Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2354-LA LAO PEOPLE'S DEMOCRATIC REPUBLIC AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT II (ARDP II) STAFF APPRAISAL REPORT May 14, 1979 Proj ects Department East Asia & Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the perform'ance of their officiai duties. Its contents miay nlot otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS $1.00 = Liberation Kips (KL) 400 KL 1.00 = $0.025 WEIGHTS AND MEASURES 1 hectare (ha) = 2.47 acres 1 kilometer = 0.62 miles 1 square kilometer (sq km) = 0.3886 square miles 1 meter (m) = 39.37 inches 1 square meter (sq m) = 10.76 square feet 1 cubic meter (cu m) = 35.31 cubic feet 1 millimeter (mm) = 0.039 inches 1 kilogram (kg) = 2.2 lb 1,000 kilograms = 1 metric ton ABBREVIATIONS ADB - Asian Development Bank EECSAA - European Economic Comminity Special Action Account IRRI - International Rice Research Institute (Philippines) LAO DESIGNATIONS Khoueng - Province Muong - District Tasseng - Subdistrict Ban - Village Houei - River GOVERNMENT OF LAO PDR FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY LAO PEOPLE'S DEMOCRATIC REPUBLIC APPRAISAL OF THE AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT II (ARDP II) TABLE OF CONTENTS Page No. 1. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction .I... . . . . . . . . . . . . . . . . . . 1 Agriculture Sector . . . . . . . . . . . . . . . . . . . 1 Agricultural Production . . . . . . . . . . . . . . . . 2 Glutinous Rice .... . . . . . . . . . . . . . . . . 2 Maize. 2 Coffee and Rubber. 2 Forests ..... . . . . . . . . . . . . . . . . . . 3 Livestock .... . . . . . . . . . . . . . . . . . . 3 Production Constraints .... . . . . . . . . . . . . . 3 Experience with Past Lending . . . . . . . . . . . . . . 4 2. PROJECT AREA 5 Location - Vientiane Province . . . . . . . . . . . . . 5 Agricultural Production . . . . . . . . . . . . . . . 5 Soils and Climate .... . . . . . . . . . . . . . . 5 Land Tenure .... . . . . . . . . . . . . . . . . . 6 Rural Infrastructure . . . . . . . . . . . . . . . . . 6 Subproject Areas . . . . . . . . . . . . . . . . . . . . 6 Na Phok Seed Farm . . . . . . . . . . . . . . . . . . 7 Veune Kham Feedgrain Farm . . . . . . . . . . . . . . 7 3. THE PROJECT. 8 Objectives . . . . . . . . . . . . . . . . . . . . . . . 8 Project Identification/Preparation . . . . . . . . . . . 8 Project Components . . . . . . . . . . . . . . . . . . . 9 (a) Seed Farm Development - Na Phok . . . . . . . . . 9 (b) Feedgrain Farm Development - Veune Kham . . . . . 9 (c) Smallholder and Cooperative Farm Development . . 9 (d) Technical Assistance . . . . . . . . . . . . . . 9 Detailed Features .... . . . . ..... . . . . . . 10 Seed Farm Development - Na Phok . . . . . . . . . . . . 10 Civil Works . . . . . . . . . . . . . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . . . . . . Seed Production .... . . . . . . . . . . . . . . . 12 Technical Assistance .... . . . ...... . . . . 14 Feedgrain Farm Development - Veune Kham . . . . . . . . 15 Civil Works .... . . . . . ..... . . . . . . . 16 Equipment . . . . . . . . . . . . . . . . . . . . . . 17 Feedgrain Production ..17 Technical Assistance .... . . . ...... . . . . 18 This report is based on the findings of an appraisal mission composed of Messrs. D.A. Forno, J-P. Delsalle and W.L. Cuddihy which visited the Lao PDR in November 1978. This document has a restricted distribution and may be used by recipients only in the performance of their officiai duties. Its contents may not otherwise be disclosed without Worid Bank authorization. -2- Page No. Smallholder and Cooperative Farm Development ... . . . 19 Training .... . . . . . . . . . . . . . . . . . . . 20 Pilot Agricultural Technical Service . ........ 21 Provision of Agricultural Inputs ... . .... . . . 21 4. PROJECT COSTS AND FINANCING ... . . . . . . . . . . . . 22 Cost Estimate ... . . . . . . . . . . . . ... . . . 22 Financing .... . . . . . . . . . ...... . . . . 23 Procurement ... . . . . . . . . . ...... . . . . 24 Disbursements ... . . . . . . . . . ..... . . . . 25 Accounts and Audit . ..... . . . . . . . . . . . . . 25 Environmental Effects ... . . . . . . ..... . . . 26 Role of Women ... . . . . . . . . . ..... . . . . 26 5. PRODUCTION, HIAPRKETS AND PRICES . . . . . . . . . . . . . . 26 Incremental Production ..26 Seeds ..26 Feedgrains ..26 Rice ..26 Organization of Production and Marketing . .27 Organization of Marketing and Prices . .27 Farm Budgets ..28 Government Farms: Na Phok and Veune Kham . . . . . . 28 Individual and Cooperative Farms . . . . . . . . . . . 28 6. PROJECT IMPLEINLENTATION . . . . . . . . . . . . . . . . . . 29 Implementing Agencies ..29 Ministry of Agriculture. 29 Ministry of Industry and Commerce ..31 Organization and Management ..31 Government Farms . . . . . . . . . . . . . . . . . . . 31 Training and Pilot Agricultural Technical Services . . 33 Monitoring and Evaluation. 33 7. BENEFITS, JUSTIFICATION AND RISKS . . . . . . . . . . . . 34 Benefits . . . . . . . . . . . . . . . . . . . . . . . . 34 Justification . . . . . . . . . . . . . . . . . . . . . 35 Risks ..36 8. AGREEMENTS .37 - 3 - LIST OF TABLES AND FIGURE(S) IN THE MAIN TEXT Page No. Table No. 3.1 Project Costs for the Na Phok Seed Farm . . . . . . . . . . . 10 3.2 Cropping Pattern, Yield and Seed Production from the 600-ha Na Phok Seed Farm . . . . . . . . . . . . . . . . . . . . . 13 3.3 Seed Supply and Equivalent Plantable Crop Area at Full Development of the Na Phok Seed Farm . . . . . . . . . . . . 14 3.4 Project Costs for the Veune Kham Feedgrain Farm . . . . . . . 16 3.5 Annual Feedgrain Incremental Production at Full Development of Veune Kham Feedgrain Farm . . . . . . . . . . 18 3.6 Project Costs for Training and Supply of Technical Services and Inputs . . . . . . . . . . . . . . . . . . . . . . . . . 20 4.1 Estimated Project Costs . . . . . . . . . . . . . . . . . . . 23 4.2 Financing Plan . . . . . . . . . . . . . . . . . . . . . . . . 24 5.1 Cash Flows and Returns to Labor for Small Rainfed Rice Farms ... . . . . . . . . . . . . . . . . . . . . . . 29 6.1 Staffing Requirements for the Na Phok and Veune Kham State Farms ... . . . . . . . . . . . . . . . . . . . . . 32 Figure No. IBRD 19912 Ministry of Agriculture Organization . . . . . . . . . 30 ANNEXES 1. Project Cost Phasing .38 2. Project Phasing .39 - Table 1: Project Item Phasing . . . . . . . . . . . . . . . 39 - Table 2: Implementation Schedule for the Na Phok and Veune Kham State Farms . . . . . . . . . . . . . 40 - Table 3: Cropping Pattern and Seed Production from the Na Phok Seed Farm .41 - Table 4: Cropping Pattern and Production from the Veune Kham Feedgrain Farm . . . . . . . . . . . . 42 3. Estimated Schedule of Disbursements and Accounting Procedures . 43 - Project Organization and Management (IBRD 19911) . . . . . . 45 - Flow Chart for Procureirent Procedures (IBRD 19167) . 46 4. Estimated Incremental Production at Full Development . . . . . 47 5. Farm Budgets ... . . . . . . . . . . . . . . . . . . . . . . 48 - Table 1 Na Phok Farm Budget . . . . . . . . . . . . . . . 48 - Table 2 Veune Kham Feedgrain Farm Budget . . . . . . . . . 49 - Table 3 Smallholder Farm Budgets . . . . . . . . . . . . . 50 -4- Page No. 6. Economic Analysis . . . . . . . . . . . . . . . . . . . . . . . . 51 Components .... . . . . . . . ..... . . . . . . . . . . 51 IMethodology . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Table 1: Yield Increase Parameters . . . . . . . . . . . . . . 53 Table 2: Incremental Project Costs and Benefits . . . . . . . . 54 Table 3: Commodity Prices/Ton . . . . . . . . . . . . . . . . . 55 7. Documents in Project File . . . . . . . . . . . . . . . . . . . . 56 LIST OF MAPS IN THE MIAIN REPORT Lao People's Democratic Republic (IBRD 13979) Project Location (IBRD 14134) LAO PEOPLE'S DEMOCRATIC REPUBLIC AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT II 1. BACKGROUND Introduction 1.01 The project would support the agricultural development goals of the first credit (Cr. 760-LA), by: (a) establishment of a National Seed State Farm to provide farmers with better quality and improved seed; (b) development of a 3,000 ha Feedgrain State Farm as the nucleus for promoting feedgrain production; and (c) intensification of rice and feedgrain production on farmers' fields through development of a pilot agricultural extension service and through the supply of agricultural chemicals and equipment to farmers. Agriculture Sector 1.02 The great majority of the rural population, who account for about 90% of the total population, depend on agriculture for their livelihood. However, production is largely at a subsistence level. Agriculture, including forestry, directly accounts for more than 60% of GDP, and in recent years agriculture has generated about 60% of the country's export earnings, which are estimated to total about $12 million in 1978. Export commodities are mainly coffee and timber. There bas, however, been little growth in export earnings over the past five years. By contrast, imports of agricultural products, mainly rice, (60,000-80,000 tons annually) have been increasing in 1976 and 1977. 1.03 About 400,000 families are directly involved in agricultural pro- duction, and the average farm area is about 2 ha. Cropping intensity is low, most of the land being cultivated with rainfed glutinous rice for only 4 to 5 months of the year. Despite government efforts to promote agricultural production, including home garden production, enormous scope exists for improvement, as evidenced by the low average yields obtained for all major crops. About 40% of the rice area is cultivated under upland conditions where yields are very low. There is little controlled irrigation even in the lowland areas and excessive flooding, interspersed with periodic drought, results in widely fluctuating rice yields from year to year. 1.04 The 1977 paddy harvest, for example, fell sharply below the plan target due to a disastrous drought, which in some provinces wiped out nearly half of the crop. Rice availability for human consumption in 1978 was therefore down to an estimated 290,000 tons (or less than 90 kg/capita). Large-scale famine was averted as international assistance brought in nearly 120,000 tons of rice and cereals, and the Governnent mounted a successful mass campaign to plant substitute food crops. However, rice availability, including imports in 1978 (estimated at about 120 kg/capita), is considerably below the average requirements of 160-170 kg/capita. Although reliable data are lacking, the general impression is that the daily food intake in Lao PDR is less than the normal daily caloric requirement. Production from the 1978 crop was also not favorable due to major flooding. International food aid will again be necessary to avert hunger in 1979. 1.05 With population growing at about 2.5% p.a., nearly 80,000 additional people would have to be fed every year, implying additional paddy production of about 26,000 tons a year. By 1980, about 1.2 million tons of paddy will be required to meet human consumption demand at 160-170 kg/capita of rice. This means an increase of about 50% over the level of production in a normal year. Agricultural Production 1.06 Glutinous rice, the staple food, accounts for 72% of the area under cultivation each year, or about 680,000 ha. On about 430,000 ha (63%), the rice is grown under lowland conditions and on the remaining upland soils, often under slash-and-burn cultivation. Rice production in a normal crop year is about 470,000 tons, compared with annual consumption requirements of about 580,000 tons. 1.07 Maize, the most important feed crop, is grown on only about 25,000 ha and in widely dispersed parts of the country. National production is of the order of 30,000 tons, but only about 1,000 tons pass through official government channels for the production of animal feed at the Thong Toun feed mill. The balance is eaten or fed to backyard livestock. The Government recognizes the urgency of increasing feed crop production, and the development of the Veune Kham state feedgrain farm under the proposed project forms an important thrust of its development strategy. A modern feed mill is under construction in Tha Ngone with French and German assistance and should be completed by mid-1979. The inadequate price incentive has been an important constraint to increasing maize production. In 1977, the official farm-gate price of maize on the cob was increased from 17 Kip/kg to 22 Kip/kg. On 1iarch 21, 1979, the price was further raised to 30 Kip/kg together with official price rises in a number of other commodities. 1.08 Coffee and rubber were first introduced to Laos during the colonial period. Before the war, 6,000 ha were planted to coffee and about 600 ha to rubber. Nearly two thirds of the coffee was subsequently abandoned or destroyed while almost all the rubber was destroyed. Rubber is no longer pro- duced in the Lao PDR, but many of the coffee plantations are being rehabili- tated. Coffee yields are currently less than 1 ton/ha, as many of the plants are overage or have not been pruned correctly. In 1977, coffee (primarily Robusta) production was about 3,100 tons, of which about 1,500 tons were exported at a value of $3.7 million. To encourage replanting, the authorities increased the average procurement price of Robusta coffee in 1976 from 120 Kip/kg to 200 Kip/kg. Another increase is under consideration. In addition, price differentials linked to a grading system need to be introduced to improve the quality of coffee for export. The Bank has been requested by Government to study the possibility of providing assistance for rehabilitation of the country's coffee industry. - 3 - 1.09 Forests are one of the Lao PDR's main sources of wealth. Although it is estimated that forests cover 40-50% of the country's total area, it is difficult to estimate forest potential in the absence of an accurate national forest inventory of the species and exploitable area. Timber production and wood export (logs and sawn timber) earnings have declined steadily since 1974, dropping from 350,000 cu m to 80,000 cu m and from around $13 million to $1.5 million respectively in 1977, due primarily to the lack of equipment and fuel, inadequate price incentives, weak management of wood processing industries, internal marketing difficulties and border problems with Thailand. In 1977 only half of the saw mills were operational and capacity utilization was less than 40%. Both the Asian Development Bank (ADB) and SIDA, the Swedish Aid Agency, are assisting the Government in the rehabilitation of its forest industries. 1.10 Livestock. Apart from rice, there is a major shortage in meat production. National estimates of livestock numbers suggest that on average each farm family has only 1 or 2 pigs or cattle and less than 10 poultry. There are no large-scale pig or poultry production units in the country. Livestock weaning rates are generally low due to low genetic potential, poor quality of feed, and widespread occurrence of debilitating diseases. In addition, thousands of head of livestock, buffalo in particular, were des- troyed during the war. Pig production is far below the level required to meet demand for pork (a favorite in the local diet), particularly in the urban areas. The nutrition situation is poor in the Lao PDR, and the project would seek to improve overall food production from crops and to provide feedgrain for meat production. 