–286 economic characteristics and delivery explanation of, 285 mechanisms for different, 110 lessons learned from promoting, 286–288 explanation of, 105 policy and implementation issues related to, fertilizer market and, 288 286 500 improving quality of, 114 recommendations for, 288 issues for investment in, 107–108 Fertilizers, 24, 202 mass media and communications technolo- Financial services gies in, 115, 135–138, 144–145 AGENT program in Zimbabwe and, 336–337 Millennium Development Goals and, 114– input suppliers, processors, and buyers and, 115 324–327 outsourcing, 119 institutions and individuals in rural, 306 past investment activity in, 106–107 inventory credit for small-scale farmers and, private goods element of, 110–111 342–343 public and private sector roles and, 108–110 membership-based, 329–333 rationale for investment in, 105–106 microfinance institutions and, 314–318 reform of government, 113–114 microleasing and, 340–341 returns to investments in, 106 mobile banking and, 334–335 scaling up investments in, 116 new directions for, 309–311 transition to private advisory, 140–141 overview of, 303–304 Extension services contracting past investment experiences for, 304–305 benefits of, 119 policy issues related to, 305–309 decentralized, 148–149 rationale for investments in, 304

AGRICULTURE INVESTMENT SOURCEBOOK risk management and, 430–431 livestock sector partnership in, 53–54 scaling-up investments in, 312 potato production in, 267 smart cards and, 338–339 through state banks, 319–323 Health issues, 186 Food and Agriculture Organization (FAO), 58, HORTEX (Bangladesh), 295–296 60 Horticultural exports Food prices, 27 benefits of, 276 Food safety, 264–265 expanding opportunities for, 275–276 Food security, 5, 56 explanation of, 275 Food system, 4 lessons learned from, 278 Forest conservation, commercial plantations for, policy and implementation issues related to, 250–251 276–278 Forestry research, in India, 101–102 recommendations for, 278–279 Former Soviet Union, 39. See also specific countries Idiosyncratic risk, 428. See also Risk management Fourth WTO Ministerial Conference, 24, 28 Import substitution, 297–298 Fruit promotion, in China, 204–205 Income transfer efficiency, 23 Futures contracts, 423 Index-based insurance, 430. See also Agricul- tural insurance; Risk management Game ranching, 243, 245 India Gender equity agricultural diversification in, 167 agroforestry and, 234 aquaculture in, 177, 208–209 extension programs and, 115 biotechnology in, 99–100 horticultural exports and, 277 community organization for Sodic lands land reform and, 393, 398–399, 403–404, reclamation in, 206–207 411–412 conservation tillage in, 190 market and agribusiness development and, dairy production in, 169 265 extension services in, 126, 137, 142–143 seed production in, 282 forestry research in, 101–102 sustainable agricultural intensification and, irrigation and drainage systems in, 361, 366, 156 370, 378–379 Genetically modified organisms (GMOs) poverty reduction in, 460, 463 501 explanation of, 88 rainfall-indexed insurance in, 444–445 risks associated with, 89–90 scaling up watershed program in, 448 role of, 196 seed production in, 281 Ghana smart cards in, 338–339 extension services in, 127 subsidy benefits in, 6 inventory credit in, 342–343 watershed management in, 229, 230 seed production in, 283 watershed project in, 463 university research in, 79 Indian Council of Forest Research and Exten- Global Environmental Facility (GEF) program, sion (ICFRE), 101–102 217, 218 Indigenous and Afro-Ecuadorian Peoples Grants Development Project (Ecuador), 43 benefits of, 306, 308 Indigenous cultures, 214 for income generating activities, 477 Indonesia, dairy production in, 171 for land purchases, 403 Information and communications technology Guarantees, 308–309 (ICT) Guatemala, 331 extension services and, 115, 135–138 Guinea in Russia, 144–145

