PROJECT INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB5633

Project Name / Lesotho Smallholder Agriculture Development Project
Region / AFRICA
Sector / General agriculture, fishing and forestry sector (40%); Agricultural extension and research (30%); Agricultural marketing and trade (30%)
Project ID / P119432
Borrower(s) / GOVERNMENT OF LESOTHO
Ministry of Finance and Development Planning
P.O. Box 19466
Lesotho
Tel: 22310826 Fax: 22311041

Implementing Agency
TBD
Lesotho
Environment Category / [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared / April 1, 2010
Estimated Date of Appraisal Authorization / January 2011
Estimated Date of Board Approval / April 2011

1.  Key development issues and rationale for Bank involvement

1.  Between 70 percent and 80 percent of the population of Lesotho lives in rural areas. More than three quarters of all rural inhabitants are engaged in agriculture, depending largely on traditional low-input, low-output rain-fed cereal production and extensive animal grazing systems. For most rural households, limited employment opportunities exist outside agriculture. In the past, remittances by mine workers were a major source of rural livelihoods, providing vital cash for purchasing agricultural inputs and productive assets or investing in household assets and housing structures, but over the past decade there has been a substantial decline in these remittances. Lesotho registered economic growth in recent years, mainly due to growth in the industrial sector (including textiles, garment production, and mining). Yet opportunities to expand and diversify the industrial sector are few and far between, so a large share of the population will depend on agriculture as a key livelihoods and income strategy for some time to come.

2.  Rural development will continue to play a key role in Lesotho’s development strategy, yet a number of challenging factors will need to be overcome if it is to have a significant impact in contributing to growth and poverty reduction. The potential for agricultural production is limited due to the country’s agro-ecological and climatic conditions, including recurrent cycles of drought, erratic rainfall, hail and frost, and limited areas of arable land. This is compounded by the fact that even available production potential is not exhausted due to poor farming practices, limited use of quality seeds, selection of inappropriate crops, and lack of diversification. This situation is aggravated by unsustainable land management practices resulting in declining soil fertility and widespread soil erosion. In addition, the development of viable, market-oriented crop and livestock production faces a number of constraints. Local food markets are small and underdeveloped, and there is a large supply of cheaper and/or better quality produce from South Africa. The existing land tenure system is not conducive for investments in land improvements (e.g. irrigation, soil and water conservation measures, tree planting). Commercialization efforts by farmers and private sector operators are undermined by market distortions caused by the Government’s involvement in commercial activities that are either not viable or should be left to the private sector. Additional issues that pose a risk to the performance of agriculture and rural economic development include climate change and rising food and input prices.

3.  Despite the challenging environment, opportunities do exist for developing commercially viable smallholder agriculture in Lesotho, through increasing crop and livestock productivity and by enabling smallholder farmers to better respond to market demand for specific commodities.[1] The proposed program[2] would support smallholder farmers in exploiting such opportunities by addressing the above mentioned constraints in an integrated approach focusing on a limited number of districts. It would build on and take into account the lessons learned from several past and ongoing IFAD and World Bank-supported projects[3] and consider successful or promising interventions implemented by the Bank’s Private Sector Competitiveness Project, IFAD’s SANReMP, and the recently completed Priority Support Program (PSP) supported by DfID.

4.  The Government has requested the inclusion of agricultural development in the new Bank program, and it has also indicated its interest in a new IFAD program in late 2008. The proposed program would be in line with Government strategies, including the Agricultural Sector Strategy (2003), the Lesotho Food Security Policy (2005) and the National Action Plan for Food Security (2007-2017), the draft National Development Framework (2009/10-2010/11), and the draft Growth Strategy (2009/10-2012/13). It would also directly support the objectives proposed in the draft World Bank Country Partnership Strategy and IFAD’s draft Country Strategic Opportunities Program for Lesotho. In the course of preparing their country strategies for Lesotho, the World Bank and IFAD have agreed to develop a joint co-financed investment program in the agricultural sector for a coordinated and more comprehensive approach to tackle the challenges faced in the sector.

2.  Proposed objective(s)

5.  The proposed Program Development Objective (PDO) is to “Increase productivity and marketed output among program beneficiaries in Lesotho’s smallholder agriculture sector.”

3.  Preliminary description

Component 1: Commercialization of Smallholder Agriculture. The program would aim to deliver four outputs under this component: (i) Market opportunities and market linkage channels identified;
(ii) Business plans developed; (iii) Capacity of farmers to deliver in line with market requirements strengthened; and (iv) Investments in value addition supported.

6.  Smallholder farmers who produce a marketable surplus would be enabled to better respond to market demand, engage in value addition where viable, and more effectively access markets. The starting point would be the identification of market opportunities, within as well as outside the program area. Potential crop and livestock products for diversification would be identified and their profitable production assessed. The program would assist individual farmers and farmer organizations in the preparation of business plans, initially focusing on existing groups and associations that are already engaged in value addition and marketing activities, or in production of commodities that have a ready market.

7.  The program would strengthen the capacity of farmers to deliver in line with market requirements. This would involve provision of training in the following areas: (i) how to achieve economies of scale through collective action for production (e.g. synchronized planting) and marketing (e.g. bulking and storage); (ii) technologies for improving output, product quality, post-harvest handling, preservation, processing, packaging and distribution; (iii)business management and (iv) product marketing. The program would support individual farmers and groups to prepare business plans and invest in value-adding facilities, by establishing linkages with existing providers of rural financial services. In addition, competitive grants would be made available to groups and small agro-based enterprises investing in improvements and innovations that also serve as demonstration to others.