1.11 Development of the country's livestock subsector is seriously constrained by a shortage of breeding stock and feed. The first IDA- assisted project for the Lao PDR aims at establishing pig multiplication units, with an annual output at full production (after 6 years) of 14,400 piglets per year. The proposed second IDA project would therefore constitute an essential, complementary step in the development of the Lao PDR livestock subsector. Production Constraints 1.12 Fertilizer use is very limited, the amount used in 1978 being less than 350 tons. Application is generally confined to rice nurseries, vegetables, tobacco, and a small area of irrigated dry season rice (about 9,000 ha) located mainly in Vientiane Plain. There is almost no mechanical crop cultivation and in many areas draft animals are in very short supply. Most provinces have a small staff of technicians who work with farmers, but their function is to provide census and statistical data, and limited technical assistance to provincial authorities. Although presently untrained, the provincial technicians could form the basis for a modest agricultural extension force. Also, the country's three agricultural research stations should, with the support of the first IDA credit, develop the capability to formulate simple technology packages for extension to farmers. - 4 - 1.13 Apart from the technical constraints to increased agricultural production, however, major difficulties confront Government in providing the institutional support necessary for the implementation of relatively large development programs. The development priority adopted by Government has been to extend the irrigation network as rapidly as possible through rehabilitation and construction of small pump and gravity irrigation schemes to cover about 300 ha perimeters. Some 70% of the first IDA credit was allocated for assisting irrigation development and the Government has received additional bilateral aid for irrigation development. While further expansion of the irrigation network is still needed, particularly outside Vientiane Province, the country's technical capacity to undertake additional schemes at this time is limited. 1.14 Even with the shortage of trained manpower, however, considerable scope exists for improving production through increased low-level technical support to farmers and through arrangements for distributing seeds, fertilizers and pesticides. Likewise with regard to livestock production, efforts so far have been directed towards improving and expanding the breeding stock. Little attention has been given to the mechanisms for distributing stock to farmers, or to the promotion of feedgrain production and provision of livestock technical services to farmers. Experience With Past Lending 1.15 The first IDA credit to the Lao PDR was signed on January 5, 1978, and became effective April 5, 1978. Both the first and the proposed second project are directed towards assisting the '1inistry of Agriculture, Forestry and Irrigation. In the year that has elapsed since effectiveness of the first project, disbursements have amounted to $0.1 million. However, the initial delays resulted mainly from the Borrower's unfamiliarity with the Bank's procedures and from the late arrival of specialists. The pace of project implementation is now improving and an invitation to bid should be issued in June 1979 for equipment estimated to cost around $1.5 million. The proposed second project would deal mainly with the l4inistry's Department of Agriculture and would not contain much additional work for the Department of Irrigation which is responsible for implementing the largest element of the first project. The implementation of the proposed project should be greatly facilitated by the fact that several applications for each of the technical specialists positions provided under the UqDP-financed portion of the project have been received, evaluated by FAO and suitable candidates submitted to Government for approval. A short-term consultant has already taken up duties in the Lao PDR to assist in preparing work programs and in procurement of start-up equipment. 2. PROJECT AREA Location - Vientiane Province 2.01 The project would be located in Vientiane Province and would center on the development of two large state farms (paras. 2.10-2.13), as well as on the provision of pilot technical services and agricultural inputs to farmers throughout the Vientiane Plain. Vientiane Province, the most densely populated of the country's 13 provinces, is the location of the nation's capital and seat of Government in Vientiane City. Trade exchanges between the Lao PDR and Thailand are carried out through the port of Tha Deua, some 20 km south of Vientiane City, and through Nong Khai on the Thai side of the Mekong. The province is about 26,000 sq km in size and stretches about 160 km from north to south and 300 km from east to west (see Map IBRD 13979). 2.02 The population of the province is about 540,000, of which 20% (110,000) live in Vientiane City. The province (khoueng) is organized into 14 districts (muong), 106 subdistricts (tasseng) and 665 villages (ban). Over 50% of the country's manufacturing enterprises are concentrated in the Vientiane Plain, for which the availability of power from the Nam Ngum dam provides a favorable basis for industrial expansion and concentration of population. 2.03 Agricultural Production. Lowland rice covers about 100,000 ha of the province, while upland rice is grown on about 17,000 ha. Traditionally food and particularly rice production have been insufficient to meet local demand. Even in a good crop year rice production amounts to only about 92,000 tons, or 85% of consumption. Only very small amounts of maize, ground- nuts and soybeans are grown. Mostly the staple glutinous rice diet of the people is supplemented with vegetables, and small quantities of pork, poultry, fish and fruit. Government food programs for the province are chiefly aimed at increasing rice output through irrigation and flood control works, and at increasing pork production through a pig multiplication program. The first IDA-assisted project for the Lao PDR directly assisted both of these programs. As an additional step in achieving food self-sufficiency, the proposed project would concentrate on the production of maize and grain legumes for feed production and on the provision of improved technical services, seed and other agricultural inputs for farmers. 2.04 Soils and Climate. Lowland soils are alluvial and mainly cultivated with glutinous paddy. The higher elevation soils are of low fertility and are generally red yellow podzolics. Parts of these upland areas are still under forest, while considerable areas are cropped with upland rice under a shifting cultivation system (slash and burn) which is wasteful of forest, soil and water resources. The land resources inventory of Vientiane Plain is illustrated in Map IBRD 13478 (see Annex 7). - 6 - 2.05 High temperatures, humidity and rainfall characterize the climate. Ilean temperatures range between about 21 C in December/January and 29 C in April. Rainfall is governed by the monsoon which generally commences in May and ceases in October. Although annual average rainfall is about 1,800 mm/ year, it is irregular both in onset at the start of the wet season and in distribution throughout the wet season (80% of rainfall occurs in the five- month wet season) (see Annex 7). 2.06 Land Tenure. Host of the land in Vientiane Province is farmed by individual family units that have customary settler and cultivation rights. Data on farm and family size, agricultural practices, and crop and livestock production are limited, but the average farm family in the Vientiane Plain is estimated to have approximately 5-7 persons with 1.5 to 2 ha of lowland rice land and a rather smaller area of upland soil. Farmers grow rice, a few coconuts and fruit trees around the house. They may rear one or two buffalo, a few pigs and poultry. 2.07 The Government's long-term objective in the rural sector is to establish large-scale farm units for agricultural production. Cooperatives are expected to become the principal form of organization for agricultural production, although state farms are also planned for the production of industrial crops and livestock. The authorities envisage three stages in the development of cooperatives. In the first stage, the principles of joint farming are promoted through the establishment of "farmers' associations" or work brigades designed to facilitate the exchange of labor and the sharing of tools and draft power. In the second stage, arrangements are made to cultivate the land collectively and to share the crops in proportion to the days worked by each farmer. The final stage is to convert these farmers' groups into formal agricultural cooperatives operating as collective farms. This may occur in two phases, with some of the land being "rented" from members initially, but eventually most of the land is to be comnunally owned. Membership of cooperatives, however, will be on a voluntary basis and members may retain part of their land and some animals for thenselves. 2.08 Rural Infrastructure. The majority of the villages in the Vientiane Province lack modern public infrastructure, although transport infrastructure between the larger villages is adequate for current traffic needs. The tracks leading to the smaller villages are frequently impassable to freight and passenger vehicles for 2-3 months in the wet season, although still passable to farm carts and bicycles. Subproject Areas 2.09 While the agricultural extension services to be developed under the project would be spread throughout the Vientiane Province, two specific locations would be developed as state-managed farms. These would be at Na Phok for seed production and at Veune Kham for feedgrain production, as described below. 2.10 Na Phok Seed Farm /1 would be located about 30 km northeast of Vientiane City on the right bank of the Nam Ngum River. Although the total area of the government-owned farm covers about 1,200 ha, half of the land is under forest cover. Soils on the farm are recent alluvials with quite high fertility and good drainage characteristics. In 1968 some 500 ha of the farm were cleared and levelled with aid from the Japanese Government. At that time, an extensive road network was also developed and plans laid for fully irrigating the area. Due to the war these plans were not developed further and the area was settled with about 200 refugee families. About half of these families have now been relocated or have returned to their former homelands. The remaining families provide the general labor force for the surrounding area and cultivate portions of the farm. 2.11 The Ministry of Agriculture controls the area and now wishes to resume development of the farm by fully irrigating some 500 ha for the production of rice and feedgrain seeds. The labor force would be provided by the refugee families now living around the perimeter of the farm and would also come from the neighboring township of Tha Ngone. At full development (after 4 years), the farm would produce about 2,000 tons of seed each year, thereby meeting a critical need for improved seed in the country. In addition, the seed farn would maintain stocks of seed for distribution following times of crisis, e.g. drought or flood, when replanting is feasible but is constrained by lack of seed. (This has been a common experience throughout the country.) 2.12 Veune Kham Feedgrain Farm would be located about 5 km west of Tha Ngone and about 30 km from Vientiane City. The total farm area is around 6,160 ha but the project would develop only 3,000 ha as Phase I of the development program. About 300 ha of the farm are presently clear of forest, although decades of shifting cultivation have reduced the vegetation to an open forest type cover, requiring clearing costs of only around $400/ha. Much of the recent clearing has been done by employees of the Ministry of Agriculture, many of whom live on the farm. Under the project some additional 2,700 ha of the farm would be cleared for feedgrain production. Extensive soil surveys, cropping pattern studies and farm development plans have recently been completed by a team of Vietnamese advisers. The area to be developed under the project is generally free from flooding, and the soil texture and fertility are suited to feedgrain production. 2.13 There are 4 small villages with approximately 340 families located within the perimeter of the proposed state farms. However, these villagers would not need to be relocated, since most of them are fishermen and small rice farmers who generally farm the low, swampy areas of the state farm that would not otherwise be used. Shifting cultivation in the area is limited to a very few families now. The project would create a large amount of seasonal employment for the villagers living in the area. Most of the permanent labor for the farm would come mainly from the existing 670 state farm employees. /1 Na Phok Seed Farm is officially known as the "National Seed Production Center" but is referred to in this report by its location at Na Phok to be consistent with references to the feedgrain state farm at Veune Kham. -8- 3. THE PROJECT Objectives 3.01 The design of the proposed project builds on the experience gained during implementation of the first project. Key aspects of the design include a simple management structure familiar to Lao PDR authorities and concentration on three major development objectives. Firstly, the project would aim at eliminating the country's dependence on imported seed and would greatly expand the availability of improved rice, feedgrain and vegetable seeds to farmers on a regular basis and in times of crisis. Secondly, the project would concentrate on the production of feedgrains (maize, sorghum, soybean and groundnuts), which are currently in very short supply and on which the livestock multiplication component of the first project depends heavily. A third objective of the project would be to tackle some of the more fundamental constraints regarding the availability of technical services and the supply and distribution of agricultural inputs. A small staff of agricultural advisory technicians would be trained and mobilized to provide the link between the Ministry of Agriculture and provincial staff as the first step in promoting improvements in production and marketing of food and feedgrains. 