Document of The World Bank FOR OFFICIAL USE ONLY Report No. 20033 IMPLEMENTATION COMPLETION REPORT CHIILE SMALL FARMER SERVICES PROJECT (Loan No. 3473-CR) December 29, 1999 Argentina, Chile and Uruguay Country Management Unit Environmentally and Socially Sustainable Development Sector Management Unit Latin America and the Caribbean Region 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 EQUIVALENTS Local Currency Unit Chilean Peso (Ch$) Exchange Rate at Project Appraisal: US$1 Ch$360.0 (September 30, 1991) Ch$1 =US$0.0028 Exchange Rate at Loan Closing: US$1 = Ch$465.0 (June 30, 1998) Ch$1 = US$0.0022 WEIGHTS AND MEASURES The metric system is used throughout the report. FISCAL YEAR January 1 - December 31 Vice President David de Ferranti CMU Director Myrna Alexander SMU Dirqctor John Redwood Team Leader Steven Oliver FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS BAF Financial Sector Articulation Bond BIH Basic Irrigated Hectare CA Area Committee CATT Center of Technological Change and Transfer CNR National Irrigation Committee CONAF National Forestry Corporation COTRISA Wheat Marketing Company CREDAP INDAP Credit Information System FUCOA Agricultural Communication Foundation INDAP Agricultural Development Institute INIA Agricultural Research Institute MAG Ministry of Agriculture and Livestock MBN Ministry of National Property M&E Monitoring and Evaluation MTR Mid-Term Review PCMU Project Coordination & Management Unit PDAA Area Agricultural Development Program PDL Local Dexelopment Project PRODESAL Local Development Service in Poor Rural Communities PMG Management Improvement Program PMR Micro-regional Project PTT Technology Transfer Program PTTB Basic Technology Transfer Program PTTI Integrated Technology Transfer Program SAE Specialized Advisory service SAL Local Advisory Service SAP Project Advisory Service SOE Statement of Expenditures TELEDUC Distance Learning Program of the Television Corporation of the Catholic University UF Development Unit (monetary unit adjusted for inflation) 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. IMPLEMENTATION COMPLETION REPORT CHILE SMALL FARMER SERVICES PROJECT (Loan No. 3473-CH) TABLE OF CONTENTS Page No PREFACE ................................................................... i EVALUATION SUMMARY .......................................................1 PART I: PROJECT IMPLEMENTATION ASSESSMENT .................................... 11 A. Statement and Evaluation of the Objectives ................................................... 11 B. Achievement of Project Objectives ..................................... ................ 14 C. Major Factors Affecting the Project ..................................... ................ 24 D. Project Sustainability ..................................................... 25 E. Bank Performance ..................................................... 26 F. Borrower Performance ..................................................... 29 G. Assessment of Outcome ...................................................... 30 H. Future Operation ..................................................... 31 I. Key Lessons Learned ..................................................... 32 PART II: STATISTICAL INFORMATION ...................................................... 34 Table 1: Summary of Assessments ......................... ............................ 34 Table 2: Related Bank Loans ..................................................... 37 Table 3: Project Timetable ..................................................... 38 Table 4: Loan Disbursements: Cumulative Estimated and Actual .................... 39 Table 5: Key Indicators for Project Implementation ......................................... 40 Table 6: Studies Included in the Project ..................................................... 42 Table 7: Project Costs ...................................................... 43 Table 8: Project Financing ..................................................... 43 Table 9: Status of Legal Covenants ............................ ......................... 44 Table 10: Bank Resources: Staff Inputs ...................................................... 48 Table 11: Bank Resources: Missions ...................................................... 49 APPENDIX 1: Summary of the Borrower's Report APPENDIX 2: INDAP: Program of Technology Transfer APPENDIX 3: INDAP: Credit APPENDIX 4: Rural Land Titling MAP: IBRD No. 23006 IMPLEMENTATION COMPLETION REPORT CHILE SMALL FARMER SERVICES PROJECT (LOAN NO. 3473-CH) PREFACE 1. This is the Implementation Completion Report (ICR) for the Small Farmer Services Project in Chile, for which Loan No. 3473-CH, in the amount of US$95.0 million equivalent, was approved by the Board on May 21, 1992 and became effective on October 1, 1992. 2. At the request of the Borrower, the amount of US$36,210,613.08 equivalent was cancelled with effect from July 24, 1997, the date of receipt by the Bank of the request. This cancellation reflected the Borrower's decision to fund part of project expenditures from fiscal resources and not from the proceeds of the Loan. The Loan was closed on June 30, 1998. The final disbursement was made on March 31, 1998. 3. This ICR was prepared by Steven Oliver (LCSER); it was reviewed by Thomas Wiens (LCSER) and by Myrna Alexander and Asif Faiz (LCC7C). The report has also benefited from comments received from Isabelle Tsakok and Michael Carroll (LCSER), Mark Wilson (EASRD), Surajit Goswami (LCC3C) and Selim Mohor (FAO/CP Santiago). 4. The preparation of this ICR was begun during the Bank's final supervision and completion mission in January 1998. It is based on material in the project file, discussions with Bank and project staff, and a report prepared by a consultant, Lic. Fernando Rodriguez Schuller, on behalf of the office of the Bank/FAO Cooperative Program (FAO/CP) in Santiago. The Borrower contributed to the preparation of the ICR by providing a separate report (the Borrower's Report), a summary of which is shown in Appendix 1. IMPLEMENTATION COMPLETION REPORT CHILE SMALL FARMER SERVICES PROJECT (LOAN NO. 3473-CH) EVALUATION SUMMARY Introduction 1. At the time of appraisal of this project in 1991, the Government of Chile could look back on twenty-five years of solid, export-oriented growth in the agricultural sector, whose relatively small contribution to GDP - at about 9% - belied its importance to overseas trade, providing as it did more than one-third of all merchandize exports. The agricultural sector has been a major beneficiary of the liberalization, reform and stabilization measures which have been so important in Chile's economic transformation, and large domestic and foreign investments in commercial agriculture have fueled growth. By the late 1980s, however, it was clear that the productive potential of the small farm sector containing 253,000 producers' was not being exploited properly, and that significant problems of rural poverty persisted within the overall context of agricultural sector prosperity and growth. 2. The Bank's country strategy at that time focussed on five areas: (a) the expansion of coverage and the improvement in quality of social programs and services, to improve welfare; (b) the alleviation of poverty; (c) the strengthening of the institutional capacity of public sector agencies; (d) the proper management of natural resources and protection of the environment; and (e) the development of infrastructure to support private sector investment. This strategy was strongly supportive of the Government's rural program, which gave priority to an improvement of productivity, incomes and welfare via public support to small farmers, designed to improve their access to technology and credit and to increase their articulation with the commercial sector. 3. The initial formulation of the project emphasized the alleviation of the most significant constraints to the development of small farmers. The strategy of the Ministry of Agriculture and Livestock (MAG) towards small farmers was defined in a program matrix presented to the Bank. The institutions responsible for support to small farmers - the Agricultural Development Institute (INDAP), in the case of credit and technology transfer, and the Ministry of National Property (MBN), in the case of land titling - each prepared a strategic plan. i It was estimated in 1991 that there were 105,000 small farmers (minifundistas) with land holdings of less than the equivalent of 5 "basic irrigated hectares" - BIH - each, and 148,000 medium farmers with between 5-12 BIH each. The concept of the BIH is explained in footnote #20. -2- Project Objectives 4. The project was intended: (a) to overcome the constraints to increasing the productivity, incomes and well-being of small farmers; (b) to improve the institutional capability and effectiveness of INDAP and MBN; and (c) to improve the access of small farmers (i) to commercial markets for factors of production and output, and (ii) to publicly-sponsored agricultural development programs. 5. Two fundamental subsidiary objectives can also be defined. These were: (a) the achievement of certain quantitative measures of improvement in the loan portfolio of INDAP and the graduation of small farmers to the commercial banking sector; and (b) the achievement of defined levels of cost recovery from small farmers and their graduation from INDAP's programs of technology transfer. 6. The target number of beneficiaries2 was estimated to be about 92,000 farmers, of whom 76,000 were small farmers (minifundistas) and 16,000 medium farmers (who would all be graduated from the program of technical assistance during the life of the project). The project focused on three areas critical to their development: technology transfer, credit, and land titling. A phased, structured and selective approach to interventions, a set of actions to enhance the quality and efficiency of services, and steps towards farmer graduation from government-supported programs were all built in to the project's design to make it more effective. Project efficiency and sustainability, and support to a major expansion of the coverage of services, were to be ensured by strengthening the institutional capacity of INDAP and MBN. 7. The project was designed to achieve benefits in four major areas. First, from the adoption of technology and on-farm investment, substantial increases in farm productivity, family incomes and welfare were expected to be achieved. Second, institutional development was expected to improve and to reduce the unit costs of providing agricultural services. Third, small farmers receiving technology transfer, credit and/or titling services were expected to become more credit-worthy and, thus, more attractive to commercial banks. Fourth, improved targeting of government-provided services was anticipated, with a marked improvement in services to women farmers. Evaluation of the Objectives 8. The project's objectives are considered to have been important for the small farmer sector and for the Bank's country strategy. The objectives of the project addressed some of the key issues facing small farmers, and were oriented towards economic growth and their greater participation in the market economy. Although they were clearly stated, the objectives were rather subjective and qualitative in nature. The objectives were not 2 The beneficiaries of the project were projected to be a target number of small farmers (less than 5 BIH each) and medium farmers (between 5 and 12 BIH each). Under the project, 16,000 medium farmers already being attended by INDAP at project initiation would continue through Phases I and II of technology transfer; no new medium farmers would be added. The project's main cohort of beneficiaries was to be made up of the 18,000 small farmers already being attended plus 58,000 new entrants. - 3 - modified during implementation, but the changes that were made in INDAP's extension service and technology transfer strategy, to assist small farmers to cope with a swiftly- deteriorating business environment, modified fundamental aspects of the project's operations and, hence, the basic structure of the project. 9. The original project design was appropriate for the achievement of the objectives under the assumptions specified in the Staff Appraisal Report (SAR) concerning the suitability of the simple extension model, the credit system's operational framework, and the economic conditions for agriculture. However, the redesign of the strategy of service provision, with respect to technology transfer and credit, that occurred during implementation lacked the simplicity of the original model. The MBN's land titling program was well designed, and allowed the project's objectives and targets to be fully achieved. Implementation Experience and Results 10. The project implementation period can be divided into three separate stages: * the period from 1993 to 1994, when the project was implemented essentially in accordance with the original design; * the period from 1995 to 1996, when the extension and technology transfer service strategy was restructured and based on the concept of micro-regional projects; and * the period from 1997 onwards, when the service strategy was oriented towards associative groups of producers. 11. Extension services and credit in the project's original design were predominantly farm-oriented, and directed towards the improvement of crop productivity and simple on- farm investment. The reformulated service strategy, by contrast, focused on farrner innovation and became oriented towards the implementation of small on-farm "projects". Extension and credit support were concentrated on those farmers with greater potential for innovative investment, and farmers' groups became the primary target for the project's action. These changes involved an extensive redesign of INDAP's instruments and mechanisms, and a major departure from the project's original target population of the smallest farmers. 12. The main objectives of the project were concentrated in the categories of institutional development and financial sector development; they did not include macro-economic objectives, but the subsidiary objectives did include elements of sector policy, particularly concerning the graduation of farmers from technical assistance and credit programs, the achievement of partial cost recovery for technical assistance, and support to women. Finally, on-farm investment under the credit component was expected to contribute to the objective of physical results. In these four categories of objectives, the achievements were mixed. The project did not achieve a significant strengthening of INDAP, though it succeeded in consolidating the land titling capacity of the MBN. The achievements of the project were partial in technology transfer and investment, but substantial in rural land titling. The achievement of financial sector objectives, which - 4 - focused on reduced levels of loan arrears and improved portfolio management at INDAP, was negligible. 13. The project was not particularly onerous for the two implementing agencies, INDAP and MBN, nor was it a complex operation in its original design. However, it now seems clear that in certain aspects the objectives were not fully realistic. With hindsight, it can be seen as a risky operation in that a conjunction of factors conspired to alter radically the profitability of the agricultural sector which, combined with an extended drought, reduced the financial returns for many agricultural activities. As a result of these changing circumstances, the project's design accommodated major changes made by the Borrower during implementation with respect to the project's service strategy, although the results were mixed. 14. Technology Transfer A substantial expansion of extension coverage of small farmers was achieved by the project during the first two years of its implementation, but in later years this coverage was progressively reduced as these farmers (or some of them) were inappropriate for the new strategy for extension services adopted by INDAP. At the project's completion, coverage had been reduced to 17,000 of these farmers, approximately the level achieved by INDAP before the project started. Nevertheless, through the graduation .of medium farmers, the remaining farmers were more clearly part of the project's target population. 15. INDAP's redesigned extension schemes were refocused towards medium farmers at the expense of a reduced coverage of the original project target population, the small farmers. The overall coverage of the technology transfer program increased from 47,000 farmers in 1992 to an average of about 50,400 farmers between 1993-1997, with a maximum of 52,500 farmers being reached in 1997. Although the project target of 92,000 beneficiaries was not reached, coverage was almost double the number of farmers reached in 1990 (when the project was identified); this achievement, allied to the graduation from the program of two-thirds of the 16,000 medium farmers enrolled in 1991, indicates the sharper focus on the smallest, poor farmers in evidence by the end of the project's life. 16. During the first two years of project execution, several project-designed innovations were introduced to INDAP's extension scheme and made significant contributions to improve service quality. Of particular importance was the coordinated effort between the Agricultural Research Institute (INIA) and INDAP to address small- farm technology development and validation, aimed at closing the well-documented gap in Chile between technology generation and extension. The early termination of this scheme (after only three years of the project) thwarted expectations concerning the availability and provision of suitable technology to the smallest farmers, and presented an additional burden to INDAP as it forced a continued reliance on traditional crops. 17. The quality of extension deteriorated as a result of difficulties in implementing the redesigned extension strategies. The wide coverage of beneficiaries by the redesigned scheme became an added hindrance to maintaining and improving quality, as the type of assistance provided did not lend itself to a massive approach. Though expansion was brought to a halt at the mid-point of the project (and stabilized thereafter), INDAP could - 5 - not manage to keep an adequate balance between extension quality and quantity, a potential problem that had been emphasized in the SAR. 18. The extension program of INDAP was also expected to improve the access of small farmers to markets (for inputs and production) and to promote their participation in publicly-sponsored agricultural development programs. Indirect evidence provided by survey shows that farmers receiving technology from INDAP sold about 30% of their output in formal markets, compared to about 20% for non-participants. Of the former, about 12% had production contracts with some form of agro-industry, compared to about 9% for the latter. Only a very small proportion (between 4-6%) of farmers reached by INDAP with technology are involved in other publicly-sponsored programs, but the proportion of non-participants is even less, at about 2%. However, in the absence of valid base-line data these differences cannot be confidently attributed to the benefits of participation in INDAP programs and may merely reflect a self-selection bias. The major achievement in this area seems to have been to link INDAP' s extension and credit programs with the government-subsidized, small-scale irrigation program. 19. Monitoring and Evaluation Strengthening the monitoring and evaluation of extension was initiated early in project execution. Progress was made in designing the project indicators into the system during the first two years. Subsequently, the whole idea of monitoring extension was abandoned because keeping track of the beneficiaries' progress under constantly-changing extension schemes became unmanageable. The maintenance of a monitoring and evaluation system should have been assigned a much higher priority, as INDAP would have benefited considerably from indicators reflecting the effects of its changed support to farmers. 20. Gender A team of female extensionists was used to train and coordinate regular extensionists in accommodating improved practices to the needs of rural women and in developing their economic potential during the early years of the project. This proved successful under the original extension model, but was discontinued when the model changed; it was assumed that women did not need separate attention, and that they would receive assistance as part of the farm family. 21. Credit Under the original project design, expansion of INDAP's activities was to benefit mainly the small farmers through working capital loans; credit to farmer organizations was encouraged, though it was to be limited to well-qualified cases. Under INDAP's redesigned extension strategies, credit resources were concentrated on an increased number of farmers other than the smallest and the poorest, and on farmers' organizations, and emphasis was placed on long-term lending. Investment loans reached the level of 44% of the individual farmer credit portfolio and about 60% of the credit portfolio for organizations. The resulting portfolio composition was contrary to the project's original, risk-averse design for INDAP's credit management and expansion. INDAP's more risky term lending to individuals and organizations under the redesigned extension and credit schemes placed INDAP in a financial condition that was no longer compatible with the high level of small-holder coverage achieved earlier in the project. - 6 - The level of INDAP's loan arrears eventually far exceeded even those levels that had been considered unacceptable at appraisal3. 22. The project's goals regarding fanner graduation to the commercial banking system were focused on INDAP's activities to explore and pilot-test the necessary conditions. No targets were set for the number of farmers to be graduated from INDAP's credit system. A scheme promoted by INDAP to subsidize the transaction costs of commercial banks for lending to small and medium farmers achieved only meager results; only about 580 loans had been granted under the scheme by the end of 1997. It is important to recognize that commercial banks had by this time drastically reduced their lending to the agricultural sector in general, as a result of poor sector and loan performance during the 1990s. Contrary to expectations, INDAP thus became virtually the only source of credit to small farmers. 23. Credit ceased to be a mere complement to extension when INDAP focused small- farmer extension on innovative investment projects; term credit became almost a necessary condition for extension to materialize. Although no indicators on the level of the linkages between credit and extension are available from INDAP, the findings of a survey contracted by the Ministry of Economy to evaluate the performance of INDAP's instruments indicate that credit operations linked to extension had reached 44% in 1993 and 80% in 1997. 24. A major concern expressed in the SAR was the critical financial condition of INDAP's credit system. The credit management system installed at INDAP was designed to develop a credit record for its borrowers and to share the information with private credit agencies. This was expected to be a strong incentive to farmers to service their loans. To provide an incentive to the local branches (area agencies) of INDAP to improve the quality and status of their portfolio, their operating budgets were geared to the level of loan recoveries. The immediacy of this incentive was significantly diluted as the long-term lending grew at the expense of short-term, working capital lending. At the end of 1991, INDAP's credit system had a current level of arrears of 31%, a situation deemed unacceptable by both the government and the Bank. This level of arrears was virtually unchanged in 1992, but loan collection rates improved significantly during the first two years of the project's implementation and met project targets. Subsequently, however, loan arrears increased dramatically. Term loans, notably those to organizations, performed the poorest, despite the increasing grants received by borrowers in connection with term credit operations. 25. The decline in INDAP's loan collection rate can be attributed largely to the adverse business conditions faced by farmers during most of the project's implementation period and to a severe three-year drought that ended only in 1996, which combined to stress farm finances. However, the poor performance of INDAP's long-term loan portfolio also hinged heavily on INDAP's own lending policy and capabilities. In supporting farmer innovation, INDAP's lending had focused on operations bearing a high risk, and it was unable to develop adequate business criteria to analyze and make appropriate decisions in connection with the farmers' proposed operations. As a consequence of INDAP's heavy 3 At the end of 1991, INDAP's arrears had been 31% of its portfolio (see Appendix 3). - 7 - term lending, the share of term loans in INDAP's overall portfolio - and thus the overall portfolio level of loan arrears - increased to unmanageable levels. It was difficult for INDAP to reverse its financial condition through more stringent debt collection procedures. Contrary to the original project goal, INDAP's financial condition deteriorated considerably. 26. Rural Communications The utilization of audio-visual techniques was seen as a key to enhancing both project extension quality and efficiency. The implementation problems faced by INDAP with the rural communication system were later compounded by the complexity of the messages that were to be conveyed to farmers under the restructured extension strategies. The system achieved little in adding efficiency to extension, and its implementation was discontinued at an early stage of project execution. 27. Land Titling The achievement of project objectives in rural land titling was substantial in terms of meeting project targets, increased service efficiency and beneficiary satisfaction. The titling program of MBN was extended beyond the end of the project's execution. The extended program will regularize the titling situation of the remaining families lacking secure land tenure. 28. The land titling capacity of MBN was strengthened by the project, and its division responsible for land titling is well prepared to sustain subsequent titling activities. The division is staffed with a team of well-trained professionals, operates a significantly improved computerized client information and monitoring system, and has established a transparent contracting system with private consultants for title regularization. Major Factors Affecting the Project 29. Important economic factors significantly affected the evolution of the project. At the time of project preparation and appraisal, the success of INDAP's basic model of productivity-focused technical assistance in support of small fanners over the period 1983-1989 was evident. A favorable business environment for traditional agriculture, resulting from the policy adjustments of the early 1980s, was assumed by the Government and the Bank to continue to encourage technology adoption by small farmers. Under these conditions, the expected success of the project mainly depended on INDAP's ability to manage efficiently the delivery of services to a significantly expanded target group of farmers. 