PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB4048

Project Name

/ Rural Development Support Project Additional Financing
Region / AFRICA
Sector / General agriculture, fishing and forestry sector (40%); Irrigation and drainage (30%); Agricultural extension and research (20%); Animal production (10%)
Project ID / P111984
Borrower(s) / GOVERNMENT OF MADAGASCAR
Implementing Agency
Environment Category / [ ] A [X] B [ ] C [ ] FI [ ] TBD
Date PID Prepared / July 29, 2008
Date of Appraisal Authorization / June 10, 2008
Date of Board Approval / October 16, 2008
  1. Introduction

The proposed Additional Financing Credit would help finance the costs associated with scaled-up activities to enhance the impact of a well-performing ongoing project and contribute to an enhancement of its impact and development effectiveness. The financing would be made available on standard IDA terms (40 years maturity, 10 years grace). There would be no co-financing from other donors to this project.

There are no major changes to the project, although a number of incremental changes will be adopted to increase efficiency. The scaled up activities would target additional beneficiaries among the poorer segment of the country’s population and promote increased implementation effectiveness. They would extend the life of the project (which is performing satisfactorily and is fully meeting its development objectives to date) by two and a half years to June 30, 2011. The Project Development Objective (PDO) has not changed. The expected outcomes have been slightly modified to reflect the impact of the additional financing and permit a better and more precise monitoring of results.

  1. Background and Rationale.

Context and Prior Bank Involvement in Agriculture Sector.

Madagascar is one of the poorest countries in the world, with per capita income of about USD 330 per year (2007). Poverty remains predominantly rural with about 80 percent of the rural population being poor, compared to 54 percent in urban areas. The economy is basically rural, with agriculture as an important engine of growth, contributing one-third of total GDP and 40 percent of total exports. About one-half of Madagascar’s land area is cultivable, but little more than 5 percent of the land is currently under crops, with a large part of the cultivated area under irrigation (40 percent). Farming systems are still very traditional. Two-thirds of rural households live at subsistence level and yields are generally low. Rice is the main crop, accounting for 70 percent of total farm output. Traditional exports include vanilla, coffee and cloves. Livestock is widespread, with about 60 percent of rural families depending on it for their income. Fishing and aquaculture have become increasingly important sub-sectors of the Malagasy economy.

Performance of the agricultural sector has not been in line with its potential despite economic liberalization policies and macroeconomic stabilization. The average annual agricultural GDP growth rate during 1990s was 1.9 per cent per annum. The growth has picked up, however, in 2000s (with the exception of 2002 which was a year of political crisis), with agriculture GDP increasing at the rate of 2.6 per cent annually over 2003-2006 period. Sustaining this level of agricultural growth in the long-term is at the heart of government’s poverty alleviation strategy. This will require sustained and broad-based on-farm productivity gains and a diversification toward high value crops. Growth prospects for rice and the main cash/export crops (e.g. coffee, cloves, sugar, sisal, groundnuts) are good. However, in the medium term, a sustained increase in rice production is expected to be the main engine of sector growth, given its overwhelming dominance in the Malagasy farming systems. The current very low paddy yields, even under irrigation, suggest that there is considerable potential for substantial productivity gains with improved access to technical advisory services and essential inputs.

The original Project Development Objective (PDO) was to increase incomes and reduce poverty in rural areas, while preserving the country’s natural resource base. The Additional Financing (AF) will have the same PDO. The project has met all its covenants and there are no significant issues related to Bank Safeguard Policies.

The RDSP has four components: (A) Productive Investments Component provided funds on a demand-driven basis for the following types of sub-projects: (i) investments in productive rural infrastructure, (ii) productive agricultural activities, (iii) productive non-agricultural activities, and (iv) the provision of advisory services and capacity building support to Producer Organizations (POs); (B) Support Services Component provided support to agricultural research and funded a demand-driven competitive research grant program; (C) Capacity Building and Policy Development Component supported strengthening of the capacity of the Ministry of Agriculture, Livestock and Fisheries (MAEP) in policy making and decentralizing policy implementation; and (D) Project Administration and Monitoring Component.