3.02 The seed production component of the project would comprise the setting up of quite a large farm at Na Phok. Likewise, the production and marketing of feedgrains, which is presently at a very low level, would be developed around a large state feedgrain farm in order to: (a) establish the pricing and marketing process; (b) ensure sufficient supplies to keep the newly constructed feed mill operating; and (c) provide an applied research and training station for the technical service, which would promote crop and livestock production by cooperatives and among individual farmers. The equivalent of some 1,200 jobs would be provided from employment created by development of the Na Phok seed farm and Veune Kham state farm. Seed produc- tion at full development would be sufficient for planting some 100,000 ha/year of rice and 50,000 ha/year of feedgrains throughout the country. The incre- mental maize production would be sufficient for an estimated 14,000 tons of compound animal feed annually. About 6,000 tons of feed will be required for the pig multiplication units to be developed under the first IDA-assisted project (Cr. 760-LAO), while the balance would be used for livestock pro- duction on farms. Project Identification/Preparation 3.03 The project was identified by a Bank mission in November/December 1977. Originally there were two primary objectives: (a) flood control and small-scale irrigation in the flood plain of the Se Bang Fai, a tributary of the N¶ekong which separates the two central Lao provinces of Khammouane and Savannakhet; and (b) seed and feedgrain production in the Vientiane Plain to substitute for the growing import requirements. However, due to insuffi- cient survey data for the Se Bang Fai component, the project was reform- ulated to expand on the second of the objectives. The project was appraised in November 1978. In February 1979, a UNDP-funded technical assistance - 9 - project for the Se Bang Fai was signed by the Government with the Bank as executing agency. That project will finance equipment and materials for feasibility studies and pilot flood control and irrigation works in the Se Bang Fai. The Bank, as executing agency, subcontracted the Mekong Secretariat to provide the technical services. The technical assistance prGject will prepare the way for a larger flood control and irrigation project. Project Components 3.04 A summary of components to be included under the project is given below. (a) Seed Farm Development - Na Phok (i) Development of the Na Phok Farm into a national seed production center through the construction of 500 ha of fully irrigated farmland and 100 ha of rainfed land. Farm and seed processing equipment and associated civil works would also be provided. (b) Feedgrain Farm Development - Veune Kham (ii) Development of the Veune Kham State Farm for the production of 3,000 ha of rainfed feedgrain through the provision of farm equipment, grain processing and storage equipment, and associated civil works. (c) Smallholder and Cooperative Farm Development (iii) 780 man-months of training for some 280 agricultural technicians in 6-week (300 man-months) and 6-month (480 man-months) training courses and 40 man-months of fellowships abroad as the basis for developing a pilot agricultural technical service for smallholder and cooperative farm development (to be funded by UNDP.) (iv) Agricultural technical service vehicles and training equipment for the Na Bong and Hat Dok Keo agricultural technical training centers (to be funded by UNDP). (v) Provision of funds to the Ministry of Agriculture for the purchase of fertilizer, pesticides and farm equipment for distribution to some 2,400 farmers or farmer cooperatives on an interim credit basis, until procedures for extending credit through the National Bank of Lao are finalized. (d) Technical Assistance (114 man-months to be funded by UNDP) (vi) 36 man-months of technical services for a seed production and processing specialist to assist in training, procurement and management on the Na Phok seed farm. - 10 - (vii) 24 man-months of technical services for an agricultural machinery engineer to assist in training, installation of equipment and in setting up machinery maintenance workshops on both the Na Phok and Veune Kham farms. (viii) 36 man-months of technical services for a feedgrain production specialist to assist in training, procurement and management of the Veune Kham feedgrain state farm. (ix) 12 man-months of technical services for a construction engineer to assist in the design, procurement of materials and building of facilities on both the Na Phok and Veune Kham farms. (x) 6 man-months of short-term subject matter specialist consultants to assist in procurement, seed processing, seed production and feedgrain production. Detailed Features Seed Farm Development - Na Phok 3.05 In connection with the proposed IDA credit to assist in the develop- ment of Na Phok, UNiDP, with FAO as executing agency, signed on April 14, 1979 a $1.3 million project with Government for the first phase of development of the seed farm. The provisions of the UNDP project document (Lao/77/011/A/01/12) have been included in the calculation of the proposed IDA project cost and are identified in Table 3.1. The proposed phasing of civil works, seed crop production and associated costs are shown in Annexes 1 and 2. Table 3.1: PROJECT COSTS FOR THE NA PHOK SEED FARM ($'OO0) Total Project Local Foreign Total FE % Irrigation perimeter 279.7 979.9 1,259.6 77.8 Farm infrastructure 240.7 1,409.3 1,650.0 /a 85.4 Farm O&M 572.0 606.7 1,178.7 51.5 Physical contingencies 52.0 188.3 240.3 78.4 Expected price contingencies 247.2 453.2 700.4 64.7 Total 1,391.6 3,637.4 5,029.0 72.3 /a Of which $507,000 is to be financed by UNDP. - Il - 3.06 Civil Works (a) Land Clearing. Already some 500 ha out of the 700 ha of the Na Phok farm to be developed have been cleared of trees and levelled. The farm is now mostly covered by short native grass which could easily be cleared. About 50% to 60% of the cleared area is cropped during the wet season by the 100 refugee families temporarily settled on the area (para. 2.11). (b) Roads. An adequate road network totaling about 15 km already exists on a rectangular grid across the farm. Some $50,000 would be pro- vided for repairing and resurfacing the 7 km of access road and the somewhat overgrown internal road system. (c) Irrigation of 500 ha of the farm would be achieved by establishment of one pumping station on the Nam Ngum river above flood level, and by piping and open ditch distribution of water to the field. Maximum lift would be 1.25 million cu m during the months of January and February. Details for the irrigation network were developed by consultants funded under an ADB project,/1 in conjunction with government staff. The total cost of the irrigation and drainage works would be $1,260,000 or about $2,500/ha. An assurance was obtained at negotiations that Government would ensure that the irrigation works provided for Na Phok under the project would be done in a timely manner and completed by April 30, 1982 (para. 8.01[a]). (d) Buildings. The buildings to be constructed would be largely wooden with cement bases. Total cost would amount to about $430,000, of which about 14% would be for equipment shelter and workshop facilities, 16% for processing and storage, and the balance of $300,000 (70%) for offices, laboratory, housing and accommodation. (e) Electricity. In order to operate the electrical processing equip- ment, pump station and for lighting the farm buildings, some 8 km of 22 kv power line would be constructed from the closest point of the existing electri- city grid in Vientiane Province (Pk 18) to a receiving station to be constructed at Na Phok. Because of maintenance considerations and the low cost of electri- city in Vientiane Province (4.00 Kip/Kwh) relative to diesel fuel, extension of the power line to Na Phok provides the least cost alternative for supplying the seed farm with electricity. The total cost of installing the power line and substation would be about $120,000. 3.07 Equipment (a) Agricultural Equipment. The seed farm would be provided with agri- cultural equipment ranging from tractors and implements for land preparation and hauling, through to grain threshing and shelling machinery. The need to mechanize the seed farm quite heavily results from the seasonal shortage of labor both in the area and in general throughout the country. Agricultural /1 Asian Development Bank Report dated July 1977; "Laos - The Reconstruction and Development Programming Technical Assistance Project in the Vientiane Plain (in Two Volumes), July 1977. - 12 - machinery costs of about $460,000 would be provided. At full development the seed farm would require about 80 permanent employees. (b) Processing Equipment. Drying equipment capable of handling 1,000 ton/cropping season of seed and processing equipment rated at 2.0 ton/hr would be provided. The processing plant would have batch-type drying facilities (forced heated air flow system), cleaning and grading, chemical treatment and bagging facilities. Details of the processing plant and final design specif- ications for tender documents would be prepared with the assistance of spe- cialists provided under the project. Tender documents for the seed processing plant should be completed by December 31, 1979. Laboratory equipment for testing seed viability and purity would also be included. Generally accepted international seed quality control measures would be adopted. Suitable seed standards are included in the Project File (see Annex 7). Reject seed (about 20%) would be either sold to the Tha Ngone feed mill (see para. 1.07) or distributed for food on the seed farm. Seed storage facilities with a capacity of 500 tons would also be constructed. The Na Phok seed farm is almost all above high flood level. The production and storage of adequate stocks of seed is an urgent requirement in the Lao PDR, since floods and/or drought occur frequently and often cause widespread crop losses. Seed processing and storage costs would be about $235,000. (c) Workshop and General Transport and Office Equipment. An important constraint in the Lao PDR is the shortage of spare parts and workshop facil- ities. A lesser, but still limiting constraint, is the availability of trained mechanics. The project would provide workshop facilities and equipment for both the Na Phok and Veune Kham farm. The total cost of workshop equipment would be about $135,000. Technical assistance for setting up the workshops and for on-the-job training would also be provided (see para. 3.04[d]). Three 4-wheel drive vehicles would be provided for farm staff together with some 12 motorcycles and 8 trucks (total cost $150,000). About $15,000 would be provided for general office equipment. 3.08 Seed Production. At full development, i.e. from year four onwards, there would be about 500 ha devoted to seed production in both the wet and dry seasons and an additional 100 ha in the wet season. Cropping patterns would be variable according to the country's needs, but would generally follow the pattern described in Annex 2, Table 3, and shown in Table 3.2 at full development. - 13 - Table 3.2: CROPPING PATTERN, YIELD AND SEED PRODUCTION /a FROM THE 600-HA NA PHOK SEED FARM Wet Season Dry Season Area Seed prod. Area Seed prod. Crop (ha) Ton/ha (tons) (ha) Ton/ha (tons) Paddy 380 2.6 790 130 3.5 364 Maize 120 2.3 216 160 2.5 320 Sorghum 10 2.0 16 - - - Soybeans 40 1.3 42 90 1.5 108 Groundnuts 40 0.8 27 90 1.0 72 Root crops 10 12.5 (125) - - - Vegetables - - - 30 10.0 300 Fallow 100 - - - - - Total 700 - 1,090 500 - 1,165 /a Approximately 20% of grain produced would not be suitable for seed and would be used as food or feedgrain. 3.09 Although the yields assumed in Table 3.2 are not high, it would be necessary to practice quite a high level of crop management including rotation and fallow in order to maintain yields under the intense cropping system proposed. In order to include fallow in the rotation, an additional 100 ha have been provided for clearing. Chemical fertilizers and insecticides would be applied at rates generally recommended internationally for soils and climatic conditions similar to those in the project area. More specific application rates would be established during project implementation through research funded under the first IDA credit. Some $600,000 is provided under the five-year project for this purpose. At full development, annual seed production from the seed farm and the corresponding crop area that could be planted are shown in Table 3.3. For rice, an area equivalent to 100,000 ha could be planted each year. For feedgrain, seed production would be sufficient for planting 50,000 ha annually. However, in order to ensure adequate seed stocks in case of crop failure due to floods, drought, etc., some 200 tons of rice and 100 tons of feedgrain seed would be kept in store at the seed farm. Seed quality control would be the responsibility of the Department of Agricul- ture. During the course of the project, "certified" seed would be produced in the sense that minimum standards of quality would be maintained. The Na Phok seed farm would have the basic equipment and facilities needed for quality control. - 14 - Table 3.3: SEED SUPPLY AND EQUIVALENT PLANTABLE CROP AREA AT FULL DEVELOPlENT OF THE NA PHOK SEED FARM Equivalent/a % of 1978 Seed supply plantable total area estimates crop area under (ton) (ha) cultivation Paddy (impr. local varieties) 316 ) 99 000 15 Paddy (IRRI glutinous varieties) 838 ) Maize (Synthetic and composite) 536 43,000 134 Sorghum 16 1,600 n.a. Soybeans 150 4,300 63 Groundnut 99 1,600 27 Total 1,955 149,500 21 /a Assumed planting rate of 60 kg/ha for groundnut, 35 kg/ha for paddy and soybeans, 25 kg/ha for maize and 10 kg/ha for sorghum. The assumed fre- quency of improved seed usage would be: for paddy, once every 3 years; for maize, every second year; and for sorghum, soybean and groundnut, yearly. 3.10 For rice, the main varieties to be grown initially would be: (a) the glutinous IR 789, and to a smaller extent IR 253, IR 848 and IR 889, which have been improved at the International Rice Research Institute (Philippines) from local strains; (b) the glutinous Sanpatong and Denghom; and (c) the nongluti- nous C463-1, IR 22 and IR 228.3. Rice crops grown from the improved seed would not require new seed for three years after the initial planting. Maize varieties grown would be mainly the synthetic selections HDK 1 and 2 (similar to the Thai varieties PB Nos. 5 and 9) and composite HDK3 (similar to Thai No. 1). Downy mildew resistant strains are currently being selected and production of a strain showing 80% resistance (HDK3) is expected during the wet season of 1979. Research into downy mildew resistance is an ongoing program of the Hat Dok Keo research station, since generally resistance breaks down after several crop seasons. The project would provide for the introduc- tion of improved foundation seed for multiplication. 3.11 Technical Assistance. The UNDP-financed portion of the project would provide for three specialists to assist in development and operation of Na Phok. FAO as excuting agency for the UNDP project would be responsible for contracting the specialists. At negotiations an assurance was obtained that Government would recruit the seed and feedgrain production specialists as a condition of credit effectiveness and that the machinery and construction specialists would be recruited by December 31, 1979 (paras. 8.01[b] and 8.02[a]). The three specialists for Na Phok would be as follows: (a) Seed Production and Processing Specialist. The specialist would be contracted for a total of 36 man-months at an average cost of $5,300/month. Of this amount, approximately 50% would be salary and the balance would be for travel and administrative overhead. The specialist would need to have at - 15 - least five years' practical experience in seed production and processing and be able to advise on the establishment and maintenance of acceptable seed standards for the Lao PDR. The specialist would work closely with the director ol the Na Phok seed farm and assist in the management of the farm and in procurement of equipment and materials. Ile would also be responsible for training counterpart staff in all aspects relating to seed production and processing. (b) Agricultural Machinery Engineer. The specialist would be contracted for a total of 24 man-months at an average cost of $4,000/month. Of this amount, approximately 50% would be salary and the balance would be for travel and administrative overhead. The specialist would be required to have wide experience in the operation and maintenance of agricultural equipment. He would need to be familiar with types of equipment available from the international community of machinery suppliers and distributors, and be able to advise the farm directors of Na Phok and Veune Kham on technical aspects of equipment being considered for procurement. The specialist would be responsible for overseeing the setting up of workshops on both the Na Phok and Veune Kham farms, and for training counterpart staff in the repair and maintenance of machinery. (c) Construction Engineer. This specialist would be contracted for a total of 12 man-months at an average cost of $3,300/month. Of this amount, approximately $500 would be salary and the balance for travel and adminis- trative overhead. The specialists would be required to have practical exper- ience in the installation and calibration of seed processing and storage equipment and in the design and construction of suitable farm buildings. The services of the construction engineer would also be used in the setting up of the Veune Kham state farm as needed. The specialist would be responsible for detailing technical specifications of materials and equipment needed, for assistance in the drawing up of draft bid documents, and for training counter- part staff. (d) Short-term Consultants. Six man-months of short-term specialist services, at an average cost of $5,800/month, would be provided to help overcome technical constraints that may arise from time to time due to the severe lack of technically trained personnel in the country. The funds would be available for such specialized services as seed processing, feedgrain milling and compounding, and procurement. Feedgrain Farm Development - Veune Kham 3.12 Development of the Veune Kham farm would primarily be for the purpose of supplying the nearby Tha Ngone and the Thong Toun feed mills. Construction of the Tha Ngone feed mill began in 1977 and has been financed through bilaterial aid from France and Germany. By 1980 the two mills will be able to process about 17,000 tons of feed. Full capacity would be reached by 1982 when feed production could be some 20,000 tons per year. Livestock - 16 - build-up in the Vientiane Province, based mainly on development objectives of the first IDA project, indicate that by 1982, pigfeed requirements would be around 6,000 tons or 30% of the capacity of the two feed mills. 