30. It was hard to foresee at the time of appraisal the extent to which business conditions throughout agriculture would deteriorate during the 1990s. Unfavorable international market conditions and the negative sectoral effects of the government's successful macro-economic policies combined progressively to erode the profitability of agricultural activities. The Chilean economy became a victim of its own success; export growth and the inflow of foreign investment drove the real rate of exchange down by nearly 40% between 1992-1997. In a unilateral decision, the government had reduced import duties drastically in 1990. The strong structure of incentives to traditional crops of the 1980s then began weakening in the early 1990s. - 8 - 31. Although this would have been evident at the time of project preparation and loan processing, it is apparent that the deterioration was not fully taken into account. Sectoral growth declined from a high of 5.8% per annum during 1983-1989 to less than 4% per annum in the 1990s. The new scenario severely curtailed competitiveness in agriculture, most notably in the traditional crops. Development options for small farmers were thus progressively reduced to the more innovative, higher-risk end of agriculture, and to adjust to this new scenario, INDAP's extension and credit strategies were radically redesigned. This had the result of significantly reducing INDAP's intensive focus on the small farmers who were the main beneficiaries defined in the project's design, and the new strategies were not successful in meeting INDAP's revised institutional objectives. Summary of Findings, Future Operation and Key Lessons Learned 32. The sustainability of extension and credit programs to small farmers is uncertain, at least on the scale at which assistance was provided under the project. The redesigned extension schemes required a more intensive and higher quality support to farmers, which was only compatible with reduced and selected coverage. INDAP proved to have the flexibility to introduce change when necessary, and also continued to demonstrate a strong commitment to public service and to the improvement of the welfare of its client base. However, under the project, INDAP did not prove that it had the capacity to manage effectively farmer assistance under increasingly difficult conditions for agriculture. 33. The unacceptably high levels of loan arrears in the portfolio make unlikely the long-run sustainability of INDAP's public sector small-farmer credit system. As no alternative financing source is available to small-farmers, INDAP's current system is likely to prevail as long as it remains acceptable to the government to subsidize small- farmer borrowing. 34. The project's overall outcome is considered to have been unsatisfactory. The objectives as defined in the SAR are qualitative and it is difficult to be specific about their achievement, particularly in the absence of a proper monitoring and evaluation framework. However, although there were a number of important achievements under the project, it is clear that the project failed to achieve important parts of its objectives, particularly in the areas of graduation to commercial credit and cost recovery for technology transfer. 35. Although the number of small and medium farmers reached with technology (at 51,000) was less than the goal of 92,000 it was double the number attended in 1990; with the graduation or exit of two-thirds of the medium farmers enrolled at the very beginning of the project, a much closer focus was achieved on the poorest and smallest farmers by the end of the project. With the two re-formulations of the technology transfer program, the objective of small farmer graduation and cost-recovery remained in effect but little was actually achieved. The anticipated technological development, which was expected to allow the individual producer to progress beyond the need for continued government assistance, was not realized; the dynamic changes in the sector meant that, in many cases, continuous technical support was needed solely to maintain competitiveness. Similarly, little was achieved in terms of cost recovery from farmers for technology transfer. - 9 - 36. The credit component was responsible for major improvements in INDAP's systems; new information technology provided up-to-date information on sub-loans and the portfolio status at all area agencies, a credit management system was implemented with accurate and timely information on over-due loans and recoveries, a systematic set of penalties was applied, data was included in commercial credit agencies' records, and full training was achieved of account executives and other staff. However, a major concern of the SAR was the financial health of INDAP's credit system. At the end of 1991, at the time of appraisal, arrears were 3 1%, and this level was maintained during 1992. During the first two years of the project (1993-1994), the level of arrears improved significantly and met the defined targets, but later the level of arrears rose again substantially, and the long-term loans performed the poorest. Arrears on short-term working capital loans rose to an average of 30% (over 50% in the case of loans to organizations) while arrears on long-term loans rose to over 30% (and as high as 64% in the case of organizations). 37. A significant number of changes was made in the activities carried out under the project between preparation/appraisal and the latter phases of its implementation. As described above, changes in the sector's economic environment demanded these changes, which affected both the technology transfer and credit components. 38. INDAP is the public sector's designated point of contact with the smallest and poorest of Chile's rural dwellers, and MBN will continue to have responsibility for the regularization of land titles amongst small farmers; technology transfer and credit supply, on the one hand, and titling services, on the other, will continue to be provided as the permanent functions of these institutions funded from fiscal resources. 39. The most important lessons learned from the implementation of this project are: * Adaptive research, oriented towards the needs of small farmers in a farming-systems context and recognizing the regional and micro-climatic variations under which they operate, is essential to maintain competitiveness, and the need is continuous. This is particularly important where (as in the case of Chile) small farmers operate in the same environment as large-scale, entrepreneurial and (above all) export-oriented larger farmers and agro-industries. * Credit and technology transfer in combination are necessary but not sufficient conditions to increase productivity. However, increasing productivity alone will not guarantee an increase in net income and well-being; in a competitive and open environment, emphasis must also be given to other important factors, particularly the development of infrastructure, marketing and farmer organizations. * Beside the objectives of financial sustainability (in credit recovery and cost recovery), there are other legitimate objectives which should be taken into account when attempting to reach and improve the well-being of the small, poor farmer. In this respect, the project would have benefited from a detailed social assessment. - 10- * Where cost recovery and graduation are objectives of public-sector technology transfer and credit, it must be recognized that not all participants will be successful; the strategy adopted must recognize this and should have specific rules for the "non- graduates". * The concept of credit graduation rests ultimately on the willingness of the financial sector to take on credit-worthy farmers as customers; this should be realistically assessed ex ante, because the combination of small average loan size, relatively high transaction costs, and significant risks associated with agriculture make small farmers an inherently unattractive client base from a commercial banking point of view. * A project which is recognized by both the Bank and the Borrower as supporting an existing government program runs the risk that little weight will be given to the Bank's views if the program is restructured and/or reoriented by the government, especially if the proportion of program expenditures supported by the loan is small. The options available to the Bank, including reformulation or restructuring of a project and cancellation of a loan, should be fully considered. * A properly identified and calibrated monitoring and evaluation system is critical for a project of this type. The appropriate base-line studies and the definition of the sampling methods should be specified as early as possible in the project cycle, and their preparation should be part of the early-acting conditionality attached to the loan. Without a proper monitoring and evaluation system, it is impossible to measure the achievement of objectives. * The private sector delivery of extension services, pioneered by INDAP in the early 1980s, continues to be both feasible and effective. In this respect, Chile has modified both the philosophy and the practice of delivering extension services to small fanners; the number of public sector employees has been reduced, responsibility has been shifted to the private sector, and competition has been engendered among service suppliers. - 11 - IMPLEMENTATION COMPLETION REPORT CHILE SMALL FARMER SERVICES PROJECT (LOAN NO. 3473-CH) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Statement and Evaluation of the Objectives 1. At the time of appraisal of the Small Farmer Services Project in late- 1991, the Government of Chile could look back on twenty-five years of solid, export-oriented growth in the agricultural sector, whose relatively small contribution to GDP - at about 9% - belied its importance to overseas trade, providing as it did more than one-third of all merchandize exports. Macro-economic and trade policy had, and continue to have, a significant influence on the agricultural sector, which on balance has been a major beneficiary of the liberalization, reforn and stabilization measures. Large domestic and foreign investments in commercial agriculture, coupled with imports of advanced agricultural technology, also helped to fuel growth. By the late 1 980s, however, it was becoming increasingly clear that the productive potential of the small farm sector4, estimated to contain 253,000 producers, was not being exploited properly and that significant problems of rural poverty persisted within the overall context of agricultural sector prosperity and growth. 2. The Bank's country strategy at that time focused on five areas: (a) the expansion of coverage and the improvement in quality of selected social programs and services, to improve welfare; (b) the alleviation of poverty; (c) the strengthening of the institutional capacity of public sector agencies; (d) the management of natural resources and protection of the environment; and (e) the development of infrastructure to support private sector investment. 3. In the agricultural sector, this strategy was strongly supporlive of the Government's program, which gave priority to an improvement of productivity, incomes and welfare in the rural areas via public support to small farmers designed to improve their access to technology and credit and to increase their articulation with the commercial sector. This coherence of views and strategies was supported by the findings of the Bank's recent sector work5 which advocated, amongst other measures: (a) selective and fiscally- prudent growth in support to small farmers; (b) increased investment in the generation of technology for small farmers; and (c) increased investment in land titling initiatives. 4 At the time of appraisal, the Agricultural Development Institute (INDAP) estimated that there were 253,000 small farm-families, of which 105,000 were small farmners (riinifundistas) with less than five "basic irrigated hectares" (BIH - see footnote #20) and farming between 1-2% of the total arable land, and 148,000 were medium farmers with between 5-12 BIH and farming 45% of the arable land. In addition, there were 140,000 rural families whose main income was derived from share-cropping and farm labor. 5 Sustaining Growth: An Agricultural Sector Review Report No. 8759 June 29, 1990. - 12 - 4. The initial formulation of the project emphasized the need to focus sharply on the alleviation of those constraints considered most significant in the development of small farmers. The strategy of the Ministry of Agriculture and Livestock (MAG) towards small farmers was defined in a program matrix presented to the Bank. The institutions responsible for support to small farmers - the Agricultural Development Institute (INDAP), in the case of credit and technology transfer, and the Ministry of National Property (MBN), in the case of land titling - each prepared a strategic plan6. 5. Identification and Preparation Before this project, the Bank had made eight loans to Chile in support of the development of the agricultural sector, totaling US$180 million. These loans were primarily in support of credit operations. However, from the mid- 1 970s onwards the Bank's lending had evolved into programs of support to small farmers and for the alleviation of poverty. One project in particular, the Agricultural Rehabilitation Project (Loan 11 19-CH, approved in 1975), is credited both with having initiated a dialogue with the Govermnent that led to the liberalization of prices and structural reform of the agricultural sector and with increasing public sector orientation towards small farmers, including a major expansion in the activities of INDAP. Beginning in 1990, the economic policy of growth with equity resulted in important changes in sector policy, especially where it concerned public sector support to small farmners. The programs of a number of public sector agencies, including that of INDAP, were adjusted to improve small farmer access to credit and technology. 6. The project was identified in 1990, and prepared by INDAP and MBN with assistance from short-term consultants. Three preparation missions visited Chile, in October 1990 and in March and July 1991; in addition, there were several individual missions that dealt with the specific issues of institutional development and computerized information systems. The project was pre-appraised in July 1991 and appraised in October 1991. The loan negotiations were held in March 1992 in Washington, D.C. 7. Project Objectives The project's objectives, as defined in the Staff Appraisal Report and the Loan Agreement, were: (a) to overcome the constraints to increasing the productivity, incomes and well-being of small farmers; (b) to improve the institutional capability and effectiveness of INDAP and MBN; and (c) to improve the access of small farmers: (i) to commercial markets for factors of production and output, and (ii) to publicly-sponsored agricultural development programs. Two fundamental subsidiary objectives can also be defined. These were the achievement of certain quantitative measures of improvement in the loan portfolio of INDAP and the graduation of small farmers to the commercial banking sector, and the achievement of defined levels of cost recovery from small farmers and their graduation from INDAP's programs of technology transfer. 8. The project focused on three areas considered essential for small farmer development: these were technology transfer, credit, and land titling. A more phased, structured and selective approach to interventions, a set of actions to enhance quality and 6 These three documents are shown in Annexes I and 2 of the Staff Appraisal Report. Report No.10133-CH April 14, 1992 - 13 - efficiency of services, and steps towards farmer graduation from government-supported programs were all built in to the project's design to enhance its effectiveness. Project efficiency and sustainability, and support to a major expansion of the coverage of services, were to be ensured by strengthening the institutional capacity of INDAP and MBN. 9. Project Components To achieve these objectives, the project focused on the poorest small farmers through six components: (a) the transfer of technology, including both farm-oriented and home-centered assistance, emphasizing: (i) the gradual phasing- out of subsidized support to larger farmers; (ii) the quality of extension; (iii) the enhanced efficiency in service delivery through the adoption of an integrated rural communications system; (iv) strengthened monitoring and evaluation; (v) an increased role for existing rural community organizations as catalysts for change; and (vi) specific support for women's productive activities; (b) the provision of credit for investment and working capital, focused on: (i) the graduation of farmers into the commercial banking sector; and (ii) a set of reforms in INDAP to improve its sub-loan portfolio performance; (c) the establishment of a rural communication system; (d) the provision of land titling services; (e) the institutional strengthening of INDAP; and (f) the institutional strengthening of MBN. 10. Project Benefits The project was designed to achieve benefits in four major areas. First, as a result of the adoption of technology and on-farm investment, substantial increases in farm productivity, family incomes and welfare were expected to be achieved. Second, institutional development was expected to improve and reduce the unit costs of the provision of agricultural services. Third, small farmers reached by the project through technology transfer, credit and/or titling services were expected to become more credit-worthy and, thus, more attractive to commercial banks. Fourth, improved targeting of publicly-provided services was anticipated, with a marked improvement in services to women farmers. 11. Evaluation of the Objectives The project's objectives are considered to have been important for the small farner sector and for the Bank's country strategy. The objectives addressed some of the key issues facing small farmers, and were oriented towards economic growth and greater participation in the market economy. Although they were clearly stated, the objectives were rather subjective and qualitative in nature. The objectives were not modified during project implementation, but the changes that were made in INDAP's extension service and technology transfer strategy to assist farmers to cope with a swiftly-deteriorating business environment modified fundamental aspects of the project's operations (and hence the basic structure of the project). It is now clear that in certain aspects the objectives were not fully realistic. The objective of "overcoming the constraints to increasing the productivity, incomes and well-being of small farmers" was, if taken literally, a very ambitious one. In addition, the banking system was in practice not prepared to take on small farmers as good credit risks, and still has not done so. The goals of improved portfolio performance, cost recovery and farmer graduation were set unrealistically high. The project as originally designed was not particularly onerous for the two implementing agencies, INDAP and MBN, nor was it a complex operation. - 14 - 12. With hindsight, it can be seen as a risky operation in the sense that (as will be seen below) a conjunction of factors conspired to alter radically the profitability of the agricultural sector and this, combined with an extended drought, greatly reduced the financial returns for many activities. The project's design accommodated the major changes made by the Borrower with respect to the project's service strategy, although the results were mixed. It can be argued that the project's design and objectives were not fully realistic, in the sense that they were not consistent with certain aspects of macro- economic policy (e.g., reductions in import duties, exchange rate policy) and the declining agricultural prices that were beginning to emerge. However, these influences, which set the scene for the decline in sector profitability in the 1 990s, were only incipient and their longer-term (if not structural) nature was not at all obvious at the time. B. Achievement of Project Objectives 13. The objectives of the project were concentrated in the categories of institutional development and financial sector development; they did not include macro-economic objectives, but they did include elements of sector policy, particularly concerning the graduation of farmers from credit and technical assistance and cost recovery. Finally, on- farm investment under the credit component was expected to contribute to the objective of physical results. In these four categories of objectives, the achievements of the project were mixed. The project did not achieve a significant strengthening of INDAP, though it succeeded in consolidating the land titling capacity of the MBN. The achievements of the project were partial in technology transfer and investment, but substantial in rural land titling. 14. The project overall failed to achieve the objective of overcoming the constraints operating against the achievement of improved incomes for the majority of poor farmers. The achievement of the financial sector development objectives, which were focused on reduced levels of loan arrears and improved portfolio management at INDAP, was negligible; the levels of arrears, notably on term loans to organizations, reached critical levels at project completion, compromising the long-term sustainability of INDAP's credit system. Similarly, the subsidiary objectives of partial to full cost recovery in, and graduation of small farmers from, the programs of technology transfer were not achieved. 15. The original project design was appropriate for the achievement of the project's objectives under the assumptions specified in the SAR concerning: (a) the suitability of the simple extension model; (b) the credit system's operational framework; and (c) the economic conditions for agriculture at the time. However, the virtual redesign of the service delivery strategy that was performed during project implementation lacked the effectiveness of the original model. The MBN's land titling program was well designed, and allowed the project's objectives and targets to be fully achieved. 16. The criteria for measuring the achievement of the project's objectives were not well quantified in the SAR. Although the SAR7 stated that " ... (a) rigorous program of monitoring and evaluation would be established ... ", in practice this did not happen. The SAR also stated that a detailed system of monitorable indicators had been developed 7 Paragraph 4.25(d) - 15 - (SAR, Annex 7), but the indicators defined there are exclusively implementation measures; there are no measures of impact or effect, and thus there were no means to assess the achievement of the relatively qualitative project objectives. The SAR does not provide any quantitative criteria for judging the achievement of the project's objectives in terms of improved farm incomes. In this respect, it limits itself to presenting evidence of the considerable potential which existed for productivity gains by small farmers to be achieved using INDAP's proven extension and credit mechanisms. Under this premise, the project performance indicators in the SAR focus on the achievement of goals in terms of the number of beneficiary families, special target groups (e.g., women) and proxy- indicators for the quality of extension. As a consequence of INDAP's changing focus on extension, most original project goals were only partially pursued, and their monitoring was discontinued at an early stage of the project. The outcomes of the project are difficult, and in some cases impossible, to assess because no effective monitoring and evaluation program8, critical to the implementation of this type of project, was put in place. 17. The project's basic objectives were not modified during implementation. However, the service strategy was radically changed, beginning in the third year, in an effort to assist small farmers to cope with a swiftly-deteriorating business environment9. In the original project design, extension and credit were predominantly farm-oriented and were mainly directed towards increasing crop productivity and simple on-farm investment. INDAP's reformulated strategy, by contrast, focused on farmer innovation and became oriented towards small on-farm "projects". Extension and credit support were concentrated on those farmers with a greater potential for innovative investment, and organizations became the primary target for INDAP's action. These changes involved an extensive redesign of INDAP's instruments and mechanisms, and a major departure from the project's original target population of the smallest farmers (the minifundistas). 18. The objectives of the redesigned strategy were clear, though not wholly realistic. Addressing small-farmer innovation required a higher quality, more intensive and personalized extension system and a highly professional credit management capacity to deal with increased lending risk. INDAP lacked the capacity and the means to implement a system responding effectively to more demanding schemes. Farm-families were poorly-endowed and ill-prepared to benefit from the restructured support schemes. These changes thus turned the project into a more complex and risky venture, and stressed the system's capacities beyond their potential. 19. At appraisal, no economic rate of return calculations were made because of the "service and institutional development nature of the non-credit components""0 of the project. In project design and appraisal, there is no statement made concerning the comparison of alternative courses of action or the selection of a "least-cost solution to 8 The monitoring system was to be the key to the use of evaluation criteria for the graduation of farmers between Phases I and 11 of technical assistance provision and, ultimately, out of INDAP's care. 9 Between 1985-89 and 1990-92, prices for crops typically grown by small-fanTers declined as follows: wheat 25%, maize 17%, rice 11%, oats and barley over 20%. 10 Staff Appraisal Report, paragraph 6.01 - 16 - attain identified and measurable benefits"". In practice, the project was designed specifically to use and to improve existing institutions and to implement programs and actions of public services designed to reach the smallest and poorest of Chile's small farmers. Weaknesses in institutional capacity were recognized and, as a result, programs of institutional strengthening were incorporated into the design of the project. It can be argued that the project was designed to expand a successful formula to a larger set of small poor farmers as a continuation of the project'2 then under implementation. This would not have been an invalid approach, and could not have foreseen the fundamental shift in business conditions in the agricultural sector that was approaching. However, it is clear that the Bank did not simply "rubber-stamp" the existing programs of INDAP and the MBN. Innovations, considered at the time to be worth the risk, included the graduation of farmers from technical assistance (to allow the limited available public funds to reach a larger number of small farmers) and the creation of farmer-level "credit history" as an incentive to the commercial banks to take on the small farmers as clients. Changes in the Mechanisms of Technology Transfer 20. The component of technology transfer underwent significant modification during the life of the project, as a result of the changes in emphasis on the part of the public sector towards small farmers. These changes modified fundamental aspects of INDAP's operations (and hence the basic structure of the project) and to discuss the degree of achievement of the project's objectives it is first necessary to analyze the changes. The project implementation period"3 can be divided into three separate stages: * the period from 1993 to 1994, when the project was implemented essentially in accordance with the original design; * the period from 1995 to 1996, when the project was restructured and based on the concept of micro-regional projects; and * the period from 1997 onwards, when the project was oriented towards associative groups of producers. 