The RDSP has been a cornerstone of IDA's rural development program in Madagascar. It is the only program in the sector with a nation-wide scope. The preliminary results of the on-going ex-post evaluation of the project (for a period of 2004-06) confirm that the sub-projects have reached the intended beneficiaries and had significant impact on both productivity levels and incomes. The project had reached some 3/4 of the country’s rural communes, ½ of which are located in isolated areas. About 9,560 farmer organizations (target was 4,000) and 1.4 million persons (equivalent to about 10.4% of rural population of Madagascar) in 229,071 rural households (target 150,000 rural households) had directly benefited from project’s activities.

The rationale for the proposed AF credit is to allow the very successful RDSP to expand its operations under the ongoing Productive Investments Component to meet a large number of additional requests for sub-projects received from poor rural communities, in addition to existing commitments that it has been unable to attend to, primarily due to lack of funds. The AF will also help to increase the impact of the existing sub-projects on productivity and incomes of small farmers by strengthening the capacities of the benefiting POs to access decentralized agricultural and financial services. In addition, the AF will help to avoid an institutional and funding vacuum in agriculture development in Madagascar until the Government has put in place institutional arrangements for a sector-wide investment program (SWAP) as envisioned in the Agriculture Sector Program (ASP). In this regard, the AF will support: (i) the preparation of the proposed sector-wide medium-term agricultural sector program, to be launched before end-2010; and (ii) establishment of the decentralized institutions responsible for the implementation of this strategy - Agricultural Service Centers (ACSs) and Regional Agricultural Development Funds (RADFs). By continuing to support priority productive agricultural investments, the AF will bridge the financing gap until the launch of Government’s SWAP. Finally and critically, the AF credit will help to address the issue of rising food prices in Madagascar by providing immediate support for bolstering food production by POs. In particular, the Component A of the AF credit is expected to support the expansion of rice production through investments into small-scale irrigation perimeters and the distribution of input/technology packages. Furthermore, activities under Components B and C will focus on improving access to agricultural advisory services and new production technologies to improve productivity.

  1. Description

The AF will have the same components than the current project. It will scale-up support to productive investments under Component A, and support continuation of critical agricultural research and policy development activities under Components B and C.

(A) Productive Investments (US$28.2 million). The component will finance the same menu of demand-driven productive activities for the same type of beneficiaries as the original project. Specifically, the component will finance the following types of sub-projects: (i) investments in productive rural infrastructure; (ii) productive agricultural activities; (iii) productive non-agricultural activities; and (iv) the provision of advisory services and capacity building support to POs. It is expected that the AF credit will finance about 2,200 type (i)-(iii) sub-projects and about 3,800 capacity building activities (type iv). In remote areas which are not well linked to markets, particular attention will be given to increasing producer’s on-farm productivity and food security. In areas that are well connected to markets, the focus will be on the development of value chains where POs participate. The main change from the original project will be that the level of matching grant contribution for sub-projects will no longer be uniform but tailored to the specific nature of the activity (i.e. infrastructure or productive activities), the characteristics of the beneficiaries (i.e. degree of integration into agricultural markets), and their access to financial services. Greater attention will also be given to the provision of more effective implementation support to POs and better linkages to micro-finance institutions for increased access to savings and credit services.

(B) Support Services (US$ 1.5 million). This component will provide support for the strengthening of the capacity of main agricultural research institutions in the preparation of the Government’s forthcoming SWAP and better dissemination of the stock of new and promising technologies. The component will finance: (i) the preparation of the National Agricultural Research Strategy; (ii) the institutional audit of the National Center for Applied Research for Rural Development (FOFIFA) and the Competitive Agricultural Research Fund (FCRA) to identify the reforms necessary for improving their organization, staffing, internal processes and financing mechanisms; (iii) grants for the establishment of on-farm demonstration plots and dissemination of new technologies; (iv) grants for production and multiplication of improved seed and planting material for the distribution to POs; and (v) grants for priority on-demand adaptive research programs.

(C) Capacity Building and Policy Development (US$2.1 million). The component will support the following activities: (i) support to the MAEP for the operationalization of the ASP; (ii) strengthening the policy, planning and monitoring capacity of MAEP's Policy Planning Department, Regional Directorates, and their main partners at regional level - Regional Governments and stakeholder groups, such as Regional Rural Development Committees (GTDRs) – to ensure satisfactory implementation and monitoring of the ASP at national and regional levels; (iii) support to the establishment of ASCs and RADFs; and (iv) assistance to the main ‘inter-professional’ crop-specific associations to develop their capacity to improve the management of their respective value chains.