3.13 However, despite the construction of the mill and the rapidly growing demand for pigfeed, maize production in the Vientiane Province is not sufficient to meet demand. Furthermore, production is unlikely to increase through small farm development due to (a) the low fixed price for maize and (b) the understandable priority given by farmers to food production, mainly glutinous rice. Therefore in order to meet feedgrain demand, and in accordance with the policy directives of Government, the Veune Kham State Farm would be developed under the project to produce some 3,000 ha of rainfed feedgrain, equivalent to about 5,500 tons per year at full development (of which 4,500 tons would be maize). To meet the balance of maize requirements by 1982, Government intends to promote additional feedgrain production through farmer cooperatives. While policies relating to cooperative develop- ment are quite firm, implementation details are still being worked out. Arrangements for providing agricultural technical services to the cooperatives are also unresolved. Development of the feedgrain state farm provides an opportunity for establishing a sound technical base on which to promote feedgrain production, as well as for meeting the urgent animal feed needs of the country. Cost estimates for developing the first phase of the feedgrain farm are given in Table 3.4 and necessarily include considerable infrastructure and overhead costs, which will benefit the development of the remaining 3,000 ha of the state farm when the planned second phase development gets under way. Details of the phasing of civil work, feedgrain production and associated costs are given in Annexes 1 and 2. Table 3.4: PROJECT COSTS FOR THE VEUNE KHAM FEEDGRAIN FAR14 ($'000) Total Project Local Foreign Total FE % Farm add'l infrastructure 400.7 3,789.9 4,190.6 90.4 Farm increm. 0&M1 580.1 1,125.7 1,705.8 66.0 Physical contingencies 29.5 177.7 207.2 85.8 Expected price contingencies 270.7 1,115.1 1,385.8 80.5 Total 1,281.0 6,208.4 7,489.4 82.9 3.14 Civil Works (a) Land Clearing. Of the 3,000 ha of the farm to be developed for feedgrain production, only about 300 ha have been cleared. The remainder is largely open forest cover estimated to cost about $400/ha to clear by bulldozer and windrowing. - 17 - (b) Roads and Bridge. An internal road network totaling about 40 km would be provided in addition to the already existing 6 km. A 50-ton load Bailey-type bridge would be constructed on the access dike road which would be raised by 1 meter. A total of some $570,000 would be provideA for the roads and bridge under the project. (c) Flood Control. Most of the 3,000 ha to be developed is above flood level, but around 300 ha would need to be protected through the construction of two small dams fitted with floodgates. Construction of the dams is in the 1979 work program of Government and will be executed with the help of the M-ekong Secretariat. (d) Buildings. The existing facilities at Veune Kham were initially constructed for use as an agricultural training school, but the school was later transferred to Na Bong (see para. 3.20). The main need for additional buildings would be housing for farm management staff and employees and expansion of general store, farm machinery and workshop buildings. About $300,000 would be provided for buildings under the project. (e) Electricity. The project would provide for the construction of about 5 km of 22 kv powerline and of a substation on the state farm at a cost of around $90,000. 3.15 Equipment (a) Agricultural Equipment. In order to clear the land and develop the 46 km of on-farm road network, the project would provide heavy equipment totalling about $570,000. Lighter farm equipment, including tractors, harvesters, shellers and threshers, would be provided at a cost of about $1,175,000. At full development the project would require about 170 permanent employees. A more intensive use of manual labor would not be feasible due to the relatively low population density around the subproject area. (b) Workshop and General Transport Equipment. The workshop facilities to be provided at Veune Kham would be similar to those of Na Phok. The total cost of equipment would be $160,000. The mechanical technical adviser to be provided under the UNDP-financed portion of the project would be responsible for advising on the setting up and function of both the Veune Kham and Na Phok workshops. General farm vehicles and trucks for transporting grain to the Tha Ngone feed mill would be provided at a cost of about $235,000. 3.16 Feedgrain Production. Of the 3,000 ha of rainfed feedgrain to be produced at full development, about 2,000 ha would be devoted to maize, 450 ha to soybeans and 450 ha to groundnut. Seed for use on the Veune Kham farm would be obtained from the Na Phok seed farm (see para. 3.08). Yields of most crops are expected to be above average for the Lao PDR (Table 3.5). Chemical ferti- lizers and insecticides would be used and are expected to cost about $495,000 annually at full development. Since development of such a farm would be a new - 18 - venture for the Lao PDR, and because of the country's shortage of foreign exchange, fertilizer, insecticide and other recurrent foreign expenditure costs during the five-year development period are included in the project cost (Table 3.4). Table 3.5: ANNUAL FEEDGRAIN INCREaENTAL PRODUCTION AT FULL DEVELOPIMENT OF THE VEUNE KHAM FEEDGRAIN FARI4 Wet Season Incremental Cropping Area Yield Production production season (ha) (ton/ha) (tons) (tons) Maize 2,000 2.25 4,500 4,375 /a Soybeans 450 1.30 585 585 Groundnut 450 0.85 (grain) 382 382 Total 2,900 - 5,467 5,342 /a i.e. 55% of both Thong Toun and Tha Ngone feed mill full running capacity (1982 onward). 3.17 Technical Assistance. The UNDP-financed portion of the project would provide for three specialists to assist in the development and operation of Veune Kham. FAO as executing agency for the UNDP project would be respon- sible for contracting the specialists. At negotiations an assurance was obtained that Government would recruit the seed and feedgrain production specialists as a condition of effectiveness and that the machinery and con- struction specialists would be recruited by December 31, 1979 (para. 8.01[b] and 8.02[a]). The three specialists for Veune Kham would be as follows: (a) Feedgrain Production Specialist. The specialist to be hired would be contracted for 36 man-months at an average cost of $5,300/man-month. Of this amount, approximately 50% would be salary and the balance would be for travel and administrative overhead. The specialist would be required to have practical experience in the development, operation and management of a large- scale grain farm. He would be required to train counterpart staff and work closely with the locally appointed state farm director. He would advise on agronomic, managerial and financial matters related to the running of the farn. The specialist would also assist in the procurement of equipment and materials by assisting in the preparation and evaluation of bid documents. (b) Agricultural Miachinery Specialist. The specialist recruited to assist on the Na Phok seed farm would also be required to advise on the setting up and operation of the Veune Kham farm (see para. 3.11[b]). (c) Construction Engineer. The specialist recruited to assist on the Na Phok seed farm would also assist in the design and construction of buildings for Veune Kham. It is expected, however, that most of this specialist's time would be spent at Na Phok (see para. 3.11[c]). - 19 - Smallholder and Cooperative Farm Development 3.18 In accordance with the Lao PDR Government's objective of restructur- ing the econ :iy along socialist lines, directives have been issued to provin- cial authorities throughout the country to actively promote group farming and state control over marketing of crops. At appraisal the directive was quite recent and very few active cooperatives existed. Membership of cooperatives would be voluntary, and members would be provided with ready access to credit, technical advice and use of cooperative machinery, and they would have the opportunity of buying basic consumer items and other goods at government-controlled stores. However, for some time to come, a large number of farmers will continue to farm as individuals. The rate of development of active cooperatives will be determined by the rate at which Government is able to gain experience in the procedures for setting up and managing coopera- tives. 3.19 The shortage of adequately trained technicians is a key constraint in the Government's program to develop cooperatives and at the same time to promote increased crop production. In Vientiane province there are only about 80 agricultural technicians and at appraisal these were mainly involved with the cooperative development program. In an attempt to rationalize priorities in the development of technical services to farmers, Government has greatly expanded its short-term rural training courses for provincial technicians. However, there is a severe shortage of qualified technicians to run these courses. Several small UNDP-financed projects have been directed towards supporting agricultural training in the country and the first IDA- assisted project also included funds for training. 3.20 Under the proposed project, training would be provided to complement the basic training received by graduates of (a) the agricultural school at Na Bong and (b) the agriculture machinery school at Dong Dok. Both of these schools are already established and have received substantial bilateral aid for the provision of facilities and equipment. Technical assistance has also been provided through a UNDP project (LAO/74/014) and through bilateral aid. Nevertheless, the schools are unable to turn out highly trained technicians, both due to the lack of qualified teachers and teaching facilities, and because of the urgent needs of the country to turn out technicians with even low levels of expertise. The number of graduates from Na Bong rose sharply in the past year from around 35 in 1975 to 130 in 1978. Training is for a period of three years. At Dong Dok on the other hand, technicians undergo a six-month training course mainly in agricultural machinery operation and maintenance. About 100 technicians are graduated annually from the program. 3.21 Once trained, technicians are generally assigned to provincial authorities where they may be employed for a variety of purposes ranging from organizing cooperatives to collection of census and statistical data. Apart from the fact that they may lack training for the activities they perform, there is no established mechanism whereby provincial technicians can receive in-service training or back-up support from the Ministry of Agriculture. Furthermore, the Ministry of Agriculture has only a very small staff of trained agricultural technicians, most of whom are tied up with a combination of research, planning and administrative matters, leaving little time for - 20 - training and supervision. Therefore, in designing an agricultural technical support component for the proposed project, the objective has been to provide the means of: (a) expanding the training program for agricultural technicians, (b) establishing a small core of subject matter specialists to backstop provincial technicians, and (c) establishing mechanisms for distributing agricultural inputs to farmers. Cost estimates are shown in Table 3.6 and the details of these proposed activities are given in the following paragraphs. Table 3.6: PROJECT COSTS FOR TRAINING AND SUPPLY OF TECHNICAL SERVICES AND INPUTS ($'000) Total Project __ _ Local Foreign Total FE % Training and supply of technical services 65.0 109.6 174.6 62.8 Inputs for smallholders and cooperative farms - 801.9 801.9 100.0 Physical contingencies - - - Expected price contingencies - 251.2 251.2 100.0 Total 65.0 1,162.7 1,227.7 94.7 3.22 Training. The training to be provided would be of three main types. Firstly, some 200 technicians would be trained for six-week periods at a time (total of 300 man-months) in order to upgrade the technical and practical level of training of technicians being assigned to the Vientiane provincial authorities. The technicians would receive training in practical agronomy, basic extension methodology and cooperative formation. Secondly, about 80 technicians would be trained for six-month periods at a time (total of 480 man-months) in more specialized fields such as crop protection and rice and feedgrain agronomy. These more highly trained technicians would form the core of a staff of subject matter specialists who would backstop the provincial technicians. The third level of training to be provided would allow for the training abroad of some ten Ministry of Agriculture staff in the disciplines of research, technical support and management. Such fellowships abroad are expected to last from three to six months. More extensive support for higher level training under the project cannot be justified at this time due to manpower constraints. Further UNDP assistance for training may materialize during project implementation, as UNDP and Government are working closely to identify key training needs, both in the technical and administrative fields. 3.23 Most of the training would be done initially at either the Salakham or Hat Dok Keo research stations, where modest training facilities have been provided for under the first IDA credit and through UNDP financing. Some additional training equipment costing about $40,000 would be provided to - 21 - complement the training needs. However, as the state farms at Veune Kham and Na Phok are established, increasing use would be made of the facilities available on the farm for the practical training of technicians. Technical- assistance for the training component of the project would be given by the rice production specialist provided under the first IDA credit and by the feedgrain and seed production specialist to be provided under the proposed project. The Director of the Department of Agriculture would take overall responsibility for the training components of the project and for the organiz- ation of the core of a staff of subject matter specialists to be developed. 3.24 Pilot Agricultural Technical Service. This project design calls for the establishment of only a very small core of trained subject matter specialists who would provide the initial link between the research stations and policy makers of the Ministry of Agriculture and the provincial technicians. The subject matter specialists, once trained in their respective fields, would be provided with motorcycles. The organizational arrangements by which subject matter specialists would meet with provincial technicians would largely have to be worked out during project implementation. The Director of the Agriculture Department would be responsible for the formation and operation of the technical service (see para. 6.05), and he would be assisted in this by the rice produc- tion specialist provided under the first IDA credit. Details of the activities of the proposed technical service should be prepared by June 30, 1980. Ini- tially, however, the existing mechanism of weekly meetings between key personnel of the provincial authorities and of the Ministry of Agriculture would be the avenue for coordinating technical staff. These weekly meetings appear to work reasonably well for resolving policy issues and for coordinating activities, but more direct contact is needed between technicians to handle small day-to-day problems. Also, the subject matter specialists to be trained under the project would initially concentrate their attention on two or three cooperatives in an effort to establish working models for replication throughout the country. Supervision missions for the proposed project would give particular attention to the organization and phasing of activities of the pilot technical service. 