21. In the first period, coverage was increased to 50,000 beneficiaries; the number of small farmers assisted under the different mechanisms of the Basic Technology Transfer Program (PTTB)14 grew to 39,000 whereas the number of medium-sized farmers considered to be in Stage II of the Integrated Technology Transfer Program (PTTI)'5 fell to 11,000. Given the significant improvement in the status of INDAP's sub-loan portfolio during 1993 and 1994, at this point the project was being implemented following its original design and appeared to be on track. 1 " GP 13.55, paragraph 15. 12 The Agricultural Services and Credit Project (Ln. 248 1-CH) 13 Although the Loan did not become effective until October 1992, Bank and INDAP staff worked closely throughout 1992 on start-up activities (e.g., procurement, audit procedures, improvements to the credit administration system), and significant progress was achieved with the project during 1992. 14 Programa de Transferencia de Tecnologia Basica 15 Programa de Transferencia de Tecnologia Integral - 17- 22. In 1994, with a change in government and, hence, the authorities in MAG, a debate was provoked within INDAP concerning its role in modernizing the agricultural sector. As a result, INDAP adopted a new role and mission to consolidate the productive capacity of the small farmer, based on competitive production systems and efficient organizations. Emphasis was placed on micro-regional projects"6 (PMRs) and local development projects (PDLs); these were based on a central productive activity and the development/consolidation of small fanner organizations capable of giving the necessary commercial dimensions to productive activities. INDAP supported these "projects" via the coordinated application of its services (technical assistance, credit, organizational support management and specific consultancies) to prepare and implement them. 23. Under this approach, technology transfer was structured according to the capacity and potential of different groups of producers. Three broad classifications were defined (SAAP, SAAL and SAAS)17, and cost recovery policies were modified"8. The implementation of this approach, from 1995-1996, was limited by: (a) the institutional capacity of INDAP itself, as a result of the increase and diversification of services provided; (b) the restrictions on its ability to prepare "projects"; and (c) the limits on its ability to coordinate its different activities of support at the level of the "projects". 24. In 1997, a fuirther reorganization of INDAP's technology transfer program was made, based on the need to achieve a transformation of the "production" culture to one of "agricultural enterprise". In operational terms, this involved the provision of the set of services required to achieve the success of associative "projects". Four types of services were provided: (a) Local Advisory Service (SAL); (b) Project Advisory Service (SAP); (c) Specialized Advisory Service (SAE); and (d) Local Development Service for Poor Rural Communities (PRODESAL)'9. These changes tended to give emphasis to that section of the small farmner sector with potential for innovation and growth. PRODESAL was specifically designed for the small farmer considered to be below the level of poverty; these were defined as small farmers with less than 5 "basic irrigated hectares" - BIH20 - held under various forns of tenure. This further reformulation of the program was based on a structure of demand from groups of producers with support from an external consultant based on a specific line of production. PRODESAL was, in effect, INDAP's vehicle for reaching the smallest poor farmers who were the focus of the Small Farmer Services Project. 16 Proyectos Micro-regionales and Proyectos de Desarrollo Local 1 Servicio de Asesoria Agricola "Proyecto Micro-regional", Servicio de Asesoria Agricola Local, and Servicio de Asesoria Agricola Semipresencial Is The cost recovery targets for those producers in Stage I varied between I and 7%, whereas those for producers in Stage II were set between 6 and 18% of the full cost of service provision. 19 Servicio de Asesoria Local, Servicio de Asesoria a Proyectos, Servicio de Asesoria Especializada, and Servicio de Desarrollo Local en Comunidades Rurales Pobres. 20 The concept of the Basic Irrigated Hectare (hectarea bdsica de riego) allows the measurement of the potential productivity of any given piece of land relative to the standard of one hectare of land in the valley of the Rio Maipo, near Santiago. For example, one hectare of un-irrigated land is usually measured as being between 0.1 and 0.2 BIH. - 18- The Implementation of the Project's Components 25. Technology Transfer21 Under the project, INDAP continued its successful and innovative use of private sector firms to carry out the delivery of technology to farmers. A substantial expansion of extension coverage of the smallest farmers was achieved by the project during the two first years of execution, but in later years this coverage was progressively reduced. At completion, coverage had been reduced to around 17,000 small farmers, approximately the level achieved before the project started. INDAP's redesigned extension schemes were refocused towards a different stratum of small farmers at the expense of a reduced coverage of the original project target population. The overall coverage of the technology transfer program increased from 47,000 farmers in 1992 to an average of about 50,400 farmers between 1993-1997, with a maximum of 52,500 farmers in 1997. Although the project target22 of 92,000 beneficiaries was not reached, coverage was almost double the number of farmers reached in 1990 (when the project was identified); this achievement, allied to the graduation or exit from the program of two-thirds of the 16,000 medium farmers enrolled in 1991, indicates the sharper focus on small, poor farmers in evidence by the end of the project's life. 26. INDAP's original extension model was successfully utilized during the first two years of project execution. During that period, several project-designed innovations were introduced to INDAP's extension scheme, and made significant contributions to improve service quality. Of particular importance was the coordinated effort between INIA and INDAP to address small-farm technology development and validation, a project-designed mechanism aimed at closing the well-documented gap in Chile between technology generation and extension. The Government insisted on the separation of research from technology transfer. The early termination of this scheme thwarted expectations concerning the availability and provision of suitable technology to small farmers, and this presented an additional burden to INDAP as it forced a continued reliance on traditional crops. 27. The quality of extension services significantly deteriorated as a result of the severe difficulties experienced throughout the system in implementing INDAP's redesigned extension strategies. The wide coverage of beneficiaries became an added hindrance to maintaining or improving quality, as the nature of the assistance that was provided did not lend itself to a massive approach. Though expansion was brought to a halt at the mid- term of the project - and stabilized thereafter - INDAP could not manage to keep an adequate balance between extension quality and quantity, a potential problem that had been strongly emphasized in the SAR. 21 INDAP's activities were seriously cut back in the 1970s, and in 1982 it initiated a pilot technical assistance program to small farmers using subsidized private sector agencies, including consulting fimns and NGOs. It grew slowly, and then expanded rapidly from 1987. The private firms contracted to deliver technology to farmers are well qualified and dedicated, drawing on local experienced staff. The model limits INDAP's role to that of supervision and quality control, and minimizes bureaucratic interventions. 22 The project would "inherit" 16,000 medium farmers, who would pass through Phases I and II of technology transfer and all graduate from INDAP support. The project would also inherit 18,000 small fanners to whom would be added 58,000 new entrants. This cohort of 76,000 farmers would progress through Phase I, with 14,000 of the original entrants passing to Phase II in the last year of the project. - 19- 28. INDAP's work towards strengthened monitoring and evaluation of extension was initiated early during project execution. Progress was made in designing the project indicators into the system during the first two years. Subsequently, the whole idea of monitoring extension was effectively abandoned. Keeping track of the beneficiaries' progress under constantly-changing extension schemes became unmanageable to an INDAP that was already over-burdened by change. It is evident that the monitoring and evaluation system should have been assigned a much higher priority, as INDAP would have benefited greatly from the availability of indicators reflecting the effects of its changed support to farmers. In the absence of an effective monitoring system, it is simply impossible to measure the achievement of objectives. 29. Project-designed mechanisms to train and coordinate the efforts of extensionists in accommodating their practices to the needs of rural women and the development of their economic potential were adopted during the early years of the project. This proved successful under the original model, but when the extension strategy changed no specific efforts to reach women with production technology were subsequently made. INDAP assumed that women were as eligible for assistance as any other farm-family member. No information was available to assess women's participation in INDAP's extension program. 30. A more detailed description of the implementation of the technology transfer component of the project is shown in Appendix 2. 31. Credit Under the project's design, expansion of INDAP's activities was to benefit mainly small farmers through working capital loans; credit to farmer organizations was encouraged to a degree, though limited to well-qualified cases. Under INDAP's re- designed extension strategies, credit resources were concentrated on an increased number of farmers other than the small farmers and on farmer organizations. To complement project-focused extension, emphasis was placed on long-term lending. These investment loans reached the level of 44% of the individual farmers' credit portfolio and about 60% of the organizations' credit portfolio. The resulting portfolio composition was contrary to the project's cautious, risk-averse design which had been implemented to foster INDAP's credit management and expansion. INDAP's more risky term-lending to individuals and organizations under the redesigned extension and credit schemes placed INDAP in a financial condition no longer compatible with the high level of small farner coverage achieved earlier in the project. In the latter years of the project's implementation, INDAP's loan arrears surpassed by far the rates that had been considered unacceptable at appraisal. 32. Project goals regarding farmer graduation into the commercial banking system were focused on INDAP's activities to explore and pilot-test the necessary conditions for such graduation. No targets were set as to the number of farmers to be graduated from INDAP's credit system. A scheme promoted by INDAP to subsidize the transaction costs of commercial banks for small-farmer credit achieved meager results; only about 580 loans had been granted under the scheme by the end of 199723. It is important to 23 Available evidence indicates that only 4% of farmers under INDAP's extension program had access to credit from the commercial banking system in 1997. - 20 - emphasize that commercial banks had by this time drastically reduced their lending to the agricultural sector in general, as a result of poor sector and loan performance during the 1 990s. Contrary to expectations, INDAP thus became virtually the only source of credit available to small farmers. 33. Credit ceased to be a mere complement to extension when INDAP changed its strategy and began to focus extension on innovative investment projects; term credit became almost a necessary condition for extension to materialize. Although no indicators on the level of the linkages between credit and extension are available from INDAP, the findings of a survey contracted by the Ministry of Economy to evaluate the performance of INDAP's instruments24 indicated that credit operations linked to extension were 44% of the total in 1993 and 80% in 1997. 34. A major concern expressed in the SAR was the critical financial condition of INDAP's credit system. The credit management system installed at INDAP was designed to develop a "credit record" for its borrowers and to share the information with private credit agencies. This was expected to provide a strong incentive to farmers to service their loans. To provide an incentive to the area agencies of INDAP to improve the quality and status of their portfolios, their operating budgets were geared to the level of loan recoveries. The imnmediacy of this incentive was significantly diluted as long- term lending grew at the expense of short-term, working capital lending. 35. At the end of 1991, INDAP's credit system had a current level of arrears of 31%25, a situation deemed unacceptable by both the government and the Bank. This was virtually unchanged in 1992, but loan collection rates improved significantly during the first two years of the project's full implementation (1993-1994) and met project targets26. However, during subsequent years, loan arrears27 increased dramatically, surpassing the level that had been considered unacceptable pre-project. Term loans, notably those to organizations, performed poorest, despite the increasing grants received by borrowers in connection with term credit operations. 36. To a great extent, the general decline in INDAP's loan collection performance can be attributed to the adverse business conditions of the agricultural sector faced by farners during project execution and to a severe three-year drought that ended only in 1996 which combined to impose severe stresses on farm finances. However, the poor performance of INDAP's long-term loan portfolio also hinged heavily on INDAP's own lending policy and capabilities. In supporting farmer innovation, INDAP's lending had focused on high-risk operations, and it was unable to develop adequate business criteria to analyze and make appropriate decisions in connection with the farmers' proposed operations. 24 Universidad Cat6lica de Chile, et al. Evaluaci6n de los Instrumentos de Fomento Productivo: El Programa de Transferencia Tecnol6gica del Instituto de Desarrollo Agropecuario (Santiago, Chile, 1997). 25 28% in the short-tern loan portfolio, and 40% in the long-term loan portfolio. 26 A 90% collection rate, to be achieved by 1995, was established in the Loan Agreement. 27 After significant improvements in the early project years, arrears on short-term working capital loans rose to about 30% (over 50% in the case of organizations). For long-term loans, arrears on first-installment collections rose to 34% and were significantly higher for second and subsequent installments; in the case of organizations, arrears rose as high as 64% in 1996. - 21 - 37. As a consequence of INDAP's heavy term lending, the share of term loans in INDAP's overall portfolio - and thus the overall portfolio level of loan arrears - increased to unmanageable levels28. It will be difficult, if not impossible, for INDAP to restore its financial condition through more stringent debt-collection procedures. As was done in the past, most bad debts will probably be forgiven, and thus turned into a net government subsidy. Contrary to the original project goal, INDAP's financial condition deteriorated to the point at which only political will assured its viability. 38. A more detailed description of the implementation of the credit component of the project is shown in Appendix 3. 39. Rural Communication System The utilization, of audio-visual techniques was seen as a key tool in enhancing both project extension quality and efficiency in service delivery. The rural communications system's initial implementation problems faced by INDAP were later compounded by the complexity of the messages that were to be conveyed to farmers under the restructured extension strategies. The system achieved little in adding efficiency to extension, as its implementation was discontinued at an early stage of project execution. 40. Rural Land Titling The achievement of project objectives in rural land titling was substantial in terms of meeting project targets, increased service efficiency and beneficiary satisfaction. The titling program of the MBN was extended by the government beyond the project execution period. The extended program will regularize the titles of the remaining families lacking secure land tenure. 41. A more detailed description of the implementation of the rural land titling component is shown in Appendix 4. 42. Institutional Strengthening of INDAP The project's design included inputs and activities to strengthen INDAP and to expand its capacity to undertake delivery of credit and technology transfer. Most of the physical objectives of the component, in terms of procurement of vehicles, computers and software, creation of new area agencies, etc., were achieved in the early years of the project's life. This improved INDAP's information systems, including credit reporting and management, accounting, and monitoring and evaluation. This improvement, however, was not fully reflected in institutional performance; as described above, the status of the loan portfolio declined over time, and the monitoring and evaluation system which was strengthened early in the project's life was, in effect, abandoned under the burden of the changes implemented in the extension schemes. 43. Institutional Strengthening of MBN To support the increase in land titling activities under the project, a series of institutional strengthening activities was implemented to improve the facilities of the MBN (e.g., office rehabilitation, the acquisition of vehicles and surveying equipment) and its information systems. These 28 The share of long-term loans in INDAP's overall portfolio increased from 25% in 1992 to 48% in 1997, and the share of long-term loans to organizations increased from 8% to 28%. - 22 - activities are considered to have been fully successful, not only allowing the full achievement of the project's targets but also providing the basis for continuity of operation. The Specific Objectives of the Project Objective #1 - to overcome the constraints to increasing the productivity, incomes and well-being of small farmers. 44. Taken literally, such a broad objective is extremely ambitious. Implicitly, the constraints are considered to be security of land tenure, access to technology, and credit, but in retrospect it can be seen that there are many more constraints in effect and not all of them are amenable to government-sponsored actions. Even if it is assumed that the "small farmers" in question are limited to those proposed to be reached by the project through technology transfer, credit and land titling, the intention to overcome the constraints operating on them and limiting their ability to increase productivity, incomes and well-being is laudable but somewhat heroic. The coverage of the technology transfer program increased from 47,000 farmers in 1992 to an average of about 50,400 farmers between 1993-1997, with a maximum of 52,500 farmers in 1997. Although the project targets were not reached, the coverage achieved did, in fact, almost double the number of farmers that had been reached in 1990 (when the project was identified), and this achievement, allied to the graduation from the program of two-thirds of those medium farmers enrolled in 1991, indicates clearly the sharper focus on small, poor farmers in evidence by the end of the project's life. 45. The objective of the technology transfer program was to reach a total of 92,000 small farmers and to make significant changes in their production practices and systems. The project's original design focused on improving the quality of extension and its delivery in terms of the basic, proven INDAP model. The scope for improvement by small farmers was defined by the observed higher yields and incomes achieved by the larger farmers in the same areas. In this model, success in achieving the project's objectives mainly relied on maintaining INDAP's capacity to deliver services to a significantly expanded target group; its limitations in this respect were addressed through an institutional strengthening component. 46. Rapid reductions in crop profitability weakened the potential for results from INDAP's traditional extension model which was successfully implemented during the first two years of the project. Without abandoning the traditional extension model, INDAP made an unsuccessful attempt to restructure its strategy in 1995-1996 by focusing on micro-regional production systems; as economic conditions for farming deteriorated further, INDAP initiated the implementation of a radically new strategy in 1997, supporting the transition of farmers towards a more innovative, business-driven agriculture. This moved INDAP's focus away from the smallest farmers, and their number attended by INDAP declined without their having alternative sources of technology or credit available to them. - 23 - Objective #2 - to improve the institutional capability and effectiveness of INDAP and the MBN. 47. During the early years of project implementation, significant progress was achieved in INDAP, particularly in the improvement of monitoring of the performance of the credit portfolio. However, the redesigned service strategies strained INDAP's capacities beyond the project's provisions for institutional strengthening. Extension and credit under the changed schemes required levels of organization, qualified inputs and a systems approach to farmer support which, by its institutional nature, INDAP was unprepared to structure or operate. 48. MBN's land titling capacities were adequately strengthened by the project. By the time of project completion, the MBN's division responsible for land titling was well prepared to sustain subsequent titling activities without the project's support. The responsible division in MBN is staffed with a team of well-trained professionals, operates a significantly improved computerized client information and monitoring system, and has established a transparent contracting system with private consultants for title regularization. Objective #3 - to improve the access of small farmers to commercial markets and agricultural development programs. 49. In the project's design, the extension program of INDAP was intended to take on the additional responsibilities of improving the access of small farmers to markets (both for inputs and production) and promoting their increased participation in publicly- sponsored agricultural development programs. Indirect evidence provided by survey29 shows that, for those farm-families participating in INDAP's Technology Transfer Program, about 30% of output is sold in formal markets compared to about 20% for non- participants. Of the former, about 12% had production contracts with some form of agro- industry, compared to about 9% for the latter. However, in the absence of valid base-line data these differences cannot confidently be attributed to the benefits of participation in the project and may merely reflect a bias in selection. Given the increased focus of INDAP on "business-oriented" projects after 1995, a stronger impact on the linkages of small farmers to formal markets would have been expected. 50. Using its leverage as the major supplier of production-related services in the rural areas, INDAP was expected under the project to provide information and contacts for small farmers to gain access to other public services and development programs. Only a very small proportion (between 4-6%) of farm families reached by INDAP's Technology Transfer Program are involved in other publicly-sponsored programs, but the proportion of non-participants is even less, at about 2%. The major achievement seems to have been to link INDAP's extension and credit program with the government-subsidized small- scale irrigation program. 29 The survey was conducted based on a questionnaire and a representative sample of farmers, both beneficiaries and non-beneficiaries of INDAP. Universidad de Chile, et al. 1997 op.cit. - 24 - C. Major Factors Affecting the Project 51. Important economic factors significantly affected the evolution of the project. It was hard to foresee at the time of appraisal the extent to which business conditions throughout agriculture would deteriorate during the 1990s. Unfavorable intemational market conditions and the negative sectoral effects of the government's successful macro-economic policies combined progressively to erode the profitability of agricultural activities. The strong structure of incentives to traditional crops of the 1980s began weakening in the early 1990s and sectoral growth declined, from 5.8% per annum during 1983-1989 to less than 4% per annum in the 1990s30. Factors not subject to Government control: 52. Available information at the time of project preparation and appraisal pointed clearly to the success of INDAP's basic model of productivity-focused technical assistance in supporting the development of small farmers over the period 1983-19893'. A particularly favorable business environment for traditional agriculture, resulting from the policy adjustments of the early 1980s32, was expected to continue to be an important contributing factor encouraging technology adoption by small farmers during project implementation. Under these conditions, the success of the project was expected mainly to depend on INDAP's capability to manage efficiently the delivery of services to a significantly expanded target group. It was impossible to foresee the extent to which the business conditions for agriculture that prevailed in the 1980s would deteriorate during the early 1990s; the significantly decreased profitability of most traditional crops meant that farmers were faced with a need to increase productivity merely to maintain competitiveness. During 1993-1995, extension was predominantly farm-oriented and addressed crop productivity issues in terms of increased yields per hectare, an approach that had proved to be highly successful under the attractive conditions of the 1980s. 53. Decreasing intemational prices for basic products during the 199@s combined with reduced levels of nominal and effective protection resulted in lower local prices to producers. Consumption of pulses, a staple of small farmer production in the dry-lands, decreased substantially as a result of their negative income elasticity of demand in the face of the economy's sustained income growth. On the supply side, a three-year drought ending in 1996 severely affected production and crop yields, hitting hardest the small farmers in the dry land rain-fed areas (the Secano). 