INDEX Inorganic fertilizers, 202 farmer incentives for, 380–381 Input subsidies, 23 future priorities for investment in, 351–352 Insecticides, overuse of, 24 impact of, 346 Insurance. See Agricultural insurance; Risk issues for future investments in, 348–351 management overview of, 345 Integrated crop-livestock production, 159 past investments in, 346–348 Integrated livestock and wildlife management public, private, and farmer roles in, 378–379 (ILWM) rationale for investment in, 345–346 benefits of, 244 scaling up investments in, 352–353 explanation of, 243–244 shallow tubwells and, 370–373 lessons learned from, 246 user needs and, 382–383 policy and implementation issues related to, waterlogging and salinity control and, 365– 244–245 369 recommendations for, 246 Irrigation management transfer (IMT), 356 Integrated nutrient management benefits of, 200–201 Kenya explanation of, 199 agricultural sector program stakeholders in, lessons learned from, 202 471 policy and implementation issues related to, benefits of biotechnology in, 89 201–202 community-based drought management in, recommendations for, 202–203 437–439 strategies for, 199–200 competitive grants for research outreach in, Integrated pest management (IPM) 121 benefits of, 195 dairy market in, 290 explanation of, 194 drought management in, 241 investment in, 194–195 horticultural production in, 277 lessons learned from, 196 Kosovo, 287 policy and implementation issues related to, 195–196 LABEX progam (Brazil), 93–94 recommendations for, 197 Land administration. See also Property rights requirements for, 158, 161 future directions in, 392–394 502 Intellectual property rights (IPRs), 65, 90 issues in, 387–389 Intensification. See Sustainable agricultural key issues in, 389–391 intensification rationale for investment in, 385–387 International agreements scaling up investments in, 394–395 agricultural trade barriers and, 24 social and economic aspects of, 391 increased importance of, xxii titling and registration and, 393, 397–400, related to agriculture, xxii, 8 407–408, 411–412 International Center for Tropical Agriculture, 84 Land markets International Food Policy Research Institute development of, 391 (IFPRI), 56 improvements in, 404 Investment Climate Assessments (ICAs), 265 rental, 391–392 Investments. See Agricultural investments sales, 392–393 Irrigation and drainage systems Land reform agricultural productivity and, 376–377 benefits of, 403 in China, 374–375 community-based, 388–389, 402–403 crop diversification and, 360–363 gender equity and, 393, 398–399, 403–404, farmer empowerment for management of, 411–412 355–359 lessons learned from, 404–405

AGRICULTURE INVESTMENT SOURCEBOOK market-assisted, 409–410 ments, 442–443. See also Risk manage- overview of, 388, 402 ment policy and implementation issues related to, Markets. See Agricultural markets 403–404 Mass media, 115, 135–138 recommendations for, 405 Matruh Resource Management Project (Egypt), support for, 393–394 252–253 Land sales markets, 392 Membership-based financial organizations Land tenure (MBFOs) creating security in, 397–400 benefits of, 330 perspectives on customary, 390 explanation of, 306, 329 poverty reduction and, 385–386, 393 lessons learned from, 332 Land titling and registration programs policy and implementation issues related to, benefits of, 397–398 331–332 explanation of, 397 recommendations for, 332–333 lessons learned from, 399–400 support to, 329–330 policy and implementation issues related to, Mexico, 424 398–399 Microfinance institutions (MFIs) recommendation for, 400 benefits of, 316 Lao People’s Democratic Republic, 398, 411– effectiveness of, 308 412 explanation of, 306 Lending. See Adjustment lending; Agricultural involvement of, 314–316 lending lessons learned for supporting, 317 Lithuania, 400 policy and implementation issues related to, Livestock insurance, 441 316–317 Livestock management. See also Animal health recommendations for involvement in, 317– services 318 in China, 297–298 risk and, 316–317, 319 extension services and, 171 Microleasing, 340–341 in Guinea, 53–54 Mid-Yangtze Agricultural Development Project integrated wildlife and, 243–246 (China), 204–205 Loans, adjustment. See Adjustment lending Millennium Development Goals (MDG) Local agricultural research committees (CIALS) agricultural investment and, 55 503 benefits of, 84, 85 explanation of, xvii–xviii explanation of, 83–84 extension support and, 114 lessons learned from, 85–86 Mobile banking, in Vietnam, 334–335 policy and implementation issues related to, Molecular biotechnology. See Biotechnology 84–85 Mongolia recommendations for, 86–87 financial services in, 320 high natural-disaster risk in, 440–441 Madagascar, 340–341 Monitoring and evaluation (M&E) Malawi, 130 design of, 481–482 Mali explanation of, 480–481 drainage and irrigation systems in, 355, 380– issues in, 482–483 381 recommendations for, 483–484 export mango systems in, 301–302 Morocco, veterinary services in, 39 financial services in, 331 Mozambique market information system in, 291 financial services in, 325 rice market in, 290 harmonized donor funding around prin- Market-based price risk management instru- ciples in, 485–486