3.25 Provision of Agricultural Inputs. About $0.9 million would be provided under the project for the purchase of agricultural chemicals and farm equipment for smallholder and cooperative farm development. A small amount of credit is currently extended by the National Bank of Lao to coopera- tives and to some individual farmers. However, the system is still being developed and is being assisted under the first IDA credit, whereby some $0.2 million have been provided for establishment of a revolving fund for production credit. The credit system would be further strengthened under the proposed project by supervision missions that would include credit specialists, but at the same time the proposed project would allow for interim measures to be taken to distribute fertilizers, etc., while the credit system is being developed. The interim procedures to be used would follow those already in operation, whereby the Ministry of Agriculture arranges for the procurement of materials and equipment, and then transfers or sells the purchase to the Vientiane provincial authority. The agricultural inputs are then distributed to individual farmers and cooperatives by the transport department of the provincial authority, in accordance with requirements indicated by provincial technicians. The provincial authority is reimbursed by farmers or cooperatives at official prices, either by payment in kind or by cash. - 22 - 4. PROJECT COSTS AND FINANCING Cost Estimate 4.01 Total project costs are estimated at $14.4 million, of which $11.6 million or 81% is foreign exchange. Unit prices for equipment, vehicles, materials and supplies are based on end-1978 local prices. There would be no taxes or duties on items imported for the project. Foreign exchange costs for fertilizers, insecticides, fuel and spare parts during the five-year develop- ment period for both state farms have been included in the project cost. The financing of recurrent foreign exchange expenditures totalling $2.6 million during the development phase of the project is justifiable because of the very severe shortage of foreign exchange in the Lao PDR. 4.02 A physical contingency factor of 10% is applied to the components for equipment, services and civil works. Costs due to expected price increases over the implementation period account for about 16% of total project costs, assuming the following annual inflation rates: Annual inflation rate (%) 1979-84 Civil works 8 Material, equipment & services 7 These inflation rates are appropriate for both foreign and local components of the project. Salary levels and wages in the Lao PDR are government-controlled and all local expenditures (20% of project costs) would be made through the official marketing system. Although Government practice has been to keep local prices constant over the past two years, some upward price adjustments can be expected. Details of the project cost estimates are presented in Annex 1 and are summarized in Table 4.1. - 23 - Table 4.1: ESTISATED PROJECT COSTS Local Foreign Total Local Foreign Total F.E. ------- (Kip million)---- ------- ($'000) ------- (%) Seed farn development 437 1,198 1,635 1,092 2,996 4,088 73 Feedgrain farm development 392 1,966 2,358 981 4,915 5,896 83 Smallholder and cooperative farm development 26 365 391 65 912 977 93 Technical assistance 9 242 251 22 606 628 96 Total Base Cost Estimates 864 3,771 4,635 2,160 9,429 11,589 81 Physical contingencies 33 146 179 81 366 447 82 Expected price increases 207 728 935 518 1,820 2,338 78 Total Project Cost 1,104 4,645 5,749 2,759 11,615 14,374 81 Financing 4.03 Total project costs would be fully financed by IDA ($10.4 million), EECSAA ($2.7 million), and UNDP ($1.3 million). The proposed IDA credit of $10.4 million would finance 72% of total project cost and cover about 90% of foreign exchange expenditures. Parallel financing by UNDP would cover the balance of foreign exchange costs and a small amount of local costs for technical assistance and support equipment. Joint financing by EECSAA would cover the balance of local costs of the project. - 24 - Table 4.2: FINANCING PLAN EECSAA UNDP IDA Total $'000 % $'000 % $'000 % $'000 % Seed farm development 1,092 26.7 506 /a 12.4 2,490 60.9 4,088 100.0 Feedgrain farm development 981 16.6 - - 4,915 83.4 5,896 100.0 Smallholder and cooperative farm development - - 175 /b 17.9 802 82.1 977 100.0 Technical assistance - - 628 /c 100.0 - - 628 100.0 Physical contingencies 81 18.1 - - 366 81.9 447 100.0 Expected price increases 518 22.2 - - 1,820 77.8 2,338 100.0 Total Project Cost 2,672 18.6 1,309 9.1 10,393 72.3 14,374 100.0 /a Farm equipment to be purchased in Year 1. /b Of which $65,000 local expenses. /c Of which $22,000 local expenses. Procurement 4.04 Procurement would generally be on the basis of international competi- tive bidding. Where contracts are estimated to cost more than $100,000, the Bank's prior approval would be required before invitations to bid are issued and contracts awarded, with the following exceptions: civil works in conjunc- tion with both the seed and feedgrain farms would amount to about $4.5 million and involve a wide range of activities from land clearing to farm roads and buildings construction. The works would not be suitable for international competitive bidding in view of the small size and phasing of work, as well as the high costs and difficulties involved in setting up workshops and hiring of labor in the country. Instead the work would either be carried out by force account or be contracted on the basis of competitive bidding advertised locally among the small number of joint venture companies in the country. Although all companies in the Lao PDR have been nationalized, a few continue to operate with the permission of Government and are able to offer competitive prices for work that would otherwise be done by the technical ministry concerned. Equipment and material to be purchased under the project amounts to about $11 million. Where equipment and materials (including fertilizers) are needed in small quantities, such that individual units or orders do not exceed $10,000 each or $500,000 in total, procurement would be in accordance with prudent shopping practices involving at least three quotations. When available and to permit flexibility in the procurement of specialized materials - 25 - and equipment and of items purchased in small quantities, such items costing not more than $50,000, but not exceeding $1 million in total, could be procured in accordance with local competitive bidding procedures acceptable to the Bank. A growing number of international firms are ustablishing sales representatives in the Lao PDR. Disbursements 4.05 Disbursements of the IDA credit would be made at the rate of 100% of the foreign exchange cost of directly imported equipment; 100% of the ex-factory price of locally manufactured equipment; 75% of expenditures for imported equipment and materials procured locally; 75%O of expenditures for civil works and 50% of operation and maintenance costs during the implementation period. Disbursements from the Special Action Credit would be made at the rate of 25% of expenditures for civil works and 50% for operation and maintenance. Disbursements for equipment, vehicles, construction materials, fertilizers, insecticides and for works carried out by contractors would be supported by normal documentation. Disbursements for force account work would be made against statements of expenditure, certified by the Project Coordinator, with the supporting documentation retained by the Borrower and held available for inspection by IDA supervision missions. An estimated schedule of disbursements is presented in Annex 3, together with a description of the accounting organi- zations and procedures to be followed under the project. It is expected that disbursements would be completed by December 31, 1984. Because of the country's shortage of foreign exchange, and to ensure timely start-up of project activi- ties immediately after credit effectiveness, an arrangement similar to that provided under the first project would be made, whereby a revolving fund would be set up in a special account of the Borrower from which foreign exchange costs of small items of equipment and supplies could be financed during the first six months of the project. On credit effectiveness, an initial disburse- ment of $50,000 would be made from the credit account to the special account, which could then be replenished up to a maximum of $50,000 upon request of the Borrower, supported by documentation satisfactory to IDA. Total disburse- ments from the credit account would not exceed $200,000. An assurance was obtained at negotiations that as a condition of credit effectiveness, Govern- ment would open a special account in a banking institution acceptable to IDA (para. 8.02b]J). Accounts and Audit 4.06 Each implementing agency is subject to normal government control and auditing procedures (Annex 3). Project accounts would be audited by the State Auditors and supervision missions would work closely with the authorities to improve the quality of audits, if necessary. IDA has furnished the Govern- ment with auditing guidelines, proforma accounts and reporting requirements. Assurances were obtained during negotiations that: (a) separate accounts would be maintained for each of the two government f aras and for the equipment and materials procured under the "smallholder and cooperative development" component of the project; and (b) audited project accounts would be sent to the Association within four rnonths of the close of each financial year (January 1 to December 31)(para. 8.01[c]J). - 26 - Environmental Effects 4.07 To the extent that the project promotes improved farming practices, particularly in rainfed lands where soil conservation and fertility level maintenance are critical, it is expected that the project would promote considerable and lasting improvements on the environment. Role of Women 4.08 Farming in the Lao PDR traditionally relies on women to provide the main labor force during transplanting and harvesting of rice. It is expected that a considerable proportion of the field labor force required for the project would be women (see Table 6.1). 5. PRODUCTION, MARKETS AND PRICES Incremental Production 5.01 Seeds. The targeted yearly production at full development of the project (i.e. after about 4 years) would be sufficient for some 100,000 ha of paddy, or about 15% of the country's total paddy land, and 50,000 ha of feed- grain, or 140% of the country's total present feedgrain land (Annex 4). Scope would exist within the project for expanding the vegetable seed production as required. 5.02 Feedgrains. The incremental yearly production of feedgrain expected from Veune Kham state farm (about 5,350 tons) would help meet urgent livestock feeding requirements. The grain produced would be processed into compound feed at Tha Ngone and Thong Toun government feed mills./L In addition, an incremental annual production of about 1,000 tons of maize is expected from some 2,400 farmers to be assisted under the project (Annex 4). The total incremental feedgrain production would thus reach 6,550 tons (5,500 tons maize), or about 70% of the Tha Ngone and Thong Toun feed mill total capacity), and substitute for about $2.3 million in imports annually. 5.03 Rice. As shown in Annex 4, an incremental yearly production of about 3,700 tons of paddy, representing 12.5% of Vientiane Province's normal yearly deficit, would be expected from about 3,600 ha of rice fields belonging to some 2,400 farmers who would receive fertilizers and other technical support under the project. Another 40,000 farmers would benefit from the dissemination of improved seed produced under the project. Incremental production from the use of improved seed would be 10,000 tons annually at full development and would result from the introduction of improved lodging resistant varieties of rice, as well as from the ability to plant additional crop areas following crop failures due to drought or flood. /1 Since no oil mill (for soybeans and groundnut) exists in the country, the compound feed formula chosen by the Directorate of Livestock does not include any soybean or groundnut mill cakes. - 27 - Organization of Production and Marketing 5.04 In accordance with its objective of restructuring the economy along socialist lines, the Government has enacted legislation for group farming and for state control of marketing of food and export crops. Farmers are encouraged to sell their land and livestock to production cooperatives while keeping a residual garden plot. Production, credit, and marketing decisions are to be made as a group and the net returns would be shared among members, including landless laborers, according to their contribution to the cooperative's assets and the work points earned. Few cooperatives were operating at the time of appraisal, although a large number were planned and attempts were being made to activate them. 5.05 The project would assist the Government by establishing a pilot technical service in the Ministry of Agriculture and by focussing the attention of the technical service on two or three cooperatives. The initial objective would be to develop a working model for cooperatives in the Lao situation, and to establish the necessary technical and marketing linkages between the cooperatives and the appropriate government authority. Organization of Marketing and Prices 5.06 Legislation requires all sales of major crops to be made to the State Purchasing Agency, a department of the Ministry of Industry and Commerce, although minor crops may be traded locally. Officially determined prices are supposed to prevail in all transactions. In return, the state provides a network of stores for the sale of farm inputs and basic consumer goods. During the transitional period to full socialist group organization of production and consumption, problems of price control have arisen due to the following reasons: (a) the proposed system is new to the Lao farmer, for whom traditional economic activity centered on private small farms and village markets. Such basic changes are therefore initially accompanied by uncertainty; (b) the implementation capacity of the state is limited and details of the system are evolving with experience; (c) cooperatives increase the state's ability to tax. Since farm taxes are new, farmers tend to be evasive and alert to the implications of cooperative control; and (d) the goods in the state stores are restricted to only a few items and often are insufficient in quantity. Therefore, for many farmers there is little advantage in selling to the state at low prices, if the state cannot supply sufficient basic consumer items at consistent price levels. 5.07 The project would help Government focus on key price policy issues, but at the same time, care has been taken to ensure that project implementation can proceed without full resolution of issues concerning price levels and poli- cies. At the time of appraisal, the prices for basic agricultural commodities were based on the official price of rice, which bore no apparent relationship with the import parity price of rice, either at the official or shadow exchange rate. For corn, therefore, prices prevailing at appraisal would not provide sufficient incentive for farmers to grow the crop, particularly since most sales would have to pass through the Government feed mill at officially controlled prices. - 28 - 5.08 Since the time of appraisal, discussions have been under way between the Bank and Government on general price levels and the role of incentive pricing vs. administratively controlled prices in the Lao economy. Government recognizes the problem and an assurance was obtained at negotiations that Government would set and maintain farm-gate prices at levels that would (a) provide state farms with a rate of return acceptable to Government and the Association, and (b) provide individual farmers and cooperatives with sufficient incentive to promote the use of improved seed, the acceptance of an improved technology package and the production of feedgrains (para. 8.011d]). 