30 The average growth rate in sectoral product masks an extraordinary variation in annual rates, from +11.2% in 1992 to -4.2 in 1997. ODEPA/Banco Centralde Chile 31 Crop yields of PTTI farmers had increased significantly over this period, particularly in wheat (7 1%), maize (35%), rice (40%), and beans (40%). All PTTI yields exceeded national averages in 1988-1999. No data for the PTTB farmers were available during appraisal as this program was at an early stage of development (see SAR, Annex 3). National averages yields of wheat and maize in 1990-1992 were 100% higher than during 1980-1983; over the same period, yields for oilseeds, sugar beet, barley and oats increased by 50%. 32 Producer prices increased significantly, mainly as a result of the currency devaluations that followed the economic crisis of 1982-1983. The adjustment included higher customs duties and the introduction of price stabilization schemes (the price bands) for wheat and sugar. - 25 - Factors generally subject to Government control: 54. Another factor considerably limiting the project's effect was the decline in the average quality of the services provided by the consulting firms contracted by INDAP to provide extension services to farmers. Operating on tight budgets, and often under difficult field conditions, consulting firms could not afford to contract extension professionals of the required experience and ability. This limitation worsened as more personalized and specialized resources were required to assist farmers under the redesigned extension and credit schemes. 55. The Chilean economy became a victim of its own success; export growth and a massive inflow of foreign investment drove the real rate of exchange down by nearly 40% during 1992-97. In a unilateral decision, the government reduced import duties drastically in 199033. By totally reversing the favorable structure of incentives to agriculture which had prevailed during the 1 980s, the new scenario severely curtailed competitiveness in agriculture, most notably in the traditional crops. Development options for small farmers were thus progressively reduced to the more innovative, higher- risk end of agriculture, and to adjust to this new scenario project extension and credit strategies had to be radically redesigned. Factors generally subject to implementing agency control: 56. The achievement of the project's objectives had relied heavily on INDAP's existing capacity to manage its basic, proven technology transfer program. However, its extension and credit programs were redesigned into much more complex schemes. INDAP's management was ineffective to implement adequately the changes associated with the redesigned strategy. The new schemes involved utilizing technical and business criteria of a complexity that was beyond the scope of INDAP's capacity or institutional potential. D. Project Sustainability 57. The sustainability of extension and credit programs to small farmers is uncertain, at least on the scale that assistance was provided under the project. The redesigned extension schemes required a more intensive and higher-quality support to farmers, which was only compatible with a reduced and selected coverage and under a sound organization of the services to be provided. INDAP proved to have the flexibility to introduce change when necessary, and also continued to demonstrate a strong commitment to public service and to the improvement of the welfare of its client base. However, under the project, INDAP did not prove that it had the capacity effectively to manage farmer assistance under increasingly difficult conditions for agriculture. 58. The unacceptably high levels of loan arrears in the portfolio make unlikely the long-run sustainability of INDAP's public sector small-farmer credit system. As no alternative financing source is available to small-farmers, INDAP's current system is 33 Custom duties were reduced from 19.2% in 1985-89 to an average of 11% in 1990. - 26 - likely to prevail as long as it remains acceptable to the government to subsidize small- farmer borrowing. 59. The sustainability of the rural land titling program of the MBN was ensured through the institution's decision to carry on with the work initiated in the project. The new program has similar objectives, and will build on the experience and systems developed in the project. E. Bank Performance Project Identification 60. Background The curtailment of public programs in the 1970s resulted in small farmers losing access to credit and technical assistance. In 1984, INDAP launched a program to address the needs of those small farmers considered to have the potential to be self-sufficient (i.e., those farmers with 5-12 BIH) and in 1987/1988 extended this to smaller farmers with minimal resources. Assistance to these smaller farmers was limited mainly to technical assistance, and INDAP itself could only reach about 10% of its potential beneficiaries, who numbered around 250,000. The Bank supported this strategy; INDAP credit and technical assistance were at the core of the Agricultural Services and Credit Project, a loan to support which (Ln.248 1 -CH) was approved in December 1984 and closed in October 1991. 61. The identification of the Small Farmer Services Project evolved from the experience of implementing the Agricultural Services and Credit Project, and the date of identification is defined as May 1990, coinciding with a full project supervision mission. At that time, it was expected that Loan 2481 -CH would be fully disbursed towards the end of CY1991 which was, in fact, the case. Project Preparation 62. The Bank put a considerable effort into supporting the preparation of the project. The earliest preparation missions were concerned about the lack of definition of the project's contents and objectives. Institutional analysis was an early focus of preparation, with a "capacity gaps analysis" being instituted in August 1990 to provide the eventual basis for the institutional development components in INDAP and MBN. 63. The two main issues that faced the first main preparation mission in September/October 1990 were significant; both were financial, and concerned the solvency of INDAP and the level of arrears in its sub-loan portfolio. At that stage, the Bank estimated that about 50% of INDAP's portfolio was at risk; emphasizing the fact that this put in jeopardy the Bank's future support for INDAP's credit program, the preparation mission recommended three specific actions concerning: (a) the adoption of a standard system of arrears accounting; (b) the need for a plan of action to improve the portfolio; and (c) the development of alternative lending and collection arrangements. 64. The preparation mission recommended a project outline which added three new, relatively small, components to the basic structure of credit, technology transfer, institutional development and land titling; these were demonstration and research centers, - 27 - mass communication, and a scholarship fund. It also concluded that certain key steps should be taken to ensure steady progress in project preparation; as a result, a preparation unit was established in INDAP and staffed by short-term consultants financed under the existing loan (Ln. 2481-CH). It was agreed that the preparation unit's project proposal, reviewed as necessary within the Government, would be formally presented to the Bank by the end of December, 1990. In the interim period, further preparation missions dealt with the specific issues of institutional weaknesses and the requirements for computerized information systems at INDAP and MBN. Project Appraisal 65. The level of Government commitment to the project at this stage is not at all clear. The first effort to pre-appraise the project, in March 1991, was frustrated by the lack of decision-making by the authorities on a broad range of issues. Nevertheless, the mission was able to review the project's technical content, to reach agreement on technical issues at the working level, and to identify the few remaining preparation tasks. Despite the fact that the Bank had asked for a project proposal with the full review and support of the government, this was not forthcoming. Moreover, it became clear that there were major differences of opinion between the Ministerio de Hacienda and INDAP on a number of fumdamental issues, including the extent of subsidies, interest rates, the length of beneficiary participation in technology transfer programs, and the links between credit and technical assistance. 66. On the recommendation of the mission, a working group was formed to review the project proposal in detail, but no conclusions were communicated to the mission. At this stage, there was also uncertainty regarding the inclusion of the land titling component. The revision of INDAP's portfolio accounting system had not been made, and there was concern on the part of the Bank that INDAP was less than serious about making the review, perhaps reluctant to see its loan recovery performance made transparent. 67. It was noted that the performance of the project preparation unit, which had been fully satisfactory between Novemberl 990 and January 1991, had deteriorated markedly with the departure of the unit's coordinator to fulfill a long-standing consultancy commitment. The mission urged the Government to find a suitable replacement without delay. It was concluded that the definition of the subsequent mission as being "appraisal" or "second pre-appraisal" should be made contingent on a letter from the Government to the Bank, to be presented by April, 1991. 68. In July 1991, the project (with the exception of the credit component) was pre- appraised a second time; the credit component was pre-appraised a second time in August 1991. A number of key issues were resolved during these two missions. INDAP agreed to proceed more slowly with the expansion of its extension activities and to adopt a two- phased approach to the graduation of small farmers from the technology transfer program. Phase I would last for 3-6 years, with farmer evaluation beginning in year 3, and Phase II would last for three years. The small-farmer focus of the project meant that a certain level of subsidy was implicit, but INDAP agreed to make the subsidies transparent and automatic. - 28 - 69. INDAP formally defined its strategy as preparing its clients for graduation from its credit program to commercial sources. To develop the necessary mechanisms for this, a study would be completed before the mid-term review of the proposed project in its third year. It is important to record that the conclusion was reached at this stage that the poorest farmers would be unable to borrow commercially even at the conclusion of the project because their average requirement would be less than one-tenth of the break-even loan level for commercial banks (estimated at US$8000 equivalent). The study of accounting systems and loan arrears was completed in August, 1991, and concluded that the accounting system was adequate but that the portfolio information system was deficient. 70. Following pre-appraisal, a number of themes dominated the Bank's discussion of the project proposal and the appraisal. INDAP's role in the provision of rural credit was questioned. Confidence was expressed that sub-loan recovery would improve under the project with the incorporation of a greater weight of the smallest farmers (those with less than 5 BIH being considered a better credit risk than those with between 5-11 BIH). A policy of "no interest-rate subsidy" was to be adhered to by INDAP. The financial status of INDAP was also questioned, and it was agreed that the government's budgetary support to INDAP over the life of the project should be formally agreed to. 71. It was considered that the project would build on lessons learned in the implementation of the Agricultural Services and Credit Project, in particular the need for more discipline in INDAP's management and accounting in credit operations, the non- sustainability of the financing of technology transfer, deficient monitoring and evaluation, and the defacto unlimited length of client participation in INDAP's programs. The Bank's role was seen as being important and catalytic in provoking and sustaining these much-needed reforms in INDAP. 72. Appraisal of the project was made subject to a number of conditions concerning: (a) the transitional nature of INDAP's credit to small farmers, preparing them for access to commercial bank credit; (b) improvements in INDAP's portfolio management system and in portfolio management itself; and (c) the link between INDAP's measurable performance and its budget. Although poverty alleviation was stated at this stage by the Bank to be a key objective of the project, project documentation does not identify it as such, although the clear focus on income-enhancing productive interventions among the smallest and poorest farmers meant that it was at least one of the implicit objectives. Appraisal emphasized the issue of transition of small farmers to commercial credit, placing emphasis on the need to establish sound credit records for clients and to lend at market rates. Improvement in portfolio management by INDAP was expected to improve the collection rate to 90% by the end of 1992. Project Supervision 73. The Bank sent seventeen supervision missions to Chile over the course of the five and a half year period between July 1992 (in anticipation of Loan Effectiveness) and January 1998. The mid-term review of the project became a rather long drawn-out affair, which began in November 1994 and was not concluded until July 1996. The mid-term review began several months after the date specified in the Loan Agreement (July 1, - 29 - 1994); it must be kept in mind, however, that the implementation period defined in the Loan Agreement (Schedule 5) covers a five-year period 1992-1996 whereas, in practice, with Loan Effectiveness not being declared until October 1992, the implementation period more properly should be described as covering calendar years 1993 to 1997. The mid-term review thus began barely two years after the actual project start-up. 74. Early supervision missions involved staff who had been associated with preparation and appraisal; in terms of expertise applied, there was an emphasis on financial analysis (although other technical disciplines were by no means excluded). Later missions tended to emphasize technical aspects of agriculture and technology transfer. The supervision of the project had certain deficiencies, particularly when it was critically needed. The failure, for example, to put in place (and to maintain through the changes in strategy) a properly functioning monitoring and evaluation system should have been corrected. F. Borrower Performance Project Identification 75. Emphasizing its desire to attack rural poverty and its concern for the low level of coverage achieved in the past, the then-recently installed Government in 1990 gave new emphasis to INDAP, which was to be reoriented and expanded over four years with the ambitious target of bringing 100,000 small farmers within the orbit of its credit and technology transfer programs. Greater emphasis, including both technology transfer and credit, was to be given to the smallest and poorest farmers. Project Preparation 76. INDAP worked closely with the Bank in the preparation of the project. Although the project concept took some time to achieve definition, in terms of specific objectives and activities, the establishment of the preparation unit, isolated from the day-to-day issues of INDAP's operations, enabled a much more focused approach to be adopted. Project Appraisal 77. The pre-appraisal and appraisal of the project lasted from March to October 1991 and were characterized by a lack of decision-making on the part of the Government on a range of issues. This was the result of a significant difference of opinion between the Ministerio de Hacienda and INDAP on a number of key issues. During the whole process of preparation and appraisal, the level of the Borrower's ownership of the project and the degree of commitment to the achievement of the principal and subsidiary objectives are far from clear. Project Implementation 78. As described above, there were important modifications in the service strategy of INDAP , particularly in the technology transfer component, as a result of changes in the economic environment of the agricultural sector and the Government's response to them. Given that the implementation period was of only five years, there was little time fully to implement and absorb the lessons of one approach before the next one was launched. - 30 - 79. In 1994, the Government proposed to reduce its requests for Bank disbursements for financing the project to 50% of the projected level, on the basis that the robust status of public finance made loan draw-down (and increased debt) unnecessary. This was subsequefitly increased to 75%. Between FY1994 and FY1996, actual disbursements varied between 55% and 88% of the appraisal estimates, but in FY1997 and FY1998 disbursements fell to close to zero and, at the request of the Government, US$36.2 million (38%) of the Loan was canceled, with effect from July 1997. G. Assessment of Outcome 80. The project's overall outcome is considered to have been unsatisfactory. The objectives as defined in the SAR are qualitative and subjective, and it is difficult to be specific about their achievement particularly in the absence of a proper system of monitoring and evaluation. Although there were several important achievements under the project, the project failed to achieve important parts of its objectives, particularly in the areas of graduation to commercial credit and cost recovery for technology transfer. Table 1 shows the relationship between the objectives and the components of the project; and an assessment of the achievement of the objectives. Table 1: Assessment of Outcome OBJECTIVES (a) increasing (b) improving (c) (i) improving (c) (ii) improving COMPONENTS productivity, the institutional small farmer access small farmer access incomes and capacity of to commercial to agricultural well-being of INDAP and markets for products development small farmers MBN and inputs programs (a) Technology Transfer (i) emphasis on smallest farmers and phase-out of S l support to others (ii) improved quality of S S 5 extension (iii) improved efficiency in S S S service delivery (iv) strengthened monitoring U U and evaluation (v) enhanced role for rural S- S- S- community organizations (vi) enhanced support for S- S- women's groups (b) Provision of Credit (i) graduation of farmers to U the commercial banking sector (ii) reforms in INDAP to improve its sub-loan portfolio U U performance (c) Rural Communications S - S- S- (d) Land Titling Services S+ (e) Institutional S- S- Strengthening of INDAP . (f) Institutional S S Strengthening of MBN - 31 - 81. There were some laudable achievements in the implementation of the project. Although the number of small farmers reached with technology (at 51,000) was less than the goal of 92,000, it was twice the number attended in 1990; with the graduation or exit of two-thirds of the medium farmers, a much closer focus was achieved on the poorest and smallest farmers by the end of the project. Small farmers receiving technology transfer had higher gross revenue and net margins in their production, cropped a higher percentage of their land, produced higher-value crops and marketed their output better than those who did not. 82. With the two re-formulations of the technology transfer program, the concept of graduation remained constant but, in practice, very little was actually achieved. The concept of on-farm technological development, which would allow the individual producer to progress beyond the need for continued assistance, did not happen; the dynamic changes in the agricultural sector, in terns of improved management and technology among larger farmers and worsening terms of trade, meant that technical support was needed continuously to maintain competitivity. Similarly, little was achieved in terms of cost recovery from farmers for technology transfer. 83. The credit component was responsible for several major improvements in INDAP's systems; new information technology provided up-to-date information on loans and the portfolio status at all the area agencies; a credit management system was implemented to provide accurate and timely information concerning over-due loans and recoveries; a systematic set of penalties was applied to farmers with over-due loans; data on borrowers was included in commercial credit agencies' records; and full training was achieved of account executives and other staff. A major concern of the SAR was the financial health of INDAP's credit system; at the end of 199 1, the level of arrears was 31 %. During the first two years of the project, the level of arrears improved significantly and met the defined targets, but later the level of arrears rose again substantially, and the long-term loans performed the worst. At the end of the project, the status of INDAP's credit portfolio was significantly worse than it had been before the project started. H. Future Operation 84. A significant number of changes was made in the activities carried out under the project between preparation/appraisal and the latter phases of its implementation. As described above, changes in the sector's economic environment demanded these changes, which affected both the technology transfer and credit components. INDAP is the public sector's designated point of contact with the smallest and poorest of Chile's rural dwellers, and MBN will continue to have responsibility for the regularization of land titles amongst small farmers; technology transfer and credit supply, on the one hand, and titling services, on the other, will continue to be provided as the permanent functions of these institutions funded from fiscal resources. - 32 - I. Key Lessons Learned 85. The most important lessons learned from the implementation of this project are: * Adaptive research, oriented towards the needs of small farmers in a farming-systems context and recognizing the regional and micro-climatic variations under which they operate, is essential to maintain competitiveness, and the need is continuous. This is particularly important where (as in the case of Chile) small farmers operate in the same environment as large-scale, entrepreneurial and (above all) export-oriented larger farmers and agro-industries. * Credit and technology transfer in combination are necessary but not sufficient conditions to increase productivity; increasing productivity alone will not guarantee an increase in net income and well-being; in a competitive and open environment, emphasis must also be given to other important factors, particularly the development of infrastructure, marketing and farmer organizations. * Beside the objectives of financial sustainability (in credit recovery and cost recovery), there are other legitimate objectives when attempting to reach and improve the well- being of the small, poor farmer. The project would have benefited from a detailed social assessment. * Where cost recovery and graduation are objectives of public-sector technology transfer and credit, it must be recognized that not all participants will be successful; the strategy adopted must recognize this and have specific rules for the "non- graduates". ? The concept of credit graduation rests ultimately on the willingness of the financial sector to take on credit-worthy farmers as customers; this should be realistically assessed ex ante, because the combination of small average loan size, relatively high transaction costs, and significant risks associated with agriculture make small farmers an inherently unattractive client base from a commercial banking point of view. * A project which is recognized by both the Bank and the Borrower as supporting an existing government program runs the risk that little weight will be given to the Bank's views if the program is restructured and/or reoriented by the government, especially if the proportion of program expenditures supported by the loan is small. The options available to the Bank, including reformulation or restructuring of the project and cancellation of the loan, should be fully considered. * A properly identified and calibrated monitoring and evaluation system is critical for a project of this type. The appropriate base-line studies and the definition of the sampling methods should be specified as early as possible in the project cycle, and their preparation should be part of the early-acting conditionality attached to the loan. Without a proper monitoring and evaluation system, it is impossible to measure the achievement of objectives. - 33 - The private sector delivery of extension services, pioneered by INDAP in the early 1 980s, continues to be both feasible and effective. In this respect, Chile has modified both the philosophy and the practice of delivering extension services to small farmers; the number of public sector employees has been reduced, responsibility has been shifted to the private sector, and competition has been engendered among service suppliers. - 34 - IMPLEMENTATION COMPLETION REPORT CHILE SMALL FARMER SERVICES PROJECT (Loan No. 3473-CH) PART II: STATISTICAL INFORMATION Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Neg]igible Not applicable (V) (V) (V) (V) Macro Policies FI II] Sector Policies LI L LI Financial Objectives a LI LI Institutional Development LI El LI Physical Objectives LI L LI Poverty Reduction LI LI L-I Gender Issues L LI LI Other Social Objectives Li LI LI Environmental Objectives L L LI Public Sector Management I L LI I3 Private Sector Development L F] L1 Other (specify) FL L LI - 35 - (Continued) B. Project Sustainability Likely Unlikely Uncertain (v') (1) (1) C. Bank Performance Satisfactory Satisfactory Deficient (1) (1) (/) Identification E3 Preparation Assistance Ii] Appraisal Ol Supervision ] DI Highly D. Borrower Performance Satisfactory Satisfactory Deficient (1t) (1) (i) Preparation E El Implementation C El Covenant Compliance E El Operation (if applicable) n El Hisaly HSisay E. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactory E El) El () - 37 - Table 2: Related Bank Loans Project Name and Loan No. Purpose Year of Status approval Agricultural Machinery Project Agricultural mechanization 1948 Closed (Ln. 0006-CH) Rio Elqui Groundwater Resources Water resource evaluation 1951 Closed Project (Ln. 0049-CH) Livestock Development Project Extensive pasture improvement and 1963 Closed (Ln. 0266) on-farm construction, purchase of machinery and livestock. Milk and Meat Processing Project Modernization and expansion of meat 1967 Closed (Ln. 0367-CH) and milk processing industry. Agriculture Rehabilitation Project Credit for agricultural rehabilitation 1975 Closed (Ln. 1119-CH) and on-farm investment in post- agrarian reform period. 