(D) Project Administration and Monitoring (US$4.3 million). The component will support: (i) operating costs of the project management units, at national and regional levels; (ii) activities related to the information/mobilization of POs, screening of sub-projects, mobilization of the technical assistance necessary for detailed preparation/ implementation of sub-projects; and (iii) project’s monitoring and evaluation, including project's financial audits and external impact evaluation.

  1. Financing:

Source: / ($m.)
Borrower / 0
International Development Association (IDA) / 30
Beneficiaries / 6.1
Total / 36.1
  1. Implementation

The AF credit will introduce only marginal changes in the current RDSP implementation arrangements. These changes have been incorporated into the revised Implementation Manual. The National Project Implementation Unit (NPIU) under the guidance and supervision of the Project Steering Committee chaired by the Minister of MAEP will retain the overall responsibility for the implementation, coordination and oversight of the project activities, including consolidation of annual work programs and budgets, production and maintenance of project’s financial accounts, as well as preparation of progress reports, quarterly Financial Monitoring Reports (FMRs), disbursement applications and procurement documentation. The NPIU will be headed by a director and assisted by a team of technical experts in accordance with the procedures set out in the Implementation Manual.

Implementation of Components B and C will be the responsibility of the MAEP and the two main research institutions (FOFIFA and FCRA), with the support from the NPIU. Consistent with the Government decentralization process from provinces to regions, the 4 Provincial Project Implementation Units under the RDSP will be decentralized into 8 Regional Project Implementation Units (RPIU). Each of the 8 RPIUs will be headed by a regional director assisted by a small team of technical expects. The team of technical experts supporting the RPIU would continue to assist POs to prepare detailed project proposals. These proposals will then be submitted to the Regional Committee of Grant Approval and Allocation for prioritization of sub-projects. The prioritized sub-projects are then transmitted to the RPIU for further elaboration of eligibility and for socio-economic feasibility studies. A service provider will assist in preparing these documents, which will be then reviewed by the team of technical experts. The RPIUs will be responsible for the preparation of annual regional programs, coordination of project activities and implementation of activities under Component A.

  1. Sustainability

Sub-projects implemented to date are generally of good quality, both in terms of design and actual execution. According to the preliminary results of the on-going ex-post evaluation, about 85% of POs were satisfied with the amount of resources provided to sub-projects and 76% of POs indicated that sub-projects have generated expected results. The ex-post evaluation also showed that 97% of POs agree that the sub-projects were consistent with their priorities and 93% of POs reported that the sub-projects contributed to resolving their production problems. Furthermore, 96% of the beneficiary households reported that they were fully consulted during sub-project identification phase. The activities financed under the AF will continue to utilize the inclusive consultation process established during the original project to ensure the broad-based participation of poor rural households and to meet their needs.

Given the demand driven nature of the project, an economic and financial analysis was carried out for a sample of sub-projects which are expected to have the highest demand by POs during the AF, based on the revealed demand under the original project. The economic analysis shows that all production systems are feasible. The estimated Economic Rate of Return (ERR) ranges from 27% for fish faming to 62% for rice production. The estimated financial rates of return (FRR) are generally attractive and vary from 25% for fish production to 149% for dairy when considering 50% subsidy. The FRR with no subsidy is still high which shows that most proposed sub-projects are profitable even without subsidizing investments cost. Sensitivity analysis shows that the results are robust for the decline of farm gate prices of outputs and increase in input costs.

  1. Safeguard Policies (including public consultation)

The AF financing credit has the same scope and activities as the original project. No new environmental risks have been identifed. Therefore, the safeguards category “B” remains unchanged, since it is expected that AF credit will not raise any new safeguard issues. A full Environmental Assessment (EA) for the rural development sector has been carried out in 2001. This assessment, together with the accompanying Environmental Management Plan (EMP), provides a systematic analysis of all potential environmental and social adverse impacts of the implementation of the sub-projects supported under the AF and fully meets the Bank’s safeguard requirements. The EA was disclosed and discussed in-country during the implementation phase of the original project. The AF credit will continue to provide training and capacity building for the project beneficiaries to ensure proper consideration of environmental and social dimensions in the sub-project design and implementation.