5.09 While it will be important in the longer term for Lao PDR authorities to develop the means for promoting corn and feedgrain production by individual farmers and cooperatives, the production of feedgrain from the proposed Veune Kham state farm would be sufficient for the needs of the country during the first four years of the project. This should allow Government sufficient time to resolve major price policy issues and to determine ways of stimulating crop production. Farm Budgets 5.10 The farm budget analysis conducted at project appraisal would serve as a basis for discussions between the Bank and Government on ways of ration- alizing the present price system. Budgets for the state farms and for individual or cooperative farms are given in Annex 5. The main price policy implications are given below. 5.11 Government Farms: Na Phok and Veune Kham. At official prices existing at at the time of appraisal, the farms would operate at a loss, thereby requiring considerable government subsidies in order to operate effectively. If a price shift were to be made towards border prices, the farms would be financially viable. However, because of the significant external benefits resulting from the provision of animal feed and improved seed at prices that encourage their adoption, subsidized state farm operations may be justified, at least in the medium term. 5.12 Individual and Cooperative Farns. Under the project, improved seed would be distributed to farmers at a cost equivalent to paddy in order to promote seed adoption. However, the project does include a small amount ($900,000) for purchase of fertilizers and farm equipment by individual farmers and cooperatives (see para. 3.25), which could not be paid for in full from sales of rice at existing official price levels. Adoption of improved technology would therefore be unlikely without additional government subsidies on agricultural inputs, or without changing farm-gate prices as indicated in Table 5.1. Government and supervision missions would focus on this problem during project implementation. 5.13 Another price issue reflected in the data in Table 5.1 relates to the return to labor for rainfed farmers in the LAO PDR. If farm outputs are sold at official prices, the imputed wage rates of about 170-180 Kip/day are less than the minimum daily wage rates paid to government emplovees of 200 Kip/day. Government proposals to increase the minimum wage rates to about 400 Kip/day in order to meet basic needs would further widen the disparity - 29 - between equivalent wage rates for rural and urban workers. This again high- lights the need for adjustments in the present price policies, which are to be pursued during project implementation. Table 5.1: CASH FLOWS AND RETURNS TO LABOR FOR SMALL RAINFED RICE FARiS /a Without improved With improved technology technology Paddy laize Paddy 1[aize Output (per ha) Price (Kip/ton) 25,000 35,000 25,000 35,000 Tons 1.2 1.25 200 2.10 Value (Kip) 30,000 43,750 50,000 73,500 Input (per ha) 1Material (Kip) 9,040 10,480 27,560 45,560 Labor (man-days) 136 135 141 140 Net returns/ha 20,960 33,270 22,440 27,940 Net returns/man-day 177 169 Minimum wage/man-day 200 400 /b /a Refer to Annex 4 of the Project File. /b Proposed new minimum wage rate. 6. PROJECT IMIPLEMENTATION Implementing Agencies 6.01 Ministry of Agriculture. Responsibility for implementing the project would lie with the Ministry of Agriculture, Fisheries and Forestry. The 9'Iinistry has seven line departments or directorates, i.e. (a) Agriculture, (b) Irrigation, (c) Livestock and Animal Health Protection, (d) Planning, Statistics and Finance, (e) Forestry, (f) Meteorology and Hydrology, and (g) Personnel (see Chart 19912). All but the Forestry, Mleteorology and Personnel Directorates would be concerned with the project, as outlined below and as shown in Annex 3. (a) Agriculture Directorate. Responsible for the acricultural develop- ment and operation of the Na Phok and Veune Kham state farms and the distribution of seeds produced at Na Phok. Responsible also for the training of agriculture technicians provided for under the proiect. LAO PDR AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT Il MINISTRY OF AGRICULTURE ORGANIZATION |rMinistet- of Agriculture |hi 1m Mann1 ViCPT Minirtanr I '~~~~~~~~~~~ s MiCdistry Cabinet t ~~~~~~~1 General Director . . ~~~~~~~~~~2 Asst. EDirectors Department of D epartment of Farm Machinery ANricultural Schoos and Training na/ | Directorate of Planning a 9 ~~~~~~~...... ................. ...... .... - ......... .... ............ ....... ...... ............ ..... ,................ .. | Directo te of | | Directc ae of l l irec rateo ; Drate oft f Directcora te of Directo,ate of | Directo rate of |Agriutr(DA | | Iratio 1D Liestok (DOL) | Mtolgyad | Fore>Cstr)y Perso nnel State Farrns Direct Functional -Responsibility Line ....... b Coorditnation Line a/ Na Bong Agricultural School and Nong Dok Machinery School. World Bank -1 991 2 - 31 - (b) Irrigation Directorate. Responsible for development of the irrigation system on the Na Phok seed farm. (The Irrigation Directorate has the responsibility for implementing the largest portion of the first IDA project.) (c) Livestock Directorate. Responsible for the operation of the Thong Toun and Tha Ngone feed mills and therefore the recipient of the output from the Veune Kham feedgrain farm. Policy issues raised by the project in relation to feed-rain and pork prices would be of prime concern to the Livestock Department (see para. 5.10). (d) State Farm Directorate. Responsible for the operation of state farms. This is a new directorate established initially to handle the operations of the Veune Kham state farm. (e) Planning Statistics and Finance Directorate. Responsible for coordinating the various components of the proposed project as well as those of the ongoing IDA-assisted project. The main functions requiring coordination would be procurement, project accounts and monitoring and evaluation of the project. A procurement coordinator and accounts coordinator would be appointed from within the Directorate of Planning to assist in these matters. Monitoring and evaluation would be handled by the unit of the Planning Directorate to be established in accordance with Section 3.08 of the Credit Agreement 760-LA. The Director of the Planning Directorate would have overall responsibility for coordinating the project. 6.02 Ministry of Industry and Commerce. The role of the 14inistry of Industry and Commerce is of importance to the project in the procurement process. Ali procurement by Government is handled by the Import-Export organization, a "department" of the Industry and Commerce Ministry. Details of the procurement process are shown in Annex 3. Organization and Management 6.03 Government Farms. The MIinistry of Agriculture has appointed Project Directors for both the Na Phok and the Veune Kham farms. The farm directors are fully responsible for day-to-day operations on their respective farms, and administratively responsible to the Directorate of Agriculture in the case of Na Phok and to the State Farm Directorate in the case of Veune Kham. The farm directors would be assisted by one deputy director for administration and one senior field supervisor. Annual work programs and other planning matters would be determined by a committee of these three people in accordance with normal government procedures. The director of Na Phok would work closely with the seed processing specialist recruited for the project (see para. 3.11[a]), while the director of Veune Kham would work closely with the feedgrain production specialist. Both farm directors would utilize the services of the agricultural farm machinery specialist, and the directors would be responsible for coordinating thie work of their respective machine workshops so as to make maximum use of the facilities provided under the project. - 32 - Table 6.1: STAFFING REQUIREMENTS FOR THE NA PHOK AND VEUNE KHAM FARPIS Year 1 Year 2 Year 3 Year 4 Year 5 onward (1979) Na Phok Irrigation Works /a Irrigation engineer 2 3 3 3 1 (part-time) Technicians 4 6 6 6 2 " Skilled & semiskilled workers /b 10 110 100 100 - Total 16 109 109 109 3 (part-time) Na Phok Seed Farm Director 1 1 1 1 1 Deputy Director 1 1 1 1 1 Field supervisor 1 2 3 3 3 Accountant 1 1 2 2 2 Technicians 2 4 6 6 6 Admin. employees 2 4 6 8 8 Driver, operator & semiskilled workers 27 47 54 61 61 Subtotal 35 60 73 82 82 Field Labor /b 170 100 190 290 300 Veune Kham Feedgrain Farm Director 1 1 1 1 1 Deputy Director 1 1 1 1 1 Field supervisor 2 2 4 6 6 Accountant 2 2 2 2 2 Technicians 4 8 12 14 16 Admin. employees 20 20 20 20 20 Driver, operator & semiskilled workers 58 98 120 123 123 Subtotal 88 134 16 167 169 Field Labor /b 150 220 340 550 680 /a Staff to be provided by the Directorate of irrigation and/or State Construction Agency. lb Further data on the seasonality of field labor requirements are given in Annex 7. - 33 - 6.04 For the Na Phok seed farm, a staff of at least 82 would be employed, while for Veune Kham, the minimum staffing would be 169 in accordance with the staffing pattern shown in Table 6.1. Field labor requirements would be as much as 940 workers for Veune Kham and 350 workers for Na Phok at full develop- ment. Details on the seasonality of field labor requirements are given in Annex 7 (Annex 2, Table 14 and Annex 3, Table 9 of the Project File). Each government farm would be responsible for keeping separate accounts for its respective subproject and for preparing annual work programs. The Directorate of Planning would be responsible for coordinating subproject accounts and for submitting work programs to IDA by January 31 of each year. An assurance to this effect was obtained at negotiations (para. 8.01[c]). For procurement under the project, each government farm would be responsible for drawing up detailed specifications for equipment and materials required. The procurement coordinator in the Directorate of Planning would be responsible for arranging and following up procurement by the Import-Export organization, as indicated in the flow chart for procurement procedures (Annex 3, Chart 19167). 6.05 Training and Pilot Agricultural Technical Services. The Directorate of Agriculture would have responsibility for the training of agricultural technicians and for organizing the pilot staff of agricultural technicians under the project. Technicians for training under the project would primarily be graduates from the agricultural school at Na Bong. Training would be conducted mainly at the Salakham and Hat Dok Keo research stations (supported under the first IDA credit) or at the Veune Kham and Na Phok state farms as they are developed under the proposed project. The rice production specialist appointed under the first project (Credit 760-LA) and the feedgrain production specialist to be appointed under the proposed project would be primarily responsible for advising counterpart staff in the organization and content of training courses. The Director of the Directorate of Agriculture would have overall responsibility for the implementation of the training and agricultural extension activities proposed under the project. Monitoring and Evaluation 6.06 The project would utilize the monitoring and evaluation unit and procedures being established under the first IDA credit. In accordance with the first Credit Agreement, a unit would be set up comprising a civil engineer, an agriculturalist and a financial analyst. It has been agreed that the unit would be established within the Directorate of Planning of the Ministry of Agriculture (see Annex 3, Chart 19911) and would be responsible for coordinating and evaluating progress reports from the various directorates concerned with implementing the first and the proposed second IDA credit. Supervision missions would continue to assist in the setting up of the unit, which at appraisal of the second proposed credit was still not functioning. - 34 - 7. BENEFITS, JUSTIFICATION AND RISKS Benefits 7.01 The major benefit of the project would be the incremental crop yields obtained by farmers through use of the project's improved seeds. Assuming no change in existing cultural practices or in the level of other farm inputs, the use of improved seed from the project is estimated to result in annual yield increases averaging 166 kg/ha for paddy, 250 kg/ha for maize, 100 kg/ha for soybean, 75 kg/ha for groundnut and 150 kg/ha for sorghum. Annual yield increases from use of the fertilizers and pesticides provided under the project are calculated at 800 kg/ha for wet season paddy, 1,200 kg/ha for dry season paddy and 900 kg/ha for maize (Annex 6, Table 1). 7.02 At full development, the annual incremental production of commer- cial grain and other crops generated by use of the project seeds is esti- mated to be 7,500 tons of paddy, 10,000 tons of maize, 240 tons of sorghum, 428 tons of soybeans and 124 tons of groundnuts. The incremental value of these crops, calculated at border prices for commodities traded internationally and at farm-gate prices for those that are not, would be about $6.3 million per year. This incremental value would be partially offset by incremental annual costs associated with seed production and processing, as well as incremental costs incurred by farmers using project seed. Total incremental costs are expected to be $1.4 million, giving a net incremental value of production of $4.9 million/year. 7.03 An important constraint in the Lao PDR is the weakness of the agricultural support services. This is aggravated by poorly developed distribution systems for both inputs and outputs. Without improvements in linkages between farms, markets and support services, the present substantial undercapacity utilization of agricultural resources will remain. The seed farm and smallholder cooperative development components of the proposed project are designed to tackle this problem by providing direct institution building through training and strengthening of technical services, and by providing practical experience in the production and distribution of new and improved seeds through all stages, i.e. from the experimental farms to the farmers. Similarly, the feedgrain component would develop production experience and marketing channels from the farm through the feed mill and piggeries to the final consumer. 7.04 The impact of this extra production on prices is uncertain but is not expected to be large, since most of the project output would be marketed through official channels at fixed prices. These prices would, however, be partly determined by supply. Price effects would be greatest on unofficial transactions. These are only likely to reach significant propor- tions for rice marketing, but the project's incremental rice production is estimated at only about 2% of the national production. 7.05 Seed from the seed farm would be sufficient to supply a steady stream of improved varieties to farmers, but equally important, sufficient seed would be stored to rapidly facilitate replanting after crop disasters - 35 - such as the floods and droughts that plague the Lao agriculture sector (see para. 1.04). The ready availability of seed would decrease output fluctuations due to shortages of seed and delays in seed dissemination. Use of the non-lodging rice varieties would lessen the impact of heavy rains, wind and flooding on food availability. The feedgrain component of the project would provide feed for pigs produced in the multiplication units to be developed under the first IDA project in the Lao PDR. 7.06 Beneficiaries of the seed component of the project would be mainly some 40,000 small farmers who are among the poorest group in the Lao PDR. Losses from lodging of paddy will be reduced by using the lodging resistant varieties to be produced by the project. An increase in farm production by about 10% would be expected from using the improved seed, while production increases of about 40% would result from the use of seed with fertilizer, pesticides and appropriate technology. The effects on farm incomes would be in line with production increases, but much would depend on price adjust- ments discussed in paras. 