Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9519 PROJECT COMPLETION REPORT BRAZIL NORTHWEST REGION INTEGRATED DEVELOPMENT PROGRAM PHASE I AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT (LOAN 2060-BR) APRIL 30, 1991 ..iculture Operations Division Country Department I Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY AND EQUIVALENT UNITS Appraisal: Currency Unit = Brazilian Cruzeiro (Cr$) US$1.00 = Cr$68.1 Cr$1.00 = Cr$0.015 Completion: Currency Unit = Brazilian Cruzeiro (Cr$) US$1.00 = Cr$42.3 Cr$l.00 = US$0.024 GOVERNMENT OF BRAZIL FISCAL YEAR January 1 to December 31 POLONOROESTE PROGRAM FISCAL YEAR April 1 to March 31 WEIGHTS AND MEASURES The metric system is used throughout the report. FUNAI Fundasao Nacional do ±ndio (National Indian Foundation) IBAMA Instituto Brasileiro do Meio Ambiente e doe Recursos Naturais Renovaveis (Brazilian Institute of the Environment and Renewable Natural Resources) IBDF Instituto Bra4.leiro de Desenvolvimento Florestal (Brazilian Forestry Development Institute) IEF Instituto Estadual de Floresta (State Forestry Institute) INCRA Instituto Nacional de Coloniza,co e Reforma Agraria (National Institute of Colonization and Agrarian Reform) ITERON Instituto de Terras de RondOnia (RondOnia State Land Institute) NUAR Ndcleo Urbano de Apoio Rural (Rural Service Centers) PIN Programa de Integra,co Nacional (National Integration Program) PDRI Projeto de Desenvolvimento Rural Integrado (Integrated Rural Development Project) POLONOROESTE Programa Integrado de Desenvolvimento do Noroeste do Brasil (Northwest Region Integrated Development Program) SAR Staff Appraisal Report SEMA Secretaria Especial do Meio Ambiente (Special Secretariat for the Environment of the Ministry of the Interior) SEMARO Secretaria de Estado do Meio Ambiente (RondOnia State Secretariat for the Environment) SEPLAN-RO Secretaria de Estado de Planejamento e Coordena9fo Geral (RondOnia State Secretariat for Planning and Coordination) SETRAPS-RO Secretaria de Estado do Trabalho e Acio Social (RondOnia State Secretariat of Labor and Social Action) SUDECO Superintendencia do Desenvolvimento da Regigo Centro-Oeste (Superintendency for Economic Development in the Center- West Region) SUDHEVEA Superintendencia do Desenvolvimento da Borracha (Superintendency for Rubber Development) GLOSSARY OF ACRONYMS BB Banco do Brasil (Bank of Brazil) BASA Banco do Amazonas Sociedade AnOnima (Bank of Amazon) CAGERO Companhia de Armazens e Silos do Estado de RondOnia (State Warehouse and Silo Company) CEPLAC Comisslo Executiva para a Lavoura Cacaueira (Executive Commission for Cocoa) CFP Companhia Ce Financiamento da Produglo (Company for Production Financing) CIBRAZEM Companhia Brasileira de Armazenagem (Brazilian Storage Company) CNPq Conselho Nacional de Pesquisa (National Research Council) CODEAGRI Companhia de Desenvolvimento Agricola do Estado de RondOnia (State Agricultural Development Company) CODARON Companhia de Desenvolvimento Agricola do Estado de RondOnia (State Agricultural Development Company of RondOnia) DER-RO Departamento de Estradas de Podagem de RondOnia (State Highway Department of RondOnia) EMATER-RO Empresa de AssistOncia T6cnica e ExtensAo Rural do Estadc de RondOnia (State Technical Assistance and Rural Extension Company of RondOnia) EMBRAPA Empresa Brasileira de Pesquisa Agropecuaria (Brazilian Agricultural Research Company) EMPA-RO Empresa de Pesquisa AgropecuAria do Estado de RondOnia (State Agricultural Research Company of RondOnia) FIBGE FundaVAo Instituto Brasileiro de Geografia e Estatistica (Brazilisn Institute of Geography and Statistics) FIPE Fundaglo Instituto de Pesquisas Economicas (Institute of Economic Research of the University of S&o Paulo) THE WORLD BANK vIoa a 15ONY WASt"F160n. O.C. 20433 U.S.A. OMe. CA 0'sectzw G.p April 30, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on BRAZIL Northwest Region Integrated Development Program - Phase I Agricultural Development and Environmental Protection Project (Loan 2060-BR) Attached, for information, is a copy of a report entitled 'Project Completion Report on Brazil - Northwest Region Integrated Development Program - Phase I - Agricultural Development and Environmental Protection Project (Loan 2060-BR)" prepared by the Latin America and the Caribbean Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restcted distnbution and may be used by recipients only in the performance o( their official duties. Its contents may not otherfwse be disclosed without Wotid Bank authonzation. I ~ ~ ~ ~ ~ ~ ~ PROJECT COMPLETION REPORT BRAZIL NORTHWEST REGION DEVELOPMENT PROGRAM - PHASE I AGRICULTURAL DEVELOPMENT AND ENVIP')NMENTAL PROTECTION PROJECT (LOAN 2060-BR) TABLE OF CONTENTS Page PREFACE ......................... .. i EVALUATION SUMMARY . . . . . . . . . . . . . .. . ii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . 1 Project Identity . . . . . . . . . . . . . . . . . . . 1 Project Background . . . . . . . . . . . . . . 1 . Project Objectives and Description . . . . . . . . . . 2 Project Design and Organization . . . . . . . . . . . 3 Project Implementation . . . . . . . . . . . . . . . . 5 Project Results . . . . ... . . . . 13 Project Risks . . . . . . . . . . . . . . . . . . . . 22 Project Sustainability . . . . . . . . . . . . . . . . 23 Bank Performance . . . . . . . . . . . . . . . . . . 24 Borrower's Performance . . . . . . . . . . . . . . . 25 Project Relationships . . . . . . . . . . . . . . 25 Consulting Services . . . . . . . . .. . . . . . 26 Lessons Learned ... . . . . . ...... . . . . . 26 Project Documentation and Data . . . . . . 28 PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE . . . . 29 Comments on Part I . . . . . . . . . . . . . . . . . . 29 Evaluation of the Bank's Performance and Lessons Learned 29 Evaluation of Borrower's Own Performance and Lessons Learned . . . . . . . . . . . . . . . . . . 30 PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . 37 Related Bank Loans . . . . . . . . . . . . . . . . . 37 Project Timetable . . . . . . . . . . . . . . . . . . 38 Loan Disbursement . . . . . . . . . . . . . . . . . . 38 Project Implementation . . . . . . . . . . . . . . . . 39 Project Costs and Financing . . . . . . . . . . . . . 45 Project Results . . . . . . . . . . . . . . . . . . 46 Status of Covenants . . . . . . . . . . . . . . . 49 Mission Data . . . . . . . . . . . . . . . . . . . . . 53 ANNEXES . . . . . . . . .... . . . . . . . . 54 MAP - IBRD 15483R - i - PROJECT COMPLETION REPORT BRAZIL NORTHWEST REGION DEVELOPMENT PROGRAH - PHASE I AGRICULTURAL DEVELOPHENT AND EMVIRONMENTAL PROTECTION PROJECT (Loan 2060-BR) PREFACE This is the Project Completion Report (PCR) for the Agricultural Development and Environmental Protection Project under the Northwest Integrated Regional Development Program in Brazil, for which Loan 2060-BR in the amount of US$67.0 million was approved on December 1, 1981. The loan was closed on March 31, 1990, four years behind schedule. It was fully disbursed and the last disbursement was on September 6, 1990. The PCR was jointly prepared by the Agriculture Operations Division of the Latin America and the Caribbean Regional Office (Preface, Evaluation Swummary, Parts I and III), and the Borrower (Part II). Preparation of this PCR was started during the Bank's final supervision mission of the project in May 1990, and is based, inter alia, on a report prepared by Bank consultants after a field visit in May 1990, the Staff Appraisal Report, the President's Report, the Loan and Project Agreements, the Borrowerts progress and final reports, studies by the State of RondOnia and the Institute of Economic Research of the University of Sao Paulo, Bank supervision reports, correspondence between the Bank and the Borrower, and internal Bank memoranda. - iii - PROJECT COMPLETION REPORT F'AZIL NORTHWEST REGION DEVELOPMENT PROGRAM - PHASE I AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTIoN PROJECT (Loan 2060-BR) EVALUATION SUMMARY Objectives 1. The Agricultural Development and Environmental Protection Project was one of five projects approved by the World Bank between during 1981-1983, to support the Northwest Integrated Regional Development Program (POLONOROESTE) in Brazil. The Program aimed to: (a) promote orderly occupation, development and integration into the national economy of the less developed Northwest Region, which at the time was already encountering severe migratory pressure from other parts of Brazil; (b) increase the productivity, incomes, health and social welfare of the Region's population; and (c) ensure that the development of the Region was consonant with the need to protect its land resources, ecological system and indigenous communities. As such, the POLONOROESTE Program tried to meet various objectives, ranging from corrective actions to cope with the effects of existing migration to the Program area, to efforts to stimulate new development in the Northwest Region. Of the five projects, Loan 2060-BR was primarily directed towards the first task, while others (e.g. Loan 2062-BR, Northwest Highway Project, and Loan 2353-BR, New Settlements Project) were more concerned with the latter.' 2. Specifically, Loan 2060-BR was intended to consolidate existing settlements in Central Rond8nia, which was already partially occupied by migrants who were still practicing itinerant, slash-and-burn cultivation of annual crops, despite the fact that the relatively good soils on which they had settled were capable of supporting environmentally more suitable and economically more profitable perennial crops. By introducing technological change and improving infrastructure, social and agricultural services, the project sought to raise the productivity and incomes of these settlers, as well as to absorb, at a relatively low cost, a portion of the new migrants who might otherwise move into environmen- tally more fragile parts of the Amazon Basin. Finally, the project also sought to improve environmental protection in the entire area of influence of the POLONOROESTE Program and to support preparatory activities for future phases of the Program. 3. At appraisal, project costs were estimated at US$199.3 million, and it was expected that the Bank loan of US$67.0 million would finance 35Z of total costs net of taxes. In 1983, a supplemental loan of US$22.8 million was approved 1/ An Evaluation Overview of the overall POLONOROESTE Program is provided in Annex 10. - iv - as part of a Special Action Program to increase the Bank's cost-sharing and accelerate disbursements for ongoing projects in Br .eil. In March 1985, disbursements were informally suspended under thii and other POLONOROESTE loans. They resumed in August 1985, after compliance with key actions agreed. At loan closing (March 31, 1990, with final disbursement on September 6, 1990), the Bank had disbursed US$71.5 million and canceled some US$18.3 million. Final total proiect costs were estimated at US$132.2 million or 66X of the original estimate, with the Bank loan financing 54? of the total costs. Implementation Experience 4. During the early years, project implementation did not proceed as anticipated (Para. 5.01). Following a Mid-Term Review in November 1984, the Bank informally suspended loan disbursements on this and the other POLONOROESTE loans, pending corrective actions related mainly to enhanced protection of Amerindian communities and environmental protection, but also including the shortage of rural credit, the causes of delays in construction activities, and poor monitoring and control within some implementing agencies. Disbursements were resumed in August 1985, when the Bank was satisfied that corrective actions were in place. Project implementation was expected to take five years, but the loan closing date was extended four times until March 31, 1990. The final disburse- ments took place on September 6, 1990. By loan closing, disbursements were about 80 percent of the appraisal estimates, as revised in 1983, or US$71.5 million. The final project cost was US$132.2 million, of which 54 percent was financed by the Bank. The Brazilian Government expended an additional US$26.1 million equivalent in the implementation of the Amerindian Protection Special Project, as well as an undocumerted, but probably substantial amount, on rural credit, input supply and land titling in support of the settlement consolidation subproject. Results 5. The project achieved part of its objective of absorbing population into existing settlements in Central RondOnia. Even with the almost threefold increase in the state's population from 1980-89, population in the project area as a share of the total population of RondOnia increased from 502 to 60X. While the rest of the State became almost 70? urban, the project area maintained the majority of its inhabitants in rural areas, as had been the case in 1980. By 1990, the project area accounted for 75? of the rural population of Rondonia, compared with only 60? a decade earlier. 6, Project achievements were more modest in raising incomes and the standard of living c' target farmers and fostering a change from shifting cultivation of annual crops to sustainable production of perennial treecrops. The number of dire't beneficiaries was 62? of the appraisal estimate (about 13,300 compared to 18,200 families). Incomes of project beneficiaries did improve, but not as much as anticipated at appraisal: actual average family income is estimated to have reached only 56? of appraisal estimates or US$6,600. Total incremental cropped area was very close to that estimated at appraisal but, with the exception of cocoa and beans, actti'. yield increases were some 5? to 50? below appraisal estlmates. While farmers vith adequate financial resources and technical assistance did introduce perennial crops and progressed well, most were not able to make this transition and continued shifting cultivation and deforestation. 7. Most of the physical targets of the environmental protection component of the project were also attained, but the broader objective of establishing effective environmental safeguards under the POLONOROESTE Program was not met. Environmental protection and ecological research activities were too limited in scope. Also, the p..oject did not ir..:lude any mechanisms to introduce environmental considerations into public investment planning in the State, nor did it address the policies and regulations that would continue to undermine the project's environmental protection objectives. On the other hand, in spite of its obvious shortcomings, the project was instrumental in establish- ing an institutional framework and capability which will be extremely useful for environmental protection in the future. It also helped to increase the debate, awareness and polit:.cal commitment to protection and conservation of the environment in this part of the Amazon Basin, and as a reflection of this, a substantial share of project funds originally intended for other purposes was redirected to environmental protection during the later years of project execution. 8. With regard to Amerindian protection, the Government achievements exceeded the physical targets which had been included in a parallel Special Project financed solely with Government funds. Many more Amerindian groups (67) were assisted than the 28 specifically covered under the Special Project, including an indigenous population of 9,600 (vs. 4,200 estimated at appraisal); 9,300 kms of Amerindian reserve borders were demarcated, involving an area of 9.0 million ha (vs 3,900 kms and 3.1 million ha foreseen at app. tsal) and more schools, infirmaries and FUNAI administrative units than estimated at appraisal were constructed. In spite of these accomplishments, the institutional and financial weaknesses of FUNAI resulted in underutilization of the physical and social infrastructure, and the limited enforcement capacity of the Federal and State Governments resulted in frequent invasions of the Amerindian reserves. 9. When the project was launched, RondOnia was still a Federal Territory, converting to statehood only in end-1981. Consequently, the new State's institutional base was quite weak. Through the project, key institutions were created and/or strengthened (e.g., the State Forestry Institute and Forest Military Police, a State Secretariat for the Environment and a State Land Institute were established, and the State agricultural extension service was greatly strengthened). These institutional developments may ultimately have a wider impact than the project itself. Project institutions, drawing on the lessons learned during implementation, should now be better able to design and implement future Government policies and investment activities for sustainable development and environmental protection. Sustainability 10. The staffing strength r key project institutions was created, maintained or increased. Increment 1x revenues received by both the State and the Federal Government should be sufficient to maintain the productive components of the settlement consolidation subproject in central RondOnia. For individual farmers, financial sustainability of agricultural production at the farmi level - vi - is dependent on success in establishing farming systems and cropping patterns that are consistent with the agronomic and economic characteristics of the project area. Farmers who did not have secure land tenure, investment capital and technical assistance continue to rely on s.tift and burn cultivation of annual crops. This system is not sustainable, although project experience suggests that financially, economically and agronomically sustai.iable agricultural systems can be developed if farmers are provided with satisfactory financial and technical assistance. Finally, deforestation of soils without sustainable develor . potential has not occurred on a significant scale under the project. To a sman1 extent it did, and contributed to soil erosion and siltation of rivers. Findings and Lessons Learned 11. The following are the main lessons learned in the course of implementing this project, which should be taken into account in the design of other similar cperations. (a) Public investments in frontier areas characterized by a fragile natural environment should be based on better technical knowledge of the sustainable development potential than that which was available at the beginning of this project. Agro-ecological zoning to guide public investment to suitable locations should be a condition sine qua non of future projects in such areas. In addition to public investments, the policy and regulatory framework governing land occupation and development patterns in the project area should be made consistent with the recommendations of the agro-ecological zoning (i.e., by increasing the private costs of occupying t I more fragile areas). Otherwise, direct investment to protect the environment may be undermined by stronger incentives to exploit it in an unsustainable manner. (b) The economic and political conditions outside the project area which affected the level of migration to that area should have been better analyzed. While the project strategy was conceptually sound, the scope and content of project interventions were insufficient to achieve its ambitious objectives. Although reasonably successful in benefitting farmers in the settlement consolidation sub-project area, these achievements were inadequate, considering the large population that moved to RondOnia during project implementation. The project was designed to benefit 18,200 families during a period when RondOnia grew by more than one million people. Such a massive influx of migrants created demands on infrastructure and on the environment, which were clearly beyond the project's ability to address. (c) Project organization and management arrangements, with many agencies and excessively centralized decision making at the Federal Govern- ment level, hdmpered project implementation. Decentralization in favor of the state and municipalities, including more control over budgetary resources, would have resulted in greater accountability of project management to the community and would have facilitated project implementation. Also, an increased role for NGOs and - vii - private organizations in project implementation could have enhanced accountability to the ultimate beneficiaries and improved the responsiveness of project executing agencies. (d) When agriculture requires long-term financing, a careful analysis should be made of the avatlability of credit for the farmer beneficiaries and of the suitability of the terms for the kind of cu.ltivation planned (in this case, perennial tree crops which would not generate any income during the development period). If suitable sources of credit are not available and where the failure of the agricultural development strategy could result in widespread environmental legradation (i.e., extensive deforestation), the Bank should either make spacial provision for credit in the proiect itself or should not support the project at all. (e) For innovative projects with above-average risks, it is essential that monitoring and evaluation systems be oriented to generate early warnings about project impact and implementation problems, and that project design provide considerable flexibility to allow for the timely introduction of adeouate corrective measures. At the same time, the Bank should be prepared to take sufficiently strong actions early on (i.e., suspension of disoursements) to remedy such problems. In addition, a longer start-up period and less optimistic assumptiors atout speed of farm development should be assumed for projects to be implemented in relatively unknown or difficult environments. (f) The physical demarcation of environmental conservation units and Amerindian reserves is a necessary, but not sufficient, condition for their protecticn. Financial disincentives, such as the absence of pub,:^ physical and social infrastructure in the surrounding areas ana strong enforcement capacity to prevent and punish invasions are also required for ensuring the protection of such areas. PROJECT COMPLETION REPORT BRAZIL NORTHWEST REGION DEVELOPMINT PROGRAM - PHASE I AGRICMTURAL DEVELOPMENT AND ENVIROIMNTAL PROTECTION PROJECT (Loan 2060-BR) PART I. PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Proiect Identity - Project Name: Northwest Pigion Development Program - Phase Is Agricultural Development and Environmental Protection Project - Loan No. s 2060-BR - RVP Unit s Latin America and Caribbean Region Country Department I - Country : Brazil - Sector s Agriculture 2. Proiect Background 2.01 Over the last two decades, increasing scarcity of arable land and mechanization of agriculture in the South of Brazil, and droughts and persistent poverty in the Northeast, have stimulated large numbers of rural families to migrate towards the Northwest States of the Amazon Basin in search of land to farm and a better standard of living. During the 1970s, the population of the territory of Rond6nia grew at an annual rate of 162, making this the most rapidly expanding agricultural frontier in all of Brazil. The Government road-building and colonization schemes which had been established to help integrate the Northwest region with the rest of the country were unable to keep pace with this rapidly accelerating migration. Between 1970 to 1975, some 60,000 new families migrated to RondOnia, but only about half of these were absorbed in various settlement schemes. An equal number joined the marginal populations of newly created towns or became squatters on the fringes of public projects, 1,n traditional indigenous areas and forest reserves. By the late 1970s, RondOnia's population had more than quadrupled when compared to that at the beginning of the decade. Socio- economic problems were mounting, defcrestatic.s was largely uncontrolled, and the security of the State's indigenous inhabitants was serious3y threatened. -2- 2.02 In 1980, in recognLtion of the pressing socio-economic problems c. 4ed by rising spontaneous migration to the region, the Brazilian Gc.ernment launched a program of major investments in the agricultural frontier areas of Rondonia and Western Mato Grosso. The program, known as the Northwest Region Integrated Development Program or "POLONOROESTE", aimed to absorb the human influx in a sustainable manner, by increasing agricultural productivity, rural incomes and social welfare. The major components were road construction and improvement, including the completion and asphalting of the main Federal highway into the Northwest Region (BR-364) between Cuiaba and Porto Velho (the capitals of Mato Grosso and Rondonia, respectively), consolidation of existing settlement schemes and support for the establishment of new ones, improvement of phvsical and social infrastructure and services, and measures to protect the natural environment and the interests of the indigenous population. 2.03 POLONOROESTE activities were financed under five complementary Bank loans (Part III, Table 1), including the Agricultural Development and Environmental Protection Project, which ; the subject of this Completion Report. This particular project was designed mainly to: (a) consolidate existing settlements in an area which was believed to include the best soils in the territory (now State) of Rond8nia; (b) implement environmental protection activities in the entire POLONOROESTE program area; (c) support preparatory activities for Phases II (Agricultural Development in Mato Grosso) and III (New Settlements in RondOnia) of POLONOROESTE; and (d) strengthen POLONOROESTE program management, monitoring and evaluation. In parallel, and within a framework agreed with the Bank, the Brazilian Government financed a Special Amerindian Project for the protection of the indigenous population in the POLONOROESTE program area. It also committed itself to finance rural credit, land titling and several other activities to support settlement consolidation in Rond8nia. 2.04 The project was prepared by the Government with extensive assistance from the Bank, FAO/CP and consultants. More than 300 staff weeks were used in the preparation and appraisal of the project between June 1979 and February 1981. Project preparation took into account both Government studies which had been done before launching the POLONOROESTE Program and the findings of the 1980 Bank report "The Integrated Development of Brazil's Northwest Frontier", which provided the background and basis for Bank involvement in the POLONOROESTE Program. 