INDEX Namibia, 245 titling efforts and, 399 National agricultural research organizations Niger, 382–383 (NAROs) Nigeria, 371 benefits of, 74 Nongovernmental research corporations, 73 creation of, 58 Norway, 130 explanation of, 73 NUTMON, 202 lessons learned about, 75–76 policy and implementation issues related to, Options contracts, 423 74–75 Organic agriculture recommendations for, 76–77 benefits of, 158, 179–180 types of, 73–74 lessons learned from, 181–182 university participation in, 78–82 policy and implementation issues related to, National Agricultural Services Program 180–181 (Guinea), 53–54 production systems for, 179 National Agricultural Technology Project (In- statistics regarding, 179 dia), 99–100 Organization for Economic Cooperation and Natural disaster risk, 440–441. See also Risk Development (OECD) countries, 22, 23 management Outsourcing, 119 Natural resource management (NRM). See also Environmental issues Pakistan agroforestry, 233–237 agricultural productivity in, 154 on arid rangelands, 238–242 integrated pest management in, 195 commercial plantation to conserve forests irrigation and drainage systems in, 367 and, 250–251 project design issues in, 467 community-based, 223–227 Participatory irrigation management (PIM), 356 in dryland areas, 252–253 Participatory microcatchment strategy, 248–249 explanation of, 211–212 Participatory systems, 9–10 extension services and, 106 Pastoralism future directions in, 218–220 benefits of, 238–239 integrated livestock-wildlife, 243–246 explanation of, 238 irrigation and drainage and, 350–351 lessons learned from, 240–241 504 issues for investments in, 215–218 policy and implementation issues related to, participatory microcatchment strategy, 248– 239–240 249 recommendations for, 241–242 past investment activity in, 214 sustainable, 238 poverty reduction and, 213, 217, 220, 224, Periurban agriculture. See Urban and periurban 234, 238, 245 agriculture (UPUA) productivity and, 56, 211 Peru, 326 rationale for investment in, 212–214 Pilot projects, 272 research priorities and, 65 Plantations, commercial, 250–251 scaling-up investments in, 220–221 Policy formulation silvopastoral approaches to, 254–255 benefits of, 17–18 watershed, 228–232, 256–257 commodity chain consultative councils for, Nepal 49–50 project design issues in, 468 issues related to, 18–19 seed production in, 282 lessons learned from, 19–20 New Zealand, agricultural sector in, 7 overview of, 17–18 Nicaraqua planning and, 17 silvopastoral approach in, 254, 255 recommendations related to, 20

AGRICULTURE INVESTMENT SOURCEBOOK Policy reform. See also Agricultural policy Producer associations, 324–325 benefits of, 22–23 Productivity. See Agricultural productivity issues for, 23–24 Property rights. See also Land administration; lessons learned from, 24–25 Land tenure overview of, 22 common, 390–391 Political risk, 414. See also Risk management elements of secure, 386, 389 Politics, 215, 224 enforcement of, 389–390 Portfolio diversification, 316–317 to natural resources, 218–219 Poverty and social impact analysis (PSIA), 32, pastoralism and, 239 33 water rights and, 349 Poverty reduction Protected area management, 217. See also agricultural growth and, 459 Natural resource management agricultural investments and, 56, 57, 455–457 Protectionism, 24 cross-sectional programmatic adjustment Public expenditures, 6–7 lending focusing on, 489–490 Public goods empowerment and, 42, 487–488 agricultural investment and, 56–57, 266 extension investments and, 114–115 investment in, 415 financial services and, 306 natural resources as, 215 intensification and, 154, 156 Public/private partnerships, 37–40 land tenure and, 385–386, 393 Public research institutes. See National agricul- natural resource management and, 213, 217, tural research organizations (NAROs) 220, 224, 234, 238, 245 Public sector research and, 63–64 changing role of, xxi, 3–4 strategies for, 152 extension services and, 108–110 targeting investments in, 456, 459–463 goals for, 5 Poverty Reduction Strategy Papers (PRSPs) partnerships between private and, 4–5 explanation of, 447 reform of, 8–9 government and donor actions and, 450, 451 technical and human capital in, 6 Poverty reduction support credits (PRSCs), 116, Publicly-owned corporations, 73 453–454 Poverty safety nets, 419 Rainfall-indexed insurance, 444–445. See also Precision agriculture, 158–159, 201 Risk management 505 Price bands, 29 Reaching the Rural Poor, vii, 56, 346, 386, 447 Price floors, 29 Rental markets, 391–392 Price risk management instruments, 442–443. Research & development (R&D). See Agricul- See also Risk management tural investments; Agricultural research Private research corporations, 73 Risk management Private sector agricultural insurance and, 427–431 communicating with, 263 commodity price, 422–426 extension services and, 108–111 community-based drought, 437–439 partnerships between public and, 4–5 future directions for investment in, 418–420 roles of public vs., xxi, 3–4 in high disaster-risk areas, 440–441 Privatization issues for investment in, 414–418 agribusiness development and, 261, 266 market-based, 10, 290–291, 418–419, 442– agricultural growth and, 3–4 443 of animal health services, 39, 40 microfinance institutions and, 316–317 of parastatals, 286 past investment activity in, 414 of state banks, 321–322 rainfall-indexed, 444–445 of state lands, 390–391 rationale for investment in, 413–414