5.10 to 5.13. The immediate beneficiaries of the feedgrain component would be urban pork consumers and farmers selling grain to the feed mill complex which would be made operational by the large supplies of grain from the Veune Kham feedgrain farm. 7.07 Employment resulting from the seed farm would be about 80 full- time jobs and some 75,000 man-days of field labor per year, equivalent to about 300 full-time positions. The feedgrain farm would employ 170 people on a full-time basis and provide an extra 170,000 man-days of field work per year equivalent to 680 full-time jobs. Extra labor requirements on small farms are insignificant. Justification 7.08 The economic rate of return under the assumptions shown in Annex 6 is quite satisfactory at 61% for the combined project. Given the experience with the first project, some implementation delays can be expected. With a two-year delay in achieving the benefits, combined with a 20% cost increase, the rate of return is 24%. A benefit shortfall of 50% combined with a 20% cost overrun will give a 14% rate of return. Considering all aspects, the rate of return is likely to be at least 24% and remains satis- factory under a wide range of assumptions. 7.09 The component rates of return are also satisfactory. The benefits of the seed farm are the on-farm production gains, which give an economic rate of return of 121%. Even with a 50% benefit decline combined with a 50% cost overrun, the rate is still quite good at 28%. The alternative of importing improved seeds was considered, but major seed suppliers report that internationally traded seed of corn and sorghum is not suitable for use in the Lao PDR without substantial field testing. Similarly, suitable paddy lines are area specific and depend on improvement of local strains. - 36 - 7.10 The economic rate of return for the feedgrain component is 14%. The investments costed against this component include some infrastructural items needed for the second phase of the feedgrain farm in which an additional 3,000 ha of crops will be developed. A minimum additional area of 600 ha (20%) of rainfed maize, soybeans and groundnuts commencing in year 10 raises the economic rate of return from 11% to 14% when allowance is made for the extra costs and returns involved. The results for the feedgrain component are more sensitive than those for seed production, with a cost overrun of 20% reducing the rate of return to 7%, and a one-year delay in achieving benefits after the initial costs have been made reducing the rate to 10%. 7.11 The methodology used for computing the economic rate of return is to value of traded goods at the US$ border price, times the official exchange rate. Domestic figures are used for nontraded items, such as unskilled labor, root crops and vegetables. Details are given in Annex 6. Risks 7.12 The major project risk is that the implementation capacity of the executing agencies will not be sufficient to enable works to proceed as planned. Experience with the first project indicates difficulties in (a) coordination of agencies; (b) procurement of necessary items in a timely manner; and (c) a general unfamiliarity with management of large enterprises. Safeguards to reduce these risks have been designed into the project in the form of simplifications of project design and technical assistance. However, supervision will need to be frequent. Another project risk is that the pricing structure adopted will not provide the necessary incentive to entice small farmers to grow feedgrains or to adopt improved technology. If demand for the improved seed is less than expected because of inappropriate incentives, or because the project management has difficulty in managing the complex seed production, processing and marketing components, then seed may be consumed as grain and much of the potential benefit lost. Safeguards have been taken in project design to base investments on conservative demand estimates and by emphasizing training. However, since the production of feedgrain from the proposed Veune Kham state farm would be sufficient for the needs of the country during the first four years of the project, there should be sufficient time for Government to resolve major price policy issues and to determine ways of stimulating crop production, without limiting the impact of the proposed project. - 37 - 8. AGREEMENTS 8.01 Agreement was reached at negotiations on the following main points: (a) Government would ensure that the irrigation works provided for Na Phok under the project would be done in a timely manner and com- pleted by April 30, 1982 (para. 3.06[c]); (b) Government would recruit specialists in machinery and construction acceptable to IDA by December 31, 1979 (paras. 3.11 and 3.17); (c) Government would maintain separate accounts and prepare annual work programs for each of the two farms and for the equipment and materials procured in conjunction with training and the provision of technical services and inputs. Audited project accounts would be sent to the Association within four months of the close of each financial year, while work programs would be submitted by January 31 of each year (paras. 4.06 and 6.04); and (d) Government would set and maintain farm-gate prices at levels that would (i) provide state farms with a rate of return acceptable to the Government and the Association, and (ii) provide individual farmers and cooperatives with sufficient incentive to promote the use of improved seed, the acceptance of an improved technology package and the production of feedgrains (para. 5.08). 8.02 Agreement was also obtained at negotiations that as conditions of credit effectiveness: (a) specialists acceptable to IDA in seed pror>-pssing and feedgrain production would be recruited (paras. 3.11 and 3.17) and (b) Govern- ment would open a special account in a banking institution acceptable to IDA (para. 4.05). 8.03 With the above assurances, the project would be suitable for an IDA credit of $10.4 million and an EEC Special Action Credit of $2.7 million on standard IDA terms. The Borrower would be the Lao People's Democratic Republic. LAO FOR AtOICULTURAL REHABILITATION AND DEVEL1OPMEINT PROJECT Il Pro-jot Cost Phasing (oRSs ' 000) Total Pro-jet Y-ear I --- Ytar 2 Y-ar 3 Yar 4 Y-ar Local Foreiga Total F.E.% Local For-igo Total F.E.X% Local Forigo Total F.E.% Loca Fareige Ttal F.E.Z Local Foreiga Total F.E.r Local Foreign Tatal F.E.X Na Phok laed Frar D-v. - Bas costt 1,092.4 2,995.9 4,088.3 73.3 89.2 622.7 711.9 87.5 365.9 1,630.5 1,996.4 81.7 263.9 320.5 584.4 54.8 191.8 196.2 388.0 50.6 181.6 226.0 407.6 55.5 - Physical coarlo- gencie 52.0 188.3 240.3 78.4 3.2 11.3 14.5 77.9 30.3 155.6 185.9 83.7 15.0 18.3 33.3 54.9 3.5 1.5 5.0 30.0 - 1.6 1.6 100.0 - Epected prite increases 247,2 453.2 700.4 64.7 3.3 5.2 8.5 61.2 48.7 220.1 268.8 81.9 59.3 72.1 131.1 54.9 60.5 61.3 121.8 50.3 75.4 34.5 169.9 55.6 Sobttoal 1,391.6 3!637.4 5,29.0 72.3 95.7 639.2 734.9 87_. 444.9 2006.2 2,451.1 81.8 338.2 410.9 749.1 54.9 255.8 259.0 514.8 50.3 257.0 322.1 579.1 55.6 V-nne Rham Faedgrain Para lac. - Bacc co-tt 980.8 4,915.6 5,896.4 83.4 22.9 63.3 86.2 73.4 219.9 2,085.6 2,305.6 90.5 224.3 1,225.8 1,450.1 84.5 229.0 807.1 1,036.1 77.9 284.7 733.8 1,018.5 72.0 - Physical cootil- gencie- 29.5 177.7 207.2 85.8 1.2 5.9 7.1 83.1 17.2 20.0 37.2 53.8 1.2 103.3 104.5 98.9 5.7 46.1 51.8 89.0 4.2 2.4 6.6 36.4 o - Expectad price increa.es 270.0 1,115.1 1,385.8 80.5 0.9 2.5 3.4 73.5 29.1 259.4 288.5 89.9 48.1 238.1 331.2 85.5 72.7 264.5 337.2 78.4 119.9 305.6 425.5 71.8 Sobtotal 1,281.0 6,208.4 7,489.4 82.9 25.0 71.7 96.7 74.1 266.2 2,365.0 2,631.2 89.9 273.6 1 j612.2 1,885.8 85.5 307.4 1,117.7 1_425.1 78.4 408.8 1,041. 1,450.6 71.8 Smallholder & Co- oecrative Fart Dev. - Itas cestt 65.0 911.5 976.5 93.3 11.3 46.0 57.3 80.3 32.5 106.5 139.0 76.6 21.1 195.5 216.7 90.2 - 264.0 2764.0 100.0 - 299.5 299.5 100.0 - PhyFical contin- - Exp-cted price i-creases - 251.2 251.2 100.0 - - - - - 7.7 7.7 100.0 - 37.4 37.4 100.0 - 81.8 81.8 100.0 - 124.3 124.3 100.0 Subtotal 65.0 1,162.7 1,227.7 94.7 11.3 46.0 57.3 80.3 32.5 114.2 146.7 77.8 21.2 232.9 154.1 96.1 = 345.8 354.8 100.0 - 423.8 423.8 100.0 Tech. AOeiatante la 21.6 606.2 627.8 96.5 3.8 137.5 141.3 97.3 7.5 201.3 208.8 96.4 7.5 183.9 191.4 96.1 2.8 83.5 86.3 96.7 - - - Total Costt 2,759.2 11,614.7 14,373.9 80.8 135.8 894.4 1,030.2/b 86.8 751.1 4,686.7 S,437.8 86.2 640.5 2,439.9 3,080.4 79.2 566.0 1,806.0 2,372.0 76.1 665.8 1,787.7 2,453.5 _72.9 la Figureo already ioclodig prooisoni for c-poer-d price lncrcaoc (UNDF PRODOC LAO////o0I/A/01/12). /b Of chich US$ 705.500 ta bc fioanced by UNDP0. - 39 - ANNEX 2 Table 1 LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT II Project Item Phasing Total project Unit (No. of units Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Seed Farm Development Component Electricity supply km line 8 - 8 - - - Irrigation perimeter ha irrigated /a 500 - - 200 300 - Land first clearing ha 200 50 150 - - - Add'l single-cropped area ha 600 300 - 300 - - Add'l double-cropped area ha 500 - - 200 300 - Feedgrain Farm Development Component Electricity supply km line 5 - 3 2 - - Access road bridge unit /a 1 - - 1 - - Land first clearing ha la 2,700 100 600 600 700 700 Add'l WS maize area ha 1,900 - 200 300 800 600 Add'l WS soybean area ha 450 - - 150 100 200 Add'l WS groundnut area ha 450 - - 150 100 200 Smallholder and Cooperative Farm Development Component Training and Fellowships: Local training m-month 780 135 390 255 - - Abroad training m-month 40 4 24 12 - - Small Farm and Cooperative Farm Development WS paddy area with full technological package ha 8,100 - - 1,800 2,700 3,600 DS paddy area with full technological package ha /b 1,300 - - 300 400 600 WS maize area with full technological package ha 2,700 - - 600 900 1,200 Technical Assistance Seed prod. specialist m-month 36 6 12 12 6 - Feedgrain prod. specialist m-month 36 6 12 12 6 - Agric. mechanics engineer m-month 24 2 12 10 - Civil works technicians m-month 12 6 6 - - - Subject matter consultants m-month 6 3 1 1 1 - /a As at the end (March-April) of the dry season begun in the previous year. /b Harvested area. 40 - ANNEX 2 Table 2 LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT II Implementation Schedule for the Na Phok and Veune Kham State Farm Year 1 I Year 2 I Year 3 I Year 4 Year 5 1 2 3 4 1 2 3 4 1 12 3 4 1 12 3 4 1 2 3 4 (1979) 1 1 1 (a) Na Phok Seed Farm - Irrigation Scheme I I I Detailed survey - designing ---------------- I Procurement of electro-pumps I II & materials ----------- I II Pump installation 1 ------- Irrigation & drainage works -------------------------------- - Farm Add'tl Infrastructure I I I Land first clearing ------- ------ Electricity supply (22 kV line) ---I I- Access road ---I I- Buildings, drying, processing I I I & storage facilities -------------------- ------ ---I I I II (b) Veune Kham Feedgrain Farm - Farm Add'tl Infrastructure 7 ~ ~ ~ ~ ~~I I II Land first clearing ------- ------ ------ ------ Electricity supply (22 kV line) ------ Access road bridge I------ Internal road network 1---- ------ ------ --- Buildings, grain processing ------- ------ ------ and storage facilities - 41 - ANNEX 2 Table 3 LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT II Cropping Pattern and Seed Production from the 600 Ha Na Phok Seed Farm Project Yr 1 Yr 2 Yr 3 Yr 4 & onwards Cropping season WS DS WS DS WS DS WS DS (Yr 1/2) (Yr 2/3) (Yr 3/4 ) (Yr 4/5) Seed Production Paddy - Area (ha) - - 220 - 380 70 380 130 - Prod (ton) - - 410 - 790 196 790 364 Maize - Area (ha) - - 80 - 120 60 120 160 - Prod (ton) - - 144 - 216 120 216 320 Sorghum - Area (ha) - - - - 10 - 10 - - Prod (ton) - - - - 16 - 16 - Soybeans - Area (ha) - - - - 40 30 40 90 - Prod (ton) - - - - 42 36 42 108 Groundnut - Area (ha) - - - - 40 30 40 90 - Prod (ton) - - - - 27 24 27 72 Grain Production (ton) /a Paddy 390 - 102 - 198 49 198 91 Maize - - 36 - 54 30 54 80 Sorghum - - - - 4 - 4 - Soybeans - - - - 10 9 10 27 Groundnut - - - - 7 6 7 18 Other Food Crop Prod. Root crops - Area (ha) - - - - 10 - 10 - - Prod (ton) - - - - 125 - 125 - Vegetables - Area (ha) - - - - - 10 - 30 - Prod (ton) - - - - - 100 - 300 /a Result of reject/damage rate of 20% on seed production (except for Year 1). LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT II Cropping Pattern and Production from the Veune Kham Feedgrain Farrm Preproject Year 1 Year 2 Year 3 Year 4 Year 5 onward Wet Season Area Prod Area Prod Area Prod Area Prod Area Prod Area Prod (ha) (tons) (ha) (tons) (ha) (tons) (ha) (tons) (ha) (tons) (ha) (tons) Feedgrains Maize 100 125 100 125 300 675 600 1,350 1,400 3,150 2,000 4,500 Soybeans - - - - - - 150 195 250 325 450 585 Groundnut - - - - - - 150 127.5 250 212.5 450 382.5 Total 100 125 100 125 300 675 900 3,220.5 1,900 3,687.5 2,900 5,467.5 Other food crops Paddy 90 108 90 108 50 115 50 115 50 115 50 115 Root crops 10 50 10 50 20 250 20 250 20 250 20 250 Vegetables - - - - 30 255 30 255 30 255 30 255 4F-DN) ANNEX 3 Page 1 LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT Il Estimated Schedule of Disbursements and Accounting Procedures (US$'000) 1. Disbursements IDA fiscal year Semester Accumulated and semester disbursement disbursement FY80 First 200 200 Second 500 700 FY81 First 1,000 1,700 Second 1,500 3,200 FY82 First 1,500 4,700 Second 1,200 5,900 FY83 First 1,000 6,900 Second 1,000 7,900 FY84 First 1,000 8,900 Second 1,000 9,900 FY85 First 500 10,400 2. Accounting Procedures. The key agency responsible for coordinating the physical implementation of the project and for keeping records and accounts of the project would be the Directorate of Planning Statistics and Finance (Chart 19911). Under the first IDA Credit (Cr. 760-LA), a Project Evaluation and Monitoring Unit was established within the Planning Directorate. Section 3.08 of the Credit Agreement 760-LA requires that this unit be staffed with an agriculturalist, an economist and a financial analyst. - 44 - ANNEX 3 Page 2 3. The Evaluation and Monitoring Unit would be responsible under both the first and proposed second IDA credits for coordinating procurement, ensuring proper maintenance of project accounts, submitting credit with- drawal applications via the Ministry of Finance, and for reporting on the performance of the various project components. Although these activities are consistent with the general mandate of the Directorate of Planning, Statistics and Finance, both the first and proposed second IDA projects would seek to strengthen the Directorate's capability. At the time of appraisal of second project, the required staffing of the Directorate had not been achieved. However, positive steps had been taken (i) to designate an experienced procurement officer to coordinate procurement and keep the accounts and (ii) to designate an officer responsible for coordinating work programs. The complex manner in which all procurement is handled in the Lao-PDR (see Chart 19167) was discussed with Government during preparation of the proposed project, but changes were not feasible for the second project. 4. The accounts for all Ministries in the Lao-PDR are audited annually by the Government's audit office, and the auditors' independent report is submitted to the Prime Minister's office. Close attention will be needed by supervision missions to the procurement and accounting procedures being followed in connection with the IDA projects, and periodic involvement of staff from the controller's department on supervision missions will be necessary. LAO PDR AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT Il PROJECT ORGANIZATION CHART l I | ~~~~~~~~~~~~~~~~~~~P,ov,ncial Executive | | Ministry Cabmnet .................................. Committees l I ~~~~~~~~~~~~~~~~~~~~(PEC) D,rectorate of Directorate Project Coordinating Directorate r Department of Directorate of Irrigation of State Farms Committee or Coordinator Agriculture Agricultural Livestock _ (DOI) (or DOA) (a) (DOA) Schools (DOL) .............................. . ... .. ................... . ................. ...... ., ........ ; | Mornloring a nnd |Evaluation Section|| eto b |< 'hok Irrigation | No Phok Fahrm Veune Kham Farm DOA P ilot Provincial Thovg Toue |- Teami-Dir etor and ....+. Drtr Extenrion r Agriculture Service and Tha Ngonr Staff Staff Section ~~~~~ ~ ~~~~~~~~~~~~~~~~(PAS) Feed Mills ......................... ................................................. ............................... .. ... b.................... . Dwrect Functional - Responsibility Line ........... Coordination Line VWorld Bank -19911 (a) VVould include a Senior Officer from DOP (b) Compr,sinv the Procurement Coordinator and the Accounting Coordinator Àd °n1 LAO PDR AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT Il FLOW CHART OF PROCUREMENT PROCEDURES - - - … --- MINISTRY OF FINANCE ' - Ndget Control -- - ' N N -Prepared Technical Specifications \\\ DOP Financial for Procurement\\. Section -Gets Minister Approval of Anniual \\ EXTERNAL TRADE BANK Expenditure Program Together with Represenitative -Pr epares Draft Tender Documents of Ministry of Finance, and Draft Invitations to Bid Verifies Import-Export Sends these Documents to the Corporation's R quest Ministry of IndustrY and Commerce Against Budget Allocation -Follows up the Procedure of ar Opens Letter of Credit Advertising, Bid Openirg and Requests to IDA for Selection of Contract Withdrawals from theCredit -Informs or asks for IDA Approval \\O n MINISTRY OF INDUSTRY ANd COMMERCEa Import-Export -Advertises and Issues Tender ,e Corporation 1) Documents / / -Receives Bids from Suppliers --Organizes Bid Evaluation Commission -Prepares Contracts and Contacts Supplier Chosen. -Signs Contracts for Purchase -Requests External Trade Bank to make Pavment to Supplier -Takes Delivery of lmported Goods -Arranges Delivery to Ministry of Agriculture N.B. (A) Division of the Directorate of External Trade within the Ministry of INdustry and Commerce Wnord Bank - 19167 oea < t 41 - 47 - ANNEX 4 LAO PDR A0RICULTURE REPABILITATION AND DEVELOPMENT PROJECT Il Estimated Incremental Production at Pull Development Preproject Situation Under project Situation Incremental Effect Area harvested Production Area harvested Production Area harvested Production % increase (ha) (tons) (ha) (tons) (ha) (tons) /preproject Direct incremental Production 1- Seed Production Paddy (improved local varieties) - - 152 316 152 316 Paddy (IRRI varieties) - - 358 838 358 838 Maize - - 280 536 280 536 Sorghum - - 10 16 10 16 Soybeans - - 130 150 130 150 Groundnut - - 130 99 130 99 Total 1 - - 1,060 1,955 1,060 1,955 infinite 2- Grain Production - Na Phok Seed Farm Paddy 300 390 - /a 289 (300) (101) Maize - - -a 134 - 134 Sorghum - - - /a 4 - 4 Soybeans - - - la 37 - 37 Groundnut - - - la 25 - 25 Subtotal 21 300 390 - /a 489 (300) (99) (25%) Veune Kham Feedgrain Farm Paddy 90 108 50 115 (40) 7 Maize 100 125 2,000 4,500 1,900 4,375 Soybeans - - 450 585 450 585 Groundnut - - 450 382.5 450 382.5 Subtotal 22 190 233 2,950 5,582.5 2,760 5,349.5 2,296% Small Farm and Coop- erative Farm Paddy 4,200 5,580 4,200 9,360 - 3,780 Maize 1,200 1,500 1,200 2,520 - 1,020 Subtotal 23 5,400 7,080 5,400 11,880 - 4,800 68% Total 2 Paddy 4,590 6,078 4,250 9,764 (340) 3,686 61% Feedgrains 1,300 1,625 4,100 8,187.5 2800 6 04% 3- Food Crops Na Phok Seed Farm Root crops - - 10 125 10 125 Vegetables - - 30 300 30 300 Veune Kham Feedgrain Farm Root crops 10 50 20 250 10 200 Vegetables - - 30 255 30 255 Total 3 10 50 90 930 80 880 1,760% Xndirect Incremental Production /b Grain Production on Small Farms and Cooperatives Faras Paddy 84,600 - 84,600 - - 14,000 10% Maize 35,900 - 35,900 - - 4,500 9% Sorghum 1,600 - 1,600 - - 240 10% Soybeans 3,700 - 3,700 - - 370 14% Groundnuts 1,600 - 1,100 - - 80 14% Total Paddy 84,600 - 84,600 - - 14,000 10% Total feedgrains 42,300 - 42,300 - - 5,190 10% /a Same seed cropped area. /b Expected from use of improved seeds without agronomic package. - 48 - ANNEX 5 Table 1 LAO PDR AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT II Na Phok Farm Budget (Kip millions) Without Year project 1 2 3 4 5 6-20 Gross value of production /a 9.8 9.8 19.1 44.7 68.6 107.6 107.6 Field operating expenses 2.7 19.0 30.1 73.3 107.1 127.2 127.2 Net value of production 7.1 -9.2 -11.0 -28.6 -38.5 -19.6 -19.6 Investments and overheads Salaries - 2.9 8.1 10.4 11.5 11.5 11.5 Services - 2.6 16.6 16.6 17.9 17.9 17.9 Investment - 260.2 743.8 133.4 20.0 6.4 - Net benefit stream 7.1 -274.9 -778.7 -189.0 -87.9 -55.4 -49.0 Incremental net benefit Negative Financial rate of return Negative /a Estimated at official price for grain at appraisal. - 49 - ANNEX 5 Table 2 LAO PDR AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT II Veune Kham Feedgrain Farm Budget (Kip millions) Without Year project 1 2 3 4 5 6-20 Gross value of production 11.0 11.0 52.8 98.5 176.0 252.4 252.4 Cost of production Materials 6.5 6.5 26.8 66.4 134.8 201.5 201.5 Labor 5.1 10.1 14.0 25.8 42.7 61.4 61.4 Net value of production -0.6 -5.6 12.0 6.3 -1.5 -10.5 -10.5 Investments and overheads Land clearing - 16.0 96.0 96.0 112.0 112.0 - Buildings and facilities - 12.4 211.2 126.0 40.0 - - Farm equipment - - 439.6 202.1 55.2 - - Vehicles - 65.1 28.4 - - - Workshop - - 56.0 8.0 - - - Salaries; 9.4 13.1 16.2 19.1 20.1 20.1 20.1 Services 4.8 7.2 25.4 33.1 33.1 33.1 33.1 Net cash flow -14.8 -54.3 -895.5 -506.4 -261.9 -175.7 -63.7 Incremental net benefit Negative Financial rate of return Negative - 50 - ANNEX 5 Table 3 LAO PDR AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT II Smallholder Farm Budgets Without Project With Project Without improved inputs With improved inputs / Farm Models Rainfed Irrigated Rainfed Irrigated Wet Season Cropping Pattern - Paddy (ha) 1.5 1.5 1.5 1.5 - Maize (ha) /b 0.5 0.5 0.5 0.5 - Paddy yield (ton/ha) 1.200 1.300 2.000 2.200 - Maize yield (ton/ha) 1.250 1.250 2.100 2.100 Dry Season Cropping Pattern /c - Paddy (ha) - 0.5 - 0.5 - Cropping intensity (%> - 33% (paddy field) - 33% (paddy field) - Paddy yield (ton/ha) - 1.8 - 3.0 Total paddy production (ton) 1.800 2.850 3.000 4.800 Total maize production (ton) 0.625 0.625 1.050 1.050 Production gross value (kip) 66,800 93,120 111,760 156,760 Production costs (kip) 18,800 23,200 64,120 83,240 Net farm income at official prices 48,000 69,920 47,640 73,520 /a Such as use of improved seeds, fertilizers, pesticides and technical advice. /b Or other feedgrains (sorghum, soybeans, groundnut). 7E On existing gravity schemes. - 51 - ANNEX 6 Page 1 LAO-PDR AGRICULTURE REIHABILITATION AND DEVELOPMENT PROJECT II Economic Analysis Components 1. The economic benefit to Laos resulting from the seeds component will be the incremental grain production on farms. For this reason, the standard practice of combining the costs incurred on the seed farm with the benefits realized on family farms has been followed. The output of the seed farm has been separated into three parts. The first is the 20% that is not suitable for seed. This is valued at grain prices. The second is seed that is distri- buted to farmers together with other components of improved cultural practices such as fertilizer and pesticides. The use of this seed is calculated to yield increases according to the parameters shown in Table 1. The final incremental production is then valued at grain prices and extra on-farm costs are included. The third part of the seed farm output is that seed distributed to farms without accompanying inputs. Here the yield increase will come solely through resistance to lodging. This seed is estimated to give yield increases according to the parameters shown in Table 1. For this amount, no incremental on-farm costs are incurred. The rate of return for this component is 121% under the basic assumptions shown. In the extreme event of costs rising 50% and benefits falling by half, the economic rate of return is still acceptable at 28%. 2. The question remains as to whether these same benefits could be realized at less cost by importing improved seeds. International seed sup- pliers report that hybrids and varieties of the relevant seeds are area specific and none of those traded internationally are readily suitable for use in Laos without extensive yield testing. However, to get an idea of the magnitude involved, varieties that are commonly traded would cost some US$1,200/ ton for corn as seed, whereas the price of corn as grain is some US$140/ton. Similar relationships are involved for the other seed crops produced. Use of these prices to value the seed farm output results in a rate of return for the farm of over 100%. This method is not suggested on theoretical and empiri- cal grounds. 3. The feedgrain farm component is the first of a two-stage development of 6,000 ha of farmland and will involve 3,000 ha of rainfed land. The second stage is anticipated to extend the farmed land by including the final 3,000 ha as irrigated land. For this reason, the ultimate benefits will be greater than those directly attributable to this present project. Similarly, on the cost side the project includes some items such as a bridge and roads, part of which is attributable to the second phase. It is assumed that at least 20% of the spare 3,000 ha will commence to be cropped as rainfed farm starting in year 10. The incremental costs and benefits of this additional area are added to the component costs and benefits including the full cost of all infrastructure. The rate of return under these assumptions is 14%. For the total project the rate of return is 61% (Table 2). - 52 - ANNEX 6 Page 2 Methodology 4. Standard cost-benefit analysis is used with a project life of 25 years. Traded goods are valued at prices at the border converted at the offi- cial exchange rates into kips, nontraded items except labor are valued in kip at official farm-gate prices. The pricing of labor presents some problems because of Government intervention in the labor market. The State sets prices and quantities of labor independently of each other. Two adjustments were made to correct the resultant distortion. First, because the minimum wage of 200 kip/man-day is based on the distorted paddy price of 25 kip/kg, the wage was revalued at 800 kip/man-day since the border price of paddy derived from the rice price is approximately four times its domestic price. This keeps the price ratio between labor and paddy constant in border and domestic prices. Second, because state farms are involved in other activities than direct agri- cultural production, there is an excess of labor over that technically required to produce a given output. An arbitrary adjustment factor of 0.5 was applied to the 800 kip/man-day to arrive at an economic wage rate of 400 kip/man-day. For the project as a whole, the high rate of return allows a wide range of values for the shadow wage rate to be used without becoming unacceptable. 5. Commodities produced have been valued at prices based on the Bank's world market commodity price forecast adjusted for transport to Vientiane. Similar procedures are used to cost fertilizers and other recurrent inputs. Investment items were priced in terms of their 1979 values (Table 3). Sensitivity 6. The basic rate of return of the total project is 61% with an NPV at 12% of US$22.2 million. As shown below, benefits could be halved and combined with a cost increase of 20% before the project would be unacceptable. Based on the experience with the first project and the characteristics of the sector, it seems that a delay in project implementation and a slow rate of farmer participation are the problems most likely to be encountered. With a three-year delay (lag) in realization of on-farm benefits after investments were incurred, the rate of return would still be acceptable at 23%. Internal Rates of Return under Different Assumptions (%) Benefits: Basic Down 50% Lag 1 year Lag 2 years Lag 3 years Costs: Basic 61 21 39 29 23 up 20% 48 14 32 24 20 up 50% 35 6 24 19 15 - 53 - ANNEX 6 Table 1 LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT II Yield Increase Parameters Without Other Inputs Paddy, each 35 kg, improved seed gives 166 kg grain increase Maize 25 kg 250 kg Sorghum 10 kg 150 kg Soybean 35 kg 100 kg Groundnut 60 kg 75 kg With Fertilizers and Pesticides Paddy, rainfed, each 45 kg improved seed gives 800 kg grain increase Paddy, irrigated 35 kg 1,200 kg Maize 25 kg 850 kg ANNEX 6 Table 2 LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT Il Incremental Project Cost and Benefits (in million kip) Y E A R S 1 2 3 4 5 6 7 8 9 10 11-25 Seed farm/Small farms Operating costs 0 3.75 51.16 83.35 83.35 83.35 83.35 83.35 83.35 83.35 83.35 Fixed costs 5.52 24.70 27.00 28.11 29.39 29.39 29.39 29.39 29.39 29.39 29.39 Investments 260.20 743.76 133.44 20.00 6.44 0 0 0 0 53.16 0 Technical services 56.52 83.52 76.56 34.52 0 0 0 0 0 0 0 Additional small farmn inputs 0 25.08 70.28 105.60 119.80 119.80 119.80 119.80 119.80 119.80 119.80 Benefits 110.00 175.00 1291.00 1650.00 1884.00 1897.00 1897.00 1897.00 1897.00 1897.00 1897.00 NPV at 12% = US$22 million ERR = 121% Feedgrain Farm Operating costs 0 26.99 79.89 161.57 254.21 254.21 254.21 254.21 254.21 254.21 254.21 Fixed costs 6.10 25.48 38.00 38.00 38.00 38.00 38.00 38.00 38.00 38.00 38.00 Investments 28.40 868.08 460.56 207.20 112.00 0 0 0 0 94.00 0 Benefits (lst stage) 0 64.80 166.60 327.40 505.30 521.70 521.70 521.70 521.70 521.70 521.70 Benefits, net (2nd stage) O O O O O O O O 0 54.40 54.40 ERR = 14% NPV at 12% = US$330,000 Total Project Costs 357 1802 936 685 644 525 577 577 577 722 577 Benefits 110 240 1457 1977 2389 2418 2524 2524 2524 2524 2524 ERR = 61% NPV at 12% = US$22 million - 55 - ANNEX 6 Table 3 LAO PDR AGRICULTURE REHABILITATION AND DEVELOPMENT PROJECT II Commodity Prices/Ton (c.i.f. Vientiane) 1979 1980 1981 1982 1983 1984 on Paddy US$ 234 249 254 265 283 283 000 kips 94 100 101 106 113 113 Maize US$ 141 152 153 154 160 160 '000 kips 68 73 73 73 76 76 Soybeans US$ 320 302 335 300 300 370 '000 kips 128 121 134 120 120 148 Groundnuts US$ 528 488 535 498 498 498 '000 kips 211 195 214 199 199 199 Vegetables US$ - - - - - - '000 kips 74 74 74 74 74 74 Root crop US$ - - - - - - '000 kips 30 30 30 30 30 30 - 56 - ANNEX 7 Page 1 LAO PDR AGRICULTURAL REHABILITATION AND DEVELOPMENT PROJECT II Documents in Project File Table ANNEX 1 - LAND USE - CLIMATE AND SOIL DATA - Agricultural Land Use 1 - Climate Data - Monthly Average 2 - Soil Distribution of Veune Kham Farm Area 3 - Land Resources Inventory of Vientiane Plain Map: IBRD 13478 ANNEX 2 - SEED FARM DEVELOPMENT COMPONENT - Rice Crop Calendar Chart 1 - Na Phok Irrigation Scheme IBRD 14135 - Na Phok Farm proposed Cropping Pattern and Yield Assumptions 1 - Na Phok Farm Estimated Water Requirements 2 - Assumed Power Requirements and Pumping Costs 3 - Na Phok Irrigation Scheme - Proposed Design Conditions and Estimates Costs and Phasing 4 - Na Phok Farm Total Capital Expenditures and Phasing 5 - Technical Specifications 6 - Estimated Fertilizer Requirements 7 - Estimated Field Operating Cost per ha Paddy 8 - Estimated Field Operating Cost per ha Maize 9 - Estimated Field Operating Cost per ha Soybeans 10 - Estimated Field Operating Cost per ha Groundnut il - Estimated Field Operating Cost per ha Crops Other Than Rice and Feedgrain 12 - Na Phok Farm Total Operating Expenditures and Phasing 13 - Na Phok Farm Estimated Labor Requirements 14 - Seed Quality Standards 15 r ANNEX 3 - FEEDGRAIN FARM DEVELOPMENT COMPONENT - Area Planted, Yield and Production of Major Crops 1 - Maize Production and Harvested Area Required for Feed Mill Supply 2 - Veune Kham Farm Proposed Cropping Pattern and Yield Assumption 3 - Veune Kham Farm Total Additional Capital Expenditures and Phasing 4 - Technical Specifications 5 - Veune Kham Farm Estimated Field Operating Cost per ha Feedgrain 6 1 A 1021 3 v Thc . mr hf s b-pe-er y fShe i 060 .'- CHIA . - -ed the et t repaît0 ot . 22\ a CHINA <0 .ro an/t anS ho a/5 aiiets, B- 22r i i BURMA _'f/tMOAIC 220. 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