2.05 Loan 2060-BR, in the amount of US$67.0 million, for the Agricultural Development and Environmental Protection Project was approved on December 1, 1981, signed on December 15, 1981, and became effective on April 26, 1982. An Amending Agreement increasing the loan amount to US$89.8 million was signed on December 14, 1983, under the Bank's Special Action Program (SAP) for Brazil. 3. Proiect Obiectives and Description 3.01 The Agricultural Development and Environmental Protection Project sought to consolidate settlement in six municipalities (about 30,000 km2) of Central Ronddnia which had already been partially occupied during the previous ten to fifteen years. It was expected to establish about 18,000 permanent and sustainable smallholdings of under 100 ha each, thereby improving output and incomes of existing settlers and absorbing, at a relatively low cost, part of the new migrants who would otherwise move into environmentally more fragile areas of the Amazon Basin. The underlying strategy was to promote a transition from shifting cultivation of annual crops and deforestation to the production of environmentally more suitable and economically more profi+r.a perennial tree crops. Production of coffee, cocoa and rubber/latex r-. axpected to increase by some 55,000 tons. Improvements in physical social infrastructure and security of land tenure were also expc to benefit the broader population in the settlements and general] . ei'd t) an increase in the density of occupation in areas with good soils. T1't p-ojact also sought to improve environmental protection in the entire area cf influence of the POLONOROESTE program (i.e., all of RondOnia and part of Ma:. Grosso), to support preparatory activities for future phases of POLONOROESTE, and to help strengthen program management, monitoring and evaluation. The project thus included the following four inter-related subprojects (and components), which were to be implemented over a five-year period: (a) settlement consolidation in RondOnia (including farm access roads, establishment of rural service centers, rural extension, agricultura'l research, crop drying and storage, farmer organization, and education); (b) environmental protection and ecological research in the POLONOROESTE program area (including the establishment of national forests, natural reserves and ecological stations, forestry control, and ecological research); (c) land tenure regularization in Western Mato Grosso in preparation for POLONOROESTE-Phase II (Mato Grosso Agricultural Development), and soil surveys and other studies in preparation for POLONOROESTE-Phase III (New Settlements in Rondonia); and (d) program management, monitoring and evaluation. In parallel with (a) above, the Government committed to finance with its own resources rural credit, seed production and land titling. In parallel with (b,, and withinL a framework appraised and agreed by the Bank, the Government undertook to implement a Special Project for the protection of the Amerindian population in the POLONOROESTE program area. 4. Project Design and Organization 4.01 The largest subproject, settlement consolidation, was designed as an integrated rural development project under the POLONOROESTE regional development program. This and the other sub-projects were recognized as being ambitious in light of weak institutional capacity, limited knowledge of the Northwest Region and its indigenous communities (which were still at an early stage of contact with the national society), and the location in an - 4 - environmentally risk-prone frontier area. Also, several activities key to project success (Amerindian protection, rural credit and land titling in Rond8nia) were not actually included in the project, and consequently not financed by the Bank, but were to be coordinated and executed in parallel by the Government. Nonetheless, it was believed that the priority which the Government assigned to the POLONOROESTE program, combined with the measures already being taken by the Government for environmental and Amerindian piotection, and the establishment of a monitoring and evaluation system designed to provide early feedback into the decision-making process, would be sufficient to ensure project success. Also, it was planned that one agency, the State Agricultural Development Company of RondOnia (CODARON) would be responsible for planning and implementation of all agricultural activities and physical infrastructure, thereby simplifying the requirements for inter- agency coordination. 4.02 The project was clearly designed as a remedial effort to help bring order to the accelerating spontaneous migration to the Federal territory of Rondonia. In retrospect, more attention should have been paid to analysis and corrective actions in relation to the policies, regulations and public investment programs which were fostering this migration, and also to those which would govern the future pattern of land use in the project area. Statewide land use mapping based on adequate technical knowledge of soil capabilities, and zoning to better orient and discipline government investment (particularly roads and other infrastructure), should also have been in place before starting the project. 4.03 Finally, project design was based on some important assumptions which proved to be optimistic. Among these were chat: (a) assistance to only 18,000 families over a five-year period would be adequate, at a time when annual migration had already reached that level and was clearly on the rise; (b) the Government would provide sufficient and timely credit to target farmers without support from the project; (c) the Government would have the capacity to carry out the Special Amerindian Protection activities without financial assistance from the project; and (d) the priority to provide scarce counterpart funds would be as great for sustainable agricultural development and environmental protection as for the pavement of BR-364. In the event, migration and settler turnover proved to be much higher than anticipated. Soon after appraisal, the Federal Government suspended special credit lines which were to have been used by the project, although the commercial banking system was still relatively under-developed in the project area and the untenured status of most migrants precluded their having access to these limited services anyway. The chronically weak and under-funded National Indian Foundation (FUNAI) was unable to implement the Special Amerindian Project efficiently. Plagued by problems, originating partly from competition with State sectoral institutions and allegations of corruption, CODARON was abolished in 1985. While the direct involvement of the normal state departments and agencies responsible for agriculture and infrastructure development had positive aspects, it did result in even more complex project administration/ implementation arrangements than were originally conceived. The State Coordination unit did not have sufficient authority to enforce decisions on project execution, ensure interagency coordination or monitor or supervise project activities, nor did it have control over the performance of Federal Agencies involved in the project. The National Coordination Unit was too distant from project implementation needs at the field level and also lacked authority to coordinate the federal agencies. Finally, the difficult fiscal situation in Brazil led to inadequate and late disbursement of counterpart funds, the impact of which was heightened by weather conditions in the Amazon Basin which limit the period during which physical works can be implemented to only a few months in each year. 5. Proiect Implementation 5.01 During the early years, project implementation did not proceed as anticipated, for reasons cited in paragraph 4.03. Following a Mid-Term Review in November 1984, the Bank informally suspended loan disbursements on this and the other POLONOROESTE loans, pending corrective actions related mainly to enhanced protection of Amerindian communities and environmental protection, but also including the shortage of rural credit, the causes of delays in construction activities, and poor monitoring and control within some implementing agencies. Disbursements were resumed in August 1985, when the Bank was satisfied that corrective actions were in place. 5.02 The original Bank loan of US$67.0 million was expected to finance 342 of total project expenditures (35Z net of taxes). This financing share was raised to 50? in 1983 under the Special Action Program for Brazil (para. 2.05). The increased share of Bank financing and changes in the allocation of loan proceeds reduced but did not fully avoid, project implementation delays resulting from counterpart funding problems. 5.03 Project implementation was expected to take five years, but the loan closing date was extended four times until March 31, 1990. The final disbursements took place on September 6, 1990. By loan closing, disbursements were about 802 of the appraisal estimates, as revised in 1983, or US$71.5 million. The final project cost was US$132.2 million, of which 54Z was financed by the Bank. The Brazilian Government expended an additional US$26.1 million equivalent in the implementation of the Amerindian Protection Special Project, as well as an undocumented, but probably substantial amount, on rural credit, input supply and land titling in support of the settlement consolidation sub-project. 5.04 Settlement Consolidation Sub-Proiect. (a) Farm Access Roads. The project provided for planning, construction, rehabilitation and construction supervision of some 3,900 km of all-weather farm access roads. A total of about 2,350 km of access roads were constructed and 2,300 km of roads rehabilitated. In addition, several kms of drainage and about two kms of small bridges were built. The component achieved its principal objectives of providing access to markets and services by settlers, although quality was at times sub-standard. Roads were laid out in straight lines, following settlement plans which allocated rectangular plots of roughly equal size to each family, with little regard to the contour of the land or the hydrographic network in the area. CODARON, the agency responsible in the early years for the execution of this component, failed to coordinate its - 6 - work adequately with the Department of Roads (DER-RO), or to provide appropriate road design and construction supervision. When execution was transferred to DER-RO in 1985, the quality of works and supervision improved. However, road maintenance capacity did not improve, largely because of chronic budgetary shortages, and limited implementation capacity. 5.05 (b) NUAR Irfrastructure. To facilitate the provision of services and promote the de%ilopment of stable communities in remote areas, the project provided for the construction of rural service centers (NUARs) and related basic 'urban" infrastructure at 39 locations. The NUARs were to be zoned as urban areas occupying 40 ha each and located at the crossings of main settlement feeder roads, supporting some 800 farms per center. Each NUAR was to include a deep well and water supply system, an electricity generator and distribution system, offices for the local project administration and key executing agencies, a multi-grade school, health post, crop drying and storage unit, small sawmill and project guest house. Land was also prepared and subdivided into residential lots which settlers could purchase (the alternative being to establish residences on the farms themselves), and space for the development of small private commercial and industrial enterprises (e.g., pharmacies, restaurants, clothing makers, etc.). Some of the NUARs were the only source of support to the settlers and developed very rapidly into small towns and cities with three having become the capitals of new municipalities. Others competed with existing political subdivisions of the State, and some early implementation delays can be traced to political conflicts with local authorities. In 1985, the Bank and the Government agreed that 19 of the originally planned NUARs would not be constructed. In some of these cases, previously existing towns were providing the required support services to settlers; in others, the settlement of the area was progressing so slowly or the soil quality of the area was lower than anticipated and the construction of a NUAR was not justified. Except for storage units, only two of which were constructed, and sawmills, none of which was constructed, all remaining infrastructure was completed according to the revised target. 5.06 (c) Agricultural and Forestry Extension. The project financed extension services to assist project beneficiaries in improving agricultural production and forest conservation techniques and in cultivating ecologically suitable perennial crops. The State Technical Assistance and Rural Extension Company of RondOnia - ASTER-RO, (later EMATER-RO), was initially responsible for all agricultural and forestry extension, except for cocoa, which was handled by the Executive Committee for the Cocoa Development Plan (CEPLAC). It also organized farmer and project staff training courses, assisted farmers in obtaining credit, and participated in the drying and storage and community organization components (paras. 5.11-5.13). The RondOnia State Forestry Institute (IEF), established in 1986, also participated in forest extension. 5.07 About 11,300 farmers (62Z of the original target of 18,000) were individually assisted at farm-level, and 3,300 were contacted under a group assistance scheme, bringing the total of farmers reached with technical assistance and agricultural orientation messages to 14,600, or 802 of the appraisal goal. Specific training courses in subjects such as perennial crop - 7 - planting and cultural practices, farm administration and soil conservation were offered to some 13,500 participants (almost five times the appraisal target), with some farmers taking more than one course and including farmers also receiving technical assistance at the farm level. EMATER established 900 demonstration units (four times the appraisal estimate) for crops such as coffee, rubber, black pepper, guarana and other tropical fruits and for improved practices of soil conservation and management of small animals. Rural extension infrastructure and transportation facilities were constructed/acquired as scheduled, but hiring of extensionists was delayed, reaching 95? of the appraisal estimate only at the time of loan closing. Although pre-service training was regularly provided, only 84 EMATER staff (56Z of appraisal estimates) received specialized in-servire training under the project. 5.08 Overall, extension performance under the project was good, despite such constraints as: (a) lack of adequate coordination with, or poor performance by, other agencies responsible for complementary services (e.g., community organization, marketing, land regularization and rural credit); (b) scarce and often untimely arrival of operating funds; and (c) the limited prinr experience of most extensionists with the climate and agronomic conditions of the project area. Extensionists, most of whom lived in the communities assisted and worked very closely with farmers, were instrumental in promoting perennial crops and improving farmer incomes. When lack of credit became a major constraint, the extension service proposed and implemented a system of credit-in-kind, which made possible the introduction of perennial and other higher-value crops. By assuming responsibilities originally assigned to other agencies, the extension service was instrumental in developing community organizations and promoting the adoption of simplified storage and processing methods. Productivity of both annual and perennial crops increased, seed and seedling production by farmers' associations developed rapialy, and the total area planted to perennial crope expanded. Rural extension was also responsible during the later years of the project for farmers' experimentation with diversification into mixed cropping systems (including viable new crops such as timber and fruit treeb,, crop rotation, enrichment of fallow land and improved silvipastoral systems, and efforts to retain forest reserves at farm level by introducing appropriate replanting and product extraction techniques. While many of these activities are only now beginning to take holc =nong settlers, they should yield greater agricultural and environmental benefits over the next years. 5.09 (d) The Agricultural Research component was to be complementary to ongoing national research programs of the Brazilian Agricultural Research Company (EMBRAPA), focussing on adaptation of the main annual and perennial crops and crop rotation and farming systems to thc specific conditions of the project area. The actual number of experiments, demonstration units, seed production, soil tests and mapping and production of technical and scientific publications reached or exceeded appraisal targets, and practically all proposed physical research infrastructure was completed. However, both low salaries, which were responsible for high personnel turnover, and budget constraints did limit quality of experimental work. As the fiscal deficit at the Federal level became increasing severe, EMBRAPA had difficulty in - 8 - sustaining its activities and continuity of research work under the project was achieved only with additional financial participation of the state. 5.10 Despite the constraints, the adaptive research component did generate some satisfactory results for immediate use by settlers. The main achievements concerned coffee progenies adapted to the region; crops new to Rondonia, such as guarani, black pepper, citrus, avocado, mango, and tangerines; agro-forestry systems including native forest species with coffee, rubber and annual crops; and the selection of annual crops, improving planting dates and seeds. Limited research was conducted on pest and disease control, technical aspects of forest product utilization by settlers and wood processing by local industries. Institutional coordination between the agencies responsible for research and extension, both to determine farmers' needs and disseminate research results, was poor at the beginning of the project but improved in later years. 5.11 (e) Crop Drytna and Storage. This component provided for the construction by the Brazilian Storage Company (CIBRAZEM) of 19 large warehouses with drying, cleaning and handling equipment, and having a capacity to store 2,500 tons of grain each, to complement existing public storage faciliLies in providing support to the Federal Government's minimum price program (CFP). Only two such units were built. Because of their location and size, and the difficulties vhich CIBRAZEM encountered in operating them, utilization by small farmers was extremely limited. The Bank and the Borrower decided in 1984 to reorient this componentt the remaining 17 large warehouses were dropped in favor of 18 smaller community storage units (600 tons each), to be managed by farmers' associations. Although this revised strategy responded better to settlers' needs, the impact of the CFP scheme was relatively limited. A parallel, and more successful approach to facilitate marketing of settlers' output was carried out with the collaboration of EMATER and farmers' associations. Several farmers' retail markets were established in municipal capitals to sell directly to consumers, and processing facilities for coffee and rice were installed at the community level. It is estimated that these markets and processing facilities did improve the prices received by farmers for most products, yielding net gains of 10-202 in the prices for coffee and rice. 5.12 (f) The Farmer Organization component financed infrastructure and the services of technical staff of the State Secretariat of Labor and Social Action (SETRAPS-RO) in Rond6nia. The objective was to promote the establishment of farmers' associations which would participate in a range of community activities, such as construction and maintenance of access roads, school and health post maintenance, agricultural extension groups, and nutrition and health education. Farmers' initial response to this activity was poor. In 1985, EMATER, which was already in charge of assisting farmers on production-related activities, also assumed responsibility for fostering community organization. Some 47 formal community based rural organizations were formed in the project area by EHATER. - 9 - 5.13 Appraisal assumptions about the kinds of activities in which farmers' associations and community groups would be interested in participating proved to be wrong, mainly because farmers viewed infrastructure construction and maintenance as Government functions. On the other hand, EMATER's approach of organizing around themes which would have a dir4ct and measurable impact on incomes (e.g., storage, joint marketitig/transport and processing of agricultural products) elicited an immediate and positive response from farmers. 5.14 (g) The Education component was designed to improve both physical infrastructure and the quality of teaching in the project area. It was originally planned to construct a four-classroom school at each NUAR and one classroom satellite schools, to be operated on a two-shift basis. However, because of much greater than expected population pressure, limited efficiency (i.e., more children had to repeat grades than anticipated) and fanmer demands for higher grades at the NUARs, six-classroom schools operating four shifts were actually built at each of the 20 NUARs. Many of the 199 satellite schools were expanded to two or three-classroom facilities and operated three shifts. In total, 24,300 additional school places were created (61Z of appraisal targets). The expanded physical educational infrastructure provided under the project, while not reaching appraisal targets because of the reduction in the number of NUARs, has been able to meet much of the incremental demand in the project area because of more intensive use of facilities. 5.15 The basic education level of teachers in the project area is higher than elsewhere in the State, but finan_ial difficulties have limited teacher recruitment, (only 470 of the 1,090 new teachers who were to have been retained had actually been employed by the end of the project period), in- service training, supervision, and the availability of didactic and otkir school materials, thereby depressing the Laneral quality of teaching. School drop-out, repeater and graduation rates have only reached levels similar to those of other public schools in Rondbnia, outside the project area, which are themselves low compared with results of other parts of Brazil. The development of a curriculum, adapted in terms of content and language to rural RondOnia, had been an important objective of the project. Although such a curriculum was prepared by a special group in the State Secretariat of Education, it was based on individualized instruction, with which few teachers had any experience or training, and therefore was dropped in 1986. An innovative school calendar adapted to the needs of the rural areas (i.e., with vacations scheduled during periods of peak labor demand on the farms, rather than during the traditional vacation months in Brazil) was not adopted because of administrative and logistical difficulties in implementation. 5.16 (h) Parallel Activities. Activities essential to the success of the settlement consolidation subproject (land titling in RondOnia, rural credit, and seed production and distribution) but not included in the project are discussed in paragraphs 6.10 and 6.12 on Project Results. 5.17 The Environmental Protection and Ecological Research Sub-Proiects. (a) National Forests. This component was to finance the establishment of two - 10 - national forests covering 300,000 ha, including identification, delimitation, patrolling, inventories and feasibility studies of possible commercial development options. Two national forests totalling 505,000 ha were legally created at Jamari (225,000 ha) and Bom Futuro (280,000 ha), although only the first was demarcated during the project period. A management plan for the administration and dsvelopment of Jamari was prepared and the needed infrastructure and equipment put in place, but the plan Was not implemented because inadequate staffing and resources and the overall weaknesses of the Brazilian Forestry Development Institute (IBDF) in charge of the component. Field studies and development proposals for Bom Futuro also were not implemented, for similar reasons. 5.18 (b) Forestry Control. To improve the monitoring and control of logging and the supervision of forestry extension, the infrastructure and operating capacity of IBDF was to be strengthened. The existing headquarters and control posts in both RondOnia and Mato Grosso were to receive assistance, and four additional control posts were to be constructed, equipped and staffed. By project completion, three new control posts had been constructed in each State (i.e., two more than pX.nned). However, the effectiveness of forestry control efforts was limited by both IBDF's managerial weaknesses and inability to hire and retain adequate numbers of qualified staff, and by the rapid development of local wood industries. As a result, throughout much of the project period, deforestation went virtually unchecked in the POLONOROESTE program area, particularly in Rondonia. 