1976 Livestock, Fruits, Vineyards and Agro-industry Credit Project (Ln. 1350-CH) 1980 Second Agricultural Credit Project. (Ln. 1902-CH) Agricultural Services and Credit Credit and Technical Assistance for 1984 Closed Project agricultural development (Ln. 2481 -CH) Irrigation Development Project Investment in small- and medium- 1992 Closes in (Ln. 3528-CH) scale investmnent June 1999 Secano Rural Poverty Alleviation Small-scale on-farm investment 1996 Operational and Natural Resource Management Project (Ln. 3974-CH - 38 - Table 3: Project Timetable Steps in Project Cycle Date Planned [ Actual Date Identification May 1990 (during supervision of the Agricultural Services and Credit Project) Initial Executive Project August 1990 August 8, 1990 Summary Preparation August 1990 -- August 1990 - March 1991 Pre-appraisal March 1991 July - August 1991 Appraisal March 1991 (IEPS) October 1991 September 1991 (FEPS) Negotiations March 16-20, 1992 Letter of Development Policy A Statement of Policy/Program Matrix was provided by MAG and (if applicable) Strategic Plans were provided by INDAP and MBN prior to loan negotiations which took place in March 1992. Board Presentation December 1991 (IEPS) May 21, 1992 March 1992 (FEPS) Signing August 7, 1992 Effectiveness November 10, 1992 October 1, 1992 Mid-term review July 1994 November 1994 - July 1996 Project Completion December 31, 1997 December 31, 1997 Loan Closing June 30, 1998 June 30, 1998 - 39 - Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ thousands) IBRD Fiscal Year 1992 1993 1994 1995 1996 1997 1998 Appraisal Estimate 9.7 16.0 30.4 52.0 77.1 91.5 95.0 Actual 0.0 13.8 22.7 35.0 56.8 58.8 58.8 Actual as % of Estimate 0.0 86.3 74.7 67.3 73.7 64.3 61.9 Date of Final Disbursement March 31, 1998 - 40 - Table 5: Key Indicators for Project Implementation34 Projected Achieved Projected Achieved Projected Achieved Projected Achieved Projected Achieved 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 1- Technology Transfer (a) Total number of beneficiary families l Phase I 25000 41000 45000 37000 52000 38000 62000 38000 54000 Phase II 0 7000 8000 14000 16000 13000 16000 13000 22000 Phase III 0 0 0 0 8000 Total 25000 48000 53000 51000 68000 51000 78000 51000 84000 (b) Number of women beneficiaries 16000 21600 37000 24950 52000 20100 62000 35000 62000 1250 (c) Beneficiaries trained 0 3750 3750 3750 3750 (d) Extensionists and Supervisors employed Phase I production 352 471 625 423 722 820 861 1120 861 1250 Phase 11 production 0 292 88 288 177 180 177 - 243 - Social 73 314 171 281 241 - 287 - 287 - Supervisors 132 153 182 161 222 173 257 159 280 157 Total 557 1230 1066 1153 1362 1173 1582 1279 1671 1407 (e) Support to extension l Extensionists and supervisors trained 430 1268 885 1040 1140 1170 1325 1170 1390 INIA - INDAP committees trained 41 51 61 66 51 66 Technology Transfer Centers 27 34 44 55 34 55 (f) Number of farmers receiving credit and technology expressed as a percentage of the 32 28 44 56 64 41 74 number of farmers receiving credit I 34 The implementation period defined in the Loan Agreement, Schedule 5, covers a five-year period 1992 - 1996. In practice, Loan Effectiveness was declared in October 1992, and the actual implementation period is more accurately described as covering the period 1993 - 1997. The project's Completion Date was December 31, 1997. The performance indicators shown in the Staff Appraisal Report, Annex 7, correspond to "project years" I - 5. The indicators for project year I correspond to the calendar year 1992, in terms of the Loan Agreement, and to calendar year 1993, in terms of actual achievement. - 41 - Projected Achieved Projected Achieved Projected Achieved Projected Achieved Projected Achieved 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 2. Credit _ (a) Number of credit beneficiaries Working capital sub-loans 43900 54833 74000 55815 94000 54958 105500 60030 100000 47888 Investment sub-loans 2600 15995 23800 19279 23500 28991 23300 39166 23100 37985 (b) Amount of credit approved l Working capital sub-loans (US$ '000) 15900 31822 26500 36367 30600 34356 35500 45957 34400 40161 Investment sub-loans (US$ '000) 2200 10811 8300 19093 8200 23376 8100 28881 8000 37066 Total 18100 42633 34800 55460 38800 57732 43600 74838 42400 77227 3. Land Titling l (a) Number of titles issued 3500 1900 14000 10121 16000 13764 10000 7953 0 8195 (b) % of titles received by women 6 7 8 8 30 (c) % acquisition of measurement equipment 70 100 I (d) % installation of computer system 65 100 (e) % operational (computer system) 40 80 100 ll - 42 - Table 6: Studies Included in the Project Purpose as Defined at Study Appraisal Status Impact Study to address the needs of The study identified in the Loan Unknown Unknown rural women for agricultural Agreement is not defined as to its technology transfer purpose in the SAR. The SAR [L.A. Schedule 2, Part A. 3 defines a much broader "base-line and Schedule 5, 2(a)] study on rural women to describe their activities, needs, and constraints with the objective of designing policies and programs to address the issues. Study on incentives for To improve incentives for private The study was carried out in The pilot commercial banks to increase intermediaries to lend to farmers 199335. A further related program was their lending to INDAP's graduating from the INDAP study was carried out in 1995 implemented. clients including the credit program and to complete, 36 The results are preparation of a plan of by December 31, 1994, the - 19963. described in Part action to apply the incentives implementation of the pilot I, paragraph 30. on a pilot basis. schemes to test the viability of [L.A. Schedule 2, Part D. 5] options proposed. Detailed reviews (2) by The first report was to provide the There is no evidence of the The mid-term l consultants of progress made basis for the mid-term review of first review having been review was in the implementation of the the project, to be carried out made. INDAP prepared a concluded, and a project: April 1, 1994 and before July 1, 1994. "strategic plan" for the mid- Plan of Action April 1, 1996. term review which began in prepared and [L.A. Schedule 5, 6(a)] November 1994 and became implemented. extended over the period to July 1996. In December 1995, INDAP hired a consultant to prepare the second review37. 35 Chile: Plan Piloto para Egresar Prestatarios de INDAP. Diciembre de 1993. Departamento de Economia Agraria, Universidad Cat6lica de Chile. 36 Diseno de una Estrategia para Facilitar la Migraci6n de Agricultores Campesinos a la Banca Comercial: Informe de Resultados. Santiago. 1996. 37 Analisis de Medio Plazo del Proyecto BIRF 3473-CH: Informe Final. Abril de 1996. Ing. Patricio Fernaendez Seyler - 43 - Table 7: Project Costs Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) Local Foreign Total Local Foreign Total Item Costs Costs Costs Costs 1. Technology Transfer 75.4 12.6 88.0 - - 93.6 2. Credit 101.3 18.7 120.0 77.2 3. Rural Communications 2.3 - 2.3 - - 1.0 4. Land Titling 7.9 0.5 8.4 - - 8.1 5. Institutional 14.3 1.2 15.5 Development - INDAP 6. Institutional 0.6 1.2 1.8 - - 3.7 Development - MBN TOTAL 201.8 34.2 236.0 Table 8: Project Financing Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) Local Foreign Total Local Foreign Total Source Costs Costs Costs Costs IBRD 61.4 33.6 95.0 58.8 Govemment of Chile 90.0 - 90.0 INDAP 14.1 - 14.1 Beneficiaries and 36.9 - 36.9 Intermediaries TOTAL 202.4 33.6 236.0 - 44 - Table 9: Status of Legal Covenants Agreement Section Covenant Present Original Revised Description of Comments type Status fulfillment fulfillment Covenant date date LA 2.02 (b) 3 C The Borrower shall ... open and maintain ... a special deposit account in the Central Bank or in a commercial bank ... LA 3.01 (b) 5 CP ... the Borrower shall carry out Part E ... and shall cause INDAP to carry out Parts A through D of the Project ... in accordance with the Implementation Program (LA, Schedule 5). LA, I . 5 CP (The Borrower shall) establish, and thereafter maintain, a Project Schedule 5 coordination and management unit ... headed by a Project manager and coordinator ... satisfactory to the Bank LA 2 (a) 10 March 31, (The Borrower shall) cause INDAP to furnish to the Bank ... INDAP's Schedule 5 1994 recommendations on ... the study to address the needs of rural women for agricultural technology transfer ... (LA, Schedule 2, Part A.3) LA 2 (b) 10 C April 1, (The Borrower shall) cause INDAP to furnish to the Bank ... INDAP's Schedule 5 1993 recommendations on ... the study of incentives to commercial banks to increase their lending to INDAP's clients including ... a plan of action for applying, on a pilot basis, the incentives ... (LA, Schedule 2, Part 5) LA 3 (a) 10 C December (The Borrower shall) ... complete implementation of the plan of action Schedule 5 31, 1994 for applying incentives for Jending by commercial banks ... (see 5.2 (b) above) LA 3 (b) 10 C December (The Borrower shall) cause INDAP to implement the recommendations of Schedule 5 31, 1994 the study of incentives to commercial banks ... (see 5.2 (b) above) LA 4 (a) 10 April 1, (The Borrower shall) cause INDAP to furnish to the Bank ... a plan of Schedule 5 1993 action for improving rural women's access to credit LA 4 (b) 5 (The Borrower shall) cause INDAP to carry out the plan of action referred Schedule 5 to in 4 (a) ... LA 5 (a) 9 C Feb. 28, (The Borrower shall) ... furnish ... to the Bank ... reports on the progress Schedule 5 Aug. 31 made in the implementation of the Project each year, starting on Feb. 28, 1993 LA 5 (b) 9 CP October 31 (The Borrower shall) ... furnish ... to the Bank . . the proposed Schedule 5 each year, investments to be made under the project in the following calendar year. starting on October 31, 1992 - 45 - Agreement Section Covenant Present Original Revised Description of Comments type Status fulfillment fulfillment Covenant date date LA 6 (a) 9 PC April 1, (The Borrower shall) employ consultants to carry out an in-depth review Schedule 5 1994 of the progress made in the implementation of the project ... c April 1, 1996 LA 6 (b) 9 C June 15, * (The Borrower shall) furnish to the Bank ... the reports prepared by the Schedule 5 1994 consultants referred to in 6 (a) above. C June 30, 1996 LA 7 10 C (The Borrower shall) cause INDAP to ... engage FUCOA to assist Schedule 5 INDAP in the implementation of Part C of the Project LA 8 (a) 2 NC June 1, (The Borrower shall) cause INDAP to charge a fee to all medium farmers Schedule 5 1993 which receive Phase 2 technology transfer services which shall cover at least 30% of the cost to INDAP of providing such services LA 8 (b) 2 NC June 1, (The Borrower shall) cause INDAP to charge a fee for any technology Schedule 5 1994 transfer services to ... medium farmers which shall cover at least 30% of the cost to INDAP of providing such services LA 8 (c) 2 June 1, (The Borrower shall) cause INDAP to furnish to the Bank ... the criteria Schedule 5 1994 (for) selection of (i) small farmers and (ii) medium farmers that will be requested to cover, from June 1, 1996, at least 30% and 100%, respectively, of the cost to INDAP of providing technology transfer services. LA 8 (d) 2 NC June 1, (The Borrower shall) cause INDAP to charge a fee for technology transfer Schedule 5 1996 services to be provided to medium farmers ... which shall cover 100% of any direct cost of providing such services ... LA 8 (e) 2 NC June 1, (The Borrower shall) cause INDAP to charge a fee for technology transfer Schedule 5 1996 services to be provided to small farmers ... which shall cover at least 30% of the cost to INDAP of providing such services. LA 9 5 PC (The Borrower shall) take and/or cause INDAP to take all actions Schedule 5 necessary to meet the performance indicators (Annex to Schedule 5). LA 3.01 (c) 3 C The Borrower shall make the proceeds of the Loan ... (for) Parts A through D of the Project available to INDAP under a Subsidiary Agreement ... approved by the Bank LA 3.02 10 PC The Borrower shall carry out the research activities related to the Project - 46 - Agreement Section Covenant Present Original Revised Description of Comments type Status fulfillment fulfillment Covenant date date LA 3.04 5 C ... the procurement of goods and services ... shall be governed by the provisions of Schedule 4 (of the LA). LA 3.05 9 PC July 1, The Borrower shall ... not later than July 1, 1994 ... review with the 1994 Bank ... progress in the implementation of the project and the actions set forth in Schedule 5 (of the LA) ... and submit to the Bank ... an action plan ... to remedy any deficiencies in the implementation of the project ... and ... promptly thereafter carry out such action plan. LA 3.06 (a) 2 C ... Sub-loans and Working Capital Sub-loans will be made in accordance with ... Schedule 8 (of the LA). LA 3.07 2 NC The Borrower shall cause INDAP ... to gradually improve its performance in the collection of the loans made ... after January 1, 1992 ... (principal + interest collected as a % of principal + interest due to be not less than: 85% in 1992, 88% in 1994, and 90% in 1995 and thereafter). LA 4.01 (a) I C The Borrower shall maintain ... separate accounts ... in respect of Part E of the Project LA 4.01 1 C ... have the ... accounts ... including ... the Special Account for each (b)(i) Fiscal Year audited ... by independent auditors ... LA 4.01 1 C ... furnish to the Bank .. the report of such audit ... (b)(ii) LA 4.01 (c) I C For all expenditures ... for Part E ... made on the basis of SOEs, the Borrower shall ... maintain separate accounts ... retain all records ... (and) ensure that such records are included in the annual audit LA 4.02 (a) I C The Borrower shall cause INDAP to maintain records and separate accounts ... to reflect ... the operations and financial condition of INDAP. LA 4.02 1 C The Borrower shall cause INDAP to ... have its records, accounts, and (b)(i) financial statements ... audited. LA 4.02 1 C . . . furnish to the Bank ... copies of its financial statements ... and the (b)(ii) report of such audit LA 4.02 (c) I C For all expenditures ... for Parts A, B, C, and D of the Project ... made on the basis of SOEs, the Borrower shall cause INDAP to ... maintain separate accounts ... retain all records ... (and) ensure that such records are included in the annual audit. - 47 - Agreement Section Covenant Present Original Revised Description of Comments type Status fulfillment fulfillment Covenant date date LA 5.01 5 C The Borrower shall cause INDAP ... (a) to take out insurance consistent with appropriate practice; (b) to carry out its operations ... in accordance with sound ... practices under the supervision of qualified ... management assisted by competent staff ... Covenant types: 1. = Accounts/audits 8. = Indigenous people 2. Financial performance/revenue generation from 9. = Monitoring, review, and reporting beneficiaries 10. = Project implementation not covered by categories 1-9 3. = Flow and utilization of project funds 11. = Sectoral or cross-sectoral budgetary or other resource 4. = Counterpart funding allocation 5. = Management aspects of the project cr executing 12. = Sectoral or cross-sectoral policy/ agency regulatory/institutional action 6. = Environmental covenants 13. = Other 7. = Involuntary resettlement 8. Present Status: C = covenant complied with CD = complied with after delay CP = complied with partially NC = not complied with - 48 - Table 10: Bank Resources: Staff Inputs Stage of Planned Revised Actual Project Cycle Weeks US$ Weeks US$ Weeks US$ ('000) ('000) ('000) Preparation to Pre-Appraisal 126.0 277.4 Appraisal 35.2 78.0 Negotiations to Board Approval 12.1 19.7 Supervision 82.0 245.2 Completion 6.1 18.7 TOTAL 261.4 639.0 - 49 - Table 11: Bank Resources: Missions Performance Rating Number Specialized Implementatio Developmen Stage of Month/ of Days in Staff Skills n t Objectives Types of Project Cycle Year Persons Field Represented Status Problems 1. Preparation August 1990 1 7 Institutional _ Lack of awareness of priorities and content of the proposed project. Specialist Capacity gaps analysis initiated. 2. Preparation Sept/Oct 6 18 Agriculture _ - Slow progress in project preparation. Main issues -INDAP's financial 1990 Ag. Economics solvency and the level of loan arrears Fin. Analysis Social Science 3. Preparation Oct/Nov 1 4 Institutional _ _ Greater coordination effort needed in inter-institutional effort of project 1990 Specialist preparation 4. Preparation Oct 1990 1 4 Information _ Consulting assistance required to define the information technology technology needs at INDAP and the MBN. 5. Pre-appraisal March 1991 8 12 Agriculture _ Lack of decision-making on a broad range of issues. Major differences Ag. Economics of opinion between theMinisterio de Hacienda and INDAP on a range Fin. Analysis of issues, including subsidy programs, length of beneficiary Institutions Social participation in technology transfer programs, interest rates, credit - Science Inf. technical assistance linkage. Tcchnology Legal 6. Pre-appraisal July 1991 6 17 Agriculture _ _ Key issues defined were: build-up rates in technology transfer; Ag. Economics graduation from technology transfer program; loan arrears and Institutions portfolio accounting; subsidies; graduation from INDAP credit Social Science program; and project coordination. Procurement 7. Pre-appraisal August 1991 1 12 Fin. Analysis _ _ The portfolio information system was found to be inadequate. The poorest farmers will have difficulty graduating to the commercial banking sector because their average requirement is lcss than one-tenth of the average break-even loan of US$8000 equivalent. 8 Appraisal October 5 ? Agriculture __ Appraisal emphasized: transition to commercial bank credit, 1991 Ag. Economics improvement in portfolio management, targeted beneficiaries, interest Fin. Analysis rates, social extension and the graduation of INDAP technology Institutions transfer beneficiaries. Social Science Supervision 1 July 1992 1 5 Fin. Analysis _ None. "Pre-Loan Effectiveness" mission - 50- Performance Rating Number Specialized Implementatio Developmen Stage of Month/ of Days in Staff Skills n t Objectives Types of Project Cycle Year Persons Field Represented Status Problems Supervision 2 Nov 1992 1 7 Fin. Analysis I I Anticipated slow start to disbursements for Balanec of Payments reasons Supervision 3 Mar/April 1 10 Agriculture 1993 Supervision 4 April 1993 1 5 Fin. Analysis 1 I Supervision 5 Aug 1993 2 10 Fin. Analysis I I Over-burdening of INDAP with other governmental social programs; Agriculture anticipation of possible interest rate covenant problem Supervision 6 Nov 1993 2 8 Fin. Analysis 1 I Delay in making the scheduled change of interest rate on sub-loans Agriculture Supervision 7 May 1994 5 11 Fin. Analysis 2 2 Budget restrictions, including funding from the Loan, for 1994 (and Agriculture anticipated for 1995). Institutional Development Rural development Supervision 8 Aug 1994 1 Fin. Analysis Supervision 9 Nov 1994 3 3 Economics S S Evidence that commercial banks are reluctant to lend to farmers that (mid-term review, Agriculture could graduate fromiNDAP's credit program first stage) Rural development Supervision 10 April 1995 1 16 Economics S S Reluctance of commercial banks to lend to potential graduating (mid-term review, farmers of INDAP's credit program. Failure by Stage 11 technology second stage) transfer beneficiaries to make the required contribution to cost recovery. Supervision 11 Sept 1995 3 7 Agriculture It was concluded that the mid-tcrm review had not been finalized. Irrigation INDAP agreed to hire an independent consultant to prepare a Economics consolidated mid-term review report for the supervision mission scheduled for January, 1995 Supervision 12 Jan 1996 4 7? Agriculture Irrigation Economics Supervision 13 April 1996 2 5 Agriculture Issues were raised coneeming the audit of internal control processes at Economics ? INDAP and MBN, as well as the information presented in the audit I I I . - reports of the CGR. - 51 - Performance Rating Number Specialized Implementatio Developmen Stage of Month/ of Days in Staff Skills n t Objectives Types of Project Cycle Year Persons Field Represented Status Problems Supervision 14 July 1996 2 7 Agriculture The mid-term review report high-lighted as areas for improvement the (finalization of the Ag. Economics graduation strategy (both credit and technology transfer) and the mid-term review) overall quality control of technology transfer services. Supervision 15 Jan 1997 4 14 Agriculture S S The difficulties anticipated earlier in graduating INDAP credit Ag. Economics recipients to the commercial banking sector started to become Economics apparent. The Action Plan, resulting firom the mid-term review finalized in July 1996, was agreed. A plan to improve the monitoring and evaluation system was agreed upon. Supervision 16 July 1997 3 7 Agriculture Ag. Economics Economics Supervision 17 Jan 1998 3 9 Agriculture Despite advances in the project accounting system, it still does not (and completion) Ag. Economics generate a Sources and Uses of Funds Statement in accordance with Economics Bank's requirements. 53 APPENDIX 1 SUMMARY' OF THE BORROWER'S REPORT A. Background 1. The project grew out of an initiative of the Government of Chile during 1990- 1991 and had as its major objective an expansion and improvement of public sector intervention in the development of the small farmer sector. Since 1985, the agricultural sector had grown at more than 5% per year but this growth had only marginally benefited small farmers with the result that the technology and income gulf between them and the rest of the sector had widened. The stratum of small farmers was made up of 105,000 farmers with less than five "basic irrigated hectares" (HRB) of land and 148,000 farmers with between five and twelve HRB. These farmers were considered to be at a disadvantage in terms of their access to credit and technology, both deficiencies being strongly relevant in explaining the high levels of rural poverty. The technical and economic gulf was not considered irreversible or beyond control, and it was considered that small farmers could be the beneficiaries of an increasingly self-sufficient process of agricultural development. 2. The Agricultural Development Institute (INDAP) of the Ministry of Agriculture (MIA) was created in 1962 to support rural development throughout Chile; by 1990, it was concentrating its efforts on supplying technology and credit to small farmers with 12 HRB or less and with assets of 3,500 UF or less. The Ministry of National Assets (MBN) is responsible for regularizing land titles in both rural and urban areas. 3. From 1983, INDAP had been implementing a Program of Technology Transfer (PTT) which was supported under the Bank's loan 2481-CH3. Groups of farmers were attended by competitively-hired private firms or individuals supported by INDAP. Initially, the PTT was oriented exclusively to small beneficiaries of the agrarian reform, through the PTT14 which involved 15-20 intensive, technical, individual visits per year, and in 1990 some 16,000 producers were being attended. In 1986, the PTTB5 was created to reach the very poorest farmers, designed to improve their subsistence agriculture and their access to other state-run subsidy programs oriented towards the reduction of rural poverty. This program included nutrition and hygiene but not credit, since cash crop production was not a focus; by 1990, some 11,000 farmers were being reached via the PTTB. 1 The translation and precis of the Borrower's Report was the responsibility of the author of the ICR. The Borrower's Report is entitled "Informe Final, Proyecto BIRF 3473-CH, Santiago, Chile, Septiembre 1998, Instituto de Desarrollo Agropecuario - INDAP." 2Development Unit (Unidad de Fomento) 3 The Agricultural Services and Credit Project, the loan for which was approved on December 20, 1984 and closed on October 30, 1991. 4Program of Integrated Technology Transfer 5Program of Basic Technology Transfer 54 4. Since the 1960s, INDAP has been the major source of small farmer credit in Chile. In 1990, short-term credit totaling Ch$15,716 million6 was extended to 28,000 farmers; investment credit of Ch$2,183 million to 2,300 farmers; and Ch$285 million to small farmer groups. Loan recovery rates were 77% for short-term and 51% for long- term credits. INDAP was lending only 4% of the total credit extended to the sector but attending 64% of the sector's credit recipients. By 1990, INDAP's portfolio was a total of Ch$47,000 million with 32% in arrears, which figure had been reached during 1985- 1989 through the forgiveness of Ch$34,800 million. The high levels of arrears and forgiveness were in part the result of the financial crisis of 1982, during which INDAP did not have access to the program of portfolio purchases by the Central Bank which resolved the crisis in loan recoveries of other financial institutions. 5. Beginning in 1984, the economy recovered from the crisis of the early 1980s with agriculture growing at a faster rate than the economy as a whole. In the late 1980s and early 1990s, the economy was marked by a high real rate of exchange derived from the policy of deficits in the balance of payments, which generated incentives to tradable sectors, especially agriculture. The expansion of exports, rapid growth of agro-industry, high investment and modernization of production followed one another in a virtuous cycle; increasing yields of traditional crops, the incorporation of new crops for export markets, and the improvement in irrigation and post-harvest technology were some of the main results. 6. From 1990, the economic policies of growth with equity gave rise to important changes in sectoral policy especially in public sector support to small farmers. The concept of small farmer used in INDAP's programs was widened to include all producers, not just those considered capable of developing into commercial farmers. All public sector agencies7 adjusted their programs to give access to small farmers to credit, technology, irrigation subsidies and basic grain marketing. MNDAP itself expanded into investments in groups, irrigation infrastructure, and marketing. B. Objectives of the Project 7. The project had six components and a total cost of US$236 million: Components Cost __ (US$ million) . Technology Transfer 88.0 * Credit 120.0 * Rural Communication 2.3 * Land Titling 8.4 * Institutional Strengthening: INDAP 15.5 . Institutional Strengthening: MBN 1.8 6 In December 1997 values. ' INDAP, INIA, COTRISA, CNR and CONAF. 55 8. The objectives of the project were: (a) to overcome restrictions to increases in productivity, incomes and well- being of small farmers; (b) to improve the institutional capacity of INDAP and MBN; (c) to improve the access of small farmers: (i) to commercial markets for products and factors of production; and (ii) to public sector agricultural programs; and (d) to regularize the land titles of small farmers. 