Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 50850-KE
EUROPEAN UNION FOOD PRICE CRISIS RAPID RESPONSE FACILITY
EMERGENCY PROJECT PAPER
ON A PROPOSED GRANT
UNDER THE
GLOBAL FOOD CRISIS RESPONSE PROGRAM
IN THE AMOUNT OF EURO 19.13 MILLION
TO THE REPUBLIC OF KENYA
FOR THE
ENHANCING AGRICULTURAL PRODUCTIVITY PROJECT
March 8, 2010
Sustainable Development Department
Agriculture and Rural Development Unit
Eastern Africa Country Cluster 2
Africa Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
33
CURRENCY EQUIVALENTS
Currency Unit / = / Kenya Shillings (KSh)I Euro (€) / = / KSh 110
FISCAL YEAR
July 1 / – / June 30ABBREVIATIONS AND ACRONYMS
ACSU / Agriculture Sector Coordination UnitAGMARK / Agriculture Development and Marketing Trust
AGRA / Alliance for the Green Revolution in Africa
AHBFI
AISP / Africa Harvest Biotech Foundation International
Agriculture Input Supply Project
ALRMP / Arid Lands Resource Management Project
APL / Adaptable Program Loan
ASAL / Arid and Semi-Arid Lands
ASDS / Agricultural Sector Development Strategy
ATC / Agricultural Training College
CAN / Calcium Ammonium Nitrate
CAS / Country Assistance Strategy
CBO / Community Based Organization
CGA / Credit Guarantee Agreement
CIFA / Country Integrated Fiduciary Assessment
CPIA / Country Policy and Institutional Assessment
DA / Designated Account
DAEO / Divisional Agriculture Extension Officer
DAO / District Agricultural Officer
DAP / Di-Ammonium Phosphate
DSF / District Stakeholders Forum
EAPP / Enhancing Agricultural Productivity Project
EPP / Emergency Project Paper
ESMF / Environment and Social Management Framework
EU / European Union
FAO / Food and Agriculture Organization
FCR TF / Food Crisis Response Trust Fund
FCRP / Food Crisis Response Program
FM / Financial Management
GAP / Governance Action Plan
GDP / Gross Domestic Product
GFRP / Global Food Crisis Response Program
GoK / Government of Kenya
GSBPB / Governance Strategy for Building a Prosperous Kenya
IAD / Internal Audit Department
IBRD / International Bank for Reconstruction and Development
IDA / International Development Association
IDP / Internally Displaced Person
IFAD / International Fund for Agricultural Development
IFR / Interim Financial Report
IPMP / Integrated Pest Management Plan
IRCBP / Institutional Reform & Capacity Building Project
KAPAP / Kenya Agricultural Productivity and Agribusiness Project
KAPP / Kenya Agriculture Productivity Project
KARI / Kenya Agriculture Research Institute
KENAO / Kenya National Audit Office
KEPHIS / Kenya Plant Health Inspection Service
Kg / Kilogram
KSh / Kenya Shilling
KSU / KARI See Unit
KWFT / Kenya Women Finance Trust
M&E / Monitoring and Evaluation
MoA / Ministry of Agriculture
MoF
MT / Ministry of Finance
Metric Tonnes
MTP / Medium-term Plans
NAAIAP / National Accelerated Agricultural Inputs Access Program
NGO / Non-Governmental Organization
NPSC
OCP
PDG / National Program Steering Committee
Orphan Crop Program
Program Design and Guidelines
OCP / Orphan Crops Program
PMP / Pest Management Plan
PMU / Project Management Unit
PS / Permanent Secretary
PSC / Project Steering Committee
SOE / Statements of Expenditure
SWAp / Sector-Wide Approach
WRMA / Water Resources Management Authority
Vice President: / Obiageli Katryn Ezekwesili
Country Director:
Sector Director / Johannes Zutt
Inger Andersen
Sector Manager: / Karen McConnell Brooks
Task Team Leader: / Andrew Mwihia Karanja
Kenya
KENYA: Enhancing Agricultural Productivity Project
Contents
Page
A. INTRODUCTION 1
1. Country and sector issues 1
B. EMERGENCY CHALLENGE, COUNTRY CONTEXT, RECOVERY STRATEGY AND RATIONALE 2
1. Rationale for Bank involvement 2
2. Sector Context 3
3. Project Rationale 3
C. BANK RESPONSE - THE PROJECT 4
1. Brief Description of Bank’s Strategy for Emergency Support 4
2. Project Development Objectives 5
3. Summary of Project Components 5
4. Consistency with Country Strategy 7
5. Expected Outcomes 8
D. APPRAISAL OF PROJECT ACTIVITIES 8
1. Economic 8
2. Technical 9
3. Social 9
4. Fiduciary 9
5. Lessons Learned and Reflected in the Project Design 10
6. Environmental 12
E. IMPLEMENTATION ARRANGEMENTS AND FINANCING PLAN 13
F. PROJECT RISKS AND MITIGATING FACTORS 14
G. TERMS AND CONDITIONS FOR PROJECT FINANCING 14
Annex 1: Detailed Description of Project Components 16
Annex 2: Results Framework and Monitoring 31
Annex 3: Summary of Estimated Project Cost 34
Annex 4: Financial Management (FM) Report 35
Annex 5: Procurement Arrangements 44
Annex 6: Implementation Arrangements 44
Annex 7: Project Preparation and Appraisal Team Members 57
Annex 8: Global Food Response Program and the European Union Food 58