5.19 A series of corrective measures taken during the later years of the project did help to improve forestry control: in particular, increases in the level and incidence of taxes for forest exploration and of fines against violators reduced the rate of increase in deforestation, and the resulting revenues helped to strengthen the institutional capacity to implement forestry control in Rondonia and Mato Grosso. Both a Forestry Military Police to improve forest protection and enforcement, and a State Forest Institute to provide adequate forest extension, were created in RondOnia. In Mato Grosso, an existing institute was strengthened and a Forest Military Police group created to improve forestry and environmental protection. During the last year of project execution, the start-up of an Emergency Program to control deforestation and burning in the Amazon area was also financed and a satellite imagery system to monitor deforestation was implemented. 5.20 (c) Natural Reserves and Ecological Stations. This component provided for the establishment of three Natural Reserves (the Pacaas Novos National Park and the Guapore and Jaru Biological Reserves), improvements to three Ecological Stations in Mato Grosso (Ique, Serra das Araras and Taima), establishment of one Ecological Station in RondOnia (Cunia), and incremental staff costs of both IBDF and the Special Secretariat for the Environment (SEMA). By project completion, the boundaries of all of the Natural Reserves and Ecological Stations had be6n demarcated, and most of the planned investments in infrastructure and equipment had been made. The project was successful in establishing these units and in facilitating the official protection of important ecosystems of the Amazon area. However, the - 11 - institutional weaknesses of IBDF and SEMA. lack of adequate staffing of the Reserves/Stations and financial constraints, particularly during the early project years, resulted in poor functioning of the facilities and an apparent inability to avoid sporadic invasions into most of the areas. 5.21 Corrective measures and additional activities introduced during project implementation led to marginal improvements and a-n expansion of preservation and protective activities to other areas. In particular, the creation of the State Secretariat for Environment and the State Land Institute in Rond6nia, together with the newly established IEF and Forestry Military Police (para. 5.19), and the consequently increasing participation of the State in the execution of this component were important achievements, although they did not eliminate problems of invasions into the protected areas. Additional activIties included studies for the establishment of new conservation units, not contemplated originally in the project, infrastructure, equipment and protection for the Pantanal National Park in Mato Grosso and environmental education and pollution control. As a result, four new conservation units, covering an area of 1.6 million ha, were created, the protection of the Pantanal area was enhanced with enforcement of law and regulations for protection of fauna and flora, new State legislation and norms for environmental protection were approved, and activities to control polluting industries such as casserite and gold mining were initiated. 5.22 (d) Ecological Research. The project planned to finance ecological research, which had hitherto been practically non-existent in RondBnia. About twenty research projects were ultimately undertaken, in such areas as meteorology, hydrology, animal and plant ecology, and anthropologicai. and .human ecology. Major Brazilian universities and other research institutions were involved, with the participation of more than 170 researchers, including some 56 at PhD and 50 at MSc. level. About 200 scientific papers and articles were published, directly attributable to this project component. However, the very good diagnostic capabilities of many of the researchers notwithstanding, the lack of policy focus and clear linkage with project implementation reduced the direct impact of this component on project results. 5.23 (e) Parallel Activity - Amerindian Protection. It was recognized at appraisal that rapidly accelerating occupation and development of Western Mato Grosso and Rond8nia was placing increasing pressure on the Amerindian communities in those areas, and that this situation would worsen with time in the absence of strong protective measures. In particular, there would be increased competition for land traditionally used by Amerindians, they would be exposed to contagious diseases to which they had no immunity, and their cultural identity would be eroded. The Bank regarded this as a critical issue and conditioned its broader support for POLONOROESTE on the Federal Government's commitment to protect Amerindian interests in the program area. - 12 - The Federal Government prepared and agreed to finance and implement, as a parallel activity to the Environmental Protection Sub-Project, a Special Project for Amerindian protection. 5.24 As appraised by the Bank, the Special Project sought to provide assistance to 28 Amerindian reserves in RondOnia and Mato Grosso, estimated to include a total of 4,250 Indians. Specifically, the Project would demarcate 3,940 kms of the boundaries of seven of the reserves covering a total of 3.1 million ha; construct and equip 28 infirmaries and 20 schools; construct/reconstruct 18 administrative units. The costs of this Special Project (US$26.1 million) were not included in the cost estimates for the Agricultural Development and Environmental Protection Project since the Government did not wish the Bank to participate in its financing. Implementation of the Special Project was, however, a condition in the Loan Agreement. 5.25 During project implementation, a further 39 new areas and/or indigenous groups were identified, and the Government also extended to several of these areas or groups activities included in the Special Project. As a result, 9,600 Indians living in an area of about 11.0 million ha, received some assistance under POLONOROESTE, and by project completion most of the original physical targets agreed in the Special Project had been exceeded. Some 9,300 kms of Amerindian reserve borders were demarcated, covering about 9.0 million ha of reserves, 38 infirmaries and 32 schools were constructed and equipped, 1,000 ha of crops developed, and 63 Amerindian posts constructed or rebuilt. In spite of these accomplishments, the institutional and financial weaknesses of FUNAI resulted in underutilization of the physical and social infrastructure, and the limited enforcement capacity of the Federal and State governments resulted in frequent invasions of the Amerindian reserve3. 5.26 Preparation Activities for POLONOROESTE Phases II and III Sub-Proiect. The content and impact of this sub-project is discussed below in paragraphs 6.22 and 6.23 on Project Results. 5.27 Proiect Management. Monitoring and Evaluation Sub-Proiect. At State level, project management was the responsibility of the Project Coordination Unit within SEPLAN-RO. Implementation of agricultural activities and infrastructure was to be undertaken by CODARON, a RondOnia State public enterprise created in 1980, to substitute the Rond6nia Secretariat of Agriculture and other State institutions and thereby simplify execution arrangements. A federal POLONOROESTE Coordination unit was established within SUDECO, serving as the secretariat to an Inter-Ministerial Council for the program. CODARON constructed (under contract) roads and the rural service centers, including schools and health posts, and reconstructed existing roads. However, lack of expertise resulted in poor road maintenance, implementation of agricultural activities and management of some of the service centers. Problems arising from competition with State sectoral institutions and allegations of corruption caused the extinction of CODARON in 1985, at which time the sectoral institutions assumed direct responsibility for project execution. The State project coordination unit in - 13 - Porto Velho was not given sufficient authority to coordinate the project effeptively, suffered seven changes of project manager, and had to rely on 14 other agencies once CODARON was abolished. Program management also remained over-centralized in Brasilia, with many decisions depending on SUDF(,0. However, the Inter-Ministerial Council itself hardly operated, and although SUDECO controlled the flow of POLONOROESTE funds to RondOnia, it wag not strong enough to resolve problems that had to be decided at higher levels of the Federal Government. Finally, those Federal institutions which were directly responsible for execution of some project activities (i.e., FUNAI, IBDF) operated very independently of both SUDECO and the State, and in general performed poorly. Decentralization of many environmental activities over the life of the project, from Federal to State institutions, improved the situation. 5.28 Total Proiect Cost. In U.S. dollar terms, the total project cost was 34? less than estimated at appraisal, due to the reduction in the number of rural service centers, the respective reduction in the cost of production and social infrastructure, and lower than anticipated expenditures on laud regularization and project management. Aggregate loan disbursements represented about 80? of the original and supplementary loans and 54? of total project costs (details provided in Part III). 6. Project Results 6.01 General. The project achieved part of its objectives of absorbing population into existing settlements in central RondOnia. Even with the almost threefold increase in RondOnia's population from 1980-89, population in the project area as a share of the total population of the State increased from 50 to 602. While the rest of the State become almost 702 urban, the project area maintained the majority of its population in rural areas, as had been the case in 1980. Consequently, by 1990 the project area accounted for 752 of the rural population of Rondonia, compared with 60? a decade earlier. Improved physical infrastructure, particularly the road network, and agriculture and social services (including the establishment of schools and health posts in previously almost unassisted communities) were largely responsible for this result. 6.02 Project achievements in raising incomes and standards of living of target farmers and fostering a change from shifting cultivation of annual crops to sustainable production of perennial treecrops were more modest. While farmers with adequate financial resourcee and technical assistance did introduce perennial crops and progressed well financially, not enough of them were able to make this transition. Continued widespread shifting cultivation, both within settlement areas on assigned plots and elsewhere in the State, resulted in severe deforestation throughout most of the 1980s. In retrospect, the scope of the project was too limited to effectively improve production and income of the large and rapidly increasing rural population in the area in the 19809. 6.03 Most of the physical targets of the environmental protection sub- project were attained, but the broader objective of establishing effective - 14 - environmental safeguards under the POLONOROESTE Program was not met. This was partly because the environmental protection and ecological research activities were much too limited in scope and the project did not include any mechanisms to guide direct public investments in the State on the basis, inter alia, of environmental considerations, nor did it deal explicitly with the main policies and regulations undermining environmental protection objectives. While the migration and deforestation process was already underway in Rondonia by 1980, the paving and completion of BR-864 (under another of the POLONOROESTE pcojects) and the construction of an extensive road network under this project, combined with the failure to implement the project agricultural strategy on a wide enough scale, were important factors encouraging deforestation in Rondonia. In the case of Mato Grosso, Government subsidies and fiscal incentives were primarily responsible for increased deforestation by large cattle ranchers. 6.04 With regard to the Amerindian protection, the Government did achieve much more than the physical targets established in the Special Project. Many more Amerindian groups were i.dentified and assisted in the course of project implementation than the 28 specifically covered under the Special Project, alt.hough delimitation/legalization of some of these areas was not completed. Protection and corrective action against recurrent invasion of these areas was also less than satisfactory. 6.05 When the Project was launched, Aond6nia was still a Federal Territory, converting to statehood only in end-1981. Consequently, the new state's institutional base was quite weak. Through the project, key institutions were created and/or strengthened (i.e., State forestry institute and forest military police, a State Secre4ariat for the Environment and, most recently, a State Land Institute have been created and state agricultural extension services strengthened). These institutional developments may ultimately have a wider impact than the project itself. The project institutions, drawing on the lessons learned during implementation, should now be better able to design and implement future Government policies and investment projects for sustainable development and environmental protection. Finally, a large number of personnel at all levels are now trained in rural project planning, administration, monitoring and evaluation, and to a lesser extent, in the design and enforcement of environmental protection activities. 6.06 Production. At appraisal, it was estimated that the project would increase agricultural production through both an expansion of cropped area, increased crop yields, reduced post-harvest losses and an expansion of small animals and livestock production by small farmers. Total SAR and PCR estimates of incremental cropped area and animal production are detailed belows - 15 - SAR and PCR Estimates for Incremental Cropped Area and Production at Full Development SAR PCR Area Production Area Production (ha) ('0(0 tons) (ha) ('000 tons) Rice (paddy) 11,800 33.6 2,200 12.3 Maize 10,600 20.6 11,400 23.3 Beans 6,300 3.7 13,600 9.7 Manioc 2,200 22.2 -3,200 -24.7 Coffee 17,400 24.2 21,500 14.8 Cocoa 15,000 22.5 20,200 24.3 Rubber 10,000 9.9 2,900 2.4 Citrus - - 3,800 56.5 Beef (tons) 1.0 1.8 Milk (Mill. lts) 2.5 17.0 6.07 Total cropped area was originally estimated to reach about 270,000 ha at full development, which represented an increment of 73,000 ha over the pre-project situation. The main increase was to come from coffee, cocoa and rubber (582), rice and maize (302), and other crops (12?). Based on EMATER and SEPLAN-RO data, it is fstimated that the total cropped area under the project actually reached 267,000 ha or almost 100? of the appraisal estimate. The incremental 70,000 ha derived from (a) a greater than anticipated expansion in the area planted to cof£*e. cocoa, beans and maize, (b) a substantial shortfall in the anticipated e,xpansion of rubber and rice, (c) a decrease in area planted to manioc resulting from a declining demand for this product, and (d) the introduction of citriis in the project area, which had not been foreseen as a significant activity at appraisal. It was estimated at appraisal that the average farmer would increase his cropped area by some 4 ha. The actual average increase was 6., "ia planted. 6.08 Livestock production also increase^!. The number of head of cattle in the project area grew from 126,000 in 19EL to 780,000 in 1988. However, as the impact of the project began to be felt, cattle growth declined, compared with the rest of the State. Betwezn 1981 and 1985, the number of cattle in the project area grew 356Z. From 1985 onwards, as the mixed farming model promoted by the project began to take hold, involving increased emphasis on perennial crops, the number of cattle grew by only 36t in the project area, compared to 1452 in the rest of the State. The importance of cattle in the project area reflected the trend common to frontier development elsewhere in Brazil, but with a significant difference. While outside the project, cattle production is generally pursued as an extensive single production-line enterprise with emphasis on beef and breeding, cattle in the project area are complementary to other farm activities, comprising part of a mixed and rotational farming system with emphasis on beef and milk production. Swine production increased at rates similar to other , irts of the State, and milk production became en important and stable source of income in the project area. - 16 - 6.09 Appraisal targets for increases in productivity, however, turned out to be too ambitious for most crops, as detailed below: SAR and PCR Estimates for Crop Yields (tons/ha) ADDraisal PCR Without Proiect With Proiect Without Proiect With Proiect Rice 1.9 2.6 1.7 1.9 Maize 1.6 2.0 1.7 1.8 Manioc 6.0 8.0 9.0 10.0 Beans 0.4 0.6 0.5 0.6 Coffee 0.8 1.0 1.0 1.2 Cocoa - 1.5 0.4 0.7 Rubber 1.0 1.0 1.1 Citrus - - 5.0 As shown in Annex 2, average yields were estimated at appraisal to increase between 232 and 53X, through expanded use of fertilizers, improved crop rotation systems, and adoption of improved genetic material and certified seeds and seedlings. The only significant crop yield achievement was for cocoa, which received specific credit and intense technical assistance from CEPLAC and to a lesser extent for beans, for which a disease-resistant variety was introduced on a limited scale. Shortages of investment and production credit, higher than expected fertilizer prices, lower product prices and less technical assistance resulted in actual yield increases that were some 52 to 50S below appraisal estimates. Actual low average yields for cocoa and coffee reflect, to some extent, the fact that plantationp are not yet fully developed. As shown in Annex 3, the value of incremental project output at full development was estimated at about US$62 million, compared with appraisal targets of US$144 million to be attained at full project development. Prices for several products fell short of appraisal forecasts. Prices for cocoa and coffee at project completion were 572 and 63?, respectively, of the levels forecasted at appraisal. 6.10 As conceived at appraisal, on-farm investment and working capital were to be financed under existing Government rural credit programs as a parallel activity to the project, without Bank support due to the large subsidies involved. Seasonal production credit was considered important for annual crops and for maintenance of pere3nials, while availability of medium/long-term credit was considered essential for the establishment of perennial crops. In the event, virtually no official credit was made available to project beneficiaries in the early years, other than long-term credit tarough CEPLAC for cocoa planting. This had a major impact on project performance in meeting output and productivity targets. Extension agents, trained to assist farmers in obtaining and using credit, had difficulty in developing useful messages for farmers without credit. A commendable experiment with in-kind credit during the later years of the project did succeed in directly raising the total area planted to perennial crops, but the output and productivity results will not be felt for a few years, until - 17 - these crops mature. The distribution of seeds and seedlings was another parallel activity to the project, which was to be wholly financed by the Government without Bank support. Although a capacity to produce seeds for annual crops, and rubber, coffee and forest trees seedlings has been established by the Government (Part III, Table 4), there is little follow-up data about the use made of the planting materials which were distributed. Project authorities believe that this program did have positive results in helping to offset partially the absence of credit, particularly for perennial crops. However, forest seedlings produced by the project had no signific:ant impact in counteracting deforestation. 6.11 Employment Generation. It was assumed at appraisal that agricultural intensification and the development of perennial crops wotald create a demand for an incremental 20,700 fully employed laborer years, of which about 4,600 would be provided by hired labor. However, based on a recalculation of the labor requirements of the most common farm models, only about 14,800 incremental laborer years were actually created (712 of target), of which some 2,700 laborer/years were provided by hired labor. Although there was a larger than expected increase in the area planted to coffee and cocoa, the lack of financing for fertilizer and herbicide and for other cultural practices reduced labor demand per ha cultivated. 6.12 Land Tenure. To help consolidate existing settlements in RondOnia, the Government committed itself to provide land titles to all settlers by 1982. INCRA only partially achieved this objective, providing titles to some 19,800 farmers occupying about 2 million ha (i.e., slightly more than the number of direct beneficiaries of project extension activities, but only a third of the estimated 60,000 families living in the virinity of the settlement schemes). Nonetheless, these land regularization activities had a significant impact in terms of estdblishing a core of family-owned farms in central RondOnia, and reducing the incidence of squatters and extensive ranching which has characterized the occupation of most of the rest of the Brazilian agricultural fronticr. Indeed, land ownership (coupled with financing and technical. assistance) proved to be the most stabilizing factor in the sub-project area, leading to less frequent turnover of farms, the introduction of sustainable mixed farming with perennial crops and the consequent reduction in shift and burn cultivation/deforestation in this part of the State. About one-third of the original settlers in the older INCRA colonization schemes are still cultivating the same plots, or about the same as the proportion of titled to total families (19,800/60,000) mentioned above. This compares very favorably with the situation outside the sub- project area, where only about 102 of present occupants are original settlers. From 1980 to 1985, the relation of squatters to total farm establishments in the sub-project area declined from 51? to about 25?, also in contrast to trends elsewhere. Finally, the number of farms larger than 100 ha, producing almost exclusively livestock, declined from 36? to 16? of all farms within the sub-project area, whereas elsewhere in the State, the proportion of such larger farms to the total number of farms increased from 30? to 46? during 1980-85. Data for later project years are not available, - 18 - but the decrease in the growth of livestock and field observation in the project area indicate that these tendencies have most likely been maintained. 6.13 Environmental Protection. At appraisal, it was assumed that strengthening the institutional capacity of IBDF and SEMA, and creating several conservation units and biological and ecological reserves would counterbalance the effects on deforestation of paving the BR-364 highway and the accelerated investment in roads and other infrastrvcture in the settlement areas in central RondOnia. However, as showT in Annex 4, deforestation continued at a rapid rate, and by 1988, estimates for the deforested area of Rondonia ranged between 132 (INPE) and 24? (Mahar-IBRD), compared with only 0.52 in 1975 and 3? of the State in 1980. Besides the very high rate of migration and continued widespread shifting cultivation, deforestation also increased because the number of wood industries in Rond6nia grew rapidly from 400 in 1982 to more than 1.100 in 1987, and the output of processed lumber increased from 1.4 to 4.2 million m3 during the same period. Satellite imagery clearly suggests that, for all practical purposes, deforestation in Rondonia begins and is coterminus with newly constructed roads. Contributing factors included the establishment of the colonization schemes themselves; other official investment programs, particularly roads; a growing wood industry; and limited institutional capacity to control illegal logging and forest burning for shifting cultivation. In addition, various public policies and regulations, such as special fiscal incentives (particularly important in Mato Grosso), and inadequate land registration and titling procedures actually encouraged rapid natural resource depletion. The resulting policy framework was one in which the full economic costs of uncontrolled deforestation was not reflected in financial costs, which artificially stimulated deforestation for agricultural and logging purposes. 