INDEX scaling up investments in, 420 recommendations for, 283–284 seed distribution and, 432–436 Seed fairs, 434–435 Rural Development Strategy Seed vouchers, 434–435 agricultural development strategy and, 13–14 Seepage control, 366 elements of, 1–2 Semi-arid rangelands, pastoralism on, 238–242 overview of, xviii, xx Semiautonomous organizations, agricultural Rural producer organizations (RPOs) research and, 73 benefits of, 42–43 Senegal explanation of, 42 agricultural service projects in, 478 lessons learned regarding, 44–45 demand-driven research in, 103–104 policy and implementation issues related to, rural producer organizations in, 43 43–44 Shallow tubewells recommendations regarding, 45 benefits of, 371 Russia, 144–145 explanation of, 370 Rwanda, 434 investments in, 370–371 lessons learned from, 372 Salinity policy and implementation issues regarding, benefits of control of, 367–368 371–372 explanation of, 365–366 recommendations regarding, 372–373 investment needs for, 366–367 Silvopastoral systems, 254–255 lessons learned from control of, 368 Smallholder dairy production policy and implementation issues related to, benefits of, 170 368 explanation of, 169 recommendations regarding, 368–369 forms of, 169 Scaling up lessons learned from, 170–172 in agribusiness, 268 policy and implementation issues related to, in agricultural development initiatives, 447– 170 458 recommendations for, 172 challenges to, 454–457 Smallholders in extension services, 116 cattle development in China by, 297–298 in irrigation and drainage systems, 352–353 inclusion of, 271–272 506 in land administration, 394–395 irrigation and drainage systems for, 352 in risk management, 420 market participation of, 292 in sustainable agricultural intensification, 161 Smart cards, 338–339 Sector performance analysis (SPA), 471 Social risk, 414. See also Risk management Sectoral adjustment loans (SECALs), 32 Soil nutrient recapitalization, 200 Seed distribution South Africa benefits of, 432 biotechnology products in, 160 explanation of, 432 game ranch management in, 243 lessons learned from, 433–435 land reform in, 404 policy and implementation issues related to, State banks, financial services through, 319–323 433 Strategic Alliance Grants (SAGs) (Ecuador), 97– recommendations for, 435–436 98 Seed enterprise development Structural adjustment loans (SALs), 32 benefits of, 281 Subsidies explanation of, 280–281 for crop insurance, 429 lessons learned from, 282–283 environmental issues and, 24 policy and implementation issues related to, explanation of, 308–309 281–282 input, 23