Price Crisis Rapid Response Facility 58
Annex 9: List of Project File/Supporting Documents 59
Annex 10: Statement of Loans and Credits 60
Annex 11: Country at a Glance 62
Annex 12: Map 65
KENYA
KENYA: Enhancing Agricultural Productivity Project
EMERGENCY PROJECT PAPER
AFRICA
AFTAR
Date: March 8, 2010 / Team Leader: Andrew Mwihia KaranjaCountry Director: Johannes C.M. Zutt
Sector Manager/Director: Karen Mcconnell Brooks / Sectors: Crops (100 percent)
Themes: Global food crisis response (100 percent)
Project ID: P119736 / Environmental category: Partial Assessment
Lending Instrument: GFRP / Joint IFC:
Joint Level:
Project Financing Data
[ ] Loan [ ] Credit [ ] Grant [ ] Guarantee / [ X ] Other:
Food Crisis Response Trust Fund (Global Food Crisis Response Program Framework)
For Grants:
Total Operation Cost: Euro 19.13 million
Financing Plan (€ million)
Source / Local / Foreign / Total
Recipient
Trust Funds (Euro 19.13 million)
Total / 2.27
0.00
2.27 / 0.00
19.13
19.13 / 2.27
19.13
21.40
Estimated disbursements (Bank FY/ € million)
2010 / 2011 / 2012
Total IBRD/IDA
Trust Funds / 11.30 / 5.00 / 2.83
Recipient:
Republic of Kenya
Responsible Agency:
Ministry of Agriculture
Project implementation period: Start: March 15, 2010 End: December 30, 2011
Expected effectiveness date: March 15, 2010
Expected closing date: December 30, 2011
Does the project depart from the CAS in content or other significant respects? Ref. PAD I.C. / [ ]Yes [X] No
Does the project require any exceptions from Bank policies?
Ref. PAD IV.G.
Have these been approved by Bank management? / [ ]Yes [X] No
[ ]Yes [ ] No
Is approval for any policy exception sought from the Board? / [ ]Yes [X] No
Does the project include any critical risks rated “substantial” or “high”?
Ref. PAD III.E. / [X]Yes [ ] No
Does the project meet the Regional criteria for readiness for implementation? Ref. PAD IV.G. / [X]Yes [ ] No
Project development objective Ref. PAD II.C., Technical Annex 3
The objective of the Project is to assist the Recipient to increase access to agricultural inputs and technologies among targeted smallholder farmers in selected districts. This improved farmer access is expected to contribute to higher yields, household food self-sufficiency and the generation of surpluses for sale, as well as reduced gap between domestic production and consumption in 2010 and 2011. The support will also contribute towards improving access to credit and towards promotion and diversification to other food crops other than maize.
Project description [one-sentence summary of each component] Ref. PAD II.D., Technical Annex 4
The Project will focus on enhancing smallholder farmers’ access to farm inputs. The support will leverage additional resources to upscale two ongoing Government programs for increasing access to farm inputs: (a) Kilimo Biashara, the input credit scheme for farmers channeled through commercial banks, and (b) Kilimo Plus, an ongoing input voucher scheme for the very poor and vulnerable. 150,000 farmers will be targeted for input supply under input voucher scheme. The Project will also ensure availability of seeds and other planting materials for traditional/orphan crops to around 500,000 smallholder farmers. There are four components under the Project:
Component One: Up-scaling the existing Kilimo Biashara Agricultural Credit Program at a cost of €5.07 million.
Component Two: Up-scaling the existing Input Voucher Scheme (Kilimo Plus) in selected districts through the Government’s National Accelerated Agricultural Inputs Access Program (NAAIAP) at a cost of €9.47 million.
Component Three: Up-scaling the adoption of orphan crops at a cost of €3.02 million.
Component Four: Support to the Government of Kenya’s (GoK) coordination and operational costs estimated at €1.5 million.
Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10
This Project has minimal if any potential adverse impacts on human populations or environmentally-important areas, such as wetlands, forests, grasslands, or other natural habitats; the impacts are site specific; few if any are irreversible and specific mitigation measures can normally be designed; hence this Project has been assigned Environmental Category B.
Nonetheless, it has been determined that the Project should trigger Environment Assessment (OP/BP/GP 4.01) and Pest Management (OP 4.09). A partial Environmental Assessment in the form of an Environmental and Social Management Framework (ESMF) and a Integrated Pest Management Plan (IPMP), which were developed for the KAPAP, will be used. The draft instruments were disclosed on April 1, 2009.