6.14 Several corrective actions taken during project implementation did help in strengthening the institutioral capacity for forest control and enforcement. Of particular importance were the decentralization from the Federal Government to the State of forest acAnkinistration and the establishment of the State Forestry Institute (IEF) and the State Forestry Military Police. IEF combined the functions of controlling deforestation with education/extension for farmers about agro-forestry practices and the State Forestry Military Police is responsible for protecting against invasions of forests, natural and biological reserves, and Amerindian reserves. During the last project year, the start-up phase of an Emergency Program to reinforce deforestation control and forest burning, was financed under the project with the support of IBAMA. Satellite imagery was used to detect forest burning and illegal deforestation, directing more effectively the monitoring, control and enforcement efforts of IBAMA, IEF and the Forestry Military Police. As a result, and although illegal deforestation and sporadic invasions of reserves persist, according to IBAMA and the newly- created National Secretariat for the Environment, the rate of deforestation and burning has finally begun to decrease over the past three years. Furthermore, the technical and institutional capacity created by the project will be critical in achieving additional reductions in the future. - 19 - 6.15 As indicated in Annex 5, all National Forest, Natural Reserves and Ecological Stations included in tne project were established. The project also financed protection activities for other conservation units in Rondonia and Mato Grosso, and for studies which provided the basis for the creation of additional conservation units and one extractive reserve in RondOnia in 1989. While all planned infrastructure and equipment was put in place, serious management, staffing and budgetary problems of the two Federal agencies in charge of the environmental conservation component (IBDF and SEHA) resulted in underutilization and in some cases roandoning of that infrastructure. The preparation of developmen4 plans anl implementation of pilot sustainable forest management schemes in the National Forests did not take place, and measures to protect the conservation units were poorly implemented, if at all. Nonetheless, 10? of the total area of Rond6nia has been officially set aside for conservation units, which is the highest percentage of officially protected area of any Brazilian State. 6.16 Finally, although not foreseen at appraisal a State Secretariat for the Environment (SEMARO) and a State Environmental Council were created in Rondonia with project suppo.t. SEMARO initiated the regulation and control of polluting industries, such as casserite and gold mining, and environmental education throughout the State. In Mato Grosso, the project funded the activities of a Forestry Battalion to enforce legislation against hunting and degradation of unique flora and fauna in the Pantanal National Park. Results were significant, not only in terms of initial apprehension of infractors and the volume of fines collected, but also in terms of public education undertaken to enhance environmental protection of the Pantanal area. The project also supported the creation in Mato Grosso of a Secretariat of the Environment, which has focussed its initial work on controlling mining and chemical pollution into the Pantanal basin. 6.17 Overall, in spite of its many shortcomings, the environmental protection sub-project was instrumental in establishing an institutional framework and capability which will be essential for improvements in the future. It also helped to increase the debate, awareness and political commitment to protection and conservation of the environment in at least part of the Amazon Basin. A3 a reflection of this incr(eased awareness and commitment, a substantial share of project funds originally intended for other purposes was redirected to environmental protection during later years of project execution. The appraisal report estimated thedt US$15.0, or only 7Z of total project costs, would be spent on environm:ental protection. However, final estimates of project outlays for environmental protection total US$36.7 million, or 23% of project costs, US$25 ne. on of which were used during the last three years of the project. 6.18 Amerindian Protection. Protection of indigenous lands was the cornerstone of the Special Project. The regularization of an Amerindian area includes identification, delimitation (which precedes demarcation), Presidential confirmation of the physical demarcation, and registration in the cart6rio (land registry). For all practical purposes, demarcation, which requires an accurate survey of reserve boundaries, is the single most important step. The share of the Amerindian population living in demarcated - 20 - reserves in the POLONOROESTE Program area increased, due to the project, from only about 182 in 1980 to 852 in 1989. However, in January 1990 an earlier demarcation of one of the largest Amerindian areas was revoked and is now awaiting re-identification and re-demarcation. The total Amerindian population currently living in demarcated areas is about 7,457 Indians or 78Z. As shown in Table 4, in addition to physical demarcation of known Amerindian areas, substantial progress was achieved in the identification and delimitation of new ones. 6.19 The pace of demarcation work accelerated after the Bank informally suspended disbursements in 1985 (para. 5.01). The situation subsequently improved, but protection of the reserves against illegal logging, mining and squatters has been difficult given the profitability of these operations, the collusion of loggers and miners with Indian leaders, the size of the area, and the limited enforcement capacity of the Government. Nonetheless, while there are no accurate data on the extent of such invasions, based on information provided to Bank supervision missions from various sources, they are estimated to involve less than 5X of the Indian lands. 6.20 The project also helped to stabilize Indian health conditions. The heavy mortality of the contact period was reduced and the birth rate rose. However, the incidence among Amerindians of tuberculosis, malaria, measles influenza and intestinal parasites is still high. During th, %eriod, many of the health services in field infirmaries deteriorated due to high staff turnover and inadequate training, inadequate supply of medicines and poor maintenance of equipment. Additionally, acculturative influences favoring types of food not readily available to the indigenous population and pressure on the environment which reduced game and fishing, have negatively affected the diet and nutrition of some of the region's indigenous groups. 6.21 Thirty-two schools were built on the reserves, but the teachers had inadequate training and inappropriate textbooks, and the poor living conditions for teachers limited the utilization of these facilities. By 1988, virtually the only functioning schools on the reserves were those operated by missionaries. Lastly. some 1,000 ha of crops were developed, but efforts at establishing communal gardens and marketing failed. In general, Amerindians refused to work communally; therefore, much equipment was not used and most gardens were abandoned after a short time. Almost all of the trading posts which had been created closed down quickly, as few Amerindians had adequate commercial experience. 6.22 Preparatory Activities for Phases II and III of POLONOROESTE. Two activities financed under the project were considered prerequisites for what would be the second and third phase POLONOROESTE projects (Mato Grosso Rural Development Project and New Settlements Project in Rond6nia). The first involved regularization of land tenure in Mato Grosso to reduce land conflicts and enable smallholders to obtain investment credit. However, only 501 of titling targets were achieved and the project had little effect in stabilizing land occupation by small farmers in Mato Grosso as a basis for Phase II of POLONOROESTE. Field estimates and data provided by unions and church groups indicate that there are still about 50.000 landless families in - 21 - Mato Grosso. An additional 40,000 farmers have settled on the soils around Juina and Alta Floresta in northern Mato Grosso, which are not considered to have an aptitude for sustainable agriculture. 6.23 Tl.e second preparatory activity financed under this project was soil surveys for Phase III of POLONOROESTE, in support of new settlements to the North of the Loan 2060-BR project area in Rondonia. Since this area was generally believed to include poorer soils, it was essential to have detailed soil survey results before deciding where to locate new infrastructure. However, because of the higher than expected migration to Rondonia, the Government and the Bank ultimately agreed to start colortzation (under Ln. 2353-BR) one year before the soil studies had been completed. This proved to be a precipitous decision. Once the results of the studies were known, it was necessary to reduce drastically the scope of Phase III to exclude much more extensive areas of poorer soils than had been anticipated. Unfortunately, by the time this decision was taken, three colonization schemes with rural service centers and some important road infrastructure had already been constructed in areas with limited sustainable development potential. 6.24 Economic Rate of Return. At appraisal, the economic rate of return (ERR) was estimated at 22Z. It was derived by including 10OZ of project costs of the settlement consolidation sub-project (rural extension, agricultural research, farmer organization, storage and drying facilities, agricultural service centers, access roads, and sub-project coordination, management and monitoring at the Rondonia level), except for education and the parallel activities financed exclusively by the Government. The costs of the other sub-projects (environmental protection and ecological research, preparatory activities for Phases II and III of POLONOROESTE, and program-wide management, monitoring and evaluation) were also excluded. The benefit analysis included all the incremental production related t., the project for the 18,200 farmers who received direct technical assistance. 6.25 Applying these same assumptions, the ERR was re-estimated using 1989 constant prices. Past expenditures, excluding taxes and duties, were calculated in U.S. dollars and adjusted to 1989 constant prices using the M.U.V.2 deflator. For labor, a conversion factor of 75Z was used at appraisal. Due to high demand for labor both within and outside the project area, a labor conversion factor of 90Z was used in the PCR calculations. The prices of tradeable goods (rice, maize, coffee, cocoa and rubber) and fertilizers were calculated at 1989 constant prices using the World Bank's Commodity Prices and Price Projections (Annexes 6 and 7). The total value of incremental project production was obtained by aggregating the output of the various farm models, adjusted for actual changes in cropped areas and yields, by the number of assisted farmers shown in Annex 8. The re-estimated ERR is about 16Z (Annex 9). Factors contributing to reduce the ERR include the 2 M.U.V. (Manufactured Unit Value) 1982 to 1989 as follows: 1982 - 1.447, 1983 - 1.484, 1984 - 1.511, 1985 - 1.495, 1986 - 1.264, 1987 - 1.156, 1988 - 1.063, 1989 - 1.0 - 22 - smaller than anticipated number of farmers assisted by the project, low productivity levels of several crops and the decrease in real prices for most crops over the period 1982-1989. Factors contributing positively to the ERR include a 342 reduction in total project costs due mainly to the reduction in the number of rural service centers constructed under the project (from 39 to 20), a reduction in investment maintenance costs at full development without a corresponding reduction in area planted, greater than anticipated production of some key crops, and the development of other crops not anticipated at appraisal (e.g., citrus production actually contributed 8.5Z of incremental farm income at market prices in 1989, and income from millk production also grew much more than anticipated at appraisal). 6.26 Financial Performance. The appr61sal report estimated that at full development the weighted average annual farm family income of beneficiaries would increase more than tenfold, from an estimated US$d50 to US$11,900. Price projections for most project products proved to be optimistic and farm family incomes varied with the different models between about US$3,500 and US$8,000, reaching a weighted average of only 56Z of appraisal estimates (i.e., US$6,600 per family or a seven-fold increase). This income, which can still be considered good, was possible because farmers assisted under this project were located in the best soils of RondBnia which required lower expenditures for inputs which in turn compensated for the lower yields and product prices. In all farm models, the financial rate of return matched or exceeded appraisal estimates. A comparison of the FRR estimated at appraisal with the four models analyzed (including a new citrus model) is shown in Part III, Table 9. 6.27 Fiscal Impact. The appraisal report anticipated that very substantial benefits would be obtained from taxation of production marketed inside and outside Rondonia from the settlement consolidation sub-project. It was assumed that at full development the marketing tax (ICM) would produce an annual revenue for the State of US$11.4 million. Export taxes estimated on the basis of US$50 per 60 kg bag of coffee beans would yield an incremental US$20 million for the Federal Government at full project development. Rural social security tax revenues would increase by some US$2.5 million per year by full development. At completion the ICM reached only about US$6.2 million dollars (54? of appraisal estimates), due in part to decreases in product prices, but more importantly because there was virtually no improvement in tax collections (which had been expected to increase from 30? to 702 of all marketed products). Federal Government revenues from coffee exports are now estimated at US$18 million (90? of appraisal estimates) due to lower export prices than those used at appraisal and a corresponding reduction in the tax per bag in US dollar terms. Rural social security revenues are only about US$1.8 million (72? of target) due to less employment generation than anticipated at appraisal. 7. Project Risks 7.01 The nature, but not the full extent, of most project institutional, production, Amerindian and environmental risks were correctly identified at appraisal. Institutional risks were related to the ability of project - 23 - management to achieve the necessary coordination among all executing agencies and the capacity of the executing agencies to accomplish their tasks. Production risks were associated with the incomplete knowledge of production and soil conservation techniques appropilate for the frontier region. Amerindian risks included the known weaknesses of FUNAI, the need for careful sequencing of protection activities in relation to the regional development process, and the continuity of Government commitment to the protection of the indigenous population. Environmental risks related to the limited technical knowledge of the frontier environment, the ecolog4cal risks of increased deforestation of poor soils and the risks that encroachment on fragile environmental areas would continue in spite of the project. The magnitude and rate of spontaneous migration into Rondonia and the effect of Brazil's fiscal crisis on project financing were also not fully appreciated at appraisal. The underestimation of these various risks led to most of the undesirable consequences associated with this operation. 8. Project Sustainability 8.01 The staffing strength of key project institutions (e.g., IEF, Forestry Military P-lice, SEHARO, EMATER) was created, maintained or increased. Roads, school, health posts, storage and the basic infrastructure of project executing agencies was expanded. Incremental tax revenues received by both the State and Federal Government should be sufficient to maintain the productive components of the settlement consolidation sub- project in central Rond8nia. Environmental and Amerindian activities to protect conservation units and Amerindian reserves in the whole POLONOROESTE program area are dependent on scarce and fluctuating budgetary allocations, but the State and Federal Governments are making strong efforts to maintain these investments and continue the work initiated under the project. 8.02 For individual farmers, financial austainability of agricultural production at farm level is dependent on success in establishing farming systems and cropping patterns that are consistent with the agronomic and economic characteristics of the project area. In the general condi.,ons of the Amazon frontier, and even in the sub-project area which has the best soils of Rond8nia, this would favor mix-farming including inter-cropping of perennial crops and agro-forestry and rotational systems between crops and pastures for the production of transport insensitive products. Farmers who did not have secure land tenure, investment capital and technical assistance continue to rely on shift and burn cultivation of annual crops. Under thie system, a farmer deforests part of his plot, clearing it by burning, and then uses the soil fertility accumulated under the forest canopy for a few years. Thereafter, to maintain yields of annual crops, even with relatively good soils, the farmer needs to fallow part of his land and continue deforesting other parts of his plot. This system is not sustainable within the limits of the farmer's plot, unless the farm is large enough to provide sufficient income by cultivating at any given time only a fraction of the land. However, project experience suggests that financially, economically and agronomically sustainable agricultural production systems can be developed if farmers are provided with satisfactory financial and technical assistance. - 24 - 8.03 Deforestation of soils without sustainable development potential has not occurred on a significant scale under the project. To the small extent it did, and contributed to soil erosion and siltation of rivers. Land clearing in the Amazon may also have detrimental effects on the region's hydrological balance, the earth's ozone layer and ecological/ biological diversity but the extent to which the project may have contributed to these effects cannot be quantified. 9. Bank Performance 9.01 The Bank involvement measured in terms of staff inputs throughout the life of the project has exceeded by far the average for Bank agricultural projects. Identification, preparation, appraisal and negotiations extended over a period of more than two years and absorbed a total of about 330 Bank, FAO/CP and consultants staff weeks. A total of 18 mult.,-person supervision missions were fielded over a period of 9 years, and several additional one- person missions (generally specialized consultants) also visited the field during the same period, so that a total of 340 sw were used during project implementation. Many of these missions served the purpose not only of informing the Bank about progress in project execution. but also provided technical assistance to the POLONOROESTE coordination and implementing agencies and helped to obtain essential decisions/actions at higher levels of Government. The close Bank-Government working relationship helped to identify needed project corrective measures (such as the expansion or introduction of new environmental protection measures). Nonetheless, project coordinators report that, on occasion, insufficient staff continuity (especially in the use of consultants), resulted in inadequate follow-up by the Bank of problems identified by supervision missions. Problems like the delays in release of counterpart funds, inadequate credit, and the need to strengthen environmental and Amerindian protection activities should have been addressed earlier, rather than waiting nearly four years to the 1984 mid-term review to take definitive action. The Bank's decisions to increase the percentage of the cost of the project financed by the loan and to extend the loan closing date by a total of 39 months (through four extensions) proved to be sensible, because they enabled the agencies involved to build on the experience gained in the earlier years to execute the remainder of several project components in a more effective manner. The Bank also demonstrated reasonable flexibility in adapting the project to changing needs during execution (including support for the start-up of an Emergency Environmental Protection program to reduce forest burning in the last year of project implementation). However, the Bank's quick decision to provide supplemental funding for increasing the share of loan funding proved, in retrospect, premature, considering that a similar amount of loan funds was canceled at project completion. Although the wisdom and timing of the Bank's decision to support the completion and pavement of BR-364 under another POLONOROESTE project (Ln. 2062-BR) can be questioned, once that decision had been taken the Bank did make a valuable contribution under this project to promoting more orderly settlement than would otherwise have occurred, and to strengthening the protection of the environment and of the Amerindian population in RondOnia and Mato Grosso. - 25 - 10. Borrower's Performance 10.01 The Borrower cooperated closely with the Bank, FAO/CP and consultant missions during the preparation, appraisal, implementation and project completion phases of the project, and was generally open to suggestions on how to improve and modify the project in response to changing circumstances and the need to increase environmental protection because of rapidly accelerating migration into the project area. However, throughout most of the life of the project, the Borrower did not proviCdt the necessary counterpart funding for the POLONOROESTE Program. Although the prolonged economic crisis and associated fiscal deficit were contributing factors, this must ultimately bc attributed to a decision regarding its priorities, inastuch as the Borrower did allocate substantially greater expenditures to other investment programs during the same period. Moreover, even within the level of counterpart funding that was made available for POLONOROESTE, greater emphasis was given to the completion of physical infrastructure (paving of BR-364, and feeder roads) than to essential agricultural support services and environmental protection. By project completion, the Borrower had complied with most of the 1985 mid-term evaluation agreements and the main loan covenants, although with some delays, except for those relating to the provision of agricultural credit and adequate counterpart financing. The Amerindian and environmental covenants were implemented, but the maintenance and effectiveness of protection services are not yet adequate. Given the complex organization and management structure of the POLONOROESTE Program, and the limited decision-making authority of the Federal and (particularly) State coordination units, the Borrower managed the project about as well as could be expected. Within the limitations imposed by chronic budgetary constraints, staff resources were reasonably deployed and trained. The Borrower also prepared a satisfactory Project Completion Report. 11. Proiect Relationships 11.01 The Bank-Borrower relationship, satisfactory until the end of 1984, became strained during 1985 when, based on the critical findings of the November 1984 mid-term evaluation mission, the Bank informally suspended loan disbursements and conditioned the resumption of its financiug on the results of corrective measures agreed by the Government in April 1985. Disbursements were normalized in August 1985 after the Bank determined that the Government had complied with the key measures. From that time onwards, apart from occasional misunderstandings originating from conflicting guidance by different specialists participating in the Bank's supervision missions, a fruitful dialogue was re-established between the Government and the Bank, and among the implementing agencies. 11.02 Some of the imbalances observed in 1985 and the detrimental effect on the Program of suspending disbursements might have been avoided if there had been closer coordination among Bank units supervising implementation of the POLONOROESTE Program, so that its strengths and weaknesses would have been appreciated earlier on. The Bank should also have reacted more rapidly - 26 - and firmly in cases where important conditionalities were not being met, either by insisting on compliance or, where the Government was clearly unable to comply, by identifying and agreeing on alternative solutions. 12. Consulting Services 12.01 FIPE Evaluation Team. The Institute for Economic Resear-ch of the University of Sao Paulo conducted on-going independent evaluation of POLONOROESTE, including a report for the Mid-Term Review of the project in 1984. Relations between SUDECO and FIPE became tense and at times acrimonious, as PIPE filed increasingly critical reports on project performance. From FIPE's perspective, SUDECO and project management were defensive and unwilling to consider constructive criticism. From SUDECO's perspective, FIPE's evaluation was superficial and heavily based on second- hand information, and concentrated on documenting problems without offering practical alternative solutions. Some of the Bank's supervision reports rated FIPE's reports as very good. Eventually, however, the value to project management of the evaluation reports declined because of the atmosphere of mistrust. 