9. The specific objectives of each component were: (a) Technology transfer: (i) to increase output, productivity, incomes and well- being of the poorest farmers, with a target of 84,000 farmers; (ii) to "graduate" those farmers with greater resources and time-in-program, via transitional phases with increasing costs to the farmer; (iii) to improve the quality of extension service and the efficiency of delivery; (iv) to increase farmers' payment for services in step with production and income, distinguishing between medium-scale farmers (PTTI) and small farmers (PTTB). (b) Credit; (i) to provide access to working capital and investment finance to 100,000 farmers; (ii) to improve INDAP's credit management, and achieve at least 90% loan recovery; and (iii) to graduate clients to the financial system, establishing market interest rates and loan terms, including a pilot plan for graduation. (c) Rural communication: to develop mass information and audio-visual methods. (d) Institutional development of INDAP: to provide training, equipment, vehicles and offices. (e) Land titling: to provide titles of ownership to 43,500 small farmers and to strengthen MBN via the acquisition of computers and GPS equipment. C. Self-Evaluation by the Borrower 10. The project was prepared in 1990-1991. Loan effectiveness was in August 19928 but expenditures only began in 1993. In practice, the implementation period of the project was 1993-1997, whereas the target dates of the Loan Agreement are defined for the period 1992-1996. 8 Editor's note: Loan Effectiveness was, in fact, declared on October 1, 1992 56 Technology Transfer 11. There were important modifications in the technology transfer component as a consequence of changes in the agricultural sector environment and the Government's responses to these changes. These changes modified the objectives and the initial concepts of the project in fundamental ways, which must be understood if a meaningful analysis is to be made of the project's achievements. The period of project implementation can be divided into three: (a) 1993-1994, when the project was implemented in accordance with the original design; (b) 1995-1996, when the project was restructured and based on the concept of micro-regional projects; and (c) 1997- on, when the project was oriented towards associated groups of producers. 12. The period 1993-1994: coverage was extended to 50,000 small farmers, increasing to 39,000 the beneficiaries of the PTTB and reducing to 11,000 the beneficiaries of the PTTI Stage II. Methods of contracting extensionists and the level of subsidy were allowed to vary by region. Extension methodologies were also made more flexible, permitting more group activities and commercial aspects. MNIA established Technology Adjustment Centers (CATs) in the main agro-ecological zones with significant small farmer presence in terms of numbers. 13. In 1994, with a change in the authorities of the MA, a debate began in INDAP concerning its role in agricultural modernization. The recent evolution of the sector caused a reformulation of the project. The main influences were: (a) the increasing difficulty in maintaining competitivity with the declining exchange rate; (b) the successes of intensive crops (e.g., vegetable production in greenhouses, and dairy), which improved prices and profitability for farmers; and (c) the growing importance of group projects to make investments, reduce costs and improve marketing, as well as of the services needed to support these projects. 14. The period 1995-1996: the new mission statement of INDAP was to consolidate the productive capacity of small farmers on the basis of competitive production systems and efficiently functioning organizations. This implied several new approaches: (a) the promotion of Micro-Regional Projects (PMR) and Local Development Projects (PDL), designed to incorporate the small farm sector into the process of modernization. Prepared by INDAP, they were defined as a set of actions to provide the basis for development and modernization of a given area based on the advantages shown by the small farmers of that area and their production systems to capture market opportunities. These projects had a central productive activity and an organizational structure of small farmers to manage the commercial aspects related to production. 57 (b) INDAP supported these projects via an integrated set of actions: technical assistance, finance, organizational and management support, and specific consulting services for project preparation and implementation. 15. Technology transfer was tailored to the potential and level of advance of the different participating groups. Similarly, each approach had different intensities, according to the effective demand of each farmer, which, in turn, determined the costs recoverable from the farmer: These were: (a) SAP Project - this was established for the beneficiaries of the PTT under the condition of participation in a PMR, and producers could be in Stage I or Stage II; (b) SAL Local - these were oriented to producers who did not meet the conditions to participate in the SAP; and (c) SAA - this was designed for producers who did not demand service under the above two approaches, and was based on audio-visual methods and practical demonstrations. 16. The cost recovery policy was modified, varying between Ch$1,500-10,000 per year for the Stage 1 producers (between 1-7% of the actual cost) and between Ch$10,000-30,000 per year for the Stage II producers (between 6-18% of the actual cost). 17. The implementation of this approach from 1995 was limited by the exhaustion of INDAP's institutional capacity by the increasing diversification and volume of services, the limitations on its capability to prepare PMRs, and the difficulties of achieving efficient joint action of the different services at the project level. 18. The period from 1997-on: a further reorganization of technology transfer was planned, based on moving producers away from a production culture to one of agricultural business. Operationally, the set of services needed to implement associative projects would come from one source - the consulting advisory firm. Four types of service would be provided: (a) Local Advisory Service (SAL), designed to improve existing technical/financial management and provide the basic conditions for associative agricultural business. These had a two-year life, and the users' contribution is 7% in the first year and 10% in the second, with a cost of UF12 per producer. (b) Project Advisory Service (SAP), includes support for primary production, farm management, management of associative business units, processing, organizational development and specific studies. These projects last for five years, with user support on a scale of 10% in the first year to 30% in the fifth year and at a cost of UF18 per producer. (c) Specialized Advisory Service (SAE), oriented to problem-solving in groups already formed. This support is not limited in time. The subsidy covers 65- 75% of the cost, with an annual limit per organization of UF2,200 and cost per producer of UF 10. 58 (d) PRODESAL, aimed at the poorest farmers without the capacity to accumulate capital, and managed by the rural municipalities at a cost of UF8.5 per beneficiary. 19. These changes tended to benefit those small farmers with the potential for innovation, a heterogenous segment with basic land and water resources with productive potential and without major restrictions in terms of climate and location. Also benefiting were the poorest small farmers (through PRODESAL), those with less than 5 HRB. The new formulation of the program was based on a demand for services from groups of producers, with support from an external advisor, that originate "lines of business" oriented towards a specific activity; based on this, an operator is hired subject to a joint decision of INDAP and the group, which participates in financing the service by paying 5-15% of the cost. Achievement of the Objectives of Technology Transfer 20. The program covered 47,000 small farmers in 1992 and 51,000 in 1993, and has remained roughly at that level until the present. Although the goal of 84,000 farmers was not met, this achievement is double the number of farmers attended in 1990. This increase, and the graduation or exit of two-thirds of the medium-scale farmers attended in 1991, means that a much closer focus was achieved on the strata of the smallest and poorest farmers than at the commencement of the project. 21. The cost of the program was significantly increased, to US$89.5 million, financed 49% from the Bank's loan. This should be compared to the US$87 million projected to be spent to reach a coverage of 84,000 farmers. The explanation lies basically in the strong revaluation in the Chilean peso with respect to the US dollar; over the period 1993-1997, the domestic price level rose by 54.9% but the exchange rate rose by only 12.9%. The costs per beneficiary did not vary much, except in the case of SAP beneficiaries. 22. Women. During the early years of the project, the PTTB included female extensionists to support the productive and family-oriented activities of rural women. In 1996, these were eliminated and services were provided integrally to the whole family group. 23. Graduation. In practice, the reformulations of the program meant that the same beneficiaries were incorporated into the new mechanisms with new periods of involvement that did not take into account the previous years in programs. Thus, although each reformulation contained the concept of a program of assistance limited in time, in practice the idea of graduation remained, basically, only an idea. The Stage 1, planned as a structural incorporation of producers into the market for private extension, was not established. However, some two-thirds of medium-sized producers have, in effect, left after Stages I and II, on not having been included in the projects. 24. In terms of the original design of the project, the concept of technological development - defined as an improvement over initial conditions that would allow the producer no longer to depend on the service - in practice never worked. The project's 59 design did not take account of the strongly dynamic nature of the sector in terms of technology and of management, which meant that the need for technical support to farmers became continuous, in order to maintain competitivity. 25. Cost Recovery. Little was achieved in this respect. The targets were not met, and the pre-existing status of medium-scale farmers, already paying 20% of the cost in Stage II, was not altered. Several reasons can be advanced: (a) a lack of confidence in the results and an absence of a tradition of paying for services, even among large farmers; (b) the lack of incentive for the service provider (the firm) to be demanding over payment; (c) changes in the program and re-incorporation of farmers under new procedures; and (d) a gradual reduction in net income from many products. 26. Quality of Service. The project involved the incorporation of small farmer production systems where INDAP had not previously undertaken extension work in any systematic way. These are more complex than larger farmers, requiring proposals better adapted to a reality of scarce resources and important restrictions. Extension quality was improved considerably by the incorporation of the CATs into small-holder farms and the establishment of Area Committees (CAs) in which INDAP, INIA and staff of the extension firms participated in the evaluation and annual program of extension, research validation and training. The CATs and the CAs operated from the III to the X Regions, inclusive. 27. From 1994-1995, a Technical Secretariat for the INIA/ANDAP Agreement was formed to give a more flexible methodological support of higher impact to producers, focussing the efforts in twenty-four areas considered to have particular business opportunities; in these, the bases for PDLs were established to allow INIA to make a proposal for an Integrated Technical Proposal (PTI). Lack of finance from INIA meant that the experience did not continue after 1995. 28. New methodologies were introduced to improve quality including the generation of more developed planning instruments (Area Agricultural Development Programs - PDAA) which typified producers and established the technical development options as a function of resources and market opportunities. New methodologies were also implemented in the organization of technology transfer, and regular training of extensionists was undertaken, involving around 1,000 extensionists per year between 1993 and 1996. Later, INDAP had no further role in such training. 29. To complement the PTT, the project carried out training of producers in production and farm management via private firms from 1993 to 1996, after which the distance training system TELEDUC began. The development of audio-visual methods 60 which could have improved quality and reduced costs of training did not advance far enough to be implemented in the program. 30. Advances were made in the development of a monitoring system based on surveys at the level of module, but the system was not implemented because of all the changes in the organization and the objectives of the program. Credit 31. The credit component represented an important institutional effort for INDAP, particularly if one considers the situation at project preparation; in 1991, over-due loans were 33.5% of the total and recoveries of the loans falling due within the year were 73.4% for short-term and 50.8% for long-term loans. The credit management system did not allow proper control and only worked in some Area Agencies. There was no adequate risk-classification system of the portfolio, loan applications were handled inconsistently, and there was no procedure for systematic collection or penalties for late payments. Expansion of credit to the smallest farmer was also risky; apart from the sheer increase in numbers, there were fundamental doubts about the recoverability of loans made to the poorest farmers. Achievement of the Objectives of Credit 32. Management. The following achievements were made: (a) procurement of equipment and implementation of an information system to provide up-to-date data on loans and the portfolio status in all Agency Areas; (b) implementation of credit norms based on a system of classification of debtors; (c) establishment of a credit management system with monthly data on over- due loans and recoveries; (d) the structuring of credit management at the level of Agency Area, based on account managers evaluated on the basis of their portfolio; (e) systematic penalty system applied to late payers, communicated via an external firm, with automatically escalating penalties and inclusion of data in the commercial credit agencies' records; and (f) training of account executives and the staff of the Area Agencies. 33. Lending. The project included only the regular9 INDAP lines of credit, that is short-term credit, basic credit, and credit to organizations. The goal was to increase to 100,000 small farmers the recipients of working capital loans, who would all receive investment loans over the life of the project. To achieve this, the basic lines of credit 9 It did not, therefore, include emergency, irrigation, forestry and housing credits. 61 were created, to distinguish them from the traditional credit lines of INDAP aimed at medium-sized producers; at the same time, the volume of resources was increased during the five years of the project to US$69.6 million. 34. Working capital loans (short-term current and basic) reached their maximum number of beneficiaries in 1992 with 49,200 farmers. The decrease in subsequent years is partially the result of an increase in requirement for working capital, taking these farmers beyond the limits of the short-term loans and into the long-term current category. The number of investment credit recipients grew from 6,700 in 1992 to 27,000 in 1997. Between 1992-1997, 97,000 investment loans were made, two-thirds of them to small farmers. 35. Lending during the five years of the project was a total of US$308 million with the commitment of an additional US$104 million, 49% more than the original target. The main changes were the increase in the number of long-term current credits, from 1,715 loans in 1992 to 14,946 loans in 1997, and the large revaluation of the Chilean peso against the US Dollar. 36. Interest Rates. The Loan Agreement defined INDAP's obligation to lend at market rates, avoiding unfair competition with the financial system and promoting eventual graduation. This was only partially achieved. In 1994-1996, INDAP maintained its rates whilst market rates rose. However, the differences were not of great magnitude and reached a maximum of 1.2% (in UF terms, see Table 5). 37. Loan Recovery Rates. In project design, a loan recovery of 90% was projected; in the Loan Agreement, loan recoveries for loans made after 1992 were to be not less than 85% in 1992, 88% in 1994, and 90% in 1995 and thereafter. The repayment indicators establish the amount recovered each year of the amounts due at December 31 of the previous year, differentiating the amount due and the payment received according to loans made in the previous year and earlier years (loans with 2-6 years of age) and to loans more than six years old. 38. Although this type of indicator does not allow the system to determine the total amount recovered from the amount lent in any given year, it is very effective in estimating credit recovery of annual credits when recovery rates are high in the first year, given that the balances recovered in the first and second years illustrate a high percentage of the debt contracted. The same is not true for long-term credits because the first-year recovery is only a small fraction of the total. In addition, the balances of unpaid debts during a calendar year which are forgiven, renegotiated or penalized during that year affect the loans falling due the next year. 39. For working capital loans, recovery indicators (measured as the sum of the percentages recovered in the two years following loan placement) indicate high levels of repayment during the first years of the project (1992-1994), but these fall later. 40. The recovery rates of working capital loans do not show significant differences between medium and small farmers, the higher risk assumed (at the time of preparation) to be associated with the latter, proving to be largely unfounded. The same is not true of 62 working capital loans to organizations, particularly those loans made in 1995 and after, indicating possible short-comings in the evaluation of their capacity to pay and/or the financial merits of these projects. 41. For investment loans, mainly made for five years, the analysis is limited to the recovery of the first two payments; the data on recoveries of the second payment under- estimate the recovery, because they are calculated for all payments after the first which fall due for all credits given after 1990. The long-term investment loans achieved recovery rates lower than those for working capital loans, reaching 87% for the first payment and around 70% for the second, for loans made up to and including 1994. After 1994, recovery rates for the first and second years fell significantly, and this is particularly marked in the case of loans to organizations where, in 1995-1996 loans, the repayment of the first amortization fell to less than 40%. There is, however, little difference between small- and medium-sized producers, reflecting the observation made with respect to working capital loans. 42. Subsidies. The Loan Agreement made possible the granting of subsidies to both short-term (working capital) and long-term (investment) loans. In 1995, this policy was modified to concentrate subsidies in long-term loans, giving them only once per beneficiary in amounts equivalent to (up to): 20% for basic capitalization grants (small farmers); between 2.5% and 15% for long-term current credits; and between 2.5-10.0% for organizations. The incidence of the subsidies is low in the first years of the project, but grew as credit for investment grew. In 1995 and 1996, subsidies were more than 15% of lending but this had no effect on the level of recovery of loans made in those years. 43. Debt forgiveness. During the project's life, 1993-1997, debts equal to Ch$9,958 million were forgiven,'0 equivalent to 7.8% of loans made in the period. The forgiveness of debts was particularly marked in long-term current credit, where it represented over 25% of the amount lent. 44. Evolution of the portfolio. The status of the portfolio evolved in consistency with the level of recoveries. Between 1993-1996, the total value of loans overdue fell from 15.2% tolO.4% of the total but in the last year it increased abruptly to 15.2% once more. 45. Graduation of credit recipients. A study"' on the issue of graduation of INDAP clients to the commercial banks found that 70% of the current credit clients (around 12,000 clients) were in a position to graduate within 2-3 years. In 1996, a graduation pilot program was introduced through the implementation of a state subsidy named the "Financial (Sector) Articulation Bond" (BAF), aimed at simultaneously removing the restrictions to both the supply of and the demand for loans for small farmers by subsidizing the higher transaction costs involved on both sides. The value of the BAF on the supply side (BAF Transacci6n) was determined by a bidding process, open to all financial institutions, and was defined as a function of the higher transaction costs that these operations involve. The origination BAF, designed to cover the farmer's cost (of The debts forgiven do not coffespond to the loans made in the same period. ' Departamiento de Economia Agraria, Universidad Cat6lica 63 establishing guarantees, accounting information, etc.) is currently UF2.5 (US$85.00) and is provided to all farmers accepted by a commercial bank. 46. In addition, INDAP gave to the financial institution awarded the BAF the credit history of the clients suitable for graduation and held training courses for bank staff. The bidding procedures were preceded by full publicity. In 1996 and 1997, two bidding procedures were made with only limited participation by banks. A total of 1,418 BAFs were adjudicated to three banks and two credit cooperatives; by the end of 1997, only 579 BAFs had been used. This result is clearly insufficient and does not allow the financing of small- and medium-scale farms by the formal financial sector to be viewed with much optimism. Rural Communication 47. The project was important in establishing the weekly television program "Tierra Adentro" which still retains a large audience among small farmers and the rural population in general. The program shows examples of new technology, helps to bring the reality of the rural world to urban dwellers, and provides useful technical and commercial information for decision making. 48. Significant efforts were made in the project's early years to introduce audio-visual techniques to the work of extension. Programs were prepared by private sector firms, but because of their lack of experience in preparing educational material there were serious deficiencies in the early material prepared. Beginning in 1994, an agreement with FAO provided training courses for the preparation of audio-visual material for staff of the firms and of INDAP. In 1995, several training units were prepared, linked to goat production in the IV Region, and their enthusiastic reception led to the incorporation of the technology into PRODESAL. However, lack of financing and agreement on content prevented the implementation of this innovation. 49. In 1997, through an agreement with FUCOA and TELEDUC12, a distance training program for small farmers was incorporated into the PTT. Oriented towards management training, an estimated 3,066 producers were incorporated during 1997 and 3,000 during 1998 and received training to allow them to generate and to make progress with initiatives to develop agricultural business on an associative basis. Institutional Development of INDAP 50. The objective was to strengthen INDAP by the creation of 17 new Area Agencies, the purchase of vehicles and office equipment, and training. In addition, it included the acquisition of hardware and software for INDAP's information system, to include credit reporting and management, accounting, and the monitoring and evaluation of the PTT. All of the objectives of this component were achieved in the first years of the project, and in many cases the quantitative targets were exceeded. This resulted in a strong improvement in the institutional capacity of INDAP, particularly in the area of credit 12 FUCOA - Agricultural Communication Foundation TELEDUC - Distance Learning Program of the Television Corporation of the Catholic University 64 management. Partly as a result, coverage achieved in technology transfer and credit was doubled, and new activities not considered at the time of project preparation were included, such as irrigation, projects for poor areas, etc. The investment made had contributed decisively to an improvement in management and in the quality and availability of information. Titling of Land 51. The regularization of titles was implemented in accordance with project design; 42,027 titles were completed by the end of 1997, 46% of them corresponding to women. It is expected that the overall goal will be reached in 1998; modifications in the iegislation during the life of the project have introduced new, and more time consuming, procedures to ensure that the titles delivered do not affect other land owners. The firms now require between 12-24 months to complete the process of regularization of a property title. 52. The cost of titling increased relative to that projected because of the decline in the exchange rate. The total cost was US$8,098,812 of which US$7,552,085 was financed from the loan. Institutional Development of MBN 53. During 1993, computer hardware and software was acquired, as was the measurement equipment. During 1994, the relevant staff were trained to operate the new systems. These investments were also more costly than projected; US$794,646 was spent, of which US$637,072 was financed from the loan. D. Determining Factors in the Achievement of the Objectives and Goals of the Project 54. Institutional Capacity of INDAP. The limited institutional capacity of INDAP was a determining factor not only in the reduction of coverage, as was foreseen in the Staff Appraisal Report, but also in the quality of management in the transfer of technology and distribution of credit. The project is at times confused with the institution of INDAP, which has objectives and activities which go far beyond the project. In this respect, the institutional development component went beyond the goals set in project design but was insufficient for the development of the institution as a whole with its growing responsibilities, its public function, and its new projects (e.g., PROMM, PRODECOM) in which it participated as an executing agency. 55. Evolution of the Agricultural Sector. There were a number of changes experienced during the project's life in the development of Chile's agricultural sector that had not been foreseen during project preparation. A new "scenario" developed after 1992. The success of the export policy tied to the large inflow of foreign capital generated significant reductions in the real exchange rate. In the past five years, the value of (a unit of) foreign exchange has fallen by 40% which, with an open economy, has been translated into a major fall in the profitability of all productive sectors and has 65 caused a continuous pressure on the need to increase productivity as the only means of maintaining competitiveness. 