Component 2: Sustainably Increasing Smallholder Productivity. The program would aim to deliver five outputs under this component: (i) Capacity for intensified and diversified agricultural production strengthened; (ii) Investments in improved production systems supported; (iii) Access to and utilization of inputs improved; (iv) Community NRM plans carried out and interventions identified; and (v) Capacity for sustainable management of priority natural resources by users strengthened.

8.  Smallholder farmers would be assisted to improve their production in order to meet the required standards for specific new market opportunities that have been identified. This would be done through demonstration of new and replication of successful existing technologies, as well as improving the productivity and output of existing agricultural activities aimed at local consumption and sales, but with some potential for linkage to external markets. Demonstrations in production could include systems for diversification, for example into off-season vegetable production which requires water harvesting; for intensification, for example by increasing the use of purchased inputs and hired labor; or for improved quality, for example establishing hail nets or shade houses to protect seedlings.

9.  Intensification and diversification into market-oriented production will in many cases require an increase in the use of farm inputs. The program would promote improved utilization of farm inputs, such as manure and crop residues for composting. Initiatives that would make inputs better available locally would also be supported: examples are basic seed multiplication by farmers or farmers associations; local production of seed potatoes, tree and vegetable seedlings; and adapting agricultural equipment to local conditions.

10.  Improvements in natural resources and their management are more likely to succeed when there are clear and direct benefits attached. Therefore NRM planning and interventions would be linked to activities aimed at increasing agricultural productivity and value-addition. For any productive activity that is supported, it will be necessary to identify any direct threats to that investment posed by further environmental degradation, or a failure to address existing degradation, and to identify remedies. The program would support the necessary soil and water conservation measures, as well as improved management systems for rangelands and water resources, that are needed to protect the investments made.[4]

Component 3: Program Management. Support under this component would be aimed at establishing effective program management and administrative systems, and ensuring coordination between the program and other initiatives and national institutions in the sector. Four ministries would play a major role in program implementation: the Ministry of Agriculture and Food Security (MAFS), the Ministry of Forestry and Land Reclamation (MFLR), the Ministry of Trade and Industry, Cooperatives and Marketing (MTICM), and the Ministry of Local Government and Chieftainship (MLGC). Given their limited coordination capacity and the lack of inter-ministerial collaboration experienced by past and ongoing projects, it is proposed to establish a lead implementing agency that would have overall responsibility for program implementation and chair the National Program Steering Committee.

11.  A Program Coordination Unit (PCU) would be established and assigned responsibility for overall program coordination and day-to-day program management, including planning, procurement, financial management and M&E. The extent to which the PCU can be integrated into the lead agency’s operation will be assessed during preparation. However based on recent challenges experienced in implementing other donor-funded initiatives, it is likely that the program would have to retain a separate PCU. Some program activities would be implemented by the private sector, NGOs and government agencies on the basis of performance-based contracts. A Planning, Monitoring and Evaluation (PM&E) system would be established to capture data on physical and financial progress, evaluate the performance of implementing agencies and service providers, and assess the program’s achievements at the level of outcomes and impact.

4.  Safeguard policies that might apply

Environmental Assessment (OP/BP 4.01)
Since the exact nature and location of project interventions cannot be determined at this stage, the Borrower will prepare an Environmental and Social Management Framework (ESMF) to mitigate any adverse environmental and social impacts of project investments. The ESMF will formulate standard methods and procedures, along with institutional arrangements for screening, reviewing, implementing and monitoring specific Environment Management Plans (EMPs).
Pest Management (OP 4.09)
The project aims to promote more sustainable agricultural production methods and does not foresee any direct investment in pesticides. However, it cannot be fully excluded that project activities might indirectly promote the purchase of pesticides. Therefore, pest and pesticide management issues relevant to the project would be addressed in the ESMF or a separate Integrated Pest Management Plan (IPMP) prepared if the scope and scale of pesticide purchase and application is assessed to be significant. The Borrowers will abide by the WHO negative list as one measure to mitigate risks associated with pesticide application.

5.  Tentative financing

Source: / ($m.)
BORROWER/RECIPIENT / 1.5
International Development Association (IDA) / 10
International Fund for Agriculture Development / 12
Total / 23.5

6.  Contact point

Contact: Frauke Jungbluth

Title: Senior Rural Development Economist

Tel: 5333+2315 / 258-21-482-315

Email:

Location: Maputo, Mozambique (IBRD)

[1] In particular fruits, vegetables, potatoes, and wool and mohair production, in which Lesotho is considered to have a comparative advantage.

[2] The term program is used because IFAD uses the term to refer to what in the Bank would be called projects. Use of the term program is not meant to indicate that a longer-term programmatic approach is envisioned.

[3] Ongoing: Sustainable Agriculture and Natural Resource Management Program (SANReMP), IFAD; Private Sector Competitiveness and Economic Diversification Project (PSCP), WB. Completed: Sustainable Agricultural Development Program for the Mountain Areas (SADPMA), IFAD; Agricultural Policy and Capacity Building Project (APCBP), WB.

[4] Should GEF funding become available, the NRM-related activities could be expanded and addressed in a separate component.