12.02 FAO/UNDP BRA 87/037. From the beginning of 1988, technical assistance was provided under the FAO/UNDP BRA 87/037 project. Much of this assistance made only a limited contribution to the project. However, three project officers based in Porto Velho did very good work in forestry development, education and project administration, and another three technicians based in CuiabA assisted with economic/project analysis, marketing and Amerindian communities. The inputs of these six specialists were much appreciated by the National Program Coordin&tion and by the States, and they made substantial contributions to the preparation of the follow-up RondOnia Natural aesource Management Project and to draft working papers for this PCR. 13. Lessons Learned 13.01 The following are the principal lessons learned from the project, which may be relevant for the design of similar operationst (a) Public investments in frontier areas characterized by a fragile natural environment should be based on better technical knowledge of the sustainable development potential than that which was available at the beginning of this project. Agro-ecological zoning to guide public investment to suitable locations should be a condition sine aue non of future projects in such areas. In addition to public investments, the policy and regulatory framework governing land occupation and development patterns in the project area should be made consistent with the recommendations of the agro- ecological zoning (i.e., by increasing the private costs of occupying the more fragile areas). Otherwise, direct investment to protect the environment may be undermined by stronger incentives to exploit it in an unsustainable manner. -. 27 - (b) The economic and political conditions outside the project area which affected the level of migration to that area should have been better analyzed. While the project strategy was conceptually sound, the scope and content of project interventions were insufficient to achieve its ambitious objectives. Although reasonably successful in benefitting settlers in the settlement consolidation sub-project area, these achievements were inadequate, considering the large population that moved to Rondonia during project implementation The project was designed to b.nefit 18,200 families during a period when RondOnia grew by more than one million people. Such a massive influx of people created demands on infrastructure and on the environment, which were clearly beyond the project's ability to address. (c) Project organization and management arrangements with many agencies and excessively centralized decision making at the Federal Government level, hampered project implementation. Decentralization in favor of the state and municipalities, including more control over budgetary resources, would have resulted in greater accountability of project management to the community and would have facilitated project implementation. Also, an increased role for NGOs and private organizations in project implementation could have enhanced accountability to the ultimate beneficiaries and improved the responsiveness of project executing agencies. (d) When agriculture requires long-term financing, a careful analysis should be made of the availability of credit for the farmer beneficiaries and of the suitability of the terms for the kind of cultivation planned (in this case, perennial tree crops which would not generate any income during the development period). If suitable sources of credit are not available and where the failure of the agricultural development strategy could result in widespread environmental degradation (in this case extensive deforestation), the Bank should either make special provision for credit in the project itself or it should not support the project at all. (e) For innovative projects with above-average risks, it is essential that monitoring anid evaluation systems be oriented to provide early warnings about project impact and implementation probleme, and that project design allows for considerable flexibility. At the same time, the Bank must be prepared to take sufficiently strong action early on (i.e, suspension of disbursements) to remedy such problems. These conditions would allow for the timely introduction of adequate corrective measures to original project design. In addition, a longer start-up period and less optimistic assumptions about speed of farm development should be assumed for projects to be implemented in unknown and difficult environments. (f) The physical demarcation of environmental conservation units and Amerindian reserves is a necessary, but not sufficient, condition for their protection. Financial disincentives, such as the absence of public physical and social infrastructure in the surrounding areas and enforcement capacity to prevent and punish *nvasions are also required for ensuring the protection of such areas. - 28 - 14. Proiect Documentation and Data 14.01 The Staff Appraisal Report, the reports of Pederal and State project coe,rdination units at SUDECO and SEPLAN-RO, supervision missions, and the work of FIPE and the FAO/CP technical assistance, provided a good basis for the Borrower and the Bank to implement the project and supported needed modifications and adjustments. Although SUDECO and the State Program Coordination maintained project implementation records, not all data relevant for the preparation of the PCR was readily available. In particular, project monitoring efforts at the level of the project implementing agencies have been directed mostly to short-term administrative controls and comparisons of financial resources versus targets, rather than to data needed for a broader ex-post evaluation of project impact. - 29 - PART II - PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE' 1. Comments on Part I 1.01 The Borrower's final evaluation of the project was prepared by the executing agencies involved and is part of the Final Project Reports submitted by the National and State POLONOROESTE Coordination Units. The data were discussed and analyzed during a mission by Bank consultants in May 1990. This information was used to prepare the Bank's Part I and the Statistical Annex to this completion report. 2. Evaluation of the Bank's Performance and Lessons Learned 2.01 The aspects relating to the performance of the Bank during appraisal refer, inter alia, to the analysis of the problems in the region and the risks inherent in the project, the limited intervention of national institutions at this stage, the underestimation of the technical and institutional difficulties, as well as the inadequate allocation and problematic flow of funds for project activities including environmental protection and indigenous communities. 2.02 Already from the first year of project implementation, the flow of national counterpart fundin&, was irregular. To correct this situation, the Loan Agreement was amended in December 1983, raising the Bank's participation rate from 34Z to 50Z, thereby facilitating project execution. 2.03 In 1985, based on a mid-term evaluation which revealed the lack of effective solutions for various problems (especially institutional organization in general and the components for protection of the environment and indigenous communities), the Bank unilaterally suspended disbursements on all POLONOROESTE loans, a situation which lasted six months, with evident prejudice to the implementation of these same activities. 2.04 With particular reference to the institutional aspect, also in the context of the mid-term evaluation, the Bank presented a proposal to reformulate the management structure of the POLONOROESTE Program. This proposal was not considered feasible and was therefore subsequently discarded. From that point forward, a consensus prevailed that the institutional development effort should be directed more towards strengthening the technical and managerial capacity of the implementing agencies and the national and state coordination units, which in turn gave rise to the training and technical cooperation programs financed under POLONOROESTE Loan 2353-BR. 81 Translation of "Avaliaglo do Projeto do Ponto de Vista do Governo' dated November 5, 1990 and prepared by the Secretariat of Regional Development. - 30 - 2.05 Another aspect meriting comment concerns the sequence and management of Bank supervision missions, which during various stages of the projec:. did not allow a smooth relationship among the various levels involved in the Bank and the Government. Succeeding missions gave different guidance, resulting in unnecessary disagreements, although the supervision of the Bank did help to reorient and implement the operating arrangements for the project, especially in the financial area. On various occasions the Bank's position on subjects like the environment and indigenous communities, resulted in the Brazilian Government's feeling that it was being pressed to carry out activities which, left to its own initiative, it might not have done in same time frame. 2.06 The main lessons learned were: (a) Bank/Government relations should be characterized by a greater sense of cooperation, based on mutual agreements. Unilateral positions should always be avoided, since besides prejudicing the Bank/Government relationship, they can also adversely affect project implementation. (b) Communications between the Bank and the Government should be continuous and well-documented, particularly as concerns the composition of missions, timetable and preparation of the same. Some problems could have been avoided if the Bank had consulted the Government about the composition of its missions and changes in its teams. 3. Evaluation of Borrower's Own Performance and Lessons Learned 3.01 Project execution was compromised by a series of factors which often were beyond the direct control of the Government's project coordination and management, including: (a) excessive migration to the POLONOROESTE region; (b) lack of credit for small producers; (C) sectoral policies which were inadequate for the region or which did not take into account environmental and indigenous issues; (d) constant delays in the release of national counterpart fundlng; (e) fragile executing agencies; (f) low salaries paid to technicians in many institutions, etc. 3.02 Some components performed better, such as those concerning infrastructure, like the construction and maintenance of roads and construction of public buildings in general (schools, health posts, offices for executing agencies, etc.). However, the provision of technical assistance, rural extension, education and supervision left much to be desired. Various factors contributed to this, including: insufficient number of technicians, low salaries, inadequate training, lack of resources needed to maintain support for program activities, etc. 3.03 Another aspect which contributed to unsatisfactory performance was the fact that the farm models actually used by many colonists were based on products that did not allow adequate capitalization of the farmer. This problem, combined with the complete lack of familiarity of the colonists with the environmental conditions of the Amazon (different climate and soils, high incidence of tropical diseases, principally malaria, etc.), resulted in many of them not establishing themselves satisfactorily on the land and, in some - 31 - cases, abandoning the lots received in search of new frontiers or other activities, especially mining and urban under-employment. 3.04 More emphasis should be given to activities related to the protection of the environment and indigenous communities which could not be adequately controlled because of the concept and location of other Government investments (settlements in unsuitable soils, road construction, etc.) or because of the weak performance of the institutions involved (IBDF, SEMA, FUNAI, IEFIRO, Forestry Police, SEMARO, etc.). 3.05 Nonetheless, some successes were achieved through implementation of the project, includings - creation of State agencies with competence in the areas of activity of the project (IEF, ITERON, SEAM, CAGERO, SEMARO, Forestry Police); - strengthening of other institutions related to the project (EMATER-RO, EMBRAPA, DER-RO, SEPLAN-RO, SEAGRI); - demarcation and protection of indigenous areas; - establishment and demarcation of conservation units; - development of the Socio-Economic-Ecological Zoning of the State; - the fact that environmental legislation of RondOnia and the State Constitution now include important aspects of the Socio-Economic- Ecological Zoning; - use of the above as the basis for preparation of PLANAFLORO, which rcflects the positive and negative lessons learned from the project; - environmental protection programs financed for other areas (the program to preserve the Pantanal of Mato Grosso, the Emergency Program to Combat Forest Fires in the Amazon). 3.06 Maior Lessons Learned (a) General The great complexity of the project resulted in an excessive number of agencies involved, and this multiplicity of State rand Federal organs caused some problems and generally made coordination very difficult. In projects of the type being analyzed, this complexity is inevitable. However, it is necessary to concentrate coordination efforts on those sub-groups of components which require especially close cooperation in order to succeed (e.g., extension/research/inputs/marketing; community organization/education/training). The sequence of actions should be carefully planned, to ensure that those which are prerequisites for other important actions (e.g., agro- - 32 - ecological zoning, structuring of executing agencies and coordination units, training) take precedence in the timetable. It is indispensable that before implementation of projects of this kind, agro-ecological zoning of the area be completed. (b) Administrative Monitoring and evaluation need to be improved, especially at the level of the executing agencies, where there are deficiencies in terms of data on physical and qualitative achievements and results (impact, such as yields, income, etc.), despite reasonable financial monitoring. It is necessary to define and operationalize an integrated and coherent system of programming, monitoring and evaluation. There is an apparent need to train people at all levels in programming, monitoring and evaluation, to serve better the decision-making process. This training should be based on the programming system which has already been developed (GESTOR), and on its linkages with systems of monitoring and evaluation, seeking to monitor and evaluate not only the perticular year's annual operating plan (POA), but also the pluriannual project. Monitoring and evaluation of the project should, in the first place, serve as an instrument for articulation among the agencies involved. In this sense, it is appropriate to speak of a participatory monitoring and evaluation, involving both the institutions which execute, coordinate, monitor and evaluate, as well as the beneficiaries. The high turnover of technical and managerial personnel prejudices project performance. It is necessary to find means to improve salary levels and training in order to eliminate some of the causes of turnover. The decentralization of responsibilities for exectution, from the Federal agencies to the States, and from the latter to tte municipal and local levels, is an adequate means of improving implementation, monitoring and evaluation. The training programs should be substantially reinforced to obtain better results for future projects. The technical assistance to executing and coordinating agencies should promote effective integration of work with local technicians, to guarantee in-service training, better utilization of the assistance, and better selection of the consultants. The delays in release of national counterpart funds prejudiced the entire performance of the project, with average delays of three months between the start of the fiscal year and the decree, two more months until release of funds to the State, and another two months until they were - 33 - received by the executing agencies. Heans should be sought to eliminate this problem, for example by obtaining a 1002 advance of the Special Account at the outset of the fiscal year, to be replenished as soon as national funds become available. (c) Environment It is necessary to make a great effort in the area of education, dissemination of information and training about preservation, conservation and rational use of natural resources, as well as to substantially strengthen infrastructure and provide additional personnel. The project provided for the establishment of a valuable infrastructure to serve implementation of various activities under the environment component. Operationalization of this structure has, however, not developed satisfactorily as a result of several factors, including: centralization of decision-making by Federal organs in Brasllia; institutional weakness of new State entities which have been created; difficulties in contracting personnel; low salary levels; inadequate training and limited importance given to this sector by the Government. Apparently, the activities foreseen under POLONOROESTE for the environmental/forestry components should have been capable of reversing the serious problem of natural resource degradation in the project area. However, the simple inclusion of this component could not meet the real needs for environmental protection, unless concommitant changes were made in the general policy framework, to compatibiliz6 the geo-environmental potential and limitations. On the one hand, efforts were made to minimize negative environmental effects, but on the other, incentives continued to encourage deforestation for agricultural development, to establish land rights, to obtain fiscal incentives, etc. Given this situation, it was indispensable to modify the policy framework and to adopt means to provide for integrated development adapted to the environmental conditions of the region, utilizing, under any hypothesis, the important planning instrument of Socio-Economic-Ecological Zoning. One of the major problems encountered by this component relates to the implementation capacity of the ex-IBDF and ex-SEMA. For various reasons, these institutions did not execute their activities satisfactorily because of centralization of decision-making in Brasilia; difficulties in contracting personnel; lack of political will; etc. The State institutions created to improve execution of these project components also ended by performing below expectations, principally because of local administrative difficulties which, to a certain extent, compromised their technical performance. - 34 - (d) Indigenous Affairs In the preparation of projects to protect indigenous communities, it is important to consider the cultural diversity of the groups present in the same geographical region. These groups are differentiated by their language and social organization, and in the degree to which they have been in contact with the national society. Each activity of a particular project should be planned and implemented with this fact in mind. It is recommended that any project designed to assist indigenous groups be preceded by the preparation of an analysis of their present situation (demographic, land tenure, sanitary, economic, anthropological and social). Studies should be carried out of the effective management capacity of the project executing agencies, with the objective of strengthening these institutions and establishing an efficient and permanent monitoring and evaluation system. Specialized consultants should be contracted to carry out these studies. Despite all its deficiencies, the project collaborated in the demarcation of indigenous areas, which was a basic action necessary to guarantee their survival. Principally during the years 1984-88, actions were developed which allowed the demarcation of more than 9 million ha of indigenous territory in the POLONOROESTE region, benefitting more than 10,000 Indians. The simple physical demarcation of indigenous lands is not, however, sufficient to guarantee them in the face of invasions. Permanent control and supervision by specialized public agencies (Forestry Police, IBAMA, etc.) is also necessary, as well as participation over the medium and long term of the indigenous communities themselves, as the parties principally interested in protecting their own territories. It is fundamental to guarantee the participation of the indigenous communities by stimulating their traditional activities of hunting, fishing, gathering and itinerant agriculture, which serve the strategic purpose of the occupation of the areas. It is also important to find means of establishing boundaries in a clearer and more permanent manner. Besides the periodic checking and replacement of stakes and sign posts, borders could be distinguished through planting of different forest species. The quality, technical capacity and training of personnel involved in this type of project is fundamental for its success. Well-trained personnel with vision about the indigenous question are as important as the physical infrastructure, which can otherwise become useless because of the lack of personnel trained to utilize it adequately. Great care should be taken in the introduction of any new economic activity or technology into indigenous areas. Any economic development project should seek to optimize traditional indigenous agricultural and extractive practices, which are the fruit of secular wisdom and of a process of harmonious adaptation to the environment. The introduction of new economic activities should be consistent with the degree of acculturation of these societies. - 35 - Special attention should be paid to the situation of 4solated indigenous groups which are found in the project area, through activities designed to guarantee the physical protection of these people and their territories. The indigenous agency (FUNAI) has demonstrated its inadequate capacity to assume the various responsibilities for implementing indigenous project components like those in POLONOROESTE. Ideally, FUNAI can exercise a coordinating role, but it is important that other public entities (including universities and research centers) and NGOs participate directly in the project, contributing in their areas of specialization. Where possible, the indigenous communities should be involved in the planning, implementation and evaluation of the project. Health activities should not overlook the value of traditional medicine, and the responsibility for maintaining health care should be shared by the communities. (d) Productive Activities Institutional credit constituted a problem for small- and medium- sized producers. The in-kind system ("troca-troca"), despite some problems, was better adapted to the characteristics of this target group. There has been an expansion of areas devoted to pasture and livestock, especially in the earlier part of the project period. Although there are no concrete data after the 1985 census, an increase can be observed in land accumulation as well as in the areas devoted to pasture by small settlers, assisted by the project. The technology used for cultivation of the principal annual subsistence crops, particularly rice and corn, has not changed significantly. The traditional processes of clearing/burning/planting/exhaustion of the soil still continues. The lack of competitiveness of these products in other markets, the reduced prices and the cost of inputs have made technological change unattractive. There has been a certain exception to the above rule in the cultivation of beans. This crop tripled in the project area, maintaining its productivity and actually raising it in the case of producers assisted by EMATER. One important factor which contributed to this result has been the availability of improved seeds through the in-kind credit system. The project contributed significantly to the establishment of important areas of perennial crops, above all coffee, principally through the establishment of improved quality seedlings, with the assistance of EMATER, and cocoa with the assistance of CEPLAC. - 37 - PART III. STATISTICAL INFORMATION A. Related Bank Loans Table 1: IBRD LOANS RELEVANT TO THE PROJECT Loan Number Year of Purpose of Status Approval Project --Loan 2062-BR 1981 The centerpiece of Closed Northwest Highway POLONOROESTE was the 1988. Project completion of a PCR highway -BR-364- under linking Cuiaba (the preparation capital of the State of Mato Grosso) and Porto Velho (the capital of the State of Rond6nia) --Loan 2061-BR 1981 Designed to improve Closed Northwest Health and maintain health 1988. Project conditions in the PCR settlement areas of Completed Rondonia --Loan 2116-BR Mato 1982 Designed to upgrade Closed in Grosso Agricultural existing agricultural 1988. PCR Development and settlements in Mato completed Envirorfnental Grosso Protection Plan (Northwest II) --Loan 2353-BR 1983 Supported Extended to New Settlements colonization of 03/31/91 Project (Northwest unoccupied lands in III) RondOnia Comments: 1. In 1980, in recognition of the growing socio-economic problems caused by accelerated migration, the Brazilian Government launched a program of major investments in the Northwest agricultural frontier areas of RondOnia and Kato Grosso. The Integrated Development Program for Northwest Brazil (POLONOROESTE) aimed to absorb the human influx in an orderly and sustainable manner. POLONOROESTE activities have been supported by five complementary Bank loans including the Agricultural Development and Enviroramental Protection Project (Northwest I). 