Significant, non-standard conditions, if any, for:
Ref. PAD III.F.
A. Board presentation:
This Project does not involve any exceptions to Bank policies.
B. Effectiveness Condition:
None
C. Disbursement Conditions
Disbursement Conditions for Kilimo Biashara and orphan crop Components
MoA will develop and adopt Agricultural Credit Guarantee Scheme operations in form and substance satisfactory to IDA.
MoA will develop and adopt the Orphan Crop Program manual in form and substance satisfactory to IDA.
D. Legal Covenants: None
Covenants applicable to Project implementation: None
33
A. INTRODUCTION
1. Country and sector issues
1. This Emergency Project Paper (EPP) proposes financing for the Enhancing Agricultural Productivity Project (EAPP) in Kenya. The proposed Project is to be financed from the European Union (EU) Food Crisis Rapid Response Facility under the Global Food Crisis Response Program (GFRP) in the amount of Euro 19.13 million. The proposed Project will upscale two ongoing programs of the Government of Kenya (GoK). It will also strategically complement the IDA supported Agricultural Inputs Supply Project (AISP) and the Kenya Agricultural Productivity and Agribusiness Project (KAPAP). The proposed Grant would help finance the costs associated with the provision of inputs to 150,000 smallholder farmers, up-scaling of an ongoing agricultural input credit scheme, and the provision of planting materials for “orphan crops”[1] to over 500,000 smallholder farmers. The overall objective is to increase smallholder crop (mainly cereals) production and through improved access to inputs, technologies and credit during the next three planting seasons, starting in October 2009.
2. Kenya is facing a food shortage due to poor rains in 2009 and an estimated 4 million people require famine relief. The expected 2009 long rain season maize production is estimated at 1.84 million metric tonnes (MT), which is 28 percent below normal. There is a growing apprehension that the estimated production could further be revised downwards due to insufficient and erratic rains in some parts of the main maize producing areas in North Rift Valley. Continued export bans in neighboring countries (in particular Tanzania) are likely to reduce cross border maize inflows by 46 percent. The reduced levels of production and imports are likely to compound the tightening maize supply situation. High food prices persist throughout the country with average price of maize at 100-130 percent above normal. As a result, terms of trade of pastoralists, agro-pastoralists and marginal agriculture farmers and purchasing power of urban households have deteriorated significantly given that over 65 percent of Kenyans are net buyers of maize. The effects of high fuel prices in 2008 have also increased the prices of farm inputs thereby adversely affecting farmers’ ability to buy inputs. Although the prices of fertilizers have come down from their highest levels in December 2008[2], they are still above the pre-oil crisis level.
3. The proposed EAPP seeks to enhance domestic food production by supporting smallholder farmers to produce more maize and other crops in 2010 and 2011 planting seasons. This will not only enhance food availability and price stability in the country, but will also ensure that farmers get higher incomes from sales. Furthermore, the operation will enhance household food security, reduce the high dependence on maize, and improve incomes by promoting smallholder production of alternative cereals/crops such as millet, sorghum, cowpea and cassava.
4. The World Bank through the AISP mobilized US$5 million for input supply in the 2009 long rains planting season, providing valuable lessons for the proposed intervention. The Food and Agriculture Organization (FAO) also supported the GoK inputs program, the National Accelerated Agricultural Inputs Access Program (NAAIAP) in 2009, with funds that allowed 6,000 farmers to access farm inputs.
B. EMERGENCY CHALLENGE, COUNTRY CONTEXT, RECOVERY STRATEGY AND RATIONALE
1. Rationale for Bank involvement
5. The food and fuel price crisis have had major economic and agricultural impacts. Kenya’s inflation has been high since the beginning of 2008, mirroring developments in international food prices. The official overall inflation rate increased rapidly from 12 percent in December 2007 to 31.5 percent in May, 2008 before easing off in 2009 to stand at 18.4 percent in August 2009. Rising food prices and the cost of fuel and transportation have been the main drivers of inflation. While the price surge in Kenya was less steep than the overall global trend, Kenyan prices have remained high, even after global prices eased off, mainly due to constrained local supply. The poor rains in 2009 have escalated the food emergency leading to an estimated 4 million people requiring famine relief. However, the weather forecast for the next planting season in 2009/10 is good with rains expected to be above normal in most parts of the country. Support under the proposed Project is therefore expected to use the opportunity of the good weather to enhance agricultural production.
6. Although maize is Kenya’s main staple food, there is too much overdependence on maize both at the national food policy level and amongst households. This is despite the fact that in the recent past the non-cereal components of agricultural GDP have performed significantly better than cereals, particularly maize. Historically, maize has received a great deal of policy and investment attention. Given that the country seems to be headed for a structural maize deficit arising from population growth, urbanization and poor and erratic weather conditions, shifting consumption and production patterns towards other cereals and non-cereals food items has become a necessity. This would not only help improve food security; it would also help to diversify farmers' incomes while coping with the effects of climate change.