56. Changes in Sectoral Policy. The policies in INDAP have changed in response to the economic environment and the new political authorities post-1994, and these have had an impact in the evolution of technology transfer and credit. During the project, the PTT has been subject to constant changes which have frequently been only incompletely implemented before the next wave of change arrived. Thus, the greater demands for competitiveness caused the program to be restructured in favor of associative projects, but in these the institutional capacity and the demands on the extension firms and the producers were much more complicated and diversified than those foreseen in the project, which aimed to support the producer as a farm-family. These changes redefined fundamental aspects of the program (e.g., type of beneficiary, services, type of agent, graduation, cost recovery) and it is not possible to analyze the results of the program based on the criteria used in its formulation. 57. The changes in the PTT worsened the deficits in institutional development, not only because there were new activities to be developed by the Area Agencies and others but also because on concentrating efforts on these activities the importance was lost of other activities related to quality improvement in the PTT. The changes in INDAP policies also affected credit; the systems for credit evaluation and management did not foresee associative projects as being important and, equally, the importance and size acquired by long-term investment loans was not foreseen in project design. Finally, the continued changes in the formulation of the program made impossible the implementation of a quality control system for services provided. 58. Support to INIA. This was an important contribution to the achievement of the project's objectives, especially for those producers with the most limited resources. In 1993-1994, INIA began systematic support to the program but later did not have the financial resources to continue. In the report of the Mid-Term Review (MTR), this was described, and the low quality of the technology on offer was defined as one of the major limitations of the program, especially for the smallest farmers. 59. Financial Sector Performance. In spite of the study on graduation defined in the Loan Agreement and the implementation of the graduation pilot program, there has not been a significant transfer of credit clients to the commercial banking system. The basic lack of interest in this type of client was recognized as a risk at appraisal, but to this must be added the results of the greater competition in the financial system that has reduced spreads and reoriented the system towards new services and mass lending at low transaction cost, principally consumer lending. 60. Loan Recovery. Loan recovery rates have not reached the goals set because: (a) a decline in agricultural profitability, especially in those products typical of INDAP producers: the decline in prices (of cereals and milk, important to many small producers in the VIII, IX and X Regions, where 60% of INDAP's borrowers are located) directly affected loan recovery rates. 66 (b) climatic variability: from 1994 until mid-1997, prolonged and severe drought from the III to the XI Region caused crop and livestock losses of the order of US$250 million which seriously affected small farmers. As a result, INDAP was obliged to renegotiate and reschedule debts, and in some cases, requested the Minister of Agriculture to forgive debts altogether. (c) institutional bet on loans for innovative investment, with higher risk: long- term loans for investment made by INDAP increased from 25.4% of loan commitments in 1993 to 48% in 1997. The decision to give priority to investment above operating costs accompanied INDAP's decision that the best option for small farmers was their incorporation into innovative projects; these required finance which the small farmer could not generate from his own resources, but these necessarily brought with them a higher risk which, ultimately, was expressed through lower recovery rates. (d) increase in loans to organizations, which also brought a higher risk: in 1993, 10.9% of commitments were to organizations and this grew to 21% in 1997. This institutional decision also brought an increase in risk. (e) the changes in technology services brought many additional tasks and caused a drop in the attention given to credit management: the new challenges of the sector brought a consensus within and outside INDAP concerning the change to a technical/business skills approach which had to be made in the services that had been developed up until the crop year 1996/1997. This was made instrumental at the beginning of 1997 and made large demands on INDAP, particularly its units and Area Agencies where much of the responsibility for credit management lay. The new demands were super-imposed on the already over-worked structure measured in terms of staff at the Area Agencies and the number of credit recipients. The new demands immediately had a negative impact on time available for credit management. (f) increase in coverage, volume and complexity of credit extended, with fixed resources of staff and support: in agricultural credit alone (excluding irrigation and farm business management), the volume of credit increased by 72.9% between 1994-1997 but staff and support costs increased only by 50.1%. In some areas, an account executive must now be responsible for in excess of 1,000 clients. (g) the methodology of calculating percentages in credit analysis produces certain distortions because of early loan recoveries: the amount payable disappears from both the enumerator and the denominator whenever an early payment is made. 13 61. INDAP is aware of the need to reverse these tendencies in credit management which are reflected in the fall in indicators referred to above. A series of measures has 13 Example: In Agency 'A", payments due at 12/31/1997 are 300, to be collected in 1998. From this figure has already been deducted 50, due in 1998 but paid in 1997. If only 150 are paid in 1998, the apparent "recovery" is 150/300 = 50% but the actual recovery is higher, and should be expressed as 200/350 = 570/o. 67 been put into effect aimed at improving administrative processes with respect to the portfolio, including: (a) audits, for the larger loans; (b) the formulation of collection programs, including the rescheduling of loans, at the level of the Area Agencies; (c) a program of staff awareness of the importance of credit recovery in the achievement of some of the goals of the Management Improvement Program (PMG); (d) the integrated application of the new methods of technical support to producers should induce an improvement in the ability of small producers to service their INDAP loans; and (e) the maintenance of existing levels of coverage and lending in the absence of an increase in resources for operating expenditures. E. Other Indicators of Impact and Results 62. A study14 is in progress, forming part of a global evaluation of development instruments for the period 1983-1997. It is based on a survey of almost 3,000 farmers, with and without PTT, in five Regions of Chile. The survey was carried out between July-October 1997 and covered data for the crop year 1996-1997. 63. The impossibility of re-creating a base-line of data to reflect the pre-project situation of beneficiaries led to the option of establishing the comparison between participation in the PTT and 92 specific indicators at the moment of making the survey, which establishes an approximation to the main types of impact but only allows partial expression and does not allow the attribution of causality. 64. The control group shows similar characteristics to the farms incorporated in the PTT. The following indicators refer to preliminary results and refer to those groups of producers for which the variable is significant at an aggregate national level: (a) Yields in five main crops - oats, potatoes, beans, sugar beet and wheat - show no difference between the group with PTT and those without PTT; over the long period analyzed, innovations in these crops have probably become generalized. (b) The group with PTT dedicated 0.75 ha each to non-traditional crops"5, 83% more than the groups without PTT. 14 Estudio del Impacto del PIT, commissioned by the Ministry of Economy; Asociaci6n EMG-RIMISP - Corporaci6n GIA i5 Example: vegetables in green houses, fruit and vegetables for agro-industrial use, flowers, improved pastures. 68 (c) 12% of the producers with PTT had at least one product under agro-industrial contract; this is 28% more than the corresponding proportion of producers without PTT. (d) Annual gross farm income is 49% higher in the group with PTT (CH$2.83 million) than the groups without PTT (Ch$1.90 million). (e) The gross value of agricultural output was 48% higher for the group with PTT (Ch$2. 17 million) than the groups without PTT (Ch$1.47 million). (t) On farms with livestock production, the gross value of livestock output was 48% higher in the groups with PTT (Ch$0.75 million) than the groups without PTT (Ch$0.49 million). (g) In the X Region, groups with PTT had gross sales revenue from livestock products 82% higher than those groups without PTT. 65. Credit. It is impossible to isolate the effect of credit on the results obtained because 50% of those in the group without PTT have credit from INDAP. An important part of the incremental production and productivity of both groups was possible only because of access to this finance, especially because only 8% of producers have access to other sources of credit. Credit has been an essential element for the adoption of the innovations promoted by the PTT, especially where new crops are concerned, which are apparently the ones with the greatest impact on gross incomes. 66. Titling. The regularization of title has been greatly valued by the beneficiaries. In addition to security and increase in property value, the access to subsidies and the incentive to make investments, both in housing and in agriculture, have been important. F. Conclusions 67. The project had a decisive impact in overcoming the restrictions that affect productivity, income and well-being of small farmers, in circumstances which were complicated for agricultural development in general and for the small farmer in particular, especially when the changes which occurred during the period in production alternatives, investment and technological development are taken into account. The impact in terms of coverage was less than expected, and the evaluation indicates important impacts in small farmer agriculture not associated with the program, especially in traditional crops. It is possible that the introduction of new varieties and cultivation methods, today generalized throughout small farms, is due in part to the introduction of these innovations amongst program participants. 68. The results obtained from the incorporation of new products and markets are of equal relevance. This would have been very difficult to achieve without a systematic effort to incorporate jointly the promotion of technology and innovation and the provision of finance. 69. The access to credit by the smallest farms is an important achievement. The incorporation of these strata to financing was a decisive element in the productivity increases and investment made by the poorest farmers. 69 70. No significant progress was made in incorporating the smallest farms to the financial sector. This was to be explored during the project (in the pilot plan) but was affected by the dynamic changes that occurred in the financial sector during the period. 71. The net effect of the project on the income of the 50,000 beneficiary families is the order of US$56 million per year, if it is assumed that 50% of the increase in gross farm income corresponds to incremental family income. 72. The sustainability of the activities of credit, technology transfer and regularization of titles are permanent functions of INDAP and MBN, and will be continued in future with annual funding from the budgetary law. G. Evaluation of the Role of the Bank 73. The Bank played a fundamental role during project preparation, where it participated in the conformation of a multi-disciplinary team. This was made up of staff of a high level of proficiency who made a great effort to understand the institutional aspects as well as the reality of small farmer agriculture in Chile. 74. During the first years of project implementation, supervision was carried out by one of the staff who had been involved in project preparation; supervision was made in two annual missions, each of ten days' duration. During this period, supervision played an important role in determining priorities and the resolution of necessary changes. Later, when the most important changes in the project concept were produced, the Task Manager of the project had changed and mission duration had been reduced, such that the Bank's support was of relatively little significance. Ranjinee Rudran \\LCRCL02\LCR-PROJECT\!CL\PROJECTS\ESSD\SMALL\APPEN1.DOC 02/01/00 1:58 PM 70 APPENDIX 1 Table 1 Number of Beneficiaries Incorporated into the Program MODE 1993 1994 1995 1996 1997 PTTB Stage I 33,848 30,428 20,244 5,448 PTTI Stage I 13,159 12,993 5,682 SAAL 14,450 31,013 SAAP 7,763 PRODESAL 4,340 4,438 4,990 16,624 SAL 29,802 SAP 6,039 Others 2,602 2,665 5,298 TOTAL 49,609 50,426 50,157 49,214 52,465 APPENDIX 1 Table 2 Value of the Subsidy per Beneficiary (Ch$ of December 1997) MODE 1993 1994 1995 1996 1997 PTTB StageI 185,279 182,893 188,300 PTTI Stage II 113,904 113,313 93,741 SAAL ___ 170,036 SAAP 192,804 PRODESAL 115,723 116,700 SAL 162,636 SAP 243,654 71 Appendix 1 Table 3 INDAP Credit Beneficiaries (1992-1997) Short-term Long-term Capital Organizations Year Current Basic Current Basic Total Short Term Long Term Total 1992 15,246 33,997 1,715 4,944 55,902 5,796 1,619 63,317 1993 14,459 31,515 2,531 8,530 57,035 8,859 4,934 70,828 1994 15,731 28,037 4,252 10,933 58,953 12,047- 4,094 75,094 1995 15,053 28,289 5,657 12,549 61,548 11,616 10,785 83,949 1996 18,758 24,934 7,233 12,231 63,156 16,338 19,702 99,196 1997 17,904 22,675 14,946 12,074 67,599 7,309 10,965 85,873 Appendix 1 Table 4 Total Credit of INDAP (Ch$ of December 1997) Year Short Term Long Term Capital Organizations US$ Current Basic Current Basic Short Term Long Term Total Million 1993 7,611,928 4,088,337 1,662,404 2,510,688 1,601,610 345,786 17,820,753 42.633 1994 8,961,573 4,543,492 2,963,827 3,203,388 1,696,680 1,813,770 23,182,730 55.461 1995 8,793,692 4,109,002 4,615,350 2,829,079 1,458,320 2,326,811 24,132,254 57.733 1996 11,273,240 4,215,040 5,387,462 2,615,715 3,722,065 4,069,188 31,282,710 74.839 1997 10,876,187 3,345,137 8,530,595 2,606,392 2,566,201 4,356,664 32,281 176 77.228 Total 47,516,619 20,301,009 23,159,638 13,765,262 11,044,876 12,912,219 128,699,623 307.893 72 APPENDIX 1 Table 5 Interest Rates: INDAP and the Market (at December of each year) Year Rate of Interest - INDAP Market 1992 UF+7.2% UF+7.1% 1993 UF+8.3% UF+8.2% 1994 UF+7.1% UF+8.3% 1995 UF+7.1% UF+7.5% 1996 UF+7.1% UF+8.3% 1997 UF+7.8% UF+7.8% APPENDIX 1 Table 6 Recovery by the Second Year for Working Capital Loans % of Recovery Year of Loan First Year Second Year 1992 - Current 90.5 5.7 Basic 90.0 7.0 Organizations 77.9 3.1 1993 - Current 91.0 5.1 Basic 89.0 5.3 Organizations 81.7 14.7 1994 - Current 90.4 4.4 Basic 89.1 3.6 Organizations 97.4 1.4 1995 - Current 71.3 13.8 Basic 69.1 16.6 Organizations 64.3 1.6 1996 - Current 72.6 Basic 74.4 Organizations 43.4 Ranjinee Rudan \\StreetTaIk\Projects@FileslLAC\PROJECTS\ICL\PROJECTS\ESSD\SMALL\APPTAB3.DOC 02/09/99 4:52 PM 73 APPENDIX 1 Table 7 Recovery by the Second Year of Investment Loans % of Recovery at First Year of the Loan Total Lending Payment Due 1992 - Current 1,398,558 85.9 Basic 2,212,469 85.6 Organizations 261,923 86.6 1993 - Current 1,662,404 84.0 Basic 2,510,688 83.0 Organizations 345,786 93.0 1994 - Current 2,963,827 87.3 Basic 3,203,388 79.1 Organizations 1,813,770 97.4 1995 - Current 4,615,350 66.5 Basic 2,829,079 68.9 Organizations 2,326,811 37.8 1996 - Current 5,387,462 67.4 Basic 2,615,715 76.1 Organizations 4,069,188 36.4 APPENDIX 1 Table 8 Credit Subsidies - 1993-1997 (Ch$ x 1000, in December 1997 Values) Subsidies as of Year Amount Lent Subsidies Lending 1993 17,820,753 697,495 3.9% 1994 23,182,730 994,038 4.2% 1995 9,771,240 1,184,027 15.9% 1996 12,072,365 1,972,538 16.3% 1997 15,493,651 1,341,010 8.7% Ranjinee Rudran \\StreetTalk\Projects@Files@LAC\PROJECTS\!CL\PROJECTS\ESSD\SMALL\APPTAB4.DOC 02/10/99 9:08 AM 74 APPENDIX 1 Table 9 Number of Titles Contracted and Delivered by MEN, 1993 - 1997 Year Target Number Contracted Number Delivered 1993 3,500 17,600 1,900 1994 14,000 14,100 10,121 1995 16,000 7,340 13,764 1996 10,000 10,980 7,953 1997 __ _8,289 Total 43,500 50,020 42,027 75 APPENDIX Table 10 Payments Due and Annual Recovery Rates - 1993-1997 (Current Ch$) Current Current Organizations Year Year of Origin Amount Due Short Term Basic Long Term Basic Capital Short Tenn,Long Term Total 1993 1993 43,041 85.9 80.2 70.1 74.9 105.0 100.0 87.0 1992 9681387 90.5 90.0 85.9 85.6 86.6 118.4 90.0 1990-1991 1,219,856 65.8 66.7 79.2 70.1 81.7 77.1 73.0 _ 1984-1989 906,946 55.4 0.0 38.9 0.0 0.0 73.3 44.0 Prior to 1984 498,581 50.3 74.8 48.1 106.0 0.0 0.0 49.0 Total 12,349,811 87.2 89.5 58.7 82.9 87.8 98.4 83.0 1994 1994 454,277 87.0 67.0 85.0 83.0 102.0 100.0 83.0 1993 1,329,630 91.0 89.0 84.0 83.0 93.0 70.0 90.0 1990-1992 1,801,237 60.0 70.0 73.0 73.0 14.0 62.0 68.0 - 1984-1989 554,659 49.0 0.0 37.0 0.0 0.0 100.0 40.0 Prior to 1989 414,494 44.0 99.0 45.0 23.0 0.0 0.0 45.0 Total 14,554,297 88.0 88.0 63.0 79.0 92.0 65.0 84.0 1995 1995 970,094 83.2 69.4 91.1 86.5 93.8 205.0 79.4 1994 13,662,992 90.4 89.1 87.3 79.1 97.4 60.4 89.3 1 1990-1993 2,599,856 56.2 48.4 75.6 71.0 80.4 66.3 68.6 1984-1989 365,249 35.9 0.0 28.5 0.0 0.0 30.3 Prior to 1984 327,427 34.0 98.9 23.5 100.0 0.0 24.1 Total 17,925,618 87.3 87.5 70.0 75.4 89.2 65.3 83.3 1996 1996 1,263,468 76.1 68.4 57.9 86.3 69.7 21.2 69.5 1995 19,351,586 71.3 69.1 66.5 68.9 64.3 37.8 69.1 1990-1994 4,055,587 45.5 33.2 59.2 56.5 40.2 38.2 52.3 1984-1989 159,805 26.3 0.0 43.4 0.0 40.0 Prior to 1984 98,291 24.9 53.5 42.1 0.0 40.7 Total 24,928,737 69.8 67.9 61.8 62.4 65.2 37.8 66.1 1997 1997 894,357 71.2 75.1 54.4 75.3 42.6 167.0 69.2 1996 22,151,788 72.6 74.4 67.4 76.1 43.4 67.4 76.1 1990-1995 8,445,883 46.3 53.8 54.9 53.8 4.6 54.9 53.8 1984-1989 113,898 20.9 0.0 42.1 0.0 0.0 0.0 32.4 Prior to 1984 80,071 19.2 0.0 35.0 0.0 0.0 0.0 32.6 Total 31,685,997 69.1 70.3 59.2 60.1 39.6 28.6 61.9 76 APPENDIX 1 Table 11 Credit Outstanding and Overdue (Ch$ in December 1997 values) 1993 1994 1995 1996 1997 Current Short Term.: _ Outstanding 9,429,164 9,921,134 10,741,970 12,661,894 11,328,255 Overdue 1,594,150 1,270,175 1,375,860 1,790,660 2,167,038 Current Long Tenn: Outstanding 6,221,443 6,607,663 7,756,556 10,172,245 10,634,419 Overdue 2,022,981 1,562,208 1,093,574 1,298,714 1,429,169 Production Basic: Outstanding 4,196,098 4,464,927 4,316,332 4,283,483 3,343,004 Overdue 520,706 661,107 812,655 839,483 1,262,347 Capital Basic: _ ______. Outstanding 3,252,492 4,213,536 4,776,638 4,323,242 3,497,912 Overdue 198,293 319,614 542,775 732,334 1,007,055 Organizations Short Term: Outstanding 1,308,763 1,682,628 2,043,358 4,125,106 3,563,438 Overdue 84,069 136,031 119,950 178,836 1,035,845 Organizations Long Term: Outstanding 567,344 2,174,962 4,551,583 8,508,904 10,847,177 Overdue 47,724 26,963 91,324 269,574 865,949 Total Outstanding' 24,975,264 29,064,850 34,186,437 44,074,873 43,214,205 Total Overdue 4,467,927 3,976,099 4,036,138 5,109,781 7,767,403 Total 29,443,191 33,040,949 38,222,575 49,184,654 50,981,608 % Overdue 15.17 12.03 10.56 10.39 15.24 ' Minor sunmmation errors in this table are to be found in the original Borrower's Report 77 APPENDIX 2 INDAP: PROGRAM OF TECHNOLOGY TRANSFER Small Farmers in Chile 1. The small farm sector in Chile includes an estimated 148,000 medium farmers with 5-12 BlH and 105,000 small farmers (minifundistas) with less than 5 BIH. These farmers are responsible for 27% of the marketed agricultural production and hold 39% of the farmland. The majority of small and medium farmers: (a) are located in marginal, dry coastal areas and Andean foothills; (b) make a living from low-yielding traditional crops and livestock production, off-farm seasonal work, and government subsidies; and (c) lack the resources to increase farm productivity or to gain access to the formal markets through increased competitiveness. About one-third of the small farmers have better resources and greater commercial potential, as their holdings are located in more fertile, irrigated land and closer to the markets; most small farmers (minifundistas) fall outside this group, and are the farmers in the greatest comparative poverty. Project Objectives and Targets 2. The overall objective of the technology transfer program was to increase on-farm productivity, income and well-being of about 92,000 small and medium farmers throughout Chile. A greater emphasis was to be placed on the minifundistas, the recipients of the Basic Technology Transfer Program (PTTB), where coverage was to be increased from 18,000 to 76,000 families over a five-year period. A separate program would be maintained for the 16,000 medium farmers, under a separate and existing INDAP assistance program (the Integral Technology Transfer Program - PTTI), who would be eventually graduated out of the public extension system. 3. The project focused heavily on improving the quality of extension and service delivery, as a way of maximizing the project's impact at the level of each farm family, and on improving the prospects of long-term sustainability of INDAP's extension programs. Most project-designed mechanisms, instruments and inputs addressed quality, and aimed at enhancing the effectiveness of the basic, proven INDAP extension model'. The extension program was built chiefly on achieving the better use of existing resources and sought to minimize risks. 4. The technical foundation for supporting minifundistas was the evidence at the time of appraisal that there was a realizable potential for higher productivity among small farmers, as indicated by the higher yields obtained by larger farmers operating with more 1 INDAP's extension model was primarily designed to provide farn-oriented extension, stressing productivity and home-centered assistance. In its most simple version, the model assumes that appropriate technology for the crops cultivated by small fanners (most frequently, commodity-type crops) is available and can be delivered to farmers through qualified extensionists. Inputs to be delivered are mainly technological and address factors affecting yields. The use of this model assumes that the typical INDAP beneficiary is prepared to understand and is open to the extensionist's instructions and advice. 78 resources and located in similar areas. Available information had also confirmed the considerable success of INDAP's model in increasing small-farm productivity during the period 1983-19892. A particularly favorable business environment for traditional agriculture, resulting from economic policy adjustments in the early 198Os3, encouraged technology adoption during the 1980s by small farmers at the time the project was being prepared. Under these conditions, the achievement of the project's objectives would mainly rely on INDAP's capacity to manage efficiently the delivery of services to a significantly expanded target group. INDAP's limitations in this last aspect were addressed by designing a strong institutional strengthening component for the project. 5. It was hard to predict at the time of appraisal the extent to which those business conditions so favorable for agriculture in the 1980s would deteriorate during the 1990s4. Swiftly decreasing profitability in traditional crops among small farmers significantly weakened the potential for results from INDAP's traditional extension model. The model had been well designed, however, and was successfully utilized during the first two years of project execution. 6. Without fully abandoning the traditional scheme, a first attempt was made to redesign INDAP's extension strategy during 1995-1996. Action plans (or projects) to develop community-level production systems tapping existing market opportunities5 were contracted by INDAP with private consulting firms and utilized to determine the extension program's scope and activities. INDAP's extension instruments were diversified to allow provision of differential assistance to farmers under the new scheme. 7. Mounting difficulties in implementing the above strategy and worsening economic conditions for agriculture prompted the implementation of a radically new approach to extension in 1997. The new strategy supported farmer transition towards a more innovative, business-driven agriculture as demanded by farmers on the basis of presenting a formal business plan to INDAP. Extension was made project-oriented, it stressed on-farm and processing investment, and it favored farmers' associative schemes to canry out business. A wide array of extension instruments, with varying degrees of intensity and specialization, was developed by MNDAP to suit the differing needs of farmers for assistance under this new approach. Operationally, one single private contractor provided organization and business advice to INDAP's beneficiaries, and was also responsible for contracting and delivering all other agreed specialized assistance services. 2 Crop yields of PMl farmers had increased significantly over this period, particularly in wheat (71%), maize (35%), rice (40%), and beans (40%). All PTTI yields exceeded national averages in 1988-1989. No data for the P1TB farmers were available during appraisal, as this program was in an early stage of development (see SAR, Annex 3). National averages for wheat and maize yields in 1990-1992 were 100% higher than during 1980-1983; over the same period, yields for oilseeds, sugar beet, barley and oats increased by 50%. 3Prices to local producers increased significantly, mainly as a result of the devaluations of the Chilean currency after the 1992-1993 economic crisis. The adjustment included higher custom duties and the implementation of price stabilization schemes (the "price bands") to wheat and sugar beet. 4Between 1985-1989 and 1990-1992, prices for crops typically grown by small-farmers declined as follows: wheat 25%, maize 17%, rice 11%, oats and barley over 20%. 5 Known as Micro-regional Projects or Local Development Projects. 79 Achievement of Objectives 8. The implementation complexities of the new strategies required capabilities from INDAP that went well beyond those foreseen in the original project. The changes also made it increasingly difficult for the private consulting firms contracted by INDAP to organize and deliver adequate assistance in the redesign and implementation of farmer's activity. Consulting firms were well-equipped to provide technical assistance on the traditional production side, but lacked the criteria and specialized inputs effectively to address the business issues associated with the new approaches to extension. 9. At the receiving end, both limited on-farm resources and most small farmers' lack of basic entrepreneurial aptitude made it unlikely that the new schemes could be successfully implemented. INDAP's stress on productivity, and subsequently on innovative endeavors, imposed on small farmers an intricate business strategy with which even the larger, more resourceful producers had difficulties in dealing. 