2. Parallel to the Bank-financed Agricultural Development and Environmental Protection Project, the Government agreed to implement with own resources an Amerindian Protection Project. - 38 - B. Prolect Timetable Table 2: PLANNED, REVISED AND ACTUAL DATES OF PROJECT TIMETABLE <1> Item Date Planned Revised Date Actual Date Identiflcation July 19, 1979 July 19, 1979 Preparation <1><2> November 21, 1980 November 21, 1980 Appraisal January 1981 January 1981 Project Brief March 1981 March 1981 Loan Negotiations September 1981 September 1981 Board Approval December 1, 1981 Decomber 1, 1981 Loan Signature December 16, 1981 December 16, 1981 Loan Effectiveness December 31, 1982 April 26, 1982 <3> Loan Closing <4> December 31, 1988 December 31, 1989 March 31, 1990 Loan Disbursement December 31, 1986 April 30, 1990 September 6, 1990 Closing _________________ (1> A supplemental Bank loan of US322.8 million was signed in December 1983. <2> Preparation with FAO/CP assistance. (3> With retroactive financing starting May 31,1981. <4> Total number of formal closing date extensions: 4 Comments: A supplemental Bank loan of US322.8 million was Identifi td In Febuary 1983. An approisal mlslon was conducted in April 1983, with a short post-appraisal mission In June 1983. Negotiations were held during October 1983. The proceeds of the loan were used to increase Bank's share of *ligible project costs to maintain project implementation rates and oesist Brazil during a period of economic stab;iization. C. Loan Disbursement Table 3: CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (USS million) Fiscal Year 1982 1983 1984 1986 1986 1987 1988 1989 1990 1991 Appraisal estimate 4.66 18.40 34.00 62.60 64.00 67.00 -- -- -- -- Reviced (1) -- 22.10 36.87 62.36 82.16 89.80 -- -- -- -- Actual (3) -- 17.99 26.92 37.37 42.68 47.86 56.91 e6503 70.97 71.49 (2) Actual as % of revised estimate -- 81 70 60 62 63 63 72 79 so (1) The revised values Include supplemental loan of US$22.8 million. (2) Includes financing for years 1982, 1983 and retroactive financing. (3) Including payments up to final disbursements. 0. Projoct Implmntation Table 4: PROJECT IIPLEMENTATION INDICATORS COWONENT IUltI S.A.R. fR&VIsed I Actual IR ks I ! Z~~~~~~~ ~ ~ ~ ~~~Target | IA. Roodonia Settlemt Consolidation I 1 1 1 I ~ ~ ~ I I.Acces Roads I I Aces" Road - M 1 2,19 2,a21 Accas Roads - Ioprovemnt 2,933 90td,> *nd S"ll Brldgo I W | I | 1,9306| lMaInly wood construction. I Drain Holes Md I Mt I 6,6 1 1 I Technical Support Units no. to19 n.a. I I 2.ServIce Centers (ARsb) Rural Service CAters no. as 20 20 1 Z ooning WAR) no. 39 2D 20 Deep WaleIs no. 39 20 20I Publ7c Water Supply Systm no. 39 20 20 For most WARs (1S) surface water was used. I Extension'oY Water System It s 63 Missing information for 3 NUARs. nbe., Consumers Do. 2,S7 Ww Elatricity Enra Sy t no. 3 20 20 160 KVA Gnor. (Wood-fired Steam Eng.)y I Extension of Tramn lsion Llnes r km I I 140 I Diosl oI-tric generators Installed in all MAR | Extonsion of Distribution Lines I|ts I I I 53,241 1 I Eletricity Consumers no. 39 2 2,383 I Resldential, commercial, Industrial. Office for Technicians no a9 21 201 1 I Guest Residence I no. I91 201 201 H llamo for Resident Technicians no I 195 G 6o | SoSa il l no: 39 a I Storeg Units no. 19 I 2 3.Agriculteral Extension I I ; j j I I I I I I Directly Assist. _enf. Frmer I no. 18,269 0 | 11,339 I 8,440 by EMATER and 2,899 by CEPLAC. Group Assist. Scheme. Farmrs no. g I 3,300 Training Course for Extensonisti t part 159 I 84 I First project years. I Training Courses for Farwrm I part./no. 12,890/ - I 113,627/9611 Includes both Farmer Leaders and Youth. i Dm onstration Plots I plots 20 1 I 9301 I Support Staff l tot./Inc. - /169 1 1 110/ 66 1 Extensionist Staff Mmber (at NUAR levl) tot./Inc. 165/110 j 84/ S9 39 I Subject Matter Specialist (Rog.OffIce) * 7/ 4/ 4 Central Ad1inistrators * 2/ 21 2/ 2 1 Administrativ Support Staff I * I - / 20/ 20 Extensionist Office (WAR) 9 no. 201 211 1 COWNONENT I Units S.A.R. lRevised I Actual I Remarks ' ! ~~~~~~~~~~~~~Targre t 14.Agricultural Research D oetration Fo rs Os n 3 For crop and liv.stock. Expmrimontal Stito ons no 3 With 10 ha :ach3 Weather Observation Station I Locatd t EMBRAPA research station. Soil Laboratory I no. I 1 I 11 Soil Test end Mapping Services no. 26,0 Incroemntel Staff I 51 25W850 Technical and Ct ntific Publications 6 1 236 D onstr tlon UnlU o 412 I Sedllng Production no. I 1 198,030 1 * Sed Production ton 160 I Agricultural Experiments I no. I 1 1 4461 1 Construction of Regional Center no. I I I i 1 C5.Crop Storage and Drying 1 1 1 1 1 Construction of Storage Units I no./ton 119/2,6 W j 2/2,606 j Collector Storage. Includes equipments. no./ton 18/ 600 I Community Storage. Includes equipments. IO.Fareor Organization Co mmunity Crbups / Organizations no. 47 1Formally assisted groups. I Cooperatives no. 1 6I Cumulative 1983 - 1989. o Auoiations Issoc. I 172 I I Producer Groups group j 1,439 l Rural Women Group | group I I I 291 * I Rural Youth Group grop 1 ' 7.Eucaton I I I Schools NUAR - Construction and Equipment no. 9 20 APP: 4 claser., 4s stud./eirssr.,2 daily uhiftel I PCR: 6 classr., 36 stud./classr.,4 daily shiftel Satellte - Construction and Equipment no. I 90 199 APP: 1 _-asr., 40 etud./closer. 2 daily shiftal New Teachers l I l IPCR: 1 classr.,80 studont/claser,3 daily shift*l |Now T tchers no. ||1 6 1988 I UAR Schools no 312 233a 11 are certified teachers. I Surrounding Schools I no. 780 1 238 68 are certified teachers. Teachers Trained no. 840 I 430 j Cumulative (Includes teachers, school directorel I I I I I I secretary and supervisors). I Curriculum Adjust usnt to. I 1 1I Adopted until 1986. I Not Incrosse of School Places no. 40,000 i 24,3001 I I~. I I COUPONENT 1 ~Units I S.A.R. IRv ised Actul IF I Remarks 1 COPOEN Target!!II 1B. Parallel Activitist Sele I - I I I I I Consolidation I I I I I I I1.FFro CroditI I Credit for Agriculture 1 I Small Farm eneficiary I no 18,208 I 3,823 FAPP (Fundo do Asslitencl so Pequeno Produtor) I II I sIwtilrYno 8,0 Credit-in-kind I I I Total Seed Contracted i kg 0 I 56,167 A successful Innovation to maks Up for th lackl Total Seedlings Contracted I ha 21,000 of conventional credit. Seds: rice, maiz and I I I I I beans, noodlings, coff,e, cocoa, rubber, j tropical fruits and forest trees. Seed and Seedling Production Program Seed Processing Plants I no. I 3 8 Only one operating (Ji-Parana) Srage Unit I no. I 3 Targt Production I tons/year I 38,000 I I Se dllng Production Assisted by EMATER IIIIII Rubber l million I 1.5' Coffee m miliIon I 24.5 I Forest t housand I 20.7 ID Sodling Production for SEAGRI Nurseries 1. I I F-.0 C.ert. Seed Prod. for EidATER Distribution I ton/yr I2848 9 I Sds for annual crops I Production Sites for Distributed Seed no. I 1 2001 Aquisition of Seeds for Seed Production ton106 3DICRA Land Titling j I | Definitive Titles (Issue) ha _ 19,779 Realized by INCRA-RO I Area Regularizd 12,206,698 COWONENT I Units I S.A.R. IRovised I Actual I Rmarks I I I I~~~~~~~~~~ ~~Target !I L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ C. Environmental Protection *d wteological Research I 1l.National Forost Identification of FLOUMs localization I no. I 2 I 2 i 2 , jInvontoring and Demarcation i ha ; 8,000 1390,000 1 225,000 1 L anasgosnt Plan Studies no. I 21 2! 1 Manag et Plans Executed I percent lag lee1 10 Infrastructure and Equipmet I percent le e 1 G 80 I For FLONA JAMARI 12.Forestry Control I i i I . I I I I I I Strengthening of Local IBDF Offices I no. 2 1 2 1 2 I Porto Volho and Culaba offices constructed | I I I | I with IBDF resources. I Control Posts - New I no. 41 71 7? RONONIA: P.Bueno, JI-Parana, Rolla * Ioura; t I 1 i I I HATO CROSSO: JUins, Pontos * Lecorda,Braznorte I I | I I | and Km 14 Transpantanoira 1 I Control Posts - Improve Existing I no. 8 a 3 3 I RONDONIA: Vilhona; S ttelite Forest Iagery Monitoring Years S a Years 1988, 1985 and 1987. I Establishment of IEF-RO 1 | | I l -Equip. and Finan. Supp. For Local Officesl 1 1 26 I 26 IEF also executed extensTon services. - Forest Coftrol and Extension Training I cours I X I 10 S I Establishment of Rondonia Forest Police I 2 Partly Fnsnc d by on 233 - Equl. *ndFinn. upp. or Poles Pots | n. | | a 2 Police post of Alto flor ta construct ofdnd l -Equip. and Finan. Supp. For Police Poets no.qI partly HinancdquLarein C23:3. undr cns- 1~~~~~~~~~~~~~~~~~~~~~ equipment. Headquarter in Iadirudros truction. - Equip. and Finan. Support Surveillance percaft 100 I0 Surveillance for total State area. I - Forest Control and Extension Training I courses s o 69 I 4 I Courses for 120 forest policemen. I Establish. of Rondonia Environ. Secretariatl percent I 100e 60 Activities: Environmental control, survoillancel I I 1 l l I and eduacation. Support For Foret Surveillance In UT I I I I Enphasis to northen part of the State. - Equipment and Financial Support of INEA I percent I I 100 | 8g1 Control and Surveillance of Defom.station j j I I For all logal Amazon region States. In Lepal Amazon Area | | I - Equipment and Financial Support I I 1001 8 13.Natural Reserves i i II I i I II Pacass Novos Natural Rserv Ie Demarcation / km I 1 901 901 Th park Is localized partly inside the I I I J I Uru-eu-wau-wau Amerindian area. Dl)evlopment of Mbnagemnt Plan D no. I 1 1 Infrastructure percnt 100 1001 so I Operational Support 1 percent l0e1 100 so Jaro Biological Reserve 1 I I I Infrastructure I percent 100 1 801 1 Operational Support . percent I 100 1 i 1 69 8 I ______________________________________ I _________I _______ _______I__I _____ 1____________I___________________I________ COWMNENT I Units I S.A.R. IRevisod I Actual I Remarks I I _ I _Target I I Cuapore Biological Reserve I I . I I Infrastructure percent I 1W0 100 I 80 j Operational Support I percent ; 1W I e 80, I I Demarkation no. I I I 1 Development of Management Plan 1 km | 1 200 ; 0011 I Studies For Establish. of New Conservationl no. I 2 1 2 Chapada don Cularass * Pontal do Mato Crosso. I units In ata Gatosso I I I 4 I ISupp to Pantenal Cr tos ross.sp Not Park percent ISO 40 (equpmnts) I I4.EcologlI Stations T lo (Expansion) Infrastructure and Equipments percent 10o1 110 1101 Serra das Araraes (Estblishments) I i I Infrastructure and Equipments prcent 100 10 1 ee Ique (ExSh1slon) | I I > Infrastructure and Equipmnnt percent 1 1 10 l1a I Colaa (Establishment) I I 1 Ii Infrastructure and Equipoents per 11 W 11 W 100 I Proscribed in favor of BAMA. I C.Ecological Research Research Projct. no 2Q 20 201 Equlponts and Local Support. p rcont 1 W 100 10011 Human Resource Development at FUFUT porcent lee 1W 100 |D. Parallel Actlvlty to Envirom ntal I tl Protection i I I ~ ~ ~~I I .I I 1. A orindiln Prot ctlon I I _ _ _ 1 1 1 1 1~~~~ I | Indian Population no. 4,250 | 9,60 0 9,60 | I Indli nous Area I no. 28 87 671 I I Demarcation I I I I I I Reserves I no I 7 28 No target sot. I Area hn(mIlilon)l 3.! 1 * 1 9.0 1 * No target set. I Borders demarcated I km 1 3,940 1 1 9,300 1No target set. I I Schools no. 20 321 I Infirmaries I no. 1 281 381 FUNUI Administrat;ve Units | no. 1821 82I I conitruction/reconstruction I I I I I I I _ CWVGNENT I Urnits I S.A.R. IR*VisWd I Actual I Remarks I I Target I I I E.Studles and Program Coordination I 1.Land R.gularlzatlon In abto Grosso I For iTfNorthwest Phase U are. I Discrimlinttd Area ha(milIIon)I S.3 I . 6 3 _ retloa ha(Ilion) 06 1 .4 For farers owning 2 to IN ha. - Topornphleal Sulrv y - Phy ieul Dmarcation Pr ITinn qr R qulear to - Cadastral Miero-film I I 1 1 G - Trising of INCR Staff perent I lee In Vto Grosso Titling (Farmrs) no. | 400Ii 2.Soil Surveys for Mmq Settlements Soil Survey 170 1 1 2Wi For Northwest Phase III area, but completed - urpa Inb (Xing) 7061 only In 190S S.Program Coo dinatlon and Survey I Northwe t Coordination Unit Total Federal Program Coordination disbur sentl was US8B.o million or 34X of foreseen at I appraisal. Rondonia Coordination Unit Total Rondonia Coordination disbursement was I t I I I I I US14.7 million or 232X of foreseen at approisall |Settlemsnt Consoltd. Area - Salvage Logging | II I I Proposed studies for this activity were |- | } | l | not undertakon. I,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Note. 1- Table Identifies all quantitative and qualitative targets of SAR. For a number of tarpets appralsal and PCR concepts are not fully comparable. 2- Percentage of achievement based on information provided by national project mangement. Source: SEPLUN-RO, National Project Managsment (SUDECO), Bank files and PCR mission. - 45 - E . Proloct Costu and Financing Tablo 6: PROJECT COSTS (US8 million) SAR Estimates X Actual (1> X A. Rondonia Settlement ConsolIdatlon Access Roads 29.1 20.9 88.8 29.3 Service Centers (NUAR) 42.8 38.6 12.9 9.8 Agricultural Extension 6.4 4.6 12.8 9.2 Agricultural Rosearch 4.4 3.2 4.7 3.0 Drying and Storage 12.6 9.1 0.9 0.7 Farmer Organization 1.9 1.4 1.4 1.1 Education 6.2 8.7 6.8 4.0 Input Supply -- -- 4.9 8.0 Rondonia Coordination Unit 2.0 1.4 4.7 8.6 Sub-Total: 104.0 74.8 8.60 64.3 S. Environmental Protection and Ecological Research National Forestry 1.8 1.0 81.9(2> 24 .1 Forestry Control 2.4 1.7 (8) (<> Natural Reserves 8.6 2.6 (8 (<8 Ecological Stations 1.6 1.1 0.9 0.7 Ecological Research 7.0 650 4.0 8.0 Sub-Total: 15.9 11.4 88.7 27.8 C. Studios end Prolect Coordination Administration 8.6 6.2 8.4 2.6 Land Tenure Regularizatlon 0.6 0.4 6.5 4.9 Soil Research 10.1 7.2 0.6 0.4 Sub-Total: 19.1 18.8 10.4 7.9 D. Total Project Baseline Costs 189.0 190. 182.2 100.0 Physical Contingencies 16.6 11.9 -- -- Price Contingoncies 43 8 81.6 Final Total Project Costs: 199.8 148.4 182.2 100.9 (1> includes agricultural and infrastructure services In Mato Grouso. (2> Includes funding for the Pantanal area. (8> Components aggregated undor National Forestry Source: SAR and SUDECO financial reports. - 46 - Table 6: PROJECT FINANCING Source Planned Final (US$ million) (X) (US$ million) (X) World Sank loan 67.0 84 71.6 (1) 64 coo 1322 60.7 (2) 48 Total 199.8 100 182.2 100 (1) A Supplemental Loan (2060-1-BR) of US822.8 million was signed In Decomber 1988. (2) Zn additlon, the COB financed fully the Amerlndion Protection Project. Planned cost for this componont was US126.6 million, of which US826.1 million were utilized. F . Prolect Results Table 7: DIRECT BENEFITS OF PROJECT Appraisal Estimato at Estimato at Indlcator. Units Estimate Closing Date Full Develooment Farm famillo no. 18,200 11,380 (1) 11,330 (1) Family Incom USS 11,900 6,677 8,686 Direct beneficlarioe no. 87,000 70,000 70,000 Totel incromentel cultivated area 000 ha. 73.8 72.4 72.4 Total Incrementsl value of producto US2 millon 148.5 70.8 70.8 Incremontal on-farm Jobs man/years 20,700 14,800 14,800 School placos no. 40,000 24,300 24,800 Water supply benoficlarie. residence 2,822 (2) 2,822 Electric energy beneficiarles resldence 1,082 (8) 1,982 (1) Aslssted directly on the farm by EMATER and by CEPLAC. In addition, some 8,800 farmers were assisted by EMATER through the group assistance schme. (2) Estimated benoefciery population 10,687. (8) Estimated beneficiary population of 9,117. Total number of connected establishments (residence, commercial, Industrial): 2,868. - 47 - Table 8i ECONOMIC IMPACT Appraisal Estimate PCR Economic Rate of Return (ERR) 22X la% Underlyina Assumptions (1) units Incromental Production Ric '00O tons 83.8 12.8 Maize 20.6 21.3 Bean* 3.7 9.7 Coffee (beans) 24.2 32.4 (2) Cocoa 22.6 24.3 Rubber 9.9 2.4 Citrus S -- 66.5 Manloc 22.2 -24.7 Beef 1. 6 1.0 Pork units 6.5 2.2 (3) Milk liters (million) 2.5 17.0 (1) Incremental prodLctton by year 1996 for moat activities. (2) In cherry. (3) In tons. Table 9: FINANCIAL IMPACT SAR PCR (if) Financial Rate of Return: Coffee > s0 > s0 Coffee sharecropper > 50 > SO Cocoa 34 > 60 Rubber 21 > 50 Citrus (1) -- > s0 Other financial indicators: (US2 million) ICM Revenues 11.4 8.2 (1) Not foreseen at appraisal. 48 - Table 10: STUDIES tud-es Purpose Status Impact Independent outside To *valuat, the Completed Used for tho 1984 evaluation of project direct and Indirect Mid-Term Review performance Impact of the project for the Mid-Term Review (by FIPE) Sotl Survey To provtdo tho basis Completed In 1986 POLONOROESTE III and for location of now now settlements settlements and started more than one infrastructure year before the soil Inv-stment under survey was completed. POLONOROESTE III Once the results of Project the study wore known, the scope of POLONOROESTE III was dristically reduced to exclude areas of very poor soils. Salvage Logging To determine most Not completed A parallel study was efficient salvage carrieod out, however, logging methods by the timber industry. - 49 - G . Status of Covenants Table 11: COMPLIANCE WITH LOAN COVENANTS Covenont Section Description of Covenant Date Status of Compliance 8.03 The Borrower *hall cause SUDECO Each Complied with. to (a) establish the Program October 81. Coordination Unit and to employ a coordinator and two section chiefs satisfactory to the Bank, and (b) by October 31st of each year to furnish to tho Bank the proposed plan of operations for POLONOROESTE activities for the following fiscal year. 3.04 The Borrower shall cause (a) each March 81, Compl ed w;th. Executing Entity involved in 1982. POLONOROESTE activities to establish and furnish to the Bank by March 31, 1982, detailed monitoring plans and procedures satisfactory to the Bank; and (b) SUDECO to enter into by March 81, 1982, contractual arrangements with independent consultants for the purposes of assisting the Borrower in continuous evaluation of POLONOROESTE in its entirety, such evaluation to be carried out on the basis of plans and procedures satisfactory to the Bank. 8.06 The Borrower shall cause UEPAT to Each year. Complied with. publish the results of the research activities carried out under Part A(4) of the Project (agricultural research), annually, a*d in a manner satisfactory to the Bank. 8.08 The Borrower shall, for purposes June 30, Complied with. of Part B(1) of the Project 1988. (National Forest): (a) take the necessary measures through its Ministry of Agriculture and Ministry of Interior to assign, in consultation with the Bank, the specific responsibilities for their respective agencies for land-use planning and for the identification and development, Including financing, execution of national forest projects in the Program Area; couse IBDF to establish and operate a forestry development planning group, to furnish terms of reference satisfactory to the Bank for the proposed planning studies to be carried out undor Part B(1) (Natlonal Forests) and by June - 80, 1088 to carry out such studlos. - 50 - Covenant Section Descerlption of Covenant Date Status of Compliance 3.07 The Borrower shall, for tho December Complied with. However, purposes of Part B(2) of the 31, 1982. IBOf has not consistently Project (Forestry Control) by maintained staff at these December 31, 1982, provide all posts. necessary facilities, staff, services, and other resources for each of the seven forestry control posts In the Project Area. 3.08 The Borrower shall, for the March 31, Substantially complied purposes of Part B(3) of the 1982. with. However, IBDF has Project (Natural Reserves): (a) not consistently by March 31, 1982, define and maintained staff In the legally establish the Guapor6 field. biological Reserve, end (b) cause IBDF and FUNAI to enter into contractual arrangements satisfactory to the Bank, defining the respective responsibilities of the two agencies with respect to the protection of the Pecaas Novos National Park and overlapping interdicted Amerindian *reas, the works to be carried out by IBDF in this Park, and the procedures for FUNAI staff to accompany IBDF field staff as necessary. 3.09 The Borrower shall, for the -- Complied with. purposes of Part B(4) of the Project (Ecological Stations): (a) cause SEMA, together with the appropriate agency of Rondonia, to delimit the Cunia Ecological Station in Rondonia and thereafter legally establish this station; and (b) cause SEMA to furnish to the Bank for approval, detailed engineering designs and plans for the works on the Ecological Stations of Ique, Serra das Araras, Taiama, and Cunis. 3.10 The Borrower shall for the -- Complied with purpose of Part C (Ecological Research) cause CNPq to prepare a detailed research program satisfactory to the Bank including a budget, terms of reference and execution arrangements and to promptly enter into contractual arrangements satisfactory to the Bank for the carrying out of this research including the provision for annual dissemination by CNPq of a progress report setting forth the findings and recommendations of the research carried out under such research - program during the preceding POLONOROESTE fiscal year. - 51 - Covenant Section Description of Covenant Date Status of Compliance 8.11 The Borrower shall, for the - Substantially compiled purpose of Part 0 (Land Tenure with. INCRA has not Regularlzatlon) cause INCRA to allowed farmers with (a) establish with necessary holdings smaller than the resources Its land tenuro project official arural moduloe to In Vile Bela and complementary be titled. flold units at Ponts* E Laeorda, Mirassol d'Oeste and Barra do Bugres, In the Program Aroa In Mato Grosso where rural dovelopment or settlement activities are plannod and to provide owners of moro than two hectares In such areas with good *nd definitivo titles promptly fttr the completion of demarcation of their respective plots. 3.12 The Borrower shall cause SUDECO -- Complied with. to carry out the special studies under Part F (general studies on future development projects In the Program Area) on the basis of terms of reference satisfactory to the Bank and to promptly furnish to the Bank the results of each study carried out under such Part F of the Project. 8.13 The Borrower shall take all -- Partially compiled with. necessary measures to discourage Some actual or planned the agricultural exploitation of conservation areas have areas which have been determined been subject to occasional to be unsuitable for agricultural Invasions by squatters. development or of areas whose In most cases they have suitability for such development been removed by the has not yet been determined and Government. to prevent the occupation of areas that have been legally defined as reserves. 3.16 (a) Not later than six months Six months Complied with. after the Closing Date (as after modified by the Borrower and the closing Bank) shall cause each of the date. Executing Entities to prepare and furnish to the Bank through SUDECO a report of such scope and detail as the Bank shall reasonably request. 3.16 The Borrower shall take all steps -- Complied with. necessary to acquire when needed all land and land rights as required for the construction and operation of the facilities provided under the project. - 52 - Covenant Section Descrlption of Covenant Date Status of Compliance 4.01 Tho Borrower shall take mesxures -- Partially complied with. to ensure the timely availability Seasonal credit was of adoquate funds for 10,200 available during most small-scale farmers required for years of project seasonal crop credit and Implementation although at maintonance of annual crops and very high Interest ratet on-farm Invostment credit. The Investment credit to Borrower shall make available establish perennial crops credit for the above purposes was not available durlng with priority for small-scale most of the project, with farmers rceiving credit for the the excoption of the lost first time to establish peronnial two yeOrs when an In-kind crops. credit system was established. 4.02 The Borrower shall carry out in -- Substantially complied Rondonis the Seed Production with: seds were not Program which shall provide funds always available on a for the instaliation of three timely basis. seed-processing units, the training of technicians and cause UEPAT to mako available on a timely basis an adequate supply of basic seeds for the production of improved seeds In the sub- Project area. 4.08 The Borrower shall cause IBDF to -- Not complied with. carry out feasibility studies In Howover, a parallol study the sub-project area to determine wae carried out for the the most efficient salvage timber Industry. logging mothods and furnish to the Bank for review and comment the recommendations of such studies and thereafter to take all measures to put Into effect such recomnendatione. 4.04 The Borrower shall (a) cause Partially comptled with. INCRA to provide all landowners (a) Titlos were issued to within the settlement armas of 19,000 settlers In the the sub-project area with good project areas. (b) and definitive land titles; and Partially complied with. (b) carry out or cause to be Land tenure studies are carried out, on the basis of underway. terms of reference and a schedule satisfactory to the Bank, a study on the land tenuro and use conditions and regulations In the sub-project area. 4.065 The Borrower shall take all -- Total areas demoreated necessary measuroe to put Into *xceeded original targets; effect promptly the Special some now areas, identifled Project for protecting the during project executlon, Interests of the Amerindians. sttil require demarcation and/or full rogularizatlon. There have been occasional Invasions of Indian land. Health care has been Irregular and poorly coordinated. - 53 - H . MISSION DATA Table 12: BANK MISSION DATA AND STAFF WEEKS BY STAOES OF PROJECT (1> Stwofot Flold Total Proiet Cycle Wot/Yer Staff Weeks Specialization Staff Performance Types of (2) Represented (3> Weks Roting Status Problems (-4) 1. Through 7/79 2 E appraisal 2/80 2 E 6/80 23.2 E, A, U, F, E, L, ED 7/80 17.0 E, F, S, M, A 10/80 23.0 E, T, EG, F, A 11/86 20.0 E, F, A, EN, EG 2/81 41.6 E, F, S, ED, i, A, Sub-total L, E, A, EN, EG, AN T1 2. Post-appraisal/ 8/81 8 A, E, F, AN 28.1 Negotiations 8. Supervision 1/82 1.6 E, EN, AN, EG, T 2 P, Ii -/82 8.6 E, EG, T, A, AN, MM 2 F, M, P 7/82 2.0 AN 11/82 6.6 E, EC, EC, M, AN 2 F, M 2/83 1.0 U 3/83 1.0 EC 4/83 1.6 AN 6/83 2.2 E, EC, A 2 F, M 8/83 1.6 DM 2 M, F 10/83 2.2 E, EC. T 4/83 14.5 E, EN, A, AN, DM, M, EC 3 M, T, F 10/83 4.4 E, EC, T, ED 2 M, F 4/84 12.6 E, EN, T, AN, DM, M, EG 3 M, T 12/84 21.0 E, AC, EC, EN, T, AN, H, ED, DMi 6/86 6.0 AN, EN, EN, AG 2 9/85 8.0 AN, M, AC, T, DM 3 F, M 3/86 4.0 AM, T 3 M, F 7/88 8.0 T, T, M, A 12/86 2.0 AN 2 8/87 9.0 AN, A, F, AN 10/87 3.0 E, AN 2 11/88 (6> 4.0 AN 6/89 6.0 EC, EN 2/90 (7> 4.0 AN, A 4/90 (7) 2.0 E 6/90 (7) 6.o E, A, EN (1> Includes FAO/CP participation during projoct preparation (2> Dote of return to hoadquarters (3) E'= Economist; A = Agriculturalist; U c Manageent Specialist; F 2 Financial Analyst; L a Livestock Specialist; ED = Education Specialist; S * Soil Specialist; T * Tree Crop* Spemiolist; EG * Engineer; EN = Environmentalist; AN a Anthropologist; DM a Demographer; M a Heolth Specialist (4> 1 a Problem-free or Minor Problems; 2 a Moderate Problems; 3 a Major Problems <6> F a Financial; M = Monageriol; T a Technical; P a Political; 0 a Other During 1988-1990 this project was suporvised frequEntly in the context of preparation of tho proposed follow-up Rond8nia Natural Resourcoes Mnagemont Project. However, most of the time was not separately roported. (7) PCR Mission - 54 - Annex 1 BRAZIL RONDONIA AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT RONDONIA RURAL AND URBAN POPULATION IN PROJECT AREA lose - 1989 ___________________________________-_______--.