PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB4781

Project Name / ADDITIONAL FINANCING FOOD SECURITY AND SEED IMPORTS
Region / EUROPE AND CENTRAL ASIA
Sector / Crops (80%);Agricultural marketing and trade (20%)
Project ID / P115953
Borrower(s) / REPUBLIC OF TAJIKISTAN
Ministry of Finance
3 Academician Rajabov str.
Tajikistan
Implementing Agency
Food and Agriculture Organization of the United Nations (FAO)
Center for Managing Projects on Cotton Farms Debt Resolution and Sustainable Cotton Sector Development
44 Rudaki Avenue
Tajikistan
734025
Tel: + (992 37) 221 1156
Environment Category / [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared / June 10, 2009
Estimated Date of Appraisal Authorization / June 12, 2009
Estimated Date of Board Approval / July 14, 2009

1.  Country and Sector Background

Given the shortage of quality arable land, Tajikistan’s dependence on food imports and its vulnerability to fluctuations in world prices will remain high until domestic food production increases. However, increasing productivity in the cereals, fruit and vegetables and other agricultural sectors that directly affect food security in Tajikistan will not be possible without increased farmer access to agricultural inputs. A viable system of input supply, which responds to the needs of agricultural producers, has yet to be established. Profitable agriculture and sustainable growth in food production remain the ultimate basis for withstanding external shocks, and this is difficult to achieve without a viable source of input supply.

Tajikistan’s agriculture is heavily dependent on imports of mineral fertilizers and plant protection chemicals, and more stable domestic supply of quality seeds. During 2002-2007, most of the agricultural inputs were imported by private domestic trading companies (“investors”), often referred to as “futurists”. Cotton sector financing was largely based on external loans. In December 2007, the National Bank of Tajikistan (NBT) announced that it had pledged portions of its international reserves and had provided direct financing in an effort to secure financing for the cotton sector since 2001. Following this announcement, the NBT suspended foreign borrowing for the cotton sector in 2007 which had effectively ended the previous “investor-based” cotton financing scheme. For 2008 crop, the (GoT) directed cotton production financing through selected local commercial banks; however, this financing was not sufficient to compensate for the financing previously provided by cotton sector investors.

A sharp increase in mineral fertilizer prices and a rapid exit of many cotton investors from the input supply sector led to drastic decrease in imports in 2007-2008. The vacuum left after the exit of the cotton sector investors from the input supply sector has not been filled by the commercial input supply sector as of today. According to the Bank’s estimates, nearly 20 large importers of fertilizers (many of which were cotton sector investors) left this business in 2007-2008. As the role of cotton investors in financing of the sector declined, the imports of plant protection chemicals have also been reduced significantly in 2008. The imports of insecticides decreased from 255 tons in 2007 to 184 tons in 2008.

There is no reliable information on seed production in Tajikistan. The food emergency situation at the end of 2008 revealed that sufficient seed emergency stocks are not maintained in Tajikistan at the national or farm levels. Tajikistan is believed to have better supply of cotton and wheat seeds compared with that for maize, potatoes, vegetable or forage crops seeds. Tajikistan has been a net importer of seeds; although, there is good potential for seed multiplication and re-exports.

2.  Objectives

The original project development objective of the EFSSIP is to increase domestic food production and reduce the loss of livestock to help at least 28,000 poorest households in a timely manner to reduce the negative impact of high and volatile food prices. More specifically, the project provides agricultural production inputs and critical livestock-related inputs to the poorest farmers and female–headed households, to support their immediate food security as well as to recover their production losses and livelihoods.

Through restructuring of the project, the above development objective would be changed to the following combination of objectives to: (i) increase domestic food production to help at least 55,000 poorest households; (ii) improve the ability of poor households to deal with seed shortages due to poor crops; and (iii) promote private commercial farming in order to increase food production and diversification.