10. There is no available evidence, other than anecdotal results from a small number of success stories, to evaluate the effect on small farmers' income of the new extension schemes. However, from the above discussion and poor loan repayment record it becomes apparent that the effects of these models on income were significantly thwarted by the prevailing economic conditions and the effectiveness of the models themselves. 11. The SAR does not provide quantitative criteria for judging the achievement of the project's income objectives. It limits itself to the presentation of past evidence suggesting a considerable potential for productivity gains by small farmers from INDAP's extension. Under this premise, project performance indicators presented in the SAR focus rather on the achievement of goals in terms of the number of beneficiary families, special target groups (e.g., women), and proxy-indicators for quality of extension. As a consequence of INDAP's changing focus on extension, most original project goals were only partially pursued and their monitoring discontinued at an early stage of execution. - Expanded Coverage 12. Project goals were adequately met during the first two years of execution. Technology transfer coverage almost doubled for the minifundista group; medium farmers were transferred to successive program phases, and eventually graduated out of the system. However, during the forthcoming years, coverage of minifundistas under the original project extension scheme was progressively reduced, and reached pre-project levels of about 17,000 beneficiaries upon completion. The reduction coincided with INDAP's efforts to concentrate its extension resources on those farmers endowed with a higher potential to succeed under the more demanding economic conditions6. 13. The project's overall extension coverage reached a peak of 50,000 beneficiaries in 1994, and was maintained roughly at that level until project completion. Even though this coverage was short of the project's 92,000 mark, it represents a critical mass relative to the size of the target population. 6 About 68% of INDAP's beneficiaries were under INDAP's restructured extension schemes in 1997. 80 - Quality of Extension 14. The project's achievements in improving the quality of extension were only partial. Expected results in this area had relied heavily on a coordinated effort by INIA and INDAP to address local small-farm technology development and validation and to provide adequate training to extensionists. The program that was implemented to this effect made important contributions to improve INDAP's extension to minifundistas during the first three years of project execution. However, the program's early termination thwarted project expectations concerning the quality and wider availability of technology proposals suited to minifundistas' needs . Technology and extension problems associated with minifundistas proved to be much more complex than anticipated by INIA and INDAP, and definitely needed a more sustained and dedicated effort. 15. The project's cooperative mechanism, linking up 1NIA's small-farm technology development with INDAP' s extension program, was well designed to address minifundistas' deficient productivity. However, the mechanism would not have been appropriate to deal with the complex issues associated with INDAP's subsequent approaches to extension. The new extension strategies involved the application of a different set of criteria, which was alien to INIA's institutional culture and installed research capacities. 16. New extension criteria were also difficult to comprehend and to make operative by INDAP's contracted extensionists. Though goals for the project-designed training program for extensionists and beneficiaries were met in quantitative terms8, the project's objective in terms of extension quality was strongly thwarted by the participants' limited capacity to understand and deal with business innovation and management issues. - Rural Communications System 17. The implementation of a rural communication system was seen in the SAR as a key tool to enhance efficiency in service delivery. Additionally, the system would be utilized to disseminate information about productive schemes and availability of social services in rural areas. 18. The system achieved little in improving service efficiency, as INDAP was unable to organize production of didactic audio-visual programs at an effective, program-wide scale. INDAP had no prior experience in utilizing audio-visual techniques to support extension, and faced serious difficulties in teaming up in-house skills to generate the programs' basic pre-production inputs. On the other hand, production of didactic material by local film and video program producers was limited by their complete lack of experience in developing material for extension purposes. 7 The low quality of the technology supply was considered an important restriction to the extension program's effectiveness in the project's Mid-Term Review. s Over 1,000 extensionists and 1,000 small farmers were trained each year between 1993 and 1996. Under INDAP's new extension strategy since 1997, INDAP considered it had no role in extensionist training. 81 19. INDAP's changing messages to farmers upon implementation of the new extension schemes made the production of more permanent communication material even more difficult. The effort was finally discontinued, and the system reduced to a nation-wide TV distance communication program focused on management training for small farmers. 20. More successful (though indirect) results were obtained by the project in conveying information about new productive schemes, the availability of social services and markets to small farmers. INDAP's program was instrumental to the production of Tierra Adentro, a successful national television broadcast. Tierra Adentro was financed by the Ministry of Agriculture, before quickly gaining financial and institutional autonomy. - Strengthened Monitoring and Evaluation (M&E) 21. An enhanced M&E system was supposed to be established in INDAP under the project, to overcome what was perceived as a major deficiency under Loan 248 1-CH. INDAP could hardly make any progress in introducing the project-designed indicators to its existing system. The extension objectives for most farmers were changed repeatedly as the project's extension model changed, and it became impossible for an overburdened INDAP to keep track of the progress made by farmers. An properly functioning M&E system throughout project execution would have been a key tool to assess the effect of INDAP's changing extension strategies on farmers and to introduce needed modifications. The complete lack of a record on extension performance left INDAP with no elements to judge the project's main activity or to design new, more effective strategies on that basis. - Specific Support to Women's Productive Activities 22. As envisaged in the project, a team of female extensionists (CAF) was to train and coordinate the efforts of the regular extensionists in reorienting extension to accommodate practices to rural women's needs and to develop their economic potential. Though this special effort proved satisfactory under the original extension model, the role of the CAFs was not considered in the project's modified schemes. CAFs were eliminated in 1996 as INDAP assumed that women were eligible for assistance as an integral part of the family group. Achievement of Objectives: Indirect Evidence 23. Indirect evidence of the effects of the project on small-farm family production, productivity and income is provided by an evaluation study of INDAP's Technology Transfer Program (PTT) contracted by the Ministry of Economy in 19979. The study included a survey of nearly 3,000 small-farm families (60% of whom were participating or had participated in PTT) and a number of complementary surveys, interviews and case studies. The analysis was performed on a cross-sectional basis, as no base-line data establishing the farm-families original condition was available. - Increased Productivity and Income 9 Universidad Cat6lica de Chile et al Evaluaci6n de los Instrumentos de Fomento Productivo: El Programa de Transferencia Tecnol6gica del Instituto de Desarrollo Agropecuario (Santiago, Chile, 1997). 82 24. Small-Farm Production Small farms under PTT consistently generate a higher gross value of production and obtain significantly higher net margins than those not under PTT. The higher fixed asset endowment of farms under PTT is only partially responsible for this difference. PTT participation correlated positively with the net margin, as PTT- farmers crop a higher proportion of their landholdings, have crops with a higher market value, and obtain better prices in the market than do farmers without PTT. 25. Land Productivity Contrary to expectations, no significant differences in yields from most traditional crops were observed between PTT and non-PTT farmers'°. A plausible explanation is that most available technology had already been adopted by PTT- farmers during the 1980s. Non-PTT farmers were late-adopters, thus yields ended up being similar in the long run. 26. Labor Productivity Overall family labor productivity1l and on-farm productivity were significantly higher for PTT-farmers, whereas no significant differences were found in off-farm productivity between PTT and non-PTT families. The higher opportunity cost of working off-farm makes PTT-family members allocate a greater proportion of their time to on-farm activities than non-PTT families. Table 1. Labor Productivity (Ch$000) INDICATOR With PTT Without PTT Diff. Factor Gross labor productivity 149 112 37 1.33 Gross on-farm labor productivity 158 113 45 1.40 Gross off-farm labor productivity 89 93 -4 0.96 27. Small-Farm Family Income In the aggregate analysis, both total and per capita yearly gross income of PTT-families was significantly higher than those of non-PTT families. Additionally, a significantly positive correlation was found between family income and years of participation in the PTT. 10 Crops where no yield differences were found include: rice, barley, peas, chickpeas, potatoes, beans, sugar beet, lettuce, maize and tomato. PTT farmers achieved higher yields in wheat, wine grapes and diary production. ' Productivity was computed as the quotient between the gross value of production and the number of days worked by the family. 83 Table 2. Rural Family Income Indicators (Ch$000) INDICATOR With PTT Without PTT Diff. Factor Yearly gross income 1,830 1,454 376 1.26 Yearlyper capita income 542 445 97 1.22 Off-farm income 365 464 -99 0.79 Farm income to total (%/6) 80 68 - 28. However, a deeper analysis of the determinants of small-farm family income shows that the income effects of PTT are negligible in areas with adverse agro-climatic conditions, such as the coastal and Andean dry-lands, and that the effects become negative in the least- endowed farmer strata'2. Most minifundista families - the project's target population - live under the latter conditions. Early indications on these results, such as those that could have been provided by an effective monitoring system, would have been extremely valuable as a basis to refocus extension on the more promising farmers during project execution. - Foster Small-Farmer Access to Commercial Markets and to Publicly-Sponsored Development Programs 29. According to the project design, INDAP's extension program was additionally to address small-farmers' access to markets and to foster increased farmer participation in community organizations and programs. 30. Access to Commercial Markets. According to the survey, 30% of the gross production value of PTT-families is sold in formal markets compared to 20% by non-PTT farm families. About 12% of the PTT-families had production contracts with agroindustries, compared to 9% of non-PTT families. Given the increased focus of INDAP's extension programs on business-oriented projects during 1995-1997, a much stronger impact on farmers' linkages to formal markets than the observed proportions would have been expected. 31. Small-Farmer Participation in Organizations About 78% of PTT-families participate in some type of project or organization pursuing economic or commercial objectives, compared to 54% of non-PTT families. The relatively high PTT-family participation rate in commercially-oriented endeavors contrasts with the low proportion of PTT-farm production channeled through formal markets. INDAP's extension and credit programs seem to have succeeded in promoting farmer organization for business; however, organized-farmer production has so far not been significant or instrumental in achieving a greater small-farmer participation in the formal markets. 12 The impact of PTT on farm-family income becomes negative on farms under 4 ha. 84 32. Access to Publicly-Sponsored Development Programs As the single government institution distributing services in the rural areas, INDAP's role under the project also included the provision of information and contacts for farmers to gain access to other, non-INDAP, public services and development programs. Though a rather reduced proportion (4% to 6%) of PTT-families participate in other publicly-sponsored programs, the participation of non-PTT families reaches only 2%. INDAP's major achievement in this area has been to link its extension and credit program with the government-subsidized irrigation program. 85 APPENDIX 3 INDAP: CREDIT Project Objectives and Targets 1. In the design of the project, credit was considered a complement to technology transfer in achieving the objectives of increased productivity and net incomes among small farmers. Credit was focused on the smallest farmers (minifundistas) and expanded to cover 100,000 farm families under the project. Linkages between INDAP credit and INDAP extension were increased, to enhance the project's effects and its impact. INDAP's loans to farmers were mainly for short-term working capital; term credit was limited to on-farm and simple agro-industrial investments. The project's lending strategy was to follow a similar approach to that of extension, addressing a better use of the farmer's existing resources and seeking to minimize farmer risk. 2. Within the project's design, it was intended that an effort would be made to prepare small farmers for "graduation" into the commercial banking sector, although farmer graduation itself was not a project goal. INDAP would carry out an independent study assessing small farmer credit eligibility in the commercial banks. Options to stimulate greater banking sector participation would be explored and pilot-tested during project execution. 3. Major steps would be taken by INDAP to improve its sub-loan portfolio performance, to ensure INDAP's financial resource availability to farmers under the project's expanded coverage. Sub-loan terms and conditions to farmers would be made similar to those of the commercial banking sector as a way to prepare farmers for a transition to commercial financial markets. Achievement of Objectives 4. Specific reforms to INDAP's credit portfolio management system (including stringent portfolio performance targets) and criteria to set sub-loan size, interest rate and type of beneficiary had been adequately established in the SAR to ensure efficient system performance. However, under significantly changed extension strategies after 1995, the project adopted a lending policy which involved major departures from the original design parameters. Project objectives and targets regarding credit were satisfactorily achieved in the area of designing and implementing a number of management instruments; however, objectives were only partially achieved in terms of the credit system's performance, as reflected in progressively increasing rates of sub-loan arrears. - Expanded Coverage 5. INDAP achieved an overall expansion of credit to almost 120,000 beneficiaries in year 4 of the project. However, the coverage to the smallest farmers of short-term lending for working capital actually decreased during execution. Term-credit for investment to 86 small and medium-sized producers' and short- and long-term credit to organizations almost doubled in terms of their proportion in INDAP's sub-loan portfolio. 6. The resulting portfolio composition proved to be highly risky, as judged by the subsequent high rates of sub-loan arrears. The sub-loan default risk was exacerbated by a system-wide lack of business criteria for project formulation, selection and implementation, and by adverse economic conditions affecting agriculture. - Small Farmer Graduation 7. A project-designed study2 of the potential for INDAP' s credit beneficiaries for graduation into the commercial banking system was contracted with external consultants in 1994. The study concluded that 70% of INDAP's medium-sized credit clients (about 12,000 farmers) would meet conditions for graduation within a two- to three-year period. 8. A pilot program establishing a subsidy to credit transactions was implemented in 1996. Vouchers (bonos) subsidizing the bank transaction costs were offered on an open-bid basis to commercial banks, and a subsidy covering incremental transaction costs to farmers willing to borrow from commercial banks was offered to farmers. Farmer credit records were made available to the bidding banks. 9. Even though the mechanism was given ample diffusion among banks and farmers, only 1,418 subsidies were adjudicated to three commercial banks in two bidding processes that took place in 1996 and 1997. At the end of 1997, only 579 subsidies had been utilized. 10. The poor performance of the system can be attributed to two major factors: (a) commercial banks drastically reduced direct net lending to the agricultural sector in general, as a result of poor sector and loan performance during the 1990s; and (b) farmers continued to prefer borrowing from INDAP, as INDAP has traditionally been more lenient in demanding loan repayment from clients in arrears. - Linkages between INDAP Credit and INDAP Extension 11. Credit was to be linked to extension in order to enhance the effect and impact of extension, from pre-project levels of about 20% to 74% by year 5 of the project. Although no direct evidence is available in INDAP on this regard, the findings of a survey contracted by the Ministry of Economy to evaluate the performance of INDAP's instruments3 indicate that credit operations linked to extension had reached 44% in 1993 and 80% in 1997. l This includes the capitalization grants to acquire basic implements and tools, which minifundistas were entitled to in the project. 2DiseAfo de una Estrategia para Facilitar la Migraci6n de Agricultores Campesinos a la Banca Comercial: Informe de Resultados (Santiago, 1996) 3Universidad Cat6lica de Chile et al, Evaluaci6n de los Instrumentos de Fomento Productivo: El Programa de Transferencia Tecnol6gica del Instituto de Desarrollo Agropecuario (Santiago, Chile, 1997). 87 - Sub-loan Portfolio Performance 12. At the end of 1991, INDAP's credit system had a level of arrears of some 31% in terms of the value of loans outstanding, a situation deemed unacceptable by both the government and the Bank because of its future financial implications. A 90% collection rate was established as a target for fiscal year 1995. 13. Collection rates for short-term working capital loans achieved the 90% mark as early as 1993. However, during the following years, loan arrears increased and collection rates dropped to approximately 70%. Short-term loan collection from organizations, having shown an impressive improvement during 1993 and 1994, fell progressively to an unacceptable level of 43% in 1997. 14. A similar pattern developed in long-term loans, where records were available for the first and subsequent installment. Collection rates for individual loans in the first installment were in the range of 79-87% during 1993-1994 and dropped to a range of 66-76% during the forthcoming years. Second and subsequent installments presented significantly lower collection rates. Long-term loans to organizations had a much poorer performance, and loan collections declined abruptly from 90% + levels to 38% and 36% in 1995 and 1996, respectively. The meager results from long-term loan collection are even less acceptable when considering that: (a) a project-designed capitalization grant was increasingly disbursed to farmers in connection with long-term loans5; and (b) 7.7% of INDAP's loaned amounts were forgiven during the period of project execution. 15. The general decline in collection rates was attributed to the adverse business conditions of agriculture faced by small farmers during project execution. A severe three- year drought ending in 1996 had posed additional stress. However, the poor performance of INDAP's long-term loan portfolio, particularly in the case of organizations, was a result that hinged more heavily on INDAP's own lending policy and capabilities rather than on factors external to INDAP. In supporting farmer innovation, INDAP's lending had focused on operations bearing a much higher risk, and INDAP was unable to develop adequate business criteria to analyze and to make appropriate decisions in connection with the farmers' proposed operations. 16. As a consequence of INDAP's heavy term-lending, the share of long-term loans in INDAP's overall portfolio increased from 25% in 1992 to 48% in 1997, and the share of term loans to organizations increased from 8% to 28%. Returning INDAP's loan portfolio to more manageable financial standards would thus be practically impossible. Most debt will necessarily have to be written off by INIDAP and, thus, converted into a government subsidy. Contrary to original expectations, INDAP's credit system completely failed to perform as envisaged in the project's design. INDAP's financial condition deteriorated to a limit where only political will can assure its viability. 4 Individual farmers would have access to a one-time capitalization grant, not exceeding 20% of the farm investment project cost (FIPC), with a maximum of 6UF. The grant available to farmer organizations was not to exceed 10% of FIPC, with a maximum of 6OUF. Grants were to be disbursed to farmers in connection with both short- and long-term loans. 5 As a proportion of overall operations, grants to farmers were raised from 4% in 1993 to 16% in 1996. 88 APPENDIX 4 RURAL LAND TITLING Background 1. Land titling of small farmers has been carried out by the Ministry of National Property (MBN) for some thirty years at modest levels. An estimated 200,000 rural families and between 80-100,000 urban families did not have title to the land they were occupying in 1975. Between 1979 and 1990, MBN regularized the titles of some 65,000 urban and 108,000 rural families. INDAP, which is responsible for land titling in indigenous areas, regularized an additional 72,000 titles during that period. 2. At project appraisal, it was estimated that 110,000 non-indigenous and 6,300 indigenous rural families still lacked a land title. An additional titling effort was needed to regularize the situation of some 20,000 farmers occupying fiscal (state-owned) lands. Project Objectives and Targets 3. Secure, regularized land tenure was considered to be a key factor in facilitating the access of rural families to publicly-sponsored development programs, including INDAP's credit. MBN was to expand its regular titling program to cover an estimated 43,000 rural families in need of a land title. Achievement of Objectives 4. The achievement of project objectives was substantial, in terms both of meeting the project's targets and of generating the expected benefits to families whose titles were regularized. Beneficiaries saw the values of their properties increase, they started new investment in productive activities or infrastructure, and slowly began to gain access to government services and subsidies. 5. MBN's performance of the program was evaluated positively by the great majority of its beneficiaries, and its titling program was also evaluated positively by a review panel at the Ministry of Finance late in the project's implementation period'. The panel recommended the program's extension to regularize the titles of the remaining families lacking secure land tenure. The program's continuation will be financed from the fiscal budget. 6. MBN's land titling capacities were adequately strengthened by the project. Upon project completion, the division of MBN responsible for land titling is well prepared to sustain titling activities without the project's support. The division is staffed with a team of well-trained professionals, operates a significantly improved computerized client Ministerio de Hacienda, Direcci6n de Presupuestos, Panel Programa Saneamiento de Titulos del Banco Mundial, Informe Final, Santiago de Chile, 1997. 89 information and monitoring system, and has established a transparent contracting system with private consultants for title regularization. 7. The main results of MBN' s titling activities are presented in an independent study2 contracted by MBN to evaluate the performance and impact of its titling program. The study was based on a nation-wide survey of 1,500 beneficiaries of the program. 8. Regularized Property Profile. About 55% of the regularized cases corresponded to agricultural parcels averaging 5.2 ha in size. The remainder included small rural land plots occupied by rural families, with an average area of 1.2 ha. Though the latter cases would not exactly fit the project's implicit eligibility criteria, title regularization of small plots was important as it contributes to providing more stable conditions for rural dwellers who supply temporary services to agriculture. 9. Beneficiaries' Profile. Beneficiary selection criteria favored families living in poverty and those households headed by women, and discriminated positively in favor of certain ethnic groups. Over 75% of beneficiary families had an income below the poverty line, and 45% of all beneficiaries was indigent. About 40% of the regularized titles benefited female heads of household. No data is available for the ethnic groups. Ranjinee Rudran \\SteetTalk\Projects@Fies@LAC\PROJECTS\!CL\PROJECTS\ESSD\SMALL\APPEN4.DOC 02125/99 11:01 AM 2 Ministerio de Bienes Nacionales, Consultorias Profesionales Agraria S.A., Evaluaci6n de la Gesti6n y Medici6n de Inpacto del Programa de Saneamiento y Regularizaci6n de Titulos de la Pequefia Propiedad Rural; Santiago de Chile, 1996. C H I L E CITIES OVER 50,000 INHIA31TATS _ __ENTRAL_ _ _ _ _ _ _ *5 5000 . 100.000 POIDRTS" Il A 0000 0 300000 AD2MINISTRATI.E REGION 000UNDARIES * 300,000C -- NTERNATIONAL BOUI4DARIES Agricultural Zone Totol Crops nod rgted Rion M-, A70..1 M-eno Ann on Production Poo000 oAeoCpgi tolIs kn,~ (000 . (000'~) 000'S) Ien`ON0 rncpoo Irrigated oases I 178 13 11 and river volleys Desert 2 IQUIQUE IqoliqeN 1ANTOFAGASTA A tg l I i -T- - * Artofag-si4; A || , Irrigated river 11 120 195 13 valleys and oases, Arid itinerant sheep and /APO goats ( La Ser., _ 14.4° 100 LA SERENA Fruits, vegetables, []I 93 2160 1050V1prAL RIS grapes, wheat, Mediter- VaIcis 13A9P 367 maize, milk, ranean '13 sunflower, beef, sonRM SA NIAntGoO- cattle, sheep, R sugar, pulses, So- F.M SANTIAG forestry )Tninn 4 ^)\ TALCA T.I1,h0W4 ViI Concepc6n 0Chili o 1300 1319 I CNCEPCiON Cattle, nilk, IV 102 2990 170 sheep, forestry, Temperate UCO bar[ey, oats, TW potatoes, fruits, 5.dv4 101 2507 sugarbeets, pulses, wheat < 'O P erSto MolsT PUERTO Ifp MONTT Sheep, cattle, V 248 185 1. forestry Humid 0 0,, ,7 I _ _ SOLIVIA - coy 4oe 8.0°t 2865 BOLIVIA s TCOYHAIQUE \ -K RrAGuA'. BRsz vXIAZIL -20 | j XARGNTINA f v\ X °> l t7.! 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