______________________________________.___________________.__ POPULATION IN 1980 POPULATION IN 190 LOCAL-TY …… - … … _ _ _ __ __ _ ____ _ -____ ---…… -- RURAL X URBAN X TOTAL RURAL X URBAN X TOTAL Ariquemes 28,884 64 24,606 46 63,489 124,998 68 57,76? 32 182,706 CIcoal 48,434 72 l8,836 28 67,269 65,301 66 47,431 42 112,732 Espigao d'Oste (2) 22,360 67 11,196 33 33,548 J3ru (1) 81,049 72 31,652 28 112,701 Ji-Parane 80,628 68 41,536 34 122,164 64,004 42 76,036 68 129,039 Ouro Preto (1) 68,436 66 36,363 34 103,799 President* Medici (2) 79,608 87 11,802 13 91,410 Rolim do Moura (2) 69,9560 6 32,280 36 92,230 Project total 167,948 66 84,976 36 242,922 566,e96 B6 302,468 36 68,162 Other municipalities 104,911 42 143,192 58 248,103 172,263 24 388,249 69 660,512 Total - State 262,867 228,168 492,025 727,959 690,715 1,418,674 - Project/State (U) 66 37 60 76 44 66 (1) Theos municipaflities were created In June 1981 by subdivdlon of Ariqu-m s, Cacoal and Ji-Porena municipalitioo. (2) These municipalities were creatod after 1984 by subdiviston of other project municipalitios. Source: FISCE and SEPLAN - RO - 55- Annex 2 BRAZIL AORICULTURAL DEVELOPMMENT ANL ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT SAR Ylold Estimates PCR Yilld Estimates Without Wlth Without With Project Project 1/ # Project 2/ Project X -------tons/h ----------- -----------tons/he----------- Rice 1.92 2.69 8t 1.74 1.90 9 Maize 1.69 2.01 26 1.70 1.80 6 Manloc 6.00 8.00 88 8.98 10.00 11 Beans 0.89 0.60 68 0.49 0.68 81 Coffee 8/ 0.82 1.01 28 1.04 1.20 15 Cocoa - 1.60 -- 0.89 0.74 90 Rubber 4/ -- 1.00 1.06 1.10 10 Citrus -- -- -- -- 16.00 -- Banana -- 2.00 -- 0.91 0.90 (1) SOURCE: Staff Approleal Report; FIBQE, EMATER-RO. Farms assisted by EUATER-RO or CEPLAC. 1/ Average ylld otf better and moderate soils. 2/ Yields estimated for PCR based on Appraisal cropping pattern. 8/ Beans as exported. 4/ Pure stand trees. - 56 - Annex 3 BRAZIL AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT Incremental Production at Full Development SAR Estimates PCR Estimates Production Fanm-Gate Production Farm-Gate Value Value ('000 tons) (US$ million) ('000 tons) (US$ million) Rise 33.6 8.4 12.3 2.4 Corn 20.6 4.2 23.3 2.5 Beans 3.7 1.9 9.7 6.3 lManioc 22.2 1.2 (24.7) (1.2) Coffee 24.2 45.8 14.8 10.0 Cocoa 22.5 35.5 24.3 23.8 Rubber 9.9 29.6 2.4 4.3 Banana/Citrus -- -- 56.5 3I 5.7 Beef 1.0 1.5 1.8 1.9 Eggs 21.6 1/ 1.1 -- Chickens 1.2 1/ 2.2 -- -- Pork 8.5 1/ 11.3 2.2 1.5 Milk 2.5 2/ .8 17.0 3.1 Total 143.5 61.5 1 Million units 2/ Million liters 3/ Citrus - 57 - Annex 4 BRAZIL AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT Status of Deforestation in Rondonia According to Different Sources (Z of State Area) Source 1975 1978 1980 1963 1987 1988 IBDF/IBAMA 0.50 1.72 3.12 5.85 9.61 -- INPE -- -- -- -- -- 12.60 SEPLAN/RO -- -- -- 19.20 23.70 D. Mahar 0.30 1.70 3.10 -- -- 23.70 Fernside 1/ 0.50 1.71 3.12 5.74 15.18 17.08 1/ Information for 1975 to 1983 based on IBDF data. Information for 1987/88 obtained from J.P. Kalingreau. - 58 - Annex 5 BRAZIL AGRICU-LTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT Conservation Areas Established in RondOnia and Mato Grosso with Support from Polonoroeste CONSERVATION UNITS AREA (ha) RONDONIA 2.432,534 National Park Pacaas Novos 764,801 Biological Reserve Guapor4 600,000 Jaru 268,150 Ecological Station Cunia 100,000 National Forest Jamari 215,000 Bom Futuro 280,000 Extractive Reserve Rio Ouro Preto 204,583 MATO GROSSO 422.600 National Park Pantanal Matogrossense 135,000 Chapada dos Guimarges 39,000 Ecological Station Ique 200,000 Serra das Araras 32,600 T~. *., 16,000 Source: SUDECO - 59 - Annex 6 BRAZIL AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT Economic Prices Derivation (US$/ton) SPECIFICATION MAIZE RICE RUBBER COFFEE COCOA International Market Price 1/ 102 296 1,271 2,010 1,020 Quality Price Adjustment 2/ 266 1,809 Overseas Transport and Insurance 60 100 200 (150) (120) Price at Port of Santos 162 366 1,471 1,659 900 Transport to Project Area 50 50 117 (120) (120) Sub-Total 212 416 1,588 1,539 780 Conversion Factor for Processing 55 45 Converted Prices 212 229 1,588 692 780 Processing Costs 3/ (25) (77) (30) Sub-Total 212 229 1,511 662 780 Taxes (ICM and FUNRURAL) 204 102 121 Farm-Gate (Economic Prices) 204 1,511 560 659 1/ For maize, rice and rubber prices based on World Bank projected prices. For coffee and cocoa average New York prices (source: Gazeta Mercantil). 2/ 1OZ reduction in prices for quality adjustments. 3I/ Processing costs since the farmer sells coffee in cherry and rice with shell. - 60 - Annex 7 BRAZIL AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT Economic Price of Fertilizer Urea Potassium Chloride .......... .(US$/ton) .......... World Bank price projections in constant 1989 dollars 1/ 179 96 Overseas transport and insurance +100 +100 C.I.F. Price Santos 279 196 Port handling, storage and losses +70 +70 Transport to project area +60 +60 Farmgate prices: 409 326 1, Based on World Bank price projections bulletin October 1988. BRAZIL AGRICULTURE AND ENVIRONMENTAL PROTECTION PROJECT PROJECT COMPLETION REPORT Participating Farmers Directly Assisted by Extension Service Farm Model/CroP Years 1 2 3 4 5 6 7 Coffee Farmer 514 2054 2497 2940 3732 3866 4000 Coffee Sharecropper 276 1104 1342 1580 2006 2078 2150 Cocoa 371 1484 1804 2124 2696 2793 2890 Rubber 92 370 449 529 672 696 720 Fruit Tree 202 806 980 1154 1465 1517 1578 Total 1455 5817 7073 8329 10571 10950 11330 AQIC%k*TIRtE AND BWIftRIS6EAL P6OTECTIO PROJ6CT PROJECT CUMLETI4M REPORT Co91st Ssof Stesom for Econic kAIsy.i. (WI '000) Tear 1 ~~ ~~ ~~~2 3 4 5 6 I 9 10 11 12 13 14 15 16 17 16 19 20 * ~~~S F~~~ W --TS --51-6.6 15960.- ---2 --214-9-4.9-- 2,33-32.?- - 356-46.0, - 45-195.0 --3944.- 5-72-0-7.2-- 57060.--1-6-095-4.0 - 59-23-5.1 5-24.35447 - 5-32 2-4. 0- 51-2 3 2.0 ---389-36.1-- 4536.6567.9674.5--s. SErMEBE4T COWAOLM TION 26636.5 14767.2 16470.8 8573.3 66M. 5 7304.0 620.6 15421.9 1930.4 1930.4 1930.4 1930.4 1930 4 1930.4 1930.4 1930.4 1930.4 193.4 193D.4 1930.4 ACICLLTUR6L FtVERC4 0.0 1149.7 662.2 1113.7 1284.6 72.53 506.9 154.6 154.5 154.8 154.5 154.5 154.5 154.5 154.5 154.5 154.5 154.5 1541.5 154.5 091WC AND ST0A9E 0.0 0.0 0.0 0.0 0.0 0.0 0.0 140.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 LAND TENUR RL6IZATIGN 1061.9 2391.5 3499.7 901.6 1129.4 163.1 55.0 120.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NATIONAl- F01ETS 351.4 30.2 1969.3 1163.0 1480.3 626.5 It114.1t 7769.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ECQlOICAL. RESED 1296.1 56.0 55.9 500.0 482.0 322.9 639.8 356.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5SOIL REEA 0.0 653.3 0.tp 0.0 0.0 0.0 44.0 51.1I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 AM3INISTRATION 622.6 725.2 251.9 626.0 439.7 399.7 64.4 24.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 I 0%~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C FAM/WMV#MTl4 COSS 2656.6 9163.9 566.5 3301.5 5M.0 2621.1 1620. 753. 1 539.5 655.4 1270.5 2794.2 1117.0 1102.9 1636.3 650.5 741.4 565.2 500.4 -5692.0 FAp6M/PM1C1t04 COS S 361.4 6147.6 11096.3 16097.0 20657.0 21693.9 25477.4 23346.6 23196.6 24816.6 23781.5 22747.9 22075. 4 21973.0 2172.7 14124.7 17369.9 2091.6 2357.1 225166.1 3 o TOAL. COST -33226.9 -35377.6 -41192.7 -32196.5 -39516.6 -34061.6 -33647.2 -48140.2 -25602.6 -2735.1I -27136.9 -27626.9 -25277.3 -25161.5 -25448.9 -16660.0 -20216.1 422941.6 .26162.3 -19360.1 TOTrAL MET WITfS -32710.2 -19406.4 -19697.6 -866.6 -3672.6 11113.6 20097.7 9067.0 31257.6 3359.9 32096.2 29597.4 2921 4 26062.5 25763.2 22076.1 25147.7 33731.2 33867.2 4060. 4 Rot. of r.tre * 16.2 S.itchi. .*lwes, for low6mitaeiy cost of capital * 32.0 6 FRE4T VALLES S64CH4130 VALLES PER COET FRO.ET * QVS FAMI IBEfITS (1006) 27244. 55 -10.3 SErTLBENT CONW'.sDAT0IO -7SI63.73 37.3 A09IOLTLS3A REE.RMO -3671.71 723.4 llINc AND ST?R9M -56.65 49462.1 LAM) TOOM REOLIAZATICI4 4743.89 415.3 NATZIWAL FORSTS -7122.02 3n2.4 EICU..OICAL. RESEARt -3449.74 611.9 SOIL RESEAMC -561.36 4909.6 NDMIUISTAATI09 -2312.07 12213.5 FANMjDfvESTIeEW COSTS -23364.76 119.6 FARPES/2OLITI109 COSTS -121350.96 23.1 wImTIJ FRO)ErT SALAIES 0.00 - - - PET BALANE 2600.6 - 63 - Annex 10 Page 1 of 14 BRAZIL NORTHWEST REGION DEVELOPMENT PROGRAM EVALUATION OVERVIEW I. INTRODUCTION 1. This overview of the Northwest Development Program (POLONOROESTE) is based on the Project Completion Reports on the Northwest Agricultural Development and Environmental Protection Project (Loan 2060-BR) and the Northwest Highway Project (Loan 2062-BR), as well as other studies and Bank documents. Its scope is limited because a number of other projects, which also supported the Program, are not dealt with. These include the Northwest Health Project (Loan 2061-BR) and the Mato Grosso Rural Development Project (Loan 2116-BR), which have been evaluated in separate Completion Reports, and the New Settlement Project (Loan 2353-BR), wraich is not yet completed. There were also other sectoral loans to Brazil with components in the Region. 2. The basic purpose of the Program was to achieve the sound, sustainable economic and social development of the Northwest Region, with a particular emphasis on its rural areas. The specific objectives of the Program and how well they were achieved, is discussed in Section II. Section III discusses the sufficiency of these objectives to meet the basic purpose of the Program. Section IV offers broad conclusions on the impact of the Program on the Region, and Section V outlines lessons for the future. II. SPECIFIC OBJECTIVES 3. Before the Program was initiated in the early 1980's, there had already been extensive migration to the Northwest Region. Much of the resultant irncrease in population could not be absorbed in official settlement schemes and the Region was faced with mounting socio-economic problems, uncontrolled deforestation and serious threats to the health and culture of the Amerindian population. To address these problems and to assure the sound development of the Region, the Program had a number of specific objectives designed to increase mobility (discussed in Section A), encourage orderly land settlement and agricultural production (Section B), protect the environment (Section C), promote health and education (Section D) and protect the Amerindian population (Section E). Progress in achieving these objectives was to be carefully monitored and evaluated (Section F). A. Increased Mobility 4. More than 502 of the Program costs of about US$1.6 billion (in 1981 prices) were for road construction to facilitate the movement of people into the Region and of goods to, from and within the Region, particularly from farms to - 64 - Annex 10 Page 2 of 14 markets. The movement of people to the Region was part of a long-standing Government effort to encourage migration to frontier areas to alleviate serious unemployment and poverty in other parts of Brazil, and to settle the Amazon region for strategic reasons. 5. The population of RondOnia, the major focus of the Program, had been increasing rapidly from about 110,000 to 490,000 between 1970 and 1980. even before all-weather transport became available. With the paving of the Cuiaba- Porto Velho road and its completion in 1984 under the Program, one year ahead of schedule, the average daily traffic on the road more than tripled from about 435 vehicles in 1980 to over 1,400 vehicles in 1987. The road reduced transport costs by 302 to 60? for different types of vehicles and made transport possible the entire year. Annual migration into Rond6nia increased rapidly from about 60,000 in 19RA-1982 to more than 15,000 in 1984-1986. As a result, Rondonia's population nearly tripled during the 1980's, reaching about 1.4 million in 1989. 6. The construction and improvement of feeder and access roads was fully completed in 1986, after some initial delays, and this part of the Program also achieved its main objective of giving settlers access to markets and services. However, as discussed in para. 15, some access roads were built in areas later determined to be unsuitable for agriculture, a few were located too close to Amerindian reserves and therefore contributed to the problems of invasions, and designs did not always take adequate account of the land contours and hydrographic features ot the settlement areas. 7. The Northwest Highway Project also intended to strengthen the State Highway Department but this component was implemented less successfully. As a result, in 1987 the Department was maintaining less than half the roads for which it was responsible. Moreover, by 1990 one-third of the pavement of the main highway was in poor condition and some short sections had reverted to a gravel surface and was receiving emergency repairs; its maintenance was the responsibility of the Federal Highway Department. Axle load restrictions were not enforced and the weigh stations financed under the project have not been operational. B. Land Settlement and Agriculture Production 8. The second largest component of the Program, including three agricultural projects, and accounting for about 40? of total costs, was to encourage the settlement of farmers in areas where sustained agricultural producticn was possible and to increase agricultural productivity. In the first of these three projects, the Agricultural Development and Environmental Protection Project (Loan 2060-BR), which accounted for about 13? of total Program costs, the emphasis was on the consolidation of existing settlements in an area with the best soils in RondOnia, although soil surveys were included to prepare for expansion of settlements to other areas under another project. The strategy was to promote a move from shifting cultivation of annual crops to the production of environmentally more suitable and economically more profitable perennial tree crops. At the same time, settlement in unsuitable areas and in those which had not yet been bufficiently studied, was to be discouraged, and an excessive concentration of land ownership was to be prevented. The following observations - 65 - Annex 10 Page 3 of 14 refer exclusively to the results of Loan 2060-BR. 9. It is now estimated that the Agricultural Development and Environmental Protection Project provided individual extension services at farm level to about 11,330 farm families, compared to 18,200 expected at appraisal. The decrease is explained by a slower expansion of extension services, especially in the early years (para. 10), the limited availability of credit (para. 12), the reduction in rural centers (para. 30), and a gradual change in the strategy of the extension siarvice from individual to group assistance techniques. As a result of the latter, about 3,300 additional farmers were contacted under a group assistance scheme, bringing the total of assisted farmers to about 14,360, or about SOZ of the original target. Also, training courses on specific subjects, such as perennial crop planting, were offered to 13,500 farmers. The incremental area cultivated of about 72,400 ha. is almost the same as expected at appraisal. As a result, the average farmer increased the area cropped by 6.5 ha., instead of 4 ha. estimated in the SAR. 10. Most extension staff received pre-service training, but only 84 participated in specialized in-service courses; this was considerably lower than the original target of 155. The extension service operated under difficult conditions, 3uch as insufficient operating funds, lack of farm credit and limited experience of most agents with the climate and agronomic conditions of the project area. Nevertheless, it provided valuable advice on crop diversification and rotation, efforts to retain forest reserves at the farm level, developing community organizations, simplified storage and processing methods, etc. These activities are only now beginning to take hold among settlers but should yield important wider agricultural and environmental benefits in the future. 11. The value of the annual incremental production under the project was initially estimated at US$144 million at full development but is now expected to reach only $71 million. The major reasons are the sharp declines of prices for coffee and cocoa, serious shortages of agricultural credit until the last 3 years of the Program, and lower yields for most commodities, reflecting primarily less intensive use of fertilizer and other inputs. For similar reasons, incremental employment generation, which had been estimated in the SAR at the equivalent of about 20,700 labor-years, is now expected to reach only 14,800 labor-years. 12. Funds for on-farm credit were not included in the Project because interest rates were highly subsidized, but the Government had given assurances in the Loan Agreement that adequate credit would be available from existing sources. However, virtually no credit was made available to the project beneficiaries because of Brazil's tight financial situation. This interfered particularly with the production of perennial crops for which farmers must wait several years before receiving any income, To alleviate the credit restraint, a new program of credit-in-kind was initiated, beginning with the 1985/6 crop year, providing seedlings primarily for coffee and rubber, and seeds for beans, corn and rice. The credit was essential for the rapid expansion of the area for coffee and bean cultivation. - 66 - Annex 10 Page 4 of 14 13. The incomes of the beneficiaries did not rise as much as had been estimated. At appraisal, the average annual income of participating farm families was expected to increase from about US$850 to US$11,900, but it is now estimated that incomes will average only about US$6,600, which is still a substantial increase. The financial rates of return are as high as anticipated and the economic rate of return, while somewhat lower, is still a satisfactory 16X. Lower prices and yields have been offset at least in part by greater production of some crops and lower expenditures for on-farm investments and inputs. For the Program as a whole (including the roads), the economic rate of return is also estimated at 162 compared to a SAR estimate of over 50Z, with lower cost more than offset by lower agricultural production. While the method of re-calculating the economic rate of return is comparable to that in the SAR, its significance is limited by the fact that it does not allow for important external costs (e.g., deforestation) and benefits (institution-building) which cannot be quantified. It should also be emphasized that the relatively good rate of return was possible only because this particular project was located in the best soils of central Rond6nia; similar results could not be obtained in other, agronomically more marginal, parts of the POLONOROESTE Program area. 14. The Program improved the pattern of land ownership. Titles to land were provided to nearly 19,800 farmers occupying about 2.2 million ha. While this is more than the number of direct project beneficiaries, it is only one third of the 60,000 farm families in the settlement schemes, all of which were to receive title under the Project. However, as a result of the project, the proportion of farm owners, in RondOnia, increased from 402 to 57? of all farm establishments between 1980 and 1985 while the proportion of squatters declined from 512 to 28Z. 15. The project also financed soil surveys north of the project area in preparation for possible new settlements under another POLONOROESTE project. Because of the high immigration, the Government and the Bank agreed to start settlement under Loan 2353-BR (New Settlements Project) before the surveys were completed. Unfortunately, much of the area proved to have poor soil and before new settlement could be prevented, three settlement schemes with rural service centers and feeder roads had already been constructed in areas where agricultural production was not sustainable. 16. The number of cattle in the project area increased rapidly from 126,000 in 1981 to 783,000 in 1988. However, the growth of the cattle herd in the project area slowed down during the second half of that period as the mixed farming model promoted by the project and emphasizing perennial crops, took hold, while the increase accelerated outside the project area. For the most part, livestock in the project area serves as a complement to the farm activities of small farmers, supplementing their income and reducing their risks. It does not have the damaging impact of extensive ranching involving major deforestation, land speculation and absentee ownership. as occurred elsewhere in other frontier areas of Brazil. 17. The performance of agricultural production in the project area has been good so far in that farmers who received technical assistance and who had savings or were able to obtain credit, introduced perennial crops and developed - 67 - Annex 10 Page 5 of 14 sustainable production systems. But many were not able to make this transition and therefore continued shifting cultivation and deforestation. The long-term viability of the agricultural development of sensitive frontier lands will depend on institutional, financial and technical factors. The agricultural institutions which the project helped develop, though still weak, can be sustained with the additional resources which have become available from marketing and export taxes. For individual farmers, financial sustainability is only possible on the basis of intercropping of perennial crops and agro-forestry. 18. An important limitation of the settlement consolidation component is that its size was insufficient to meet the needs of the project area. It planned for the assistance to 18,200 settler families involving some 87,000 people, during a period when Rond6nia's population increased by more than a million. Such growth imposed demands on land, infrastructure and institutions far beyond the scope of the Project. C. Environmental Protection 19. A third major objective of the Program was to protect the environment by strengthening the capability to control deforestation; studying the promotion of sustainable forestry operations in suitable areas; establishing natural reserves end ecological stations for biodiversity preservation; and undertaking ecological research. The Northwest Agricultural Development and Environmental Protection Project was intended to address the environmental issues for the entire Program. 20. These activities were estimated to cost about US$21 million (in 1981 prices), accounting for about 1.4Z of total Program costs. The Bank supported project originally allocated US$15.8 million for environmental protection but the amount was increased to US$36.7 million in the later years of the project. 21. Deforestation in Rondonia had accelerated rapidly in the late 1970's. By 1975, about O.5Z of the forest was cleared, by 1980 it was more than 3Z, by 1983 nearly 6Z and by 1988 the estimates ranged between 132 and 24Z according to different sources. Most of the deforestation was the result of clearing along the main highway and feeder roads. The number of registered logging operations in RondOnia increased from 400 in 1982 to 1,150 in 1987, and the volume of processed lumber from 1.4 to 4.2 million m3. Such rapid deforestation had, in fact, been encouraged by the government's broad policies to develop the Amazon region, including road construction, colonization schemes, fiscal incentives and subsidized credit, which created high, though short-lived, private profits at substantial public costs. 22. To address this problem, two national forests were established but the plans for their protection and development were not implemented because of lack of funds and staff. While the number of forestry control posts constructed exceeded the original program, their effectiveness was very limited because the responsible Federal agency, Brazilian Eorestry Development Institute (IBDF), was weak and had insufficient resources, the large migration to Rondonia and the rapid development of local wood industries. As a result, deforestation went virtually unchecked for much of the project period. In recent years, a series - 68 - Annex 10 Page 6 of 14 of corrective measures were taken to improve forestry control, including higher taxes on forest exploration, greater fines on illegal exploration, the establishment of a Forestry Military Police to strengthen enforcement and of a State Forest Institute to provide forest extension services, and an Emeirgency Program was initiated to control deforestation and burning. These efforts have begun to reduce the rate of deforestation and burning, according to the responsible government agencies, and have laid the basis for possible improvements in the future. 23. The project did not plan for public reforestation, but relied instead on a strategy of smallholder intercropping of perennial crops and agro-forestry development on private lots. Of the two planned seedling stations to promote perennial tree crops and forestry development, only one was completed, and credit constraints limited the number of settlers who could implement such farming systems (paras. 