To achieve the above additional objectives, additional financing will be allocated for the existing project Component A – Support for Agricultural Inputs-and Component C-FAO Project Management- and two new components would be included in the EFSSIP for “Community Production Groups” and “Agro-Input Supply Market Development”. Managing these additional activities will also require some additional financing for the PMU through the PMU Project Management component. There will be no changes to Component B – Improvement of Livestock Health and Husbandry of the original EFSSIP design, except for modest reallocation of project savings from this component to Component A.

3.  Rationale for Bank Involvement

The original Tajikistan Emergency Food Security and Seed Imports Project (US$5m through GFRP TF) aimed at increasing domestic food production and reducing the loss of livestock to help at least 28,000 poorest households in a timely manner to reduce the negative impact of high and volatile food prices. This project, implemented by the Food and Agriculture Organization of the United Nations (FAO), was prepared in response to a significant reduction in food reserves and thus availability and affordability of food, following the extremely harsh winter in 2007-2008, exacerbated by energy shortages, locust attacks, and sharp increases in the price of agricultural inputs. Rural households, accounting for more than three quarters of Tajikistan’s poor, were expected to struggle to ensure normal food production in the short-term and to maintain the livestock that provide an essential means to buffer and diversify their incomes.

While the EFSSIP was expected to improve the food security situation for about 25% of the poorest rural households in the most food insecure areas in the short term, the other structural problems linked to agriculture (low yields due to the lack of quality seed and fertilizer supply) are still affecting most households and their food security status, forcing some households to adopt negative coping strategies. In order to increase food production and diversification in the short to medium term, the proposed additional financing to EFSSIP would improve the ability of poor households to deal with seed shortages and promote private commercial farming

Given very limited availability of arable land in Tajikistan, the steady increase in production of cereals, fruit and vegetables will not be possible without increased supply and use of inputs. Cotton ginneries (“investors”), which dominate input supply markets, only supply inputs for cotton production that results in input shortages for non-cotton producers. These suppliers also provide lower quality inputs at high prices, and often deliver too late to be useful. Alternative, (non-cotton investor) input suppliers are needed for both cotton and non-cotton farmers, in order to improve both access to inputs and the quality of input supply services. The government’s decision to reduce cotton planting areas and continued contraction of the cotton sector output, growing farmer discontent with the cotton investors and provision of alternative credit to cotton producers have created a situation where farmer interest in securing farm inputs from sources other than the investors is strong. The need for a more diverse, competitive system of input supply is growing and private sector interest in resolving this issue is growing with it. There is a nascent network of “non-cotton investors” suppliers, but it lacks resources and capacity and operates with limited market information, limited access to credit and limited access to supplies. The project will respond to these constraints by building on existing commercial motivation of market agents by means of strengthening input dealers’ technical capacity and facilitating their access to available sources of credit, new market linkages, information and technologies. The project would also contribute to the growth of private sector extension activity, in the absence of a public extension service.

Despite some improvements in the domestic seed supply in the past 12 months, seed shortages continue to be a serious problem for agricultural producers in Tajikistan. Seed shortages also result from most farmers retaining seed from the previous harvest which has two disadvantages: it is consumed following a crop failure, and it results in a progressive deterioration in seed vigor and yield potential. This obliges farmers to use very high seeding rates, at the expense of food for consumption, and also reduces future yields (lower yield potential and lower response to fertilizer). The other reason for seed shortages is the limited cash of low income households for purchase of better quality seed. The project will respond to these constraints by assuring a more reliable source of seed in times of crop failure, which is not dependent on access to cash. The project will establish and maintain a revolving seed bank facility and finance purchases of quality seeds and fertilizer in selected villages through Community Production Groups (CPGs). The CPGs could be linked to the extension activities of the agro-input dealers, e.g. by attending trials of new seed varieties and then buying/selling these new varieties thereby enhancing the project’s contribution to the longer term need to improve seed quality, and so food production.

The proposed additional grant funding from the Russia Food Price Crisis Rapid Response (Russia FRCR) TF for Tajikistan and Kyrgyz Republic of US$6.25 million equivalent would contribute to short-term support to the agricultural sector so that the poorest farmers and households could access necessary inputs and technology to increase aggregate food supply in Tajikistan. In the medium to long term significant additional resources, both public and private, would be needed to allow the sector to achieve its potential but the current proposal would provide a framework to prepare for these future investments to mitigate food price shocks and fluctuations.