AGRICULTURE INVESTMENT SOURCEBOOK policy reform and, 5–6, 22–25 Trade liberalization Supply chain systems benefits of, 27–28 benefits of, 281 explanation of, 27 explanation of, 270 lessons learned from, 29–30 investment in, 270 policy and implementation issues related to, lessons learned from, 272 28–29 policy and implementation issues and, 271–272 recommendations regarding, 30–31 recommendations for, 272–273 Tranching, 33 Supply chains Transitional support programs, 419 competitiveness and, 260 Tree crops, 159 fertilizer, 286 Trophy hunting, 244 for market integration, 268 Tubewells. See Shallow tubewells Supply side constraints, 29–30 Turkey Support policies, 23, 25 adjustment/investment lending in, 51–52 Sustainability agricultural diversification in, 165 capacity development and, 18 Turkmenistan, 195 of past agricultural programs, 2 of R&D investments, 62–63 Uganda Sustainable agricultural intensification cross-sectional programmatic adjustment future directions for investment in, 158–161 lending in, 489–490 investment issues for, 155–158 extension services in, 126, 146–147 overview of, 151 modernization of agriculture in, 13 past investment activity in, 154 seed distribution in, 435 policy issues affecting, 160 seed production in, 283 rationale for investment in, 152–154 university research in, 81 scaling up investments in, 161 Ukraine, 19 UNESCO, 137 T & V system, in India, 142 University research, 78–82. See also Agricultural Tanzania research agricultural reform in, 9 Urban and periurban agriculture (UPUA) financial services in, 320, 325 benefits of, 184 market-based price risk management instru- explanation of, 184 507 ments in, 442–443 lessons learned from, 186–187 seed distribution in, 435 policy and implementation issues related to, wildlife policy in, 244 184–186 Tariffs, 24, 25 recommendations regarding, 187–188 Taxes, 23, 391 Uruguay Technological advances agricultural research center in, 74 in agroforestry, 233–234 university research in, 79 in financial services operations, 315 Uruguay Round Agreement on Agriculture for natural resource management, 219, 226 (URAA), 24, 28 public and private sector, 272 Telecenters, 137 Venezuela, 148–149 Thailand Veterinary services. See Animal health services financial services in, 322 Vietnam fresh food supply chain in, 273 agricultural diversification in, 167 irrigation systems in, 361 capacity building in, 20 land titling and registration systems in, 397 mobile banking in, 334–335 Trade associations, 287 urban and periurban agriculture in, 187

INDEX Water. See also Irrigation and drainage systems Operations Evaluation Department, 107 delivery of, 360, 362 scaling up and, 448 multiple interests in, 349 World Trade Organization (WTO) pricing of, 349 agricultural support and, 25 use of, 349–350 global market access and, 260 Water user associations trade liberalization and, 29, 30 empowerment of, 355–358 explanation of, 352 Zambia, 473 Waterlogging Zimbabwe benefits of control of, 367–368 AGENT program in, 336–337 explanation of, 365 financial services in, 325 investment needs for, 366–367 natural resource management in, 224 lessons learned from control of, 368 policy and implementation issues related to, 368 recommendations regarding, 368–369 Watershed management in China, 256–257 explanation of, 228 investments in, 228–229 lessons learned from, 231 policy and implementation issues related to, 229–230 recommendations for, 231–232 Weather-based index insurance, 430. See also Agricultural insurance; Risk management Web site lists, 491–493 West Africa, extension services in, 131 Wild animal trappers, 244 Wildlife management. See Integrated livestock and wildlife management (ILWM) 508 Wildlife tourism, 244 Women. See Gender equity World Bank. See also Rural Development Strategy agricultural lending by, 57–60, 449 conservation tillage investments and, 190 disaster management and, 420 extension systems expenditures of, 106–107 financial services and, 305, 308, 312, 326 financing for agricultural development by, xviii irrigation and drainage investments and, 346, 348, 437 land policy and administration and, 385–390, 394, 395 monitoring and evaluation requirements of, 481 natural resource investments by, 214

AGRICULTURE INVESTMENT SOURCEBOOK

Investment in agricultural growth is central to the World Bank’s efforts to reach the rural poor. The Agriculture Investment Sourcebook contributes to the goal of rural poverty reduction by providing information on key issues in the following areas: • Agricultural policy and institutional capacity building • Science and technology • Extension and information services • Sustainable agricultural intensification • Sustainable natural resource management • Agribusiness and market development • Rural finance for agriculture • Irrigation and drainage • Land administration, policy, and markets • Risk management In addition, the sourcebook describes options for program design and discusses the issues involved in scaling up investments for maximum impact. The Agriculture Investment Sourcebook is an invaluable resource for anyone engaged in promoting agricultural growth to benefit the poor.

The World Bank ISBN: 0-8213-6085-X