12, 17). Little is known about the distribution, utilization and survival of forest seedlings produced, but they evidently had no significant impact on counteracting deforestation. 24. Several Biological Reserves were established and the National Park of Pacaas Novos was strengthened under the project. Because of a shortage of resources of the responsible agencies, maintenance of the reserves is precarious and policing is inadequate to prevent frequent invasions by settlers, loggers and miners. Four ecological stations were built and equipped and a State Environment Agency (SEMARO) was established in 1986 to control pollution and initiate environmental education. Only 55Z of the funds for ecological stations were spent because of institutional weaknesses and lack of counterpart funds. 25. The project included US$7 million for ecological research, but only US$4 million were spent. About 20 research projects were undertaken, involving 179 researchers from major Brazilian institutiuns, and more than 200 scientific papers were published. While much of the work reflected very good diagnostic capabilities of the researchers, a lack of policy 2ocus and direct connection with project implementation greatly reduced its impact on project results. The implementation of the environmental protection component was weak and long delayed. However, as awareness of the seriousness of the problems and the commitment to address them grew, the funds for environmental protection were more than doubled, as indicated in para. 20. 26. The most serious difficulty in achieving the environmental objectives was the institutional weaknesses of the two key agencies - IBDF and the Special National Secretariat for the Environment (SEMA). Staffing with appropriate personnel was exceedingly difficult with low salaries, reduced even further by delays in payments during periods of high inflation. As a result, most IBDF employees in RondOnia resigned at different times during project implementation, so that many accomplishments were threatened or even wiped out. Behind these difficulties were not only the serious budgetary problems of the Government, but an ambiguous commitment to the environmental objecttves. However, the lack of effectiveness of IBDF led to the creation of a State rerestry Institute in 1987, which opened local offices in many parts of the project area. It has established a permit procedure for clearing and burning forests which, if pursued consistently, would provide a valuable instrument for controlling forest - 69 - Annex 10 Page 7 of 14 destruction, but its present effectiveness cannot yet be evaluated since the necessary data are not being collected. 27. The project did not anticipate adequately the very large increase in migration and the massive impact this would inevitably have on the environment. As a result, the scope of environmental measures was too small to meet the scale of environmental problems resulting form the rapid increase in population. On the other hand, the project has laid the institutional and research basis which would permit in the future a greatly expanded effort if supported by the necessary political commitment. But given the serious financial constraints of the State and Federal Governments, the long-run sustainability of this effort remains uncertain. D. Social Infrastructure and Urban Development' 28. The Agricultural Development and Environmental Protection Project included US$5.2 million for education. The number of school places was too be increased from 27,000 to 67,000. In addition, 1,900 new teachers were to be employed and 840 teachers were to be trained. The project as implemented increased the number of school places by 24,300, instead of 40,000, ard only 470 new teachers were employed. The quality of education was generally low. The training of teachers and the provision of text-books and teaching aids was deficient primarily because of a shortage of funds. 29. The project also included funds for 39 service centers (NUAR) to provide support to groups of farms, including public water systems, electricity supply, schools, administrative offices, health posts, crop drying and storage units, etc. These NUARs were seen as the forerunners of future towns, under a strategy to encourage a more even development of urban areas in Rond6nia and avoid overcongestion of Porto Velho and the other main cities. The number of NUARs was later reduced to 20, mostly in areas where existing small towns were already developing rapidly, and in a few cases because settlement was progressing too slowly to justify construction of a center. Most of the NUARs have since developed into towns and several into the capitals of new municipalities. E. Protection of Amerindian Population 30. The Program recognized that the rapid development of the Region would place increasing pressures on the local Amerindian communities. In particular, there would be increased competition for land traditionally held by Amerindians, they would be exposed to contagious diseases and their culture would be threatened. The SAR regarded this as a critical issue "to be addressed and satisfactorily resolved prior to the further implementation of the proposed Northwest Program" (Annex 8, para. 11). The Federal Government agreed to implement a Special Project to protect Amerindians, involving land demarcation 1 Two of the POLONOROESTE projects-not dealt with in this assessment (para. 1) also had social infrastructure components, and the third was a freestanding health project for the Program area. The results of these more significant social investments are not dealt with in this analysis. Annex 10 Page 8 of 14 and regularization, health and education services and economic development. The costs of this project (US$26.1 million) were not included in the costs of the Agricultural Development and Environmental Protection Project, because the Government did not wish the Bank to participate in its financing, but its implementation was a condition in the Loan Agreement. 31. Protection of indigenous lands was the cornerstone of the Special Project. At appraisal, the Special Project sought to demarcate 3,900 kms of Amerindian reserve boundaries covering a total of 3.1 million ha. During project implementation, additional areas were identified and the Government extended demarcation activities to these new areas. As a result some 9,300 kms of Amerindian reserves were actually demarcated, covering about 9.0 million ha of reserves. The share of the Amerindian population living in demarcated reserves in the POLONOROESTE Program area increased from only about 18? in 1980 to 852 in 1989. However, in January 1990, the Government revoked the earlier demarcation of one of the largest Amerindian areas and the total Amerindian population living in demarcated areas is now about 7,500 Indians or 78? of the total. 32. The project greatly accelerated the pace of demarcation, especially after the Banlc suspended disbursements in 1985 because of insufficient progress. More land was demarcated after 1985 than in the entire history of Brazil before then. However the protection of the Reserves against illegal logging, mining and squatters has been difficult given the size of the area, the profitability of these operations and the political support they receive, the collusion of loggers and miners with Indian leaders, and the limited capacity of the Government to fully enforce the law against exploitation. There are no accurate data on the extent of such invasions, but they are frequent and involve perhaps 5? of the Indian lands. 33. To strengthen the health services for the Amerindians, 38 infirmaries and health posts and 51 wells were built, also exceeding original targets, and health professionals and workers were recruited. However, living conditions for the staff were poor, many had little training, the turnover was high, medical supplies were frequently not available and equipment was not maintained, so that local medical services became increasingly limited. In time, they became focused on a few cenx 1 facilities at regional headquarters, but there, too, the quality of medical c._ declined due to lack of trained personnel, facilities and medicine. The level of diseases such as tuberculosis, malaria, measles, influenza and intestinal parasites among the Indians is very high. Acculturative influences such as the introduction of powdered milk, and environmental pressures such as deforestation and the consequent reduction of wild game, have adversely affected their diet and nutrition. Nevertheless by the late 1980's, the high mortality rate during the initial contact period had been reduced and the birthrate and the population were increasing. 34. Thirty-two schools were built on the Reserves but the teachers had inadequate training and inappropriate textbooks, and the poor living conditions drove them away. By 1988, virtually- the only schools on the Reserves were operated by missionaries. 37. To encourage development, the project provided equipment and supplies for - 71 - Annex 10 Page 9 of 14 large communal gardens. A few of these were planted and some flour and bananas were sold but in general the Indians refused to work communally, output was low, the equipment was not used and most gardens were abandoned after a short time. A number of trading posts were established but almost all of them closed down quickly since the Indians had no commercial experience. F. Monitoring and Evaluation 35. Given the great uncertainties surrounding the project, major emphasis was placed on establishing a monitoring and evaluation system which would provide timely information on the implementation and impact of the project, and thus permit prompt corrective action. Because of conflicts between the responsible consultant FIPE (The Institute for Economic Research of the University of Sao Paulo) and the Program management, monitoring and evaluation did not play the important role envisaged, though it was crucial in calling attention to the gravity of the tnerindian protection problem and environmental and health risks. The use of external consultants for monitoring and evaluation was effectively suspended in 1987, in favor of the monitoring system developed by POLONOROESTE's own staff. Information on the result of the project is still quite limited, reflecting more the emphasis of the system on compliance with physical and financial targets than on basic project impact. III. SUFFICIENCY OF OBJECTIVES 36. Even if the four major objectives of the Program had been achieved, this would not have been sufficient to assure the sound development of the Northwest Region because two important problem areas were not addressed - mining and urban development. A. Mining 37. The improvements in transport accelerated the development of mining in RondOnia, where between 100,000 and 200,000 people are estimated to be involved in gold and casserite prospecting. Casserite shipments are estimated at 48,000 tons in 1989 with a market value of nearly US$200 million. The value of gold mined is not known but some researchers place it as high as US$l billion per year. 38. The potential value of mining activities and the extent to which they would develop over the project period were not foreseen by the Bank and the Government at the appraisal stage, and hence adequate regulation and enforcement mechanisms were not built into the design of the POLONOROESTE Program. Mining has led to serious environmental degradation, especially water pollution and deforestation. Placer mining and river dredges have contaminated the rivers with large amounts of mercury and discarded crankcase oil. SEMARO, which was supported with Bank funds, has initiated efforts to control pollution and provide environmental education, but it is st.ill too weak for adequate inspection and enforcement. - 72 - Annex 10 Page 10 of 14 B. Urban Development 39. The Program also underestimated what would be an extremely rapid rate of urbanization of RondOnia, because of incorrect assumptions about the likely pace of migration to the State. The urban population had already increased rapidly between 1970 and 1980 from about 60,000 to nearly 230,000 and has since grown to about 700,000. The mining operations require extensive commercial and service activities for support and have contributed to rapid urbanization, so that by 1990 about 45 percent of the population of RondOnia lived in urban areas. The NUAR construction program (para. 30), while helpful, did not provide an adequate response. Many of the other new towns and the largest cities in RondOnia lack adequate infrastructure, such as water supply and sewage disposal, essential public services, including public health, and urban housing conditions are frequently poor. Industrial pollution from saw mills and the processing of raw materials is growing and the official control of these activities is inadequate. IV. CONCLUSIONS A. The Impact of the Program 40. As emphasized before (para. 1), this is only a limited assessment of the Program since several projects in its support are not covered. Moreover, some important up-to-date information, such as the distribution of land ownership, is not available. Subject to these limitations, it would appear that in most respects, the Program did not achieve the sound economic and social development of the Region. But by establishing and strengthening institutions and initiating important research, it laid the basis for expanded efforts in tae future provided a strong political commitment is backed with adequate resources of staff and fends. Specificallyt (a) The effort to consolidate land settlement and agricultural production in central Rondonia was too small to make a sufficient impact on the needs of that area. While agricultural production has increased considerably, the long-term viability of this agricultural development is still in question because of series of institutional, technical and financial constraints. The sustainability of agriculture in other, agronomically less suitable frontier lands in the Program area is unlikely under existing economic and technological conditions. (b) Environmental conditions in the area have continued to deteriorate. Deforestation has beeu rapid and agro-forestry efforts have not been implemented on a significant scale. Mining has led to extensive water and soil pollution. Biological reserves were established but they suffer from frequent. invasions by settlers, loggers and miners. Four ecological stations were established but their effectiveness as :ssearch stations has been weakened because of insufficient financial support and many of the results were not effectively utilized. A State Environment Agency, State Forestr) Institute, - 73 - Annex 10 Page 11 of 14 State Land Institute, and Forestry Military Police have been established and which is an important accomplishmeutt in spite of their operational limitations. (c) The education system was expanded and is helping to meet demand, but the quality of teaching is not adequate. (d) The lands and culture of the Amerindian population continue to be threatened by the rapid development of the Region. Most of the Indian reserves have been demarcated, but protecting the reserves against illegal invasions has been difficult. Health and educational services have had only a limited impact, though the population is now increasing. The effort to initiate economic development did not succeed. The SAR had recognized this as an important risk but beli$ved it could be minimized by a strong Government commitment, a strengthening of the responsible agency (FUNAI) and careful monitoring. 41. It seems likely that without the Program, migration into the Region would have been less or spread over a longer period of time, depending on the Government's ability to complete the road (BR-364) without Bank assistance. but that agricultural settlements would have been less orderly and productive and that protection of the environment and the Amerindians would have been substantially weaker. B. Reasons for Shortcomingts 42. There are a number of reasons for the shortcomings of the Programs (a) The Government of Brazil was strongly committed to opening up the frontier area to migration, but it gave less priority to the other components of the Program, especially the protection of the environment and the Amerindians. As a result, bhe major highway to RondOnia was completed ahead of schedule while effective demarcation of Indian reserves started on a significant scale only after the Bank informally suspended disbursements in 1985, and implementation of the environmental protection component was weak until the last years of the project period. (b) The economic and financial situation of Brazil was extremely difficult during the period, so that budgets were very limited and by the time funds were received, their value had been further reducad by rapid inflation. The Bank tried to help meet this problem by increasing disbursements under the Special Action Program, but a shortage of funds remained porvasive. (c) The key institutions responsible for the environment were weak as a result of serious managemeat, staffing and budgetary problems. The Project had recognized this as a major risk, but improving institutions, especially those operating in frontier conditions, is difficult and takes a long time. The implementation schedule for - 74 - Annex 10 Page 12 of 14 the Program was not realistic. However, the Program has created or strengthened key institutions in Rond8nia, such as those dealing with agricultural research and extension, forestry protection and the environment, which will be important for future development. (d) The volume of immigration into the Region had not been foreseen. As a result the scale of the Progran was too small to deal with the impact of such massive migration. Related to this was the failure to address adequately the problems of mining and urban development. (e) The phasing of the implementation of different components undermined orderly development. In particular, the early completion of the main highway accelerated migration before the institutions and policies were in place to assure proper agricultural settlement and protection of the environment and the Amerindians. Similarly, physical infrastructure such as NUAR's, schools, health posts and forest control posts could not be utilized properly because of inadequate staff and operating funds. (f) The arrangements for monitoring and evaluation did not work adequately. Since the Program was inherently experimental and risky, monitoring was particularly important to warn the responsible agencies promptly of problems in implementation. V. MAJOR LESSONS 43. The implementation of the Program offers a number of important general lessons, in addition to the more specific lessons discussed in the PCRs. A. Strategy for Frontier Development 44. The Program was based on the Government's strategy of alleviating serious unemployment and poverty, particular in the southern parts of Brazil, by encouraging migration to frontier areas. The Bank does not seem to have questioned that strategy but tried to channel its implementation toward sound economic and environmental development. Given the fragility of these areas, the limited opportunities they offer for sustainable employment, and the potential for great harm to the environment from their development, such a strategy needs to be carefully weighed against other policies to improve employment opportunities and living standards in Brazil. B. Government Commitment 45. Government commitment to the objectives el a program is always Important, but it becomes crucial when the political and economic risks are unusually high, the institutional basis weak and the Government is faced with serious financial difficulties. The SAR recognized the importance of this but the Government's strong commitment to the construction of the road, on the one hand, and the lower priority given to the protection of the environment and the Amerindians, on the other, was not fully appreciated. - 75 - Annex 10 Page 13 of 14 C. Proiect Preparation and Monitoring 46. The Project was based on extensive preparation efforts including a comprehensive, multidisciplinary study of the Region, but in retrospect they were not sufficient. The knowledge of soil conditions, of appropriate production and conservation techniques, of methods to protect forests, of mining activities, etc. was incomplete. Moreover, preparatien did not address macro-economic policies, such as fiscal inrentives and subsidized credit, which were inconsistent with the objectives of the Program by encouraging unsustainable livestock development and deforestation. 47. The SAR recognized the risk of incomplete knowledge, though not the extent of it. There is, however, a trade-off between more preparation, involving costs and time and still inevitably not resolving all uncertainties, and starting a project with more limited knowledge, and recognizing that it is an experiment which needs to be carefully monitored and adjusted as the lessons of experience are being learned. This choice was particularly difficult in this Program since the migration to the frontier was already in full swing. Unfortunately, the risks from insuEficient preparation were often not adequately met by prompt modifications in implementation. D. Integration and Phasing of Program Components 48. The various components of the Program are interrelated so that successful implementation of some depend on adequate progress with others. This was not always the case. The early completion of the road encouraged migration before there was sufficient knowledge about soil conditions for farming, and many environmental actions were not initiated until considerable damage had already been done. Such integration of activities, for which different agencies with different degrees of administrative competence are responsible, is inherently difficult but the SAR did not address its importance in achieving the sound development of the Region. 49. A related problem concerning phasing arose from the fact that while most of the infrastructure financed under the Program was built and the needed institutions were established, their effective operation turneid out to be much more difficult than had been anticipated. The road was bu..lt, but has been poorly maintained; forest reserves were established, but plans for their protection were not implemented: schools were built but the quality of instruction is inadequate. It is much easier to hire contractors for construction or enact legislation to establish a new agency than to assure the availability of sound management, qualified staff and adequate financial resources. This problem is not unique to the particular projects being evaluated, but it raises important issues about unrealistic goals and expectations, reflected in unrealistic implementation plans. These issues are particularly relevant in this Program because of the very difficult physical environment in which it was being implemented ant the need to establish new institutions or rapidly expand old one8, at a time of serious shortages of staff and financial resources. - 76 - Annex 10 Page 14 of 14 E. Role of the Bank 50. The Bank played a valuable role in promoting orderly settlement, strengthening the protection of the environment and of Amerindians and in encouraging necessary modifications during implementation. On the other hand, by financing the road, it helped to accelerate migration to the Region before the institutions were ready to handle the rapid increase in population. Nor does the Bank seem to have questioned the basic strategy for development of the Amazon Basin and the financial policies which in effect subsidized uneconomic forest exploitation and were, therefore, inconsistent with the Program objectives. The Bank did not appreciate that the scope of the Program was insufficient to address the range and size of the problems which the Region faced. 51. The Project raises an important issue about the Bank's supervision function. Supervision has two purposes - to inform the Bank about progress in project implementation, including compliance with loan conditions, and to provide technical assistance to the implementing agencies. For most projects these functions can be carried out by two or three field missions per year. However, in a project of this size and complexity and with such major risks, the Bank may want to consider the desirability of stationing its own staff in the project area, especially during crucial periods of implementation. It would provide the Bank with more up-to-date information on progress and greater opportunities for technical assistance. But it runs the risk that the Bank would interfere, or could be seen to interfere, with the Government's exclusive responsibility for project implementation auid thus even weaken the responsible agencies. If that risk can be minimized, the full-time stationing of staff in the area deserves careful consideration in projects of this type. This was in fact done for the Road Project but not for the Agriculture and Environment Project. MAP SECTION BRAZIL / AGRICULTURAL DEVELOPMENT AND ENVIRONMENTAL PROTECTION PROJECT "C- tRONDONIA SETTLEMENT CONSOLIDATION COMPONENT )f K Exsimg arnd Plonned Infrastructure f K :- A ,-½~~~~~~~~~~~~~~~~~~~N A, ~ ~ ~ ~ - _~r->,f I ,,>, - in.._ '? - - / 1 ' . C 'p' C'' * ! ' V - (}~~~~'' * Cl M* A'\ 0 C .. rS. * *'' _,ro __~~~~/ _fls'( J) '' _,,-A,:: J' -_ X~ ~~~~~~ -P '-\\c$o )~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ oraou C in,,D u~ .uex*) -csopQS.............. -ppers< ,r C. .... it >, A, 2< 7 ---' } S e,,~~~~~~~~~~~~ 0d'sssoz eCok-ttV'eo.sk, >1 7, ''. / / N-~ ___ N k--- N >