4.  Project Description

The project composes the following components:

Component A – Support for Agriculture Inputs (originally US$2.7 million). Additional US$1.65 million financing (for a total of US$ 5.15 million including reallocation of about US$800,000 of uncommitted funds from Component B) will be included to finance the cost of imports of high quality winter wheat seeds and fertilizer in time for autumn 2009 plantings in the severely food insecure areas identified by WFP Food Security Monitoring System. It is estimated that a package valued at about US$60 per household would be sufficient for supporting winter wheat production for at least 27,000 families.

Component B – Improvement of Livestock Health and Husbandry (originally US$1.80 million). No additional financing is required for this Component. Due to difficulties in securing veterinary supplies and animal feed for component B it was decided to change this component to the provision of fodder (alfalfa) seed and fertilizer for beneficiary households. The cost savings of about US$800,000 created by these changes, together with a fall in the prices of seed and fertilizer have been reallocated to Component A. Locally produced alfalfa varieties were procured due to the difficulty of procuring small quantities of seed internationally. Delivery of alfalfa seed and fertilizer in the Rasht Valley took place on April 10-12, 2009. More than 7,000 beneficiaries in 4 districts and 15 Jamoats received their inputs, with distribution problems reported in only one Jamoat.

Component C - FAO Project Management (originally US$0.5 million). Additional US$0.165 million financing will be allocated for project management costs incurred by FAO. This funding will also cover expenses such as program audit, the hiring of additional specialists, as well as training farmers, and monitoring and evaluation.

Component D – Community Production Groups (US$3.235 million). This component will support the formation and functioning of groups of poor rural households at the community level to help them improve their food security and nutrition and simultaneously diversify their production away from the predominant, but unprofitable cotton crop. This program will be implemented with the involvement of local grassroots NGOs, who will help identify eligible group members, assist in the formation of the groups, provide basic training, and help monitor program implementation and impact.

Component E – Agro-Input Supply Market Development (US$0.9 million). This component will attempt to develop a private network of agro-input dealers to supply Tajik farmers with quality inputs and technical knowledge that would increase farm incomes and reverse the low-input, low-output spiral. This component will finance the following set of activities: (i) assessment of the needs of farmers and the agro-input demand and supply situation; (ii) identification of potential agro-input dealers and their training; (iii) organization of field demonstrations with improved technologies; (iv) production of technical brochures and conduct of public outreach to increase production and stimulate farmer demand for inputs; and (v) help to dealers to find supplies and credit, expand business, and provide extension services. The project would also demonstrate to farmers the profitable return from investing in improved inputs and farming techniques.

Component F – PMU Project Management (US$0.3 million). This component will finance coordination of the new activities and the fiduciary functions of the Center for Managing Projects on Cotton Farm Debt Resolution and Sustainable Cotton Sector Development (PMU). The PMU will require some additional staff and equipment and financing of additional operating expenses to carry out these additional activities. The project will finance incremental staff, consultants, operating costs, some technical assistance and training, M&E activities, special studies and impact assessments, information dissemination and annual audits.

5.  Financing

Source: / ($m.)
Borrower / 0.0
Russia Food Price Crisis Rapid Response Trust Fund for Tajikistan and Kyrgyz Republic / 6.25
Total / 6.25

6.  Implementation

Consistent with the satisfactory project implementation arrangements under the original project design, Components A, B and C of the project will continue to be implemented by FAO. The Project Management Unit (PMU) for the Cotton Sector Recovery Project (CSRP) will coordinate implementation of Components D, E and F. PMU is a specialized unit created to implement the CSRP and also a similar Asian Development Bank (ADB). As such, it has received capacity building in financial management, procurement and implementation of projects from both the Bank and ADB and its capacity is currently rated “satisfactory” by both institutions.